<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UST CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2436093
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
6711
(Primary Standard Industrial Classification Code Number)
------------------------------
40 COURT STREET, BOSTON, MASSACHUSETTS 02108,
(617) 726-7000
(Address, including ZIP code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
JAMES K. HUNT
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
UST CORP.
40 COURT STREET
BOSTON, MASSACHUSETTS 02108
(617) 726-7055
(Name, address, including ZIP code, and telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
ERIC R. FISCHER, ESQ. JOHN P. DRISCOLL, JR., ESQ.
EXECUTIVE VICE PRESIDENT, NUTTER, MCCLENNEN & FISH, LLP
GENERAL COUNSEL AND CLERK ONE INTERNATIONAL PLACE
UST CORP. BOSTON, MASSACHUSETTS 02110
40 COURT STREET (617) 439-2000
BOSTON, MASSACHUSETTS 02108
(617) 726-7377
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement and all other conditions to the acquisition of Somerset Savings Bank
by the Registrant have been satisfied or waived as described in the enclosed
Proxy Statement--Prospectus.
------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box / /.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.625 per share.......... 3,300,000 $25.125 $82,912,500 $26,800.00
</TABLE>
(1) Estimated solely for the purpose of computing the registration pursuant to
Rule 457(c) based on the average of the high and low prices of the Common Stock
on February 2, 1998, as reported on the Nasdaq National Stock Market
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LETTER TO SOMERSET STOCKHOLDERS]
[SOMERSET LETTERHEAD]
To the Stockholders of Somerset Savings Bank:
You are cordially invited to attend a Special Meeting of Stockholders of
Somerset Savings Bank ("Somerset") to be held at the [Holiday Inn], Somerville,
Massachusetts, on [ , April ], 1998, at [10:00] a.m.
At our special stockholders meeting, Somerset stockholders will be asked to
approve an Affiliation Agreement and Plan of Reorganization to which Somerset
and UST Corp. ("UST") are parties, which provides for the acquisition of
Somerset by UST (the "Merger"). Upon consummation of the Merger, each
outstanding share of Somerset common stock will be converted into 0.19 (the
"Conversion Number") shares of UST common stock. Based on the last reported sale
price of UST common stock on [February , 1998], the value of 0.19 shares of
UST common stock as of that date would have been approximately $
. . The actual value of the UST common stock to be received by Somerset
stockholders will depend on the market price of UST common stock when the Merger
is consummated. Terms and conditions of the Merger are described in the
accompanying Proxy Statement--Prospectus, which we urge you to read carefully.
The consideration to be received by Somerset stockholders in the Merger was
negotiated under the direction of your Board of Directors in light of various
factors, including Somerset's recent operating results, current financial
condition and future prospects. Legg Mason Wood Walker, Incorporated, Somerset's
financial advisor, has advised your Board of Directors that, in its opinion, the
Conversion Number is fair to Somerset stockholders from a financial point of
view.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED MERGER IS IN THE BEST
INTERESTS OF SOMERSET STOCKHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY
RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER.
A proxy card is enclosed. Please sign, date and mail the proxy card promptly
in the return envelope provided. Because stockholder approval of the Merger
requires the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Somerset common stock, it is important that you return the
proxy card, whether or not you plan to attend our special stockholders meeting,
so that your shares of Somerset common stock can be voted.
Sincerely,
[facsimile signature]
Thomas J. Kelly
Chairman of the Board, President and Chief Executive Officer
<PAGE>
[NOTICE OF SOMERSET MEETING]
[SOMERSET LETTERHEAD]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
[APRIL ], 1998
A Special Meeting of Stockholders of Somerset Savings Bank ("Somerset") will
be held at the [Holiday Inn], Somerville, Massachusetts, on [April ], 1998, at
[10:00] a.m.
A Proxy Card and a Proxy Statement--Prospectus are enclosed.
The purpose of our meeting is to consider and act upon:
1. A proposal to approve and adopt the Affiliation Agreement and Plan
of Reorganization, dated as of December 9, 1997 (the "Affiliation
Agreement"), by and between Somerset and UST Corp. ("UST"), which
provides for the acquisition of Somerset by UST (the "Merger") and the
conversion of each outstanding share of Somerset common stock into 0.19
shares of UST common stock, upon the terms and subject to the conditions
set forth therein, as described in the accompanying Proxy
Statement--Prospectus and the Affiliation Agreement which is attached as
APPENDIX A to the accompanying Proxy Statement--Prospectus; and
2. Such other matters as may properly come before the meeting or any
adjournments thereof.
The Board of Directors is not aware of any other business to come before the
meeting.
Stockholder approval of the Affiliation Agreement and the transactions
contemplated thereby requires the affirmative vote of the holders of at least
TWO-THIRDS of the outstanding shares of Somerset common stock. In the event
there are not sufficient votes to approve the foregoing proposal at the time of
the meeting, the meeting may be adjourned by a majority of the votes present in
order to permit further solicitation of proxies by Somerset.
Any action may be taken on any matter properly brought before the meeting on
the date specified above, or on any date or dates to which, by original or later
adjournment, the meeting may be adjourned. Stockholders of record at the close
of business on February , 1998 are the stockholders entitled to vote at the
meeting and any such adjournments thereto.
You are requested to fill in and sign the enclosed Proxy Card that is
solicited by the Board of Directors and to mail it promptly in the enclosed
envelope. If you attend the meeting, you may revoke your proxy and vote at the
meeting in person.
Frank Scimone
CLERK
Somerville, Massachusetts
[March ], 1998
<PAGE>
NOTICE OF APPRAISAL RIGHTS
If the Affiliation Agreement is approved by the stockholders at the
special stockholder meeting and the Merger is consummated, any stockholder
(1) who files with Somerset a written objection to the Merger before the
taking of the vote to approve the Affiliation Agreement by the
stockholders of Somerset and who states in such objection that he or she
intends to demand payment for his or her shares if the Merger is concluded
and (2) whose shares are not voted in favor of the Merger shall be
entitled to demand payment for his or her shares and an appraisal of the
value thereof, in accordance with the provisions of Sections 86 through
98, inclusive, of Chapter 156B of the General Laws of Massachusetts, a
copy of which is attached as APPENDIX E to the accompanying Proxy
Statement--Prospectus. See "THE MERGER--Rights of Dissenting Stockholders"
in the Proxy Statement--Prospectus for more information concerning
appraisal rights of dissenting stockholders.
<PAGE>
<TABLE>
<S> <C>
UST Corp. Somerset Savings Bank
40 Court Street 212 Elm Street
Boston, Massachusetts 02108 Somerville, Massachusetts 02144
</TABLE>
PROXY STATEMENT--PROSPECTUS
--------------------------
(INSERT LOGO)
SPECIAL MEETING OF STOCKHOLDERS
SOMERSET SAVINGS BANK
--------------------------
[APRIL ], 1998
This Proxy Statement--Prospectus is being furnished to stockholders of
Somerset Savings Bank ("Somerset") in connection with the solicitation of
proxies by the Board of Directors of Somerset (the "Somerset Board") to be used
at the Special Meeting to be held on April , 1998, at [10:00] a.m., at the
[Holiday Inn], Somerville, Massachusetts, and at any adjournments or
postponements thereof (the "Special Meeting"). At the Special Meeting, the
holders of the common stock of Somerset, par value $1.00 per share (the
"Somerset Common Stock"), will consider and vote upon a proposal to approve and
adopt the Affiliation Agreement and Plan of Reorganization, dated as of December
9, 1997 (the "Affiliation Agreement"), by and between Somerset and UST Corp.
("UST"), as joined in by Mosaic Corp., a wholly-owned subsidiary of UST
("Mosaic"), on January 9, 1998, which provides for the acquisition of Somerset
by UST (the "Merger"). See "SPECIAL MEETING OF STOCKHOLDERS--Date, Time and
Place" and "--Purposes of the Meeting."
The Affiliation Agreement is attached hereto as APPENDIX A and is
incorporated herein by reference.
Upon consummation of the Merger, each share of Somerset Common Stock issued
and outstanding immediately prior to the effective time of the Merger (other
than any such shares held directly or indirectly by UST, except in a fiduciary
capacity, and any such shares held as treasury stock by Somerset, and shares
held by dissenting stockholders who have duly perfected their rights of
appraisal (the "Dissenting Shares")), will be converted into 0.19 shares of UST
common stock, par value $0.625 per share ("UST Common Stock"). See "THE
MERGER--Conversion of Shares; Exchange of Certificates." The transaction is
subject to various conditions, including approval by the stockholders of
Somerset and approval by applicable regulatory authorities. See "THE
MERGER--Regulatory Approvals Required for the Merger" and "--Conditions to the
Consummation of the Merger."
UST Common Stock is quoted on, and transactions in UST Common Stock are
effected through, the Nasdaq Stock Market's ("Nasdaq") National Market. The last
reported sale price of UST Common Stock on [February ], 1998 was $[ ].
This Proxy Statement--Prospectus does not cover any resales of UST Common
Stock received by stockholders of Somerset who are affiliates of Somerset upon
consummation of the Merger, and no person is authorized to make use of this
Proxy Statement--Prospectus in connection with any such resale. See "THE
MERGER--Resales by Affiliates."
All information concerning UST contained in this Proxy Statement -Prospectus
has been furnished by UST, and all information concerning Somerset has been
furnished by Somerset. UST has represented and warranted to Somerset, and
Somerset has represented and warranted to UST, that the particular information
so furnished does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make such information not misleading. See
"EXPERTS" with respect to the financial statements of UST and Somerset. For a
more complete description of the terms of the Merger and the Affiliation
Agreement, see generally "THE MERGER."
UST has filed a Registration Statement on Form S-4 (together with its
exhibits, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering a maximum of 3,300,000 shares of UST Common Stock,
representing shares to be issued in connection with the Merger. This Proxy
Statement--Prospectus also constitutes the Prospectus of UST filed as a part of
such Registration Statement.
This Proxy Statement--Prospectus and the form of proxy are first being
mailed to stockholders of Somerset on or about [March ,] 1998.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT--PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION.
STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT-- PROSPECTUS IN ITS ENTIRETY.
------------------------
THE SHARES OF UST COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF UST AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
FEDERAL OR STATE GOVERNMENT AGENCY.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT--PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement--Prospectus is [March ], 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION..................................................................................... 1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION................................................ 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................................................... 3
SUMMARY................................................................................................... 5
The Companies......................................................................................... 5
UST............................................................................................... 5
Somerset.......................................................................................... 5
The Merger............................................................................................ 5
The Conversion Number................................................................................. 6
The Effective Time.................................................................................... 7
Special Meeting of Stockholders....................................................................... 7
Stockholder Vote Required; Voting Agreements.......................................................... 7
Proxies; Voting and Revocation........................................................................ 8
Recommendation of Somerset Board and Reasons for the Merger........................................... 8
Opinion of Financial Advisor.......................................................................... 8
Regulatory Approvals.................................................................................. 9
Employee Matters...................................................................................... 9
Interests of Certain Persons in the Merger; Indemnification and Insurance............................. 10
Management and Operations After the Merger............................................................ 10
Certain Terms of the Stock Option Agreement........................................................... 11
Certain Federal Income Tax Consequences............................................................... 12
Accounting Treatment.................................................................................. 12
Rights of Dissenting Stockholders..................................................................... 12
Comparative Rights of Stockholders.................................................................... 13
Conditions to the Consummation of the Merger.......................................................... 13
Conduct of Business Pending the Merger................................................................ 13
Waiver and Amendment.................................................................................. 14
Termination of the Affiliation Agreement.............................................................. 14
Market and Market Prices.............................................................................. 15
UST Corp. Selected Financial Data..................................................................... 16
Somerset Savings Bank Selected Financial Data......................................................... 17
UST Corp. and Somerset Savings Bank Pro Forma Condensed Combined Selected Financial Data.............. 18
UST Capitalization.................................................................................... 19
Comparative Per Share Data (Unaudited)................................................................ 20
SPECIAL MEETING OF STOCKHOLDERS........................................................................... 22
Date, Time and Place.................................................................................. 22
Purposes of the Meeting............................................................................... 22
Record Date; Quorum................................................................................... 22
Proxies; Voting and Revocation........................................................................ 22
Stockholder Vote Required to Approve the Merger; Voting Agreements;
Abstentions and Non-Votes........................................................................... 23
PRINCIPAL HOLDERS OF VOTING SECURITIES.................................................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INFORMATION ABOUT UST..................................................................................... 26
General............................................................................................... 27
Recent Developments................................................................................... 27
Recent Operating Results.......................................................................... 27
Firestone Acquisition............................................................................. 27
AFCB Acquisition.................................................................................. 27
Proposed Amendment to UST's Articles.............................................................. 29
INFORMATION ABOUT SOMERSET................................................................................ 29
General............................................................................................... 29
Recent Operating Results.............................................................................. 30
THE MERGER................................................................................................ 34
General............................................................................................... 34
Background of the Merger.............................................................................. 34
Recommendation of the Somerset Board and Reasons for the Merger....................................... 38
UST's Reasons for the Merger.......................................................................... 39
Opinion of Somerset's Financial Advisor............................................................... 39
Effective Time of the Merger; Closing Date............................................................ 45
Terms of the Merger................................................................................... 46
Regulatory Approvals Required for the Merger.......................................................... 47
Federal Approvals................................................................................. 47
Massachusetts Approval............................................................................ 48
Employee Matters...................................................................................... 50
Interests of Certain Persons in the Merger............................................................ 51
Management and Operations After the Merger............................................................ 53
Certain Federal Income Tax Consequences............................................................... 54
General........................................................................................... 54
Backup Withholding................................................................................ 57
Accounting Treatment.................................................................................. 57
Indemnification and Insurance......................................................................... 57
Rights of Dissenting Stockholders..................................................................... 57
Nasdaq Listing........................................................................................ 58
Resales by Affiliates................................................................................. 59
Conversion of Shares; Exchange of Certificates........................................................ 60
Conversion of Shares of Somerset Common Stock..................................................... 61
Manner of Exchanging Somerset Certificates for UST Certificates................................... 61
Lost Certificates................................................................................. 62
Distributions with Respect to Unexchanged Somerset Certificates................................... 62
Post Effective Time............................................................................... 62
Conditions to the Consummation of the Merger.......................................................... 62
Conditions to Each Party's Obligations Under the Affiliation Agreement............................ 62
Conditions to UST's Obligations................................................................... 63
Conditions to Somerset's Obligations.............................................................. 64
Conduct of Business Pending the Merger................................................................ 65
Waiver and Amendment.................................................................................. 69
Waiver............................................................................................ 69
Amendment......................................................................................... 69
Expenses.............................................................................................. 69
Termination of the Affiliation Agreement.............................................................. 70
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CERTAIN RELATED TRANSACTIONS.......................................................................... 57
Stock Option Agreement................................................................................ 57
General........................................................................................... 57
Grant of Option................................................................................... 57
Triggering Events; Exercise of Option............................................................. 57
Additional Cash Consideration..................................................................... 52
Repurchase of Option.............................................................................. 52
Voting Agreements..................................................................................... 54
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION....................................................... 54
Unaudited Pro Forma Condensed Combining Balance Sheet................................................. 56
Unaudited Pro Forma Condensed Combined Statements of Income........................................... 62
Notes to Unaudited Pro Forma Condensed Financial Information.......................................... 64
DESCRIPTION OF UST CAPITAL STOCK.......................................................................... 64
General............................................................................................... 64
Common Stock.......................................................................................... 64
Dividend Rights................................................................................... 64
Voting Rights..................................................................................... 64
Preemptive Rights................................................................................. 64
Liquidation Rights................................................................................ 64
Assessments....................................................................................... 64
Transfer Agent and Registrar...................................................................... 64
Stockholder Rights Agreement...................................................................... 64
Preferred Stock....................................................................................... 65
General........................................................................................... 65
Dividend and Liquidation Rights................................................................... 65
Determinations to be Made by the UST Board........................................................ 65
Series A Junior Participating Preferred Stock..................................................... 66
COMPARATIVE RIGHTS OF STOCKHOLDERS........................................................................ 67
General............................................................................................... 67
Issuance and Regulation of Capital Stock.............................................................. 67
UST............................................................................................... 67
Somerset.......................................................................................... 67
Dividends............................................................................................. 67
UST............................................................................................... 67
Somerset.......................................................................................... 67
Size and Classification of the Board of Directors..................................................... 67
Removal of Directors.................................................................................. 68
UST............................................................................................... 68
Somerset.......................................................................................... 68
Stockholder Nominations............................................................................... 68
UST............................................................................................... 68
Somerset.......................................................................................... 68
Interested Transactions............................................................................... 68
UST............................................................................................... 68
Somerset.......................................................................................... 68
Meetings of Stockholders.............................................................................. 69
UST............................................................................................... 69
Somerset.......................................................................................... 69
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Stockholder Action Without A Meeting.................................................................. 69
UST............................................................................................... 69
Somerset.......................................................................................... 69
Amendment of By-laws.................................................................................. 69
UST............................................................................................... 69
Somerset.......................................................................................... 69
Required Vote for Certain Business Combinations....................................................... 69
UST............................................................................................... 69
Somerset.......................................................................................... 70
Stockholder Rights Plan............................................................................... 70
UST............................................................................................... 70
Somerset.......................................................................................... 70
State Anti-takeover Statutes.......................................................................... 70
MARKET PRICES AND DIVIDENDS............................................................................... 71
EXPERTS................................................................................................... 72
LEGAL OPINIONS............................................................................................ 72
MANAGEMENT AND ADDITIONAL INFORMATION..................................................................... 73
SOLICITATION OF PROXIES................................................................................... 73
STOCKHOLDER PROPOSALS..................................................................................... 73
APPENDIX A--AFFILIATION AGREEMENT AND PLAN OF REORGANIZATION.............................................. A-1
APPENDIX B--STOCK OPTION AGREEMENT........................................................................ B-1
APPENDIX C--FORM OF VOTING AGREEMENT...................................................................... C-1
APPENDIX D--OPINION OF FINANCIAL ADVISOR TO SOMERSET...................................................... D-1
APPENDIX E--TEXT OF SECTIONS 86 TO 98 OF THE MASSACHUSETTS BUSINESS CORPORATION LAW....................... E-1
</TABLE>
iv
<PAGE>
AVAILABLE INFORMATION
UST is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by UST can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
Commission's regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains an
internet site (http://www.sec.gov) that contains information regarding UST's
electronic filings with the Commission.
Somerset is also subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Federal Deposit Insurance Corporation ("FDIC"). Such
information can be inspected at the public reference facilities maintained by
the FDIC at the Registration and Disclosure Section, Federal Deposit Insurance
Corporation, 1776 F Street, N.W., 6th Floor, Washington, D.C. 20006 (telephone
requests for such information or copies of documents may be directed to (202)
898-8920).
Certain securities of UST and Somerset are quoted on Nasdaq and reports,
proxy statements and other information concerning UST and Somerset also may be
inspected at the offices of the National Association of Securities Dealers, Inc.
("NASD"), 1735 K Street, N.W, Washington, D.C. 20006.
This Proxy Statement--Prospectus does not contain all of the information set
forth in the Registration Statement which UST has filed with the Commission
under the Securities Act, and to which reference is hereby made. The
Registration Statement may be inspected at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
copies thereof may be obtained from the Commission at prescribed rates.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Proxy Statement--Prospectus contains or incorporates by reference
certain forward-looking statements regarding UST's or Somerset's future plans,
operations and prospects, including without limitation certain statements under
"THE MERGER--Opinion of Somerset's Financial Advisor," which involve risks and
uncertainties. Those forward-looking statements are inherently uncertain, and
actual results may differ from UST's or Somerset's expectations. Risk factors
that could affect current and future performance include but are not limited to
the following: (i) adverse changes in asset quality and the resulting credit
risk-related losses and expenses; (ii) adverse changes in the economy of the New
England region, UST's or Somerset's primary market, which could further
accentuate credit-related losses and expenses; (iii) adverse changes in the
local real estate market that can also negatively affect credit risk, as most of
UST's or Somerset's loans are concentrated in Eastern Massachusetts and a
substantial portion of these loans have real estate as primary and secondary
collateral; (iv) the consequences of continued bank acquisitions and mergers in
UST's or Somerset's market, resulting in fewer but much larger and financially
stronger competitors which could increase, to UST's or Somerset's detriment,
competition for financial services; (v) fluctuations in market rates and prices,
which can negatively affect UST's or Somerset's net interest margin, asset
valuations and expense expectations; and (vi) changes in regulatory requirements
of federal and state agencies applicable to bank holding companies and banks
such as UST and its subsidiaries and Somerset, which changes could have a
material adverse effect on UST's or Somerset's future operating results.
1
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are hereby incorporated by reference in this Proxy
Statement--Prospectus the following documents and information heretofore filed
with either the Commission by UST or the FDIC by Somerset, which documents are
not presented herein or delivered herewith:
<TABLE>
<CAPTION>
UST SEC FILINGS PERIOD
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1996
Quarterly Reports on Form 10-Q Quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997
Current Reports on Form 8-K Filed on (i) July 2, 1996, as amended on
February 7, 1997, (ii) August 30, 1996, as
amended on February 7, 1997 and March 4, 1997,
(iii) December 16, 1997 and (iv) February 6,
1998
</TABLE>
<TABLE>
<CAPTION>
SOMERSET FDIC FILINGS PERIOD
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Annual Report on Form F-2 Year ended December 31, 1996
Quarterly Reports on Form F-4 Quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997
Current Reports on Form F-3 Filed on (i) August 5, 1997 and (ii) December
16, 1997
</TABLE>
All documents subsequently filed by UST or Somerset pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date of the Special
Meeting shall be deemed to be incorporated by reference into this Proxy
Statement--Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement--Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy
Statement--Prospectus.
UST AND SOMERSET WILL PROVIDE UPON REQUEST AND WITHOUT CHARGE TO EACH PERSON
TO WHOM THIS PROXY STATEMENT--PROSPECTUS IS DELIVERED, A COPY OF ANY OR ALL OF
THE FOREGOING DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED THEREIN BY REFERENCE).
WRITTEN REQUESTS FOR DOCUMENTS RELATING TO UST SHOULD BE DIRECTED TO ERIC R.
FISCHER, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CLERK, UST CORP., 40
COURT STREET, BOSTON, MASSACHUSETTS 02108. TELEPHONE REQUESTS MAY BE DIRECTED TO
MR. FISCHER AT (617) 726-7377. WRITTEN REQUESTS FOR DOCUMENTS RELATING TO
SOMERSET SHOULD BE DIRECTED TO GARY M. ABRAMS, SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND TREASURER, SOMERSET SAVINGS BANK, 212 ELM STREET,
SOMERVILLE, MASSACHUSETTS 02144. TELEPHONE REQUESTS MAY BE DIRECTED TO GARY M.
ABRAMS AT (617) 625-6000. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY OF THE
DOCUMENTS, REQUESTS SHOULD BE MADE BY MARCH , 1998.
2
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THE PROXY STATEMENT--PROSPECTUS OR INCORPORATED
BY REFERENCE HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY UST OR SOMERSET. THIS PROXY
STATEMENT--PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO PURCHASE THE UST COMMON STOCK OFFERED BY THIS PROXY
STATEMENT--PROSPECTUS, NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY,
WITHIN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION, WITHIN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT--PROSPECTUS NOR THE
DISTRIBUTION OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF UST OR SOMERSET
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN OR IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THE DATES THEREOF.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS
PROXY STATEMENT--PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT--PROSPECTUS, OR IN THE ACCOMPANYING APPENDICES AND THE DOCUMENTS
REFERRED TO HEREIN. CAPITALIZED TERMS WHICH ARE USED AND NOT DEFINED IN THIS
PROXY STATEMENT--PROSPECTUS HAVE THE MEANING SET FORTH IN THE AFFILIATION
AGREEMENT.
THE COMPANIES
UST. UST is a registered bank holding company, organized as a Massachusetts
business corporation in 1967, that, through its subsidiaries, is engaged in
providing financial services to individuals and small-and medium-sized companies
as well as trust and money management services to individuals, corporations and
other organizations. As of December 31, 1997, UST's total assets were
approximately $3.8 billion and USTrust, a Massachusetts bank and trust company
and the lead banking subsidiary of UST ("USTrust"), had over $3.8 billion or 99%
of UST's consolidated assets. All of the capital stock of USTrust is owned by
Mosaic Corp., a Massachusetts corporation and wholly-owned subsidiary of UST
("Mosaic"). See "INFORMATION ABOUT UST." For a discussion of UST's recent
developments, including the completion of UST's acquisition of Firestone
Financial Corp., a small business equipment finance company, in October 1997,
and the pending acquisition of Affiliated Community Bancorp, Inc., a
Massachusetts bank holding company, see "INFORMATION ABOUT UST--Recent
Developments."
The executive office of UST is located at 40 Court Street, Boston,
Massachusetts 02108 (Telephone (617) 726-7000).
SOMERSET. Somerset is a Massachusetts-chartered stock savings bank
headquartered in Somerville, Massachusetts, which originally commenced business
as Somerville Savings Bank in 1885 and converted from a mutual savings bank to a
publicly-held stock savings bank in July 1986. Somerset offers a broad range of
banking and related services primarily to individuals and small business
customers through its five banking offices. As of December 31, 1997, Somerset
had total assets of approximately $539.8 million. See "INFORMATION ABOUT
SOMERSET."
The executive office of Somerset is located at 212 Elm Street, Somerville,
Massachusetts 02144 (Telephone (617) 625-6000).
THE MERGER
At the Special Meeting, stockholders of Somerset will consider and vote upon
a proposal to approve the Affiliation Agreement, which provides for the merger
of Somerset with and into USTrust, by means of which Mosaic will acquire all of
the assets and assume all of the liabilities of Somerset and will direct the
transfer of such assets and liabilities to USTrust. In connection with the
Merger, each outstanding share of Somerset Common Stock (other than shares held
by Somerset as treasury stock, shares held by stockholders who exercise
dissenters' rights pursuant to the provisions of the Massachusetts Business
Corporation Law (the "MBCL") and shares held by UST, Mosaic or USTrust other
than in a fiduciary capacity) will be converted into 0.19 shares of UST Common
Stock (the "Conversion Number"), together with a corresponding number of
preferred stock purchase rights associated with the UST Rights Agreement, dated
as of September 19, 1995 (the "UST Rights Agreement"). See "DESCRIPTION OF UST
CAPITAL STOCK--Stockholder Rights Agreement."
No fractional shares of UST Common Stock will be issued in the Merger. In
lieu thereof, each holder of Somerset Common Stock who otherwise would have been
entitled to a fractional share of UST Common Stock will receive a cash
adjustment, without interest, equal to an amount in cash determined by
multiplying such holder's fractional interest by the Average Price (defined
below) of a share of UST Common Stock (rounded to the nearest cent). The
"Average Price" of a share of UST Common Stock is
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<PAGE>
defined as the average of the last sale prices thereof as reported on the Nasdaq
system over the ten consecutive trading day period immediately preceding the
date on which the last requisite regulatory approval is received (without regard
to any waiting period attached to the effectiveness thereof).
THE CONVERSION NUMBER
The Conversion Number is the product of arms' length negotiations between
the respective managements of Somerset and UST. In negotiating the Conversion
Number, the management of Somerset had the benefit of advice from its financial
advisor, Legg Mason Wood Walker, Incorporated. See "THE MERGER--Opinion of
Somerset's Financial Advisor."
Assuming that the number of outstanding shares of Somerset Common Stock
remains unchanged from [February ], 1998 UST would issue [3,165,277] shares of
UST Common Stock to acquire [16,659,356] shares of Somerset Common Stock. Under
such circumstances, immediately after the Effective Time, former Somerset
stockholders will hold approximately [ ]% of the outstanding shares of UST
Common Stock. Based on a $ last reported sale price for UST Common Stock
as of [February ], 1998, the Merger would be valued at $ million. In
addition, as discussed in the section entitled "INFORMATION ABOUT UST--Recent
Developments--AFCB ACQUISITION," UST has entered into a definitive agreement to
acquire Affiliated Community Bancorp, Inc., a Massachusetts bank holding company
("AFCB"). In connection with the acquisition of AFCB, holders of AFCB common
stock will receive 1.41 shares of UST Common Stock for each share of AFCB common
stock held. Therefore, assuming that the number of shares of AFCB common stock
remains unchanged from [February ], 1998, UST would issue [9,170,141] shares
of UST Common Stock to acquire [6,503,646] shares of AFCB common stock. Under
such circumstances, immediately after the acquisition of AFCB, former Somerset
stockholders will hold approximately [ ]% of the outstanding shares of UST
Common Stock.
THE EFFECTIVE TIME
The "Effective Time" of the Merger will be the date and time specified in
the articles of merger to be filed with the Secretary of The Commonwealth of
Massachusetts (the "Articles of Merger"). The "Closing Date" of the Merger will
occur on the first business day after the date on which all conditions contained
in Article VI of the Affiliation Agreement are satisfied or waived, or at such
other date as the parties may mutually agree upon. UST and Somerset anticipate
that the Merger will be completed in the second quarter of 1998. If the Merger
is not consummated on or prior to August 31, 1998, or such later date agreed to
in writing by the parties, the Affiliation Agreement may be terminated by either
UST or Somerset, except as discussed in "THE MERGER--Certain Federal Income Tax
Consequences."
SPECIAL MEETING OF STOCKHOLDERS
The Special Meeting is scheduled to be held on [April ], 1998 at [10:00]
a.m., at the [Holiday Inn], Somerville, Massachusetts. The Special Meeting will
be held for the purpose of considering and voting upon a proposal to approve and
adopt the Affiliation Agreement and the transactions contemplated thereby, and
to conduct any other business that may properly come before such meeting or any
adjournments or postponements thereof. See "SPECIAL MEETING OF
STOCKHOLDERS--Purposes of the Meeting."
STOCKHOLDER VOTE REQUIRED; VOTING AGREEMENTS
The Somerset Board has fixed the close of business on February , 1998 as
the record date (the "Record Date") for the determination of stockholders
entitled to notice of, and to vote at, the Special Meeting. Only the holders of
record of the outstanding shares of Somerset Common Stock on the Record Date
will be entitled to notice of, and to vote at, the Special Meeting. The
presence, in person or by proxy, of the holders of a majority in interest of all
Somerset Common Stock, issued, outstanding and entitled to
5
<PAGE>
vote on the Record Date, is necessary to constitute a quorum at the Special
Meeting. See "SPECIAL MEETING OF STOCKHOLDERS--Record Date; Quorum."
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Somerset Common Stock is required to approve and adopt the
Affiliation Agreement and the transactions contemplated thereby. Approval of the
Affiliation Agreement by the requisite vote of the holders of Somerset Common
Stock is a condition to, and required for, the consummation of the Merger. See
"SPECIAL MEETING OF STOCKHOLDERS--Stockholder Vote Required to Approve the
Merger; Voting Agreements; Abstentions and Non-Votes."
As of the Record Date, 16,659,356 shares of Somerset Common Stock were
outstanding and entitled to vote on the Merger, of which 338,131 shares, or
approximately 2.0% were held by directors and executive officers of Somerset. In
connection with the execution of the Affiliation Agreement, the directors and
certain executive officers of Somerset each agreed by separate letter (the
"Voting Agreements") to UST dated December 9, 1997, to vote or cause to be voted
all of the shares of Somerset Common Stock over which he or she has beneficial
ownership in favor of the approval of the Affiliation Agreement and the Merger.
Execution of the Voting Agreements was a condition to UST entering into the
Affiliation Agreement and no compensation was paid to any person in
consideration for executing the Voting Agreements. The Form of Voting Agreement
is attached hereto as APPENDIX C. See "SPECIAL MEETING OF STOCKHOLDERS--Record
Date; Quorum," "--Proxies; Voting and Revocation," "--Stockholder Vote Required
to Approve the Merger; Voting Agreements; Abstentions and Non-Votes" and
"CERTAIN RELATED TRANSACTIONS--Voting Agreements."
PROXIES; VOTING AND REVOCATION
Shares of Somerset Common Stock represented by a properly executed proxy
received prior to the vote at the Special Meeting and not revoked will be voted
as directed in the proxy. If a proxy is submitted and no direction is indicated,
the proxy will be voted FOR the approval and adoption of the Affiliation
Agreement and the transactions contemplated thereby. Any stockholder giving a
proxy prior to the Special Meeting has the right to revoke it prior to its
exercise by delivering notice to the Clerk of Somerset, returning a duly
executed proxy bearing a later date, or attending the Special Meeting, notifying
the Clerk and voting in person. See "SPECIAL MEETING OF STOCKHOLDERS--Proxies;
Voting and Revocation."
RECOMMENDATION OF SOMERSET BOARD AND REASONS FOR THE MERGER
The Somerset Board believes that the terms of the Affiliation Agreement,
including the Conversion Number, and the transactions contemplated thereby are
fair and in the best interests of Somerset and its stockholders. The terms of
the Affiliation Agreement, including the Conversion Number, were the result of
arms' length negotiations between UST and Somerset. The Merger will be
consummated only if approved by the requisite vote of the holders of Somerset
Common Stock. See "THE MERGER-- Recommendation of the Somerset Board and Reasons
for the Merger."
OPINION OF FINANCIAL ADVISOR
Legg Mason Wood Walker, Incorporated, Somerset's financial advisor ("Legg
Mason"), has rendered its written opinion, as of December 9, 1997 and as of the
date of this Proxy Statement--Prospectus, to the Somerset Board that, as of such
dates, the Conversion Number is fair, from a financial point of view, to the
holders of Somerset Common Stock.
The opinion of Legg Mason, which is attached hereto as APPENDIX D, describes
assumptions made, matters considered and limits of the reviews undertaken by
Legg Mason in rendering its opinion and should be read in its entirety. For
further description of the opinion of Legg Mason, see "THE MERGER--Background of
the Merger," "--Recommendation of the Somerset Board and Reasons for
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<PAGE>
the Merger," "--Opinion of Somerset's Financial Advisor," and APPENDIX D to this
Proxy Statement-- Prospectus.
REGULATORY APPROVALS
Consummation of the Merger requires, and the obligations of UST and Somerset
under the Affiliation Agreement are conditioned upon, the receipt of any
required approvals or waivers from governmental or regulatory authorities or
agencies, including the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the FDIC, the Commissioner of Banks of The
Commonwealth of Massachusetts (the "Massachusetts Commissioner") and the United
States Department of Justice (the "DOJ"). The Merger may not be consummated
until 30 days after receipt of the FDIC approval (or 15 days in certain
circumstances described more fully under "THE MERGER--Regulatory Approvals
Required for the Merger"), during which time the DOJ may challenge the Merger on
antitrust grounds.
The parties have filed or will file all applications and applied for or will
apply for all waivers necessary to consummate the Merger. No assurance can be
given that any of such approvals or waivers will be granted or that such
approvals or waivers would not be conditioned in a manner which would so
materially adversely impact the economic or business benefits of the Merger as
to render it inadvisable, in the reasonable judgment of UST, to consummate the
Merger and therefore entitle UST to terminate the Affiliation Agreement. See
"THE MERGER--Regulatory Approvals Required for the Merger" and "--Conditions to
the Consummation of the Merger."
EMPLOYEE MATTERS
In the Affiliation Agreement, UST has agreed to provide those employees of
Somerset who remain employed after the Closing Date with the types and levels of
employee benefits maintained by UST for similarly situated employees of UST or
USTrust. Additionally, as soon as administratively practicable after the
Effective Time, UST has agreed to permit such Somerset employees to participate
in UST's group hospitalization, medical, life and disability insurance plans,
defined benefit pension plan, thrift plan, severance plan and similar plans, on
the same terms and conditions as applicable to comparable employees of UST and
USTrust (including the waiver of pre-existing conditions, restrictions,
exclusions or limitations), giving Somerset employees full credit for all "years
of service," as that term is defined in Section 411(a)(5) of the Internal
Revenue Code of 1986, as amended (the "Code"), with Somerset (to the extent
Somerset gave effect) as if such service was with UST, for purposes of
eligibility, vesting and calculation of benefits under vacation, severance and
other plans, but not for benefit accrual purposes under the UST defined benefit
pension plan. Finally, under the Affiliation Agreement, UST has also agreed to
honor, in accordance with their terms, all individual employment and other
compensation agreements existing prior to the execution of the Affiliation
Agreement and previously disclosed to UST, which are between Somerset and any
current or former director, officer or employee of Somerset. See "THE MERGER--
Employee Matters."
Officers, directors and employees with outstanding stock options under
Somerset stock option plans as of the Effective Time will have their options
converted into options to purchase shares of UST Common Stock in accordance with
the provisions of the Affiliation Agreement. See "THE MERGER--Terms of the
Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; INDEMNIFICATION AND INSURANCE
Certain members of Somerset's management and the Somerset Board may be
deemed to have certain interests in the Merger above and beyond their interests
as stockholders. After the Merger, certain of Somerset's officers and directors
will be officers or directors of UST or USTrust. See "THE MERGER-- Management
and Operations After the Merger." Additionally, in connection with the Merger,
certain arrangements will be made by Somerset with respect to the termination
rights of Mr. Thomas J. Kelly, its
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<PAGE>
Chairman, President and Chief Executive Officer, under his existing employment
agreement with Somerset. As part of these arrangements, USTrust and Mr. Kelly
have entered into an employment agreement to be effective at the Effective Time,
pursuant to which Mr. Kelly will be employed as an Executive Vice President of
USTrust after the Effective Time. See "THE MERGER--Interests of Certain Persons
in the Merger."
UST has agreed to honor, after the Effective Time, the indemnification
provisions of Somerset's Amended and Restated Charter and By-Laws applicable to
the officers and directors of Somerset with respect to acts or omissions taken
prior to the Effective Time. UST has also agreed to maintain for six years after
the Effective Time, Somerset's existing directors' and officers' liability
insurance (or substitute policies that are at least as favorable as those
provided by Somerset) covering persons who are presently covered by Somerset's
corresponding insurance plan. See "THE MERGER--Indemnification and Insurance."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
From and after the Effective Time, the Board of Directors of UST (the "UST
Board") will consist of those persons comprising the UST Board prior to the
Effective Time and will be expanded by one member and James F. Drew, a current
director of Somerset, will be appointed to serve as a director of UST after the
Effective Time.
From and after the Effective Time, the Board of Directors of USTrust (the
"USTrust Board") will consist of those persons comprising the USTrust Board
prior to the Effective Time and will be expanded by one member and Nicholas P.
Salerno, a current director of Somerset, will be appointed to serve as a
director of USTrust after the Effective Time. At the Effective Time, except as
set forth below and subject to Mosaic's rights as sole stockholder of USTrust,
the officers of USTrust will consist of those persons who were officers of
USTrust immediately prior to the Effective Time.
Pursuant to an employment agreement with USTrust that will become effective
at the Effective Time, Mr. Kelly will be employed as an Executive Vice President
of USTrust and as a member of the Asset Liability Management Committee of
USTrust. See "THE MERGER--Interests of Certain Persons in the Merger."
CERTAIN TERMS OF THE STOCK OPTION AGREEMENT
As a condition to UST's entering into the Affiliation Agreement, and in
consideration therefor, UST and Somerset entered into a Stock Option Agreement
on December 9, 1997 (the "Stock Option Agreement"). The Stock Option Agreement
is intended to protect UST's interest under the Affiliation Agreement upon the
occurrence of certain events which may create the potential for a third party to
acquire or obtain control of Somerset prior to consummation of the Merger. The
Stock Option Agreement may discourage competing offers to acquire Somerset by
third parties other than UST and increase the likelihood that the Merger will be
consummated in accordance with the terms of the Affiliation Agreement. See
"CERTAIN RELATED TRANSACTIONS--Stock Option Agreement." A copy of the Stock
Option Agreement is attached hereto as APPENDIX B.
Pursuant to the Stock Option Agreement, Somerset granted UST an option (the
"Option") to purchase, under certain circumstances, up to 2,777,000 fully paid
and nonassessable shares of Somerset Common Stock, representing approximately
16.7% of the currently issued and outstanding shares of Somerset Common Stock,
at a price of $4.875 per share. As Somerset does not have a sufficient amount of
authorized shares reserved to grant UST an option to purchase 19.9% of Somerset
Common Stock, which typically is the percentage for which such options are
exercisable in transactions of this type, Somerset has also agreed to pay UST,
as part of the Option, certain additional cash consideration which is intended
in the aggregate to provide UST with the economic benefit it would receive had
the Option been for the right to purchase 19.9% of the issued and outstanding
shares of Somerset Common Stock. The Option is
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<PAGE>
exercisable upon the occurrence of certain events that create the potential for
a third party to acquire or obtain control of Somerset. If the Option becomes
exercisable in accordance with its terms, UST or any permitted transferee of UST
can require Somerset to repurchase, for a formula price, the Option in lieu of
exercising the Option, or any shares of Somerset Common Stock purchased upon
exercise of the Option, subject to certain conditions. To the best knowledge of
UST and Somerset, no such event or events which would permit exercise of the
Option has occurred as of the date hereof. See "CERTAIN RELATED
TRANSACTIONS--Stock Option Agreement."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon UST obtaining a letter ruling
from the United States Internal Revenue Service (the "IRS") or, under certain
circumstances, an opinion from its counsel, and Somerset obtaining an opinion
from its counsel, each to the effect that, among other things, if consummated in
accordance with the Affiliation Agreement, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. If the Merger
constitutes such a reorganization, for federal income tax purposes: (a) no gain
or loss will be recognized by UST, Mosaic or Somerset as a result of the Merger;
(b) no gain or loss will be recognized by the stockholders of Somerset upon
their receipt of UST Common Stock on conversion of their Somerset Common Stock,
except in respect of cash received in lieu of fractional shares; (c) the tax
basis of the shares of UST Common Stock received by the stockholders of Somerset
will be the same as the tax basis of their converted Somerset Common Stock,
adjusted to reflect the Conversion Number and decreased by the tax basis
allocated to any such fractional share interests; (d) the holding period of the
UST Common Stock held by Somerset stockholders will generally include the
holding period of their converted Somerset Common Stock; and (e) gain or loss
will be recognized by the stockholders of Somerset who dissent from the Merger,
on their receipt of cash in redemption of their Somerset Common Stock.
BECAUSE CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH SOMERSET STOCKHOLDER, EACH STOCKHOLDER SHOULD CONSULT HIS
OR HER PERSONAL TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE MERGER TO HIM OR
HER UNDER FEDERAL, STATE, LOCAL OR OTHER APPLICABLE LAW. See "THE
MERGER--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger, if completed as proposed, is expected to qualify as a pooling of
interests for accounting purposes. The Affiliation Agreement provides, as a
condition to the obligation of each of UST and Somerset to consummate the
Merger, that UST receive a letter from Arthur Andersen LLP and Somerset receive
a letter from Wolf & Company, P.C., each dated the Closing Date, to the effect
that the Merger qualifies for pooling of interests accounting treatment under
generally accepted accounting principles ("GAAP"). See "THE MERGER--Accounting
Treatment."
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Massachusetts General Laws, including in particular the MBCL, any
Somerset stockholder (i) who files with Somerset an objection to the Merger in
writing before the approval of the Merger by the stockholders of Somerset and
who states in such objection that such stockholder intends to demand payment for
his or her shares if the Merger is concluded and (ii) whose shares are not voted
in favor of the Merger, shall be entitled to demand payment for his or her
shares of Somerset Common Stock and an appraisal of the value thereof, in
accordance with the provisions of Sections 86 through 98 of Chapter 156B of the
MBCL. See "THE MERGER--Rights of Dissenting Stockholders" and the relevant
sections of the MBCL attached hereto as APPENDIX E.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of holders of shares of UST Common Stock and Somerset Common
Stock currently are each governed by the Massachusetts General Laws, including
in particular the MBCL and, with respect to Somerset Common Stock, certain
provisions of Chapters 168 and 172 governing Massachusetts savings banks, the
Articles of Organization ("UST Articles") and By-laws of UST and the Amended and
Restated Charter ("Somerset Charter") and By-laws of Somerset, respectively. At
the Effective Time of the Merger, Somerset stockholders who do not exercise and
perfect their statutory dissenters' rights will become UST stockholders, and
their rights will be governed by the MBCL, the UST Articles and the By-laws of
UST. See "COMPARATIVE RIGHTS OF STOCKHOLDERS" for a discussion of differences in
the rights of the holders of Somerset Common Stock and UST Common Stock.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of UST and Somerset to consummate the Merger are
subject to satisfaction of a number of conditions, including the receipt of the
Somerset stockholders' approval solicited hereby, receipt of necessary
regulatory approvals, receipt of a letter from the IRS or an opinion of counsel
regarding certain federal income tax consequences of the Merger, receipt of
letters from Arthur Andersen LLP and Wolf & Company, P.C., each to the effect
that, for financial reporting purposes, the Merger qualifies for pooling of
interests accounting treatment under GAAP if consummated in accordance with the
Affiliation Agreement, and other customary closing conditions. See "THE
MERGER--Conditions to the Consummation of the Merger."
CONDUCT OF BUSINESS PENDING THE MERGER
UST and Somerset have each agreed to, and will cause their respective
subsidiaries to, undertake or refrain from undertaking certain actions pending
the Merger. In addition, UST and Somerset have agreed to cooperate or coordinate
with each other with respect to the taking of certain actions by either or both
of them pending the Merger. Somerset has also agreed to conduct its business in
the ordinary and usual course of business consistent with past practice and to
use all reasonable efforts to preserve its goodwill and its business
relationships including its relationships with its borrowers and depositors. For
a full discussion of the provisions of the Affiliation Agreement relating to the
conduct of business of UST and Somerset pending the Merger, see "THE
MERGER--Conduct of Business Pending the Merger."
WAIVER AND AMENDMENT
Subject to applicable law and as may be authorized by their respective
Boards of Directors, at any time prior to the consummation of the Merger or
termination of the Affiliation Agreement, whether before or after approval by
the Somerset stockholders of the Affiliation Agreement and the transactions
contemplated thereby, UST and Somerset may (a) amend the Affiliation Agreement
by written agreement, (b) extend the time for the performance of any obligations
or other acts of any party thereunder, (c) waive any inaccuracy in the
representations and warranties contained therein or in any document delivered
pursuant thereto, or (d) waive compliance with any of the agreements or
conditions under certain sections of the Affiliation Agreement (other than those
closing conditions identified in Section 6.01 of the Affiliation Agreement),
provided, however, that after approval of the transactions contemplated by the
Affiliation Agreement by the Somerset stockholders, there may not be, without
further approval of the Somerset stockholders, any amendment, extension or
waiver of the Affiliation Agreement which reduces the amount or changes the form
of the consideration to be delivered to the Somerset stockholders. Any agreement
on the part of any party to any extension or waiver will be valid only if set
forth in writing signed on behalf of each party, but such waiver or failure to
insist on strict compliance with such obligation, covenant, agreement or
condition will not operate as a waiver of, or estoppel with respect to, any
subsequent or other such failure. See "THE MERGER--Waiver and Amendment."
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TERMINATION OF THE AFFILIATION AGREEMENT
The Affiliation Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of Somerset's
stockholders, under the following circumstances: (a) by mutual written consent
of Somerset and UST authorized by their respective Boards of Directors; (b) by
either Somerset or UST (i) if the Effective Time shall not have occurred on or
prior to August 31, 1998, or such later date agreed to in writing by UST and
Somerset, subject to the right of either party to extend the date of termination
in certain circumstances as discussed in "THE MERGER--Certain Federal Income Tax
Consequences," (ii) if any application for regulatory approval has been denied
and such denial has become final and unappealable, or (iii) if the stockholders
of Somerset fail to approve the Merger at the Special Meeting, provided in any
such case that the terminating party is not then in material breach of the
Affiliation Agreement or the Stock Option Agreement; or (c) by the Somerset
Board or the UST Board in the event of a material breach by the other party of
any representation, warranty, covenant or other agreement contained in the
Affiliation Agreement or Stock Option Agreement which is not cured after twenty
days written notice to the breaching party, provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained in the Affiliation Agreement or the Stock Option
Agreement.
MARKET AND MARKET PRICES
Transactions with respect to UST Common Stock and Somerset Common Stock are
quoted on Nasdaq. The Affiliation Agreement provides, as a condition to
Somerset's obligation to consummate the Merger, that the shares of UST Common
Stock issuable in connection with the Merger shall have been authorized for
listing on Nasdaq upon official notice of issuance. See "THE MERGER--Conditions
to the Consummation of the Merger." The information set forth in the table below
presents: (a) the last reported sale prices for UST Common Stock and Somerset
Common Stock on Nasdaq on December 9, 1997, the business day immediately
preceding the public announcement of the Merger, and [February ], 1998, the
last practicable date prior to the mailing of this Proxy Statement--Prospectus;
and (b) the Somerset Common Stock equivalent per share price as of December 9,
1997 and [February ], 1998, calculated by multiplying the closing price of UST
Common Stock on Nasdaq on such dates by the Conversion Number:
<TABLE>
<CAPTION>
SOMERSET
UST SOMERSET EQUIVALENT
COMMON COMMON PER
PRICE PER SHARE AT STOCK STOCK SHARE PRICE
- ----------------------------------------------------------- --------- ----------- -------------
<S> <C> <C> <C>
December 9, 1997........................................... $ 29.625 $ 4.875 $ 5.63
[February ], 1998........................................ $ $ $
</TABLE>
No assurance can be given as to what the market price of UST Common Stock
will be if and when the Merger is consummated or when the shares of UST Common
Stock are actually issued in the Merger.
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UST CORP.
SELECTED FINANCIAL DATA
The following table sets forth certain selected condensed historical
consolidated financial data of UST (after giving effect to the January 3, 1997
acquisition of Walden Bancorp, Inc. ("Walden") and the October 15, 1997
acquisition of Firestone Financial Corp. ("Firestone") as poolings of
interests). The table is based on and should be read in conjunction with UST's
historical financial statements and notes thereto incorporated by reference in
this Proxy Statement--Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." Interim unaudited data for the nine month periods ended September
30, 1997 and 1996, reflect, in the opinion of management of UST, all adjustments
necessary for a fair presentation of such data. Results of operations for the
interim periods are not necessarily indicative of the results of operations for
the full year or any other interim period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS:
Interest income....................... $ 211,637 $ 178,498 $ 243,213 $ 229,218 $ 201,194 $ 205,359 $ 225,491
Interest expense...................... 82,098 75,101 102,127 90,633 68,698 74,844 102,375
--------- --------- --------- --------- --------- --------- ---------
Net interest income................... 129,539 103,397 141,086 138,585 132,496 130,515 123,116
Provision for possible loan losses.... 600 (17,530) (17,300) 14,395 25,674 71,757 47,375
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision
for possible loan losses............ 128,939 120,927 158,386 124,190 106,822 58,758 75,741
Noninterest income.................... 27,858 25,112 39,941 35,293 34,976 43,261 47,267
Noninterest expense................... 120,717 86,151 124,669 118,121 118,705 117,952 119,429
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes..... 36,080 59,888 73,658 41,362 23,093 (15,933) 3,579
Income tax provision (benefit)........ 15,807 23,376 28,381 15,533 7,732 (6,143) 482
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before change in
accounting method and accretion of
purchase discount................... 20,273 36,512 45,277 25,829 15,361 (9,790) 3,097
Cumulative effect of change in
accounting method (a)............... 2,750
Accretion of purchase discount (b).... 1,224 1,912 1,912 689
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................... $ 20,273 $ 36,512 $ 45,277 $ 27,053 $ 17,273 $ (5,128) $ 3,786
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Income (loss) before accounting change
and accretion of purchase
discount............................ $ 0.67 $ 1.23 $ 1.53 $ 0.88 $ 0.49 $ (0.37) $ 0.13
Net income (loss)..................... 0.67 1.23 1.53 0.92 0.56 (0.19) 0.15
Cash dividends declared............... 0.30 0.21 0.32 0.12 0.05 0.01
Weighted average shares............... 30,035 29,576 29,576 29,417 29,009 26,449 24,725
END OF PERIOD BALANCES:
Total assets.......................... $3,775,950 $3,164,208 $3,781,055 $3,074,517 $2,850,717 $2,948,866 $3,037,884
Loans receivable, net................. 2,722,750 2,075,459 2,535,246 2,001,203 1,972,786 1,923,388 2,055,034
Reserve for possible loan losses...... 51,619 54,678 51,984 69,982 76,743 76,517 61,735
Deposits.............................. 2,863,927 2,256,224 2,856,157 2,283,233 2,255,484 2,333,189 2,491,985
Funds borrowed (c).................... 511,284 566,980 544,198 459,726 342,200 351,648 286,007
Stockholders' investment.............. 328,624 297,844 309,021 278,393 222,704 234,634 209,598
Shares used for book value
calculation......................... 29,834 29,354 29,442 29,171 28,686 28,292 24,719
Book value per share.................. $ 11.02 $ 10.15 $ 10.50 $ 9.54 $ 7.76 $ 8.29 $ 8.48
CONSOLIDATED RATIOS: (e)
Net income (loss) to average assets
(d)................................. 0.74% 1.58% 1.43% 0.94% 0.60% (0.17%) 0.12%
Net income (loss) to average
stockholders' investment (d)........ 8.57% 16.96% 15.45% 10.32% 7.13% (2.30%) 1.77%
Average stockholders' investment to
average total assets................ 8.6% 9.3% 9.2% 9.1% 8.4% 7.5% 6.9%
Reserve for possible loan losses to
period end loans.................... 1.9% 2.6% 2.1% 3.5% 3.9% 4.0% 3.0%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
not
Dividend payout ratio................. 45.0% 17.0% 20.9% 12.0% 8.3% meaningful
</TABLE>
- ------------------------------
(a) Reflects cumulative effect of change in method of accounting for income
taxes.
(b) Accretion of purchase discount resulting from the purchase of Firestone from
the FDIC in 1992.
(c) Includes federal funds purchased, repurchase agreements, short-term and
other borrowings.
(d) Based on Income (loss) before change in accounting principle and accretion
of purchase discount.
(e) Results for interim periods have been annualized.
12
<PAGE>
SOMERSET SAVINGS BANK
SELECTED FINANCIAL DATA
The following table sets forth certain selected condensed historical
consolidated financial data of Somerset. The table is based on and should be
read in conjunction with Somerset's historical financial statements and notes
thereto incorporated by reference in this Proxy-Statement--Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." Interim unaudited data for
the nine months ended September 30, 1997 and 1996, reflect, in the opinion of
management of Somerset, all adjustments necessary for a fair presentation of
such data. Results of operations for the interim periods are not necessarily
indicative of the results of operations for the full year or any other interim
period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS:
Interest income.............................. $ 31,351 $ 30,433 $ 40,858 $ 40,436 $ 37,496 $ 38,302 $ 41,517
Interest expense............................. 16,571 16,683 22,328 22,773 19,143 21,231 26,414
--------- --------- --------- --------- --------- --------- ---------
Net interest income.......................... 14,780 13,750 18,530 17,663 18,353 17,071 15,103
Provision for possible loan losses........... 900 900 1,200 1,200 1,800 3,181 3,104
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
possible loan losses....................... 13,880 12,850 17,330 16,463 16,553 13,890 11,999
Noninterest income........................... 1,004 747 1,057 1,056 955 1,330 1,071
Noninterest expense.......................... 11,357 12,035 16,014 17,441 25,844 16,585 18,351
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes............ 3,527 1,562 2,373 78 (8,336) (1,365) (5,281)
Income tax provision (benefit)............... (918) (440) (440) (1,000) 7 20
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item...... 4,445 2,002 2,813 1,078 (8,343) (1,385) (5,281)
Extraordinary item (b)....................... 1,277
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................ $ 4,445 $ 2,002 $ 2,813 $ 1,078 $ (8,343) $ (1,385) $ (4,004)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Income (loss) before extraordinary item...... $ 0.26 $ 0.12 $ 0.17 $ 0.06 $ (0.50) $ (0.25) $ (2.87)
Net income (loss)............................ 0.26 0.12 0.17 0.06 (0.50) (0.25) (2.18)
Weighted average shares...................... 16,878 16,652 16,652 16,652 16,652 5,614 1,840
END OF PERIOD BALANCES(d):
Total assets................................. $ 520,339 $ 510,715 $ 517,342 $ 506,436 $ 514,697 $ 513,882 $ 528,779
Loans receivable, net........................ 396,960 396,407 394,956 403,880 408,814 409,385 435,988
Reserve for possible loan losses............. 7,434 6,274 6,236 7,136 8,121 8,254 10,192
Deposits..................................... 457,813 436,633 442,535 434,007 414,495 429,566 428,252
Funds borrowed (c)........................... 23,547 40,647 40,447 40,447 70,477 47,000 85,150
Stockholders' investment..................... 34,333 29,037 29,848 27,035 25,424 33,251 11,682
Shares used in book value calculation........ 16,652 16,652 16,652 16,652 16,652 16,652 1,840
Book value per share......................... $ 2.06 $ 1.74 $ 1.79 $ 1.62 $ 1.53 $ 2.00 $ 6.35
CONSOLIDATED RATIOS:
Net income (loss) to average assets (a)...... 1.16% 0.53% 0.55% 0.21% (1.62%) (0.26%) (0.75%)
Net income (loss) to average stockholders'
investment (a)............................. 18.77% 9.50% 9.88% 4.07% (26.41%) (7.96%) (32.16%)
Average stockholders' investment to average
total assets............................... 6.2% 5.6% 5.6% 5.2% 6.1% 3.3% 2.3%
Reserve for possible loan losses to period
end loans.................................. 1.9% 1.6% 1.6% 1.8% 2.0% 2.0% 2.3%
</TABLE>
- ------------------------
(a) Based on income before extraordinary item.
(b) Reflects the extraordinary credit for a stock distribution of $1.277 million
for the year ended December 31, 1992.
(c) Includes federal funds purchased, repurchase agreements, short-term and
other borrowings.
(d) Results for interim periods have been annualized.
13
<PAGE>
UST CORP.
SOMERSET SAVINGS BANK
PRO FORMA CONDENSED COMBINED SELECTED FINANCIAL DATA
The following table sets forth certain unaudited combined condensed
financial information from the Unaudited Condensed Pro Forma Combined Statements
of Income for the nine months ended September 30, 1997 and 1996, and the three
years ended December 31, 1996, 1995 and 1994, and the Unaudited Pro Forma
Condensed Combining Balance Sheet at September 30, 1997. The UST and Somerset
combined results of operations give effect to UST's proposed acquisition of
Somerset as a pooling of interests, as if such transaction had been completed as
of the beginning of each of the periods. The summary unaudited financial
information should be read in conjunction with the Pro Forma Financial
Information and related notes thereto presented elsewhere in this Proxy
Statement--Prospectus and the consolidated financial statements and related
notes incorporated by reference. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------
1997(B) 1996 1996 1995 1994
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS:
Interest income.................................... $ 242,988 $ 208,931 $ 284,070 $ 269,654 $ 238,690
Interest expense................................... 98,669 91,784 124,455 113,405 87,841
------------ ---------- ---------- ---------- ----------
Net interest income................................ 144,319 117,147 159,615 156,249 150,849
Provision for possible loan losses................. 1,500 (16,630) (16,100) 15,595 27,474
------------ ---------- ---------- ---------- ----------
Net interest income after provision for possible
loan losses...................................... 142,819 133,777 175,715 140,654 123,375
Noninterest income................................. 28,862 25,859 40,998 36,349 35,931
Noninterest expense................................ 132,074 98,186 140,682 135,562 144,549
------------ ---------- ---------- ---------- ----------
Income before taxes and accretion of purchase
discount (c)..................................... 39,607 61,450 76,031 41,441 14,757
Income tax provision............................... 14,889 22,936 27,941 14,534 7,739
------------ ---------- ---------- ---------- ----------
Income before accretion of purchase discount....... $ 24,718 $ 38,514 $ 48,090 $ 26,907 $ 7,018
------------ ---------- ---------- ---------- ----------
------------ ---------- ---------- ---------- ----------
PER SHARE DATA:
Income before accounting change.................... $ 0.74 $ 1.18 $ 1.47 $ 0.83 $ 0.22
Cash dividends declared............................ 0.27 0.19 0.28 0.11 0.05
Weighted average shares............................ 33,242 32,740 32,740 32,581 32,173
SEPTEMBER 30, 1997 PRO FORMA BALANCES:
Total assets (b)................................... $ 4,287,788
Loans receivable, net of unearned.................. 3,119,710
Reserve for possible loan losses................... 59,053
Deposits........................................... 3,321,740
Funds Borrowed (a)................................. 534,831
Stockholders' investment (b)....................... 356,657
Shares used for book value calculation............. 32,998
Book value per share (b)........................... $ 10.81
</TABLE>
- ------------------------
(a) Includes federal funds purchased, repurchase agreements, short-term and
other borrowings.
(b) The effect of an estimated $7.5 million pre-tax charge to be taken in
connection with the proposed acquisition, and an estimated $1.0 million
non-deductible charge in connection with the Firestone acquisition, have not
been reflected in the above results of operation since they are
nonrecurring, nor do the pro forma results of operation give effect to any
anticipated cost savings to be realized in connection with the acquisition.
These charges are, however, reflected in the September 30, 1997 balances of
total assets, Stockholders' investment and book value per share, net of
related taxes.
(c) Excludes the accretion of purchase discount of $1.2 million in 1995 and $1.9
million in 1994 resulting from the purchase of Firestone from the FDIC in
1992.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of UST at September 30,
1997, and the capitalization of UST on a pro forma basis after giving effect to
the October 15, 1997 acquisition of Firestone and the pending acquisitions of
Somerset and AFCB. See "INFORMATION ABOUT UST--Recent Developments" for a
description of the Firestone acquisition and the pending acquisition of AFCB.
This information should be read in conjunction with the consolidated historical
financial statements and notes thereto of UST, Firestone, Somerset and AFCB
which are incorporated by reference in this Proxy Statement--Prospectus, and the
Unaudited Pro Forma Condensed Combining Balance Sheet, including the notes
thereto, appearing elsewhere in this Proxy Statement--Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
PRO
UST FIRESTONE SOMERSET PRO FORMA AFCB FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
--------- ------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deposits.............................. $2,863,927 $ 457,813(b) $3,321,740 $ 705,434(c) $4,027,174
Short-term borrowings................. 427,782 $ 65,439(a) 3,100(b) 496,321 260,073(c) 756,394
Other borrowings...................... 18,063 20,447(b) 38,510 46,057(c) 84,567
--------- ------------- ----------- ----------- ----------- ---------
Total deposits and borrowings......... $3,309,772 65,439 $ 481,360 $3,856,571 $1,011,564 $4,868,135
--------- ------------- ----------- ----------- ----------- ---------
--------- ------------- ----------- ----------- ----------- ---------
Stockholders' investment:
Preferred stock $1 par value;
Authorized--4,000,000 shares;
Outstanding--None
Common stock $.625 par value;
Authorized--45,000,000 shares;
Shares issued or to be
outstanding..................... $ 17,832 $ 738(a) $ 1,977(b) $ 20,547 $ 5,722(c) $ 26,269
Additional paid-in capital............ 116,087 1,231(a) 18,637(b) 149,912 50,040(c) 190,895
(718)(a) 14,675(b) (9,057)(c)
Retained earnings (deficit)........... 179,767 13,039(a) (956)(b) 185,550 64,055(c) 240,905
(1,000)(a) (5,300)(b) (8,700)(c)
Unrealized gain on securities
available-for-sale, net of tax...... 245 245 506(c) 751
Deferred compensation and other....... 403 403 (1,108)(c) (705)
--------- ------------- ----------- ----------- ----------- ---------
Total stockholders' investment........ $ 314,334 $ 13,290 $ 29,033 $ 356,657 $ 101,458 $ 458,115
--------- ------------- ----------- ----------- ----------- ---------
--------- ------------- ----------- ----------- ----------- ---------
</TABLE>
- ------------------------
(a) Reflects the combination of Firestone borrowings and stockholders'
investment with UST and the issuance of 0.59 shares of UST Common Stock in
exchange for, and the cancellation of, each outstanding share of Firestone
Common Stock. The difference between the par value of the UST Common Stock
issued and the par value of the Firestone Common Stock acquired has been
charged to Additional paid-in capital. Also reflected is a one-time
after-tax charge of $1.0 million for related merger and acquisition charges.
(b) Reflects the combination of Somerset borrowings and stockholders' investment
with UST and the issuance of 0.19 shares of UST Common Stock in exchange
for, and the cancellation of, each outstanding share of Somerset Common
Stock. The difference between the par value of the UST Common Stock to be
issued and the par value of the Somerset Common Stock to be acquired has
been credited to Additional paid-in capital. Also reflected is a one-time
after-tax charge of $5.3 million for related merger, acquisition and
restructuring charges.
(c) Reflects the combination of AFCB borrowings and stockholders' investment
with UST and the issuance of 1.41 shares of UST Common Stock in exchange
for, and in cancellation of, each outstanding share of AFCB Common Stock.
The difference between the par value of the UST Common Stock to be issued
and the par value of the AFCB Common Stock to be acquired has been charged
to Additional paid-in capital. Also reflected is a one-time after-tax charge
of $8.7 million for related merger, acquisition and restructuring charges.
15
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table shows unaudited comparative per share data for UST and
Somerset on a pro forma basis after giving effect to the October 15, 1997
acquisition of Firestone and the pending acquisitions of Somerset and AFCB using
the pooling of interests method of accounting. The information should be read in
conjunction with the consolidated historical financial statements and notes
thereto of UST, Firestone, Somerset and AFCB which are incorporated by reference
in this Proxy Statement--Prospectus, and the unaudited pro forma condensed
financial information, including notes thereto, which appear elsewhere in this
Proxy Statement--Prospectus. The pro forma data is presented for comparative
purposes only and is not necessarily indicative of the combined financial
position or results of operations which would have been realized had the
acquisitions been consummated during the periods or as of the dates for which
the pro forma data is presented. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
PER SHARE OF UST COMMON STOCK:
Income from continuing operations:
Historical (pro forma with Walden)................................... $ 0.67 $ 1.24 $ 1.52 $ 0.86 $ 0.51
Pro forma UST, Firestone and Somerset................................ 0.74 1.18 1.47 0.83 0.22
Pro forma UST, Firestone, Somerset and AFCB.......................... 0.79 1.06 1.35 0.78 0.34
Cash dividends declared:
Historical (pro forma with Walden)................................... 0.30 0.21 0.32 0.12 0.05
Pro forma UST, Firestone and Somerset................................ 0.30 0.21 0.32 0.12 0.05
Pro forma UST, Firestone, Somerset and AFCB.......................... 0.30 0.21 0.32 0.12 0.05
Book Value (as of period end):
Historical (pro forma with Walden)................................... 10.97 10.12 10.45 9.54 7.79
Pro forma UST, Firestone and Somerset................................ 10.81 10.05 10.38 9.45 7.79
Pro Forma UST, Firestone, Somerset and AFCB.......................... 10.90 10.25 10.60 9.74 8.32
PER SHARE OF SOMERSET COMMON STOCK(a):
Income (loss) from continuing operations:
Historical........................................................... 0.26 0.12 0.17 0.06 (0.50)
Equivalent pro forma UST, Firestone and Somerset..................... 0.14 0.22 0.28 0.16 0.04
Equivalent pro forma UST, Firestone, Somerset and AFCB............... 0.15 0.20 0.26 0.15 0.06
Cash dividends declared:
Historical........................................................... 0.00 0.00 0.00 0.00 0.00
Equivalent pro forma UST, Firestone and Somerset..................... 0.06 0.04 0.06 0.02 0.01
Equivalent pro forma UST, Firestone, Somerset and AFCB............... 0.06 0.04 0.06 0.02 0.01
Book value (as of period end):
Historical........................................................... 2.06 1.74 1.79 1.62 1.53
Equivalent pro forma UST, Firestone and Somerset..................... 2.05 1.91 1.97 1.80 1.48
Equivalent pro forma UST, Firestone, Somerset and AFCB............... 2.07 1.95 2.01 1.85 1.58
</TABLE>
- ------------------------
(a) The equivalent pro forma per share amounts reflected above for Somerset are
determined by multiplying the corresponding pro forma amounts per share of
UST Common Stock by the exchange ratio of 0.19 shares of UST Common Stock in
exchange for each share of Somerset Common Stock.
16
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
DATE, TIME AND PLACE
This Proxy Statement--Prospectus is being furnished to holders of Somerset
Common Stock in connection with the solicitation of proxies by the Somerset
Board for use at the Special Meeting scheduled to be held on [April ],
1998 at [10:00] a.m., at the [Holiday Inn], Somerville, Massachusetts.
PURPOSES OF THE MEETING
The Special Meeting will be held for the purposes of considering and voting
upon (i) a proposal to approve and adopt the Affiliation Agreement and the
transactions contemplated thereby and (ii) such other matters as may properly
come before such meeting or any adjournments or postponements thereof. The
Somerset Board knows of no other matters at this time to be brought before the
Special Meeting.
THE SOMERSET BOARD UNANIMOUSLY RECOMMENDS THAT SOMERSET STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE AFFILIATION AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
RECORD DATE; QUORUM
The Somerset Board has fixed the close of business on February , 1998,
as the record date (the "Record Date") for the Special Meeting. Only the holders
of outstanding shares of Somerset Common Stock on the Record Date are entitled
to notice of, and to vote at, the Special Meeting. As of the Record Date, there
were [16,659,356] shares of Somerset Common Stock issued and outstanding and
entitled to vote. The presence, in person or by proxy, of a majority in interest
of all shares of Somerset Common Stock issued, outstanding and entitled to vote
as of the Record Date is necessary to constitute a quorum at the Special
Meeting. Abstentions and broker non-votes will be treated as shares present or
represented at the Special Meeting for quorum purposes. (A "broker non-vote"
occurs when a registered broker holding a customer's shares in the name of the
broker has not received voting instructions on a matter from the customer and is
barred from exercising discretionary authority to vote on the matter, which the
broker indicates on the proxy.)
PROXIES; VOTING AND REVOCATION
Each stockholder is entitled to one vote, in person or by proxy, for each
share of Somerset Common Stock held of record in his or her name at the close of
business on the Record Date. Shares of Somerset Common Stock represented by a
properly executed proxy received prior to the vote at the Special Meeting and
not revoked will be voted as directed in the proxy. If a proxy is submitted and
no direction is indicated, the proxy will be voted FOR the approval and adoption
of the Affiliation Agreement and the transactions contemplated thereby, and in
such manner as management's proxyholders shall decide on such other matters as
may properly come before the Special Meeting.
Any stockholder giving a proxy prior to the Special Meeting has the right to
revoke it prior to its exercise by delivering a written notice to Frank Scimone,
Clerk of Somerset, 212 Elm Street, Somerville, Massachusetts 02144, or by
returning a duly executed proxy bearing a later date, or by attending the
Special Meeting, notifying the Clerk and voting in person. Any stockholder of
record attending the Special Meeting may vote in person whether or not a proxy
has been previously given, but the mere presence (without duly notifying the
Clerk) of a stockholder at the Special Meeting will not constitute revocation of
a previously given proxy. In addition, stockholders whose shares of Somerset
Common Stock are not registered in their own name will need additional
documentation from the record holder of such shares to vote personally at the
Special Meeting. See also "SOLICITATION OF PROXIES."
17
<PAGE>
STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGER; VOTING AGREEMENTS; ABSTENTIONS
AND NON-VOTES
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Somerset Common Stock entitled to vote at the Special
Meeting is required to approve and adopt the Affiliation Agreement and the
transactions contemplated thereby. Abstentions and broker non-votes will have
the effect of votes against the approval of the Affiliation Agreement and the
transactions contemplated thereby.
In the event that there are not sufficient votes to approve the Affiliation
Agreement and the transactions contemplated thereby, or any other proposal, at
the time of the Special Meeting, the persons present or named as proxies by a
stockholder may propose and vote for one or more adjournments of the Special
Meeting to permit further solicitation of proxies. The Special Meeting may be
adjourned by a majority of the votes present.
In the event that the required vote for approval by the stockholders of
Somerset is not obtained, the Affiliation Agreement may be terminated by either
Somerset or UST, provided that the terminating party is not then in material
breach of the Affiliation Agreement or Stock Option Agreement. If the
Affiliation Agreement is terminated because of the failure to obtain the
requisite stockholder approval, the Affiliation Agreement shall become null and
void (other than sections of the Affiliation Agreement relating to
confidentiality and the payment of certain expenses, which shall remain in full
force and effect) and there shall be no further liability on the part of
Somerset or UST or their respective officers or directors to the other, except
as specifically provided in the Affiliation Agreement attached as APPENDIX A to
this Proxy Statement--Prospectus, and as specifically provided in the Stock
Option Agreement, attached as APPENDIX B to this Proxy Statement--Prospectus, or
as may be required by law. See "THE MERGER--Termination of the Affiliation
Agreement."
As of the Record Date, [16,659,356] shares of Somerset Common Stock were
outstanding and entitled to vote, of which 338,131 shares, representing
approximately 2.0% of the shares issued and outstanding, were beneficially owned
by directors and executive officers of Somerset and their respective affiliates.
In connection with the Affiliation Agreement, all of the directors and certain
executive officers of Somerset, owning [338,131] shares in the aggregate, as of
the Record Date, agreed by separate letter to UST (the "Voting Agreements"),
dated as of December 9, 1997, to vote all of the shares of Somerset Common Stock
beneficially owned by each of them as of the Record Date in favor of the
approval of the Affiliation Agreement and the Merger and against the approval of
any other agreement providing for a merger, acquisition, consolidation, sale of
a material amount of assets or other business combination involving Somerset
with any person or entity other than UST or any subsidiary of UST. Execution of
the Voting Agreements was a condition to UST entering into the Affiliation
Agreement and no compensation was paid to any person in consideration for
executing the Voting Agreements.
18
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth certain information regarding the beneficial
ownership of Somerset Common Stock as of January 23, 1998 by (i) each of
Somerset's directors, (ii) certain executive officers and (iii) all directors
and executive officers of Somerset as a group. As of January 23, 1998, there are
no persons known to Somerset to be the beneficial owners of more than 5% of the
issued and outstanding shares of Somerset Common Stock.
<TABLE>
<CAPTION>
PRO FORMA
SOMERSET SHARES OWNED OWNERSHIP OF UST SHARES
---------------------------- ----------------------------
NUMBER OF NUMBER OF
SHARES SHARES
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
OWNED(1) OWNED OWNED(1) OWNED
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
DIRECTORS
Robert S. Benard................................... 16,000(2) * 3,990(3) *
David F. Choate, Jr................................ 15,000(2) * 3,800(3) *
Arthur W. Cook..................................... 15,000( (4) * 3,800( (4) *
James F. Drew...................................... 205,000(2) 1.2% 183,291( (5) *
Kevin F. Harrington................................ 15,000( (4) * 3,800( (4) *
Thomas J. Kelly.................................... 82,312(6) * 19,154(7) *
Donald A. Miller................................... 15,670(2) * 3,927(3) *
Patrick B. Moscaritolo............................. 15,000(2) * 3,800(3) *
William A. Pickett................................. 15,820(2) * 3,955(3) *
Barbara G. Rubel................................... 15,000(2) * 3,800(3) *
Nicholas P. Salerno................................ 15,000(2) * 3,800(3) *
Frank Scimone...................................... 15,020( (4) * 3,803( (4) *
Carole J. Thornton................................. 17,500(2) * 4,275(3) *
* *
NAMED EXECUTIVE OFFICERS
Thomas J. Kelly.................................... 82,312(6) * 19,154(7) *
Gary M. Abrams..................................... 40,704(8) * 9,728(9) *
Jerry D. Peterson.................................. 44,003(10) * 9,880(11) *
Joseph A. Phillion................................. 34,591(12) * 8,566(13) *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (18
persons)......................................... 584,124(14) 3.4% 275,794(15) *
</TABLE>
- ------------------------
* Less than 1%
(1) Except as otherwise noted, each person referenced in the table has sole
voting and investment power with respect to such person's shares.
(2) Includes 5,000 shares of Somerset Common Stock issuable upon the exercise of
options that are exercisable within 60 days of the date of this table.
(3) Includes 1,900 shares of UST Common Stock issuable, on a pro forma basis,
upon the exercise of options that are exercisable within 60 days of the date
of this table.
(4) All shares, other than the shares that are issuable upon the exercise of
options, are jointly owned.
(5) Includes 143,391 shares of UST Common Stock held by Mr. Drew as of the date
of this table.
(6) Includes 68,500 shares of Somerset Common Stock issuable upon the exercise
of options that are exercisable within 60 days of the date of this table and
1,584 shares representing the share equivalent
19
<PAGE>
as of September 30, 1997 (the most recent date for which data was available)
of Mr. Kelly's undivided interest in a 401(k) investment fund composed
solely of Somerset Common Stock.
(7) Includes 16,530 shares of UST Common Stock issuable, on a pro forma basis,
upon the exercise of options that are exercisable within 60 days of the date
of this table and 300 shares representing the approximate share equivalent,
on a pro forma basis, as of September 30, 1997 of Mr. Kelly's undivided
interest in a 401(k) investment fund that, upon consummation of the Merger,
will be composed solely of UST Common Stock.
(8) Includes 35,500 shares of Somerset Common Stock issuable upon the exercise
of options that are exercisable within 60 days of this table and 3,890
shares representing the share equivalent as of September 30, 1997 of Mr.
Abrams' undivided interest in a 401(k) investment fund composed solely of
Somerset Common Stock.
(9) Includes 8,740 shares of UST Common issuable, on a pro forma basis, upon the
exercise of options that are exercisable within 60 days of the date of this
table and 739 shares representing the approximate share equivalent, on a pro
forma basis, as of September 30, 1997 of Mr. Abrams' undivided interest in a
401(k) investment fund that, upon consummation of the Merger, will be
composed solely of UST Common Stock.
(10) Includes 34,000 shares of Somerset Common Stock issuable upon the exercise
of options that are exercisable within 60 days of the date of this table and
3,003 shares representing the approximate share equivalent as of September
30, 1997 of Mr. Peterson's undivided interest in a 401(k) investment fund
composed solely of Somerset Common Stock.
(11) Includes 7,980 shares of UST Common Stock issuable, on a pro forma basis,
upon the exercise of options that are excercisable within 60 days of the
date of this table and 570 shares representing the approximate share
equivalent, on a pro forma basis, as of September 30, 1997 of Mr. Peterson's
undivided interest in a 401(k) investment fund that, upon consummation of
the Merger, will be composed solely of UST Common Stock.
(12) Included 28,750 shares of Common Stock issuable upon the exercise of
options that are exercisable with 60 days of the date of this table and
4,262 shares representing the approximate share equivalent as of September
30, 1997 of Mr. Phillion's undivided interest in a 401(k) investment fund
composed solely of Somerset Common Stock.
(13) Includes 7,457 shares of UST Common Stock issuable, on a pro forma basis,
upon the exercise of options that are exercisable within 60 days of the date
of this table and 809 shares representing the approximate share equivalent,
on a pro forma basis, as of September 30, 1997 of Mr. Phillion's undivided
interest in a 401(k) investment fund that, upon consummation of the Merger,
will be composed solely of UST Common Stock.
(14) Includes 232,750 shares of Somerset Common Stock issuable upon the exercise
of options that are exercisable within 60 days of the date of this table and
13,243 shares representing the approximate share equivalent as of September
30, 1997 of certain executive officers' undivided interests in a 401(k)
investment fund composed solely of Somerset Common Stock.
(15) Includes 65,787 shares of UST Common Stock issuable, on a pro forma basis,
upon the exercise of options that are exercisable within 60 days of the date
of this table and 2,516 shares, representing the approximate share
equivalent, on a pro forma basis, as of September 30, 1997 of certain
executive officers' undivided interests in a 401(k) investment fund that,
upon consummation of the Merger, will be composed solely of UST Common
Stock.
20
<PAGE>
INFORMATION ABOUT UST
GENERAL
UST, a bank holding company registered with the Federal Reserve Board, was
organized as a Massachusetts business corporation in 1967. UST is also subject
to examination by the Massachusetts Board of Bank Incorporation. As of December
31, 1996, UST's banking subsidiaries were USTrust and United States Trust
Company ("USTC"), each headquartered in Boston. USTrust and USTC are sometimes
hereinafter collectively referred to as the "Subsidiary Banks." Subsequently, on
January 3, 1997, UST acquired Walden Bancorp, Inc. of Acton, Massachusetts
("Walden"), and its subsidiary banks, The Co-operative Bank of Concord
("Concord"), headquartered in Concord, and The Braintree Savings Bank
("Braintree") headquartered in Braintree. During the second quarter of 1997,
Concord and Braintree were merged with and into USTrust, the principal banking
subsidiary of UST Corp. UST's acquisition of Walden is discussed in further
detail in UST's Annual Report on Form 10-K under the caption "Recent
Developments--Acquisition of Walden Bancorp, Inc." and the mergers of Braintree
and Concord into USTrust are described in UST's Form 10-Q for the quarter ended
June 30, 1997. Each of UST's Subsidiary Banks is chartered under Massachusetts
law and subject to regulatory examination by the Massachusetts Commissioner as
well as the FDIC. All of the capital stock of the Subsidiary Banks is owned
directly or indirectly by UST.
In addition, UST owns directly or indirectly through its banking
subsidiaries, all of the outstanding stock of four active nonbanking
subsidiaries, all Massachusetts corporations: UST Leasing Corporation, UST
Capital Corp., UST Auto Lease Corp. and Walden Financial Corp., as well as eight
subsidiaries which hold foreclosed real estate and four subsidiaries which are
passive holders of securities permissible for banks.
Moreover, on October 15, 1997, UST acquired Firestone Financial Corp.
("Firestone") of Newton, Massachusetts, a small business equipment finance
company. UST's acquisition of Firestone is discussed in further detail below
under the caption "Recent Developments--Firestone Acquisition."
UST engages in one line of business, that of providing financial services
through its banking and nonbanking subsidiaries. A broad range of financial
services is provided principally to individuals and small- and medium-sized
companies in New England, including those located in low-and moderate-income
neighborhoods within UST's defined Community Reinvestment Act assessment area.
In addition, an important component of UST's financial services is the provision
of trust and money management services to professionals, corporate executives,
nonprofit organizations, labor unions, foundations, mutual funds and owners of
closely-held businesses most of whom are located in the New England region.
RECENT DEVELOPMENTS
RECENT OPERATING RESULTS. For the quarter ended December 31, 1997, UST
reported net income of $12.1 million, diluted earnings per share of $0.40 per
share and basic earnings per share (before the dilutive effect of stock options)
of $0.41 per share, compared with net income of $8.8 million, diluted earnings
and basic earnings of $0.30 per share, for the same period of 1996. For the year
ended December 31, 1997, net income was $32.4 million, $1.08 diluted earnings
per share and $1.09 basic earnings per share, compared with $45.3 million, $1.53
diluted earnings per share and $1.56 basic earnings per share, for the year
ended December 31, 1996. Results for 1997 include a non-recurring charge of $4.4
million for certain non-deductible merger-related expenses (in respect of the
Walden and Firestone acquisitions) and a pre-tax charge of $11.8 million for
restructuring expenses associated with the acquisition of Walden, accounted for
as a pooling of interests and completed in January 1997. Results for 1996
include a $6.8 million gain from the sale of UST's Connecticut banking
subsidiary, an $18.6 million pre-tax earnings credit that was recorded through
the provision for possible loan losses, a similar $5.1 million one-time charge
for expenses incurred in connection with the purchase of 20 former First
National Bank of
21
<PAGE>
Boston and BayBank branches and a $3.0 million one-time deposit insurance
assessment on certain deposits insured by the Savings Association Insurance
Fund.
FIRESTONE ACQUISITION. On August 12, 1997, UST announced the execution of a
definitive agreement to acquire Firestone, an $85 million small business
equipment finance company headquartered in Newton, Massachusetts. The
transaction, which was consummated on October 15, 1997, was accounted for as a
pooling of interests and was structured as a tax-free exchange of 1,180,000
shares of UST Common Stock for the 2,000,000 outstanding closely held shares of
Firestone common stock. UST Common Stock exchanged for Firestone common stock
was not registered prior to the effectiveness of the transaction. UST has filed
a Registration Statement on Form S-3 with the Commission under the Securities
Act relating to the registration of such shares, which was declared effective on
January 21, 1998. UST and Firestone recorded a one-time, pre-tax charge of
approximately $1 million in the aggregate for acquisition-related costs in
connection with the transaction. Firestone has one subsidiary, Firestone
Financial Canada Ltd, a Canadian entity, which offers similar business equipment
finance services to small business entities in Canada. In December 1997, UST
contributed all of the capital stock of Firestone to USTrust.
AFCB ACQUISITION. On December 15, 1997, UST executed an Affiliation
Agreement and Plan of Reorganization (the "AFCB Agreement") with AFCB, pursuant
to which UST will acquire AFCB. AFCB is a $1.1 billion Massachusetts bank
holding company for three community banks, Lexington Savings Bank, The Federal
Savings Bank and Middlesex Bank & Trust Company (together, the "AFCB Banks")
which serve consumer and small business banking needs through 13 branch offices
located in eastern Middlesex County. In the AFCB Agreement, UST has permitted
AFCB to sell all of the shares of capital stock of Middlesex Bank & Trust
Company for not less than $8,000,000 prior to the effective date of the AFCB
transaction, which sale would not have a material effect on AFCB. AFCB, however,
is not permitted to sell such stock if the sale would prevent the AFCB
transaction from qualifying as a pooling of interests (as described below). The
AFCB transaction, which is structured to qualify as a pooling of interests for
accounting purposes, is subject to the approval of the shareholders of UST and
AFCB as well as to the receipt of federal and state regulatory banking
approvals. The AFCB transaction is expected to close during the first half of
1998. While UST will first acquire AFCB, thereby making the AFCB Banks
subsidiaries of UST, UST anticipates merging the AFCB Banks into its principal
banking subsidiary, USTrust, in 1998.
The AFCB transaction is structured as a tax-free exchange of 1.41 shares of
UST Common Stock for each share of AFCB common stock outstanding. At UST's
closing stock price of $28.3125 on December 12, 1997, the AFCB transaction would
be valued at approximately $259 million, and AFCB shareholders would receive a
value of $39.92 in UST Common Stock for each share of AFCB common stock. UST
expects to record a one-time, pre-tax charge of approximately $12 million of
acquisition-related costs in connection with the AFCB transaction. If UST's
average stock price during a specified period prior to closing is less than
$24.06 per share and UST's stock price has declined by more than 15% relative to
a certain bank stock index, AFCB can terminate the agreement, subject to the
right of UST to issue additional shares to ensure a per share value of $33.92 in
UST Common Stock.
For the quarter ended December 31, 1997, AFCB reported net income of $3.0
million, or $0.45 per diluted share, compared with $2.7 million, or $0.42 per
diluted share, for the same period of 1996. For the year ended December 31,
1997, net income was $11.9 million, or $1.78 per diluted share, compared with
$8.5 million, or $1.51 per diluted share, in 1996
Following consummation of the AFCB transaction, five of the current
directors of AFCB will become directors of UST. Additionally, after the
consummation of the AFCB transaction, Neal F. Finnegan, currently President and
Chief Executive Officer of UST and USTrust, will serve as President and Chief
Executive Officer of UST and Chairman and Chief Executive Officer of USTrust,
and Timothy J. Hansberry, currently President and Chief Executive Officer of
AFCB , will serve as Vice Chairman and Chief Operating Officer of UST and
President and Chief Operating Officer of USTrust.
22
<PAGE>
Immediately after execution of the AFCB Agreement on December 15, 1997, UST
entered into a Stock Option Agreement with AFCB pursuant to which AFCB granted
to UST the option to purchase, under certain circumstances, up to 1,300,078
shares (or approximately 19.9%) of its outstanding stock for $32.937 per share
On February , 1998, UST filed a Registration Statement on Form S-4
with the Commission (the "AFCB Registration Statement") under the Securities
Act, relating to the registration of the shares of UST Common Stock to be issued
to the stockholders of AFCB in exchange for their shares of AFCB stock in the
AFCB transaction. The AFCB Registration Statement will also serve as the Joint
Proxy Statement of UST and AFCB in connection with the solicitation of proxies
by UST and AFCB for use at special stockholders' meetings of UST (the "UST
Meeting") and AFCB which are scheduled to be separately held on [April ],
1998.
PROPOSED AMENDMENT TO UST'S ARTICLES. In order to provide flexibility to
respond to future business needs and opportunities, UST will be seeking approval
of its stockholders at the UST Meeting to increase the authorized shares of UST
Common Stock from 45,000,000 to 75,000,000 shares. If approved, the additional
authorized shares would be available for issuance by UST in connection with
possible investment opportunities, acquisitions of other companies or for other
corporate purposes such as the raising of capital, the issuance of stock
dividends or the issuance of shares pursuant to UST employee benefit plans and
incentive compensation plans.
For more information about UST, reference is made to the UST Annual Report
on Form 10-K for the year ended December 31, 1996 and the Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30,
1997, respectively, which are incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
INFORMATION ABOUT SOMERSET
GENERAL
Somerset is a Massachusetts-chartered stock savings bank which commenced
business as Somerville Savings Bank in 1885 and converted from a mutual savings
bank to a publicly-held stock savings bank in July 1986.
Somerset offers a broad range of banking and related services primarily to
individuals and small business customers. Somerset's principal business consists
of attracting deposits from the general public through four full-service offices
in Somerville and one in Burlington, Massachusetts.
Money deposited with Somerset is used to originate real estate,
construction, commercial and consumer loans. Somerset also invests in securities
issued by the United States government and its agencies, including
mortgage-backed securities. To a much lesser extent, Somerset, in the past, has
invested in corporate debt and equity securities.
Somerset owns all of the outstanding stock of two active non-banking
subsidiaries, Somerset Securities, Inc. and SB Securities, Inc., both
Massachusetts corporations, and an additional non-banking subsidiary, Somco
Investment, Inc., which does not have any material assets or operations.
RECENT OPERATING RESULTS
For the quarter ended December 31, 1997, Somerset reported net income of
$1.5 million, diluted earnings per share of $0.09 and basic earnings per share
(before the dilutive effect of stock options) of $0.09, compared with net income
of $811,000, diluted earnings per share of $0.05 and basic earnings per share of
$0.05 for the same period of 1996. For the year ended December 31, 1997,
Somerset's net income was $6.0 million, or $0.35 diluted earnings per share and
$0.36 basic earnings per share, compared with net
23
<PAGE>
income of $2.8 million, or $0.17 diluted earnings per share and $0.17 basic
earnings per share for the year ended December 31, 1996. For the year ended
December 31, 1997, Somerset recognized $1.3 million of income tax benefits as
compared to $450,000 for the year ended December 31, 1996.
For more information about Somerset, reference is made to the Somerset
Annual Report on Form F-2 for the year ended December 31, 1996 and the Quarterly
Reports on Form F-4 for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997, respectively, which are incorporated herein by reference.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
24
<PAGE>
THE MERGER
GENERAL
This section of the Proxy Statement--Prospectus describes certain aspects of
the proposed Merger, including the principal provisions of the Affiliation
Agreement. The following description of the Merger does not purport to be
complete and is qualified in its entirety by reference to the Affiliation
Agreement, the Stock Option Agreement and the Form of Voting Agreement which are
attached as APPENDIX A, B and C, respectively, to this Proxy
Statement--Prospectus and are incorporated herein by reference. All stockholders
of Somerset are urged to read the Affiliation Agreement, the Stock Option
Agreement and the Form of Voting Agreement in their entirety.
BACKGROUND OF THE MERGER
Having commenced business in Somerville, Massachusetts in 1885 and expanded
to Burlington, Massachusetts in 1978, Somerset converted from a mutual savings
bank to a stock form entity in July 1986 by issuing 4.6 million shares of
Somerset Common Stock. Following substantial losses in the late 1980s and early
1990s, Somerset effected a recapitalization in 1993 (the "1993
Recapitalization"). The 1993 Recapitalization consisted of a 1-for-2.5 reverse
stock split in July 1993 and the issuance in September 1993 of approximately
14.8 million shares of Somerset Common Stock at a price of $1.75 per share in an
offering partially underwritten by Legg Mason.
Following the 1993 Recapitalization, the Somerset Board established a
Strategic Planning Committee to evaluate merger and acquisition activity in
Somerset's market, to review business opportunities that became available to
Somerset, and to make recommendations to the Somerset Board regarding Somerset's
overall strategic plan. Somerset's Strategic Planning Committee met four times
in 1996 and five times in 1997, including a meeting in March 1997 at which the
Strategic Planning Committee formally reviewed with the entire Somerset Board
Somerset's strategic plan and developments in the community banking industry
generally. The Strategic Planning Committee also considered informal indications
of interest regarding the possible acquisition of Somerset received from time to
time after the 1993 Recapitalization from other banking institutions. Several of
the Strategic Planning Committee meetings included presentations by
representatives of Legg Mason, Somerset's financial advisor, during which Legg
Mason reviewed with the Committee the valuations that were being assigned to
comparable banks in recent mergers and acquisitions in New England. Prior to May
1997, the Strategic Planning Committee had reached a consensus that although
Somerset should not actively solicit proposals for its acquisition, Somerset
should continue to be receptive to possible transactions that would provide
long-term benefits to Somerset stockholders.
In May 1997, Thomas J. Kelly, Chairman, President and Chief Executive
Officer of Somerset, and Neal F. Finnegan, President and Chief Executive Officer
of UST, met, at Mr. Finnegan's suggestion, to discuss informally a possible
business combination. Mr. Kelly informed Mr. Finnegan that while Somerset was
not actively seeking to be acquired, if the terms of any proposal were
sufficiently compelling, he would present it to the Somerset Strategic Planning
Committee for consideration. In mid-June 1997, Mr. Kelly informed the Somerset
Strategic Planning Committee that UST had expressed an interest in a possible
acquisition, and the Committee concurred with Mr. Kelly's recommendation that he
should continue his discussions with Mr. Finnegan. Several additional meetings
and discussions took place between Mr. Kelly and Mr. Finnegan in June and July,
during which they discussed, in general terms, the potential financial
characteristics of a combined entity and UST's preliminary analysis of a
possible stock-for-stock business combination transaction, in which UST valued
Somerset at approximately 200% of Somerset's book value as of March 31, 1997, or
approximately $3.70 per share. By comparison, the average closing price of
Somerset Common Stock on Nasdaq during the month of July 1997 was slightly more
than $3.00 per share. On July 30, Mr. Kelly and James F. Drew, Chairman of the
Somerset Strategic Planning Committee, met with Mr. Finnegan to discuss
generally the strategic plans of their respective banks, their vision of
25
<PAGE>
community banking and the overall compatibility of the Somerset and UST
franchises. Although Mr. Kelly advised Mr. Finnegan that the preliminary
valuation suggested by UST was too low, Messrs. Kelly and Finnegan reached a
consensus that further discussions regarding a possible business combination
were warranted. Each undertook to consult with his respective financial advisors
and to confirm the level of interest with one or more of their outside
directors. On August 5, 1997, the Somerset Strategic Planning Committee met to
discuss further UST's indication of interest. The Committee authorized Mr. Kelly
to continue discussions with Mr. Finnegan, and Somerset formally engaged Legg
Mason to serve as its financial advisor in connection with the UST proposal.
Discussions continued in August and September between Messrs. Kelly and
Finnegan, and between Legg Mason and UST's financial advisor, Fox-Pitt, Kelton
Inc., with a particular focus on the value that Somerset stockholders would
receive in the combination. During that period, UST indicated it would be
willing to increase the range of valuations it would be prepared to pay for the
acquisition of Somerset, and the Somerset Strategic Planning Committee evaluated
the UST proposal in comparison to both the valuations that had been assigned to
comparable banks in recent mergers and acquisitions and the indications of
interest Somerset had received during the past several years. The Committee also
considered, in consultation with Legg Mason, whether Somerset should actively
solicit acquisition proposals from other banking organizations that would likely
have an interest in acquiring Somerset, as well as the likelihood that any of
such organizations would offer materially greater consideration than the UST
proposal. The Committee also considered other financial, social and market
characteristics of UST, the fact that UST's proposal contemplated stock
consideration, as well as UST's market capitalization and the liquidity of UST
Common Stock in comparison to Somerset Common Stock and the stock of other
possible organizations that might have an interest in acquiring Somerset. The
Committee reached a consensus that any potential benefits to Somerset and its
stockholders of such a solicitation were outweighed by the potential risks to
Somerset's customers and employee base if it became widely known that Somerset
was actively seeking acquisition proposals. Following a September 23, 1997
meeting between Messrs. Kelly and Finnegan, Somerset concluded that it would be
desirable to disclose to UST confidential information regarding Somerset's
business and financial condition in order to permit UST to undertake a more
extensive due diligence review. Shortly thereafter, UST entered into a
confidentiality agreement with Somerset, and in October and early November 1997,
Somerset's management and its advisors provided confidential data to UST and its
financial advisors and met with them to discuss such information in detail.
By mid-November, UST had completed a significant portion of its due
diligence and further increased its valuation of Somerset ultimately proposing
that UST would exchange 0.19 shares of UST stock for each share of Somerset
stock. Mr. Finnegan met again with Messrs. Kelly and Drew on November 14 and
separately with Mr. Kelly on November 17, in each case to review the status of
UST's negotiations with Somerset and to discuss certain nonfinancial aspects of
a combination, including issues with respect to officer and employee retention
and severance, representation on the UST Board and the USTrust Board and the
importance of UST's continued community support in the areas served by Somerset.
In those discussions, Mr. Finnegan reviewed generally UST's plans regarding the
integration of Somerset employees into UST and the severance benefits available
to Somerset employees who become UST employees. He also proposed that Mr. Drew
serve on the UST Board, that another Somerset director serve on the USTrust
Board, and that Mr. Kelly enter into an employment agreement with UST to provide
for his employment through age 65. Following those meetings, Mr. Kelly informed
Mr. Finnegan that, based upon the previous deliberations of the Somerset
Strategic Planning Committee and the advice of Legg Mason, he believed the
Strategic Planning Committee would recommend that the Somerset Board endorse the
UST proposal.
At a regularly scheduled meeting of the Somerset Board on November 18, 1997,
Somerset's management presented a summary of its discussions with UST, and Mr.
Drew reported on the deliberations of the Strategic Planning Committee. Legg
Mason reviewed in detail information regarding the historical results of
operations, current condition and future business prospects of Somerset and UST,
as well as detailed
26
<PAGE>
analyses of the value of Somerset, and the consideration that would be received
by Somerset stockholders in the proposed Merger. The Somerset Board unanimously
authorized Legg Mason to conclude negotiations with UST at a Conversion Number
equal to 0.19. Based upon the closing price of UST stock on November 18 of
$26.8125, the UST proposal valued Somerset at approximately $5.09 per share, as
compared to the closing price of Somerset Common Stock on that date of
approximately $5.06 per share.
Following that meeting, Somerset authorized its legal counsel to commence
negotiation of the Affiliation Agreement and related documents, and each party
completed its in-depth due diligence examination of the other's business and
operations. Concurrently, numerous discussions were held between representatives
of Somerset and UST on a range of issues with respect to the proposed business
combination and various terms and conditions of the Affiliation Agreement and
related documents. Among other things, Legg Mason negotiated, at the direction
of the Somerset Board, with UST and its financial advisor as to whether the
Conversion Number would be subject to adjustment if there were a significant
decline in the price of UST stock, so that the value that the Somerset
stockholders would receive at closing would not decline proportionately with the
price of UST under all circumstances.
On December 2 and 8, 1997, the Executive Committee of the Somerset Board
held special meetings in which representatives of Somerset's management, Legg
Mason and Somerset's legal counsel participated. Mr. Kelly reviewed the terms of
his proposed employment agreement with UST, and legal counsel reported on the
material issues relating to the negotiations with UST's counsel. Legg Mason
reported in detail on the course and results of its discussions with UST's
financial advisor regarding whether the Conversion Number would be subject to
adjustment under certain circumstances noting that Somerset and UST, through
their respective financial advisors, had also discussed several different
alternative purchase price adjustments in the event of a decline or an increase
in the price of UST Common Stock. Among other things, Legg Mason reported that
the parties had discussed whether Somerset should have the right to terminate
the Affiliation Agreement if (x) the market price of UST stock as of the receipt
of the last requisite regulatory approval represented a decline of more than 15%
from the price of UST Common Stock at the time Somerset and UST executed a
definitive agreement, and (y) UST elected not to increase the value per Somerset
share that Somerset stockholders would receive such that the value would be not
more than 15% below the value Somerset stockholders would have received based
upon the price at the time Somerset and UST executed a definitive agreement. On
December 8, Legg Mason reported to the Executive Committee that UST's final
position was that it would agree to such downward price protection only if
Somerset agreed to cap the aggregate value of UST common stock that Somerset
stockholders would receive at a price that reflected an increase of
approximately 20% from the value to be received based upon the market price of
UST stock at the time of signing. The members of the Somerset Executive
Committee discussed at length with Legg Mason and Somerset's legal counsel the
relative advantages and disadvantages of the UST proposal, noting in particular
that the termination right as ultimately proposed by UST would be triggered only
by a decline in the market price of UST stock of more than 15% in absolute terms
AND relative to a certain peer group index, while the cap would be triggered by
a 20% increase in the market price of UST stock, regardless of whether the peer
index also increased. Following that discussion, the Executive Committee
unanimously recommended that the Somerset Board elect to accept the fixed
Conversion Number of 0.19 and reject the final UST purchase price adjustment
proposal.
On December 9, 1997, the Somerset Board held a special meeting in which
representatives of Somerset's management, Legg Mason and Somerset's legal
counsel participated. Somerset's management and Legg Mason reported in detail on
the course and results of its discussions with UST since the Somerset Board
meeting on November 18, and members of the Somerset Executive Committee
summarized the Committee's deliberations on December 2 and 8. Legg Mason and
Somerset's legal counsel summarized the results of their due diligence
investigations of UST, and Legg Mason reviewed updated versions of its detailed
analyses of the value of Somerset and the consideration to be received by
Somerset stockholders. Somerset's legal counsel presented a detailed analysis of
the draft Affiliation Agreement and related documents and provided an overview
of the proposed Merger and the process from the execution
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of the Affiliation Agreement through the closing of the transaction. Among other
things, Somerset management and legal counsel reviewed the benefits UST would
provide to persons employed by Somerset as of the Merger. Mr. Kelly and
Somerset's legal counsel also reviewed the terms of Mr. Kelly's employment
agreement with USTrust, which will become effective as of and only upon the
closing of the Merger, as well as the payments that Mr. Kelly will receive from
Somerset prior to the closing of the Merger, as described in detail below. (For
additional information, see "--Interests of Certain Persons in the Merger.")
Somerset's management, Legg Mason and Somerset's legal counsel responded to
questions and contributed to the Somerset Board's discussions concerning the
proposed agreements and transactions, and Legg Mason advised the Somerset Board
that, on the basis of and subject to its analyses, it was of the opinion that
the Conversion Number was fair to Somerset stockholders from a financial point
of view. (For additional information, see "--Opinion of Financial Advisor to
Somerset"). Upon the completion of its deliberations, the Somerset Board
unanimously authorized Somerset management to enter into the Affiliation
Agreement and the Stock Option Agreement and to consummate the transactions
contemplated thereby. The Affiliation Agreement was executed as of December 9,
1997.
RECOMMENDATION OF THE SOMERSET BOARD AND REASONS FOR THE MERGER
The Somerset Board considered the Merger and the terms of the Affiliation
Agreement, including the consideration to be received by Somerset stockholders
in the Merger, in light of economic, financial, legal, social and market factors
and concluded that the Merger is in the best interests of Somerset. The terms of
the Affiliation Agreement are the result of arms' length negotiations between
Somerset and UST, as well as consultations between Somerset and its financial
advisor and legal counsel. Among the factors considered by the Somerset Board
were the historical operating results, current financial condition, business and
management and future financial and other prospects of Somerset and UST and the
advice of Legg Mason as to the fairness to Somerset stockholders, from a
financial point of view, of the Conversion Number. Also considered were the
relative size and geographic market areas of Somerset and UST, the employment
and severance policies of UST and UST's demonstrated commitment to meeting the
banking needs of the members of the communities it serves. The Somerset Board
believes that the Merger will afford Somerset stockholders the benefit of UST's
larger market capitalization and the more liquid market for UST Common Stock and
will offer enhanced opportunities for the resulting subsidiary banks of UST to
meet the banking needs of customers and other members of the communities
currently served by Somerset.
THE SOMERSET BOARD UNANIMOUSLY RECOMMENDS THAT THE AFFILIATION AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY BE APPROVED BY THE STOCKHOLDERS OF
SOMERSET.
UST'S REASONS FOR THE MERGER
Since early 1996, a major focus of UST's executive management has been the
development and implementation of an "assembly strategy" of growth whereby UST
would, through a program of strategic acquisitions, establish and strengthen
UST's position generally in the Boston banking market and particularly in
specific identified segments of Eastern Massachusetts, such as Middlesex County.
The implementation of UST's "assembly strategy" began with the 1996 acquisitions
by UST of 20 branch offices located in the greater Boston area from The First
National Bank of Boston and BayBank and of Walden and its two banking
subsidiaries, Concord and Braintree. Walden, a $1 billion bank holding company,
had 17 branch offices throughout Massachusetts. In identifying other acquisition
candidates in 1997, UST focused on institutions which would complement UST's
existing franchise in the towns surrounding Boston. UST believes that the
acquisition of Somerset offers UST an opportunity to expand its presence in two
large Massachusetts communities of Burlington and Somerville where it did not
have a significant presence but which are consistent with UST's Middlesex County
strategy. Among the factors considered by the UST Board were the historical
operating results, current financial condition, business and management and
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future financial and other prospects of Somerset and UST. In particular, UST
focused on the relative size and geographic market area of Somerset and UST,
including UST's presence in Somerset's primary market area, and Somerset's
demonstrated commitment to meeting the community banking needs of the areas it
serves.
OPINION OF SOMERSET'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated August 11, 1997, Somerset engaged
Legg Mason to act as financial advisor to Somerset and render a fairness opinion
to the Somerset Board with respect to a potential merger with UST (see
"--Background of the Merger"). Legg Mason, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities and private placements. Legg Mason is familiar with
Somerset, having served as managing underwriter and financial advisor in
connection with a rights/public offering conducted by Somerset in 1993 as part
of the 1993 Recapitalization. In the ordinary course of its securities business,
Legg Mason makes a market in Somerset Common Stock and trades such security for
the accounts of its customers, and therefore may from time to time hold a long
or short position in such security. Legg Mason also follows Somerset from a
research perspective.
On December 9, 1997, at the meeting of the Somerset Board convened to vote
on the proposed Affiliation Agreement, Legg Mason rendered a written opinion to
the Somerset Board that, as of such date, the Conversion Number was fair, from a
financial point of view, to such holders. Legg Mason has confirmed its December
9, 1997 opinion by delivery of its written opinion to the Somerset Board, dated
the date of this Proxy Statement--Prospectus, stating that, as of the date
hereof and based on matters set forth in such opinion, the proposed Conversion
Number is fair, from a financial point of view, to the holders of Somerset
Common Stock.
Legg Mason's opinion is directed to the Somerset Board and addresses only
the Conversion Number. It does not address the underlying business decision to
proceed with the Merger and does not constitute a recommendation to any holder
of Somerset Common Stock as to how such holder should vote at the Special
Meeting to be held with respect to the Merger.
THE FULL TEXT OF LEGG MASON'S OPINION TO THE SOMERSET BOARD, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS
UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX D AND IS INCORPORATED HEREIN BY
REFERENCE. THE OPINION SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS
PROXY STATEMENT--PROSPECTUS.
In arriving at its opinion, Legg Mason (i) reviewed the Affiliation
Agreement, certain publicly available business and financial information for
Somerset and UST, and certain other financial statements, data, reports and
analyses for Somerset and UST prepared by the managements of Somerset and UST,
including financial forecasts; (ii) discussed the current operations, financial
condition and prospects of Somerset and UST with the managements of Somerset and
UST; (iii) reviewed the reported market prices and historical trading activity
of Somerset Common Stock and UST Common Stock; (iv) compared certain financial
and stock market information for Somerset and UST with similar information for
certain other financial institutions, the securities of which are
publicly-traded; (v) reviewed the financial terms of certain recent business
combinations involving financial institutions that Legg Mason deemed comparable;
and (vi) performed such other studies and analyses as Legg Mason considered
appropriate.
Legg Mason relied upon the accuracy and completeness of all of the financial
and other information reviewed and assumed such accuracy and completeness for
purposes of rendering its opinion. In that regard, Legg Mason assumed, with
Somerset's consent, that the financial forecasts were reasonably prepared on a
basis reflecting the best currently available judgments and estimates of
Somerset and UST and that such forecasts would be realized in the amounts and at
the times contemplated thereby. Legg Mason is not an expert in the evaluation of
loan or lease portfolios for purposes of assessing the adequacy
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of the allowances for losses with respect thereto and assumed, with Somerset's
consent, that such allowances for each of Somerset and UST are in the aggregate
adequate to cover all such losses. In addition, Legg Mason did not review
individual credit files nor did Legg Mason make an independent evaluation or
appraisal of the assets and liabilities of Somerset or UST or any of their
respective subsidiaries and Legg Mason was not furnished with any such
evaluation or appraisal.
The following is a summary of the financial analyses performed by Legg Mason
in connection with its opinion:
COMPARISON OF SELECTED PUBLICLY-TRADED COMPANIES--SOMERSET. Using publicly
available information, Legg Mason compared selected financial and market
information for Somerset and a peer group of savings banks. The peer group
consisted of all publicly-traded savings banks located in Massachusetts with
assets between $200 million and $2 billion. Companies that had agreed to merge
with another institution were excluded from the peer group. The peer group
included Abington Bancorp, Inc., Affiliated Community Bancorp, Andover Bancorp,
Inc., BostonFed Bancorp, Inc., Central Co-operative Bank, First Essex Bancorp,
Inc., FirstFed America Bancorp, Inc., Hingham Institution for Savings, Home Port
Bancorp, Inc., Ipswich Savings Bank, Lawrence Savings Bank, MASSBANK Corp.,
Medford Savings Bank, MetroWest Bank, People's Bancshares, Inc., Sandwich
Bancorp, Inc., SIS Bancorp, Inc. and Warren Bancorp, Inc. For Somerset and the
peer group, Legg Mason compared market prices to (i) reported earnings per
share; (ii) earnings per share adjusted to eliminate net operating loss ("NOL")
carryforwards and deferred tax benefits ("adjusted earnings per share"); (iii)
reported book value per share; (iv) tangible book value per share; and (v) cash
dividends per share. As of December 8, 1997, such comparison yielded a market
price to reported earnings per share for Somerset of 15.5x versus 16.4x for the
peer group, a market price to adjusted earnings per share for Somerset of 30.1x
versus 17.2x for the peer group, a market price to reported book value per share
for Somerset of 234% versus 190% for the peer group, a market price to tangible
book value per share for Somerset of 234% versus 195% for the peer group and a
dividend yield for Somerset of 0.0% versus 1.7% for the peer group. Financial
comparison as of September 30, 1997 showed, among other things, that: (i) return
on average assets ("ROAA") for the last twelve months (excluding the effect of
NOL carryforwards and deferred tax benefits) was 0.51% for Somerset and 0.94%
for the peer group; (ii) return on average equity ("ROAE") for the last twelve
months (excluding the effect of NOL carryforwards and deferred tax benefits) was
8.37% for Somerset and 12.10% for the peer group; (iii) the net interest margin
for the last twelve months was 4.02% for Somerset and 3.39% for the peer group;
(iv) the efficiency ratio (defined as noninterest expense divided by the sum of
net interest income and noninterest income) for the last twelve months was 64.3%
for Somerset and 56.8% for the peer group; (v) the noninterest income to average
assets ratio for the last twelve months was 0.22% for Somerset and 0.43% for the
peer group; (vi) the nonperforming assets to assets ratio was 5.91% for Somerset
and 0.53% for the peer group; and (vii) the equity/assets ratio was 6.60% for
Somerset and 8.77% for the peer group. Legg Mason also reviewed the loan and
deposit composition of Somerset and the peer group as of June 30, 1997 and
observed, among other things, that (i) commercial real estate loans comprised
36.3% of Somerset's loan portfolio versus 12.8% for the peer group; (ii)
multi-family loans comprised 12.6% of Somerset's loan portfolio versus 2.2% for
the peer group; (iii) construction and development loans comprised 6.5% of
Somerset's loan portfolio versus 1.7% for the peer group; (iv) total 1-4 family
loans comprised 40.1% of Somerset's loan portfolio versus 72.5% for the peer
group; (v) certificates of deposit made up 52.1% of Somerset's total deposits
compared with 45.6% for the peer group; and (vi) core deposits (defined as total
deposits less jumbo deposits) for Somerset were 88.4% compared with 92.8% for
the peer group.
COMPARISON OF SELECTED PUBLICLY-TRADED COMPANIES--UST. Using publicly
available information, Legg Mason compared selected financial and market
information for UST and two peer groups of commercial banks. Companies that had
agreed to merge with another institution were excluded from both peer groups.
The first peer group consisted of all publicly-traded commercial banks located
in Massachusetts, Connecticut, Maine, New Hampshire, Rhode Island and Vermont
with assets between $500 million and $10 billion
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(the "New England Peer Group"). The New England Peer Group included Banknorth
Group, Inc., Camden National Corporation, Cape Cod Bank and Trust Company,
Century Bancorp, Inc., Chittenden Corporation, Independent Bank Corp., Merchants
Bancshares, Inc., New England Community Bancorp, Vermont Financial Services
Corporation and Washington Trust Bancorp, Inc. The second peer group consisted
of all publicly-traded commercial banks nationwide with assets between $1
billion and $10 billion (the "Nationwide Peer Group"). The Nationwide Peer Group
was comprised of 124 institutions. Since UST's last twelve-month ("LTM")
earnings were affected by several large nonrecurring items relating to recent
acquisitions and divestitures, the LTM earnings for UST, and financial ratios
derived from those earnings, were adjusted for those nonrecurring items. As of
December 8, 1997, the relative multiples indicated by the market price of UST
Common Stock and the median market price of the common stock of the two peer
groups to such selected financial data was (i) to LTM earnings, 21.6x for UST,
17.9x for the New England Peer Group and 19.4x for the Nationwide Peer Group;
(ii) to most recent quarter ("MRQ") earnings annualized, 19.3x for UST, 16.4x
for the New England Peer Group and 18.3x for the Nationwide Peer Group; (iii) to
IBES 1998 estimated median earnings (Institutional Brokers Estimate System or
IBES is a data service that monitors and publishes earnings estimates by
research analysts), 17.4x for UST, 15.0x for the New England Peer Group and
16.9x for the Nationwide Peer Group; (iv) to book value, 261% for UST, 255% for
the New England Peer Group and 263% for the Nationwide Peer Group; and (v) to
tangible book value, 322% for UST, 283% for the New England Peer Group and 281%
for the Nationwide Peer Group. Financial comparison as of September 30, 1997
showed, among other things, that: (i) ROAA for the last twelve months was 1.09%
for UST as adjusted for nonrecurring items, 1.24% for the New England Peer Group
and 1.27% for the Nationwide Peer Group; (ii) ROAA for the most recent quarter
was 1.20% for UST, 1.21% for the New England Peer Group and 1.28% for the
Nationwide Peer Group; (iii) ROAE for the last twelve months was 12.85% for UST
as adjusted for nonrecurring items, 14.49% for the New England Peer Group and
14.26% for the Nationwide Peer Group; (iv) ROAE for the most recent quarter was
14.26% for UST, 14.94% for the New England Peer Group and 14.77% for the
Nationwide Peer Group; (v) the net interest margin for the last twelve months
was 4.98% for UST, 4.73% for the New England Peer Group and 4.60% for the
Nationwide Peer Group; (vi) the net interest margin for the most recent quarter
was 5.24% for UST, 4.87% for the New England Peer Group and 4.59% for the
Nationwide Peer Group; (vii) the efficiency ratio for the last twelve months was
65.6% for UST, 60.5% for the New England Peer Group and 57.1% for the Nationwide
Peer Group; (viii) the efficiency ratio for the most recent quarter was 63.2%
for UST, 58.9% for the New England Peer Group and 56.0% for the Nationwide Peer
Group; (ix) the noninterest income to average assets ratio for the last twelve
months was 1.12% for UST, 1.16% for the New England Peer Group and 1.02% for the
Nationwide Peer Group; (x) the noninterest income to average assets ratio for
the most recent quarter was 0.98% for UST, 1.15% for the New England Peer Group
and 1.01% for the Nationwide Peer Group; (xi) the nonperforming assets to assets
ratio was 0.80% for UST, 0.73% for the New England Peer Group and 0.45% for the
Nationwide Peer Group; and (xii) the equity/assets ratio was 8.52% for UST,
8.54% for the New England Peer Group and 8.86% for the Nationwide Peer Group.
Legg Mason also reviewed the loan and deposit composition of UST and the New
England Peer Group as of June 30, 1997 and, among other things, observed that
(i) commercial and industrial loans comprised 24.0% of UST's loan portfolio
versus 16.3% for the New England Peer Group; (ii) total real estate loans
comprised 55.3% of UST's loan portfolio versus 67.6% for the New England Peer
Group; (iii) money market deposit accounts ("MMDAs") and savings accounts made
up 54.1% of UST's total deposits compared with 41.2% for the New England Peer
Group; and (iv) core deposits (defined as total deposits less jumbo deposits)
for UST were 94.1% compared with 94.3% for the New England Peer Group.
COMPARISON OF SELECTED TRANSACTIONS. Legg Mason reviewed the 20
transactions announced since the beginning of 1996 involving acquisitions of
savings banks located in Massachusetts, Connecticut, Maine, New Hampshire, Rhode
Island and Vermont (the "New England Transaction Group"). Legg Mason also
reviewed a group of 28 acquisitions announced since the beginning of 1997
involving acquisitions of savings banks nationwide with assets between $200
million and $1 billion (the "Nationwide Transaction Group").
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Legg Mason calculated, as of the respective dates of announcement of such
transactions, the multiple of LTM reported earnings, book value and tangible
book value, the core deposit premium and the premium to market price for one
week and three months prior to the announcement date, indicated by the
consideration to be received by the holders of the acquired company's stock in
each transaction. For the Merger and the New England Transaction Group, Legg
Mason also calculated the multiple of LTM adjusted earnings (adjusted to
eliminate NOL carryforwards and deferred tax benefits) indicated by the
consideration received by the holders of the acquired company's stock in each
transaction. Legg Mason also computed the median of the multiples and premiums
referred to above for the New England Transaction Group and the Nationwide
Transaction Group. The analysis yielded a median transaction price to LTM
reported earnings of 17.6x for the Merger, compared to 16.6x for the New England
Transaction Group and 21.2x for the Nationwide Transaction Group. The analysis
yielded a median transaction price to LTM adjusted earnings of 34.0x for the
Merger, compared to 17.1x for the New England Transaction Group and 21.2x for
the Nationwide Transaction Group. The analysis yielded a median transaction
price to book value of 264% for the Merger, compared to 169% for the New England
Transaction Group and 192% for the Nationwide Transaction Group. The analysis
yielded a median transaction price to tangible book value of 264% for the
Merger, compared to 170% for the New England Transaction Group and 192% for the
Nationwide Transaction Group. The analysis yielded a median core deposit premium
of 14.10% for the Merger, compared to 9.49% for the New England Transaction
Group and 13.37% for the Nationwide Transaction Group. The analysis yielded a
one week market price premium of 112% for the Merger, compared to 126% for the
New England Transaction Group and 124% for the Nationwide Transaction Group. The
analysis yielded a three month market price premium of 136% for the Merger,
compared to 143% for the New England Transaction Group and 144% for the
Nationwide Transaction Group.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, Legg
Mason estimated the net present value of the future after-tax cash flows that
Somerset could produce on a stand-alone basis over a five-year period and
distribute to holders of Somerset Common Stock ("Dividendable Income"). In this
analysis, Legg Mason used projections prepared by Somerset management for 1997
and 1998 and, in consultation with management, arrived at earnings projections
for the years 1999 through 2002. Projections for 1999 through 2002 employed key
assumptions relating to asset growth, net interest margin and operating
expenses, which produced pretax earnings growth rates ranging from 6% to 13%.
Dividendable Income was obtained by using net income less additions to capital
required to maintain a 7.5% equity to asset ratio. Legg Mason then estimated the
terminal value of Somerset Common Stock at the end of five years by applying a
range of 12x to 20x Somerset's terminal year earnings. The Dividendable Income
stream and terminal values were then discounted to present values using discount
ranges from 12% to 16%, which reflect different assumptions regarding the
required rate of return of holders or prospective buyers of Somerset Common
Stock. The foregoing analysis indicated a range of present values of Somerset
from $2.62 per share to $4.61 per share.
PRO FORMA ANALYSIS. Based on publicly available data and earnings forecasts
provided by the managements of Somerset and UST, and employing assumptions
regarding expected cost savings and revenue enhancements, Legg Mason analyzed
certain pro forma effects of the Merger. This analysis indicated that the
transaction would be slightly dilutive to UST's book value and accretive to
UST's tangible book value and, excluding one-time charges, would be accretive to
projected earnings per share of UST in 1998.
The summary set forth above does not purport to be a complete description of
the analyses performed by Legg Mason in this regard. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Selecting portions of the analysis or
of the summary set forth above, without considering the analysis as a whole,
could create an incomplete view of the processes underlying Legg Mason's
opinion. In arriving at its fairness determination, Legg Mason considered the
results of all such analyses. No company or transaction used in the above
analyses as a
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comparison is identical to Somerset or the contemplated transaction. The
analyses were prepared solely for the purpose of Legg Mason providing its
opinion to the Somerset Board as to the fairness of the Conversion Number to
holders of Somerset Common Stock from a financial point of view and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. As
described above, Legg Mason's opinion was one of many factors taken into
consideration by the Somerset Board in making its determination to approve the
Merger. Legg Mason's opinion is directed only to the fairness, from a financial
point of view, of the Conversion Number and does not address any other aspect of
the Merger.
Legg Mason has filed a written consent with the Commission relating to the
inclusion of its fairness opinion and the references to such opinion and to Legg
Mason in this Proxy Statement--Prospectus. In giving such consent, Legg Mason
did not admit that it comes within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations
thereunder.
Pursuant to the terms of an engagement letter dated August 11, 1997,
Somerset has paid Legg Mason a fairness opinion fee of $75,000. In addition,
Somerset has agreed to pay Legg Mason a transaction fee, due upon consummation
of the Merger, of 1.5% of the total consideration received in the Merger, less
the $75,000 fairness opinion fee already paid to Legg Mason. Whether or not the
Merger is consummated, Somerset also has agreed to indemnify Legg Mason and
certain related persons against certain liabilities relating to or arising out
of its engagement.
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
As soon as practicable after satisfaction or waiver of all conditions to the
Merger under the Affiliation Agreement, UST and Somerset will cause Articles of
Merger complying with the requirements of the MBCL to be filed with the
Secretary of The Commonwealth of Massachusetts. The date and time at which the
Articles of Merger will become effective, as set forth in the Articles of
Merger, will be the "Effective Time." The "Closing Date" will occur on the first
business day after the date on which all conditions contained in Article VI of
the Affiliation Agreement are satisfied or waived; or at such other date as the
parties may mutually agree upon. UST and Somerset anticipate that the Merger
will be completed in the second quarter of 1998. The consummation of the Merger
could be delayed, however, as a result of delays in obtaining the necessary
regulatory and stockholder approvals. There can be no assurances given that such
approvals will be obtained or that the Merger will be completed at any time. If
the Merger has not been consummated on or before August 31, 1998, or such later
date as shall have been agreed to in writing by UST and Somerset, the
Affiliation Agreement may be terminated by either UST or Somerset, subject to
the right of either UST or Somerset to extend the date of termination in the
limited circumstances discussed at "THE MERGER--Certain Federal Income Tax
Consequences." See "THE MERGER-- Regulatory Approvals Required for the Merger,"
"--Conditions to the Consummation of the Merger," and "--Termination of the
Affiliation Agreement."
TERMS OF THE MERGER
The Affiliation Agreement provides for the merger of Somerset with and into
USTrust, by means of which Mosaic will acquire all of the assets and assume all
of the liabilities of Somerset and will direct the transfer of such assets and
liabilities to USTrust. By virtue of the Merger, the separate legal existence of
Somerset will cease. USTrust will be the surviving bank in the Merger, will
continue to be an indirect subsidiary of UST and will continue its legal
existence under the laws of The Commonwealth of Massachusetts. Upon the
consummation of the Merger, each outstanding share of Somerset Common Stock will
be converted into 0.19 shares of UST Common Stock, and a corresponding amount of
preferred stock purchase rights issued pursuant to the UST Rights Agreement,
provided that (i) no shares of Somerset Common Stock which are held directly or
indirectly by UST, Mosaic or USTrust will be converted
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unless held by UST, Mosaic or USTrust in a fiduciary capacity, and (ii) any
shares of Somerset Common Stock held as treasury shares by Somerset and any
Dissenting Shares will not be so converted.
Each outstanding share of Somerset Common Stock owned by UST and its
subsidiaries (other than in a fiduciary capacity) or by Somerset as treasury
stock will be canceled and retired at the Effective Time and will cease to
exist, and no payment will be made with respect thereto.
Shares of Somerset Common Stock held by a stockholder who has demanded
appraisal rights in compliance with the provisions of the MBCL will not be
converted into UST Common Stock at the Effective Time (see "THE MERGER--Rights
of Dissenting Stockholders"). If, however, the stockholder subsequently
withdraws his or her demand for appraisal, votes in favor of the Merger either
in person or by proxy or otherwise loses his or her right of appraisal, the
stockholder's shares will be deemed to be so converted as of the Effective Time.
In addition, at the Effective Time, all stock options issued by Somerset to
a third party pursuant to any stock option plan of Somerset, whether or not
currently exercisable, will be converted into an option to purchase shares of
UST Common Stock. The rights to UST Common Stock to be received by holders of
Somerset stock options upon consummation of the Merger will be identical to the
rights such optionees had under the Somerset stock option plans which covered
such stock options immediately prior to the Effective Time, except that the
number of shares of UST Common Stock subject to such options and the exercise
price of such options shall be determined in accordance with the Conversion
Number. The number of shares of UST Common Stock shall be equal to the product
of the number of shares of Somerset Common Stock previously subject thereto and
the Conversion Number, rounded down to the nearest whole share. The exercise
price per share of UST Common Stock shall be equal to the exercise price per
share of Somerset Common Stock previously subject thereto divided by the
Conversion Number, rounded up to the nearest cent.
In the event that, prior to the Effective Time, the outstanding shares of
UST Common Stock have been increased, decreased, changed into or exchanged for a
different number of shares or securities through reorganization of UST's
capitalization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other like changes in UST's capitalization, as the case
may be (a "Recapitalization"), then an appropriate and proportionate adjustment
shall be made to the Conversion Number so that each holder of Somerset Common
Stock shall receive the number of shares of UST Common Stock (except for
fractional shares) that such holder would have held immediately prior to the
Recapitalization or the record date therefor, as applicable.
No fractional shares of UST Common Stock will be issued in the Merger. In
lieu thereof, each holder of Somerset Common Stock who otherwise would have been
entitled to a fractional share of UST Common Stock will receive a cash
adjustment, without interest, equal to an amount determined by multiplying such
holder's fractional interest by the Average Price (defined below) of a share of
UST Common Stock (rounded to the nearest cent). The "Average Price" of a share
of UST Common Stock shall be the average of the last sale prices thereof as
reported on the Nasdaq system over the ten consecutive trading day period
immediately preceding the date on which the last requisite regulatory approval
is received (without regard to any waiting period attached to the effectiveness
thereof). For purposes of determining whether, and in what amounts, a particular
holder of Somerset Common Stock would be entitled to receive cash adjustments,
where such stockholder's shares of record are represented by two or more
certificates, the certificates will be aggregated.
Shares of UST capital stock (including UST Common Stock) issued and
outstanding immediately prior to the Effective Time will remain issued and
outstanding immediately after the Merger.
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REGULATORY APPROVALS REQUIRED FOR THE MERGER
FEDERAL APPROVALS. The Merger is subject to approval of the FDIC under the
Bank Merger Act, as amended (the "BMA"). Assuming FDIC approval is granted, the
Merger may not be consummated until 30 days after such approval, during which
time the BMA provides that the DOJ may challenge the Merger on antitrust grounds
and seek divestiture of certain assets and liabilities. UST anticipates that the
Merger will have no material anti-competitive effect and that pursuant to the
BMA, and established procedures of the FDIC, the post-approval waiting period
for the Merger will be reduced to 15 calendar days.
The FDIC is prohibited from approving any proposed acquisition, merger or
consolidation under the BMA (a) which would result in a monopoly or which would
be in furtherance of any combination or conspiracy to monopolize or to attempt
to monopolize the business of banking in any part of the United States, or (b)
the effect of which in any section of the United States may be substantially to
lessen competition, or to tend to create a monopoly, or result in a restraint of
trade, unless the FDIC finds that the anti-competitive effects of the
transaction are clearly outweighed in the public interest by the probable effect
of the transaction in meeting the convenience and needs of the communities to be
served.
In making its determination with respect to the Merger, the FDIC will take
into consideration the financial and managerial resources and future prospects
of USTrust and Somerset and the convenience and needs of the communities served.
As part of, or in addition to, consideration of the above factors, it is
anticipated that the FDIC will consider the financial condition of UST, USTrust
and Somerset, current and projected economic conditions in the New England
region and the overall capital and safety and soundness standards of UST and
Somerset as compared to those established by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and the regulations promulgated
thereunder.
In addition, under the Community Reinvestment Act of 1977, as amended (the
"CRA"), the FDIC must take into account the record of performance of each of
UST, USTrust and Somerset in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by each of such
institutions. Furthermore, the BMA and FDIC regulations require publication of
notice of, and the opportunity for public comment on, the application submitted
by USTrust for approval of the Merger. The BMA provides that the FDIC may permit
interested parties to intervene in the proceedings and hold a public hearing in
connection therewith if the FDIC determines that such a hearing would be
appropriate. Any such intervention by third parties could prolong the period
during which the application is subject to review by the FDIC.
As noted above, the Merger may not be consummated until the thirtieth day
after FDIC approval, during which time the DOJ has jurisdiction to challenge the
Merger on antitrust grounds. With the approval of the FDIC and the DOJ, the
waiting period may be reduced to no less than 15 days. The commencement of an
antitrust action by the DOJ would suspend the effectiveness of FDIC approval of
the Merger unless a court specifically orders otherwise. In reviewing the
Merger, the DOJ could analyze the Merger's effect on competition differently
than the FDIC, and thus it is possible that the DOJ could reach a different
conclusion than the FDIC regarding the Merger's competitive effects. Failure of
the DOJ to object to the Merger may not prevent the filing of antitrust actions
or actions on other grounds by private persons or state attorneys general.
In general, the FDIC and the DOJ will examine the impact of the Merger on
competition in various product and geographic markets, including competition for
deposits and loans, especially loans to small and middle market businesses.
The Merger may also be subject to the prior approval of the Federal Reserve
Board, under the Bank Holding Company Act of 1956, as amended (the "BHC Act").
In reviewing applications under the BHC Act, the Federal Reserve Board, or the
appropriate regional Federal Reserve Bank, acting pursuant to delegated
authority, which, in the case of the Merger, would be the Federal Reserve Bank
of Boston (the
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"Reserve Bank"), must consider the same factors that the FDIC considers in
connection with the BMA application.
Pursuant to regulations of the Federal Reserve Board, UST will provide the
Reserve Bank with prior written notice of the Merger, in lieu of filing an
application under the BHC Act, since among other things, the Merger requires the
prior approval of a federal supervisory agency under the BMA. Under those
circumstances, the Merger does not require the prior approval of the Federal
Reserve Board (or the Reserve Bank, acting on delegated authority), unless the
Reserve Bank informs UST (within 10 days of the notice filing) that an
application for approval under the BHC Act is required. The filing of such
notice does not provide any assurance that the Reserve Bank would not require
UST to file an application seeking the Federal Reserve Board's prior approval of
the Merger.
The right of UST to exercise the Option under the Stock Option Agreement
also is subject to the prior approval of the Federal Reserve Board, to the
extent that the exercise of the Option would result in UST owning more than 5%
of the outstanding shares of Somerset Common Stock. In considering whether to
approve the exercise by UST of its rights under the Option, including its right
to purchase more than 5% of the outstanding shares of Somerset Common Stock, the
Federal Reserve Board would in general apply the same statutory criteria as the
FDIC will apply to its consideration of whether to approve the Merger. The Stock
Option Agreement also provides that at the request of the holder of the Option,
under certain circumstances, Somerset will repurchase the Option (and any shares
acquired pursuant to the Option beneficially owned by such holder) for cash.
Such repurchase may be subject to the prior approval of the Federal Reserve
Board. In considering whether to approve such repurchase, the Federal Reserve
Board would be concerned principally with the effect of the repurchase on the
capital adequacy of Somerset. For further information on the Stock Option
Agreement, see "CERTAIN RELATED TRANSACTIONS-- Stock Option Agreement."
MASSACHUSETTS APPROVAL. The Merger is also subject to approval of the
Massachusetts Commissioner under Section 36 of Chapter 172 of the Massachusetts
General Laws. The statute requires that the Massachusetts Commissioner find that
the Merger would not unreasonably affect competition among banking institutions
and that it would promote public convenience and advantage. In making such a
determination, the Massachusetts Commissioner would consider, but would not be
limited to, a showing of net new benefits including initial capital investments,
job creation plans, consumer and business services and commitments to maintain
and open branch offices within a bank's statutory-delineated local community.
The right of UST to exercise the Option under the Stock Option Agreement and
the issuance of shares of Somerset Common Stock to UST in connection therewith
is also subject to the approval of the Massachusetts Commissioner.
UST and Somerset have filed or will file all applications necessary to
receive the requisite approvals of the FDIC and the Massachusetts Commissioner.
The Merger will not proceed in the absence of all requisite regulatory
approvals. There can be no assurance that either the FDIC or the Massachusetts
Commissioner will approve the Merger. If such approvals are received, there can
be no assurance as to the date of such approvals, that such approvals will not
be conditioned in a manner so as to render inadvisable, in the reasonable
judgment of UST, the consummation of the Merger, or that no action will be
brought challenging such approvals. Other than as described above, UST and
Somerset are not aware of any other governmental approvals or actions that are
required prior to the parties' consummation of the Merger. It is presently
contemplated that, if any such additional governmental approvals or actions were
required, such approvals or actions would be sought. There can be no assurance,
however, that any such additional approvals or actions could be obtained or, if
obtained, would not be conditioned in a manner so as to render it inadvisable,
in the reasonable judgment of UST, to consummate the Merger.
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EMPLOYEE MATTERS
In the Affiliation Agreement, UST has agreed to provide those employees of
Somerset ("Somerset Employees") who remain employed after the Closing Date
(collectively, the "Transferred Somerset Employees") with the types and levels
of employee benefits maintained by UST for similarly situated employees of UST
or USTrust. As soon as administratively practicable after the Effective Time,
UST will permit the Transferred Somerset Employees to participate in UST's group
hospitalization, medical, life and disability insurance plans, defined benefit
pension plan, thrift plan, severance plan and similar plans on the same terms
and conditions as applicable to comparable employees of UST and USTrust
(including the waiver of pre-existing conditions, restrictions, exclusions or
limitations), giving Somerset Employees full credit for all "years of service,"
as that term is defined in Section 411(a)(5) of the Code, with Somerset and its
subsidiaries (to the extent Somerset gave effect) as if such service was with
UST, for purposes of eligibility, vesting and calculation of benefits under
vacation, severance and other plans, but not for benefit accrual purposes under
the UST defined benefit pension plan.
UST has also agreed to honor all individual employment and other
compensation agreements, existing prior to the execution of the Affiliation
Agreement and previously disclosed to UST, which are between Somerset and any
current or former director, officer or employee thereof.
In addition, UST has agreed to permit Somerset to offer an aggregate of up
to $500,000 in retention bonuses to Somerset employees, other than Thomas J.
Kelly, whose continued service through the integration of Somerset with USTrust
Somerset determines to be desirable. Subsequent to the date of the Affiliation
Agreement, Somerset, after consultation with UST, committed to grant retention
bonuses to certain of its employees, three of whom are executive officers. Each
such employee generally will receive a bonus equal to two months salary if the
employee is employed by Somerset immediately prior to the Effective Time and a
bonus equal to three months salary if the employee has not voluntarily
terminated his or her employment prior to the date on which UST converts
Somerset's data processing systems to the platform used by USTrust. Somerset
expects that the aggregate amount of the retention bonuses received by its
executive officers will be approximately $140,000.
Additionally, from and after the Effective Time, Thomas J. Kelly, President
and Chief Executive Officer of Somerset, will become an Executive Vice President
of USTrust pursuant to the terms of an employment agreement. See "THE
MERGER--Interests of Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Somerset's management and the Somerset Board may be
deemed to have certain interests in the Merger that are in addition to their
interests as stockholders of Somerset. Certain executive officers and directors
of Somerset will be executive officers and directors of UST or USTrust following
the Merger. See "THE MERGER--Management and Operations After the Merger."
Somerset and Thomas J. Kelly are parties to an Employment Agreement, dated
July 9, 1986 and amended on December 13, 1988 (the "Kelly Employment
Agreement"), which by its terms expires on April 16, 2002. Under the Kelly
Employment Agreement, Mr. Kelly is entitled to be employed as Somerset's
President and Chief Executive Officer. The Kelly Employment Agreement also
entitles Mr. Kelly to receive certain benefits, including a lump sum payment,
if, within three years following a change of control of Somerset (as defined in
the Kelly Employment Agreement), Somerset or its successor involuntarily
terminates Mr. Kelly's employment or Mr. Kelly terminates his employment with
Somerset by reason of a change of duties, responsibilities, title or status,
among other reasons. The Kelly Employment Agreement provides that Mr. Kelly has
no obligation to mitigate the consequences of such a termination by seeking
alternative employment.
The consummation of the Merger will constitute a change of control of
Somerset for purposes of the Kelly Employment Agreement, and inasmuch as it is
not anticipated that Mr. Kelly will retain his present
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responsibilities following the Effective Time, will result in a material change
in Mr. Kelly's responsibilities. UST has therefore agreed that Somerset may pay
Mr. Kelly, prior to the Effective Time, the lump sum payment to which he would
have been entitled immediately after the Effective Time pursuant to the Kelly
Employment Agreement. Somerset intends to make the lump sum payment on the
Closing Date but prior to the Effective Time. The lump sum payment will be based
upon the present value of Mr. Kelly's base salary payable for the remainder of
the term of the Kelly Employment Agreement. Pursuant to the Kelly Employment
Agreement, that lump sum payment also will include a reimbursement for taxes
payable by Mr. Kelly on account of such payment, including any excise tax
payable under Section 4999 of the Code with respect to so-called "excess
parachute payments." Somerset expects that Mr. Kelly's base salary at the
Effective Time will be equal to his present base salary of $225,000 per year and
that the amount of the lump sum payment that Mr. Kelly will receive under the
Kelly Employment Agreement will be approximately $2.3 million.
At the Somerset Board meeting held on December 9, 1997, the Somerset Board
authorized Somerset to pay to Mr. Kelly, at or prior to the Effective Time, a
bonus of $225,000 for past services of Mr. Kelly prior to the Effective Time.
In connection with the execution of the Affiliation Agreement, on December
9, 1997, USTrust and Mr. Kelly also executed an Employment Agreement (the "New
Employment Agreement"), to be effective at the Effective Time. Under the New
Employment Agreement, Mr. Kelly will be employed as an Executive Vice President
of USTrust and will be a member of the Asset Liability Management Committee of
USTrust. Unless terminated earlier in accordance with its terms, the New
Employment Agreement provides that Mr. Kelly will be employed by USTrust until
April 16, 2002. Under the terms of the New Employment Agreement, Mr. Kelly will
be paid an annual salary of $225,000 and as of the Effective Time will be
granted an aggregate of 20,000 shares of UST Common Stock under UST's Stock
Compensation Plan, 6,666 shares of which will vest on the date which is 60 days
after the Closing Date, 6,667 shares of which will vest on the first anniversary
of the Closing Date and 6,667 shares of which will vest on the second
anniversary of the Closing Date. Under the terms of the New Employment
Agreement, Mr. Kelly has also agreed to certain non-solicitation and
confidentiality provisions.
The New Employment Agreement also provides for severance payments to Mr.
Kelly under certain circumstances. USTrust generally would be obligated to pay
to Mr. Kelly an amount equal to his annual base salary, and to continue to
provide certain health benefits, if Mr. Kelly's employment thereunder is
terminated by Mr. Kelly for "Good Reason" (as described below), by USTrust for
cause in certain limited circumstances or by USTrust without cause. If, however,
within two years after a change of control of UST (as defined in the New
Employment Agreement), Mr. Kelly's employment is terminated by USTrust without
cause or by Mr. Kelly for Good Reason, USTrust would be obligated to pay to Mr.
Kelly an amount equal to two times his annual base salary and to continue to
provide certain health benefits. For purposes of the New Employment Agreement,
"Good Reason" includes the failure of USTrust to continue to employ Mr. Kelly as
an Executive Vice President, a change adverse to Mr. Kelly in his primary
reporting relationship, a material diminution in the nature and scope of his
responsibilities, duties or authority, material failure of USTrust to provide
Mr. Kelly the base salary set forth in the New Employment Agreement or a
permanent transfer of Mr. Kelly to a work site more than forty miles from his
work site on the Closing Date. USTrust would be entitled to terminate the New
Employment Agreement with cause with no further obligation owing to Mr. Kelly in
the event that Mr. Kelly refuses to perform, is negligent in the performance of
his duties or responsibilities, or if certain other circumstances were to occur,
including, without limitation, the commission by Mr. Kelly of fraud,
embezzlement or gross misconduct, or his conviction of, or plea of no contest
to, any felony or crime of moral turpitude.
USTrust has also agreed in the New Employment Agreement to indemnify Mr.
Kelly as provided in the Affiliation Agreement (described below) and to the
extent provided by the Articles of Organization ("USTrust Articles") and By-laws
of USTrust.
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Under the Affiliation Agreement, UST has agreed (i) to maintain Somerset's
directors' and officers' liability insurance for a period of six years (or
substitute a comparable policy), and (ii) to honor, after the Effective Time to
the extent permissible under federal and Massachusetts law and regulation, the
indemnification provisions set forth in the Somerset Charter and the By-laws of
Somerset and its subsidiaries with respect to acts or omissions taken prior to
the Effective Time. See "THE MERGER-- Indemnification and Insurance."
Officers and employees with outstanding stock options under stock option
plans of Somerset will be entitled to have their options converted into options
with respect to UST Common Stock. For a description of such conversion, see "THE
MERGER--Terms of the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
UST. From and after the Effective Time, the UST Board will be expanded by
one member, and James F. Drew, a current member of the Somerset Board, will be
appointed as a director of UST. Directors of UST who are not otherwise full time
officers or employees of UST or any of its subsidiaries are paid a fee of $250
for each meeting of the UST Board they attend, plus an annual stipend of
$15,000, and, from time to time, are eligible for awards under UST's directors'
stock option plan. Additional information about Mr. Drew and the other known
individuals who will serve as the directors and executive officers of UST
following the Merger is contained in UST's and Somerset's Annual Reports on Form
10-K and Form F-2, respectively, for the year ended December 31, 1996, which are
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE."
USTRUST. By virtue of the Merger, the separate legal existence of Somerset
will cease. USTrust will be the surviving bank in the Merger, will continue to
be an indirectly wholly-owned subsidiary of UST and will continue its separate
existence under the laws of The Commonwealth of Massachusetts. After the
Effective Time, the USTrust Board will consist of those persons comprising the
USTrust Board prior to the Effective Time, each to hold office in accordance
with the USTrust Articles and By-Laws of USTrust. The USTrust Board and will be
expanded by one member and Nicholas P. Salerno, a current member of the Somerset
Board, will be appointed to serve as a director of USTrust. Directors of USTrust
who are not otherwise full-time officers or employees of USTrust or any of its
subsidiaries are paid a fee of $250 for each meeting of the USTrust Board they
attend. Additionally, at the Effective Time, and pursuant to the terms of the
New Employment Agreement, Mr. Kelly will become an Executive Vice President of
USTrust. See "THE MERGER--Interests of Certain Persons in the Merger." At the
Effective Time, except as set forth above, the officers of USTrust will consist
of those persons who were officers of USTrust immediately prior to the Effective
Time, subject to the rights of Mosaic as the sole stockholder of USTrust, each
to hold office in accordance with the USTrust Articles and By-Laws of USTrust.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following is a summary description of federal income tax
consequences of the Merger. This summary is not a complete description of all
possible tax consequences of the Merger and, in particular, may not address
federal income tax considerations that may affect the treatment of a stockholder
which, at the Effective Time, already owns some UST Common Stock, is not a U.S.
person, is a tax-exempt entity or an individual who acquired Somerset Common
Stock pursuant to an employee stock option or otherwise as compensation, or
exercises some form of control over Somerset. In addition, no information is
provided herein with respect to the tax consequences of the Merger under
applicable foreign, state or local laws. CONSEQUENTLY, EACH SOMERSET STOCKHOLDER
IS ADVISED TO CONSULT A TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
TRANSACTION TO THAT STOCKHOLDER. The following discussion is based on the Code,
as in effect on the date of this Proxy Statement--Prospectus, and there can be
no assurances that future legislation, regulations, administrative rulings or
court decisions which may be effective prospectively or retroactively will not
adversely affect the accuracy of the statements contained herein. The
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following discussion gives no consideration of the particular facts or
circumstances of any holder of Somerset Common Stock and assumes that the
Somerset Common Stock held by each holder thereof is held as a capital asset.
If the Merger constitutes a reorganization under Section 368(a) of the Code:
(i) no gain or loss will be recognized by UST or Somerset as a result of the
Merger; (ii) no gain or loss will be recognized by stockholders of Somerset on
account of their receipt of UST Common Stock in exchange for their Somerset
Common Stock as a result of the Merger; (iii) a holder of Somerset Common Stock
who receives cash proceeds for fractional interests in UST Common Stock will be
treated as if the fractional shares were distributed as part of the exchange and
then were redeemed by UST; (iv) the tax consequences of the assumed redemption
occurring in connection with the payment of cash in lieu of fractional shares,
and of the redemption of Somerset Common Stock by holders of Somerset who
perfect their statutory dissenters' rights, will be determined in accordance
with Section 302 of the Code, but should generally give rise to capital gain or
loss, which capital gain or loss will be subject to a maximum rate of 20% if the
Somerset Common Stock has been held for more than 18 months at the Effective
Time; (v) the tax basis of the UST Common Stock received by stockholders who
exchange Somerset Common Stock for UST Common Stock in the Merger will be the
same as the tax basis of the Somerset Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest for
which cash is received); and (vi) the holding period of the UST Common Stock in
the hands of the Somerset stockholders will include the holding period of the
Somerset Common Stock exchanged therefor.
It is a condition to the consummation of the Merger that UST receive a
letter ruling from the IRS, or, under certain circumstances, an opinion from its
counsel, and that Somerset receive an opinion from its counsel, to the effect
that, among other things, assuming it was consummated in accordance with the
Affiliation Agreement, the Merger constitutes a reorganization under Section
368(a) of the Code; provided, however, that if, under certain circumstances, no
such letter ruling or tax opinion is received by UST and Somerset, UST and
Somerset will use reasonable efforts to alter the structure of the Merger to
ensure that the Merger constitutes a reorganization as described in Section
368(a) and either party can extend the date the Affiliation Agreement will
terminate until October 31, 1998. If such opinions cannot be delivered because
the Merger is not deemed a reorganization under the Code in the opinion of the
parties' respective counsel, by the terms of the Affiliation Agreement, the
Merger may not be consummated.
BACKUP WITHHOLDING. In order to avoid "backup withholding" of federal
income tax on payments of cash to a holder who exchanges his or her Somerset
Common Stock, or a portion of his or her Somerset Common Stock, for cash, a
holder must, unless an exception applies under applicable law and regulations,
provide the payor of such cash with such holder's correct taxpayer
identification number ("TIN") on a Form W-9 and certify under penalties of
perjury that such number is correct and that such holder is not subject to
backup withholding. If the correct TIN and certifications are not provided, a
$50 penalty may be imposed on a holder by the IRS and the cash payments received
by a holder may be subject to backup withholding tax at a rate of 31%.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the Merger being accounted
for as a pooling of interests, as well as the receipt by UST of a letter to such
effect from Arthur Andersen LLP and the receipt by Somerset of a letter to such
effect from Wolf & Company, P.C., each such letter dated the Closing Date. Under
the pooling of interests method of accounting, the recorded amounts of the
assets and liabilities of USTrust and Somerset will be carried forward at their
previously recorded amounts and no goodwill will be created. Revenues and
expenses will be retroactively presented as if USTrust and Somerset were
combined for the entire fiscal period in which the Merger occurs and for all
periods prior to the Merger at previously recorded amounts.
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In order for the Merger to qualify for pooling of interests accounting
treatment, substantially all of the outstanding Somerset Common Stock must be
exchanged for UST Common Stock with substantially similar terms. UST and
Somerset have agreed to use their best efforts to cause the Merger to qualify
for pooling of interests accounting treatment, provided that UST is not
precluded from exercising its rights under the Stock Option Agreement. See "THE
MERGER--Conditions of the Merger."
For information concerning certain conditions to be imposed in connection
with the consummation of the Merger with respect to the exchange of Somerset
Common Stock for UST Common Stock by Affiliates (as defined below) of Somerset
and certain restrictions to be imposed on the transferability of the UST Common
Stock to be received by those Affiliates, in order, among other things, to
assure the availability of pooling of interests accounting treatment, see "THE
MERGER--Resales by Affiliates."
INDEMNIFICATION AND INSURANCE
Under the Affiliation Agreement, after the Effective Time, UST has agreed to
honor the indemnification provisions for officers and directors currently set
forth in the Somerset Charter and the By-laws of Somerset and the charters and
by-laws of its subsidiaries with respect to acts and omissions taken by such
officers and directors prior to the Effective Time, but only to the extent
permitted by federal and Massachusetts law and regulations.
UST has also agreed, pursuant to the Affiliation Agreement, to maintain
Somerset's existing directors' and officers' liability insurance (the "D&O
Insurance") covering persons who are currently covered by Somerset's D&O
Insurance for a period of six years after the Effective Time on terms no less
favorable than those in effect on December 9, 1997 (or, alternatively, UST may
substitute policies providing at least comparable coverage and containing terms
and conditions no less favorable than those in effect on December 9, 1997). UST
has agreed to provide evidence of such extension of coverage to Somerset on the
Closing Date.
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger becomes effective, a stockholder of Somerset who does not vote
in favor of the Merger and who follows the procedures prescribed under
Massachusetts law may require USTrust (as the successor to Somerset after the
Effective Time) to pay the fair value, determined as provided under applicable
statute, for the Dissenting Shares held by such stockholder. The following is a
summary of certain features of the relevant Massachusetts law, the provisions of
which are set forth in full in APPENDIX E annexed hereto. IN ORDER TO EXERCISE
SUCH STATUTORY APPRAISAL RIGHTS, STRICT ADHERENCE TO THE STATUTORY PROVISIONS IS
REQUIRED, AND EACH STOCKHOLDER WHO MAY DESIRE TO EXERCISE SUCH RIGHTS SHOULD
CAREFULLY REVIEW AND ADHERE TO SUCH PROVISIONS.
A dissenting stockholder of Somerset who desires to pursue the appraisal
rights available must adhere to the following procedures: (1) prior to the
stockholders' vote relating to the Merger, file a written objection to the
Merger with Somerset stating the intention of such stockholder to demand payment
for shares owned by such stockholder if the Merger is approved and consummated;
(2) refrain from voting shares owned by such stockholder in favor of the Merger;
and (3) within 20 days of the date of mailing of a notice by USTrust (as the
successor to Somerset after the Effective Time) to objecting stockholders that
the Merger has become effective, make written demand to USTrust (as the
successor to Somerset after the Effective Time) for payment for said
stockholder's shares. Such written objection should be delivered to Somerset
Savings Bank, 212 Elm Street, Somerville, Massachusetts 02144, Attn.: Frank
Scimone, Clerk, and such written demand should be delivered to USTrust (as the
successor to Somerset after the Effective Time), c/o UST, 40 Court Street,
Boston, Massachusetts 02108, Attn.: Eric R. Fischer, Executive Vice President,
General Counsel and Clerk. It is recommended that such objection and such demand
be sent by registered or certified mail, return receipt requested.
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A dissenting stockholder, who files the required written objection with
Somerset prior to the stockholder vote, need not vote against the Merger, but a
vote in favor of the Merger will constitute a waiver of such stockholder's
statutory appraisal rights. Stockholders should note that returning a properly
signed proxy card that does not indicate a vote or an abstention on approval of
the Affiliation Agreement will constitute a vote in favor of the Affiliation
Agreement. A vote against the Merger does not, alone, constitute a written
objection. Pursuant to the applicable statutory provisions, notice that the
Merger has become effective will be sent to each objecting stockholder of
Somerset within 10 days after the date on which the Merger becomes effective.
The value of the Somerset Common Stock will be determined initially by
USTrust (as the successor to Somerset after the Effective Time) and the
dissenting stockholder. If, during the period of 30 days after the expiration of
the period during which the foregoing demand for payment may be made, USTrust
(as the successor to Somerset after the Effective Time) and the stockholder fail
to agree on an appraisal value, either of them may file a bill in equity in the
Superior Court of Middlesex County, Massachusetts, asking that the court
determine the matter in issue. The bill in equity must be filed within four
months after the date of expiration of the foregoing thirty-day period. After a
hearing, the court shall enter a decree determining the fair value of the
Somerset Common Stock and shall order USTrust (as the successor to Somerset
after the Effective Time) to make payment of such value, with interest, if any,
to the stockholders entitled to said payment, upon transfer by them to USTrust
(as the successor to Somerset after the Effective Time) of the certificate or
certificates representing the Somerset Common Stock held by said stockholders.
For appraisal proceeding purposes, value is determined as of the day before
the approval of the Merger by stockholders, excluding any element of value
arising from the expectation or accomplishment of the Merger.
Under Massachusetts statutory law, procedures relating to dissenters' rights
are stated to be the exclusive remedy available to a stockholder objecting to
the Merger, except where the objection is based on the contention that the
Merger will be or is illegal or fraudulent as to said stockholder. However,
under Massachusetts case law, dissenting stockholders may not be limited to the
statutory remedy of judicial appraisal where violations of fiduciary duty are
found.
The law pertaining to the statutory appraisal remedy also contains
provisions regarding costs, dividends on dissenting shares, rights under
dissenting shares prior to purchase, discontinuance of dissenters' rights and
certain miscellaneous matters. See APPENDIX E.
NASDAQ LISTING
The Affiliation Agreement provides for the filing of, and UST has filed or
will file, a listing application with Nasdaq covering the shares of UST Common
Stock issuable pursuant to the Merger. The obligation of Somerset to effect the
Merger is subject to the condition that such shares of UST Common Stock be
authorized for listing on Nasdaq effective upon official notice of issuance.
RESALES BY AFFILIATES
Shares of UST Common Stock to be issued to stockholders of Somerset in
connection with the Merger will have been registered with the Commission under
the Securities Act. Thus, all shares of UST Common Stock to be received by
holders of Somerset Common Stock upon consummation of the Merger will be freely
transferable by those stockholders of Somerset not deemed to be "Affiliates" of
UST or Somerset. Under the Securities Act, "Affiliates" generally are defined as
persons (often considered to include, but not necessarily limited to, executive
officers, directors and 10% stockholders) who control, are controlled by, or are
under common control with (i) UST or Somerset at the time of the Special Meeting
or (ii) UST at or after the Effective Time.
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Rule 145 promulgated by the Commission under the Securities Act restricts
the sale of UST Common Stock received in the Merger by former Affiliates of
Somerset and certain of their family members and related interests. Generally
speaking, during the first year following the Effective Time, Affiliates of
Somerset, may publicly resell the UST Common Stock received by them in the
Merger provided that such sales comply with Rule 145 limitations as to the
amount of UST Common Stock sold in any three-month period and as to the manner
of sale. After the one-year period, such former Affiliates of Somerset who are
not Affiliates of UST may resell their shares without any restriction. Persons
who are affiliates of UST after the Effective Time generally will remain subject
to limitations and restrictions under Commission Rule 144 with respect to shares
they may receive in connection with the Merger, so long as they continue to be
Affiliates.
Affiliates of Somerset will be permitted to resell UST Common Stock received
in the Merger without any restrictions provided that such sales are made
pursuant to an effective registration statement filed with the Commission under
the Securities Act or by means of another available exemption from the
Securities Act registration requirements. This Proxy Statement--Prospectus may
not be used to effectuate any resales of UST Common Stock received by persons
who may be deemed to be Affiliates of UST or Somerset.
Somerset has agreed to identify in a letter to UST, after consultation with
counsel, all persons who, at the time of the Special Meeting, it believes may be
deemed to be Affiliates (which term shall mean any person so defined for
purposes of qualifying the Merger for pooling of interests accounting treatment
under the Commission's Accounting Series Releases 130 and 135, and which term
shall also mean when used with respect to Somerset, any person so defined in
accordance with Rule 145) of Somerset. Somerset has also agreed to use all
reasonable efforts to cause each person who may be deemed to be an Affiliate of
such party to execute and deliver to the other party, a letter, substantially in
the form attached to the Affiliation Agreement as Exhibit B-2 (the "Somerset
Affiliates Letter" and, generally, an "Affiliates Letter").
Commission guidelines with respect to the qualification of the Merger for
pooling of interests accounting treatment limit sales of shares of the acquiring
and acquired companies by Affiliates of either company in a business
combination. Commission guidelines indicate further that the pooling of
interests method of accounting generally will not be challenged on the basis of
sales by Affiliates of the acquiring or acquired company if they 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 30 days before
the merger and ending when financial results ("Post-Merger Financial Results")
covering at least 30 days of post-merger operations of the combined entity have
been published. In the Somerset Affiliates Letter, each Affiliate of Somerset
will agree not to sell, transfer or otherwise dispose of, or reduce the risk of
ownership with respect to any shares of Somerset Common Stock held by such
Affiliate, or any shares of UST Common Stock in violation of these guidelines.
UST has agreed in the Affiliation Agreement to publish not later than 30
days following the end of the first quarter ending at least 30 days after the
Effective Time, Post-Merger Financial Results as contemplated by and in
accordance with the terms of the Commission's Accounting Series Release No. 135.
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
CONVERSION OF SHARES OF SOMERSET COMMON STOCK. By virtue of the Merger,
automatically and without any action on the part of any holder thereof: (a) each
then-outstanding share of Somerset Common Stock not owned by UST directly or
indirectly (except for any such shares of Somerset Common Stock held by UST in a
fiduciary capacity), and other than those shares of Somerset Common Stock held
in the treasury of Somerset and Dissenting Shares, will be converted into 0.19
shares of UST Common Stock and preferred stock purchase rights associated
therewith pursuant to the UST Rights Agreement (see "THE MERGER--Terms of the
Merger" and "DESCRIPTION OF UST CAPITAL STOCK--Stockholder Rights Agreement");
(b) each then-outstanding share of Somerset Common Stock owned by UST or any
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subsidiary of UST (except for any such shares of Somerset Common Stock held by
UST or its subsidiaries in a fiduciary capacity) will be canceled, retired and
cease to exist; and (c) each share of Somerset Common Stock issued and held in
Somerset's treasury will be canceled and retired. No conversion or payment will
be made with respect to the cancellation of shares referred to in clauses (b)
and (c) above. For a discussion of the treatment of Dissenting Shares, see "THE
MERGER--Rights of Dissenting Stockholders."
The Conversion Number is the product of arm's length negotiations between
the respective managements of UST and Somerset. In determining the fairness of
the Conversion Number, the management of Somerset had the benefit of advice from
its financial advisor, Legg Mason. See "THE MERGER-- Opinion of Somerset's
Financial Advisor." Because the Conversion Number is fixed and the market price
of UST Common Stock is subject to fluctuation, the value of the shares of UST
Common Stock that holders of Somerset Common Stock will receive in the Merger
may increase or decrease prior to and following the Merger.
MANNER OF EXCHANGING SOMERSET CERTIFICATES FOR UST CERTIFICATES. UST has
appointed UST's wholly-owned subsidiary, USTC (the "Exchange Agent"), to effect
the exchange of certificates in connection with the Merger. Promptly after the
Effective Time, and in any event no later than 10 days after the Effective Time,
UST shall use all reasonable efforts to cause the Exchange Agent to send to each
holder of record (other than UST or its subsidiaries for shares of Somerset
Common Stock it holds other than in a fiduciary capacity and holders of shares
of Somerset Common Stock who have perfected their rights of appraisal) of a
Somerset certificate which immediately prior to the Effective Time represented
outstanding shares of Somerset Common Stock (a "Somerset certificate"), a letter
of transmittal and instructions for its use in effecting the surrender of the
Somerset certificates in exchange for certificates representing shares of UST
Common Stock. Upon surrender of a Somerset certificate for exchange and
cancellation to the Exchange Agent, together with a duly executed letter of
transmittal and any other required documents, the holder of such Somerset
certificate will be entitled to receive, in exchange therefor, a certificate
representing the number of shares of UST Common Stock to which such Somerset
certificate holder is entitled upon consummation of the Merger and a check
representing cash in lieu of any fractional share thereof. The Somerset
certificate so surrendered will forthwith be canceled.
SOMERSET CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY AND
SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL THE SOMERSET STOCKHOLDER HAS
RECEIVED A TRANSMITTAL LETTER.
If any certificate for shares of UST Common Stock is to be issued in a name
other than that in which a Somerset certificate surrendered for exchange is
registered, the Somerset certificate so surrendered shall be properly endorsed
(or accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer. The person requesting such exchange shall pay to the
Exchange Agent, in advance, any transfer or other taxes incurred by reason of
the issuance of a certificate representing shares of UST Common Stock in any
name other than that of the registered holder of the Somerset certificate
surrendered, or which are required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
LOST CERTIFICATES. In the event that any Somerset certificate has been
lost, stolen or destroyed, upon receipt by UST of appropriate evidence as to
such loss, theft or destruction and as to the ownership of the Somerset
certificate, and the receipt by UST of appropriate and customary
indemnification, UST will issue shares of UST Common Stock and the fractional
share payment, if any, in exchange for the lost, stolen or destroyed Somerset
certificate.
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DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SOMERSET CERTIFICATES. No
dividend or other distribution payable after the Effective Time on UST Common
Stock will be paid to the holder of any Somerset certificates until such holder
surrenders such Somerset certificates for exchange as instructed. Subject to any
applicable law, upon surrender of any Somerset certificate, such holder will
receive (a) a certificate representing the shares of UST Common Stock into which
the former shares of Somerset Common Stock represented by such certificate have
been converted, (b) any withheld dividends or other distributions (without
interest) and (c) any withheld cash payments (without interest) for any
fractional share to which such stockholder is entitled.
POST EFFECTIVE TIME. After the Effective Time, there will be no transfers
on the transfer books of Somerset of the shares of Somerset Common Stock which
were outstanding immediately at the Effective Time. If, after the Effective
Time, Somerset certificates representing such shares are presented for transfer
to Somerset, they will be canceled and exchanged for certificates representing
shares of UST Common Stock pursuant to the terms of the Affiliation Agreement.
After the Effective Time, holders of Somerset certificates will cease to be and
have no rights as stockholders of Somerset or UST except for the right to
receive shares of UST Common Stock or cash in lieu of fractional shares of
Somerset Common Stock converted or rights afforded dissenting stockholders.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THE AFFILIATION AGREEMENT. The
respective obligations of each of Somerset and UST to effect the Merger are
subject to the fulfillment of the following conditions, none of which may be
waived:
(a) the Affiliation Agreement and the transactions contemplated thereby
shall have been approved by the requisite affirmative vote of the holders of
Somerset Common Stock;
(b) all authorizations, consents, orders or approvals of, or
declarations or filings with, and all expirations of waiting periods imposed
by, any governmental or regulatory authority or agency which are necessary
for the consummation of the Merger shall have been filed, occurred or been
obtained (all such authorizations, orders, declarations, approvals, filings
and consents and the lapse of all such waiting periods being referred to as
the "Requisite Regulatory Approvals") and all such Requisite Regulatory
Approvals shall be in full force and effect;
(c) the Registration Statement shall have become effective under the
Securities Act and shall not be subject to a stop order or a threatened stop
order;
(d) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be
in effect; and
(e) UST shall have received a letter from Arthur Andersen LLP and
Somerset shall have received a letter from Wolf & Company, P.C., each dated
the Closing Date, to the effect that the Merger may be accounted for as a
pooling of interests.
CONDITIONS TO UST'S OBLIGATIONS. The obligation of UST to effect the Merger
also is subject to the satisfaction or waiver by UST, at or prior to the
Effective Time, of the following conditions:
(a) no material adverse change shall have occurred in the business,
assets, financial condition, results of operations or prospects of Somerset
or any of its subsidiaries;
(b) UST shall have received assurance that Somerset's representations
and warranties are true and correct in all material respects as of the date
of the Affiliation Agreement and as of the Effective Time as though made at
and as of the Effective Time (except as otherwise specifically contemplated
by the Affiliation Agreement according to the standards set forth in the
Affiliation Agreement or any
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representation or warranty which specifically relates to an earlier date)
and all of Somerset's pre-closing obligations have been complied with in all
material respects;
(c) all required approvals of non-governmental and non-regulatory third
parties which are necessary in connection with the consummation of the
Merger to be received by Somerset have been received;
(d) there shall not have been any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, UST or USTrust after the Effective Time, by any federal or state
governmental agency or authority which, in connection with the granting of
any Requisite Regulatory Approval necessary to consummate the Merger or
otherwise, imposes any condition or restriction upon UST or its subsidiaries
or Somerset after the Merger (including, without limitation, requirements
relating to the disposition of assets or limitations on interest rates),
which would so materially adversely impact the economic or business benefits
of the transactions contemplated by the Affiliation Agreement as to render
inadvisable, in the reasonable judgment of UST, the consummation of the
Merger.
(e) UST shall have (i) obtained a letter ruling from the IRS
substantially to the effect that for federal income tax purposes the Merger
constitutes a reorganization as described in Section 368(a) of the Code or
(ii) if, on the date the last Requisite Regulatory Approval is received, the
letter ruling referred to in clause (i) shall not have been received, UST
shall have received a tax opinion from its counsel, Bingham Dana LLP, 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; provided,
however, that if, on the date that the last Requisite Regulatory Approval is
received, the letter ruling referred to in clause (i) shall not have been
received and Bingham Dana LLP has advised UST that it is unable to deliver
the tax opinion referred to in clause (ii), and all other conditions to
closing set forth in Article VI of the Affiliation Agreement have been
satisfied, UST and Somerset shall cooperate and use reasonable efforts to
take all steps necessary to alter the structure of the transactions
contemplated by the Affiliation Agreement to ensure that the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and, in such event, either UST or
Somerset shall, upon written notice to the other party hereto, have the
right to extend the Termination Date (as defined in the Affiliation
Agreement) until October 31, 1998, provided that such party is not in
material breach of the Affiliation Agreement or the Stock Option Agreement;
(f) Somerset shall have delivered to UST, Somerset Affiliates Letters
executed by each of the Affiliates of Somerset; and
(g) if requested by UST, Somerset shall have terminated certain benefit
plans.
CONDITIONS TO SOMERSET'S OBLIGATIONS. The obligations of Somerset to effect
the Merger are also subject to the satisfaction or waiver by Somerset, at or
prior to the Effective Time, of the following conditions:
(a) Somerset shall have received assurance that UST's representations
and warranties are true and correct in all material respects as of the date
of the Affiliation Agreement and as of the Effective Time and all of UST's
pre-closing obligations have been complied with in all material respects;
(b) all required approvals of non-governmental and non-regulatory third
parties necessary in connection with the consummation of the Merger and are
required to be received;
(c) Nutter, McClennen & Fish, LLP shall have delivered to Somerset a tax
opinion 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; provided, however, that if UST obtains a letter ruling to that effect
from the IRS, Somerset expects that this condition will be waived; and
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(d) the shares of UST Common Stock issuable to Somerset's stockholders
pursuant to the Affiliation Agreement shall have been authorized for listing
on Nasdaq upon official notice of issuance.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Affiliation Agreement, Somerset has agreed that during the
period from the date of the Affiliation Agreement, December 9, 1997, to the
Effective Time, Somerset:
(a) shall conduct its business and engage in transactions only in the
ordinary and usual course of business consistent with past practices;
(b) shall not and shall not permit any of its subsidiaries, without the
prior written consent of UST,: (i) to engage or participate in any material
transaction or incur or sustain any material obligation or liability except
in the ordinary and usual course of its businesses consistent with past
practices; (ii) to offer an interest rate with respect to any deposit that
would constitute such deposit a "brokered deposit" of Somerset under 12
C.F.R. Section337.6(a)(l)(ii); (iii) except in the ordinary and usual course
of business consistent with past practices and in an immaterial aggregate
amount, to sell, lease, transfer, assign, encumber or otherwise dispose of
or enter into any contract, agreement or understanding to lease, transfer,
assign, encumber or dispose of any of its assets except as provided in the
Affiliation Agreement; (iv) to file any application or give any notice to
customers or governmental authorities or agencies to open, close or relocate
any branch office; or (v) to waive any material right, whether in equity or
at law, that it has with respect to any asset, other than loans, except in
the ordinary and usual course of business consistent with past practice and
except as provided in the Affiliation Agreement;
(c) shall cooperate with UST with respect to preparation for the
combination and integration of the businesses, systems and operations of
USTrust and Somerset;
(d) shall, subject to any restrictions under applicable law or
regulation, promptly notify UST of any emergency or other change in the
normal course of its business or in the operation of its properties and of
any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency, change,
complaint, investigation or hearing reasonably could be expected to have a
material effect on the business, results of operations, financial condition
or prospects of Somerset;
(e) shall not make any loan or extend any credit other than on
Somerset's customary terms, conditions and standards except in connection
with any loan workouts in accordance with applicable law and consistent with
the banking practices of comparably-sized depository institutions; provided,
however, that notwithstanding the foregoing, Somerset shall not, without the
written consent of UST, which shall not be unreasonably withheld, execute
any waiver, release of any right, or cancellation, compromise or extension
of payment or the date of any debt, loan, loan payment or claim, in excess
of $500,000 in any one instance or series of related instances or which
would extend the maturity date of any debt, loan, loan payment or claim
beyond two years thereof, make any loan, advance, commitment to extend
credit or any advance which increases any currently outstanding obligation
of any borrower or creates or would create any new obligation of any
borrower, which would result in aggregate obligations of such borrower to
Somerset, direct or indirect, primary or secondary, absolute or contingent,
including obligations if commitments are honored, in excess of $500,000;
(f) shall not declare or pay any dividends on or make any other
distributions in respect of Somerset Common Stock;
(g) shall not adopt or amend in any material respect any pension,
benefit or any other compensation plans or arrangements or enter into or
amend such plans or arrangements to increase any amounts payable thereunder
or benefits provided thereunder, or grant or permit any increase in
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compensation to any officer or to its employees as a class or pay any bonus,
except as provided in the Affiliation Agreement;
(h) except as set forth in the Affiliation Agreement, shall not, with
respect to itself or any of its subsidiaries, authorize, recommend, propose
or enter into an agreement with respect to, any merger, consolidation,
purchase and assumption transaction or business combination (other than the
Merger), any acquisition of a material amount of assets or securities or
assumption of liabilities (including deposit liabilities), any disposition
of a material amount of assets or securities, or any release or
relinquishment of any material contract rights other than in the ordinary
course consistent with past practices;
(i) shall not propose or adopt amendments to its, or any of its
subsidiaries' charters or by-laws;
(j) shall not, and shall not permit its subsidiaries to, issue, deliver
or sell any shares of its capital stock or securities convertible into or
exercisable for shares of its capital stock, except upon the exercise or
fulfillment of rights or options issued or existing pursuant to employee
benefit plans, programs or arrangements, all to the extent outstanding or in
existence on December 9, 1997, and except upon exercise of the Option, or
effect any stock split, reverse stock split, recapitalization,
reclassification or similar transaction or otherwise change its equity
capitalization as it existed on September 30, 1997;
(k) shall not grant, confer or award any options, warrants, conversion
rights or other rights, not existing on the date hereof, to acquire any
shares of its capital stock;
(l) shall not purchase, redeem or otherwise acquire any shares of its
capital stock or any securities convertible into or exercisable for any
shares of its capital stock, except in a fiduciary capacity;
(m) shall not impose or permit to exist any material lien, charge, or
encumbrance on any capital stock held by it;
(n) shall not incur, or permit any of its subsidiaries to incur, any
additional debt obligation or other obligation for borrowed money, or to
guaranty any additional debt obligation or other obligation for borrowed
money, except in the ordinary course of business consistent with past
practices;
(o) shall not incur or commit to any capital expenditures or any
obligations or liabilities in connection therewith, other than in the
ordinary and usual course of business consistent with past practices, and,
in all cases, Somerset agrees to consult with UST with respect to capital
expenditures that individually exceed $50,000 or cumulatively exceed
$200,000;
(p) shall not change its methods of accounting in effect at December 31,
1996, except as may be required by changes in GAAP as concurred in by
Somerset's independent auditors, and Somerset shall not change its fiscal
year;
(q) shall file all reports, applications and other documents required to
be filed by it with the FDIC or any other governmental entity between the
date of the Affiliation Agreement and the Effective Time and shall make
available to UST copies of all such reports promptly after the same are
filed;
(r) shall use all commercially reasonable efforts to improve its
business, results of operations, financial condition and prospects,
consistent with the terms of the Affiliation Agreement;
(s) shall cooperate with UST with the objective of seeking appropriate
modification or rescission of all formal and informal supervisory
enforcement actions;
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(t) shall not take any action which would prevent or impede the Merger
from qualifying (i) for pooling of interests accounting treatment or (ii) as
a reorganization within the meaning of Section 368 of the Code;
(u) shall not, except as expressly contemplated by the Affiliation
Agreement, enter into any contract with any Affiliate;
(v) shall not, except as provided in the Affiliation Agreement and
except for transactions in the ordinary course of business consistent with
past practice, enter into or terminate any material contract or agreement,
or make any changes in any of its material leases or contracts, other than
renewals of contracts and leases without material adverse change of terms;
(w) shall not, other than in prior consultation with UST, restructure or
materially change its investment securities portfolio or its gap position
through purchases, sales or otherwise, or the manner in which the portfolio
is classified or reported; and
(x) shall not agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any of its representations
or warranties contained in the Affiliation Agreement untrue or incorrect in
any material respect.
Somerset has also agreed that, unless and until the Affiliation Agreement
has been properly terminated by either party, neither Somerset nor any of its
subsidiaries or Affiliates shall (and Somerset shall use its best efforts to
cause its representatives, including, but not limited to, investment bankers,
attorneys and accountants, not to), directly or indirectly, encourage, solicit,
initiate or participate in any discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than UST and its Affiliates or representatives) concerning any merger,
tender offer, sale of substantial assets, sale of shares of capital stock or
debt securities or similar transaction involving Somerset (an "Acquisition
Transaction"). Notwithstanding the foregoing, Somerset is not prohibited from
taking and disclosing to Somerset's stockholders a position with respect to a
tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act or from making such disclosure to Somerset's stockholders
which, in the judgment of the Somerset Board with the written advice of outside
counsel, may be required under applicable law. Somerset has agreed to promptly
communicate to UST the identity of the parties and terms of any proposal,
discussion, negotiation or inquiry relating to an Acquisition Transaction.
UST and Somerset have agreed to cooperate and use all reasonable efforts to
prepare all necessary documentation and file all applications, notices,
petitions and filings, and to obtain and to cooperate in obtaining permits,
consents, approvals and authorizations of all third parties and governmental
entities necessary or advisable to consummate the transactions contemplated by
the Affiliation Agreement and to comply with the terms and conditions of all
such permits, consents, approvals and authorizations.
From December 9, 1997 until the earlier of the Effective Time or the date of
termination of the Affiliation Agreement, UST has agreed that neither UST nor
its Significant Subsidiaries (as defined in the Affiliation Agreement) will take
any action which would prevent or impede the Merger from qualifying for pooling
of interests treatment and as a reorganization with the meaning of Section
368(a) of the Code.
UST has also agreed to cause the shares of UST Common Stock to be issued in
the Merger to be approved for listing on the Nasdaq, subject to official notice
of issuance as of or prior to the Effective Time.
WAIVER AND AMENDMENT
WAIVER. UST and Somerset, with the authorization of their respective Boards
of Directors, may, by written notice to the other party (a) extend the time for
the performance of any of the obligations or other acts required of the other
party contained in the Affiliation Agreement, (b) waive any inaccuracies in the
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representations and warranties of the other party contained in the Affiliation
Agreement or in any document delivered pursuant to the Affiliation Agreement or
(c) waive compliance by the other party of any of its agreements or obligations
under certain sections of the Affiliation Agreement; provided that any extension
or waiver which reduces the amount or changes the form of the consideration to
be delivered to Somerset stockholders may not be made after Somerset
stockholders have approved the Affiliation Agreement unless stockholder approval
for the extension or waiver is obtained. Such waiver or failure to insist on
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
AMENDMENT. Subject to the applicable provisions of the Massachusetts
General Laws and as may be authorized by their respective Boards of Directors,
the Affiliation Agreement may be amended upon the written agreement of Somerset
and UST at any time; provided that any amendment which reduces the amount or
changes the form of the consideration to be delivered to the Somerset
stockholders may not be made after the stockholders of Somerset have approved
the Affiliation Agreement unless stockholder approval for the amendment is
obtained.
EXPENSES
The Affiliation Agreement provides that except as otherwise may be agreed in
writing by the parties, all legal and other costs and expenses incurred in
connection with the Affiliation Agreement and the transactions contemplated
thereby will be paid by the party incurring such costs and expenses; provided,
however, that all costs and expenses incurred in connection with the printing
and mailing of the Registration Statement and this Proxy Statement--Prospectus
shall be borne equally by UST and Somerset.
TERMINATION OF THE AFFILIATION AGREEMENT
The Affiliation Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by Somerset's stockholders of
the Affiliation Agreement and the transactions contemplated thereby:
(a) by mutual written consent of Somerset and UST authorized by their
respective Boards of Directors;
(b) by Somerset or UST if the Effective Time shall not have occurred on
or prior to August 31, 1998 or such later date as shall have been agreed to
in writing by Somerset and UST, subject to the right of either UST or
Somerset to extend the date of termination in the limited circumstances
discussed in "THE MERGER--Certain Federal Income Tax Consequences;"
(c) by Somerset or UST if any governmental or regulatory authority or
agency, or court of competent jurisdiction, shall have issued a final
permanent order or Injunction (as defined in the Affiliation Agreement)
enjoining, denying approval of, or otherwise prohibiting the consummation of
the Merger and the time for appeal or petition for reconsideration of such
order or Injunction shall have expired without such appeal or petition being
granted;
(d) by Somerset or UST (provided that the terminating party is not then
in material breach of any representation, warranty or covenant or other
agreement contained in the Affiliation Agreement or the Option Agreement) if
the approval of Somerset's stockholders shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
Somerset's stockholders or at any adjournment thereof; or
(e) by Somerset or UST (provided that the terminating party is not then
in material breach of any representation, warranty, covenant or other
agreement contained in the Affiliation Agreement or Option Agreement), in
the event of a material breach by the other party of any representation,
warranty, covenant or other agreement contained in the Affiliation Agreement
or Option Agreement which breach is not cured after 20 days written notice
thereof is given to the party committing such breach.
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CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT
GENERAL. As a condition to UST's entering into the Affiliation Agreement,
and in consideration therefor, on December 9, 1997, Somerset entered into the
Stock Option Agreement, pursuant to which Somerset granted to UST the Option.
The Stock Option Agreement is intended to protect UST's interests under the
Affiliation Agreement upon the occurrence of certain events which may create the
potential for a third party to acquire or obtain control of Somerset. The Stock
Option Agreement may increase the likelihood that the Merger will be consummated
by making it more difficult and more expensive for another party to obtain
control of or acquire Somerset. Consequently, certain aspects of the Stock
Option Agreement may have the effect of discouraging persons or entities who
might now or prior to the Effective Time be interested in acquiring all of, or a
significant interest in, Somerset from considering or proposing such an
acquisition, even if such persons were prepared to pay consideration to
Somerset's stockholders which had a higher current market price than the shares
of UST Common Stock to be received for each share of Somerset Common Stock
pursuant to the Affiliation Agreement. The Stock Option Agreement is attached
hereto as APPENDIX B.
GRANT OF OPTION. The Option entitles UST to purchase up to 2,777,000 fully
paid and non-assessable shares of Somerset Common Stock (the "Option Shares"),
representing approximately 16.7% of Somerset's issued and outstanding shares of
Common Stock, at a price of $4.875 per share (the "Option Price"). The aggregate
purchase price for the Option Shares is $13,537,875. As Somerset does not have a
sufficient amount of authorized shares reserved to grant UST an option to
purchase 19.9% of Somerset Common Stock, which typically is the percentage for
which such options are exercisable in transactions of this type, Somerset also
agreed to pay to UST, as part of the Option, certain additional cash
consideration which is intended in the aggregate to provide UST with the
economic benefit it would receive had the Option been for the right to purchase
19.9% of the issued and outstanding shares of Somerset Common Stock. See
"--Additional Cash Consideration" below.
TRIGGERING EVENTS; EXERCISE OF OPTION. The Stock Option Agreement provides
that UST may exercise the Option, in whole or in part, if both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below).
An "Initial Triggering Event" means any of the following events or
transactions occurring after December 9, 1997: (i) Somerset or any of its
subsidiaries, without having received UST's prior written consent, enters into
an agreement to engage in, or the Somerset Board recommends approval of, a
merger or consolidation, or any similar transaction, a purchase, lease or other
acquisition of all or substantially all of the assets of Somerset or a purchase
or other acquisition of securities representing 10% or more of the voting power
of Somerset (each, an "Acquisition Transaction") with any person, other than UST
or its subsidiaries; (ii) any person, other than UST or any subsidiary of UST or
Somerset in a fiduciary capacity, and other than a Schedule 13G Investor (as
defined in the Stock Option Agreement) acquires beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding shares
of Somerset Common Stock, if such person owned beneficially less than 10% of the
outstanding shares of Somerset Common Stock on December 9, 1997, or any person
shall have acquired beneficial ownership of an additional 3% of the outstanding
shares of Somerset Common Stock, if such person owned beneficially 10% or more
of the outstanding shares of Somerset Common Stock on December 9, 1997; (iii)
(A) the Somerset stockholders shall not have approved the Affiliation Agreement
at the Special Meeting, (B) the Special Meeting shall not have been held or
shall have been canceled prior to the termination of the Affiliation Agreement,
or (C) the Somerset Board shall have withdrawn or modified in a manner adverse
to UST the recommendation of the Somerset Board with respect to the Affiliation
Agreement, in each case after it shall have been publicly announced or become
publicly known that (x) any person, other than
51
<PAGE>
UST or any subsidiary of UST, shall have made a bona-fide proposal to Somerset
or its stockholders to engage in an Acquisition Transaction by public
announcement or written communication that shall be or become the subject of
public disclosure; or (y) any person other than UST or any subsidiary of UST,
other than in connection with a transaction to which UST has given its prior
written consent, shall have filed 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; (iv) after any person other than UST or any
subsidiary of UST has made a proposal to Somerset or its shareholders to engage
in an Acquisition Transaction, Somerset shall have breached any covenant or
obligation contained in the Affiliation Agreement and such breach (A) would
entitle UST to terminate the Affiliation Agreement and (B) is not remedied prior
to the Notice Date (as defined in the Stock Option Agreement); or (v) any person
(other than UST or any subsidiary of UST) shall have commenced (as such term is
defined in Rule 14d-2 under the Exchange Act), or shall have filed a
registration statement under the Securities Act, with respect to, a tender offer
or exchange offer to purchase any shares of Somerset Common Stock such that,
upon consummation of such offer, such person would own or control 50% or more of
the then outstanding shares of Somerset Common Stock.
The term "Subsequent Triggering Event" shall mean either of the following
events or transactions occurring after December 9, 1997: (i) the acquisition by
any person (other than a Schedule 13G Investor) of beneficial ownership of 15%
or more of the then outstanding Somerset Common Stock; or (ii) the occurrence of
an Initial Triggering Event by virtue of the acquisition of 10% or more of the
voting power of Somerset, except that the percentage of ownership shall be 15%
in lieu of 10%.
For purposes of the Stock Option Agreement, the term "Exercise Termination
Event" shall mean the earliest of (i) the Effective Time, (ii) termination of
the Affiliation Agreement if such termination occurs prior to the occurrence of
an Initial Triggering Event, and (iii) the passage of 12 months after
termination of the Affiliation Agreement if such termination follows a Initial
Triggering Event.
As of the date of this Proxy Statement--Prospectus, to the knowledge of UST
and Somerset, no Initial Triggering Event or Subsequent Triggering Event has
occurred.
ADDITIONAL CASH CONSIDERATION. As additional consideration for UST's entry
into the Affiliation Agreement, and to ensure that UST will receive in the
aggregate the same economic benefit it would have been entitled to receive if
the Option had been for 19.9% of the issued and outstanding shares of Somerset
Common Stock, upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Somerset has agreed to pay UST, an
amount in cash equal to the product of (i) 536,669 (the "Phantom Stock Shares"),
multiplied by (ii) the Option Spread. As defined in the Stock Option Agreement,
the term "Option Spread" means the arithmetic difference between (x) the Option
Price and (y) the "market/offer price," as such term is defined below. If
additional shares of Somerset Common Stock are issued or otherwise become
outstanding after December 9, 1997 (other than pursuant to exercise of the
Option pursuant to the Stock Option Agreement), including, without limitation,
pursuant to stock option or other employee plans, or as a result of the exercise
of conversion rights, the number of Phantom Stock Shares shall be increased so
that, after such increase, the sum of (x) the number of Phantom Stock Shares, as
increased, plus (y) 2,777,000, shall equal 19.9% of the number of shares of
Somerset Common Stock then issued and outstanding without giving effect to any
shares subject or issued pursuant to the Option. If the number of Option Shares
and/or the Option Price is adjusted in accordance with the provisions of the
Stock Option Agreement, there shall be a corresponding adjustment in the number
of Phantom Stock Shares and the Option Spread.
REPURCHASE OF OPTION. Upon the occurrence of a Subsequent Triggering Event
that occurs prior to the occurrence of an Exercise Termination Event, (a) at the
request of UST or any subsequent holder of the Option (each, a "Holder"),
delivered within 30 days of the Subsequent Triggering Event, Somerset shall
repurchase the Option from UST or such holder at a price (the "Option Repurchase
Price") equal to the amount by which (i) the "market/offer price" exceeds (ii)
the Option Price, multiplied by the number
52
<PAGE>
of shares for which the Option may then be exercised, and (b) at the request of
any owner of Option Shares (the "Owner"), delivered within 30 days of the
Subsequent Triggering Event, Somerset shall repurchase such number of Option
Shares from such Owner as the Owner shall designate at a price (the "Option
Share Repurchase Price") equal to the greater of (i) the market/offer price or
(ii) the average exercise price per share paid by the Owner for the Option
Shares so designated. The repurchase of an Option by Somerset pursuant to the
terms of the Stock Option Agreement may be subject to prior approval of certain
regulatory authorities. See "THE MERGER--Regulatory Approval Required for the
Merger."
The term "market/offer price" means the highest of (i) the price per share
of Somerset Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the price per share of Somerset Common Stock to be paid by any
person pursuant to an agreement with Somerset, (iii) the highest sale price for
shares of Somerset Common Stock within the six-month period immediately
preceding the required repurchase of the Option or Option Shares, as the case
may be, or (iv) in the event of a sale of all or substantially all of Somerset's
assets, the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Somerset as determined by a nationally
recognized investment banking firm selected by a majority in interest of the
Holders or the Owners, as the case may be, and reasonably acceptable to
Somerset, divided by the number of shares of Somerset Common Stock outstanding
at the time of such sale. In determining the market/offer price, the value of
consideration other than cash will be determined by a nationally recognized
investment banking firm selected by a majority in interest of the Holders or the
Owners, as the case may be, and reasonably acceptable to Somerset.
VOTING AGREEMENTS
As a condition to UST entering into the Affiliation Agreement, the directors
and certain executive officers of Somerset, owning in the aggregate [338,131]
shares, representing 2.0% of the issued and outstanding shares of Somerset
Common Stock, have agreed pursuant to the Voting Agreements, to vote or cause to
be voted all shares owned by each such person at the Special Meeting for
approval of the Merger, and to vote or cause to be voted such shares against
approval of any other agreement for a merger, acquisition, consolidation,
material asset sale, or other business combination of Somerset with any other
party other than UST or any of its affiliates.
The Voting Agreements remain in force until the earlier of the consummation
of the Merger or the termination of the Affiliation Agreement in accordance with
its terms.
53
<PAGE>
UST CORP.
FIRESTONE FINANCIAL CORP.
SOMERSET SAVINGS BANK
AFFILIATED COMMUNITY BANCORP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
SEPTEMBER 30, 1997
The following Unaudited Pro Forma Condensed Combining Balance Sheet presents
the combined financial position of UST and subsidiaries and Somerset as of
September 30, 1997, assuming the Merger had occurred as of September 30, 1997.
The Unaudited Pro Forma Condensed Combining Balance Sheet also gives effect to
the acquisition of Firestone completed on October 15, 1997 and the pending
acquisition of AFCB pursuant to an agreement entered into on December 15, 1997.
See "INFORMATION ABOUT UST--Recent Developments" for a description of the
acquisitions of Firestone and AFCB.
The accompanying pro forma information is based on historical balance sheet
data of UST, Firestone, Somerset and AFCB as of September 30, 1997, giving
effect to the acquisitions of Firestone, Somerset and AFCB under the pooling of
interests method of accounting.
The Unaudited Pro Forma Condensed Combining Balance Sheet should be read in
conjunction with the Unaudited Pro Forma Condensed Combined Statements of Income
appearing elsewhere in this Proxy Statement--Prospectus and the Notes to
Unaudited Pro Forma Condensed Financial Information and the historical financial
statements and notes thereto of UST, Firestone, Somerset and AFCB which are
incorporated by reference in this Proxy Statement--Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." The Unaudited Pro Forma
Condensed 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 acquisitions of Firestone, Somerset and AFCB had been
consummated on September 30, 1997 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
"CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION."
54
<PAGE>
UST CORP.
FIRESTONE FINANCIAL CORP.
SOMERSET SAVINGS BANK
AFFILIATED COMMUNITY BANCORP, INC.
September 30, 1997
<TABLE>
<CAPTION>
PRO
HISTORICAL PRO FORMA FORMA
----------------------------------- ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
UST FIRESTONE SOMERSET (NOTES 1 & 2) COMBINED AFCB (NOTES 1 & 2) COMBINED
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Cash, due from banks and
interest bearing
deposits............... $ 92,171 $ 21 $ 7,704 $ (8,500) $ 91,396 $ 15,979 $ (12,000) $ 95,375
Excess funds sold........ 129,731 1,155 130,886 4,584 135,470
Securities
Available-for-sale..... 712,415 712,415 193,330 905,745
Held to maturity....... 92,909 92,909 188,115 281,024
Loans, net of reserve for
possible loan losses... 2,587,498 83,633 389,526 3,060,657 699,554 3,760,211
Premises, furniture and
equipment.............. 64,258 114 12,668 77,040 8,790 85,830
Intangible assets, net... 59,634 59,634 59,634
Other real estae owned... 1,106 104 7,240 8,450 1 8,451
Other assets............. 44,036 1,228 9,137 54,401 18,226 72,627
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
Total assets....... $3,690,849 $ 85,100 $ 520,339 $ (8,500) $4,287,788 $1,128,579 $ (12,000) $5,404,367
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
LIABILITIES AND
STOCKHOLDERS'
INVESTMENT
Deposits:
Noninterest bearing.... $ 618,862 $ $ 22,697 $ $ 641,559 $ 46,682 $ 688,241
Interest bearing:
NOW accounts......... 42,268 27,089 69,357 56,513 125,870
Regular savings...... 662,295 68,779 731,074 123,475 854,549
Money market......... 628,746 48,555 677,301 74,877 752,178
Time deposits........ 911,756 290,693 1,202,449 403,887 1,606,336
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
Total deposits..... 2,863,927 457,813 3,321,740 705,434 4,027,174
Short-term borrowings.... 427,782 65,439 3,100 496,321 260,073 756,394
Other borrowings......... 18,063 20,447 38,510 46,057 84,567
Other liabilities........ 66,743 5,371 4,646 (2,200) 74,560 6,857 $ (3,300) 78,117
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
Total
liabilities...... 3,376,515 70,810 486,006 (2,200) 3,931,131 1,018,421 (3,300) 4,946,252
Stockholders' investment:
Common Stock
UST.................. 17,832 2,715 20,547 5,722 26,269
AFCB................. 67 (67)
Firestone............ 20 (20)
Somerset............. 16,652 (16,652)
Additional paid-in
capital................ 116,087 1,231 18,637 13,957 149,912 50,040 (9,057) 190,895
Retained earnings
(deficit).............. 179,767 13,039 (956) (6,300) 185,550 64,055 (8,700) 240,905
Unrealized gain on
securities held as
available-for-sale... 245 245 506 751
Treasury stock, at
cost................... (3,402) 3,402
Deferred compensation
and other............ 403 403 (1,108) (705)
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
Total stockholders'
investment....... 314,334 14,290 34,333 (6,300) 356,657 110,158 (8,700) 458,115
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
Total liabilities
and stockholders'
investment....... $3,690,849 $ 85,100 $ 520,339 $ (8,500) $4,287,788 $1,128,579 $ (12,000) $5,404,367
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
--------- ----------- ----------- ------------- ----------- --------- ------------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
55
<PAGE>
UST CORP. AND SUBSIDIARIES
SOMERSET SAVINGS BANK
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF INCOME SUMMARY
The following Unaudited Pro Forma Condensed Combined Statements of Income
give effect to UST's proposed acquisition of Somerset by combining the results
of operations of UST for the nine month periods ended September 30, 1997 and
1996, and for each of the three years ended December 31, 1996, with the results
of operations of Somerset for the nine month periods ended September 30, 1997
and 1996, and for each of the three years ended December 31, 1996 on a pooling
of interests basis, assuming the Merger had occurred as of the beginning of each
fiscal period. Income (loss) before change in accounting method per weighted
average common shares outstanding are based on the exchange ratio of 0.19 shares
of UST Common Stock for each share of Somerset Common Stock as specified in the
Affiliation Agreement. The Unaudited Pro Forma Condensed Combined Statements of
Income also give effect to the acquisition of Firestone completed on October 15,
1997 and the pending acquisition of AFCB pursuant to an agreement entered into
on December 15, 1997. See "INFORMATION ABOUT UST -- Recent Developments" for a
description of the acquisitions of Firestone and AFCB. The Unaudited Pro Forma
Condensed Combined Statements of Income should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Balance Sheet appearing elsewhere in this
Proxy Statement--Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
56
<PAGE>
UST CORP.
FIRESTONE FINANCIAL CORP.
SOMERSET SAVINGS BANK
AFFILIATED COMMUNITY BANCORP, INC.
PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UST FIRESTONE SOMERSET COMBINED AFCB COMBINED
---------- ----------- --------- ---------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases.............. $ 165,324 $ 8,199 $ 26,753 $ 200,276 $ 41,879 $ 242,155
Interest and dividends on securities............... 34,386 4,463 38,849 18,242 57,091
Interest on excess funds and other................. 3,728 135 3,863 162 4,025
---------- ----------- --------- ---------- --------- ----------
Total interest income.......................... 203,438 8,199 31,351 242,988 60,283 303,271
---------- ----------- --------- ---------- --------- ----------
Interest expense:
Interest on deposits............................... 61,485 15,353 76,838 20,847 97,685
Interest on borrowed funds......................... 16,976 3,637 1,218 21,831 13,067 34,898
---------- ----------- --------- ---------- --------- ----------
Total interest expense......................... 78,461 3,637 16,571 98,669 33,914 132,583
---------- ----------- --------- ---------- --------- ----------
Net interest income................................ 124,977 4,562 14,780 144,319 26,369 170,688
Provision for possible loan losses................. 600 900 1,500 700 2,200
---------- ----------- --------- ---------- --------- ----------
Net interest income after provision for possible
loan losses...................................... 124,377 4,562 13,880 142,819 25,669 168,488
---------- ----------- --------- ---------- --------- ----------
Noninterest income:
Asset management fees.............................. 9,600 9,600 9,600
Fees and charges................................... 11,047 479 11,526 1,170 12,696
Securities gains (losses), net..................... (1,151) (1,151) 97 (1,054)
Gain on sale of assets............................. 1,804 194 1,998 85 2,083
Other.............................................. 5,611 947 331 6,889 106 6,995
---------- ----------- --------- ---------- --------- ----------
Total noninterest income....................... 26,911 947 1,004 28,862 1,458 30,320
---------- ----------- --------- ---------- --------- ----------
Noninterest expense:
Salary and employee benefits....................... 53,128 1,983 5,237 60,348 7,783 68,131
Occupancy and equipment............................ 14,661 270 1,194 16,125 1,708 17,833
Restructuring charges.............................. 11,752 11,752 11,752
Merger related charges............................. 3,082 714 3,796 3,796
Foreclosed and workout expense..................... 315 1,411 1,726 (141) 1,585
Deposit insurance assessment....................... 687 673 1,360 198 1,558
Other.............................................. 33,389 736 2,842 36,967 3,498 40,465
---------- ----------- --------- ---------- --------- ----------
Total noninterest expense...................... 117,014 3,703 11,357 132,074 13,046 145,120
---------- ----------- --------- ---------- --------- ----------
Income before taxes.................................. 34,274 1,806 3,527 39,607 14,081 53,688
Income tax expense (benefit)....................... 14,859 948 (918) 14,889 5,253 20,142
---------- ----------- --------- ---------- --------- ----------
Net income........................................... $ 19,415 $ 858 $ 4,445 $ 24,718 $ 8,828 $ 33,546
---------- ----------- --------- ---------- --------- ----------
---------- ----------- --------- ---------- --------- ----------
Net income per share................................. $ 0.67 $ 0.43 $ 0.26 $ 0.74 $ 1.32 $ 0.79
Weighted average number of common shares
outstanding........................................ 28,855 2,000 16,878 33,242 6,679 42,659
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
57
<PAGE>
UST CORP.
FIRESTONE FINANCIAL CORP.
SOMERSET SAVINGS BANK
AFFILIATED COMMUNITY BANCORP, INC.
PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UST FIRESTONE SOMERSET COMBINED AFCB COMBINED
---------- ----------- --------- ---------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases.............. $ 128,979 $ 8,287 $ 26,596 $ 163,862 $ 35,586 $ 199,448
Interest and dividends on securities............... 40,792 3,580 44,372 16,617 60,989
Interest on excess funds and other................. 440 257 697 200 897
---------- ----------- --------- ---------- --------- ----------
Total interest income............................ 170,211 8,287 30,433 208,931 52,403 261,334
---------- ----------- --------- ---------- --------- ----------
Interest expense:
Interest on deposits............................... 53,123 15,155 68,278 18,988 87,266
Interest on borrowed funds......................... 18,128 3,850 1,528 23,506 10,389 33,895
---------- ----------- --------- ---------- --------- ----------
Total interest expense........................... 71,251 3,850 16,683 91,784 29,377 121,161
---------- ----------- --------- ---------- --------- ----------
Net interest income................................ 98,960 4,437 13,750 117,147 23,026 140,173
Provision for possible loan losses................... (17,674) 144 900 (16,630) 405 (16,225)
---------- ----------- --------- ---------- --------- ----------
Net interest income after provision for possible
loan losses...................................... 116,634 4,293 12,850 133,777 22,621 156,398
---------- ----------- --------- ---------- --------- ----------
Noninterest income:
Asset management fees.............................. 9,807 9,807 9,807
Fees and charges................................... 7,961 434 8,395 1,135 9,530
Securities gains (losses), net..................... 1,450 1,450 1,450
Gain on sale of assets............................. 16 25 41 86 127
Other.............................................. 5,127 751 288 6,166 38 6,204
---------- ----------- --------- ---------- --------- ----------
Total noninterest income......................... 24,361 751 747 25,859 1,259 27,118
---------- ----------- --------- ---------- --------- ----------
Noninterest expense:
Salary and employee benefits....................... 44,545 1,893 5,154 51,592 6,863 58,455
Occupancy and equipment............................ 11,593 230 1,151 12,974 1,562 14,536
Foreclosed and workout expense..................... 1,517 2,116 3,633 164 3,797
Deposit insurance assessment....................... 4,292 776 5,068 2,707 7,775
Other.............................................. 21,437 644 2,838 24,919 3,494 28,413
---------- ----------- --------- ---------- --------- ----------
Total noninterest expense........................ 83,384 2,767 12,035 98,186 14,790 112,976
---------- ----------- --------- ---------- --------- ----------
Income before taxes.................................. 57,611 2,277 1,562 61,450 9,090 70,540
Income tax expense (benefit)....................... 22,457 919 (440) 22,936 3,266 26,202
---------- ----------- --------- ---------- --------- ----------
Net income........................................... $ 35,154 $ 1,358 $ 2,002 $ 38,514 $ 5,824 $ 44,338
---------- ----------- --------- ---------- --------- ----------
---------- ----------- --------- ---------- --------- ----------
Net income per share................................. $ 1.24 $ 0.68 $ 0.12 $ 1.18 $ 0.90 $ 1.06
Weighted average number of common shares
outstanding........................................ 28,396 2,000 16,652 32,740 6,496 41,899
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
58
<PAGE>
UST CORP.
FIRESTONE FINANCIAL CORP.
SOMERSET SAVINGS BANK
AFFILIATED COMMUNITY BANCORP, INC.
PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UST FIRESTONE SOMERSET COMBINED AFCB COMBINED
---------- --------- --------- ---------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases.............. $ 176,897 $ 10,904 $ 35,521 $ 223,322 $ 48,661 $ 271,983
Interest and dividends on securities............... 53,188 5,034 58,222 22,415 80,637
Interest on excess funds and other................. 2,223 303 2,526 265 2,791
---------- --------- --------- ---------- --------- ----------
Total interest income............................ 232,308 10,904 40,858 284,070 71,341 355,411
---------- --------- --------- ---------- --------- ----------
Interest expense:
Interest on deposits............................... 71,625 20,202 91,827 25,775 117,602
Interest on borrowed funds......................... 25,428 5,074 2,126 32,628 14,289 46,917
---------- --------- --------- ---------- --------- ----------
Total interest expense........................... 97,053 5,074 22,328 124,455 40,064 164,519
---------- --------- --------- ---------- --------- ----------
Net interest income................................ 135,255 5,830 18,530 159,615 31,277 190,892
Provision for possible loan losses................... (17,300) 1,200 (16,100) 605 (15,495)
---------- --------- --------- ---------- --------- ----------
Net interest income after provision for possible
loan losses...................................... 152,555 5,830 17,330 175,715 30,672 206,387
---------- --------- --------- ---------- --------- ----------
Noninterest income:
Asset management fees.............................. 12,947 12,947 12,947
Fees and charges................................... 11,020 587 11,607 1,540 13,147
Securities gains (losses), net..................... 1,179 1,179 (47) 1,132
Gain on sale of bank subsidiary.................... 6,806 6,806 6,806
Gain on sale of assets............................. 2 43 45 76 121
Other.............................................. 6,871 1,116 427 8,414 69 8,483
---------- --------- --------- ---------- --------- ----------
Total noninterest income......................... 38,825 1,116 1,057 40,998 1,638 42,636
---------- --------- --------- ---------- --------- ----------
Noninterest expense:
Salary and employee benefits....................... 62,056 2,523 6,869 71,448 9,054 80,502
Occupancy and equipment............................ 15,877 264 1,536 17,677 2,086 19,763
Foreclosed and workout expense..................... 1,687 2,728 4,415 129 4,544
Deposit insurance assessment....................... 3,959 1,040 4,999 2,860 7,859
Acquisition related expenses....................... 5,933 5,933 5,933
Other.............................................. 31,426 943 3,841 36,210 4,837 41,047
---------- --------- --------- ---------- --------- ----------
Total noninterest expense........................ 120,938 3,730 16,014 140,682 18,966 159,648
---------- --------- --------- ---------- --------- ----------
Income before taxes.................................. 70,442 3,216 2,373 76,031 13,344 89,375
Income tax expense (benefit)....................... 27,261 1,120 (440) 27,941 4,821 32,762
---------- --------- --------- ---------- --------- ----------
Net income........................................... $ 43,181 $ 2,096 $ 2,813 $ 48,090 $ 8,523 $ 56,613
---------- --------- --------- ---------- --------- ----------
---------- --------- --------- ---------- --------- ----------
Net income per share................................. $ 1.52 $ 1.05 $ 0.17 $ 1.47 $ 1.31 $ 1.35
Weighted average number of common shares
outstanding........................................ 28,396 2,000 16,652 32,740 6,510 41,919
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
59
<PAGE>
UST CORP.
FIRESTONE FINANCIAL CORP.
SOMERSET SAVINGS BANK
AFFILIATED COMMUNITY BANCORP, INC.
PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UST FIRESTONE SOMERSET COMBINED AFCB COMBINED
---------- --------- --------- ---------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases.............. $ 172,480 $ 10,296 $ 36,350 $ 219,126 $ 41,924 $ 261,050
Interest and dividends on securities............... 42,503 3,844 46,347 18,598 64,945
Interest on excess funds and other................. 3,939 242 4,181 474 4,655
---------- --------- --------- ---------- --------- ----------
Total interest income............................ 218,922 10,296 40,436 269,654 60,996 330,650
---------- --------- --------- ---------- --------- ----------
Interest expense:
Interest on deposits............................... 69,381 18,932 88,313 22,878 111,191
Interest on borrowed funds......................... 16,181 5,070 3,841 25,092 10,346 35,438
---------- --------- --------- ---------- --------- ----------
Total interest expense........................... 85,562 5,070 22,773 113,405 33,224 146,629
---------- --------- --------- ---------- --------- ----------
Net interest income................................ 133,360 5,226 17,663 156,249 27,772 184,021
Provision for possible loan losses................... 14,115 280 1,200 15,595 325 15,920
---------- --------- --------- ---------- --------- ----------
Net interest income after provision for possible
loan losses...................................... 119,245 4,946 16,463 140,654 27,447 168,101
---------- --------- --------- ---------- --------- ----------
Noninterest income:
Asset management fees.............................. 13,581 13,581 13,581
Fees and charges................................... 11,278 587 11,865 1,553 13,418
Securities gains (losses), net..................... 2,395 2,395 33 2,428
Gain on sale of assets............................. 157 54 211 16 227
Other.............................................. 6,943 939 415 8,297 91 8,388
---------- --------- --------- ---------- --------- ----------
Total noninterest income......................... 34,354 939 1,056 36,349 1,693 38,042
---------- --------- --------- ---------- --------- ----------
Noninterest expense:
Salary and employee benefits....................... 57,425 2,394 6,476 66,295 8,587 74,882
Occupancy and equipment............................ 15,471 287 1,535 17,293 1,994 19,287
Foreclosed and workout expense..................... 5,972 4,641 10,613 (107) 10,506
Deposit insurance assessment....................... 4,051 1,189 5,240 1,006 6,246
Other.............................................. 31,557 964 3,600 36,121 6,754 42,875
---------- --------- --------- ---------- --------- ----------
Total noninterest expense........................ 114,476 3,645 17,441 135,562 18,234 153,796
---------- --------- --------- ---------- --------- ----------
Income before taxes.................................. 39,123 2,240 78 41,441 10,906 52,347
Income tax expense (benefit)....................... 14,866 668 (1,000) 14,534 5,199 19,733
---------- --------- --------- ---------- --------- ----------
Income before accretion of purchase discount......... 24,257 1,572 1,078 26,907 5,707 32,614
Accretion of purchase discount....................... 1,224 1,224 1,224
---------- --------- --------- ---------- --------- ----------
Net income........................................... $ 24,257 $ 2,796 $ 1,078 $ 28,131 $ 5,707 $ 33,838
---------- --------- --------- ---------- --------- ----------
---------- --------- --------- ---------- --------- ----------
Income per share before accretion of purchase
discount........................................... $ 0.86 $ 0.79 $ 0.06 $ 0.83 $ 0.85 $ 0.78
Net income per share................................. $ 0.86 $ 1.40 $ 0.06 $ 0.86 $ 0.85 $ 0.81
Weighted average number of common shares
outstanding........................................ 28,237 2,000 16,652 32,581 6,683 42,004
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information
60
<PAGE>
UST CORP.
FIRESTONE FINANCIAL CORP.
SOMERSET SAVINGS BANK
AFFILIATED COMMUNITY BANCORP, INC.
PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UST FIRESTONE SOMERSET COMBINED AFCB COMBINED
---------- ----------- --------- ---------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases.............. $ 146,263 $ 8,571 $ 34,326 $ 189,160 $ 33,150 $ 222,310
Interest and dividends on securities............... 43,643 3,109 46,752 13,752 60,504
Interest on excess funds and other................. 2,717 61 2,778 469 3,247
---------- ----------- --------- ---------- --------- ----------
Total interest income............................ 192,623 8,571 37,496 238,690 47,371 286,061
---------- ----------- --------- ---------- --------- ----------
Interest expense:
Interest on deposits............................... 52,944 16,325 69,269 17,762 87,031
Interest on borrowed funds......................... 11,887 3,867 2,818 18,572 5,130 23,702
---------- ----------- --------- ---------- --------- ----------
Total interest expense........................... 64,831 3,867 19,143 87,841 22,892 110,733
---------- ----------- --------- ---------- --------- ----------
Net interest income................................ 127,792 4,704 18,353 150,849 24,479 175,328
Provision for possible loan losses................... 25,481 193 1,800 27,474 550 28,024
---------- ----------- --------- ---------- --------- ----------
Net interest income after provision for possible
loan losses...................................... 102,311 4,511 16,553 123,375 23,929 147,304
---------- ----------- --------- ---------- --------- ----------
Noninterest income:
Asset management fees.............................. 14,419 14,419 14,419
Fees and charges................................... 12,084 609 12,693 1,595 14,288
Securities gains (losses), net..................... 1,215 1,215 (420) 795
Gain on sale of assets............................. 337 (32) 305 92 397
Other.............................................. 5,992 929 378 7,299 81 7,380
---------- ----------- --------- ---------- --------- ----------
Total noninterest income......................... 34,047 929 955 35,931 1,348 37,279
---------- ----------- --------- ---------- --------- ----------
Noninterest expense:
Salary and employee benefits....................... 55,157 2,166 6,085 63,408 7,930 71,338
Occupancy and equipment............................ 15,342 166 1,613 17,121 1,772 18,893
Foreclosed and workout expense..................... 9,202 13,384 22,586 (124) 22,462
Deposit insurance assessment....................... 6,382 1,296 7,678 1,251 8,929
Other.............................................. 29,095 1,195 3,466 33,756 4,616 38,372
---------- ----------- --------- ---------- --------- ----------
Total noninterest expense........................ 115,178 3,527 25,844 144,549 15,445 159,994
---------- ----------- --------- ---------- --------- ----------
Income (loss) before taxes........................... 21,180 1,913 (8,336) 14,757 9,832 24,589
Income tax expense (benefit)....................... 6,946 786 7 7,739 2,806 10,545
---------- ----------- --------- ---------- --------- ----------
Income (loss) before accretion of purchase
discount........................................... 14,234 1,127 (8,343) 7,018 7,026 14,044
Accretion of purchase discount....................... 1,912 1,912 1,912
---------- ----------- --------- ---------- --------- ----------
Net income (loss).................................... $ 14,234 $ 3,039 $ (8,343) $ 8,930 $ 7,026 $ 15,956
---------- ----------- --------- ---------- --------- ----------
---------- ----------- --------- ---------- --------- ----------
Income (loss) per share before accretion of purchase
discount........................................... $ 0.51 $ 0.56 $ (0.50) $ 0.22 $ 1.06 $ 0.34
Net income per share................................. $ 0.51 $ 1.52 $ (0.50) $ 0.28 $ 1.06 $ 0.38
Weighted average number of common shares
outstanding........................................ 27,829 2,000 16,652 32,173 6,633 41,525
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION
NOTE 1:
It is contemplated that the pending acquisitions of Somerset and AFCB will
be accounted for as poolings of interests. Accordingly, pro forma financial
information assumes that the transactions were consummated as of the beginning
of each of the periods indicated herein. Certain reclassifications have been
made to the accounts of Firestone, Somerset and AFCB in the accompanying
Unaudited Pro Forma Condensed Combining Balance Sheet and Unaudited Pro Forma
Condensed Combined Statements of Income to conform to UST presentation. Pro
forma results from continuing operations do not reflect nonrecurring items of
income and expense resulting directly from the acquisitions. In addition, the
accompanying Unaudited Pro Forma Condensed Combined Statements of Income do not
include in continuing operations the $1.2 million and $1.9 million accretion of
purchase discount in 1995 and 1994, respectively, resulting from the purchase of
Firestone from the FDIC in 1992. The fair value of Firestone's assets exceeded
the purchase price by $5.7 million and was accreted into income over a 36 month
period ending in 1995 and was non-taxable.
The effect of an estimated one-time charge of $5.3 million ($7.5 million
pre-tax), to be taken by UST in connection with the acquisition of Somerset has
been reflected in the accompanying Unaudited Pro Forma Condensed Combining
Balance Sheet as a reduction in cash and retained earnings, net of a 40% tax
benefit of $2.2 million recorded in other liabilities after excluding $2.1
million of nondeductible expense.
The effect of an estimated one-time charge of $8.7 million ($12.0 million
pre-tax), to be taken by UST in connection with the acquisition of AFCB has been
reflected in the accompanying Unaudited Pro Forma Condensed Combining Balance
Sheet as a reduction in cash and retained earnings, net of a 40% tax benefit of
$3.3 million recorded in other liabilities after excluding $3.8 million of
nondeductible expense.
The effect of a one-time nondeductible charge of $1.0 million recorded by
UST and Firestone in connection with the Firestone acquisition has been
reflected in the accompanying Unaudited Pro Forma Condensed Combining Balance
Sheet as a reduction in cash and retained earnings.
These charges have not been reflected in the Unaudited Pro Forma Condensed
Combined Statements of Income since they are nonrecurring. The pro forma
financial information does not give effect to any cost savings in connection
with the pending acquisitions.
NOTE 2:
SOMERSET
The pro forma Stockholders' investment accounts of UST and Somerset have
been adjusted in the accompanying Unaudited Pro Forma Condensed Combining
Balance Sheet to reflect the issuance of shares of UST Common Stock in exchange
for all of the outstanding shares of Somerset Common Stock. The number of shares
of UST Common Stock to be issued pursuant to the acquisition of Somerset is
based upon the number of Somerset shares outstanding as of September 30, 1997,
and the exchange ratio of 0.19 shares of UST Common Stock for each share of
Somerset Common Stock as specified in the Affiliation Agreement. The excess of
the par value of the Somerset Common Stock to be acquired over the par value of
the UST Common Stock to be issued has been credited to Additional
paid-in-capital.
FIRESTONE AND AFCB
The pro forma Stockholders' investment accounts of UST, as adjusted for
Somerset, have been further adjusted to reflect the issuance of shares of UST
Common Stock in exchange for all of the outstanding shares of Firestone and AFCB
common stock.
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<PAGE>
The number of shares of UST Common Stock to be issued pursuant to the
acquisition of Firestone is based upon the number of Firestone shares
outstanding as of September 30, 1997, and the exchange ratio of 0.59 shares of
UST Common Stock for each share of Firestone common stock. The excess of the par
value of the UST Common Stock to be issued over the par value of the Firestone
common stock to be acquired has been charged to Additional paid-in-capital.
The number of shares of UST Common Stock to be issued pursuant to the
acquisition of AFCB is based upon the number of AFCB shares outstanding as of
September 30, 1997, and the exchange ratio of 1.41 shares of UST Common Stock
for each share of AFCB common stock. The excess of the par value of the UST
Common Stock to be issued over the par value of the AFCB common stock to be
acquired has been charged to Additional paid-in-capital. The Stockholders'
investment accounts of AFCB reflect the retirement of AFCB treasury stock ($3.4
million) upon consummation of the AFCB acquisition through a charge to
Additional paid-in-capital.
NOTE 3:
UST classifies its investments in debt and equity securities as "Securities
Available for Sale" in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, such securities are carried at fair value, with
unrealized gains and losses reported as a separate component of Stockholders'
investment. It is anticipated that, in order to maintain UST's existing interest
rate risk position, the securities in the AFCB and Somerset portfolios which are
designated as Held-to-Maturity, and are carried at cost adjusted for the
amortization of premium and accretion of discount, will be redesignated as
Available-for-Sale upon consummation of the acquisitions. At September 30, 1997,
the Available-for-Sale designation would add approximately $1.2 million and $11
thousand, respectively, to the Stockholders' investment accounts of AFCB and
Somerset. The effect of the fair-value adjustments have not been reflected in
the accompanying Unaudited Pro Forma Condensed Combining Balance Sheet since the
actual amount of any unrealized gains or losses at consummation is subject to
market conditions and other factors and may vary significantly from the balance
reported at September 30, 1997.
NOTE 4:
Pro forma earnings per share amounts in the accompanying Unaudited Pro Forma
Condensed Combined Statements of Income are based on the weighted average number
of common shares of the constituent companies outstanding during each period as
adjusted for the exchange ratios specified in the respective acquisition
agreements.
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<PAGE>
DESCRIPTION OF UST CAPITAL STOCK
GENERAL
UST is authorized by the UST Articles to issue 45,000,000 shares of UST
Common Stock and 4,000,000 shares of preferred stock (the "Preferred Stock"). At
the UST stockholders meeting at which UST's acquisition of AFCB will be
considered, UST will be seeking approval of its stockholders to increase the
authorized shares of UST Common Stock from 45,000,000 to 75,000,000. As of the
Record Date, there were outstanding [ ]shares of UST Common Stock and no
shares of Preferred Stock.
COMMON STOCK
DIVIDEND RIGHTS. The ability of UST and its bank subsidiaries to pay
dividends is subject to certain limitations imposed by statutes of The
Commonwealth of Massachusetts and certain restrictions imposed by regulatory
authorities. Generally, with respect to the bank subsidiaries, the payment of
dividends is limited by statute to the amount of retained earnings, after
deducting losses and statutorily defined bad debts in excess of established
allowances for loan losses. When, as and if dividends, payable in cash, stock or
other property, are declared by the UST Board out of funds legally available
therefor, the holders of UST Common Stock are entitled to share equally, share
for share, in such dividends.
VOTING RIGHTS. Holders of UST Common Stock are entitled to one vote for
each share on all matters voted upon by stockholders. Shares of UST Common Stock
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting in an election of directors can elect 100% of the directors
being elected if they choose to do so.
PREEMPTIVE RIGHTS. Authorized shares of UST Common Stock may be issued at
any time, and from time to time, in such amounts and for such consideration as
may be fixed by the UST Board. No holder of UST Common Stock has any preemptive
or preferential right to purchase or to subscribe for any shares of capital
stock or other securities which may be issued by UST.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding-up of UST whether voluntary or involuntary, the holders of UST Common
Stock are entitled to share, on a share for share basis, in any of the assets of
UST legally available for distribution to such shareholders after the payment of
all debts and other liabilities of UST and any preferential amounts attributable
to any Preferred Stock that may then be outstanding.
ASSESSMENTS. Outstanding shares of UST Common Stock are, and the shares of
UST Common Stock being registered hereby will be, fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR. UST's wholly-owned subsidiary, United States
Trust Company, 30 Court Street, Boston, Massachusetts 02108, serves as transfer
agent and registrar for UST's Common Stock.
STOCKHOLDER RIGHTS AGREEMENT. On September 19, 1995, the UST Board adopted
the UST Rights Agreement providing for a dividend of one preferred share
purchase right for each outstanding share of UST Common Stock (the "Rights").
The dividend was distributed on October 6, 1995, to stockholders of record on
that date. Holders of shares of UST Common Stock issued subsequent to that date
receive the Rights with their shares. The Rights trade automatically with shares
of UST Common Stock and become exercisable only under certain circumstances as
described below. The Rights are designed to protect the interests of UST and its
stockholders against coercive third-party takeover tactics. The purpose of the
Rights is to encourage potential acquirors to negotiate with the UST Board prior
to attempting a takeover and to provide the UST Board with leverage in
negotiating on behalf of all stockholders the terms of any proposed takeover.
The Rights may have certain anti-takeover effects. The Rights should not,
however, interfere with any merger or other business combination approved by the
UST Board.
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<PAGE>
The Rights will become exercisable only if a person or group (i) acquires
15% or more of the outstanding shares of UST Common Stock, (ii) announces a
tender offer that would result in ownership of 15% or more of the outstanding
UST Common Stock, or (iii) is declared to be an "Adverse Person" by the UST
Board. An "Adverse Person" includes any person or group who owns at least 10% of
the outstanding shares of UST Common Stock and attempts an action that would
adversely impact UST. Each right would entitle a stockholder to buy 1/100th of a
share of UST's Series A Junior Participating Preferred Stock. See "DESCRIPTION
OF UST CAPITAL STOCK--Preferred Stock."
Once a person or group has acquired 15% or more of the outstanding shares of
UST Common Stock or is declared an "Adverse Person" by the UST Board, each Right
may entitle its holder (other than the acquiring person or adverse person) to
purchase, at an exercise price of $40 per share, shares of UST Common Stock (or
of any company that acquires UST) at a price equal to 50% of its current market
price. Under certain circumstances, the Continuing Directors (as defined in the
Stockholder Rights Agreement) may exchange the Rights for UST Common Stock (or
equivalent securities) on a one-for-one-basis.
Until declaration of a Person as an Adverse Person, or ten days after public
announcement that any person or group has acquired 15% or more of the
outstanding shares of UST Common Stock, the Rights are redeemable at the option
of the UST Board in certain cases with the concurrence of the Continuing
Directors. Thereafter, they may be redeemed by the Continuing Directors in
connection with certain acquisitions not involving any acquiring person or
Adverse Person or in certain circumstances following a disposition of shares by
the acquiring person or Adverse Person. The redemption price is $0.001 per
Right. The Rights will expire on October 6, 2005, unless redeemed prior to that
date.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by the description of the Rights contained in the
UST Rights Agreement, dated as of June 28, 1990, between UST and USTC, as Rights
Agent, which is incorporated herein by reference to Exhibit 1 to UST's
Registration Statement on Form 8-A dated September 26, 1995.
PREFERRED STOCK
GENERAL. The Preferred Stock is of a serial or "blank check" nature. Under
Chapter 156B of the Massachusetts General Laws, after stockholder authorization
of such a class of preferred stock, one or more series of preferred stock may be
established and designated by action of the UST Board with varying rights,
preferences and limitations and without further stockholder action. The UST
Board may also fix the number of shares of the series. Series are established by
the filing with the Secretary of The Commonwealth of Massachusetts of a
certificate which is made in part of the filing company's Articles of
Organization and which sets forth the rights, preferences and limitations of the
respective series.
DIVIDEND AND LIQUIDATION RIGHTS. Each series of the Preferred Stock, when
issued, would have preference over the UST Common Stock with respect to the
payment of all dividends and distribution of assets in the event of liquidation
or dissolution of UST, and may have other preferences.
DETERMINATIONS TO BE MADE BY THE UST BOARD. The determinations for each
series of Preferred Stock which would be made by the UST Board include (1) the
number of shares to constitute such series, (2) the dividend rate or rates (or
the manner of determining the same) on the shares of such series, (3) whether
dividends shall be cumulative, (4) whether the shares of the series shall be
redeemable and the terms thereof, (5) whether the shares of the series shall be
convertible into other securities of UST, including the Common Stock, and the
terms and conditions thereof, (6) the special relative rights of holders of
shares of the series in the event of liquidation, distribution or sale of
assets, dissolution or winding-up of UST, (7) the terms of voting rights, if
any, of shares of the series, (8) the title or designation of the series and (9)
such other rights and privileges and any qualifications, limitations or
restrictions of such rights or privileges of such series as may be permitted by
applicable law. As noted above, before any series would be issued, a certificate
setting forth the terms thereof would be authorized by the UST Board and filed
pursuant to the MBCL but no further stockholder action would be required for the
issuance of such authorized shares.
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<PAGE>
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. In connection with the UST
Rights Agreement, the UST Board established a series of Preferred Stock, par
value $1.00 per share, designated as Series A Junior Participating Preferred
Stock ("Series A"). The number of shares constituting Series A is 300,000. A
certificate was filed with the Secretary of The Commonwealth of Massachusetts on
September 29, 1995 setting forth the determinations discussed above. Holders of
Series A Preferred Stock are entitled to receive, in preference to the holders
of UST Common Stock, quarterly dividends payable in cash on the first of March,
June, September and December in each year after the first issuance of a share or
a fraction of a share of Series A Preferred Stock, in an amount per share equal
to the greater of (a) $1 or (b) subject to adjustment, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends, other than a dividend
payable in UST Common Stock. Series A Preferred Stock dividends are cumulative
but do not bear interest. Shares of Series A Preferred Stock are not redeemable.
Each share of Series A Preferred Stock entitles the holder thereof to 100 votes
on all matters submitted to a vote of the UST stockholders and no other special
voting rights. Upon any liquidation, dissolution or winding up holders of Series
A Preferred Stock are entitled to priority over the holders of share of UST
Common Stock or other junior ranking stock. No such shares of Series A Preferred
Stock are issued or outstanding, however, each holder of UST Common Stock was
granted the right to purchase Series A Preferred Stock upon the happening of
certain events, such as a hostile takeover attempt of UST, as described in the
UST Rights Agreement. See "DESCRIPTION OF UST CAPITAL STOCK--Stockholder Rights
Agreement."
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<PAGE>
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
Upon consummation of the transactions contemplated in the Affiliation
Agreement, the stockholders of Somerset who do not perfect and exercise their
statutory dissenters' rights will become stockholders of UST. The rights of
Somerset stockholders currently are governed by certain provisions of the
Massachusetts General Laws regulating the conduct of banks, which incorporate
provisions of the MBCL, and the Somerset Charter and By-laws of Somerset.
Somerset stockholders who receive UST Common Stock will be subject to the
privileges and restrictions set forth in the MBCL. In addition, the rights of
such stockholders as stockholders of UST will be governed by the UST Articles
and By-laws of UST, which differ in certain respects from the Somerset Charter
and By-laws of Somerset. This summary contains a list of differences but is not
meant to be relied upon as an exhaustive list or a detailed description of the
provisions discussed. This summary is qualified in its entirety by reference to
the Massachusetts General Laws, including the MBCL, the UST Rights Agreement and
the Articles or Charter and By-laws of each of UST and Somerset. See "AVAILABLE
INFORMATION."
ISSUANCE AND REGULATION OF CAPITAL STOCK
UST. The issuance of shares of UST's capital stock is governed by the MBCL.
The issuance and sale of shares of UST capital stock are subject to the
registration requirements of the Securities Act.
SOMERSET. Under Massachusetts banking laws, the issuance of shares of
capital stock of a stock savings bank, such as Somerset, requires the prior
approval of the Massachusetts Commissioner. Somerset files various reports
relating to Somerset's capital stock with the FDIC. As the capital stock of a
bank, shares of Somerset capital stock are exempt from the registration
requirements of the Securities Act.
DIVIDENDS
UST. The payment of dividends by UST is determined by the UST Board based
on UST's liquidity, asset quality profile, capital adequacy, and recent earnings
history, as well as economic conditions and other factors, including applicable
government regulations and policies and the amount of dividends payable to UST
by its respective subsidiaries. Federal banking regulators also have the
authority to prohibit bank holding companies from paying dividends if they deem
such payment to be an unsafe or unsound practice. In addition, it is the
position of the Federal Reserve Board that a bank holding company is expected to
act as a source of financial strength to its subsidiary banks.
SOMERSET. Pursuant to a resolution adopted by the Somerset Board at the
direction of the FDIC and the Massachusetts Commissioner, Somerset is restricted
from paying dividends on shares of its capital stock unless (i) prior notice is
given to the Regional Director of the FDIC and the Massachusetts Commissioner
and (ii) after payment of such dividend, Somerset's Tier 1 Leverage Capital
Ratio (determined in accordance with FDIC regulations), remains above 6.0%.
Further, Massachusetts banking laws limit the funds that may be used to pay
dividends. A stock savings bank may pay dividends only out of net profits and
without impairing its capital stock and surplus accounts. Net profits of a bank
may be distributed as dividends so long as, after such distribution, either (i)
the capital stock and surplus accounts of the bank equal at least 10% of deposit
liabilities or (ii) the surplus account of the bank equals 100% of its capital
stock account, subject to certain statutory exceptions.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Consistent with the MBCL, each of the UST Board and the Somerset Board is
divided into three classes and the directors of each are elected by their
respective stockholders to serve staggered three-year terms. The UST By-laws
provide that the UST Board be composed of not less than three directors.
Presently, there are 24 directors on the UST Board and 13 directors on the
Somerset Board.
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REMOVAL OF DIRECTORS
UST. Under the UST By-laws, a director may be removed from office (a) with
or without cause by vote of a majority of the stockholders entitled to vote in
the election of directors, provided that directors elected by a particular class
of stockholders may be removed only by the vote of the holders of a majority of
the shares of such class, or (b) for cause by vote of a majority of the
directors then in office.
SOMERSET. Under the Somerset Charter, a director may be removed from office
(a) with or without cause by an affirmative vote of at least 80% of the voting
power of the then outstanding shares of voting stock, voting together as a
single class at a meeting of the stockholders called expressly for such purpose,
unless at the time of such removal there is an Interested Stockholder (as
defined in the Somerset Charter), in which case the affirmative vote of
two-thirds of the voting power of the then outstanding shares of voting stock
not held by an Interested Stockholder shall also be required for the
stockholders to remove a director with or without cause, or (b) for cause by the
affirmative vote of two-thirds of the members of the Somerset Board then in
office, unless at the time of such removal there shall be an Interested
Stockholder, in which case the affirmative vote of not less than a majority of
the Continuing Directors (as defined in the Somerset Charter) then in office
shall instead be required for removal for cause by vote of the Somerset Board.
STOCKHOLDER NOMINATIONS
UST. The UST Articles and the UST By-laws do not set forth procedures
regarding stockholder nominations of individuals for election to the UST Board.
SOMERSET. The Somerset By-laws set forth procedures that must be followed
for stockholders to nominate individuals for election to the Somerset Board at
the annual meeting of stockholders. Nominations by stockholders entitled to vote
generally in the election of directors must be made to the Clerk of Somerset in
writing, delivered to, or mailed and received at, the principal executive
offices of Somerset not less than 60 days nor more than 150 days prior to the
date of the scheduled annual meeting. Each such notice must include (i) the
name, age, business address and, if known, the residence address of each nominee
proposed in the notice, (ii) the principal occupation or employment of each such
nominee, and (iii) the class and number of shares of stock of Somerset
beneficially owned by such nominee on the date of such stockholder notice as
well as certain information regarding the identity, address and class and number
of shares of stock of Somerset beneficially owned by the stockholder making the
nomination.
INTERESTED TRANSACTIONS
UST. None of the MBCL, UST Articles or the UST By-laws has a general
provision governing interested transactions. Therefore, transactions between UST
and any of its directors, officers or security holders or between UST and any
entity in which any director, officer or security holder of UST is financially
interested is governed by the decisional law set down by the Massachusetts
Courts. Interested transactions are not per se voidable but may be challenged on
the grounds that such a transaction was not entered into in good faith or was
unfair to the corporation. In determining good faith and fairness, courts will
consider whether a full and honest disclosure of all relevant circumstances of
the transaction had been disclosed as well as whether approval of disinterested
stockholders had been obtained. The determination of good faith and fairness is
particular to the facts and circumstances of each case.
SOMERSET. Under the Somerset Charter, no contract or transaction between
Somerset and one or more of its directors or officers, or between Somerset and
any entity in which one or more of its directors or officers are directors or
officers, or have a financial or other interest, shall be void or voidable
solely as a result of such relationship or solely because the director or
officer is present at or participates in the meeting of the Somerset Board or
committee thereof which authorizes the transaction or contract, or solely
because his or their votes are counted for such purpose, nor shall any director
or officer be under
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<PAGE>
any liability to Somerset on account of any such contract or transaction if: (a)
the material facts as to the relationship or interest and as to the contract or
transaction are disclosed or are known to the Somerset Board (or committee
thereof) and the Somerset Board or committee authorized the contract or
transaction by a majority of the disinterested directors, even though the
disinterested directors were less than a quorum; or (b) the material facts as to
the relationship or interest and as to the contract or transaction are disclosed
or are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved by a vote of the stockholders; or (c) the
contract or transaction is fair to Somerset as of the time it is authorized,
approved or ratified by the Somerset Board, a committee thereof or the
stockholders.
MEETINGS OF STOCKHOLDERS
UST. The By-laws of UST provide that special meetings of stockholders may
be called by the President or by the UST Board or, upon written application of
one or more stockholders who hold at least 10% of the capital stock entitled to
vote at the meeting, by the Clerk, or in the case of the death, absence,
incapacity or refusal of the Clerk, by any other officer.
SOMERSET. Under the By-laws of Somerset, special meetings of stockholders
may be called by the Clerk, or in the case of the Clerk's absence, incapacity or
refusal, by any other officer upon the written application of one or more
stockholders who are entitled to vote at the meeting and who hold at least 10%
of the voting stock of Somerset. Special meetings of the stockholders may also
be called by the Chairman of the Board, the President or by affirmative vote of
a majority of the directors then in office; provided, however, that if at the
time of such call there is an Interested Stockholder, any such call shall also
require the affirmative vote of a majority of the Continuing Directors then in
office.
STOCKHOLDER ACTION WITHOUT A MEETING
UST. As authorized by the MBCL, the UST By-laws provide that any action to
be taken by UST stockholders may be taken without a meeting if all stockholders
entitled to vote on the matter consent to the action by a writing filed with the
records of the meetings of the stockholders.
SOMERSET. Neither the Somerset Charter nor the Somerset By-laws have a
provision regarding stockholder action without a meeting.
AMENDMENT OF BY-LAWS
UST. The UST By-laws may at any time be amended by a vote of the
stockholders, provided that notice of the substance of the proposed amendment is
stated in the notice of the meeting.
SOMERSET. The Somerset By-laws may be amended at any time by a majority of
the full Somerset Board subject to repeal or change by vote of the holders of
two-thirds of the shares entitled to vote in the election of directors at a
meeting expressly called for that purpose; provided, however, that if at the
time of such vote by the Somerset Board there is an Interested Stockholder, any
vote of the Somerset Board to amend the By-laws shall also require the
affirmative vote of the majority of the Continuing Directors then in office and
any vote of the stockholders to amend the Somerset By-laws shall also require
the affirmative vote of two-thirds of the shares of voting stock not held by an
Interested Stockholder.
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS
UST. The MBCL provides that an agreement of merger or consolidation, or a
sale, lease or exchange of all or substantially all of the property and assets
of a corporation must be approved by the holders of two-thirds of the shares of
each class of stock outstanding and entitled to vote thereon, unless a
corporation's articles of organization designate a lower percentage (but not
less than a majority). The UST
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Articles and the UST By-laws do not contain provisions that require a specific
lower or higher stockholder vote for such transactions.
SOMERSET. The Somerset Charter provides that a merger or consolidation of
Somerset with any other corporation or entity generally requires the affirmative
vote of two-thirds of the voting power of the then outstanding shares of
Somerset capital stock entitled to vote generally in the election of directors
unless a greater vote is required by law or by the Somerset Charter. The
Somerset Charter requires the affirmative vote of the holders of at least 80% of
voting stock to approve certain Business Combinations (as defined in the
Somerset Charter). The vote approving such Business Combinations must include
the affirmative vote of holders of shares of voting stock not held by an
Interested Stockholder. The requirement of approval by the holders of 80% of the
voting stock does not apply if the Business Combination (i) is approved by a
majority of the Continuing Directors then in office, or (ii) meets certain price
and procedure requirements as detailed in the Somerset Charter.
STOCKHOLDER RIGHTS PLAN
UST. UST has distributed to each holder of UST Common Stock one Right per
each outstanding share of UST Common Stock. In addition, a Right is distributed
with each newly issued share of UST Common Stock. Holders of Somerset Common
Stock will receive one Right with each share of UST Common Stock upon the
conversion of their shares of Somerset Common Stock at the Effective Time. Each
Right entitles the holder thereof to purchase one share of preferred stock in
the event of certain transactions involving UST. See "DESCRIPTION OF UST CAPITAL
STOCK--Common Stock--STOCKHOLDER RIGHTS PLAN."
SOMERSET. Somerset has no stockholder rights plan.
STATE ANTI-TAKEOVER STATUTES
The Massachusetts General Laws prohibit corporations from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless: (a) the interested stockholder obtains the
approval of the board of directors prior to becoming an interested stockholder,
or (b) the interested stockholder acquires 90% of the outstanding voting stock
of the corporation (excluding shares held by certain affiliates of the
corporation) at the time that he becomes an interested stockholder, or (c) the
business combination is approved by both the board of directors and two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time with the prior three years
did own) 5% or more of a corporation's voting stock. A "business combination"
includes mergers, stock and asset sales and other transactions resulting in a
financial benefit to the stockholders. The business combinations statute does
not apply to the Affiliation Agreement, the Stock Option Agreement or any of the
transactions contemplated by such agreements, because the UST Board and the
Somerset Board each had approved the Affiliation Agreement and the Stock Option
Agreement prior to their execution.
The Massachusetts General Laws include a statute concerning "control share
acquisitions," which limits the voting rights of shares held by persons who have
acquired a certain percentage of the voting power of a corporation. Under the
Massachusetts statute, shares acquired in a control share acquisition retain the
same voting rights as all other shares of the same class or series but only to
the extent authorized by a vote of the majority of all shares entitled to vote
for the election of directors (such acquired shares not being entitled to vote).
The statute regarding "control share acquisitions" is not applicable to the
shares of capital stock of Massachusetts savings banks and, therefore, does not
apply to shares of Somerset Common Stock.
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MARKET PRICES AND DIVIDENDS
Transactions with respect to UST Common Stock and Somerset Common Stock are
quoted on the Nasdaq National Market under the Symbols "USTB" and "SOSA,"
respectively. The following tables set forth the high and low sales prices for
each of UST Common Stock and Somerset Common Stock as quoted by Nasdaq and
dividends declared for the periods indicated.
<TABLE>
<CAPTION>
UST SOMERSET
---------------------------------- ---------------------------------
DIVIDEND DIVIDEND
LOW HIGH DECLARED LOW HIGH DECLARED
---------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter............... $ 9.75 $ 11.375 $ -- $ 1.00 $ 1.375 $ --
Second Quarter.............. 10.50 13.50 -- 1.00 1.437 --
Third Quarter............... 13.25 15.00 -- 1.31 1.875 --
Fourth Quarter.............. 12.75 15.50 0.05 1.375 1.81 --
1996
First Quarter............... $ 13.00 $ 15.125 $ 0.06 $ 1.28 $ 1.56 $ --
Second Quarter.............. 12.75 15.125 0.07 1.125 1.56 --
Third Quarter............... 14.25 -- 0.08 1.437 2.125 --
Fourth Quarter.............. 1.84 2.06 --
1997
First Quarter............... $ 18.125 $ 21.937 $ 0.08 $ 1.99 $ 2.94 $ --
Second Quarter.............. 18.625 23.250 0.10 2.25 2.75 --
Third Quarter............... 20.9375 26.125 0.10 2.53 5.25 --
Fourth Quarter.............. 24.25 29.625 0.12 3.81 6.06 --
</TABLE>
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EXPERTS
The consolidated financial statements of UST appearing in UST's Annual
Report on Form 10-K for the year ended December 31, 1996, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included therein and incorporated herein by
reference in reliance upon the authority of said firm as experts in accounting
and auditing in giving said report.
The consolidated financial statements of Somerset included in the UST
Current Report on Form 8-K, dated February 6, 1998, have been audited by Wolf &
Company, P.C., independent public accountants, as indicated in their report with
respect thereto, and is included therein and incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving such report.
The consolidated financial statements of Firestone included in the UST
Current Report on Form 8-K, dated February 6, 1998, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and is included therein and incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements of AFCB included in the UST Current
Report on Form 8-K, dated February 6, 1998, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and is included therein and incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The report of KPMG Peat Marwick LLP with respect to the consolidated
financial statements of The Federal Savings Bank and subsidiaries as of December
31, 1995 included in the UST Current Report on Form 8-K, dated February 6, 1998,
is included therein and incorporated herein by reference in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
The report of KPMG Peat Marwick LLP with respect to the consolidated
financial statements of Main Street Community Bancorp, Inc. and subsidiary as of
December 31, 1994 included in the UST Current Report on Form 8-K, dated February
6, 1998, is included therein and incorporated herein by reference in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said report.
LEGAL OPINIONS
The validity of the UST Common Stock offered hereby will be passed upon for
UST by Eric R. Fischer, General Counsel. As of February 1, 1998, Mr. Fischer had
a direct or indirect interest in 38,004 shares of UST Common Stock and had
options to purchase an additional 55,800 shares, all of which options were
immediately exercisable.
The Affiliation Agreement provides as a condition to UST and Somerset's
obligation to consummate the Merger that UST obtain a letter ruling from the IRS
or, under certain circumstances, receive a tax opinion from its counsel, Bingham
Dana LLP, and Somerset receive a tax opinion from its counsel, Nutter, McClennen
& Fish, LLP, substantially to the effect that, among other things, the Merger
will be treated as a reorganization as described in Section 368(a) of the Code.
See "THE MERGER--Certain Federal Income Tax Consequences."
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MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, various benefit
plans (including stock option plans), voting securities and the principal
holders thereof, certain relationships and related transactions and other
related matters as to UST and Somerset is incorporated by reference as set forth
in UST's Annual Report on Form 10-K for the year ended December 31, 1996 and
Somerset's Annual Report on Form F-2 for the year ended December 31, 1996, each
of which is incorporated herein by reference. See "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE." Stockholders of Somerset desiring copies of such
documents may contact UST or Somerset, as the case may be, at its address or
phone number indicated under "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." For certain information regarding the directors and certain
executive officers of Somerset after the effective time of the Merger, see "THE
MERGER--Management and Operations After the Merger," "--Interests of Certain
Persons in the Merger" and "--Employee Matters."
SOLICITATION OF PROXIES
Somerset will bear the expenses incurred in connection with the solicitation
of proxies from holders of Somerset Common Stock, including the cost of
reimbursing brokerage houses and other custodians, nominees or fiduciaries for
forwarding proxies and proxy statements to their principals. Pursuant to the
Affiliation Agreement, the expense of printing and distributing the Registration
Statement and this Proxy Statement--Prospectus will be shared equally by
Somerset and UST. In addition to solicitation of proxies by mail, proxies may
also be solicited by telephone or personal interview by certain directors,
officers and regular employees of Somerset and its subsidiaries, who will not
receive additional compensation therefor. Somerset has retained Morrow & Co.,
Inc. to assist in the distribution and solicitation of proxies, at a fee of
approximately [_______], plus reasonable out-of-pocket expenses. Somerset will
also reimburse brokerage firms and others who hold record ownership for third
parties for their expenses in forwarding proxy materials to the beneficial
owners of Somerset Common Stock.
STOCKHOLDER PROPOSALS
Somerset expects that it will hold an Annual Meeting in 1998 only if the
Merger is not consummated on or before June 30, 1998.
In the event that Somerset holds its 1998 Annual Meeting, Somerset will, in
a timely manner, inform its stockholders of the date upon which such meeting
will be held and the date by which proposals from stockholders are required to
be received. Somerset's By-laws provide that any director nominations and new
business submitted by Somerset stockholders must be filed with the Clerk of
Somerset at least 50 days, but not more than 150 days, prior to the date of the
meeting, and that no other nominations or proposals by Somerset stockholders
shall be acted upon at the meeting.
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APPENDIX A
AFFILIATION AGREEMENT AND PLAN OF REORGANIZATION
AFFILIATION AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT"), dated as
of December 9, 1997, by and among UST CORP., a Massachusetts corporation (the
"BUYER") and SOMERSET SAVINGS BANK, a Massachusetts stock savings bank (the
"SELLER").
WHEREAS, the Buyer is the owner of all of the issued and outstanding shares
of Mosaic Corp., a Massachusetts corporation (the "BUYER CORP.") and Buyer Corp.
is the owner of all of the issued and outstanding shares of USTrust, a
Massachusetts bank and trust company ("BUYER BANK");
WHEREAS, the Boards of Directors of the Buyer, the Buyer Corp., the Buyer
Bank and the Seller have each approved and determined that it is in the best
interests of their respective stockholders to consummate the business
combination transactions provided for herein, involving the merger of Seller
with and into Buyer Bank (the "MERGER") by means of which the Buyer Corp. shall
acquire all of the assets and assume all of the liabilities of the Seller and
transfer such assets and liabilities to the Buyer Bank; and
WHEREAS, as a condition to, and after the execution of, this Agreement, the
Buyer and the Seller are entering into the Seller Option Agreement (the "SELLER
OPTION AGREEMENT"), attached hereto as Exhibit A, pursuant to which the Seller
has granted the option (the "SELLER OPTION") to the Buyer; and
WHEREAS, as a condition to, and after the execution of, this Agreement, the
Buyer and certain of the officers and directors of the Seller, are entering into
the Stockholders Agreements; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to prescribe certain conditions to
the Merger;
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
DEFINITIONS
Except as otherwise provided herein or as otherwise clearly required by the
context, the following terms shall have the respective meanings indicated when
used in this Agreement:
"ACQUISITION TRANSACTION" shall have the meaning ascribed thereto in Section
5.03 hereof.
"AFFILIATE" shall mean, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person. As used in
this definition, "CONTROL" (including, with its correlative meanings,
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession, directly
or indirectly, of power to direct or cause the direction of the management and
policies of a Person whether through the ownership of voting securities, by
contract or otherwise.
"AGREEMENT" shall mean this Affiliation Agreement and Plan of Reorganization
by and between the Buyer and the Seller.
"ALTERNATIVE STRUCTURE" shall have the meaning ascribed thereto in Section
2.11(i) hereof.
"ASSOCIATE" shall have the meaning ascribed thereto in Rule 14a-1 under the
Securities Exchange of 1934, as amended.
"AVERAGE PRICE" shall have the meaning ascribed thereto in Section 2.09(f)
hereof.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"BUYER" shall have the meaning ascribed thereto in the preamble hereto.
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"BUYER BALANCE SHEET" shall have the meaning ascribed thereto in Section
3.05 hereof.
"BUYER BANK" shall have the meaning ascribed thereto in the recitals hereto.
"BUYER BANK COMMON STOCK" shall have the meaning ascribed thereto in Section
2.06(a) hereof.
"BUYER COMMON STOCK" shall have the meaning ascribed thereto in Section
2.06(b) hereof.
"BUYER CORP." shall have the meaning ascribed thereto in the recitals
hereto.
"BUYER DISCLOSURE SCHEDULE" shall mean the disclosure schedule relating to
the Buyer delivered to the Seller together herewith.
"BUYER PREFERRED STOCK" shall have the meaning ascribed thereto in Section
3.02(a) hereof.
"BUYER REPORTS" shall have the meaning ascribed thereto in Section 3.10
hereof.
"BUYER RIGHTS AGREEMENT" shall mean that certain Rights Agreement which was
adopted by the Buyer on September 19, 1995, as amended.
"CLOSING" shall mean the consummation of the Merger.
"CLOSING DATE" shall mean the time and date specified pursuant to Section
7.01 hereof as the time and date on which the parties hereto shall consummate
the Merger.
"CMPS" shall have the meaning ascribed thereto in Section 3.14 hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANIES" shall have the meaning ascribed thereto in Section 4.10(a)
hereof.
"CONFIDENTIAL INFORMATION" shall have the meaning ascribed thereto in
Section 5.02(b) hereof.
"CONFIDENTIALITY AGREEMENT" shall mean that certain agreement between the
Buyer and the Seller dated September 26, 1997.
"CONSENTS" shall have the meaning ascribed thereto in Section 6.01(b)
hereof.
"CONVERSION NUMBER" shall have the meaning ascribed thereto in Section
2.06(b) hereof.
"DEPOSIT INSURANCE FUND" shall have the meaning ascribed thereto in Section
4.02(b) hereof.
"DISCLOSURE SCHEDULES" shall mean the Buyer Disclosure Schedule and the
Seller Disclosure Schedule, considered together.
"DOJ" shall mean the United States Department of Justice.
"EFFECTIVE TIME" shall mean the date and time at which the Merger has become
effective pursuant to the applicable laws of The Commonwealth of Massachusetts.
"EPA" shall mean the United States Environmental Protection Agency.
"EQUITY INVESTMENT" shall have the meaning set forth for such term as of the
date hereof in the FDIC's rules and regulations regarding activities and
investments of insured state banks at 12 C.F.R.Section362.2(k).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" shall have the meaning ascribed thereto in Section 3.05
hereof.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FEDERAL RESERVE BOARD" shall mean the Board of Governors of the Federal
Reserve System or the Federal Reserve Bank of Boston, as applicable.
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"FILED TAX RETURNS" shall have the meaning ascribed thereto in Section
4.10(a) hereof.
"GAAP" shall mean generally accepted accounting principles and practices in
effect from time to time within the United States applied consistently
throughout the period involved.
"GOVERNMENTAL AUTHORITY" shall mean any United States federal, state or
local governmental commission, board or other regulatory authority or agency,
including courts and other judicial bodies.
"HAZARDOUS MATERIAL" shall have the meaning ascribed thereto in Section
4.19(i) hereof.
"INCENTIVE STOCK OPTION" shall mean a stock option which is intended to be
an "incentive stock option" within the meaning of Section 422 of the Code.
"INJUNCTION" shall have the meaning ascribed thereto in Section 6.01(d)
hereof.
"INTERIM TRUST COMPANY" shall have the meaning ascribed thereto in Section
2.12 hereof.
"IRS" shall mean the United States Internal Revenue Service.
"KELLY EMPLOYMENT AGREEMENT" shall mean the employment agreement, of even
date hereof, executed and delivered by [ ], the Buyer and the Buyer Bank
and attached hereto as EXHIBIT E.
"LITIGATION" shall have the meaning ascribed thereto in Section 4.09 hereof.
"LOAN PROPERTY" shall have the meaning ascribed thereto in Section 4.19(i)
hereof.
"MBBI" shall mean the Massachusetts Board of Bank Incorporation.
"MBCL" shall mean the Massachusetts Business Corporation Law.
"MGL" shall mean the Massachusetts General Laws.
"MASSACHUSETTS COMMISSIONER" shall have the meaning ascribed thereto in
Section 3.04 hereof.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a material
adverse effect on the business, results of operations, financial condition or
prospects of such Person; PROVIDED, HOWEVER, that "Material Adverse Effect"
shall not be deemed to include the impact of (a) changes in laws and regulations
or interpretations thereof by courts or governmental authorities generally
applicable to depository institutions and their holding companies (including
changes in insurance deposit assessment rates and special assessments with
respect thereto), (b) changes in GAAP or regulatory accounting principles
generally applicable to financial institutions and their holding companies (c)
actions and omissions of the Seller taken with the prior written consent of the
Buyer, (d) reasonable expenses incurred by the Seller in connection with the
execution of this Agreement and consummation of the transactions contemplated
thereby and (e) changes in economic conditions (including changes in the level
of interest rates) to the extent such changes had a substantially similar effect
on comparable depository institutions in eastern Massachusetts..
"MERGER" shall have the meaning ascribed thereto in the recitals hereto.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Market System of the National Association
of Securities Dealers Automated Quotation System.
"PARTICIPATION FACILITY" shall have the meaning ascribed thereto in Section
4.19(i) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PERSON" shall mean any individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other legal entity, or any
governmental agency or political subdivision thereof.
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"PUBLIC ANNOUNCEMENT" shall mean an oral or written press release, public
announcement or public information disclosure by the Seller or the Buyer or any
of their subsidiaries relating to the Merger or the other transactions
contemplated hereby.
"RECORDS" means all records and original documents in the Seller's
possession which pertain to and are utilized by the Seller or any of its
subsidiaries to administer, reflect, monitor, evidence or record information
respecting its business and operations, including but not limited to all records
and documents relating to (a) corporate, regulatory, supervisory and litigation
matters, (b) tax planning and payment of taxes, (c) personnel and employment
matters, and (d) the business or conduct of the business of the Seller or any of
its subsidiaries.
"REPRESENTATIVE(S)" shall have the meaning ascribed thereto in Section
5.03(b) hereof.
"REQUISITE REGULATORY APPROVALS" shall have the meaning ascribed thereto in
Section 6.01(b) hereof.
"SEC" shall have the meaning ascribed thereto in Section 3.04 hereof.
"S-4" shall have the meaning ascribed thereto in Section 5.03(a) hereof.
"SECOND BANK MERGER" shall have the meaning ascribed thereto in Section 2.12
hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLER" shall have the meaning ascribed thereto in the preamble to this
Agreement and, in addition, shall mean throughout this Agreement, unless the
context contemplates otherwise, the Seller and each of its subsidiaries,
considered on a consolidated basis.
"SELLER AFFILIATES" shall have the meaning ascribed thereto in Section 5.06
hereof.
"SELLER AFFILIATES AGREEMENT" shall mean the form of written agreement to be
executed and delivered to the Buyer prior to the Effective Time by the Seller
Affiliates, substantially in the form attached hereto as EXHIBIT B-2.
"SELLER BALANCE SHEET" shall have the meaning ascribed thereto in Section
4.05 hereof.
"SELLER BENEFIT PLANS" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"SELLER COMMON STOCK" shall have the meaning ascribed thereto in Section
2.06(b) hereof.
"SELLER DISCLOSURE SCHEDULE" shall mean the disclosure schedule relating to
the Seller delivered to Buyer together herewith.
"SELLER EMPLOYEES" shall have the meaning ascribed thereto in Section 5.12
hereto.
"SELLER OPTION" shall have the meaning ascribed thereto in the recitals
hereto.
"SELLER OPTION AGREEMENT" shall have the meaning ascribed thereto in the
recitals hereto.
"SELLER ORDER" shall mean that certain regulatory order issued by the FDIC
and consented to by the Seller, as modified on November 15, 1993.
"SELLER OTHER PLANS" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"SELLER PENSION PLANS" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"SELLER PREFERRED STOCK" shall have the meaning ascribed thereto in Section
4.02(a) hereof.
"SELLER PROXY STATEMENT" shall have the meaning ascribed thereto in Section
5.04(a) hereof.
"SELLER REPORTS" shall have the meaning ascribed thereto in Section 4.15
hereof.
"SELLER STOCK OPTION PLANS" shall have the meaning ascribed thereto in
Section 2.10 hereof.
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"SIGNIFICANT SUBSIDIARY" shall mean, when used with reference to a party,
any "significant subsidiary" of such party as such term is defined in Regulation
S-X of the SEC.
"STOCKHOLDERS AGREEMENTS" shall mean those certain Stockholder Agreements
dated as of the date hereof respectively between the Buyer and members of the
Seller's board of directors and executive management and substantially in the
form attached hereto as EXHIBIT B.
"SUBSIDIARIES" shall mean, when used with reference to a party, any
corporation, partnership or other organization, whether incorporated or
unincorporated, at least twenty-five (25%) percent of the securities or other
equity interests is directly or indirectly owned or controlled by such party or
by any one or more of its subsidiaries, or by such party and one or more of its
subsidiaries.
"SURVIVING BANK" shall have the meaning ascribed thereto in Section 2.01
hereof.
"SURVIVING BANK COMMON STOCK" shall have the meaning ascribed thereto in
Section 2.06(a) hereof.
"TAX" shall have the meaning ascribed thereto in Section 4.10(h)(A) hereof.
"TAX RETURN" shall have the meaning ascribed thereto in Section 4.10(h)(B)
hereof.
"TERMINATION DATE" shall have the meaning ascribed thereto in Section
8.01(b) hereof.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Confidentiality
Agreement, the Seller Option Agreement, the Stockholders Agreements, and each
other agreement, document or instrument executed in connection herewith or
therewith.
"TRANSFERRED SELLER EMPLOYEES" shall have the meaning ascribed thereto in
Section 5.12 hereto.
"TRUST ACCOUNT SHARES" shall have the meaning ascribed thereto in Section
3.12 hereof.
"YEAR 2000 PROBLEM" shall have the meaning ascribed thereto in Section 3.19
hereof.
ARTICLE II
THE ACQUISITION AND MERGER
2.01 THE ACQUISITION AND THE MERGER. Subject to the terms and conditions
of this Agreement, in accordance with Section 36 of MGL Chapter 172, Section 34D
of MGL Chapter 168, and the MBCL, the Seller shall merge with and into the Buyer
Bank by means of which the Buyer Corp. shall have acquired all of the assets and
assumed all of the liabilities of the Seller and transfered such assets and
liabilities to the Buyer Bank. By virtue of the Merger, the separate corporate
existence of the Seller shall cease. The Buyer Bank shall be the surviving bank
in the Merger (hereinafter sometimes referred to as the "SURVIVING BANK"), shall
continue to be an indirect wholly-owned subsidiary of the Buyer and shall
continue its corporate existence under the laws of The Commonwealth of
Massachusetts.
2.02 EFFECT OF THE MERGER.
(a) Upon the Effective Time, all of the estate, property, rights,
privileges, powers and franchises of each of the Seller and the Buyer Bank
and all of their property, real, personal and mixed, and all the debts due
on whatever account to any of them, as well as all stock subscriptions and
other choses in action belonging to any of them, shall be transferred to and
vested in the Surviving Bank, without further act or deed, and all claims,
demands, property and other interests shall be the property of the Surviving
Bank, and the title to all real estate vested in each of the Seller or the
Buyer Bank shall not revert or be in any way impaired by reason of the
Merger, but shall be vested in the Surviving Bank.
(b) Upon the Effective Time, the rights of creditors of each of the
Seller and the Buyer Bank shall not in any manner be impaired, nor shall any
liability or obligation, including taxes due or to become due, or any claim
or demand in any cause existing against such corporation, or any
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stockholder, director, or officer thereof, be released or impaired by the
Merger, but the Surviving Bank shall be deemed to have assumed, and shall be
liable for, all liabilities and obligations of each of the Seller and the
Buyer Bank in the same manner and to the same extent as if the Surviving
Bank had itself incurred such liabilities or obligations. The stockholders,
directors, and officers of each of the Seller and the Buyer Bank shall
continue to be subject to all liabilities, claims and demands existing
against them as such at or before the Merger. No action or proceeding then
pending before any court or tribunal of The Commonwealth of Massachusetts or
otherwise in which either the Seller and the Buyer Bank is a party, or in
which any such stockholder, director, or officer is a party, shall abate or
be discontinued by reason of the Merger, but any such action or proceeding
may be prosecuted to final judgment as though no merger had taken place, or
the Surviving Bank may be substituted as a party in place of either the
Seller and the Buyer Bank by the court in which such action or proceeding is
pending.
2.03 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Bank shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Bank its right, title or interest in, to or under any of the rights, properties
or assets of the Seller acquired or to be acquired by the Surviving Bank as a
result of, or in connection with, the Merger, the officers and directors of the
Surviving Bank shall and will be authorized to execute and deliver, in the name
and on behalf of either the Seller or the Buyer Bank or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of either the Seller or the Buyer Bank or otherwise, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Bank or to otherwise carry out this
Agreement.
2.04 ARTICLES OF ORGANIZATION AND BY-LAWS. At the Effective Time, the
Articles of Organization of the Buyer Bank shall be the Articles of Organization
of the Surviving Bank and the By-Laws of the Buyer Bank shall be the By-Laws of
the Surviving Bank and, subject to the rights of Buyer Corp. as the sole
stockholder of the Buyer Bank, shall thereafter continue to be its Articles of
Organization and By-Laws until amended as provided therein or by law.
2.05 EFFECTIVE TIME; CONDITIONS. The Merger shall become effective as set
forth in the articles of merger which shall be submitted for filing to the
Secretary of the Commonwealth pursuant to Section 78(d) of the MBCL (the
"ARTICLES OF MERGER"). The term "Effective Time" shall be, the date and time
specified in the Articles of Merger.
2.06 EFFECT ON OUTSTANDING SHARES.
(a) BUYER BANK COMMON STOCK. Each of the 138,126 shares of common stock
of the Buyer Bank, par value $47.50 per share (the "BUYER BANK COMMON
STOCK"), issued and outstanding immediately prior to the Effective Time,
shall remain issued and outstanding after the Merger as shares of the
Surviving Bank, and thereafter, until changed, shall constitute all of the
issued and outstanding shares of the Surviving Bank.
(b) SELLER COMMON STOCK. (i) By virtue of the Merger, automatically and
without any action on the part of the holder thereof, each share of common
stock of the Seller, par value $1.00 per share (the "SELLER COMMON STOCK"),
issued and outstanding immediately prior to the Effective Time (other than
any such shares held directly or indirectly by the Buyer, Buyer Corp. or the
Buyer Bank, except in a fiduciary capacity, and any such shares held as
treasury stock by the Seller) shall become and be converted into 0.19 shares
of the common stock of the Buyer, par value $0.625 per share ("BUYER COMMON
STOCK") together with that number of Buyer Rights associated therewith. The
number of shares of Buyer Common Stock into which each share of Seller
Common Stock shall be converted is hereinafter called the "CONVERSION
NUMBER;" and
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(ii) As of the Effective Time, each share of Seller Common Stock held
either directly or indirectly by the Buyer, Buyer Corp. or the Buyer Bank
(other than in a fiduciary capacity) or as treasury stock of the Seller
shall be canceled, retired and cease to exist, and no payment shall be made
with respect thereto. Each certificate which immediately prior to the
Effective Time represented outstanding shares of Seller Common Stock shall
on and after the Effective Time be deemed for all purposes to represent the
number of shares of Buyer Common Stock into which the shares of Seller
Common Stock represented by such certificate shall have been converted
pursuant to this Section 2.06(b).
(c) SHARES OF DISSENTING HOLDERS. No conversion under Section 2.06(b)
hereof shall be made with respect to the shares of Seller Common Stock held
by a Dissenting Holder (as such term is defined below); PROVIDED, HOWEVER,
that each share of Seller Common Stock outstanding immediately prior to the
Effective Time and held by a Dissenting Holder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of
appraisal, in either case pursuant to the applicable provisions of the MBCL,
shall be deemed to be converted, as of the Effective Time, into shares of
Buyer Common Stock as specified in Section 2.06(b) hereof. The term
"DISSENTING HOLDER" shall mean a holder of the Seller Common Stock who has
demanded appraisal rights in compliance with the applicable provisions of
the MBCL concerning the right of such holder to dissent from the Merger and
demand appraisal of such holder's shares of Seller Common Stock.
(d) DISSENTER'S RIGHTS. Any Dissenting Holder (i) who files with the
Seller a written objection to the Merger before the taking of the vote to
approve this Agreement by the shareholders of the Seller and who states in
such objection that he intends to demand payment for his shares if the
Merger is concluded and (ii) whose shares are not voted in favor of the
Merger shall be entitled to demand payment for his shares of Seller Common
Stock and an appraisal of the value thereof, in accordance with the
provisions of Sections 86 through 98 of the MBCL.
2.07 ANTI-DILUTION. In the event that, subsequent to the date of this
Agreement but prior to the Effective Time, the outstanding shares of Buyer
Common Stock shall have been increased, decreased, changed into or exchanged for
a different number of shares or securities through reorganization of the Buyer's
capitalization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other like changes in the Buyer's capitalization, other
than pursuant to this Agreement, as the case may be (a "RECAPITALIZATION"), then
an appropriate and proportionate adjustment shall be made to the Conversion
Number so that each holder of Seller Common Stock shall receive under Section
2.06(b) hereof the number of shares of Buyer Common Stock (except for fractional
shares) that such holder would have held immediately following the
Recapitalization if the Merger had occurred immediately prior to the
Recapitalization or the record date therefor, as applicable. For purposes of
this Section 2.07, in no event shall the issuance of shares or securities by the
Buyer in connection with the Buyer acquiring directly or indirectly the stock or
assets of any corporation, bank or other entity be deemed to be a
"Recapitalization".
2.08 TAX CONSEQUENCES. The parties intend that the Merger shall constitute
a reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for the purpose of Section
368 of the Code.
2.09 EXCHANGE AGENT. Prior to the Effective Time, the Buyer shall appoint
United States Trust Company as exchange agent (the "EXCHANGE AGENT") for the
purpose of exchanging certificates representing shares of Seller Common Stock
for certificates representing shares of Buyer Common Stock, and the Buyer shall
issue and deliver to the Exchange Agent certificates representing shares of
Buyer Common Stock and shall pay to the Exchange Agent such amounts of cash as
shall be required to be delivered to holders of shares of Seller Common Stock in
lieu of fractional shares of Buyer Common Stock, pursuant to Article II of this
Agreement.
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2.10 PROCEDURES.
(a) Certificates which represent shares of Seller Common Stock that are
outstanding immediately prior to the Effective Time (a "CERTIFICATE") and
are converted into shares of Buyer Common Stock pursuant to this Article II
shall, after the Effective Time, be deemed to represent shares of Buyer
Common Stock into which such shares have been converted and shall be
exchangeable by the holders thereof in the manner provided in the
transmittal materials described below for new certificates representing the
shares of Buyer Common Stock into which such shares have been converted.
(b) Buyer shall use all reasonable efforts to cause the Exchange Agent
to send to each holder of record of shares of Seller Common Stock
outstanding at the Effective Time as promptly as practicable, and in any
event within ten (10) days after the Effective Time, transmittal materials
(which shall be reviewed with and be reasonably acceptable to Seller) for
use in exchanging the certificates for such shares for certificates for
shares of Buyer Common Stock into which such shares of Seller Common Stock
have been converted pursuant to this Article II. Upon surrender of a
Certificate, together with a duly executed letter of transmittal, and any
other required documents, the holder of such Certificate shall be entitled
to receive, in exchange therefor (i) a certificate representing that number
of shares of Buyer Common Stock to which such holder of Seller Common Stock
shall have become entitled pursuant to Section 2.06(b)(i) hereof, and such
Certificate as surrendered shall forthwith be canceled, and (ii) a check
representing the amount of cash in lieu of fractional shares, if any, which
such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of Section 2.10(f) hereof. No
dividend or other distribution payable after the Effective Time with respect
to Buyer Common Stock shall be paid to the holder of any unsurrendered
Certificate until the holder thereof surrenders such Certificate, at which
time such holder shall receive all dividends and distributions, without
interest thereon, previously payable but withheld from such holder pursuant
hereto. After the Effective Time, there shall be no transfers on the stock
transfer books of the Seller of shares of Seller Common Stock which were
issued and outstanding at the Effective Time and converted pursuant to the
provisions of this Article II. If, after the Effective Time, Certificates
are presented for transfer to the Seller, they shall be canceled and
exchanged for the shares of Buyer Common Stock deliverable in respect
thereof as determined in accordance with the provisions and procedures set
forth in this Article II.
(c) After the Effective Time, holders of certificates of Seller Common
Stock shall cease to be, and shall have no rights as, stockholders of the
Seller, other than (i) to receive shares of Buyer Common Stock into which
such shares have been converted and, if applicable, fractional share
payments pursuant to the provisions hereof, or (ii) the rights afforded to
any Dissenting Holder (as defined in Section 2.06(c)) under applicable
provisions of the MBCL.
(d) Neither the Buyer nor the Seller nor any other person shall be
liable to any former holder of shares of Seller Common Stock for any shares
or any dividends or distributions with respect thereto properly delivered to
a public official pursuant to applicable abandoned property, escheat or
similar laws.
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon receipt of appropriate evidence as to such loss, theft or
destruction and to the ownership of such Certificate by the person claiming
such Certificate to be lost, stolen or destroyed, and the receipt by the
Buyer of appropriate and customary indemnification, the Buyer will issue in
exchange for such lost, stolen or destroyed Certificate shares of Buyer
Common Stock and the fractional share payment, if any, deliverable with
respect thereof, as determined in accordance with this Article II.
(f) In lieu of the issuance of fractional shares of Buyer Common Stock
pursuant to Section 2.06(b) of this Agreement, cash adjustments, without
interest, will be paid to the holders of Seller Common Stock in respect of
any fractional share that would otherwise be issuable and the amount of
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such cash adjustment shall be equal to an amount in cash determined by
multiplying such holder's fractional interest by the "Average Price" of a
share of Buyer Common Stock (rounded to the nearest cent). The "AVERAGE
PRICE" of a share of Buyer Common Stock shall be the average of the last
sale prices thereof as reported on the National Association of Securities
Dealers Automated Quotation system over the ten (10) consecutive trading day
period immediately preceding the date on which the last Requisite Regulatory
Approval is received (without regard to any waiting period attached to the
effectiveness thereof). For purposes of determining whether, and in what
amounts, a particular holder of Seller Common Stock would be entitled to
receive cash adjustments under this Section 2.09(f), shares of record held
by such holder and represented by two or more Certificates shall be
aggregated.
(g) If any certificate representing shares of Buyer Common Stock is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer (including, but not limited to, that the signature
of the transferor shall be properly guaranteed by a commercial bank, trust
company, member firm of the NASD or other eligible guarantor institution),
and that the person requesting such exchange shall pay to the Exchange Agent
in advance any transfer or other taxes required by reason of the issuance of
a certificate representing shares of Buyer Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
required for any other reason, or shall establish to the reasonable
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
2.11 CONVERSION OF OPTIONS. Each stock option (other than the Seller
Option) issued by the Seller to a third party pursuant to any stock option plan
of the Seller (the "SELLER STOCK OPTION PLANS"), whether or not currently
exercisable, which entitles such third party to purchase Seller Common Stock,
and which is outstanding and unexercised immediately prior to the Effective
Time, shall be converted into an option to purchase shares of Buyer Common
Stock, and the Buyer shall assume each such option in accordance with the terms
of the Seller Stock Option Plan under which it was granted and the stock option
or other agreement by which it is evidenced, with the following terms:
(a) The number of shares of Buyer Common Stock shall be equal to the
product of the number of shares of Seller Common Stock previously subject
thereto and the Conversion Number, rounded down to the nearest whole share;
and
(b) The exercise price per share of Buyer Common Stock shall be equal to
the exercise price per share of Seller Common Stock previously subject
thereto divided by the Conversion Number, rounded up to the nearest cent;
and
(c) The duration and other terms of each such stock option shall be
otherwise governed by the terms of the Seller Stock Option Plan under which
such option was granted and shall be unchanged except that all references to
the Seller shall be deemed to be references to the Buyer; and
(d) The Buyer shall assume the option as contemplated by Section 424(a)
of the Code; and
(e) With respect to any stock option on Seller Common Stock which is an
Incentive Stock Option, the Buyer shall take such actions (other than
delaying the date the options on Buyer Common Stock become exercisable
beyond the date on which such options would otherwise become exercisable
pursuant to the relevant Seller Stock Option Plan) as may be necessary or
appropriate to cause such option, upon being converted to an option on Buyer
Common Stock, to remain such an Incentive Stock Option.
2.12 POSSIBLE ALTERNATIVE STRUCTURE. Notwithstanding any other provision
of this Agreement to the contrary, prior to the Effective Time, the Buyer shall
be entitled to (i) revise the structure of the Merger to provide that the Seller
shall be merged with and into a special purpose subsidiary ("INTERIM TRUST
COMPANY") of the Buyer at the Effective Time or alternatively, that Interim
Trust shall be merged with and
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into the Seller at the Effective Time (the "ALTERNATIVE STRUCTURE MERGER"),
and/or (ii) acquire the shares of the Seller Common Stock in a "Plan of
Acquisition" pursuant to MGL Chapter 172, Section 26B and simultaneously
therewith merge the Seller with and into the Buyer Bank; provided in each case
that such alternative transfer would not preclude the satisfaction of any
closing condition set forth in Article VI hereof. In the event that the
structure of the Merger is changed in the manner provided by this Section
2.12(i) hereof, the Seller and the Buyer Bank will execute and deliver an
agreement and plan of merger necessary to consummate the merger of the Seller,
as the survivor of the Alternative Structure Merger referred to in (i) above
with and into the Buyer Bank (the "SECOND BANK MERGER"). The Seller shall take
such actions as the Buyer shall reasonably request to effectuate the Second Bank
Merger. Notwithstanding the foregoing or any other provision of this Agreement
to the contrary, the Buyer and the Seller may jointly elect prior to the
Effective Time, to substitute an alternative structure for the accomplishment of
the transactions contemplated by this Agreement. Buyer and Seller agree that
this Agreement shall be appropriately amended in order to reflect any such
revised sequence or structure.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
3.01 CORPORATE ORGANIZATION.
(a) The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts. The Buyer
has all requisite corporate power and authority to own, lease or operate all
of its properties and assets and to carry on its business as it is now being
conducted. The Buyer is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, leased or operated
by it makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified would not result in, with respect to
the Buyer, a Material Adverse Effect. The Buyer is a bank holding company
registered with the Federal Reserve Board under the BHCA.
(b) The Buyer Bank is a bank and trust company duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts. The Buyer Bank has all requisite power and authority to own,
lease or operate all of its properties and assets and to carry on its
business as it is now being conducted. The Buyer Bank is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned, leased, or operated by it makes such licensing or
qualification necessary, except where the failure to be so licensed or
qualified would neither individually nor in the aggregate result in any
Material Adverse Effect on the Buyer.
3.02 CAPITALIZATION.
(a) The authorized capital stock of the Buyer consists of 45,000,000
shares of Buyer Common Stock and 4,000,000 shares of preferred stock, par
value $1.00 per share ("BUYER PREFERRED STOCK"). As of the close of business
on October 31, 1997, there were 29,719,593 shares of Buyer Common Stock and
no shares of Buyer Preferred Stock issued and outstanding. In addition, as
of the close of business on October 31, 1997, there were 1,396,808 shares of
Buyer Common Stock reserved for issuance upon exercise of outstanding stock
options. All issued and outstanding shares of Buyer Common Stock and Buyer
Preferred Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Except (i) for rights issuable
to holders of Buyer Common Stock in accordance with the Buyer Rights
Agreement, (ii) as permitted under this Agreement, (iii) as referred to in
this Section 3.02 (which includes director and employee stock options) or
(iv) as reflected in Section 3.02(a) of the Buyer
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Disclosure Schedule, the Buyer does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments, rights
agreements or agreements of any character calling for the Buyer to issue,
deliver or sell, or cause to be issued, delivered or sold any shares of
Buyer Common Stock or Buyer Preferred Stock or any other equity security of
the Buyer or any subsidiary of the Buyer or any securities convertible into,
exchangeable for or representing the right to subscribe for, purchase or
otherwise receive any shares of Buyer Common Stock or Buyer Preferred Stock
or any other equity security of the Buyer or any subsidiary of the Buyer or
obligating the Buyer to grant, extend or enter into any such subscriptions,
options, warrants, calls, commitments, rights agreements or agreements. As
of the date hereof there are no outstanding contractual obligations of the
Buyer to repurchase, redeem or otherwise acquire any shares of capital stock
of the Buyer or any subsidiary of the Buyer.
(b) Section 3.02(b) of the Buyer Disclosure Schedule lists each of the
Significant Subsidiaries of the Buyer on the date of this Agreement and
indicates for each such subsidiary as of such date: (i) the percentage and
type of equity securities owned or controlled by the Buyer; (ii) the
jurisdiction of incorporation; and (iii) if the subsidiary is a depository
institution, whether it is a member of the Federal Reserve System. Each of
the subsidiaries of the Buyer that is a depository institution is an
"insured depository institution" as defined in the FDIA and applicable
regulations thereunder, and the deposits of each such depository institution
are insured by the Bank Insurance Fund of the FDIC in accordance with the
FDIA, and each such depository institution has paid all assessments and
filed all reports required by the FDIA. As of the date hereof, no
proceedings for the revocation or termination of such deposit insurance are
pending or, to the knowledge of the Buyer, threatened. No subsidiary of the
Buyer has or is bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for a subsidiary
of the Buyer to issue deliver or sell, or cause to be issued, delivered or
sold any equity security of the Buyer or of any subsidiary of the Buyer or
any securities convertible into, exchangeable for or representing the right
to subscribe for, purchase or otherwise receive any such equity security or
obligating a subsidiary of the Buyer to grant, extend or enter into any such
subscriptions, options, warrants, calls, commitments or agreements. As of
the date hereof, there are no outstanding contractual obligations of any
subsidiary of the Buyer to repurchase, redeem or otherwise acquire any
shares of capital stock of the Buyer or any subsidiary of the Buyer. Except
as may be provided under applicable law in the case of any subsidiary of the
Buyer that is a bank, all of the shares of capital stock of each of the
subsidiaries of the Buyer held by the Buyer are fully paid and nonassessable
and, except for directors' qualifying shares, are owned by the Buyer free
and clear of any claim, lien, encumbrance or agreement with respect thereto.
3.03 AUTHORITY; NO VIOLATION.
(a) The Buyer has all requisite corporate power and authority to execute
and deliver this Agreement, the other Transaction Documents and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement, the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly approved by the Board of Directors of the Buyer. No other
corporate proceedings on the part of the Buyer are necessary to consummate
any of the transactions so contemplated by this Agreement. This Agreement
and the other Transaction Documents have been duly and validly executed and
delivered by the Buyer and (assuming due authorization, execution and
delivery by the Seller) constitutes the valid and binding obligation of the
Buyer, enforceable against the Buyer in accordance with their respective
terms, except that enforcement thereof may be limited by the receivership,
conservatorship and supervisory powers of bank regulatory agencies generally
as well as bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting enforcement of creditors' rights generally and except
that enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) and the availability of equitable remedies.
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(b) Neither the execution and delivery of this Agreement or the other
Transaction Documents by the Buyer nor the consummation by the Buyer of the
transactions contemplated by this Agreement; nor compliance by the Buyer
with any of the terms or provisions of this Agreement, will (i) assuming
that the consents and approvals referred to in Section 3.04 hereof are duly
obtained, violate in any material respect any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
the Buyer, or (ii) violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result in a right
of termination or acceleration or the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets
of the Buyer or the Buyer Bank under, any of the terms, conditions or
provisions of (A) the Articles of Organization or other charter document of
like nature or By-Laws of the Buyer, or (B) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which the Buyer is a party as issuer, guarantor or obligor, or
by which they or any of their respective properties or assets may be bound
or affected, except, in the case of clause (ii)(B) above, for such
violations, conflicts, breaches or defaults which either individually or in
the aggregate will not have a Material Adverse Effect on the Buyer.
3.04 CONSENTS AND APPROVALS. Except for consents, waivers or approvals of,
or filings or registrations with, the Federal Reserve Board, the FDIC, the
Commissioner of Banks of The Commonwealth of Massachusetts (the "MASSACHUSETTS
COMMISSIONER"), the MBBI, the Securities and Exchange Commission (the "SEC"),
the Secretary of State of The Commonwealth of Massachusetts, NASDAQ, and the
DOJ, no consents, waivers or approvals of or filings or registrations with any
public body or authority are necessary, and no consents or approvals of any
third parties (which term does not include the Board of Directors of the Buyer
are necessary, in connection with (a) the execution and delivery by the Buyer of
this Agreement or (b) the consummation by the Buyer of the transactions
contemplated by this Agreement. The Buyer has no knowledge of any fact or
circumstance relating to the Buyer or its subsidiaries that is reasonably likely
to materially impede or delay receipt of any Consents of regulatory or
governmental authorities or result in the imposition of a restriction or
condition of the type referenced in Section 6.02(d) herein.
3.05 FINANCIAL STATEMENTS. The Buyer has made available to the Seller
copies of (a) the consolidated balance sheets of the Buyer and its subsidiaries
as of December 31 for the fiscal years 1994 through 1996, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1994 through 1996, inclusive, as reported in the
Annual Reports of the Buyer on Form 10-K for each of the three (3) fiscal years
ended December 31, 1994 through December 31, 1996 filed with the SEC under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), in each case
accompanied by the audit report of Arthur Andersen LLP, independent public
accountants for the Buyer, and (b) the unaudited consolidated balance sheet of
the Buyer and its subsidiaries as of September 30, 1997, the related unaudited
consolidated statements of income and changes in stockholders' equity for the
nine (9) months ended September 30, 1997 and September 30, 1996 and the related
unaudited consolidated statements of cash flows for the nine (9) months ended
September 30, 1997 and September 30, 1996, all as reported in the Buyer's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 filed
with the SEC under the Exchange Act. The December 31, 1996 consolidated balance
sheet ("BUYER BALANCE SHEET") of the Buyer (including the related notes, where
applicable) and the other financial statements referred to herein (including the
related notes, where applicable) fairly present, and the financial statements to
be included in any reports or statements (including reports on Forms 10-Q and
10-K) to be filed by the Buyer with the SEC after the date hereof will fairly
present, the consolidated financial position and results of the consolidated
operations and cash flows and changes in stockholders' equity of the Buyer and
its subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; and each of such statements (including the related notes,
where applicable) has been and will be prepared in accordance with GAAP
consistently applied during the periods involved, except as otherwise set forth
in the notes thereto (subject, in the case of unaudited interim statements, to
normal year-end
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adjustments). The books and records of the Buyer and its subsidiaries have been,
and are being, maintained in accordance with GAAP and applicable legal and
regulatory requirements.
3.06 ABSENCE OF UNDISCLOSED LIABILITIES. None of the Buyer or any of its
subsidiaries has any obligation or liability (contingent or otherwise) that is
material on a consolidated basis to the Buyer, or that when combined with all
similar obligations or liabilities would be material on a consolidated basis to
the Buyer or any of its Significant Subsidiaries, except as disclosed or
reflected in the Buyer Balance Sheet or any of the other financial statements of
the Buyer described in Section 3.05 above.
3.07 BROKER'S FEES. Neither the Buyer nor any of its officers, directors,
employees or agents has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with any of the
transactions contemplated by this Agreement, except for the fees incurred in
connection with the engagement of Fox-Pitt, Kelton Inc. and for legal,
accounting and other professional fees payable in connection with the Merger.
The Buyer will be responsible for the payment of all such fees.
3.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Buyer's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997
or in any Current Reports of the Buyer on Form 8-K filed prior to the date of
this Agreement, since December 31, 1996, the Buyer and its subsidiaries have not
incurred any material liability, except in the ordinary course of their business
consistent with their past practices, nor has there been any change in the
business, assets, financial condition or results of operations of the Buyer or
any of its subsidiaries which has had, or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Buyer or any
Significant Subsidiary of the Buyer.
3.09 LEGAL PROCEEDINGS. There is no suit, action or proceeding pending or,
to the best knowledge of the Buyer, threatened, against the Buyer or any
subsidiary of the Buyer or challenging the validity or propriety of the
transactions contemplated by this Agreement, as to which there is a reasonable
possibility of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, have a Material Adverse Effect on the
Buyer or any Significant Subsidiary of the Buyer or otherwise materially
adversely affect the Buyer's ability to perform its obligations under this
Agreement, nor is there any judgment, decree, injunction, rule or order of any
legal or administrative body or arbitrator outstanding against the Buyer or any
subsidiary of the Buyer having, or which insofar as reasonably can be foreseen,
in the future could have, any such effect.
3.10 REPORTS. Since January 1, 1994, the Buyer and its subsidiaries have
filed, and subsequent to the date hereof will file, all reports, registrations
and statements, together with any amendments required to be made with respect
thereto, that were and are required to be filed with (a) the SEC, including, but
not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (and all
such reports, registrations and statements have been or will be delivered by the
Buyer to the Seller), (b) the Federal Reserve Board, (c) the FDIC, and (d) any
applicable state securities or banking authorities (except, in the case of state
securities authorities, no such representation is made as to filings which are
not material) (all such reports and statements are collectively referred to
herein as the "BUYER REPORTS"). As of their respective dates, the Buyer Reports
complied and, with respect to filings made after the date of this Agreement,
will at the date of filing comply, in all material respects with all of the
statutes, rules and regulations enforced or promulgated by the regulatory
authority with which they were filed and did not contain and, with respect to
filings made after the date of this Agreement, will not at the date of filing
contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.11 BUYER COMMON STOCK. Buyer Common Stock to be issued pursuant to this
Agreement is duly authorized and, when issued at the Effective Time, will be
validly issued, fully paid and nonassessable and not subject to preemptive
rights, with no personal liability attaching thereto and will have the same
rights in all respects as the shares of the Buyer Common Stock outstanding on
the date of issuance.
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3.12 OWNERSHIP OF SELLER COMMON STOCK. Neither the Buyer nor, to its best
knowledge, any of its affiliates or associates (as such terms are defined under
the Exchange Act) (a) beneficially own, directly or indirectly, or (b) are
parties to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of the Seller, which in the aggregate represent five percent (5%) or more
of the outstanding shares of capital stock of the Seller entitled to vote
generally in the election of directors (other than shares in trust accounts,
managed accounts and the like that are beneficially owned by third parties (any
such shares being hereinafter referred to as, "TRUST ACCOUNT SHARES")).
3.13 AGREEMENTS WITH BANKING AUTHORITIES. Except as set forth in Section
3.13 of the Buyer Disclosure Schedule, neither the Buyer nor any of its
subsidiaries is a party to any commitment, letter (other than letters addressed
to regulated depository institutions generally), written agreement, memorandum
of understanding, order to cease and desist with, or has been required to adopt
any board resolution by, any federal or state governmental entity charged with
the supervision or regulation of banks or bank holding companies or engaged in
the insurance of bank deposits which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, credit policies,
management or overall safety and soundness or such entity's ability to perform
its obligations hereunder, and neither the Buyer nor any of its subsidiaries has
received written notification from any such federal or state governmental entity
that any such Person may be requested to enter into, or otherwise be subject to,
any such commitment, letter, written agreement, memorandum of understanding or
cease and desist order.
3.14 COMPLIANCE WITH APPLICABLE LAW. Each of the Buyer and each
Significant Subsidiary thereof holds all licenses, franchises, permits and
authorizations necessary for the lawful conduct of its business, and each of the
Buyer and each Significant Subsidiary thereof has complied with and is not in
violation of or default in any respect under any, applicable law, statute,
order, rule, regulation or policy of, or agreement with, any federal, state or
local governmental agency or authority relating to the Buyer or such Significant
Subsidiary (other than where such default or noncompliance will not result in,
or create the possibility of resulting in, a material limitation on the conduct
of the business of the Buyer, will not cause, or create the possibility of
causing, the Buyer or any Significant Subsidiary thereof to incur any financial
penalty in excess of $20,000 (including but not limited to any civil money
penalty or other monetary sanction under Section 8(i)(2) of the FDIA, 12 U.S.C.
Section1818(i)(2), or under any applicable state law ("CMPS")), and will not
otherwise result, or create the possibility of resulting in any Material Adverse
Effect on the Buyer or any Significant Subsidiary of the Buyer), and neither the
Buyer nor any Significant Subsidiary of the Buyer has received any notice of any
violation of any such law, statute, order, rule, regulation, policy or
agreement, or commencement of any proceeding in connection with any such
violation (including but not limited to any hearing or investigation relating to
the imposition or contemplated imposition of CMPs), and does not know of any
violation of, any such law, statute, order, rule, regulation, policy or
agreement which would have such a result.
3.15 POOLING OF INTERESTS TREATMENT. To the Buyer's knowledge, it has not
taken any action that would, or is likely to, cause the Merger to fail to
qualify for "pooling of interests" accounting treatment under Accounting
Principles Board Opinion No. 16.
3.16 EMPLOYEES.
(a) Except as set forth in Section 3.16(a) of the Buyer Disclosure
Schedule, neither the Buyer nor any of its subsidiaries maintains or
contributes to any "employee pension benefit plan" (the "BUYER PENSION
PLANS"), as such term is defined in Section 3(2) of ERISA or "employee
welfare benefit plan" (the "BUYER BENEFIT PLANS"), as such term is defined
in Section 3(1) of ERISA, stock option plan, stock purchase plan, deferred
compensation plan, other employee benefit plans for employees of the Buyer
or its subsidiaries, or any other plan, program or arrangement of the same
or similar nature that provides benefits to non-employee directors of the
Buyer or its subsidiaries.
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(b) The current value of the assets of each of the Buyer Pension Plans
subject to Title IV of ERISA exceeds that plan's "Benefit Liabilities" as
that term is defined in Section 4001(a)(16) of ERISA, when determined under
actuarial factors that would apply if that plan terminated in accordance
with all applicable legal requirements.
(c) To the knowledge of the Buyer, each of the Buyer Pension Plans and
each of the Buyer Benefit Plans, which are maintained or contributed to by
the Buyer, has been administered in compliance with its terms in all
material respects and is in compliance in all material respects with the
applicable provisions of ERISA (including, but not limited to, the funding
and prohibited transactions provisions thereof), the Code and other
applicable laws, except to the extent that non-compliance would not have a
Material Adverse Effect on the Buyer, taken as a whole.
(d) To the knowledge of the Buyer, there has been no reportable event
within the meaning of Section 4043(b) of ERISA or any waived funding
deficiency within the meaning of Section 412(d)(3) (or any predecessor
section) of the Code with respect to any Buyer Pension Plan.
(e) To the knowledge of the Buyer, each of the Buyer Pension Plans which
is intended to be a qualified plan within the meaning of Section 401(a) of
the Code is so qualified, and the Buyer is not aware of any fact or
circumstance which would adversely affect the qualified status of any such
plan.
(f) Except as set forth in Section 3.16(f) of the Buyer Disclosure
Schedule, the Buyer has made or provided for all contributions to the Buyer
Pension Plans required by the Buyer thereunder.
3.17 CAPITALIZATION. As of the date hereof, without giving effect to the
transactions contemplated hereby, the subsidiaries of the Buyer which are
"insured depository institutions" are (a) "well capitalized", as defined in the
FDIA, and (b) meet all capital requirements, standards and ratios required by
each state or federal bank regulator with jurisdiction over such Persons. No
such regulator has indicated that it will condition any of the regulatory
approvals upon an increase in any such Person's capital or compliance with any
special capital requirement, standard or ratio.
3.18 CRA RATING. The Buyer Bank was rated "Outstanding" following its most
recent Community Reinvestment Act examination by the FDIC. The Buyer has not
received any notice of, and the Buyer has no knowledge of, any planned or
threatened objection by any community group to the transactions contemplated
hereby.
3.19 YEAR 2000. The Buyer has made available to the Seller a copy of the
report furnished by the Buyer to the regulatory agencies having jurisdiction
over the Buyer and its subsidiaries concerning the modifications required to the
Buyer's computer systems, if any, in order for each systems to contain no
deficiencies relating generally to formatting for entering dates (commonly
referred to and referred to herein as the "Year 2000 Problem"). The Buyer is not
aware of any inability on the part of any customer, insurance company or service
provider with which the Buyer transacts business to timely remedy their own
deficiencies in respect of the Year 2000 Problem, which inability, individually
or in the aggregate, reasonably could be expected to have a Material Adverse
Effect on the Buyer.
3.20 BUYER INFORMATION. The information relating to the Buyer and its
subsidiaries to be contained in the Seller Proxy Statement and the S-4, as
described in Section 5.04 hereof, and any other documents filed with the SEC or
any regulatory agency in connection herewith, to the extent such information is
provided in writing by the Buyer, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make such
information not misleading.
3.21 DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any certificate, list or other writing,
including but not necessarily limited to the Buyer Disclosure Schedule,
furnished to the Seller pursuant to the provisions hereof, to the best knowledge
of the Buyer, contains or will contain any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
herein or therein not misleading. To the best knowledge of the Buyer, all
information material to the Merger and the transactions contemplated by this
Agreement, or which is necessary to make the representations and warranties
herein contained not misleading, has been disclosed in writing to the Seller.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer as follows:
4.01 CORPORATE ORGANIZATION.
(a) The Seller is a stock savings bank organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts. The
Seller has all requisite corporate power and authority to own, lease or
operate all of its properties and assets and to carry on its business as it
is now being conducted. The Seller and each of its subsidiaries is duly
licensed or qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character of the properties
and assets owned, leased or operated by it makes such licensing or
qualification necessary, except where the failure to be so qualified would
not result in, with respect to the Seller or such subsidiary, a Material
Adverse Effect. Section 4.01(a) of the Seller Disclosure Schedule lists each
of the jurisdictions in which the Seller and its subsidiaries possess any
such foreign qualifications or licenses and lists such license held in such
jurisdiction. The Seller has previously made available to Buyer for
inspection true and complete copies as amended to date of the (i) Charter
and By-Laws of the Seller and each subsidiary, and (ii) all records in the
possession of the Seller of all meetings and other corporate action taken by
the stockholders, Board of Directors and committees thereof, of the Seller
and each subsidiary.
(b) Except as set forth in Section 4.01(b) of the Seller Disclosure
Schedule, the Seller has no subsidiaries and no Equity Investments (other
than its investments in such subsidiaries). Section 4.01(b) of the Seller
Disclosure Schedule lists for each subsidiary and Equity Investment of the
Seller, the percentage of Seller's ownership in such subsidiary or Equity
Investment, the activities of such subsidiary or Equity Investment,
including but not limited to, whether or not such subsidiary or Equity
Investment is engaged principally or otherwise, directly or indirectly
through a joint venture, partnership or other entity, in the sale of mutual
funds, insurance or the development of real estate. Except as set forth in
Section 4.01(b) of the Seller Disclosure Schedule, no subsidiary or Equity
Investment of the Seller engages in any activity, principally or otherwise,
that is not permitted for a national bank.
(c) Except as set forth in Section 4.01(c) of the Seller Disclosure
Schedule, the minute books of the Seller and its subsidiaries accurately
reflect in all material respects all meetings held of, and actions taken by,
since January 1, 1992, their respective stockholders and Boards of
Directors.
4.02 CAPITALIZATION.
(a) The authorized capital stock of the Seller consists of (i)
20,000,000 shares of Seller Common Stock, of which, as of December 9, 1997,
16,651,602 shares were issued and outstanding, and (ii) 5,000,000 shares of
preferred stock, par value $1.00 per share (the "SELLER PREFERRED STOCK"),
of which, as of December 9, 1997 no shares were issued and outstanding. In
addition, as of the close of business on December 9, 1997, there were
570,750 shares of Seller Common Stock reserved for issuance upon the
exercise of outstanding stock options. All issued and outstanding shares of
Seller Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Except with respect to the
Seller Option and as referred to in this Section 4.02(a), the Seller does
not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
Seller to issue, deliver or sell, or cause to be issued, delivered or sold
any shares of Seller Common Stock, or any other equity security of the
Seller or any securities convertible into, exchangeable for or representing
the right to subscribe for, purchase or otherwise receive any shares of
Seller Common Stock or any other equity security of the Seller or obligating
the Seller to grant, extend or enter into any such subscriptions, options,
warrants, calls, commitments or agreements. As of the date hereof, there are
no outstanding contractual obligations of the Seller to
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repurchase, redeem or otherwise acquire any shares of capital stock of the
Seller. In addition, Section 4.02(a) of the Seller Disclosure Schedule sets
forth, as of the date hereof, the number of shares of Seller Common Stock
subject to outstanding stock options, the various dates on which such
options were granted, the various exercise prices for such options, the
number of shares for which such options are presently vested, and the
vesting schedule for the remaining balance of shares for which such options
are not presently vested.
(b) Seller is an "insured depository institution" as defined in the FDIA
and applicable regulations thereunder, and the deposits of the Seller are
insured by the Bank Insurance Fund of the FDIC in accordance with the FDIA
and by the Deposit Insurance Fund of the Mutual Savings Central Fund, Inc.
of Massachusetts (the "DEPOSIT INSURANCE FUND") in excess of the FDIC's
insurance limits. The Seller has paid all assessments and filed all reports
required by the FDIA and the Deposit Insurance Fund and no amounts are owned
to the Deposit Insurance Fund by the Seller or to the Seller by the Deposit
Insurance Fund. As of the date hereof no proceedings for the revocation or
termination of such deposit insurance are pending or to the knowledge of the
Seller, threatened.
(c) No subsidiary of the Seller has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for a subsidiary of the Seller to issue, deliver or sell,
or cause to be issued, delivered or sold any equity security of the Seller
or of any subsidiary of the Seller or any securities convertible into,
exchangeable for or representing the right to subscribe for, purchase or
otherwise receive any such equity security or obligating a subsidiary of the
Seller to grant, extend or enter into any such subscriptions, options,
warrants, calls, commitments or agreements. As of the date hereof, there are
no outstanding contractual obligations of any subsidiary of the Seller to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Seller or any subsidiary of the Seller. All of the shares of capital stock
of each of the subsidiaries of the Seller held by the Seller are fully paid
and nonassessable and, except for directors' qualifying shares, are owned by
the Seller free and clear of any claim, lien, encumbrance or agreement with
respect thereto.
4.03 AUTHORITY; NO VIOLATION.
(a) The Seller has full corporate power and authority to execute and
deliver this Agreement, the other Transaction Documents and, subject only to
the approval of the Seller's stockholders, to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement, the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of the Seller. The Board of Directors of
the Seller has directed that this Agreement and the transactions
contemplated hereby be submitted to the stockholders of the Seller for
approval at a meeting of such stockholders and, except for the adoption of
this Agreement by its stockholders, no other corporate proceedings on the
part of the Seller are necessary to consummate any of the transactions so
contemplated by this Agreement. This Agreement and the other Transaction
Documents have been duly and validly executed and delivered by the Seller
and (assuming due authorization, execution and delivery by the Buyer )
constitute the valid and binding obligations of the Seller, enforceable
against the Seller in accordance with their respective terms, except that
enforcement thereof may be limited by the receivership, conservatorship and
supervisory powers of bank regulatory agencies generally as well as
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally and except that
enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) and the availability of equitable remedies.
(b) Neither the execution and delivery of this Agreement or the other
Transaction Documents by the Seller, nor the consummation by the Seller of
the transactions contemplated by this Agreement, or the other Transaction
Documents, nor compliance by the Seller, with any of the terms or provisions
thereof, will (i) assuming that the consents and approvals referred to in
Section 4.04 are duly obtained,
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violate in any material respect any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to the
Seller or any of its subsidiaries or any of their respective properties or
assets, or (ii) violate, conflict with, result in a breach of any provisions
of, constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of termination
or acceleration or the creation of any lien, security interest, charge or
other encumbrance upon any of the properties or assets of the Seller or any
of its subsidiaries under, any of the terms, conditions or provisions of (A)
the Charter or By-Laws of the Seller or any of its subsidiaries, or (B) any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Seller or any of its
subsidiaries is a party as issuer, guarantor or obligor, or by which it or
any of its properties or assets may be bound or affected, except, in the
case of clause (ii)(B) above, for such violations, conflicts, breaches or
defaults which either individually or in the aggregate will not have a
Material Adverse Effect on the Seller.
4.04 CONSENTS AND APPROVALS. Except for consents, waivers or approvals of,
or filings or registrations with, the Federal Reserve Board, the FDIC, the
Massachusetts Commissioner, the MBBI, the SEC, the Secretary of State of The
Commonwealth of Massachusetts, the DOJ, NASDAQ, certain state "Blue Sky" or
securities commissioners or the stockholders of the Seller, no consents, waivers
or approvals of or filings or registrations with any public body or authority
are necessary, and except as set forth in Section 4.04 of the Seller Disclosure
Schedule, no consents or approvals of any third parties (which term does not
include the Board of Directors and stockholders of the Seller) are necessary, in
connection with (a) the execution and delivery by the Seller of this Agreement
or (b) the consummation by the Seller, of the transactions contemplated by this
Agreement. The affirmative vote of holders of two-thirds of the outstanding
shares of Seller Common Stock is the only vote of the holders of any class or
series of capital stock or other securities of the Seller necessary to approve
of this Agreement and the transactions contemplated hereby. The Seller has no
knowledge of any fact or circumstance relating to the Seller or its subsidiaries
that is reasonably likely to materially impede or delay receipt of any Consents
of regulatory or governmental authorities or result in the imposition of a
restriction or condition of the type referenced in Section 6.02(d) herein.
4.05 FINANCIAL STATEMENTS. The Seller has made available to the Buyer
copies of (a) the consolidated balance sheets of the Seller and its subsidiaries
as of December 31 for the fiscal years 1994 through 1996, inclusive, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the fiscal years 1994 through 1996, inclusive, as reported in
the Seller's Annual Reports on Form F-2 for each of the three (3) fiscal years
ended December 31, 1994 through December 31, 1996, which were filed with the
FDIC under the Exchange Act, in each case accompanied by the audit report of
Wolf & Company, P.C., independent auditors for the Seller, and (b) the unaudited
consolidated balance sheets of the Seller and its subsidiaries as of September
30, 1997 and September 30, 1996, the related unaudited consolidated statements
of operations and changes in stockholders' equity for the nine (9) months ended
September 30, 1997 and September 30, 1996 and the related unaudited consolidated
statements of cash flows for the nine (9) months ended September 30, 1997 and
September 30, 1996, all as reported in the Seller's Quarterly Report on Form F-4
for the nine (9) months ended September 30, 1997 filed with the FDIC under the
Exchange Act. The December 31, 1996 consolidated balance sheet (the "SELLER
BALANCE SHEET") of the Seller (including the related notes, where applicable)
and the other financial statements referred to herein (including the related
notes, where applicable) fairly present, and the financial statements to be
included in any reports or statements (including reports on Forms F-3 and F-2)
to be filed by the Seller with the FDIC after the date hereof will fairly
present, the consolidated financial position and results of the consolidated
operations and cash flows and changes in shareholders' equity of the Seller and
its subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; and each of such statements (including the related notes,
where applicable) has been prepared in accordance with GAAP consistently applied
during the periods involved, except as otherwise set forth in the notes thereto
(subject, in the case of unaudited interim statements, to normal year-end
adjustments).
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The books and records of the Seller and its subsidiaries have been, and are
being, maintained in all material respects in accordance with GAAP and
applicable legal and regulatory requirements.
4.06 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section
4.06 of the Seller Disclosure Schedule, neither the Seller nor its subsidiaries
has any obligation or liability (contingent or otherwise) that is material on a
consolidated basis to the Seller, except as disclosed or reflected in the Seller
Balance Sheet or any of the other financial statements described in Section 4.05
above or Section 4.06 of the Seller Disclosure Schedule.
4.07 BROKER'S FEES. Neither the Seller nor any of its or its subsidiaries'
officers, directors, employees or agents has employed any broker, finder or
financial advisor or incurred any liability for any fees or commissions in
connection with any of the transactions contemplated by this Agreement, except
for the engagement of Legg Mason Woods Walker, Inc. and the fees incurred in
connection with such engagement, and except for legal, accounting and other
professional fees payable in connection with the Merger. The Seller will be
responsible for the payment of such fees.
4.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section
4.08 of the Seller Disclosure Schedule, or as disclosed in the Seller's
Quarterly Report on Form F-4 for the nine (9) months ended September 30, 1997 or
in any Current Reports of the Seller on Form F-3 filed prior to the date of this
Agreement, since December 31, 1996, (i) the business of the Seller and each of
its subsidiaries has been conducted only in the ordinary course consistent with
past practice, (ii) there has not been any change in the business, assets,
financial condition or results of operations of the Seller or any of its
subsidiaries, which, individually or in the aggregate, has had or is reasonably
likely to have a Material Adverse Effect on the Seller, (iii) there has not been
any material change in any policy or practice followed by the Seller nor any of
its subsidiaries in the ordinary course of business, (iv) neither the Seller nor
any of its subsidiaries has incurred any material liability, except in the
ordinary course of its business consistent with prudent banking practices, (v)
there has not been any material agreement, contract or commitment entered into,
or agreed to be entered into, except for those in the ordinary course of
business; (vi) there has not been any increase in or establishment of any bonus,
insurance, severance (including severance after a change in control), deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of any stock options, stock appreciation
rights, performance awards, or restricted stock awards), stock purchase, life
insurance or split dollar life insurance, retiree medical or life insurance, or
other employee benefit plan, or any other increase in the compensation payable
or to become payable to any officers or key employees of the Seller or any of
its subsidiaries, except with respect to cash compensation, in the ordinary
course of business consistent with past practice; (vii) there has not been any
change in any of the accounting methods or practices of the Seller or any of its
subsidiaries other than changes required by applicable law or GAAP; and (viii)
the Seller has not filed any application with any Governmental Authority with
respect to its branches, its real properties or its operations.
4.09 LEGAL PROCEEDINGS. Seller has furnished to the Buyer copies of (i)
all attorney responses to the most recent request of the independent auditors
for the Seller and its subsidiaries with respect to Litigation (as defined
below) and (ii) a written list of all legal and regulatory proceedings filed
against the Seller or its subsidiaries since that date. Except as set forth in
Section 4.09(a) of the Seller Disclosure Schedule, there is no suit, action,
claim, investigation or administrative or other proceeding pending or, to the
knowledge of the Seller, threatened, formal or informal, against the Seller or
any of its subsidiaries before any court, arbitrator or Governmental Authority,
including but not limited to any federal or state investigation concerning or
alleging violations of federal or state securities laws or currency transaction
reporting laws and regulations or challenging the validity or propriety of the
transactions contemplated by this Agreement (each a "Litigation"), as to which
there is a reasonable probability of an adverse determination and which, if
adversely determined, would, individually or in the aggregate, have a Material
Adverse Effect on the Seller or otherwise materially adversely affect the
Seller's ability to perform its obligations under this Agreement, nor is there
any judgment, decree, injunction, rule or order of any legal or administrative
body or arbitrator outstanding against the Seller or any of its subsidiaries
having, or
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which insofar as reasonably can be foreseen, in the future could have, any such
effect. Section 4.09(a) of the Seller Disclosure Schedule lists, as of the date
of this Agreement, all orders, judgments, injunctions and decrees issued or
threatened against, or investigations undertaken by, any and all Governmental
Authorities against or concerning the Seller since January 1990. In accordance
with GAAP, Seller has not established a reserve for Litigation on the Seller
Balance Sheet. The Seller has made available to the Buyer copies of all
documents in its possession related to the matter referred to in Section 4.09(b)
of the Seller Disclosure Schedule.
4.10 TAXES AND TAX RETURNS.
(a) The Seller and each of its subsidiaries (referred to for purposes of
this Section 4.10, collectively, as the "COMPANIES") have timely filed in
correct form all Tax Returns that were required to be filed by any of them
since October 31, 1991 (the "FILED TAX RETURNS"), each Filed Tax Return has
been prepared in material compliance with all applicable laws and
regulations, and all Filed Tax Returns are true and accurate in all material
respects. The Companies have made available to the Buyer correct and
complete copies of all federal income Tax Returns filed with respect to the
Companies for taxable periods ended on or after October 31, 1993, and all
examination reports, and statements of deficiencies assessed against or
agreed to by any of the Companies with respect to such taxable periods.
(b) The Companies have paid all Taxes shown as being due on the Filed
Tax Returns.
(c) Except as set forth in Section 4.10(c) of the Seller Disclosure
Schedule, no assessment that has not been settled or otherwise resolved has
been made with respect to Taxes not shown on the Filed Tax Returns No
deficiency in Taxes or other proposed adjustment that has not been settled
or otherwise resolved has been asserted in writing by any taxing authority
against any of the Companies. Except as set forth in Section 4.10(c) of the
Seller Disclosure Schedule, no Tax Return of any of the Companies is now
under examination by any applicable taxing authority nor have any of the
Companies consented to any extension of the period for assessment or
collection with respect to any Tax. There are no liens for Taxes (other than
current Taxes not yet due and payable) on any of the assets of any Company.
Except as set forth in Section 4.10(c) of the Seller Disclosure Schedule,
none of the Companies has requested or been granted an extension of the time
for filing any Tax Return to a date later than the Effective Time. Since
October 31, 1991 and, to the knowledge of the Seller, prior to such date, no
claim has been made by a taxing authority in a jurisdiction where any of the
Companies does not pay Tax or file Tax Returns that such of the Companies is
or may be subject to Taxes assessed by that jurisdiction.
(d) Adequate provision has been made on the Seller Balance Sheet for all
Taxes of the Companies in respect of all periods through the date thereof.
(e) Except as set forth in Section 4.10(e) of the Seller Disclosure
Schedule, none of the Companies is a party to or bound by any Tax
indemnification, Tax allocation or Tax sharing agreement with any person or
entity or has any current or potential contractual obligation to indemnify
any other person or entity with respect to Taxes.
(f) Except as set forth in Section 4.10(f) of the Seller Disclosure
Schedule, none of the Companies has filed or been included in a combined,
consolidated or unitary income Tax Return (including any consolidated
federal income Tax Return) other than one of which one of the Companies or
the Seller was the parent.
(g) Except as set forth in Section 4.10(g) of the Seller Disclosure
Schedule, none of the Companies has made any payments, is obligated to make
any payments, or is a party to any agreement that could obligate it to make
any payments that will not be deductible under Code Section 280G.
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(h) The Companies have withheld and paid all material Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
(i) For purposes of this Section 4.10:
(A) "TAX" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock, intangibles, social security, unemployment, disability, payroll,
license, employee or other tax or levy, of any kind whatsoever, including
any interest, penalties or additions to tax in respect of the foregoing.
(B) "TAX RETURN" means any return, declaration, report, claim for
refund, information return or other document (including any related or
supporting estimates, elections, schedules, statements or information)
filed or required to be filed in connection with the determination,
assessment or collection of any Tax or the administration of any laws,
regulations or administrative requirements relating to any Tax.
4.11 EMPLOYEES.
(a) Except as set forth in Section 4.11(a) of the Seller Disclosure
Schedule, neither the Seller nor any of its subsidiaries maintains or
contributes to any "employee pension benefit plan" (the "SELLER PENSION
PLANS"), as such term is defined in Section 3(2) of ERISA, "employee welfare
benefit plan" (the "SELLER BENEFIT PLANS"), as such term is defined in
Section 3(1) of ERISA, stock option plan, stock purchase plan, deferred
compensation plan, other employee benefit plan for employees of the Seller
or its subsidiaries, or any other plan, program or arrangement of the same
or similar nature that provides benefits to non-employee directors of the
Seller or its subsidiaries (collectively, the "SELLER OTHER PLANS").
(b) Except as set forth in Section 4.11(b) of the Seller Disclosure
Schedule, the Seller shall have delivered to the Buyer contemporaneous with
the delivery of the Seller Disclosure Schedule a complete and accurate copy
of each of the following with respect to each of the Seller Pension Plans,
the Seller Benefit Plans and the Seller Other Plans: (i) plan document; (ii)
trust agreement or insurance contract, if any; (iii) most recent IRS
determination letter, if any; (iv) most recent actuarial report, if any; and
(v) most recent annual report on Form 5500, if any.
(c) The value of the assets of each of the Seller Pension Plans subject
to Title IV of ERISA will equal or exceed as of the Effective Time that
plan's "Benefit Liabilities" as that term is defined in Section 4001(a)(16)
of ERISA, when determined under actuarial factors that would apply if that
plan terminated in accordance with all applicable legal requirements, and,
as of the date hereof none of such plans are underfunded by any material
amounts.
(d) To the knowledge of the Seller, each of the Seller Pension Plans and
each of the Seller Benefit Plans which are maintained or contributed to by
the Seller has been administered in compliance with its terms in all
material respects and is in compliance in all material respects with the
applicable provisions of ERISA (including, but not limited to, the funding
and prohibited transactions provisions thereof), the Code and other
applicable laws, except to the extent that non-compliance would not have a
Material Adverse Effect on the Seller, taken as a whole.
(e) To the knowledge of the Seller, there has been no reportable event
within the meaning of Section 4043(b) of ERISA or any waived funding
deficiency within the meaning of Section 412(d)(3) (or any predecessor
section) of the Code with respect to any Seller Pension Plan.
(f) Except as set forth in Section 4.11(f) of the Seller Disclosure
Schedule, the Seller has made or provided for all contributions to the
Seller Pension Plans required by the Seller thereunder.
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(g) The Seller does not contribute and has not contributed to any
"Multiemployer Plan," as such term is defined in Section 3(37) of ERISA.
(h) To the knowledge of the Seller, each of the Seller Pension Plans
which is intended to be a qualified plan within the meaning of Section
401(a) of the Code is so qualified, and the Seller is not aware of any fact
or circumstance which would adversely affect the qualified status of any
such plan.
(i) Except as set forth in Section 4.11(i) of the Seller Disclosure
Schedule, the Seller is not a party to and does not maintain or contribute
to any contract or other arrangement with any employee or group of
employees, providing severance payments, stock or stock-equivalent payments
or post-employment benefits of any kind or providing that any otherwise
disclosed plan, program or arrangement will irrevocably continue, with
respect to any or all of its participants, for any period of time.
4.12 AGREEMENTS WITH BANKING AUTHORITIES. Except as set forth in Section
4.12 of the Seller Disclosure Schedule, neither the Seller nor any of its
subsidiaries is a party to any commitment, letter (other than letters addressed
to regulated depository institutions generally), written agreement, memorandum
of understanding, order to cease and desist with, or has been required to adopt
any board resolution by, any federal or state governmental entity charged with
the supervision or regulation of banks or engaged in the insurance of bank
deposits which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, credit policies, management or overall
safety and soundness or such entity's ability to perform its obligations
hereunder, and the Seller has not received written notification from any such
federal or state governmental entity that any such Person may be requested to
enter into, or otherwise be subject to, any such commitment, letter, written
agreement, memorandum of understanding or cease and desist order. The Seller
Order has been terminated.
4.13 DEPOSIT ACCOUNTS. The deposit accounts of the Seller comply in all
material respects with applicable laws. To the knowledge of the Seller's Chief
Executive Officer, Chief Financial Officer, Chief Accounting Officer and Senior
Vice President-Retail, after due inquiry, (i) Section 4.13 of the Seller
Disclosure Schedule sets forth a list of the twenty-five largest deposit account
holders of the Seller as of September 30, 1997 and (ii) Section 4.13 of the
Seller Disclosure Schedule also includes with respect to each deposit account
holder referred to in the preceding clause, the deposit accounts of such account
holder's Affiliates and Associates as of such date.
4.14 MATERIAL AGREEMENTS. Except as set forth in any of the Seller
Disclosure Schedules or the index of exhibits in the Seller's Annual Report on
Form F-2 for the year ended December 31, 1996, as of the date of this Agreement,
except for this Agreement and the other Transaction Documents, neither the
Seller nor any of its subsidiaries is a party to or is bound by (a) any
agreement, arrangement, or commitment that is material to the financial
condition, results of operations or business of the Seller, except those entered
into in the ordinary course of business; (b) any written (or oral, if material)
agreement, arrangement, or commitment relating to the employment of any person
or the election or retention in office or severance of any present or former
director or officer of the Seller or any of its subsidiaries; (c) any contract,
agreement, or understanding with any labor union; (d) any agreement by and among
the Seller, its subsidiaries and/or any Affiliate thereof; or (e) any contract
or agreement or amendment thereto that would be required to be filed as an
Exhibit to a Form F-2 filed by the Seller as of the date hereof that has not
been filed as an Exhibit to the Form F-2 filed by it for 1996.
4.15 OWNERSHIP OF PROPERTY. Section 4.15 of the Seller Disclosure Schedule
sets forth a true and complete list of all real property owned, leased or
operated by the Seller or any of its subsidiaries (including all of the branches
of the Seller and all of the Seller's or any of its subsidiaries' properties
acquired by foreclosure proceedings in the ordinary course of business) as of
the date hereof. Except as set forth in Section 4.15 of the Seller Disclosure
Schedule, the Seller and its subsidiaries have good and marketable title to all
assets and properties, whether real or personal, tangible or intangible, and all
other assets and properties reflected in the Seller's consolidated balance sheet
as of September 30, 1997, or
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acquired subsequent thereto subject to no encumbrances, liens, mortgages,
security interests or pledges, except (a) those items that secure liabilities
that are reflected in said balance sheet or the notes thereto or incurred in the
ordinary course of business after the date of such balance sheet and not
otherwise prohibited by the terms hereof, (b) dispositions for adequate
consideration in the ordinary course of business or as expressly permitted by
the terms hereof, (c) statutory liens for amounts not yet delinquent or which
are being contested in good faith, (d) those items that secure public or
statutory obligations or any discount with, borrowing from, or other obligations
to, any Federal Reserve Bank or Federal Home Loan Bank, inter-bank credit
facilities, or any transaction by a subsidiary acting in a fiduciary capacity,
and (e) such encumbrances, liens, mortgages, security interests, and pledges
that are not material in character, amount or extent. Seller has all licenses
and permits necessary to conduct the business of banking at its branch premises
and Seller has made available to the Buyer a copy of all deeds and leases
relating to all real property owned or leased by the Seller or its subsidiaries.
Except as set forth in Section 4.15 of the Seller Disclosure Schedule, the
Seller has not received any notice of violation of any applicable zoning or
environmental regulation, ordinance or other law, order, regulation, or
requirement relating to its properties. Each of the Seller and its subsidiaries
as lessee has the right under valid and existing leases to occupy, use, possess
and control all property leased by the Seller and its subsidiaries as presently
occupied, used, possessed and controlled by the Seller or its subsidiaries.
Neither the Seller nor any of its subsidiaries is in default, and there has not
occurred any event that with the lapse of time or giving of notice or both would
constitute a default, under any leases pursuant to which the Seller or any of
its subsidiaries leases any real property, which default with respect to any
such lease is material to the cost of such lease or which would result in the
obligation of the Seller to pay an amount in excess of $10,000. All such leases
constitute legal, valid and binding obligations of the Seller or such subsidiary
and, to the knowledge of the Seller, the other party thereto, enforceable by the
Seller or such subsidiary in accordance with their respective terms, except that
enforcement thereof may be limited by the receivership, conservatorship and
supervisory powers of bank regulatory agencies generally as well as bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and except that enforcement thereof
may be subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
availability of equitable remedies. Section 4.15 of the Seller Disclosure
Schedule sets forth the expiration date and renewal terms of each such lease.
The Seller has not received notice of, or made a claim with respect to, any
breach or default under any leases pursuant to which the Seller leases any real
property.
4.16 REPORTS. Since January 1, 1994, the Seller has filed, and subsequent
to the date hereof will file, all reports, together with any amendments required
to be made with respect thereto, that were and are required to be filed with (a)
the FDIC, including but not limited to, Forms F-2, F-3 and F-4 and proxy
statements (and all such reports, registrations and statements have been or will
be delivered by the Seller to the Buyer), (b) the Federal Reserve Board, and (c)
any applicable state securities or banking authorities (all such reports and
statements are collectively referred to herein as the "SELLER REPORTS"). As of
their respective dates, the Seller Reports complied and, with respect to filings
made after the date of this Agreement, will at the date of filing comply, in all
material respects with all of the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed and did not
contain and, with respect to filings made after the date of this Agreement, will
not at the date of filing contain, any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.17 COMPLIANCE WITH APPLICABLE LAW. Except as set forth in Section 4.17
of the Seller Disclosure Schedule, each of the Seller and its subsidiaries holds
all licenses, franchises, permits and authorizations necessary for the lawful
conduct of their respective businesses, and each of the Seller and its
subsidiaries has complied with, and is not in default in any respect under any,
applicable law, statute, order, rule, regulation or policy of, or agreement
with, any federal, state or local governmental agency or authority relating to
the Seller and its subsidiaries (other than where such default or noncompliance
will not result
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in, or create the possibility of resulting in, a material limitation on the
conduct of the business of the Seller, will not cause or create the possibility
of causing, the Seller or any subsidiary to incur any financial penalty in
excess of $5,000 (including but not limited to CMPs), and will not otherwise
result, or create the possibility of resulting in any Material Adverse Effect on
the Seller), and the Seller has not received any notice of any violation of, or
commencement of any proceeding in connection with any such violation (including
but not limited to any hearing or investigation relating to the imposition or
contemplated imposition of fines or penalties), and does not know of any
violation of, any such law, statute, order, rule, regulation, policy or
agreement which would have such a result.
4.18 POOLING OF INTERESTS TREATMENT. To the Seller's knowledge, it has not
taken any action that would or is likely to cause the Merger to fail to qualify
for "pooling of interests" accounting treatment under Accounting Principles
Board Opinion No. 16.
4.19 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 4.19(a) of the Seller Disclosure
Schedule, since 1985, the Seller, each of its subsidiaries and the
Participation Facilities (as such term is hereinafter defined) are and have
been in material compliance with all applicable laws, rules, regulations,
standards and requirements of the EPA and of state and local agencies with
jurisdiction over pollution or protection of the environment.
(b) Except as set forth in Section 4.19(b) of the Seller Disclosure
Schedule, there is no suit, claim, action or proceeding now pending or, to
the best knowledge of the Seller, threatened, before any court, governmental
agency or board or other forum in which the Seller, any of its subsidiaries
or any Participation Facility has been or, with respect to threatened
proceedings, may be, named as a defendant (i) for alleged noncompliance
(including by any predecessor), with any environmental law, rule or
regulation or (ii) relating to the release into the environment of any
Hazardous Material (as hereinafter defined) whether or not occurring at or
on a site owned, leased or operated by the Seller, any of its subsidiaries
or any Participation Facility.
(c) Except as set forth in Section 4.19(c) of the Seller Disclosure
Schedule, to the best knowledge of the Seller, there is no suit, claim,
action or proceeding pending, or threatened, before any court, governmental
agency or board or other forum in which any Loan Property has been or, with
respect to threatened proceedings, may be, named as a defendant or involved
(i) for alleged noncompliance (including by any predecessor) with any
environmental law, rule or regulation or (ii) relating to the release into
the environment of any Hazardous Material whether or not occurring at or on
a site owned, leased, operated or involving a Loan Property.
(d) Except as set forth in Sections 4.19(a), (b) and (c) of the Seller
Disclosure Schedule, to the best knowledge of the Seller's management, there
is no reasonable basis for any suit, claim, action or proceeding as
described in subsection (b) or (c) of this Section 4.19.
(e) Except as set forth in Section 4.19(e) of the Seller Disclosure
Schedule, during and, to the best knowledge of the Seller, prior to the
period of (i) the ownership or operation by the Seller or any of its
subsidiaries of any of their current properties, or (ii) the participation
by the Seller or any of its subsidiaries in the management of any
Participation Facility, there has been no release of Hazardous Material in,
on, under or affecting such properties, that would subject the Seller or
such subsidiary to any liability which would result in a Material Adverse
Effect with respect to the Seller or such subsidiary. Except as set forth in
Section 4.19(e) of the Seller Disclosure Schedule, to the best knowledge of
the Seller, none of the branch offices of the Seller or any other real
property currently owned, operated or leased by the Seller was at any time
the site of any gas station, manufacturing plant or industrial business or
activity or was used to a significant extent as a site on which any
Hazardous Material, was stored, produced or otherwise located.
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(f) Except as set forth in Section 4.19(f) of the Seller Disclosure
Schedule, the Seller and its subsidiaries have asked for representations
from borrowers and/or have conducted due diligence with respect to each of
the Loan Properties which secure obligations to the Seller under loan
transactions in outstanding principal amount of at least $1,000,000, and in
the course thereof, or subsequent thereto, nothing has come to the attention
of the Seller or any of its subsidiaries which could be reasonably likely to
prevent the Seller or such subsidiary from exercising its right to foreclose
on its security interest therein.
(g) None of the disclosures set forth in Section 4.19 of the Seller
Disclosure Schedule is reasonably likely to result in the closure of any of
the branch offices of the Seller or in a Material Adverse Effect with
respect to the Seller or any subsidiary.
(h) The transactions contemplated herein are not subject to the
provisions of any applicable environmental restrictive transfer law.
(i) The following definitions apply for purposes of this Section 4.19:
(i) "LOAN PROPERTY" means any property in which the Seller or any of its
subsidiaries holds a security interest, and, where required by the context,
said term means the owner or operator of such property; (ii) "PARTICIPATION
FACILITY" means any facility in which the Seller or any of its subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property; (iii) "HAZARDOUS MATERIAL"
means any pollutant, contaminant, hazardous material, hazardous waste, or
hazardous substance as defined under the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section9601 ET SEQ., or
the Resource Conservation and Recovery Act, 42 U.S.C. SectionSection6901 ET
SEQ., the Clear Water Act, 33 U.S.C. Section1321, ET SEQ., or any other
federal, state or local law relating to safety, health, or environmental
protection or any regulations promulgated under any of the foregoing, and
specifically includes oil and any other petroleum derived products,
asbestos, polychlorinated biphenyls (PCB's) and, with respect to any
residential property, lead paint and radon.
4.20 OWNERSHIP OF BUYER COMMON STOCK. Except as set forth in Section 4.20
of the Seller Disclosure Schedule, as of the date hereof, neither the Seller
nor, to its best knowledge, any of its Affiliates or Associates (a) beneficially
own, directly or indirectly, or (b) are parties to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of capital stock of the Buyer, which in the aggregate
represent five percent (5%) or more of the outstanding shares of capital stock
of the Buyer entitled to vote generally in the election of directors (other than
Trust Account Shares).
4.21 INSURANCE. The Seller and each of its subsidiaries are presently
insured, and since January 1, 1992 have been insured, for reasonable amounts
against such risks as companies engaged in a similar businesses in a similar
location would, in accordance with good business practice, customarily be
insured. The Seller has made available to the Buyer copies of policies relating
to insurance maintained by the Seller and its subsidiaries with respect to their
properties and the conduct of their businesses.
4.22 LABOR. No work stoppage involving the Seller or any of its
subsidiaries is pending or, to the best knowledge of the Seller's management,
threatened. Neither the Seller nor any of its subsidiaries is involved in, or,
to the best knowledge of the Seller's management, threatened with or affected
by, any dispute, arbitration, lawsuit or administrative proceeding relating to
labor or employment matters. No employees of the Seller or its subsidiaries are
represented by any labor union, and, to the best knowledge of the Seller's
management, no labor union is attempting to organize employees of the Seller or
its subsidiaries.
4.23 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed in Section
4.23 of the Seller Disclosure Schedule, no officer or director of the Seller, or
any Associate of any such officer or director, has any material interest in any
material contract or property (real or personal), tangible or intangible, used
in or pertaining to the business of the Seller.
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4.24 ABSENCE OF REGISTRATION OBLIGATIONS. The Seller is not under any
obligation, contingent or otherwise, by reason of any agreement to register any
of its securities under the Securities Act which will survive the Merger.
4.25 LOANS. (a) All currently outstanding loans of, or current extensions
of credit by, the Seller (individually, a "LOAN," and collectively, the "LOANS")
were solicited, originated and currently exist in material compliance with all
applicable requirements of federal and state law and regulations promulgated
thereunder and applicable loan policies of the Seller, except for such changes
to the circumstances of the obligor thereunder or the collateral occurring
subsequent to the origination thereof and over which the Seller had no control
and except as set forth in Section 4.25(a) of the Seller Disclosure Schedule.
Except as set forth in Section 4.25(a) of the Seller Disclosure Schedule, the
Loans are adequately documented and each note evidencing a Loan or loan or
credit agreement or security instrument related to the Loans constitutes a
valid, legal and binding obligation of the obligor thereunder, enforceable in
accordance with the terms thereof, except that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting enforcement of creditors' rights generally and except that
enforcement thereof may be subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding of law or in equity) and
the availability of equitable remedies. Except as set forth in Section 4.25(a)
of the Seller Disclosure Schedule, there are no oral modifications or amendments
or additional agreements related to the Loans that are not reflected in the
records of the Seller. Except as set forth in Section 4.25(a) of the Seller
Disclosure Schedule, no claims of defense as to the enforcement of any Loan have
been asserted against the Seller for which there is a reasonable possibility of
an adverse determination and the Seller is aware of no acts or omissions which
would give rise to any claim or right of rescission, set-off, counterclaim or
defense for which there is a reasonable possibility of an adverse determination
to the Seller. The Seller currently maintains, and shall continue to maintain,
an allowance for loan losses allocable to the Loans which is adequate to provide
for all known and estimable losses, net of any recoveries relating to such
extensions of credit previously charged off, on the Loans, such allowance for
loan losses complying in all material respects with all applicable loan loss
reserve requirements established in accordance with GAAP and by any governmental
authorities having jurisdiction with respect to the Seller. Except as set forth
in Section 4.25(a) of the Seller Disclosure Schedule, none of the Loans are
presently serviced by third parties and there is no obligation which could
result in any Loan becoming subject to any third party servicing.
(b) Except as set forth in Section 4.25(b) of the Seller Disclosure
Schedule, as of the date hereof, the Seller is not a party to any written or
oral (a) loan agreement, note or borrowing arrangement (including, without
limitation, leases and credit enhancements) the unpaid principal balance of
which exceeds $50,000 and as to which the obligor is, as of November 30, 1997,
over 90 days delinquent in payment of principal or interest, or (b) Loan with
any director, executive officer or, to the knowledge of the Seller, five percent
stockholder of the Seller or any Affiliate or Associate of any director,
executive officer or five percent stockholder of the Seller. Section 4.25(b) of
the Seller Disclosure Schedule sets forth as of October 31, 1997, (i) all of the
Loans in original principal amount in excess of $50,000 of the Seller that as of
the date of this Agreement are classified by the Seller as "Other Loans
Specially Mentioned", "Special Mentions", "Substandard", "Doubtful", "Loss",
"Classified", "Restructured", "Watch list" or words of similar import, together
with the principal amount of each such Loan and the identity of the obligor
thereunder, and (ii) by category of Loan (i.e., commercial, consumer, etc.), all
of the other Loans of the Seller that as of the date of this Agreement are
classified as such, together with the aggregate principal amount of such Loans
by category. The Seller shall inform Buyer in writing of (a) any Loan the
current principal balance of which exceeds $50,000 that becomes classified in
the manner described in this Section 4.25(b), or (b) any Loan, the current
principal balance of which exceeds $50,000, of which the classification of which
is materially and adversely changed at any time after the date of this
Agreement, in each case, as soon as practicable but in any event within fifteen
(15) days after the end of the month during which the change took place.
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4.26 CAPITALIZATION. As of the date hereof, without giving effect to the
transactions contemplated hereby, the Seller was (a) "well capitalized", as
defined in the FDIA, and (b) met all capital requirements, standards and ratios
required by each state or federal bank regulator with jurisdiction over the
Seller, including without limitation, any such higher requirement, standard or
ratio as shall apply to institutions engaging in the acquisition of insured
institution deposits, assets or branches, and, except as set forth in the
resolutions included in Section 4.12 of the Seller Disclosure Schedule, no such
regulator has indicated that it will condition any of the regulatory approvals
upon an increase in the Seller's capital or compliance with any special capital
requirement, standard or ratio.
4.27 CRA RATING. The Seller was rated "Outstanding" following its most
recent Community Reinvestment Act examination by the FDIC. The Seller has not
received any notice of and the Seller has no knowledge of any planned or
threatened objection by any community group to the transactions contemplated
hereby.
4.28 YEAR 2000. Section 4.28 of the Seller Disclosure Schedule summarizes
the status of the Seller's dealings and communications with third-party service
providers with respect to ensuring that the Seller's computer systems do not, or
will not following modification thereof, be deficient with respect to formatting
for the Year 2000 Problem and that such third-party service providers and the
Seller's computer systems are, or will be, following modification thereof, in
material compliance with all regulations and trade organization guidelines
concerning the Year 2000 Problem. The Seller has made available to the Buyer
copies of all correspondence between the Seller and its third-party service
providers concerning Year 2000 Problem compliance. Except as set forth in
Section 4.28 of the Seller Disclosure Schedule, the Seller has no other
contracts with, or commitments to, any third-party with respect to its computer
systems. The Seller's software applications which are material to the operations
of the Seller, including the software for its data and item processing
functions, have been licensed and are maintained by third-party service
providers, and the Seller is not aware of any expense that it will incur in
connection with the resolution of any Year 2000 Problem associated with any such
software applications. The Seller is not aware of any inability on the part of
any customer, insurance company or service provider with which the Seller
transacts business to timely remedy their own deficiencies in respect of the
Year 2000 Problem, which inability, individually or in the aggregate, reasonably
could be expected to have a Material Adverse Effect on the Seller.
4.29 TRANSACTIONS ONLY IN ORDINARY COURSE. Except as disclosed in Section
4.29 of the Seller Disclosure Schedule or described in the Seller Balance Sheet,
the Seller and its subsidiaries have engaged in transactions only in the
ordinary course of business for entities engaged in its respective business.
4.30 SELLER INFORMATION. The information relating to the Seller and its
subsidiaries to be contained in the Seller Proxy Statement as described in
Section 5.04 hereof, to the extent such information is provided in writing by
the Seller, will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make such information not misleading.
4.31 DISCLOSURE. No representation or warranty contained in this
Agreement, and no statement contained in any certificate, list or other writing,
including but not necessarily limited to the Seller Disclosure Schedule,
furnished to the Buyer pursuant to the provisions hereof, to the best knowledge
of the Seller, contains or will contain any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
herein or therein not misleading.
4.32 FAIRNESS OPINION. The Seller has received an opinion from Legg Mason
Wood, Walker, Incorporated, dated as of the date hereof, and will use all
commercially reasonable efforts to cause Legg Mason Wood Walker, Incorporated to
deliver an opinion as of the date of the Seller Proxy Statement, each to the
effect that the Conversion Ratio is fair to the stockholders of the Seller from
a financial point of view.
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ARTICLE V
COVENANTS OF THE PARTIES
5.01 CONDUCT OF THE BUSINESS OF THE SELLER. During the period from the
date of this Agreement to the Effective Time, the Seller:
(a) shall conduct its business and engage in transactions only in the
ordinary and usual course of business consistent with past practices, which
shall mean (i) conducting its banking and other business in the ordinary and
usual course, (ii) refraining from any of the activities described in
Section 5.01(b) below, (iii) not entering into any material transactions
except in the ordinary and usual course of business consistent with past
practices and (iv) complying with the following covenants:
(A) maintaining its corporate existence and good standing;
(B) using all reasonable efforts to maintain and keep its properties
in as good repair and condition in all material respects as they
presently exist, except for ordinary wear and tear and damage due to
casualty;
(C) using all reasonable efforts to maintain in full force and effect
insurance generally comparable in amount and in scope of coverage to that
now maintained by it;
(D) complying with and performing in all material respects its
obligations and duties (y) under contracts, leases and documents relating
to or affecting its assets, properties and business and (z) imposed upon
it by all federal, state and local laws and all rules, regulations and
orders imposed by federal, state or local governmental authorities,
judicial orders, judgments, decrees and similar determinations; and
(E) using all reasonable efforts to preserve its business
organization intact and the goodwill of those having business
relationships with the Seller, to keep available the services of its
officers and employees as a group and to maintain satisfactory
relationships with borrowers, depositors, other customers and others
having business relationships with it;
(b) shall not and shall not permit any of its subsidiaries to, without
the prior written consent of the Buyer:
(i) engage or participate in any material transaction or incur or
sustain any material obligation or liability except in the ordinary and
usual course of its businesses consistent with past practices;
(ii) offer an interest rate with respect to any deposit that would
constitute such deposit a "brokered deposit" of the Seller under 12
C.F.R. Section337.6(a)(l)(ii);
(iii) except in the ordinary and usual course of business consistent
with past practices and in an immaterial aggregate amount, sell, lease,
transfer, assign, encumber or otherwise dispose of or enter into any
contract, agreement or understanding to lease, transfer, assign, encumber
or dispose of any of its assets except as set forth in Section
5.01(b)(iii) of the Seller Disclosure Schedule;
(iv) file any application to open, close or relocate any branch
office;
(v) open, close, relocate, or give any notice (written or verbal) to
customers or governmental authorities or agencies to open, close or
relocate the operations of any branch office; or
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(vi) waive any material right, whether in equity or at law, that it
has with respect to any asset, other than loans, except in the ordinary
and usual course of business consistent with past practice and except as
set forth in Section 5.01(e);
(c) shall, at the Buyer's request and expense, use all reasonable
efforts to cooperate with the Buyer with respect to preparation for the
combination and integration of the businesses, systems and operations of the
Buyer Bank and the Seller, and shall confer on a regular and frequent basis
with one or more representatives of the Buyer to report on operational and
related matters;
(d) shall, subject to any restrictions under applicable law or
regulation, promptly notify the Buyer of any emergency or other change in
the normal course of its business or in the operation of its properties and
of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) if such
emergency, change, complaint, investigation or hearing reasonably could be
expected to have a material effect on the business, results of operations,
financial condition or prospects of the Seller;
(e) shall not make any loan or extend any credit on other than the
Seller's customary terms, conditions and standards other than in connection
with any loan workouts in accordance with applicable law and consistent with
the banking practices of comparably-sized depository institutions; PROVIDED,
HOWEVER, that notwithstanding the foregoing, the Seller shall not, without
the written consent of the Buyer, which shall not be unreasonably withheld,
execute any waiver, release of any right, or cancellation, compromise or
extension of payment or the date of any debt, loan, loan payment or claim,
in excess of $500,000 in any one instances or series of related instances or
which would extend the maturity date of any debt, loan, loan payment or
claim beyond two (2) years thereof, make any loan, advance, commitment to
extend credit or any advance which increases any currently outstanding
obligation of any borrower or creates or would create any new obligation of
any borrower, which would result in aggregate obligations of such borrower
to the Seller, direct or indirect, primary or secondary, absolute or
contingent, including obligations if commitments are honored, in excess of
$500,000.
(f) shall not declare or pay any dividends on or make any other
distributions in respect of Seller Common Stock;
(g) shall not adopt or amend (other than amendments required by
applicable law or amendments that reduce amounts payable by it) in any
material respect any Seller Pension Plan, any Seller Benefit Plan or any
Seller Other Plan or enter (or permit any of its subsidiaries to enter) into
any employment, severance or similar contract with any person (including,
without limitation, contracts with management which might require that
payments be made upon the consummation of the transactions contemplated
hereby) or amend any such existing agreements, plans or contracts to
increase any amounts payable thereunder or benefits provided thereunder, or
grant or permit any increase in compensation to any officer or to its
employees as a class or pay any bonus, except as set forth in Section
5.01(g) of the Seller Disclosure Schedule;
(h) shall not, with respect to itself or any of its subsidiaries,
authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into an agreement with respect to, any
merger, consolidation, purchase and assumption transaction or business
combination (other than the Merger), any acquisition of a material amount of
assets or securities or assumption of liabilities (including deposit
liabilities), any disposition of a material amount of assets or securities,
or any release or relinquishment of any material contract rights not in the
ordinary course of business and consistent with past practices except as set
forth in Section 5.01(e) hereof;
(i) shall not propose or adopt amendments to its, or any of its
subsidiaries, Charter or By-Laws;
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(j) shall not issue, deliver or sell any shares (whether original
issuance or from treasury shares) of its capital stock or securities
convertible into or exercisable for shares of its capital stock (or permit
any of its subsidiaries to issue, deliver or sell any shares of such
subsidiaries' capital stock or securities convertible into or exercisable
for shares of such subsidiaries' capital stock), except upon the exercise or
fulfillment of rights or options issued or existing pursuant to employee
benefit plans, programs or arrangements, all to the extent outstanding or in
existence on the date hereof, and except upon exercise of the Seller Option,
as applicable, or effect any stock split, reverse stock split,
recapitalization, reclassification or similar transaction or otherwise
change its equity capitalization as it existed on September 30, 1997;
(k) shall not grant, confer or award any options, warrants, conversion
rights or other rights, not existing on the date hereof, to acquire any
shares of its capital stock;
(l) shall not purchase, redeem or otherwise acquire any shares of its
capital stock or any securities convertible into or exercisable for any
shares of its capital stock, except in a fiduciary capacity;
(m) shall not impose, or suffer the imposition, on any share of capital
stock held by it of any material lien, charge, or encumbrance, or permit any
such lien, charge, or encumbrance to exist;
(n) shall not incur, or permit any of its subsidiaries to incur, any
additional debt obligation or other obligation for borrowed money, or to
guaranty any additional debt obligation or other obligation for borrowed
money, except in the ordinary course of business consistent with past
practices, which shall include but not necessarily be limited to creation of
deposit liabilities, Federal Home Loan Bank or Federal Reserve Board
borrowings, purchases of federal funds, sales of certificates of deposit and
entry into repurchase agreements or other similar arrangements commonly
employed by banks;
(o) shall not incur or commit to any capital expenditures or any
obligations or liabilities in connection therewith, other than capital
expenditures and such related obligations or liabilities incurred or
committed to in the ordinary and usual course of business consistent with
past practices, and, in all cases, the Seller agrees to consult with the
Buyer with respect to capital expenditures that individually exceed $50,000
or cumulatively exceed $200,000;
(p) shall not change its methods of accounting in effect at December 31,
1996, except as may be required by changes in GAAP as concurred in by the
Seller's independent auditors, and the Seller shall not change its fiscal
year;
(q) shall file all reports, applications and other documents required to
be filed by it with the FDIC or any other governmental entity between the
date of this Agreement and the Effective Time and shall make available to
the Buyer copies of all such reports promptly after the same are filed;
(r) shall use all commercially reasonable efforts to improve its
business, results of operations, financial condition and prospects,
consistent with the terms of this Agreement;
(s) shall cooperate with the Buyer with the objective of seeking
appropriate modification or rescission of all formal and informal
supervisory enforcement actions;
(t) shall not take any action which would prevent or impede the Merger
from qualifying (i) for pooling of interests accounting treatment or (ii) as
a reorganization within the meaning of Section 368 of the Code;
(u) shall not, except as expressly contemplated hereby, and as set forth
in Section 5.01(u) of the Seller Disclosure Schedule, enter into any
contract with any Affiliate;
(v) shall not, except as set forth in Section 5.01(e) hereof, and except
for transactions in the ordinary course of business consistent with past
practice, enter into or terminate any material contract
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or agreement, or make any changes in any of its material leases or
contracts, other than renewals of contracts and, subject to the provisions
of Section 5.16 hereof, leases without material adverse change of terms;
(w) shall not, other than in prior consultation with the other party to
this Agreement, restructure or materially change its investment securities
portfolio or its gap position through purchases, sales or otherwise, or the
manner in which the portfolio is classified or reported; and
(x) shall not agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any of its representations
or warranties contained herein untrue or incorrect in any material respect.
5.02 COVENANTS OF THE BUYER. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Buyer shall not, and shall not
permit any of its Significant Subsidiaries to take any action which would
prevent or impede the Merger from qualifying (i) for pooling of interests
treatment and (ii) as a reorganization within the meaning of Section 368 of the
Code.
5.03 ACCESS TO PROPERTIES AND RECORDS; CONFIDENTIALITY.
(a) The Seller shall permit the Buyer reasonable access to its
properties, and shall disclose and make available to the Buyer all Records,
including all books, papers and records relating to the assets, stock
ownership, properties, operations, obligations and liabilities of the
Seller, including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors and stockholders
meetings, organizational documents, By-Laws, material contracts and
agreements, filings with any regulatory authority, accountants' work papers,
litigation files, plans affecting employees, and any other business
activities or prospects in which the Buyer may reasonably have an interest
in light of the transactions contemplated hereby. The Seller shall make
arrangements with each third party provider of services to the Seller to
permit the Buyer reasonable access to all of the Seller's Records held by
each such third party. The Buyer shall permit the Seller reasonable access
to such properties and records of the Buyer and/or its subsidiaries in which
the Seller may reasonably have an interest in light of the transactions
contemplated hereby. Neither the Buyer nor the Seller 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 any customer, would jeopardize the attorney-client
privilege of the institution in possession or control of such information,
or would contravene any law, rule, regulation, order, judgment, decree or
binding agreement. The parties will use all reasonable efforts to make
appropriate substitute disclosure arrangements under circumstances in which
the restrictions of the preceding sentence apply.
(b) All Confidential Information furnished by each party hereto to the
other, or to any of its Affiliates, directors, officers, employees,
representatives or agents (such persons being collectively referred to
herein as "REPRESENTATIVES"), shall be treated as the sole property of the
party furnishing the information until consummation of the transactions
contemplated hereby, and, if such transactions shall not occur, the party
receiving the information, or any of its Affiliates or Representatives, as
the case may be, shall return to the party which furnished such information
all documents or other materials containing, reflecting or referring to such
information, shall keep confidential all such information for the period
hereinafter referred to, and shall not directly or indirectly at any time
use such information for any competitive or other commercial purpose;
PROVIDED, HOWEVER, that the Buyer and its Affiliates shall be permitted to
retain and share with their regulators, examiners and auditors (who need to
know such information and are informed of the confidential nature thereof
and directed to treat such information confidentially) such materials, files
and information relating to or constituting the Buyer's or any of its
Affiliate's or Representatives' work product, presentations or evaluation
materials as the Buyer deems reasonably necessary or advisable in connection
with auditing or
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examination purposes. The obligation to keep such information confidential
shall continue for two (2) years from the date this Agreement is terminated.
In the event that either party or its affiliates or Representatives are
requested or required in the context of a litigation, governmental, judicial
or regulatory investigation or other similar proceeding (by oral questions,
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar process) to disclose any Confidential
Information, the party or its affiliate or its Representative so requested
or required will directly or through the party of such affiliate or
Representative, if practicable and legally permitted, prior to providing
such information, and as promptly as practicable after receiving such
request, provide the other party with notice of each such request or
requirement so that the other party may seek an appropriate protective order
or other remedy or, if appropriate, waive compliance with the provisions of
this Agreement. If, in the absence of a protective order or the receipt of a
waiver hereunder, the party or affiliate or Representative so requested or
required is, in the written opinion of its counsel, legally required to
disclose Confidential Information to any tribunal, governmental or
regulatory authority, or similar body, the party or affiliate or
Representative so required may disclose that portion of the Confidential
Information which it is advised in writing by such counsel it is legally
required to so disclose to such tribunal or authority or similar body
without liability to the other party hereto for such disclosure. The parties
and their Affiliates and Representatives will exercise reasonable efforts to
obtain assurance that confidential treatment will be accorded the
information so disclosed.
As used in this Section 5.03(b), "CONFIDENTIAL INFORMATION" means all data,
reports, interpretations, forecasts and records (whether in written form,
electronically stored or otherwise) containing or otherwise reflecting
information concerning the disclosing party or its Affiliates which is not
available to the general public and which the disclosing party or any affiliate
or any of their respective Representatives provides or has previously provided
to the receiving party or to the receiving party's Affiliates or Representatives
at any time in connection with the transactions contemplated by this Agreement,
including but not limited to any information obtained by meeting with
Representatives of the disclosing party or its Affiliates, together with
summaries, analyses, extracts, compilations, studies, personal notes or other
documents or records, whether prepared by the receiving party or others, which
contain or otherwise reflect such information. Notwithstanding the foregoing,
the following information will not constitute "CONFIDENTIAL INFORMATION": (i)
information that is or becomes generally available to the public other than as a
result of a disclosure by the receiving party or any affiliate or Representative
of the receiving party, (ii) information that was previously known to the
receiving party or its Affiliates or Representatives on a nonconfidential basis
prior to its disclosure by the disclosing party, its Affiliates or
Representatives, (iii) information that became or becomes available to the
receiving party or any affiliate or Representative thereof on a nonconfidential
basis from a source other than the disclosing party or any affiliate or
Representatives of the disclosing party, provided that such source is not known
by the disclosing party or its Affiliates or Representatives to be subject to
any confidentiality agreement or other legal restriction on disclosing such
information and (iv) information that has been independently acquired or
developed by the receiving party or its Affiliates or Representatives without
violating the obligation's of this Section 5.03(b).
5.04 NO SOLICITATION. Unless and until this Agreement shall have been
properly terminated by either party pursuant to Section 8.01 hereof, neither the
Seller nor any of its subsidiaries or Affiliates shall (and the Seller shall use
its best efforts to cause its Representatives, including, but not limited to,
investment bankers, attorneys and accountants, not to), directly or indirectly,
encourage, solicit, initiate or participate in any discussions or negotiations
with, or, provide any information to, any corporation, partnership, person or
other entity or group (other than the Buyer and its Affiliates or
Representatives) concerning any merger, tender offer, sale of substantial
assets, sale of shares of capital stock or debt securities or similar
transaction involving the Seller (an "ACQUISITION TRANSACTION"). Notwithstanding
the foregoing, nothing contained in this Section 5.04 shall prohibit the Seller
or its Board of Directors from taking and disclosing to the Seller's
stockholders a position with respect to a tender offer by a third party pursuant
to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making
such
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disclosure to the Seller's stockholders which, in the judgment of the Board of
Directors with the written advice of outside counsel, may be required under
applicable law. The Seller will promptly communicate to the Buyer the terms of
any proposal, discussion, negotiation or inquiry relating to an Acquisition
Transaction and the identity of the party making such proposal or inquiry which
it may receive in respect of any such transaction (which shall mean that any
such communication shall be delivered no less promptly than by telephone within
24 hours of the Seller's receipt of any such proposal or inquiry) or its receipt
of any request for information from the Federal Reserve Board, the DOJ, or any
other governmental agency or authority with respect to a proposed Acquisition
Transaction.
5.05 REGULATORY MATTERS; CONSENTS.
(a) The Buyer and the Seller shall promptly prepare and file with the
SEC and the FDIC a proxy statement in definitive form relating to the
meeting of the Seller's stockholders to be held in connection with this
Agreement and the transactions contemplated hereby (the "SELLER PROXY
STATEMENT") and the Buyer shall promptly prepare and file with the SEC and
the FDIC a registration statement on Form S-4 (the "S-4") in which the
Seller Proxy Statement will be included as a prospectus. Each of the Buyer
and the Seller shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such
filing, and the Seller shall thereafter mail the Seller Proxy Statement to
the Seller's stockholders. The Buyer shall also 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, and the Seller shall furnish all information concerning the
Seller and the holders of the Seller Common Stock as may be reasonably
requested in connection with any such action.
(b) The Seller and the Buyer shall have the right to review in advance,
and to the extent practicable each will consult the other on, in each case
subject to applicable laws relating to the exchange of information, all the
information relating to the Seller or the Buyer, as the case may be, and any
of their respective subsidiaries and Affiliates, which appear in the Seller
Proxy Statement, any filing made with, or written materials submitted to,
any third party or any government regulatory body, department, agency or
authority in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto
shall act reasonably and as promptly as practicable. The parties hereto
agree that they will consult with each other with respect to the obtaining
of all permits, consents, approvals and authorizations of all third parties
and government regulatory bodies, departments, agencies or authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement, and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein and
therein. Without limiting the scope of the immediately preceding sentence,
the Buyer shall provide the Seller's counsel with copies of the
nonconfidential portions of filings submitted to and related correspondence
with any governmental regulatory body whose consent or approval is necessary
to consummate the Merger.
(c) The Buyer and the Seller shall, upon request, furnish each other
with all information concerning themselves, their subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Seller Proxy Statement or any
other statement, filing, notice or application made by or on behalf of the
Buyer, the Seller or any of their respective subsidiaries to any
governmental regulatory body, department, agency or authority in connection
with the Merger and the other transactions contemplated by this Agreement.
(d) Each of the Seller and the Buyer will cooperate with the other and
use all reasonable efforts to prepare all necessary documentation, to obtain
all necessary permits, consents, approvals and authorizations of all third
parties and governmental bodies necessary to consummate the transactions
contemplated by this Agreement.
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5.06 APPROVAL OF STOCKHOLDERS. The Seller will (a) as promptly as
practicable, take all steps necessary to duly call, give notice of, convene and
hold a meeting of its stockholders for the purpose of approving this Agreement
and the Merger, and for such other purposes as may be necessary or desirable,
(b) recommend to its stockholders the approval of the aforementioned matters to
be submitted by it to its stockholders, except as required by the fiduciary
duties of the Seller's Board of Directors (as determined in good faith and as
advised in writing by the Seller's counsel), and (c) cooperate and consult with
the Buyer with respect to each of the foregoing matters.
5.07 AGREEMENTS OF SELLER'S AFFILIATES. The Seller shall identify in a
letter to the Buyer, after consultation with counsel, all persons who, at the
time of the meeting of its stockholders referred to in Section 5.05 hereof, it
believes may be deemed to be "affiliates" of the Seller, as that term is defined
for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act
and/or as used in and for purposes of Accounting Series Releases 130 and 135, as
amended, of the SEC (the "SELLER AFFILIATES"). The Seller shall use all
reasonable efforts to cause each person who is identified as a Seller Affiliate
in the letter referred to above to deliver to the Buyer at least forty (40) days
prior to the Effective Time an executed copy of the Seller Affiliates Agreement.
Prior to the Effective Time, the Seller shall amend and supplement such letter
and use all reasonable efforts to cause each additional person who is identified
as a Seller Affiliate to execute a copy of the Seller Affiliates Agreement.
Within thirty (30) days after the end of the first fiscal quarter of the Buyer
ending at least thirty (30) days after the Effective Time, the Buyer will
publish results including at least thirty (30) days of combined operations of
the Buyer and the Seller as referred to in the Seller Affiliates Letter as
contemplated by and in accordance with SEC Accounting Series Release No. 135.
5.08 FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to, as
promptly as practicable, take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement or to vest the Buyer Bank with full title to all
properties, assets, rights, approvals, immunities and franchises of the Seller.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement or to vest the Buyer Bank
with full title to all properties, assets, rights, approvals, immunities and
franchises of the Seller, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
5.09 PUBLIC ANNOUNCEMENTS. From the date of this Agreement to the Closing
Date, neither of the parties hereto shall make or send a Public Announcement
unless the other party shall have first been afforded reasonable opportunity to
review and comment on the text of such Public Announcement prior to the delivery
of the same; PROVIDED, HOWEVER, that nothing in this Section shall prohibit any
party hereto from making any Public Announcement which its legal counsel deems
necessary under law, if it makes a good faith effort to obtain the other party's
comment on the text of the Public Announcement before making it public.
5.10 TAX-FREE REORGANIZATION TREATMENT. Neither the Buyer nor the Seller
shall intentionally take or cause to be taken any action, whether before or
after the Effective Time, which reasonably could be expected to disqualify the
Merger as a "reorganization" within the meaning of Section 368(a) of the Code;
PROVIDED, HOWEVER, that nothing herein shall limit the ability of the Buyer to
exercise its rights under the Seller Option Agreement.
5.11 POST-CLOSING GOVERNANCE. From and after the Effective Time, the Board
of Directors of the Buyer shall be expanded by one member and James F. Drew
shall be appointed as a director of the Buyer. From and after the Effective
Time, the Board of Directors of the Surviving Bank shall consist of those
persons comprising the Board of Directors of the Buyer Bank prior to the
Effective Time, each to hold office in accordance with the Articles of
Organization and By-Laws of the Surviving Bank; PROVIDED, HOWEVER, that the
Board of Directors of the Buyer Bank shall be expanded by one member and
Nicholas P.
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Salerno shall be appointed to serve as a director of the Buyer Bank after the
Effective Time. At the Effective Time, the officers of the Surviving Bank shall
consist of those persons who were officers of the Buyer Bank immediately prior
to the Effective Time, subject to the rights of the Buyer as the sole
stockholder of the Buyer Bank, each to hold office in accordance with the
Articles of Organization and By-Laws of the Surviving Bank.
5.12 STOCK EXCHANGE LISTING. Buyer shall use all reasonable efforts to
cause the shares of Buyer Common Stock to be issued in connection with the
Merger to be approved for listing on the NASDAQ, subject to official notice of
issuance, as of or prior to the Effective Time.
5.13 EMPLOYMENT AND BENEFIT MATTERS. (a) The Buyer agrees to provide the
employees of the Seller (the "SELLER EMPLOYEES") who remain employed after the
Closing Date (collectively, the "TRANSFERRED SELLER EMPLOYEES") with the types
and levels of employee benefits maintained by the Buyer for similarly situated
employees of the Buyer or the Buyer Bank. As soon as administratively
practicable after the Effective Time, the Buyer shall permit the Seller
Employees to participate in the Buyer's group hospitalization, medical, life and
disability insurance plans, defined benefit pension plan, thrift plan, severance
plan and similar plans, on the same terms and conditions as applicable to
comparable employees of the Buyer and the Buyer Bank (including the waiver of
pre-existing conditions, restrictions, exclusions or limitations), giving Seller
Employees full credit for all "years of service," as that term is defined in
Section 411(a)(5) of the Code, with the Seller and its subsidiaries (to the
extent the Seller gave effect) as if such service was with the Buyer, for
purposes of eligibility, vesting and calculation of benefits under vacation,
severance and other plans, but not for benefit accrual purposes under the Buyer
defined benefit pension plan.
(b) COMPENSATION ARRANGEMENTS. Following the Effective Time, the Buyer shall
honor and shall cause the Buyer Bank to honor in accordance with their terms all
individual employment and other compensation agreements existing prior to the
execution of this Agreement, which are between the Seller and any current or
former director, officer or employee thereof, and which have been disclosed in
the Seller Disclosure Schedule, and the Buyer will not, and will not cause any
of its subsidiaries to, challenge the validity of any obligation of the Seller
under any employment, consulting, supplemental retirement or other compensation,
contract or arrangement with any current or former director, officer or employee
of the Seller, provided such contract or arrangement was set forth in the Seller
Disclosure Schedule.
(c) CONTINUATION OF PLANS. Notwithstanding anything to the contrary
contained herein, the Buyer shall have sole discretion with respect to the
determination as to whether to terminate, merge or continue any employee benefit
plans and programs of the Seller to the extent permitted by and in accordance
with the terms of such plans and programs; PROVIDED, HOWEVER, that the Buyer
shall continue to maintain the Seller plans (other than stock based or incentive
plans) until the Seller Employees are permitted to participate in the Buyer's
plans in accordance with this Section 5.13(c). Nothing in this Agreement shall
alter or limit the Buyer's obligations, if any, under ERISA, as amended by the
Consolidated Omnibus Budget Reconciliation Act of 1985 and/or the Health
Insurance Portability and Accountability Act of 1996 with respect to the rights
of Seller Employees and their qualified beneficiaries in connection with the
group health plan maintained by the Seller as of the Effective Time.
5.14 AUDITOR'S LETTERS. The Seller shall use all reasonable efforts to
cause to be delivered to the Buyer letters from its independent auditors dated
the date on which the S-4 referred to in Section 5.05(a) hereof or last
amendment thereto shall become effective, and dated the Closing Date, and
addressed to the Buyer and the Seller, with respect to the Seller's consolidated
financial position and the results of operations, which letters shall be based
on SAS 72 and certain agreed-upon procedures, which procedures shall be
consistent with applicable professional standards for letters delivered by
independent auditors in connection with comparable transactions, and each in
form and substance which is reasonably satisfactory to the Buyer.
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5.15. MAINTENANCE OF RECORDS. Through the Effective Time, the Seller will
maintain the Records in the same manner and with the same care that the Records
have been maintained prior to the execution of this Agreement. The Buyer may, at
its own expense, make such copies of and excerpts from the Records as it may
deem desirable. All Records, whether held by the Buyer or the Seller, shall be
maintained for such periods as are required by law, unless the parties shall,
applicable law permitting, agree in writing to a different period.
5.16 LEASES. Between the date hereof and the Closing Date, the Seller
shall use all commercially reasonable efforts to promptly obtain the consent of
the landlord to the transactions contemplated hereby under the lease set forth
in Section 4.04 of the Seller Disclosure Schedule and the Buyer will cooperate
with the Seller in obtaining such consent. The Seller shall consult with the
Buyer before renewing or extending any material lease of the Seller of real
property or material lease relating to furniture, fixtures or equipment that is
currently in effect but that would otherwise expire on or prior to the Effective
Time. The Seller shall not cancel, terminate or take other action that is likely
to result in any cancellation or termination of any such lease without prior
written notice to the Buyer.
5.17 ADVICE OF CHANGES. The Seller shall promptly advise the Buyer of any
change or event having a Material Adverse Effect on it or which it believes
would or would be reasonably likely to cause or constitute a material breach of
any of its representations, warranties or covenants contained herein. From time
to time prior to the Effective Time, each party will promptly supplement or
amend the Disclosure Schedules delivered in connection with the execution of
this Agreement to reflect any matter which, if existing, occurring or known at
the date of this Agreement, would have been required to be set forth or
described in such Disclosure Schedules or which is necessary to correct any
information in such Disclosure Schedules which has been rendered inaccurate
thereby. All supplements or amendments to such Disclosure Schedules pursuant to
and in accordance with this Section 5.17 shall be treated as having been part of
such Disclosure Schedule as of the date hereof for the purpose of determining
satisfaction of the conditions set forth in Sections 6.02(a) or 6.03(a) hereof,
as the case may be; except with respect to matters which individually or in the
aggregate have a Material Adverse Effect on the party amending such Disclosure
Schedule. No supplement or amendment to such Disclosure Schedule shall have any
effect for the purpose of determining the compliance by the Seller with the
covenants set forth in Sections 5.01. In addition to the foregoing, prior to the
Closing Date, the Seller will deliver to the Buyer an updated attorney response
to a recent request of the independent auditors for the Seller and its
subsidiaries with respect to Litigation and will make available any documents
which come into its possession after the date hereof related to the matter
referred to in Section 4.09(b) of the Seller Disclosure Schedule.
5.18 CONVERSION OF SELLER STOCK OPTIONS. At the Effective Time, all rights
with respect to Seller Common Stock pursuant to stock options granted by the
Seller under any currently existing Seller Stock Option Plans shall be converted
into corresponding rights to purchase shares of Buyer Common Stock in accordance
with the applicable provisions of Article II hereof.
5.19 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) After the Effective Time, the Buyer shall honor the indemnification
provisions for officers and directors currently set forth in the Articles of
Organization (or charter or other organizational documents) and By-Laws of
the Seller and its subsidiaries with respect to acts and omissions taken
prior to the Effective Time by such officers and directors, but only to the
extent permitted by federal and Massachusetts law and regulations.
(b) The Buyer shall maintain the Seller's (including its subsidiaries')
existing directors' and officers' liability insurance (the "D&O INSURANCE")
covering persons who are currently covered by the Seller's D&O Insurance for
a period of six (6) years after the Effective Time on terms no less
favorable than those in effect on the date hereof and shall, on the Closing
Date, provide evidence of such extension of coverage to the Seller;
PROVIDED, HOWEVER, that the Buyer may substitute therefor policies providing
at least comparable coverage and containing terms and conditions no less
favorable than those in effect on the date hereof.
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<PAGE>
ARTICLE VI
CLOSING CONDITIONS
6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions,
none of which may be waived:
(a) STOCKHOLDER'S APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Seller Common
Stock or such greater number as may be required pursuant to the Charter of
the Seller in accordance with applicable law.
(b) GOVERNMENTAL CONSENTS. All authorizations, consents, orders or
approvals of, or declarations or filings with, and all expirations of
waiting periods imposed by, any governmental or regulatory authority or
agency (all of the foregoing being referred to as "CONSENTS") which are
necessary for the consummation of the Merger shall have been filed, occurred
or been obtained (all such authorizations, orders, declarations, approvals,
filings and consents and the lapse of all such waiting periods being
referred to as the "REQUISITE REGULATORY APPROVALS") and all such Requisite
Regulatory Approvals shall be in full force and effect.
(c) S-4. The S-4 shall have become effective under the Securities Act
and shall not be subject to a stop order or a threatened stop order.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"INJUNCTION") preventing the consummation of the Merger shall be in effect.
(e) ACCOUNTING TREATMENT. Buyer shall have received a letter from Arthur
Andersen LLP and Seller shall have received a letter from Wolf & Company,
P.C., each dated the date of the Closing, substantially to the effect that,
on the basis of a review of the Agreement and the transactions contemplated
hereby, in such accountants' opinion, Accounting Principles Board Opinion
No. 16 provides that the Merger may be accounted for as a pooling of
interests.
6.02 CONDITIONS TO THE OBLIGATIONS OF THE BUYER UNDER THIS AGREEMENT. The
obligations of the Buyer under this Agreement shall be further subject to the
satisfaction or waiver by the Buyer, at or prior to the Effective Time, of the
following conditions:
(a) ABSENCE OF MATERIAL ADVERSE CHANGES. There shall not have occurred
any change in the business, assets, financial condition, results of
operations or prospects of the Seller or any of its subsidiaries which has
had, or is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on the Seller or any of its subsidiaries.
(b) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. (i) The
obligations of the Seller required to be performed by it at or prior to the
Closing pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects, (ii) there shall be no
shares of Seller Common Stock or other Seller securities issued and
outstanding immediately prior to the Effective Time other than (x) the
16,651,602 shares of Seller Common Stock outstanding on the date hereof, (y)
up to 570,750 shares of Seller Common Stock issuable upon the exercise of
Seller stock options disclosed in Section 4.02(a) of the Seller Disclosure
Schedule, and (z) any shares of Seller Common Stock issued upon the exercise
of the Seller Option, and (iii) except as provided in the immediately
preceding clause (ii), the representations and warranties of the Seller
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time as
though made at and as of the Effective Time (except as otherwise
specifically contemplated by this Agreement and except as to any
representation or warranty which specifically
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<PAGE>
relates to an earlier date); PROVIDED, HOWEVER, that for purposes of
determining the satisfaction of the conditions contained in clause (iii) of
this paragraph (b), no effect shall be given to any exception in such
representations and warranties relating to materiality or the existence of a
Material Adverse Effect and, PROVIDED FURTHER, HOWEVER, that for purposes of
clause (ii) of this paragraph (b), such representations and warranties shall
be deemed to be true and correct in all material respects unless the failure
or failures of such representations and warranties to be so true and
correct, in the aggregate, represents a material adverse change to the
business, assets, financial condition or results of operations of the
Seller. The Buyer shall have received a certificate to the foregoing effect
signed by the chairman or president and the chief financial officer or chief
accounting officer of the Seller.
(c) THIRD-PARTY APPROVALS. Any and all permits, consents, waivers,
clearances, approvals and authorizations of all non-governmental and
non-regulatory third parties which are necessary in connection with the
consummation of the transactions contemplated by this Agreement and are
required to be received or obtained by the Seller, shall have been obtained
by the Seller.
(d) BURDENSOME CONDITION. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, the Buyer or the Buyer Bank after the Effective
Time, by any federal or state governmental agency or authority which, in
connection with the granting of any Consent or Requisite Regulatory Approval
necessary to consummate the Merger or otherwise, imposes any condition or
restriction upon the Buyer, any subsidiary of the Buyer or the Seller after
the Merger (including, without limitation, requirements relating to the
disposition of assets or limitations on interest rates), which would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement as to render inadvisable in the
reasonable judgment of the Buyer the consummation of the Merger.
(e) TAX LETTER RULING. The Buyer shall have (i) obtained a letter ruling
from the IRS substantially to the effect that for federal income tax
purposes the Merger constitutes a reorganization as described in Section
368(a) of the Code or (ii) if, on the date the last Requisite Regulatory
Approval is received, the letter ruling referred to in clause (i) shall not
have been received, the Buyer shall have received an opinion, dated the date
of the Closing from its counsel, Bingham Dana LLP or other counsel
acceptable to the Buyer and the Seller, substantially to the effect that, on
the basis of facts and representations set forth therein, or set forth in
writing elsewhere and referred to therein, for federal income tax purposes
the Merger constitutes a reorganization as described in Section 368(a) of
the Code and addressing such other substantial federal income tax effects of
the Merger as the Buyer may reasonably require and which are customary in
transactions of a like character; PROVIDED, HOWEVER, that if, on the date
that the last Requisite Regulatory Approval is received, the letter ruling
referred to in clause (i) shall not have been received and Bingham Dana LLP
has advised the Buyer that it is unable to deliver the tax opinion referred
to in clause (ii), and all other conditions to closing set forth in this
Article VI have been satisfied, the Buyer and the Seller shall cooperate and
use reasonable efforts to take all steps necessary to alter the structure of
the transactions contemplated by this Agreement to ensure that for federal
income tax purposes the transactions contemplated by this Agreement shall
constitute a reorganization as described in Section 368(a) of the Code and,
in such event, either the Buyer or the Seller shall, upon written notice to
the other party hereto, have the right to extend the Termination Date until
October 31, 1998 provided that such party is not in material breach of this
Agreement or the Stock Option Agreement. In rendering any such opinion, such
counsel may rely, to the extent they deem necessary or appropriate, upon
opinions of other counsel and upon representations of an officer or officers
of the Seller and the Buyer or any of their Affiliates.
(f) SELLER AFFILIATES AGREEMENTS. The Seller shall have delivered to the
Buyer the letter pertaining to the Seller Affiliates, as contemplated under
Section 5.06 above, and each of the executed Seller Affiliates Agreements
that have been received by the Seller as of the Effective Time.
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(g) TERMINATION OF SELLER PLANS. If requested by the Buyer, the Seller
shall have terminated all Seller Other Plans set forth on Schedule 6.02(g)
hereof.
6.03 CONDITIONS TO THE OBLIGATIONS OF THE SELLER UNDER THIS AGREEMENT. The
obligations of the Seller under this Agreement shall be further subject to the
satisfaction or waiver by the Seller, at or prior to the Effective Time, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
obligations of the Buyer required to be performed by it at or prior to the
Closing pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects and the representations
and warranties of the Buyer contained in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Effective Time as though made at and as of the Effective Time (except as
otherwise specifically contemplated by this Agreement and except as to any
representation or warranty which specifically relates to an earlier date)
and the Seller shall have received a certificate to that effect signed by
the chairman or president and the chief financial officer or chief
accounting officer of the Buyer.
(b) THIRD-PARTY APPROVALS. Any and all permits, consents, waivers,
clearances, approvals and authorizations of all non-governmental and
non-regulatory third parties which are necessary in connection with the
consummation of the transactions contemplated by this Agreement and are
required to be received or obtained by the Buyer, shall have been obtained
by the Buyer, other than permits, consents, waivers, clearances, approvals
and authorizations the failure of which to obtain would neither make it
impossible to consummate the Merger nor result in a Material Adverse Effect
on the Buyer (on a consolidated basis with the Seller) after the Merger.
(c) TAX OPINION. The Seller shall have received an opinion, dated the
dates of the Proxy Statement and the Closing from Nutter, McClennen & Fish,
LLP or other tax advisor acceptable to the Buyer and the Seller,
substantially to the effect that, on the basis of facts and representations
set forth therein, or set forth in writing elsewhere and referred to
therein, for federal income tax purposes the Merger constitutes a
reorganization as described in Section 368(a) of the Code and that no gain
or loss will be recognized by the stockholders of the Seller upon the
receipt, pursuant to this Agreement, of Buyer Common Stock solely in
exchange for Seller Common Stock (it being understood that such opinion will
not extend to cash received in lieu of fractional share interests or cash
received by Dissenting Holders, if any) and in respect of such other
substantial federal income tax effects of the Merger as the Seller may
reasonably require and which are customary in transactions of a like
character. In rendering any such opinion, such advisor may rely, to the
extent they deem necessary or appropriate, upon opinions of other advisors
and upon representations of an officer or officers of the Seller and the
Buyer or any of their Affiliates.
(d) NASDAQ LISTING. The shares of Buyer Common Stock issuable to
Seller's stockholders pursuant to this Agreement shall have been authorized
for listing on NASDAQ upon official notice of issuance.
ARTICLE VII
CLOSING
7.01 TIME AND PLACE. Subject to the provisions of Articles VI and VIII
hereof, the Closing of the transactions contemplated hereby shall take place at
the Boston, Massachusetts offices of Bingham Dana LLP at 10:00 A.M., local time,
on the first business day after the date on which all of the conditions
contained in Article VI are satisfied or waived; or at such other place, at such
other time, or on such other date as the Seller and the Buyer may mutually agree
upon for the Closing to take place.
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<PAGE>
7.02 DELIVERIES AT THE CLOSING. Subject to the provisions of Articles VI
and VIII hereof, at the Closing there shall be delivered to the Seller and the
Buyer, the opinions, certificates, and other documents and instruments required
to be delivered under Article VI hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of this Agreement and the
transactions contemplated hereby by the Seller's stockholders:
(a) by mutual written consent of the Seller and the Buyer authorized by
their respective Boards of Directors;
(b) by the Seller or the Buyer if the Effective Time shall not have
occurred on or prior to August 31, 1998 (the "TERMINATION DATE") or such
later date as shall have been agreed to in writing by the Buyer and the
Seller;
(c) by the Buyer or the Seller if any governmental or regulatory
authority or agency, or court of competent jurisdiction, shall have issued a
final permanent order or Injunction enjoining, denying approval of, or
otherwise prohibiting the consummation of the Merger and the time for appeal
or petition for reconsideration of such order or Injunction shall have
expired without such appeal or petition being granted; or
(d) by the Buyer or the Seller (provided that the terminating party is
not then in material breach of any representation, warranty or covenant or
other agreement contained herein or in the Seller Option Agreement) if the
approval of the Seller's stockholders specified in Section 5.05 shall not
have been obtained by reason of the failure to obtain the required vote at a
duly held meeting of the Seller's stockholders or at any adjournment
thereof; or
(e) by the Board of Directors of the Buyer or the Board of Directors of
the Seller (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein or in the Seller Option Agreement), in the event of a
material breach by the other party of any representation, warranty, covenant
or other agreement contained herein or in the Seller Option Agreement which
breach is not cured after twenty (20) days written notice thereof is given
to the party committing such breach.
8.02 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either the Seller or the Buyer as provided above, this Agreement shall
forthwith become null and void (other than Sections 5.02(b) and 9.01 hereof,
which shall remain in full force and effect) and there shall be no further
liability on the part of the Seller or the Buyer or their respective officers or
directors to the other, except (i) any liability of the Seller and the Buyer
under said Sections 5.02(b) and 9.01, (ii) that the Seller Option Agreement
shall be governed by its own terms as to termination, and (iii) in the event of
a willful breach of any representation, warranty, covenant or agreement
contained in this Agreement, in which case, the breaching party shall remain
liable for any and all damages, costs and expenses, including all reasonable
attorneys' fees, sustained or incurred by the non-breaching party as a result
thereof or in connection therewith or with the enforcement of its rights
hereunder.
8.03 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law and as may
be authorized by their respective Boards of Directors, at any time prior to the
consummation of the transactions contemplated by this Agreement or termination
of this Agreement in accordance with the provisions of Section 8.01 hereof,
whether before or after approval thereof by the stockholders of the Seller, the
Buyer and the Seller may, (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(c) waive any inaccuracies in the representations and warranties contained
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<PAGE>
herein or in any document delivered pursuant hereto, or (d) waive compliance
with any of the agreements or conditions contained in Articles V and VI (other
than Section 6.01) hereof; PROVIDED, HOWEVER, that after any approval of the
transactions contemplated by this Agreement by the Seller's stockholders, there
may not be, without further approval of such stockholders, any amendment,
extension or waiver of this Agreement which reduces the amount or changes the
form of the consideration to be delivered to the stockholders of the Seller
hereunder other than as contemplated by this Agreement. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party, but such waiver or failure to insist on strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
MISCELLANEOUS
9.01 EXPENSES. Except as may otherwise be agreed to hereunder or in other
writing by the parties, all legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses; PROVIDED, HOWEVER, that all
costs and expenses incurred in connection with the printing and mailing of the
S-4 and the Seller Proxy Statement shall be borne equally by the Buyer and the
Seller.
9.02 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. None of the
representations, warranties, covenants and agreements of the Seller or the Buyer
shall survive after the Effective Time, except for the agreements and covenants
contained or referred to in Article II, Section 5.02(b), the last sentence of
Section 5.08, and Sections 5.10, 5.12, and 5.17 hereof, and the agreements of
the "affiliates" of the Seller delivered pursuant to Section 5.07, which
agreements and covenants shall survive the Effective Time.
9.03 NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by prepaid
registered or certified mail (return receipt requested) or by telecopy, cable,
telegram or telex addressed as follows:
(a) If to the Seller, to:
Somerset Savings Bank
212 Elm Street
Sommerville, Massachusetts
Attention: Thomas J. Kelly
President and Chief Executive
Officer
Facsimile No.:
with a required copy to:
Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110
Attention: John P. Driscoll, Jr., Esq.
and
Michael K. Krebs, Esq.
Facsimile No.: 617 973-9748
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<PAGE>
(b) If to the Buyer, to:
UST Corp.
40 Court Street
Boston, Massachusetts 02109
Attention: Neal F. Finnegan
President and Chief Executive
Officer
Facsimile No.: 617-726-7320
with a required copy to:
UST Corp.
40 Court Street
Boston, Massachusetts
Attention: Eric R. Fischer, Esq.
Executive Vice President, General
Counsel and Secretary
Facsimile No.: 617-695-4175
and
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Neal J. Curtin, Esq.
and
Stephen H. Faberman, Esq.
Facsimile No.: (617) 951-8736
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
9.04 PARTIES IN INTEREST. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; PROVIDED, HOWEVER, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other parties, and that nothing in this
Agreement is intended to confer, expressly or by implication, upon any other
person any rights or remedies under or by reason of this Agreement; PROVIDED,
HOWEVER, that the Seller's current and former officers and directors are
intended third-party beneficiaries with respect to the provisions set forth in
Section 5.19 hereof, and the provisions of such Section 5.19 may be enforced
after the Effective Time by such persons as intended third-party beneficiaries.
9.05 COMPLETE AGREEMENT. This Agreement, including the documents and other
writings referred to herein or delivered pursuant hereto, including the
Confidentiality Agreement and this Agreement contains the entire agreement and
understanding of the parties with respect to its subject matter. Except as set
forth in this Agreement or in the Disclosure Schedules, there are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties other than those expressly set forth herein or therein. This
Agreement supersedes all prior agreements, including without limitation, the
Confidentiality Agreement, and understandings between the parties, both written
and oral, with respect to its subject matter.
9.06 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed to be an original and shall become
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effective when a counterpart has been signed by each of the parties and
delivered to each of the other parties which delivery may be made by facsimile
transmission.
9.07 GOVERNING LAW. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of laws thereof.
9.08 CAPTIONS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.09 EFFECT OF INVESTIGATIONS. No investigation by the parties hereto made
heretofore or hereafter, whether pursuant to this Agreement or otherwise shall
affect the representations and warranties of the parties which are contained
herein and each such representation and warranty shall survive such
investigation.
9.10 SEVERABILITY. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, by any court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement and the
parties shall use their best efforts to substitute a valid, legal and
enforceable provision which, insofar as practicable, implements the purposes and
intents of this Agreement.
9.11 SPECIFIC ENFORCEABILITY. The parties recognize and hereby acknowledge
that it is impossible to measure in money the damages that would result to a
party by reason of the failure of either of the parties to perform any of the
obligations imposed on it by this Agreement. Accordingly, if any party should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, each party against which such action or proceeding is brought hereby
waives the claim or defense that the party instituting such action or proceeding
has an adequate remedy at law and hereby agrees not to assert in any such action
or proceeding the claim or defense that such a remedy at law exists.
IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement to
be executed as a sealed instrument by their duly authorized officers as of the
day and year first above written.
UST CORP.
By: /s/ NEAL F. FINNEGAN
----------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
SOMERSET SAVINGS BANK
By: /s/ THOMAS J. KELLY
----------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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<PAGE>
EXHIBIT A
TO
APPENDIX A
RATIFICATION AND JOINDER AGREEMENT
This RATIFICATION AND JOINDER AGREEMENT (this "AGREEMENT") is made this 9th
day of January, 1998 by and among UST Corp., a Massachusetts corporation with a
principal place of business at 40 Court Street, Boston, MA ("UST "), Mosaic
Corp., a Massachusetts corporation and a wholly-owned subsidiary of UST, with a
principal place of business at 40 Court Street, Boston, MA ("MOSAIC") and
Somerset Savings Bank, a Massachusetts stock savings bank with a principal place
of business at 212 Elm Street, Somerville, MA 02144 ("SOMERSET").
WHEREAS, UST and Somerset have entered into an Affiliation Agreement and
Plan of Reorganization, dated as of December 9, 1997 (the "MERGER AGREEMENT"),
pursuant to which Somerset will be merged (the "MERGER") with and into USTrust,
a Massachusetts bank and trust company and direct and indirect subsidiary of UST
and Mosaic, by which Somerset will transfer all of its assets and liabilities to
Mosaic, and Mosaic will direct the transfer of all of such assets and
liabilities to USTrust;
WHEREAS, Mosaic desires to become a party to the Merger Agreement, and UST
and Somerset desire that Mosaic become a party to the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. UST, Mosaic and Somerset hereby agree that from and after the date
hereof, Mosaic shall become a party to the Merger Agreement.
2. Mosaic hereby ratifies and confirms all of the terms of the Merger
Agreement and hereby agrees to become a party thereto, from and after the
date hereof, and to perform all of the covenants and undertakings which UST
agreed to cause it to perform or prevent it from performing under the Merger
Agreement.
3. Except as expressly modified hereby, all of the terms and conditions
of the Merger Agreement shall remain in full force and effect.
4. THIS RATIFICATION AND JOINDER AGREEMENT IS INTENDED TO TAKE EFFECT AS
A SEALED INSTRUMENT FOR ALL PURPOSES TO BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CONFLICTS OR CHOICE OF LAWS).
<PAGE>
IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned
has caused this Ratification and Joinder Agreement to be executed on its behalf
by its officer thereunto duly authorized, as of the date first above written.
UST CORP.
By: /s/_James K. Hunt__________
Title: Executive Vice President,
Chief
Financial Officer and
Treasurer
MOSAIC CORP.
By: /s/_Eric R. Fischer________
Title: Executive Vice President,
General
Counsel and Clerk
SOMERSET SAVINGS BANK
By: /s/_Gary M. Abrams_________
Title: Senior Vice President,
Treasurer and
Chief Financial Officer
2
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 9, 1997, between SOMERSET
SAVINGS BANK, a Massachusetts stock savings bank (the "ISSUER") and UST CORP., a
Massachusetts corporation (the "GRANTEE").
WHEREAS, the Grantee and the Issuer have entered into an Affiliation
Agreement and Plan of Reorganization of even date herewith (as amended and in
effect from time to time, the "ACQUISITION AGREEMENT"), which agreement is being
executed by the parties thereto prior to the execution of this Agreement; and
WHEREAS, as a condition to the Grantee's entry into the Acquisition
Agreement and in consideration for such entry, the Issuer has agreed to (i)
grant to the Grantee the Option (as hereinafter defined) and (ii) make the cash
payment referred to in Section 4 below;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Acquisition Agreement, the parties
hereto agree as follows:
1. The Issuer hereby grants to the Grantee an unconditional, irrevocable
option (the "OPTION") to purchase, subject to the terms hereof, up to 2,777,000
fully paid and nonassessable shares (the "OPTION SHARES") of common stock, par
value $1.00 per share, of the Issuer ("COMMON STOCK") at a price of $4.875 per
share (the "OPTION PRICE"). The number of shares of Common Stock that may be
received upon the exercise of the Option and the Option Price are subject to
adjustment, as herein set forth, provided that, except as provided by Section 9
hereof, in no event shall the number of shares for which this Option is
exercisable exceed 16.7% of the Issuer's issued and outstanding shares of Common
Stock (without giving effect to any shares of Common Stock issued pursuant to
the Option) less the number of shares previously issued pursuant to exercise of
the Option.
2. (a) The Holder (as such term is defined in paragraph (c) below) may
exercise the Option, in whole or in part, if, but only if, both an Initial
Triggering Event (as defined in paragraph (e) below) and a Subsequent Triggering
Event (as defined in paragraph (f) below) shall have occurred prior to the
occurrence of an Exercise Termination Event (as defined in paragraph (b) below),
PROVIDED that the Holder shall have sent the written notice of such exercise (as
provided in paragraph (h) of this Section 2) within thirty (30) days following
such Subsequent Triggering Event and prior to the Exercise Termination Event.
(b) The term "EXERCISE TERMINATION EVENT" shall mean the earliest of (i) the
Effective Time, (ii) any termination of the Acquisition Agreement in accordance
with the provisions thereof if such termination occurs prior to the occurrence
of an Initial Triggering Event, and (iii) in the event of any termination of the
Acquisition Agreement in accordance with the provisions thereof after the
occurrence of an Initial Triggering Event, the passage of twelve (12) months
after such termination. Upon the occurrence of an Exercise Termination Event,
this Option (or such portion hereof as to which the holder has not theretofore
given a notice of exercise in accordance with paragraph (h) below) shall
terminate and become void, without notice or other action by any Person (the
term "PERSON" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") and the rules and regulations thereunder).
Notwithstanding the termination of the Option, the Grantee shall be entitled to
purchase those Option Shares with respect to which it has exercised the Option
in whole or in part prior to the termination of the Option.
(c) The term "HOLDER" shall mean the holder or holders of the Option.
(d) The term "SCHEDULE 13G INVESTOR" shall mean any person holding voting
securities of the Issuer eligible to report the beneficial ownership of such
securities on Schedule 13G pursuant to the provisions of Rule 13d-1 under the
Exchange Act.
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(e) The term "INITIAL TRIGGERING EVENT" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The Issuer or any subsidiary of the Issuer, without having received
the Grantee's prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction with any Person, other than the Grantee
or any subsidiary of the Grantee, or, without the consent of the Grantee,
the Board of Directors of the Issuer shall have approved an Acquisition
Transaction or recommended that the shareholders of the Issuer approve or
accept any Acquisition Transaction other than as contemplated by the
Acquisition Agreement. For purposes of this Agreement, the term "ACQUISITION
TRANSACTION" shall mean (A) a merger or consolidation, or any similar
transaction, with the Issuer or any Significant Subsidiary of the Issuer, or
any subsidiary of the Issuer which, after such transaction, would be a
Significant Subsidiary of the Issuer, (B) a purchase, lease or other
acquisition of all or substantially all of the assets of the Issuer or any
Significant Subsidiary of the Issuer or (C) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing ten percent (10%) or more of the voting power of the
Issuer or any Significant Subsidiary of the Issuer;
(ii) Any Person, other than the Grantee or any subsidiary of the Grantee
or the Issuer in a fiduciary capacity, and other than a Schedule 13G
Investor, shall have acquired beneficial ownership (as hereinafter defined)
or the right to acquire beneficial ownership of ten percent (10%) or more of
the outstanding shares of Common Stock if such Person owned beneficially
less than ten percent (10%) of the outstanding shares of Common Stock on the
date of this Agreement, or any Person shall have acquired beneficial
ownership of an additional three percent (3%) of the outstanding shares of
Common Stock if such Person owned beneficially ten percent (10%) or more of
the outstanding shares of Common Stock on the date of this Agreement (the
term "BENEFICIAL OWNERSHIP" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and in the
rules and regulations thereunder);
(iii) (A) The holders of Issuer Common Stock shall not have approved the
Acquisition Agreement at the meeting of such stockholders held for the
purpose of voting on the Acquisition Agreement, (B) such meeting shall not
have been held or shall have been canceled prior to the termination of the
Acquisition Agreement, or (C) the Issuer's Board of Directors shall have
withdrawn or modified in a manner adverse to Grantee the recommendation of
Issuer's Board of Director's with respect to the Acquisition Agreement, in
each case after it shall have been publicly announced or become publicly
known that (x) any Person, other than the Grantee or any subsidiary of the
Grantee, shall have made a bona-fide proposal to the Issuer or its
shareholders to engage in an Acquisition Transaction by public announcement
or written communication that shall be or become the subject of public
disclosure; or (y) any Person other than the Grantee or any subsidiary of
the Grantee, other than in connection with a transaction to which the
Grantee has given its prior written consent, shall have filed 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;
(iv) After any Person other than the Grantee or any subsidiary of the
Grantee has made a proposal to the Issuer or its shareholders to engage in
an Acquisition Transaction, the Issuer shall have breached any covenant or
obligation contained in the Acquisition Agreement and such breach (A) would
entitle the Grantee to terminate the Acquisition Agreement and (B) shall not
have been remedied prior to the Notice Date (as defined in paragraph (h)
below); or
(v) Any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act) or shall have filed a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to, a tender offer
or exchange offer to purchase any shares of Issuer Common Stock such that,
upon
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consummation of such offer, such person would own or control 50% or more of
the then outstanding shares of Issuer Common Stock (such an offer being
referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively).
(f) The term "SUBSEQUENT TRIGGERING EVENT" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any Person (other than a Schedule 13G Investor)
of beneficial ownership of fifteen percent (15%) or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
subparagraph (i) of paragraph (e) of this Section 2, except that the
percentage referenced in clause (C) thereof shall be fifteen percent (15%)
in lieu of ten percent (10%).
(g) The Issuer shall notify the Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "TRIGGERING EVENT"), it being understood that the giving of such
notice by the Issuer shall not be a condition to the right of the Holder to
exercise the Option.
(h) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to the Issuer a written notice (the date of which being
herein referred to as the "NOTICE DATE") specifying (i) the total number of
shares of Common Stock it will purchase pursuant to such exercise, and (ii) a
place and date not earlier than three (3) business days nor later than sixty
(60) business days from the Notice Date for the closing of such purchase (the
"CLOSING"); PROVIDED that if prior notification to or approval of the Federal
Reserve Board or any other regulatory agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods shall
have passed. The term "business day" for purposes of this Agreement means any
day, excluding Saturdays, Sundays and any other day that is a legal holiday in
The Commonwealth of Massachusetts or a day on which banking institutions in The
Commonwealth of Massachusetts are authorized by law or executive order to close.
(i) At the Closing, the Holder shall pay to the Issuer the aggregate
purchase price for the shares of Common Stock purchased pursuant to the exercise
of the Option in immediately available funds by a wire transfer to a bank
account designated by the Issuer, provided that failure or refusal of the Issuer
to designate such a bank account shall not preclude the Holder from exercising
the Option.
(j) At such Closing, simultaneously with the delivery of immediately
available funds as provided in paragraph (i) above, the Issuer shall deliver to
the Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option should be exercised in
part only, a new Option evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder, and the Holder shall deliver to
the Issuer a copy of this Agreement and a letter agreeing that the Holder will
not offer to sell or otherwise dispose of such shares in violation of applicable
law or the provisions of this Agreement.
(k) Certificates for the Common Stock delivered at a Closing hereunder may
(in the sole discretion of the Issuer) be endorsed with a restrictive legend
that shall read substantially as follows:
"THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTION PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED
AS OF DECEMBER , 1997, A COPY OF WHICH AGREEMENT WILL BE PROVIDED TO
THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN
REQUEST THEREFOR."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if the shares have been sold or
transferred in compliance with the provisions of this
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Agreement and under circumstances that do not require the retention of such
legend. In addition, such certificates shall bear any other legend as may be
required by law.
(l) Upon the giving by the Holder to the Issuer of the written notice of
exercise of the Option provided for under paragraph (h) above, the tender of the
applicable purchase price in immediately available funds and the tender of a
copy of this Agreement to the Issuer, such Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Issuer shall then be closed
or that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder. The Issuer shall pay all expenses, and any and
all United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. The Issuer agrees (a) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without requiring the Issuer's
stockholders to approve an increase in the number of authorized shares of Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to purchase Common Stock, (b) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Issuer, (c) promptly to take all action
as may from time to time be required (including without limitation cooperating
fully with any Holders in preparing any applications or notices required under
the Bank Holding Company Act of 1956, as amended, or the Change in Bank Control
Act of 1978, as amended, or any state banking law), in order to permit such
Holders to exercise the Option and the Issuer duly and effectively to issue
shares of Common Stock pursuant hereto, and (d) promptly to take all action
provided herein to protect the rights of any Holders against dilution.
4. PHANTOM STOCK PAYMENT. (a) As additional consideration for the Grantee's
entry into the Acquisition Agreement, upon the occurrence of a Subsequent
Triggering Event that occurs prior to an Exercise Termination Event, and subject
to paragraph (c) hereof, the Issuer shall pay to the Grantee, an amount in cash
(the "PHANTOM STOCK PAYMENT") determined in accordance with the next sentence
hereof. The Phantom Stock Payment shall be in an amount equal to the product of
(i) the number of Phantom Stock Shares, MULTIPLIED BY (ii) the Option Spread.
The number of Phantom Stock Shares shall initially be 536,669. The term "Option
Spread" shall mean the arithmetic difference between (x) the Option Price and
(y) the "market/offer price" as such term is defined in Section 8(a) of this
Agreement. If additional shares of Issuer Common Stock are issued or otherwise
become outstanding after the date of this Agreement (other than pursuant to
exercise of the Option pursuant to this Agreement), including, without
limitation, pursuant to stock option or other employee plans, or as a result of
the exercise of conversion rights, the number of Phantom Stock Shares shall be
increased so that, after such increase, the sum of (x) the number of Phantom
Stock Shares, as increased, PLUS (y) 2,777,000 shall equal 19.9% of the number
of shares of Issuer Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Notwithstanding
the foregoing, nothing contained in this Section 4(a) or elsewhere in this
Agreement shall be deemed to authorize the Issuer or the Grantee to breach any
provision of the Acquisition Agreement. If the number of Option Shares and/or
the Option Price is adjusted in accordance with Section 6 of this Agreement,
there shall be a corresponding adjustment in the number of Phantom Stock Shares
and the Option Spread. On that date (the "PHANTOM STOCK PAYMENT DATE"), which is
at the earlier of (i) the Closing of the purchase of the shares of the Common
Stock subject to the Option pursuant to Section 2(h) hereof or (ii) the Payment
Date with respect to the repurchase of the Option by the Issuer pursuant to
Section 8(b) hereof, the Issuer shall pay to the Grantee the Phantom Stock
Payment, together with interest thereon at the rate specified in Section 4(c)
hereof, in immediately available funds by a wire transfer to a bank account
designated by the Grantee; PROVIDED, HOWEVER, that in the event that prior
notification to or approval of the Federal Reserve Board or any other regulatory
agency is required in
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connection with the purchase referred to in (i) above, the Issuer shall pay to
the Grantee the Phantom Stock Payment within thirty (30) days of the Notice Date
(as defined in Section 2(h) hereof.
(b) The Issuer agrees (i) that it shall at all times, after an Initial
Triggering Event, maintain sufficient readily available funds to pay the Phantom
Stock Payment and (ii) promptly to take all action as may from time to time be
required in order to permit the Issuer to pay the Phantom Stock Payment.
(c) To the extent that the Issuer is prohibited as a consequence of a
Regulatory Impediment (as defined in Section 8(c) hereof) from making the
Phantom Stock Payment in full (and the Issuer hereby undertakes to use its best
efforts to receive all required regulatory and legal approvals and to file any
required notices as promptly as practicable in order to pay the Phantom Stock
Payment) or to the extent that the Issuer would not have been designated
"Adequately Capitalized" as of the last day of the Issuer's most recent fiscal
quarter had the Issuer paid the Phantom Stock Payment in full as of such date,
the Issuer shall immediately so notify the Grantee and thereafter deliver or
cause to be delivered, from time to time, to the Grantee, as appropriate, the
portion of the Phantom Stock Payment that it is no longer prohibited from
delivering or that the Issuer can deliver and remain designated "Adequately
Capitalized", within ten (10) business days after the date on which the Issuer
is no longer so prohibited or restricted from paying. To the extent that the
Issuer is prohibited as a consequence of this Section 4(c) from paying the full
amount of the Phantom Stock Payment, interest shall accrue on the unpaid portion
thereof from and after the Phantom Stock Payment Date at the rate per annum
equal to the Federal Funds rate in effect on such date, as reported by the WALL
STREET JOURNAL. Payments made pursuant to this Section 4 after the Phantom Stock
Payment Date shall be applied first to accrued interest and then to the unpaid
portion of the Phantom Stock Payment.
5. This Agreement (and the Option granted hereby) is exchangeable, without
expense, at the option of each Holder, upon presentation and surrender of this
Agreement at the principal office of the Issuer, for other Agreements providing
for Options of different denominations entitling the Holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "AGREEMENT" and "OPTION" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by the Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, the Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute for all purposes and under all circumstances an additional
contractual obligation on the part of the Issuer, whether or not this Agreement
so lost, stolen, destroyed or mutilated shall at any time be enforceable by
anyone.
6. The number of Option Shares shall be subject to adjustment from time to
time as provided in this Section 6.
(a) (i) In the event of any change in the shares of Common Stock by
reason of stock dividend, split up, merger, recapitalization, subdivision,
conversion, combination, exchange of shares or similar transaction, the type
and number of Option Shares, and the Option Price therefor, shall be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction, so that the Grantee shall receive upon exercise
of the Option the number and class of shares or other securities or property
that the Grantee would have held immediately after such event if the Option
had been exercised immediately prior to such event, or the record date
therefor, as applicable.
(ii) The Issuer may, at its election, make such increases in the number
of Option Shares, in addition to those required under subparagraph (a)(i)
above, as shall be determined by its Board of Directors to be advisable in
order to avoid taxation, so far as practicable, of any dividend of stock or
stock rights or any event treated as such for federal income tax purposes to
the recipients.
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(b) Whenever the number of Option Shares (or other securities) purchasable
upon exercise hereof is adjusted as provided in this Section 6, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which is equal to the number of Option Shares prior to the adjustment and the
denominator of which is equal to the number of Option Shares (or other
securities) purchasable after the adjustment.
7. Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
within thirty (30) days of such Subsequent Triggering Event (whether on the
Grantor's own behalf or on the behalf of any subsequent Holder of this Option
(or part thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current, with respect to the Option and the
Option Shares, a "shelf" registration statement under Rule 415 of the Securities
Act or any successor provision, and Issuer shall use its best efforts to qualify
such shares under any applicable state securities laws; PROVIDED, HOWEVER, that
the Issuer shall have no obligation to file a registration statement under the
Securities Act with respect to the Option Shares if the offer and sale of such
common ctock is exempt from the registration requirements of the Securities Act
pursuant to Section 3 thereof, including without limitation Section 3(a)(2).
Issuer will use all commercially reasonable efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect sales or
other dispositions of Option Shares. Grantee shall have the right to demand two
such registrations. Any registration statement prepared and filed under this
Section 7, and any sales covered thereby, shall be at Issuer's expense, except
for underwriting discounts or commissions, broker's fees and expenses and the
fees and disbursements of Grantee's counsel related thereto. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, (i) Issuer is in registration
with respect to an underwritten public offering of shares of Common Stock, and
(ii) in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering, the inclusion of the Option or Option Shares would interfere with the
successful marketing of the shares represented by the Option, the number of
Option Shares otherwise to be covered in the registration statement contemplated
hereby may be reduced; PROVIDED, HOWEVER, that if such reduction occurs, the
Issuer shall file a registration statement for the balance as promptly as
practical and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer.
8. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, and subject in all events to paragraph
(c) hereof, (i) at the request of any Holder, delivered within thirty (30) days
following such occurrence (or such later period as provided in Section 11), the
Issuer shall repurchase the Option from the Holder at a price (the "OPTION
REPURCHASE PRICE") equal to the amount by which (A) the market/offer price (as
defined below) exceeds (B) the Option Price, multiplied by the number of shares
for which this Option may then be exercised, and (ii) at the request of any
owner of Option Shares from time to time (the "OWNER"), delivered within thirty
(30) days following such occurrence (or such later period as provided in Section
11), the Issuer shall repurchase such number of the Option Shares from such
Owner as the Owner shall designate at a price per share ("OPTION SHARE
REPURCHASE PRICE") equal to the greater of (A) the market/offer price and (B)
the average exercise price per share paid by the Owner for the Option Shares so
designated. The term "MARKET/OFFER PRICE" shall mean the highest of (w) the
price per share of the Common Stock at which a tender offer or exchange offer
therefor has been made, (x) the price per share of the Common Stock to be paid
by any Person, other than the Grantee or a subsidiary of the Grantee, pursuant
to an agreement with the Issuer, (y) the highest sale price for shares of Common
Stock within the six (6) month period immediately preceding the required
repurchase of Options or Option Shares, as the case may be, or (z) in the event
of a sale of all or
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substantially all of the Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of the
Issuer as determined by a nationally recognized investment banking firm selected
by a majority in the interest of the Holders or the Owners, as the case may be,
and reasonably acceptable to the Issuer, divided by the number of shares of
Common Stock of the Issuer outstanding at the time of such sale. In determining
the market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by a
majority in interest of the Holders or the Owners, as the case may be, and
reasonably acceptable to the Issuer.
(b) Each Holder and Owner, as the case may be, may exercise its right to
require the Issuer to repurchase the Option and any Option Shares pursuant to
this Section 8 by surrendering for such purpose to the Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that such Holder
or Owner elects to require the Issuer to repurchase this Option and/or Option
Shares in accordance with the provisions of this Section 8. As promptly as
practicable, and in any event within ten (10) business days (the "PAYMENT DATE")
after the surrender of the Option and/or certificates representing Option Shares
and the receipt of such notice or notices relating thereto (the "SURRENDER
DATE"), the Issuer shall deliver or cause to be delivered to each Holder the
Option Repurchase Price and/or to each Owner the Option Share Repurchase Price
therefor or the portion thereof that the Issuer is not then prohibited under
applicable law and regulation from so delivering in accordance with paragraph
(c) hereof.
(c) To the extent that the Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy or order, or as a
result of a written agreement or other binding obligation with a governmental or
regulatory body or agency (including without limitation any resolution of the
Issuer's Board of Directors adopted at the direction or request of any
government or regulatory body or agency) (collectively, "REGULATORY
IMPEDIMENT"), from repurchasing the Option and/or the Option Shares in full or
to the extent that the Issuer would not have been designated "Adequately
Capitalized" (as such term is defined by the Issuer's primary federal bank
regulator) as of the last day of the Issuer's most recent fiscal quarter had the
Issuer repurchased the Option and/or the Option Shares in full as of such date,
the Issuer shall immediately so notify each Holder and/or each Owner and
thereafter deliver or cause to be delivered, from time to time, to such Holder
and/or Owner, as appropriate, the portion of the Option Repurchase Price and the
Option Share Repurchase Price, respectively, that it is no longer prohibited
from delivering, within ten (10) business days after the date on which the
Issuer is no longer so prohibited or that the Issuer can deliver and remain
designated "Adequately Capitalized" within the meaning of this sentence;
PROVIDED, HOWEVER, that if the Issuer at any time after delivery of a notice of
repurchase pursuant to paragraph (b) of this Section 8 is prohibited from
delivering as a consequence of a Regulatory Impediment, or the delivery of which
would cause the Issuer not be designated "Adequately Capitalized" to any Holder
and/or Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in part or in full (and the Issuer hereby
undertakes to use its best efforts to receive all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), such Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon the Issuer shall promptly (i) deliver to such
Holder and/or Owner, as appropriate, that portion of the Option Purchase Price
or the Option Share Repurchase Price that the Issuer is not prohibited from
delivering or that the Issuer can deliver and remain designated "Adequately
Capitalized;" and (ii) deliver, as appropriate, either (A) to such Holder, a new
Stock Option Agreement evidencing the right of such Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Stock Option Agreement was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Option Repurchase Price less the portion thereof theretofore
delivered to the Holder and the denominator of which is the Option Repurchase
Price, or (B) to such Owner, a certificate for the Option Shares it is then so
prohibited or restricted from repurchasing.
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9. (a) In the event that prior to an Exercise Termination Event, the Issuer
shall enter into an agreement (i) to consolidate with or merge into any Person,
other than the Grantee or one of the Grantee's subsidiaries, and the Issuer
shall not be the continuing or surviving corporation of such consolidation or
merger, (ii) to permit any Person, other than the Grantee or one of its
subsidiaries, to merge into the Issuer and the Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or the then
outstanding shares of Common Stock shall, after such merger, represent less than
fifty percent (50%) of the outstanding shares and share equivalents of the
merged company, or (iii) to sell or otherwise transfer all or substantially all
of its assets to any Person, other than the Grantee or one of the Grantee's
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "SUBSTITUTE
OPTION"), at the election of the Holder, of either (A) the Acquiring Corporation
(as defined in paragraph (b) below) or (B) any Person that controls the
Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) The term "ACQUIRING CORPORATION" shall mean (A) the continuing or
surviving corporation of a consolidation or merger with the Issuer (if other
than the Issuer), (B) the Issuer in a merger in which the Issuer is the
continuing or surviving Person, and (C) the transferee of all or
substantially all of the Issuer's assets.
(ii) The term "SUBSTITUTE COMMON STOCK" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(iii) The term "ASSIGNED VALUE" shall mean the "market/offer price", as
defined in paragraph (a) of Section 8 hereof.
(iv) The term "AVERAGE PRICE" shall mean the average closing price of a
share of the Substitute Common Stock for the one (1) year period immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of the Substitute Common Stock
on the day preceding such consolidation, merger or sale, PROVIDED that if
the Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by the Person
merging into the Issuer or by any company which controls such Person, as the
Holder may elect.
(c) Except as set forth in (d) below, the Substitute Option shall have the
same terms as the Option, PROVIDED that if the terms of the Substitute Option
cannot, for legal reasons, be the same as the Option, such terms shall, to the
extent legally permissible, be as similar as possible to, and in no event less
advantageous to the Holder than, the terms of the Option. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock as is equal to (i) the product of (A) the Assigned
Value and (B) the number of shares of Common Stock for which the Option is then
exercisable, divided by (ii) the Average Price; PROVIDED, HOWEVER, that solely
for purposes of this Section 9, if the Phantom Stock Payment has not been paid
pursuant to Section 4 hereof, the number of shares of Common Stock for which the
Option is then exercisable shall equal 19.9% of the Issuer's issued and
outstanding shares of Common Stock less the number of shares previously issued
pursuant to the Option and the Grantee shall not otherwise be entitled to the
Phantom Stock Payment provided by Section 4 hereof. The exercise price of the
Substitute Option per share of the Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction in which the numerator is
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the number of Option Shares, as adjusted pursuant to this Section 8(d), and the
denominator is the number of shares of the Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option (without giving effect to any shares of Substitute Common
Stock issued pursuant to the Substitute Option) less the number of shares
previously issued pursuant to the Substitute Option. In the event that the
Substitute Option would be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this paragraph
(e), the issuer of the Substitute Option (the "SUBSTITUTE OPTION ISSUER") shall
make a cash payment to the Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this paragraph (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this paragraph (e). The difference in value shall be determined by
a nationally recognized investment banking firm selected by a majority in
interest of the Holders or the Owners, as the case may be.
(f) The Issuer shall not enter into any transaction described in paragraph
(a) of this Section 9 unless the Acquiring Corporation and any Person that
controls the Acquiring Corporation shall have assumed in writing all the
obligations of the Issuer hereunder.
10. (a) At the written request of the holder of the Substitute Option (the
"SUBSTITUTE OPTION HOLDER"), and subject to paragraph (c) below, the issuer of
the Substitute Option (the "SUBSTITUTE OPTION ISSUER") shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "SUBSTITUTE
OPTION REPURCHASE PRICE") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of the Substitute Common Stock for
which the Substitute Option may then be exercised, and at the request of each
owner (the "SUBSTITUTE SHARE OWNER") of shares of the Substitute Common Stock
(the "SUBSTITUTE SHARES"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price per share (the "SUBSTITUTE SHARE REPURCHASE PRICE")
equal to the greater of (A) the Highest Closing Price and (B) the average
exercise price per share paid by the Substitute Share Owner for the Substitute
Shares so designated. The term "HIGHEST CLOSING PRICE" shall mean the highest
closing price for shares of the Substitute Common Stock within the six (6) month
period immediately preceding the date the Substitute Option Holder gives notice
of the required repurchase of the Substitute Option or the Substitute Share
Owner gives notice of the required repurchase of the Substitute Shares, as
applicable.
(b) Each Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that such
Substitute Option Holder or Substitute Share Owner elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 10. As
promptly as practicable, and in any event within five (5) business days after
the surrender of the Substitute Option and/or the certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor, or the
portion(s) thereof which the Substitute Option Issuer is not then prohibited
under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, or
as a result of a written agreement or other binding obligation with a
governmental or regulatory body or agency, from repurchasing the Substitute
Option and/or the Substitute Shares in full, the Substitute Option Issuer shall
immediately so notify each Substitute Option
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Holder and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or Substitute
Share Owner, as appropriate, that portion of the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five (5) business days after the date
on which the Substitute Option Issuer is no longer so prohibited, PROVIDED,
HOWEVER, that if the Substitute Option Issuer is, at any time after delivery of
a notice of repurchase pursuant to paragraph (b) of this Section 10 prohibited
under applicable law or regulation, or as a consequence of administrative
policy, or as a result of a written agreement or other binding obligation with a
governmental or regulatory body or agency, from delivering to the Substitute
Option Holder and/or the Substitute Share Owner, as appropriate, the Substitute
Option Repurchase Price and the Substitute Share Repurchase Price, respectively,
in part or in full (and the Substitute Option Issuer shall use its best efforts
to receive all required regulatory and legal approvals as promptly as
practicable in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price LESS the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing.
11. The thirty (30) day period for exercise of certain rights under Sections
2, 7, 8 and 13 hereof shall be extended in each such case: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights and
for the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the Exchange Act by reason
of such exercise, PROVIDED that notice of intent to exercise such rights shall
be given to the Issuer within the requisite thirty (30) day period and the
Grantee and the Holders shall use their best efforts to promptly obtain all
requisite approvals and cause the expiration of all requisite waiting periods.
12. The Issuer hereby represents and warrants to the Grantee as follows:
(a) The Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of the Issuer and no other corporate proceedings on the part
of the Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by the Issuer. This Agreement is the valid and legally binding
obligation of the Issuer, enforceable against the Issuer in accordance with its
respective terms, except that enforcement thereof may be limited by the
receivership, conservatorship and supervisory powers of bank regulatory agencies
generally as well as bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting enforcement of creditors rights generally and except that
enforcement thereof may be subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law) and
the availability of equitable remedies.
(b) The Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized,
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validly issued, fully paid, nonassessable, and will be delivered free and clear
of all claims, liens, encumbrances and security interests and not subject to any
preemptive rights.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other Person, whether by operation of law or otherwise, without the express
written consent of the other party, except that (a) the Grantee shall, at any
time, be permitted to assign its rights under this Option Agreement or the
Option created hereunder to any Affiliate (as defined in the Acquisition
Agreement) of the Grantee and (b) in the event a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event, the Grantee may,
subject to the right of first refusal set forth in Section 14, assign, transfer
or sell in whole or in part its rights and obligations hereunder within thirty
(30) days following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that in the event the Grantee sells,
assigns or transfers all or a portion of the Option to other Holders as
permitted by this Agreement, the Grantee may exercise its rights hereunder on
behalf of itself and such Holders.
14. If at any time after the occurrence of a Subsequent Triggering Event
and, with respect to shares of Common Stock or other securities acquired by the
Grantee pursuant to an exercise of the Option, prior to the expiration of
twenty-four (24) months after the date on which the Option would have terminated
but for its exercise pursuant to Section 2(b), the Grantee shall desire to sell,
assign, transfer or otherwise dispose of the Option, in whole or in part, or all
or any of the shares of Common Stock or other securities acquired by the Grantee
pursuant to the Option, the Grantee shall give the Issuer written notice of the
proposed transaction (an "OFFEROR'S NOTICE"), identifying the proposed
transferee, accompanied by a copy of a binding offer to purchase the Option or
such shares or other securities signed by such transferee and setting forth the
terms of the proposed transaction. An Offeror's Notice shall be deemed an offer
by the Grantee to the Issuer, which may be accepted within ten (10) business
days of the receipt of such Offeror's Notice, on the same terms and conditions
and at the same price at which the Grantee is proposing to transfer the Option
or such shares or other securities to such transferee. The purchase of the
Option or such shares or other securities by the Issuer shall be settled within
five (5) business days of the date of the acceptance of the offer and the
purchase price shall be paid to the Grantee in immediately available funds,
PROVIDED that, if prior notification to or approval, consent or waiver of the
Federal Reserve Board or any other regulatory authority is required in
connection with such purchase, the Issuer shall promptly file the required
notice or application for approval, consent or waiver and shall expeditiously
process the same (and the Grantee shall cooperate with the Issuer in the filing
of any such notice or application and the obtaining of any such approval) and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be, (a) the required
notification period has expired or been terminated or (b) such approval has been
obtained and, in either event, any requisite waiting period shall have passed.
In the event of the failure or refusal of the Issuer to purchase the Option or
the shares or other securities, as the case may be, covered by an Offeror's
Notice or if the Federal Reserve Board or any other regulatory authority
disapproves the Issuer's proposed purchase of the Option or such shares or other
securities, the Grantee may, within sixty (60) days following the date of the
Offeror's Notice (subject to any necessary extension for regulatory
notification, approval, or waiting periods), sell all, but not less than all, of
the portion of the Option (which may be one hundred percent (100%)) or such
shares or other securities, as the case may be, proposed to be transferred to
the proposed transferee identified in the Offeror's Notice at no less than the
price specified and on terms no more favorable to the proposed transferee than
those set forth in the Offeror's Notice. The requirements of this Section 14
shall not apply to (i) any disposition of the Option or any shares of Common
Stock or other securities by a Person to whom the Grantee has assigned its
rights under the Option with the prior written consent of the Issuer, (ii) any
sale by means of a public offering in which steps are taken to reasonably ensure
that no purchaser will acquire securities representing more than five percent
(5%) of the outstanding shares of Common Stock of the Issuer or (iii) any
transfer to a direct or indirect wholly-owned subsidiary of the Grantee which
agrees in writing to be bound by the terms hereof.
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<PAGE>
15. Each of the Grantee and the Issuer will use all reasonable efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation applying to the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended,
for approval to acquire the shares issuable hereunder or to make the Phantom
Stock Payment provided for herein.
16. Notwithstanding anything to the contrary herein, in the event that the
Holder or the Owner or any Related Person thereof (as hereinafter defined) is a
Person making an offer or proposal to engage in an Acquisition Transaction
(other than the transaction contemplated by the Acquisition Agreement), then (a)
in the case of a Holder or any Related Person thereof, the Option held by it
shall immediately terminate and be of no further force or effect, and the
obligation of the Issuer to make the Phantom Stock Payment shall cease, and (b)
in the case of an Owner or any Related Person thereof, the Option Shares held by
it shall be immediately repurchasable by the Issuer at the Option Price. For
purposes of this Agreement, a "RELATED PERSON" of a Holder or Owner means any
Affiliate (as defined in Rule 12b-2 of the rules and regulations under the
Exchange Act) of the Holder or the Owner and any Person that is required to file
a Schedule 13D with the Holder or the Owner with respect to shares of Common
Stock or options to acquire the Common Stock.
17. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
18. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or the Issuer is not permitted to
repurchase pursuant to Section 8, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Sections 1(b) or 6(a)
hereof), or the Issuer is not permitted to pay the Phantom Stock Payment
pursuant to Section 4 hereof, it is the express intention of the Issuer to allow
the Holder to acquire or to require the Issuer to repurchase such lesser number
of shares and to pay such lesser amount of the Phantom Stock Payment as may be
permissible, without any amendment or modification hereof.
19. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in Person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Acquisition Agreement.
20. This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
21. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
22. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
23. Except as otherwise expressly provided herein, this Agreement contains
the entire agreement between the parties with respect to the transactions
contemplated hereunder and supersedes all prior arrangements or understandings
with respect thereof, written or oral. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective
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successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any party, other than the parties hereto, and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
24. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Acquisition Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed as a sealed instrument on its behalf by its officers
thereunder duly authorized, all as of the day and year first above written.
<TABLE>
<S> <C> <C>
SOMERSET SAVINGS BANK
By: /s/ THOMAS J. KELLY
-----------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
UST CORP.
By: /s/ NEAL F. FINNEGAN
-----------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
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APPENDIX C
December 9, 1997
UST Corp.
40 Court Street
Boston, MA 02109
Attention: Neal F. Finnegan, President and Chief Executive Officer
Ladies and Gentlemen:
The undersigned (the "STOCKHOLDER") beneficially owns and has sole voting
power with respect to the number of shares of the common stock, par value $1.00
per share (the "SHARES"), of Somerset Savings Bank, a Massachusetts stock
savings bank (the "Seller"), indicated opposite the Stockholder's name on
Schedule 1 attached hereto.
Immediately prior to the execution of this letter agreement, UST Corp. (the
"Buyer") and the Seller are entering into an Affiliation Agreement and Plan of
Reorganization (as amended and in effect from time to time, the "ACQUISITION
AGREEMENT") providing, among other things, for the direct or indirect
acquisition of the Seller by the Buyer (the "ACQUISITION"). The undersigned
understands that Buyer has undertaken and will continue to undertake substantial
expenses in connection with the negotiation and execution of the Acquisition
Agreement and the subsequent actions necessary to consummate the transactions
contemplated by the Acquisition Agreement.
In consideration of, and as a condition to, the Buyer's entering into the
Acquisition Agreement, and in consideration of the expenses incurred and to be
incurred by the Buyer in connection therewith, the Stockholder and the Buyer
agree as follows:
1. The Stockholder, while this letter agreement is in effect, shall vote or
cause to be voted all of the Shares, as well as any other shares of common stock
of the Seller of which the Stockholder acquires beneficial ownership and sole
voting power, whether pursuant to the exercise of stock options or otherwise, as
long as such shares are owned by the Stockholder as of the record date for the
special meeting of the Seller's stockholders to be called and held following the
date hereof, for the approval of the Acquisition Agreement and the Acquisition
and shall vote or cause to be voted all such shares, at such special meeting or
any other meeting of the Seller's stockholders following the date hereof,
against the approval of any other agreement providing for a merger, acquisition
consolidation, sale of a material amount of assets or other business combination
of the Seller or any of its subsidiaries with any person or entity other than
the Buyer, or any subsidiary of the Buyer.
2. The Stockholder will not sell, assign, transfer or otherwise dispose of
(including, without limitation, by the creation of a Lien (as defined in
paragraph 5 below)), or permit to be sold, assigned, transferred or otherwise
disposed of, any Shares owned by the Stockholder, whether such Shares are held
by the Stockholder on the date of this letter agreement or are subsequently
acquired, whether pursuant to the exercise of stock options or otherwise, except
(a) transfers by will or by operation of law (in which case this letter
agreement shall bind the transferee), (b) transfers pursuant to any pledge
agreement (subject to the pledgee agreeing in writing to be bound by the terms
of this letter agreement), (c) transfers in connection with estate planning
purposes, including transfers to relatives, trusts and charitable organizations,
subject to the transferee agreeing in writing to be bound by the terms of this
letter agreement, and (d) as the Buyer may otherwise agree in its sole
discretion. The Buyer may reasonably request, at its sole expense to have any
existing certificates representing Shares subject to this letter agreement
canceled and reissued bearing the following legend:
"THIS CERTIFICATE, AND THE SHARES REPRESENTED HEREBY, ARE SUBJECT TO
CERTAIN VOTING AND TRANSFER RESTRICTIONS CONTAINED IN A VOTING AGREEMENT BY
AND BETWEEN BUYER AND THE BENEFICIAL OWNER OF THESE SHARES
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AND MAY BE TRANSFERRED ONLY IN COMPLIANCE THEREWITH. COPIES OF THE
ABOVE-REFERENCED AGREEMENT ARE ON FILE AT THE OFFICES OF THE SELLER."
3. The agreements contained herein are intended to relate to restrictions on
transferability and to continue only for such time as may reasonably be
necessary to obtain all necessary approvals, including shareholder approval and
all necessary governmental approvals, of the Acquisition and all other
transactions contemplated by the Acquisition Agreement.
4. The Stockholder agrees that, so long as the Acquisition Agreement has not
been terminated in accordance with terms thereof, the Stockholder shall, and
shall instruct each of his representatives, agents, advisors, Associates (as
defined in the Acquisition Agreement) and Affiliates (as defined in the
Acquisition Agreement) to, cease and refrain from any activities, discussions,
negotiations, providing any information with respect to, or other actions with
any parties other than the Buyer with respect to any Acquisition Transaction (as
defined in the Acquisition Agreement), except to the extent that the Seller
would be permitted to engage in such activities, discussions, negotiations,
providing any information with respect to, or other actions pursuant to Section
5.04 of the Acquisition Agreement.
5. The Stockholder represents that the Stockholder has the complete and
unrestricted power and the unqualified right to enter into and perform the terms
of this letter agreement. The Stockholder further represents that this letter
agreement (assuming this letter agreement constitutes a valid and binding
agreement of the Buyer) constitutes a valid and binding agreement with respect
to the Stockholder, enforceable against the Stockholder in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
Except as may be set forth in SCHEDULE 1, the Stockholder represents that the
Stockholder beneficially owns the number of Shares indicated opposite such
Stockholder's name on said SCHEDULE 1, free and clear of any liens, claims,
charges or other encumbrances or restrictions of any kind whatsoever, other than
pursuant to the Securities Act of 1933, as amended or the Securities Exchange
Act of 1934, as amended ("LIENS"), and has sole and otherwise unrestricted,
voting power with respect to such Shares.
6. Notwithstanding anything herein to the contrary, the agreements contained
herein shall remain in full force and effect until the earlier of (a) the
consummation of the Acquisition or (b) the termination of the Acquisition
Agreement in accordance with Article VIII thereof.
7. The Stockholder has signed this letter agreement intending to be bound
thereby. The Stockholder expressly agrees that this letter agreement shall be
specifically enforceable in any court of competent jurisdiction in accordance
with its terms against the Stockholder. All of the covenants and agreements
contained in this letter agreement shall be binding upon, and inure to the
benefit of, the respective parties and their permitted successors, assigns,
heirs, executors, administrators and other legal representatives, as the case
may be.
8. This letter agreement may be executed in one or more counterparts, each
of which will be deemed an original but all of which together shall constitute
one and the same instrument.
9. No waivers of any breach of this letter agreement extended by the Buyer
to the Stockholder shall be construed as a waiver of any rights or remedies of
the Buyer with respect to any subsequent breach of the Stockholder hereunder.
10. This letter agreement is deemed to be signed as a sealed instrument and
is to be governed by the laws of The Commonwealth of Massachusetts, without
giving effect to the principles of conflicts of laws thereof. If any provision
hereof is deemed unenforceable, the enforceability of the other provisions
hereof shall not be affected.
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If the foregoing accurately reflects your understanding of the subject
matter intended to be contained herein, please confirm our agreement by signing
this letter where indicated below.
Very truly yours,
--------------------------------------
AGREED TO AND ACCEPTED BY AS
OF THE DATE FIRST ABOVE WRITTEN
UST CORP.
By: /s/ ERIC R. FISCHER
- ---------------------------------------------
Name: Eric R. Fischer
Title: Executive Vice President, General Counsel and Clerk
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<PAGE>
APPENDIX D
[LEGG MASON LETTERHEAD]
December 9, 1997
Board of Directors
Somerset Savings Bank
212 Elm Street
Somerville, Massachusetts 02144
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of Common Stock (the "Somerset
Common Stock") of Somerset Savings Bank ("Somerset") of the exchange ratio of
0.19 shares of Common Stock (the "UST Common Stock") of UST Corp. ("UST") to be
received for each share of Somerset Common Stock (the "Exchange Ratio") pursuant
to the Affiliation Agreement and Plan of Reorganization dated as of December 9,
1997 between UST and Somerset (the "Agreement"), whereby Somerset will be merged
with and into UST (the "Merger").
Legg Mason Wood Walker, Incorporated ("Legg Mason"), as part of its
investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, and private placements. Legg Mason is familiar
with Somerset, having served as managing underwriter and financial advisor in
connection with a rights/public offering conducted by Somerset in 1993. In the
ordinary course of its securities business, Legg Mason makes a market in
Somerset Common Stock and trades such security for the accounts of its
customers, and therefore may from time to time hold a long or short position in
such security. Legg Mason also follows Somerset from a research prospective.
Legg Mason has served as financial advisor to Somerset in connection with
the Merger and will receive a fee for its services, a portion of which is
contingent upon the consummation of the Merger.
In arriving at its opinion, Legg Mason (i) reviewed the Agreement, certain
publicly available business and financial information for Somerset and UST, and
certain other financial statements, data, reports and analyses for Somerset and
UST prepared by the managements of Somerset and UST, including financial
forecasts; (ii) discussed the current operations, financial condition and
prospects of Somerset and UST with the managements of Somerset and UST; (iii)
reviewed the reported market prices and historical trading activity of Somerset
Common Stock and UST Common Stock; (iv) compared certain financial and stock
market information for Somerset and UST with similar information for certain
other financial institutions, the securities of which are publicly-traded; (v)
reviewed the financial terms of certain recent business combinations involving
financial institutions that Legg Mason deemed comparable; and (vi) performed
such other studies and analyses as Legg Mason considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed, with your consent, that the financial forecasts have been reasonably
prepared on a basis reflecting the best currently available judgments and
estimates of Somerset and UST and that such forecasts will be realized in the
amounts and at the times contemplated thereby. We are not
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<PAGE>
Board of Directors
Somerset Savings Bank
December 9, 1997
Page 2
experts in the evaluation of loan or lease portfolios for purposes of assessing
the adequacy of the allowances for losses with respect thereto and have assumed,
with your consent, that such allowances for each of Somerset and UST are in the
aggregate adequate to cover all such losses. In addition, we have not reviewed
individual credit files nor have we made an independent evaluation or appraisal
of the assets and liabilities of Somerset or UST or any of their respective
subsidiaries and we have not been furnished with any such evaluation or
appraisal.
The opinion expressed herein is provided for the use of the Board of
Directors of Somerset in its evaluation of the proposed Merger and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the stockholders' meeting to be held in connection
with the transaction contemplated by the Agreement. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Legg Mason be made, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the Exchange Ratio pursuant to the Agreement is fair, from a
financial point of view, to the holders of Somerset Common Stock.
Very truly yours,
Legg Mason Wood Walker, Incorporated
--------------------------------------
LEGG MASON WOOD WALKER, INCORPORATED
D-2
<PAGE>
APPENDIX E
TEXT OF SECTIONS 85 TO 98 OF CHAPTER 156B OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
SECTION 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
SECTION 86. SELECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SECTION 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the corporation (OR, IN THE CASE OF A CONSOLIDATION OR MERGER, THE NAME
OF THE RESULTING OR SURVIVING CORPORATION SHALL BE INSERTED), within twenty
days after the date of mailing to him of notice in writing that the
corporate action has become effective, payment for his shares and an
appraisal of the value thereof. Such corporation and any such stockholder
shall in such cases have the rights and duties and shall follow the
procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
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<PAGE>
SECTION 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
SECTION 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the corporation was required to give such
notice shall demand in writing from the corporation taking such action, or in
the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon which such demand is
made shall pay to him the fair value of his stock within thirty days after the
expiration of the period during which such demand may be made.
SECTION 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SECTION 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in behalf
of all other stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SECTION 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to
E-2
<PAGE>
the stockholders entitled thereto upon the transfer by them to the corporation
of the certificates representing such stock if certificated or, if
uncertificated, upon receipt of an instruction transferring such stock to the
corporation. For this purpose, the value of the shares shall be determined as of
the day preceding the date of the vote approving the proposed corporate action
and shall be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
SECTION 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SECTION 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SECTION 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
SECTION 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
E-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the Massachusetts General Laws authorizes a
corporation to indemnify any director, officer, employee or other agent of the
corporation to whatever extent specified in or authorized by (a) the articles of
organization, (b) a by-law adopted by the stockholders or (c) a vote adopted by
the holders of a majority of the shares of stock entitled to vote on the
election of directors.
The Registrant's Articles of Organization provide that the Registrant shall,
to the fullest extent legally permissible, indemnify each person who is or was a
director, officer, employee or other agent of the Registrant and each person who
is or was serving at the request of the Registrant as such of another
corporation or of any partnership, joint venture, trust, employee benefit plan
or other enterprise or organization, against all liabilities, costs and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in settlement or as fines and penalties, and counsel fees and
disbursements, reasonably incurred by him or her in connection with the defense
or disposition of or otherwise in connection with or resulting from any action,
suit or other proceeding, whether civil, criminal, administrative or
investigative, before any court or administrative or legislative or
investigative body, in which he or she may be or may have been involved as a
party or otherwise or with which he or she may be or may have been threatened,
while in office or thereafter, by reason of his or her being or having been such
a director, officer, employee, agent or trustee, or by reason of any action
taken or not taken in any such capacity. Under Massachusetts law and the
Articles, no indemnification may be provided for any person with respect to any
matter as to which he or she shall have been adjudicated in any proceeding not
to have acted in good faith in the reasonable belief that his or her action was
in the best interest of the Registrant or other entity served or, to the extent
that such matter relates to service with respect to an employee benefit plan, in
the best interest of the participants or beneficiaries of such employee benefit
plan.
If, in an action, suit or proceeding brought by or in the name of the
Registrant, a director of the Registrant is held not liable for monetary
damages, whether because that director is relieved of personal liability under
the provisions of the Articles of Organization, or otherwise, that director
shall be deemed to have met the standard of conduct set forth above and to be
entitled to indemnification for expenses reasonably incurred in the defense of
such action, suit or proceeding.
As to any matter disposed of by settlement pursuant to a consent decree or
otherwise, no indemnification either for the amount of such settlement or for
any other expenses shall be provided unless such settlement shall be approved as
in the best interests of the Registrant, after notice that it involves such
indemnification, (a) by vote of a majority of the disinterested directors then
in office (even though the disinterested directors be less than a quorum), (b)
by any disinterested person or persons to whom the question may be referred by
vote of a majority of such disinterested directors, or (c) by vote of the
holders of a majority of the outstanding stock at the time entitled to vote for
directors, voting as a single class, exclusive of any stock owned by any
interested person, or (d) by any disinterested person or persons to whom the
question may be referred by vote of the holders or a majority of such stock. No
such approval shall prevent the recovery from any such officer, director,
employee, agent or trustee of any amounts paid to him or her or on his or her
behalf as indemnification in accordance with the preceding sentence if such
person is subsequently adjudicated by a court of competent jurisdiction not to
have acted in good faith in the reasonable belief that his or her action was in
the best interests of the Registrant.
The right of indemnification provided in the Registrant's Articles of
Organization shall not be exclusive of or affect any other rights to which any
director, officer, employee, agent or trustee may be entitled or which may
lawfully be granted to him or her. Indemnification of a "director", "officer",
"employee", "agent", and "trustee" includes their respective executors,
administrators and other legal
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<PAGE>
representatives. An "interested" person is one against whom the action, suit or
other proceeding in question or another action, suit or other proceeding on the
same or similar grounds is then or had been pending or threatened, and a
"disinterested" person is a person against whom no such action, suit or other
proceeding is then or had been pending or threatened.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) The following is a list of exhibits to this Registration Statement:
<TABLE>
<S> <C> <C>
(2)(a) -- Affiliation Agreement and Plan of Reorganization, dated as of December 9, 1997,
by and between UST and Somerset (included as APPENDIX A to the Proxy
Statement--Prospectus).
(2)(b) -- Stock Option Agreement, dated as of December 9, 1997, by and between UST and
Somerset (included as APPENDIX B to the Proxy Statement--Prospectus).
(2)(c) -- Form of Voting Agreement, dated as of December 9, 1997, executed by the
directors and certain executive officers of Somerset and UST (included as
APPENDIX C to the Proxy Statement--Prospectus).
(3)(a) -- Amended and Restated Articles of Organization of UST, incorporated herein by
reference to Exhibit 3(a) to UST's Annual Report on Form 10-K for the year ended
December 31, 1996.
(3)(b) -- By-Laws of UST, as amended to date, incorporated herein by reference to Exhibit
3(b) to UST's Annual Report on Form 10-K for the year ended December 31, 1996.
(4) -- Rights Agreement, dated as of September 19, 1995, between UST and United States
Trust Company, as Rights Agent, and the description of the Rights, incorporated
herein by reference to UST's Registration Statement on Form 8-A relating to the
Rights and to Exhibit 1 of such Registration Statement.
(5) -- Opinion of Eric R. Fischer, Esq.
(8)(a) -- Form of Opinion of Bingham Dana LLP as to certain tax matters.
(8)(b) -- Form of Opinion of Nutter, McClennen & Fish, LLP as to certain tax matters.
(21) -- Subsidiaries of UST.
(23)(a) -- Consent of Arthur Andersen LLP, Independent Auditors of UST Corp.
(23)(b) -- Consent of Wolf & Company, P.C., Independent Auditors of Somerset Savings Bank.
(23)(c) -- Consent of Arthur Andersen LLP, Independent Auditors of Firestone Financial
Corp.
(23)(d) -- Consent of Arthur Andersen LLP, Independent Auditors of Affiliated Community
Bancorp, Inc.
(23)(e) -- Consent of KPMG Peat Marwick LLP, Independent Auditors of The Federal Savings
Bank and Main Street Community Bancorp, Inc.
(23)(f) -- Consent of Eric R. Fischer, Esq. (included in Exhibit 5).
(23)(g) -- Consent of Bingham Dana LLP.
(23)(h) -- Consent of Nutter, McClennen & Fish, LLP.
(23)(i) -- Consent of Legg Mason Wood Walker, Incorporated.
(24) -- Power of Attorney of certain officers and directors (included on pages II-5 and
II-6).
(99)(a) -- Form of Proxy for Special Meeting of Stockholders of Somerset.
(99)(b) -- Text of Sections 85 to 98 of the Massachusetts Business Corporations Law
(included as APPENDIX E to the Proxy Statement - Prospectus).
</TABLE>
(b) Financial Statements Schedules:
Not Applicable.
(c) Fairness Opinions:
Included in Part I as APPENDIX D to the Proxy Statement--Prospectus
included in this Registration Statement.
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<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes: (1) To file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering rate
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent not more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or nay
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act 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.
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
Registrant 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.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities 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 the purposes of determining any liability
under the Securities Act, 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.
Insofar as indemnification for liabilities arising under the Securities Act
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 Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
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<PAGE>
indemnification against such liabilities (other that the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy Statement
- -Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form S-4, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and The Commonwealth of Massachusetts as of
January 20, 1998.
<TABLE>
<S> <C> <C>
UST CORP.
By /s/ ERIC R. FISCHER
-----------------------------------------
Eric R. Fischer
(EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND CLERK)
</TABLE>
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. By so signing, each of the undersigned,
in his or her capacity as a director or officer, or both, as the case may be, of
the Registrant, does hereby appoint Neal F. Finnegan, James K. Hunt and Eric R.
Fischer, and each of them severally, or if more than one acts, a majority of
them, his or her true and lawful attorneys or attorney to execute in his or her
name, place and stead, in his or her capacity as a director or officer or both,
as the case may be, of the Registrant, the Registration Statement on Form S-4
and with respect to the shares of UST Common Stock issued in connection with
this offering and any and all amendments to said Registration Statement and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission. Each of said attorneys shall
have full power and authority to do and perform in the name and on behalf of
each of the undersigned, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises as fully and to all intents
and purposes as each of the undersigned might or could do in person, hereby
ratifying and approving the acts of said attorneys and each of them.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Chief
/s/ NEAL F. FINNEGAN Executive Officer
- ------------------------------ (Principal Executive January 20, 1998
(Neal F. Finnegan) Officer) and Director
Executive Vice President,
Chief Financial Officer
/s/ JAMES K. HUNT and Treasurer (Principal
- ------------------------------ Financial Officer and January 20, 1998
(James K. Hunt) Principal Accounting
Officer)
/s/ CHESTER G. ATKINS
- ------------------------------ Director January 20, 1998
(Chester G. Atkins)
/s/ DAVID E. BRADBURY
- ------------------------------ Director January 20, 1998
(David E. Bradbury)
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROBERT M. COARD
- ------------------------------ Director January 20, 1998
(Robert M. Coard)
<C> <S> <C>
/s/ DOMENIC COLASACCO
- ------------------------------ Director January 20, 1998
(Domenic Colasacco)
/s/ ROBERT L. CULVER
- ------------------------------ Director January 20, 1998
(Robert L. Culver)
/s/ ALAN K. DERKAZARIAN
- ------------------------------ Director January 20, 1998
(Alan K. DerKazarian)
/s/ DONALD C. DOLBEN
- ------------------------------ Director January 20, 1998
(Donald C. Dolben)
/s/ EDWARD GUZOVSKY
- ------------------------------ Director January 20, 1998
(Edward Guzovsky)
/s/ WALLACE M. HASELTON
- ------------------------------ Director January 20, 1998
(Wallace M. Haselton)
/s/ BRIAN W. HOTAREK
- ------------------------------ Director January 20, 1998
(Brian W. Hotarek)
/s/ FRANCIS X. MESSINA
- ------------------------------ Director January 20, 1998
(Francis X. Messina)
/s/ MICHAEL A. MILLER
- ------------------------------ Director January 20, 1998
(Michael A. Miller)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ SYDNEY L. MILLER
- ------------------------------ Director January 20, 1998
(Sydney L. Miller)
<C> <S> <C>
/s/ VIKKI L. PRYOR
- ------------------------------ Director January 20, 1998
(Vikki L. Pryor)
/s/ GERALD M. RIDGE
- ------------------------------ Director January 20, 1998
(Gerald M. Ridge)
/s/ WILLIAM SCHWARTZ
- ------------------------------ Director January 20, 1998
(William Schwartz)
/s/ BARBARA C. SIDELL
- ------------------------------ Director January 20, 1998
(Barbara C. Sidell)
/s/ JAMES V. SIDELL
- ------------------------------ Director January 20, 1998
(James V. Sidell)
/s/ PAUL D. SLATER
- ------------------------------ Director January 20, 1998
(Paul D. Slater)
/s/ EDWARD J. SULLIVAN
- ------------------------------ Director January 20, 1998
(Edward J. Sullivan)
/s/ G. ROBERT TOD
- ------------------------------ Director January 20, 1998
(G. Robert Tod)
/s/ MICHAEL J. VERROCHI
- ------------------------------ Director January 20, 1998
(Michael J. Verrochi, Jr.)
/s/ GORDON M. WEINER
- ------------------------------ Director January 20, 1998
(Gordon M. Weiner)
</TABLE>
II-7
<PAGE>
February 6, 1998
UST Corp.
40 Court Street
Boston, Massachusetts 02108
Re: UST CORP. REGISTRATION STATEMENT ON FORM S-4
RELATING TO 3,300,000 SHARES OF COMMON STOCK
Ladies and Gentlemen:
This opinion is rendered to you in connection with the filing by UST
Corp., a Massachusetts corporation (the "Corporation") of its Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission, relating to the registration under the Securities Act of
1933 of 3,300,000 shares (the "Shares") of the Corporation's Common Stock,
par value $0.625 per share (the "Common Stock"), filed with Securities and
Exchange Commission on February 6, 1998, all of which Shares are to be
issued to shareholders of Somerset Savings Bank ("Somerset"), in connection
with the Corporation's acquisition of Somerset, pursuant to the terms of an
Affiliation Agreement and Plan of Reorganization, dated as of December 9,
1997 (the "Agreement"), among the Corporation and Somerset, and joined in by
the Corporation's wholly-owned subsidiary, Mosaic Corp. on January 9, 1998.
In rendering this opinion as General Counsel of the Corporation, I and
an attorney in my office acting under my direction have participated with the
Corporation and its officers in the preparation, review and filing of the
Registration Statement and the related proxy statement-prospectus (the "Proxy
Statement-Prospectus") included therein, have examined other corporate
documents and records, have made such examination of law, and have discussed
with the officers and directors of the Corporation and its subsidiaries such
questions of fact as we have deemed necessary or appropriate. We have also
relied upon certificates and statements of such officers and directors as to
factual matters and have assumed the genuineness of all signatures not known
to us as well as the authenticity of all documents submitted to us as copies.
<PAGE>
Subject to the foregoing and to the proposed additional proceedings
being taken as now contemplated prior to the issuance of the Shares, it is my
opinion that the Common Stock has been duly authorized and, upon the issuance
thereof in accordance with the Agreement, will be validly issued, fully paid
and non-assessable.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of my name in the Registration
Statement and the related Proxy Statement-Prospectus.
Very truly yours,
/s/ Eric R. Fischer
Eric R. Fischer,
Executive Vice President,
General Counsel and Clerk
<PAGE>
BD LLP DRAFT OF
FEBRUARY 5, 1998
EXHIBIT __.__
BD LLP FORM OF OPINION
ANTICIPATED TO BE DELIVERED
AT CLOSING IN THE EVENT IRS
RULING IS NOT TIMELY RECEIVED
____________________, 1998
UST Corp.
40 Court Street
Boston, Massachusetts 02108
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 6.02(e) of the
Affiliation Agreement and Plan of Reorganization dated as of December 9, 1997
(the "Agreement") among UST Corp., a Massachusetts corporation and and Somerset
Savings Bank, a Massachusetts-charter stock savings bank ("Somerset") and
ratified by Mosaic Corp., a Massachusetts corporation and wholly owned
subsidiary of UST Corp. on January 9, 1998. Pursuant to the Agreement, Somerset
will merge with and into USTrust, a Massachusetts bank and trust company and
wholly owned subsidiary of Mosaic Corp. in a transaction (the "Merger") in which
the existing stockholders of Somerset, other than dissenting stockholders, will
receive common stock of UST Corp. in exchange for their issued and outstanding
shares of common stock of Somerset.
At your request we prepared and on January 12, 1998 submitted to the
Internal Revenue Service a request (the "Ruling Request") that it rule on
certain federal income tax consequences of the Merger and the implementation of
the Agreement. To the date hereof, the Internal Revenue Service has not ruled on
the Ruling Request, nor commented adversely on the likelihood of it ultimately
ruling favorably on the Ruling Request. Accordingly, you have requested our
opinion as to certain federal income tax consequences addressed in the Ruling
Request and anticipated to follow from implementation of the Agreement.
For purposes of our opinion, we have examined and relied upon the originals
or copies, certified or otherwise identified to us to our satisfaction, of the
Agreement, the Ruling Request, the Notice of Special Meeting of Stockholders of
Somerset and Proxy Statement-Prospectus dated , 1998, included in the
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission by UST Corp. on January , 1998 (Registration No. ) and
related documents (collectively, the "Documents"). In that examination, we have
assumed the genuineness of all signatures, the authenticity and completeness of
all documents purporting to be originals (whether reviewed by us in original or
copy form) and the conformity to the originals of all documents purporting to be
copies.
<PAGE>
As to certain factual matters, we have relied with your consent upon, and
our opinion is limited by, the representations of the various parties set forth
in the Documents and on the Certificates from UST Corp., Mosaic Corp., USTrust
and Somerset dated on or about the date hereof copies of which are attached
hereto. Our opinion assumes that all representations set forth in the Documents
and in such Certificates are true and correct in all material aspects as of the
date hereof. In addition, our opinion is limited solely to the provisions of the
federal Internal Revenue Code as now in effect (the "Code"), and the
regulations, rulings, and interpretations thereof in force as of this date and
we assume no obligation to advise you of changes in the law or fact that occur
after the date of this opinion.
On the basis of and subject to the foregoing, and assuming due adoption and
implementation of the Agreement in accordance with its terms and consistent with
the representations set out in the Documents and Certificates, we are of the
opinion that for federal income tax purposes, the the Merger should be treated
as an acquisition by Mosaic Corp. of substantially all of the assets of Somerset
solely in exchange for the common stock of UST Corp. and the assumption of
Somerset's liabilities, followed by the transfer of such assets, subject to such
liabilities, to USTrust, which acquisition of assets will constitute a
reorganization under Section 368(a) of the Code.
This opinion is being delivered solely to you for your use in connection
with the referenced transaction and such other uses to which we have given our
prior written consent. It may not be relied upon by any other person or used for
any other purpose.
Very truly yours,
BINGHAM DANA LLP
<PAGE>
[Anticipated to be issued in the event an IRS letter ruling is not timely
received]
Exhibit 8B
----
[Letterhead of Nutter, McClennen & Fish, LLP]
---------- --, 1998
Somerset Savings Bank
212 Elm Street
Somerville, MA 02144
Re: UST Corp. Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the above-referenced registration statement (the
"Registration Statement") regarding the proposed merger (the "Transaction") of
Somerset Savings Bank, a Massachusetts-chartered stock savings back ("Somerset")
into USTrust, a Massachusetts-charted bank and trust company ("USTrust"),
pursuant to the Affiliation Agreement and Plan of Reorganization, dated as of
December 9, 1997 by and between Somerset and UST Corp. ("UST"), and joined in
and ratified by Mosaic Corp., a wholly-owned subsidiary of UST ("Mosaic"), on
January 9, 1998 (the "Affiliation Agreement"), you have requested our opinion
regarding certain federal income tax matters related to the parties to the
Transaction. Capitalized terms used in this letter and not otherwise defined
herein have the meaning assigned to such terms in the Registration Statement or
the Affiliation Agreement.
The opinion set forth in this letter is based on relevant provision of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
thereunder (including proposed and temporary Treasury Regulations) and
interpretations of the foregoing as expressed in court decisions, administrative
determinations, and the legislative history as of the date hereof. These
provisions and interpretations are subject to change, which may or may not be
retroactive in effect, that might result in modifications of our opinion.
In rendering our opinion we examined such records, documents and other
materials as we considered necessary or appropriate as a basis for such opinion,
including the Affiliation Agreement, the Registration Statement (including all
amendments made through the date hereof) and such other documents and
information provided by UST, USTrust, Mosaic and Somerset as we deemed relevant
to our opinion.
UST, USTrust, Mosaic and Somerset have each provided us with a certificate
(the "Officers' Certificates"), executed by their duly appointed officers,
respectively, setting forth certain representations relating to the Transaction
and the manner in which UST, USTrust, Mosaic and Somerset have been owned and
operated prior to the Transaction, and will be
<PAGE>
owned and operated after the Transaction. We have also relied on the
statements in the Registration Statement, the Affiliation Agreement and other
documents relating to the Transaction (collectively with the Registration
Statement and the Affiliation Agreement, the "Documents") regarding the
operation and ownership of UST, USTrust, Mosaic and Somerset. We have
neither independently investigated nor verified such representations or
statements, and we assume that such representations and statements are true,
correct and complete and that all representations made "to the best of the
knowledge and belief" of any person or party or with similar qualification
are and will be true, correct and complete as if made without such
qualification and that no action will occur from the date hereof until the
Transaction that is inconsistent with such representations.
We have assumed for the purposes of this opinion that: (1) the
Transaction and related transactions contemplated by the Documents will be
consummated in accordance with the Documents and as described in the
Registration Statement (including satisfaction of all covenants and
conditions therein without amendment or waiver thereof); (2) UST, USTrust,
Mosaic, Somerset and any affiliated entities, have operated and will operate
in accordance with their governing documents and applicable laws. We confirm
to you, however, that we are not aware of any facts that would lead us to
believe that any of these assumptions is false in any material way.
We have also assumed in rendering the opinion set forth herein: (1) the
genuineness of all signatures on documents we have examined; (2) the
authenticity of all documents submitted to us as originals; (3) the conformity
to the original documents of all documents submitted to us as copies; (4) the
conformity of final documents to all documents submitted to us as drafts; (5)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person; (6) the accuracy and completeness of
all records made available to us; (7) the factual accuracy of all
representations, warranties and other statements made by all parties; and (8)
the continued accuracy of all documents, certificates, warranties and covenants
on which we have relied in rendering the opinion set forth below and that were
given or dated earlier than the date of this letter, insofar as relevant to the
opinion set forth herein, from such earlier date through and including the date
of this letter.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Transaction should be treated for federal income tax purposes as
an acquisition by Mosaic of substantially all the assets of Somerset solely in
exchange for the stock of UST (the "Consideration") and the assumption of
Somerset's liabilities, followed by the transfer of such assets, subject to such
liabilities, to USTrust.
2. The acquisition by Mosaic of substantially all the assets of Somerset
solely in exchange for the Consideration and the assumption of Somerset's
liabilities, as described above, should constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code. For purposes of this Opinion,
"substantially all" means at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of
Somerset.
<PAGE>
3. UST, Mosaic and Somerset should each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code.
4. Pursuant to Section 368(a)(2)(C) of the Code, the acquisition by
Mosaic of substantially all the assets of Somerset should not be disqualified as
a reorganization under Section 368(a)(1)(C) of the Code by reason of the fact
that the assets of Somerset that are acquired by Mosaic are transferred to
USTrust.
5. No gain or loss should be recognized by Somerset on the transfer of
substantially all its assets to Mosaic solely in exchange for the Consideration
and the assumption of Somerset's liabilities.
6. No gain or loss should be recognized by Somerset on the distribution
to its shareholders of the Consideration in pursuance of the plan of
reorganization.
7. No gain or loss should be recognized by the shareholders of Somerset
upon the receipt of Consideration (including fractional shares deemed received
as described in paragraph 10 below) solely in exchange for their shares of
Somerset stock.
8. The basis of the Consideration to be received by the shareholders of
Somerset (including fractional shares deemed received as described in paragraph
below) should be the same as the basis of the Somerset stock surrendered in
exchange therefor.
9. The holding period of the Consideration to be received by the
shareholders of Somerset (including fractional shares deemed received as
described in paragraph 10 below) should include the holding period of the
Somerset stock surrendered in exchange therefor, provided the Somerset stock was
held as a capital asset by the applicable shareholder of Somerset on the date of
the exchange.
10. The payment of cash to Somerset shareholders in lieu of fractional
share interests of UST should be treated for federal income tax purposes as if
the fractional shares were distributed as part of the exchange and then were
redeemed by UST. These cash payments should be treated as distributions in full
payment in exchange for the stock redeemed as provided in Section 302(a) of the
Code.
Other than as expressly stated above, we express no opinion on any issue
relating to UST or to any investment therein. Further, without our express
written consent, the opinion expressed herein may not be relied upon by any
persons other than those to whom it is addressed.
Respectfully submitted,
[NUTTER, McCLENNEN & FISH, LLP]
<PAGE>
UST CORP. SUBSIDIARIES
DIRECT SUBSIDIARIES OF UST CORP.:
USTrust
United States Trust Company
JSA Financial Corporation
UST Investment Advisors, Inc. (Inactive)
Mosaic Corp.
DIRECT AND INDIRECT SUBSIDIARIES OF USTRUST:
UST Leasing Corporation
UST Auto Lease Corp.
UST Securities Corp.
USTrust Securities Corp.
Norfolk Holdings, Inc.
Court Street Holdings, Inc.
TABEB Corp.
Middlesex Realty Holdings Corp.
UST Merchant Bancorp, Inc. (Inactive)
Bra-Prop Corp.
Braintree Securities Corp.
Braintree Savings Corp.
Builders Collaborative Inc.
Walden Financial Corp.
Walden Securities Corp., Inc.
Firestone Financial Corp.
Firestone Financial Canada, Ltd.
DIRECT SUBSIDIARIES OF UNITED STATES TRUST COMPANY:
Property Research Group, Inc. (Inactive)
UST Capital Corp.
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of UST Corp. of our
report dated January 31, 1997 included in UST Corp.'s Form 10-K for the year
ended December 31, 1996, and to all references to our firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 5, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation in
the Registration Statement on Form S-4 of UST Corp. of our report dated February
4, 1997 relating to the consolidated financial statements of Somerset Savings
Bank as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, which appears in the Current Report
on Form 8-K of UST Corp. dated February 6, 1998. We also consent to the
reference to our firm as "Experts" in the Registration Statement.
WOLF & COMPANY, P.C.
Boston, Massachuetts
February 6, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of UST Corp. of our reports
dated January 31, 1997 and January 26, 1996 relating to the consolidated
financial statements of Firestone Financial Corp., which appear in the Current
Report on Form 8-K of UST Corp. dated February 6, 1998. and to all references to
our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 5, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of UST Corp. of our report
dated January 15, 1997 relating to the consolidated financial statements of
Affiliated Community Bancorp, Inc., which appears in the Current Report on Form
8-K of UST Corp. dated February 6, 1998 and to all references to our firm in
this Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the Registration Statement on
Form S-4 of UST Corp. of our reports on the consolidated financial statements of
The Federal Savings Bank as of December 31, 1995 and 1994 and for each of the
years in the two-year period ended December 31, 1995 and on the consolidated
financial statements of Main Street Community Bancorp, Inc. as of and for the
year ended December 31, 1994, which reports appear in the Current Report on Form
8-K of UST Corp. dated February 6, 1998 and to the reference to our firm under
the heading "Experts" in the Registration Statement.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 6, 1998
<PAGE>
February 6, 1998
UST Corp.
40 Court Street
Boston, Massachusetts 02108
Ladies and Gentlemen:
We hereby consent to the references to this Firm under the captions "THE
MERGER--Certain Federal Income Tax Consequences" and "LEGAL OPINIONS" in the
Proxy Statement-Prospectus included in the registration statement on Form S-4
filed with the Securities and Exchange Commission on February 6, 1998 by UST
Corp. in connection with the proposed merger of Somerset Savings Bank with and
into your indirect subsidiary, USTrust.
Very truly yours,
/s/ Bingham Dana LLP
BINGHAM DANA LLP
<PAGE>
February 6, 1998
We hereby consent to the references to this Firm under the caption "LEGAL
OPINIONS" in the Registration Statement on Form S-4 of UST Corp. filed on
February 6, 1998.
NUTTER, MCLENNEN & FISH, LLP
<PAGE>
[LETTERHEAD OF LEGG MASON WOOD WALKER, INCORPORATED]
CONSENT
We hereby consent to the use of our name and to the description of our
opinion letter, dated the date of the Proxy Statement-Prospectus referred to
below, under the caption "The Merger - Opinion of Somerset's Financial
Advisor" in, and to the inclusion of such opinion letter as Appendix D to,
the Proxy Statement-Prospectus is part of the Registration Statement on Form
S-4 of UST Corp. By giving such consent we do not 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, or that we come within the category
of persons whose consent is required under, the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Legg Mason Wood Walker, Incorporated
By: /s/ Mark C. Micklem
--------------------
Mark C. Micklem
Managing Director
<PAGE>
Exhibit 99(a)
SOMERSET SAVINGS BANK
Proxy for Special Meeting of Stockholders to be held April __, 1998
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, having received the Notice of the Special Meeting of
Stockholders and the Proxy Statement dated ___________, 1998, hereby
appoint(s) Thomas J. Kelly and Gary M. Abrams, and each of them independently
of the other, attorneys or attorney of the undersigned (with full power of
substitution in them and in each of them) to attend the Special Meeting of
Stockholders of Somerset Savings Bank to be held at the
[Holiday Inn, 30 Washington Street, Somerville, Massachusetts] on
___________, ___________, 1998 beginning at 10:00 a.m. and any adjournment or
adjournments thereof (the "Meeting"), and there to vote and act in regard to
all matters which may properly come before the Meeting upon and in respect of
all shares of common stock of Somerset Savings Bank upon or in respect of
which the undersigned would be entitled to vote or act, and with all powers
the undersigned would possess, if personally present, and especially (but
without limitation) to vote as indicated on the reverse of this card:
If the undersigned holds any shares of Somerset Savings Bank common stock in
a fiduciary, custodial or joint capacity, this Proxy is signed by the
undersigned in every such capacity as well as individually.
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE
In signing, please write name(s) exactly as appearing in the imprint on this
card. For shares held jointly, each joint owner should personally sign. If
signing as executor or in any other capacity, or as an officer of a
corporation, please indicate your full title as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
<PAGE>
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
1. To approve and adopt the Affiliation Agreement and Plan of
Reorganization, dated as of December 9, 1997, by and between Somerset
Savings Bank and UST Corp., as joined in by Mosaic Corp., a
wholly-owned subsidiary of UST Corp., on January 9, 1998 (the
"Affiliation Agreement"), which provides for the acquisition of
Somerset Savings Bank by UST Corp. and the conversion of each
outstanding share of Somerset Savings Bank common stock into 0.19
shares of UST Corp. common stock, upon the terms and subject to the
conditions set forth in the Affiliation Agreement as described in the
accompanying Proxy Statement-Prospectus and the Affiliation Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. To consider and act with discretionary authority upon such other
matters as may properly come before the Meeting.
The shares represented by this Proxy will be voted as directed by the
undersigned. It is the intention of the Proxies to vote "FOR" the proposals
set forth under Item 1 if no contrary instruction is indicated.
Please be sure to sign and date this Proxy. Date Mark box at
------------- right if
comments or
- -------------------------------------------------------------- address change
have been on
- -------------------------------------------------------------- the reverse
Stockholder sign here. Co-owner sign here. side of this
card. / /
