<PAGE>
As filed with the Securities and Exchange Commission on April 6, 1999
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CHITTENDEN CORPORATION
(Exact name of Registrant as specified in its Charter)
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VERMONT 6022 03-0228404
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code) Identification No.)
Organization)
Two Burlington Square
Burlington, Vermont 05401
(802) 658-4000
(Address, Including Zip Code, and Telephone Number, Including
Area Code,of Registrant's Principal Executive Office)
PAUL A. PERRAULT
Chairman of the Board and President
CHITTENDEN CORPORATION
Two Burlington Square
Burlington, Vermont 05401
(802) 658-4000
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
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Copies to:
WILLIAM P. MAYER, ESQ. CHRISTOPHER CABOT, ESQ.
Goodwin, Procter & Hoar LLP STEPHEN J. COUKOS, ESQ.
Exchange Place Sullivan & Worcester LLP
Boston, MA 02109 One Post Office Square
(617) 570-1000 Boston, MA 02109
(617) 338-2800
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger (the "Merger") of Chittenden Acquisition
Subsidiary, Inc., a wholly owned subsidiary of Chittenden Corporation
("Chittenden"), with and into Vermont Financial Services Corp. ("Vermont
Financial"), pursuant to an Agreement and Plan of Merger, dated as of December
16, 1998, which is described in the enclosed Joint Proxy Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) Per Unit Offering Price Fee
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Common Stock, par value $1.00 per share... 15,496,225(2) (3) $401,888,070.80(4) $37,790(5)
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(1) This Registration Statement also relates to such additional number of
shares of the Registrant's common stock as may be issuable as a result of
a stock dividend, stock split, split-up, recapitalization or other similar
event.
(2) Represents the estimated maximum number of shares of Chittenden common
stock, par value $1.00 per share, to be issued to stockholders of Vermont
Financial in connection with the Merger.
(3) Not applicable.
(4) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) and based on the average of the high and
low sales price per share of Vermont Financial common stock, par value
$1.00 per share, on April 5, 1999 on the NASDAQ National Market,
multiplied by an aggregate of 14,482,453 shares of Vermont Financial
common stock to be acquired by Chittenden.
(5) In accordance with Rule 457(b), the registration fee of $111,725 has been
reduced by $73,935, which was previously paid by the Registrant with
respect to the transaction described herein pursuant to Section 14(g) of
the Securities Exchange Act of 1934, as amended.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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<PAGE>
[CHITTENDEN [VERMONT FINANCIAL SERVICES CORP.
LOGO APPEARS HERE] LOGO APPEARS HERE]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of Chittenden Corporation and Vermont Financial
Services Corp. approved an agreement and plan of merger that would result in
the merger of Vermont Financial with and into Chittenden. Following the merger,
Chittenden will be the surviving corporation.
The board of directors of each company believes that the merger is in the
best interests of its stockholders and unanimously recommends that its
stockholders vote to approve the merger agreement.
If you are a Vermont Financial stockholder, you will receive 1.07 shares of
Chittenden common stock for each share of Vermont Financial common stock you
own. You generally will not recognize federal income tax gain or loss for the
Chittenden common stock you receive. Chittenden common stock is listed on the
New York Stock Exchange under the symbol "CHZ." At your stockholders meeting,
you will be asked to vote on the merger agreement, the merger and the other
matters and transactions contemplated by the merger agreement.
If you are a Chittenden stockholder, after the merger you will continue to
own your existing shares of Chittenden common stock. At your stockholders
meeting, you will be asked to vote on (1) the merger agreement, the merger and
the other matters and transactions contemplated by the merger agreement, and
(2) the election of four directors.
We cannot complete the merger unless it is approved by the affirmative vote
of the holders of (1) greater than 50% of the outstanding shares of Chittenden
common stock entitled to vote and (2) two-thirds of the outstanding shares of
Vermont Financial common stock entitled to vote.
/s/ Paul A. Perrault
Paul A. Perrault
President and Chief Executive Officer of
Chittenden Corporation
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
stockholders meeting, please take the time to vote on the proposal(s) submitted
at your meeting by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you wish to vote,
your proxy will be counted as a vote in favor of the proposal(s) submitted at
your meeting. If you fail to return your proxy card, or if you fail to sign
your proxy card, the effect will be a vote against the merger unless you attend
your stockholders meeting and vote in person for the merger.
The dates, times and places of the stockholders meetings are as follows:
For Chittenden Corporation stockholders:
May 19, 1999 at 4:00 p.m. local time
Ramada Inn & Conference Center
1117 Williston Road
Burlington, Vermont 05403
For Vermont Financial Services Corp. stockholders:
May 19, 1999 at 10:00 a.m. local time
The Quality Inn and Suites
1380 Putney Road
Brattleboro, Vermont 05301
This Joint Proxy Statement/Prospectus provides you with detailed information
about the merger and the other matters that will be submitted for stockholder
approval at Chittenden's and Vermont Financial's stockholders meetings. We
encourage you to read this entire document carefully. In addition, you may
obtain information about our companies from documents that we have previously
filed with the Securities and Exchange Commission.
/s/ John D. Hashagen, Jr.
John D. Hashagen, Jr.
President and Chief Executive Officer of
Vermont Financial Services Corp.
We urge our stockholders to consider those matters set forth in "Risk
Factors" beginning on page 10 of this Joint Proxy Statement/Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the shares to be issued under
this Joint Proxy Statement/Prospectus or passed upon the adequacy or
accuracy of this Joint Proxy Statement/Prospectus. Any representation to
the contrary is a criminal offense. The shares of Chittenden common stock
offered hereby are not savings accounts, deposits or other obligations of
any bank or non-bank subsidiary of any of the parties, and they are not
insured by the Federal Deposit Insurance Corporation or any other
governmental agency.
Joint Proxy Statement/Prospectus dated April 6, 1999, and first mailed to
stockholders on or about April 9, 1999.
<PAGE>
IMPORTANT INFORMATION NOT INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
This Joint Proxy Statement/Prospectus incorporates important business and
financial information about Chittenden Corporation and Vermont Financial
Services Corp. that is not included in or delivered with this document. We have
listed the documents containing this information on page 118. These documents
are available to you without charge upon written or oral request. In order to
obtain these documents, please contact the following:
For Chittenden Stockholders:
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Attention: F. Sheldon Prentice, Secretary
Phone Number: (802) 658-4000
For Vermont Financial Stockholders:
Vermont Financial Services Corp.
100 Main Street
Brattleboro, Vermont 05301
Attention: Richard O. Madden, Secretary
Phone Number: (802) 258-4003
We must receive your request for documents no later than May 12, 1999 to
ensure that you receive the documents in time for your stockholders meeting.
<PAGE>
CHITTENDEN CORPORATION
Two Burlington Square
Burlington, Vermont 05401
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Chittenden Corporation, a Vermont corporation, will hold its 1999 Annual
Meeting of Stockholders at the Ramada Inn & Conference Center, 1117 Williston
Road, Burlington, Vermont 05403 on May 19, 1999 at 4:00 p.m. local time for the
following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of December 16, 1998, by and among Chittenden,
Chittenden Acquisition Subsidiary, Inc., a Delaware corporation and wholly-
owned subsidiary of Chittenden, and Vermont Financial Services Corp., a
Delaware corporation, and all of the matters and transactions contemplated
by the merger agreement or necessary to effectuate the merger, including
the amendment and restatement of Chittenden's charter and the issuance of
shares of Chittenden common stock to the holders of Vermont Financial
common stock.
2. To elect four directors, each to serve for a term of three years. The
Board of Directors has nominated the following four individuals for
election as such directors: Paul J. Carrara, Sally W. Crawford, Philip A.
Kolvoord and James C. Pizzagalli.
3. To consider and act upon such other business and matters or proposals
as may properly come before the Chittenden meeting.
The merger and related matters and transactions are described more fully in
the attached Joint Proxy Statement/Prospectus, which includes as Annex A a copy
of the merger agreement.
The board of directors of Chittenden has fixed the close of business on
March 26, 1999 as the record date for determining the stockholders of
Chittenden entitled to receive notice of and to vote at the Chittenden meeting.
Only holders of record of Chittenden common stock at the close of business on
that date are entitled to receive notice of and to vote at the Chittenden
meeting. Chittenden will make available for inspection by any stockholder a
list of stockholders entitled to receive notice of and to vote at the
Chittenden meeting during ordinary business hours at Chittenden's principal
office, Two Burlington Square, Burlington, Vermont 05401, beginning two
business days after the date hereof and continuing through the date of the
Chittenden meeting.
The board of directors of Chittenden recommends that you vote "FOR" the
approval of the merger agreement, the merger and the other matters and
transactions contemplated thereby and "FOR" the election of the four nominees
for directors.
The board of directors of Chittenden requests that you fill in and sign the
enclosed proxy card and mail it promptly in the enclosed postage-prepaid
envelope. Any proxy that you deliver may be revoked prior to the Chittenden
meeting by a writing delivered to Chittenden stating that your proxy is revoked
or by delivery of a later dated proxy. Stockholders of record of Chittenden
common stock who attend the Chittenden meeting may vote in person, even if they
have previously delivered a signed proxy.
By Order of the Board of Directors of
Chittenden Corporation
F. SHELDON PRENTICE
Secretary
Burlington, Vermont
April 6, 1999
<PAGE>
VERMONT FINANCIAL SERVICES CORP.
100 Main Street
Brattleboro, Vermont 05301
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Vermont Financial Services Corp., a Delaware corporation, will hold a
Special Meeting of Stockholders at The Quality Inn and Suites, 1380 Putney
Road, Brattleboro, Vermont 05301 on May 19, 1999 at 10:00 a.m. local time for
the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of December 16, 1998, by and among Vermont
Financial, Chittenden Corporation, a Vermont corporation, and Chittenden
Acquisition Subsidiary, Inc., a Delaware corporation and wholly-owned
subsidiary of Chittenden, and all of the matters and transactions
contemplated by the merger agreement and necessary to effectuate the
merger.
2. To consider and act upon such other business and matters or proposals
as may properly come before the Vermont Financial meeting.
The merger and related matters and transactions are described more fully in
the attached Joint Proxy Statement/Prospectus, which includes as Annex A a copy
of the merger agreement.
The board of directors of Vermont Financial has fixed the close of business
on March 26, 1999 as the record date for determining the stockholders of
Vermont Financial entitled to receive notice of and to vote at the Vermont
Financial meeting. Only holders of record of Vermont Financial common stock at
the close of business on that date are entitled to receive notice of and to
vote at the Vermont Financial meeting. Vermont Financial will make available
for inspection by any stockholder a list of stockholders entitled to receive
notice of and to vote at the Vermont Financial meeting during ordinary business
hours at Vermont Financial's principal office, 100 Main Street, Brattleboro,
Vermont 05301, for ten days prior to the Vermont Financial meeting for purposes
related to the Vermont Financial meeting. Only business within the purposes
described in this notice may be conducted at the Vermont Financial meeting.
The board of directors of Vermont Financial recommends that you vote "FOR"
the approval of the merger agreement, the merger and the other matters and
transactions contemplated by the merger agreement.
The board of directors of Vermont Financial requests that you fill in and
sign the enclosed proxy card and mail it promptly in the enclosed postage-
prepaid envelope. Any proxy that you deliver may be revoked prior to the
Vermont Financial meeting by a writing delivered to Vermont Financial stating
that the proxy is revoked or by delivery of a later dated proxy. Stockholders
of record of Vermont Financial common stock who attend the Vermont Financial
meeting may vote in person, even if they have previously delivered a signed
proxy.
By Order of the Board of Directors of
Vermont Financial Services Corp.
RICHARD O. MADDEN
Secretary
Brattleboro, Vermont
April 6, 1999
<PAGE>
TABLE OF CONTENTS
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SUMMARY................................................................... 1
RISK FACTORS.............................................................. 10
Failure to integrate operations following the merger could reduce our
future earnings per share............................................... 10
Failure to achieve expected cost savings and unanticipated costs relating
to the merger could reduce our future earnings per share................ 10
Federal regulatory authorities may require that we divest more branches
than we expect and this could reduce our future earnings per share...... 10
Year 2000 computer issues may disrupt our business operations............ 10
If the merger is not completed, we will have incurred substantial
expenses without realizing the expected benefits........................ 11
Our performance may decline if key individuals leave the surviving
corporation............................................................. 11
Failure in our new non-banking activities could reduce our future
earnings per share...................................................... 11
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA...................... 12
CHITTENDEN SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION............ 13
VERMONT FINANCIAL SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION..... 14
COMPARATIVE PER COMMON SHARE DATA......................................... 15
THE MEETINGS.............................................................. 16
The Chittenden Meeting................................................... 16
Purpose of the Meeting.................................................. 16
Record Date; Voting Rights; Proxies..................................... 16
Independent Public Accountants.......................................... 17
Solicitation of Proxies................................................. 17
Quorum.................................................................. 17
Required Vote........................................................... 18
The Vermont Financial Meeting............................................ 18
Purpose of the Meeting.................................................. 18
Record Date; Voting Rights; Proxies..................................... 18
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Independent Public Accountants.......................................... 19
Solicitation of Proxies................................................. 19
Quorum.................................................................. 19
Required Vote........................................................... 20
PROPOSAL 1
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER.............................. 20
The Merger Proposal..................................................... 20
Required Vote and Recommendation........................................ 20
THE MERGER............................................................... 20
Background of the Merger................................................ 20
Recommendation of the Chittenden Board; Chittenden's Reasons for the
Merger................................................................. 24
Recommendation of the Vermont Financial Board; Vermont Financial's
Reasons for the Merger................................................. 28
Opinion of Chittenden's Financial Advisor............................... 30
Opinion of Vermont Financial's Financial Advisor........................ 37
Other Interests of Officers and Directors in the Merger................. 46
Stock Option Agreement.................................................. 49
Accounting Treatment.................................................... 52
No Dissenters' or Appraisal Rights...................................... 52
Stock Exchange Listing of Surviving Corporation's Common Stock;
Delisting and Deregistration of Vermont Financial Stock................ 52
Dividends............................................................... 52
THE MERGER AGREEMENT..................................................... 53
General................................................................. 53
Merger Consideration.................................................... 53
Exchange of Vermont Financial Certificates.............................. 54
Vermont Financial Stock Options......................................... 54
Representations and Warranties.......................................... 55
Material Covenants...................................................... 56
Conditions to Complete the Merger....................................... 62
Termination; Expenses................................................... 62
Amendment; Waiver....................................................... 66
Survival of Certain Provisions.......................................... 66
Restrictions on Resales by Affiliates................................... 67
AMENDED AND RESTATED
CHARTER OF THE SURVIVING CORPORATION.................................... 68
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THE COMPANIES............................................................ 70
Chittenden Corporation.................................................. 70
Vermont Financial Services Corp......................................... 71
Surviving Corporation................................................... 73
CERTAIN REGULATORY CONSIDERATIONS........................................ 74
General................................................................. 74
Certain Restrictions on Activities of Bank Holding Companies............ 74
Limitations on Control of Chittenden.................................... 75
Certain Transactions by Bank Holding Companies and Their Affiliates..... 76
Support of Subsidiary Institutions and Liability of Commonly Controlled
Depository Institutions................................................ 76
Payment of Dividends.................................................... 77
Regulation of the Banks................................................. 77
FDIC Insurance Assessments.............................................. 79
Minimum Capital Requirements and Prompt Corrective Action............... 79
Other Aspects of Federal and State Law.................................. 81
Government Policies and Legislative and Regulatory Proposals............ 81
Status of Regulatory Approvals and Other Information.................... 81
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................. 83
Tax Consequences of the Merger.......................................... 83
Backup Withholding...................................................... 84
Other Tax Consequences.................................................. 84
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION.............. 85
UNAUDITED PRO FORMA COMBINING BALANCE SHEET.............................. 86
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME........................ 88
DESCRIPTION OF CAPITAL STOCK OF CHITTENDEN............................... 93
Authorized Capital Stock................................................ 93
Common Stock............................................................ 93
Preferred Stock......................................................... 94
Registrar and Transfer Agent............................................ 94
COMPARISON OF RIGHTS OF HOLDERS OF VERMONT FINANCIAL COMMON STOCK AND
CHITTENDEN COMMON STOCK................................................. 94
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Special Meetings of Stockholders........................................ 97
Inspection of List of Stockholders...................................... 97
Cumulative Voting....................................................... 97
Preemptive Rights....................................................... 98
Classification of the Board of Directors................................ 98
Election of the Board of Directors...................................... 98
Removal of Directors.................................................... 98
Additional Directors and Vacancies on the Board of Directors............ 98
Liability of Directors.................................................. 99
Indemnification of Directors, Officers and Others....................... 99
Restrictions upon Certain Business Combinations; Fair Price Provisions.. 100
Mergers, Share Exchanges or Asset Sales................................. 101
Amendments to Charter................................................... 102
Amendments to Bylaws.................................................... 102
Appraisal/Dissenters' Rights............................................ 103
PROPOSAL 2
(Chittenden Meeting Only)
ELECTION OF DIRECTORS.................................................... 104
Required Vote and Recommendation........................................ 104
Information Regarding Nominees, Continuing Directors and Executive
Officers............................................................... 104
Nominees for Election as Directors...................................... 105
Continuing Directors.................................................... 105
Executive Officers...................................................... 107
Board of Directors and its Committees................................... 108
Director Compensation................................................... 109
Executive Compensation.................................................. 109
Option Grants with respect to Fiscal Year 1998.......................... 110
Option Exercises and Year-End Holdings.................................. 110
Long-Term Incentive Plans--Awards in Last Fiscal Year................... 111
Employment Agreements................................................... 111
Report of the Committee Responsible for Executive Compensation.......... 111
Stock Performance Graph................................................. 113
Executive Committee Interlocks and Insider Participation................ 114
Chittenden Retirement Plans............................................. 114
Principal Stockholders.................................................. 114
Section 16(a) Beneficial Ownership Reporting Compliance................. 116
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 116
Certain Business Relationships.......................................... 116
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Indebtedness of Management............................................... 116
OTHER MATTERS............................................................. 116
Stockholder Proposals for Annual Meetings................................ 116
Other Matters............................................................ 117
LEGAL MATTERS............................................................. 117
EXPERTS................................................................... 117
WHERE YOU CAN FIND MORE INFORMATION....................................... 118
Chittenden Corporation SEC Filings....................................... 118
Vermont Financial Services Corp. SEC Filings............................. 118
INDEX OF DEFINED TERMS..................................................... 120
</TABLE>
Annex A--Agreement and Plan of Merger
Annex B--Amended and Restated Articles of Incorporation
Annex C--Opinion of CIBC Oppenheimer Corp.
Annex D--Opinion of McConnell, Budd & Downes, Inc.
(iii)
<PAGE>
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To better understand the merger and for a more complete
description of the terms of the merger, you should carefully read this entire
document and the documents to which we have referred you. See "Where You Can
Find More Information" on page 118.
This Joint Proxy Statement/Prospectus contains certain forward-looking
statements concerning, among other things, the benefits expected to result from
the merger and the future financial performance of Chittenden, as the surviving
corporation, after the merger. Actual results may differ significantly from the
forward-looking statements. See "Risk Factors" beginning on page 10.
The Companies
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
(802) 658-4000
Chittenden, a registered bank holding company incorporated in the State of
Vermont, provides commercial and retail banking products and services in
Vermont and Massachusetts. In fiscal year 1998, Chittenden's net income was
$30.7 million, and in fiscal year 1997, Chittenden's net income was $29.4
million. As of December 31, 1998, Chittenden's total assets were approximately
$2.1 billion, total deposits were approximately $1.9 billion and stockholders'
equity was approximately $175 million.
Vermont Financial Services Corp.
100 Main Street
Brattleboro, Vermont 05301
(802) 258-5233
Vermont Financial, a registered bank holding company incorporated in the
State of Delaware, provides commercial and retail banking products and services
in Vermont, Massachusetts and New Hampshire. In fiscal year 1998, Vermont
Financial's net income was $19.1 million, and in fiscal year 1997, Vermont
Financial's net income was $17.1 million. As of December 31, 1998, Vermont
Financial's total assets were approximately $2.1 billion, total deposits were
approximately $1.8 billion and stockholders' equity was approximately $214
million.
The Chittenden Board Unanimously
Recommends that its Stockholders
Approve the Merger
The Chittenden Board believes that the merger is advisable and unanimously
recommends that you vote for the proposal to approve the merger agreement, the
merger and the other matters and transactions contemplated by the merger
agreement.
We recommend the merger because:
. the merger will create a strong and diversified New England commercial
banking company;
. the merger is expected to provide retention of a strong Vermont based
banking company positioned for strategic opportunities throughout the
Northeast United States; and
. the merger is expected to result in improved long-term earnings growth
and value enhancing opportunities, significant operating efficiencies and
a strengthened credit profile.
To review the Chittenden Board's reasons for the merger in greater detail,
as well as related uncertainties, see pages 24 through 28.
The Vermont Financial Board Unanimously
Recommends that its Stockholders
Approve the Merger
The Vermont Financial Board believes that the merger is advisable and
unanimously recommends that you vote for the proposal to approve the merger
agreement, the merger and the other matters and transactions contemplated by
the merger agreement.
We recommend the merger because:
. of the amount of Chittenden common stock offered as consideration by
1
<PAGE>
Chittenden, the anticipated tax-free treatment of such consideration and
the liquidity of the trading market for Chittenden common stock;
. the merger will create a strong and diversified New England commercial
banking company;
. the merger is expected to provide retention of a strong Vermont based
banking company positioned for strategic opportunities throughout the
Northeast United States; and
. the merger is expected to result in improved long-term earnings growth
and value enhancing opportunities, significant operating efficiencies
and a strengthened credit profile.
To review the Vermont Financial Board's reasons for the merger in greater
detail, as well as related uncertainties, see pages 28 through 30.
The Chittenden Board Unanimously Recommends that its Stockholders
Elect the Nominees for Directors
The Chittenden Board also unanimously recommends that you vote for the
proposal to elect the four nominees for directors of Chittenden.
The Chittenden Meeting
Chittenden will hold its 1999 Annual Meeting of Stockholders at the Ramada
Inn & Conference Center, 1117 Williston Road, Burlington, Vermont on May 19,
1999 at 4:00 p.m. local time.
At the Chittenden meeting, Chittenden stockholders will consider and vote
upon (1) a proposal to approve the merger agreement, the merger and the other
matters and transactions contemplated by the merger agreement and (2) the
election of four directors of Chittenden.
The other matters and transactions contemplated by the merger agreement
include the following:
. Chittenden, as the surviving corporation, will be governed by the
Amended and Restated Articles of Incorporation (the "Amended and
Restated Charter") attached as Annex B; and
. the Chittenden Board will be expanded from eleven to seventeen members,
and six directors selected by Chittenden from the current Vermont
Financial Board will be added to the Chittenden Board.
The merger cannot be completed unless, among other things, it is approved by
the holders of (1) greater than 50% of the outstanding shares of Chittenden
common stock entitled to vote and (2) two-thirds of the outstanding shares of
Vermont Financial common stock entitled to vote.
A plurality of the votes cast for the election of a nominee for director of
Chittenden shall elect such nominee.
Only holders of record of Chittenden common stock at the close of business
on March 26, 1999, which is the record date for the Chittenden meeting, will be
entitled to notice of and to vote at the Chittenden meeting.
If your shares are held in "street name" by your broker, your broker will
vote your shares with respect to the merger agreement only if you provide
instructions on how to vote. Please tell your broker how you would like him or
her to vote your shares. If you do not tell your broker how to vote, you will
be in effect voting against the merger.
With respect to the election of directors of Chittenden, the failure to tell
your broker how to vote will have no effect on the election of the directors.
If you have granted discretionary voting authority to your broker, your broker
may be able to vote your shares with respect to the election of directors.
Chittenden requests that you complete your proxy card to ensure that you are
represented with respect to all matters submitted to the Chittenden
stockholders.
As of March 26, 1999:
. directors and executive officers of Chittenden and their affiliates were
the beneficial owners of approximately 5.9% of the outstanding shares of
Chittenden common stock; and
2
<PAGE>
. a total of 14,230,858 shares of Chittenden common stock were eligible to
be voted at the Chittenden meeting.
The Vermont Financial Meeting
Vermont Financial will hold a Special Meeting of Stockholders at The Quality
Inn and Suites, 1380 Putney Road, Brattleboro, Vermont on May 19, 1999 at 10:00
a.m. local time.
At the Vermont Financial meeting, Vermont Financial stockholders will vote
upon a proposal to approve the merger agreement, the merger and the other
matters and transactions contemplated by the merger agreement.
The merger cannot be completed unless, among other things, it is approved by
the holders of (1) two-thirds of the outstanding shares of Vermont Financial
common stock entitled to vote and (2) greater than 50% of the outstanding
shares of Chittenden common stock entitled to vote.
Only holders of record of Vermont Financial common stock at the close of
business on March 26, 1999, which is the record date for the Vermont Financial
meeting, will be entitled to notice of and to vote at the Vermont Financial
meeting.
If your shares are held in "street name" by your broker, your broker will
vote your shares with respect to the merger agreement only if you provide
instructions on how to vote. Please tell your broker how you would like him or
her to vote your shares. If you do not tell your broker how to vote, you will
be in effect voting against the merger.
Vermont Financial requests that you complete your proxy card to ensure that
you are represented with respect to all matters submitted to the Vermont
Financial stockholders.
As of March 26, 1999:
. directors and executive officers of Vermont Financial and their
affiliates were the beneficial owners of approximately 10.2% of the
outstanding shares of Vermont Financial common stock; and
. a total of 12,871,570 shares of Vermont Financial common stock were
eligible to be voted at the Vermont Financial meeting.
The Merger
The merger agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus. We encourage you to read the entire merger agreement
because it is the document that governs the merger.
What Vermont Financial Stockholders Will Receive in the Merger (see pages 53
and 63)
In the merger, Vermont Financial stockholders will receive 1.07 shares of
Chittenden common stock for each share of Vermont Financial common stock that
they own. The exchange ratio of 1.07 may be adjusted:
. either upwards or downwards if a stock split, reverse stock split or
similar transaction with respect to either Chittenden common stock or
Vermont Financial common stock occurs; or
. upwards but not downwards if the value of Chittenden common stock
declines significantly prior to the closing date both in absolute terms
and relative to a weighted average stock price of an index group of the
common stocks of selected bank holding companies. More specifically, the
exchange ratio of 1.07 will be adjusted upwards if all of the following
criteria are satisfied:
(1) the average closing price of Chittenden common stock for the
fifteen trading days prior to receipt of the final regulatory approval
necessary to complete the merger is less than $25.20 per share, and
(2) the decline in the price of Chittenden common stock from $31.50 on
December 16, 1998 to the average closing price during the fifteen
trading days prior to receipt of the final regulatory approval necessary
to complete the merger, expressed as a percentage, is more than 12
percentage points greater than the price
3
<PAGE>
decline, if any, also expressed as a percentage, of a weighted average
index using the same measurement dates, and
(3) Vermont Financial exercises its right to cancel the merger as a
result of such price decline, subject to Chittenden's right to require
Vermont Financial to complete the merger if Chittenden increases the
exchange ratio of 1.07 as provided in the merger agreement, and
(4) Chittenden so elects to increase the exchange ratio.
We have included a table on page 65 of this Joint Proxy
Statement/Prospectus to assist you in understanding how the exchange ratio
could be adjusted if Chittenden's stock price declines substantially.
Chittenden and Vermont Financial have established toll-free phone numbers
that you may call during business hours in order to find out the number of
shares of Chittenden common stock that Vermont Financial stockholders will
receive in the merger for each share of Vermont Financial common stock that
they own, subject to any possible future exchange ratio adjustments. Chittenden
stockholders may call 1-800-752-0006 ext. 1410. Vermont Financial stockholders
may call1-800-334-6862 ext. 4078.
No fractional shares of Chittenden common stock will be issued in the
merger. Any Vermont Financial common stockholder who would otherwise be
entitled to receive a fractional share of
Chittenden common stock will instead receive cash for such fractional share.
Vermont Financial stockholders should not send in their stock certificates
for exchange until instructed to do so after we complete the merger.
What Current Stockholders of Chittenden Will Own After the Merger
Stockholders of Chittenden will continue to own their existing shares after
the merger.
Effective Time of the Merger
We expect that the merger will be completed as soon as practicable following
the approval by the stockholders of Chittenden and Vermont Financial at their
stockholders meetings, if all other conditions have been satisfied.
Board of Directors and Management of the Surviving Corporation Following the
Merger (see page 73)
In connection with the merger, the Chittenden Board will increase its size
from eleven directors to seventeen directors. The additional six individuals
who will serve on the Chittenden Board following the merger will be selected by
Chittenden from the current Vermont Financial directors. At least fifteen of
the seventeen directors of Chittenden will not be employees of Chittenden.
After the merger, the current executive officers of Chittenden will continue
to hold the same offices.
Other Interests of Vermont Financial Officers and Directors in the Merger
(see page 46)
Officers and directors, who are also stockholders, of Vermont Financial will
receive benefits as a result of the merger that are different from the benefits
you will receive. These benefits include the following:
. in the case of the Chief Executive Officer of Vermont Financial, John D.
Hashagen, Jr., an employment agreement with Chittenden, which becomes
effective only upon the completion of the merger;
. in the case of Vermont Financial officers, severance benefits following
the completion of the merger if their employment is terminated; and
. in the case of Vermont Financial officers, the preservation of
retirement benefits if specified Vermont Financial benefit plans are
terminated following the completion of the merger.
You may want to consider these benefits in deciding whether to vote in favor of
the merger.
4
<PAGE>
Conditions to the Merger (see page 62)
A number of conditions must be satisfied before the merger is completed,
including:
. the stockholders of Chittenden and Vermont Financial approve the merger
agreement;
. the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and the Massachusetts Board of Bank Incorporation (the
"MBBI") approve the merger;
. the NYSE authorizes the listing of the Chittenden common stock to be
issued to Vermont Financial stockholders;
. the Securities and Exchange Commission declares effective the
registration statement relating to the issuance of Chittenden common
stock to holders of Vermont Financial common stock;
. Chittenden and Vermont Financial receive legal opinions regarding
treatment of the merger as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986 (the "Code");
. Chittenden receives an opinion from its independent public accountants
stating that the merger will qualify for "pooling of interests"
accounting treatment; and
. Vermont Financial receives a statement from its independent public
accountants as to matters reasonably required to facilitate the opinion
of Chittenden's public accountants that the merger will qualify for
pooling of interests accounting treatment.
Each of Chittenden and Vermont Financial may waive some of the conditions to
the merger if it deems such a waiver to be in the best interests of its
stockholders.
Termination of the Merger Agreement (see page 62)
Chittenden and Vermont Financial may agree to terminate the merger agreement
before the merger has been completed, and either Chittenden or Vermont
Financial may terminate the merger agreement if any of the following occurs:
. the merger has not been completed by October 31, 1999 (or such later
date as provided in the merger agreement);
. the board of directors of either company withdraws or adversely changes
its recommendation to stockholders that they vote in favor of the
merger;
. the required stockholder approvals are not obtained;
. a court or other governmental authority permanently prohibits the
merger;
. the other party breaches any of its representations, warranties or
covenants contained in the merger agreement, and such breach has a
material consequence and is not cured within the specified time period;
or
. a decline in the price of Chittenden common stock absolutely and
relative to the weighted average price of the common stock of other
selected bank holding companies exceeds limits specified in the merger
agreement and either (1) Chittenden exercises its right to cancel the
merger or (2) Vermont Financial exercises its right to cancel the
merger, subject to Chittenden's right to increase the exchange ratio of
1.07 as provided in the merger agreement, and Chittenden elects not to
increase the exchange ratio.
Stock Option Agreement (see page 49)
As a condition to Chittenden's willingness to enter into the merger
agreement, and to discourage other companies from attempting to acquire Vermont
Financial, Vermont Financial granted Chittenden an option to purchase up to
19.9% of the Vermont Financial common stock outstanding immediately before the
exercise of such option at an exercise price of $22.00 per share. The option is
only exercisable upon the occurrence of specified events that would be
ordinarily associated with an acquisition or potential acquisition of Vermont
Financial by a third party.
5
<PAGE>
Regulatory Approvals are Required (see page 81)
Prior to the completion of the merger, Chittenden and Vermont Financial are
required to obtain regulatory approvals in connection with the merger,
including the approval of the Federal Reserve Board and the MBBI.
The merger is also subject to review by the U.S. Department of Justice (the
"DOJ") and is being reviewed by the Attorney General of the State of Vermont.
Federal law requires us to wait for no less than 15 days and up to 30 days
before completing the merger after it has been approved by the Federal Reserve
Board, during which time the DOJ could object to, and seek to enjoin, the
merger. We have filed the applications with the Federal Reserve Board and the
MBBI seeking approval of the merger.
Chittenden to use "Pooling of Interests" Accounting Treatment (see page 52)
The merger is expected to be accounted for as a "pooling of interests,"
which means that, for accounting and financial reporting purposes, we will
treat our companies as if they had always been one company. Each of Chittenden
and Vermont Financial has the right not to complete the merger if Chittenden
determines that it will be unable to account for the merger as a "pooling of
interests."
CIBC Oppenheimer Says the Exchange Ratio of 1.07 is Fair to Chittenden (see
page 30)
CIBC Oppenheimer Corp. has acted as financial advisor to Chittenden in
connection with the merger. CIBC Oppenheimer delivered to the Chittenden Board
an oral opinion on December 16, 1998, which was confirmed and updated by a
written opinion dated as of the date of this Joint Proxy Statement/Prospectus,
to the effect that, as of the date of such opinion and based upon and subject
to certain matters stated in the opinion, the exchange ratio was fair, from a
financial point of view, to Chittenden. The full text of the written opinion of
CIBC Oppenheimer, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex C to this Joint
Proxy Statement/Prospectus and should be read carefully in its entirety. CIBC
Oppenheimer provided its opinion for the information and assistance of the
Chittenden Board and it addresses only the fairness, from a financial point of
view, of the exchange ratio to Chittenden and neither addresses the merits of
the underlying decision by Chittenden to engage in the transaction nor
constitutes a recommendation to any stockholder as to how a stockholder should
vote on the merger agreement.
McConnell, Budd & Downes Says the Exchange Ratio of 1.07 is Fair to Vermont
Financial's Stockholders (see page 37)
McConnell, Budd & Downes, Inc. ("MB&D") has acted as financial advisor to
Vermont Financial in connection with the merger. MB&D delivered to the Vermont
Financial Board an oral opinion on December 16, 1998, which was confirmed and
updated by a written opinion dated as of the date of this Joint Proxy
Statement/Prospectus, to the effect that, as of the date of such opinion and
based upon and subject to certain assumptions made, matters considered and
limitations stated therein, the exchange ratio was fair to the common
stockholders of Vermont Financial (other than Chittenden) from a financial
point of view. The full text of the written opinion of MB&D, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex D to this Joint Proxy Statement/Prospectus and
should be read carefully in its entirety. MB&D provided its opinion for the
information and assistance of the Vermont Financial Board and it addresses only
the fairness of the exchange ratio to the Vermont Financial common stockholders
(other than Chittenden) from a financial point of view and neither addresses
the merits of the underlying decision by Vermont Financial to engage in the
transaction nor constitutes a recommendation to any stockholder as to how a
stockholder should vote on the merger agreement.
No Federal Income Tax on Shares Received in the Merger (see page 83)
Vermont Financial Stockholders. The merger is expected to be tax-free to
Vermont Financial stockholders who receive shares of Chittenden common stock.
Cash received by Vermont Financial
6
<PAGE>
stockholders in lieu of fractional shares in the merger generally will be
taxable.
Chittenden Stockholders. No gain or loss will be recognized by Chittenden or
its stockholders as a result of the merger.
No Dissenters' or Appraisal Rights (see page 52)
Under Vermont and Delaware law, neither the Chittenden stockholders nor the
Vermont Financial stockholders have dissenters' rights or rights to an
appraisal of the value of their shares of common stock in connection with the
merger.
Chittenden Shares to be Listed on the NYSE (see page 52)
Chittenden will list the shares of common stock to be issued to holders of
Vermont Financial common stock in connection with the merger on the NYSE. After
the completion of the merger, Vermont Financial will delist its common stock
from the NASDAQ National Market and deregister it for purposes of the
Securities Exchange Act of 1934.
Chittenden Dividend Policy Following the Merger (see page 52)
The current annualized rate of distributions on the shares of Chittenden
common stock is $0.80 per share. It is expected that, upon completion of the
merger, Chittenden will continue to pay quarterly distributions in a manner
that is consistent with its past practices, subject to approval and declaration
by its board. The payment of distributions by Chittenden in the future will
depend on its financial condition and earnings, business conditions and other
factors.
Comparison of Vermont Financial Stockholders' Rights Before and After the
Merger (see page 94)
We have summarized below the material differences in the rights of the
stockholders of Vermont Financial and Chittenden. If the merger is completed,
Vermont Financial stockholders will have the same rights as Chittenden
stockholders.
. Vermont Financial is a Delaware corporation and the rights of its
stockholders are generally governed by the corporate law of Delaware.
Chittenden is a Vermont corporation and the rights of its stockholders
are generally governed by the corporate law of Vermont.
. Vermont Financial stockholders may not call a special stockholders
meeting. Chittenden's bylaws permit stockholders to call a special
stockholders meeting upon the written request of at least 10% of all
shares entitled to vote at the meeting.
. Vermont Financial stockholders elect directors by majority vote.
Chittenden's stockholders elect directors by a plurality of the votes
cast.
. Vermont Financial's directors may be removed only for cause and only by
an affirmative majority vote of stockholders. Currently, Chittenden's
directors may be removed with or without cause. If the merger is
completed, the Amended and Restated Charter will provide that directors
may only be removed with cause and if the number of votes cast by
stockholders for removal exceeds the number of votes cast against
removal.
. Chittenden's charter contains a fair price provision that requires the
affirmative vote of the holders of 80% of the outstanding shares of
Chittenden common stock, unless a fair price is received by Chittenden,
before Chittenden may engage in a business combination involving
Chittenden or a subsidiary and a related person or affiliate.
. Vermont Financial's charter provides that the affirmative vote of two-
thirds or more of the outstanding shares of stock is required to
authorize or approve any agreement providing for a merger,
consolidation, sale of substantially all of its assets or an acquisition
in which a majority of its shares are issued to another entity.
Chittenden's charter, however, provides that any business combination
7
<PAGE>
that does not involve a related person or affiliate requires the vote of
a majority of the votes entitled to be cast.
Risk Factors (see page 10)
This Joint Proxy Statement/Prospectus includes, or incorporates by
reference, additional factors related to the operations and strategies of
Chittenden and Vermont Financial generally, the merger and the merger's effect
on Chittenden as the surviving corporation. Stockholders should carefully read
the section entitled "Risk Factors."
Forward-Looking Statements May Prove
Inaccurate (see page 11)
Chittenden and Vermont Financial have each made forward-looking statements
in this document (and in documents that are incorporated herein by reference)
that are subject to risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of operations of
Chittenden or Vermont Financial, including the anticipated benefits from the
merger. Also, when we use words such as "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. Stockholders of
Chittenden and Vermont Financial should note that many factors could affect the
future financial results of Chittenden, as the surviving corporation, and could
cause these results to differ materially from those expressed in our forward-
looking statements.
Comparative Per Share Market
Price Information
Shares of Chittenden common stock are listed on the NYSE and shares of
Vermont Financial common stock are quoted on the NASDAQ National Market. On
December 16, 1998, the last full trading day prior to the public announcement
of the signing of the merger agreement, the closing prices of Chittenden common
stock and Vermont Financial common stock were as follows:
<TABLE>
<CAPTION>
Closing Price on Pro Forma
December 16, 1998 Equivalent
----------------- ----------
<S> <C> <C>
Chittenden......................................... $31.50 N/A
Vermont Financial.................................. $29.00 $33.71
</TABLE>
The pro forma equivalent closing price gives effect to the merger by
multiplying the closing price of Chittenden common stock on December 16, 1998
by the exchange ratio of 1.07.
On April 5, 1999, Chittenden common stock closed at $26.75 per share and
Vermont Financial common stock closed at $27.81 per share.
How to Change Your Vote
You may change your vote at any time before your proxy is voted at the
stockholders meeting. You can do so in one or more of the following ways:
. You can send a written notice dated after your proxy stating that you
would like to revoke your proxy. If you are a Chittenden stockholder,
you should send your written notice to the Secretary of Chittenden at
the address below. If you are a Vermont Financial stockholder, you
should send your written notice to the Secretary of Vermont Financial at
the address below;
. You can complete a new proxy card and send it to the Secretary of
Chittenden or Vermont Financial, as the case may be, and the new proxy
card will automatically replace any earlier dated proxy card that you
returned; or
. You can attend your stockholders meeting and vote in person.
You should send any written notice of revocation, request for a new proxy
card or completed new proxy card to the Secretary of Chittenden or Vermont
Financial, as the case may be, at the following addresses: Chittenden
Corporation, Two Burlington Square, Burlington, Vermont 05401, Attention:
Secretary; Vermont Financial Services Corp., 100 Main Street, Brattleboro,
Vermont 05301, Attention: Secretary.
8
<PAGE>
Additional Information
If you have questions about the merger or would like additional copies of
this Joint Proxy Statement/Prospectus, you should contact:
For Chittenden Stockholders:
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Attention: F. Sheldon Prentice, Esq.
Phone Number: (802) 658-4000
For Vermont Financial Stockholders:
Vermont Financial Services Corp.
100 Main Street
Brattleboro, Vermont 05301
Attention: John D. Hashagen, Jr.
Phone Number: (802) 258-4000
or
Attention: Richard O. Madden
Phone Number: (802) 258-4003
9
<PAGE>
RISK FACTORS
Unless the context otherwise requires, all references in this Joint Proxy
Statement/Prospectus to the "Surviving Corporation" refer to Chittenden
Corporation and its subsidiaries on a consolidated basis following the
completion of the merger.
Failure to integrate operations following the merger could reduce our future
earnings per share
The integration of the departments, systems, business units, operating
procedures and information technologies of Chittenden and Vermont Financial
will present a significant challenge to management. There can be no assurance
that we will be able to integrate and manage these operations effectively or
maintain or improve the historical financial performances of Chittenden and
Vermont Financial. The failure to successfully integrate these systems and
procedures could have a material adverse effect on the results of operations
and financial condition of the Surviving Corporation.
Failure to achieve expected cost savings and unanticipated costs relating to
the merger could reduce our future earnings per share
We believe that we have reasonably estimated our likely cost savings, the
likely costs of integrating the operations of Chittenden and Vermont Financial,
and the incremental costs of operating as a combined company. However, it is
possible that unexpected transaction costs such as taxes, fees or professional
expenses or unexpected future operating expenses such as increased personnel
costs or increased taxes, as well as other types of unanticipated adverse
developments, could have a material adverse effect on the results of operations
and financial condition of the Surviving Corporation. If the expected savings
are not realized or unexpected costs are incurred, the merger could have a
significant dilutive effect on the Surviving Corporation's earnings per share.
In other words, if the merger is completed, we believe that the earnings per
share of Chittenden common stock could be less than they would have been if the
merger had not been completed. See "The Merger--Recommendation of the
Chittenden Board; Chittenden's Reasons for the Merger."
Federal regulatory authorities may require that we divest more branches than we
expect and this could reduce our future earnings per share
In connection with obtaining the approval of the merger by the Federal
Reserve Board, and the accompanying review of the merger that will be
undertaken by the DOJ, we anticipate that the Surviving Corporation will be
required to divest certain of its banking subsidiaries' branches with estimated
deposits of $511 million to $544 million. Our earnings per share may be reduced
in the event that the divestitures required by the Federal Reserve Board and
the DOJ exceed the amount currently expected or if such divestitures are not
implemented promptly and on terms that are favorable to the Surviving
Corporation. The unaudited pro forma combined financial statements do not
reflect the potential impact of any required divestitures.
Year 2000 computer issues may disrupt our business operations
Year 2000 compliance issues concern the inability of computer systems to
accurately calculate, store or use data after 1999. These may cause our
computer systems, or those of our significant vendors and customers, to process
critical financial and operational information incorrectly. Each of Chittenden
and Vermont Financial has taken action over the past year to correct this
problem in accordance with guidelines issued by the Federal Financial
Institutions Examination Council, and we expect to continue such efforts until
all of our important business computer systems, and those of our significant
vendors and customers, are Year 2000 compliant.
We currently expect all of Chittenden's and Vermont Financial's important
business computer systems to be Year 2000 compliant prior to June 30, 1999.
However, following the merger, we will face additional risks associated with
executing a Year 2000 compliance program for the Surviving Corporation while
simultaneously attempting to integrate the information technologies and
operating systems of Chittenden and Vermont
10
<PAGE>
Financial. There can be no assurance that our hardware and software can be
integrated as currently anticipated or that we will not experience significant
expenses or delays in implementing our Year 2000 compliance program as a result
of that integration process. For a more detailed discussion of the Year 2000
compliance programs of each of Chittenden and Vermont Financial, see each
company's "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are incorporated herein by reference to each of
Chittenden's and Vermont Financial's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998. See "Where You Can Find More Information."
If the merger is not completed, we will have incurred substantial expenses
without realizing the expected benefits
Chittenden and Vermont Financial have each incurred substantial expenses in
connection with the transactions described in this Joint Proxy
Statement/Prospectus. If the merger is not completed, Chittenden expects to
incur approximately $5 million to $6 million in merger related expenses and
Vermont Financial expects to incur approximately $2 million to $2.5 million in
merger related expenses. These expenses would likely have a material adverse
impact on the financial condition of Chittenden and/or Vermont Financial
because we would not have realized the expected benefits of the merger. There
can be no assurance that the merger will be completed.
Our performance may decline if key individuals leave the surviving corporation
After the merger, the Surviving Corporation will depend on the services of
certain key personnel, including Paul A. Perrault, John D. Hashagen, Jr., John
P. Barnes, Lawrence W. DeShaw, John W. Kelly, Danny H. O'Brien and Kirk W.
Walters. The loss of the services of any of these key persons could have a
material adverse effect on the successful integration of Chittenden and Vermont
Financial and the results of operations of the Surviving Corporation. See "The
Companies--The Surviving Corporation" and "The Merger--Other Interests of
Officers and Directors in the Merger."
Failure in our new non-banking activities could reduce our future earnings per
share
Chittenden has expanded its operations into new non-banking activities in
recent years. Following the merger, we intend to continue our expansion in non-
banking activities as attractive opportunities arise. We may not be successful
in these new activities because of several factors, including (1) a lack of
market and product knowledge or awareness of other industry related matters and
(2) an inability to attract and retain qualified employees with experience in
these non-banking activities. Failure in new non-banking activities could have
a material adverse effect on our future earnings per share.
This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, and Section
21E of the Securities Exchange Act. The Surviving Corporation's actual results
could differ materially from those set forth in the forward-looking statements
because of many reasons, including the risk factors listed above. This list may
not be exhaustive.
11
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(In thousands, except share and per share information)
The following tables set forth the selected unaudited pro forma combined
financial information for Chittenden and Vermont Financial for the Surviving
Corporation and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of
Chittenden and Vermont Financial and the unaudited pro forma condensed
consolidated financial statements and notes thereto of the Surviving
Corporation presented on pages 86 through 92. The Chittenden and Vermont
Financial combined results of operations gives effect to Chittenden's proposed
acquisition of Vermont Financial as a pooling of interests, as if such
transaction had been completed as of the beginning of each of the periods
presented. The pro forma amounts are not necessarily indicative of results that
will be obtained on a combined basis. The pro forma amounts have not been
adjusted to reflect any of the improvements in operating efficiencies that the
Surviving Corporation anticipates will occur as a result of the merger.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands, except share and
per share amounts)
<S> <C> <C> <C>
Statements of Income:
Interest Income.......................... $ 299,681 $ 276,323 $ 239,164
Interest Expense......................... 126,232 115,462 99,950
---------- ---------- ----------
Net Interest Income...................... 173,449 160,861 139,214
Provision for Possible Loan Losses....... 8,235 7,300 7,533
Noninterest Income....................... 67,407 54,753 42,660
Noninterest Expense...................... 154,629 136,443 109,014
---------- ---------- ----------
Income before income taxes............... 77,992 71,871 65,327
Provision for income taxes............... 28,214 25,339 21,991
---------- ---------- ----------
Net Income............................... $ 49,778 $ 46,532 $ 43,336
========== ========== ==========
Total Assets at year-end................... $4,275,803 $4,074,602 $3,301,727
Common shares outstanding at year-end...... 27,929,576 28,591,921 25,429,846
Balance sheets--average daily balances:
Total assets............................. $4,090,244 $3,656,334 $3,104,486
Loans, net of allowance.................. 2,693,790 2,463,250 2,189,681
Investment securities and cash equiva-
lents................................... 1,010,881 852,355 661,703
Deposits................................. 3,494,945 3,098,744 2,678,158
Stockholders' equity..................... 379,614 336,331 278,840
Per common share:
Basic Earnings........................... $1.76 $1.73 $1.72
Diluted Earnings......................... 1.73 1.70 1.70
Cash dividends paid(1)................... 0.69 0.95 0.54
Book value............................... 13.94 13.15 11.57
Weighted average common shares outstand-
ing....................................... 28,322,912 26,857,510 25,163,652
Weighted average common and common equiva-
lent shares outstanding................... 28,830,497 27,327,021 25,563,864
Selected financial percentages:
Return on average stockholders' equity... 13.11% 13.84% 15.54%
Return on average total assets........... 1.22 1.27 1.40
Net interest margin...................... 4.71 4.87 4.91
Interest rate spread..................... 4.00 4.20 4.22
Net charge-offs as a percent of average
loans................................... 0.46 0.43 0.37
Nonperforming assets ratio............... 0.71 1.02 1.00
Allowance for possible loan losses as a
percent of year-end loans............... 1.49 1.67 1.84
Year-end leverage capital ratio.......... 7.44 7.35 8.68
Risk-based capital ratios:
Tier 1.................................. 10.75 10.83 12.53
Total................................... 12.02 12.11 13.85
Average stockholders' equity to average
assets.................................. 9.28 9.20 8.98
Common stock dividend payout ratio(1).... 39.30 55.03 31.56
</TABLE>
- --------
(1) Dividends paid during 1997 included a special cash dividend of $0.60 per
share.
12
<PAGE>
CHITTENDEN SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are summary selected consolidated financial and operating
data for Chittenden as of and for the periods indicated on a historical basis.
This financial information has been derived from the Chittenden Annual Reports
on Form 10-K for the fiscal years ended December 31, 1994 through December 31,
1998. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements, including the notes thereto, of
Chittenden which are incorporated by reference herein. See "Where You Can Find
More Information."
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statements of Income:
Interest Income....... $ 151,511 $ 150,029 $ 142,558 $ 135,074 $ 101,383
Interest Expense...... 60,508 59,500 58,599 56,772 36,088
---------- ---------- ---------- ---------- ----------
Net Interest Income... 91,003 90,529 83,959 78,302 65,295
Provision for Possible
Loan Losses.......... 5,100 4,050 4,183 5,000 5,500
Noninterest Income.... 32,402 28,200 24,806 22,069 19,352
Noninterest Expense... 71,767 69,947 64,409 61,584 51,393
---------- ---------- ---------- ---------- ----------
Income before income
taxes................ 46,538 44,732 40,173 33,787 27,754
Provision for income
taxes................ 15,873 15,326 13,452 11,656 9,717
---------- ---------- ---------- ---------- ----------
Net Income............ $ 30,665 $ 29,406 $ 26,721 $ 22,131 $ 18,037
========== ========== ========== ========== ==========
Total Assets at year-
end.................... $2,122,019 $1,977,150 $1,988,746 $1,794,704 $1,461,419
Common shares
outstanding at year-
end.................... 14,182,307 14,421,585 15,345,265 14,972,359 13,581,631
Balance sheets--average
daily balances:
Total assets.......... $2,007,413 $1,934,333 $1,841,944 $1,687,803 $1,436,462
Loans, net of
allowance............ 1,391,811 1,363,394 1,307,725 1,202,591 1,001,356
Investment securities
and cash
equivalents.......... 469,764 417,767 385,111 348,028 328,296
Deposits.............. 1,775,244 1,695,953 1,627,834 1,486,500 1,268,338
Stockholders' equity.. 167,618 167,568 162,823 138,641 115,442
Per common share:
Basic Earnings........ $2.14 $1.99 $1.75 $1.50 $1.28
Diluted Earnings...... 2.09 1.94 1.72 1.47 1.26
Cash dividends
paid(1).............. 0.78 1.29 0.57 0.32 0.22
Book value............ 12.35 11.25 11.37 10.28 8.34
Weighted average common
shares outstanding..... 14,303,053 14,812,208 15,228,820 14,763,133 14,087,763
Weighted average common
and common equivalent
shares outstanding..... 14,682,636 15,166,557 15,543,741 15,105,914 14,341,166
Selected financial
percentages:
Return on average
stockholders'
equity............... 18.29% 17.55% 16.41% 15.96% 15.62%
Return on average
total assets......... 1.53 1.52 1.45 1.31 1.25
Net interest margin... 4.94 5.11 4.99 5.08 4.95
Interest rate spread.. 4.13 4.31 4.23 4.34 4.37
Net charge-offs as a
percent of average
loans................ 0.52 0.39 0.29 0.28 0.49
Nonperforming assets
ratio................ 0.75 0.56 0.99 1.19 1.03
Allowance for possible
loan losses as a
percent of year-end
loans................ 1.72 1.89 2.07 2.20 2.09
Year-end leverage
capital ratio........ 7.37 7.43 8.58 8.05 8.10
Risk-based capital
ratios:
Tier 1............... 9.90 9.86 11.71 11.16 11.40
Total................ 11.18 11.17 13.06 12.53 12.76
Average stockholders'
equity to average
assets............... 8.35 8.66 8.84 8.21 8.03
Common stock dividend
payout ratio(1)...... 36.40 64.25 32.73 21.71 17.38
</TABLE>
- --------
(1) Dividends paid during 1997 included a special cash dividend of $0.60 per
share.
13
<PAGE>
VERMONT FINANCIAL SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are summary selected consolidated financial and operating
data for Vermont Financial as of and for the periods indicated on a historical
basis. This financial information has been derived from the Vermont Financial
Annual Reports on Form 10-K for the fiscal years ended December 31, 1994
through December 31, 1998. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements, including the
notes thereto, of Vermont Financial which are incorporated by reference herein.
See "Where You Can Find More Information."
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statements of Income:
Interest Income....... $ 148,170 $ 126,294 $ 96,606 $ 96,457 $ 84,391
Interest Expense...... 65,724 55,962 41,351 41,969 33,293
---------- ---------- ---------- ---------- ----------
Net Interest Income... 82,446 70,332 55,255 54,488 51,098
Provision for Possible
Loan Losses.......... 3,135 3,250 3,350 3,900 4,000
Noninterest Income.... 35,005 26,553 17,854 17,549 16,692
Noninterest Expense... 82,862 66,496 44,605 45,999 46,763
---------- ---------- ---------- ---------- ----------
Income before income
taxes................ 31,454 27,139 25,154 22,138 17,027
Provision for income
taxes................ 12,341 10,013 8,539 7,241 5,159
---------- ---------- ---------- ---------- ----------
Net Income............ $ 19,113 $ 17,126 $ 16,615 $ 14,897 $ 11,868
========== ========== ========== ========== ==========
Total Assets at year-
end.................... $2,142,424 $2,097,452 $1,312,981 $1,246,669 $1,205,421
Common shares
outstanding at year-
end.................... 12,847,915 13,243,305 9,424,842 9,566,534 9,370,438
Balance sheets--average
daily balances:
Total assets.......... $2,082,831 $1,722,001 $1,262,542 $1,212,346 $1,187,521
Loans, net of
allowance............ 1,301,979 1,099,856 881,956 894,965 877,427
Investment securities
and cash
equivalents.......... 541,117 434,588 276,592 217,798 206,659
Deposits.............. 1,719,701 1,402,791 1,050,324 1,003,291 981,545
Stockholders' equity.. 211,996 168,763 116,017 105,416 94,626
Per common share:
Basic Earnings........ $1.46 $1.52 $1.79 $1.60 $1.30
Diluted Earnings...... 1.45 1.51 1.77 1.59 1.29
Cash dividends paid... 0.64 0.60 0.53 0.43 0.27
Book value............ 16.67 16.13 12.70 11.69 9.65
Weighted average common
shares outstanding..... 13,102,672 11,257,292 9,284,890 9,295,341 9,142,060
Weighted average common
and common equivalent
shares outstanding..... 13,222,300 11,364,920 9,364,601 9,354,772 9,232,973
Selected financial
percentages:
Return on average
stockholders'
equity............... 8.90% 10.22% 14.51% 14.69% 13.23%
Return on average
total assets......... 0.92 1.00 1.31 1.23 1.00
Net interest margin... 4.48 4.60 4.81 4.92 4.74
Interest rate spread.. 4.40 4.07 4.20 4.41 4.37
Net charge-offs as a
percent of average
loans................ 0.41 0.49 0.50 0.59 0.62
Nonperforming assets
ratio................ 0.66 1.50 1.01 1.67 2.32
Allowance for possible
loan losses as a
percent of year-end
loans................ 1.23 1.44 1.50 1.65 1.78
Year-end leverage
capital ratio........ 7.51 7.27 8.84 8.82 8.01
Risk-based capital
ratios:
Tier 1............... 11.78 11.98 13.92 13.44 11.77
Total................ 13.03 13.24 15.17 14.70 13.03
Average stockholders'
equity to average
assets............... 10.18 9.80 9.19 8.69 7.97
Common stock dividend
payout ratio......... 43.96 39.21 29.66 27.17 20.43
</TABLE>
- --------
** Data for 1998 and 1997 reflect the acquisition of Eastern Bancorp, Inc.
14
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
(Unaudited)
We have summarized below the per common share combined information for
Chittenden and Vermont Financial on a historical and pro forma combined and pro
forma equivalent basis. The pro forma information gives effect to the merger
accounted for as a pooling of interests. You should read this information in
conjunction with our historical financial statements (and related notes)
contained in the reports and other information that we have filed with the SEC.
See "Where You Can Find More Information." You should also read this
information in conjunction with the pro forma combined financial information
set forth under the heading "Unaudited Pro Forma Financial Statements." You
should not rely on the pro forma information as being indicative of the
historical results that we would have had or the future results that we will
achieve after the merger.
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income from continuing
operations per common
share--basic:
Chittenden
Historical.......... $ 2.14 $1.99 $1.75
Pro forma combined
for the merger(1).. 1.76 1.73 1.72
Vermont Financial
Historical.......... 1.46 1.52 1.79
Pro forma equivalent
for the merger(2).. 1.88 1.85 1.84
Income from continuing
operations per common
share--diluted:
Chittenden
Historical.......... 2.09 1.94 1.72
Pro forma combined
for the merger(1).. 1.73 1.70 1.70
Vermont Financial
Historical.......... 1.45 1.51 1.77
Pro forma equivalent
for the merger(2).. 1.85 1.82 1.82
Cash dividends per
common share:
Chittenden
Historical.......... 0.78 1.29 0.57
Pro forma combined
for the merger(1).. 0.69 0.95 0.54
Vermont Financial
Historical.......... 0.64 0.60 0.53
Pro forma equivalent
for the merger(2).. 0.74 1.02 0.58
<CAPTION>
As of
December 31, 1998
-----------------
<S> <C> <C> <C>
Book value per common
share:
Chittenden
Historical.......... $12.35
Pro forma combined
for the merger(1).. 13.94
Vermont Financial
Historical.......... 16.67
Pro forma equivalent
for the merger(2).. 14.92
</TABLE>
- --------
(1) Pro forma combined amounts reflect the proposed merger as if the merger had
occurred at the beginning of such period.
(2) Pro forma equivalent amounts for Vermont Financial are calculated by
multiplying the pro forma combined amounts by the exchange ratio of 1.07.
15
<PAGE>
THE MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of (1) Chittenden common stock by the
Chittenden Board for use at the Chittenden meeting and (2) Vermont Financial
common stock by the Vermont Financial Board for use at the Vermont Financial
meeting. This Joint Proxy Statement/Prospectus and accompanying form of proxy
are first being mailed to the respective stockholders of Chittenden and Vermont
Financial on or about April 9, 1999.
The Chittenden Meeting
Purpose of the Meeting
Chittenden will hold its 1999 Annual Meeting of Stockholders at the Ramada
Inn & Conference Center, 1117 Williston Road, Burlington, Vermont 05403, on May
19, 1999 at 4:00 p.m. local time for the following purposes:
. To approve the merger agreement, the merger and the other matters and
transactions contemplated by the merger agreement, including the
amendment and restatement of Chittenden's charter and the issuance of
shares of Chittenden common stock to the holders of Vermont Financial
common stock. See "Proposal 1--Approval of the Agreement and Plan of
Merger."
. To elect four directors, each to serve for a term of three years. The
Board of Directors has nominated the following four individuals for
election as such directors: Paul J. Carrara, Sally W. Crawford, Philip
A. Kolvoord and James C. Pizzagalli. See "Proposal 2--Election of
Directors."
. To consider and act upon such other business and matters or proposals as
may properly come before the Chittenden meeting.
Any action may be taken on the foregoing matters at the Chittenden meeting
on the date specified above, or on any date or dates to which it may be
postponed or to which, by original or later adjournment, the Chittenden meeting
may be adjourned.
Record Date; Voting Rights; Proxies
Chittenden has fixed the close of business on March 26, 1999 as the record
date for determining the holders of Chittenden common stock entitled to receive
notice of and to vote at the Chittenden meeting. Only holders of Chittenden
common stock at the close of business on the Chittenden record date will be
entitled to receive notice of and to vote at the Chittenden meeting. Chittenden
will make available for inspection by any stockholder a list of stockholders
entitled to receive notice of and to vote at the Chittenden meeting during
ordinary business hours at Chittenden's principal office, Two Burlington
Square, Burlington, Vermont 05401, beginning two business days after the date
hereof and continuing through the Chittenden meeting. As of March 26, 1999,
there were 14,230,858 issued and outstanding shares of Chittenden common stock.
Each holder of record of Chittenden common stock on the Chittenden record date
is entitled to one vote per share, which may be cast either in person or by
properly executed proxy.
All shares of Chittenden common stock which are entitled to vote and are
represented at the Chittenden meeting by properly executed proxies received
prior to or at the Chittenden meeting, and not revoked, will be voted at such
meeting as they are marked in the boxes on the proxy cards. If no boxes are
marked on a proxy card that has otherwise been properly executed, it will be
voted FOR the approval of the merger agreement and the other matters and
transactions contemplated thereby and FOR the election of the four nominees for
directors.
Votes cast by proxy or in person at the Chittenden meeting will be tabulated
by the inspector of elections appointed for the meeting who will determine
whether or not a quorum is present. The inspector of elections
16
<PAGE>
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but as not voting for
purposes of determining the approval of any matter submitted to the
stockholders for a vote. If a broker indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will be considered as present for purposes of determining
a quorum but not voting with respect to that matter.
If any other matters are properly presented at the Chittenden meeting for
consideration, including consideration of a motion to adjourn such meeting to
another time and/or place for such purposes as soliciting additional proxies or
allowing additional time for the satisfaction of conditions to the merger, the
persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment. However, proxies voted against a proposal
will not be voted in favor of adjournment in order to continue to solicit
proxies with respect to that proposal.
Any proxy given by a Chittenden common stockholder pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted in one or more of the following ways:
. filing with the Secretary of Chittenden, at or before the taking of the
vote at the Chittenden meeting, a written notice of revocation bearing a
later date than the proxy
. duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Chittenden before the taking of the
vote at the Chittenden meeting
. voting in person at the meeting, although attendance at the Chittenden
meeting will not by itself constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent, in the
case of Chittenden, to Chittenden Corporation, Two Burlington Square,
Burlington, Vermont 05401, Attention: Secretary, or hand delivered to the
Secretary at or before the taking of the vote at the Chittenden meeting.
Independent Public Accountants
Chittenden has selected Arthur Andersen LLP as its principal independent
public accountants for the current fiscal year. Representatives of Arthur
Andersen LLP are expected to be present at the Chittenden meeting and will have
the opportunity to make a statement if they desire to do so. They are also
expected to be available to respond to appropriate questions.
Solicitation of Proxies
Chittenden will bear its own costs of solicitation of proxies. Brokerage
houses, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to owners of shares of Chittenden
common stock held in their names. In addition to the solicitation of proxies by
use of the mails, proxies may be solicited from Chittenden stockholders by
directors, officers and employees acting on behalf of Chittenden in person or
by telephone, telegraph, facsimile or other appropriate means of
communications. No additional compensation, except for reimbursement of
reasonable out-of-pocket expenses, will be paid to these directors, officers
and employees of Chittenden in connection with the solicitation. In addition,
Kissel-Blake Inc., a proxy solicitation firm, has been engaged by Chittenden to
act as proxy solicitor and will receive fees estimated at $7,000, plus
reimbursement of reasonable out-of-pocket expenses. Any questions or requests
for assistance regarding this Joint Proxy Statement/Prospectus and related
proxy materials may be directed to the Secretary of Chittenden by telephone at
(802) 658-4000.
Quorum
The holders of a majority of all of the votes entitled to be cast, who are
present in person or represented by proxy, shall constitute a quorum at the
Chittenden meeting. Shares which abstain from voting as to a particular matter
and broker non-votes will be treated as shares that are present and entitled to
vote at the Chittenden meeting for purposes of determining whether a quorum
exists.
17
<PAGE>
Required Vote
The vote required for approval of each of the two proposals presented in
this Joint Proxy Statement/ Prospectus, and the treatment of abstentions and
broker non-votes, are specified in the discussion of each proposal.
Regardless of the number of shares you own, your vote is important to
Chittenden. Please complete, sign, date and promptly return the enclosed proxy
card today.
The Vermont Financial Meeting
Purpose of the Meeting
Vermont Financial will hold a Special Meeting of Stockholders at The Quality
Inn and Suites, 1380 Putney Road, Brattleboro, Vermont 05301 on May 19, 1999 at
10:00 a.m. local time for the following purposes:
. To approve the merger agreement, the merger and the other matters and
transactions contemplated by the merger agreement. See "Proposal 1--
Approval of the Agreement and Plan of Merger."
. To consider and act upon such other business and matters or proposals as
may properly come before the Vermont Financial meeting.
Only business within the purposes described in the Vermont Financial Notice
of Special Meeting of Stockholders may be conducted at the Vermont Financial
meeting. Any action may be taken on the foregoing matters at the Vermont
Financial meeting on the date specified above, or on any date or dates to which
it may be postponed or to which, by original or later adjournment, the Vermont
Financial meeting may be adjourned.
Record Date; Voting Rights; Proxies
Vermont Financial has fixed the close of business on March 26, 1999 as the
record date for determining the stockholders entitled to receive notice of and
to vote at the Vermont Financial meeting. Only holders of record of Vermont
Financial common stock at the close of business on the Vermont Financial record
date will be entitled to receive notice of and to vote at the Vermont Financial
meeting. Vermont Financial will make available for inspection by any
stockholder a list of stockholders entitled to receive notice of and to vote at
the Vermont Financial meeting during ordinary business hours at Vermont
Financial's principal office, 100 Main Street, Brattleboro, Vermont 05301, for
ten days prior to the Vermont Financial meeting for purposes related to the
Vermont Financial meeting. As of March 26, 1999, there were 12,871,570 issued
and outstanding shares of Vermont Financial common stock. Each holder of record
of Vermont Financial common stock on the Vermont Financial record date is
entitled to one vote per share, which may be cast either in person or by
properly executed proxy.
All shares of Vermont Financial common stock which are entitled to vote and
are represented at the Vermont Financial meeting by properly executed proxies
received prior to or at such meeting, and not revoked, will be voted at the
Vermont Financial meeting as they are marked in the boxes on the proxy cards.
If no boxes are marked on a proxy card that has otherwise been properly
executed, it will be voted FOR approval of the merger agreement and the other
matters and transactions contemplated thereby.
Votes cast by proxy or in person at the Vermont Financial meeting will be
tabulated by the inspector of elections appointed for the meeting who will
determine whether or not a quorum is present. The inspector of elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as not voting for purposes of
determining the approval of any matter submitted to the stockholders for a
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will be considered as present for purposes of determining a quorum but not
voting with respect to that matter.
18
<PAGE>
If any other matters are properly presented at the Vermont Financial meeting
for consideration, including consideration of a motion to adjourn such meeting
to another time and/or place for such purposes as soliciting additional proxies
or allowing additional time for the satisfaction of conditions to the merger,
the persons named in the proxies will have discretion to vote on such matters
in accordance with their best judgment. However, proxies voted against a
proposal will not be voted in favor of adjournment in order to continue to
solicit proxies with respect to that proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted in one or more of the following ways:
. filing with the Secretary of Vermont Financial, at or before the taking
of the vote at the Vermont Financial meeting, a written notice of
revocation bearing a later date than the proxy
. duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary before the taking of the vote at the
Vermont Financial meeting
. voting in person at the meeting, although attendance at the Vermont
Financial meeting will not by itself constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to Vermont
Financial Services Corp., 100 Main Street, Brattleboro, Vermont 05301,
Attention: Secretary, or hand delivered to the Secretary of Vermont Financial
at or before the taking of the vote at the Vermont Financial meeting.
Independent Public Accountants
KPMG LLP is Vermont Financial's principal independent public accountant.
Representatives of KPMG LLP are expected to be present at the Vermont Financial
meeting and will have the opportunity to make a statement if they desire to do
so. They are also expected to be available to respond to appropriate questions.
Solicitation of Proxies
Vermont Financial will bear its own costs of solicitation of proxies.
Arrangements also will be made with brokerage houses, custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such brokerage houses, custodians, nominees and
fiduciaries, and Vermont Financial will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith. In addition to solicitation by use of the mails, proxies
may be solicited from the Vermont Financial stockholders by directors, officers
and employees acting on behalf of Vermont Financial in person or by telephone,
telegraph, facsimile or other means of communications. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. Vermont
Financial has retained Regan & Associates, Inc., a proxy solicitation firm, for
assistance in connection with the solicitation of proxies for the Vermont
Financial meeting at a cost of approximately $7,000, plus reimbursement of
reasonable out-of-pocket expenses. Any questions or requests for assistance
regarding this Joint Proxy Statement/Prospectus and related proxy materials may
be directed to the Chief Financial Officer of Vermont Financial by telephone at
(802) 258-4003.
Quorum
The holders of a majority of all of the votes entitled to be cast, who are
present in person or represented by proxy, shall constitute a quorum at the
Vermont Financial meeting. Shares which abstain from voting as to a particular
matter and broker non-votes will be treated as shares that are present and
entitled to vote at the Vermont Financial meeting for purposes of determining
whether a quorum exists.
19
<PAGE>
Required Vote
The approval of the merger agreement, the merger and the other matters and
transactions contemplated by the merger agreement requires the affirmative vote
of the holders of two-thirds of the Vermont Financial common stock outstanding
on the Vermont Financial record date. Accordingly, abstentions and broker non-
votes will have the same effect as a vote against the merger agreement, the
merger and the other matters and transactions contemplated by the merger
agreement.
Regardless of the number of shares you own, your vote is important to
Vermont Financial. Please complete, sign, date and promptly return the enclosed
proxy card today.
PROPOSAL 1
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
The Merger Proposal
On December 16, 1998, the Chittenden Board and the Vermont Financial Board
independently deemed advisable and unanimously approved the merger agreement,
the merger and the other matters and transactions contemplated by the merger
agreement. The effects of approving the merger agreement and the merger include
approval of the Amended and Restated Charter and the issuance by Chittenden of
1.07 shares of common stock in exchange for each share of Vermont Financial
common stock. However, if the merger is approved by Chittenden's stockholders
but is not completed, the Amended and Restated Charter will not become the
charter of Chittenden.
Required Vote and Recommendation
Proxies will be voted for Proposal 1 unless contrary instructions are set
forth in the proxy. Only stockholders of record of Chittenden common stock and
Vermont Financial common stock are entitled to vote on this proposal. This
proposal requires the affirmative vote of (1) greater than 50% of all the votes
entitled to be cast by holders of record of Chittenden common stock and (2)
two-thirds of all the votes entitled to be cast by holders of record of Vermont
Financial common stock. Accordingly, abstentions and broker non-votes will have
the effect of votes against this proposal.
The Chittenden Board and the Vermont Financial Board each independently
unanimously recommends that you vote "FOR" the approval of the merger
agreement, the merger and the other matters and transactions contemplated by
the merger agreement.
THE MERGER
This section of the Joint Proxy Statement/Prospectus, as well as the section
entitled "The Merger Agreement," describes the material aspects of the merger.
A copy of the merger agreement is attached to this Joint Proxy
Statement/Prospectus as Annex A and is incorporated herein by reference. All
stockholders are urged to read the merger agreement carefully in its entirety.
Background of the Merger
As part of their efforts to expand their commercial and community banking
franchises and enhance stockholder value, the managements of each of Chittenden
and Vermont Financial have regularly considered a variety of strategic business
combinations and acquisitions, ranging from remaining independent while
acquiring other community banking institutions to entering into strategic
mergers or affiliations with similarly sized or larger banking organizations.
As early as 1989, executive management of Chittenden and Vermont
20
<PAGE>
Financial engaged in exploratory discussions regarding a possible business
combination. During the course of their discussions, Chittenden and Vermont
Financial recognized the complementary characteristics of the two companies'
market areas, business lines and management structures and cultures.
Representatives of Chittenden and Vermont Financial discussed changes in the
economic and regulatory characteristics of the market for banking services in
New England, and of the continuing desire of both Chittenden and Vermont
Financial to provide a broad range of convenient and competitive credit,
depository and trust services to their local communities. In October 1989, the
executive management of Chittenden and Vermont Financial terminated their
discussions because of disagreements over pricing and other factors. The
executive management of Chittenden and Vermont Financial resumed discussions
for a brief time in 1992, but did not reach agreement on various legal and
structural issues. Price was not a factor in the decision to cease discussions
in 1992.
In the spring of 1996, Paul A. Perrault, the President and Chief Executive
Officer of Chittenden, held several exploratory meetings with John D. Hashagen,
Jr., the President and Chief Executive Officer of Vermont Financial, regarding
the possibility of the two companies engaging in a "merger of equals"
transaction. Although these meetings included discussions of the prospective
management team of the combined company, an exchange ratio was never formally
discussed and there were no formal presentations made to either company's board
of directors. These discussions were ended in the early summer of 1996 by
Vermont Financial after it decided to pursue other strategic ventures.
On July 28, 1998, Mr. Perrault held a conference call with a representative
of CIBC Oppenheimer, Chittenden's financial advisor, on which Mr. Perrault
authorized informal discussions between representatives of CIBC Oppenheimer and
MB&D regarding the possible business combination of Chittenden and Vermont
Financial.
On July 30, 1998, representatives of CIBC Oppenheimer and MB&D met at the
offices of MB&D in Morristown, New Jersey to discuss various possibilities that
could result in a business combination of Chittenden and Vermont Financial. The
representatives of CIBC Oppenheimer and MB&D agreed at this meeting to continue
informal discussions over the summer of 1998.
During the September 16, 1998 Chittenden Board meeting, Mr. Perrault
indicated that he was going to approach Mr. Hashagen regarding a possible
combination. Subsequently, Mr. Perrault approached Mr. Hashagen to determine
whether Vermont Financial would be interested in resuming exploratory
discussions with Chittenden regarding the possibility of the companies'
entering into a business combination.
On September 30, 1998, representatives of Chittenden presented Mr. Hashagen
with a preliminary indication of interest pertaining to a possible stock for
stock merger of Chittenden and Vermont Financial. This preliminary indication
of interest served as the foundation for all subsequent discussions and
negotiations.
On October 21, 1998, the Chittenden Board held a meeting to discuss
developments relating to the potential business combination. A representative
of CIBC Oppenheimer was present at the meeting to discuss certain financial
issues related to the potential business combination. The Chittenden Board
discussed the objectives to be achieved by entering into a transaction with
Vermont Financial and the feasibility of achieving those objectives through
various alternatives to the transaction.
On October 27, 1998, the Vermont Financial Board held a meeting to consider
Chittenden's preliminary indication of interest with respect to a possible
stock for stock merger. At this meeting, MB&D presented a financial analysis of
Chittenden's proposal. This analysis included:
. profitability comparisons for Vermont Financial and its peer group
. an overview of recent merger transactions involving commercial banks and
thrifts in New England and New York
. a review of Vermont Financial's projected earnings for the next five
years
21
<PAGE>
. an analysis of what various potential merger partners, including
Chittenden, might be able to pay in a merger with or acquisition of
Vermont Financial
. a review of the trading prices and trading volume of Vermont Financial
common stock and Chittenden common stock during 1998
. a valuation analysis of the proposed fixed exchange ratio (i.e., the
ratio of the number of shares of Chittenden common stock that would be
exchanged for each share of Vermont Financial common stock) that
Chittenden had included in its preliminary indication of interest
. an analysis of the earnings that would be required by the combined
company to eliminate the earnings dilution that would result from
Chittenden's issuance of additional shares in the proposed merger at an
assumed range of acquisition values
. pro forma earnings projections for the combined company with and without
anticipated cost savings and revenue enhancements
. a discounted cash flow analysis reflecting the possible range of the
current value of Vermont Financial and a comparison of such range of
value to the value that would be potentially received by Vermont
Financial stockholders in a merger with Chittenden based upon the fixed
exchange ratio included in Chittenden's preliminary indication of
interest.
At the October 27, 1998 meeting, Vermont Financial's outside counsel also
advised the Vermont Financial Board on its fiduciary duties in considering
Chittenden's indication of interest and various regulatory issues that would be
relevant with respect to the proposed merger, including the potential
competitive issues in various Vermont banking markets that could result if
Vermont Financial and Chittenden were combined, as well as the need for both
parties to demonstrate to federal banking regulators that they were progressing
in a satisfactory manner in addressing the so-called "Year 2000" or "millennium
bug" problem. At the conclusion of this meeting, the Vermont Financial Board
expressed a unanimous view that Chittenden's preliminary indication of interest
warranted further consideration, but that further discussions between the
parties should be preceded by Vermont Financial's confirming the satisfactory
status of its Year 2000 compliance program.
Over the next two weeks, Vermont Financial discussed the status of its Year
2000 compliance program with federal banking regulators and Mr. Hashagen
indicated to Mr. Perrault that Vermont Financial would be interested in
discussing further with Chittenden the possibility of combining the two
companies in a stock for stock merger.
At a meeting held on November 10, 1998, Mr. Hashagen confirmed to the
Vermont Financial Board the satisfactory status of Vermont Financial's Year
2000 compliance program, MB&D updated its previous financial analysis of the
proposed merger and outside counsel reviewed the process that the parties would
undertake, and the likely time frame for such process, if they chose to explore
further the prospects for entering into the proposed transaction and were to
proceed with the negotiation of the terms of such a merger. At this meeting,
Vermont Financial's senior management also reviewed for the Vermont Financial
Board the projected financial performance of Vermont Financial if it remained
independent. The Vermont Financial Board discussed at length the various issues
associated with either remaining independent or entering into a strategic, in-
market merger with a similarly sized institution. Among other considerations
discussed, such as the potential effects on employees, customers and the
communities served by Vermont Financial, the Vermont Financial Board considered
the potential long-term value to stockholders that might be achieved under
different strategic scenarios and the likelihood of attaining such value.
At the conclusion of the November 10, 1998 meeting, the Vermont Financial
Board authorized Vermont Financial's senior management to enter into a
confidentiality agreement with Chittenden to enable the parties to undertake
appropriate due diligence examinations of one another. In addition, the Vermont
Financial Board authorized senior management to engage in discussions with
Chittenden management to explore and clarify certain aspects of Chittenden's
preliminary indication of interest, including the price Chittenden might be
willing to pay and the treatment of employees whose employment was terminated
following the merger, and to discuss various other relevant considerations that
would be involved in the parties' entering into a definitive merger agreement,
such as the parties' ability not only to effectuate the merger but also to
manage and grow
22
<PAGE>
the combined company. The Vermont Financial Board also appointed an ad hoc
committee composed of three non-employee directors, Messrs. Morse, Drumheller
and Sutton, to work with and consult with Mr. Hashagen and Vermont Financial's
other senior management and outside advisors in connection with the full
Vermont Financial Board's consideration of the appropriate strategic direction
to be undertaken by Vermont Financial.
On November 14, 1998, members of the senior management teams of Chittenden
and Vermont Financial met in Hanover, New Hampshire to discuss the status of
the due diligence process, their respective operating philosophies and, in
general terms, the strategic vision of a combined company.
On November 18, 1998, the Chittenden Board held a meeting to discuss
developments relating to the proposed transaction and the negotiations related
thereto. At this meeting, a representative of CIBC Oppenheimer updated the
Chittenden Board on the prior meetings between the representatives of
Chittenden and Vermont Financial and the potential issues associated with a
business combination. In addition, a detailed discussion occurred regarding the
timing and process by which the transaction could be negotiated, documented and
closed. Based on these discussions, the Chittenden Board instructed Mr.
Perrault to continue the negotiations with Vermont Financial.
During the balance of the month of November 1998 and the first week of
December 1998, the parties and their respective advisors undertook extensive
due diligence examinations of one another. In addition, Vermont Financial's
senior management, working with MB&D, reviewed and refined various scenarios
based upon the alternatives of remaining independent versus entering into a
strategic merger with Chittenden. During the last week of November 1998 and
first week of December 1998, the parties and their legal and financial advisors
discussed and negotiated the terms and conditions that would be contained in a
definitive merger agreement and related documentation.
On December 2, 1998, the Chittenden Board engaged in a discussion with its
financial and legal advisors regarding all of the material aspects of the
proposed transaction, including business and legal issues to be resolved and
the results of Chittenden's due diligence. In addition, the Chittenden Board
received oral reports from Chittenden's senior management regarding the
condition of each aspect of Vermont Financial's operations.
On December 8, 1998, the Vermont Financial Board met with Vermont
Financial's senior management and outside advisors to consider further the
strategic alternatives available to Vermont Financial. At this meeting,
management summarized for the Vermont Financial Board the results of the due
diligence examination of Chittenden, including the investigations completed
with respect to Chittenden's asset composition and quality, risk management
systems, lines of business and operations, Year 2000 compliance program and
audit and compliance functions. The members of the ad hoc committee reported on
discussions held directly with Mr. Perrault and provided the full Vermont
Financial Board with their assessments of Chittenden and its senior management.
Management also presented its strategic plan for improving the performance and
growth of Vermont Financial on a stand-alone basis. MB&D reviewed a further
updated financial analysis of the proposed merger and advised the Vermont
Financial Board that it believed that the proposed merger would in all
likelihood, based on the various assumptions supporting its analysis, provide
greater long-term value to Vermont Financial's stockholders than the continuing
operation of Vermont Financial on an independent basis. On this basis, the
Vermont Financial Board determined that it would be in the best interests of
Vermont Financial and its stockholders to continue the discussions with
Chittenden regarding the prospects for the parties' entering into a strategic
merger and that management and Vermont Financial's advisors should proceed with
a view towards completing the negotiation of the terms and conditions that
would be contained in a definitive merger agreement between Chittenden and
Vermont Financial.
The parties and their respective advisors continued their discussions and
negotiations through the following week and all material open issues were
resolved, which included agreements relating to:
. the exchange ratio
. the number of Vermont Financial directors to be added to the Chittenden
Board upon the completion of the merger
23
<PAGE>
. the severance benefits to be provided to Vermont Financial employees in
the event their employment is terminated following the merger
. the treatment of various Vermont Financial employee and executive benefit
plans in the event that such plans are merged with Chittenden plans or
otherwise terminated following the completion of the merger.
The Vermont Financial Board held a special meeting on December 16, 1998 to
review and consider the terms of the proposed merger with Chittenden. At this
meeting, outside counsel reviewed the terms of the proposed definitive merger
agreement and related documents. Counsel advised the Vermont Financial Board
that Chittenden had requested, as a condition to its willingness to enter into
a definitive merger agreement with Vermont Financial, that Vermont Financial
grant a customary stock option for 19.9% of the Vermont Financial common stock
that would become exercisable under various circumstances in which the proposed
transaction might be subject to interference by the actions of a third party
after the definitive merger agreement has been signed. MB&D also orally advised
the Vermont Financial Board that in its opinion the exchange ratio was fair,
from a financial point of view, to the stockholders of Vermont Financial as of
the date of the meeting. Following a discussion and deliberation regarding the
terms and conditions contained in the proposed definitive merger agreement and
related proposed stock option agreement, the Vermont Financial Board
unanimously approved the merger agreement and the stock option agreement and
directed management to execute and deliver each such agreement.
Also on December 16, 1998, the Chittenden Board met to discuss and vote to
approve the merger agreement. Present at the meeting were a representative of
CIBC Oppenheimer and, by telephone, Chittenden's outside legal counsel. A full
discussion ensued regarding all of the merger documents. CIBC Oppenheimer then
delivered its oral opinion to the Chittenden Board that in its opinion the
exchange ratio was fair, from a financial point of view, to Chittenden as of
the date of the meeting. Following this discussion, the Chittenden Board
authorized management to execute all of the documents related to the merger,
including the merger agreement and the stock option agreement. In addition, the
Chittenden Board authorized Mr. Perrault to execute the merger agreement on
behalf of Chittenden Acquisition Subsidiary, Inc., a Delaware corporation of
which Chittenden is the sole stockholder ("CASI").
Following the close of the NYSE on December 16, 1998, authorized officers of
Chittenden, CASI and Vermont Financial executed and delivered the merger
agreement and authorized officers of Chittenden and Vermont Financial executed
and delivered the stock option agreement.
Recommendation of the Chittenden Board; Chittenden's Reasons for the Merger
The Chittenden Board has unanimously approved the merger agreement and
determined that the merger and the other matters and transactions contemplated
thereby are advisable. The Chittenden Board recommends unanimously that
Chittenden's common stockholders vote "FOR" approval and adoption of the merger
agreement and the matters and transactions contemplated thereby, including the
merger, the Amended and Restated Charter and the issuance of shares of
Chittenden common stock to the holders of Vermont Financial common stock.
In reaching its determination and recommendation, the Chittenden Board
consulted with Chittenden's management, as well as its financial advisors,
legal counsel and accountants, and considered a number of factors. The material
factors considered by the Chittenden Board in reaching the foregoing
determination and recommendation, all of which the Chittenden Board deemed
favorable, are described below.
(A) The Surviving Corporation: Business, Conditions and Prospects. The
Chittenden Board reviewed certain information relating to the financial
performance, business operations and prospects of Chittenden and Vermont
Financial and pro forma information for the Surviving Corporation, as well
as current industry, economic and market conditions. The Chittenden Board
believes that the merger should enable Chittenden to complement its
business lines in commercial and community banking, trust and asset
24
<PAGE>
management services, automobile lending, mortgage banking and merchant
processing, which should result in the Surviving Corporation having
increased product capabilities and services, as well as geographic
diversification. These factors should enable Chittenden to achieve many of
its long-range goals easier and with less risk than Chittenden could
achieve without the merger.
(B) Greater Financial Flexibility. The Chittenden Board believes that
greater size and enhanced financial flexibility resulting from the merger
should allow the Surviving Corporation to pursue a more aggressive and
flexible business plan than could be pursued by Chittenden as a stand-alone
company. The Chittenden Board believes that this should enable the
Surviving Corporation to retain and attract banking business that
Chittenden could not attract currently. In addition, the Chittenden Board
believes that the more favorable access to capital markets generally
enjoyed by larger financial institutions would place the Surviving
Corporation in a stronger position to satisfy the financial needs of its
customers, respond to changes affecting the banking and financial services
industries and compete effectively with larger financial institutions in
New England and elsewhere.
(C) Greater Total Market Capitalization. The total market
capitalization of the Surviving Corporation as a result of the merger will
represent a substantial increase over Chittenden's total market
capitalization prior to the merger. The Chittenden Board believes that the
increased total market capitalization of the Surviving Corporation should
provide enhanced liquidity for stockholders and should enhance its appeal
as an investment among both retail and institutional investors. The
Chittenden Board also believes that the Surviving Corporation's size will
increase its recognition and credibility within the banking and financial
services industries.
(D) Anticipated Synergies and Cost Savings. The Chittenden Board
believes that Chittenden and its stockholders should realize the benefits
of significant synergies and ongoing operational cost savings, including
general and administrative cost savings in areas such as information and
accounting systems, telecommunications and professional fees, and operating
efficiencies due to critical mass in areas such as bulk purchasing and
insurance.
(E) Improved Combined Business Capabilities. Because the Surviving
Corporation will be positioned to implement the best management practices
of each of Chittenden and Vermont Financial, the Chittenden Board expects
that the merger will enhance its expertise in providing banking and
financial services.
(F) Structure of Transaction. It is expected that the merger will be
tax-free for federal income tax purposes to Chittenden and its stockholders
and will qualify as a "pooling of interests" under GAAP for accounting and
financial reporting purposes (see "Material Federal Income Tax
Consequences" and "The Merger--Accounting Treatment"). The Chittenden Board
believes that the use of Chittenden common stock as consideration in the
merger is preferable to the use of cash because there will not be a
resulting reduction in Chittenden's capital in connection with the merger.
(G) Terms of the Merger Agreement. The Chittenden Board believes that
the terms and conditions of the merger agreement, including the
representations and warranties and covenants of the parties, the conditions
to the parties' respective obligations thereunder and the termination
provisions set forth therein, are favorable to Chittenden. In addition to
such general terms and conditions, the Chittenden Board views as favorable
the following:
. eleven of the seventeen members of the Surviving Corporation Board
will be members of the Chittenden Board immediately prior to the
merger
. the corporate headquarters will be located in Burlington, Vermont
. Chittenden has entered into an employment agreement with John D.
Hashagen, Jr., Vermont Financial's President and Chief Executive
Officer
. the Surviving Corporation's name will remain "Chittenden
Corporation."
(H) Opinion of CIBC Oppenheimer. The Chittenden Board also relied on
the opinion, analyses and presentations of CIBC Oppenheimer described below
under "--Opinion of Chittenden's Financial
25
<PAGE>
Advisor," to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the exchange ratio of 1.07
is fair, from a financial point of view, to Chittenden. The Chittenden
Board viewed CIBC Oppenheimer's Opinion as favorable to its determination
because CIBC Oppenheimer is an internationally recognized investment
banking firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions and in providing
advisory services for banks and bank holding companies.
(I) Estimates Relied upon by the Chittenden Board. In reaching its
determination and recommendation, the Chittenden Board also reviewed and relied
upon internal estimates of the future performance of the Surviving Corporation
that were prepared by Chittenden's management. These estimates are summarized
below. They are being disclosed to you only because they were furnished to the
Chittenden Board, and not because they were prepared with a view to public
disclosure or because Chittenden believes you should rely on them for any
purpose. As you review this information and consider its significance,
Chittenden advises you that:
. There can be no assurance that the estimates will reflect actual future
results, and Chittenden makes no representation to that effect.
. The assumptions upon which the estimates were based involved judgements
of Chittenden's management concerning future economic, financial, market,
competitive and regulatory conditions, all of which are difficult to
predict and many of which are subject to external factors beyond the
control of Chittenden.
. The estimates were not prepared in compliance with the guidelines
concerning financial projections promulgated by the American Institute of
Certified Public Accountants.
. The estimates are not intended to present future operations in accordance
with GAAP.
. The estimates were not furnished to or compiled, audited, or otherwise
reviewed by any accounting firm, and no accounting firm, including any of
those named in this Joint Proxy Statement/Prospectus, assumes any
responsibility for the estimates.
. Any of the "Risk Factors" described on pages 10 and 11 could cause the
Surviving Corporation's actual results to differ materially from the
estimates.
. The estimates constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. For more information regarding forward-looking statements,
see the last paragraph under "Risk Factors" on page 11.
. The initial estimates were prepared in October and November 1998 and have
not been updated since that time. In addition, none of the estimates will
be updated to reflect any future events or conditions.
. The estimates for the Surviving Corporation assume an effective income
tax rate of 68% for 1999 and 36% for 2000. In 1999, some of the expenses
relating to the one time charge and the branch divestitures are non-
taxable, thereby resulting in a significant increase in the assumed
effective income tax rate for that year. The actual income tax rate may
vary materially from that assumption.
. A one time pre-tax charge of $35 million was assumed in preparing the
estimates. However, the range disclosed in Chittenden's Form 8-K filed on
December 17, 1998 was $35 million to $45 million on a pre-tax basis, and
it is possible that the actual charge could be at the higher end of the
range.
. The estimates assume divestitures of deposits and loans. In preparing the
estimates, Chittenden relied upon CIBC Oppenhiemer's Herfindahl-Hirschman
Index analysis for the level of deposits to be divested and prior market
transactions for the level of loans to be divested. The Federal Reserve
Board and the DOJ use the Herfindahl-Hirschman Index to measure the
concentration of a market and to evaluate whether and how much
divestiture would be necessary to maintain the market at a level of
concentration acceptable from a competitive perspective. As a result of
the divestitures, Chittenden believes that the unamortized goodwill from
Vermont Financial's acquisition of Eastern Bancorp will be permanently
impaired and has assumed a write-off in 1999 of the majority of that
goodwill. The amount
26
<PAGE>
of divested deposits and loans that were assumed in preparing the estimates
could be materially higher or lower, subject to the final approvals of the
Federal Reserve Board and the DOJ. In addition, the financial terms of the
sale of the deposits and loans could be materially different from those
anticipated at the time Chittenden's management prepared the estimates.
. The estimates also include assumptions on cost savings that would be
realized after all divestitures and conversions are completed. These cost
estimates were based on the divestitures being completed in the third
quarter of 1999 and computer conversions being completed in the first
quarter of 2000. The estimated pre-tax cost savings are $9 million in
1999 and $30 million in 2000. The actual cost savings could differ
materially from the estimates depending on the timing of the divestitures
and conversions and other external factors that are difficult to predict.
. The estimates also assume a reissuance of 360,000 shares of treasury
stock. The amount of stock to be reissued could be materially lower than
the original assumption due to reissuance of these shares prior to the
completion of the merger for the exercise of stock options, employee
benefit plan purchases and stockholder purchases under the dividend
reinvestment plan. In addition, the proceeds received from the reissued
shares could vary materially from those assumed in these estimates.
Chittenden Corporation and Vermont Financial Services Corp.
Pro Forma Combined (unaudited)
<TABLE>
<CAPTION>
(Dollars in
thousands,
except per
share data)
-----------------
1999 2000
-------- --------
<S> <C> <C>
Pre-Tax Income........................................ $48,694 $116,833
Net Income............................................ 15,845 75,336
Earnings per share (EPS)--diluted..................... .55 2.62
EPS (Dilution) Accretion*............................. (1.54) .53
EPS (Dilution) Accretion*............................. (74)% 25%
</TABLE>
- --------
* The (dilution) accretion was calculated based on Chittenden's 1998 diluted
EPS of $2.09.
The estimates were not prepared with a view to public disclosure or
compliance with published guidelines established by the SEC or the American
Institute of Certified Public Accountants regarding projections. The estimates
are included in this Joint Proxy Statement/Prospectus solely because such
information was provided to the Chittenden Board. In addition, the estimates
are inherently subject to significant economic and competitive uncertainties
and contingencies beyond each company's control. There can be no assurance
that the estimates will be realized. Actual results may be higher or lower
than those estimated. Neither of the companies' internal auditors nor their
independent accountants have compiled, examined or performed any procedures
with respect to the estimates, nor have they expressed any opinion or any
other form of assurance on such information or its achievability, and assume
no responsibility for, and disclaim any association with, the foregoing
prospective financial information.
The Chittenden Board also considered certain potentially negative factors
which could arise from the merger. These factors included, among others, the
significant transaction costs involved in connection with consummating the
merger, the substantial management time and effort required to effectuate the
merger and integrate the businesses of Vermont Financial and Chittenden and
the related disruption to Chittenden's operating activities. The Chittenden
Board also considered the risk that the Surviving Corporation may be unable to
successfully integrate the operating practices of Chittenden and Vermont
Financial and the possibility that the anticipated benefits of the merger
might not be fully realized. In addition, the Chittenden Board considered the
regulatory and stockholder approvals required for the completion of the
merger, including the divestiture of assets that will likely be required as a
condition to obtaining the necessary regulatory approvals. For a more detailed
discussion of the risk factors considered by the Chittenden Board, see "Risk
Factors" beginning on page 10. The Chittenden Board also evaluated the
benefits of the transaction to be received by
27
<PAGE>
certain officers and directors of Vermont Financial. See "The Merger--Other
Interests of Officers and Directors in the Merger." The Chittenden Board did
not believe that the negative factors were sufficient, either individually or
collectively, to outweigh the advantages of the merger.
The foregoing discussion of the information and factors considered by the
Chittenden Board is not intended to be exhaustive, but includes the material
factors considered by the Chittenden Board. The Chittenden Board did not assign
relative weights to the above factors or determine that any factor was of
greater importance than another. A determination of various weights would, in
the view of the Chittenden Board, be impractical. Rather, the Chittenden Board
viewed its position and recommendations as being based on the totality of the
information presented to and considered by it. In addition, individual members
of the Chittenden Board may have given different weights to different factors.
The Chittenden Board has unanimously approved and adopted the merger
agreement and the matters and transactions contemplated thereby, including the
merger, and recommends that Chittenden stockholders vote "FOR" approval of the
merger agreement, the merger and the other matters and transactions
contemplated by the merger agreement.
Recommendation of the Vermont Financial Board; Vermont Financial's Reasons for
the Merger
In reaching its determination that the merger is in the best interests of
Vermont Financial and its stockholders and recommending that Vermont Financial
stockholders vote for the approval and adoption of the merger agreement and the
matters and transactions contemplated thereby, including the merger, the
Vermont Financial Board consulted with Vermont Financial's management, as well
as its financial advisors, legal counsel and accountants, and considered a
number of factors. The material factors considered by the Vermont Financial
Board in reaching the foregoing determination and recommendation, all of which
the Vermont Financial Board deemed favorable or otherwise viewed as supporting
a decision to approve the merger, are as follows:
(A) the amount and form of the consideration offered by Chittenden in
relation to the estimated value of Vermont Financial common stock and the
liquidity of the trading market for Chittenden common stock, including that
the exchange ratio, taking into account the trading price of Chittenden
common stock at the most recent practicable date (which was December 14,
1998) prior to the date of the Vermont Financial Board's approval of the
merger, would provide a dollar value in the form of Chittenden common stock
equal to approximately 19.95 and 24.08, respectively, times estimated 1999
and 1998 Vermont Financial EPS, approximately 143% of the current per share
market price of Vermont Financial common stock and approximately 2.93 times
the tangible book value per share of Vermont Financial common stock;
(B) Chittenden's business, results of operations, financial condition
and prospects as well as the historical and potential future value of
Chittenden common stock and dividends paid thereon, including a comparison
of projected earnings per share for 1999 through 2002 provided by MB&D,
which indicated that Vermont Financial on a stand-alone basis would earn
approximately $0.40 less per share in each of the forecasted years than the
Surviving Corporation on a pro forma basis, assuming that projected cost
savings and revenue enhancements from the merger are in fact achieved, and
that Vermont Financial stockholders would realize an increase in per share
dividends of approximately 25.88%, assuming continuation of historical
dividend payment rates;
(C) the projected market capitalization and market position of the
Surviving Corporation, the diversification of the Surviving Corporation's
asset and deposit bases, the potential operating efficiency and financial
strength the merger would provide to the Surviving Corporation, its
customers and the communities it serves, and the immediate and long-term
effect that the merger could have on the ability of the Surviving
Corporation to compete more effectively in New England and elsewhere;
(D) the possible impact of the merger on Vermont Financial's customers
and that, following the merger, the Surviving Corporation would be well
situated to offer Vermont Financial's customers an expanded range of
financial services;
(E) the current and prospective economic, regulatory and competitive
climate facing independent regional community banking organizations,
including the consolidation currently underway in the banking industry and
competition from larger institutions and from non-bank providers of
financial services;
28
<PAGE>
(F) the opinion of MB&D that the exchange ratio of 1.07 is fair to
Vermont Financial stockholders from a financial point of view, as delivered
orally to the Vermont Financial Board on December 16, 1998 and confirmed in
writing as of the date of this Joint Proxy Statement/Prospectus (see "--
Opinion of Vermont Financial's Financial Advisor");
(G) the terms of the merger agreement, including the following:
. termination provisions applicable in the event of a significant
decline in the price of Chittenden common stock, both in absolute
terms and relative to a market index, prior to the completion of the
merger
. the provisions pertaining to adding members of the Vermont Financial
Board to the Chittenden Board upon the completion of the merger
. the provisions providing salary and benefits continuation for Vermont
Financial employees whose employment is terminated following the
merger
. the provisions providing protection of employee and executive
retirement benefits
. the provisions pertaining to Chittenden's maintenance of a continuing
substantial presence in Brattleboro, Vermont following the completion
of the merger;
(H) the treatment of the merger as a pooling of interests for
accounting purposes and as a tax-free reorganization for federal income tax
purposes (see "--Accounting Treatment" and "Material Federal Income Tax
Consequences"); and
(I) the long-term and short-term interests of Vermont Financial and its
stockholders and the interests of Vermont Financial's other constituencies,
including its customers, employees and the communities served by Vermont
Financial and its banking subsidiaries.
In addition, Chittenden provided Vermont Financial a copy of its 1999
Business Plan, which was approved by the Chittenden Board on November 18, 1998,
and the following supplemental schedules to augment Vermont Financial's
analysis: projected interest rate scenario, selected average balance sheet
items, selected ending balance sheet items, yields on the selected items,
income statement, and an analysis of results under alternative interest rate
environments. The Vermont Financial Board did not specifically consider
Chittenden's 1999 Business Plan in evaluating the merits of the merger.
Instead, the Vermont Financial Board relied on the projections prepared by, and
the advice of, MB&D.
The Vermont Financial Board also considered certain negative factors which
possibly could arise from the merger. These factors included, among others, the
significant transaction costs involved in connection with consummating the
merger, the substantial management time and effort required to integrate the
businesses of Vermont Financial and Chittenden and the possibility that the
integration efforts may be unsuccessful. The Vermont Financial Board also
considered the risk that the anticipated benefits of the merger might not be
fully realized as well as the potential benefits that may be realized as a
result of continuing Vermont Financial's banking activities on a stand alone
basis. The Vermont Financial Board also considered the regulatory and
stockholder approvals required for the completion of the merger, including the
divestiture of assets that will likely be required as a condition to obtaining
the necessary regulatory approvals. For a more detailed discussion of the risk
factors considered by the Vermont Financial Board, see "Risk Factors" beginning
on page 10. Further, the Vermont Financial Board considered the potential for
Chittenden to exercise its option under the terms of the stock option agreement
on the terms described herein under "The Merger--Stock Option Agreement." The
Vermont Financial Board also evaluated the benefits of the transaction to be
received by certain officers and directors of Vermont Financial (see "The
Merger--Other Interests of Officers and Directors in the Merger"). The Vermont
Financial Board did not believe that the negative factors were sufficient,
either individually or collectively, to outweigh the advantages of the merger.
In considering the opinion of MB&D that the exchange ratio is fair to
Vermont Financial stockholders from a financial point of view, the Vermont
Financial Board took into account that the various types of financial analyses
ordinarily used to support this type of opinion inevitably have limitations of
varying degree. These limitations were explained to the Vermont Financial Board
by MB&D at the time the Board considered
29
<PAGE>
and approved the merger and are described more fully below under "--Opinion of
Vermont Financial's Financial Advisor." The financial analyses employed by MB&D
and its related fairness opinion were a significant part of the information and
professional advice considered by the Vermont Financial Board, but they were
not conclusive in themselves with respect to the board's determination that the
merger is in the best interests of Vermont Financial and its stockholders.
The foregoing discussion of the information and factors considered by the
Vermont Financial Board is not intended to be exhaustive, but includes the
material factors considered by the Vermont Financial Board. The Vermont
Financial Board did not assign relative weights to the above factors or
determine that any factor was of greater importance than another. A
determination of various weights would, in the view of the Vermont Financial
Board, be impractical. Rather, the Vermont Financial Board viewed its position
and recommendations as being based on the totality of the information presented
to and considered by it. In addition, individual members of the Vermont
Financial Board may have given different weights to different factors.
The Vermont Financial Board has unanimously approved and adopted the merger
agreement and the matters and transactions contemplated thereby, including the
merger, and recommends that Vermont Financial stockholders vote "FOR" approval
of the merger agreement, the merger and the other matters and transactions
contemplated by the merger agreement.
Opinion of Chittenden's Financial Advisor
CIBC Oppenheimer was retained by Chittenden as its financial advisor in
connection with the merger. CIBC Oppenheimer is an internationally recognized
investment banking firm and was selected by Chittenden based on CIBC
Oppenheimer's qualifications, experience, expertise and reputation and because
of its familiarity with, and prior work for, Chittenden. As part of its
investment banking business, CIBC Oppenheimer is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate purposes.
In connection with CIBC Oppenheimer's engagement, the Chittenden Board
requested that CIBC Oppenheimer evaluate the fairness, from a financial point
of view, of the exchange ratio of 1.07 pursuant to the merger agreement to
Chittenden. On December 16, 1998, CIBC Oppenheimer rendered to the Chittenden
Board an oral opinion to the effect that, as of such date and subject to
certain assumptions, limitations and other matters stated therein, the exchange
ratio was fair, from a financial point of view, to Chittenden. CIBC Oppenheimer
subsequently confirmed its oral opinion of December 16, 1998, by delivery of a
written opinion dated December 16, 1998. CIBC Oppenheimer has reconfirmed its
December 16, 1998 opinion by delivering to Chittenden a written opinion dated
the date of this Joint Proxy Statement/Prospectus. In connection with its
opinion dated the date of this Joint Proxy Statement/Prospectus, CIBC
Oppenheimer updated certain of the analyses performed in connection with its
December 16, 1998 opinion and reviewed the assumptions on which such analyses
were based. CIBC Oppenheimer did not, however, recalculate any of these
analyses to reflect changes in stock prices since December 16, 1998.
A copy of CIBC Oppenheimer's opinion dated the date of this Proxy
Statement/Prospectus, which sets forth, among other things, assumptions made,
procedures followed, matters considered and limitations on the review
undertaken, is attached to this Joint Proxy Statement/Prospectus as Annex C and
is incorporated herein by reference. Chittenden stockholders are urged to read
this CIBC Oppenheimer opinion in its entirety. The CIBC Oppenheimer opinion is
directed to the Chittenden Board and addresses only the fairness, from a
financial point of view, of the exchange ratio to Chittenden, does not address
any other aspect of the merger or any related transaction and does not
constitute an opinion or a recommendation as to how any Chittenden stockholder
should vote at the Chittenden meeting. The summary of the CIBC Oppenheimer
opinion set forth herein is qualified in its entirety by reference to the full
text of such opinion.
In arriving at its opinions, CIBC Oppenheimer has reviewed, among other
things:
. the merger agreement
. the stock option agreement
30
<PAGE>
. audited consolidated financial statements and management's discussion and
analysis of the financial condition and results of operation for each of
Vermont Financial and Chittenden for the four fiscal years ended December
31, 1998
. unaudited consolidated financial statements for each of Vermont Financial
and Chittenden for the nine months ended September 30, 1998
. certain other publicly available business and financial information
relating to Chittenden and Vermont Financial
. certain internal financial analyses, budgets, projections and forecasts
for Vermont Financial and Chittenden, including estimates as to the
future cost savings and revenue enhancements expected to be achieved as a
result of the merger, prepared by and reviewed with the management of
Chittenden
. certain other summary materials and analyses with respect to Vermont
Financial's loan portfolio and deposits prepared by Chittenden
. the views of senior management of Vermont Financial and Chittenden of the
past and current business operations, results thereof, financial
condition and future prospects of their respective companies
. a comparison of certain financial information for Vermont Financial with
similar information for certain other companies considered comparable to
Vermont Financial
. the financial terms of certain recent business combinations in the
banking industry
. the pro forma effect of the transaction on Chittenden based on certain
assumptions provided by Chittenden
. the current market environment generally and the banking environment in
particular
. such other information, financial studies, analyses and investigations
and financial, economic and market criteria as CIBC Oppenheimer
considered appropriate in the circumstances.
In addition, CIBC Oppenheimer reviewed the projected income statements for
the fiscal years ended December 31, 1998 through December 31, 2002 of Vermont
Financial prepared by MB&D based on data provided by Vermont Financial's
management. The projected net income for 1998, 1999, 2000, 2001 and 2002 was
$19.1 million, $22.5 million, $28.2 million, $32.3 million and $36.0 million,
respectively. The projections were based on assumptions that Vermont Financial
would achieve projected cost savings on a stand alone basis, a 6.5% annual
growth in non-interest income, a 5% annual growth in core deposits, a 6% annual
growth of average earning assets, a 4% annual growth in non-interest expense,
annual loan loss provisions of 30 basis points on average loans, and no
recession during the forecast period.
In preparing its opinions, CIBC Oppenheimer relied, without independent
verification, upon the accuracy and completeness of the financial information,
analyses and other information furnished to CIBC Oppenheimer for the purpose of
its opinions including information relating to assets and liabilities,
contingent or otherwise. CIBC Oppenheimer has also relied upon the managements
of Vermont Financial and Chittenden as to the reasonableness and achievability
of the financial and operating forecasts and projections provided to CIBC
Oppenheimer, including estimates of future cost savings and revenue
enhancements expected to be achieved as a result of the merger (and the
assumptions and bases therefor). In that regard, CIBC Oppenheimer has assumed,
with Chittenden's consent, that such forecasts, projections and estimates have
been reasonably prepared and reflect the best currently available estimates and
judgments of the managements of Vermont Financial and Chittenden. All
forecasts, projections and estimates of Vermont Financial relied upon by CIBC
Oppenheimer were prepared by Vermont Financial's financial advisor based on
data provided by the management of Vermont Financial. CIBC Oppenheimer has not
made an independent evaluation or appraisal of the assets and liabilities of
Vermont Financial or any of its respective subsidiaries and CIBC Oppenheimer
has not been furnished with any such evaluation or appraisal. Furthermore, the
CIBC Oppenheimer opinions do not constitute any such evaluation or appraisal,
CIBC Oppenheimer is not an expert in the evaluation of allowances for loan
losses or liabilities (contingent or otherwise) and CIBC Oppenheimer has
neither made an independent evaluation of the adequacy of the allowances for
loan losses of Vermont Financial nor reviewed any individual loan credit files.
In addition, CIBC Oppenheimer assumed, based on the advice of Chittenden,
that the merger will be accounted for as a pooling of interests under generally
accepted accounting principles. CIBC Oppenheimer also
31
<PAGE>
assumed that any divestitures required in order to obtain any necessary
regulatory approvals will not exceed the levels currently contemplated by
Chittenden.
The following is a summary of material analyses performed by CIBC
Oppenheimer, which CIBC Oppenheimer presented and reviewed with the Chittenden
Board on December 16, 1998, in connection with its opinion as of such date. It
does not purport to be a complete description of the analyses performed by CIBC
Oppenheimer.
Transaction Overview. CIBC Oppenheimer reviewed the terms of the merger and
related transactions. CIBC Oppenheimer noted that the exchange ratio of 1.07
had an implied value of $34.64 per share of Vermont Financial common stock,
based on the December 11, 1998 closing price of Chittenden's common stock on
the NYSE of $32.38 per share. CIBC Oppenheimer further noted that this
represented an implied value for the transaction of $454.8 million.
Comparable Companies Analysis. CIBC Oppenheimer used publicly available
information to review and compare selected financial and market trading
information, including capitalization ratios, profitability ratios and credit
quality ratios, of Chittenden and Vermont Financial with comparable information
for 21 bank holding companies in the Northeast Region of the United States with
assets between $1 billion to $5 billion (the "Northeast Banks"). For this
purpose, "Northeast Region" means Connecticut, Maine, Massachusetts, New
Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont. The
Northeast Banks consisted of:
. Banknorth Group Inc. . Independent Bank Corp.
. BSB Bancorp Inc. . JeffBanks Inc.
. BT Finance Corp. . Merchants New York Bancorp
. First Commonwealth Financial . NBT Bancorp Inc
. Harleysville National Corp. . National Penn Bancshares Inc.
. Investors Financial Services . Omega Financial Corp.
. Sun Bancorp Inc. . United National Bancorp
. S&T Bancorp Inc. . USBANCORP Inc.
. Susquehanna Bancshares Inc. . UST Corp.
. TrustCo Bank Corp. of New York . U.S. Trust Corp.
. U.S.B. Holding Co.
Financial data were as of or for the twelve months ended September 30, 1998.
All multiples were based on closing stock prices on December 11, 1998.
The table below compares selected financial data for Vermont Financial with
the corresponding median data of the Northeast Banks.
<TABLE>
<CAPTION>
Vermont
Financial Northeast Banks
--------- ---------------
<S> <C> <C>
Price/Last Twelve Months EPS..................... 20.50x 17.00x
Price/1998 Estimated EPS......................... 17.10x 16.60x
Price/Book Value Per Share....................... 1.52x 2.22x
Price/Tangible Book Value Per Share.............. 2.09x 2.49x
Dividend Yield................................... 2.68% 2.50%
Equity/Assets.................................... 10.17% 8.77%
Tier 1 Leverage Ratio............................ 7.44% 8.32%
Last Twelve Months Return on Average Assets...... 0.79% 1.14%
Last Twelve Months Return on Average Equity...... 7.70% 14.41%
Net Interest Margin.............................. 4.57% 4.39%
Efficiency Ratio................................. 63.47% 56.86%
Nonperforming Assets/(Loans & Other Real Estate
Owned).......................................... 1.29% 0.89%
Reserves/Nonperforming Assets.................... 97.50% 169.60%
</TABLE>
32
<PAGE>
Applying the multiples for median Price/Last Twelve Months Earnings Per
Share, Price/Book Value Per Share and Price/Tangible Book Value Per Share of
the Northeast Banks to the corresponding Vermont Financial data below indicated
an implied equity reference range for Vermont Financial of approximately $21 to
$35 per share. CIBC Oppenheimer noted that the implied per share value of the
merger of $34.64 was within this reference range.
<TABLE>
<CAPTION>
Vermont Financial (9/30/98)
---------------------------
<S> <C>
Last Twelve Months Net Income................................. $ 16.4 million
Book Value.................................................... $214.5 million
Tangible Book Value........................................... $156.4 million
Fully Diluted Shares Outstanding.............................. 13,118,028
</TABLE>
<TABLE>
<CAPTION>
Northeast Total
Banks Imputed Imputed Valuation
Median Valuation Per Share
--------- ------------ -----------------
<S> <C> <C> <C>
Price/Last Twelve Months Net
Income.......................... 17.0x $279 million $21.27
Price/Book Value Per Share....... 2.22x $418 million $31.86
Price/Tangible Book Value Per
Share........................... 2.49x $464 million $35.34
</TABLE>
Comparable Transactions Analysis. CIBC Oppenheimer also reviewed twelve
transactions announced from January 1, 1997 through December 11, 1998 involving
commercial banks and thrifts in the Northeast Region in which the aggregate
consideration paid was between $300 million and $1 billion ("Northeast
Transactions"). CIBC Oppenheimer reviewed the ratios of deal price to last four
quarters' earnings, deal price to book value, deal price to tangible book
value, deal price to total deposits and core deposit premium and computed high,
low, mean and median ratios. These median multiples were applied to Vermont
Financial's financial information as of and for the twelve months ended
September 30, 1998. As illustrated in the following table, based upon the
median multiples for the Northeast Transactions, CIBC Oppenheimer derived an
implied equity reference range for Vermont Financial of approximately $27 to
$40 per share. CIBC Oppenheimer noted that the implied per share value of the
merger of $34.64 was within this reference range.
<TABLE>
<CAPTION>
Northeast
Transactions
----------------
Median Implied
Multiple Value
-------- -------
<S> <C> <C>
Deal Price/Last Twelve Months EPS........................... 21.70x $27.16
Deal Price/Book Value....................................... 241.10% $34.33
Deal Price/Tangible Book Value.............................. 265.81% $37.49
Deal Price/Total Deposit.................................... 30.09% $40.24
Tangible Book Premium/Core Deposits......................... 19.65% $35.56
</TABLE>
In addition, CIBC Oppenheimer reviewed 29 transactions announced from
January 1, 1997 through December 11, 1998 involving commercial banks and
thrifts nationwide with aggregate consideration paid between $300 million and
$1 billion ("Nationwide Transactions"). CIBC Oppenheimer reviewed the premium
paid above the share price one day, six days and one month prior to the
announcement date and computed a high, low, mean, and median for the Nationwide
Transactions. The median multiples were applied to Vermont Financial's closing
share price as of December 11, 1998. As illustrated in the following table,
based upon the median multiples for Nationwide Transactions, CIBC Oppenheimer
derived an implied equity reference range for Vermont Financial of
approximately $31 to $33 per share. CIBC Oppenheimer noted that the implied per
share value of the merger of $34.64 was slightly above this reference range.
CIBC Oppenheimer also noted, however, that this method of analysis did not take
into account the trading patterns of individual stocks which frequently reflect
specific developments affecting the relevant issuer. Accordingly, CIBC
Oppenheimer did not place undue weight on this analysis.
33
<PAGE>
<TABLE>
<CAPTION>
Nationwide
Transactions
----------------
Median Implied
Multiple Value
-------- -------
<S> <C> <C>
One Day Prior to Announcement............................... 30.0% $32.99
Six Days Prior to Announcement.............................. 27.1% $32.25
One Month Prior to Announcement............................. 20.7% $30.63
</TABLE>
Discounted Cash Flow Analysis. CIBC Oppenheimer performed a discounted cash
flow analysis to determine a range of present values per share of the common
stock of Vermont Financial on a stand alone basis. The earnings projections
which formed the basis for the analysis were consistent with projections
prepared by the management of Vermont Financial. Vermont Financial management's
projections of future net income for the years 1998, 1999, 2000, 2001 and 2002
were as follows:
Vermont Financial Management Projections
<TABLE>
<CAPTION>
Year Net Income
---- -------------
<S> <C>
1998....................... $19.1 million
1999....................... 22.5 million
2000....................... 28.2 million
2001....................... 32.3 million
2002....................... 36.0 million
</TABLE>
These projections represent a compounded annual growth rate of 19.1%. CIBC
Oppenheimer performed a sensitivity analysis by calculating the discounted cash
flow of Vermont Financial using assumed earnings growth rates of 15.0%, 17.5%
and 20.0%. The range was determined by adding (1) the present value of the
estimated future cash flow stream that Vermont Financial could generate over
the five year period beginning January 1, 1998 and ending on December 31, 2002
and (2) the "terminal value" of Vermont Financial. The terminal value of
Vermont Financial at the end of the five year period was determined by applying
EPS multiples (12.0x to 15.0x) to the projected earnings for the year ending
December 31, 2002, using discount rates of 10%, 11%, 12% and 13%, which CIBC
Oppenheimer viewed as appropriate for companies with the risk characteristics
of Vermont Financial. These analyses, which are shown in the following table,
indicated an implied equity reference range for Vermont Financial on a stand
alone basis of approximately $29 to $42 per share without giving effect to any
of the cost savings or revenue enhancements projected to be achieved as a
result of the merger. CIBC Oppenheimer noted that the implied per share value
of the merger of $34.64 was within this reference range.
<TABLE>
<CAPTION>
Discount Rate
Terminal ---------------------------
Multiple 10.00% 11.00% 12.00% 13.00%
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
15.0% Estimated Growth Rate............... 12 $31.85 $30.89 $29.98 $29.11
13 33.63 32.61 31.64 30.71
14 35.42 34.34 33.30 32.31
15 37.20 36.06 34.96 33.91
17.5% Estimated Growth Rate............... 12 33.77 32.75 31.78 30.84
13 35.67 34.58 33.55 32.55
14 37.57 36.42 35.32 34.26
15 39.47 38.26 37.09 35.97
20.0% Estimated Growth Rate............... 12 35.77 34.69 33.65 32.66
13 37.80 36.65 35.54 34.48
14 39.83 38.60 37.43 36.30
15 41.86 40.56 39.31 38.12
</TABLE>
Historical and Projected Contribution Analysis. CIBC Oppenheimer reviewed
and compared the relative pro forma contribution of Chittenden and Vermont
Financial to the combined company based on selected
34
<PAGE>
historical balance sheet and income statement data from 1993 to September 30,
1998. Without giving effect to any cost savings or revenue enhancements
expected to be achieved as a result of the merger, the following table
indicates what Chittenden and Vermont Financial would have contributed on a pro
forma basis to the combined company.
<TABLE>
<CAPTION>
Chittenden 1998YTD 1997 1996 1995 1994 1993
---------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Cash & Securities.................. 46.8% 45.0% 62.2% 62.7% 62.1% 64.7%
Total Loans.............................. 52.5 52.2 59.9 57.6 52.8 52.5
Reserves................................. 59.2 58.5 67.3 65.3 57.7 54.9
Total Assets............................. 49.3 48.5 60.2 59.0 54.8 55.9
Total Deposits........................... 50.7 51.0 61.9 60.6 55.7 56.1
Total Equity............................. 44.6 43.2 59.3 57.9 55.6 55.1
Net Interest Income...................... 52.6 55.8 59.7 59.0 56.1 54.0
Non-Interest Income...................... 47.0 50.3 56.6 55.3 54.2 59.2
Net Income............................... 62.2 63.2 61.7 59.8 60.3 64.1
<CAPTION>
Vermont Financial 1998YTD 1997 1996 1995 1994 1993
----------------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Cash & Securities.................. 53.2% 55.0% 37.8% 37.3% 37.9% 35.3%
Total Loans.............................. 47.5 47.8 40.1 42.4 47.2 47.5
Reserves................................. 40.8 41.5 32.7 34.7 42.3 45.1
Total Assets............................. 50.7 51.5 39.8 41.0 45.2 44.1
Total Deposits........................... 49.3 49.0 38.1 39.4 44.3 43.9
Total Equity............................. 55.4 56.8 40.7 42.1 44.4 44.9
Net Interest Income...................... 47.4 44.2 40.3 41.0 43.9 46.0
Non Interest Income...................... 53.0 49.7 43.4 44.7 45.8 40.8
Net Income............................... 37.8 36.8 38.3 40.2 39.7 35.9
</TABLE>
In addition, CIBC Oppenheimer reviewed and analyzed the projected net income
contribution of Chittenden and Vermont Financial to the Surviving Corporation
for 1998, 1999, 2000 and 2001 before giving effect to any cost savings or
revenue enhancements expected to be achieved as a result of the merger, as well
as analyzing the pro forma ownership based on the exchange ratio. The analysis
indicated that Chittenden would contribute to the Surviving Corporation for
1998, 1999, 2000 and 2001, approximately 61.7%, 57.7%, 55.2% and 53.8%, of its
projected net income, respectively. Based on the exchange ratio of 1.07, CIBC
Oppenheimer calculated that Chittenden's current stockholders would own
approximately 50.6% of the Surviving Corporation following the merger (without
giving effect to any reissuance of Chittenden common shares prior to the
merger) as compared to 49.4% for Vermont Financial's current stockholders.
Pro Forma Merger Analysis. Based upon an exchange ratio of 1.07 CIBC
Oppenheimer analyzed certain potential pro forma effects of the merger on the
reported earnings per share of Chittenden. Based on projections of Chittenden
and Vermont Financial, including the reissuance of common stock of Chittenden
and the divestitures of branches, implementation of Year 2000 compliance
measures, charges associated with the merger and projected cost savings, the
analysis indicated that the merger would be dilutive to holders of Chittenden
common stock for 1999 and accretive for the years 2000 and 2001. The pro forma
merger analysis assumes a divestiture of deposits of approximately $527
million, a reissuance of 350,000 shares of Chittenden common stock at $31.00 a
share, an approximate writedown of goodwill of $45 million due to the
divestiture of branches and a projected total cost savings of 40% of Vermont
Financial non-interest expense. The actual results achieved by the combined
company may vary from projected results and the variations may be material.
35
<PAGE>
<TABLE>
<CAPTION>
1999 2000
------ ------
<S> <C> <C>
Projected Stand Alone EPS of Chittenden...................... $ 2.25 $ 2.41
Pro forma EPS Before Merger Related Charges.................. $ 2.02 $ 2.64
EPS Accretion/Dilution....................................... (10.10)% 9.40%
Projected Return on Average Assets (Before Merger Related
Charges).................................................... 1.41% 1.91%
Projected Return on Average Common Equity (Before Merger
Related Charges)............................................ 15.61% 19.88%
Projected Book Value Per Share............................... $12.96 $13.27
Projected Tangible Book Value Per Share...................... $11.15 $12.66
</TABLE>
As described above, the CIBC Oppenheimer opinion and the information
provided by CIBC Oppenheimer to the Chittenden Board were among a number of
factors taken into consideration by the Chittenden Board in making its
determination to enter into the merger agreement. Consequently, the CIBC
Oppenheimer opinion and the analyses summarized above should not be regarded as
determinative of the views of the entire Chittenden Board or the management of
Chittenden.
For the services of CIBC Oppenheimer as financial advisor to Chittenden in
connection with the merger, pursuant to an engagement letter dated November 15,
1998, Chittenden has agreed to pay CIBC Oppenheimer a transaction fee equal to
$1.8 million. Of this fee, $360,000 was paid upon execution of the merger
agreement, $500,000 was paid upon rendering the fairness opinion that is
included in this Joint Proxy Statement/ Prospectus, and $940,000 will be paid
upon the completion of the merger. Chittenden has also agreed to reimburse CIBC
Oppenheimer for its reasonable out-of-pocket expenses, including the reasonable
fees and disbursements of its counsel, and to indemnify CIBC Oppenheimer
against certain liabilities, including certain liabilities arising under the
federal securities laws. CIBC Oppenheimer has provided certain investment
banking and advisory services to Chittenden from time to time, for which it has
received, and will receive, customary compensation.
The table below shows fees paid by Chittenden to CIBC Oppenheimer in the
last two years, excluding fees related to the merger.
<TABLE>
<CAPTION>
1997 1998
---- -------
<S> <C> <C>
CIBC Oppenheimer ............................................... $ 0 $72,415
</TABLE>
CIBC Oppenheimer has advised Chittenden that, in the ordinary course of its
business as a full-service securities firm, CIBC Oppenheimer may, from time to
time, effect transactions, for its own account or for the accounts of
customers, and hold positions in securities or options on securities of
Chittenden and Vermont Financial.
The summary set forth above describes the material analyses that CIBC
Oppenheimer performed and presented to the Chittenden Board on December 16,
1998 in connection with rendering the CIBC Oppenheimer opinion as of such date,
and does not purport to be a complete description of such analyses. The
preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
being evaluated, and therefore is not readily susceptible to summary
description. In arriving at its opinion, CIBC Oppenheimer made qualitative
judgments as to the significance and relevance of each analysis and factor
considered by it. Accordingly, CIBC Oppenheimer believes that its analyses must
be considered as a whole and that selecting a portion of its analyses without
considering all factors and analyses would create an incomplete view of the
analyses and processes underlying its opinion. In its analyses, CIBC
Oppenheimer relied upon numerous assumptions made by Chittenden and Vermont
Financial with respect to industry performance, general business and economic
conditions, and other matters, many of which are beyond the control of
Chittenden and Vermont Financial. No company or transaction used as a
comparison in the analyses is identical to Chittenden or Vermont Financial or
the merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
36
<PAGE>
companies' business segments or transactions being analyzed. Additionally,
estimates of the value of the businesses or securities do not purport to be
appraisals or necessarily reflective of the prices at which businesses or
securities actually may be sold. Because such estimates are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of Chittenden and Vermont Financial, none of Chittenden, Vermont Financial,
CIBC Oppenheimer or any other person assumes responsibility if future results
or actual values are materially different from these forecasts or assumptions.
Opinion of Vermont Financial's Financial Advisor
On December 16, 1998, MB&D delivered its oral opinion to the Vermont
Financial Board, that, as of that date, the exchange ratio of 1.07 was fair
from a financial point of view to Vermont Financial stockholders. This opinion
has been updated for the purpose of this Joint Proxy Statement/Prospectus and
is attached hereto as Annex D. The exchange ratio of 1.07 was negotiated based
on consideration of numerous factors, including the following:
. an analysis of the historical and projected future contributions of
recurring earnings by the parties
. an analysis of the possible future EPS results for the companies on both
a combined and a stand alone basis
. an analysis of the potential to realize significant recurring operating
expense reductions and consideration of the dilutive or accretive
effects of the merger
. earnings, assets, loans, relative asset quality, the apparent adequacy
of reserves for loan and lease losses, the composition of the deposit
bases, the historical trading range, trading pattern and relative
liquidity of the common shares of each of the companies
. the accounting equity capitalization and the market capitalization of
each of the companies as well as other factors, including certain
intangible factors.
MB&D has acted as financial advisor to Vermont Financial on a contractual
basis since March 12, 1992 in connection with Vermont Financial's development
and implementation of its strategic plan and has assisted Vermont Financial in
the evaluation of numerous hypothetical affiliation opportunities with banks,
thrifts and other financial institutions since that date. During 1992 and 1993
for example, MB&D represented Vermont Financial in connection with its
acquisition of WestMass Bankshares, Inc., the parent holding company of United
Bank. With respect to the pending transaction involving Chittenden, MB&D
advised Vermont Financial during the evaluation and negotiation process leading
up to the execution of the merger agreement and provided Vermont Financial with
a number of analyses as to a range of financially feasible exchange ratios that
might be achieved in a hypothetical transaction. Representatives of MB&D met
with the executive management and board of directors of Vermont Financial or
designated committees thereof on eight separate occasions during the period
from September 9, 1998 to December 16, 1998 in connection with the analysis of
Vermont Financial's strategic alternatives and the negotiation process. The
determination of the exchange ratio was arrived at in an arms-length
negotiation between Chittenden and Vermont Financial in a process in which MB&D
advised Vermont Financial and participated directly in the negotiations.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions generally, its knowledge
of the Vermont banking market in particular and of the Eastern United States
banking markets in general as well as its experience with merger and
acquisition transactions involving banking institutions. As a part of its
investment banking business, which is focused on financial services industry
participants, MB&D is continually engaged in the valuation of financial
institutions and their securities in connection with its equity brokerage
business generally and mergers and acquisitions in particular. Members of the
Corporate Finance Advisory Group of MB&D have extensive experience in advising
financial institution clients on mergers and acquisitions. In the ordinary
course of its business as an NASD broker/dealer, MB&D may from time to time
purchase securities from or sell securities to Vermont Financial or Chittenden
and, as a market maker in securities, MB&D may from time to time have a long or
short position in, and buy or sell debt or equity securities of Vermont
Financial or Chittenden for its own account or for the accounts of its
customers. In addition, in the ordinary course of business, the employees of
MB&D may have direct or indirect investments in the debt or equity securities
of either or both Vermont Financial or Chittenden.
37
<PAGE>
The full text of the MB&D opinion, which sets forth assumptions made,
matters considered and limits on the review undertaken is attached hereto as
Appendix D. MB&D urges that all Vermont Financial stockholders read both the
MB&D opinion in its entirety and this Joint Proxy Statement/Prospectus in its
entirety. The MB&D opinion is directed only to the exchange ratio. The MB&D
opinion does not constitute a recommendation to any holder of Vermont Financial
common stock as to how such holder should vote at the Vermont Financial
meeting. The summary of the MB&D opinion and the matters considered in MB&D's
analysis set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of the MB&D opinion itself. The MB&D
opinion is necessarily based upon conditions as of the date of the MB&D opinion
and upon information made available to MB&D through the date thereof. No
limitations were imposed by the Vermont Financial Board upon MB&D with respect
to the investigations made, matters considered or procedures followed in the
course of rendering the MB&D opinion.
Materials Reviewed and Analyses Performed by MB&D. In connection with its
delivery of the MB&D opinion, MB&D:
. reviewed the merger agreement
. reviewed this Joint Proxy Statement/Prospectus in substantially the form
to be mailed to Vermont Financial stockholders
. reviewed Vermont Financial's Annual Reports to Stockholders, Annual
Reports on Form 10-K and related financial information for the four
fiscal years ended December 31, 1994 through 1997, and Vermont
Financial's Quarterly Report on Form 10-Q and related unaudited financial
information for the first, second and third quarters of 1998
. reviewed Vermont Financial's Annual Report on Form 10-K and related
financial information for the fiscal year ended December 31, 1998
. reviewed Vermont Financial's press release concerning unaudited results
for the fourth quarter of 1998 and calendar year 1998
. reviewed Chittenden's Annual Reports to Stockholders, Annual Reports on
Form 10-K and related financial information for the four fiscal years
ended December 31, 1995 through 1998, and Chittenden's Quarterly Report
on Form 10-Q and related unaudited financial information for the first,
second and third quarters of 1998
. reviewed Chittenden's press release concerning unaudited results for the
fourth quarter of 1998 and calendar year 1998
. reviewed certain internal financial information and financial forecasts,
relating to the business, earnings, cash flows, assets and prospects of
the respective companies furnished to MB&D by Vermont Financial and
Chittenden
. held discussions with members of the senior management and board of
directors of Vermont Financial concerning the past and current results of
operations of Vermont Financial, its current financial condition and
management's opinion of its future prospects
. held discussions with members of the senior management of Chittenden
concerning the past and current results of operations of Chittenden, its
current financial condition and management's opinion of its future
prospects
. reviewed the historical record of reported prices, trading volume and
dividend payments for both Vermont Financial common stock and Chittenden
common stock
. considered the current state of and future prospects for the economy of
Vermont, New Hampshire and Massachusetts generally and the relevant
market areas for Vermont Financial and Chittenden in particular
. employed specific merger analysis models developed by MB&D to evaluate
potential business combinations of financial institutions using both
historical reported information and projected information for both
Vermont Financial and Chittenden and reviewed the results
. reviewed the reported financial terms of selected recent business
combinations of financial institutions for purposes of comparison to the
pending transaction
. performed such other studies and analyses as MB&D considered appropriate
under the circumstances associated with this particular transaction.
The MB&D opinion takes into account MB&D's assessment of general economic,
market and financial conditions and its experience in other transactions
involving participants in the financial services industry, as well
38
<PAGE>
as MB&D's experience in securities valuation and its knowledge of the banking
industry generally. For purposes of rendering the MB&D opinion, MB&D has
assumed and relied upon the accuracy and completeness of the information
provided to it or made available by Vermont Financial and Chittenden and does
not assume any responsibility for the independent verification of such
information. With respect to financial forecasts made available to MB&D, it has
been assumed by MB&D that they were prepared on a reasonable basis and reflect
the best currently available estimates and good faith judgments of the
management of Vermont Financial and Chittenden, respectively, as to the future
performance of Vermont Financial and Chittenden. MB&D has also relied upon
assurances of the management of Vermont Financial and Chittenden that they were
not aware of any facts or of the omission of any facts that would make the
information or financial forecasts provided to MB&D incomplete or misleading.
In the course of rendering the MB&D opinion, MB&D has not completed any
independent valuation or appraisal of any of the assets or liabilities of
either Vermont Financial or Chittenden and has not been provided with such
valuations or appraisals from any other source.
The following is a summary of the material analyses employed by MB&D in
connection with its rendering the MB&D opinion. Because it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of all the matters considered by MB&D in
rendering the MB&D opinion. The preparation of a fairness opinion is a
complicated process, involving a determination as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances. Therefore, such an opinion is not readily
susceptible to a summary description. In rendering the MB&D opinion, MB&D did
not attribute any particular weight to any one specific analysis or factor
considered by it and made qualitative as well as quantitative judgments as to
the significance of each analysis and factor. Therefore, MB&D believes that its
analyses must be considered as a whole and feels that attributing undue weight
to any single analysis or factor considered could create a misleading or
incomplete view of the process leading to the formation of its opinion. In its
analyses, MB&D has made certain assumptions with respect to banking industry
performance, general business and economic conditions and other factors, many
of which are beyond the control of management of either Vermont Financial or
Chittenden. Estimates referred to in MB&D's analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may vary significantly from such estimates. In addition, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses might actually be sold. Accordingly, such analyses
and estimates are inherently subject to uncertainty and MB&D does not assume
responsibility for the accuracy of such analyses or estimates. Unless the
context otherwise requires, references throughout this section to Vermont
Financial common stock and related per share amounts include shares of Vermont
Financial common stock issuable upon the exchange of outstanding options.
Analysis of the Anticipated Transaction and the Applicable Exchange Ratio in
Relation to Vermont Financial. Pursuant to the terms of the merger agreement,
the anticipated consideration to be exchanged in the transaction for each
outstanding share of Vermont Financial common stock is 1.07 shares (subject to
adjustment) of Chittenden common stock in exchange for each share of Vermont
Financial common stock. It is anticipated that the transaction will be tax free
to those stockholders of Vermont Financial who hold their shares as a capital
asset and that the transaction will be accounted for as a pooling of interests.
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<PAGE>
Pro Forma Contribution Analysis. Based on reported unaudited financial data
for Vermont Financial and Chittenden as of September 30, 1998 and as of
December 31, 1998 and before adjusting for the impact of any required
divestitures, the relative contributions of the parties to the pro forma
Chittenden on a pooling basis would have been approximately as follows:
Pro Forma Contribution Table
<TABLE>
<CAPTION>
At At
September 30, December 31,
1998 1998
--------------- --------------
Item CHZ VFSC CHZ VFSC
---- ------ ------- ------ ------
<S> <C> <C> <C> <C>
Assets....................................... 49.30% 50.70% 49.76% 50.24%
Loans........................................ 51.90 48.10 50.58 49.42
Deposits..................................... 50.70 49.30 51.38 48.62
Equity....................................... 44.93 55.07 44.97 55.03
Tangible Equity.............................. 44.60 55.40 52.68 47.32
Pro forma combined Earnings.................. 62.19 37.81 61.62 38.38
Ownership interests.......................... 51.10 48.90 50.06 49.94
</TABLE>
Based on adjusted fully converted shares and share equivalents outstanding
for the two companies as of September 30, 1998 and as of December 31, 1998 and
the negotiated exchange ratio of 1.07 to 1, current Vermont Financial
stockholders would have owned approximately the indicated percentage ownership
interests amounts of the pro forma shares outstanding of Chittenden.
Projected Transaction Value. Based upon the exchange ratio and the last
reported sale price value of Chittenden common stock reported by the NYSE on
December 16, 1998, which was $31.50, the theoretical market value of the
anticipated transaction was approximately $442 million as of that date, based
on an estimated 14,024,000 shares of Chittenden common stock to be issued to
Vermont Financial stockholders. On a per share basis this is equivalent to
approximately $33.71 per share ($31.50 x 1.07). MB&D elected to use the last
reported sale price of the Chittenden common stock on the NYSE on December 16,
1998 because that date was the last full day of trading prior to the
announcement of the merger. The merger was announced after the close of trading
on December 16, 1998. Given that the applicable exchange ratio in this case is
fixed, the market value of the exchange will fluctuate as the market value of
Chittenden common stock fluctuates. Based on the last reported sale price for
Chittenden common stock reported by the NYSE as of April 5, 1999, which was
$26.75, the last trading day prior to this Joint Proxy Statement/Prospectus
being declared effective, the theoretical market value of the anticipated
transaction was approximately $380 million as of such date, based on an updated
estimate of approximately 14.2 million shares of Chittenden common stock to be
issued to Vermont Financial stockholders. This value will continue to fluctuate
as the value of a share of Chittenden common stock fluctuates in the market.
Multiple of Historical and Projected Earnings for Vermont Financial Common
Stock. The cited per share theoretical value of $33.71 as of December 16, 1998
represents a multiple of 22.32 times reported EPS for 1997 which was $1.51. The
$33.71 value cited is the equivalent of 23.24 times unaudited reported stand-
alone EPS for 1998 of $1.45 and the equivalent of 18.72 times the consensus
estimated stand alone earnings for 1999 of $1.80. The consensus estimate
referenced was obtained from IBES analyst estimates reported on Bloomberg
Financial Markets. The cited per share theoretical value of $33.71 represents a
multiple of 19.26 times management's internal estimate of stand alone EPS for
1999 which is $1.75. Based on the closing market value for Chittenden common
stock as of April 5, 1999 which was $26.75 and a revised transaction value per
share of $28.62, the multiples of earnings were 18.96, 19.74, 15.90 and 16.36
times for 1997 reported EPS, 1998 reported EPS, the consensus estimated stand-
alone EPS for 1999 and management's internal estimate for 1999 stand alone EPS,
respectively.
Multiple of Stated Book Value of Vermont Financial Common Stock. The cited
theoretical value of $33.71 represents a multiple of 2.03 times Vermont
Financial's reported $16.64 book value per share as of
40
<PAGE>
September 30, 1998 and 2.022 times Vermont Financial's subsequently reported
unaudited, book value per share as of December 31, 1998, which was $16.67. The
updated value per share of $28.62 represents 1.72 times Vermont Financial's
unaudited book value per share as of December 31, 1998.
Multiple of Tangible Book Value of Vermont Financial Common Stock. The cited
theoretical value of $33.71 represents a multiple of 2.78 times Vermont
Financial's reported $12.12 in tangible book value per share as of September
30, 1998 and 2.75 times Vermont Financial's subsequently reported unaudited
tangible book value per share as of December 31, 1998, which was $12.25. The
updated value per share of $28.62 represents 2.34 times Vermont Financial's
unaudited tangible book value per share as of December 31, 1998.
Percentage of Market Value of Vermont Financial Common Stock. Based upon the
cited theoretical values of $33.71 and $28.62 for the two cited valuation
dates, the theoretical values represent 130.87% (a 30.87% premium) and 102.90%
(a 2.90% premium), respectively, of the last reported bid prices for Vermont
Financial common stock, which were $25.75 on December 16, 1998 and $27.81 on
April 5, 1999.
Specific Acquisition Analysis. MB&D employs a proprietary analytical model
to examine hypothetical transactions involving banking companies. The model
uses forecasted earnings data, selected current period balance sheet and income
statement data, current market and trading information and a number of
assumptions as to interest rates for borrowed funds, the opportunity costs of
funds, discount rates, dividend streams, effective tax rates, transaction
structures (the alternative or combined uses of common equity, cash, debt or
other securities, to fund a transaction) and the projected impact (if any) of
any required deposit divestitures that might be necessary in conjunction with
obtaining regulatory approval of a given transaction. The model distinguishes
between purchase and pooling of interests accounting treatments and inquires
into the likely economic feasibility of a given hypothetical transaction at a
given price level or specified exchange rate while employing a specified
transaction structure. The model also permits evaluation of various levels of
potential non-interest expense savings which might be achieved along with
various potential implementation time tables for such savings, as well as the
possibility of revenue enhancement opportunities which may arise in a given
hypothetical transaction.
For the purposes of rendering the MB&D opinion, MB&D evaluated a fixed
exchange ratio of 1.07 shares of Chittenden common stock in exchange for each
share of Vermont Financial common stock in a tax deferred transaction
conditioned on the receipt of pooling of interests accounting treatment. MB&D
believes that the nominal EPS dilution on a pro forma basis (before
consideration of cost savings or potential revenue enhancements and excluding
non-recurring expenses) for Chittenden would approximate 13.4% or $0.30 per
share. At the same time, MB&D's calculations suggest that this transaction
would be slightly accretive (.08%) to tangible book value per share on a pro
forma basis to Chittenden. The transaction would equate to a comparable deposit
premium of 16.28% and would result in an increase of dividend payments to
Vermont Financial stockholders (based on an annualization of the most recent
regular quarterly dividend payment to stockholders by Chittenden) of 25.88%.
The pro forma entity would continue to be more than adequately capitalized with
a ratio of tangible common equity to tangible assets in excess of 7.70% and an
estimated tier one capital ratio in excess of 10.0%. In order for the
transaction to become neutral to EPS from a dilution perspective, MB&D
estimates that it would be necessary to achieve a reduction in pre-tax non-
interest-expense of approximately $13.3 million, which represents 15.8% of
budgeted 1999 non-interest expenses (adjusted to eliminate possible double
counting in light of an ongoing publicly announced cost savings and revenue
enhancement project) for Vermont Financial or $84 million. Because the
incremental amounts of recurring cost savings and the exact timing of their
realization are not possible to ascertain, MB&D did not attempt to forecast the
future quarter in which the merger would become EPS neutral or accretive. It is
the belief of MB&D that reductions in recurring non-interest expense in excess
of $13.3 million should be feasible for the parties involved and that the
merger can be expected to become meaningfully accretive to pro forma EPS with
the passage of time. MB&D estimates that, with a reasonably aggressive
implementation of cost savings initiatives following the merger, the merger
will become accretive to Chittenden's EPS in 2000.
Earnings Pass-Through Analysis. Earnings pass-through analysis is based on a
comparison of anticipated pro forma values to values as of a given point in
time. For example, based on Vermont Financial's
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<PAGE>
management internal forecast of $1.75 in stand alone EPS for 1999, one should
query what earnings would be associated with 1.07 shares of pro forma
Chittenden common stock. The calculations of MB&D suggest that with no cost
savings or revenue enhancements and ignoring non-recurring and transaction
expenses, the earnings associated with 1.07 shares of Chittenden common stock
would represent a 19.17% increase over the earnings associated with one share
of Vermont Financial common stock. If one further assumes that exactly enough
cost savings can be achieved to render the transaction EPS neutral, from a
Chittenden perspective, the earnings associated with 1.07 shares of Chittenden
common stock would represent a 37.6% increase over the earnings associated with
a single share of Vermont Financial common stock. To the extent that more cost
savings and/or revenue enhancements are achievable, such earnings pass-through
enhancement could exceed 37.6%. Chittenden has publicly disclosed that it hopes
to achieve annualized cost savings ranging from 35% to 40% of non-interest
expense in this transaction. MB&D is comfortable with an expectation that cost
savings in excess of the level necessary to render this transaction earnings
neutral to EPS for Chittenden are reasonably achievable. The primary conclusion
of this analysis is that a Vermont Financial stockholder who exchanges his
shares for Chittenden common stock at the exchange ratio of 1.07 will hold
securities that MB&D believes will generate more EPS in future periods than the
shares of Vermont Financial common stock exchanged. The implication is that as
long as Chittenden trades at a price to earnings ratio that is similar to the
price to earnings ratio at which shares of Vermont Financial historically
traded, or higher, the market value of the 1.07 shares of Chittenden common
stock will exceed the market value of the Vermont Financial shares exchanged.
Upstream Acquisition Analysis. MB&D also completed an analysis of the
relative capacity of other financial services entities doing business in New
England to acquire Vermont Financial on economic terms that are equal to or
better than those proposed by Chittenden. MB&D examined the theoretical ability
of such entities to employ a transaction structure with similar tax and
accounting implications as that proposed by Chittenden (i.e., a tax-free stock
for stock exchange accounted for as a pooling of interests). This analysis was
based solely on publicly available information concerning such other entities
and no conversations were held with either the management or any other
representatives of such entities. From a preliminary list of eleven entities
(including Chittenden), which in the opinion of MB&D could theoretically have
been interested in a possible acquisition of Vermont Financial, six entities
were further reviewed in a detailed analysis. The companies eliminated from
consideration were eliminated, in some cases, based on public statements that
they had no interest in any acquisitions in Vermont banking markets. In other
cases, entities were eliminated based on their historical pattern of
acquisitions primarily in markets which met or exceeded certain demographic
thresholds that are generally not met by most markets in Vermont. With respect
to the six entities which were analyzed in detail, one entity was included in
spite of the fact that its historical pattern of acquisition transactions
featured only cash transactions due to its ownership by a foreign financial
entity. In examining the six companies, the data employed were based on
publicly available information as of September 30, 1998 and consensus estimates
for future period EPS obtained from Bloomberg Financial Markets. Factors
considered included, for a range of hypothetical transaction values which
ranged above and below the expected nominal value for the potential merger with
Chittenden, the following:
. pro forma EPS dilution
. pro forma tangible book value dilution
. calculated additional after tax earnings necessary to render a given
transaction earnings neutral to the acquiring entity
. the equivalent pre-tax reduction in non-interest expense that would be
necessary to render a given transaction EPS neutral to the acquiror
. a value pass-through analysis with respect to earnings, book value and
pro forma dividends per share
. the likely impact on trading liquidity versus existing liquidity for
Vermont Financial common stock and other such factors.
As a result of this analysis, MB&D concluded that of the six entities
considered, Chittenden would be able to complete a stock for stock transaction
on a basis where the amount of required cost savings expressed as a pre-tax
reduction in non-interest expense would be lower than such case for all but one
of the other entities. Such a transaction contains the highest potential for
accretion. MB&D similarly noted that of all the entities
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<PAGE>
considered, Chittenden, as an in-market participant, would likely find more
opportunities to accomplish cost savings than the other parties considered. The
single party which would have encountered required savings which were similar
to those required by Chittenden represented a level of anti-trust
considerations, due to market concentration factors, which appeared to be
greater than that associated with the combination of Chittenden and Vermont
Financial. The conclusion reached by MB&D as a result of its upstream analysis,
was that there was no other clear additional candidate which would be able to
offer consideration which equaled or exceeded the initial indication of
interest offered by Chittenden.
Discounted Cash Flow Analysis. MB&D reviewed a discounted cash flow model
which it prepared based on projections provided by the management of Vermont
Financial. The model employed a projection of hypothetical point estimate
earnings for Vermont Financial on an independent stand alone basis for calendar
years 1998 through 2002. A similar exercise was completed for the hypothetical
combination of Vermont Financial and Chittenden for the same periods employing,
in the case of Chittenden, projections for Chittenden that were provided to
MB&D by CIBC Oppenheimer. As part of each exercise, a hypothetical dividend
payout ratio assumption, which depicted average annual payouts as a percentage
of earnings, was used to project dividend streams, which would be available to
stockholders. MB&D employed a range of possible future market trading
price/earnings ratios ranging from a minimum of nine times earnings to a
maximum of fifteen times earnings in order to project possible future trading
values for a share of either Vermont Financial common stock on an independent
basis or an equivalent amount of Chittenden common stock reflecting the
exchange ratio. Given the model time horizon and a discount rate of 10.0%,
these assumptions resulted in a range of present discounted values for a share
of Vermont Financial common stock on an independent basis as depicted in the
table below. Such values ranged from $19.11 to $29.68 and included
consideration of the present discounted value of the projected stream of cash
dividends, which might be received by a stockholder during the cited period.
The same exercise completed for the pro forma Surviving Corporation generated a
range of present discounted values (also using a 10% discount rate) which
ranged from $23.63 to $37.19. These values represented the discounted present
values of the sum of the future possible trading values of the equivalent of
one share of Vermont Financial common stock plus the discounted value of the
stream of cash dividends which were projected to have been received between the
present and the future valuation date at the end of 2002. The discount rates
employed represented the sum of a factor of 5% for the time value of money and
a 5% factor as a pure risk premium. If there is no difference between the
discounted cash flow analyses represented by two alternatives, one could be
said to be financially indifferent between alternatives. In each case reviewed,
the full range of present discounted values for the hypothetical combination of
Vermont Financial and Chittenden exceeded the full range of present discounted
values for Vermont Financial on a stand alone basis by a margin in excess of
23%. In preparing its discounted cash flow analysis, MB&D used an implied
exchange ratio of 1.05 to 1, which is less than the exchange ratio of 1.07 to 1
that was agreed upon by Chittenden and Vermont Financial. This means that the
following table depicts lower present discounted values than would be depicted
if MB&D had used an implied exchange ratio of 1.07 to 1.
Summary of Present Discounted Values Based on
Point Earnings Estimates for Five Years
Vermont Financial on a Stand-Alone Basis
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Future trading multiple....... 9.0x 10.0x 11.0x 12.0x 13.0x 14.0x 15.0x
Present discounted value...... $19.11 $20.87 $22.63 $24.39 $26.16 $27.92 $29.68
</TABLE>
Surviving Corporation on a Pro Forma Combined Basis
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Future trading multiple....... 9.0x 10.0x 11.0x 12.0x 13.0x 14.0x 15.0x
Present discounted value...... $23.63 $25.89 $28.15 $30.41 $32.67 $34.93 $37.19
</TABLE>
The purpose of such a discounted cash flow exercise is not to make a precise
estimate of where Vermont Financial on a stand-alone basis will be trading at a
precise point in the future. It is equally not an effort to predict, on a
precise basis, where the pro forma Chittenden will be trading at an exact point
in the future.
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<PAGE>
MB&D believes that, with the large number of variables involved, including many
which are beyond the control of management, such predictions with any degree of
precision are beyond the capability of MB&D, Vermont Financial or Chittenden.
Rather, the point of the exercise is to employ reasonable future point earnings
estimates to complete an analysis designed to test a hypothesis that the result
of one given course of action is likely to be better over time than another. In
MB&D's opinion, the results of the present discounted cash flow analysis
provide a reasonable basis to conclude that the stockholders of Vermont
Financial are likely to be better off financially as a result of completing the
merger than they would likely be if Vermont Financial remains an independent
financial institution.
It is important to note that the discount factors employed embody both the
concept of a time value of money and risk factors that reflect the uncertainty
of the forecasted cash flows and terminal price/earnings multiples. Use of
higher discount rates would result in lower discounted present values.
Conversely, use of lower discount rates would result in higher discounted
present values. MB&D advised the Vermont Financial Board that although
discounted cash flow analysis is a frequently used valuation methodology, it
relies on numerous assumptions, including discount rates, terminal values,
future earnings performance and asset growth rates, as well as dividend payout
ratios. The accurate specification of such assumptions for time periods more
than one year in the future is a very difficult process and contains the
possibility of inaccuracy. Consequently, any or all of these assumptions may
vary from actual future performance and results. Any errors made in the
selection of assumptions for such an exercise can compound on one another and
can lead to conclusions that may demonstrate little resemblance to actual
events.
Other Factors Given Consideration. MB&D has given consideration to a number
of additional factors associated with the pending transaction which it believes
are favorable from the point of view of a Vermont Financial stockholder.
Completion of the merger would give the Surviving Corporation a core market
share position in most of the key banking markets in Vermont. It would also
provide access to potentially lucrative banking markets located in New
Hampshire which display demographics which are equal to or superior to the
market demographics associated with many markets currently served by Chittenden
in Vermont. The pending transactions would also increase market share of the
Surviving Corporation in Massachusetts. MB&D believes that the exchange ratio
negotiated reflects a very reasonable share of ownership in the Surviving
Corporation for Vermont Financial stockholders based on both a historical and a
projected contribution analysis. Further, Vermont Financial stockholders would
be initially represented by six directors on the Surviving Corporation Board.
MB&D believes that the pro forma entity will be a more visible financial
institution in the national financial markets and, with its common stock traded
on the NYSE, may attract increased research coverage and generate greater
liquidity from a shares traded perspective than is the case for Vermont
Financial on a stand alone basis. MB&D also believes that Vermont Financial
stockholders will encounter prospects for greater future annual cash dividends
based upon projected cost savings and the earnings growth expectations of the
combined company than would have been the case for continued independence.
Analysis of Other Comparable Transactions. MB&D is reluctant to place
emphasis on "comparables analysis" as a valuation methodology due to what it
considers to be inherent limitations of the application of the results to
specific cases. It has observed that such analysis as routinely employed by
some industry observers and financial advisors fails to adequately take into
consideration such factors as:
. material differences in the underlying capitalization of the comparable
institutions which are being acquired
. differences in the historic earnings (or loss) patterns recorded by the
compared institutions which can depict a very different trend than might
be implied by examining only recent financial results
. failure to exclude non-recurring profit or loss items from the last
twelve months' earnings streams of target companies which can distort
apparent earnings multiples
. material differences in the form or forms of consideration used to
complete the transactions
. differences between the planned method of accounting for the completed
transactions
. such less accessible factors as the relative population, business and
economic demographics of the acquired entities' markets as compared or
contrasted to such factors for the markets in which comparable companies
are doing business.
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<PAGE>
Comparables analysis also rarely seems to take into consideration the degree
of facilities overlap between the acquirer's market and that of the target or
the absence of such overlap and the resulting cost savings differentials
between otherwise apparently comparable transactions. Comparables analysis also
frequently fails to incorporate the projected impact of deposit divestitures
which may be required by regulators in a given transaction and completely
absent in a so-called comparable transaction. MB&D consequently believes that
comparables analysis has serious inherent limitations and should not be relied
upon to any material extent by members of management, the board of directors or
stockholders of Vermont Financial in considering the presumed merits of a
pending transaction.
With these serious reservations in mind, MB&D examined statistics associated
with sixteen transactions (excluding the subject transaction) involving
commercial banks and thrifts located in the State of New York and New England,
which were announced between June 1997 and December 1998. The transactions
examined were:
. FNB Rochester Corp/M&T Bancorp (pending)
. Village Bancorp Inc./Webster Financial Corp. (pending)
. Maritime Bank & Trust/Webster Financial Corp. (pending)
. New Canaan Bank & Trust Co./Summit Bancorp (pending)
. Livermore Bankshares/Androscoggin Savings (pending)
. Evergreen Bancorp/Banknorth Group Inc. (pending)
. Woburn National Corp./Citizens Financial Group
. Bank of South Windsor/New England Community Bancorp
. Olde Port Bank & Trust Co./New England Community Bancorp
. Haymarket Co-Op Bank/Century Bancorp
. ONBANCorp Inc./M&T Bank Corp.
. Community Savings Bank/New England Community Bancorp
. Foxboro National Bank/Ben Franklin Bancorp
. Bank of Southington/HUBCO Inc.
. Glastonbury Bank/SIS Bancorp, Inc.
. Atlantic Bancorp/Peoples Heritage Financial Group Inc.
The table which follows permits a comparison of the mean and midpoint values
for four selected statistics arising from the list of sixteen transactions
evaluated with the "comparable" statistics calculated for the transaction which
is described in this Joint Proxy Statement/Prospectus.
"Comparable" Statistics
<TABLE>
<CAPTION>
Announced Announced Announced
Comparable Transaction Transaction Transaction
Deposit Price/Stated Price/Tangible Price/Trailing
Comparable Statistics Premium Book Value Book Value 12 Months Earnings
- --------------------- ---------- ------------ -------------- ------------------
<S> <C> <C> <C> <C>
Comparable mean......... 16.71% 247.86% 252.55% 20.52x
Comparable midpoint..... 17.25% 263.04% 265.07% 21.81x
Vermont Financial-
Chittenden (1)......... 16.28% 202.50% 278.05% 27.18x
</TABLE>
- --------
(1) Based on a fixed exchange ratio of 1.07 to 1 and a price per share of
$31.50, which was the last reported sale price for Chittenden common stock
on the NYSE on December 16, 1998, the day the proposed merger was
announced.
A mean value is the arithmetic average of the group. The midpoint value is
the value which is exactly between the highest and lowest values for the group.
The implied deposit premium for the Vermont Financial/Chittenden transaction is
slightly below the mean for the sixteen sample transactions and below the
midpoint value for the same sample. The relationship of the announced
transaction value to stated book value is well below both the mean and midpoint
for the transaction sample. This may reflect the relatively high equity to
asset ratio at which Vermont Financial has been operating. The ratio of the
transaction price to tangible book
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<PAGE>
value exceeds both the mean and midpoint for such measures for the transaction
sample. Finally, the multiple of trailing 12 months earnings represented by the
cited transaction price (27.18 times) well exceeds both the mean and midpoint
for such measure for the transaction sample. Given the enumerated reservations
concerning the problematic nature of such superficial comparisons, MB&D is
reluctant to draw conclusions based on such comparisons alone. MB&D is inclined
to place more weight on each of the other methods of analysis summarized in
this section than on comparables analysis regardless of whether or not the
apparent comparisons appear to be in favor of or not in favor of a given
pending transaction.
Compensation of MB&D. Pursuant to a letter agreement with Vermont Financial
dated December 16, 1998, MB&D will receive a fee equivalent to 0.60% (60 basis
points) of the fair market value of consideration
to be received by Vermont Financial stockholders plus an amount equal to 5%
(500 basis points) of the difference in the total market value of the
transaction calculated at an exchange ratio of 1.07 to 1 and the total market
value of the transaction calculated at an exchange ratio of 1.05 to 1. MB&D was
paid $500,000 after the execution of the merger agreement and was paid an
additional $1.0 million upon issuance of the MB&D opinion. Payment of the
balance of the fee will be conditioned on the closing of the merger and will be
calculated as illustrated below to arrive at a total fee, from which the $1.5
million already paid to MB&D will be deducted. The following is an illustration
of MB&D's potential compensation based on the assumptions listed below.
. the market value of Chittenden common stock as of the closing is $26.50
. diluted shares outstanding of Vermont Financial equals 12,850,000
. Vermont Financial options outstanding equal 590,000
. the weighted average exercise price is $20.00 for such options
Base fee: 12,850,000 x 1.07 x $26.50 x .006 = $2,186,170.50
Option base fee: 590,000 x 1.07 x ($26.50-$20.00) x .006 = $24,620.70
Exchange ratio differential fee: 12,850,000 x (1.07-1.05) x $26.50 x .05 =
$340,525.00
Option exchange ratio differential fee: 590,000 x (1.07-1.05) x ($26.50-
$20.00) x .05 = $3,835.00
Total illustrative fee: $2,555,151.20
The fee that will be payable to MB&D is impacted by the trading value of
Chittenden common stock. The fee methodology would result in a higher fee if
Chittenden is trading at a value greater than $26.50 and would result in a
lower fee in the event Chittenden is trading at a value less than $26.50.
The fee represents compensation for services rendered in connection with the
analysis of the hypothetical transaction, support of the negotiations,
participation in drafting and for the rendering of both MB&D's oral opinion on
December 16, 1998 and the MB&D opinion included with this Joint Proxy
Statement/Prospectus. In addition, Vermont Financial has agreed to reimburse
MB&D for its reasonable out-of-pocket expenses incurred in connection with the
transaction. During the two-year period ended on December 31, 1998, Vermont
Financial paid an aggregate of $550,000 to MB&D for various services provided
to Vermont Financial, including the $500,000 paid to MB&D in connection with
the execution of the merger agreement. Vermont Financial has also agreed to
indemnify MB&D and its directors, officers and employees against certain
losses, claims, damages and liabilities relating to or arising out of MB&D's
engagement, including liabilities under the federal securities laws.
Other Interests of Officers and Directors in the Merger
In considering the independent recommendations of the Chittenden Board and
Vermont Financial Board with respect to the merger, holders of Chittenden and
Vermont Financial common stock should be aware that officers and directors of
Vermont Financial and Chittenden have interests in the merger that are
different from, or in addition to, the interests of the stockholders of
Chittenden and Vermont Financial generally. The Chittenden Board and Vermont
Financial Board were aware of such interests and considered them, among other
matters, in approving the merger agreement and the matters and transactions
contemplated thereby, including the merger.
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As of March 26, 1999, the directors and executive officers of Vermont
Financial owned an aggregate of approximately 962,117 shares of Vermont
Financial common stock and held options to purchase an aggregate of
approximately 385,072 shares of Vermont Financial common stock at a weighted
average exercise price of approximately $19.32. Pursuant to the terms of the
merger agreement, Vermont Financial's directors and executive officers will
receive the same consideration for their shares of Vermont Financial common
stock as the other Vermont Financial stockholders. Upon completion of the
merger, all outstanding options to purchase Vermont Financial common stock will
be converted into options to purchase common stock of the Surviving Corporation
as described under "The Merger Agreement--Vermont Financial Stock Options."
Hashagen Employment Agreement. Chittenden, as the Surviving Corporation, has
entered into an employment agreement with John D. Hashagen, Jr., the President
and Chief Executive Officer of Vermont Financial, pursuant to which Chittenden
will cause Vermont National Bank ("VNB"), which will be a wholly-owned
subsidiary of Chittenden following the merger, to employ Mr. Hashagen as
President and Chief Executive Officer. In carrying out his duties, Mr. Hashagen
will report to the President and Chief Executive Officer of Chittenden and
oversee and direct the operations of VNB. The employment agreement becomes
effective when the merger is completed and terminates on March 31, 2000.
Mr. Hashagen's employment agreement provides that he will be paid a base
salary of $300,000 per year, subject to an increase not to exceed 5% as may be
determined by the Vermont Financial Board prior to the merger. During the
employment term, Mr. Hashagen will be entitled to participate in all of the
compensation and benefit plans made available generally to senior executives of
Chittenden. In addition, Mr. Hashagen will be entitled, as applicable to him,
prior to and when the merger is completed, to benefits provided for and
contemplated by the merger agreement relating to Vermont Financial's Executive
Supplemental Retirement Plan ("SRP"), Incentive Compensation Plan and Defined
Contribution Plan. See "--Executive Supplemental Retirement Plan Payments." For
1999, Mr. Hashagen will receive a bonus from Chittenden, which when added to
the 1999 bonus permitted to be paid to him by Vermont Financial under the
merger agreement, will equal the bonus paid to Mr. Hashagen in 1998 pursuant to
Vermont Financial's Incentive Compensation Plan. The benefits described in this
paragraph will continue throughout the employment term unless Mr. Hashagen's
employment is terminated by VNB for cause, by Mr. Hashagen without good reason,
or as a result of Mr. Hashagen's death or disability.
Upon the termination of Mr. Hashagen's employment and after the expiration
of Mr. Hashagen's rights to receive continuing life, disability, accident,
medical and dental insurance benefits pursuant to a severance agreement, dated
as of February 9, 1990, as amended, between Mr. Hashagen, Vermont Financial and
VNB, Mr. Hashagen and his dependents shall be treated as eligible for "COBRA"
health care continuation coverage at a cost to Mr. Hashagen equal to the cost
imposed generally by Chittenden upon similarly situated former employees who
receive such COBRA coverage. Following the expiration of this COBRA coverage,
Chittenden will make available to Mr. Hashagen further medical and dental
continuation coverage under Chittenden's group medical and dental plans until
the earlier of age 65 or the date on which Mr. Hashagen becomes eligible to
receive Medicare health coverage, at a cost to Mr. Hashagen equal to the cost
imposed generally by Chittenden upon similarly situated former employees who
receive such continuation coverage under COBRA. Notwithstanding the foregoing,
Chittenden's obligation to make continuing medical and dental coverage
available will terminate at the earlier of such time as Mr. Hashagen becomes
eligible to receive substantially equivalent medical and dental coverage from
another employer or fails to make timely payment (as determined in accordance
with COBRA) for such benefit coverage. The benefits set forth in this paragraph
shall continue after the term of his employment agreement unless earlier
terminated as provided in the preceding sentence.
In addition, each of Mr. Hashagen and Chittenden acknowledged that the
merger constitutes a "Change of Control" under Mr. Hashagen's severance
agreement. The parties further acknowledged that Mr. Hashagen's employment
under his employment agreement constitutes "Good Reason" within the meaning of
his severance agreement; provided, however, that during his employment term, so
long as Chittenden complies in all material respects with the employment
agreement, Mr. Hashagen has agreed to waive until the expiration of the
employment term any claim that his employment pursuant to the employment
agreement constitutes "Good
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Reason" for the termination of his employment under his severance agreement.
Except for this conditional waiver, the severance agreement shall remain in
full force and effect from and after the completion of the merger.
Executive Supplemental Retirement Plan Payments. Vermont Financial and
Chittenden have agreed that payments may be made by Vermont Financial upon the
completion of the merger to each of Mr. Hashagen, W. Bruce Fenn, Richard O.
Madden, Robert G. Soucy, Louis J. Dunham, John R. Davidson, Philip G. Gibson
and Marilyn J. McQuaide (collectively the "SRP Participants") under Vermont
Financial's SRP. Chittenden has agreed to assume all liability under the SRP,
and payments to the SRP Participants shall continue in accordance with the
methodology utilized prior to the merger. Each SRP Participant who is employed
as of the closing date of the merger shall receive a single lump sum payment of
the actuarial value of his or her benefit under the SRP, assuming such benefit
would have commenced and termination would have occurred at age 65, calculated
as of December 31, 1998 utilizing a 7% discount rate, plus earnings on such
amount calculated at a rate of 7% per annum from December 31, 1998 until the
date of the lump sum payment.
Health Insurance Continuation Agreements. Concurrently with the execution of
the merger agreement, Chittenden entered into health insurance continuation
agreements with Messrs. Dunham, Fenn, Madden and Soucy, each an executive of
Vermont Financial and/or VNB. Pursuant to each health insurance agreement, from
and after the completion of the merger and upon the termination of employment
of the executive by Chittenden and any of its subsidiaries, the executive will
receive continuing life, disability, accident, medical and dental insurance
benefits pursuant to the terms of a severance agreement, dated as of February
9, 1990 (in the case of Mr. Dunham, March 17, 1994), between the executive and
Vermont Financial and/or VNB. Upon termination of such benefits under the
severance agreement, the executive and his dependents will be treated as
eligible for COBRA coverage at a cost to the executive equal to the cost
imposed generally by Chittenden upon similarly situated former employees who
receive COBRA coverage. Following the expiration of the COBRA coverage,
Chittenden shall make available to the executive further medical and dental
continuation coverage under Chittenden's group medical and dental plans for one
additional year at a cost to the executive equal to the cost imposed generally
by Chittenden upon similarly situated former employees who receive such COBRA
coverage. Notwithstanding the foregoing, Chittenden's obligation to make
continuing medical and dental coverage available shall terminate at the earlier
of such time as the executive becomes eligible to receive substantially
equivalent medical and dental coverage from another employer or fails to make
timely payment (as determined in accordance with COBRA) for such benefit
coverage.
Stock Options and Restricted Stock. Holders of options to purchase Vermont
Financial common stock will automatically have their options converted into
options to purchase shares of common stock of the Surviving Corporation, and
the Surviving Corporation will assume each such option subject to the terms of
Vermont Financial's stock option plans; provided, however, that from and after
the completion of the merger, (1) the number of shares of the Surviving
Corporation's common stock purchasable upon exercise of each Vermont Financial
option will be equal to the number of shares of Vermont Financial common stock
that were purchasable under such Vermont Financial option immediately prior to
the completion of the merger multiplied by the exchange ratio, rounded to the
nearest whole share (with .5 being rounded up), and (2) the per share exercise
price under each such Vermont Financial stock option shall be adjusted by
dividing the per share exercise price of each such Vermont Financial stock
option by the exchange ratio, rounding to the nearest cent. Each Vermont
Financial option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization, or other similar transaction with respect to the Surviving
Corporation's common stock on or subsequent to the completion of the merger. In
addition, fourteen employees of Vermont Financial and/or VNB have agreed in
connection with the merger to waive certain of their change in control benefits
that would have otherwise entitled such employees to receive the cash value for
certain of their Vermont Financial options. These fourteen employees were the
only employees entitled to such benefits. Accordingly, in lieu of receiving
cash, such employees' Vermont Financial options will be converted into options
to purchase common stock of the Surviving Corporation in accordance with the
foregoing. The treatment of options is more fully described under "The Merger
Agreement--Vermont Financial Stock Options."
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Waiver of Change in Control Benefits by Chittenden's Management. In
consideration of the potential benefits that some of the executives and
directors of Chittenden may receive as a result of the merger, Chittenden's
executives and directors have agreed in connection with the merger to waive all
change in control benefits that could have become payable to them as a result
of the merger.
Composition of the Surviving Corporation Board. The Surviving Corporation
will be governed by a seventeen member board of directors upon completion of
the merger, which will include four Chittenden directors elected pursuant to
Proposal 2, the seven directors of Chittenden whose terms expire in 2000 and
2001 and six current members of the Vermont Financial Board that will be
selected by Chittenden. For information regarding the four nominees for
Chittenden directors and the seven continuing directors, see "Proposal 2--
Information Regarding Nominees, Continuing Directors and Executive Officers."
At least fifteen of the seventeen directors of the Surviving Corporation
will not be employees of the Surviving Corporation.
Directors and Officers Indemnification and Insurance. As described in "The
Merger Agreement--Material Covenants--Indemnification," the merger agreement
provides that all rights to indemnification and limitations on liabilities
existing in favor of the current or former directors or officers of Vermont
Financial or each of its subsidiaries as provided in their respective charters
or bylaws or comparable organizational documents will continue from and after
the completion of the merger. The merger agreement also provides that
Chittenden will indemnify current or former directors and officers of Vermont
Financial and each of its subsidiaries in connection with any claims pertaining
to any such person's status as a director or officer at any time prior to the
completion of the merger or relating to the merger agreement, the stock option
agreement, any agreements that may pertain to the subsequent mergers of the
banking subsidiaries of Vermont Financial and Chittenden and any of the
transactions contemplated by any of the foregoing, which may be brought at any
time up to six years after the completion of the merger. In addition,
Chittenden will use its best efforts to cause the persons serving as officers
and directors of Vermont Financial immediately prior to the completion of the
merger to be insured for six years from the completion of the merger by
directors' and officers' liability insurance on terms and conditions that are
no less favorable, as to coverage and amounts, than those of Vermont
Financial's existing policy with respect to acts or omissions occurring prior
to the completion of the merger. In the event that Chittenden or any of its
successors merges into another company without being the surviving corporation
or sells substantially all of its or its successors' assets, Chittenden will
provide that the successors of Chittenden assume these obligations.
Stock Option Agreement
The following is a description of the material terms of the stock option
agreement. All stockholders of Chittenden and Vermont Financial are urged to
read the stock option agreement, a copy of which has been previously filed with
the SEC by Chittenden, in its entirety for a complete description of the terms
thereof.
As a condition to Chittenden's willingness to enter into the merger
agreement, Vermont Financial entered into the Stock Option Agreement, dated as
of December 16, 1998, with Chittenden. Pursuant to the stock option agreement,
Vermont Financial granted Chittenden an option (the "Chittenden Option") to
purchase up to 2,557,073 shares of Vermont Financial common stock, which was
approximately 19.9% of the number of shares of Vermont Financial common stock
outstanding as of December 16, 1998. The exercise price of the Chittenden
Option is $22.00 per share, subject to adjustment under specified
circumstances.
Arrangements such as the stock option agreement are often entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be completed in accordance with their
terms, and to compensate the recipient of the option for its efforts and
expenses, losses and opportunity costs in connection with the transactions if
they are not completed due to circumstances involving an acquisition or
potential acquisition of the option issuer by a third party. The stock option
agreement may have the effect of discouraging offers by third parties to
acquire Vermont Financial prior to the merger even if such persons are prepared
to pay more than the current market price of the shares of the Surviving
Corporation's common stock to be received by the stockholders of Vermont
Financial pursuant to the merger agreement.
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The Chittenden Option will become exercisable in whole or in part only if
both an initial triggering event and a subsequent triggering event occur with
respect to Vermont Financial before the Chittenden Option terminates.
For purposes of the stock option agreement:
(A) An initial triggering event will occur if one of the following
events occurs:
(1) Vermont Financial or a subsidiary thereof, without Chittenden's
prior written consent, enters into an agreement to engage in an
"acquisition transaction" of a type specified in the stock option
agreement as described below with a third party, or the Vermont
Financial Board recommends that its stockholders approve or accept any
acquisition transaction;
(2) Vermont Financial or a subsidiary thereof, without Chittenden's
prior written consent, authorizes, recommends, proposes or publicly
announces its intention to authorize, recommend or propose an
acquisition transaction with a third party or if the Vermont Financial
Board publicly withdraws or modifies or publicly announces its
intention to withdraw or modify, in any manner adverse to Chittenden,
its recommendation that the stockholders of Vermont Financial approve
the transactions contemplated by the merger agreement in anticipation
of engaging in an acquisition transaction with a third party, or if
Vermont Financial's Board publicly announces its intention not to
recommend that its stockholders approve the transactions contemplated
by the merger agreement because of or in connection with an actual or
proposed acquisition transaction with a third party;
(3) A third party acquires beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares
of Vermont Financial's common stock;
(4) A third party makes a bona fide proposal to Vermont Financial
or its stockholders to engage in an acquisition transaction and such
proposal has been publicly announced or disclosed;
(5) Vermont Financial breaches and does not cure within a specified
time period any covenant or obligation contained in the merger
agreement after an overture is made by a third party to engage in an
acquisition transaction, and following such breach Chittenden would be
entitled to terminate the merger agreement; or
(6) Any person other than Chittenden or any subsidiary of
Chittenden, other than in connection with a transaction to which
Chittenden has given its prior written consent, files an application or
notice with 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.
(B) As used above in (A), "acquisition transaction" means:
(1) a merger or consolidation or any similar transaction
involving Vermont Financial or any significant subsidiary of Vermont
Financial;
(2) a purchase, lease or other acquisition of all or a
substantial portion of the consolidated assets or consolidated deposits
of Vermont Financial or any of its significant subsidiaries;
(3) a purchase or other acquisition (including by merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Vermont Financial; or
(4) any substantially similar transaction; provided, however,
that in no event will a transaction contemplated by the merger
agreement or any merger, consolidation, purchase or similar transaction
involving only Vermont Financial and one or more of its subsidiaries or
involving only two or more of such subsidiaries be deemed to be an
acquisition transaction, provided such transaction is not entered into
in violation of the merger agreement.
(C) A subsequent triggering event will occur if one of the following
events occurs:
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(1) any person acquires beneficial ownership of 20% or more of the
then outstanding shares of Vermont Financial common stock; or
(2) the initial triggering event described above in clause (A)(1)
occurs, except that the percentage referred to in clause (B)(3) of the
definition of "acquisition transaction" set forth above is 20%.
The Chittenden Option will terminate upon the earliest to occur of:
(1) the completion of the merger;
(2) the termination of the merger agreement in accordance with
its terms if such termination occurs prior to the occurrence of an
initial triggering event, except a termination by Chittenden due to a
volitional breach by Vermont Financial of a representation, warranty or
covenant; or
(3) the passage of twelve months after termination of the merger
agreement if such termination follows the occurrence of an initial
triggering event or is a termination by Chittenden due to a volitional
breach by Vermont Financial of a representation, warranty or covenant.
Upon the occurrence of a subsequent triggering event that occurs prior to
the termination of the Chittenden Option, Chittenden will have registration
rights with respect to the shares of Vermont Financial common stock issued
under or issuable pursuant to the Chittenden Option.
The stock option agreement also provides that within 90 days after the
occurrence of a subsequent triggering event and immediately prior to the
occurrence of a Repurchase Event (as hereinafter defined), upon request,
Vermont Financial will repurchase the Chittenden Option and all or any part of
the shares received upon the full or partial exercise of the Chittenden Option
from the holder thereof. Such repurchase of the Chittenden Option shall be made
at an aggregate price equal to the amount by which the Market/Offer Price
exceeds the Chittenden option price multiplied by the number of shares then
subject to the Chittenden Option. To the extent Chittenden previously acquired
shares of Vermont Financial common stock upon the exercise of part of the
Chittenden Option, such shares shall be repurchased by Vermont Financial at the
Market/Offer Price. The term "Market/Offer Price" means the highest of the
following:
. the price per share at which a tender or exchange offer has been made
for Vermont Financial common stock in connection with the Repurchase
Event
. the price per share of Vermont Financial common stock that any third
party is to pay pursuant to an agreement with Vermont Financial in
connection with the Repurchase Event
. the highest closing price per share of Vermont Financial common stock
within the six-month period immediately preceding the date that notice
to repurchase is given
. if there is a sale of all or a substantial portion of Vermont
Financial's assets, the sum of the price paid for such assets and the
current market value of the remaining assets (as determined by a
nationally recognized investment banking firm), divided by the number of
shares of Vermont Financial common stock outstanding at the time of such
sale.
The term "Repurchase Event" is defined in the stock option agreement to mean
(1) the acquisition by any third party of beneficial ownership of 50% or more
of the outstanding shares of Vermont Financial's common stock or (2) the
consummation of a merger, consolidation or similar transaction involving
Vermont Financial or any purchase, lease or other acquisition of all or a
substantial portion of the assets of Vermont Financial unless such transaction
would not constitute an "acquisition transaction," in either case provided that
a subsequent triggering event shall have occurred before the termination of the
Chittenden Option.
Pursuant to the terms of the stock option agreement, if, prior to the
termination of the Chittenden Option, Vermont Financial enters into an
extraordinary transaction in which Vermont Financial is effectively not the
surviving corporation, the Chittenden Option may be converted into, or
exchanged for, an option with terms similar to those of the Chittenden Option
being converted or exchanged, as the case may be, to purchase stock of the
entity that is the effective successor to Vermont Financial.
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The stock option agreement generally provides that neither Chittenden nor
Vermont Financial may assign any of its respective rights or obligations
thereunder without the written consent of the other party. However, if a
subsequent triggering event occurs before the termination of the Chittenden
Option, Chittenden may, subject to limitations, assign its rights and
obligations thereunder in whole or in part within 90 days following the
subsequent triggering event (subject to extension in certain cases); provided,
however, that until fifteen days after the Federal Reserve Board approves an
application by Chittenden under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), to acquire the option shares, Chittenden may not assign
its rights under the Chittenden Option except in one of the following ways:
. a widely dispersed public distribution
. a private placement in which one party does not acquire the right to
purchase in excess of 2% of the voting shares of Vermont Financial
. an assignment to a single party (e.g., a broker or investment banker)
for the purpose of conducting a widely dispersed public distribution on
Chittenden's behalf
. any other manner approved by the Federal Reserve Board.
To the best knowledge of Vermont Financial and Chittenden, no event giving
rise to any rights to exercise the Chittenden Option has occurred as of the
date of this Joint Proxy Statement/Prospectus.
Accounting Treatment
The merger is expected to be accounted for as a pooling of interests in
accordance with GAAP.
No Dissenters' or Appraisal Rights
Holders of Chittenden common stock and Vermont Financial common stock are
not entitled to dissenters' or appraisal rights under Vermont or Delaware law
in connection with the merger. See "Comparison of Rights of Holders of Vermont
Financial Common Stock and Chittenden Common Stock--Appraisal/Dissenters'
Rights."
Stock Exchange Listing of Surviving Corporation's Common Stock; Delisting and
Deregistration of Vermont Financial Stock
It is a condition to the merger that the NYSE approve for listing the shares
of Chittenden common stock to be issued in the merger. Chittenden common stock
is listed on the NYSE under the symbol "CHZ." Upon completion of the merger,
Vermont Financial common stock will be delisted from the NASDAQ National Market
and deregistered under the Securities Exchange Act. See "Comparative Per Share
Market Price and Dividend Information."
Dividends
Chittenden, as the Surviving Corporation, expects that after the completion
of the merger, subject to approval and declaration by the Surviving Corporation
Board, it will declare regularly scheduled quarterly dividends on the shares of
its common stock consistent with past practices. The current annualized rate of
distributions on the shares of Chittenden common stock is $0.80 per share.
Vermont Financial expects to continue to declare regularly scheduled
dividends on the Vermont Financial common stock until the merger is completed,
subject to the terms of the merger agreement. The right of holders of Vermont
Financial common stock to receive dividends will end upon the completion of the
merger when the separate corporate existence of Vermont Financial will cease.
See "Comparative Per Share Market Price and Dividend Information."
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THE MERGER AGREEMENT
The following is a description of the material terms of the merger
agreement. A copy of the merger agreement is attached to this Joint Proxy
Statement/Prospectus as Annex A. All stockholders of Chittenden and Vermont
Financial are urged to read the entire merger agreement for a complete
description of the terms and conditions of the merger. Any capitalized terms
used below that are not otherwise defined are used with the definitions given
to them in the merger agreement.
General
The merger agreement provides for a series of transactions pursuant to which
Vermont Financial will merge with and into Chittenden. Specifically, under the
terms and subject to the conditions of the merger agreement, Chittenden
Acquisition Subsidiary, Inc., a Delaware corporation and wholly-owned
subsidiary of Chittenden ("CASI"), will merge with and into Vermont Financial,
the separate corporate existence of CASI will cease and Vermont Financial will
survive and continue its corporate existence under the laws of the State of
Delaware as a wholly-owned subsidiary of Chittenden. As soon as practicable
thereafter, Vermont Financial will merge with and into Chittenden, the separate
corporate existence of Vermont Financial will cease and Chittenden will be the
surviving corporation. Subject to the satisfaction or waiver of conditions set
forth in the merger agreement and described in "--Conditions to Complete the
Merger," the merger of CASI with and into Vermont Financial will become
effective upon the filing of the certificate of merger with the Secretary of
State of the State of Delaware or at such later time specified therein (the
"Effective Time"). The date on which the Effective Time occurs is the
"Effective Date."
Merger Consideration
In the merger, holders of Vermont Financial common stock will receive shares
of Chittenden common stock as described in detail below.
Outstanding Vermont Financial Common Stock. With the exception of treasury
shares and shares held by Vermont Financial or any of its subsidiaries or by
Chittenden or any of it subsidiaries (other than in a fiduciary capacity), each
share of Vermont Financial common stock issued and outstanding immediately
prior to the Effective Time will be converted into and become the right to
receive 1.07 shares of Chittenden common stock.
Possible Adjustments to Exchange Ratio. The exchange ratio of 1.07 may be
adjusted:
. either upwards or downwards if Chittenden or Vermont Financial changes
the number, or provides for the exchange, of their respective shares of
common stock outstanding as a result of a stock split, stock dividend,
recapitalization, reclassification, reorganization or similar
transaction, and the record date for such a change is prior to the
Effective Date
. upwards but not downwards if all of the following occur:
(1) the average closing price of Chittenden common stock for the
fifteen trading days prior to receipt of the final regulatory
approval necessary to complete the merger is less than $25.20 per
share
(2) the decline in the price of Chittenden common stock from $31.50 on
December 16, 1998 to the average closing price during the fifteen
trading days prior to receipt of the final regulatory approval
necessary to complete the merger, expressed as a percentage, is
more than 12 percentage points greater than the price decline, if
any, also expressed as a percentage, of a weighted average index
of common stock prices of selected bank holding companies using
the same measurement dates
(3) Vermont Financial exercises its right to cancel the merger as a
result of such price decline, subject to Chittenden's right to
require Vermont Financial to complete the merger if Chittenden
increases the exchange ratio of 1.07 as provided in the merger
agreement
(4) Chittenden so elects to increase the exchange ratio.
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Rights of Holders of Vermont Financial Common Stock at the Effective Time;
Vermont Financial Stock Transfers After the Effective Time. At the Effective
Time, holders of Vermont Financial common stock will cease to be, and will have
no rights as, stockholders of Vermont Financial, other than the right to
receive any dividend or other distribution with respect to Vermont Financial
common stock with a record date occurring prior to the Effective Time and to
receive the applicable consideration in the merger. After the Effective Time,
there will be no transfers on Vermont Financial's stock transfer books of any
shares of Vermont Financial common stock.
Exchange of Vermont Financial Certificates
Prior to the Effective Time, Chittenden will deposit with the exchange
agent, BankBoston, N.A., certificates representing the shares of Chittenden
common stock that are issuable in connection with the merger for shares of
Vermont Financial common stock. Chittenden will also deposit with the exchange
agent an estimated amount of the cash payable in lieu of fractional shares. As
promptly as practicable after the Effective Time, and in any event within seven
business days thereafter, Chittenden will cause the exchange agent to send to
each holder of record of shares of Vermont Financial common stock on the
Effective Date transmittal materials for use in the exchange of the merger
consideration for certificates representing Vermont Financial common stock.
Chittenden will deliver to holders of Vermont Financial common stock who
surrender their certificates to the exchange agent, together with properly
executed transmittal materials and any other required documentation,
certificates representing the number of shares of Chittenden common stock to
which such holders are entitled. No fractional shares will be issued. Instead,
Chittenden will pay each holder of Vermont Financial common stock who would
otherwise be entitled to a fractional share of Chittenden common stock an
amount in cash, without interest, determined by multiplying such fraction by
the average of the last reported sale prices of Chittenden common stock on the
NYSE for the five trading days immediately before the Effective Date.
Until their certificates are properly surrendered, holders of unexchanged
shares of Vermont Financial common stock will not be entitled to receive any
dividends or distributions with respect to Chittenden common stock. After
surrender of the certificates representing Vermont Financial common stock, the
record holder thereof will be entitled to receive any such dividends or other
distributions, without interest, which had previously become payable with
respect to shares of Chittenden common stock represented by such certificate.
Vermont Financial common stockholders may surrender certificates to the
exchange agent until twelve months after the Effective Time, and to Chittenden
thereafter.
Holders of Vermont Financial common stock should not send in certificates
representing Vermont Financial common stock until they receive transmittal
materials from the exchange agent.
Vermont Financial Stock Options
At the Effective Time, all outstanding and unexercised employee and director
Vermont Financial options will no longer represent a right to acquire shares of
Vermont Financial common stock and will be converted automatically into options
to purchase shares of Chittenden common stock. Chittenden will assume such
Vermont Financial options subject to the terms and conditions of Vermont
Financial's stock option or similar plans and related option agreements as in
effect immediately prior to the Effective Time under which the assumed Vermont
Financial options were issued. After the Effective Time (1) the number of
shares of Chittenden common stock purchasable upon exercise of any such Vermont
Financial option shall be equal to the number of shares of Vermont Financial
common stock that were purchasable under such Vermont Financial option
immediately prior to the Effective Time multiplied by the exchange ratio of
1.07, rounding to the nearest whole share (with .5 being rounded up), and (2)
the per share exercise price under each such Vermont Financial option shall be
adjusted by dividing the per share exercise price of each such
Vermont Financial option by the exchange ratio of 1.07, rounding to the nearest
cent. The terms of each Vermont Financial option will be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction with respect to Chittenden common
stock on or after the Effective Date.
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Chittenden has agreed, as soon as practicable following the Effective Time,
and in any event within fifteen business days thereafter, to file with the SEC
a registration statement on Form S-8 or other appropriate form with respect to
the shares of Chittenden common stock subject to options to acquire Chittenden
common stock resulting from the conversion of the Vermont Financial options in
the merger. Chittenden will use its best efforts to maintain the current status
of the prospectus contained therein for so long as such options remain
outstanding.
In addition, Chittenden has agreed to specific employee benefit matters and
arrangements as described below under "--Material Covenants--Employee Benefit
Matters" and above under "The Merger--Other Interests of Officers and Directors
in the Merger."
Representations and Warranties
The merger agreement contains reciprocal representations and warranties,
subject to the exceptions identified in the following paragraph, made by each
of Chittenden and Vermont Financial relating to the following matters:
. due organization, corporate power, good standing and due registration as
a bank holding company
. capitalization
. subsidiaries
. corporate power and authority to conduct business, own property and enter
into the merger agreement, the stock option agreement and related
transactions
. noncontravention of certain organizational documents, agreements or
governmental orders
. reports and other documents filed with the SEC and certain bank holding
company and bank regulatory authorities, and the accuracy of the
information contained in such documents
. undisclosed liabilities
. litigation and regulatory action
. compliance with laws
. contractual defaults
. no brokers
. tax and accounting matters
. insurance
. labor matters
. compliance with takeover laws
. environmental matters
. undertaking of certain affirmative acts to comply with applicable laws
. absence of certain material changes and events
. required regulatory approvals
. intellectual property
. loans and nonperforming and classified assets
. allowances for loan losses
. administration of fiduciary accounts
. derivative transactions
. Year 2000 readiness
. repurchase agreements
. deposit insurance.
In addition, Vermont Financial has made representations and warranties to
Chittenden relating to its corporate authority to enter into the stock option
agreement, employee benefit plan matters, the ownership of property and
material contracts.
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Material Covenants
The merger agreement contains various covenants and agreements that govern
Vermont Financial's and Chittenden's actions prior to the Effective Time,
including the following:
Conduct of Business. Vermont Financial and Chittenden have each agreed to
conduct their respective businesses in the ordinary and usual course and to use
reasonable efforts to preserve intact their business organizations and assets,
and to maintain their respective rights, franchises and existing relations with
customers, suppliers, employees and business associates. Vermont Financial and
Chittenden further each agreed not to take any actions that would (1) adversely
affect its ability to obtain any necessary regulatory approvals required for
the merger and the transactions contemplated thereby or (2) adversely affect
its ability to perform any of its material obligations under the merger
agreement.
Capital Stock. Vermont Financial has agreed to restrictions on its ability
to:
. issue, sell or otherwise permit to become outstanding, or authorize the
creation of, any additional shares of stock, any securities convertible
into or exchangeable for any additional shares of stock, stock
appreciation rights or any rights to subscribe for or acquire
(collectively, "Share Acquisition Rights") any additional shares of
stock, any stock appreciation rights or any Share Acquisition Rights
. enter into any agreement with respect to the foregoing
. permit any additional shares of stock, any securities convertible into or
exchangeable for any additional shares of stock, stock appreciation
rights or any Share Acquisition 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 similar stock-based employee rights
. change (or establish a record date for changing) as a result of a stock
split, stock dividend, recapitalization, reclassification, reorganization
or similar transaction, the number of, or provide for the exchange of,
shares of its stock, securities convertible into or exchangeable for any
additional shares of stock, stock appreciation rights or any Share
Acquisition Rights, stock appreciation rights, or Share Acquisition
Rights issued and outstanding prior to the Effective Time.
Chittenden has agreed not to take any action that would, or would be reasonably
likely to, reduce the value of the consideration paid by Chittenden in
connection with the merger.
Vermont Financial and Chittenden have each agreed not to directly or
indirectly combine, redeem, reclassify, purchase or otherwise acquire any
shares of its stock other than in the ordinary course pursuant to employee
benefit plans, as long as any such action would not prevent or impede the
merger from qualifying as a "pooling of interests" accounting treatment under
GAAP.
Dividends. If such action would prevent or impede the merger from qualifying
for "pooling of interests" accounting treatment under GAAP, Vermont Financial
and Chittenden have each agreed not to make, declare or pay any dividend other
than (A) regular quarterly cash dividends in the ordinary course of business
consistent with past practice, and (B) dividends from subsidiaries to Vermont
Financial or Chittenden, as the case may be, or to another subsidiary of
Vermont Financial or Chittenden, as the case may be. In addition, Chittenden
and Vermont Financial have each agreed to coordinate with the other the
declaration of any dividends in respect of its common stock and the record
dates and payment dates relating thereto such that the holders of Chittenden
common stock and Vermont Financial common stock do not receive two dividends,
or fail to receive one dividend, for any calendar quarter with respect to their
shares of Chittenden common stock and/or Vermont Financial common stock and any
shares of Chittenden common stock any such holder receives in the merger.
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Compensation; Employment Agreements; Benefit Plans. Vermont Financial has
agreed not to enter into or amend, except as may be required by law or to
satisfy contractual obligations or as otherwise permitted under the merger
agreement:
. any written employment, severance or similar agreement or arrangement
with any of its directors, officers or employees
. any pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus or 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.
Chittenden has agreed not to enter into or amend, except as may be required
by law or to satisfy contractual obligations, 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 in the
ordinary course of business consistent with past practice or in accordance with
current industry standards applicable to bank holding companies of comparable
size.
Vermont Financial has agreed generally not to grant any salary or wage
increase or increase any employee benefit, except upon the prior written
consent of Chittenden and in the ordinary course of business consistent with
past practice or as required by law. Vermont Financial and Chittenden have
specifically agreed that, prior to the merger, Vermont Financial may grant
salary increases to its employees in the ordinary course of business consistent
with past practice; provided, however, that no increase granted by Vermont
Financial prior to the merger with respect to any of Messrs. Hashagen, Madden,
Soucy, Dunham and Fenn may exceed 5%, and the aggregate payroll expense of
Vermont Financial and its subsidiaries, excluding the base salaries of the
foregoing individuals and any incentive compensation or bonus expenses, may not
be increased by more than 5%. Vermont Financial was permitted to pay cash
bonuses to its employees for the year ending December 31, 1998 in accordance
with Vermont Financial's incentive compensation plan dated April 1998;
provided, however, that the aggregate amount of such bonuses could not exceed
$500,000. Vermont Financial may also pay bonuses to its employees for the
period from January 1, 1999 through the closing date of the merger in an
aggregate amount not to exceed the product of (A) $500,000 and (B) a fraction,
the numerator of which shall be the number of calendar days from and including
January 1, 1999 through and including the closing date and the denominator of
which shall be 365.
In addition, Vermont Financial was permitted to pay a discretionary employer
contribution to Vermont Financial's defined contribution plan for the year
ending December 31, 1998 in an amount consistent with past practice, but in no
event was such amount to exceed $500,000. Vermont Financial may also make a
discretionary contribution to such plan for the period from January 1, 1999
through the closing date in an amount consistent with past practice, but in no
event exceeding the product of (A) $500,000 and (B) a fraction, the numerator
of which is the number of calendar days from and including January 1, 1999
through and including the closing date and the denominator of which is 365.
Until the closing date, Vermont Financial may continue to match its employee's
contributions to its defined contribution plan in an amount not to exceed 50%
of the first 6% contributed to such plan by any employee from his or her
salary.
Dispositions, Acquisitions and Capital Expenditures. Vermont Financial has
agreed not to:
. dispose of or discontinue any material portion of its assets, business or
properties
. make a material acquisition of all or any portion of the business or
property of any other entity
. make any acquisition or take any other action which would materially and
adversely affect its ability to complete the transactions contemplated by
the merger agreement
. make or agree to make any capital expenditures, except for individual
expenditures that do not exceed $200,000.
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Chittenden has agreed to conduct its business in substantially the same
manner as previously conducted, but is not prevented from acquiring or merging
with another financial institution or other company engaged in any business in
which Chittenden is presently engaged or from entering into any new lines of
business; provided, however, that Chittenden must advise Vermont Financial of
any such proposed transaction prior to entering into any related legally
binding commitment.
Amendments. The merger agreement provides that neither Vermont Financial nor
Chittenden will amend its respective charter or bylaws in a manner that would
adversely affect either party's ability to consummate the merger or the
economic benefits of the merger to either party.
Accounting Methods. Vermont Financial and Chittenden have agreed not to
implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by GAAP.
Loan Policies. Vermont Financial has agreed not to change its loan policies
or procedures, except as required by any regulatory authority. Chittenden has
agreed not to change its loan policies or procedures in a manner that would
violate any rules, regulations or policies of any regulatory authority.
Adverse Actions. Vermont Financial and Chittenden have agreed that they will
not knowingly take any action that would, or that 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
. result in any of the representations or warranties in the merger
agreement becoming untrue in any material respect at any time prior to
the Effective Time, any of the conditions to the merger not being
satisfied or a material violation of any provision of the merger
agreement.
Settlement of Claims. Vermont Financial and Chittenden have agreed not to
settle any material claim, action or proceeding, without first obtaining the
prior written consent of the other.
Acquisition Proposals. Vermont Financial has agreed that it will not, and
will cause its subsidiaries and its, and its subsidiaries', officers,
directors, agents, advisors and affiliates not to, without the prior consent of
Chittenden, 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 person relating to any tender offer or
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 significant subsidiaries. Vermont
Financial, however, may participate in discussions or negotiations with, or
furnish confidential information to, any person if, after consultation with and
consideration of the advice of outside counsel, its board of directors has
determined that the failure to do so could cause the members of such board of
directors to breach their duties under applicable laws. Vermont Financial has
agreed to advise Chittenden of its receipt of any such proposal or inquiry and
the identity of the person making such proposal or inquiry within 24 hours of
its receipt of such proposal or inquiry.
Employee Benefit Matters. Upon completion of the merger, the parties intend
that the Surviving Corporation will formulate compensation and benefit plans
that do not discriminate between employees of Chittenden and Vermont Financial.
Employees of Vermont Financial and its subsidiaries who become employees of
Chittenden immediately after the Effective Time will be given credit for
purposes of eligibility and vesting of employee benefits with Vermont Financial
and its affiliates prior to the Effective Time under the benefit plans of
Chittenden to the extent such service has been credited under employee benefit
plans of Vermont Financial or its subsidiaries, as long as such crediting of
service does not result in duplication of benefits.
In the case of Vermont Financial benefit plans under which the employee's
interests are based upon Vermont Financial common stock, such interests will be
based upon Chittenden common stock.
Chittenden has agreed to honor and will cause its subsidiaries to honor all
individual employment, termination, severance, change in control, post-
employment and other compensation, retirement or pension
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contracts, agreements, plans and arrangements in existence prior to the
execution of the merger agreement and all provisions for benefits or other
amounts earned or accrued through the Effective Time under any of Vermont
Financial's compensation and benefit plans.
Termination Benefits and Severance Obligations. Chittenden has agreed that
any employee of Vermont Financial or any of its subsidiaries who becomes an
employee of Chittenden or any of its subsidiaries immediately following the
Effective Time who is not otherwise covered by an employment or severance
agreement and whose employment is terminated at any time within one year after
the Effective Time either involuntarily by Chittenden or any of its
subsidiaries for any reason other than for cause, or voluntarily by the
employee following a reduction of base salary in excess of 15% or a request to
relocate the employee's principal location of employment as a condition to
continuing employment such that the distance of the commute that the employee
would be required to undertake would be increased by more than 25 miles each
way will be entitled to receive after the date of termination two weeks of
salary continuation at the level of salary in effect immediately prior to such
termination for each full year of prior service with Vermont Financial or its
subsidiaries prior to the Effective Time. Such salary continuation will
continue for a minimum of four weeks and a maximum of 24 weeks. The salary
continuation payments will be paid in a lump sum to each terminated employee as
soon as practicable after each employee's termination.
Additional lump sum longevity payments will be made to some individuals in
accordance with the following schedule: $2,500 for individuals with at least 20
but less than 25 years of service; $3,000 for individuals with at least 25 but
less than 30 years of service; and $3,500 for individuals with more than 30
years of service. During the period that any employee receives salary
continuation benefits, the employee and his or her eligible dependents may, at
the employee's election, continue to be covered under Vermont Financial's or,
if applicable, Chittenden's medical and dental plans at an aggregate cost to
the employee, if any, that will not exceed the aggregate cost of such coverages
to similarly situated active employees. Prior to or on the next scheduled
payment date in Chittenden's normal payroll cycle occurring after the date of
termination, a terminated employee will receive a total payment equal to the
difference between (1) the total of all severance payments and the longevity
bonus payable to such employee minus (2) the total cost that would be payable
by the employee with respect to coverage under Vermont Financial's or
Chittenden's medical and/or dental plans during the period of salary
continuation, to the extent the employee is covered by such plans, if the
employee had remained employed during the entire period. In the event that any
such employee elects not to be covered by Vermont Financial's or Chittenden's
medical and/or dental plans during such period, then no deduction will be made
from the lump sum amount payable to the employee after the date of termination.
If at any time during such period any employee secures medical and/or dental
coverage under a plan that is not maintained by Vermont Financial or
Chittenden, then such employee will be paid by Chittenden, prior to or on the
next scheduled payment date in Chittenden's normal payroll cycle occurring
after the date of notification to Chittenden that such employee is no longer so
covered, an additional lump sum equal to that portion of the total cost
previously deducted from the lump sum amount paid to the employee after the
date of termination equal to the cost that would otherwise have been paid by
the employee with respect to continuing coverage under Vermont Financial's or
Chittenden's medical and/or dental plans during the remaining portion of the
salary continuation period during which such employee will no longer be covered
by Vermont Financial's or Chittenden's medical and/or dental plans. Similar
severance arrangements will apply to any Vermont Financial employee employed by
a specified third party at any location operated by Vermont Financial,
Chittenden or any of their subsidiaries. At the end of such period, each such
employee and dependent thereof, if any, will be treated as eligible for COBRA
coverage.
Outplacement services will be provided to the executives of Vermont
Financial identified in the merger agreement in the manner provided in their
existing "Management Continuity Agreements" with Vermont Financial and/or a
subsidiary of Vermont Financial. Each employee of Vermont Financial or its
subsidiaries who is a vice president or an officer senior thereto and not party
to a Management Continuity Agreement shall be eligible to receive up to $5,000
in reimbursement for expenses actually incurred for outplacement services. For
a period of one year following the Effective Time, Chittenden is required to
provide all employees of Vermont Financial and its subsidiaries whose
employment has been terminated following the Effective Time for any reason
other than for cause, disability or retirement with the same notice of
opportunities for employment with Chittenden or any of its subsidiaries as all
other employees of Chittenden, including access to
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a "hotline" listing of all available employment opportunities at Chittenden.
The foregoing termination and severance benefits terminate, if not sooner in
accordance with their terms, upon each employee's obtaining new employment on
comparable terms.
In addition, Vermont Financial and Chittenden have agreed to the following
treatment of the following specific Vermont Financial compensation and benefit
plans:
Retirement Plan for Employees of Vermont Financial. On or about December
31, 1999 or such other date as Chittenden deems reasonable, the Vermont
Financial retirement plan will be merged into the Chittenden plan.
Chittenden will treat former participants in the Vermont Financial
retirement plan who continue to be employed by Chittenden in the same
manner as other active participants in the Chittenden plan. Chittenden will
amend the Chittenden plan to provide each former Vermont Financial
retirement plan participant as of the merger date of the plans with
transition credits as defined under the Chittenden plan of 8% for up to ten
years if such participant's age and years of vesting service as defined in
the Vermont Financial retirement plan as of the merger date of the plans
totals 70 or more, with such transition credits to be in addition to all
other regular credits such person would be entitled to under the Chittenden
plan.
Vermont Financial may amend the Vermont Financial retirement plan no
earlier than May 19, 1999 and no later than one day prior to the merger to
provide for a lump sum distribution option similar to the one provided
under the Chittenden plan, and, subject to Chittenden's prior written
approval, Vermont Financial may make other amendments reasonably designed
to protect the expectations of participants in the Vermont Financial
retirement plan in light of the proposed merger with the Chittenden plan.
Notwithstanding any other provision of the merger agreement and other than
the permitted amendments described above, Vermont Financial may not amend
the Vermont Financial retirement plan to the extent such amendment, if it
had been effectuated as of December 31, 1998, would have caused the funded
status for the Vermont Financial retirement plan to fall below the funded
status for the Chittenden plan. Chittenden will not be obligated to amend
the Chittenden plan to the extent that any such amendment, if it had been
effectuated as of December 31, 1998, when taken together with any permitted
Vermont Financial retirement plan amendment would have caused the Vermont
Financial retirement plan funded status to fall below the funded status for
the Chittenden plan.
Notwithstanding the foregoing, in no event will the opening cash balance
account for Vermont Financial retirement plan participants who become
participants in the Chittenden plan be determined using an interest rate
greater than 6.5% and mortality assumptions other than those in effect
pursuant to Section 417(e) of the Code.
Subject to the foregoing, the Vermont Financial retirement plan is
required to continue in full force until the merger date of the plans.
Vermont Financial Retirement Restoration Plan. Vermont Financial will
amend its retirement restoration plan prior to the merger to provide that,
upon the completion of the merger, each participant in the retirement
restoration plan will receive a lump sum payment equal to his or her
accrued benefit determined as of December 31, 1998, utilizing the actuarial
assumptions contained in the retirement restoration plan's "Report of
Pension Cost Under FAS 87 for Fiscal Year Ending December 31, 1998, dated
October 1998" plus earnings on such amount computed at a rate of 7% per
annum from December 31, 1998 until the date of such payment.
Vermont Financial Supplemental Retirement Plan. With respect to
participants in the Supplemental Retirement Plan who are being paid as of
the closing date, Chittenden has agreed to assume all liability under such
Supplemental Retirement Plan, and payments to such persons will continue in
accordance with the methodology utilized prior to the closing date. With
respect to any participant in the Supplemental Retirement Plan who is
employed as of the closing date, each such participant will receive a
single lump sum payment of the actuarial value of his benefit under the
Supplemental Retirement Plan, assuming such benefit would have commenced
and termination would have occurred at age 65, calculated as of December
31, 1998, utilizing a 7% discount rate, plus earnings on such amount
calculated at a rate of 7% per annum from December 31, 1998 until the date
of payment thereof.
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Regulatory Applications and Filings. Chittenden and Vermont Financial have
agreed that they and their respective subsidiaries will cooperate and use their
reasonable best efforts to effect all filings, and obtain all permits,
consents, approvals and authorizations of all third parties and regulatory
authorities necessary to complete the transactions contemplated by the merger
agreement, including, without limitation, any such approvals required by the
Federal Reserve Board, the Federal Deposit Insurance Corporation (the "FDIC")
with respect to the mergers of their subsidiary banks, and the regulatory
authorities of the states in which Chittenden, Vermont Financial and their
respective subsidiaries operate.
Indemnification. The merger agreement provides that, from and after the
Effective Time, Chittenden will to the fullest extent permitted under Vermont
law, indemnify, defend and hold harmless for a period of six years each
individual who was, at any time prior to the Effective Time, an officer,
director or employee of Vermont Financial or any of its subsidiaries against
all losses, claims, damages, liabilities, costs, expenses, judgments, fines or
settlements arising out of or pertaining to either of the following:
. the fact that he or she is or was a director, officer or employee of
Vermont Financial, any of Vermont Financial'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
. the merger agreement, the stock option agreement, the agreements related
to the mergers of their subsidiary banks, or any of the transactions
contemplated by such agreements.
The merger agreement provides that from and after the Effective Time:
. all rights to indemnification and all limitations of liability existing
in favor of the indemnified parties as provided in Vermont Financial's
charter or bylaws or comparable organizational documents as in effect on
the date of the merger agreement will continue in full force and effect
. Chittenden will use its best efforts to cause the persons serving as
officers and directors of Vermont Financial immediately prior to the
Effective Time to be covered for a period of six years from the Effective
Time by the directors' and officers' liability insurance policy
maintained by Vermont Financial, provided that Chittenden may substitute
policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous to such directors and officers
of Vermont Financial than the existing policy.
Post-Closing Governance. Chittenden has agreed to take all necessary actions
to cause the size of the Chittenden Board to be increased to seventeen members
and to cause six members of the Vermont Financial Board to be elected to the
Chittenden Board, effective as of the Effective Time. The six members of the
Vermont Financial Board are to be chosen by Chittenden after consultation with
Vermont Financial and are required to be appointed as equally as possible among
the three classes of Chittenden's directors. See "The Companies--Surviving
Corporation--Directors."
Bank Mergers. Chittenden and Vermont Financial have agreed to take all
actions necessary and appropriate to cause some of their respective bank
subsidiaries to merge with and into each other, as Chittenden deems advisable,
as soon as practicable after the merger. In the event United Bank, a subsidiary
of Vermont Financial, 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 such subsidiary bank of Chittenden.
Headquarters. Chittenden and Vermont Financial have agreed that the
Surviving Corporation's executive headquarters will be located in Burlington,
Vermont. It is also anticipated that the Surviving Corporation will maintain a
substantial presence in Brattleboro, Vermont following the merger.
Certain Other Covenants. The merger agreement contains other covenants of
the parties relating to:
. the preparation and distribution of this Joint Proxy Statement/Prospectus
. the respective Chittenden and Vermont Financial stockholders meetings and
the recommendations of the respective Boards of Directors
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. cooperation in issuing public announcements
. qualification of the merger as a reorganization under Section 368(a) of
the Code
. access to information
. confidentiality
. listing the Chittenden common stock to be issued to the holders of shares
of Vermont Financial common stock on the NYSE
. the delivery of financial statements of Vermont Financial to Chittenden.
Conditions to Complete the Merger
The obligations of each of Chittenden and Vermont Financial to complete the
merger are subject to the satisfaction or waiver of conditions, including:
. obtaining the requisite votes of the respective stockholders of Vermont
Financial and Chittenden
. obtaining all governmental approvals required to complete the merger
. obtaining all other necessary third party consents and approvals
. the absence of injunctions, decrees, orders, laws, statutes or
regulations enjoining, preventing or making illegal the completion of the
merger
. the effectiveness of the registration statement on Form S-4 and the
absence of any stop order or proceedings seeking a stop order
. the delivery of opinions to Chittenden and Vermont Financial to the
effect that the merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code
. the approval for listing on the NYSE of the Chittenden common stock
issuable to Vermont Financial's stockholders pursuant to the merger
agreement
. the receipt by Chittenden of an opinion from Arthur Andersen LLP stating
that the merger qualifies for "pooling of interests" accounting treatment
. the receipt by Vermont Financial of a statement from KPMG LLP as to
matters reasonably required to facilitate the opinion of Chittenden's
public accountants that the merger will qualify for pooling of interests
accounting treatment.
The obligations of each of Chittenden and Vermont Financial to complete the
merger are further subject to satisfaction or waiver of the following
conditions:
. the representations and warranties of the other party in the merger
agreement are to be true and correct as of the Effective Date, except for
representations and warranties made as of a specified date which will be
true and correct as of such specified date and, in most cases, for such
breaches of representations and warranties which, together with all such
breaches, would not have a material adverse effect on the other party and
its subsidiaries taken as a whole
. all of the agreements and covenants of the other party to be performed
and complied with on or prior to the Effective Date are to have been
performed and complied with in all material respects
. each of Chittenden and Vermont Financial are to have received a
certificate dated the Effective Date signed by the President, the Chief
Executive Officer or the Chief Financial Officer of the other party to
the effect that the above two conditions have been satisfied.
Termination; Expenses
General Termination Rights. The merger agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
Vermont Financial stockholders or Chittenden stockholders:
. by mutual written consent of Chittenden and Vermont Financial if approved
by a majority of the board of directors of each of Chittenden and Vermont
Financial
. by either Chittenden or Vermont Financial if any of the following occurs:
(1) the merger has not been completed by October 31, 1999 or such
later date as provided in the merger agreement, except to the
extent that the failure of the merger to be completed arises out
of or results from the failure of the party seeking termination to
perform or observe the agreements and covenants of such party in
the merger agreement
(2) the approval of the Vermont Financial stockholders is not obtained
at the Vermont Financial meeting
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(3) the approval of the Chittenden stockholders is not obtained at the
Chittenden meeting
(4) any governmental entity has issued a final, nonappealable order,
enjoining or otherwise prohibiting the completion of the
transactions contemplated by the merger agreement
. by either Chittenden or Vermont Financial if the board of directors of
the other company has withdrawn, modified or changed in a manner adverse
to the terminating party its approval or recommendation of the merger
agreement or the transactions contemplated thereby
. by Vermont Financial if either of the following occurs:
(1) a material breach by Chittenden of its covenants under the merger
agreement
(2) a breach of any of Chittenden's representations and warranties
which breach, either individually or taken together with all other
breaches, has or is reasonably expected to have a material adverse
effect on Chittenden and its subsidiaries taken as a whole,
in either case if the breach cannot be or has not been cured within
30 days after the giving of written notice to Chittenden of such
breach, provided that Vermont Financial is not then in material
breach of any representation, warranty, covenant or other agreement
contained in the merger agreement
. by Chittenden if either of the following occurs:
(1) a material breach by Vermont Financial of its covenants under the
merger agreement
(2) a breach of any of Vermont Financial's representations and
warranties which breach, either individually or taken together
with all other breaches, has or is reasonably expected to have a
material adverse effect on Vermont Financial and its subsidiaries
taken as a whole
in either case if the breach cannot be or has not been cured within
30 days after the giving of written notice to Vermont Financial of
such breach; provided that Chittenden is not then in material breach
of any representation, warranty, covenant or other agreement
contained in the merger agreement.
Termination Upon a Decline in the Value of Chittenden Common Stock. The
parties may decide to cancel the merger if the value of the Chittenden common
stock declines significantly prior to the closing date. The decline in
Chittenden common stock must be both in absolute terms and relative to a
weighted average stock price of an index group of the common stocks of other
selected bank holding companies. Even if these declines occur, however, and
Vermont Financial elects to cancel the merger, Chittenden can require Vermont
Financial to complete the merger by increasing the number of shares of
Chittenden common stock to be issued to Vermont Financial's stockholders in the
merger, so that the number of shares issued will provide to Vermont Financial's
stockholders the minimum value in shares of Chittenden common stock required to
be provided without triggering the termination right.
In order to determine whether an absolute and relative decline in the value
of the Chittenden common stock has occurred prior to the closing date, the
market price of the Chittenden common stock and the weighted average market
price of the stocks of the index group companies (which we refer to simply as
the index price) will be measured during the period of the 15 consecutive
trading days on the NYSE ending on the close of business on the date on which
the parties receive the last regulatory approval required to complete the
merger.
In terms of the absolute decline in the value of the Chittenden common stock
that must occur before the merger may be cancelled, the average of the daily
last sale prices of Chittenden common stock as reported on the NYSE for the
measurement period must be less than $25.20. The price of $25.20 represents a
20% decline in the value of the Chittenden common stock when compared to the
price of $31.50, which was the closing price for the Chittenden common stock on
December 16, 1998, the date on which the parties signed the merger agreement.
This reflects the parties' agreement that the Vermont Financial stockholders
would assume the risk of a modest decline in value of the Chittenden common
stock under any circumstances.
In terms of the relative decline in the value of the Chittenden common stock
that must occur before the merger may be cancelled, the decline in the price of
the Chittenden common stock, when expressed as a percentage decline, must be
more than 12 percentage points greater than any change, when also expressed as
a
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percentage change, that may have occurred in the index price. Whether there is
any change in the index price will be determined by comparing the average of
the daily index prices for the measurement period to a price of $30.80, which
was the index price as of the close of business on the date on which the
parties signed the merger agreement.
Neither party may cancel the merger on the basis of a decline in
Chittenden's stock price unless the average price of the Chittenden common
stock for the measurement period is below $25.20 and this decline in the
Chittenden stock price represents a percentage decline in the price of the
Chittenden common stock, when compared to $31.50, that is more than 12
percentage points greater than any percentage change in the index price, when
comparing the average index price for the measurement period to $30.80. This
reflects the agreement that stockholders would assume the risk of a more
significant decline in value of the Chittenden common stock unless the
percentage decline in the value of the Chittenden common stock represents a
decline that is significantly greater (i.e., more than 12 percentage points
greater) than the percentage change, if any, in the index price. The premise of
this agreement is that a decline in the value of the Chittenden common stock
which is in accordance with an index of selected publicly-traded stocks is
indicative of a broad-based change in market and economic conditions affecting
Chittenden (as well as Vermont Financial) rather than factors which are
specifically attributable to the value of the Chittenden common stock.
If both conditions pertaining to the decline in Chittenden's stock price are
satisfied (i.e., the price is below $25.20 and the percentage decline in price
is more than 12 percentage points greater than any percentage change in the
index price), then either Chittenden or Vermont Financial can elect to
terminate the merger agreement. If Vermont Financial exercises this termination
right, however, Chittenden can still require Vermont Financial to complete the
merger if Chittenden elects to increase the exchange ratio, which means that
Chittenden would issue more shares in the merger and Vermont Financial's
stockholders would receive increased value in the form of additional shares of
Chittenden common stock.
Under circumstances in which Vermont Financial has the right to cancel the
merger because of a decline in Chittenden's stock price, and Chittenden
increases the exchange ratio to require Vermont Financial to complete the
merger, the highest value that Vermont Financial's stockholders can possibly
receive in the form of Chittenden common stock, based on the average price for
the measurement period, as a result of an increase in the exchange ratio, is
$26.96 (i.e., the product of the threshold price of $25.20 and the unadjusted
exchange ratio of 1.07). This is because there can be no right to cancel the
merger, on the basis of a decline in Chittenden stock price, unless and until
the price, based on the average price for the measurement period, declines
below $25.20. Chittenden, however, is not obligated to increase the exchange
ratio if Vermont Financial exercises its right to cancel the merger.
The operation and effect of the provisions of the merger agreement dealing
with a decline in the market price of the Chittenden common stock may be
illustrated further by the following three hypothetical scenarios, which should
be read consecutively:
(1) The average price of the Chittenden common stock during the measurement
period is below $31.50 but is not less than $25.20. Under these circumstances,
there would be no adjustment to the exchange ratio. Assuming satisfaction or
waiver of all other conditions to both parties' obligations, both parties would
be obligated to complete the merger regardless of any change that may occur
with respect to the index price.
(2) The average price of the Chittenden common stock during the measurement
period is $23.63; below the threshold price of $25.20. This represents a 25%
decline when compared to $31.50. In addition, the average index price for the
measurement period is $24.64, which represents a 20% decline when compared to
$30.80. Because the 25% decline in the price of the Chittenden common stock is
not more than 12 percentage points greater than the 20% decline in the index
price (i.e., it is only 5 percentage points greater), there would be no
adjustment to the exchange ratio. Assuming the satisfaction or waiver of all
other conditions to both parties' obligations, both parties would be obligated
to complete the merger.
(3) The average price of the Chittenden common stock during the measurement
period is $23.63. In addition, the average index price for the measurement
period is $27.72, which represents a 10% decline when compared to $30.80. Since
the 25% decline in the price of the Chittenden common stock is more than
12 percentage points greater than the 10% decline in the index price (i.e., it
is 15 percentage points greater), both Chittenden and Vermont Financial would
have the right, but not the obligation, to terminate the merger agreement.
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Under the third scenario above, if Vermont Financial provides Chittenden
with the notice required under the merger agreement that it elects to terminate
the merger agreement, then Chittenden could either accept Vermont Financial's
decision to terminate the merger agreement, in which case the merger would be
cancelled, or elect to increase the exchange ratio as described below, in which
case, assuming the satisfaction or waiver of all other conditions to both
parties' obligations, both parties would be obligated to complete the merger at
the increased exchange ratio.
If Chittenden elects to increase the exchange ratio under the circumstances
described in the third scenario above, then the exchange ratio would be
increased pursuant to the merger agreement from 1.07 to 1.11. This increased
exchange ratio would be determined in accordance with the merger agreement,
which requires that certain mathematical calculations be performed in
determining the correct adjustment to be made to the exchange ratio. The
increased exchange ratio under the third scenario above represents, in
accordance with the calculations required under the merger agreement, the
lesser of (1) 1.14, which is the quotient obtained by dividing (A) $26.96
(which is the product of the threshold price of $25.20 and the unadjusted
exchange ratio of 1.07) by (B) $23.63 (which is the average price of the
Chittenden common stock during the measurement period, in the example of the
third scenario above), and (2) 1.11, which is the quotient obtained by dividing
(A) 0.83, which is the product of 0.78 (which is calculated by subtracting 0.12
from 0.90, where 0.90 represents that the average index price for the
measurement period, which is $27.72, in the example of the third scenario
above, is 90% of $30.80) and 1.07 (which is the unadjusted exchange ratio) by
(B) 0.75 (which represents that the average price of the Chittenden common
stock for the measurement period, which is $23.63, in the example of the third
scenario above, is 75% of $31.50).
Hypothetical Exchange Ratio Adjustments
The following table sets forth a hypothetical range for the average closing
price of Chittenden common stock and demonstrates how the exchange ratio may be
increased if the average closing price per share of Chittenden common stock
during the 15 day measurement period is less than $25.20. The exchange ratio
will be increased (if all other required criteria are satisfied) only if the
average closing price is less than $25.20 and the percentage decline in the
price of Chittenden common stock, when comparing the average closing price to
$31.50 (which was the closing price of Chittenden common stock on December 16,
1998), is more than 12 percentage points greater than any percentage change
that may have occurred in the weighted average index of common stock prices of
selected bank holding companies, when comparing the weighted average index
price for the same 15 day measurement period to $30.80 (which was the weighted
average index price at the close of business on December 16, 1998):
<TABLE>
<CAPTION>
Percentage Change Percentage Change
in Chittenden's in Weighted
Chittenden Average Weighted Average Difference in
Average Closing Price Average Index Price Percentage Value in
Closing Price Compared to $31.50 Index Price Compared to $30.80 Changes(1) Exchange Ratio(2) Chittenden Shares(3)
------------- ------------------ ----------- ------------------ ------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
$28.00 -11.11% (4) (4) (4) 1.07 $29.96
$26.00 -17.46% (4) (4) (4) 1.07 $27.82
$24.89 -20.98% $32.34 +5% 25.98(5) 1.08 $26.96
$30.80 0% 20.98(5) 1.08 $26.96
$24.00 -23.81% $29.26 -5% 18.81(5) 1.12 $26.96
$27.72 -10% 13.81(5) 1.09 $26.29
$22.00 -30.16% $26.18 -15% 15.16(5) 1.12 $24.60
$24.64 -20% 10.16(6) 1.07 $23.54
$20.00 -36.51% $27.72 -10% 26.51(5) 1.31 $26.29
$23.10 -25% 11.51(6) 1.07 $21.40
$18.00 -42.86% $27.72 -10% 32.86(5) 1.46 $26.29
$20.02 -35% 7.86(6) 1.07 $19.26
</TABLE>
- --------
(1) Calculated as the sum of (a) the absolute value of the percentage change in
Chittenden's average closing price and (b) the percentage change in the
average index price.
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(2) The exchange ratios have been rounded to two decimal places. The amount of
the increase in the exchange ratio, if all of the conditions that must be
satisfied before there is any such increase are in fact satisfied, will
vary depending upon the amount of the decline in the average closing price
of Chittenden common stock and the amount of the change in the weighted
average index price.
(3) Each per share value of Chittenden common stock shown in the table is the
product of Chittenden's average closing price and the unrounded exchange
ratio, which has been used in this calculation to avoid misleading results.
These values are included in the table for illustrative purposes only.
There can be no assurance as to what the average closing price of
Chittenden common stock will be or what the actual trading price of
Chittenden common stock will be on the closing date or at any time after
Chittenden and Vermont Financial complete the merger.
(4) The weighted average index price, the percentage change, if any, in the
weighted average index price and the difference in percentage changes are
not given where the average closing price is $25.20 or more, because
whether or not the weighted average index price has declined is irrelevant
as long as the average closing price is at least $25.20. In these cases,
neither party has a termination right and the exchange ratio will remain
1.07.
(5) Where the Chittenden average closing price is less than $25.20 and the
difference in percentage changes is greater than 12.00, Vermont Financial
may terminate the merger, but only if Chittenden does not exercise its
right to increase the exchange ratio.
(6) Where the Chittenden average closing price is less than $25.20, but the
difference in percentage changes is less than or equal to 12.00, neither
party has a termination right and the exchange ratio will remain 1.07.
In the event either Chittenden or Vermont Financial terminates the merger
agreement, pursuant to the foregoing provisions relating to a decline in the
price of Chittenden common stock, stockholder action would not be required.
Neither the Chittenden Board nor the Vermont Financial Board has made a
decision as to whether it would exercise its right to terminate the merger
agreement under such circumstances. Any such decision would be made by the
respective boards of directors in light of the circumstances existing at the
time that the board has the opportunity to make such an election, if any. Prior
to making any determination to terminate the merger agreement, the boards would
consult their respective financial and other advisors and would consider all
financial and other information deemed relevant to their respective decisions.
For instance, the boards would consider many of the same factors that they
considered in determining whether to approve and adopt the merger agreement,
including the principal factors discussed under "The Merger--Recommendation of
the Chittenden Board; Chittenden's Reasons for the Merger" and "The Merger--
Recommendation of the Vermont Financial Board; Vermont Financial's Reasons for
the Merger." There can be no assurance that the boards would exercise their
respective rights to terminate the merger agreement if each of the conditions
set forth above were applicable. If neither board elects to exercise its right
to terminate the merger agreement and Chittenden does not increase the exchange
ratio, the exchange ratio would remain at 1.07 and the dollar value of the
consideration which the stockholders of Vermont Financial would receive for
each share of Vermont Financial common stock would be the value of 1.07 shares
of Chittenden common stock at the Effective Time.
Other Fees and Expenses. Chittenden and Vermont Financial will each bear its
own expenses in connection with the merger agreement and the transactions
contemplated thereby.
Amendment; Waiver
Subject to compliance with applicable law, prior to the Effective Time, any
provision of the merger agreement may be (1) waived by the party benefited by
the provision, or (2) amended or modified at any time by an agreement in
writing between the parties, if approved by their respective boards of
directors and executed in the same manner as the merger agreement.
Survival of Certain Provisions
If the Merger Agreement Becomes Effective. After the Effective Time,
provisions of the merger agreement regarding the following matters will survive
and remain effective:
. procedures for the issuance of Chittenden common stock in exchange for
Vermont Financial common stock
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. Vermont Financial options
. publication of results of the combined operations of the Surviving
Corporation
. indemnification and directors' and officers' insurance
. compensation and benefit plans
. location of the Surviving Corporation's headquarters
. bank subsidiary mergers
. post-closing corporate governance
. survival of provisions
. governing law
. third party beneficiaries.
If the Merger Agreement is Terminated Before the Effective Time. If the
merger agreement is terminated before the Effective Time, provisions of the
merger agreement regarding the following matters will survive and remain
effective:
. confidentiality of information obtained in connection with the merger
agreement
. liability of the companies to each other as a result of the termination
of the merger agreement
. survival of provisions
. waiver and amendment
. governing law
. expenses
. confidentiality
. notices
. third party beneficiaries.
Restrictions on Resales by Affiliates
Chittenden has registered the shares of common stock issuable to Vermont
Financial stockholders in the merger under the Securities Act. Such securities
may be traded freely without restriction by those stockholders who are not
deemed to be "affiliates," as defined in the rules promulgated under the
Securities Act, of Chittenden and Vermont Financial.
Shares of Chittenden common stock received by those Vermont Financial
stockholders who are deemed to be "affiliates" of Vermont Financial at the time
of the Vermont Financial meeting may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Shares of Chittenden common stock
held by persons who are deemed to be "affiliates" of Chittenden may be sold by
them only in transactions permitted under the provisions of Rule 144 under the
Securities Act or as otherwise permitted under the Securities Act.
SEC guidelines regarding qualifying for the "pooling of interests" method of
accounting limit sales of shares of Chittenden and Vermont Financial by
"affiliates" of either company in a business combination. SEC guidelines also
indicate that the "pooling of interests" method of accounting generally will
not be challenged on the basis of sales by affiliates of Chittenden and Vermont
Financial if such "affiliates" do not dispose of any of the shares of the
corporation they own, or shares of a corporation they receive in connection
with a merger, during the period beginning thirty (30) days before the merger
is completed and ending when financial results covering at least thirty (30)
days of post-merger operations of the surviving corporation have been
published. Chittenden has agreed, within thirty (30) days after the end of the
first complete calendar month ending at least thirty (30) days after the
Effective Date, to publish results including at least thirty (30) days of
combined operations of Chittenden and Vermont Financial as contemplated by and
in accordance with SEC Accounting Release No. 135.
For purposes of Rule 145 under the Securities Act and for purposes of
qualifying the merger for "pooling of interests" accounting treatment, each of
Chittenden and Vermont Financial has agreed to use its reasonable best efforts
to cause each of its respective "affiliates" to deliver to the other party a
written agreement intended to ensure compliance with Rule 145 under the
Securities Act, in the case of Vermont Financial affiliates, and to preserve
the ability of the merger to be accounted for as a "pooling of interests" in
accordance with GAAP.
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AMENDED AND RESTATED CHARTER
OF THE SURVIVING CORPORATION
Following the completion of the merger, Chittenden, as the Surviving
Corporation, will be governed by the Amended and Restated Charter, a copy of
which is attached hereto as Annex B. The Amended and Restated Charter is
identical to Chittenden's current charter except for the limited amendments
that are discussed below. See "Comparison of Rights of Holders of Vermont
Financial Common Stock and Chittenden Common Stock."
Increase in Authorized Stock. Chittenden's charter currently provides that
Chittenden has the authority to issue a total of 30,200,000 shares of stock,
consisting of (A) 200,000 shares of preferred stock, par value $100.00 per
share, and (B) 30,000,000 shares of common stock, par value $1.00 per share.
In connection with the merger and pursuant to the merger agreement,
Chittenden will, in addition to its other obligations in connection therewith,
issue 1.07 shares of Chittenden common stock in exchange for each outstanding
share of Vermont Financial common stock. To effectuate this exchange, and to
satisfy the Surviving Corporation's capital needs for its planned growth
strategies, the Amended and Restated Charter will authorize the issuance by
Chittenden of a total of 61,000,000 shares of stock, consisting of (A)
1,000,000 shares of preferred stock, par value $100.00 per share, and (B)
60,000,000 shares of common stock, par value $1.00 per share.
Quorum Requirement for Stockholder Meetings. The Amended and Restated
Charter provides that the presence in person or by proxy of a majority of the
outstanding shares of Chittenden stock entitled to vote will constitute a
quorum for the transaction of business at any stockholders meeting. This
provision is a technical amendment to Chittenden's current charter, which
provides that not less than 50% of the outstanding shares of Chittenden stock
shall constitute a quorum for the transaction of business at a stockholders
meeting.
Removal of Directors. The Vermont Business Corporation Act ("VBCA") permits
a Vermont corporation's charter to provide that a director may only be removed
for cause. In the absence of such a provision, a director of a Vermont
corporation may be removed by the corporation's stockholders with or without
cause if the number of votes cast to remove such director exceeds the number of
votes cast not to remove a director. Chittenden's current charter does not
address the removal of directors. Therefore, directors of Chittenden may be
removed currently with or without cause. The Amended and Restated Charter,
however, provides that any director may be removed from office only "with
cause" and only if the number of votes cast to remove such director exceeds the
number of votes cast not to remove the director at a meeting of stockholders
called for that purpose. With respect to the removal of a director, "cause"
means any of the following:
. conviction of a felony
. declaration of unsound mind by order of a court
. gross dereliction of duty
. commission of any act involving moral turpitude
. commission of an act that constitutes intentional misconduct or a
knowing violation of law if such action in either event results in both
an improper substantial personal benefit to such director and a material
injury to the Surviving Corporation.
Chittenden believes that its immediate and future growth and profitability
are dependant upon its long-term strategic goals. One important factor in the
successful implementation of long-term goals is to ensure continuity in the
individuals responsible for adopting and monitoring the achievement of those
goals. Many corporations try to obtain this continuity by adopting a "with
cause" removal provision, which is designed to help ensure that directors serve
until their terms expire. Chittenden believes that a "with cause" provision
designed to provide continuity on the Chittenden Board is an appropriate method
of promoting management stability that will facilitate Chittenden's strategic
plan for increasing long-term stockholder value. The "with cause" removal
provision may, however, significantly restrict the ability of Chittenden
stockholders to remove directors, and this may have the effect of delaying,
deferring or preventing a change of control of the Surviving Corporation.
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Limitation of Liability. Pursuant to the VBCA, a Vermont corporation's
charter may eliminate or limit the liability of a director to Chittenden or its
stockholders for money damages for any action taken, or any failure to take any
action, solely as a director, based on a failure to discharge his or her
duties, except for the following:
. the amount of a financial benefit received by a director to which the
director is not entitled
. an intentional or reckless infliction of harm on the corporation or the
stockholders
. voting for or assenting to an unlawful distribution
. an intentional or reckless criminal act.
Chittenden's current charter does not contain a provision eliminating or
limiting the liability of a director to Chittenden or its stockholders for
money damages. The Amended and Restated Charter includes a provision
eliminating such liability of a director to Chittenden and its stockholders to
the full extent permitted by Vermont law.
Chittenden believes that eliminating the liability of directors for such
money damages as permitted by the VBCA is essential to continue to retain and
attract as directors the most capable persons available. Increased corporate
litigation has subjected directors to various risks and uncertainties which may
make it increasingly difficult to attract and retain such persons. In light of
the fact that the VBCA provides exceptions to the elimination of liability of a
director for money damages which adequately protect a corporation and its
stockholders, Chittenden believes that the general elimination of such
liability will help to continue to attract and retain qualified directors and
will not harm the Surviving Corporation or its stockholders.
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THE COMPANIES
Chittenden Corporation
General. Chittenden, a Vermont corporation organized in 1971, is a
registered bank holding company under the BHCA. At December 31, 1998,
Chittenden had total consolidated assets of approximately $2.1 billion.
Chittenden owns 100% of the outstanding common stock of Chittenden Trust
Company ("CTC"), Flagship Bank and Trust Company ("FBT"), The Bank of Western
Massachusetts ("BWM," and together with CTC and FBT, the "Chittenden Banks")
and Chittenden Connecticut Corporation ("CCC"), a non-bank mortgage company.
Through its subsidiaries, Chittenden offers a variety of lending services,
with loans and leases totaling approximately $1.4 billion at December 31, 1998.
The largest loan category is commercial loans, including those secured by
commercial real estate, and others made to a variety of businesses, including
retail concerns, small manufacturing businesses, larger corporations, other
commercial banks, and to political subdivisions in the United States.
Commercial loans amounted to 50% of the total loans outstanding at December 31,
1998.
Loans secured by residential properties, including closed-ended home equity
loans, comprised 27% of total loans outstanding at December 31, 1998.
Chittenden underwrites substantially all of its residential mortgages based
upon secondary market standards and sells substantially all of its fixed-rate
residential mortgage loans on a servicing-retained basis. Variable or
adjustable rate mortgage loans are typically held in portfolio. The remaining
real estate loans, which are 2% of total loans outstanding at December 31,
1998, are construction loans secured by residential and commercial land under
development.
Consumer loans outstanding at December 31, 1998 were 21% of total loans.
These include direct (2%) and indirect (9%) installment loans, auto leases
(8%), and revolving credit (2%). Revolving home equity loans as a separate
group amounted to 5% of loans at December 31, 1998. These loans are generally
underwritten based upon the same standards as first mortgages.
Chittenden's lending activities are conducted primarily in Vermont and
Massachusetts, with additional activity related to nearby market areas in New
York, New Hampshire, Maine and Connecticut and in Quebec, Canada. In addition
to the portfolio diversification described above, the loans are diversified by
borrowers and industry groups. In making commercial loans, the Chittenden Banks
occasionally solicit the participation of other banks and other financial
investors. Chittenden, through its subsidiaries, also occasionally participates
in loans originated by other banks. Some of Chittenden's commercial loans are
made under programs administered by the Vermont Industrial Development
Authority, the U.S. Small Business Administration, the U.S. Farmers Home
Administration or other local government agencies within Chittenden's market.
Loan terms include repayment guarantees by the agency involved in varying
amounts up to 90% of the original loan.
The Chittenden Banks offer a wide range of banking services, including the
acceptance of demand, savings and time deposits. As of December 31, 1998, total
interest-bearing deposits totaled approximately $1.57 billion and noninterest-
bearing demand deposits amounted to approximately $321 million. The Chittenden
Banks also provide personal trust services, including services as executor,
trustee, administrator, custodian and guardian, and corporate trust services,
including services as trustee for pension and profit sharing plans. In
connection with personal and corporate trust services, the Chittenden Banks
offer asset management services. Assets under administration totaled $3.2
billion at December 31, 1998.
Chittenden offers data processing services, consisting primarily of payroll
and automated clearing house services, for several outside clients. Chittenden
also provides financial and investment counseling, as well as central
depository, lending, payroll, and other banking services to municipalities and
school districts within Chittenden's service area. The Chittenden Banks offer a
variety of other services including safe deposit facilities, MasterCard and
VISA credit card services, credit card processing, certain non-deposit
investment products through the brokerage services of Chittenden Securities,
Inc. and various insurance related products through The Pomerleau Agency.
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Chittenden's principal executive offices are located at Two Burlington
Square, Burlington, Vermont 05401, and its telephone number is (802) 658-4000.
Chittenden Trust Company. CTC was chartered by the Vermont Legislature as a
commercial bank in 1904. It is the second largest bank in Vermont, based on
total assets of approximately $1.5 billion and total deposits of approximately
$1.3 billion at December 31, 1998. CTC's principal offices are in Burlington,
Vermont and it has 35 additional locations in Vermont. There are also five free
standing CTC automated teller machines ("ATMs") at other locations. CTC uses
the trade name "Chittenden Bank" at all locations.
On May 31, 1997, CTC acquired some of the assets and liabilities of The
Pomerleau Agency. The Pomerleau Agency offers various insurance related
products, including personal, commercial and life/health policies, as well as
specialized coverages and a consulting and risk management service.
On October 10, 1998, CTC established a registered broker-dealer, Chittenden
Securities, Inc., as a subsidiary. Chittenden Securities, Inc. is a full
service broker-dealer registered with the SEC and is a member of both the NASD
and the Securities Investor Protection Corporation.
Flagship Bank and Trust Company. FBT was chartered by the Commonwealth of
Massachusetts as a commercial bank in 1986. At December 31, 1998, FBT had total
assets of approximately $347 million and total deposits of approximately $321
million. FBT's principal offices are in Worcester, Massachusetts, and it has
five additional locations in the greater Worcester, Massachusetts area.
The Bank of Western Massachusetts. BWM was chartered by the Commonwealth of
Massachusetts as a commercial bank in 1986. At December 31, 1998, BWM had total
assets of approximately $288 million and total deposits of approximately $248
million. BWM's principal offices are in Springfield, Massachusetts, and it has
four additional locations in the greater Springfield, Massachusetts area.
Chittenden Connecticut Corporation. CCC was chartered by the State of
Vermont as a non-bank mortgage company in 1996, and its principal offices are
in Burlington, Vermont. CCC has additional offices in Brattleboro, Vermont and
Southbury, Connecticut. CCC's primary business is the origination of conforming
residential real estate mortgage loans for resale to the secondary market. CCC
originates these loans for resale through correspondent relationships with
credit unions and through other mortgage brokers in the state of Connecticut
who receive loan applications. These applications are underwritten by CTC in
Vermont based upon secondary market standards and then sold. In addition, CCC
uses brokers that are directly employed by and working through various
financial institutions in Connecticut.
Vermont Financial Services Corp.
General. Vermont Financial, a Delaware corporation organized in 1990, is a
registered bank holding company under the BHCA. Vermont Financial owns 100% of
the outstanding stock of each of VNB and United Bank ("UB"). In June 1997,
Vermont Financial acquired Eastern Bancorp., Inc. and its subsidiary Vermont
Federal Bank, FSB ("VFB") based in Williston, Vermont with branches in both
Vermont and New Hampshire. VFB was merged into VNB in September 1997. Vermont
Financial also owns Vermont Service Corporation, a real estate development
company which it acquired from Eastern Bancorp., Inc. The only business
conducted by Vermont Service Corporation and its subsidiary, Vermont East Coast
Corporation, is a joint venture in the ownership of development rights in a
mobile home association known as "Williston Woods." Because ownership of these
development rights is not permissible under the BHCA, it has been Vermont
Financial's intention since its acquisition of Eastern Bancorp., Inc., and
continues to be its intention, to identify an unaffiliated third party buyer
for these rights. These development rights must be divested before June 26,
1999, unless the Federal Reserve Board grants an extension beyond such date.
Vermont Financial has no other active subsidiaries and engages in no activities
other than holding the stock of VNB, UB and Vermont Service Corporation.
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Vermont Financial and its subsidiaries own and operate 60 ATMs at its branch
locations and 19 ATMs in other locations.
Vermont Financial's principal executive offices are located at 100 Main
Street, Brattleboro, Vermont, 05301, and its telephone number is (802) 257-
7151.
Vermont National Bank. VNB, a national banking association, is the successor
to the original Bank of Brattleborough, which was chartered in 1821. VNB is the
largest bank in the State of Vermont with total deposits of approximately $1.5
billion, total loans of approximately $1.2 billion and total assets of
approximately $1.9 billion at December 31, 1998. VNB conducts business through
41 offices located in nine of Vermont's 14 counties, including the cities of
Brattleboro, Burlington, Rutland and Montpelier, and 16 offices located in four
of New Hampshire's ten counties situated in the southeastern part of the state.
VNB offers a wide range of personal and commercial banking services,
including: accepting demand, savings and time deposits; making and servicing
secured and unsecured loans; issuing letters of credit; and offering fee based
services. In addition, VNB offers a wide range of trust and trust related
services, including services as executor, trustee, administrator, custodian and
guardian. VNB lending services include making real estate, commercial,
industrial, agricultural and consumer loans. VNB also offers data processing
services consisting primarily of payroll and automated clearing house for
several outside clients. VNB provides financial and investment counseling to
municipalities and school districts within its service area and also provides
central depository, lending, payroll and other banking services for such
customers. VNB also provides safe deposit facilities, MasterCard and VISA
credit card services. Over 90% of VNB's loans are made to individuals and
businesses which are located in or have properties in Vermont or southeastern
New Hampshire. In addition, VNB is a member of the Plus, NYCE, and VISA
networks of ATMs and has access to the Honor, Cirrus, Discover, American
Express and MasterCard networks of ATMs.
United Bank. UB is a Massachusetts chartered stock savings bank originally
incorporated in 1855 as the Shelburne Falls Five Cent Savings Bank, which
subsequently changed its name to the Shelburne Falls Savings Bank. In 1975, the
Shelburne Falls Savings Bank merged with the Conway Savings Bank under the name
of United Savings Bank ("USB"). In 1978, USB merged with the Haydenville
Savings Bank. USB centralized its operations in Greenfield, Massachusetts in
1981. In April 1988, USB purchased the deposits, real estate, furniture and
equipment of four branch offices of First National Bank of Boston located in
Shelburne Falls, Greenfield (2) and South Deerfield, all in Franklin County,
Massachusetts. The deposits of these four offices totaled $40.4 million. In
June 1994, Vermont Financial acquired WestMass Bankshares, Inc., the parent
holding company of USB, and USB thereby became a subsidiary of Vermont
Financial. In 1995, USB changed its name to United Bank. UB maintains full
service banking offices in Greenfield (2), Conway, Hatfield, Haydenville,
Shelburne Falls and South Deerfield, Massachusetts. UB's market area is
centered in Franklin County, which is adjacent to the southern borders of both
Vermont and New Hampshire. At December 31, 1998, UB had total assets of
approximately $258 million, total loans of approximately $205 million and total
deposits of approximately $230 million.
UB is primarily engaged in the business of attracting deposits from the
general public and originating loans secured by first liens on residential real
estate. UB also makes mortgage loans on commercial real state and originates
consumer loans, most of which are collateralized. UB maintains a portion of its
assets in federal government and agency obligations, various types of corporate
securities and other authorized investments. UB provides traditional deposit
services as well as money market deposit instruments, demand deposits and NOW
accounts. In addition, UB offers a wide range of trust and trust related
services, including services as executor, trustee, administrator, custodian and
guardian.
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Surviving Corporation
Directors. An effect of approving the merger agreement and the merger will
be that Chittenden, as the Surviving Corporation, will be governed by a
seventeen member board of directors. Four members of the Surviving Corporation
Board will consist of directors elected by Chittenden stockholders pursuant to
Proposal 2 and seven members of the Surviving Corporation Board will consist of
the seven continuing directors of the Chittenden Board whose terms expire in
2000 and 2001. The beneficial ownership of Chittenden common stock of the four
nominees for director of Chittenden under Proposal 2 and the seven continuing
directors and the biographical information for each of such persons is
discussed under "Proposal 2--Information Regarding Nominees, Continuing
Directors and Executive Officers." The remaining six members of the Surviving
Corporation Board will consist of six current members of the Vermont Financial
Board to be selected by Chittenden.
Executive Officers. The executive officers of the Surviving Corporation
following the merger will be as follows:
<TABLE>
<CAPTION>
Executive Position
--------- --------
<S> <C>
Paul A. Perrault........ Chairman of the Board, President and Chief Executive Officer
John P. Barnes.......... Executive Vice President
Lawrence W. DeShaw...... Executive Vice President
John D. Hashagen, Jr.... President and Chief Executive Officer of Vermont National Bank
John W. Kelly........... Executive Vice President
Danny H. O'Brien........ Executive Vice President
Kirk W. Walters......... Executive Vice President, Chief Financial Officer and Treasurer
F. Sheldon Prentice .... Senior Vice President, General Counsel and Secretary
Howard L. Atkinson ..... Chief Auditor
</TABLE>
For a summary of the business experience and biographical information for
Messrs. Perrault, Barnes, DeShaw, Kelly, O'Brien, Walters, Prentice and
Atkinson, see "Proposal 2--Information Regarding Nominees, Continuing Directors
and Executive Officers." The following is a description of the business
experience and biographical information for Mr. Hashagen.
John D. Hashagen, Jr. Mr. Hashagen, 57, is President and Chief Executive
Officer of Vermont Financial and VNB. He joined VNB in 1967 and has been
President and Chief Executive Officer of VNB since 1987 and President and Chief
Executive Officer of Vermont Financial since 1990. He is a graduate of
Dartmouth College and received his M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College. He serves on the Board of Directors of
Vermont Mutual Insurance Company and Northern Security Insurance Co., Inc.
After the merger, Mr. Hashagen will continue as President and Chief Executive
Officer of VNB.
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CERTAIN REGULATORY CONSIDERATIONS
General
Chittenden is a bank holding company registered with the Federal Reserve
Board under the BHCA. As such, Chittenden's non-bank subsidiaries are subject
to the supervision, examination and reporting requirements of the BHCA and the
regulations of the Federal Reserve Board. Chittenden is also considered a bank
holding company for purposes of the laws of the Commonwealth of Massachusetts,
and it is subject to the jurisdiction of the MBBI. In addition, Chittenden also
owns bank subsidiaries (which will include the bank subsidiaries of Vermont
Financial following the merger) (collectively, the "Banks") that are subject to
the regulation and supervision of various federal and state authorities, which
include the FDIC, the Office of the Comptroller of the Currency (the "OCC"),
the Vermont Department of Banking, Insurance, Securities and Health Care
Administration (the "Vermont Banking Department") and the Massachusetts
Commissioner of Banks.
Set forth below is a brief description of certain laws and regulations that
relate to the regulation of Chittenden and its subsidiary banks. The
description of certain laws and regulations below and elsewhere in this Joint
Proxy Statement/Prospectus does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations. A discussion of
certain laws and regulations to which Chittenden is subject is also included in
Chittenden's 1998 Annual Report on Form 10-K. See "Where You Can Find More
Information."
Certain Restrictions on Activities of Bank Holding Companies
The BHCA imposes significant restrictions on the activities of bank holding
companies. Bank holding companies are required to obtain the prior approval of
the Federal Reserve Board before they may: (1) acquire direct or indirect
ownership or control of more than 5% of any class of the voting securities of
any bank; (2) acquire all or substantially all of the assets of any bank; or
(3) merge or consolidate with any other bank holding company.
The Federal Reserve Board generally may not approve any transaction that
would result in a monopoly or that would further a combination or conspiracy to
monopolize banking in the United States. The Federal Reserve Board also may not
approve a transaction that could substantially lessen competition in any
section of the country, that would tend to create a monopoly in any section of
the country, or that would be in restraint of trade. However, the Federal
Reserve Board may approve any such transaction if it determines that the public
interest in meeting the convenience and needs of the community served clearly
outweigh the anticompetitive effects of the proposed transaction. The Federal
Reserve Board is also required to consider the financial and managerial
resources and future prospects of the bank holding companies and banks
concerned, as well as the convenience and needs of the community to be served.
Consideration of financial resources generally focuses on capital adequacy,
which is discussed below. The consideration of convenience and needs includes
the parties' performance under the Community Reinvestment Act of 1977.
Another factor that is scrutinized in the application process is the Year
2000 readiness of the parties involved in acquisition transactions. Banking
organizations whose Year 2000 readiness is in less than satisfactory condition
receive special scrutiny in connection with acquisition transactions requiring
regulatory approval, and may not be eligible to use expedited application
procedures for acquisition transactions.
The BHCA, as amended by the Interstate Banking and Branching Efficiency Act
of 1994, permits interstate bank acquisitions subject to certain significant
limitations, including limitations that preserve state laws that require a bank
to have been in existence for a minimum number of years prior to acquisition
and limitations relating the amount of deposits that a bank holding company may
control in any state.
In addition to the restrictions imposed by the BHCA, as a bank holding
company for purposes of the laws of the Commonwealth of Massachusetts,
Chittenden may not acquire control any "banking institution" without
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the prior approval of the MBBI. The term "banking institution" includes, but is
not limited to, commercial banks, trust companies, savings banks and credit
unions incorporated under the laws of the Commonwealth of Massachusetts, the
District of Columbia, another state or territory of the United States, or any
foreign jurisdiction, as well as national banking associations and federally
chartered savings banks and savings and loan associations. In determining
whether to permit a bank holding company to acquire control of a banking
institution, the MBBI must consider whether a proposed transaction will
unreasonably affect competition and whether public convenience and advantage
will be promoted. The MBBI must also consider whether the proposed transaction
will result in "net new benefits," which includes consideration of factors such
as initial capital investments, job creation plans, consumer and business
services, commitments to maintain and open branch offices within a bank's
delineated local community and such other matters as may be deemed to benefit
the community.
The BHCA also prohibits Chittenden from: (1) engaging in activities other
than banking, managing or controlling banks or other permissible subsidiaries;
and (2) acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve Board to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
In determining whether a particular activity is permissible, the Federal
Reserve Board must consider whether the performance of such an activity
reasonably can be expected to produce benefits to the public that outweigh
possible adverse effects. Possible benefits the Federal Reserve Board considers
include greater convenience, increased competition or gains in efficiency.
Possible adverse effects include undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain
activities are so closely related to banking, within the meaning of the BHCA,
and that such activities are permissible by bank holding companies. These
activities include:
. making or servicing loans such as would be made by a mortgage, consumer
finance, credit card or factoring company
. performing trust company functions
. performing certain data processing operations
. providing limited securities brokerage services
. acting as an investment or financial advisor
. acting as an insurance agent for certain types of credit-related
insurance
. leasing personal property on a full-payout, non-operating basis
. providing tax planning and preparation services
. operating a collection agency
. providing certain courier services.
The Federal Reserve Board also has determined that certain other activities,
including real estate brokerage and syndication, land development, property
management and underwriting of life insurance not related to credit
transactions, are not so closely related to banking as to be a proper incident
thereto, and bank holding companies are prohibited from engaging in such
activities.
There are no territorial limitations on permissible non-banking activities
of bank holding companies. Despite prior approval, the Federal Reserve Board
has the power to order a bank holding company or its subsidiaries to terminate
any activity or to terminate its ownership or control of any subsidiary when it
has reasonable cause to believe that a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that bank holding company may
result from such activity.
Limitations on Control of Chittenden
Federal law limits who may control Chittenden. Specifically, the Federal
Change in Bank Control Act prohibits a person or group of persons from
acquiring "control" of a bank holding company unless the Federal
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Reserve Board has been given 60 days prior written notice of such proposed
acquisition and within that time period the Federal Reserve Board has not
issued a notice disapproving the proposed acquisition or extending for up to
another 30 days the period during which such a disapproval may be issued. An
acquisition may be made prior to expiration of the disapproval period if the
Federal Reserve Board issues written notice of its intent not to disapprove the
action. Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act would, under the circumstances set forth in the presumption,
constitute the acquisition of control.
Notwithstanding the above, any "company" would be required to obtain the
approval of the Federal Reserve Board under the BHCA before acquiring 25% (5%
in the case of an acquirer that is a bank holding company) or more of the
outstanding common stock of, or such lesser number of shares as constitute
control over, Chittenden. Such approval would be contingent upon, among other
things, the acquirer registering as a bank holding company if not already so
registered, divesting all impermissible holdings and ceasing any activities not
permissible for a bank holding company.
Certain Transactions by Bank Holding Companies and Their Affiliates.
There are various legal restrictions on the extent to which a bank holding
company, such as Chittenden, and its non-bank subsidiaries may borrow, obtain
credit from or otherwise engage in "covered transactions" with its FDIC-insured
depository institution subsidiaries. Such borrowings and other covered
transactions by an insured depository institution subsidiary (and its
subsidiaries) with its non-depository institution affiliates are limited to the
following amounts: (1) in the case of any one such affiliate, the aggregate
amount of covered transactions of the insured depository institution and its
subsidiaries cannot exceed 10% of the capital stock and surplus of the insured
depository institution; and (2) in the case of all affiliates, the aggregate
amount of covered transactions of the insured depository institution and its
subsidiaries cannot exceed 20% of the capital stock and surplus of the insured
depository institution. "Covered transactions" are defined by statute for these
purposes to include any of the following:
. a loan or extension of credit to an affiliate
. a purchase of or investment in securities issued by an affiliate
. a purchase of assets from an affiliate unless exempted by the Federal
Reserve Board
. the acceptance of securities issued by an affiliate as collateral for a
loan or extension of credit to any person or company
. the issuance of a guarantee, acceptance or letter of credit on behalf of
an affiliate.
Covered transactions are also subject to certain collateral security
requirements. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tying arrangements in connection with any
extension of credit, lease or sale of property of any kind, or furnishing of
any service.
Support of Subsidiary Institutions and Liability of Commonly Controlled
Depository Institutions
Under Federal Reserve Board policy, Chittenden is expected to act as a
source of financial strength for, and commit its resources to support its bank
subsidiaries. This support may be required at times when Chittenden may not be
inclined to provide it. In addition, any capital loans by a bank holding
company to any of its bank subsidiaries are subordinate to the payment of
deposits and to certain other indebtedness. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a bank subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of a commonly controlled FDIC-insured depository institution
or any assistance provided by the FDIC to any commonly controlled FDIC-insured
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depository institution "in danger of default." "Default" is defined generally
as the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of stockholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution.
Chittenden's banks are subject to these cross-guarantee provisions. As a
result, any loss suffered by the FDIC in respect of any of the Banks would
likely result in assertion of the cross-guarantee provisions, the assessment of
estimated losses against the other Banks, and a potential loss of Chittenden's
investments in the Banks.
Payment of Dividends
Chittenden is a legal entity separate and distinct from its banking and
other subsidiaries. The principal sources of cash flow of Chittenden, including
cash flow to pay dividends to its stockholders, are dividends from its
subsidiary depository institutions. There are statutory and regulatory
limitations on the payment of dividends by these subsidiary depository
institutions to Chittenden, as well as by Chittenden to its stockholders.
As to the payment of dividends, each of Chittenden's banking subsidiaries is
subject to the laws and regulations of its chartering jurisdiction and to the
regulations of the its primary federal regulator. If the federal banking
regulator determines that a depository institution under its jurisdiction is
engaged in or is about to engage in an unsafe or unsound practice, the
regulator may require, after notice and hearing, that the institution cease and
desist from such practice. Depending on the financial condition of the
depository institution, an unsafe or unsound practice could include the payment
of dividends. The federal banking agencies have indicated that paying dividends
that deplete a depository institution's capital base to an inadequate level
would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. The federal agencies
have also issued policy statements that provide that bank holding companies and
insured banks should generally only pay dividends out of current operating
earnings.
The payment of dividends by Chittenden and its bank subsidiaries may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Regulation of the Banks
Each of the Banks is subject to numerous state and federal statutes and
regulations that affect its business, activities and operations, and each is
supervised and examined by one or more federal or state bank regulatory
agencies. As a Vermont-chartered commercial bank, CTC is subject to regulation
and supervision by the Vermont Banking Department and the FDIC. VNB is a
national banking association that is subject to regulation by the OCC. VNB
presently maintains branch offices in New Hampshire. Thus, if VNB and CTC
merge, with CTC as the surviving bank, CTC may become subject to the
supervision of the New Hampshire Banking Commissioner. FBT, BWM and UB are each
Massachusetts-chartered banks subject to the supervision of the Massachusetts
Commissioner of Banks and the FDIC. Each of the Banks is required to file
reports with and obtain approvals from the these various regulatory agencies
prior to entering into certain transactions, including mergers with, or
acquisitions of, other financial institutions. As an FDIC-insured institution,
VNB is also subject to certain requirements applicable to all insured
depository institutions.
Virtually every aspect of the Banks' day-to-day operations is subject to
numerous requirements and restrictions. These requirements and restrictions
apply with respect to such matters as, for example, and without limitation, the
nature and amount of loans and investments that may be made, the nature and
amount of collateral for certain loans, the maximum amount of deposits each of
the Banks may hold as a percentage of the aggregate deposits in a particular
geographic area, the issuance of securities, the taking of reserves against
deposits, the establishment and closure of branches, non-banking activities and
other operations. Numerous
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laws and regulations also set forth special restrictions and procedural
requirements with respect to the extension of credit, credit practices, the
disclosure of credit terms and discrimination in credit transactions. These
legal requirements differ for each of the Banks to a greater or lesser extent
because these entities are chartered under different legal authorities.
Furthermore, the laws and regulations that govern the Banks have generally been
promulgated to protect depositors and the deposit insurance funds of the FDIC
and not for the protection of Chittenden and its stockholders.
As a national bank, VNB must comply with the National Bank Act and the
regulations promulgated thereunder by the OCC which limit its activities to
those that are deemed to be part of or incidental to the "business of banking."
Activities that are part of or incidental to the business of banking include
taking deposits, borrowing and lending money, discounting or negotiating paper,
acting as fiduciary and investing in certain bank-eligible securities. Examples
of activities that are not permissible for national banks include, without
limitation, operation of a travel agency, engaging in a general real estate
brokerage business, and investing in most types of equity securities.
Subsidiaries of national banks, in general, may only engage in activities
permissible for the parent national bank.
FDIC-insured, state-chartered banks, such as CTC, BWM, FBT and UB, are
subject to similar restrictions on their business and activities. In
particular, Section 24 of the Federal Deposit Insurance Act ("FDIA"), as added
by FDICIA, provides that an insured state bank may not engage as a principal in
any activity that is not permissible for a national bank, unless the FDIC has
determined that the activity would pose no significant risk to the appropriate
deposit insurance fund and the state bank is in compliance with applicable
capital standards. Activities of subsidiaries of insured state banks are
similarly restricted to those activities permissible for subsidiaries of
national banks, unless the FDIC has determined that the activity would pose no
significant risk to the appropriate deposit insurance fund and the state bank
is in compliance with applicable capital standards. Section 24 also provides
that an insured state bank generally may not, directly or indirectly, acquire
or retain any equity investment of a type that is not permissible for a
national bank, which would include most equity security investments. In
addition, state-chartered banks are subject to numerous restrictions on their
activities and investments under the laws of their chartering jurisdiction.
With the passage of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), the Crime Control Act of 1990 and FDICIA,
federal bank regulatory agencies, including the OCC and the FDIC, have been
granted substantially broader enforcement powers to restrict activities of
financial institutions and to impose or seek the imposition of increased civil
and criminal penalties upon financial institutions and the individuals who
manage and control such institutions. In general, any bank that does not
operate in accordance with applicable regulations, policies and directives may
be sanctioned for noncompliance by the appropriate bank regulatory agency.
Proceedings may be instituted against any FDIC-insured bank or any director,
officer or employee of such bank and certain other "institution-affiliated
parties" (a term that includes stockholders who participate in the conduct of
the bank's affairs and, under certain circumstances, accountants, appraisers,
and attorneys) who engage in unsafe and unsound practices, breaches of
fiduciary duties or violations of applicable laws, regulations, regulatory
orders and agreements. In general, the FDIC has the authority to terminate
insurance of deposit accounts, to issue orders to cease and desist, to remove
officers, directors and other institution-affiliated parties, to impose
substantial civil money penalties against a bank and any director, officer,
employee, agent or other institution-affiliated party of a bank and to place
the bank into receivership. With respect to national banks, the OCC has the
authority, among other powers, to promulgate cease and desist orders, remove or
suspend officers and directors, and impose civil money penalties.
FIRREA's provisions enhanced the supervisory and enforcement powers of the
federal banking agencies with respect to banks generally, expanded the FDIC's
receivership powers with respect to failed banks, and protected insured banks
from abusive or imprudent transactions. In addition, provisions of FIRREA
simplified and shortened the procedures for the FDIC to terminate insurance of
a bank's deposit accounts, authorized the FDIC, as receiver, to repudiate
certain contracts entered into by the insured bank and significantly increased
the amount of civil money penalties which may be assessed by federal bank
regulatory agencies against a bank, its
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officers and directors or other institution-affiliated parties. FIRREA also
broadened the circumstances under which such penalties may be assessed. FIRREA
imposed additional restrictions on banks that do not meet applicable minimum
capital requirements, have experienced a change of control within the preceding
two years, or are deemed to be in a "troubled" condition. These restrictions
include requiring written notice to federal regulatory authorities prior to
certain proposed changes in the institution's senior management or board of
directors and prohibiting acceptance, renewal or rollover of brokered deposits
(which prohibition was extended by FDICIA).
The third of these acts, FDICIA, was intended, among other things, to
strengthen federal supervision and examination of insured depository
institutions, to require that federal banking regulators intervene promptly
when a depository institution experiences financial difficulties, to mandate
the establishment of a risk-based deposit insurance assessment system and to
require imposition of numerous additional safety and soundness operational
standards and restrictions. FDICIA also expanded the conservatorship and
receivership powers of the FDIC.
FDICIA included a variety of provisions that affect the internal operations
and activities of banks. For example, pursuant to FDICIA, the federal banking
agencies promulgated safety and soundness standards relating to operations and
management, compensation, asset quality, earnings and stock valuation. FDICIA
further required that certain insured depository institutions have periodic on-
site regulatory examinations and annual audits by an independent public
accountant. The audit process must be overseen by an independent audit
committee composed of outside directors.
FDICIA also implemented certain changes in deposit insurance coverage,
including, among other things, the elimination of insurance on foreign deposits
and a significant reduction in "pass-through" deposit insurance coverage for
certain employee benefit plan deposits under certain circumstances. FDICIA
generally prohibits the FDIC from insuring deposits over $100,000.
FDIC Insurance Assessments
The deposit accounts of each of the Banks are insured by the Bank Insurance
Fund (the "BIF") of the FDIC generally up to a maximum of $100,000 per
separately insured depositor, and each of the Banks is subject to FDIC deposit
insurance assessments. In addition, as a result of its acquisition of VFB,
certain deposit obligations of VNB are insured by the Savings Association
Insurance Fund (the "SAIF") of the FDIC. Pursuant to FDICIA, the FDIC adopted a
risk-based system for determining deposit insurance assessments under which all
insured institutions were placed into one of nine categories and assessed
insurance premiums, ranging from $2,000 to 0.27% of insured deposits, based
upon their level of capital and supervisory evaluation. Because the FDIC sets
the assessment rates based upon the level of assets in the insurance fund,
premium rates rise and fall as the number and size of bank failures increase
and decrease, respectively. Under the system, institutions are assigned to one
of three capital groups based solely on the level of an institution's capital--
"well capitalized," "adequately capitalized" and "undercapitalized"--that are
defined in the same manner as the regulations establishing the prompt
corrective action system under Section 38 of FDIA, as discussed below. These
three groups are then divided into three subgroups that reflect varying levels
of supervisory concern, from those that are considered to be healthy to those
that are considered to be of substantial supervisory concern. BIF and SAIF
deposits may be assessed at different rates. Furthermore, the Economic Growth
and Regulatory Paperwork Reduction Act of 1996 requires BIF-insured banks to
participate in the payment of interest due on Financing Corporation bonds used
to finance the thrift bailout. As BIF-insured institutions, the Banks are
subject to a special Financing Corporation assessment in addition to
assessments applicable to BIF-insured deposits.
Minimum Capital Requirements and Prompt Corrective Action
Each of the Banks must satisfy certain minimum capital requirements, and
Chittenden, on a consolidated basis, is expected to satisfy similar
requirements established by the Federal Reserve Board. Chittenden exceeds
regulatory capital requirements and is considered "well capitalized." Under
both the OCC's and the FDIC's
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regulations, a bank is deemed to be (1) "well capitalized" if it has total
risk-based capital of 10% or more, a Tier 1 risk-based capital ratio of 6% or
more and a Tier 1 leverage capital ratio of 5% or more and is not subject to
any written agreement, order, capital directive or corrective action directive,
(2) "adequately capitalized" if it has a total risk-based capital ratio of 8%
or more, a Tier 1 risk-based capital ratio of 4% or more and a Tier 1 leverage
capital ratio of 4% or more (3% under certain circumstances) and does not meet
the definition of "well capitalized," (3) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital
ratio that is less than 4% or a Tier 1 leverage capital ratio that is less than
4% (3% under certain circumstances), (4) "significantly undercapitalized" if it
has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based
capital ratio that is less than 3% or a Tier 1 leverage capital ratio that is
less than 3% and (5) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2%. Section 38 of
the FDIA and the regulations promulgated thereunder by the federal banking
agencies also specify circumstances under which a federal banking agency may
reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category (except that neither the FDIC or the OCC may not reclassify a
significantly undercapitalized institution as critically undercapitalized).
A number of sanctions may be imposed on banks that are not in compliance
with applicable capital requirements, including, without limitation,
restrictions on asset growth and imposition of a capital directive that may
require, among other things, an increase in regulatory capital, reduction of
rates paid on savings accounts, cessation of or limitations on deposit-
gathering, lending, purchasing loans, making specified investments or issuing
new accounts, limits on operational expenditures, an increase in liquidity and
such other restrictions or corrective actions as the appropriate federal
banking agency may deem necessary or appropriate. Federal law also restricts
the use of brokered deposits by certain depository institutions in certain
capitalization categories.
Under the system of prompt corrective action mandated by FDICIA, immediately
upon becoming undercapitalized, an institution will become subject to the
provisions of Section 38 of the FDIA, which include the following:
. restricting payment of capital distributions and management fees
. requiring that the appropriate federal banking agency monitor the
condition of the institution and its efforts to restore its capital
. requiring submission of a capital restoration plan
. restricting the growth of the institution's assets
. requiring prior approval of certain expansion proposals.
The appropriate federal banking agency for an undercapitalized institution also
may take any number of discretionary supervisory actions if the agency
determines that any of these actions is necessary to resolve the problems of
the institution at the least possible long-term cost to the deposit insurance
fund, subject in certain cases to specified procedures. These discretionary
supervisory actions include the following: requiring the institution to raise
additional capital; restricting transactions with affiliates; restricting
interest rates paid by the institution on deposits; requiring replacement of
senior executive officers and directors; restricting the activities of the
institution and its affiliates; requiring divestiture of the institution or the
sale of the institution to a willing purchaser; and any other supervisory
action that the agency deems appropriate.
FDICIA provides for the appointment of a conservator or receiver for any
insured depository institution that is "critically undercapitalized," or that
is "undercapitalized" and (1) has no reasonable prospect of becoming
"adequately capitalized," (2) fails to become "adequately capitalized" when
required to do so under the prompt corrective action provisions, (3) fails to
submit an acceptable capital restoration plan within the prescribed time limits
or (4) materially fails to implement an accepted capital restoration plan. In
addition, the appropriate federal regulatory agency will be required to appoint
a receiver (or a conservator) for a "critically undercapitalized" depository
institution within 90 days after the institution becomes "critically
undercapitalized" or to take such other action that would better achieve the
purpose of Section 38 of FDIA.
80
<PAGE>
Such alternative action can be renewed for successive 90 day periods. With
limited exceptions, however, if the institution continues to be "critically
undercapitalized" on average during the quarter that begins 270 days after the
institution first became "critically undercapitalized," a receiver must be
appointed.
Other Aspects of Federal and State Law
Regulation D promulgated by the Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
or non-personal time deposits, subject to certain exemptions. "Transaction
accounts" include demand deposits, NOW accounts and certain other types of
accounts that permit payments or transfers to third parties. "Non-personal time
deposits" include money market deposit accounts or other savings deposits held
by corporations or other depositors that are not natural persons, and certain
other types of time deposits. Because required reserves must be maintained in
the form of vault cash or non-interest bearing deposits with a regional Federal
Reserve Bank, the effect of this reserve requirement is to reduce the amount of
the institution's interest-bearing assets.
The Banks are also subject to federal and state statutory and regulatory
provisions covering, among other things, security procedures, currency and
foreign transactions reporting, insider and affiliated party transactions,
management interlocks, loan interest rate limitations, lending policies, truth-
in-lending, electronic funds transfers, funds availability, truth-in-savings,
home mortgage disclosure and equal credit opportunity.
Government Policies and Legislative and Regulatory Proposals
The Banks' operations are generally affected by the economic, fiscal and
monetary policies of the United States and its agencies and regulatory
authorities, particularly the Federal Reserve Board (which regulates the money
supply of the United States, reserve requirements against deposits, the
discount rate on Federal Reserve Board borrowings and related matters, and
which conducts open-market operations in U.S. government securities). The
fiscal and economic policies of various governmental entities and the monetary
policies of the Federal Reserve Board have a direct effect on the availability,
growth, and distribution of bank loans, investments and deposits.
In addition, various proposals to change the laws and regulations governing
the operations and taxation of, and deposit insurance premiums paid by,
federally and state-chartered banks and other financial institutions are from
time to time pending in Congress and in state legislatures as well as before
the Federal Reserve Board, the FDIC, the OCC and other federal and state bank
regulatory authorities. The likelihood of any major changes in the future, and
the impact any such changes might have on the Banks, are not possible to
determine.
Status of Regulatory Approvals and Other Information
Chittenden and Vermont Financial have filed all applications and notices and
have taken (or will promptly take) other appropriate action with respect to any
requisite approvals or other action of any governmental authority. The merger
agreement provides that the obligation of each of Chittenden and Vermont
Financial to complete the merger is conditioned upon the receipt of all
requisite regulatory approvals, including the approvals of the Federal Reserve
Board and the MBBI. In addition, the Attorney General of the State of Vermont
is reviewing the merger and the other matters and transactions contemplated by
the merger agreement. There can be no assurance that any governmental agency
will approve or take any required action with respect to the merger. Even if
such approvals are received or action is taken, there can be no assurance as to
the date of such approvals or action, or that such approvals or action will be
acceptable to the parties. Additionally there could be a challenge by the DOJ
that could result in an unacceptable level of divestitures. In determining
whether or not to approve the merger, the Federal Reserve Board and the MBBI
will apply the standards described more fully under "Certain Regulatory
Considerations--Certain Restrictions on Activities of Bank Holding Companies."
The Federal Reserve Board or the DOJ may require Chittenden to divest certain
of its banking subsidiaries' branches in order to complete the merger. See
"Risk Factors--The Amount of Required Divestitures may be Higher than
Expected."
81
<PAGE>
Chittenden and Vermont Financial have also agreed to take all actions
necessary and appropriate to complete the Bank Mergers as soon as practicable
after the merger. See "The Merger Agreement--Certain Covenants." The Bank
Mergers may not be completed without certain regulatory approvals, including
the approval of the FDIC, the Vermont Banking Department and the Massachusetts
Commissioner of Banks.
Chittenden and Vermont Financial are not aware of any governmental approvals
or actions that may be required for completion of the merger other than as
described above. Should any other approval or action be required, Chittenden
and Vermont Financial currently contemplate that such approval or action would
be sought.
The merger cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that the regulatory approvals will be
obtained or as to the dates of any such approvals. See "The Merger--Conditions
to Complete the Merger." There can likewise be no assurance that the Department
of Justice or other governmental authorities will not challenge the merger or,
if such a challenge is made, as to the result thereof.
See "The Merger--Conditions to Complete the Merger" and "The Merger
Agreement--Termination; Expenses."
82
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material United States federal income
tax consequences of the merger to Chittenden and Vermont Financial and their
respective stockholders. The following discussion is based upon current
provisions of the Code, existing temporary and final regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change, possibly on a retroactive basis. No attempt has been made to comment on
all United States federal income tax consequences of the merger that may be
relevant to stockholders of Chittenden and Vermont Financial. The tax
discussion set forth below is included for general information only. It is not
intended to be, nor should it be construed to be, legal or tax advice to a
particular stockholder of Chittenden or Vermont Financial.
The following discussion may not apply to particular categories of holders
of shares of Chittenden common stock or Vermont Financial common stock subject
to special treatment under the Code, such as insurance companies, financial
institutions, broker-dealers, tax-exempt organizations, individual retirement
and other tax-deferred accounts, banks, persons subject to the alternative
minimum tax, persons who hold Chittenden capital stock or Vermont Financial
capital stock as part of a straddle, hedging or conversion transaction, persons
whose functional currency is other than the United States dollar, persons
eligible for tax treaty benefits, foreign corporations, foreign partnerships
and other foreign entities, individuals who are not citizens or residents of
the United States and holders whose shares were acquired pursuant to the
exercise of an employee stock option or otherwise as compensation. Stockholders
of Chittenden and Vermont Financial are urged to consult their tax advisors to
determine the specific tax consequences of the merger, including any state,
local or other tax consequences of the merger.
Tax Consequences of the Merger
Tax opinions of Goodwin, Procter & Hoar LLP and Sullivan & Worcester LLP
have been filed as Exhibits 8.1 and 8.2, respectively, to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part. However, it
is a condition to complete the merger that Goodwin, Procter & Hoar LLP, counsel
to Chittenden, will deliver an opinion to Chittenden, and Sullivan & Worcester
LLP, counsel to Vermont Financial, will deliver an opinion to Vermont
Financial, each to the effect that, based on representations of Chittenden and
Vermont Financial and on assumptions and conditions at the Effective Time, the
merger will be treated for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. The tax
opinions in Exhibits 8.1 and 8.2 are not intended to satisfy this closing
condition, but taken together these two tax opinions opine that the merger will
constitute a Code Section 368(a) reorganization and will have the following
consequences.
As a consequence of reorganization treatment, neither Chittenden nor Vermont
Financial will recognize gain or loss as a result of the merger. Stockholders
of Vermont Financial who exchange all of their Vermont Financial common stock
solely for Chittenden common stock pursuant to the merger will not recognize
gain or loss (except with respect to cash received in lieu of a fractional
share interest in Chittenden common stock). The aggregate tax basis of the
Chittenden common stock received by stockholders who exchange all of their
Vermont Financial common stock solely for Chittenden common stock in the merger
will be the same as the aggregate tax basis of the Vermont Financial common
stock surrendered (reduced by any amount allocable to a fractional share
interest for which cash is received). Finally, provided the shares of Vermont
Financial common stock were held as a capital asset at the Effective Time, the
holding period for shares of Chittenden common stock received by a stockholder
in exchange will include the period that such shares of Vermont Financial
common stock were held. The stockholders of Chittenden will not recognize gain
or loss as a result of the merger.
Cash received in lieu of fractional shares of Chittenden common stock will
be treated as received in redemption for such fractional interests, and gain or
loss will be recognized, measured by the difference between the amount of cash
received and the portion of the basis of the shares of Chittenden common stock
allocable to such fractional shares. Such gain or loss will constitute capital
gain or loss from the sale of stock if the stockholder holds its Vermont
Financial common stock as a capital asset at the Effective Time.
83
<PAGE>
Backup Withholding
Under the backup withholding rules, a Vermont Financial stockholder may be
subject to backup withholding at the rate of 31% with respect to certain
payments received pursuant to the merger unless such holder (1) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (2) provides a taxpayer identification number,
certifies that the holder is not subject to backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder that does not provide its correct taxpayer identification number
may also be subject to penalties imposed by the Internal Revenue Service. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability provided that applicable filings are made with the
Internal Revenue Service.
Other Tax Consequences
The state and local tax treatment of the merger may not conform to the
federal income tax consequences discussed above. Consequently, prospective
stockholders should consult their own tax advisors regarding the treatment of
the merger under state and local tax laws.
84
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
On February 18, 1998, Chittenden common stock began trading on the NYSE
under the ticker symbol "CHZ." Prior to that date, Chittenden common stock
traded on the NASDAQ National Market under the symbol "CNDN." Following the
Merger, the shares of Chittenden common stock will continue to be listed on the
NYSE under the symbol "CHZ." Vermont Financial common stock is quoted on the
NASDAQ National Market under the ticker symbol "VFSC." Following the merger,
Vermont Financial common stock will be delisted from the NASDAQ National
Market.
The following table sets forth, for the fiscal quarters indicated, (1) the
range of high and low sale prices of Chittenden common stock and Vermont
Financial common stock (rounded to two decimal places), and (2) the amount of
cash dividends declared per share:
<TABLE>
<CAPTION>
Chittenden Common Stock Vermont Financial
(1) Common Stock (2)
----------------------- -----------------------
Market Price Market Price
------------- -------------
Cash Cash
Dividends Dividends
High Low Declared High Low Declared
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996
1st Quarter................. $20.48 $15.36 $0.088 $17.50 $15.75 $0.12
2nd Quarter................. 18.20 16.48 0.160 17.00 15.50 0.13
3rd Quarter................. 20.60 16.60 0.160 17.56 15.63 0.13
4th Quarter................. 21.00 19.10 0.160 18.25 17.13 0.13
1997
1st Quarter................. 24.00 18.50 0.160 22.50 17.63 0.15
2nd Quarter................. 27.60 21.50 0.176 23.56 19.69 0.15
3rd Quarter................. 31.70 25.60 0.176 27.19 22.44 0.15
4th Quarter................. 36.00 30.40 0.776(3) 29.00 22.88 0.15
1998
1st Quarter................. 39.00 32.00 0.176 29.00 25.13 0.15
2nd Quarter................. 40.00 32.75 0.200 30.63 26.25 0.15
3rd Quarter................. 36.88 27.13 0.200 27.88 18.88 0.17
4th Quarter................. 33.38 25.44 0.200 33.75 19.63 0.17
1999
1st Quarter................. 33.63 26.00 0.200 34.73 26.63 0.17
2nd Quarter (through April
5, 1999)................... 27.31 26.44 -- 28.56 27.50 --
</TABLE>
- --------
(1) On December 16, 1998, the last full trading day prior to the public
announcement of the proposed merger, the highest sale price of Chittenden
common stock was $32.625 per share, the lowest sale price of Chittenden
common stock was $31.50 per share and the last reported sale price of
Chittenden common stock was $31.50 per share. On April 5, 1999, the most
recent practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, the last reported sale price of Chittenden common
stock was $26.75 per share. Figures have been adjusted to reflect a 5-for-4
stock split on May 24, 1996 and a 5-for-4 stock split on December 12, 1997.
Stockholders are urged to obtain current market quotations prior to making
any decisions with respect to the merger.
(2) On December 16, 1998, the last full trading day prior to the public
announcement of the proposed merger, the highest sale price of Vermont
Financial common stock was $29.125 per share, the lowest sale price of
Vermont Financial common stock was $26.875 per share and the last reported
sale price of Vermont Financial common stock was $29.00 per share. On April
5, 1999, the most recent practicable date prior to the printing of this
Joint Proxy Statement/Prospectus, the last reported sale price of Vermont
Financial common stock was $27.81 per share. Stockholders are urged to
obtain current market quotations prior to making any decisions with respect
to the merger.
(3) Includes a special cash dividend of $0.600 per share.
As of March 26, 1999, there were 2,874 holders of record of Chittenden
common stock and 2,745 holders of record of Vermont Financial common stock.
85
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
CHITTENDEN CORPORATION
VERMONT FINANCIAL SERVICES CORP.
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
December 31, 1998
The following Unaudited Pro Forma Combining Balance Sheet presents the
combined financial position of Chittenden and Vermont Financial as of December
31, 1998, assuming the merger had occurred as of that date. The accompanying
pro forma information is based on historical balance sheet data of Chittenden
and Vermont Financial as of December 31, 1998 giving effect to the transaction
as a pooling of interests.
The Unaudited Pro Forma Combining Balance Sheet should be read in
conjunction with the Unaudited Pro Forma Combined Statements of Income
appearing elsewhere in this Proxy Statement/Prospectus and the Notes to
Unaudited Pro Forma Financial Information and the historical financial
statements and notes thereto of Chittenden and Vermont Financial, which are
incorporated by reference in this Joint Proxy Statement/Prospectus, including
but not limited to, the financial information of Chittenden and Vermont
Financial contained in their respective Annual Reports on Form 10-K for the
year ended December 31, 1998. The Unaudited Pro Forma Combining Balance Sheet
is presented for informational purposes only and is not necessarily indicative
of the combined financial position that would have occurred if the proposed
merger of Chittenden and Vermont Financial had been consummated on December 31,
1998 or at the beginning of the periods indicated or which may be obtained in
the future. For information regarding the uncertainty of assumptions, estimates
and expectations reflected herein, see "Risk Factors."
86
<PAGE>
CHITTENDEN CORPORATION
VERMONT FINANCIAL SERVICES CORP.
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Vermont Pro Forma Pro Forma
Chittenden Financial Adjustments CHZ and
(CHZ) (VFSC) ------------------ VFSC
Historical Historical DR CR Combined
---------- ---------- ------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash
Equivalents............ $ 134,678 $ 121,193 $11,360(2) $ 267,231
Securities Available for
Sale................... 503,699 504,776 1,008,475
Federal Home Loan Bank
Stock.................. 5,591 13,160 18,751
Mortgage Loans Held for
Sale................... 25,974 27,752 53,726
Loans:
Commercial............. 373,025 203,851 576,876
Real Estate
Residential.......... 374,857 731,136 1,105,993
Commercial........... 327,624 241,235 568,859
Construction......... 24,340 45,350 69,690
---------- ---------- ----------
Total Real Estate.... 726,821 1,017,721 1,744,542
Consumer............... 300,257 120,181 420,438
---------- ---------- ----------
Total Loans............. 1,400,103 1,341,753 2,741,856
Less: Allowance for
Possible Loan
Losses................ (24,510) (16,699) (41,209)
---------- ---------- ----------
Net Loans............... 1,375,593 1,325,054 2,700,647
Accrued Interest
Receivable............. 14,374 18,109 32,483
Other Real Estate
Owned.................. 695 1,174 1,869
Other Assets............ 19,480 32,669 52,149
Premises and Equipment,
Net.................... 29,441 41,571 71,012
Intangible Assets....... 12,494 56,966 69,460
---------- ---------- ------- ------- ----------
Total Assets............ $2,122,019 $2,142,424 $11,360 -- $4,275,803
========== ========== ======= ======= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand................. $ 321,179 $ 292,466 $ 613,645
Savings................ 1,056,550 1,002,478 2,059,028
Time Deposits less
than $100,000......... 394,310 404,611 798,921
Time Deposits $100,000
and over.............. 118,715 89,462 208,177
---------- ---------- ----------
Total Deposits.......... 1,890,754 1,789,017 3,679,771
Short-Term Borrowings... 23,369 111,907 135,276
Accrued Expenses and
Other Liabilities...... 32,749 27,187 31,700(1) 91,636
---------- ---------- ------- ------- ----------
Total Liabilities....... 1,946,872 1,928,111 -- 31,700 3,906,683
---------- ---------- ------- ------- ----------
Stockholders' Equity:
Common Stock--$1 Par
Value................. 15,930 13,293 13,293(3) 13,755(3)
355(2) 30,040
Surplus................ 72,468 116,894 13,755(3) 13,293(3)
2,391(2)
2,184(4) 189,107
Retained Earnings...... 122,056 92,273 31,700(1) 182,629
Treasury Stock--At
Cost.................. (38,852) (10,798) 8,614(2)
2,184(4) (38,852)
Accumulated Other
Comprehensive
Income................ 3,811 2,651 6,462
Unearned Portion of
Employee Restricted
Stock................. (266) -- (266)
---------- ---------- ------- ------- ----------
Total Stockholders'
Equity................. 175,147 214,313 60,932 40,592 369,120
---------- ---------- ------- ------- ----------
Total Liabilities and
Stockholders' Equity... $2,122,019 $2,142,424 $60,932 $72,292 $4,275,803
========== ========== ======= ======= ==========
</TABLE>
* See accompanying notes
87
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
CHITTENDEN CORPORATION
VERMONT FINANCIAL SERVICES CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The following Unaudited Pro Forma Combined Statements of Income give effect
to Chittenden's proposed acquisition of Vermont Financial by combining the
results of operations of Chittenden for each of the three years ended December
31, 1998 and Vermont Financial for each of the three years ended December 31,
1998 on a pooling of interests basis, assuming the acquisition had occurred as
of the beginning of each fiscal period. Basic and diluted earnings per share
and weighted average shares outstanding are based on the exchange ratio of 1.07
shares of Chittenden common stock for each share of Vermont Financial common
stock as specified in the merger agreement. The Unaudited Pro Forma Combined
Statements of Income should be read in conjunction with the Unaudited Pro Forma
Combining Balance Sheet and Notes to Unaudited Pro Forma Financial Information
appearing elsewhere in this Joint Proxy Statement/Prospectus and the Notes to
Unaudited Pro Forma Financial Information and the historical financial
statements and notes thereto of Chittenden and Vermont Financial, which are
incorporated by reference in this Joint Proxy Statement/Prospectus, including
but not limited to, the financial information of Chittenden and Vermont
Financial contained in their respective Annual Reports on Form 10-K for the
year ended December 31, 1998. The pro forma amounts are not necessarily
indicative of results that will be obtained on a combined basis. The pro forma
amounts have not been adjusted to reflect any of the improvements in operating
efficiencies that the Surviving Corporation anticipates will occur as a result
of the merger.
88
<PAGE>
CHITTENDEN CORPORATION
VERMONT FINANCIAL SERVICES CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Vermont Pro Forma Pro Forma
Chittenden Financial Adjustments CHZ and
(CHZ) (VFSC) --------------- VFSC
Historical Historical DR CR Combined
----------- ----------- ------- ------- -----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest on Loans....... $ 122,626 $ 114,282 $ 236,908
Investment Securities:
Taxable............... 25,082 31,663 56,745
Tax-Favored........... 1,815 428 2,243
Short-Term
Investments.......... 1,988 1,797 3,785
----------- ----------- -----------
Total Interest Income.... 151,511 148,170 299,681
Interest Expense:
Deposits................ 58,276 59,224 117,500
Short-Term Borrowings... 2,232 6,500 8,732
----------- ----------- -----------
Total Interest Expense... 60,508 65,724 126,232
----------- ----------- -----------
Net Interest Income...... 91,003 82,446 173,449
Provision for Possible
Loan Losses............. 5,100 3,135 8,235
----------- ----------- -----------
Net Interest Income after
Provision for Possible
Loan Losses............. 85,903 79,311 165,214
Noninterest Income:
Investment Management
and Trust Income....... 6,668 6,245 12,913
Service Charges on
Deposit Accounts....... 7,067 13,926 20,363
Mortgage Servicing
Income................. 1,907 1,364 3,271
Gains on Sales of
Mortgage Loans, Net.... 4,814 3,220 8,034
Credit Card Income,
Net.................... 3,582 1,336 4,918
Insurance Commissions,
Net.................... 2,878 -- 2,878
Other................... 5,486 8,914 15,030
----------- ----------- -----------
Total Noninterest
Income.................. 32,402 35,005 67,407
----------- ----------- -----------
Noninterest Expense:
Salaries................ 30,161 31,156 61,317
Employee Benefits....... 9,483 7,096 16,579
Net Occupancy Expense... 9,488 15,811 25,299
FDIC Deposit
Insurance.............. 234 508 742
Other Real Estate
Owned, Income and
Expense, Net........... (33) 1,438 1,405
Other................... 22,434 26,853 49,287
----------- ----------- -----------
Total Noninterest
Expense................. 71,767 82,862 154,629
----------- ----------- -----------
Income Before Income
Taxes................... 46,538 31,454 77,992
Income Tax Expense....... 15,873 12,341 28,214
----------- ----------- ------- ------- -----------
Net Income............... $ 30,665 $ 19,113 -- -- $ 49,778
=========== =========== ======= ======= ===========
Earnings Per Share:
Basic................... $ 2.14 $ 1.46 $ 1.76
Diluted................. 2.09 1.45 1.73
Weighted average common
shares outstanding...... 14,303,053 13,102,672 28,322,912
Weighted average common
and common equivalent
shares outstanding...... 14,682,636 13,222,300 28,830,497
</TABLE>
89
<PAGE>
CHITTENDEN CORPORATION
VERMONT FINANCIAL SERVICES CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Vermont Pro Forma Pro Forma
Chittenden Financial Adjustments CHZ and
(CHZ) (VFSC) --------------- VFSC
Historical Historical DR CR Combined
----------- ----------- ------- ------- -----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest on Loans....... $ 124,041 $ 98,429 $ 222,470
Investment Securities:
Taxable............... 22,992 26,638 49,630
Tax-Favored........... 1,057 456 1,513
Short-Term
Investments.......... 1,939 771 2,710
----------- ----------- -----------
Total Interest Income.... 150,029 126,294 276,323
Interest Expense:
Deposits................ 57,052 49,084 106,136
Short-Term Borrowings... 2,448 6,878 9,326
----------- ----------- -----------
Total Interest Expense... 59,500 55,962 115,462
----------- ----------- -----------
Net Interest Income...... 90,529 70,332 160,861
Provision for Possible
Loan Losses............. 4,050 3,250 7,300
----------- ----------- -----------
Net Interest Income after
Provision for Possible
Loan Losses............. 86,479 67,082 153,561
Noninterest Income:
Investment Management
and Trust Income....... 5,602 5,761 11,363
Service Charges on
Deposit Accounts....... 6,952 10,220 17,172
Mortgage Servicing
Income................. 2,314 1,800 4,114
Gains on Sales of
Mortgage Loans, Net.... 2,470 1,114 3,584
Credit Card Income,
Net.................... 4,774 1,295 6,069
Insurance Commissions,
Net.................... 1,327 -- 1,327
Other................... 4,761 6,363 11,124
----------- ----------- -----------
Total Noninterest
Income.................. 28,200 26,553 54,753
----------- ----------- -----------
Noninterest Expense:
Salaries................ 28,103 25,012 53,115
Employee Benefits....... 9,365 6,114 15,479
Net Occupancy Expense... 9,512 11,631 21,143
FDIC Deposit
Insurance.............. 231 331 562
Other Real Estate
Owned, Income and
Expense, Net........... (136) 1,155 1,019
Other................... 22,872 22,253 45,125
----------- ----------- -----------
Total Noninterest
Expense................. 69,947 66,496 136,443
----------- ----------- -----------
Income Before Income
Taxes................... 44,732 27,139 71,871
Income Tax Expense....... 15,326 10,013 25,339
----------- ----------- ------- ------- -----------
Net Income............... $ 29,406 $ 17,126 -- -- $ 46,532
=========== =========== ======= ======= ===========
Earnings Per Share:
Basic................... $ 1.99 $ 1.52 $ 1.73
Diluted................. 1.94 1.51 1.70
Weighted average common
shares outstanding...... 14,812,208 11,257,292 26,857,510
Weighted average common
and common equivalent
shares
outstanding............. 15,166,557 11,364,920 27,327,021
</TABLE>
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<PAGE>
CHITTENDEN CORPORATION
VERMONT FINANCIAL SERVICES CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Vermont Pro Forma Pro Forma
Chittenden Financial Adjustments CHZ and
(CHZ) (VFSC) --------------- VFSC
Historical Historical DR CR Combined
---------- ---------- ------- ------- ----------
(In thousands, except share and per share
amounts)
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest on Loans........... $ 119,398 $ 79,782 $ 199,180
Investment Securities:
Taxable................... 20,232 15,504 35,736
Tax-Favored............... 1,401 478 1,879
Short-Term Investments.... 1,527 842 2,369
---------- --------- ----------
Total Interest Income........ 142,558 96,606 239,164
Interest Expense:
Deposits.................... 56,515 37,057 93,572
Short-Term Borrowings....... 2,084 4,294 6,378
---------- --------- ----------
Total Interest Expense....... 58,599 41,351 99,950
---------- --------- ----------
Net Interest Income.......... 83,959 55,255 139,214
Provision for Possible Loan
Losses...................... 4,183 3,350 7,533
---------- --------- ----------
Net Interest Income after
Provision for Possible Loan
Losses...................... 79,776 51,905 131,681
Noninterest Income:
Investment Management and
Trust Income............... 4,895 4,109 9,004
Service Charges on Deposit
Accounts................... 6,260 6,165 12,425
Mortgage Servicing Income... 2,454 1,698 4,152
Gains on Sales of Mortgage
Loans, Net................. 2,606 1,008 3,614
Credit Card Income, Net..... 4,198 1,126 5,324
Insurance Commissions,
Net........................ -- -- --
Other....................... 4,393 3,748 8,141
---------- --------- ----------
Total Noninterest Income..... 24,806 17,854 42,660
---------- --------- ----------
Noninterest Expense:
Salaries.................... 25,654 18,275 43,929
Employee Benefits........... 7,574 5,160 12,734
Net Occupancy Expense....... 9,125 7,427 16,552
FDIC Deposit Insurance...... 27 4 31
Other Real Estate Owned,
Income and Expense, Net.... 153 1,780 1,933
Other....................... 21,876 11,959 33,835
---------- --------- ----------
Total Noninterest Expense.... 64,409 44,605 109,014
---------- --------- ----------
Income Before Income Taxes... 40,173 25,154 65,327
Income Tax Expense........... 13,452 8,539 21,991
---------- --------- ------- ------- ----------
Net Income................... $ 26,721 $ 16,615 -- -- $ 43,336
========== ========= ======= ======= ==========
Earnings Per Share:
Basic....................... $ 1.75 $ 1.79 $ 1.72
Diluted..................... 1.72 1.77 1.70
Weighted average common
shares outstanding.......... 15,228,820 9,284,890 25,163,652
Weighted average common and
common equivalent shares
outstanding................. 15,543,741 9,364,601 25,563,864
</TABLE>
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<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
NOTE 1
It is contemplated that the pending acquisition will be accounted for as a
pooling of interests. Accordingly, pro forma financial information assumes that
the merger was consummated as of the beginning of each of the periods indicated
herein. Certain reclassifications have been made to the accounts of Vermont
Financial in the accompanying Unaudited Pro Forma Combining Balance Sheet and
the Unaudited Pro Forma Combined Statements of Income to conform to Chittenden
presentation. Pro forma results from continuing operations do not reflect
nonrecurring items of income and expense resulting directly from the proposed
merger.
The effect of an estimated one-time charge of $31.7 million ($45 million
pre-tax) to be taken by Chittenden in connection with the acquisition of
Vermont Financial has been reflected in the accompanying Unaudited Pro Forma
Combining Balance Sheet as a reduction in retained earnings and an increase in
accrued expenses and other liabilities, net of a 35% tax benefit of $13.3
million, after excluding $7 million of nondeductible expense. It is anticipated
that the one-time charge will range from $35 million to $45 million (on a pre-
tax basis), including $6 million to $7 million of nondeductible expense. For
purposes of the pro forma disclosures, the top end of the range has been used.
These charges have not been reflected in the Unaudited Pro Forma Combined
Statements of Income since they are nonrecurring. The unaudited pro forma
financial information does not give effect to any cost savings in connection
with the pending acquisition.
The unaudited pro forma financial information presented herein does not
reflect the impact of any divestitures that may be required as part of the
combination.
NOTE 2
In connection with the proposed transaction, Chittenden and Vermont
Financial will reissue approximately 355,000 shares of common stock either
through stock option exercises or through sales on the open market. This share
reissuance is required for the proposed transaction to be accounted for as a
pooling of interests in accordance with GAAP. There can be no assurances that
the estimated share reissuance will be greater than or less than this estimate.
All issuances are assumed to occur on December 31, 1998 at Chittenden's
closing price of $32 per share and are assumed to be issued from Vermont
Financial treasury shares with an average book value of $24.27 per share as of
December 31, 1998.
NOTE 3
The pro forma stockholders' equity accounts of Chittenden have been adjusted
to reflect the issuance of shares of Chittenden common stock in exchange for
all of the outstanding shares of Vermont Financial common stock.
The 13,754,762 shares of Chittenden common stock to be issued pursuant to
the acquisition of Vermont Financial are based upon 12,854,918 net Vermont
Financial shares outstanding as of December 31, 1998 and the exchange ratio of
1.07 shares of Chittenden common stock for each share of Vermont Financial
common stock. The excess of the par value of the Chittenden common stock to be
issued over the par value of the Vermont Financial common stock to be acquired
has been charged to surplus.
NOTE 4
To reflect the retirement of the remaining 90,000 shares of Vermont
Financial treasury stock.
NOTE 5
Pro forma EPS amounts in the accompanying Pro Forma Combined Statements of
Income are based on the weighted average number of basic and diluted common
shares of Chittenden and Vermont Financial during each period as adjusted for
the exchange ratio of 1.07.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF CHITTENDEN
Authorized Capital Stock
Chittenden's current authorized stock consists of 30,000,000 shares of
common stock, par value $1.00 per share, and 200,000 shares of preferred stock,
par value $100.00 per share, none of which are outstanding. If the merger is
completed, the Amended and Restated Charter of Chittenden, as the Surviving
Corporation, will authorize the issuance by the Surviving Corporation of (A)
60,000,000 shares of common stock, par value $1.00 per share, and (B) 1,000,000
shares of preferred stock, par value $100.00 per share. The Chittenden Board is
authorized to issue, without further stockholder approval, preferred stock from
time to time in one or more series, and to determine the provisions applicable
to each series, including the number of shares, dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption, sinking fund
provisions, redemption price or prices, and liquidation preferences.
The Chittenden common stock is traded on the NYSE under the ticker symbol
"CHZ." As of March 26, 1999, 14,230,858 shares of Chittenden common stock were
issued and outstanding.
Common Stock
Under Vermont law, stockholders generally are not personally liable for a
corporation's acts or debts. Subject to the preferential rights of any other
shares or series of capital stock, holders of shares of Chittenden common stock
are entitled to receive dividends on shares of common stock if, as and when
authorized and declared by the Chittenden Board out of assets legally available
therefor and to share ratably in the assets of Chittenden legally available for
distribution to its stockholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of Chittenden.
Each outstanding share of Chittenden common stock entitles the holder to one
vote on all matters submitted to a vote of stockholders, including the election
of directors. Unless a larger vote is required by law, the Chittenden charter
or the Chittenden bylaws, when a quorum is present at a meeting of
stockholders, a majority of the votes properly cast upon any question other
than the election of directors shall decide the question. A plurality of the
votes properly cast for the election of a person to serve as a director shall
elect such person. Except as otherwise required by law or except as provided
with respect to any other class or series of capital stock, the holders of
Chittenden common stock possess the exclusive voting power. There is no
cumulative voting in the election of directors. The Chittenden Board is
classified into three categories with each category as nearly equal in number
as possible. This means that approximately one-third of the members of the
Chittenden Board are subject to reelection at each annual meeting of
stockholders. The President of Chittenden serves as a director for so long as
he holds the office of President.
Holders of Chittenden common stock have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any of Chittenden's
securities.
Subject to the provisions of Chittenden's charter, all shares of Chittenden
common stock have equal dividend, distribution, liquidation and other rights,
and have no preference, appraisal or exchange rights.
For a description of the provisions of the Chittenden charter that may have
the effect of delaying, deferring or preventing a change in control of
Chittenden, see "Comparison of Rights of Holders of Vermont Financial Common
Stock and Chittenden Common Stock--Restrictions Upon Certain Business
Combinations."
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<PAGE>
Preferred Stock
The Chittenden Board is authorized, without any further vote or action by
Chittenden stockholders, to issue shares of preferred stock in one or more
series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof, in each case, if any, as
are permitted by Vermont law and as the Chittenden Board may determine by
adoption of an amendment of the Chittenden charter. Because the Chittenden
Board has the power to establish the preferences and rights of each class or
series of preferred stock, it may afford the stockholders of any series or
class of preferred stock preferences, powers and rights, voting or otherwise,
senior to the rights of holders of shares of Chittenden common stock. The
issuance of shares of preferred stock could have the effect of delaying,
deferring or preventing a change in control of Chittenden.
Registrar and Transfer Agent
Chittenden's registrar and transfer agent is BankBoston, N.A. Copies of the
governing corporate instruments of Chittenden and Vermont Financial are
available, without charge, by following the instructions listed under "Where
You Can Find More Information."
COMPARISON OF RIGHTS OF HOLDERS OF VERMONT FINANCIAL COMMON STOCK
AND CHITTENDEN COMMON STOCK
Upon completion of the merger, the stockholders of Vermont Financial will
become stockholders of Chittenden. The rights of Vermont Financial stockholders
are presently governed by Delaware law, the Vermont Financial charter and the
Vermont Financial bylaws. As stockholders of Chittenden following the merger,
the rights of former Vermont Financial stockholders will be governed by Vermont
law, the Amended and Restated Charter and the Chittenden bylaws. The following
chart summarizes the material differences between the rights of holders of
Vermont Financial common stock prior to and after the merger.
Vermont Financial Vermont Financial
Stockholders' Rights Pre- Stockholders' Rights Post-
Merger Merger
------------------------ -------------------------
Special Meetings of Unable to call a special Able to call a special
Stockholders meeting of stockholders. meeting of stockholders at
the written request of at
least 10% of all shares
entitled to vote at the
meeting.
Inspection of List May inspect the list of May inspect a list of
of Stockholders stockholders beginning ten stockholders beginning two
days prior to a meeting and days after notice of the
continuing through the meeting for which the list
meeting. was prepared and continuing
through the meeting.
Classification of The Vermont Financial Board The Chittenden Board is
the Board of is divided into three divided into three classes,
Directors classes, with directors in with directors in each
each class being elected class being elected for
for staggered three year staggered three year terms.
terms. Chittenden's president
serves as a director during
his term and is not
assigned to any category of
directors.
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<PAGE>
Vermont Financial Vermont Financial
Stockholders' Rights Pre- Stockholders' Rights Post-
Merger Merger
------------------------ -------------------------
Election of the Directors are elected by a Directors are elected by a
Board of Directors majority vote. plurality of the votes
cast.
Removal of Directors A director or the entire A director may be removed
Vermont Financial Board may with cause if the number of
be removed only for cause votes cast for removal
and only by the affirmative exceeds the number of votes
vote of at least a majority cast against removal.
of the outstanding shares
of the voting stock of
Vermont Financial.
Vacancies on the Vacancies are filled by a Vacancies are filled by a
Board of Directors majority vote of the majority vote of the
directors then in office directors then in office or
and the director chosen to a majority of the
fill the vacancy holds the stockholders and the
office for the unexpired director chosen to fill the
term of his or her vacancy holds the office
predecessor. for the rest of the full
term of the class to which
he or she was elected.
Liability of Directors are not Directors are generally not
Directors personally liable to personally liable to
Vermont Financial or its Chittenden or its
stockholders for breaches stockholders for any
of fiduciary duty, except action, except the
(1) for breach of the corporation may not limit a
director's duty of loyalty, director's liability for
(2) for acts and omissions (1) the amount of a
not in good faith or which financial benefit received
involve intentional to which the director was
misconduct or a knowing not entitled, (2) an
violation of law, (3) for intentional or reckless
unlawful payments of infliction of harm on the
dividends or unlawful stock corporation or its
purchases or redemptions or stockholders, (3) allowing
(4) for any transaction an unlawful distribution or
where the director received (4) an intentional or
an improper personal reckless act.
benefit.
Indemnification of Directors, officers, A director is entitled to
Directors, Officers employees and agents are indemnification if he or
and Others entitled to indemnification she acted in good faith
for expenses incurred by with the reasonable belief
them if the person acted in that his or her conduct in
good faith and with the his or her official
belief that his or her capacity was in the best
conduct was in or not interest of Chittenden or
opposed to the best was at least not opposed to
interests of the Vermont the best interest of
Financial and, with respect Chittenden. Directors are
to any criminal action or also entitled to
proceeding, with no indemnification in a
reasonable belief that his governmental proceeding if
or her action was unlawful. the director has no
reasonable cause to believe
his or her conduct was
unlawful and the conduct is
not found to be reckless or
intentionally unlawful.
In addition, officers are
entitled to indemnification
for reasonable expenses
incurred by them if they
are wholly successful in
defending any
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<PAGE>
Vermont Financial Vermont Financial
Stockholders' Rights Pre- Stockholders' Rights Post-
Merger Merger
------------------------ -------------------------
proceeding to which they
are a party because of
their position. Officers
are also entitled to apply
for court ordered
indemnification to the same
extent as directors.
Restrictions upon A business combination with A business combination
Certain Business any interested stockholder involving a related person
Combinations; Fair is prohibited for a three or affiliate must be
Price Provisions year period unless (1) the approved by two-thirds of
board of directors approves the continuing directors
that transaction prior to and two-thirds of the
the occurrence of the outstanding shares of
transaction, (2) the Chittenden's capital stock.
interested stockholder
owned at least 85% of the
voting stock of Vermont
Financial or (3) the board
of directors and at least
two-thirds of the
outstanding voting stock
which is not owned by the
interested stockholder is
voted to the approve the
transaction.
In addition, any business
combination involving
Chittenden or a subsidiary
and a related person or
affiliate requires the
affirmative vote of the
holders of 80% of the
outstanding shares of
Chittenden common stock,
excluding the shares owned
by any related person,
unless a specified "fair"
price is received by
stockholders.
Mergers, Share The affirmative vote of Any business combination
Exchange or Asset two-thirds or more of the that does not involve a
Sales outstanding shares is related person or an
required to authorize or affiliate requires the vote
approve any agreement of a majority of the votes
providing for a merger, of the stockholders
consolidation, sale of entitled to be cast.
substantially all assets or
an acquisition in which a
majority of its shares are
issued to another
corporation or entity.
Amendments to Amendments require the Amendments generally
Charter approval of the board of require approval of a
directors and the vote of majority of the votes cast
the holders of a majority upon the amendment. Any
of the outstanding stock. amendment relating to
Amendments for a few business combinations
specified articles require requires the affirmative
the approval of not less vote of at least two-thirds
than two-thirds of the of Chittenden's directors
total votes entitled to together with the approval
vote on the matter. of at least two-thirds of
the outstanding shares
entitled to vote on the
matter.
Amendments to Bylaws Stockholders and directors A majority of the
have the power to adopt, directors, or the
amend or repeal the bylaws affirmative vote of a
by the affirmative vote of majority of the shares
a majority of the present in person or by
stockholders or directors, proxy and entitled to vote
as the case may be. on such amendment or
repeal, voting together as
a single class, may amend
or repeal the bylaws.
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<PAGE>
Vermont Financial Vermont Financial
Stockholders' Rights Pre- Stockholders' Rights Post-
Merger Merger
------------------------ -------------------------
Appraisal/Dissenters'Stockholders generally do Stockholders are entitled
Rights not have appraisal rights. to dissenters' rights in a
merger, share exchange or
sale or exchange of all or
substantially all of
Chittenden's assets if the
transaction meets specfied
parameters.
The following discussion summarizes in further detail the material
differences between the rights of holders of Vermont Financial common stock and
holders of Chittenden common stock. This summary does not purport to be
complete and is qualified in its entirety by reference to the Vermont Financial
charter, the Vermont Financial bylaws, the Chittenden charter and the
Chittenden bylaws and the relevant provisions of Delaware and Vermont law.
Special Meetings of Stockholders
Vermont Financial stockholders are not entitled to call special meetings of
stockholders. Under the Delaware General Corporation Law (the "DGCL"), special
meetings of the stockholders may be called by the board of directors or such
other person or persons as may be authorized by the charter or by the bylaws.
The Vermont Financial bylaws provide that special meetings may be called only
by the Vermont Financial Board, the chairman of the Vermont Financial Board or
the president.
The Chittenden bylaws provide that special meetings of the stockholders may
be called by the president, the board of directors or, upon the written request
of not less than 10% of all the shares entitled to vote at the meeting for any
purpose, the Secretary. Under the VBCA, a corporation shall hold a special
meeting of stockholders (i) if called by the board of directors or the person
or persons authorized to do so by the charter or bylaws or (ii) if the holders
of at least 10% of all the votes entitled to be cast on any issue proposed to
be considered at the meeting sign, date, and deliver to the corporation's
secretary one or more written demands for the meeting describing the purpose
for which it is to be held.
Inspection of List of Stockholders
The Vermont Financial bylaws provide that stockholders may, during ordinary
business hours in the period beginning at least 10 days prior to a meeting of
stockholders through such meeting, inspect the list of stockholders entitled to
vote at such meeting for any purpose germane to such meeting. The DGCL provides
that any stockholder shall, upon written demand under oath stating the purpose
thereof, have the right during usual business hours to inspect for any proper
purpose the corporation's stock ledger, a list of stockholders, and its other
books and records, and to make copies or extracts therefrom.
The Chittenden bylaws provide that a list of stockholders entitled to notice
of a stockholders meeting must be made available for inspection by any
stockholder, beginning two business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting, at
Chittenden's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. In addition, any stockholder of record
that is entitled to vote at that meeting, or his or her agent or attorney, is
entitled to inspect the list at any time during the meeting or at any
adjournment. The VBCA provides that a stockholder is entitled to inspect and
copy, during regular business hours at the corporation's principal office, the
corporation's accounting records or a record of stockholders if the stockholder
gives at least five days' written notice to the corporation, the stockholder
establishes that the demand to inspect and copy the records is made in good
faith and for a proper purpose, the stockholder describes its purpose and the
records are directly connected with such purpose.
Cumulative Voting
Neither the Vermont Financial charter nor the Chittenden charter permits
stockholders to cumulate their votes for the election of directors.
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<PAGE>
Preemptive Rights
Neither Vermont Financial stockholders nor Chittenden stockholders have a
preemptive right to acquire or subscribe to any or all additional issues of the
corporation's stock.
Classification of the Board of Directors
Both the Vermont Financial charter and the Chittenden charter provide that
their respective boards of directors are to be classified and divided into
three classes, as nearly equal in number as possible, with the directors in
each class being elected for staggered three year terms.
Election of the Board of Directors
The Vermont Financial bylaws provide that all elections for director shall
be decided by majority vote. The DGCL provides that, in the absence of
specification in the charter or the bylaws, directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at a stockholders meeting and entitled to vote on the election of directors.
The Chittenden bylaws provide that a nominee for director is elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election at a stockholders meeting at which a quorum is present.
Removal of Directors
Consistent with the DGCL, the Vermont Financial bylaws provide that any
director or the entire board of directors may be removed from office only for
cause and only by the affirmative vote of at least a majority of the
outstanding shares of voting stock of the corporation.
The Chittenden charter contains no provision relating to the removal of a
director from the board of directors. However, if the merger is completed, the
Amended and Restated Charter will provide that directors of Chittenden may only
be removed "with cause" and only if the number of votes cast to remove such
director exceeds the number of votes cast not to remove the director at a
meeting of stockholders called for that purpose. See "Amended and Restated
Charter of the Surviving Corporation." The VBCA provides that stockholders may
remove one or more directors with or without cause unless the charter provides
that directors may be removed only for cause. The VBCA further provides that if
cumulative voting is not authorized, a director may be removed only if the
number of votes cast to remove the director exceeds the number of votes cast
not to remove the director. In addition, a director may be removed by
stockholders only at a meeting called for the purpose of removing the director
and the meeting notice must state that the purpose, or one of the purposes, of
the meeting is the removal of the director.
Additional Directors and Vacancies on the Board of Directors
The Vermont Financial bylaws provide that (1) the number of directors shall
be determined from time to time by a majority vote of the entire board of
directors, (2) vacancies shall be filled by a majority vote of the directors
then in office and (3) that the director chosen to fill a vacancy shall hold
office for the unexpired term of such director's predecessor.
The Chittenden bylaws provide that the number of directors shall be
determined from time to time by a majority vote of the directors present at a
meeting at which a quorum is present; provided, however, that no decrease in
the number of directors shall have the effect of shortening the term of any
incumbent director. The VBCA provides, and the Chittenden charter does not
provide otherwise, that vacancies shall be filled by a majority vote of the
directors then in office or a majority of the stockholders and that the
director chosen to fill a vacancy shall hold the office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred. Notwithstanding the foregoing, if the vacancy
was held by a director elected by a voting group of stockholders (e.g., a class
of preferred stockholders), then only holders of shares of that voting group
are entitled to fill the vacancy.
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<PAGE>
Liability of Directors
The Vermont Financial charter provides that no director shall be personally
liable to the corporation or its stockholders for monetary damages for breaches
of fiduciary duty except where such exculpation is expressly prohibited. The
Vermont Financial charter provides that this limitation does not apply to
liability of a director in the following instances:
. breach of the director's duty of loyalty to the corporation or its
stockholders
. acts and omissions not in good faith or which involve intentional
misconduct or knowing violation of law
. unlawful payments of dividends and unlawful stock purchases or
redemptions
for any transaction from which the director derived an improper personal
benefit.
The Chittenden charter has no provision limiting director liability.
However, if the merger is completed, the Amended and Restated Charter will
provide for the elimination of such liability to the full extent provided by
Vermont law. See "Amended and Restated Charter of the Surviving Corporation."
The VBCA permits a corporation to eliminate or limit the liability of a
director to the corporation or its stockholders for money damages for any
action taken, or any failure to take any action, solely as a director, based on
a failure to discharge his or her duties in good faith, with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances and in a manner the director reasonably believes to be in the
best interests of the corporation. Under the VBCA, a corporation may not limit
a director's liability for the following:
. the amount of a financial benefit received by a director to which the
director is not entitled
. an intentional or reckless infliction of harm on the corporation or the
stockholders
. voting for or assenting to an unlawful distribution
. an intentional or reckless act.
Indemnification of Directors, Officers and Others
The Vermont Financial bylaws provide indemnification to the fullest extent
permitted by the DGCL to directors, officers, employees and agents designated
by the Vermont Financial Board and any person serving, at the request of the
Vermont Financial Board, as a director, officer, employee or agent of another
corporation or enterprise affiliated with the corporation; provided, however,
that except with respect to actions to enforce indemnification rights, the
corporation shall indemnify any such person for actions initiated by that
person only if the action was authorized or ratified by a majority of a quorum
of the Vermont Financial directors who were not parties to such action, suit or
proceeding, and in certain circumstances, by independent legal counsel or by
the stockholders. The DGCL generally permits indemnification of directors,
officers, employees and agents for expenses incurred by them by reason of their
position with the corporation, if the person has acted in good faith and with
the reasonable belief that his conduct was in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, with no reasonable cause to believe his or her conduct was
unlawful. The DGCL does not permit a corporation to indemnify persons in
actions brought by or in the right of the corporation if the person is adjudged
to be liable to the corporation (although it does permit indemnification in
such situations if, and only to the extent, approved by the Delaware Court of
Chancery or other relevant courts).
The Chittenden bylaws provide that Chittenden shall indemnify directors
against liability incurred by reason of their position if (1) the director
acted in good faith and (2) with the reasonable belief that (A) his conduct
when acting in his official capacity was in the best interests of the
corporation and (B) in all other cases, the director's conduct was at least not
opposed to the best interests of the corporation, and (3) in any proceeding
brought by a governmental entity, the director had no reasonable cause to
believe his or her conduct was unlawful and the director is not found to have
engaged in any reckless or intentional unlawful act. Chittenden may not,
however, indemnify a director in connection with a proceeding by or in the
right of the corporation in which the director was adjudged liable to the
corporation or in connection with any other proceeding charging improper
personal benefit to the director, whether or not involving action in the
director's
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<PAGE>
official capacity in which the director was adjudged liable on the basis that
the director improperly received a personal benefit.
The VBCA and Chittenden bylaws also provide that the corporation shall
indemnify both officers and directors who were wholly successful in defending
any proceeding to which the officer or director was a party because of his
position against reasonable expenses incurred by the officer or director in
connection with the proceeding. In addition, an officer of Chittenden is
entitled to apply for court ordered indemnification under the VBCA to the same
extent as a director.
Restrictions upon Certain Business Combinations; Fair Price Provisions
The Vermont Financial charter and the Vermont Financial bylaws do not
exclude Vermont Financial from the restrictions imposed by Section 203 of the
DGCL. Therefore, Vermont Financial is subject to Section 203 of the DGCL, which
governs business combinations with interested stockholders. Subject to certain
exceptions set forth therein, Section 203 of the DGCL provides that a
corporation shall not engage in any business combination with any interested
stockholder for a three-year period following the time that such stockholder
becomes an "interested stockholder" unless:
. prior to such time, the Board of Directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder
. the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
certain shares)
. at or subsequent to such time, the business combination is approved by
the Board of Directors of the corporation and by the affirmative vote of
at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder.
Except as specified therein, an interested stockholder is defined to mean
any person that (A) is the owner of 15% or more of the outstanding voting stock
of the corporation or (B) is an affiliate or associate of the corporation and
was the owner of 15% or more of the outstanding voting stock of the corporation
at any time within three years immediately prior to the relevant date, or any
affiliate or associate of such person referred to in (A) or (B) of this
sentence. Under certain circumstances, Section 203 of the DGCL makes it more
difficult for an interested stockholder to effect various business combinations
with a corporation for a three-year period, although the stockholders may, by
adopting an amendment to the corporation's charter or bylaws, elect not to be
governed by this section, effective one year after adoption.
The Chittenden charter provides that the affirmative vote of two-thirds of
the Continuing Directors (as defined in the Chittenden charter) as well as the
affirmative vote of the holders of two-thirds or more of the outstanding shares
of capital stock of Chittenden entitled to vote is required to authorize, or to
approve any of the following business combinations:
. any merger or consolidation of Chittenden or any subsidiary into or with
a Related Person or its Affiliate (as defined in the Chittenden
charter), or any other corporation which after such merger or
consolidation would be an Affiliate of a Related Person
. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition by Chittenden, in one or a series of transactions, to or
with any Related Person or its Affiliate of all, or substantially all,
of the assets of Chittenden or any subsidiary
. the issuance or transfer by Chittenden or any subsidiary, in one or a
series of transactions, of a majority of its voting shares to a Related
Person or its Affiliate
. the adoption of any plan or proposal for the liquidation or dissolution
of Chittenden
. any reclassification of securities, recapitalization, reorganization,
merger or consolidation of Chittenden with any of its subsidiaries or
any transaction that has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of Chittenden or any
subsidiary that is directly or indirectly owned by any Related Person.
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For these purposes, "Related Person" means any person which, together with
its Affiliates or any officer, trustee, partner, director or beneficial holder
of more than 15% of any Related Person or Affiliate, owns of record or
beneficially, directly or indirectly, more than 15% of the outstanding voting
stock of Chittenden or is an Affiliate of Chittenden and at any time within the
two year period immediately prior to the date in question was the owner of
record or beneficially, directly or indirectly, of more than 15% of the
outstanding voting stock of Chittenden. An Affiliate is defined as any person
that directly or indirectly controls, is controlled by, or is under common
control with another person.
In addition, the Chittenden charter contains a fair price provision relating
to certain business combinations involving Chittenden or a subsidiary and a
Related Person or its Affiliate. Any such business combination requires the
affirmative vote of the holders of 80% of the voting power of the outstanding
shares of Chittenden common stock, excluding shares owned by any Related
Person, unless the aggregate amount of cash and the fair market value of
consideration other than cash to be received per share by the holders of the
Chittenden common stock shall be at least equal to the higher of (1) the
highest per share price (including brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Related Person or its Affiliates or any
officer, trustee, partner, director or beneficial holder of more than 15% of
any Related Person or Affiliate in purchasing any of Chittenden's common stock
(A) within the two year period immediately prior to the date of the proposal of
the business combination or (B) in the transaction in which it became a Related
Person, whichever is higher, or (2) the fair market value per share of
Chittenden's common stock on the date of the proposal of the business
combination.
Mergers, Share Exchanges or Asset Sales
The Vermont Financial charter provides that the affirmative vote of holders
of two-thirds or more of the outstanding shares of capital stock of Vermont
Financial is required to authorize, or to approve any agreement, contract or
other arrangement providing for, (1) any plan of merger or consolidation to
which Vermont Financial is to be a party and which requires stockholder
approval, (2) any sale or other disposition of all, or substantially all, of
the Vermont Financial's property and assets, if not made in the usual and
regular course of its business, or (3) a combination or majority share
acquisition in which Vermont Financial is the acquiring corporation and a
majority of its voting shares are issued or transferred to another corporation
or another entity or person, or to stockholders (or their equivalent) of such
other corporation or entity. The DGCL requires the approval of the directors
and the affirmative vote of the holders of a majority of the outstanding stock
entitled to vote thereon for the merger of a corporation into any other
corporation, unless the charter requires a higher stockholder vote.
The Chittenden charter provides that any business combination that does not
involve a Related Person or its Affiliate shall require only such affirmative
vote as is required by law and any other provision of the Chittenden charter
and Chittenden bylaws (i.e., a majority of the votes entitled to be cast). The
VBCA provides that a corporation may merge into another corporation or acquire
all of the outstanding shares of one or more classes or series of another
corporation if the board of directors of each corporation adopts and its
stockholders approve the plan of merger. For a plan of merger or share exchange
to be approved: (1) the board of directors must recommend the plan of merger or
share exchange to the stockholders, unless the board of directors determines
that because of conflict of interest or other special circumstances it should
make no recommendation and communicates the basis for its determination to the
stockholders with the plan and (2) the stockholders entitled to vote must
approve the plan. Action by the stockholders of the surviving corporation is
not necessary if each of the following conditions is satisfied:
. the charter of the surviving corporation will not differ from its
charter before the merger
. each stockholder of the surviving corporation whose shares were
outstanding immediately before the effective date of the merger will
hold the same number of shares, with identical designations,
preferences, limitations and relative rights immediately after
. the number of voting shares outstanding immediately after the merger,
plus the number of voting shares issuable as a result of the merger,
will not exceed by more than 20% the total number of voting shares of
the surviving corporation outstanding immediately before the merger
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. the number of participating shares outstanding immediately after the
merger, plus the number of participating shares issuable as a result of
the merger, will not exceed by more than 20% the total number of
participating shares of the surviving corporation outstanding
immediately before the merger.
Amendments to Charter
The Vermont Financial charter provides that no amendment, addition,
alteration, change or repeal of Article 6 (relating to constitution and
classification of the Vermont Financial Board), Article 9 (relating to certain
provisions for conduct of the corporation, including director liability and
indemnification), Article 10 (prohibiting stockholder action by written
consent), Article 12 (providing for greater than majority stockholder votes to
approve mergers, sales of substantially all assets and other transactions) or
Article 13 (requiring the vote of two-thirds of the outstanding voting stock to
amend the foregoing Articles and Article 13) of the Vermont Financial charter
shall be made unless approved by the stockholders of not less than two-thirds
of the total votes entitled to vote thereon. Under the DGCL, charter amendments
require the approval of the board of directors and the vote of the holders of a
majority of the outstanding stock and a majority of each class of stock
outstanding and entitled to vote thereon as a class, unless the charter
requires a greater vote. In addition, the DGCL requires a class vote when,
among other things, an amendment will adversely affect the powers, preferences
or special rights of a class of stock.
The Chittenden bylaws provide that a majority of the votes properly cast
upon any question other than an election to an office shall decide the
question, except when a larger vote is required by law or by Chittenden's
charter or bylaws. The Chittenden charter provides that any amendment,
alteration or repeal of Article VIII (relating to business combinations) shall
require the affirmative vote of at least two-thirds of the continuing
directors, together with the affirmative vote of the holders of at least two-
thirds of the outstanding shares entitled to vote thereon (as well as the
affirmative vote of the holders of at least two-thirds of the shares of any
class or series of shares entitled to vote thereon as a class). Under the VBCA,
unless a corporation's charter provides otherwise, a corporation's board of
directors may adopt one or more of the technical amendments to the
corporation's charter listed in Section 10.02 of the VBCA without stockholder
action. Any other amendment proposed by the board of directors to the
corporation's stockholders must be (1) recommended to the stockholders by the
board (unless the board determines that because of conflict of interest or
other special circumstances it should make no recommendation and informs the
stockholders of the basis for its decision), and, unless otherwise provided in
the corporation's charter, (2) approved by (A) a plurality of the votes cast by
the shares entitled to vote on the amendment, or (B) a majority of the votes
entitled to be cast on the amendment by any voting group with respect to which
the amendment would create dissenters' rights.
Amendments to Bylaws
The Vermont Financial charter provides that the Vermont Financial bylaws may
be amended by the affirmative vote of a majority of the directors. Under the
DGCL, the power to adopt, amend or repeal bylaws lies in the stockholders
entitled to vote; provided, however, that any corporation may, in its charter,
confer the power to adopt, amend or repeal bylaws upon the directors.
The Chittenden bylaws provide that the Chittenden bylaws may be amended or
repealed by the affirmative vote of a majority of directors then in office. The
Chittenden bylaws may also be amended or repealed at any meeting of the
stockholders called for that purpose, by the affirmative vote of a majority of
the shares present in person or by proxy and entitled to vote on such amendment
or repeal, voting together as a single class. Under the VBCA, a corporation's
board of directors may amend or repeal the corporation's bylaws unless (1) the
charter reserves this power exclusively to the stockholders or (2) the
stockholders in amending or repealing a particular bylaw provide expressly that
the board of directors may not amend or repeal that bylaw. In addition, a
corporation's stockholders may also amend or repeal the corporation's bylaws
even though the bylaws may also be amended or repealed by its board of
directors.
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Appraisal/Dissenters' Rights
The holders of Vermont Financial common stock will not have appraisal rights
with respect to the merger. The Vermont Financial charter does not provide for
such appraisal rights as permitted by the DGCL. Under the DGCL, appraisal
rights are available in connection with a statutory merger or consolidation
except in certain specified situations. Appraisal rights are not available for
shares of stock of a corporation which is to be the surviving corporation if no
vote of its stockholders is required to approve the merger, unless such
stockholders are required by the terms of the merger to accept anything other
than: (A) shares of stock of the surviving corporation; (B) shares of stock of
another corporation which are or will be so listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the NASD or held of record by more than 2,000 stockholders;
(C) cash in lieu of fractional shares of such stock; or (D) any combination of
the foregoing. In addition, unless otherwise provided in the charter, no
appraisal rights are available to holders of shares of any class of stock which
is either: (1) listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the NASD
or (2) held of record by more than 2,000 stockholders, unless such stockholders
are required by the terms of the merger to accept anything other than: (A)
shares of stock of the surviving corporation; (B) shares of stock of another
corporation which are or will be so listed on a national securities exchange or
designated as a national market system security on an inter-dealer quotation
system by the NASD or held of record by more than 2,000 stockholders; (C) cash
in lieu of fractional shares of such stock; or (D) any combination of the
foregoing.
The merger will be effected through a series of transactions involving CASI,
a wholly owned Delaware subsidiary of Chittenden. Specifically, CASI will merge
with and into Vermont Financial, the separate corporate existence of CASI will
cease, and Vermont Financial will survive as a wholly owned Delaware subsidiary
of Chittenden. Although the stockholders of Vermont Financial do not have
appraisal rights, Chittenden, as the sole stockholder of CASI, will have
appraisal rights. Chittenden, however, has waived its appraisal rights in
connection with the merger.
Chittenden stockholders will not be entitled to dissenters' rights under the
VBCA. Under the VBCA, a stockholder is entitled to dissent from, and obtain
payment of the fair value of his or her shares in the event of one of the
following:
. the consummation of a plan of merger to which the corporation is a party
and (A) stockholder approval is required under Section 11.03 of the VBCA
or the charter and the stockholder is entitled to vote on the merger or
(B) the corporation is a subsidiary that is merged with its parent under
Section 11.04 of the VBCA
. the consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
stockholder is entitled to vote on the plan
. the consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual course of
business, if the stockholder is entitled to vote on the sale or exchange
(excluding a sale pursuant to a court order or a sale for cash after
which substantially all of the net proceeds of the sale will be
distributed to the stockholders within one year after the date of the
sale)
. an amendment to the charter that materially and adversely affects rights
in respect of a dissenter's shares because it affects the stockholder's
rights as listed in Section 13.02(a)(4) of the VBCA
. any corporate action taken pursuant to a stockholder vote to the extent
the corporation's charter, bylaws or resolution of the board of
directors provides that voting or nonvoting stockholders are entitled to
dissent and obtain payment for the shares.
If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, a stockholder who wishes to assert dissenters'
rights must demand payment for his or her shares if the action is taken and
must not vote his or her shares in favor of the proposed action.
Under the VBCA, Chittenden's stockholders are not entitled to vote on the
merger of Vermont Financial, a wholly owned subsidiary of Chittenden after the
merger of CASI with and into Vermont Financial, into Chittenden. Chittenden
stockholders are voting to approve (i) the Amended and Restated Charter and
(ii) the issuance of the shares of Chittenden common stock to be issued in
connection with the merger of CASI with and into Vermont Financial.
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PROPOSAL 2
(Chittenden Meeting Only)
ELECTION OF DIRECTORS
The number of directors that serve on the Chittenden Board is established
periodically by the Chittenden Board, and such directors are classified into
three categories with each category as nearly equal in number as possible. Only
one category of directors is elected at each annual meeting of stockholders and
all directors are elected for three year terms. During 1998, the Chittenden
Board consisted of ten members. On February 17, 1999, the Chittenden Board
resolved to increase the number of directors serving on the Chittenden Board
from ten to eleven members. The vacancy resulting from such new directorship
has not yet been filled. Accordingly, at the Chittenden meeting, four directors
will be elected to serve until Chittenden's 2002 Annual Meeting of Stockholders
and until their successors are duly elected and qualified, one of whom will
fill the existing vacancy on the Chittenden Board.
The Chittenden Board has nominated Paul J. Carrara, Sally W. Crawford,
Philip A. Kolvoord and James C. Pizzagalli to serve as directors. With the
exception of Ms. Crawford, each of the nominees currently serves as a director
of Chittenden. The Chittenden Board anticipates that each of the nominees, if
elected, will serve as a director. However, if any person nominated by the
Chittenden Board is unable to accept election, the proxies will be voted for
the election of such other person or persons as the Chittenden Board may
recommend. The Chittenden Board will consider a nominee for election to the
Chittenden Board recommended by a stockholder of record if the stockholder
submits the nomination in compliance with the requirements of Chittenden's
bylaws. See "Other Matters--Stockholder Proposals for Annual Meetings" for a
summary of these requirements.
Required Vote and Recommendation
Proxies will be voted for Proposal 2 unless contrary instructions are set
forth on the proxy. Only stockholders of record of Chittenden common stock on
March 26, 1999 are entitled to vote on this proposal. A plurality of the votes
cast for the election of a nominee for director of Chittenden shall elect such
nominee. Accordingly, abstentions will have no effect on this proposal.
The Chittenden Board unanimously recommends that Chittenden stockholders
vote "FOR" all of the nominees.
Information Regarding Nominees, Continuing Directors and Executive Officers
The following table and biographical descriptions set forth certain
information with respect to the four nominees for election as directors at the
Chittenden meeting, the seven continuing directors on the Chittenden Board, and
the executive officers of Chittenden who are not directors, based on
information furnished to Chittenden by each nominee, continuing director and
executive officer. All executive officers are elected by the Chittenden Board
for terms of one year and until their successors are duly elected and
qualified. There is no family relationship between any nominee, continuing
director or executive officer of Chittenden. Unless otherwise specified, the
following information is as of January 22, 1999, and is based on 14,190,307
shares of Chittenden common stock outstanding at the close of business on such
date.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent
Director Ownership of of
Name of Nominee Age Since Common Stock Class
--------------- --- -------- ----------------- -------
<S> <C> <C> <C> <C>
Paul J. Carrara......................... 62 1982 17,905(1) *
Sally W. Crawford....................... 45 -- 1,010 *
Philip A. Kolvoord...................... 66 1977 18,898(1)(2) *
James C. Pizzagalli..................... 54 1980 237,454(3)(4) *
</TABLE>
- --------
* Less than one percent.
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(1) Includes 13,215 shares issuable upon the exercise of stock options that
have vested or will vest by March 23, 1999.
(2) Includes 1,673 shares owned by Mr. Kolvoord's spouse. Mr. Kolvoord does not
have voting or investment power over such shares.
(3) Includes 1,000 shares issuable upon the exercise of stock options that have
vested or will vest by March 23, 1999.
(4) Includes 571 shares owned by Mr. Pizzagalli's son. Also includes 6,330
shares owned by Pizzagalli Construction Company and 148,925 shares owned by
Pizzagalli Brothers Company, which are entities controlled by Mr.
Pizzagalli. Mr. Pizzagalli disclaims voting and investment power over such
shares.
Nominees for Election as Directors
Paul J. Carrara. Mr. Carrara is President of J.P. Carrara & Sons, Inc., a
ready-mixed and precast concrete supplier located in Middlebury, Vermont. He is
also President of Otter Valley Equipment, Inc., an equipment leasing firm in
Rutland, Vermont.
Sally W. Crawford. Ms. Crawford is a health care consultant based in Exeter,
New Hampshire. Since 1997, she has worked with payers, providers, regulators
and investors on managed care initiatives. From 1985 to 1997, Ms. Crawford was
Chief Operating Officer of Healthsource, Inc., a publicly traded HMO and
managed care company. From 1978 to 1985, she was Marketing Director for two New
Hampshire HMOs, Matthew Thornton Health Plan and Beacon Health. She graduated
from Smith College and received an M.S. degree from Boston University. Ms.
Crawford is a Director of Cytyc Corporation, a health care company that
develops, manufactures and markets the Thin Prep System for medical diagnostic
systems. She also serves on the Board for Medical Resources, Inc. which
specializes in the ownership, operation and management of 90 diagnostic imaging
centers in the United States. From 1996 to 1998, Ms. Crawford served as
Director for Harborside Healthcare, a long term and subacute care company
headquartered in Boston, Massachusetts. She is a Director of Leadership New
Hampshire, Odyssey House and Yankee Publishing, which is the publisher of
Yankee Magazine and the Old Farmer's Almanac.
Philip A. Kolvoord. Mr. Kolvoord is of counsel to the law firm of Kolvoord,
Overton & Wilson in Essex Junction, Vermont. He received his law degree from
the University of Virginia and commenced his law practice in Vermont in 1958.
Mr. Kolvoord is a member of the Board of Directors of the Discovery Museum for
Children in Essex Junction, Vermont and the Lake Champlain Aquarium. He is a
former President of the Vermont Trial Lawyers Association and the Chittenden
County Bar Association. He is a former Chairman of the Judicial Nominating
Board and the Professional Conduct Board of the State of Vermont. Mr. Kolvoord
is also past President of the Discovery Museum for Children. Mr. Kolvoord and
other members of his firm are retained from time to time for legal services by
the Essex Junction office of Chittenden.
James C. Pizzagalli. Mr. Pizzagalli is Co-Chairman of Pizzagalli
Construction Company. He joined the company in 1969 after graduating from the
University of Vermont and Boston University Law School. He is a Director of the
Associated General Contractors of America and the AGC Education and Research
Foundation. Mr. Pizzagalli is chairman of Chittenden's Executive Committee.
Continuing Directors
Paul A. Perrault. Mr. Perrault, 47, is Chairman, President and Chief
Executive Officer of Chittenden and Chittenden Trust Company. Mr. Perrault
joined Chittenden in 1990 and has served as a Director since that time. Prior
to joining Chittenden, he was President of Bank of New England-Old Colony in
Providence, Rhode Island. Before becoming President, Mr. Perrault was Executive
Vice President and Senior Loan Officer at Bank of New England-Old Colony. Prior
to that, he served in a variety of commercial banking positions in Rhode Island
and Boston. He is a 1973 graduate of Babson College and received his M.B.A.
from Boston College School of Management in 1975. He is also a Director of the
Greater Burlington Industrial Corporation, a member of the Advisory Board of
Fleming Museum and a Trustee of Champlain College. Mr. Perrault's term expires
in 2000.
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Frederic H. Bertrand. Mr. Bertrand, 62, has been a Director of Chittenden
since 1989. He is Chairman of Central Vermont Public Service Corporation,
Chairman of Catamount Energy Corporation, and is former Chairman of the Board
and Chief Executive Officer of National Life Insurance Company. He is a
graduate of Norwich University and the College of William and Mary Law School.
Mr. Bertrand is a former Chairman of the American Council of Life Insurance and
the Vermont Business Roundtable. Mr. Bertrand is a Director of Union Mutual
Fire Insurance Company, Vermont Electric Power Company and New England Guaranty
Insurance Company. Mr. Bertrand's term expires in 2001.
David M. Boardman. Mr. Boardman, 63, has been a Director of Chittenden since
1978. He is Senior Vice President of Hickok and Boardman, Inc. and President of
Associates in Financial Planning Inc. and Coldwell Banker Hickok & Boardman,
Inc., affiliates of Hickok and Boardman Financial Services, with which he has
been associated since 1956. He has also been a representative of National Life
Insurance Company since 1956. He is a Chartered Life Underwriter, a Life and
Qualifying Member of the Million Dollar Round Table and a Certified Financial
Planner. He is a former Trustee of Vermont Catholic Charities, former Chairman
of the Burlington City Retirement Board and a member of The Burlington Boys and
Girls Club Development Steering Committee. He is former Chairman of the Board
of Champlain College, where he has been a Trustee since 1974. He is a member of
the American Society of Chartered Life Underwriters, the Institute of Certified
Financial Planners and the Association of Advanced Life Underwriters. Mr.
Boardman's term expires in 2001.
Richard D. Driscoll. Mr. Driscoll, 67, has been a Director of Chittenden
since 1997. He served as President and Chief Executive Officer of the
Massachusetts Bankers Association from 1990 to 1997. From 1957 to 1990, Mr.
Driscoll was employed by the Bank of New England, N.A. in Boston, Massachusetts
in several capacities, culminating in the positions of Chairman and Chief
Executive Officer, in which positions he was responsible for all activities of
the Boston bank and affiliate banks in eastern New England, including
affiliates in Maine and Rhode Island, with aggregate assets of approximately
$20 billion. Mr. Driscoll is a graduate of Boston College and holds an M.B.A.
from Harvard Business School. Mr. Driscoll serves on the Board of Directors of
Atlantic Data Services, Inc., Charlesbank Homes, Child Care Investment Fund,
Greater Boston YMCA, the Massachusetts Business Development Corp. and Morgan
Memorial, Goodwill Industries. Mr. Driscoll's term expires in 2000.
Lyn Hutton. Ms. Hutton, 49, has been a Director of Chittenden since 1995.
She was recently named Vice President and Chief Financial Officer of the John
D. and Catherine T. MacArthur Foundation. From 1990 to 1998, she served as Vice
President and Treasurer of Dartmouth College. From 1982 to 1990, she was
associated with the University of Southern California, first as Treasurer and
then as Senior Vice President for Finance and Administration. In 1994, the
National Association for College and University Business Officers awarded Ms.
Hutton the Rodney Adams prize in recognition of her contributions to
professional development and research activities in the field of college and
university endowment and investment management. Both a Certified Public
Accountant and a Chartered Financial Analyst, Ms. Hutton serves on the Board of
Trustees of Commonfund Capital Inc., Commonfund Realty Inc. and the University
Corporation for Atmospheric Research. She has previously served on the Board of
Directors of First Interstate Bank of California. Ms. Hutton's term expires in
2000.
Pall D. Spera. Mr. Spera, 53, has been a Director of Chittenden since 1985.
He is the owner of Pall Spera Company, Realtors and Pall Spera Company,
Investment Securities of Stowe, Vermont. He is a Director and former President
of the Vermont Association of Realtors who named him Realtor of the Year in
1980, and is a Director of the National Association of Realtors. Mr. Spera is a
Director of the Lake Mansfield Trout Club. Mr. Spera was an incorporator and a
charter Director of Mountain Trust Company in 1977, was elected Vice Chairman
in 1978, served as Acting President in 1980-1981, and was Acting Chairman of
the Board prior to the merger of Mountain Trust Company with Chittenden Trust
Company. Mr. Spera's term expires in 2001.
Martel D. Wilson, Jr. Mr. Wilson, 61, has been a Director of Chittenden
since 1983. He is the former Vice President, Chief Financial Officer and
Director of S-K-I Ltd. He graduated from the University of Colorado with a
degree in mechanical engineering and received an M.B.A. from Cornell
University. Mr. Wilson is a
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Director and Chairman of the Board of Building Material Distributors, Inc. of
Stockton, California, a building material wholesaler in California and Nevada,
and a Director of American Ski Company, which is an owner and operator of ski
areas and real estate developments. He is a former President and Director of
the Rutland Regional Chamber of Commerce, a former Trustee of the College of
St. Joseph the Provider, a former President and Director of the Rutland
Regional Medical Center and a member of the Investment Committee and former
Chairman of the Board of Trustees of Comprehensive Health Resources, a health
care holding company. Mr. Wilson's term expires in 2001.
Executive Officers
John P. Barnes. Mr. Barnes, 43, is Executive Vice President and Chief Credit
Policy Officer of Chittenden. His responsibilities include managing its Credit
Policy and Administration Division, Chittenden Home Mortgage and Mortgage
Service Center of New England. Mr. Barnes joined Chittenden in 1983 as Manager
of Loan Review after five years with the FDIC--Boston area. He became Senior
Vice President and Chief Credit Policy Officer in 1988. In 1990, he was
appointed division head of the Credit Policy and Administration Division. He is
a graduate of Northeastern University and received his M.B.A. from the
University of Vermont in 1988.
Lawrence W. DeShaw. Mr. DeShaw, 52, is Executive Vice President of
Chittenden's Operations and Administration Division. He is responsible for
managing the Data Processing, Loan Servicing, Facilities Management, Marketing
and Public Relations, and Branch Operations. Mr. DeShaw joined Chittenden in
1971 and was named Assistant Vice President two years later. In 1978 he joined
the Commercial Loan Department as Vice President, and later became President of
Mountain Trust Company in Stowe, Vermont. He was named Senior Vice President of
Residential Real Estate in 1984, and appointed Executive Vice President in
1991. Mr. DeShaw is a Vermont native who attended Burlington High School,
Castleton State College and the University of Vermont. He also graduated from
the Williams School of Banking and the Commercial Lending Graduate School at
the University of Oklahoma. He is currently a Board Member of the Vermont
Community Loan Fund.
John W. Kelly. Mr. Kelly, 49, is Executive Vice President for Chittenden's
Commercial Banking, Trust and Investment Management activities. Mr. Kelly
joined Chittenden in 1990 as an Executive Vice President for Commercial
Banking. Mr. Kelly received a B.A. degree in 1971 from St. Bonaventure
University. He began his banking career in 1973 as a Residential and Commercial
Real Estate Appraiser with the Poughkeepsie Savings Bank in Poughkeepsie, New
York, where he later served as Commercial Real Estate Lender and Manager of the
Loan Workout Department. In 1983, he joined the Old Colony Newport National
Bank, headquartered in Providence, Rhode Island serving as Commercial Real
Estate Lender. He also served as chair of the bank's Commercial Loan Screening
Committee. In 1986, the Bank of New England Corporation acquired Old Colony and
Mr. Kelly was promoted to Senior Vice President in charge of Commercial Real
Estate Lending and later to Executive Vice President and Chief Lending Officer.
Danny H. O'Brien. Mr. O'Brien, 48, is Executive Vice President of Community
Banking of Chittenden. Mr. O'Brien also oversees Chittenden's broker/dealer,
Chittenden Securities, Inc., a non-FDIC insured investment products subsidiary
of Chittenden. Mr. O'Brien received a B.A. degree in 1972 from the University
of Vermont. He joined Chittenden in 1988 as Regional Manager for Chittenden
County and later assumed responsibilities for northern Vermont in Chittenden
Trust Company's Community Banking Division. In 1993, Mr. O'Brien assumed
responsibilities for business development and product and service delivery
through the branch system statewide. Prior to joining Chittenden, he worked for
Berkshire Bank and Trust Co. for nearly nine years and the Williamstown
National Bank for nearly eight years in various consumer lending, commercial
lending and managerial capacities. Both banks were located in western
Massachusetts.
Kirk W. Walters. Mr. Walters, 43, is Executive Vice President and Chief
Financial Officer of Chittenden. Mr. Walters joined Chittenden in 1996 after
serving as Chairman of the Board, President and Chief Executive Officer of
Northeast Federal Corp. and Northeast Savings Bank. Prior to holding these
positions at Northeast
107
<PAGE>
Federal, Mr. Walters was Senior Vice President and Controller of CalFed Inc.
and California Federal Bank. Before joining CalFed he worked in the corporate
finance group at Atlantic Richfield Corp. Mr. Walters received a B.S. in
Accounting from the University of Southern California in 1978 and was employed
with Coopers & Lybrand as an audit supervisor after graduation. Mr. Walters is
a Certified Public Accountant.
F. Sheldon Prentice. Mr. Prentice, 48, is Senior Vice President, General
Counsel and Secretary of Chittenden. A graduate of Dartmouth College and
Fordham Law School, Mr. Prentice began his law career with Davis Polk &
Wardwell in New York, New York. He then returned to Montpelier, Vermont where
he was Assistant Counsel for National Life Insurance Company and taught
Securities Regulations at Vermont Law School. In 1985, Mr. Prentice joined
Chittenden as General Counsel. Mr. Prentice is a member of the Board of
Arbitrators of the National Association of Securities Dealers, Inc., and
currently serves as a Trustee of Vermont Legal Aid and Vermont Municipal
Employee Retirement Board, and is President of Vermont Green Up. Mr. Prentice
previously served on the Montpelier Planning Commission, the Boards of the
Ethan Allen Homestead and Burlington Rotary and has been active in Vermont
politics.
Howard L. Atkinson. Mr. Atkinson, 54, is Chief Auditor of Chittenden. He is
responsible for managing Chittenden's internal audit, regulatory compliance,
Community Reinvestment Act and insurance functions. Prior to serving in this
capacity he was Director of Internal Control for Bank of Ireland First
Holdings, Inc. Before becoming an internal auditor, Mr. Atkinson spent in
excess of twenty years with Ernst & Young, the last seven as an Audit Partner.
While in public accounting, Mr. Atkinson conducted several staff development
seminars in auditing and banking. He has been an accounting instructor at New
Hampshire College, and he conducted seminars for the Institute of Internal
Auditors, the American Institute of CPAs and other professional organizations.
Mr. Atkinson has also worked as an independent consultant, rendering financial
and litigation support services. Mr. Atkinson graduated from the University of
Massachusetts at Amherst with a degree in accounting. He is a member of the
Board of Governors of the Green Mountain Chapter of the Institute of Internal
Auditors, the American Institute of CPAs and the Vermont Society of CPAs.
Board of Directors and its Committees
Board of Directors. During 1998, Chittenden was managed by a ten-member
board, a majority of whom are independent of Chittenden's management. The
Chittenden Board held twelve regular meetings and two special meetings during
1998. Each of the directors attended at least 75% of the total number of
meetings of the Chittenden Board and meetings of the committees of the
Chittenden Board that he or she was eligible to attend.
Audit Committee. The Chittenden Board has a standing audit committee
consisting of Messrs. Bertrand (Chair), Boardman and Wilson and Ms. Hutton. The
audit committee makes recommendations concerning the engagement of independent
public accountants, reviews the plans and results of the audit engagement with
the independent public accountants, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of Chittenden's internal accounting controls. The audit committee
met three times during 1998.
Executive Committee. The Chittenden Board has a standing executive
committee. The current members of the executive committee are Messrs. Bertrand,
Perrault, Pizzagalli (Chair), Spera and Wilson and Ms. Hutton. The executive
committee is responsible for strategic planning, officer and non-officer
compensation and directors' succession, among other duties. In carrying out
these responsibilities, the executive committee considers and recommends
nominees for election to the board as vacancies occur and performs all of the
functions of a compensation committee. The executive committee met five times
during 1998.
The Chittenden Board does not have a standing nominating or compensation
committee. The executive committee performs all of the functions of these
committees.
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<PAGE>
Director Compensation
Directors of Chittenden who are also employees (i.e., Mr. Perrault) receive
no additional compensation for service as directors. Each non-employee director
of Chittenden received a quarterly retainer fee of $500 in fiscal year 1998, of
which 50% was paid in the form of Chittenden common stock.
Executive Compensation
The following table sets forth, for each of Chittenden's last three fiscal
years, the annual compensation awarded to Chittenden's chief executive officer
and four other most highly compensated executive officers (the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
-------------------- ----------------------------------------
Awards Payouts
-------------------------- -------------
Securities Restricted
Name and Underlying Stock LTIP All Other
Principal Position Year Salary Bonus(1) Options(#)(2) Awards($)(3) Payouts($)(4) Compensation($)(5)
- ------------------ ---- -------- -------- ------------- ------------ ------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul A. Perrault........ 1998 $328,846 $321,875 0 0 $101,146 $208,240
Chairman of the Board, 1997 282,692 328,149 0 0 77,343 149,012
President and Chief 1996 237,884 127,166 187,500 0 74,410 114,961
Executive Officer
Lawrence W. DeShaw...... 1998 170,480 61,875 15,000 0 50,720 9,773
Executive Vice 1997 149,961 56,250 0 0 43,261 6,969
President 1996 144,230 47,125 0 0 39,228 5,313
John W. Kelly........... 1998 169,596 61,875 15,000 0 50,720 9,788
Executive Vice 1997 149,769 56,250 0 0 42,956 8,246
President 1996 143,384 47,125 0 0 37,647 5,299
Kirk W. Walters......... 1998 166,615 61,875 15,000 0 28,125 8,129
Executive Vice 1997 149,769 56,250 0 0 0 0
President 1996 2,230(6) N/A 15,000 0 0 0
Danny H. O'Brien........ 1998 139,038 50,625 12,000 0 43,410 8,075
Executive Vice 1997 125,000 46,875 0 0 38,021 6,173
President 1996 124,192 40,625 0 0 33,782 5,861
</TABLE>
- --------
(1) Totals in this column include 50% of the Executive Management Incentive
Compensation Plan ("EMICP") award that was earned in the year shown.
Additionally, based on a short-term incentive plan established in 1996, Mr.
Perrault was paid a bonus of $200,000. Mr. Perrault also received bonus
payments under this plan of $45,916 and $203,649 in 1996 and 1997,
respectively.
(2) Mr. Perrault's 187,500 options vest in three equal installments of 62,500
shares on June 1, 1997, 1998 and 1999. An aggregate of 150,000 of Mr.
Perrault's options were granted under the Chief Executive Officer
Compensation Plan (the "CEO Compensation Plan"). The options awarded to
Messrs. DeShaw, Kelly, Walters and O'Brien during 1998 vest in four equal
installments on January 21, 1998 and January 1, 1999, 2000 and 2001.
Options granted to Mr. Walters at his date of hire on December 10, 1996
vested in two equal installments of 7,500 shares on December 10, 1997 and
December 10, 1998.
(3) At fiscal year-end 1998, Mr. DeShaw owned 1,954 shares valued at $62,528.
Dividends are payable during the restriction period.
(4) The 1998 Long-Term Incentive Plan ("LTIP") payout from the EMICP reflects
25% of the 1997 award earned in 1998, 15% of the 1996 award that was earned
in 1998 and 10% of the 1995 award that was earned in 1998. The 1997 LTIP
payout from the EMICP reflects 25% of the 1996 award that was earned in
1997, 15% of the 1995 award that was earned in 1997 and 10% of the 1994
award that was earned in 1997. The 1996 LTIP payment from the EMICP
reflects 25% of the 1995 award that was earned in 1996, 15% of the 1994
award that was earned in 1996 and 10% of the 1993 award that was earned in
1996.
(5) Totals in this column include: (1) a 401(k) corporation match of 35% and an
additional profit-sharing match of 25% shown as one total; (2) an equal
match made under the Savings Plan Restoration portion of the Supplemental
Executive Retirement Plan established in January 1997; and (3) that portion
of Mr.
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<PAGE>
Perrault's supplemental executive retirement plan benefit which may be
granted based on Chittenden's annual results as measured by Chittenden's
return on equity ("ROE"). The figures, respectively, are as follows: Mr.
Perrault--$5,584.63, $7,315.37 and $195,340; Mr. DeShaw--$4,518.57 and
$5,254.63; Mr. Kelly--$4,527.99 and $5,260.83; Mr. Walters--$5,390.78 and
$2,738.57; and Mr. O'Brien--$4,510.11 and $3,565.03.
(6) Mr. Walters joined Chittenden on December 10, 1996 and his 1996 annual
salary was $145,000.
Option Grants with respect to Fiscal Year 1998
The following table sets forth the options granted during fiscal year ended
December 31, 1998 to Chittenden's Named Executive Officers.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Percent of Annual Rates of
Total Stock Price
Number of Options Granted Appreciation for
Shares Underlying to Employees in Option Term(1)
Options Granted Fiscal Year Exercise Expiration ----------------
Name (#) 1998 Price ($/Sh) Date 5%($) 10%($)
---- ----------------- --------------- ------------ ---------- ----- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Paul A. Perrault........ 0 0 0 N/A 0 0
Lawrence W. DeShaw...... 3,750 1.7% $33.75 1/21/2008 $79,594 $201,708
3,750 1.7 37.13 1/21/2008 66,919 189,033
3,750 1.7 40.84 1/21/2008 53,007 175,120
3,750 1.7 44.92 1/21/2008 37,707 159,820
John W. Kelly........... 3,750 1.7 33.75 1/21/2008 79,594 201,708
3,750 1.7 37.13 1/21/2008 66,919 189,033
3,750 1.7 40.84 1/21/2008 53,007 175,120
3,750 1.7 44.92 1/21/2008 37,707 159,820
Kirk W. Walters......... 3,750 1.7 33.75 1/21/2008 79,594 201,708
3,750 1.7 37.13 1/21/2008 66,919 189,033
3,750 1.7 40.84 1/21/2008 53,007 175,120
3,750 1.7 44.92 1/21/2008 37,707 159,820
Danny H. O'Brien........ 3,000 1.3 33.75 1/21/2008 63,675 161,366
3,000 1.3 37.13 1/21/2008 53,535 151,226
3,000 1.3 40.84 1/21/2008 42,405 140,096
3,000 1.3 44.92 1/21/2008 30,165 127,856
</TABLE>
- --------
(1) Potential realizable values are calculated as the product of (A) assumed
annual gains in the initial exercise price of 5% and 10% over the term of
the options less the initial exercise price and (B) the number of options.
Option Exercises and Year-End Holdings
The following table sets forth the aggregate number of options exercised in
1998 and the value of options held as of December 31, 1998 by Chittenden's
Named Executive Officers.
Aggregated Option Exercises in Fiscal Year 1998 and
Fiscal Year-End 1998 Option Values
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired On Underlying Unexercised in-the-Money Options
Exercise Value Options at Fiscal Year-End at Fiscal Year-End
Name (#) Realized($) Exercisable/Unexercisable(#) Exercisable/Unexercisable($)(1)
---- ----------- ----------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C>
Paul A. Perrault........ 4,100 $124,847 132,022/62,500 $1,754,909/$553,500
Lawrence W. DeShaw...... 0 0 45,259/11,250 911,980/0
John W. Kelly........... 0 0 39,155/11,250 770,419/0
Kirk W. Walters......... 0 0 18,750/11,250 185,250/0
Danny H. O'Brien........ 3,459 96,432 32,300/9,000 590,688/0
</TABLE>
- --------
110
<PAGE>
(1) Based on the last reported sale price of Chittenden common stock on the
NYSE on December 31, 1998 of $32 per share.
Long-Term Incentive Plans--Awards in Last Fiscal Year
The following table provides information on the EMICP awards for the Named
Executive Officers in 1998.
<TABLE>
<CAPTION>
Performance Estimated Future Payouts
or Other Under Non-Stock Price Based
Number of Period Plan(1)
Shares, Units Until ---------------------------
or Other Maturation Threshold Target Maximum
Name Rights (#) or Payout (#)(2) ($) ($)
---- ------------- ----------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
Paul A. Perrault.......... N/A 3 years $121,875 $121,875 $121,875
Lawrence W. DeShaw........ N/A 3 years 61,875 61,875 61,875
John W. Kelly............. N/A 3 years 61,875 61,875 61,875
Kirk W. Walters........... N/A 3 years 61,875 61,875 61,875
Danny H. O'Brien.......... N/A 3 years 50,625 50,625 50,625
</TABLE>
- --------
(1) Figures shown represent the unearned portion of the 1998 EMICP awards.
Fifty percent of the 1998 awards were earned and paid based upon
Chittenden's 1998 profitability levels. The remaining portion will be
earned on a schedule of 25%, 15% and 10% per year for each of the next
three years contingent upon Chittenden meeting profit goals established by
the Chittenden Board in January of each year.
(2) Threshold payout is based on the achievement of EPS in each of the
subsequent three years which is at least equal to that of the previous
year. If these targets are not met, the minimum payment could equal $0 in
any of the remaining three years.
Employment Agreements
Chittenden currently has severance agreements with each of Messrs. Perrault,
DeShaw, Kelly, Walters and O'Brien. These agreements provide for payments to
such persons that are conditioned upon a "change of control" of Chittenden
followed within three years by either (1) termination of employment by
Chittenden for any reason other than death or (2) termination by the executive
for any reason. If these conditions are satisfied, the required payments would
equal a multiple of the employee's annual salary, bonus and pension plan
contributions. For Mr. Perrault, such payments would equal 2.99 times annual
salary, bonus and pension plan contributions, and for Messrs. DeShaw, Kelly,
Walters and O'Brien, such payments would equal 1.99 times annual salary, bonus
and pension plan contributions. In addition, the CEO Compensation Plan provides
for (1) the vesting of all options upon a "change in control" and (2) certain
long-term disability payments in the event of a disability resulting in
termination of employment, in which case a monthly benefit would be paid at age
60 based upon 60% of the base salary of Mr. Perrault at the time of disability.
Report of the Committee Responsible for Executive Compensation
The executive committee of the Chittenden Board continues to have primary
responsibility for the administration of executive compensation. Mr. Perrault,
however, does not participate in meetings of the executive committee regarding
executive compensation. All recommendations of the executive committee receive
final approval of the full Chittenden Board. During 1998, the executive
committee members were: Messrs. Pizzagalli (Chair), Perrault, ex officio, Spera
and Wilson and Mrs. Barbara W. Snelling (through her retirement in April 1998).
No significant changes were made to Chittenden's compensation policy or
programs during 1998. Base salaries and salary ranges were reviewed against
local and regional survey information and the design of existing incentive
programs remained unchanged. An additional pool of incentive funds was accrued
during 1998. This pool was targeted as a mechanism to provide additional
incentive compensation for some members
111
<PAGE>
of the senior management group. Recommendations for awards are made by
executive managers and approved by Mr. Perrault. Performance targets for all
incentive programs were set in January 1998 and were based on specific earnings
and return ratios. Individual awards were made in early 1999 and were based
upon attainment of these goals combined with an assessment of individual
performance.
A review of executive base compensation was conducted by an independent
consultant in November 1997. In accordance with past practice, base salaries
were measured against the first (lowest) quartile of the selected peer group
and total executive compensation was targeted to fall in the third quartile
when performance goals are met. Based upon these standards, the consultant
recommended adjustments to the base salaries of the executives. These
adjustments were made in January 1998.
Pursuant to a resolution of the executive committee in 1998, Mr. Perrault's
annual base salary was increased on April 1, 1998 to $325,000. Mr. Perrault's
1998 EMICP payment of $223,023, which was based upon 1998 performance, is
comprised of 50% ($121,875) of his 1998 award and 25% ($62,250), 15% ($24,375)
and 10% ($14,523) of his 1997, 1996 and 1995 awards, respectively.
Pursuant to a resolution of the executive committee in 1998, Mr. Perrault
was eligible to receive a short-term incentive payment based upon Chittenden
achieving established EPS and ROE targets. Based upon an EPS of $2.09 and an
ROE of 18.29%, Mr. Perrault received a cash award of $200,000.
In addition to the Supplemental Executive Restoration Plan that was
established for all members of the executive management group of Chittenden in
January 1996, Mr. Perrault continues to be covered by a separate agreement.
Under this agreement, an additional award can be granted based upon the current
year's results. In 1998, with a reported ROE of 18.29%, the sum of $267,899 was
accrued for Mr. Perrault under the SERP and his separate agreement.
The SEC requires that this report comment upon Chittenden's policy with
respect to Section 162(m) of the Code, which limits the deductibility on
Chittenden's tax return of compensation over $1 million to any of the Named
Executive Officers of Chittenden unless, in general, the compensation is paid
pursuant to a plan which is performance-related, non-discretionary and has been
approved by Chittenden's stockholders. The executive committee's policy with
respect to Section 162(m) is to make every reasonable effort to ensure that
compensation is deductible to the extent permitted, while simultaneously
providing Chittenden executives with appropriate rewards for their performance.
Chittenden did not pay any compensation with respect to 1998 that would be
subject to Section 162(m).
Submitted by:
James C. Pizzagalli
Pall D. Spera
Martel D. Wilson, Jr.
112
<PAGE>
Stock Performance Graph
The following graph provides a comparison, from December 31, 1993 through
December 31, 1998, of the cumulative total stockholder return (assuming
reinvestment of dividends) among Chittenden; the Standard & Poor's 500 Index;
the SNL New England Bank Index, an industry index of 32 New England-based
institutions; and the KBW New England Bank Index, an industry index of 18 New
England-based institutions. Chittenden has adopted the SNL New England Bank
Index as a replacement for the KBW New England Bank Index because it believes
that the larger number of constituent banks in the SNL New England Bank Index
provides a comparison that is more appropriate for assessing Chittenden's
relative performance. The historical information set forth below is not
necessarily indicative of future performance.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Period Ending
---------------------------------------------------------------
Index 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chittenden Corporation 100.00 114.74 226.80 217.96 417.34 390.25
S&P 500 100.00 101.32 139.39 171.26 228.42 293.69
SNL New England Bank Index 100.00 96.10 157.58 214.87 342.02 374.29
KBW New England Bank Index 100.00 99.54 151.23 204.28 323.66 354.51
</TABLE>
113
<PAGE>
Executive Committee Interlocks and Insider Participation
The executive committee consists of Messrs. Bertrand, Perrault, Pizzagalli
(Chair), Spera and Wilson and Ms. Hutton. With the exception of Mr. Perrault,
who serves as President and Chief Executive Officer of Chittenden, none of the
members of the executive committee has served as an officer of Chittenden or
has any other business relationship or affiliation with Chittenden, except for
his or her service as a director.
Chittenden Retirement Plans
Substantially all full-time employees of Chittenden who are age 21 or older
and have completed one year of service participate in the Chittenden Pension
Account Plan (the "Chittenden Plan"), a defined benefit pension plan intended
to qualify under Section 401(a) of the Code. The Chittenden Plan is a cash
balance plan whereby each participant's benefit is determined based on annual
pay credits and interest credits made to each participant's notional account.
Pay credits range from 2.5% to 11.0% of compensation up to the Social
Security Wage Base and from 5.0% to 16.0% of compensation over the Social
Security Wage Base, depending on the participant's age and length of service
with Chittenden. Participants whose age plus service as of December 31, 1995
equaled 70 or more are eligible for an additional pay credit of 8.0% of
compensation for plan years worked between 1996 and 2005. Compensation refers
to pension eligible earnings of the participant under the Pension Plan
including the entire amount of salaries, wages, overtime pay, commissions,
bonuses, pre-tax deferrals and similar payments reported on Form W-2, excluding
employer contributions to this or any other benefit plan, severance amounts and
taxable income attributable to stock options. Compensation under the Chittenden
Plan is limited to $160,000 for 1998 (as indexed under Section 401(a)(17) of
the Code).
Interest credits are based on the notional account balance on the last day
of the prior plan year and the plan's interest credit rate. For the qualified
plan, this interest credit rate equals the average 12-month Treasury Bill rate
during December of the preceding plan year plus 0.5%, subject to a 5.0% minimum
and a 8.0% maximum rate.
No pay or interest credits were granted under the plan for periods of
employment prior to January 1, 1996. Benefits accrued as of December 31, 1995
under the prior formula were converted to an opening account balance. Service
is calculated from date of hire for purposes of determining the level of pay
credit for the plan year. The normal retirement age under the plan is age 65.
Benefits are computed on a straight line basis. Participants under this plan
are entitled to a minimum benefit equal to the amount accrued under the prior
plan formula as of December 31, 1995.
In addition, Chittenden maintains a non-qualified, supplemental plan which
provides benefits that would be paid by the Chittenden Plan except for
limitations on pensionable pay and benefit amounts currently imposed by the
Code.
The estimated annual benefits payable from the Chittenden Plan and
supplemental plan to Messrs. Perrault, DeShaw, Kelly, Walters and O'Brien, upon
normal retirement age of 65 are $287,000, $141,000, $89,000, $85,000 and
$79,000, respectively. As of December 31, 1998, Messrs. Perrault, DeShaw,
Kelly, Walters and O'Brien, had eight, 28, eight, two and eleven years of
credited service, respectively, under the Chittenden Plan.
Principal Stockholders
The following table sets forth the beneficial ownership of Chittenden's
common stock as to (1) each person or entity who is known by Chittenden to have
beneficially owned more than five percent of Chittenden's common stock as of
December 31, 1998 or thereafter based upon filings received by Chittenden on
Schedules 13D and 13G under the Securities Exchange Act, (2) each of
Chittenden's nominees for directors and continuing directors, (3) each of the
Named Executive Officers, and (4) all directors and executive officers as a
group, based on representations of officers and directors of Chittenden as of
January 22, 1999. All such information was provided by the stockholders listed
(unless otherwise indicated) and reflects their beneficial ownership known by
Chittenden. All percentages have been calculated as of January 22, 1999, based
on 14,190,397 shares of Chittenden common stock outstanding at the close of
business on such date.
114
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name and Business of Common Stock Percent
Address of Beneficial Owner Beneficially Owned(1) of Class
--------------------------- --------------------- --------
<S> <C> <C>
Bertrand, Frederic H............................ 14,450(2) *
Boardman, David M............................... 32,783(3) *
Carrara, Paul J................................. 17,905(4) *
Crawford, Sally W............................... 1,010 *
Driscoll, Richard D............................. 1,297(3) *
Hutton, Lyn..................................... 3,038(3) *
Kolvoord, Philip A.............................. 18,898(4)(5) *
Perrault, Paul A................................ 180,534(6) 1.3%
Pizzagalli, James C............................. 237,454(3)(7) 1.7%
Spera, Pall D................................... 38,230(4) *
Wilson, Martel D., Jr........................... 33,609(4)(8) *
DeShaw, Lawrence W.............................. 66,556(9) *
Kelly, John W................................... 43,312(10) *
O'Brien, Danny H................................ 43,110(11) *
Walters, Kirk W................................. 25,364(12) *
All nominees, continuing directors and executive
officers as a group (18 persons) Two Burlington
Square, Burlington, VT 05401................... 854,652 5.9%
Estabrook Capital Management Inc.
430 Park Avenue, Suite 1800, New York,
NY 10022(13)................................... 1,005,798 7.1%
Private Capital Management, Inc.
3003 Tamiami Trail North, Naples, FL
33940(14)...................................... 742,663 5.2%
</TABLE>
- --------
* Less than one percent
(1) Except as otherwise noted, each individual in the table above has the sole
voting and investment power over the shares listed.
(2) Includes 8,329 shares issuable upon the exercise of stock options that have
vested or will vest by March 23, 1999.
(3) Includes 1,000 shares issuable upon the exercise of stock options that have
vested or will vest by March 23, 1999.
(4) Includes 13,215 shares issuable upon the exercise of stock options that
have vested or will vest by March 23, 1999.
(5) Includes 1,673 shares owned by Mr. Kolvoord's spouse. Mr. Kolvoord does not
have voting or investment power over such shares.
(6) Includes (A) 132,021 shares issuable upon the exercise of stock options
that have vested or will vest by March 23, 1999, (B) 11,619 shares owned
through an individual retirement account and (C) 36,884 shares owned by Mr.
Perrault's spouse. Mr. Perrault does not have voting or investment power
over the shares owned by his spouse.
(7) Includes 571 shares owned by Mr. Pizzagalli's son. Also includes 6,330
shares owned by Pizzagalli Construction Company and 148,925 shares owned by
Pizzagalli Brothers Company, which are entities controlled by Mr.
Pizzagalli. Mr. Pizzagalli disclaims voting and investment power over such
shares.
(8) Includes 2,853 shares owned through a self-directed individual retirement
account. Also includes 1,781 shares owned through an individual retirement
account of Mr. Wilson's spouse. Mr. Wilson does not have voting or
investment power over such shares.
(9) Includes (A) 45,259 shares issuable upon the exercise of stock options that
vested or will vest by March 23, 1999 and (B) 7,164 shares owned through an
individual retirement account.
(10) Includes (A) 39,155 shares issuable upon the exercise of stock options
that vested or will vest by March 23, 1999 and (B) 1,621 shares owned
through an individual retirement account.
(11) Includes 32,300 shares issuable upon the exercise of stock options that
vested or will vest by March 23, 1999.
(12) Includes (A) 18,750 shares issuable upon the exercise of stock options
that vested or will vest by March 23, 1999 and (B) 364 shares owned
through an individual retirement account.
(13) Information is based upon a Schedule 13G filed with the SEC on January 19,
1999 reporting beneficial ownership as of December 31, 1998. The Schedule
13G indicates that the reporting entity is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940. The
reporting entity has shared voting and sole dispositive power with respect
to all of the shares.
115
<PAGE>
(14) Information is based upon a Schedule 13G/A filed with the SEC on February
17, 1999 reporting beneficial ownership as of December 31, 1998. The
Schedule 13G/A indicates that the reporting entity is an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940. The reporting entity has no voting power with respect to the shares
and shared dispositive power with respect to all of the shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires Chittenden's executive
officers and directors, and persons who own more than 10% of a registered class
of Chittenden's equity securities to file reports of ownership and changes in
ownership with the SEC and the NYSE. These persons are required by SEC
regulations to furnish Chittenden with copies of all Section 16(a) forms they
file. To Chittenden's knowledge, based solely on a review of copies of such
reports and written representations that no other reports were required during
the fiscal year ended December 31, 1998, all transactions in Chittenden's
securities that were engaged in by Chittenden's executive officers and
directors, and therefore required to be disclosed pursuant to Section 16(a) of
the Securities Exchange Act, were timely reported.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Business Relationships
No nominee for director, continuing director or executive officer of
Chittenden engaged in any transaction with Chittenden or any of its
subsidiaries during fiscal year 1998, or is involved with Chittenden or any of
its subsidiaries in any currently proposed transaction, in which the amount
involved exceeded or exceeds $60,000.
Indebtedness of Management
Chittenden's nominees for directors, continuing directors and executive
officers have had, and are expected to have in the future, financial
transactions with one or more of Chittenden's subsidiary banks. As of December
31, 1998, the outstanding loans by Chittenden's subsidiary banks to
Chittenden's nominees, continuing directors and executive officers amounted to
an aggregate of approximately $10.97 million. These loans were made in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons.
OTHER MATTERS
Stockholder Proposals for Annual Meetings
Stockholder proposals (including director nominations) submitted pursuant to
Rule 14a-8 of the Exchange Act for inclusion in Chittenden's proxy statement
and form of proxy for the 2000 Annual Meeting of Stockholders must be received
by Chittenden by December 10, 1999. Such a proposal must also comply with the
requirements as to form and substance established by the SEC for such a
proposal to be included in the proxy statement and form of proxy.
For a proposal of a stockholder (including director nominations) to be
presented at Chittenden's 2000 Annual Meeting of Stockholders, other than a
stockholder proposal submitted pursuant to Rule 14a-8 of the Exchange Act, a
stockholder's notice must be delivered to, or mailed to and received by,
Chittenden at its principal executive offices, together with all supporting
documentation required by Chittenden's bylaws, (A) not prior to January 19,
2000 nor later than March 5, 2000, or (B) if Chittenden's 2000 Annual Meeting
of Stockholders is called for a date prior to April 19, 2000 or later than July
18, 2000 then not later than the close of business on the later of (i) the 75th
calendar day prior to the scheduled date of such meeting or (ii) the fifteenth
116
<PAGE>
calendar day following the date on which public announcement of the date of the
2000 Annual Meeting of Stockholders is first made by Chittenden. Any such
proposals should be mailed to: Chittenden Corporation, Two Burlington Square,
Burlington, Vermont 05401, Attention: Secretary.
Vermont Financial stockholder proposals with respect to the 1999 Annual
Meeting of Vermont Financial stockholders were required to have been submitted,
together with all supporting documentation required by Vermont Financial's
bylaws, to Vermont Financial by November 10, 1998 for inclusion in the proxy
statement and form of proxy relating to that meeting. If the merger is
completed, there will be no 1999 Annual Meeting of Vermont Financial
stockholders.
SEC rules set forth standards as to what stockholder proposals are required
to be included in a proxy statement for an annual meeting.
Other Matters
As of the date of this Joint Proxy Statement/Prospectus, the Chittenden
Board knows of no matters that will be presented for consideration at the
Chittenden meeting other than as described in this Joint Proxy
Statement/Prospectus. If any other matters shall properly come before the
Chittenden meeting and be voted upon, the enclosed proxies will be deemed to
confer discretionary authority on the individuals named as proxies therein to
vote the shares represented by such proxies as to any such matters. The persons
named as proxies intend to vote or not to vote in accordance with the
recommendation of the management of Chittenden.
As of the date of this Joint Proxy Statement/Prospectus, the Vermont
Financial Board knows of no matters that will be presented for consideration at
the Vermont Financial meeting other than as described in this Joint Proxy
Statement/Prospectus. If any other matters shall properly come before the
Vermont Financial meeting and be voted upon, the enclosed proxies will be
deemed to confer discretionary authority on the individuals named as proxies
therein to vote the shares represented by such proxies as to any such matters.
The persons named as proxies intend to vote or not to vote in accordance with
the recommendation of the management of Vermont Financial.
LEGAL MATTERS
The validity of the common stock to be issued in connection with the merger
will be passed upon by F. Sheldon Prentice, General Counsel to Chittenden.
Goodwin, Procter & Hoar LLP, counsel for Chittenden, will pass on certain
federal income tax consequences of the merger for Chittenden, and Sullivan &
Worcester LLP, counsel for Vermont Financial, will pass on certain federal
income tax consequences of the merger for Vermont Financial and its
stockholders.
EXPERTS
The consolidated financial statements of Chittenden as of December 31, 1998
and 1997 and for each of the three years in the period ended December 31, 1998
incorporated by reference in this Joint Proxy Statement/Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, Independent
Public Accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The consolidated financial statements of Vermont Financial as of December
31, 1998 and 1997 and for the years then ended have been incorporated by
reference in this Joint Proxy Statement/Prospectus and Registration Statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference in this Joint Proxy Statement/Prospectus
and Registration Statement and upon authority of said firm as experts in
accounting and auditing.
117
<PAGE>
The consolidated financial statements of Vermont Financial for the year
ended December 31, 1996 have been incorporated by reference in this Joint Proxy
Statement/Prospectus and Registration Statement in reliance upon the report of
PricewaterhouseCoopers LLP, independent public accountants, and upon authority
of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Chittenden and Vermont Financial file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." In addition, Chittenden's SEC filings may be read and
copied at the NYSE, 20 Broad Street, New York, New York 10005, and Vermont
Financial's SEC filings may also be read and copied at the NASDAQ National
Market, 1735 K Street, N.W., Washington, D.C. 20006-1506.
Chittenden has filed a Registration Statement on Form S-4 to register with
the SEC the Chittenden common stock to be issued to the holders of Vermont
Financial common stock in the merger. This Joint Proxy Statement/Prospectus is
a part of that Registration Statement and constitutes a prospectus of
Chittenden in addition to being a proxy statement of Chittenden and Vermont
Financial for the Chittenden meeting and the Vermont Financial meeting. As
allowed by SEC rules, this Joint Proxy Statement/Prospectus does not contain
all the information you can find in the Registration Statement or the exhibits
to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Joint
Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about the companies, their finances and Chittenden common stock.
Chittenden Corporation SEC Filings (File No. 0-7974)
Annual Report on Form 10-K for the year ended December 31, 1998.
Current Report on Form 8-K/A, filed with the SEC on January 6, 1999, relating
to the merger.
Registration Statement on Form 8-A, filed with the SEC on January 9, 1998.
Vermont Financial Services Corp. SEC Filings (File No. 0-11012)
Annual Report on Form 10-K for the year ended December 31, 1998.
Current Report on Form 8-K/A, filed with the SEC on January 6, 1999, relating
to the merger.
We are also incorporating by reference additional documents that we file
with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of this Joint Proxy Statement/Prospectus and the dates of the
meetings of our stockholders.
Chittenden has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to Chittenden, and
Vermont Financial has supplied all such information relating to Vermont
Financial.
118
<PAGE>
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
SEC. Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Joint Proxy Statement/Prospectus. Stockholders may obtain
documents incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate party at the
following address:
Chittenden Corporation Vermont Financial Services
Two Burlington Square Corp.
Burlington, Vermont 05401 100 Main Street
Attention: Secretary Brattleboro, Vermont 05301
Tel: (802) 658-4000 Attention: Secretary
Tel: (802) 258-4003
If you would like to request documents from us, please do so by May 5, 1999
to receive them prior to the Chittenden and Vermont Financial stockholder
meetings.
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus to vote on Chittenden's
proposals and the Vermont Financial proposal. We have not authorized anyone to
provide you with information that is different from what is contained in this
Joint Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus is
dated April 6, 1999. You should not assume that the information contained in
this Joint Proxy Statement/Prospectus is accurate as of any date other than
such date, and neither the mailing of this Joint Proxy Statement/Prospectus to
stockholders nor the issuance of shares of Chittenden common stock in the
merger shall create any implication to the contrary.
119
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
acquisition transaction..................................................... 50
Amended and Restated Charter................................................ 2
ATMs........................................................................ 71
Banks....................................................................... 74
BHCA........................................................................ 52
BIF......................................................................... 79
BWM......................................................................... 70
CASI........................................................................ 24
CCC......................................................................... 70
CEO Compensation Plan....................................................... 109
Chittenden Banks............................................................ 70
Chittenden Option........................................................... 49
Chittenden Plan............................................................. 114
Code........................................................................ 5
Covered transactions........................................................ 76
CTC......................................................................... 70
DGCL........................................................................ 97
DOJ......................................................................... 6
Effective Date.............................................................. 53
Effective Time.............................................................. 53
EMICP....................................................................... 109
EPS......................................................................... 27
FBT......................................................................... 70
FDIA........................................................................ 78
FDIC........................................................................ 61
FDICIA...................................................................... 77
Federal Reserve Board....................................................... 5
FIRREA...................................................................... 78
LTIP........................................................................ 109
Market/Offer Price.......................................................... 51
MB&D........................................................................ 6
MBBI........................................................................ 5
Named Executive Officers.................................................... 109
Nationwide Transactions..................................................... 33
Northeast Banks............................................................. 32
Northeast Region............................................................ 32
Northeast Transactions...................................................... 33
OCC......................................................................... 74
Repurchase Event............................................................ 51
Related Person.............................................................. 101
ROE......................................................................... 110
SAIF........................................................................ 79
Share Acquisition Rights.................................................... 56
SRP......................................................................... 47
SRP Participants............................................................ 48
Surviving Corporation....................................................... 10
UB.......................................................................... 71
USB......................................................................... 72
VBCA........................................................................ 68
Vermont Banking Department.................................................. 74
VFB......................................................................... 71
VNB......................................................................... 47
</TABLE>
120
<PAGE>
Annex A
------------------------------------------------------------
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
<S> <C>
ARTICLE I - CERTAIN DEFINITIONS.......................................... 1
1.1 Certain Definitions............................................. 1
ARTICLE II - THE MERGER; EFFECTS OF THE MERGER........................... 7
2.1 The Merger...................................................... 7
2.2 Charter and Bylaws.............................................. 7
2.3 Closing......................................................... 7
2.4 Effectiveness and Effects of the Merger......................... 7
2.5 Tax Consequences................................................ 8
2.6 Accounting Treatment............................................ 8
2.7 Board of Directors.............................................. 8
ARTICLE III - MERGER CONSIDERATION; EXCHANGE PROCEDURES.................. 8
3.1 Merger Consideration............................................ 8
3.2 Rights as Stockholders; Stock Transfers......................... 8
3.3 Fractional Shares............................................... 9
3.4 Exchange Procedures............................................. 9
3.5 Anti-Dilution Provisions........................................ 10
3.6 Treasury Shares................................................. 10
3.7 Options......................................................... 10
ARTICLE IV - THE SUBSEQUENT MERGER; EFFECTS OF THE
SUBSEQUENT MERGER........................................... 11
4.1 Subsequent Merger................................................ 11
4.2 Charter.......................................................... 12
4.3 Bylaws........................................................... 12
4.4 Board of Directors............................................... 12
4.5 Cancellation of Shares........................................... 12
ARTICLE V - ACTIONS PENDING MERGER....................................... 12
5.1 Ordinary Course.................................................. 12
5.2 Stock............................................................ 12
5.3 Dividends, Etc. ................................................. 13
5.4 Compensation; Employment Agreements; Etc. ....................... 13
5.5 Benefit Plans.................................................... 14
5.6 Dispositions, Acquisitions and Capital Expenditures.............. 14
5.7 Amendments....................................................... 15
5.8 Accounting Methods............................................... 15
5.9 Loan Policies.................................................... 15
5.10 Adverse Actions.................................................. 15
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
5.11 Settlement of Claims........................................... 15
5.12 Agreements..................................................... 15
ARTICLE VI - REPRESENTATIONS AND WARRANTIES.............................. 15
6.1 Disclosure Schedules........................................... 15
6.2 Standard....................................................... 16
6.3 Representations and Warranties................................. 16
ARTICLE VII - COVENANTS.................................................. 30
7.1 Reasonable Best Efforts........................................ 30
7.2 Stockholder Approvals.......................................... 31
7.3 Registration Statement......................................... 31
7.4 Press Releases................................................. 33
7.5 Access; Information............................................ 33
7.6 Acquisition Proposals.......................................... 33
7.7 Affiliate Agreements........................................... 34
7.8 Takeover Laws.................................................. 34
7.9 No Rights Triggered............................................ 35
7.10 Shares Listed.................................................. 35
7.11 Regulatory Applications; Filings; Consents..................... 35
7.12 Indemnification; Directors' and Officers' Insurance............ 35
7.13 Compensation and Benefit Plans................................. 38
7.14 Headquarters................................................... 39
7.15 Notification of Certain Matters................................ 39
7.16 The Bank Mergers............................................... 39
7.17 Financial Reports.............................................. 39
7.18 Post-Closing Governance........................................ 40
ARTICLE VIII - CONDITIONS TO CONSUMMATION OF THE MERGER.................. 40
8.1 Stockholder Vote............................................... 40
8.2 Regulatory Approvals........................................... 40
8.3 Third Party Consents........................................... 40
8.4 No Injunction, Etc. ........................................... 40
8.5 Representations, Warranties and Covenants of VFSC.............. 41
8.6 Representations, Warranties and Covenants of Chittenden........ 41
8.7 Effective Registration Statement............................... 41
8.8 Tax Opinion Relating to the Merger............................. 41
8.9 NYSE Listing................................................... 42
8.10 Accounting Treatment........................................... 42
ARTICLE IX - TERMINATION................................................. 42
9.1 Termination.................................................... 42
9.2 Effect of Termination and Abandonment.......................... 45
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE X - MISCELLANEOUS................................................ 45
10.1 Survival........................................................ 45
10.2 Waiver; Amendment............................................... 45
10.3 Counterparts.................................................... 45
10.4 Governing Law................................................... 45
10.5 Expenses........................................................ 45
10.6 Confidentiality................................................. 45
10.7 Notices......................................................... 46
10.8 Understanding; No Third Party Beneficiaries..................... 47
10.9 Headings; Interpretation........................................ 47
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
</TABLE>
(iii)
<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.
<PAGE>
"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.
"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.
--------------
2
<PAGE>
"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.
----
"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.
3
<PAGE>
"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).
-----
4
<PAGE>
"Previously Disclosed" by a party shall mean information set forth in its
--------------------
Disclosure Schedule.
"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).
-----------
5
<PAGE>
"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).
"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).
6
<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
7
<PAGE>
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.
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
8
<PAGE>
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.
3.3 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 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.
9
<PAGE>
(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
10
<PAGE>
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 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
11
<PAGE>
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.
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
12
<PAGE>
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 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
13
<PAGE>
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
14
<PAGE>
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.
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
15
<PAGE>
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 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
16
<PAGE>
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.
17
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(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
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,
18
<PAGE>
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 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.
19
<PAGE>
(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.
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(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 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.
21
<PAGE>
(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 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.
22
<PAGE>
(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
23
<PAGE>
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 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
24
<PAGE>
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 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
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<PAGE>
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
26
<PAGE>
it 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.
27
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(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 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.
28
<PAGE>
(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 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
29
<PAGE>
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
30
<PAGE>
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 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
----------------------
31
<PAGE>
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, 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.
32
<PAGE>
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
33
<PAGE>
any discussions with, any such person relating to, any tender offer or 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.
34
<PAGE>
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 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
35
<PAGE>
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
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)
36
<PAGE>
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.
37
<PAGE>
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 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.
38
<PAGE>
(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
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.
39
<PAGE>
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).
40
<PAGE>
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 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.
41
<PAGE>
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.
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.
42
<PAGE>
(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 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
43
<PAGE>
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
44
<PAGE>
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.
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.
45
<PAGE>
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
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
46
<PAGE>
10. 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. 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.
47
<PAGE>
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
---------------------------------
Name: John D. Hashagen, Jr.
Title: President and Chief Executive Officer
48
<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 and its counsel, such sale, transfer
or other disposition is otherwise exempt from registration under the
Act.
<PAGE>
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 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
2
<PAGE>
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:
3
<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 Bank 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 Parent 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:
<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%
=======
<PAGE>
Annex B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
CHITTENDEN CORPORATION
ARTICLE I
NAME
----
The name of the Corporation is Chittenden Corporation.
ARTICLE II
REGISTERED AGENT AND OFFICE
---------------------------
The Registered Agent of the Corporation is F. Sheldon Prentice, Senior Vice
President, General Counsel and Secretary, who is located at the Registered
Office of the Corporation at Two Burlington Square, Burlington, Vermont 05401.
ARTICLE III
PERIOD OF DURATION
------------------
The period of duration of the Corporation shall be perpetual.
ARTICLE IV
PURPOSES
--------
The Corporation is organized for the purposes of (i) buying, selling,
investing in, holding and dealing in property of every nature and description,
real and personal, tangible and intangible; (ii) acquiring, investing in or
holding stock of any subsidiary enterprise permitted under the Bank Holding
Company Act of 1956, and subsequent amendments thereto; and (iii) otherwise
engaging in any other business which may be lawfully carried on by a corporation
organized under the laws of the State of Vermont.
<PAGE>
ARTICLE V
QUORUM REQUIREMENT FOR STOCKHOLDER MEETINGS
-------------------------------------------
Not less than a majority of the outstanding shares of the stock of the
Corporation present in person or by proxy shall constitute a quorum for the
transaction of business at any regular or special meeting of the stockholders of
the Corporation.
ARTICLE VI
AUTHORIZED CAPITAL
------------------
The aggregate number of shares which the Corporation shall have authority
to issue is 1,000,000 shares of preferred stock, with a par value of $100.00,
and 60,000,000 shares of common stock, with a par value of $1.00. The Board of
Directors of the Corporation is hereby expressly authorized to divide the
preferred stock into series, and, within the limitations provided by law, to fix
and determine by resolution the designation, the number of shares, and the
relative rights and preferences of any series so established.
ARTICLE VII
NUMBER AND TERM OF DIRECTORS
----------------------------
Section 1. The authorized number of directors of the Corporation
(exclusive of directors, if any, to be elected by holders of preferred stock of
the Corporation) shall be determined by resolution duly adopted by the Board of
Directors, and may be increased or decreased, within the limitations specified
herein, from time to time by resolution, duly adopted by the Board of Directors;
provided, however, that no decrease in the number of directors shall have the
effect of shortening the term of any incumbent director.
Section 2. The Board of Directors shall be divided into three categories,
designated Category I, Category II, and Category III, as nearly equal in number
as possible, and the term of office of directors of one category shall expire at
each annual meeting of the stockholders, and in all cases as to each director,
until a successor shall be elected and shall quality, or until an earlier
resignation, removal from office, death or incapacity. Additional directors
resulting from an increase in the number of directors shall be apportioned among
the categories as equally as possible. At each annual meeting of stockholders
following the adoption of this provision, the number of directors equal to the
number of directors of the category whose terms expire at the time of such
meeting (or, if less,
2
<PAGE>
the number of directors properly nominated and qualified for election) shall be
elected to hold office until the third succeeding annual meeting of stockholders
after their election.
Section 3. Subject to the rights, if any, of the holders of any series of
stock to elect directors and to remove any director whom such holders have the
right to elect, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office by stockholders
(a) only with cause and (b) only if the number of votes cast to remove the
director exceeds the number of votes cast not to remove the director.
A director may be removed by the stockholders only at a meeting called for the
purpose of removing the director and the meeting notice must state that the
purpose, or one of the purposes, of the meeting is the removal of the director.
For purposes of this Article, "cause," with respect to the removal of any
director, shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of a court, (iii) gross dereliction of duty,
(iv) commission of any act involving moral turpitude or (v) commission of an act
that constitutes intentional misconduct or a knowing violation of law if such
action in either event results both in an improper substantial personal benefit
to such director and a material injury to the Corporation.
ARTICLE VIII
BUSINESS COMBINATIONS
---------------------
Section 1. The affirmative vote of at least two-thirds (66 2/3%) of the
Continuing Directors, together with the affirmative vote of the holders of at
least two-thirds (66 2/3%) of the outstanding shares entitled to vote thereon
(as well as the affirmative vote of the holders of at least two-thirds (66 2/3%)
of the shares of any class or series of shares entitled to vote thereon as a
class), shall be required for any of the following Business Combinations:
(a) any merger or consolidation of the Corporation or any Subsidiary into
or with a Related Person or its Affiliate, or any other corporation
which, after such merger or consolidation, would be an Affiliate of a
Related Person, or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Corporation, in one or a series of transactions, to
or with any Related Person or its Affiliate of all, or substantially
all, of the assets of the Corporation or any Subsidiary, or
(c) the issuance or transfer by the Corporation or any Subsidiary, in one
or a series of transactions, of a majority of its voting shares to a
Related Person or its Affiliate, or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or
3
<PAGE>
(e) any reclassification of securities, recapitalization, reorganization,
merger or consolidation of the Corporation with any of its
Subsidiaries or any transaction that has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary that is directly or indirectly owned by
any Related Person.
Section 2. The two-thirds (66 2/3%) vote of the Continuing Directors
required by Section 1 of this Article shall not be applicable to any Business
Combination not with or involving any Related Person or its Affiliate, in which
event such Business Combination shall require only such affirmative vote as is
required by law and any other provision of the Articles of Incorporation and the
By-Laws of the Corporation.
Section 3. A majority of the Continuing Directors of the Corporation, on
the basis of information known to them, shall have the power and duty to
determine for the purposes of this Article all questions arising hereunder,
including whether a Person is a Related Person or an Affiliate or Associate of
another, the number of voting shares beneficially owned by any Person, the fair
market value of consideration per share offered holders of the Corporation's
Common Stock and the aggregate value of the securities or assets of the
Corporation or any Subsidiary. The calculation of a minimum price per share to
be received by stockholders shall require appropriate adjustments for capital
changes, including without limitation, stock splits, stock dividends and reverse
stock splits.
Section 4. Nothing contained in this Article shall be construed to relieve
any Related Person of any fiduciary obligation imposed by law.
Section 5. For the purpose of this Article and other articles using
similar terminology, the following definitions shall apply:
(a) "Person" means any individual, firm, partnership, corporation or other
entity, or any combination of them acting together.
(b) "Related Person", in respect of any Business Combination, means any
Person (other than the Corporation or any Subsidiary) which, together
with its Affiliates or Associates, owns of record or beneficially,
directly or indirectly, more than fifteen percent (15%) of the
outstanding voting stock of the Corporation, or is an Affiliate of the
Corporation and at any time within the two-year period immediately
prior to the date in question was the owner, of record or
beneficially, directly, or indirectly, of more than fifteen percent
(15%) of the outstanding voting stock of the Corporation.
For the purpose of determining whether a Person is a Related Person,
"beneficial ownership" of voting stock shall include (i) all shares of stock
which such Person has the capability to control or influence the voting power
thereof and (ii) all shares of stock which such
4
<PAGE>
Person has the immediate or future right to acquire, pursuant to any agreement
or understanding, or upon the exercise of conversion rights, exchange rights,
warrants, options or otherwise.
(c) "Affiliate" means any Person that directly or indirectly controls, or
is controlled by, or is under common control with another Person.
(d) "Associate" means any officer, trustee, partner or directors or
beneficial owner of more than fifteen percent (15%) of any class of
equity security, of a Related Person or its Affiliates.
(e) "Continuing Director" means a member of the Board of Directors who was
either elected prior to the date a Related Person became a Related
Person, or was recommended to succeed a Continuing Director by a
majority of the then Continuing Directors.
(f) "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation,
provided, however, that for the purposes of the definition of "Related
Person" set forth in subsection (b) of this Section 5, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
Section 6. Unless an affirmative vote of at least 80% of the outstanding
shares entitled to vote thereon, exclusive of the shares owned by any Related
Person, determine otherwise, notwithstanding any approval received for a
proposed Business Combination under the provisions of ARTICLE VIII, the
Corporation shall not enter into any Business Combination with a Related Person
or its Affiliates or Associates, unless the following condition shall be met:
The aggregate amount of cash and the fair market value of consideration
other than cash (as of the date of a binding agreement for the consummation
of said Business Combination) to be received per share by holders of Common
Stock of the Corporation shall be at least equal to the higher of:
(i) the highest per share price (including brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the Related Person or its
Affiliates or Associates in purchasing any of the Corporation's Common
Stock (a) within the two-year period immediately prior to the date of
the proposal of the Business Combination (the "Proposal Date") or
(b) in the transaction in which it became a Related Person, whichever
is higher; OR
(ii) the fair market value per share of the Corporation's Common Stock on
the Proposal Date.
5
<PAGE>
Section 7. Any amendment, alteration or repeal of ARTICLE VIII of these
Articles of Incorporation shall require the affirmative vote of at least two-
thirds (66 2/3%) of the Continuing Directors, together with the affirmative vote
of the holders of at least two-thirds (66 2/3%) of the outstanding shares
entitled to vote thereon (as well as the affirmative vote of the holders of at
least two-thirds (66 2/3%) of the shares of any class or series of shares
entitled to vote thereon as a class).
ARTICLE IX
LIMITATION OF LIABILITY
-----------------------
To the fullest extent permitted under the Vermont Business Corporation Act
(the "VBCA") as in effect on the date of filing these Articles or as the VBCA is
thereafter amended from time to time, no director shall be liable to the
Corporation or its stockholders for money damages for any action taken, or any
failure to take action, solely as a director, based on a failure to discharge
his or her duties in accordance with Section 8.30 of the VBCA. Neither the
amendment or the repeal of this Article, nor the adoption of any other provision
in the Corporation's Articles inconsistent with this Article, shall eliminate or
reduce the protection afforded by this Article to a director of the Corporation
with respect to any matter which occurred, or any cause of action, suit or claim
which but for this Article would have accrued or arisen, prior to such
amendment, repeal or adoption.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
Annex C
CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
World Financial Center
New York, NY 10281
Tel: 212-667-7000
Tel: 800-999-6726
April 6, 1999
The Board of Directors
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Chittenden Corporation (the "Company") of the aggregate consideration
to be paid by the Company to the holders of the outstanding shares of common
stock of Vermont Financial Services Corp. ("VFSC"), pursuant to the Agreement
and Plan of Merger, dated as of December 16, 1998, by and among the Company,
Chittenden Acquisition Subsidiary, Inc. (the "Merger Subsidiary"), and VFSC (the
"Agreement"). Pursuant to the Agreement, VFSC will merge with the Merger
Subsidiary and VFSC will become a wholly-owned subsidiary of the Company (the
"Merger") and each of the outstanding shares of VFSC common stock will be
exchanged for 1.07 shares of the Company's common stock (the "Exchange Ratio").
VFSC, as a wholly-owned subsidiary of the Company, will then be merged with and
into the Company, with the Company as the surviving corporation.
In connection with this opinion, we have reviewed, among other things: (a) the
Agreement; (b) the VFSC Stock Option Agreement (as such term is defined in the
Agreement); (c) audited consolidated financial statements and management's
discussion and analysis of the financial condition and results of operation for
each of VFSC and the Company for the four fiscal years ended December 31, 1998;
(d) unaudited consolidated financial statements for each of VFSC and the Company
for the nine months ended September 30, 1998; (e) certain other publicly
available business and financial information relating to the Company and VFSC;
(f) certain internal financial analyses, budgets, projections and forecasts for
VFSC and the Company, including estimates as to the future cost savings and
revenue enhancements expected to be achieved as a result of the Merger, prepared
by and reviewed with the management of the Company; (g) certain other summary
materials and analyses with respect to VFSC's loan portfolio and deposits
prepared by the Company; (h) the views of senior management of VFSC and the
Company of the past and current business operations, results thereof, financial
condition and future prospects of their respective companies; (i) a comparison
of certain financial information for VFSC with similar information for certain
other companies considered comparable to VFSC; (j) the financial terms of
certain recent business combinations in the banking industry; (k) the pro forma
effect of the transaction on the Company based on certain assumptions provided
by the Company; (l) the current market environment generally and the banking
environment in particular; and (m) such
<PAGE>
The Board of Directors
Chittenden Corporation
April 6, 1999
Page 2
other information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered appropriate in the circumstances.
We have relied, without independent verification or investigation, on all of the
financial information, analyses and other information furnished to us for
purposes of this opinion, including information relating to assets and
liabilities, contingent or otherwise, as being complete and accurate. We have
also relied upon the managements of VFSC and the Company as to the
reasonableness and achievability of the financial and operating forecasts and
projections provided to us, including estimates of future cost savings and
revenue enhancements expected to be achieved as a result of the Merger (and the
assumptions and bases therefor). In that regard, we have assumed, with your
consent, that such forecasts, projections and estimates have been reasonably
prepared and reflect the best currently available estimates and judgments of the
managements of VFSC and the Company. We have not made an independent evaluation
or appraisal of the assets and liabilities of VFSC or any of its respective
subsidiaries and we have not been furnished with any such evaluation or
appraisal. Furthermore, this opinion shall not constitute any such evaluation
or appraisal. We are not experts in the evaluation of allowances for loan
losses or liabilities (contingent or otherwise) and we have neither made an
independent evaluation of the adequacy of the allowances for loan losses of VFSC
nor reviewed any individual loan credit files.
You have informed us and we have assumed that the Merger will be accounted for
as a pooling of interests under generally accepted accounting principles. We
have also assumed that any divestitures required in obtaining any regulatory
approval will not exceed the levels currently contemplated by the Company.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. In the ordinary course of our
business, we may actively trade the equity securities of the Company and VFSC
for our own account and for the accounts of customers, and may at any time hold
a long or short position in such securities.
<PAGE>
The Board of Directors
Chittenden Corporation
April 6, 1999
Page 3
It is understood that this opinion is for the information of the Board of
Directors in connection with its consideration of the Merger. Our opinion does
not constitute an opinion or a recommendation to any shareholder of the Company
as to how such shareholder should vote on the proposed Merger or any related
matter.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that, as of the date hereof, the Exchange
Ratio is fair, from a financial point of view, to the Company.
Very truly yours,
/s/ CIBC Oppenheimer Corp.
CIBC Oppenheimer Corp.
<PAGE>
ANNEX D
McCONNELL, BUDD & DOWNES, INC.
365 South Street
Morristown, New Jersey 07960
973-538-7800
Fax: 973-538-0522
April 6, 1999
The Board of Directors
Vermont Financial Services Corp.
100 Main Street
Brattleboro, VT 05302-0804
The Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Vermont Financial Services Corp. ("Vermont
Financial") of the Exchange Ratio governing the exchange of shares of the common
stock of Vermont Financial for shares of common stock of Chittenden Corporation
in connection with the proposed acquisition of Vermont Financial by Chittenden
Corporation ("Chittenden") pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") dated December 16, 1998 by and between Vermont Financial and
Chittenden. Pursuant to the Merger Agreement, Vermont Financial will merge with
and into Chittenden, with Chittenden being the surviving corporation.
As is more specifically set forth in the Merger Agreement, upon consummation
of the Merger, each outstanding share of Vermont Financial common stock, except
for shares held by Chittenden and its subsidiaries or by Vermont Financial and
its subsidiaries (in both cases, other than shares held in a fiduciary capacity
or as a result of debts previously contracted), will be converted into and
exchangeable for 1.07 shares of Chittenden common stock (subject to adjustment
under certain defined circumstances). The Exchange Ratio referenced is a fixed
exchange ratio and consequently the market value of the consideration to be
received by Vermont Financial stockholders will fluctuate with changes in
Chittenden's stock price. The Merger Agreement may be terminated under certain
conditions prior to the Effective Time by the Board of Directors of either party
based on defined criteria including a possible measurement during a fifteen day
period commencing two days after the date on which the last regulatory approval
required for the completion of the merger is received of an defined decline in
the price of a share of common stock of Chittenden on both an absolute basis and
on a relative basis versus an index of fifteen selected bank holding companies
subject to certain defined cure options available to Chittenden.
The reader is urged to carefully read all the terms of the Merger Agreement,
which is reproduced in its entirety elsewhere in the Joint Proxy
Statement/Prospectus as well as the Joint Proxy Statement/Prospectus itself.
McConnell, Budd & Downes, Inc., as part of its investment banking business,
is regularly engaged in the valuation of bank holding companies and banks,
thrift holding companies and thrifts and their securities in connection with
mergers and acquisitions, negotiated underwritings, private
<PAGE>
McCONNELL, BUDD & DOWNES, INC.
placements, competitive bidding processes, market making as a NASD market maker,
secondary distributions of listed securities and valuations for corporate,
estate and other purposes. Our experience and familiarity with Vermont Financial
includes having worked as a financial advisor to Vermont Financial since March
of 1992 on a contractual basis and specifically includes our participation in
the process and negotiations leading up to the proposed Merger with Chittenden.
In the course of our role as financial advisor to Vermont Financial in
connection with the Merger, we have received fees for our services and will
receive additional fees contingent on the occurrence of certain defined events,
including the consummation of the Merger. (See Compensation of MB&D on page 46
of the Joint Proxy Statement/Prospectus)
In arriving at our opinion, we have reviewed the Merger Agreement and Joint
Proxy Statement/Prospectus in substantially the form to be mailed to Vermont
Financial and Chittenden stockholders. We have also reviewed publicly available
business, financial and shareholder information relating to Vermont Financial
and its subsidiaries and certain publicly available financial and shareholder
information relating to Chittenden.
In connection with the foregoing, we have (i) reviewed Vermont Financial's
Annual Reports to Stockholders, Annual Reports on Form 10-K and related
financial information for the four calendar years ended December 31, 1997 and
Vermont Financial's Quarterly Report on Form 10-Q and related unaudited
financial information for the first, second, third and fourth quarters of 1998;
Vermont Financial's press release relating to its unaudited results of
operations for the fourth quarter of 1998 (ii) reviewed Chittenden's Annual
Reports to Stockholders, Annual Reports on Form 10-K and related financial
information for the three calendar years ended December 31, 1997 and
Chittenden's Quarterly Report on Form 10-Q and related unaudited financial
information for the first, second third and fourth quarters of 1998; (iii)
reviewed certain internal financial information and financial forecasts,
relating to the business, earnings, cash flows, assets and prospects of the
respective companies furnished to McConnell, Budd & Downes, Inc. by Vermont
Financial and Chittenden, respectively; (iv) held discussions with members of
the senior management and Board of Vermont Financial concerning the past and
current results of operations of Vermont Financial, its current financial
condition and management's opinion of its future prospects; (v) held discussions
with members of senior management of Chittenden concerning the past and current
results of operations of Chittenden, its current financial condition and
management's opinion of its future prospects; (vi) reviewed the historical
record of reported prices, trading volume and dividend payments for both Vermont
Financial and Chittenden Common Stock; (vii) considered the current state of and
future prospects for the economy of Vermont, New Hampshire and the Commonwealth
of Massachusetts generally and the relevant market areas for Vermont Financial
and Chittenden in particular; (viii) reviewed specific merger analysis models
employed by McConnell, Budd & Downes, Inc. to evaluate potential business
combinations of financial institutions; (ix) reviewed the reported financial
terms of selected recent business combinations in the banking industry; and (x)
performed such other studies and analyses as McConnell, Budd & Downes, Inc.
considered appropriate under the circumstances associated with this particular
transaction.
2
<PAGE>
McCONNELL, BUDD & DOWNES, INC.
In the course of our review and analysis we considered, among other things,
such topics as the historical and projected future contributions of recurring
earnings by the parties, the anticipated future EPS results for the parties on
both a combined and stand-alone basis, the potential to realize significant
recurring operating expense reductions and the impact thereof on projected
future EPS, the relative capitalization and capital adequacy of each of the
parties, the availability of non-interest income to each of the parties, the
relative asset quality and apparent adequacy of the reserve for loan losses for
each of the parties. We also considered the composition of deposits and the
composition of the loan portfolio of each of Vermont Financial and Chittenden.
In addition, we considered the historical trading range, trading pattern and
relative market liquidity of the common shares of each of the parties. (Please
see Opinion of Vermont Financial's Financial Advisor on page 37 of the Joint
Proxy Statement/Prospectus for a review of our various analyses) In the conduct
of our review and analysis we have relied upon and assumed, without independent
verification, the accuracy and completeness of the financial information
provided to us by Vermont Financial and Chittenden and or otherwise publicly
obtainable. In reaching our opinion we have not assumed any responsibility for
the independent verification of such information or any independent valuation or
appraisal of any of the assets or the liabilities of either Vermont Financial or
Chittenden, nor have we obtained from any other source, any current appraisals
of the assets or liabilities of either Vermont Financial or Chittenden. We have
also relied on the management of Vermont Financial and Chittenden as to the
reasonableness of various financial and operating forecasts and of the
assumptions on which they are based, which were provided to us for use in our
analyses.
In the course of rendering this opinion, which is being rendered prior to
the receipt of certain required regulatory approvals necessary before
consummation of the Merger, we assume that no conditions will be imposed by any
regulatory agency in connection with its approval of the Merger that will have a
material adverse effect on the results of operations, the financial condition or
the prospects of Chittenden following consummation of the Merger.
Based upon and subject to the foregoing, it is our opinion, that as of the
date of this letter, the Exchange Ratio is fair to the stockholders of Vermont
Financial from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
By /s/ David A. Budd
---------------------------
David A. Budd
Managing Director
April 6, 1999
3
<PAGE>
CHITTENDEN CORPORATION
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul A. Perrault and F. Sheldon Prentice, and
each of them acting singly, with full power of substitution, attorneys and
proxies to represent the undersigned at the 1999 Annual Meeting of Stockholders
of Chittenden Corporation ("Chittenden") to be held at the Ramada Inn &
Conference Center, 1117 Williston Road, Burlington, Vermont 05403 on May 19,
1999 at 4:00 p.m. local time, or at any adjournment or postponement thereof
(the "Chittenden Meeting"), with all power which the undersigned would possess
if personally present, and to vote all shares of Chittenden's common stock
which the undersigned may be entitled to vote at said meeting upon the
following proposals described in the accompanying Joint Proxy
Statement/Prospectus, dated April 6, 1999, in accordance with the following
instructions and with discretionary authority on such other matters as may
properly come before the Chittenden Meeting. All previously dated proxies are
hereby revoked. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED
BY THE UNDERSIGNED AND, IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR THE
PROPOSALS SET FORTH BELOW.
1. To elect four directors, each to serve for a term of three years. The Board
of Directors has nominated the following four individuals for election
as such directors: Paul J. Carrara, Sally W. Crawford, Philip A. Kolvoord
and James C. Pizzagalli.
FOR ALL NOMINEES (except as indicated to the contrary). [_]
WITHHOLD AUTHORITY to vote for the nominees listed. [_]
INSTRUCTIONS: To withhold authority to vote for any nominee, write the
nominee's name in the space provided below.
- ----------------------------------------------------------------------
2. To vote upon the Agreement and Plan of Merger, dated as of December 16,
1998, by and among Chittenden, Chittenden Acquisition Subsidiary, Inc., and
Vermont Financial Services Corp., which would result in the merger of
Vermont Financial into Chittenden and the issuance of 1.07 shares of
Chittenden common stock in exchange for each share of Vermont Financial
common stock, and all of the matters and transactions contemplated by the
merger agreement, including the amendment and restatement of Chittenden's
charter.
FOR AGAINST ABSTAIN
[_] [_] [_]
------------------
(Continued and to be signed on reverse side) SEE REVERSE SIDE
------------------
- --------------------------------------------------------------------------------
<PAGE>
X Please mark your
votes as in this
example.
- --
(Continued from other side)
3. The proxies are authorized to vote in their discretion upon such other
business and matters or proposals as may properly come before the Chittenden
Meeting.
[_] Check here for address change and note change below
[_] Check here if you plan to attend the meeting
New address: ___________________________________________________________________
(Please complete, date, sign and mail in the enclosed envelope)
Signature ________________________ Date _________________________________, 1999
Signature ________________________ Date _________________________________, 1999
<PAGE>
VERMONT FINANCIAL SERVICES CORP.
Proxy Solicited on Behalf of Board of Directors
The undersigned hereby appoints John D. Hashagen, Jr., Anthony F. Abatiell
and Richard O. Madden, and each of them, attorneys and proxies with full power
of substitution in each, to vote all of the stock of Vermont Financial Services
Corp. (the "Company") which the undersigned is/are entitled to vote at the
Special Meeting of Stockholders of the Company to be held at The Quality Inn
and Suites, Brattleboro, VT, on May 19, 1999 at 10:00 a.m. and at any and all
adjournments thereof. All powers may be exercised by a majority of said
proxyholders or substitutes voting or acting, or if only one votes and acts, by
that one. Receipt of the Company's Joint Proxy Statement/Prospectus dated April
6, 1999 (the "Proxy Statement") is acknowledged. If not revoked, this Proxy
shall be voted, unless authority specifically to the contrary is provided, as
specified below, and as to any other business which may legally come before the
meeting, in accordance with the recommendation of the Board of Directors. IF NO
SPECIFICATION IS MADE, SUCH SHARES WILL BE VOTED "FOR" THE FOLLOWING PROPOSAL:
1. To vote upon the Agreement and Plan of Merger, dated as of December 16,
1998, by and among the Company, Chittenden Corporation ("Chittenden"), and
Chittenden Acquisition Subsidiary, Inc., which would result in the merger of
the Company into Chittenden and the issuance of 1.07 shares of Chittenden
common stock in exchange for each share of the Company's common stock, and
all of the matters and transactions comtemplated by the merger agreement.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To consider and act upon such other business and matters or proposals as may
properly come before the Company's Special Meeting of Stockholders or any
adjournment thereof.
(over)
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" ITEM #1 ON
THE REVERSE.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE.
Date: -----------------------------
Signature(s)
-----------------------------
-----------------------------
-----------------------------
Please sign here exactly as
name(s) appear(s) on the
left. When signing as
attorney, executor,
administrator, trustee,
guardian, or in any other
fiduciary capacity, give
full title. If more than one
person acts as trustee, all
should sign.
ALL JOINT OWNERS MUST SIGN.
I/We plan to attend the Special Meeting: Number
PLEASE MARK (ON REVERSE SIDE), SIGN AND DATE, AND MAIL IN THE ENCLOSED POSTAGE
PAID ENVELOPE
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Vermont Business Corporation Act ("VBCA") permits a corporation to
indemnify a director against judgements, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in that capacity
if: (1) the director conducted himself or herself in good faith, (2) the
director reasonably believed that his or her conduct, in an official capacity
with the corporation, was in the best interests of the corporation and, in all
other cases, the conduct was at least not opposed to its best interests, and
(3) in a proceeding brought by a governmental entity, the director had no
reasonable cause to believe his or her conduct was unlawful, and the director
is not finally found to have engaged in a reckless or intentional unlawful act.
The termination of a proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendre is not, of itself, determinative that the
director did not meet the standard of conduct necessary for indemnification.
Notwithstanding the foregoing, a corporation may not indemnify a director if
the director was adjudged liable: (a) to the corporation in a proceeding by or
in the right of a corporation, or (b) on the basis that a personal benefit was
improperly received by the director in a proceeding charging improper personal
benefit to the director. In addition, the VBCA provides that, unless limited in
a corporation's charter, a corporation shall indemnify its directors and
officers who are wholly successful, on the merits or otherwise, in the defense
of any proceeding to which the directors or officers are parties by reason of
their service in those capacities against reasonable expenses incurred in
connection with the proceeding. Chittenden's charter does not limit such
statutory right to indemnification.
As permitted by the VBCA, Chittenden's bylaws provide that Chittenden shall
indemnify its directors and officers to the fullest extent provided by the
general laws of the State of Vermont, including the advancement of expenses
under the procedures provided by such laws. In addition, Chittenden's bylaws
contain the procedures pursuant to which such indemnification is effectuated.
The VBCA permits the charter of a Vermont corporation to include a provision
eliminating or limiting the liability of a director to the corporation or its
stockholders for money damages for any action taken, or any failure to take any
action, solely as a director, based on a failure to discharge his or her
duties, except for (i) the amount of a financial benefit received by a director
to which the director is not entitled; (ii) an intentional or reckless
infliction of harm on the corporation or the stockholders; (iii) voting for or
assenting to an unlawful distribution or (iv) an intentional or reckless
criminal act. Chittenden's charter does not contain a provision limiting the
liability of its directors to Chittenden or its stockholders for money damages.
If the Merger is completed, the Amended and Restated Charter of the Surviving
Corporation will provide for the elimination of such liability to the full
extent provided by Vermont law.
As permitted by the VBCA, Chittenden maintains directors and officers
liability insurance in amounts and on terms which the Chittenden Board of
Directors deems reasonable. In the ordinary course of business, the Chittenden
Board of Directors regularly reviews the scope and adequacy of such insurance
coverage.
Item 21. Exhibits and Financial Statements.
(a) The following exhibits are filed as part of this Registration Statement
or incorporated herein by reference:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger by and between Chittenden, Chittenden
Acquisition Subsidiary, Inc. and Vermont Financial, dated as of
December 16, 1998 (Incorporated by reference to Exhibit 2.1 to Form
8-K/A of Chittenden filed January 6, 1999 and attached as Annex A to
the Joint Proxy Statement/Prospectus included in this Registration
Statement).
5.1 Opinion of F. Sheldon Prentice, General Counsel to Chittenden, as to
the legality of the securities.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.*
8.2 Opinion of Sullivan & Worcester LLP as to certain tax matters.*
10.1 Stock Option Agreement, dated as of December 16, 1998, by and
between Chittenden and Vermont Financial (Incorporated by reference
to Exhibit 10.1 to Form 8-K/A of Chittenden filed January 6, 1999).
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of KPMG LLP.*
23.3 Consent of PricewaterhouseCoopers LLP.*
23.4 Consent of CIBC Oppenheimer Corp.*
23.5 Consent of McConnell, Budd & Downes, Inc.*
23.6 Consent of F. Sheldon Prentice, General Counsel to Chittenden
(included in Exhibit 5.1).
23.7 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 8.1).
23.8 Consent of Sullivan & Worcester LLP (included in Exhibit 8.2).
24.1 Powers of Attorney (contained on signature pages to this
Registration Statement).
99.1 Opinion of CIBC Oppenheimer Corp. as to the fairness of the
transaction to Chittenden (Attached as Annex C to the Joint Proxy
Statement/Prospectus included in this Registration Statement).
99.2 Opinion of McConnell, Budd & Downes, Inc. as to the fairness of the
transaction to stockholders of Vermont Financial (Attached as Annex
D to the Joint Proxy Statement/Prospectus included in this
Registration Statement).
</TABLE>
- --------
* Filed herewith.
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) of this Form.
(c) The Opinion of CIBC Oppenheimer Corp. is attached as Annex C to the
Joint Proxy Statement/Prospectus included in this Registration Statement. The
Opinion of McConnell, Budd & Downes, Inc. is attached as Annex D to the Joint
Proxy Statement/Prospectus included in this Registration Statement.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934, as amended) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-2
<PAGE>
(c) The undersigned registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (b) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Chittenden
Corporation certifies that it has duly caused this registration statement (the
"Registration Statement") to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Burlington, Vermont, on this 5th day
of April, 1999.
Chittenden Corporation
/s/ Paul A. Perrault
By:
----------------------------------
Paul A. Perrault
Chairman of the Board, President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby severally constitutes and appoints Paul A. Perrault and F. Sheldon
Prentice, and each of them singly, such person's true and lawful attorney-in-
fact and agent with full power of substitution and resubstitution, for such
person and in such person's name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
all documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that any said attorney-in-fact and agent, or any substitute or
substitutes of any of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Paul A. Perrault Chairman of the Board, April 5, 1999
- ------------------------------------ President and Chief
Paul A. Perrault Executive Officer
(Principal Executive
Officer)
/s/ Frederic H. Bertrand Director April 5, 1999
- ------------------------------------
Frederic H. Bertrand
/s/ David M. Boardman Director April 5, 1999
- ------------------------------------
David M. Boardman
/s/ Paul J. Carrara Director April 5, 1999
- ------------------------------------
Paul J. Carrara
/s/ Richard D. Driscoll Director April 5, 1999
- ------------------------------------
Richard D. Driscoll
/s/ Lyn Hutton Director April 5, 1999
- ------------------------------------
Lyn Hutton
/s/ Philip A. Kolvoord Director April 5, 1999
- ------------------------------------
Philip A. Kolvoord
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ James C. Pizzagalli Director April 5, 1999
- ------------------------------------
James C. Pizzagalli
/s/ Pall D. Spera Director April 5, 1999
- ------------------------------------
Pall D. Spera
/s/ Martel D. Wilson, Jr. Director April 5, 1999
- ------------------------------------
Martel D. Wilson, Jr.
/s/ Kirk W. Walters Executive Vice President and April 5, 1999
- ------------------------------------ Chief Financial Officer
Kirk W. Walters (Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger by and between Chittenden, Chittenden
Acquisition Subsidiary, Inc. and Vermont Financial, dated as of
December 16, 1998 (Incorporated by reference to Exhibit 2.1 to Form
8-K/A of Chittenden filed January 6, 1999 and attached as Annex A to
the Joint Proxy Statement/Prospectus included in this Registration
Statement).
5.1 Opinion of F. Sheldon Prentice, General Counsel to Chittenden, as to
the legality of the securities.*
8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.*
8.2 Opinion of Sullivan & Worcester LLP as to certain tax matters.*
10.1 Stock Option Agreement, dated as of December 16, 1998, by and
between Chittenden and Vermont Financial (Incorporated by reference
to Exhibit 10.1 to Form 8-K/A of Chittenden filed January 6, 1999).
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of KPMG LLP.*
23.3 Consent of PricewaterhouseCoopers LLP.*
23.4 Consent of CIBC Oppenheimer Corp.*
23.5 Consent of McConnell, Budd & Downes, Inc.*
23.6 Consent of F. Sheldon Prentice, General Counsel to Chittenden
(included in Exhibit 5.1).
23.7 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 8.1).
23.8 Consent of Sullivan & Worcester LLP (included in Exhibit 8.2).
24.1 Powers of Attorney (contained on signature pages to this
Registration Statement).
99.1 Opinion of CIBC Oppenheimer Corp. as to the fairness of the
transaction to Chittenden (Attached as Annex C to the Joint Proxy
Statement/Prospectus included in this Registration Statement).
99.2 Opinion of McConnell, Budd & Downes, Inc. as to the fairness of the
transaction to stockholders of Vermont Financial (Attached as Annex
D to the Joint Proxy Statement/Prospectus included in this
Registration Statement).
</TABLE>
- --------
* Filed herewith.
<PAGE>
EXHIBIT ( 5.1 )
Form of Opinion of F. Sheldon Prentice, Esq.
April 6, 1999
Chittenden Corporation
Two Burlington Square
Burlington, VT 05401
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
I am Sr. Vice President, General Counsel and Secretary of Chittenden
Corporation, a Vermont corporation (the "Company"), and have represented the
Company in connection with a Registration Statement on Form S-4 which was filed
by the Company under the Securities Act of 1933, as amended, (the "Registration
Statement"), and which registers up to 15,496,225 shares of Common Stock, par
value $1.00 per share, of the Company (the "Shares") to be issued in connection
with the Company's merger (the "Merger") with Vermont Financial Services Corp.,
a Delaware corporation ("VFSC"), pursuant to an Agreement and Plan of Merger
dated as of December 16, 1998 (the "Merger Agreement"). In that capacity, I
have reviewed the articles of incorporation and by-laws of the Company, the
Registration Statement, including the exhibits thereto, the corporate
proceedings taken by the Board of Directors relating to the authorization of the
issuance of the Shares and the Merger, and such other certificates and documents
as I have deemed necessary or advisable for the issuance of this opinion.
Based upon the foregoing, I am of the opinion that, upon approval of the Merger
and the transactions contemplated by the Merger Agreement by the stockholders of
the Company and VFSC in accordance with the terms and conditions set forth in
the Registration Statement, including but not limited to, the terms and
conditions of the Merger Agreement attached to the Joint Proxy
Statement/Prospectus included in the Registration Statement as Annex A, the
filing of the Articles of Merger with the Secretary of State of the State of
Vermont, and the issuance and delivery of the Shares to the stockholders of VFSC
pursuant to the Merger, the Shares will be duly authorized, validly issued,
fully paid, and non-assessable.
The opinion expressed in this letter is limited to the matters set forth herein,
and no other opinions should be inferred beyond the matters expressly stated.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to me and to my opinion in the Registration
Statement and the Joint Proxy Statement/Prospectus which is a part thereof.
Very truly yours,
/s/ F. Sheldon Prentice
- -------------------------
F. Sheldon Prentice, Esq.
Sr. Vice President,
General Counsel & Secretary
<PAGE>
EXHIBIT 8.1
[GOODWIN PROCTER & HOAR LLP TAX OPINION]
April 6, 1999
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Re: Merger of Chittenden Corporation and Vermont Financial Services Corp.
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Chittenden
Corporation ("Chittenden"), a Vermont corporation, in connection with the
merger (the "Merger") of Chittenden Acquisition Subsidiary, Inc., a Delaware
corporation and wholly-owned subsidiary of Chittenden ("CASI"), with and into
Vermont Financial Services Corp., a Delaware corporation ("VFSC"); and in
connection with the merger of VFSC (as the surviving corporation from the
Merger) with and into Chittenden (the "Subsequent Merger") pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 16,
1998 by and among Chittenden, VFSC, and CASI. Both the Merger and the
Subsequent Merger (collectively the "Mergers") will be consummated pursuant to
one integrated plan. This opinion relates to the qualification of the Mergers
as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and the accuracy of the section
entitled "Material Federal Income Tax Consequences' in the Registration
Statement filed on Form S-4 in connection the Mergers (the "Registration
Statement").
For purposes of the opinion set forth below, we have reviewed and relied
upon the Merger Agreement (including exhibits thereto) and such other
documents, records and instruments as we have deemed necessary or appropriate
as a basis for our opinion. In addition, in rendering our opinion we have
relied upon certain statements, representations and warranties made by
Chittenden and VFSC set forth in representation letters provided to us by
Chittenden and VFSC in connection with the preparation of this opinion. We have
assumed that such statements, representations and warranties are true, correct,
complete and have not been breached and will continue to be so through the date
of the Mergers, that no actions that are inconsistent with such statements,
representations and warranties will be taken and that all representations,
statements and warranties made to "the best knowledge of" any person or with
similar qualification are and will be true, correct and complete as if made
without such qualification. We also have assumed (i) the genuineness of all
signatures, (ii) the authenticity of all documents submitted to us as
originals, (iii) the conformity to the original documents of all documents
submitted to us as copies, (iv) the authority and capacity of the individual or
individuals who executed any such documents on behalf of any person, (v) the
conformity to the final documents of all documents submitted to us as drafts
and (vi) the accuracy and completeness of all records made available to us. In
addition, we have assumed that (i) the Mergers will be consummated in
accordance with the Merger Agreement, (ii) the Merger and the Subsequent Merger
will both qualify as mergers under the applicable laws of Delaware and Vermont,
(iii) each of Chittenden and VFSC will comply with all reporting obligations
with respect to the Mergers required under the Code and the Treasury
Regulations thereunder, and (iv) the Merger Agreement is valid and binding in
accordance with its terms.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations, warranties and assumptions or any change after the date hereof
in applicable law could adversely affect our opinion. No ruling has been (or
will be) sought from the Internal Revenue Service by Chittenden or VFSC as to
the federal income tax consequences of any aspect of the Mergers.
<PAGE>
Based upon and subject to the foregoing, as well as the limitations set
forth below, it is our opinion, under presently applicable federal income tax
law, that: (1) the Merger and the Subsequent Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and (2) the
statements in the Registration Statement set forth under the caption "Material
Federal Income Tax Consequences," to the extent such information constitutes
matters of law, summaries of legal matters, or legal conclusions, have been
reviewed by us and are accurate in all material respects.
* * *
No opinion is expressed as to any matter not specifically addressed above.
Also, no opinion is expressed as to the tax consequences of any of the
transactions under any foreign, state, or local tax law. Furthermore, our
opinion is based on current federal income tax law and administrative practice,
and we do not undertake to advise you as to any changes after the date hereof
in federal income tax law or administrative practice that may affect our
opinion.
This opinion is being provided to you in connection with the transactions
set forth in the Merger Agreement and may not be used for any other purpose
without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name in the section entitled
"Material Federal Income Tax Consequences" in the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
Goodwin, Procter & Hoar LLP
2
<PAGE>
EXHIBIT 8.2
April 6, 1999
Vermont Financial Services Corp.
100 Main Street
Brattleboro, Vermont 05301
Attention: John D. Hashagen, Jr.,
President and Chief Executive Officer
Ladies and Gentlemen:
In connection with the Agreement and Plan of Merger, dated as of December
16, 1998, by and among Chittenden Corporation, a Vermont corporation
("Chittenden"), Chittenden Acquisition Subsidiary, Inc., a Delaware corporation
and wholly-owned subsidiary of Chittenden ("CASI"), and Vermont Financial
Services Corp., a Delaware corporation ("VFSC"), which agreement, and all other
agreements contemplated thereby, are collectively referred to herein as the
"Agreement," this opinion is furnished to you to be filed as Exhibit 8.2 to the
Registration Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") filed on the date
hereof with the Securities and Exchange Commission. Capitalized terms used
herein without definition have the meanings ascribed to them in the
Registration Statement or in the Agreement, as the context may require. "Code"
shall mean the Internal Revenue Code of 1986, as amended.
Facts. Pursuant to the Agreement, (i) CASI will 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 in the Merger) will 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.
Assumptions. In rendering our opinions, we have with your permission assumed
the accuracy of the following assumptions as of the Effective Time, and we have
assumed that the Mergers will be consummated pursuant to the terms of and in
accordance with the Agreement. These assumptions are not based upon written
representations, but in rendering our closing opinion as required by Section
8.8 of the Agreement, we will require Chittenden and VFSC to execute written
representations confirming the accuracy of these assumptions as of the
Effective Time.
A. In accordance with Section 2.5 of the Agreement, the parties to the
Agreement intend that both the Merger and the Subsequent Merger be
consummated pursuant to one integrated plan. CASI is a newly formed
corporation, wholly owned by Chittenden, that was created for the specific
and sole purpose of consummating the Merger, it has not conducted any
business activities, it has no operating assets, and it has no liabilities.
Following the Merger and prior to the Subsequent Merger, in each case except
pursuant to the Subsequent Merger, Chittenden: (i) will not liquidate VFSC;
(ii) will not cause or permit the merger of VFSC with or into another
corporation; (iii) will not sell or otherwise dispose of any of the stock of
VFSC; (iv) will not cause or permit VFSC to issue additional shares of
stock; or (v) will not cause or permit VFSC to issue any warrants, options,
convertible securities, or any other type of right pursuant to which any
person could acquire stock in VFSC.
B. The fair market value of the Chittenden Common Stock and cash for fractional
shares received by each VFSC shareholder in the Merger will be approximately
equal to the fair market value of the VFSC Common Stock surrendered in
exchange therefor.
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C. Neither Chittenden nor any person related to Chittenden has any plan or
intention to reacquire, either directly or indirectly through an affiliate
or agent, any of the Chittenden stock issued in the Merger, and Chittenden
has no plan or intention to make any extraordinary distribution with respect
to such stock. Shares of Chittenden stock acquired or redeemed prior or
subsequent to the Merger will be considered for purposes of this assumption.
D. Following the Merger and prior to the Subsequent Merger, Chittenden will not
cause or permit VFSC to sell or otherwise dispose of any of its assets,
except for dispositions made in the ordinary course of business. Chittenden
has no plan or intention to sell or otherwise dispose of any of the assets
of VFSC acquired in the Subsequent Merger, except: (i) for dispositions made
in the ordinary course of business; or (ii) upon advice of tax counsel that
the transfer is permitted by Section 368(a)(2)(C) of the Code and the
administrative authorities under Section 368 of the Code.
E. At the Effective Time, the liabilities of VFSC and the liabilities to which
its assets are subject will have been incurred by VFSC in the ordinary
course of its business. All liabilities of VFSC incurred following the
Merger and prior to the Subsequent Merger, including those to which VFSC's
assets are subject (if any), will be incurred by VFSC in the ordinary course
of its business.
F. Following the Merger and prior to the Subsequent Merger, VFSC will continue
its historic business or use a significant portion of its historic business
assets in a business. Following the Subsequent Merger, Chittenden will
continue the historic business of VFSC or use a significant portion of
VFSC's historic business assets in a business.
G. Other than as provided in the Agreement, each of Chittenden, CASI, VFSC and
the shareholders of VFSC has paid and will pay all and only its respective
expenses, if any, incurred in connection with each of the Mergers.
H. There is no intercorporate indebtedness existing between or among any of
Chittenden, VFSC, or CASI that was issued, acquired, or will be settled at a
discount.
I. None of Chittenden, CASI, or VFSC is an investment company, and following
the Merger and prior to the Subsequent Merger, Chittenden will not become,
and Chittenden will not cause or permit VFSC to become, an investment
company. As used in this assumption, investment company means any of: (i) a
regulated investment company; (ii) a real estate investment trust; or (iii)
a corporation fifty percent (50%) or more of the value of whose total assets
are stock and securities, and eighty percent (80%) or more of the value of
whose total assets are assets held for investment. In making the fifty-
percent and eighty-percent determinations under the preceding sentence:
. stock and securities in any subsidiary corporation are disregarded; the
parent corporation is deemed to own its ratable share of the
subsidiary's assets; and a corporation is considered a subsidiary for
these purposes if the parent owns fifty percent (50%) or more of the
combined voting power of all classes of stock entitled to vote, or fifty
percent (50%) or more of the total value of shares of all classes of
stock outstanding; and
. the determination of a corporation's total assets excludes: cash and
cash items (including receivables); government securities; and assets
acquired (through incurring indebtedness or otherwise) for purposes of
ceasing to be an investment company; and
. securities include obligations of state and local governments, commodity
futures contracts, shares of regulated investment companies and real
estate investment trusts, and other investments constituting a security
within the meaning of the federal securities laws.
J. None of Chittenden, CASI, or VFSC is in, and Chittenden will not cause or
permit VFSC to enter into, a bankruptcy, insolvency, receivership,
foreclosure, or similar case or proceeding under federal or state law.
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K. From the Effective Time and through the Subsequent Effective Time, each of
the fair market value and the aggregate adjusted tax bases of the assets of
VFSC will equal or exceed the sum of VFSC's liabilities, plus the amount of
the liabilities, if any, to which such assets are subject.
L. The payment of cash in lieu of fractional shares of Chittenden Common Stock
is solely for the purpose of avoiding the expense and inconvenience to
Chittenden of issuing fractional shares and does not represent separately-
bargained-for consideration. The total cash consideration that will be paid
in the Merger to the shareholders of VFSC instead of issuing fractional
shares of Chittenden Common Stock will not exceed three percent (3%) of the
total consideration that will be issued in the Merger to the shareholders of
VFSC in exchange for their shares of VFSC stock. The fractional share
interests of each shareholder of VFSC will be aggregated, and no shareholder
of VFSC will receive, for such shareholder's fractional share interests,
cash in an amount equal to or greater than the value of one full share of
Chittenden Common Stock.
M. Any compensation paid by Chittenden or an affiliate of Chittenden to any
shareholder-employee or shareholder-consultant of VFSC will be for services
actually rendered or to be rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services. None
of the compensation paid to any such shareholder-employee or shareholder-
consultant of VFSC will be separate consideration for, or allocable to, any
of his VFSC shares. None of the Chittenden Common Stock received by any such
shareholder-employee or shareholder-consultant of VFSC pursuant to the
Merger will be separate consideration for, or allocable to, any employment,
consulting, or similar agreement or arrangement.
N. At all times during the five-year period ending at the Effective Time, the
fair market value of all of VFSC's United States real property interests has
been less than fifty percent (50%) of the total fair market value of: (i)
its United States real property interests; (ii) its interests in real
property located outside the United States; plus (iii) any other of its
assets which are used or held for use in a trade or business. United States
real property interests include all interests (other than an interest solely
as a creditor) in real property and associated personal property (such as
movable walls and furnishings) located in the United States or the Virgin
Islands and interests in any corporation (other than a controlled
corporation) owning any United States real property interest. VFSC is
treated as owning its proportionate share (based on the relative fair market
value of its ownership interest to all ownership interests) of the assets
owned by any controlled corporation or any partnership, trust, or estate in
which VFSC is a partner or beneficiary, and any such entity in turn is
treated as owning its proportionate share of the assets owned by any
controlled corporation or any partnership, trust, or estate in which the
entity is a partner or beneficiary. As used in this assumption, "controlled
corporation" means any corporation at least fifty percent (50%) of the fair
market value of the stock of which is owned by VFSC, in the case of a first-
tier subsidiary of VFSC, or by a controlled corporation, in the case of a
lower-tier subsidiary.
O. Following the Merger and prior to the Subsequent Merger, VFSC will hold at
least ninety percent (90%) of the fair market value of its net assets and at
least seventy percent (70%) of the fair market value of its gross assets
held immediately prior to the Merger. For purposes of this assumption,
amounts used by VFSC to pay reorganization expenses, and all redemptions and
distributions made by VFSC in contemplation of the Merger (except for
regular, normal dividends, e.g., as contemplated by Section 5.3 of the
Agreement) are included as assets of VFSC held immediately prior to the
Merger. Moreover, liabilities of VFSC to pay reorganization expenses are
excluded from the computation of the fair market value of its net assets
immediately prior to the Merger.
P. No dividends or distributions have been made with respect to the stock of
VFSC immediately preceding or in contemplation of the Merger, other than
regular, normal dividends as contemplated by Section 5.3 of the Agreement.
Q. Chittenden does not own nor has it owned during the past five years, in
either case directly or indirectly through subsidiaries or other affiliates,
any stock of VFSC other than shares held in a fiduciary capacity.
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R. In the Merger, shares of VFSC stock representing control of VFSC will be
exchanged solely for voting stock of Chittenden and no shares of VFSC stock
will be exchanged for cash or other property originating with Chittenden
(except for cash in lieu of fractional shares). Further, no liabilities of
VFSC's shareholders will be assumed by Chittenden. As used in this
assumption, "control" means the ownership of stock possessing at least
eighty percent (80%) of the total combined voting power of all classes of
stock entitled to vote and at least eighty percent (80%) of the total number
of shares of all other classes (and each other class) of stock of a
corporation.
Opinions. Based on the foregoing facts and assumptions, and assuming the
accuracy thereof, we are of the opinion that, for federal income tax purposes:
1. The Mergers will qualify as a reorganization within the meaning of Section
368(a) of the Code.
2. Chittenden and VFSC will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by a VFSC shareholder as a result of the
Mergers, except with respect to cash received by such shareholder in lieu of
fractional shares of Chittenden Common Stock (as discussed below). Sections
354 and 356 of the Code.
4. The aggregate basis in Chittenden Common Stock received in the Merger by a
VFSC shareholder will equal such shareholder's basis in the VFSC stock
surrendered in exchange therefor, decreased by any basis allocable to cash
received in lieu of fractional shares (as discussed below). Section 358 of
the Code.
5. The holding period of Chittenden Common Stock received in the Merger by a
VFSC shareholder will include his holding period of VFSC stock surrendered
in exchange therefor, provided that such VFSC stock surrendered was held as
a capital asset on the date of the Merger. Section 1223(1) of the Code.
6. A VFSC shareholder who receives cash in the Merger in lieu of a fractional
share interest in Chittenden Common Stock will be treated as if (i) the
fractional share interest was actually received by such shareholder as part
of the Merger, (ii) basis was allocated proportionately to such fractional
share interest in the manner described above, and (iii) such fractional
share interest was then redeemed by Chittenden, with the result that the
cash that the shareholder receives in lieu of a fractional share interest is
treated as having been received in full payment in a taxable sale of the
fractional share interest redeemed as provided in Section 302(a) of the
Code.
No opinion is expressed concerning the consequences to any party of any
matter other than those specifically addressed above, and in particular, we
express no opinion with respect to the state or local tax treatment of the
Merger. In addition, the above opinions may in certain circumstances be
inapplicable to VFSC shareholders who received their VFSC stock pursuant to the
exercise of employee stock options or otherwise as compensation, in that
special Code provisions applicable in the compensation context may provide for
different results.
Miscellaneous. The foregoing opinions are based on the Code as in effect on
the date hereof and administrative and judicial interpretations of it. No
assurance can be given that the Code will not change or that such
interpretations will not be revised or amended adversely, possibly with
retroactive effect. This opinion is not intended to satisfy the closing opinion
required by Section 8.8 of the Agreement, which closing opinion will be
delivered at the Effective Time and be based upon executed representations made
by Chittenden and VFSC.
This opinion is intended solely for the benefit and use of Vermont Financial
Services Corp. and its shareholders, and it is not to be used, released,
quoted, or relied upon by anyone else for any purpose (other than as required
by law) without our prior written consent. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and to the reference
to our firm made therein under the captions "LEGAL MATTERS" and "MATERIAL
FEDERAL INCOME TAX CONSEQUENCES--Tax Consequences of the
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Merger". In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
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ARTHUR ANDERSEN LLP
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this S-4 Registration Statement of our report dated January 15,
1999 included in Chittenden Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998 and to all references to our Firm included in this
S-4 Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 2, 1999
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Exhibit 23.2
INDEPENDENT ACCOUNTANT'S CONSENT
The Board of Directors
Vermont Financial Services Corp.:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Joint Proxy
Statement/Prospectus.
/s/ KPMG LLP
Hartford, Connecticut
April 1, 1999
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Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Chittenden Corporation on Form S-4 (File No. 0-7974) of our report dated
January 21, 1997 on our audit of the consolidated financial statements of
Vermont Financial Services Corp. for the year ended December 31, 1996, which
report is included in the 1998 Form 10-K of Vermont Financial Services Corp. We
also consent to the reference to our firm under the caption "Where You Can Find
More Information".
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
April 1, 1999
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Exhibit 23.4
CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
World Financial Center
New York, NY 10281
Tel: 212-667-5686
Fax: 212-667-5851/5585
CIBC
Oppenheimer
A CIBC World Markets Company
CONSENT OF CIBC OPPENHEIMER CORP.
April 6, 1999
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Dear Sirs:
We hereby consent to (i) the use of our opinion letter dated April 6, 1999 to
the Board of Directors of Chittenden Corporation (the "Company") included as
Annex C to the Joint Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger of the
Company and Vermont Financial Services Corp. and (ii) the references to such
opinion in such Joint Proxy Statement/Prospectus. In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
hereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very Truly Yours,
/s/ CIBC Oppenheimer Corp.
CIBC Oppenheimer Corp.
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Exhibit 23.5
[McCONNELL, BUDD & DOWNES, INC. LETTERHEAD]
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of the Opinion of McConnell, Budd & Downes,
Inc. as annex D to the Form S-4 Registration Statement of Chittenden Corporation
("CHZ") and Vermont Financial Services Corp. ("VFSC") to be filed with the
Securities and Exchange Commission in connection with the proposed Consolidation
of VFSC and CHZ and to the references to the work completed by our firm as
Financial Advisor to VFSC in the text of the related Joint Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "expert" as used in the Securities Act of 1933 as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ McConnell, Budd & Downes, Inc.
McConnell, Budd & Downes, Inc.
April 6, 1999
