<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1996
REGISTRATION NO. 333-01761
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BANK OF BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
MASSACHUSETTS 04-2471221
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
6711
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
------------------------
100 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110 (617) 434-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
GARY A. SPIESS, ESQ. JANICE B. LIVA, ESQ.
GENERAL COUNSEL AND CLERK ASSISTANT GENERAL COUNSEL AND ASSISTANT
BANK OF BOSTON CORPORATION CLERK
100 FEDERAL STREET BANK OF BOSTON CORPORATION
BOSTON, MASSACHUSETTS 02110 100 FEDERAL STREET
(617) 434-2870 BOSTON, MASSACHUSETTS 02110
(617) 434- 8630
</TABLE>
(NAMES, ADDRESSES, INCLUDING ZIP CODES, AND TELEPHONE NUMBERS, INCLUDING AREA
CODES, OF AGENTS FOR SERVICE)
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 merger of a subsidiary of the
Registrant with and into BayBanks, Inc. have been satisfied or waived as
described in the enclosed Joint 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 / /.
------------------------
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> 2
BANK OF BOSTON CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION IN JOINT PROXY
ITEM OF FORM S-4 STATEMENT -- PROSPECTUS
- ----------------------------------------------------- ------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
ITEM 1 -- Forepart of Registration Statement
and Outside Front Cover Page of Prospectus..... Outside Front Cover Page; Cross Reference Sheet;
Cover Page
ITEM 2 -- Inside Front and Outside Back Cover
Pages of Prospectus............................ Table of Contents; Available Information;
Incorporation of Certain Information by
Reference
ITEM 3 -- Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information............ Summary; Information about Bank of Boston;
Information about BayBanks
ITEM 4 -- Terms of the Transaction............. Summary; The Merger; Description of Bank of
Boston Capital Stock; Comparative Rights of
Stockholders
ITEM 5 -- Pro Forma Financial Information...... Pro Forma Combined Financial Information
ITEM 6 -- Material Contracts with the Company
Being Acquired................................. The Merger -- Background of the Merger; The
Merger -- Recommendation of the BayBanks Board;
Reasons for the Merger; The Merger -- Interests
of Certain Persons in the Merger
ITEM 7 -- Additional Information Required for
Reoffering by Persons and Parties Deemed To Be
Underwriters................................... *
ITEM 8 -- Interests of Named Experts and
Counsel........................................ Experts; Legal Matters
ITEM 9 -- Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... *
B. INFORMATION ABOUT THE REGISTRANT
ITEM 10 -- Information with Respect to S-3
Registrants.................................... Incorporation of Certain Information by
Reference; Information about Bank of Boston;
Comparative Rights of Stockholders
ITEM 11 -- Incorporation of Certain Information
by Reference................................... Incorporation of Certain Information by
Reference
ITEM 12 -- Information with Respect to S-2 or
S-3 Registrants................................ *
ITEM 13 -- Incorporation of Certain Information
by Reference................................... *
ITEM 14 -- Information with Respect to
Registrants Other Than S-3 or S-2
Registrants.................................... *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
ITEM 15 -- Information with Respect to S-3
Companies...................................... Incorporation of Certain Information by
Reference; Information about BayBanks;
Comparative Rights of Stockholders
ITEM 16 -- Information with Respect to S-2 or
S-3 Companies.................................. *
ITEM 17 -- Information with Respect to
Companies Other Than S-3 or S-2 Companies...... *
D. VOTING AND MANAGEMENT INFORMATION
ITEM 18 -- Information if Proxies, Consents or
Authorizations are to be Solicited............. Cover Page; Incorporation of Certain Information
by Reference; Summary; The Bank of Boston
Meeting; The BayBanks Meeting; The Merger;
Experts; The Bank of Boston
Meeting -- Additional Matters -- Election of
Directors; The BayBanks Meeting -- Additional
Matters -- Ownership of BayBanks Common Stock;
Solicitation of Proxies
ITEM 19 -- Information if Proxies, Consents or
Authorization are not to be Solicited, or in an
Exchange Offer................................. *
</TABLE>
- ---------------
*Omitted because item is inapplicable or answer to item is negative.
<PAGE> 3
LOGO
BANK OF BOSTON CORPORATION
100 FEDERAL STREET - BOSTON - MASSACHUSETTS 02110
March 19, 1996
To Holders of Bank of Boston Common Stock:
We are pleased to invite you to attend the Annual Meeting of Stockholders
(the "Bank of Boston Meeting") of Bank of Boston Corporation ("Bank of Boston"),
which will be held on Thursday, April 25, 1996, at 10:30 a.m. in the Auditorium
on the ground floor of The Federal Reserve Bank of Boston, 600 Atlantic Avenue,
Boston, Massachusetts.
At the Bank of Boston Meeting, you will be asked to consider and vote upon
a proposal to approve and adopt an Agreement and Plan of Merger, dated as of
December 12, 1995 (the "Merger Agreement"), among Bank of Boston, Boston Merger
Corp., a wholly-owned subsidiary of Bank of Boston (the "Merger Subsidiary") and
BayBanks, Inc. ("BayBanks"), and each of the transactions contemplated thereby,
pursuant to which the Merger Subsidiary will be merged (the "Merger") with and
into BayBanks, and BayBanks will become a subsidiary of Bank of Boston. A copy
of the Merger Agreement is attached to the accompanying Joint Proxy
Statement-Prospectus as Exhibit A.
At the effective time of the Merger, each share of BayBanks common stock,
par value $2.00 per share ("BayBanks Common Stock") will be entitled to receive
2.2 shares of Bank of Boston common stock, par value $2.25 per share ("Bank of
Boston Common Stock").
The Merger will create a consumer and corporate banking leader with deep
regional roots and global reach, operating in 36 states and 24 countries. By
combining the world-class technology and consumer innovation of BayBanks with
the worldwide franchise and corporate sophistication of Bank of Boston, the
combined company will be able to provide a broad array of financial products and
services to the customers and communities it serves more efficiently than either
company could provide separately, creating long-term benefits for the customers,
employees, communities and stockholders of both companies.
Enclosed are a Notice of Annual Meeting of Stockholders and a Joint Proxy
Statement-Prospectus which describes the Merger and the background to the
transaction. You are urged to read all of these materials carefully. The Board
of Directors has fixed the close of business on March 5, 1996, as the record
date for the Bank of Boston Meeting. Accordingly, only stockholders of record on
that date will be entitled to notice of, or to vote at, the Bank of Boston
Meeting. The affirmative vote of the holders of a majority of the shares of Bank
of Boston Common Stock present in person, or represented by proxy, and entitled
to vote is necessary to approve and adopt the Merger Agreement and each of the
transactions contemplated thereby.
THE BOARD OF DIRECTORS OF BANK OF BOSTON HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF
APPROVING AND ADOPTING THE MERGER AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
At the Bank of Boston Meeting, you will also be asked to consider and vote
upon the election of five directors to serve on the Bank of Boston Board for
three-year terms until their successors are elected and qualified, the
ratification of the selection of independent auditors for 1996, the approval of
amendments to Bank of Boston's Restated Articles of Organization (the "Bank of
Boston Articles") to increase the
<PAGE> 4
authorized shares of Bank of Boston Common Stock from 200,000,000 to 300,000,000
and to change the par value of Bank of Boston Common Stock from $2.25 to $1.50
per share, the approval of Bank of Boston's 1996 Long-Term Incentive Plan and
the consideration of four stockholder proposals (if such stockholder proposals
are presented to the Bank of Boston Meeting).
The Bank of Boston Board of Directors recommends that stockholders vote FOR
the proposed slate of directors, FOR the ratification of the selection of
independent auditors, FOR the proposed amendments to the Bank of Boston
Articles, FOR the approval of Bank of Boston's 1996 Long-Term Incentive Plan,
and AGAINST each of the four stockholder proposals.
If you plan to attend the meeting, please bring a form of personal
identification with you and, if you are acting as proxy for another, please
bring written confirmation from the record owner that you are acting as proxy.
Whether or not you expect to attend the meeting, please sign and date the
enclosed form of proxy and return it promptly in the accompanying envelope to
ensure that your shares will be represented. If you attend the meeting, you may
withdraw any proxy previously given and vote your shares in person.
My primary commitment as Chairman of Bank of Boston is to you, our
stockholders, to manage the company for maximum value. I strongly support the
Merger as an important contribution to that objective, and ask for your support
as well.
Cordially,
/S/ Charles K. Gifford
----------------------
CHARLES K. GIFFORD
Chairman, President and
Chief Executive Officer
<PAGE> 5
LOGO
BANK OF BOSTON CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 25, 1996
To Common Stockholders of
Bank of Boston Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Bank of
Boston Corporation ("Bank of Boston") will be held in the Auditorium on the
ground floor of The Federal Reserve Bank of Boston at 600 Atlantic Avenue,
Boston, Massachusetts on Thursday, April 25, 1996 at 10:30 a.m. (the "Bank of
Boston Meeting"), for the following purposes, all as set forth in the
accompanying Joint Proxy Statement-Prospectus:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of December 12, 1995 (the "Merger
Agreement"), among Bank of Boston, Boston Merger Corp. (the "Merger
Subsidiary") and BayBanks, Inc. ("BayBanks"), and the consummation of the
transactions contemplated thereby, pursuant to which the Merger Subsidiary
will be merged (the "Merger") with and into BayBanks, and BayBanks will
become a subsidiary of Bank of Boston, upon the terms and subject to the
conditions set forth in the Merger Agreement, as are more fully described
in the accompanying Joint Proxy Statement-Prospectus. A copy of the Merger
Agreement is attached as Exhibit A to the Joint Proxy Statement-Prospectus.
(2) To elect five directors with terms expiring at the 1999 Annual
Meeting of Stockholders. As described in the accompanying Joint Proxy
Statement-Prospectus, from and after the effective time of the Merger, the
Bank of Boston Board of Directors will be expanded by four members, and
William M. Crozier, Jr., the Chairman of the Board and President of
BayBanks, and three additional members of the BayBanks Board of Directors
will be appointed as directors of Bank of Boston.
(3) To ratify the selection by the Board of Directors of Coopers &
Lybrand L.L.P. as Bank of Boston's independent auditors for 1996.
(4) To authorize the amendment of Bank of Boston's Restated Articles
of Organization to increase and change the authorized shares of Bank of
Boston's Common Stock from 200,000,000 shares, par value $2.25 per share,
to 300,000,000 shares, par value $1.50 per share.
(5) To approve the Bank of Boston Corporation 1996 Long-Term Incentive
Plan.
(6) To consider and act upon four stockholder proposals described in
the accompanying Joint Proxy Statement-Prospectus, if such proposals are
presented to the Bank of Boston Meeting.
(7) To transact such other business as may properly come before the
Bank of Boston Meeting.
The Board of Directors has fixed the close of business on March 5, 1996, as
the record date for the Bank of Boston Meeting.
<PAGE> 6
It is important that your shares be represented at the Bank of Boston
Meeting regardless of the number of shares you may hold. Please complete, sign
and date the enclosed form of proxy and return it promptly in the enclosed
envelope which requires no postage if mailed within the United States.
By Order of the Board of Directors,
/s/ GARY A. SPIESS
GARY A. SPIESS
Clerk
Boston, Massachusetts
March 19, 1996
<PAGE> 7
BAYBANKS
March 19, 1996
To our Stockholders:
We invite you to attend the Annual Meeting of Stockholders of BayBanks,
Inc. to be held at the offices of BayBank Systems, Inc., One BayBank Technology
Place, Waltham, Massachusetts, on Thursday, April 25, 1996, at 10:00 A.M.
At this special Annual Meeting, BayBanks stockholders will be asked to
approve an Agreement and Plan of Merger between BayBanks, Inc. and Bank of
Boston Corporation under which each outstanding share of BayBanks Common Stock
will be converted into the right to receive 2.2 shares of Bank of Boston Common
Stock. The value of the Bank of Boston Common Stock to be received by BayBanks
stockholders will depend on the market price of Bank of Boston Common Stock when
the merger transaction is consummated. The terms and conditions of the merger
transaction are described in the accompanying Joint Proxy Statement-Prospectus,
which we urge you to read carefully.
The proposed merger will join two strong Boston-based institutions,
building on the consumer and corporate banking leadership of both and combining
deep regional roots with global reach. After the transaction is completed, the
principal banking subsidiary of the merged organization will operate as "BayBank
of Boston" and the "Bank of Boston" name will be used in national corporate and
international banking markets. YOUR BOARD OF DIRECTORS BELIEVES THAT THE
PROPOSED TRANSACTION IS IN THE BEST INTERESTS OF BAYBANKS STOCKHOLDERS.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE
AGREEMENT AND PLAN OF MERGER.
A proxy card is enclosed. Please sign, date, and mail the proxy card
promptly in the return envelope provided. It is important that you return the
proxy card, whether or not you plan to attend the Annual Meeting, so that your
shares of BayBanks Common Stock are voted.
I hope that you can join us on April 25.
Sincerely,
/s/ WILLIAM M. CROZIER, JR.
WILLIAM M. CROZIER, JR.
Chairman of the Board and President
<PAGE> 8
BAYBANKS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders of
BayBanks, Inc. ("BayBanks") will be held at the offices of BayBank Systems,
Inc., One BayBank Technology Place, Waltham, Massachusetts, on Thursday, April
25, 1996, at 10:00 A.M.
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger among Bank of Boston Corporation, Boston Merger Corp., and
BayBanks dated December 12, 1995 (the "Merger Agreement"), and the
transactions contemplated thereby, pursuant to which Boston Merger Corp.
would merge with and into BayBanks (the "Merger") on and subject to the
terms contained in the Merger Agreement. A copy of the Merger Agreement
is attached as Exhibit A to the accompanying Joint Proxy
Statement-Prospectus.
2. To elect three directors to hold office for a term of three years and
until their respective successors are chosen and qualified, or, if
earlier, until the consummation of the Merger.
3. To transact such other business as may be in furtherance of or
incidental to the foregoing.
The business referred to above may be transacted at said meeting or any
adjournment thereof.
The Board of Directors has fixed the close of business on March 5, 1996, as
the record date for determination of stockholders entitled to notice of and to
vote at said meeting or any adjournment thereof.
You are requested to sign the enclosed proxy and mail it to us promptly in
the enclosed self-addressed envelope, whether or not you plan to attend the
meeting in person. The giving of such proxy will not affect your right to vote
in person if you attend the meeting in person.
/s/ILENE BEAL
Dated: March 19, 1996 ILENE BEAL, Secretary and Clerk
NOTICE OF APPRAISAL RIGHTS
If the Merger Agreement is approved by the stockholders at the Annual
Meeting and the Merger is consummated, any stockholder (1) who files with
BayBanks before the taking of the vote on approval of the Merger Agreement
written objection to the proposed Merger stating that he intends to demand
payment for his shares if the Merger is consummated and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from BayBanks (as it exists after the Merger), within twenty days after the date
of mailing to him of notice in writing that the Merger has been consummated,
payment for his shares and an appraisal of the value thereof. BayBanks and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in Sections 85 to 98, inclusive, of Chapter 156B of the
General Laws of Massachusetts, copies of which are attached as Exhibit F to the
accompanying Joint Proxy Statement-Prospectus. See "THE MERGER -- Rights of
Dissenting Stockholders" in the Joint Proxy Statement-Prospectus for more
information.
<PAGE> 9
<TABLE>
<S> <C>
Bank of Boston Corporation BayBanks, Inc.
100 Federal Street 175 Federal Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110
</TABLE>
JOINT PROXY STATEMENT-PROSPECTUS
------------------------
ANNUAL MEETING OF STOCKHOLDERS
BANK OF BOSTON CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
BAYBANKS, INC.
------------------------
APRIL 25, 1996
This Joint Proxy Statement-Prospectus is being furnished to stockholders of
Bank of Boston Corporation ("Bank of Boston") in connection with the
solicitation of proxies by the Board of Directors of Bank of Boston (the "Bank
of Boston Board") to be used at the Annual Meeting of Stockholders of Bank of
Boston to be held on Thursday, April 25, 1996, at 10:30 a.m., in the Auditorium
on the ground floor of The Federal Reserve Bank of Boston, 600 Atlantic Avenue,
Boston, Massachusetts and at any adjournments or postponements thereof (the
"Bank of Boston Meeting"). At the Bank of Boston Meeting, the holders of the
common stock, par value $2.25 per share (the "Bank of Boston Common Stock"),
will consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger, dated as of December 12, 1995 (the "Merger Agreement") by and
among Bank of Boston, BayBanks, Inc. ("BayBanks") and Boston Merger Corp. (the
"Merger Subsidiary"), a Massachusetts corporation and wholly-owned subsidiary of
Bank of Boston, providing for the merger of the Merger Subsidiary with and into
BayBanks, with BayBanks being the surviving corporation and becoming a
wholly-owned subsidiary of Bank of Boston (the "Merger"). See "THE BANK OF
BOSTON MEETING -- Date, Time and Place" and "-- Purposes of the Meeting."
This Joint Proxy Statement-Prospectus is also being furnished to
stockholders of BayBanks in connection with the solicitation of proxies by the
Board of Directors of BayBanks (the "BayBanks Board") to be used at the Annual
Meeting to be held on Thursday, April 25, 1996, at 10:00 a.m., at the offices of
BayBank Systems, Inc., One BayBank Technology Place, Waltham, Massachusetts, and
at any adjournments or postponements thereof (the "BayBanks Meeting"). At the
BayBanks Meeting, holders of the common stock, par value $2.00 per share (the
"BayBanks Common Stock") will consider and vote upon a proposal to approve and
adopt the Merger Agreement. See "THE BAYBANKS MEETING -- Date, Time and Place"
and "-- Purposes of the Meeting."
The Merger Agreement is attached hereto as Exhibit A and is incorporated
herein by reference.
This Joint Proxy Statement-Prospectus is also being furnished to holders of
Bank of Boston Common Stock and holders of BayBanks Common Stock for the purpose
of considering and voting upon separate proposals to elect directors for their
respective corporations, and in the case of Bank of Boston, to ratify the
selection of auditors, to amend Bank of Boston's Restated Articles of
Organization (the "Bank of Boston Articles") to increase the authorized shares
of Bank of Boston Common Stock from 200,000,000 to 300,000,000 and to change the
par value of Bank of Boston Common Stock from $2.25 to $1.50 per share, to
approve Bank of Boston's 1996 Long-Term Incentive Plan, and to consider and act
upon four stockholder proposals (if such stockholder proposals are presented to
the Bank of Boston Meeting). Information with
<PAGE> 10
respect to these proposals and additional matters to be considered at the Bank
of Boston Meeting and the BayBanks Meeting is being furnished separately to each
of the stockholders of Bank of Boston and BayBanks, respectively, in this Joint
Proxy Statement-Prospectus. See "THE BANK OF BOSTON MEETING -- Purposes of the
Meeting," "THE BANK OF BOSTON MEETING -- ADDITIONAL MATTERS," which is included
in the Joint Proxy Statement-Prospectus delivered to Bank of Boston stockholders
only, "THE BAYBANKS MEETING -- Purposes of the Meeting," and "THE BAYBANKS
MEETING -- ADDITIONAL MATTERS," which is included in the Joint Proxy
Statement-Prospectus delivered to BayBanks stockholders only.
Upon consummation of the Merger, each share of BayBanks Common Stock issued
and outstanding immediately prior to the effective time of the Merger (other
than certain shares held in BayBanks' treasury or held by Bank of Boston or
BayBanks or any subsidiary thereof and shares held by dissenting stockholders
who have duly perfected their rights of appraisal (the "Dissenting Shares"))
will be converted into the right to receive 2.2 shares of Bank of Boston Common
Stock. See "THE MERGER -- Conversion of Shares." The transaction is subject to
various conditions, including approval by the respective stockholders of Bank of
Boston and BayBanks, and approval by applicable regulatory authorities. See "THE
MERGER -- "Conditions to the Consummation of the Merger" and "-- Regulatory
Approvals Required for the Merger."
Bank of Boston Common Stock is listed and traded on the New York Stock
Exchange ("NYSE") and the Boston Stock Exchange ("BSE"). The closing price of
Bank of Boston Common Stock on the NYSE on March 14, 1996 was $46.875.
This Joint Proxy Statement-Prospectus does not cover any resales of Bank of
Boston Common Stock received by stockholders of BayBanks upon consummation of
the Merger, and no person is authorized to make use of this Joint Proxy
Statement-Prospectus in connection with any such resale. See "THE MERGER --
Resales of Bank of Boston Common Stock."
All information concerning Bank of Boston contained in this Joint Proxy
Statement-Prospectus has been furnished by Bank of Boston, and all information
concerning BayBanks has been furnished by BayBanks. Bank of Boston has
represented and warranted to BayBanks, and BayBanks has represented and
warranted to Bank of Boston, 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 Bank of Boston and BayBanks. For a more
complete description of the terms of the Merger and the Merger Agreement, see
generally, "THE MERGER."
Bank of Boston 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 45,000,000 shares of Bank of
Boston Common Stock, representing shares to be issued in connection with the
Merger. This Joint Proxy Statement-Prospectus also constitutes the Prospectus of
Bank of Boston filed as a part of such Registration Statement.
This Joint Proxy Statement-Prospectus and the form of proxy are first being
mailed to stockholders of Bank of Boston and BayBanks on or about March 19,
1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT-PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER THIS JOINT PROXY STATEMENT-PROSPECTUS
CAREFULLY AND IN ITS ENTIRETY.
------------------------
THE SHARES OF BANK OF BOSTON COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF
BANK OF BOSTON AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND OR ANY OTHER FEDERAL OR STATE GOVERNMENT AGENCY.
2
<PAGE> 11
THESE SECURITIES 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 JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement-Prospectus is March , 1996.
3
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4
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION............................................................... 8
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................... 8
SUMMARY............................................................................. 10
The Companies.................................................................. 10
The Merger..................................................................... 10
Bank of Boston and BayBanks Stock Option Agreements............................ 12
Date, Time and Place of the Bank of Boston Meeting and the BayBanks Meeting.... 12
Purposes of the Bank of Boston Meeting and the BayBanks Meeting................ 12
Vote Required at the Bank of Boston Meeting and the BayBanks Meeting........... 13
Recommendations of the Boards of Directors and Reasons for the Merger.......... 14
Opinions of Financial Advisors................................................. 15
Regulatory Approvals Required for the Merger................................... 15
Certain Federal Income Tax Consequences........................................ 15
Accounting Treatment........................................................... 16
Employee Benefits and Plans.................................................... 16
Interests of Certain Persons in the Merger..................................... 16
Indemnification and Insurance.................................................. 17
Rights of Dissenting Stockholders.............................................. 17
Comparative Rights of Stockholders............................................. 17
Conditions to the Consummation of the Merger................................... 17
Conduct of Business Pending the Merger and Other Agreements.................... 18
Waiver and Amendment........................................................... 18
Management and Operations after the Merger..................................... 18
Termination of the Merger Agreement............................................ 18
Market and Market Prices....................................................... 19
Bank of Boston Selected Financial Data......................................... 20
BayBanks Selected Financial Data............................................... 22
Pro Forma Combined Bank of Boston and BayBanks Selected Financial Data......... 24
Bank of Boston Capitalization.................................................. 26
Comparative Per Share Data..................................................... 27
THE BANK OF BOSTON MEETING.......................................................... 28
Date, Time and Place........................................................... 28
Purposes of the Meeting........................................................ 28
Record Date.................................................................... 28
Proxies; Voting and Revocation................................................. 28
Votes Required to Approve the Merger and Other Matters; Abstentions and
Non-Votes..................................................................... 29
Principal Stockholders of Bank of Boston....................................... 30
THE BAYBANKS MEETING................................................................ 31
Date, Time and Place........................................................... 31
Purposes of the Meeting........................................................ 31
Record Date.................................................................... 31
Proxies; Voting and Revocation................................................. 31
Votes Required to Approve the Merger and Other Matters; Abstentions and
Non-Votes..................................................................... 32
Principal Stockholders of BayBanks............................................. 32
</TABLE>
5
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INFORMATION ABOUT BANK OF BOSTON.................................................... 33
INFORMATION ABOUT BAYBANKS.......................................................... 33
THE MERGER.......................................................................... 35
General........................................................................ 35
Background of the Merger....................................................... 35
Recommendation of the Bank of Boston Board; Reasons for the Merger............. 38
Recommendation of the BayBanks Board; Reasons for the Merger................... 40
Opinion of Financial Advisor to Bank of Boston................................. 42
Opinion of Financial Advisor to BayBanks....................................... 49
Effective Time of the Merger; Closing Date..................................... 53
Structure of the Merger........................................................ 54
Regulatory Approvals Required for the Merger................................... 54
Certain Federal Income Tax Consequences........................................ 58
Accounting Treatment........................................................... 59
Employee Benefits and Plans.................................................... 59
Interests of Certain Persons in the Merger..................................... 60
Employment Agreements........................................................ 60
Options and Restricted Stock................................................. 62
Directors' Restricted Stock.................................................. 62
Payment of Deferred Directors' Fees.......................................... 62
Indemnification and Insurance.................................................. 62
Rights of Dissenting Stockholders.............................................. 62
Stock Exchange Listings........................................................ 64
Resales of Bank of Boston Common Stock......................................... 64
Conversion of Shares........................................................... 65
Exchange of Certificates....................................................... 66
Conditions to the Consummation of the Merger................................... 67
Conduct of Business Pending the Merger and Other Agreements.................... 69
Waiver and Amendment........................................................... 71
Expenses....................................................................... 72
Management and Operations after the Merger..................................... 72
Bank of Boston............................................................... 72
BayBanks..................................................................... 72
Subsidiary Banks of Bank of Boston and BayBanks.............................. 73
Cost Savings................................................................. 73
Termination of the Merger Agreement............................................ 74
CERTAIN TERMS OF THE STOCK OPTION AGREEMENTS........................................ 75
General........................................................................ 75
Grant of Options............................................................... 76
Triggering Events; Exercise of Options......................................... 76
Registration Rights............................................................ 77
Repurchase of Options.......................................................... 78
Assignment of Options.......................................................... 79
Additional Provisions.......................................................... 79
PRO FORMA COMBINED FINANCIAL INFORMATION............................................ 80
Unaudited Pro Forma Combined:
Balance Sheet at December 31, 1995........................................... 80
Statements of Income......................................................... 81
Notes to Unaudited Pro Forma Combined Financial Information.................... 85
</TABLE>
6
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[ALTERNATIVE PAGE TO BANK OF BOSTON STOCKHOLDERS ONLY]
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DESCRIPTION OF BANK OF BOSTON CAPITAL STOCK......................................... 86
Common Stock................................................................... 86
Preferred Stock................................................................ 87
COMPARATIVE RIGHTS OF STOCKHOLDERS.................................................. 89
General........................................................................ 89
Size and Classification of the Board of Directors.............................. 89
Removal of Directors........................................................... 89
Stockholder Nominations........................................................ 89
Conflict of Interest Transactions.............................................. 89
Meetings of Stockholders....................................................... 90
Amendment of By-Laws........................................................... 90
Required Vote for Certain Business Combinations................................ 91
Stockholder Rights Plan........................................................ 91
State Anti-takeover Statutes................................................... 92
EXPERTS............................................................................. 92
LEGAL MATTERS....................................................................... 92
SOLICITATION OF PROXIES............................................................. 93
THE BANK OF BOSTON MEETING -- ADDITIONAL MATTERS.................................... 94
Election of Directors.......................................................... 94
Security Ownership of Directors and Executive Officers.................... 98
Security Ownership of Certain Beneficial Owners........................... 99
Compliance with Section 16(a) of the Exchange Act......................... 99
1995 Meetings and Standard Fee Arrangements of the Bank of Boston Board
and Committees............................................................ 99
Compensation of Executive Officers........................................ 102
Five-Year Stockholder Return Comparison................................... 112
Indirect Interest of Directors and Executive Officers in Certain
Transactions.............................................................. 112
Ratification of the Selection of Independent Auditors.......................... 113
Increase in Number and Change in Par Value of Authorized Shares of Bank of
Boston Common Stock........................................................... 113
Approval of 1996 Long-Term Incentive Plan...................................... 114
Stockholder Proposals.......................................................... 122
Submission of Stockholder Proposals for 1997 Annual Meeting.................... 128
Other Matters.................................................................. 128
By-Laws of Bank of Boston...................................................... 128
Annual Report.................................................................. 128
10-K Report.................................................................... 128
EXHIBIT A -- Agreement and Plan of Merger........................................... A-1
EXHIBIT B -- Bank of Boston Stock Option Agreement.................................. B-1
EXHIBIT C -- BayBanks Stock Option Agreement........................................ C-1
EXHIBIT D -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... D-1
EXHIBIT E -- Opinion of Morgan Stanley & Co. Incorporated........................... E-1
EXHIBIT F -- Intentionally omitted. This exhibit applies only to dissenting
stockholders, if any, of BayBanks......................................
EXHIBIT G -- Bank of Boston Corporation 1996 Long-Term Incentive Plan............... G-1
</TABLE>
7
<PAGE> 16
[ALTERNATE PAGE TO BAYBANKS STOCKHOLDERS ONLY]
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF BANK OF BOSTON CAPITAL STOCK........................................... 86
Common Stock..................................................................... 86
Preferred Stock.................................................................. 87
COMPARATIVE RIGHTS OF STOCKHOLDERS.................................................... 89
General.......................................................................... 89
Size and Classification of the Board of Directors................................ 89
Removal of Directors............................................................. 89
Stockholder Nominations.......................................................... 89
Conflict of Interest Transactions................................................ 89
Meetings of Stockholders......................................................... 90
Amendment of By-Laws............................................................. 90
Required Vote for Certain Business Combinations.................................. 91
Stockholder Rights Plan.......................................................... 91
State Anti-takeover Statutes..................................................... 92
EXPERTS............................................................................... 92
LEGAL MATTERS......................................................................... 92
SOLICITATION OF PROXIES............................................................... 93
THE BAYBANKS MEETING -- ADDITIONAL MATTERS............................................ 94
Election of Directors............................................................ 94
Executive Compensation........................................................... 98
Corporate Compensation Committee and Stock Option Committee Report on Executive
Officer Compensation............................................................ 101
Ownership of BayBanks Common Stock............................................... 106
Accountants...................................................................... 107
Stockholder Proposals at 1997 Annual Meeting..................................... 107
EXHIBIT A -- Agreement and Plan of Merger.......................................... A-1
EXHIBIT B -- Bank of Boston Stock Option Agreement................................. B-1
EXHIBIT C -- BayBanks Stock Option Agreement....................................... C-1
EXHIBIT D -- Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated......... D-1
EXHIBIT E -- Opinion of Morgan Stanley & Co. Incorporated.......................... E-1
EXHIBIT F -- Sections 85 to 98 of Chapter 156B of the Massachusetts Business
Corporation Law....................................................... F-1
EXHIBIT G -- Intentionally omitted. This exhibit applies only to Bank of Boston
stockholders..........................................................
</TABLE>
7
<PAGE> 17
AVAILABLE INFORMATION
Both Bank of Boston and BayBanks are subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith each files reports, proxy statements, and
other information with the Commission. Such reports, proxy statements and other
information filed by Bank of Boston or BayBanks can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., 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 by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. Certain securities of Bank of Boston are listed on
the NYSE and the BSE, and such reports, proxy statements and other information
concerning Bank of Boston may also be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, and the Boston
Stock Exchange Incorporated, One Boston Place, Boston, Massachusetts 02108.
This Joint Proxy Statement-Prospectus does not contain all of the
information set forth in the Registration Statement that Bank of Boston 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 the addresses noted above, and copies thereof
may be obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are hereby incorporated by reference in this Joint Proxy
Statement-Prospectus the following documents and information heretofore filed
with the Commission, which documents are not presented herein or delivered
herewith:
Bank of Boston's Annual Report on Form 10-K filed for its fiscal year ended
December 31, 1995 and the description of its Common Stock, Preferred Stock and
Preferred Stock Purchase Rights contained in its registration statements filed
under Section 12 of the Exchange Act, including any amendment or report filed
for the purpose of updating such description; and
BayBanks' Annual Report on Form 10-K filed for its fiscal year ended
December 31, 1995.
All documents subsequently filed by Bank of Boston or BayBanks pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date of the
Bank of Boston Meeting and the BayBanks Meeting shall be deemed to be
incorporated by reference into this Joint Proxy Statement-Prospectus and to be a
part hereof from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement-Prospectus to the extent that a statement contained herein, or
in an amendment hereto, or in any other 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 Joint Proxy
Statement-Prospectus.
BANK OF BOSTON AND BAYBANKS WILL EACH PROVIDE, UPON REQUEST AND WITHOUT
CHARGE TO EACH PERSON TO WHOM THIS JOINT 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 THAT ARE NOT SPECIFICALLY
INCORPORATED THEREIN BY REFERENCE). WRITTEN REQUESTS FOR DOCUMENTS RELATING TO
BANK OF BOSTON SHOULD BE DIRECTED TO INVESTOR RELATIONS, THE FIRST NATIONAL BANK
OF BOSTON, P.O. BOX 2016, 01-20-02, BOSTON, MASSACHUSETTS 02106-2016. TELEPHONE
REQUESTS MAY BE DIRECTED TO INVESTOR RELATIONS AT (617) 434-7858. WRITTEN
REQUESTS FOR DOCUMENTS RELATING TO BAYBANKS SHOULD BE DIRECTED TO AMY B. WARNER,
LEGAL COUNSEL, BAYBANKS, INC., 175 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110.
TELEPHONE REQUESTS
8
<PAGE> 18
MAY BE DIRECTED TO MS. WARNER AT (617) 482-1040. IN ORDER TO ENSURE TIMELY
DELIVERY OF ANY OF THE DOCUMENTS, REQUESTS SHOULD BE MADE BY APRIL 18, 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS JOINT 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 BANK OF
BOSTON OR BAYBANKS. THIS JOINT PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE A
PROXY SOLICITATION, AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE
BY ANYONE IN ANY STATE (i) IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED; (ii) IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO; OR (iii) TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT-PROSPECTUS NOR THE DISTRIBUTION OF SECURITIES HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE AFFAIRS OF BANK OF BOSTON OR BAYBANKS SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN OR IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE HAS NOT
CHANGED SINCE THE DATE OR THE DATES THEREOF.
9
<PAGE> 19
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 Joint Proxy Statement-Prospectus or incorporated by reference in this Joint
Proxy Statement-Prospectus, or in the accompanying exhibits and the documents
referred to herein. Stockholders are urged to read the Joint Proxy
Statement-Prospectus and its Exhibits carefully and in their entirety.
Capitalized terms that are used and not defined in this Joint Proxy Statement-
Prospectus have the meanings set forth in the Merger Agreement.
THE COMPANIES
Bank of Boston. Bank of Boston is a registered bank holding company,
organized in 1970 under Massachusetts law, that, through its subsidiaries and
joint ventures, is engaged in providing a wide variety of financial services to
individuals, corporate and institutional customers, governments, and other
financial institutions. Bank of Boston's principal subsidiary is The First
National Bank of Boston ("FNBB"). Other major banking subsidiaries of Bank of
Boston are Bank of Boston Connecticut ("BKB Connecticut") and Rhode Island
Hospital Trust National Bank ("Hospital Trust"). As of December 31, 1995, Bank
of Boston had total assets of $47.4 billion, total deposits of $30.9 billion and
total stockholders' equity of $3.8 billion. See "INFORMATION ABOUT BANK OF
BOSTON."
The executive office of Bank of Boston is located at 100 Federal Street,
Boston, Massachusetts 02110 (Telephone (617) 434-2200).
BayBanks. BayBanks, Inc., established in 1928, is a registered bank
holding company and savings and loan holding company that provides a complete
range of banking, investment, and related financial services, with particular
emphasis on consumer and middle market business customers. BayBanks is best
known for its use of advanced banking technology, featuring state-of-the-art
computer and telecommunications technology to process customer transactions,
provide customer information, and increase the efficiency of its data processing
activities. BayBanks' largest subsidiary is BayBank, N.A., a national bank based
in Boston with branches in Massachusetts and Connecticut. BayBanks also has bank
and savings association subsidiaries in New Hampshire. As of December 31, 1995,
BayBanks had total assets of $12.1 billion, total deposits of $10.2 billion and
total stockholders' equity of $951 million. See "INFORMATION ABOUT BAYBANKS."
The executive office of BayBanks is located at 175 Federal Street, Boston,
Massachusetts 02110 (Telephone (617) 482-1040).
THE MERGER
The Merger will build on the strengths of Bank of Boston, a corporate and
international banking leader, and those of BayBanks, which is one of the
nation's premier consumer banking companies. The combined institution will have
the lead market share in Massachusetts in total deposits, commercial and
industrial lending, consumer lending, mortgage lending, small business lending,
and private banking. The combination of Bank of Boston's stature and expertise
in international, large corporate, and commercial banking with BayBanks' stature
and expertise in consumer banking and use of advanced banking technology is
expected to result in an enhanced business mix and improved risk profile for
both companies, with the resulting financial institution being well positioned
for continued growth.
The Merger Agreement provides for the merger of the Merger Subsidiary with
and into BayBanks, with BayBanks surviving as a wholly-owned subsidiary of Bank
of Boston. The time at which the Merger becomes effective under the laws of The
Commonwealth of Massachusetts is referred to as the "Effective Time" and the
date on which the Effective Time occurs is referred to as the "Closing Date."
See "THE MERGER -- Effective Time of the Merger; Closing Date." Upon
consummation of the Merger, each share of BayBanks Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
BayBanks Common Stock held (i) in the BayBanks treasury or (ii) directly or
indirectly by Bank of Boston or BayBanks or any of their respective
subsidiaries, except shares of BayBanks Common Stock held directly or indirectly
in trust accounts, managed accounts and the like or otherwise held in a
fiduciary capacity that are
10
<PAGE> 20
beneficially owned by third parties, including all shares held by BayBanks'
Savings, Profit Sharing and Employee Stock Ownership Plan ("Trust Account
Shares") or in respect of a debt previously contracted ("DPC Shares"), or
Dissenting Shares) will be converted into 2.2 shares of Bank of Boston Common
Stock (the "Common Exchange Ratio"). See "THE MERGER -- Conversion of Shares."
The Common Exchange ratio is the product of arms' length negotiations
between the managements of Bank of Boston and BayBanks. In determining the
fairness of the Common Exchange Ratio, the management of Bank of Boston had the
benefit of advice from its financial advisor, the investment banking firm of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). See "THE
MERGER -- Opinion of Financial Advisor to Bank of Boston." The management of
BayBanks had the benefit of advice from its financial advisor, the investment
banking firm of Morgan Stanley & Co. Incorporated ("Morgan Stanley"). See "THE
MERGER -- Opinion of Financial Advisor to BayBanks."
Shares of BayBanks Common Stock held by a stockholder who has demanded
appraisal rights in compliance with the provisions of the Massachusetts Business
Corporation Law (the "MBCL") will not be converted into the right to receive, or
be exchangeable for, shares of Bank of Boston Common Stock. Instead, that
stockholder will receive payment of the appraised value of the Dissenting Shares
in accordance with the MBCL. If, however, the stockholder subsequently withdraws
in writing his or her demand for appraisal or fails to establish an entitlement
to appraisal rights under the MBCL, such stockholder will forfeit the right to
appraisal and the Dissenting Shares of BayBanks Common Stock held by such
stockholder will be deemed to have been converted into the right to receive, and
to have become exchangeable for, shares of Bank of Boston Common Stock as of the
Effective Time (without interest or entitlement to the payment of dividends or
other distributions unless such amounts are payable to stockholders of record at
a date prior to the date the dissenting stockholder exercises appraisal rights).
Bank of Boston stockholders are not entitled to appraisal rights under the MBCL
in connection with, or as a result of, the Merger. See "THE MERGER -- Conversion
of Shares" and "-- Rights of Dissenting Stockholders."
No fractional shares of Bank of Boston Common Stock will be issued in the
Merger. Instead, the Merger Agreement provides that each holder of shares of
BayBanks Common Stock who otherwise would have been entitled to a fractional
share of Bank of Boston Common Stock will receive cash (without interest) in an
amount determined by multiplying (i) the average of the closing-sale prices of
Bank of Boston Common Stock on the NYSE as reported by The Wall Street Journal
for the five trading days immediately preceding the Effective Time by (ii) such
holder's fractional interest. See "THE MERGER -- Conversion of Shares."
In addition, each option granted by BayBanks to acquire BayBanks Common
Stock that is outstanding and unexercised immediately prior to the Effective
Time will be converted automatically at the Effective Time into an option to
purchase Bank of Boston Common Stock and will continue to be governed by the
terms of the BayBanks stock option plans, which will be assumed by Bank of
Boston. For further information with respect to the conversion of options to
purchase BayBanks Common Stock into options to purchase Bank of Boston Common
Stock, see the section entitled "THE MERGER -- Conversion of Shares." Approval
of the Merger by Bank of Boston stockholders will also constitute approval of
the BayBanks stock option plans to be assumed by Bank of Boston as provided in
the Merger Agreement. See "THE MERGER -- Conversion of Shares."
If, before the Effective Time, the outstanding shares of Bank of Boston
Common Stock are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar change in Bank of Boston's capitalization, an
appropriate and proportionate adjustment will be made to the Common Exchange
Ratio. See "THE MERGER -- Conversion of Shares."
Shares of Bank of Boston capital stock (including Bank of Boston Common
Stock) issued and outstanding immediately prior to the Effective Time will
remain issued and outstanding after the Merger. See "THE MERGER -- Exchange of
Certificates."
In connection with the Merger, Bank of Boston and BayBanks will consolidate
their subsidiary banks, subject to required regulatory approvals. The name or
names of the bank subsidiaries of Bank of Boston in
11
<PAGE> 21
New England will be changed after the Merger to include the "BayBank" name. For
example, the legal name of the bank subsidiary headquartered in Massachusetts
will be "BayBank of Boston, N.A.," and the name of each bank subsidiary located
in another state will include the "BayBank" name and the name of that state. The
combined bank will continue to use the name "Bank of Boston" for its national
relationship and international activities. See "THE MERGER -- Management and
Operations after the Merger."
BANK OF BOSTON AND BAYBANKS STOCK OPTION AGREEMENTS
As an inducement to BayBanks to enter into the Merger Agreement, Bank of
Boston and BayBanks entered into the Bank of Boston Stock Option Agreement,
dated December 12, 1995 (the "Bank of Boston Stock Option Agreement"), pursuant
to which Bank of Boston granted BayBanks an option to purchase up to 22,400,761
shares of Bank of Boston Common Stock (subject to adjustment, but in no event to
exceed 19.9% of the then outstanding Bank of Boston Common Stock), at a price of
$47.50 per share (the "Bank of Boston Option"). BayBanks may exercise the Bank
of Boston Option only upon the occurrence of certain events (none of which has
occurred as of the date hereof). At the request of the holder of the Bank of
Boston Option, under certain circumstances, Bank of Boston will repurchase for a
formula price the Bank of Boston Option and any shares of Bank of Boston Common
Stock purchased upon the exercise of the Bank of Boston Option and beneficially
owned by such holder at that time.
Similarly, as an inducement to Bank of Boston to enter into the Merger
Agreement, BayBanks and Bank of Boston entered into the BayBanks Stock Option
Agreement dated December 12, 1995 (the "BayBanks Stock Option Agreement," and
together with the Bank of Boston Stock Option Agreement, the "Stock Option
Agreements"), pursuant to which BayBanks granted Bank of Boston an option to
purchase up to 3,907,120 shares of BayBanks Common Stock (subject to adjustment,
but in no event to exceed 19.9% of the then outstanding BayBanks Common Stock),
at a price of $83.75 per share (the "BayBanks Option"). Bank of Boston may
exercise the BayBanks Option only upon the occurrence of certain events (none of
which has occurred as of the date hereof). At the request of the holder of the
BayBanks Option under certain circumstances, BayBanks will repurchase for a
formula price the BayBanks Option and any shares of BayBanks Common Stock
purchased upon the exercise of the BayBanks Option and beneficially owned by
such holder at that time.
The Stock Option Agreements are intended to increase the likelihood that
the Merger will be consummated as agreed. To this end, certain aspects of the
Stock Option Agreements may have the effect of discouraging persons who might be
interested in acquiring all of or a significant interest in Bank of Boston or
BayBanks from considering or proposing such an acquisition, even if, in the case
of BayBanks, such persons were prepared to offer to pay consideration to
BayBanks' stockholders that had a higher current market price than the shares of
Bank of Boston Common Stock to be received for each share of BayBanks Common
Stock pursuant to the Merger Agreement. See "CERTAIN TERMS OF THE STOCK OPTION
AGREEMENTS" and the Stock Option Agreements attached hereto as Exhibits B and C.
DATE, TIME AND PLACE OF THE BANK OF BOSTON MEETING AND THE BAYBANKS MEETING
The Bank of Boston Meeting will be held on Thursday, April 25, 1996, at
10:30 a.m., in the Auditorium on the ground floor of The Federal Reserve Bank of
Boston, 600 Atlantic Avenue, Boston, Massachusetts. The BayBanks Meeting will be
held on Thursday, April 25, 1996, at 10:00 a.m., at the offices of BayBank
Systems, Inc., One BayBank Technology Place, Waltham, Massachusetts.
PURPOSES OF THE BANK OF BOSTON MEETING AND THE BAYBANKS MEETING
Bank of Boston. The Bank of Boston Meeting will be held for the purposes
of considering and voting upon proposals to: (i) approve and adopt the Merger
Agreement and the consummation of the transactions contemplated thereby,
including the Merger; (ii) elect five directors to serve on the Bank of Boston
Board for terms expiring at the 1999 Annual Meeting of Stockholders and until
their successors are elected and qualified; (iii) ratify the selection by the
Bank of Boston Board of Coopers & Lybrand L.L.P. as Bank of Boston's independent
auditors for 1996; (iv) approve amendments to the Bank of Boston Articles to
increase
12
<PAGE> 22
the authorized shares of Bank of Boston Common Stock from 200,000,000 to
300,000,000 and to change the par value of Bank of Boston Common Stock from
$2.25 to $1.50 per share; (v) approve Bank of Boston's 1996 Long-Term Incentive
Plan; (vi) consider and act upon four stockholder proposals (if such stockholder
proposals are presented to the Bank of Boston Meeting); and (vii) transact such
other business as may properly come before the Bank of Boston Meeting. See "THE
BANK OF BOSTON MEETING -- Purposes of Meeting" and "THE BANK OF BOSTON
MEETING -- ADDITIONAL MATTERS," which is included in the Joint Proxy
Statement-Prospectus to be delivered to Bank of Boston stockholders only.
BayBanks. The BayBanks Meeting will be held for the purposes of
considering and voting upon proposals to: (i) approve and adopt the Merger
Agreement and the consummation of the transactions contemplated thereby,
including the Merger; (ii) elect three directors to hold office for a term of
three years and until their successors are chosen and qualified, or, if earlier,
until the Effective Time of the Merger; and (iii) transact such other business
as may be in furtherance of or incidental to the foregoing. See "THE BAYBANKS
MEETING -- Purposes of Meeting" and "THE BAYBANKS MEETING -- ADDITIONAL
MATTERS," which is included in the Joint Proxy Statement-Prospectus to be
delivered to BayBanks stockholders only.
VOTE REQUIRED AT THE BANK OF BOSTON MEETING AND THE BAYBANKS MEETING
The Bank of Boston Board and the BayBanks Board have fixed the close of
business on March 5, 1996 as the record date (the "Record Date") for the
determination of stockholders entitled to notice of, and to vote at, the Bank of
Boston Meeting and the BayBanks Meeting, respectively. Only the holders of
record of the outstanding shares of Bank of Boston Common Stock and BayBanks
Common Stock on the Record Date will be entitled to notice of, and to vote at,
the Bank of Boston Meeting and BayBanks Meeting, respectively. The presence, in
person or by proxy, of the holders of a majority in interest of all Bank of
Boston Common Stock or BayBanks Common Stock, outstanding and entitled to vote
on the Record Date, is necessary to constitute a quorum at the Bank of Boston
Meeting and the BayBanks Meeting, respectively. See "THE BANK OF BOSTON
MEETING -- Record Date" and "THE BAYBANKS MEETING -- Record Date."
Bank of Boston. The affirmative votes of the holders of at least a
majority of the shares of Bank of Boston Common Stock present in person, or
represented by proxy, and entitled to vote at the Bank of Boston Meeting are
required: (i) to approve and adopt the Merger Agreement and the consummation of
the transactions contemplated thereby, including the Merger; (ii) to ratify the
selection of the independent auditors for 1996; (iii) to approve Bank of
Boston's 1996 Long-Term Incentive Plan; and (iv) to approve any of the four
stockholder proposals. The affirmative votes of the holders of at least a
majority of the shares of Bank of Boston Common Stock outstanding and entitled
to vote at the Bank of Boston Meeting are required to amend the Bank of Boston
Articles. The affirmative vote of a plurality of the shares of Bank of Boston
Common Stock represented at the Bank of Boston Meeting and entitled to vote is
required to elect directors to the Bank of Boston Board. Approval of the Merger
Agreement by the requisite vote of the holders of Bank of Boston Common Stock is
a condition to, and required for, consummation of the Merger. None of the other
matters being considered at the Bank of Boston Meeting must be approved by
holders of Bank of Boston Common Stock in order for the Merger to be
consummated. See "THE BANK OF BOSTON MEETING -- Votes Required to Approve the
Merger and Other Matters; Abstentions and Non-Votes" and "THE BANK OF BOSTON
MEETING -- ADDITIONAL MATTERS."
As of the Record Date, 110,507,016 shares of Bank of Boston Common Stock
were outstanding and entitled to vote, of which approximately 704,264 shares, or
approximately .6%, were held by directors and executive officers of Bank of
Boston and their respective affiliates. Each such director and officer of Bank
of Boston has indicated his or her intention to vote the Bank of Boston Common
Stock beneficially owned by him or her for approval of the Merger Agreement and
the consummation of the transactions contemplated thereby. As of the Record
Date, the banking and trust subsidiaries of Bank of Boston, as fiduciaries,
custodians or agents, held a total of 4,622,234 shares, or 4.2%, of the
outstanding shares of Bank of Boston Common Stock under trust agreements and
other instruments and agreements. These entities maintained sole or shared
voting power with respect to none of such shares. In addition, as of the Record
Date, BayBanks and its directors and officers beneficially owned 567 shares of
Bank of Boston Common Stock, all of which they intend to vote for approval of
the Merger and the consummation of the transactions contemplated thereby. As
13
<PAGE> 23
of the Record Date, BayBank, N.A., as fiduciary, custodian or agent, held a
total of 85,996 shares, or .1%, of the outstanding shares of Bank of Boston
Common Stock under trust agreements and other instruments and agreements.
BayBank, N.A. maintained sole or shared voting power with respect to 3,755 of
such shares. See "THE BANK OF BOSTON MEETING -- Principal Stockholders of Bank
of Boston."
BayBanks. The affirmative votes of holders of two-thirds of the issued and
outstanding shares of BayBanks Common Stock are required to approve and adopt
the Merger Agreement and the transactions contemplated thereby, including the
Merger. The affirmative votes of a majority of any quorum are sufficient to
elect the nominees for director and to transact any other business at the
BayBanks Meeting. Approval of the Merger Agreement by the requisite vote of the
holders of BayBanks Common Stock is a condition to, and required for, the
consummation of the Merger. See "THE BAYBANKS MEETING -- Votes Required to
Approve the Merger and Other Matters; Abstentions and Non-Votes" and "THE
BAYBANKS MEETING -- ADDITIONAL MATTERS."
As of the Record Date, 19,707,874 shares of BayBanks Common Stock were
outstanding and entitled to vote, of which approximately 305,000 shares, or
approximately 1.5% were held by directors and executive officers of BayBanks and
their respective affiliates. Each such director and officer of BayBanks has
indicated his or her intention to vote the BayBanks Common Stock beneficially
owned by him or her for approval of the Merger Agreement and the consummation of
the transactions contemplated thereby. As of the Record Date, BayBank, N.A., as
fiduciary, custodian or agent, held a total of 1,715,478 shares, or 8.7%, of the
outstanding shares of BayBanks Common Stock under trust agreements and other
instruments and agreements. BayBank, N.A. maintained sole or shared voting power
with respect to 428,885 of such shares. In addition, as of the Record Date, the
banking and trust subsidiaries of Bank of Boston, as fiduciaries, custodians or
agents, held a total of 78,028 shares, or .4%, of the outstanding shares of
BayBanks Common Stock under trust agreements and other instruments and
agreements. These entities maintained sole or shared voting power with respect
to 50,435 of such shares. As of the Record Date, Bank of Boston's directors and
officers beneficially owned no shares of BayBanks Common Stock. See "THE
BAYBANKS MEETING -- Principal Stockholders of BayBanks."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
THE BOARD OF DIRECTORS OF EACH OF BANK OF BOSTON AND BAYBANKS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND EACH UNANIMOUSLY RECOMMENDS
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, BY ITS RESPECTIVE
STOCKHOLDERS.
The Bank of Boston Board and the BayBanks Board believe that the terms of
the Merger Agreement are fair and in the best interests of Bank of Boston and
its stockholders and BayBanks and its stockholders, respectively. The terms of
the Merger Agreement were reached on the basis of arms' length negotiations
between Bank of Boston and BayBanks. In the course of reaching their respective
decisions to approve the Merger Agreement, the Bank of Boston Board and the
BayBanks Board consulted with their respective legal advisors regarding the
legal terms of the Merger Agreement and their respective obligations in
connection therewith, and with their respective financial advisors, Merrill
Lynch and Morgan Stanley, regarding the financial terms of the Merger Agreement
and the fairness to Bank of Boston, in the case of Merrill Lynch, and to holders
of BayBanks Common Stock, in the case of Morgan Stanley, from a financial point
of view, of the Common Exchange Ratio. See "THE MERGER -- Background of the
Merger," "-- Recommendation of the Bank of Boston Board; Reasons for the
Merger," "-- Recommendation of the BayBanks Board; Reasons for the Merger,"
"-- Opinion of Financial Advisor to Bank of Boston," and "-- Opinion of
Financial Advisor to BayBanks."
14
<PAGE> 24
OPINIONS OF FINANCIAL ADVISORS
Merrill Lynch, Bank of Boston's financial advisor, has rendered its written
opinions, as of December 12, 1995 and as of the date of this Joint Proxy
Statement-Prospectus, to the Bank of Boston Board that, as of such date, the
Common Exchange Ratio is fair, from a financial point of view, to Bank of
Boston.
Morgan Stanley, BayBanks' financial advisor, has rendered its written
opinions, as of December 12, 1995, and as of the date of this Joint Proxy
Statement-Prospectus, to the BayBanks' Board that, as of such date, the Common
Exchange Ratio was fair, from a financial point of view, to the holders of the
BayBanks Common Stock.
The opinions of the financial advisors, which are attached hereto as
Exhibits D and E, describe the assumptions made, matters considered and limits
of the reviews undertaken by Merrill Lynch and Morgan Stanley in rendering their
respective opinions, and should be read in their entirety. Bank of Boston and
BayBanks have agreed to pay fees to Merrill Lynch and Morgan Stanley,
respectively, a portion of which are contingent upon consummation of the Merger.
For further description of the opinions of Merrill Lynch and Morgan Stanley and
the fees payable to them, see "THE MERGER -- Background of the Merger,"
"-- Recommendation of the Bank of Boston Board; Reasons for the Merger,"
"-- Recommendation of the BayBanks Board; Reasons for the Merger," "-- Opinion
of Financial Advisor to Bank of Boston," "-- Opinion of Financial Advisor to
BayBanks," and Exhibits D and E to this Joint Proxy Statement-Prospectus.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
The Merger is subject to approval by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") pursuant to the Bank Holding
Company Act of 1956, by the Office of Thrift Supervision pursuant to the Home
Owners' Loan Act, and by the Board of Bank Incorporation of The Commonwealth of
Massachusetts. In connection with the Merger, Bank of Boston and BayBanks will
consolidate their subsidiary banks as described in "THE MERGER -- Management and
Operations after the Merger." Any such consolidation is subject to the prior
approval of the Office of the Comptroller of the Currency under the Bank Merger
Act.
Assuming Federal Reserve Board and other required regulatory approvals for
the Merger are obtained, the Merger may not be consummated for thirty days after
such approvals (or fifteen days in certain circumstances described more fully
under "THE MERGER -- Regulatory Approvals Required for the Merger"), during
which time the United States Department of Justice has jurisdiction to challenge
the Merger on antitrust grounds and seek the divestiture of assets and
liabilities. Bank of Boston and BayBanks have filed or intend to file as soon as
practicable following the date of this Joint Proxy Statement-Prospectus
applications with the appropriate federal and state regulators with respect to
the Merger. The Merger will not proceed until all regulatory approvals required
to consummate the Merger have been obtained, such approvals are in full force
and effect and all statutory waiting periods in respect thereof have expired.
There can be no assurance that the Merger will be approved by the appropriate
federal and state regulators of whom approval is required. If such approvals are
received, there can be no assurance as to the date of such approvals, any
conditions attached to such approvals or the absence of any litigation
challenging such approvals. See "THE MERGER -- Regulatory Approvals Required for
the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Each party's obligation to effect the Merger is conditioned on delivery of
a tax opinion, in the case of Bank of Boston, from its counsel, Bingham, Dana
and Gould LLP, and, in the case of BayBanks, from its counsel, Palmer & Dodge,
each dated as of the Effective Time, substantially to the effect that for
federal income tax purposes, the Merger constitutes a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code") and that accordingly: (i) no gain or loss will be recognized by Bank of
Boston or by BayBanks as a result of the Merger; (ii) no gain or loss will be
recognized by the stockholders of BayBanks who exchange their BayBanks Common
Stock for Bank of Boston Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in Bank of
Boston Common Stock); and (iii) the tax basis of the Bank of Boston Common Stock
received by stockholders who exchange all of their BayBanks Common Stock solely
for Bank of Boston Common Stock in
15
<PAGE> 25
the Merger will be the same as the tax basis of the BayBanks Common Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received). NO RULING HAS BEEN OR
WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO ANY TAX
MATTERS.
With respect to the foregoing, as well as the consequences if the Merger
does not constitute a reorganization within the meaning of the Code and the tax
effects to holders of Dissenting Shares, see "THE MERGER -- Certain Federal
Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH BAYBANKS STOCKHOLDER, EACH SUCH STOCKHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISORS AS TO THE FEDERAL (AND ANY STATE,
LOCAL OR FOREIGN) TAX CONSEQUENCES OF THE MERGER IN HIS OR HER PARTICULAR
CIRCUMSTANCES.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a pooling of interests under
generally accepted accounting principles ("GAAP"). It is a condition to
consummation of the Merger that Bank of Boston and BayBanks receive a letter
from Coopers & Lybrand L.L.P. that the Merger will qualify for pooling of
interests accounting treatment. See "THE MERGER -- Accounting Treatment."
EMPLOYEE BENEFITS AND PLANS
From the Effective Time through the last day of the year in which the
Effective Time occurs, Bank of Boston will continue BayBanks' employee benefit
plans and arrangements as in effect at the Effective Time. Thereafter, Bank of
Boston will provide employees of Bank of Boston and its subsidiaries who
formerly were employees of BayBanks employee benefits substantially the same as
those provided to similarly situated employees of Bank of Boston. Bank of Boston
will honor and continue all BayBanks employment, severance and other
compensation agreements disclosed to Bank of Boston in the Merger Agreement in
accordance with their terms as in effect at the Effective Time. See "THE
MERGER -- Employee Benefits and Plans" and "THE BAYBANKS MEETING -- ADDITIONAL
MATTERS -- Executive Compensation."
Stock options to acquire BayBanks Common Stock granted under BayBanks stock
option plans that are outstanding and unexercised immediately prior to the
Effective Time will be converted at the Effective Time into, and will become,
stock options to purchase Bank of Boston Common Stock and will continue to be
governed by the terms of BayBanks' stock plans, which will be assumed by Bank of
Boston. For a further description of the conversion of options to purchase
BayBanks Common Stock into options to purchase Bank of Boston Common Stock, see
the section entitled "THE MERGER -- Conversion of Shares." See also "THE
MERGER -- Interests of Certain Persons in the Merger," and " -- Employee
Benefits and Plans."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Bank of Boston's management and the Bank of Boston
Board, and BayBanks' management and the BayBanks Board, respectively, may be
deemed to have interests in the Merger that are in addition to their interests
as stockholders of Bank of Boston or BayBanks, as the case may be, generally.
Upon the Merger, the Bank of Boston Board will be expanded and William M.
Crozier, Jr., Chairman of the Board and President of BayBanks, and BayBanks
directors John A. Cervieri Jr., Thomas R. Piper, and Glenn P. Strehle will
become directors of Bank of Boston. Certain executive officers of each of Bank
of Boston and BayBanks will be executive officers of, or serve in executive
capacities with, Bank of Boston or BayBank of Boston, N.A. following the Merger.
Bank of Boston will honor the existing BayBanks employment and severance
arrangements and indemnify, and will maintain directors and officers liability
insurance covering, the BayBanks directors and officers following the Merger.
Bank of Boston also has entered into employment agreements with Mr. Crozier,
Richard F. Pollard, Donald L. Isaacs, Ilene Beal, Michael W. Vasily, Joan E.
Tonra, and three other officers that will become effective upon the Merger.
Under his employment agreement, Mr. Crozier will receive a base salary and an
annual incentive award in amounts related to those of the Chief Executive
Officer of Bank of Boston. Based on the current salary and the 1995 incentive
award for Charles K. Gifford, the Chief Executive Officer of Bank of Boston, Mr.
Crozier's salary and incentive award would have
16
<PAGE> 26
been $1,925,000. The other named executives will receive base salaries at a rate
at least equal to the highest rate in effect during the twelve months before the
consummation of the Merger. Based on such executives' current annual base
salaries, the aggregate annual amount payable to Mr. Crozier and the other
executives pursuant to these provisions is $3,262,000. The employment
agreements, which supersede any other change in control agreement between
BayBanks and such officers, also provide for benefits upon termination of
employment in specified circumstances consisting of (i) the sum of the officer's
annual base salary and maximum annual incentive award multiplied by a factor
corresponding to the term of the officer's employment agreement, (ii) treatment
under the BayBanks Supplemental Executive Retirement Plan as though the officer
had remained employed for the term of the agreement and, in the case of two
officers, assuming certain age and service levels had been attained, and (iii)
continuation of health, medical, and life insurance coverage and other employee
welfare plans during the term of the agreement. Finally, restrictions on certain
benefits payable to employees of BayBanks, including the directors and executive
officers, will lapse, and such benefits will vest, in connection with the
Merger. The Bank of Boston Board and the BayBanks Board were each aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby. See "THE
MERGER -- Management and Operations After the Merger," " -- Indemnification and
Insurance," and " -- Interests of Certain Persons in the Merger."
INDEMNIFICATION AND INSURANCE
Bank of Boston has agreed, subject to the conditions set forth in the
Merger Agreement, to indemnify, for six years and to the fullest extent
permitted by law, each past or present director, officer or employee of
BayBanks, its subsidiaries or any predecessors against any liability or expense
incurred in connection with any claim or proceeding against such person
pertaining to (i) such person being a director, officer or employee, or (ii) the
Merger Agreement, the Stock Option Agreements or any transaction contemplated
thereby. Bank of Boston has also agreed, subject to the conditions set forth in
the Merger Agreement, to use its best efforts, subject to certain pricing
considerations, to maintain BayBanks' directors and officers liability insurance
policy for four years. See "THE MERGER -- Indemnification and Insurance."
RIGHTS OF DISSENTING STOCKHOLDERS
Under the MBCL, any BayBanks stockholder (i) who files with BayBanks an
objection to the Merger in writing before the approval of the Merger Agreement
by the stockholders of BayBanks 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 will be
entitled to demand payment for his or her shares of BayBanks Common Stock and an
appraisal of the value thereof, in accordance with the provisions of Sections 85
through 98 of Chapter 156B of the MBCL. Bank of Boston stockholders are not
entitled to appraisal rights under the MBCL in connection with, or as a result
of, the Merger. See "THE MERGER -- Rights of Dissenting Stockholders" and
relevant sections of the MBCL attached hereto as Exhibit F.
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of holders of shares of BayBanks Common Stock currently are
governed by the Massachusetts General Laws, including in particular the MBCL,
and the Articles of Organization and By-Laws of BayBanks. At the Effective Time
of the Merger, BayBanks stockholders who do not exercise and perfect their
statutory dissenters' rights will become Bank of Boston stockholders, and their
rights will be governed by the MBCL and the Bank of Boston Articles and Bank of
Boston's By-Laws. See "COMPARATIVE RIGHTS OF STOCKHOLDERS," for a discussion of
the material differences in the rights of the holders of Bank of Boston Common
Stock and BayBanks Common Stock.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to certain conditions, including the
approval of the Merger Agreement by the respective requisite affirmative votes
of the holders of Bank of Boston Common Stock and BayBanks Common Stock; the
effectiveness of the Registration Statement of which this Joint Proxy
Statement-Prospectus forms a part; approval of the Merger by certain federal and
state regulatory authorities;
17
<PAGE> 27
receipt by Bank of Boston and BayBanks of the opinions of their respective
counsel as to certain tax consequences of the Merger, and of a letter from
Coopers & Lybrand L.L.P. that the Merger will qualify for pooling of interests
accounting treatment; the listing, subject to notice of issuance, on the NYSE of
the Bank of Boston Common Stock to be issued in the Merger; and certain other
customary closing conditions. There can be no assurance as to when and if such
conditions will be satisfied (or, where permissible, waived) or that the Merger
will be consummated. See "THE MERGER -- Conditions to the Consummation of the
Merger."
CONDUCT OF BUSINESS PENDING THE MERGER AND OTHER AGREEMENTS
Bank of Boston and BayBanks have each agreed to, and will cause their
respective subsidiaries to, undertake or refrain from undertaking certain
actions pending the Merger. In addition, Bank of Boston and BayBanks have agreed
to cooperate or coordinate certain actions with each other. For a full
discussion of the conduct of the business of Bank of Boston and BayBanks pending
the Merger and the other agreements made by the parties with respect to certain
matters pending the Merger, see "THE MERGER -- Conduct of Business Pending the
Merger and Other Agreements."
WAIVER AND AMENDMENT
At any time prior to the Effective Time, Bank of Boston and BayBanks, may,
to the extent legally allowed: (i) extend the time for the performance of any of
the obligations or other acts of the other party; (ii) waive any inaccuracies in
the representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement; or
(iii) amend the Merger Agreement or waive compliance by the other party of any
of its agreements or conditions contained in the Merger Agreement, except that,
after BayBanks stockholder approval, no extension, waiver or amendment may
reduce the amount or change the form of consideration to be delivered to each of
BayBanks' stockholders without further approval of BayBanks' stockholders. See
"THE MERGER -- Waiver and Amendment."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
From and after the Effective Time, the Bank of Boston Board will be
expanded by four members, to a total of eighteen members. Mr. Crozier, presently
the Chairman of the Board and President of BayBanks, and Messrs. Cervieri, Piper
and Strehle will be appointed as directors of Bank of Boston. Mr. Crozier will
serve as Chairman of Bank of Boston and Mr. Gifford, presently the Chairman of
the Board, President and Chief Executive Officer of Bank of Boston, will serve
as President and Chief Executive Officer of Bank of Boston from and after the
Effective Time.
In connection with the Merger, Bank of Boston and BayBanks will take such
actions as they determine to be mutually desirable to consolidate their
subsidiary banks, subject to required regulatory approvals. Bank of Boston also
expects to consolidate the operations of certain other Bank of Boston and
BayBanks subsidiaries that provide similar services. The name or names of the
bank subsidiaries of Bank of Boston in New England will be changed after the
Merger to include the "BayBank" name. For example, the legal name of the bank
subsidiary headquartered in Massachusetts will be "BayBank of Boston, N.A.," and
the name of each bank subsidiary located in another state will include the
"BayBank" name and the name of that state. The combined bank will continue to
use the name "Bank of Boston" for its national relationship and international
activities. It is not a condition to consummation of the Merger that the
regulatory approvals required for such consolidations have been received. See
"THE MERGER -- Management and Operations after the Merger" for a discussion of
the status of planned subsidiary bank consolidations, expected cost savings
associated with the Merger, and a list of senior management personnel.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time: (i) by the mutual consent of Bank of Boston and BayBanks by a majority
vote of the members of each company's entire Board of Directors; (ii) by either
Bank of Boston or BayBanks if any governmental entity that must grant a
regulatory approval has denied approval of the Merger and such denial has become
final and non-appealable or
18
<PAGE> 28
any governmental entity of competent jurisdiction has issued a final,
non-appealable order enjoining or otherwise prohibiting consummation of the
transactions contemplated by the Merger Agreement; (iii) except if the party
seeking termination is in breach of the Merger Agreement, by either Bank of
Boston or BayBanks, (a) if the Effective Time has not occurred by December 31,
1996 or (b) if there is a material breach by the other party of any
representation, warranty, covenant or agreement contained in the Merger
Agreement which is not timely cured; (iv) by either Bank of Boston or BayBanks
if the requisite stockholder approval of either party has not been obtained; or
(v) by BayBanks if the average closing price of Bank of Boston Common Stock over
the twenty trading days prior to the date of final regulatory approval has
declined (a) more than 25% from the closing price of Bank of Boston Common Stock
of $47 1/2 on December 8, 1995 (i.e., to less than $35 5/8), and (b) more than
25 percentage points more than any decline over the same period in the average
closing prices of the Morgan Stanley 35-Bank Regional Peer Group (a group of
thirty-five comparable regional banks whose performance is equally weighted and
averaged by Morgan Stanley to obtain the Morgan Stanley Bank Index). See "THE
MERGER -- Termination of the Merger Agreement."
MARKET AND MARKET PRICES
<TABLE>
Bank of Boston Common Stock is traded on the NYSE and BSE. Transactions
with respect to BayBanks Common Stock are reported on the Nasdaq National
Market. The Merger Agreement provides as a condition to BayBanks' obligation to
consummate the Merger that the shares of Bank of Boston Common Stock issuable in
connection with the Merger be authorized for listing on the NYSE 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 closing
price for Bank of Boston Common Stock, as reported for the New York Stock
Exchange Composite Transactions in The Wall Street Journal, and the last quoted
composite closing prices for BayBanks Common Stock on the Nasdaq National Market
on December 11, 1995, the business day immediately preceding the public
announcement of the Merger, and March 14, 1996; and (b) the BayBanks Common
Stock equivalent per share price as of December 11, 1995 and March 14, 1996,
calculated by multiplying the closing price of Bank of Boston Common Stock on
the NYSE on such dates by the Common Exchange Ratio:
<CAPTION>
BANK OF BAYBANKS
BOSTON BAYBANKS EQUIVALENT PER
PRICE PER SHARE AT COMMON STOCK COMMON STOCK SHARE PRICE
------------------------------------------ ------------- ------------ --------------
<S> <C> <C> <C>
December 11, 1995......................... $46.625 $ 84.25 $ 102.58
March 14, 1996............................ $46.875 $ 101.00 $ 103.13
</TABLE>
No assurance can be given as to what the market price of Bank of Boston
Common Stock will be if and when the Merger is consummated or when the shares of
Bank of Boston Common Stock are actually issued in the Merger. The Common
Exchange Ratio is subject to adjustment in the event of stock dividends, stock
splits or similar changes in Bank of Boston's capitalization. See "THE
MERGER -- Conversion of Shares."
19
<PAGE> 29
BANK OF BOSTON
SELECTED FINANCIAL DATA
The following table sets forth certain condensed historical financial data
of Bank of Boston and is based on the consolidated financial statements of Bank
of Boston, including the respective notes thereto, which are incorporated by
reference in this Joint Proxy Statement-Prospectus and should be read in
conjunction therewith. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.................................. $ 4,319 $ 3,718 $ 2,739 $ 3,007 $ 3,285
Interest expense................................. 2,578 2,146 1,394 1,752 2,170
------ ------ ------ ------ ------
Net interest revenue............................. 1,741 1,572 1,345 1,255 1,115
Provision for credit losses...................... 250 130 70 181 519
------ ------ ------ ------ ------
Net interest revenue after provision for credit
losses...................................... 1,491 1,442 1,275 1,074 596
Noninterest income............................... 1,091 828 746 759 763
Noninterest expense(1)........................... 1,597 1,479 1,531 1,474 1,538
------ ------ ------ ------ ------
Income (loss) before income taxes, extraordinary
items and cumulative effect of changes in
accounting principles.......................... 985 791 490 359 (179)
Provision for (benefit from) income taxes........ 444 349 215 153 (58)
------ ------ ------ ------ ------
Income (loss) before extraordinary items and
cumulative effect of changes in accounting
principles..................................... 541 442 275 206 (121)
Extraordinary items
Gains (losses) from early extinguishment of
debt, net of tax............................ (7) 8
Recognition of prior year tax benefit
carryforwards............................... 73
Cumulative effect of changes in accounting
principles, net(2)............................. 24
------ ------ ------ ------ ------
Net income (loss).............................. $ 541 $ 435 $ 299 $ 279 $ (113)
====== ====== ====== ====== ======
Net income (loss) applicable to common stock... $ 504 $ 398 $ 264 $ 259 $ (126)
====== ====== ====== ====== ======
Per common share
Income (loss) before extraordinary items and
cumulative effect of changes in accounting
principles
Primary..................................... $ 4.55 $ 3.79 $ 2.28 $ 1.82 $ (1.42)
Fully diluted............................... 4.43 3.67 2.22 1.78 (1.42)
Net income (loss)
Primary..................................... 4.55 3.73 2.51 2.54 (1.33)
Fully diluted............................... 4.43 3.61 2.44 2.45 (1.33)
Book value..................................... 28.93 24.72 22.71 20.21 18.00
Cash dividends declared........................ 1.28 .93 .40 .10 .10
Average number of common shares (in thousands)
Primary........................................ 110,716 106,730 105,336 101,977 94,730
Fully diluted.................................. 113,560 111,427 110,258 107,157 94,730
AVERAGE BALANCE SHEET DATA:
Loans and lease financing (net of reserve for
credit losses)................................. $31,116 $29,790 $26,586 $25,330 $26,167
Total earning assets............................. 39,391 38,145 34,299 33,229 34,563
Total average assets............................. 44,612 43,061 38,367 36,855 37,915
Deposits......................................... 29,301 29,301 28,539 29,028 29,861
Notes payable.................................... 2,092 2,069 1,743 1,197 1,552
Stockholders' equity............................. 3,446 3,023 2,719 2,226 1,944
</TABLE>
20
<PAGE> 30
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Net interest margin.................................... 4.45% 4.14% 3.94% 3.81% 3.29%
Return on average assets............................... 1.21 1.01 .78 .76 (.30)
Return on average common equity(3)..................... 17.14 15.82 11.78 13.37 (7.28)
Common equity to total assets.......................... 6.8 5.9 5.9 5.7 4.5
Average total stockholders' equity to average
total assets......................................... 7.7 7.0 7.1 6.0 5.1
Risk-based capital ratios(4)
Tier 1............................................... 8.0 7.0 7.2 7.1 5.2
Total................................................ 12.8 12.2 12.4 12.0 9.3
Leverage ratio(4)...................................... 7.4 6.5 6.8 6.6 4.6
Net credit losses to average loans and lease
financing............................................ .54 .82 .84 1.22 1.87
Reserve for credit losses to loans and lease
financing............................................ 2.37 2.19 2.68 3.63 4.14
Reserve for credit losses to nonaccrual loans and lease
financing ........................................... 238.29 186.22 139.69 118.51 69.48
Nonaccrual loans and OREO as a percent of related asset
categories........................................... 1.2 1.4 2.3 3.7 7.2
<FN>
- ---------------
(1) Includes, in 1995, $28 million in charges related mainly to exiting,
reorganizing and downsizing certain business and corporate staff; in 1994,
acquisition-related costs of $21 million in connection with Bank of Boston's
acquisitions of BankWorcester Corporation and Pioneer Financial, A
Co-operative Bank; in 1993, acquisition-related costs and restructuring
charges of $85 million, primarily in connection with Bank of Boston's
mergers with Society for Savings Bancorp, Inc. ("Society") and Multibank
Financial Corp., as well as estimated costs of downsizing and reconfiguring
certain of Bank of Boston's business and corporate units; and in 1991,
restructuring charges of $54 million, including $7 million in connection
with a Society restructuring plan and $47 million in connection with Bank of
Boston's plans for the consolidation and downsizing of various domestic and
international operations and facilities and staff reductions.
(2) Includes a cumulative benefit of $77 million resulting from the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," and a cumulative charge of $53 million, net of taxes, relating to a
change in accounting methodology pertaining to the valuation of purchased
mortgage servicing rights.
(3) For purposes of this ratio, preferred stock dividends have been deducted
from net income.
(4) Ratios for the year ended December 31, 1995 are estimates.
</TABLE>
21
<PAGE> 31
BAYBANKS
SELECTED FINANCIAL DATA
The following table sets forth certain condensed historical financial data
of BayBanks and is based on the consolidated financial statements of BayBanks,
including the respective notes thereto, which are incorporated by reference in
this Joint Proxy Statement-Prospectus and should be read in conjunction
therewith. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.......................... $ 799 $ 658 $ 591 $ 657 $ 815
Interest expense......................... 292 193 167 240 418
------- ------- ------- ------- -------
Net interest revenue..................... 507 465 424 417 397
Provision for credit losses.............. 25 24 37 107 165
------- ------- ------- ------- -------
Net interest revenue after provision
for credit losses................... 482 441 387 310 232
Noninterest income....................... 219 207 199 261 211
Noninterest expense...................... 479 466 471 475 426
------- ------- ------- ------- -------
Income before income taxes and cumulative
effect of change in accounting
principles............................. 222 182 115 96 17
Provision for income taxes............... 85 74 47 37 7
------- ------- ------- ------- -------
Income before cumulative effect of change
in accounting principles............... 137 108 68 59 10
Cumulative effect of change in accounting
for post-employment benefits, net of
tax.................................... (1)
------- ------- ------- ------- -------
Net income............................. $ 137 $ 107 $ 68 $ 59 $ 10
======= ======= ======= ======= =======
Per common share
Income before cumulative effect of
change in accounting principles
Primary............................. $ 7.01 $ 5.65 $ 3.57 $ 3.57 $ .60
Fully diluted....................... 6.99 5.65 3.56 3.54 .60
Net income
Primary............................. 7.01 5.60 3.57 3.57 .60
Fully diluted....................... 6.99 5.60 3.56 3.54 .60
Book value............................. 48.43 41.51 37.52 34.81 31.30
Cash dividends declared................ 2.20 1.60 .90
Average number of common shares (in
thousands)
Primary............................. 19,609 19,174 18,953 16,576 16,022
Fully diluted....................... 19,640 19,177 19,004 16,767 16,174
AVERAGE BALANCE SHEET DATA:
Loans and lease financing................ $ 7,122 $ 6,202 $ 5,910 $ 6,153 $ 6,735
Total earning assets..................... 10,156 9,372 8,580 8,429 8,759
Total average assets..................... 11,145 10,328 9,570 9,435 9,675
Deposits................................. 9,216 8,618 8,624 8,615 8,673
Notes payable............................ 58 53 54 55 55
Stockholders' equity..................... 858 743 671 535 494
</TABLE>
22
<PAGE> 32
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Net interest margin............................ 5.11% 5.04% 5.00% 4.99% 4.57%
Return on average assets....................... 1.23 1.04 .71 .63 .10
Return on average common equity................ 15.98 14.44 10.08 11.07 1.96
Common equity to total assets.................. 7.9 7.3 7.0 6.5 5.3
Average total stockholders' equity to average
total assets................................. 7.7 7.2 7.0 5.7 5.1
Risk-based capital ratios(1)
Tier 1....................................... 11.4 11.5 10.7 10.4 7.3
Total........................................ 12.8 13.1 12.4 12.3 9.3
Leverage ratio(1).............................. 7.7 7.4 7.3 6.8 5.4
Net credit losses to average loans and lease
financing.................................... .40 .78 .98 2.06 2.48
Reserve for credit losses to loans and lease
financing.................................... 1.98 2.21 2.81 3.25 3.34
Reserve for credit losses to nonaccrual loans
and lease financing.......................... 240.78 268.80 155.90 106.71 95.41
Nonaccrual loans and OREO as a percent of
related asset categories..................... 1.1 1.8 3.6 6.1 7.1
<FN>
- ---------------
(1) Ratios for the year ended December 31, 1995 are estimates.
</TABLE>
23
<PAGE> 33
PRO FORMA COMBINED BANK OF BOSTON
AND BAYBANKS
SELECTED FINANCIAL DATA
The following table sets forth certain unaudited pro forma combined
condensed financial data for Bank of Boston giving effect to the Merger as if it
had occurred as of the beginning of each of the periods indicated below, after
giving effect to the pro forma adjustments described in the Notes to Pro Forma
Combined Financial Information. The Merger will be accounted for as a pooling of
interests. This information should be read in conjunction with the historical
consolidated financial statements of Bank of Boston and BayBanks, including the
respective notes thereto, which are incorporated by reference in this Joint
Proxy Statement-Prospectus, and in conjunction with the Bank of Boston and
BayBanks selected financial data and the Bank of Boston and BayBanks pro forma
combined financial information, including the notes thereto, appearing elsewhere
in this Joint Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE" and "PRO FORMA COMBINED FINANCIAL INFORMATION." The
effect of estimated merger and reorganization costs expected to be incurred in
connection with the Merger has been reflected in the pro forma combined balance
sheet; however, since these costs are nonrecurring, they have not been reflected
in the pro forma combined statements of income. The pro forma combined condensed
financial data do not give effect to any anticipated cost savings in connection
with the Merger. The pro forma combined condensed financial data are not
necessarily indicative of the results that actually would have occurred had the
Merger been consummated on the dates indicated or that may be obtained in the
future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income............................................... $ 5,118 $ 4,376 $ 3,330
Interest expense.............................................. 2,870 2,339 1,561
------- ------- -------
Net interest revenue.......................................... 2,248 2,037 1,769
Provision for credit losses................................... 275 154 107
------- ------- -------
Net interest revenue after provision for credit losses...... 1,973 1,883 1,662
Noninterest income............................................ 1,310 1,035 945
Noninterest expense........................................... 2,077 1,945 2,002
------- ------- -------
Income before income taxes, extraordinary item and cumulative
effect of changes in accounting principles.................. 1,206 973 605
Provision for income taxes.................................... 528 423 262
------- ------- -------
Income before extraordinary item and cumulative effect of
changes in accounting principles............................ $ 678 $ 550 $ 343
======= ======= =======
Per common share
Income before extraordinary item and cumulative effect of
changes in accounting principles
Primary.................................................. $ 4.17 $ 3.44 $ 2.09
Fully diluted............................................ 4.09 3.37 2.05
Book value.................................................. 26.47
Cash dividends declared(1).................................. 1.28 .93 .40
Average number of common shares (in thousands)
Primary.................................................. 153,856 148,913 147,033
Fully diluted............................................ 156,768 153,616 152,067
AVERAGE BALANCE SHEET DATA:
Loans and lease financing..................................... $38,238 $35,992 $32,496
Total earning assets.......................................... 49,547 47,517 42,879
Total average assets.......................................... 55,757 53,389 47,937
Deposits...................................................... 38,517 37,919 37,163
Notes payable................................................. 2,150 2,122 1,797
Stockholders' equity.......................................... 4,304 3,766 3,390
</TABLE>
24
<PAGE> 34
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
SELECTED RATIOS:
Net interest margin........................................... 4.58% 4.32% 4.16%
Return on average assets...................................... 1.22 1.02 .76
Return on average common equity............................... 16.88 15.51 11.39
Common equity to total assets................................. 6.9 6.0 6.0
Average total stockholders' equity to average total assets.... 7.7 7.1 7.1
Risk-based capital ratios(2)
Tier 1...................................................... 8.3 7.5 7.5
Total....................................................... 12.7 12.2 12.2
Leverage ratio(2)............................................. 7.3 6.5 6.8
Net credit losses to average loans and lease financing........ .51 .82 .86
Reserve for credit losses to loans and lease financing........ 2.29 2.20 2.70
Reserve for credit losses to nonaccrual loans and lease
financing................................................... 238.72 196.97 142.39
Nonaccrual loans and OREO as a percent of related asset
categories.................................................. 1.1 1.5 2.5
</TABLE>
- ---------------
(1) Pro forma combined cash dividends represent the historical cash dividends of
Bank of Boston.
(2) Pro forma combined risk-based capital and leverage ratios for the year ended
December 31, 1995 have been calculated based upon estimated ratios of Bank
of Boston and BayBanks.
25
<PAGE> 35
BANK OF BOSTON
CAPITALIZATION
The following table presents the capitalization of Bank of Boston and its
subsidiaries at December 31, 1995, and the capitalization of Bank of Boston and
its subsidiaries adjusted to give effect to the Merger. This information should
be read in conjunction with the historical consolidated financial statements of
Bank of Boston and BayBanks, including the respective notes thereto, which are
incorporated by reference in this Joint Proxy Statement-Prospectus, and in
conjunction with the Unaudited Pro Forma Combined Balance Sheet, including the
Notes thereto, appearing elsewhere in this Joint Proxy Statement-Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA COMBINED
FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------------
OUTSTANDING AS ADJUSTED(1)
----------- --------------
(IN MILLIONS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
NOTES PAYABLE:
Parent Company
Floating rate senior notes, due June 1996........................ $ 100 $ 100
Subordinated equity contract notes, due August 1997.............. 129 129
Floating rate subordinated equity commitment notes, due August
1998.......................................................... 106 106
Subordinated floating rates notes, due February 2001............. 186 186
Subordinated notes, due July 2003................................ 100 100
Subordinated debenture, due February 2004........................ 299 299
Subordinated notes, due December 2005............................ 349 349
------ ------
1,269 1,269
Subsidiaries
Notes, due 1996 through 2004..................................... 870 870
BayBanks
Notes, due 1997 through 2013..................................... 65
------ ------
Total Notes Payable...................................... $ 2,139 $2,204
------ ------
STOCKHOLDERS' EQUITY:
Preferred Stock without par value
Authorized shares -- 10,000,000 Issued shares -- 4,593,941.... $ 508 $ 508
Common Stock, par value $2.25
Authorized -- 200,000,000 shares
Issued shares -- 112,571,508
155,781,561 shares as adjusted(1)
Outstanding shares -- 112,086,150
155,296,203 shares as adjusted(1)............................. 253 350
Surplus.......................................................... 932 1,235
Retained earnings................................................ 2,020 2,470
Net unrealized gain on securities available for sale, net of
tax........................................................... 64 82
Treasury stock, at cost.......................................... (22) (22)
Cumulative translation adjustments............................... (4) (4)
------ ------
Total Stockholders' Equity............................... $ 3,751 $4,619
------ ------
Total Notes Payable and Stockholders' Equity............. $ 5,890 $6,823
====== ======
</TABLE>
- ---------------
(1) Adjusted to give effect to the Merger.
The above table does not include significant amounts of short-term
obligations incurred in the ordinary course of business, including deposit
liabilities, federal funds purchased, securities sold under agreements to
repurchase and other borrowed funds.
26
<PAGE> 36
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for Bank of Boston Common Stock and BayBanks
Common Stock certain historical, pro forma and pro forma equivalent per share
information for each of the three years in the period ended December 31, 1995.
The information presented herein should be read in conjunction with the Bank of
Boston and BayBanks selected financial data and the Pro Forma Combined Financial
Information, including the Notes thereto, appearing elsewhere in this Joint
Proxy Statement-Prospectus. See also "PRO FORMA COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
BANK OF BOSTON COMMON STOCK:
Income per share before extraordinary item and cumulative effect of
change in accounting principles (shares in thousands)
Primary
Historical (110,716 shares in 1995, 106,730 in 1994 and
105,336 in 1993)........................................... $ 4.55 $3.79 $2.28
Pro forma(1) (153,856 shares in 1995, 148,913 in 1994 and
147,033 in 1993)........................................... 4.17 3.44 2.09
Fully diluted
Historical (113,560 shares in 1995, 111,427 in 1994 and
110,258 in 1993)........................................... 4.43 3.67 2.22
Pro forma(1) (156,768 shares in 1995, 153,616 in 1994 and
152,067 in 1993)........................................... 4.09 3.37 2.05
Dividends per share
Historical....................................................... 1.28 .93 .40
Pro forma(2)..................................................... 1.28 .93 .40
Book value per share at period-end (shares in thousands)
Historical (112,086 shares)...................................... 28.93
Pro forma(1) (155,296 shares).................................... 26.47
BAYBANKS COMMON STOCK:
Income per share before extraordinary item and cumulative effect of
change in accounting principles (shares in thousands)
Primary
Historical (19,609 shares in 1995, 19,174 in 1994 and 18,953
in 1993)................................................... $ 7.01 $5.65 $3.57
Pro forma equivalent(3)..................................... 9.17 7.57 4.60
Fully diluted
Historical (19,640 shares in 1995, 19,177 in 1994 and 19,004
in 1993)................................................... 6.99 5.65 3.56
Pro forma equivalent(3)..................................... 9.00 7.41 4.51
Dividends per share
Historical....................................................... 2.20 1.60 .90
Pro forma equivalent(3).......................................... 2.82 2.05 .88
Book value per share at period-end (shares in thousands)
Historical (19,641 shares)....................................... 48.43
Pro forma equivalent(3).......................................... 58.23
</TABLE>
- ---------------
(1) Includes the effect of the Merger.
(2) Pro forma combined dividends per share amounts represent the historical
dividends per share of Bank of Boston.
(3) The BayBanks pro forma equivalent per share amounts are calculated by
multiplying the Bank of Boston pro forma information as described in note
(1) by the Common Exchange Ratio of 2.2. The Common Exchange Ratio is
subject to adjustment in the event of stock dividends, stock splits or
similar changes in Bank of Boston's capitalization. See "THE
MERGER -- Conversion of Shares."
27
<PAGE> 37
THE BANK OF BOSTON MEETING
DATE, TIME AND PLACE
This Joint Proxy Statement-Prospectus is being furnished to holders of Bank
of Boston Common Stock in connection with the solicitation of proxies by the
Bank of Boston Board for use at the Bank of Boston Meeting to be held on
Thursday, April 25, 1996, at 10:30 a.m., in the Auditorium on the ground floor
of The Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston,
Massachusetts.
PURPOSES OF THE MEETING
The Bank of Boston Meeting will be held for the purposes of considering and
voting upon proposals to: (i) approve and adopt the Merger Agreement and the
consummation of the transactions contemplated thereby, including the Merger;
(ii) elect five directors to serve on the Bank of Boston Board for terms
expiring at the 1999 Annual Meeting of Stockholders and until their successors
are elected and qualified; (iii) ratify the selection by the Bank of Boston
Board of Coopers & Lybrand L.L.P. as Bank of Boston's independent auditors for
1996; (iv) approve amendments to the Bank of Boston Articles to increase the
authorized shares of Bank of Boston Common Stock from 200,000,000 to 300,000,000
and to change the par value of Bank of Boston Common Stock from $2.25 to $1.50
per share; (v) approve Bank of Boston's 1996 Long-Term Incentive Plan; (vi)
consider and act upon four stockholder proposals (if such stockholder proposals
are presented to the Bank of Boston Meeting); and (vii) transact such other
business as may properly come before the Bank of Boston Meeting. Any action may
be taken on the foregoing proposals at the Bank of Boston Meeting. With the
exception of these matters, the management of Bank of Boston knows of no other
matters at this time to be brought before the Bank of Boston Meeting. For
additional information with respect to the election of directors, the
ratification of the selection of independent auditors, the amendment of the Bank
of Boston Articles, the approval of the 1996 Long-Term Incentive Plan, the
consideration of the four stockholder proposals and other matters to be
addressed at the Bank of Boston Meeting, see "THE BANK OF BOSTON
MEETING -- ADDITIONAL MATTERS" which is included in the Joint Proxy
Statement-Prospectus to be delivered to Bank of Boston stockholders only.
THE BANK OF BOSTON BOARD UNANIMOUSLY RECOMMENDS THAT BANK OF BOSTON
STOCKHOLDERS VOTE: FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER; FOR
THE ELECTION OF EACH OF THE FIVE NOMINEES FOR DIRECTOR; FOR THE RATIFICATION OF
THE SELECTION OF COOPERS & LYBRAND L.L.P. AS BANK OF BOSTON'S INDEPENDENT
AUDITORS FOR 1996; FOR THE PROPOSED AMENDMENTS TO THE BANK OF BOSTON ARTICLES;
FOR THE APPROVAL OF BANK OF BOSTON'S 1996 LONG-TERM INCENTIVE PLAN; AND AGAINST
EACH OF THE FOUR STOCKHOLDER PROPOSALS.
RECORD DATE
The Bank of Boston Board has fixed the close of business on March 5, 1996
as the record date (the "Record Date"). Only holders of the outstanding shares
of Bank of Boston Common Stock on the Record Date will be entitled to notice of,
and to vote at, the Bank of Boston Meeting. At the Record Date, 110,507,016
shares of Bank of Boston Common Stock were outstanding and entitled to vote. The
presence, in person or by proxy, of a majority in interest of all stock issued,
outstanding and entitled to vote are required to be present to constitute a
quorum at the Bank of Boston Meeting for the transaction of business.
PROXIES; VOTING AND REVOCATION
Each share of Bank of Boston Common Stock is entitled to one vote on each
matter voted upon at the Bank of Boston Meeting. Shares of Bank of Boston Common
Stock represented by a properly executed proxy received prior to the vote at the
Bank of Boston Meeting and not revoked will be voted at the Bank of Boston
Meeting as directed in the proxy. IF A PROXY IS SUBMITTED AND NO DIRECTIONS ARE
GIVEN, THE PROXY WILL BE VOTED: FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER; FOR ALL NOMINEES FOR DIRECTOR LISTED IN
28
<PAGE> 38
THE PROXY; FOR RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS FOR 1996;
FOR AMENDMENT OF THE BANK OF BOSTON ARTICLES; FOR THE APPROVAL OF THE 1996
LONG-TERM INCENTIVE PLAN; AND AGAINST EACH OF THE FOUR STOCKHOLDER PROPOSALS.
The persons named as proxies by a stockholder may propose and vote for one
or more adjournments or postponements of the Bank of Boston Meeting to permit
further solicitation of proxies; provided, however, that no proxy which is voted
against the proposal to approve and adopt the Merger Agreement will be voted in
favor of any such adjournment or postponement. If any other matters should
properly come before the Bank of Boston Meeting, the persons named in the proxy
will vote in accordance with their best judgment.
A stockholder of record may revoke a proxy by filing an instrument of
revocation with Gary A. Spiess, Esq., Clerk of Bank of Boston, 100 Federal
Street, 01-25-01, Boston, MA 02110, by filing a duly executed proxy bearing a
later date, or by appearing at the Bank of Boston Meeting in person, notifying
the Clerk, and voting by ballot at the Bank of Boston Meeting. Any stockholder
of record attending the Bank of Boston Meeting may vote in person whether or not
a proxy has been previously given, but the mere presence (without notifying the
Clerk) of a stockholder at the Bank of Boston Meeting will not constitute
revocation of a previously given proxy. In addition, stockholders whose shares
of Bank of Boston 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 Bank of Boston Meeting. See also "SOLICITATION OF PROXIES."
Under the rules of the NYSE, brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers with respect to the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, the approval of the 1996 Long-Term Incentive Plan, and the
consideration of each of the five stockholder proposals, without specific
instructions from such customers.
VOTES REQUIRED TO APPROVE THE MERGER AND OTHER MATTERS; ABSTENTIONS AND
NON-VOTES
The affirmative votes of the holders of at least a majority of the shares
of Bank of Boston Common Stock present in person, or represented by proxy, and
entitled to vote at the Bank of Boston Meeting are required: to approve and
adopt the Merger Agreement and the transactions contemplated thereby, including
the Merger; to ratify the selection of the independent auditors for 1996; to
approve Bank of Boston's 1996 Long-Term Incentive Plan; and to approve any of
the four stockholder proposals. The affirmative votes of the holders of at least
a majority of the shares of Bank of Boston Common Stock outstanding and entitled
to vote at the Bank of Boston Meeting are required to amend the Bank of Boston
Articles. The election of nominees for directors will be decided by plurality
vote. Abstentions and broker non-votes will be treated as shares present or
represented at the Bank of Boston Meeting for quorum purposes. Abstentions will
have the effect of votes against the approval of the Merger Agreement and the
transactions contemplated thereby, including the Merger, the ratification of
independent auditors, the approval of the 1996 Long-Term Incentive Plan and the
approval of any of the four stockholder proposals, while broker non-votes will
be disregarded (i.e., they will not be considered shares entitled to be voted on
these proposals). With respect to the proposal to amend the Bank of Boston
Articles, both abstentions and broker non-votes will have the effect of votes
against this proposal. (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 by stock exchange rules
from exercising discretionary authority to vote on the matter, which the broker
indicates on the proxy.)
The approval of the Merger Agreement by holders of Bank of Boston Common
Stock is a condition to the consummation of the Merger. None of the other
matters being considered at the Bank of Boston Meeting must be approved by
holders of Bank of Boston Common Stock in order for the Merger to be
consummated. If the requisite affirmative vote for the Merger Agreement by the
Bank of Boston stockholders is not obtained, each of Bank of Boston and BayBanks
will have the right to terminate the Merger Agreement and in that case, the
Merger Agreement will become null and void and there will be no liability on the
part of Bank of Boston or BayBanks or their respective officers or directors to
the other, except as specifically provided in the Merger Agreement. See "THE
MERGER -- Termination of the Merger Agreement."
29
<PAGE> 39
PRINCIPAL STOCKHOLDERS OF BANK OF BOSTON
As of the Record Date, 110,507,016 shares of Bank of Boston Common Stock
were outstanding and entitled to vote, of which approximately 704,264 shares, or
approximately .6%, were held by directors and executive officers of Bank of
Boston and their respective affiliates. Each such director and officer of Bank
of Boston has indicated his or her intention to vote the Bank of Boston Common
Stock beneficially owned by him or her for approval of the Merger Agreement and
the consummation of the transactions contemplated thereby. As of the Record
Date, the banking and trust subsidiaries of Bank of Boston, as fiduciaries,
custodians or agents, held a total of 4,622,234 shares, or 4.2%, of the
outstanding shares of Bank of Boston Common Stock under trust agreements and
other instruments and agreements. These entities maintained sole or shared
voting power with respect to none of such shares. In addition, as of the Record
Date, BayBanks and its directors and officers beneficially owned 567 shares of
Bank of Boston Common Stock, all of which they intend to vote for approval of
the Merger and the consummation of the transactions contemplated thereby. As of
the Record Date, BayBank, N.A., as fiduciary, custodian or agent, held a total
of 85,996 shares, or .1%, of the outstanding shares of Bank of Boston Common
Stock under trust agreements and other instruments and agreements. BayBank, N.A.
maintained sole or shared voting power with respect to 3,755 of such shares.
Information with respect to beneficial ownership of Bank of Boston Common
Stock by entities owning more than 5% of such stock and more detailed
information with respect to beneficial ownership of Bank of Boston Common Stock
by Bank of Boston directors and executive officers is set forth in the section
entitled "THE BANK OF BOSTON MEETING -- ADDITIONAL MATTERS," which is included
in the Joint Proxy Statement-Prospectus delivered to Bank of Boston stockholders
only.
30
<PAGE> 40
THE BAYBANKS MEETING
DATE, TIME AND PLACE
This Joint Proxy Statement-Prospectus is being furnished to holders of
BayBanks Common Stock in connection with the solicitation of proxies by the
BayBanks Board of Directors for use at the BayBanks Meeting to be held on
Thursday, April 25, 1996, at 10:00 a.m., at the offices of BayBank Systems,
Inc., One BayBank Technology Place, Waltham, Massachusetts.
PURPOSES OF THE MEETING
The BayBanks Meeting will be held for the purposes of considering and
voting upon proposals to: (i) approve and adopt the Merger Agreement and the
consummation of the transactions contemplated thereby, including the Merger;
(ii) elect three directors to hold office for a term of three years and until
their successors are chosen and qualified or, if earlier, until the Effective
Time; and (iii) transact such other business as may be in furtherance of or
incidental to the foregoing. Any action may be taken on the foregoing proposals
at the BayBanks Meeting. With the exception of these matters, the management of
BayBanks knows of no other matters at this time to be brought before the
BayBanks Meeting. For additional information with respect to the election of
directors, see "THE BAYBANKS MEETING -- ADDITIONAL MATTERS," which is included
in the Joint Proxy Statement-Prospectus to be delivered to BayBanks stockholders
only.
THE BAYBANKS BOARD UNANIMOUSLY RECOMMENDS THAT BAYBANKS STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND FOR ELECTION OF THE
NOMINEES FOR DIRECTOR.
RECORD DATE
The BayBanks Board has fixed the close of business on March 5, 1996 as the
record date (the "Record Date"). Only holders of BayBanks Common Stock of record
on the Record Date will be entitled to notice of and to vote at, the BayBanks
Meeting. At the Record Date, 19,707,874 shares of BayBanks Common Stock were
outstanding and entitled to vote. A majority in interest of the BayBanks Common
Stock outstanding and entitled to vote represented at the BayBanks Meeting in
person or by proxy constitutes a quorum for the transaction of business.
PROXIES; VOTING AND REVOCATION
Each share of BayBanks Common Stock is entitled to one vote on each matter
voted upon at the BayBanks Meeting. Shares of BayBanks Common Stock represented
by a properly executed proxy received prior to the vote at the BayBanks Meeting
and not revoked will be voted at the BayBanks Meeting as directed in the proxy.
IF A PROXY IS SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND FOR ELECTION OF ALL
NOMINEES FOR DIRECTOR LISTED IN THE PROXY.
The persons named as proxies by a stockholder may propose and vote for one
or more adjournments or postponements of the BayBanks Meeting to permit further
solicitation of proxies; provided, however, that no proxy that is voted against
the proposal to approve and adopt the Merger Agreement will be voted in favor of
any such adjournment or postponement. If any other matters should properly come
before the BayBanks Meeting, the persons named in the proxy will vote in
accordance with their best judgment.
A stockholder of record may revoke a proxy by filing an instrument of
revocation with Ilene Beal, Executive Vice President, Secretary, and Clerk of
BayBanks, 175 Federal Street, Boston, MA 02110, by filing a duly executed proxy
bearing a later date, or by appearing at the BayBanks Meeting in person,
notifying the Clerk of the revocation, and voting by ballot at the BayBanks
Meeting. Any stockholder of record attending the BayBanks Meeting may vote in
person whether or not a proxy has been previously given, but the mere
31
<PAGE> 41
presence (without notifying the Clerk of the revocation) of a stockholder at the
BayBanks Meeting will not constitute revocation of a previously given proxy. In
addition, stockholders whose shares of BayBanks Common Stock are not registered
in their own names will need additional documentation from the record holders of
such shares to vote personally at the BayBanks Meeting. See also "SOLICITATION
OF PROXIES."
VOTES REQUIRED TO APPROVE THE MERGER AND OTHER MATTERS; ABSTENTIONS AND
NON-VOTES
The affirmative votes of the holders of two-thirds of the issued and
outstanding shares of BayBanks Common Stock are required to approve and adopt
the Merger Agreement and the transactions contemplated thereby, including the
Merger. The affirmative vote of a majority of any quorum is sufficient to elect
the nominees for director and to transact any other business at the meeting.
Abstentions and broker non-votes will be treated as shares present or
represented at the BayBanks Meeting for quorum purposes. Abstentions and broker
non-votes will have the effect of votes against the approval of the Merger
Agreement and the transactions contemplated thereby, including the Merger. (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 by stock exchange rules from exercising discretionary
authority to vote on the matter, which the broker indicates on the proxy.)
The approval of the Merger Agreement by holders of two-thirds of BayBanks
Common Stock is a condition to the consummation of the Merger. If the requisite
affirmative vote for the Merger Agreement is not obtained from BayBanks
stockholders, each of BayBanks and Bank of Boston will have the right to
terminate the Merger Agreement and, in that case, the Merger Agreement will
become null and void and there will be no liability on the part of BayBanks or
Bank of Boston or their respective officers or directors to the other, except as
specifically provided in the Merger Agreement. See "THE MERGER -- Termination of
the Merger Agreement."
PRINCIPAL STOCKHOLDERS OF BAYBANKS
As of the Record Date, 19,707,874 shares of BayBanks Common Stock were
outstanding and entitled to vote, of which approximately 305,000 shares, or
approximately 1.5% were held by directors and executive officers of BayBanks and
their respective affiliates. Each such director and officer of BayBanks has
indicated his or her intention to vote the BayBanks Common Stock beneficially
owned by him or her for approval of the Merger Agreement and the consummation of
the transactions contemplated thereby. As of the Record Date, BayBank, N.A., as
fiduciary, custodian or agent, held a total of 1,715,478 shares, or 8.7%, of the
outstanding shares of BayBanks Common Stock under trust agreements and other
instruments and agreements. BayBank, N.A. maintained sole or shared voting power
with respect to 428,885 of such shares. In addition, as of the Record Date, the
banking and trust subsidiaries of Bank of Boston, as fiduciaries, custodians or
agents, held a total of 78,028 shares, or .4%, of the outstanding shares of
BayBanks Common Stock under trust agreements and other instruments and
agreements. These entities maintained sole or shared voting power with respect
to 50,435 of such shares. As of the Record Date, Bank of Boston's directors and
officers beneficially owned no shares of BayBanks Common Stock.
Information with respect to beneficial ownership of BayBanks Common Stock
by entities owning more than 5% of such stock and more detailed information with
respect to beneficial ownership of BayBanks Common Stock by BayBanks directors
and executive officers is set forth in the section entitled "THE BAYBANKS
MEETING -- ADDITIONAL MATTERS," which is included in the Joint Proxy Statement-
Prospectus to be delivered to BayBanks stockholders only.
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INFORMATION ABOUT BANK OF BOSTON
GENERAL
Bank of Boston is a registered bank holding company, organized in 1970
under Massachusetts law, which, through its subsidiaries and joint ventures, is
engaged in providing a wide variety of retail, corporate and international
financial services to individuals, corporate and institutional customers,
governments, and other financial institutions. These services include retail
banking, consumer finance, private banking, trust, mortgage origination and
servicing, domestic corporate and investment banking, leasing, international
banking, commercial real estate lending, correspondent banking, and securities
and payments processing. Bank of Boston's principal subsidiary is FNBB, a
national banking association. Other major banking subsidiaries of Bank of Boston
are BKB Connecticut and Hospital Trust.
For more information about Bank of Boston, reference is made to Bank of
Boston's most recent Annual Report on Form 10-K, which is incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE."
RECENT DEVELOPMENTS
On March 15, 1996, Bank of Boston announced that it had closed its
previously announced transaction relating to the sale of its mortgage banking
business.
On December 11, 1995, two equity investment firms, Thomas H. Lee Company
("Lee") and Madison Dearborn Partners ("Madison"), entered into an agreement to
acquire Bank of Boston's mortgage banking subsidiary, BancBoston Mortgage
Corporation ("BBMC") with the Bank of Boston retaining a 45% interest. The new
independent mortgage company, named HomeSide, Inc., will be positioned to
compete more effectively in a consolidating mortgage banking industry.
On March 4, 1996 HomeSide, Inc. signed a definitive agreement with Barnett
Banks, Inc. relating to the purchase of Barnett Mortgage Company. This
transaction is expected to close in the second quarter of 1996.
Under the agreement relating to the sale of BBMC, Bank of Boston agreed to
receive a fixed price of $225 million and maintain a hedging program designed to
protect the enterprise value of BBMC. On March 15, 1996, this transaction closed
and Bank of Boston realized a net gain after taxes of approximately $40 million.
An additional after-tax gain of approximately $30 million is expected to be
reported in the second quarter of 1996. These gains are expected to be
substantially offset by an after-tax net hedging loss of approximately $70
million to be recorded in the first quarter of 1996.
These losses arise from hedge contracts purchased by Bank of Boston which
are designed to protect the value of Bank of Boston's mortgage servicing assets
and the value of its investment in BBMC. These values are affected by the
expected level of prepayments made by mortgage holders resulting from changes in
mortgage rates. The value of these contracts fluctuates inversely with the value
of the mortgage servicing assets. Due to the sharp increase in long-term
interest rates in the first quarter of 1996, the value of these contracts has
declined. Concurrently, the value of the mortgage servicing assets and the
amount of gain recognized and to be recognized by Bank of Boston on the
disposition of BBMC has increased. This is caused by the fixed price sale nature
of this transaction and the fact that Bank of Boston's investment in BBMC has
declined due to the hedging results.
INFORMATION ABOUT BAYBANKS
BayBanks, Inc., established in 1928, is a registered bank holding company
and savings and loan holding company that provides a complete range of banking,
investment, and related financial services, with particular emphasis on consumer
and middle market business customers. BayBanks' largest subsidiary is BayBank,
N.A., a national bank based in Boston with branches in Massachusetts and
Connecticut. BayBanks also has bank and savings association subsidiaries in New
Hampshire. BayBanks is best known for its use of advanced banking technology,
featuring state-of-the-art computer and telecommunications technology to process
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customer transactions, provide customer information, and increase the efficiency
of its data processing activities. BayBanks is a recognized leader in consumer
banking, with the largest consumer market share in Massachusetts.
For more information about BayBanks, reference is made to BayBanks' most
recent Annual Report on Form 10-K, which is incorporated herein by reference.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
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THE MERGER
(PROXY ITEM 1)
GENERAL
The Bank of Boston Board and the BayBanks Board each has unanimously
approved the Merger Agreement and believe that the terms of the Merger are fair
and in the best interests of the respective parties and their respective
stockholders, and each unanimously recommends that its respective stockholders
vote to approve and adopt the Merger Agreement and the consummation of the
transactions contemplated thereby, including the Merger.
This section of the Joint Proxy Statement-Prospectus describes certain
aspects of the proposed Merger, including the principal provisions of the Merger
Agreement. The following description of the Merger does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement
and the Stock Option Agreements, which are attached as Exhibits A, B and C,
respectively, to this Joint Proxy Statement-Prospectus and are incorporated
herein by reference. All stockholders of Bank of Boston and BayBanks are urged
to read the Merger Agreement and the Stock Option Agreements carefully and in
their entirety.
BACKGROUND OF THE MERGER
Bank of Boston. In recent years, Bank of Boston's strategy for building
long-term value for Bank of Boston's stockholders has been focused in three
areas: to build a strong consumer banking franchise, particularly in Southern
New England, to sharpen its significant presence in national commercial banking,
and to continue to expand international operations, principally in Latin America
but also selectively in other international markets. During 1994 and 1995, Bank
of Boston took steps to further focus its efforts, including, among other
initiatives, the announcement or completion of acquisitions of a number of
smaller banks and consumer credit companies, sales of its factoring, freight
management and corporate trust businesses, its banking subsidiaries in Maine and
Vermont and its branches in Puerto Rico and Haiti, and joint ventures relating
to its stock transfer and mortgage banking businesses.
An important challenge in Bank of Boston's consumer strategy has been to
strengthen its consumer operations in southern New England. Bank of Boston
recognized that a stronger consumer business was important to its overall
success. Bank of Boston believes that in today's dynamically changing financial
services industry, the opportunity to merge with BayBanks provides Bank of
Boston with a way to widen its customer base and expand its product and delivery
capabilities. Bank of Boston believes that BayBanks is a premier retail banking
company and, as discussed in detail below, Bank of Boston pursued negotiations
with BayBanks which resulted in the execution of the Merger Agreement.
In the spring and summer of 1995, Bank of Boston's management and financial
advisors made presentations to the Bank of Boston Board on a number of potential
transactions with major financial partners including, in May, a presentation by
Merrill Lynch on BayBanks. In the first part of 1995, Ira Stepanian, then
Chairman of Bank of Boston, and Mr. Crozier had exploratory conversations about
a potential combination of Bank of Boston and BayBanks that did not result in
any agreement.
Following the retirement of Mr. Stepanian in the summer of 1995, Mr.
Gifford was elected as his successor. Mr. Gifford initiated a review of
strategic business options for Bank of Boston, with the results to be presented
at a Board meeting in the fall.
In mid-October 1995, Mr. Gifford and Mr. Crozier met formally for the first
time following Mr. Gifford's election as Chairman. They discussed a number of
topics, including a possible business combination involving Bank of Boston and
BayBanks. Following that initial meeting, they agreed to meet again to discuss
the topic.
Coincident with its regular October meeting, the Bank of Boston Board and
management met on the 26th and 27th to review a number of strategic alternatives
for Bank of Boston resulting from the review initiated earlier. At this meeting,
the Board and management discussed a wide range of strategic alternatives for
Bank of Boston, including as an option a business combination with BayBanks.
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On November 14, Mr. Gifford and Mr. Crozier met to discuss further the
possibility of a merger of the two companies. They also talked about using
Morgan Stanley as an intermediary in their discussions.
At its regular monthly Board meeting on November 21, management of Bank of
Boston made a presentation to the Board on how an acquisition of BayBanks would
fit into Bank of Boston's strategy. Mr. Gifford reported to the Board on his
discussions with Mr. Crozier and noted that it was too early to know whether a
transaction between the parties would ultimately occur. Following this Board
meeting, Mr. Gifford informed Mr. Crozier that the Bank of Boston Board was
amenable to further discussion, and they arranged for exploratory discussions
with Morgan Stanley.
On November 29, Morgan Stanley met separately with Mr. Gifford and Mr.
Crozier to discuss terms, including possible financial terms, for a possible
merger of Bank of Boston and BayBanks. In the days following those discussions,
there were further telephone conversations between Mr. Gifford, Mr. Crozier and
Morgan Stanley concerning the possible merger.
On December 4, Mr. Gifford met with Mr. Crozier and Morgan Stanley for
several hours to discuss a possible merger. At the conclusion of that meeting,
the two Chairmen concluded that a transaction was possible and that it would be
appropriate to involve key senior managers from both companies to conduct a due
diligence review and explore further business synergies. Later that day, Mr.
Gifford met with a small number of senior Bank of Boston managers and asked this
group to begin due diligence discussions with their counterparts at BayBanks.
Beginning on December 5 and continuing through December 11, senior managers
of Bank of Boston and BayBanks conducted a series of due diligence meetings and
continued to discuss further a possible merger. During this period, Bank of
Boston retained external legal counsel and Merrill Lynch as its financial
advisor and discussed the possible transaction with its regular outside
auditors. Also during this period, the parties discussed the structure and other
terms of the transaction.
On December 11, at a regularly scheduled meeting of Bank of Boston's
Compensation Committee, Mr. Gifford advised the directors on that committee that
he would recommend to the Bank of Boston Board a transaction with BayBanks.
Throughout the day on December 11 and continuing during the morning of December
12, Mr. Gifford telephoned each of the other directors to call a special Board
meeting on December 12 and advise them about the proposed transaction.
The Bank of Boston Board met on December 12 to consider the proposed merger
with BayBanks. Management presented the terms of the Merger and the Merger
Agreement and the Stock Option Agreements to the Bank of Boston Board.
Management made presentations to the Board on the results of their due
diligence, the reasons for the Merger and the benefits of the Merger to Bank of
Boston's stockholders, customers, employees and other constituencies. Bank of
Boston's legal advisors reviewed for the Board the legal terms of the Merger
Agreement and the Stock Option Agreements and the Board's obligations in
consideration of the proposed transaction. Merrill Lynch made presentations
regarding the financial terms and delivered its opinion that (subject to the
assumptions expressed in its opinion) the Common Exchange Ratio was fair to the
holders of Bank of Boston Common Stock from a financial point of view. See "THE
MERGER -- Opinion of Financial Advisor to Bank of Boston." After discussion and
consideration of the factors described below under "Recommendations of the
Boards of Directors and Reasons for the Merger," the Bank of Boston Board
unanimously approved and authorized the execution of the Merger Agreement and
the Stock Option Agreements.
The Merger Agreement and the Stock Option Agreements were signed on
December 12, 1995.
BayBanks. For many years BayBanks' business strategy has focused on
building a premier consumer banking company in Massachusetts, principally in the
Greater Boston market, and developing as a significant regional corporate lender
and provider of corporate banking services to middle market businesses. BayBanks
has pursued its strategy primarily through internal growth via aggressive branch
and ATM expansion and the use of marketing programs featuring state-of-the-art
computer and telecommunications technology to provide superior products and
services to its customers and increase the efficiency of its operations. During
1995, BayBanks expanded into the Southern New Hampshire portion of the Greater
Boston market (where direct
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branching from Massachusetts is not yet permitted) by acquiring two smaller New
Hampshire banking organizations, adding twenty-two branches to its network. At
present, BayBanks operates 238 full service banking offices and 657 remote
banking facilities serving 187 cities and towns in Massachusetts, fourteen in
Southern New Hampshire and two in Connecticut.
Since the severe New England recession during the late 1980's and early
1990's, BayBanks has sought to increase profitability, while continuing to grow
and strengthen its franchise. By early 1995, BayBanks' earnings, dividends, loan
quality, and capital ratios had been restored to pre-recession levels, and Mr.
Crozier and the BayBanks Board determined that Mr. Crozier should explore ways
to add depth and greater breadth to the company's operations and consider
corporate alliances as one means to that end. The BayBanks Board formed an
Organization Committee consisting of the members of the BayBanks Executive
Committee (Directors Cervieri, Crozier, Piper, and Strehle) and Director Robert
Gable to guide the exploration process. During the process, Mr. Crozier and the
Organization Committee considered the merits of various alternatives for adding
depth to the company's operations, including adding senior management that could
provide management succession if the company were to remain independent, making
an acquisition of a similarly sized institution or of smaller institutions, and
pursuing possible mergers with, or acquisition by, major regional, national, and
international banking organizations. During this period, Mr. Crozier had contact
with the chief executive officers of a number of banking organizations,
including the former Chief Executive Officer of Bank of Boston, and discussed
possible alliances. Such discussions, which were reported to the Organization
Committee and the BayBanks Board, all were exploratory, did not involve
financial advisers, and did not result in any agreements.
During the summer of 1995, the former Chairman and Chief Executive Officer
of Bank of Boston retired and Mr. Gifford was elected to succeed him. Mr.
Crozier met Mr. Gifford at a function in Boston in September 1995, and they
agreed to meet at some time in the future to get better acquainted. They met in
mid-October, when they discussed various issues, among them a possible merger of
their organizations, a topic that Mr. Crozier had discussed earlier with Mr.
Gifford's predecessor. They agreed to meet again during mid-November.
On October 26, 1995, Mr. Crozier outlined to the BayBanks Board several
potential organizational strategies that had been under active consideration,
including continued independence, a major acquisition, and possible alliances
with other companies, particularly Bank of Boston. After discussion of the
alternatives, the BayBanks Board agreed that it would be desirable to
investigate further the possibility of a merger with Bank of Boston.
Messrs. Crozier and Gifford met again on November 14 and discussed a
possible merger in more specific terms, including adoption of the name "BayBank
of Boston" for Bank of Boston's principal bank subsidiary and the continued use
of BayBanks' graphics for advertising. At that time Messrs. Crozier and Gifford
agreed to review a possible merger with the boards of directors of their
respective companies at their November board meetings. They also discussed using
Morgan Stanley as an intermediary for discussion of a possible merger
transaction.
At meetings of the BayBanks Organization Committee on November 15 and the
BayBanks Board on November 16, Mr. Crozier provided an update on the strategic
options under consideration. The discussion focused on the possibility of a
merger transaction with Bank of Boston and, at its November 16 meeting, the
BayBanks Board authorized Mr. Crozier to explore the possibility of a merger
with Bank of Boston.
After the Bank of Boston Board met on November 21, Mr. Gifford informed Mr.
Crozier that the Bank of Boston Board also was agreeable to pursuing matters
further, and that it would be appropriate to arrange for exploratory discussions
with Morgan Stanley.
On November 29 and 30, Morgan Stanley had a series of separate meetings and
telephone conversations with each of Mr. Crozier and Mr. Gifford to determine if
there were a framework within which the parties could agree on a merger. As a
result of these discussions, which included the structure of a possible
transaction and the range of values that might be appropriate, it appeared that
the areas on which the parties might be able to reach an agreement were
broadbased.
Messrs. Crozier and Gifford met again with Morgan Stanley on December 4 to
discuss key issues, including corporate and subsidiary bank names, BayBanks'
representation on the Bank of Boston Board, and the top-level organization and
management structure of a combined organization. At that meeting the Chief
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Executive Officers decided that the possibility of reaching agreement was
sufficiently great that they should convene meetings of the senior managers of
the two organizations. The senior managers met on the afternoon of December 5,
when a confidentiality agreement was signed and the senior managers discussed
each company's business and prospects and the effects of a possible merger
between them. During this period, Mr. Crozier engaged Morgan Stanley as
BayBanks' financial advisor, and due diligence meetings commenced, during which
the parties discussed the structure and terms of such a transaction with each
other and with their respective financial and legal advisors.
Mr. Crozier reviewed the possible merger with the BayBanks Executive
Committee at a meeting held on December 10, and it was determined that a special
meeting of the BayBanks Board should be held on December 12.
At the December 12 meeting of the BayBanks Board, the proposed merger
transaction was reviewed in detail with Directors by management, financial
advisors, and legal counsel. Morgan Stanley discussed the financial terms of the
proposed merger, delivering its written opinion that the proposed Common
Exchange Ratio of 2.2 was fair from a financial point of view to the holders of
BayBanks Common Stock. BayBanks' legal counsel and members of senior management
also made presentations to the BayBanks Board. The potential financial and
strategic benefits of the proposed transaction and the terms of the Merger
Agreement and related reciprocal stock option agreements were discussed in
detail. After consideration of all the information presented, the Merger, the
Common Exchange Ratio, and the other terms of the transaction were unanimously
approved by all members of the BayBanks Board present, subject to approval of
stockholders, receipt of necessary regulatory approvals, and compliance with the
further conditions set forth in the Merger Agreement. The Merger Agreement and
the Stock Option Agreements were executed on December 12, 1995, following the
BayBanks and Bank of Boston Board meetings.
RECOMMENDATION OF THE BANK OF BOSTON BOARD; REASONS FOR THE MERGER
The Merger will create a strong New England consumer and business banking
franchise with a significant national corporate presence and strong
international capabilities, particularly in Latin America. The Merger will
combine Bank of Boston's strong corporate and international businesses (and its
significant domestic consumer business) with BayBanks' wide retail product
range, customer base and attractive market positions. The Merger will also
permit each company to diversify beyond its current businesses and services by
expanding the marketing of its products and services to the customers now served
by the other, and will enable the combined company to continue to provide a
broad array of innovative financial services and products to the customers and
communities currently served by each.
In reaching its decision to approve the Merger Agreement and the Option
Agreements, the Bank of Boston Board considered that the Merger would represent
a strategic alliance between Bank of Boston and BayBanks and that Bank of
Boston's stockholders would realize the expected benefits of such an alliance,
including, but not limited to, the earnings per share prospects of the combined
company, the combined company's financial strength and its consequent enhanced
ability to strengthen its existing businesses and develop new products and
services to better serve customers and communities of the two companies, the
cost savings to be realized through consolidation of services in the New England
market, the potential for cross-marketing services to customers of the two
companies and increased access to the combined company's customers, the
opportunity to diversify earnings, the business synergies that might be
realized, and the potential effect of the Merger on the perceptions of the
combined company's businesses by the rating agencies and the financial markets.
The Bank of Boston Board determined that the Merger would significantly
enhance the combined company's ability to compete effectively and to meet the
changing credit and product needs of its customers and communities by combining
two financially sound institutions with complementary businesses and business
strategies, thereby creating a stronger combined company with greater size,
flexibility, breadth of services, efficiency, capital strength, profitability
and potential for growth than either Bank of Boston or BayBanks would possess on
a stand-alone basis. The Board believes that each institution is well-managed
and possesses management philosophies and strategic focus compatible with those
of the other, and that the strong
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capitalization of the combined company following the Merger will allow it to
take advantage of future opportunities for growth, including appropriate
acquisitions and investments in products and technology. The Board also believes
that the Merger will allow the combined company to compete effectively in the
rapidly changing marketplace for banking and financial services and to take
advantage of opportunities for growth and diversification that may not be
available to either institution on its own. In evaluating the Merger, the Bank
of Boston Board and management discussed the critical importance of successfully
integrating, and building on the strengths of, the management teams and cultures
of both companies, and considered the uncertainties inherent in any such
combination of two significant companies.
In reaching its conclusion to approve the Merger Agreement and the Stock
Option Agreements, the Bank of Boston Board consulted with Bank of Boston
management, as well as its financial and legal advisors, and considered the
factors described above and a number of additional factors, including the
following:
(i) The Bank of Boston Board considered the effectiveness of the
Merger in implementing and accelerating Bank of Boston's basic long-term
focused growth strategy.
(ii) The Bank of Boston Board analyzed the financial condition,
businesses and prospects of Bank of Boston and BayBanks, including, but not
limited to, information with respect to their respective recent and
historic stock and earnings performance and their respective relatively
strong credit position and access to the capital markets. The Bank of
Boston Board considered the detailed financial analyses, pro forma and
other information with respect to Bank of Boston and BayBanks discussed by
Merrill Lynch, as well as the Bank of Boston Board's own knowledge of Bank
of Boston, BayBanks and their respective businesses. In making its
determination, the Bank of Boston Board took into account the results of
Bank of Boston's due diligence review of BayBanks' business. The Bank of
Boston Board also considered the fact that while the Merger, on a pro forma
basis, would initially dilute the combined company's 1996 earnings per
share before merger and reorganization costs by approximately five percent,
the Merger would result in accretion of approximately five percent to the
company's combined 1997 earnings per share. Such amounts include the
expected effect of annualized cost savings from the Merger of approximately
$190 million (pre-tax) per year to be achieved over an eighteen-month
period, and the amount for 1997 includes the effect of $40 million
(pre-tax) of projected revenue enhancements which are expected to be
achieved primarily from the funding advantages of BayBanks' retail deposit
base to the combined company. See "THE MERGER -- Management and Operations
after the Merger -- Cost Savings."
(iii) The Bank of Boston Board considered the opinion of Merrill Lynch
that, as of December 12, 1995, the Common Exchange Ratio was fair to Bank
of Boston from a financial point of view. See "THE MERGER -- Opinion of
Financial Advisor to Bank of Boston."
(iv) The Bank of Boston Board considered the terms of the Merger
Agreement and the reciprocal Stock Option Agreements. The Bank of Boston
Board also considered certain other information regarding the structure of
the Merger, including the terms and structure of the Merger, the proposed
arrangements with respect to the Bank of Boston Board following the Merger
and the management structure following the Merger. See "THE
MERGER -- Management and Operations after the Merger -- Bank of Boston" and
"-- Interests of Certain Persons in the Merger."
(v) The Bank of Boston Board considered the effect on Bank of Boston
stockholders' value of Bank of Boston continuing as a stand-alone entity
compared to the effect of Bank of Boston combining with BayBanks in light
of the factors summarized above with respect to the financial condition and
prospects of the two companies on a stand-alone basis and of the combined
company, and the current economic and financial environment.
(vi) The Bank of Boston Board also considered the likelihood of the
Merger being approved by the appropriate regulatory authorities. See "THE
MERGER -- Regulatory Approvals Required for the Merger."
(vii) The Bank of Boston Board considered the anticipated cost savings
and operating efficiencies available to the combined company from the
Merger. See "THE MERGER -- Management and Operations after the Merger."
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(viii) The Bank of Boston Board considered the effect of the Merger on
Bank of Boston's other constituencies, including the customers and
communities it serves and its employees, including management.
The foregoing discussion of the information and factors considered by the
Bank of Boston Board is not intended to be exhaustive but includes the material
factors considered by the Bank of Boston Board. In reaching its determination to
approve and recommend the Merger, the Bank of Boston Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. Throughout its
deliberations, the Bank of Boston Board received the advice of special counsel.
After deliberating with respect to the Merger and the other transactions
contemplated by the Merger Agreement, considering, among other things, the
matters discussed above and the opinion of Merrill Lynch referred to above, the
Bank of Boston Board, by unanimous vote of all directors, approved and adopted
the Merger Agreement and the transactions contemplated thereby, including the
Stock Option Agreements, as being in the best interests of Bank of Boston and
its stockholders. The Bank of Boston Board is unanimous in its recommendation
that holders of Bank of Boston Common Stock vote for approval and adoption of
the Merger Agreement.
THE BANK OF BOSTON BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, BANK OF BOSTON AND ITS STOCKHOLDERS. THE BANK OF BOSTON BOARD
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER.
RECOMMENDATION OF THE BAYBANKS BOARD; REASONS FOR THE MERGER
The BayBanks Board believes that the Merger between the two corporations
will benefit BayBanks' stockholders. The Merger will build on the strengths of
Bank of Boston, a corporate and international banking leader, and those of
BayBanks, which is one of the nation's premier consumer banking companies. Upon
consummation of the Merger, the combined company will be operating in thirty-six
states and twenty-four countries, with approximately $60 billion in assets and
approximately $40 billion in deposits. The combined institution will have the
lead market share in Massachusetts in total deposits, commercial and industrial
lending, consumer lending, mortgage lending, small business lending, and private
banking. The combination of Bank of Boston's stature and expertise in
international, large corporate, and commercial banking with BayBanks' stature
and expertise in consumer banking and use of advanced banking technology is
expected to result in an enhanced business mix and lower risk profile for both
companies, with the resulting financial institution being well positioned for
continued growth.
The Merger will combine institutions that have shown strong revenue growth
and have demonstrated increased market share and earnings momentum. Neither
currently has any significant asset quality problems. The Merger also will
combine two strong management teams with experience in completing merger
transactions that realize cost savings through organizational consolidation and
the achievement of operating efficiencies. Expected benefits of the Merger
include the substantially greater financial strength of the combined company and
its enhanced ability to develop new products and services, market to each
company's customers, and diversify earnings. The Merger also will present new
opportunities to achieve cost savings in the combined company through internal
consolidation, greater scale efficiencies in operations, and interstate mergers
of subsidiaries. As a result, the prospects for future earnings per share growth
of the combined company should be enhanced.
During the process that culminated in approval of the Merger Agreement, the
BayBanks Board considered the following factors, among others:
(i) The Financial and Other Terms of the Merger Agreement. The
BayBanks Board considered the terms of the Merger Agreement and the
transactions contemplated thereby, including the Stock Option Agreements.
The BayBanks Board took into account: the historical trading range for Bank
of Boston Common Stock and BayBanks Common Stock; the Common Exchange Ratio
(noting, in particular, that it reflected a 22 percent premium for the
stockholders of BayBanks Common Stock based on the closing prices of
BayBanks Common Stock and Bank of Boston Common Stock, respectively, on
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the last trading day prior to December 12, 1995); the potential impact of
the Merger on the price of Bank of Boston Common Stock; the resulting
relative interests of BayBanks and Bank of Boston stockholders in the
equity of the combined company; and the potential for increased earnings
and book value per share for stockholders of BayBanks. The Board considered
that under the Merger Agreement it would have the right to terminate the
Merger Agreement in the event of a specified significant decline in the
price of Bank of Boston Common Stock (both absolutely and relative to an
index of bank stocks) prior to consummation of the Merger. With respect to
the BayBanks Option Agreement and the Bank of Boston Option Agreement, the
BayBanks Board was aware that the existence of such agreements might
discourage third parties from seeking to acquire BayBanks or (prior to the
Merger) Bank of Boston, respectively. See "THE MERGER -- Termination of the
Merger Agreement" and "CERTAIN TERMS OF THE STOCK OPTION AGREEMENTS."
(ii) Advice and Opinion of Financial Advisor. The BayBanks Board
considered the advice of its financial advisor, Morgan Stanley, and
reviewed the detailed financial analyses, pro forma results, and other
information presented by Morgan Stanley. The BayBanks Board considered the
opinion of Morgan Stanley that, as of December 12, 1995, and based upon the
matters set forth in its written opinion as of that date, the Common
Exchange Ratio was fair from a financial point of view to the holders of
BayBanks Common Stock. (For a discussion of the opinion of Morgan Stanley,
including a summary of the procedures followed, the matters considered, the
scope of the review undertaken, and the assumptions made with respect
thereto, see "THE MERGER -- Opinion of Financial Advisor to BayBanks.")
(iii) Increased Resources and Market Presence. The BayBanks Board
considered that the combined entity resulting from the Merger would be the
fifteenth largest banking institution in the United States in asset size.
The Board recognized that such an institution would be likely to possess
the financial resources to compete more effectively in the rapidly changing
market for banking and financial services and would be effective in
fulfilling BayBanks' long-term objective of enhancing its market presence
while maintaining its asset quality and credit standards. The BayBanks
Board also considered the continued use of the "BayBank" name in New
England to be a significant factor in maintaining and increasing the merged
institution's consumer business.
(iv) Opportunities for Efficiencies and Cost Savings. The BayBanks
Board took into account the expectation that the Merger would result in
economies of scale and cost synergies. The BayBanks Board noted that,
although no assurances can be given that any particular level of cost
savings will be achieved, the managements of BayBanks and Bank of Boston,
working together, had identified potential annual pre-tax cost savings of
up to $190 million, attributable to, among other things, closing redundant
branches, consolidating staffing, leveraging technology expenses across a
broader base, and gaining greater scale in data processing and loan
servicing operations.
(v) Continuity of Management. The BayBanks Board took into account
that Mr. Crozier would be elected Chairman of Bank of Boston and that Mr.
Crozier and three other members of the BayBanks Board would be elected or
appointed members of the Bank of Boston Board following consummation of the
Merger. The BayBanks Board also considered that current BayBanks management
would be expected to play a continuing role in the combined entity.
(vi) Complementary Businesses and Managements. The BayBanks Board
considered the complementary nature of the businesses, business strategies,
and product offerings of BayBanks and Bank of Boston, and recognized that
the Merger would extend BayBanks' state-of-the-art consumer banking
technology and customer services to Bank of Boston's extensive retail
customer base, while similarly extending Bank of Boston's broader range of
corporate and private banking services to BayBanks customers. The Board
noted that BayBanks' low cost core deposit funding would benefit Bank of
Boston's diverse investment and corporate financing activities. In
addition, the Board determined that the two companies possess compatible
and complementary management philosophies and strategic objectives.
(vii) Effect on BayBanks Constituencies. The BayBanks Board
considered the effect of the Merger on the various constituencies served by
BayBanks, including its customers, employees, and others. The BayBanks
Board was aware that integration plans anticipated the elimination of
approximately 2,000
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positions affecting both companies, but noted that more than half of the
reduction was expected to be accomplished through normal turnover and that
joint hiring freezes and expected growth in both organizations would
minimize the number of employees affected. The Board further noted that
greater opportunity for career growth would most likely result from the
expanded prospects of the combined organization. The Board also recognized
that the resulting entity would be able to offer a more extensive range of
products and banking services to BayBanks' customers and took into account
Bank of Boston's favorable ratings under the Community Reinvestment Act
(the "CRA"), including the "Outstanding" CRA rating awarded to FNBB.
(viii) Certain Financial and Other Information Concerning Bank of
Boston. The BayBanks Board analyzed information with respect to, among
other things, the historical financial results of Bank of Boston and the
projected financial results provided by Bank of Boston management. The
Board reviewed information with respect to Bank of Boston's business,
operations, financial condition, and future prospects. The Board also
considered, in particular, Bank of Boston's capital position, asset
quality, approach to risk management, management strength, and strategic
direction.
(ix) Due Diligence Review. The BayBanks Board considered the results
of the due diligence investigations conducted by BayBanks management,
including, among other things, assessments of Bank of Boston's credit
policies, asset quality, loan loss reserve adequacy, and interest rate
risk.
(x) The Tax and Accounting Treatment of the Transaction. The BayBanks
Board considered that the Merger is expected to be tax-free for federal
income tax purposes to BayBanks stockholders receiving Bank of Boston
Common Stock and to be accounted for under the pooling of interests method
of accounting for business combinations. See "THE MERGER -- Certain Federal
Income Tax Consequences" and "-- Accounting Treatment."
(xi) Regulatory Approvals. The BayBanks Board considered the nature
of, and likelihood of obtaining, the regulatory approvals that would be
required with respect to the Merger. See "THE MERGER -- Regulatory
Approvals Required for the Merger."
(xii) Economic and Competitive Environment. The BayBanks Board took
into account the current and prospective economic and competitive
environment facing the financial services industry generally and each
institution in particular.
After deliberating with respect to the Merger Agreement and the
transactions contemplated thereby, and after considering the other alternatives
to the Merger that might be available, the BayBanks Board, by the unanimous vote
of the directors present, approved the Merger Agreement and the transactions
contemplated thereby as being in the best interests of BayBanks and holders of
BayBanks Common Stock. The foregoing discussion of the information and factors
considered by the BayBanks Board is not intended to be exhaustive, but includes
the material factors considered by the BayBanks Board.
FOR THE REASONS DESCRIBED ABOVE, THE BAYBANKS BOARD APPROVED THE MERGER
AGREEMENT AND BELIEVES THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
BAYBANKS STOCKHOLDERS. ACCORDINGLY, THE BAYBANKS BOARD UNANIMOUSLY RECOMMENDS
THAT BAYBANKS STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO BANK OF BOSTON
On December 10, 1995, Bank of Boston retained Merrill Lynch to act as Bank
of Boston's financial advisor in connection with the Merger and related matters
based upon its qualifications, expertise and reputation, as well as Merrill
Lynch's prior investment banking relationship and general familiarity with Bank
of Boston. At the December 12, 1995 meeting of the Bank of Boston Board, Merrill
Lynch rendered an oral opinion to the Bank of Boston Board that, as of such
date, the Common Exchange Ratio pursuant to the Merger Agreement was fair from a
financial point of view to Bank of Boston. Merrill Lynch subsequently delivered
to the Bank of Boston Board a written opinion dated as of December 12, 1995
confirming its oral opinion, and this opinion was reconfirmed in writing as of
the date of this Joint Proxy Statement-Prospectus. No limitations were imposed
by Bank of Boston on the scope of Merrill Lynch's investigation or on the
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procedures followed by Merrill Lynch in rendering its opinion, except that
Merrill Lynch was directed not to consider the effect of any divestitures by
Bank of Boston that may result from the Merger.
The full text of Merrill Lynch's opinion dated as of the date of this Joint
Proxy Statement-Prospectus, which sets forth, among other things, assumptions
made, procedures followed, matters considered, and limitations on the review
undertaken, is attached as Exhibit D to this Joint Proxy Statement-Prospectus
and is incorporated herein by reference. Bank of Boston stockholders are urged
to read the Merrill Lynch opinion in its entirety. This summary of the opinion
of Merrill Lynch set forth in this Joint Proxy Statement-Prospectus is qualified
in its entirety by reference to the full text of such opinion.
MERRILL LYNCH'S OPINION IS DIRECTED TO THE BANK OF BOSTON BOARD AND
ADDRESSES ONLY THE COMMON EXCHANGE RATIO. IT DOES NOT ADDRESS THE UNDERLYING
BUSINESS DECISION TO PROCEED WITH THE MERGER AND DOES NOT CONSTITUTE, NOR SHOULD
IT BE CONSTRUED AS, A RECOMMENDATION TO ANY HOLDER OF BANK OF BOSTON COMMON
STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE BANK OF BOSTON MEETING OR
ANY OTHER MATTER IN CONNECTION THEREWITH.
Merrill Lynch has informed Bank of Boston that in arriving at its opinion,
among other things, it has: (i) reviewed BayBanks' Annual Reports on Form 10-K
and related audited financial information for the five fiscal years ended
December 31, 1995; (ii) reviewed Bank of Boston's Annual Reports on Form 10-K
and related audited financial information for the five fiscal years ended
December 31, 1995; (iii) reviewed certain limited financial information,
including financial forecasts and assumptions regarding cost savings resulting
from the Merger, relating to the respective business, earnings, assets,
contingencies and prospects of BayBanks and Bank of Boston, furnished by senior
management of BayBanks and Bank of Boston; (iv) conducted certain limited
discussions with members of senior management of BayBanks and Bank of Boston
concerning their respective financial condition, businesses, earnings, cash
flow, assets, liabilities, operations, regulatory condition, financial
forecasts, contingencies and prospects; (v) reviewed the historical market
prices and trading activity for the BayBanks Common Stock and the Bank of Boston
Common Stock and compared them with that of certain publicly traded companies
which it deemed to be relevant; (vi) compared the respective results of
operations of BayBanks and Bank of Boston with that of certain publicly traded
companies which it deemed relevant; (vii) compared the proposed financial terms
of the Merger contemplated by the Merger Agreement as described to it by senior
management of Bank of Boston with the financial terms of certain other mergers
and acquisitions which Merrill Lynch deemed to be relevant; (viii) reviewed the
amount and timing of the projected cost savings for BayBanks and Bank of Boston
following the Merger as prepared, and discussed with Merrill Lynch, by the
senior management of Bank of Boston; (ix) considered, based upon information
provided by Bank of Boston's senior management, the pro forma impact of the
transaction on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of Bank of
Boston; (x) considered the terms of the Merger set forth in the Merger
Agreement; (xi) considered the terms of the stock options set forth in the Bank
of Boston Stock Option Agreement and the BayBanks Stock Option Agreement ; and
(xii) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as it deemed
appropriate.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all financial and other information supplied or otherwise
made available to it for the purpose of its opinion, and did not assume any
responsibility for independently verifying such information or for undertaking
an independent evaluation or appraisal of the assets or liabilities of Bank of
Boston or BayBanks or any of their subsidiaries, nor was Merrill Lynch furnished
with any such evaluation or appraisal. Merrill Lynch has also assumed and relied
upon the management of Bank of Boston as to the reasonableness and achievability
of the financial forecasts (and the assumptions and bases therefor) provided to
Merrill Lynch. In that regard, Merrill Lynch assumed with Bank of Boston's
consent that such forecasts, including, without limitation, financial forecasts,
projected cost savings and operating synergies resulting from the Merger and
projections regarding underperforming and nonperforming assets, net charge-offs,
adequacy of reserves, future economic conditions and results of operations
reflect the best currently available estimates of Bank of Boston's senior
management and that such projections and forecasts will be realized in the
amounts and time periods currently estimated. Merrill Lynch's opinion was
necessarily based upon economic, market and other conditions as in effect on,
and
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the information made available to it as of, the date of the opinion. Merrill
Lynch is not an expert in the evaluation of allowances for loan losses and did
not assume any responsibility for making an independent evaluation of the
adequacy of the allowance for loan losses of Bank of Boston or BayBanks, nor did
Merrill Lynch review any individual credit files, and it assumed that the
aggregate allowances for loan losses are adequate to cover such loan losses.
Merrill Lynch's opinion was rendered without regard to the necessity for,
or the level of, any obligations or undertakings which may be imposed or
required in the course of obtaining regulatory approvals for the Merger.
In connection with rendering its opinion, Merrill Lynch performed a variety
of financial analyses, consisting of those summarized below. The summary set
forth below does not purport to be a complete description of the analyses
performed by Merrill Lynch in this regard, although it describes all material
analyses performed by Merrill Lynch. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to a
partial analysis or summary description. Accordingly, notwithstanding the
separate factors summarized below, Merrill Lynch believes that its analyses must
be considered as a whole and that selecting portions of its analyses and factors
considered by it, without considering all analyses and factors, or attempting to
ascribe relative weights to some or all such analyses and factors, could create
an incomplete view of the evaluation process underlying Merrill Lynch's
opinions. In addition, while Merrill Lynch gave the various analyses
approximately similar weight, it may have used them for different purposes and
may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described below should not be taken to be Merrill Lynch's view of the
actual value of Bank of Boston and BayBanks. The fact that any specific analysis
has been referred to in the summary below is not meant to indicate that such
analysis was given more weight than any other analysis.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Bank of Boston and
BayBanks. The analyses performed by Merrill Lynch are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of Merrill Lynch's analysis of the fairness of the Common
Exchange Ratio to Bank of Boston and were provided to the Bank of Boston Board
in connection with the delivery of Merrill Lynch's opinion. With respect to the
comparison of selected companies analysis and the analysis of selected bank
merger transactions summarized below, no public company utilized as a comparison
is identical to Bank of Boston or BayBanks and such analyses necessarily involve
complex considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values of the companies concerned. The analyses performed by
Merrill Lynch are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. In addition, the analyses do not purport to be appraisals or to
reflect the prices at which any securities of Bank of Boston or BayBanks may
trade at the present time or at any time in the future. Furthermore, Merrill
Lynch's opinions are just one of the factors taken into consideration by the
Bank of Boston Board.
The projections furnished to Merrill Lynch and used by it in certain of its
analyses were prepared by the senior management of Bank of Boston and BayBanks.
Bank of Boston and BayBanks do not publicly disclose internal management
projections of the type provided to Merrill Lynch in connection with its review
of the Merger, and, as a result, such projections were not prepared with a view
towards public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions, and accordingly,
actual results could vary significantly from those set forth in such
projections.
The following is a summary of the material analyses presented by Merrill
Lynch to the Bank of Boston Board in connection with its December 12, 1995 oral
opinion, which, as indicated above, was reconfirmed as of the date hereof.
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Summary of Proposal. Merrill Lynch reviewed the terms of the proposed
transaction, including the Common Exchange Ratio and the aggregate transaction
value. Merrill Lynch reviewed the implied value of the consideration offered
based upon the closing share price of Bank of Boston Common Stock on December
11, 1995 (the last trading day prior to the announcement of the Merger) which
showed that the implied value of the BayBanks proposal was approximately $102.58
per share of BayBanks Common Stock, representing a 21.8% premium to BayBanks'
December 11, 1995 closing market price of $84.25 per share, or a total
transaction value of approximately $2.06 billion. In addition, Merrill Lynch
reviewed the implied value of the consideration offered based upon the average
closing share price of Bank of Boston Common Stock for the 30-day period ending
on December 11, 1995 and the closing share price of BayBanks Common Stock on
December 11, 1995, which showed a 24.4% premium. Merrill Lynch also reviewed the
implied value of the consideration based upon the 52-week high price of Bank of
Boston Common Stock and the closing share price of BayBanks Common Stock on
December 11, 1995, which showed a 21.0% premium. Based on the aggregate
consideration offered using the December 11, 1995 stock price for Bank of
Boston, Merrill Lynch calculated the price to fully diluted book value per
share, price to fully diluted tangible book value per share, price to last
twelve months earnings per share and price to First Call estimated 1996 earnings
per share multiples in the contemplated transaction. This analysis yielded a
price to fully diluted book value per share multiple of 2.27x, a price to fully
diluted tangible book value per share of 2.41x, a price to last twelve months'
earnings per share multiple of 15.31x (based on earnings for the twelve months
ended September 30, 1995), and a price to First Call estimated 1996 earnings per
share multiple of 13.94x. First Call is a financial data service that monitors
and publishes a compilation of earnings estimates produced by selected research
analysts regarding companies of interest to institutional investors.
Pro Forma Merger Analysis. Based on projections provided by Bank of
Boston, including pre-tax revenue enhancements of $40 million in 1997 and $50
million in 1998, fully phased in pre-tax cost savings of $190 million by 1998
and after-tax merger and reorganization charges of $87 million (for BayBanks),
Merrill Lynch analyzed certain pro forma effects resulting from the Merger. This
analysis indicated that the transaction would be dilutive to projected earnings
per share of Bank of Boston Common Stock in 1996 and accretive thereafter, and
that the Merger was dilutive to Bank of Boston's book value and tangible book
value per share. In this analysis, Merrill Lynch assumed that Bank of Boston
performed in accordance with the earnings forecast and synergy assumptions
provided to Merrill Lynch by Bank of Boston's senior management.
Contribution Analysis. Merrill Lynch reviewed the relative contributions
in terms of various balance sheet items, last twelve months' net income and
market capitalization to be made by Bank of Boston and BayBanks to the combined
institution based on data at September 30, 1995. The income statement and
balance sheet components analyzed included total assets, total loans (net),
total deposits, fully diluted common equity, fully diluted tangible common
equity, latest twelve months' net income, 1995 estimated net income and 1996
estimated net income. Merrill Lynch also analyzed the fully diluted market
capitalization of the combined institution. This analysis showed that, while
Bank of Boston stockholders would own approximately 72.15% of the outstanding
shares of the combined institution based upon the Common Exchange Ratio, Bank of
Boston was contributing 80.13% of total assets, 80.59% of total loans (net),
76.09% of total deposits, 77.29% of fully diluted common equity, 76.19% of
tangible common equity, 76.04% of the fully diluted market capitalization,
78.50% of latest twelve months net income, 78.55% of 1995 estimated net income
and 79.16% of 1996 estimated net income.
Historical Trading Valuation. Merrill Lynch analyzed the closing price of
Bank of Boston Common Stock on December 11, 1995 and over various periods
ranging from the five-day average trading price to the 90-day average trading
price through December 11, 1995. The analysis showed that the proposed Common
Exchange Ratio created a range of implied values to BayBanks stockholders of
$100.19 to $104.01, with the high implied value determined with reference to the
five-day average trading price prior to December 11, 1995 and the low implied
value determined with reference to the 90-day average trading price ending
December 11, 1995.
Discounted Dividend Stream Analysis. Using a discounted dividend stream
analysis, Merrill Lynch estimated the present value of the future streams of
after-tax cash flows that BayBanks could produce on a stand-alone basis from
1996 through 2000 and distribute to stockholders ("dividendable net income"). In
this
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analysis, Merrill Lynch assumed that BayBanks performed in accordance with the
earnings forecasts for 1995 and 1996 provided to Merrill Lynch by BayBanks'
senior management and, assuming a 10% growth rate, projected the maximum
dividends that would permit BayBanks' tangible equity to asset ratio to be
maintained at a minimum 6.5% level. Merrill Lynch estimated the terminal values
for the BayBanks Common Stock at 9.0, 10.0 and 11.0 times BayBanks' year 2000
estimated operating income (defined as net income before intangible
amortization). The dividendable net income streams and terminal values were then
discounted to present values using different discount rates ranging from 14% to
16%. This discounted dividend stream analysis indicated a reference range of
between $120.61 and $148.22 per share of BayBanks Common Stock. The analysis was
based upon BayBanks' senior management's forecasts, which were based upon many
factors and assumptions, many of which are beyond the control of BayBanks. As
indicated above, this analysis did not purport to be indicative of actual future
results and did not purport to reflect the prices at which shares of BayBanks
Common Stock may trade before or after the Merger. Merrill Lynch noted that the
discounted cash flow analysis was included because it is a widely used valuation
methodology, but noted that the results of such methodology are highly dependent
upon the numerous assumptions that must be made, including earnings growth
rates, dividend payout rates, terminal values, and discount rates.
Merrill Lynch also estimated the present value of the dividendable net
income that Bank of Boston could produce on a stand-alone basis from 1996
through 2000. In this analysis, Merrill Lynch assumed that Bank of Boston
performed in accordance with the earnings forecasts provided to Merrill Lynch by
Bank of Boston's senior management and projected the maximum dividends that
would permit Bank of Boston's tangible common equity to asset ratio to be
maintained at a minimum 6.5% level. Merrill Lynch estimated the terminal values
for Bank of Boston Common Stock at 9.0, 10.0 and 11.0 times Bank of Boston's
year 2000 estimated operating income. The dividendable net income streams and
terminal values were then discounted to present values using different discount
rates ranging from 14% to 16%. This discounted dividend stream analysis
indicated a reference range of between $44.29 and $55.71 per share of Bank of
Boston Common Stock. The analysis was based upon Bank of Boston's senior
management's projections, which were based upon many factors and assumptions,
many of which are beyond the control of Bank of Boston. As indicated above, this
analysis did not purport to be indicative of actual future results and did not
purport to reflect the prices at which shares of Bank of Boston Common Stock may
trade before or after the Merger.
Finally, Merrill Lynch estimated the present value of the dividendable net
income that the combined institution could produce from 1996 through 2000 and
distribute to stockholders. In this analysis, Merrill Lynch assumed that the
combined institution performed in accordance with the earnings forecasts
provided to Merrill Lynch by Bank of Boston's and BayBanks' senior management
and assumed that the combined institution's tangible equity to asset ratio would
be maintained at a minimum 6.5% level. Merrill Lynch estimated the terminal
values for the combined institution's common stock at 9.0, 10.0 and 11.0 times
the combined institution's year 2000 estimated operating income. The
dividendable net income streams and terminal values were then discounted to
present values using different discount rates ranging from 14% to 16%. Assuming
the projected cost savings resulting from the Merger as provided to Merrill
Lynch by Bank of Boston's senior management and after-tax merger and
reorganization charges, this discounted dividend stream analysis indicated a
reference range of between $47.26 and $58.99 per share of Bank of Boston Common
Stock. Based on the closing share price on December 11, 1995 of Bank of Boston
Common Stock and the Common Exchange Ratio of 2.2, the value to be received in
the Merger per share of BayBanks Common Stock would be approximately $102.58.
The actual value received will depend on the value of Bank of Boston Common
Stock at the Effective Time of the Merger. The discounted dividend stream
analysis was based upon Bank of Boston's and BayBanks' senior management's
projections, which were based upon many factors and assumptions, many of which
are beyond the control of Bank of Boston and BayBanks. As indicated above, this
analysis did not purport to be indicative of actual future results and did not
purport to reflect the prices at which any securities may trade before or after
the Merger.
Analysis of Selected Bank Merger Transactions. Merrill Lynch reviewed
publicly available information regarding bank merger transactions in the United
States with a value of greater than $1 billion which had occurred since January
1, 1995 (including in-market merger transactions as discussed below). Merrill
Lynch calculated the price to market, price to earnings, price to fully diluted
book value and price to fully diluted
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tangible book values and the implied deposit premium paid in the contemplated
transaction and such selected bank merger transactions. This analysis yielded a
range of price to market values of $140.70 to $88.72 with a mean of $111.84 and
a median of $108.88, a range of price to earnings values of $151.63 to $76.49
with a mean of $104.36 and a median of $97.76, a range of price to fully diluted
book values of approximately $128.75 to $80.70 with a mean of $97.08 and a
median of $94.50, a range of price to fully diluted tangible book values of
approximately $152.17 to $76.19 with a mean of $104.61 and a median of $101.16
and a range of implied deposit premiums paid of approximately $150.83 to $86.66
with a mean of $111.70 and a median of $113.71. Based on the closing share price
on December 11, 1995 of Bank of Boston Common Stock and the Common Exchange
Ratio of 2.2, the value to be received in the Merger per share of BayBanks
Common Stock would be approximately $102.58. The actual value received will
depend on the value of Bank of Boston Common Stock at the Effective Time of the
Merger.
Merrill Lynch also reviewed publicly available information regarding
in-market bank merger transactions in the United States with a value of greater
than $1 billion which had occurred since January 1, 1995. Merrill Lynch
calculated the price to market, price to earnings, price to fully diluted book
value and price to fully diluted tangible book values and the implied deposit
premium paid in the contemplated transaction and such selected bank merger
transactions. This analysis yielded a range of price to market values of $140.70
to $99.92 with a mean of $116.89 and a median of $110.54, a range of price to
earnings values of $142.47 to $94.68 with a mean of $110.80 and a median of
$103.02, a range of price to fully diluted book values of approximately $109.93
to $89.45 with a mean of $99.42 and a median of $96.67, a range of price to
fully diluted tangible book values of approximately $119.50 to $97.76 with a
mean of $106.19 and a median of $102.86 and a range of implied deposit premiums
paid of approximately $138.26 to $86.66 with a mean of $116.24 and a median of
$120.93. Based on the closing share price on December 11, 1995 of Bank of Boston
Common Stock and the Common Exchange Ratio of 2.2, the value to be received in
the Merger per share of BayBanks Common Stock would be approximately $102.58.
The actual value received will depend on the value of Bank of Boston Common
Stock at the Effective Time of the Merger.
No company or transaction used in the above analysis as a comparison is
identical to BayBanks, Bank of Boston, or the contemplated transaction.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the value of the companies to which they are being compared. Mathematical
analysis (such as determining the mean or median) is not, in itself, a
meaningful method of using comparable company data.
Comparison of Selected Companies. Merrill Lynch compared selected balance
sheet data, asset quality, capitalization and profitability ratios and market
statistics using financial data at or for the twelve months ended September 30,
1995 and market data as of December 11, 1995 (the last trading day prior to the
announcement of the Merger) for BayBanks to a group of selected bank holding
companies which Merrill Lynch deemed to be relevant, including Commerce
Bancshares, Inc., Compass Bancshares, Inc., Central Fidelity Banks, Inc.,
Crestar Financial Corporation, First American Corporation, First Empire State
Corporation, First Security Corporation, First Tennessee National Corp., First
Virginia Banks, Inc., Marshall & Ilsley Corporation, Old Kent Financial
Corporation, Regions Financial Corp., Signet Banking Corporation, Star Banc
Corporation and Union Planters Corporation, all being bank holding companies
with assets between $8 billion and $15 billion, (collectively, the "BayBanks
Composite"). This comparison, among other things, showed that: (i) for the
twelve-month period ended September 30, 1995, BayBanks' noninterest expenses to
average assets were 4.32%, compared to a mean of 3.58% and a median of 3.39% for
the BayBanks Composite; (ii) for the twelve-month period ended September 30,
1995, BayBanks' noninterest income to average assets was 2.01%, compared to a
mean of 1.85% and a median of 1.52% for the BayBanks Composite; (iii) for the
twelve-month period ended September 30, 1995, BayBanks' net interest margin was
5.13%, compared to a mean of 4.42% and a median of 4.40% for the BayBanks
Composite; (iv) for the twelve-month period ended September 30, 1995, BayBanks'
efficiency ratio (defined as noninterest expense divided by the sum of
noninterest income and net interest income before provision for loan losses) was
64.90%, compared to a mean of 60.91% and a median of 60.18% for the BayBanks
Composite; (v) for the twelve-month period ended September 30, 1995, BayBanks'
return on average assets was 1.19%, compared to a mean of 1.23% and
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a median of 1.26% for the BayBanks Composite; (vi) for the twelve-month period
ended September 30, 1995, BayBanks' return on average equity was 15.84%,
compared to a mean of 15.25% and a median of 15.59% for the BayBanks Composite;
(vii) at September 30, 1995, BayBanks' tangible common equity to tangible assets
was 7.49%, compared to a mean of 7.34% and a median of 7.32% for the BayBanks
Composite; (viii) at September 30, 1995, BayBanks' nonperforming loans to total
loans was 0.83%, compared to a mean of 0.49% and a median of 0.51% for the
BayBanks Composite; (ix) at September 30, 1995, BayBanks' non-performing assets
to total assets were 0.70%, compared to a mean of 0.38% and a median of 0.34%
for the BayBanks Composite; (x) at September 30, 1995, BayBanks' loan loss
reserves to non-performing assets were 191.10%, compared to a mean of 357.05%
and a median of 352.60% for the BayBanks Composite; (xi) BayBanks' price per
share to 1996 estimated earnings per share was 10.98x, compared with a mean of
11.03x and a median of 10.84x for the BayBanks Composite; (xii) at September 30,
1995, BayBanks' price per share to book value per share at September 30, 1995
was 1.82x, compared with a mean of 1.85x and a median of 1.72x for the BayBanks
Composite; (xiii) at September 30, 1995, BayBanks' price per share to tangible
book value per share at September 30, 1995 was 1.92x, compared to a mean of
2.07x and a median of 1.92x for the BayBanks Composite; and (xiv) at September
30, 1995, BayBanks' dividend yield was 2.87%, compared with a mean of 2.90% and
a median of 3.15% for the BayBanks Composite.
Merrill Lynch also compared selected operating and stock market results of
Bank of Boston to the publicly available corresponding data of other companies
which Merrill Lynch deemed to be relevant, including Bank of New York Company,
Barnett Banks, Inc., Boatmen's Bancshares, Inc., Comerica Incorporated,
CoreStates Financial Corp., First Bank Systems, Inc., Mellon Bank Corporation,
National City Corporation, PNC Bank Corp., Republic New York Corporation,
SunTrusts Banks, Inc., Wachovia Corporation, and Wells Fargo & Company, all
being bank holding companies with assets between $25 billion and $60 billion,
(collectively, the "Bank of Boston Composite"). This comparison showed, among
other things, that: (i) for the twelve-month period ended September 30, 1995,
Bank of Boston's noninterest expenses to average assets were 3.49%, compared to
a mean of 3.45% and a median of 3.47% for the Bank of Boston Composite; (ii) for
the twelve-month period ended September 30, 1995, Bank of Boston's noninterest
income to average assets was 2.02%, compared to a mean of 2.03% and a median of
2.12% for the Bank of Boston Composite; (iii) for the twelve-month period ended
September 30, 1995, Bank of Boston's net interest margin was 4.46%, compared to
a mean of 4.43% and a median of 4.52% for the Bank of Boston Composite; (iv) for
the twelve-month period ended September 30, 1995, Bank of Boston's efficiency
ratio (defined as noninterest expense divided by the sum of noninterest income
and net interest income before provision for loan losses) was 58.48%, compared
to a mean of 57.80% and a median of 58.30% for the Bank of Boston Composite; (v)
for the twelve-month period ended September 30, 1995, Bank of Boston's return on
average assets was 1.18%, compared to a mean of 1.30% and a median of 1.31% for
the Bank of Boston Composite; (vi) for the twelve-month period ended September
30, 1995, Bank of Boston's return on average equity was 15.66%, compared to a
mean of 15.99% and a median of 15.98% for the Bank of Boston Composite; (vii) at
September 30, 1995, Bank of Boston's tangible common equity to tangible assets
was 6.05%, compared to a mean of 6.94% and a median of 6.66% for the Bank of
Boston Composite; (viii) at September 30, 1995, Bank of Boston's nonperforming
loans to total loans was 1.21%, compared to a mean of 0.63% and a median of
0.62% for the Bank of Boston Composite; (ix) at September 30, 1995, Bank of
Boston's non-performing assets to total assets were 0.96%, compared to a mean of
0.60% and a median of 0.56% for the Bank of Boston Composite; (x) at September
30, 1995, Bank of Boston's loan loss reserves to non-performing assets were
158.60%, compared to a mean of 277.59% and a median of 241.33% for the Bank of
Boston Composite; (xi) Bank of Boston's price per share to 1996 estimated
earnings per share was 9.14x, compared with a mean of 10.62x and a median of
10.62x for the Bank of Boston Composite; (xii) at September 30, 1995, Bank of
Boston's price per share to book value per share at September 30, 1995 was
1.70x, compared with a mean of 2.02x and a median of 1.92x for the Bank of
Boston Composite; (xiii) at September 30, 1995, Bank of Boston's price per share
to tangible book value per share at September 30, 1995 was 1.89x, compared to a
mean of 2.36x and a median of 2.12x for the Bank of Boston Composite; and (xiv)
at September 30, 1995, Bank of Boston's dividend yield was 3.17%, compared with
a mean of 3.32% and a median of 3.10% for the Bank of Boston Composite. Earnings
per share estimates for all companies other than Bank of Boston and BayBanks
were based on First Call earnings estimates.
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Earnings per share estimates for Bank of Boston and BayBanks were based upon
estimates provided by the senior management of Bank of Boston and BayBanks,
respectively.
In connection with its opinion dated the date of this Joint Proxy
Statement-Prospectus, Merrill Lynch performed procedures to update, as
necessary, certain of the analyses described above and reviewed the assumptions
on which such analyses described above were based and the factors considered in
connection therewith. Merrill Lynch did not perform any analyses in addition to
those described in updating its December 12, 1995 opinion.
Merrill Lynch has been retained by the Bank of Boston Board as an
independent contractor to act as financial advisor to Bank of Boston with
respect to the Merger and will receive a fee for its services. Merrill Lynch is
a nationally recognized investment banking firm which, among other things,
regularly engages in the valuation of businesses and securities, including
banking institutions, in connection with mergers and acquisitions. Merrill Lynch
has in the past two years provided financial advisory, investment banking and
other services to Bank of Boston and certain of their affiliates and has
received customary fees for the rendering of such services. In addition, in the
ordinary course of its securities business, Merrill Lynch may actively trade
debt and/or equity securities of BayBanks and Bank of Boston and their
respective affiliates for its own account and the accounts of its customers, and
Merrill Lynch, therefore, may from time to time hold a long or short position in
such securities. Merrill Lynch has also provided a bridge loan to a joint
venture in which Bank of Boston is an investor formed to acquire Bank of
Boston's mortgage banking business for which Merrill Lynch has received
customary compensation paid by Bank of Boston and which bridge loan is expected
to be refinanced by Merrill Lynch in the future through a securities offering or
otherwise.
Bank of Boston and Merrill Lynch have entered into a letter agreement dated
December 10, 1995 relating to the services to be provided by Merrill Lynch in
connection with the Merger. Bank of Boston has agreed to pay Merrill Lynch fees
as follows: (i) a cash fee of $200,000, which was paid upon execution of the
letter agreement, (ii) an additional cash fee of $800,000 to be paid upon the
mailing of this Joint Proxy Statement-Prospectus, and (iii) an additional cash
fee of $2,000,000 (less any fees paid to Merrill Lynch pursuant to (i) or (ii)
above) to be paid upon the closing of the Merger. In such letter, Bank of Boston
also agreed to reimburse Merrill Lynch for its reasonable and necessary
out-of-pocket expenses incurred in connection with its advisory work, including
the reasonable fees and disbursements of its legal counsel, and to indemnify
Merrill Lynch against certain liabilities relating to or arising out of the
Merger, including liabilities which might arise under the federal securities
laws.
OPINION OF FINANCIAL ADVISOR TO BAYBANKS
BayBanks retained Morgan Stanley to act as BayBanks' financial advisor in
connection with the Merger and related matters based upon its qualifications,
expertise and reputation, as well as Morgan Stanley's prior investment banking
relationship and familiarity with BayBanks. At the December 12, 1995 meeting of
the BayBanks Board, Morgan Stanley rendered a written opinion to the BayBanks
Board that, as of such date, the Common Exchange Ratio in the Merger Agreement
was fair from a financial point of view to the holders of BayBanks Common Stock.
Morgan Stanley subsequently confirmed its December 12, 1995 opinion by delivery
to the BayBanks Board of a written opinion dated as of the date of this Joint
Proxy Statement-Prospectus that is substantially identical to the December 12,
1995 opinion.
THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT-PROSPECTUS, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS EXHIBIT E TO THIS JOINT PROXY
STATEMENT-PROSPECTUS. BAYBANKS STOCKHOLDERS ARE URGED TO READ THE MORGAN STANLEY
OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS ADDRESSED TO
THE BAYBANKS BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
OF BAYBANKS AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE BAYBANKS MEETING. THE
SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS JOINT PROXY
STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In connection with rendering its written opinion dated as of the date of
this Joint Proxy Statement-Prospectus, Morgan Stanley, among other things: (i)
analyzed certain publicly available financial statements
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and other information of BayBanks and Bank of Boston, respectively; (ii)
analyzed certain internal financial statements and other financial and operating
data concerning BayBanks and Bank of Boston prepared by the managements of
BayBanks and Bank of Boston, respectively; (iii) analyzed certain financial
projections of BayBanks and Bank of Boston prepared by the managements of
BayBanks and Bank of Boston, respectively; (iv) discussed the past and current
operations and financial condition and the prospects of BayBanks and Bank of
Boston with senior executives of BayBanks and Bank of Boston, respectively, and
analyzed certain pro forma financial projections for the combined company
prepared by senior executives of Bank of Boston; (v) reviewed the reported
prices and trading activity for the BayBanks Common Stock and the Bank of Boston
Common Stock; (vi) compared the financial performance of BayBanks and Bank of
Boston and the prices and trading activity of the BayBanks Common Stock and the
Bank of Boston Common Stock with that of certain other comparable
publicly-traded companies and their securities; (vii) discussed with independent
auditors of BayBanks their review of the financial and accounting affairs of
BayBanks and with the independent auditors of Bank of Boston their review of the
financial and accounting affairs of Bank of Boston; (viii) discussed the results
of regulatory examinations of BayBanks and Bank of Boston with the senior
managements of the respective companies; (ix) discussed the strategic objectives
of the Merger and the plan for the combined company with senior executives of
BayBanks and Bank of Boston; (x) reviewed and discussed with senior managements
of BayBanks and Bank of Boston certain estimates of the cost savings projected
by BayBanks and Bank of Boston for the combined company and compared such
amounts to those estimated in certain precedent transactions; (xi) reviewed the
financial terms, to the extent publicly available, of certain comparable
precedent transactions; (xii) participated in discussions and negotiations among
representatives of BayBanks and Bank of Boston and their financial and legal
advisors; (xiii) reviewed the Merger Agreement and certain related documents;
and (xiv) performed such other analyses as deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections, including the estimates of cost savings expected to
result from the Merger, Morgan Stanley assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of BayBanks and Bank of Boston.
Morgan Stanley has not made any independent valuation or appraisal of the assets
or liabilities of BayBanks and Bank of Boston, nor has Morgan Stanley been
furnished with any such appraisals, and Morgan Stanley has not examined any
individual loan files of BayBanks or Bank of Boston. Morgan Stanley's opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date of the
opinions.
In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and did not solicit, interest from any other party with respect to the
acquisition of BayBanks or any of its assets.
The following is a summary of the material financial analyses presented by
Morgan Stanley to the BayBanks Board on December 12, 1995 in connection with
rendering its opinion on such date.
Comparable Company Analysis. Comparable company analysis analyzes a
company's operating performance relative to a group of publicly traded peers.
Based on relative performance and outlook for a company versus its peers, this
analysis enables an implied unaffected market trading value to be determined.
Morgan Stanley analyzed the operating performance of BayBanks relative to (i) a
group of two publicly traded bank holding companies: Bank of Boston and Fleet
Financial Group, Inc. (the "Peer Group") and (ii) thirty-five regional bank
holding companies (the "Morgan Stanley Bank Index" and together with the Peer
Group, the "Comparables"). Historical financial information used in connection
with the ratios provided below with respect to the Comparables is as of
September 30, 1995.
Morgan Stanley analyzed the relative performance and value of BayBanks by
comparing certain market trading statistics for BayBanks with the Comparables.
Market information used in ratios provided below is as of December 11, 1995. The
market trading information used in the valuation analysis was market price to
book value (which was 1.8x in the case of BayBanks; 1.7x in the case of the
average of the Peer Group; and 2.0x in the case of the average of the Morgan
Stanley Bank Index) and market price to estimated earnings per
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share for 1996 (which was 11.4x in the case of BayBanks; 9.5x in the case of the
average of the Peer Group; and 11.2x in the case of the mean average of the
Morgan Stanley Bank Index). Earnings per share estimates for BayBanks and the
Peer Group were based on First Call estimates as of December 8, 1995. Earnings
per share estimates for the Morgan Stanley Bank Index were based on the most
recent available Institutional Brokers Estimate System ("IBES") estimates. IBES
and First Call are data services that monitor and publish compilations of
earnings estimates produced by selected research analysts regarding companies of
interest to institutional stockholders. The implied range of values for BayBanks
Common Stock derived from the analysis of the Comparables' market price to book
value and market price to 1996 estimated earnings per share ranged from
approximately $70 to $79.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to BayBanks or the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of BayBanks and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data or comparable company
data.
Dividend Discount Analysis. Morgan Stanley performed a dividend discount
analysis to determine a range of present values per share of BayBanks Common
Stock assuming BayBanks continued to operate as a stand-alone entity. This range
was determined by adding (i) the present value of the estimated future dividend
stream that BayBanks could generate over the period beginning in October 1995
and ending in year 2000 and (ii) the present value of the "terminal value" of
BayBanks Common Stock at the end of year 2000. To determine a projected dividend
stream, Morgan Stanley assumed a dividend payout ratio equal to 40% of BayBanks'
projected net income. The earnings projections which formed the basis for the
dividends were adapted from two sources: (i) management estimates for 1995 and
1996 and (ii) First Call estimates, as of December 8, 1995. In both cases, a
growth rate accepted by management of BayBanks as reasonable was used for
estimating earnings for 1997 through 2000. The "terminal value" of BayBanks
Common Stock at the end of the period was determined by applying two
price-to-earnings multiples (9.5x and 10.5x) to year 2000 projected earnings.
The dividend stream and terminal values were discounted to present values using
discount rates of 13.5% and 14.5%, which Morgan Stanley viewed as the
appropriate discount rate range for a company with BayBanks' risk
characteristics. For the 13.5% case the fully diluted stand-alone value of
BayBanks Common Stock ranged from approximately $68 to $77 per share, and for
the 14.5% case the fully diluted stand-alone value of BayBanks Common Stock
ranged from approximately $65 to $74 per share.
Implied Acquisition Value. As part of its analysis of the acquisition
valuation, Morgan Stanley assumed that the net present value of estimated cost
savings was added to the fully diluted stand-alone value of BayBanks Common
Stock calculated using First Call estimates as described above (see "Dividend
Discount Analysis" above). Based on cost savings of $190 million (39% of
BayBanks' non-interest expense base) estimated by managements of BayBanks and
Bank of Boston to result from the Merger, discount rates of 13.5% and 14.5%, a
phase-in of cost savings over two years, a cost savings growth rate of 2% after
the phase-in period, merger and reorganization charges of $140 million incurred
in the first year following the Merger and price-to-earnings terminal multiples
of 9.5x and 10.5x in the year 2000, Morgan Stanley estimated the implied
acquisition value of BayBanks Common Stock to range from approximately $86 to
$94 and approximately $97 to $106, assuming allocation of 50% and 75% of the
value of the estimated cost savings to BayBanks, respectively. Based on the
closing market price on December 11, 1995 of $46.625 for Bank of Boston Common
Stock and the Common Exchange Ratio of 2.2, the value to be received in the
Merger per share of BayBanks Common Stock would be $102.575. The actual value
received will depend on the value of Bank of Boston Common Stock at the
Effective Time of the Merger.
Comparable Transaction Analysis. Morgan Stanley performed an analysis of
transactions by selected holding companies of commercial banks in order to
obtain a valuation range for the BayBanks Common Stock based upon comparable
merger transactions. Multiples of book value and earnings implied by the
consideration paid in 1995 merger transactions comparable to the Merger were
applied to book value and 1996 estimated earnings per share of BayBanks to yield
a range of values for BayBanks Common Stock. The comparison included a total of
thirteen transactions. The transactions examined were (acquiree/acquiror):
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NBD Bancorp, Inc./First Chicago Corporation; Midlantic Corporation/PNC Bank
Corp.; Bank South Corporation/ NationsBank Corporation; First Fidelity
Bancorporation/First Union Corporation; Meridian Bancorp, Inc./CoreStates
Financial Corp; West One Bancorp/U.S. Bancorp, Shawmut National
Corporation/Fleet Financial Group, Inc.; Michigan National Corporation/National
Australia Bank Limited; Fourth Financial Corporation/Boatmen's Bancshares, Inc.;
The Chase Manhattan Corporation/Chemical Banking Corporation; First Interstate
Bancorp/First Bank System, Inc.; The Summit Bancorporation/UJB Financial Corp.;
and Integra Financial Corporation/National City Bancshares, Inc. Ranges of
multiples of book value and of 1996 estimated earnings (based on IBES estimates
prior to announcement) per share ranging from 2.0x to 2.3x and from 12.5x to
14.0x, respectively, derived from the comparable transactions were applied to
the book value and 1996 estimated earnings (based on First Call estimates as of
December 8, 1995) per share of BayBanks to yield an implied range of values for
BayBanks Common Stock ranging from approximately $91 to $104. Based on the
closing market price on December 11, 1995 of $46.625 for Bank of Boston Common
Stock and the Common Exchange Ratio of 2.2, the value to be received in the
Merger per share of BayBanks Common Stock would be $102.575. The actual value
received will depend on the value of Bank of Boston Common Stock at the
Effective Time of the Merger.
Exchange Ratio and Stock Price Performance Analysis. Morgan Stanley
reviewed the performance, over the five-year and twelve-month periods ending
December 8, 1995, of the closing prices of BayBanks Common Stock and Bank of
Boston Common Stock relative to the closing prices of the Morgan Stanley Bank
Index. Morgan Stanley also analyzed the ratio of closing prices per share of
BayBanks Common Stock and Bank of Boston Common Stock during the twelve-month
period ending December 11, 1995. Morgan Stanley observed that such implied
exchange ratio had averaged approximately 1.911 during such period and had
averaged 1.844 over the six-month period, 1.742 over the three-month period,
1.786 over the one-month period and 1.780 over the one-week period, in each
case, prior to December 11, 1995. Morgan Stanley also observed that the implied
exchange ratio based on the closing market prices of BayBanks Common Stock and
Bank of Boston Common Stock on December 11, 1995 of $84.250 and $46.625,
respectively, was approximately 1.807x.
Contribution Analysis. Morgan Stanley reviewed the pro forma effects of
the Merger and computed the contribution to the combined entity's pro forma
financial results attributable to each of BayBanks and Bank of Boston. The
computation showed, among other things, that BayBanks and Bank of Boston would
contribute to the combined entity approximately 23% and 77%, respectively, of
book value as of September 30, 1995, 21% and 79%, respectively, of 1996
estimated earnings using managements' estimates, and 24% and 76%, respectively,
of market value as of December 11, 1995. Morgan Stanley calculated that the
Common Exchange Ratio would result in an allocation between the holders of
BayBanks Common Stock and Bank of Boston Common Stock of pro forma ownership of
the combined entity equal to approximately 28% and 72%, respectively.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement-Prospectus, Morgan Stanley confirmed the appropriateness of its
reliance on the analyses used to render its December 12, 1995 opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions upon which such analyses were based and the factors considered in
connection therewith.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion and the
presentation to the BayBanks Board. In addition, Morgan Stanley may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Morgan Stanley's view of the actual value of BayBanks.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Bank of Boston or
BayBanks. The analyses performed by Morgan Stanley are not necessarily
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indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as a part of
Morgan Stanley's analysis of the fairness from a financial point of view of the
Common Exchange Ratio in the Merger Agreement to the holders of BayBanks Common
Stock and were provided to the BayBanks Board in connection with the delivery of
Morgan Stanley's opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold. In addition, as
described above, Morgan Stanley's opinion and presentations to the BayBanks
Board was one of many factors taken into consideration by the BayBanks Board in
making its determination to approve the Merger. Consequently, the Morgan Stanley
analyses described above should not be viewed as determinative of the BayBanks
Board's or BayBanks management's opinion with respect to the value of BayBanks
or of whether the BayBanks Board or BayBanks management would have been willing
to agree to a different exchange ratio.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Morgan Stanley makes a market
in BayBanks Common Stock and Bank of Boston Common Stock. In the course of its
market-making and other trading and brokerage activities, Morgan Stanley or its
affiliates may, from time to time, have a long or short position in, and buy and
sell securities of, BayBanks and Bank of Boston. Morgan Stanley and its
affiliates have provided and provide financial advisory and financing services
to BayBanks and Bank of Boston (for which they receive customary fees), and may
provide such services in the future. However, Morgan Stanley did not act as Bank
of Boston's financial advisor in connection with the Merger.
BayBanks has agreed to pay Morgan Stanley: (i) an advisory fee that is
expected to be between $100,000 and $200,000 if the Merger is not consummated;
(ii) an opinion fee of $2,000,000, which is currently payable; and (iii) a
transaction fee equal to between .370% and .450% of an amount equal to value of
the consideration received by BayBanks stockholders per share of BayBanks Common
Stock times the total number of outstanding shares of BayBanks Common Stock
(including the number of shares that would be outstanding if any in-the-money
options of BayBanks were settled by issuing shares of BayBanks Common Stock
equal in value to the spread between the consideration paid per share and the
exercise price or conversion price per share of such options). The transaction
fee will become payable upon the consummation of the Merger, and the advisory
fee and opinion fee will be credited against it. In addition, BayBanks has
agreed, among other things, to reimburse Morgan Stanley for all reasonable
out-of-pocket expenses incurred in connection with the services provided by
Morgan Stanley, and to indemnify and hold harmless Morgan Stanley and certain
related parties from and against certain liabilities and expenses, which may
include certain liabilities under the federal securities laws, in connection
with its engagement.
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Effective Time of the Merger will be as set forth in the Articles of
Merger (the "Articles of Merger") which will be submitted for filing with the
Secretary of State of The Commonwealth of Massachusetts on the closing date of
the Merger (the "Closing Date"). The Closing Date will occur on a date to be
specified by the parties which shall be no later than two business days after
the satisfaction or waiver (subject to applicable law) of the latest to occur of
the conditions precedent to the Merger set forth in Article VII of the Merger
Agreement. Bank of Boston and BayBanks each anticipate that the Merger will be
consummated in mid-1996. However, the consummation of the Merger could be
delayed as a result of delays in obtaining the necessary governmental and
regulatory approvals. There can be no assurances as to if or when such approvals
will be obtained or that the Merger will be consummated. If the Merger is not
effected on or before December 31, 1996, the Merger Agreement may be terminated
by either Bank of Boston or BayBanks, unless the failure to effect the Merger by
such date is due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe the covenants and agreements of such party set
forth therein. See "THE MERGER -- Conditions to the Consummation of the Merger,"
"-- Regulatory Approvals Required for the Merger," and "-- Termination of the
Merger Agreement."
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STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the MBCL, at the Effective Time, the Merger Subsidiary will
merge with and into BayBanks. BayBanks will be the surviving corporation in the
Merger, and will continue its corporate existence under the laws of The
Commonwealth of Massachusetts as a wholly-owned subsidiary of Bank of Boston.
The name of the surviving corporation will be that of the Merger Subsidiary
immediately prior to the Effective Time and its purposes and authorized capital
stock will be those of the Merger Subsidiary as set forth in its Articles of
Organization as in effect immediately prior to the Effective Time.
At the Effective Time, each share of common stock of the Merger Subsidiary
issued and outstanding immediately prior to the Effective Time will become one
share of common stock of the surviving corporation and the separate corporate
existence of the Merger Subsidiary will terminate. The Articles of Organization
of the Merger Subsidiary as in effect at the Effective Time will be the Articles
of Organization of the surviving corporation. The By-Laws of the Merger
Subsidiary as in effect immediately prior to the Effective Time will be the
By-Laws of the surviving corporation until amended in accordance with applicable
law.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Bank of Boston and BayBanks have agreed to use their best efforts to obtain
all necessary federal and state governmental approvals for the Merger (the
"Requisite Regulatory Approvals"), which include approval from the Federal
Reserve Board, the Office of Thrift Supervision (the "OTS") and the Board of
Bank Incorporation of The Commonwealth of Massachusetts (the "Massachusetts
BBI"), and have filed or will file applications to obtain such Requisite
Regulatory Approvals. The Merger cannot proceed in the absence of the Requisite
Regulatory Approvals. There can be no assurance that such Requisite Regulatory
Approvals will be obtained, and, if obtained, there can be no assurance as to
the date of any such approvals or whether any conditions will be attached to
such approvals or the nature of any such conditions. There can likewise be no
assurance that the United States Department of Justice (the "DOJ") or any state
attorney general or any private party will not attempt to challenge the Merger
in court on antitrust or other grounds or, if such a challenge is made, as to
the result thereof.
Bank of Boston and BayBanks are not aware of any governmental approvals or
actions that are required prior to the parties' consummation of the Merger other
than those described below. It is presently contemplated that if such additional
governmental approvals or actions are required, such approvals or actions will
be sought. There can be no assurance, however, that any such additional
approvals or actions will be obtained.
Federal Reserve Board. The Merger is subject to approval by the Federal
Reserve Board pursuant to Sections 3 and 4 of the Bank Holding Company Act of
1956, as amended (the "BHCA"). Assuming Federal Reserve Board approval is
granted, the Merger may not be consummated until thirty days after such
approval, during which time the DOJ may challenge the Merger on antitrust
grounds and seek the divestiture of certain assets and liabilities. With the
approval of the Federal Reserve Board and the DOJ, the waiting period may be
reduced to no less than fifteen days.
The Federal Reserve Board is prohibited from approving any transaction
under the applicable statutes which:
(i) 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
(ii) may have the effect in any section of the United States of
substantially lessening competition, or tending to create a monopoly, or
resulting in a restraint of trade, unless the Federal Reserve Board 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.
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In reviewing a transaction under the applicable statutes, the Federal
Reserve Board also will consider the financial and managerial resources of the
companies and their subsidiary banks and the convenience and needs of the
communities to be served. As part of, or in addition to, consideration of the
above factors, it is anticipated that the Federal Reserve Board will consider
the regulatory status of Bank of Boston and BayBanks, current and projected
economic conditions in the New England region and the overall capital and safety
and soundness standards 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 Federal Reserve Board must take into account the record of
performance of each of Bank of Boston and BayBanks in meeting the credit needs
of the entire community, including low and moderate income neighborhoods, served
by each company. Each of FNBB, Hospital Trust and BKB Connecticut has received
an "outstanding" CRA rating from its appropriate federal regulator (and, in the
case of BKB Connecticut, from its appropriate state regulator) and Bank of
Boston Florida, N.A. ("BKB Florida") has received a "satisfactory" CRA rating
from its appropriate federal regulator. BayBanks' principal bank subsidiary,
BayBank, N.A., resulted from the conversion of BayBank, a state bank insured by
the Federal Deposit Insurance Corporation (the "FDIC"), into a national bank and
the merger of BayBank Boston, N.A., into the converted bank on October 31, 1995.
The resulting bank has not yet been examined for CRA purposes by the Office of
the Comptroller of the Currency (the "OCC"). Before the conversion and merger,
BayBank had received an "outstanding" CRA rating from its state regulator and
both BayBank and BayBank Boston, N.A. had received "satisfactory" CRA ratings
from their primary federal regulators. The larger of BayBanks' other bank
subsidiaries, BayBank FSB, has an "outstanding" CRA rating from its primary
federal regulator and the smaller, BayBank NH, has a "satisfactory" CRA rating
from its primary federal regulator. None of Bank of Boston's or BayBanks'
banking subsidiaries received any comments from its respective federal regulator
in its last CRA examination relating to such ratings which were material and
remain unresolved.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act"), certain provisions of which became effective
September 29, 1995, the Federal Reserve Board generally may not approve an
application if the applicant (including all insured depository institutions
which are affiliates of the applicant), upon consummation of the acquisition,
would control 30% or more of the total amounts of deposits of insured depository
institutions in a particular state. This provision is not applicable, however,
if the acquisition is approved by the appropriate state bank supervisor of such
state and the standard on which such approval is based does not have the effect
of discriminating against out-of-state banks, out-of-state bank holding
companies, or subsidiaries of such out-of-state banks or bank holding companies.
The Federal Reserve Board will furnish notice and a copy of the application
for approval of the Merger to the OCC, the FDIC and the appropriate state
regulatory authorities. These agencies have thirty days to submit their views
and recommendations to the Federal Reserve Board. The Federal Reserve Board is
required to hold a public hearing in the event it receives a written
recommendation of disapproval of the application from any of these agencies
within such thirty-day period. Furthermore, the BHCA and Federal Reserve Board
regulations require publication of notice of, and the opportunity for public
comment on, the application submitted by Bank of Boston for approval of the
Merger and authorize the Federal Reserve Board to hold a public hearing in
connection therewith if the Federal Reserve Board determines that such a hearing
would be appropriate. Any such hearing or comments provided by third parties
could extend the period during which the application is subject to review by the
Federal Reserve Board.
As noted above, the Merger may not be consummated until thirty days after
Federal Reserve Board approval, during which time the DOJ has jurisdiction to
challenge the Merger in court on antitrust grounds and to seek the divestiture
of certain assets and liabilities. With the approval of the Federal Reserve
Board and the DOJ, the waiting period may be reduced to no less than fifteen
days. The commencement of an antitrust action by the DOJ would stay the
effectiveness of Federal Reserve Board 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 Federal Reserve Board,
and thus it is possible that the DOJ could reach a different conclusion than the
Federal Reserve Board regarding the Merger's competitive effects. Failure of the
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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 Federal Reserve Board 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.
Using the above standards, the Federal Reserve Board or the DOJ may request
that Bank of Boston or BayBanks divest certain operations in order to alleviate
what such agency may believe to be an adverse competitive effect. Bank of Boston
has not formulated a divestiture proposal and does not presently intend to do
so. Nevertheless, there can be no assurance that the Federal Reserve Board or
the DOJ will not require divestitures. As of the date of this Joint Proxy
Statement-Prospectus neither Bank of Boston nor BayBanks can predict if
divestitures will be required or what the aggregate amount of any such
divestitures, if any, may be. While any potential divestitures may affect
certain pro forma combined financial statement amounts, merger and restructuring
costs, cost savings and revenues, Bank of Boston believes that the aggregate
amount and financial impact of any such divestitures is unlikely to be material
to the business, operations or financial condition of the combined institution
and its subsidiaries, taken as a whole.
Bank of Boston's and BayBanks' rights to exercise their respective options
under the Stock Option Agreements also are subject to the prior approval of the
Federal Reserve Board, to the extent that the exercise of their respective
options under the Stock Option Agreements would result in Bank of Boston's or
BayBanks', as the case may be, owning more than 5% of the outstanding shares of
BayBanks Common Stock or Bank of Boston Common Stock, respectively. In
considering whether to approve Bank of Boston's or BayBanks' right to exercise
its respective option, including its respective right to purchase more than 5%
of the outstanding shares of BayBanks Common Stock or Bank of Boston Common
Stock, as the case may be, the Federal Reserve Board would generally apply the
same statutory criteria it would apply to its consideration of the Merger.
The Stock Option Agreements provide that at the request of the holder of
the Options, under certain circumstances, Bank of Boston will repurchase the
Bank of Boston Option and BayBanks will repurchase the BayBanks Option (and any
shares acquired pursuant to the respective options 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 the institution making the repurchase.
Office of Thrift Supervision. The Merger will be subject to approval of
the OTS under Section 10 of the Home Owner's Loan Act, as amended ("HOLA")
because the Merger will cause Bank of Boston to acquire control of BayBank FSB.
HOLA directs the OTS to take into consideration the financial and managerial
resources and future prospects of the acquiring company and savings association
involved, the effect of the acquisition on the savings association, the
insurance risk to the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC and the convenience and needs of the community to be served.
The OTS is prohibited from approving any transaction under the applicable
statutes that: (i) would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the savings
and loan business in any part of the United States; or (ii) may have the effect
in any section of the United States of substantially lessening competition or
tending to create a monopoly, or resulting in a restraint of trade, unless the
OTS finds that the anticompetitive 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.
Bank of Boston's right to exercise the BayBanks Option also is subject to
the prior approval of the OTS to the extent that the exercise of the option
would result in Bank of Boston owning more than 10% of the outstanding shares of
BayBanks Common Stock. In considering whether to approve Bank of Boston's right
to purchase more than 10% of the outstanding shares of BayBanks Common Stock,
the OTS would generally apply the same statutory criteria it would apply to its
consideration of the Merger.
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Massachusetts BBI. The Merger requires the approval of the Massachusetts
BBI under Section 2 of Chapter 167A of the Massachusetts General Laws. In
determining whether to approve the Merger, the Massachusetts BBI would consider
whether or not the Merger will unreasonably affect competition among
Massachusetts banking institutions and will promote public convenience and
advantage. In making such a determination, the Massachusetts BBI 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
statutorily-delineated local community.
Section 4 of Chapter 167A also requires that, for a merger or acquisition
requiring approval, the Massachusetts BBI receive notice from the Massachusetts
Housing Partnership Fund (the "MHPF") that arrangements satisfactory to the MHPF
have been made for the proposed acquiror to make 0.9% of its assets located in
Massachusetts available for call by MHPF for a period of ten years for purposes
of funding various affordable housing programs. Under the statute, Bank of
Boston will be required to maintain, for a period of two years following the
consummation of the Merger, the asset base of BayBank, N.A. at a level equal to
or greater than the total assets of BayBank, N.A. on the date of consummation of
the Merger. Because BayBank, N.A. will be merged with FNBB and its asset base
will be impossible to track independently, a waiver of this provision will be
sought from the Massachusetts Commissioner of Banks. In addition, unless waived
by the Massachusetts Commissioner of Banks, the Massachusetts BBI may not
approve any proposed acquisition or merger if such acquisition or merger would
result in a bank holding company holding or controlling in excess of 25% of the
total deposits, exclusive of foreign deposits, of all state and federally
chartered banks in Massachusetts and all Massachusetts branches existing by
authority of a foreign country. It is estimated that the Merger would result in
Bank of Boston controlling approximately 26% of such total deposits, and
therefore, a waiver of the deposit cap limit will be sought from the
Massachusetts Commissioner of Banks.
Bank of Boston's and BayBanks' rights to exercise their respective options
under the Stock Option Agreements are subject to the prior approval of the
Massachusetts BBI to the extent that the exercise of their respective options
under the Stock Option Agreements would result in Bank of Boston or BayBanks, as
the case may be, owning more than 5% of the outstanding shares of BayBanks
Common Stock or Bank of Boston Common Stock, respectively. In considering
whether to approve Bank of Boston's or BayBanks' right to purchase more than 5%
of the outstanding shares of BayBanks Common Stock or Bank of Boston Common
Stock, as the case may be, the Massachusetts BBI would generally apply the same
statutory criteria it would apply to its consideration of the Merger.
Office of the Comptroller of the Currency. In connection with the Merger,
Bank of Boston and BayBanks will consolidate their subsidiary banks as described
in "THE MERGER -- Management and Operations After the Merger," subject to the
prior approval of the OCC under the Bank Merger Act, as amended (the "BMA"), and
other provisions of federal law. BayBanks has filed applications with the OCC
for approval of a series of transactions that would result in the merger of
BayBank FSB and BayBank NH into BayBank, N.A. It is anticipated that an
application for approval of the merger of BayBank, N.A. and FNBB will be filed
with the OCC in the first quarter of 1996. In reviewing any BMA applications,
the OCC must take into consideration, among other factors, the financial and
managerial resources and future prospects of the institutions and the
convenience and needs of the communities to be served. In addition, the BMA
prohibits the OCC from approving a bank merger that: (i) would result in a
monopoly or would be in furtherance of any combination or conspiracy to
monopolize the business of banking in any part of the United States; or (ii) may
have the effect in any section of the United States of substantially lessening
competition or tending to create a monopoly, or resulting in a restraint of
trade, unless the OCC finds that the anticompetitive effects of the bank merger
are clearly outweighed by the public interest and the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served.
In addition, under the BMA, a bank merger may not be consummated until the
thirtieth day (or the fifteenth day in certain circumstances) following the date
of OCC approval of such bank merger, during which time the DOJ has the authority
to challenge such bank merger on antitrust grounds. With the approval of the OCC
and DOJ, the waiting period may be reduced to no less than fifteen days. The
commencement of an antitrust action during the waiting period would stay the
effectiveness of such approval unless a court specifically orders otherwise.
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New Hampshire. No approval of the Merger by any New Hampshire regulatory
authority is required for the acquisition of BayBank NH or BayBank FSB. However,
since Bank of Boston would be regulated by the OTS as a result of its
acquisition of BayBank FSB, under Section 384:58 of the New Hampshire Revised
Statutes, the acquisition of BayBank NH may be subject to a determination by the
New Hampshire bank commissioner that the laws of each state in which a bank
subsidiary of Bank of Boston is located would permit a substantially similar
transaction.
State Attorneys General. In addition, the Merger may be subject to review
by the attorney general in The Commonwealth of Massachusetts and any other state
in which Bank of Boston or BayBanks own bank subsidiaries. Bank of Boston and
BayBanks intend to provide information about the potential effects of the Merger
to the attorney general of any such state requesting such information.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. The following is a summary description of the material federal
income tax consequences of the Merger. This summary is not a complete
description of all of the 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 Bank of Boston
Common Stock, is not a U.S. person, is a tax-exempt entity or an individual who
acquired BayBanks Common Stock pursuant to an employee stock option or otherwise
as compensation, or exercises some form of control over BayBanks. 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
BayBanks 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 Joint Proxy
Statement-Prospectus, and there can be no assurances that future legislation,
regulations, administrative rulings or court decisions will not adversely affect
the accuracy of the statements contained herein. The following discussion gives
no consideration to the particular facts or circumstances of any holder of
BayBanks Common Stock and assumes that the BayBanks Common Stock held by each
holder thereof is held as a capital asset.
Effect of the Merger. Neither Bank of Boston nor BayBanks has requested or
will receive an advance ruling from the Internal Revenue Service as to the tax
consequences of the Merger. Consummation of the Merger is conditioned on the
rendering of tax opinions by Bingham, Dana & Gould LLP, counsel to Bank of
Boston, and Palmer & Dodge, counsel to BayBanks, each dated as of the Effective
Time, substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinions which are consistent with the state
of facts existing at the Effective Time, the Merger will be treated for federal
income tax purposes as part of one or more reorganizations within the meaning of
Section 368 of the Code. In rendering such opinions, the parties' respective
counsel will be entitled to rely on representations from BayBanks, Bank of
Boston and others as to certain factual matters.
If the Merger constitutes such a reorganization: (i) no gain or loss will
be recognized by Bank of Boston, BayBanks or the Merger Subsidiary as a result
of the Merger; (ii) no gain or loss will be recognized by stockholders of
BayBanks on account of their receipt of Bank of Boston Common Stock in exchange
for their BayBanks Common Stock as a result of the Merger; (iii) a holder of
BayBanks Common Stock who receives cash proceeds for fractional interests in
Bank of Boston Common Stock will be treated as if the fractional shares were
distributed as part of the exchange and then were redeemed by Bank of Boston;
(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
BayBanks Common Stock by holders of BayBanks 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 long-term if the BayBanks Common Stock has been held for more
than one year at the Effective Time; (v) the tax basis of the Bank of Boston
Common Stock received by stockholders who exchange BayBanks Common Stock for
Bank of Boston Common Stock in the Merger will be the same as the tax basis of
the BayBanks 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 Bank of Boston Common Stock in the hands of the
BayBanks stockholders will include the holding period of the BayBanks Common
Stock exchanged therefor. If, for any
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reason, the Merger is not treated as a reorganization within the meaning of
Section 368 of the Code, no gain or loss will be recognized by BayBanks, Bank of
Boston or the Merger Subsidiary. However, exchanges of BayBanks Common Stock,
whether for cash or for Bank of Boston Common Stock pursuant to the Merger, will
be taxable transactions. In that event, each exchanging holder of BayBanks
Common Stock will recognize capital gain or loss equal to the difference between
such holder's adjusted basis in the BayBanks Common Stock exchanged and the
amount of cash (if any) plus the fair market value of Bank of Boston Common
Stock (if any) received by such holder in the Merger.
Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments of cash to a holder who exchanges his or her BayBanks
Common Stock, or a portion of his or her BayBanks Common Stock, for cash, a
holder must, unless an exception applies under the 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 Internal Revenue Service and the
cash payments received by a holder may be subject to backup withholding tax at a
rate of 31%.
Other. Under Section 280G of the Code, it is possible that Bank of Boston
will not be entitled to deductions for federal income tax purposes for certain
payments that will or might be made in connection with certain executive
separation arrangements.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling of
interests transaction under GAAP. Under such accounting method, holders of
BayBanks Common Stock will be deemed to have combined their existing voting
common stock interest with that of holders of Bank of Boston Common Stock by
exchanging their shares for shares of Bank of Boston Common Stock. Accordingly,
the book value of the assets, liabilities and stockholders' equity of BayBanks,
as reported on its consolidated balance sheet, will be carried over to the
consolidated balance sheet of Bank of Boston and no goodwill will be created.
Bank of Boston will be able to include in its consolidated income the
consolidated income of BayBanks for the entire fiscal year in which the Merger
occurs; however, certain expenses incurred to effect the Merger must be treated
by Bank of Boston as current charges against income rather than adjustments to
its balance sheet. In order for the Merger to qualify for pooling of interests
accounting treatment, among other criteria, substantially all (90% or more) of
the outstanding BayBanks Common Stock must be exchanged for Bank of Boston
Common Stock.
Bank of Boston and BayBanks' respective obligations to consummate the
Merger are conditioned upon the receipt by Bank of Boston and BayBanks of a
letter from Bank of Boston's independent public accountants to the effect that
the Merger qualifies for pooling of interests accounting treatment.
The unaudited pro forma combined financial information contained in this
Joint Proxy Statement-Prospectus has been prepared using the pooling of
interests accounting method to account for the Merger. See "PRO FORMA COMBINED
FINANCIAL INFORMATION."
EMPLOYEE BENEFITS AND PLANS
The Merger Agreement requires Bank of Boston to honor all employment,
severance and other compensation agreements disclosed to Bank of Boston in the
Merger Agreement in accordance with their terms. See "THE MERGER -- Interests of
Certain Persons in the Merger." The Merger Agreement also provides that, after
the Merger, Bank of Boston will continue the employee benefits plans and
arrangements maintained by BayBanks at the Effective Time through the last day
of the year in which the Effective Time occurs. Thereafter, Bank of Boston will
provide Bank of Boston employees who formerly were employees of BayBanks
employee benefits substantially the same as those provided to similarly situated
employees of Bank of Boston. Those employees will receive full credit for all
purposes under such employee benefit plans, except the accrual of benefits, for
their years of service with BayBanks or any of its subsidiaries (and any
predecessors thereto). Bank of Boston also has agreed to recognize compensation
paid by Bank of Boston or its affiliated companies on and after the Effective
Time in determining benefits attributable to BayBanks' defined benefit
retirement plan and any excess or supplemental retirement plan as in effect at
the Effective Time.
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Each option granted by BayBanks to acquire BayBanks Common Stock that is
outstanding and unexercised immediately prior to the Effective Time will cease
to represent a right to acquire shares of BayBanks Common Stock, will be
converted automatically at the Effective Time into an option to purchase Bank of
Boston Common Stock, and will continue to be governed by the terms of the
BayBanks stock option plans, which will be assumed by Bank of Boston. For a full
discussion concerning the conversion of BayBanks options to Bank of Boston
options, see "THE MERGER -- Conversion of Shares."
BayBanks has in effect a Severance Benefits Plan that provides severance
benefits to full-time employees of BayBanks with three or more years of service
in the event of termination of employment by BayBanks (or its successor) without
cause or in the event of a constructive discharge (as defined in the plan)
during the two-year period following a change in control of BayBanks. The basic
severance benefit is a lump sum cash payment of two weeks' pay for each year of
service up to a maximum of seventy-eight weeks' pay, plus continued coverage
under health and life insurance plans and other welfare benefits for the same
period on substantially the same terms as in effect on the date of the change in
control. Certain designated senior executives are eligible for additional
severance benefits if they are over the age of fifty or have ten or more years
of service, if they have a base salary of more than $100,000 or if they hold
certain qualifying positions, up to maximum benefit of 156 weeks' pay. Approval
of the Merger Agreement by BayBanks stockholders will constitute a "change in
control" of BayBanks under the Severance Benefits Plan.
Bank of Boston and BayBanks anticipate that in connection with the Merger,
they will incur personnel-related costs (including without limitation costs
incurred pursuant to the Severance Benefits Plan). Such costs have been included
in the estimated merger and reorganization costs described below. See "THE
MERGER -- Management and Operations After the Merger -- Cost Savings" and "PRO
FORMA COMBINED FINANCIAL INFORMATION."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Bank of Boston's management and the Bank of Boston
Board, and BayBanks' management and the BayBanks Board, respectively, may be
deemed to have certain interests in the Merger that are in addition to their
interests as stockholders of Bank of Boston or BayBanks, as the case may be.
Certain executive officers and directors of each of Bank of Boston and BayBanks
will be executive officers and directors of Bank of Boston following the Merger.
See "THE MERGER -- Management and Operations After the Merger." Bank of Boston
has agreed to take certain actions regarding the existing employment and
severance arrangements of certain officers of BayBanks and to indemnify, and
maintain directors and officers liability insurance covering, the BayBanks
directors and officers following the Merger. Pursuant to the Merger Agreement,
rights to indemnification in favor of and limitations on the personal liability
of any director, officer or other employee of BayBanks or any of its
subsidiaries, as in effect on December 12, 1995, will remain in effect for at
least six years. See "THE MERGER -- Indemnification and Insurance." The approval
of the Merger by BayBanks stockholders will constitute a change in control of
BayBanks for purposes of determining the entitlement of executive officers of
BayBanks to certain severance and other benefits. See "THE BAYBANKS
MEETING -- ADDITIONAL MATTERS -- Executive Compensation -- Severance
Arrangements." These arrangements will be in effect from the date of the
stockholder approval of the Merger through the Effective Time. In addition, as
described below, BayBanks and Bank of Boston have entered into employment
agreements with certain members of management that will provide employment and
severance benefits following the Merger.
The Bank of Boston Board and the BayBanks Board were each aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
Employment Agreements. In conjunction with the execution of the Merger
Agreement, BayBanks and Bank of Boston and each of William M. Crozier, Jr.,
Chairman and President of BayBanks; Donald L. Isaacs, Vice Chairman of BayBanks;
Richard F. Pollard, Vice Chairman of BayBanks; Michael W. Vasily, Executive Vice
President and Chief Financial Officer of BayBanks; Ilene Beal, Executive Vice
President, Secretary, and Clerk of BayBanks; Joan E. Tonra, Senior Vice
President and Controller of BayBanks (together, the "Executives"), and three
other officers of BayBanks entered into employment agreements (the "Employment
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Agreements") to be effective as of the Effective Time. Pursuant to the
Employment Agreements, Mr. Crozier will be employed as Chairman of the Board of
Bank of Boston and BayBank of Boston, N.A., Mr. Isaacs and Mr. Pollard will be
employed as Vice Chairmen of BayBank of Boston, N.A., and Mr. Vasily, Ms. Beal,
and Ms. Tonra will be employed in positions commensurate with their positions
with BayBanks immediately before the Effective Time.
The Employment Agreement for Mr. Crozier extends through December 31, 1998.
The Employment Agreement for Mr. Isaacs extends through April 1, 1997, his
agreed retirement date. The Employment Agreement for Mr. Pollard extends through
March 1, 1998, the first day of the month following his 65th birthday. The
Employment Agreements for Mr. Vasily and Ms. Beal run for a period of three
years from the Effective Time. The Employment Agreement for Ms. Tonra runs for a
period of two years from the Effective Time. None of the other Employment
Agreements runs for more than three years from the Effective Time.
The Employment Agreements provide that each Executive, other than Mr.
Crozier, will continue to receive a base salary at the highest monthly rate that
was in effect during the twelve months immediately before the Effective Time. As
of the date of this Joint Proxy Statement-Prospectus, such Executives' annual
base salaries are as follows: Mr. Pollard ($360,000), Mr. Isaacs ($335,000), Mr.
Vasily ($260,000), Ms. Beal ($220,000), and Ms. Tonra ($162,000). Mr. Crozier
will receive a base salary at least equal to the rate payable to the Chief
Executive Officer of Bank of Boston, which is currently $800,000. The Executives
will also be entitled to participate in all incentive, savings and retirement
plans and welfare and fringe benefit plans and to receive all perquisites
provided to other peer executives of Bank of Boston. In the case of Mr. Crozier,
his annual incentive award will at least equal the greater of 65% of his base
salary and 75% of the annual incentive award payable to the Chief Executive
Officer of Bank of Boston. Mr. Gifford's 1995 incentive award was $1,500,000.
The Employment Agreements for Messrs. Crozier and Pollard also provide for
continued participation in BayBanks' Supplemental Executive Retirement Plan
("SERP") as in effect immediately before the Effective Time. See "THE BAYBANKS
MEETING -- ADDITIONAL MATTERS -- Executive Compensation."
The Employment Agreements provide that, if termination of an Executive's
employment occurs during the term of the Employment Agreement and such
termination is by Bank of Boston other than for cause (as defined in the
Employment Agreements) or by the Executive for good reason (as defined in the
Employment Agreements), the Executive will be entitled to receive, among other
things, (i) an amount equal to the sum of annual base salary and the maximum
annual incentive award for which the Executive is eligible, multiplied by (a) in
the case of Messrs. Crozier, Isaacs and Pollard, the number of years and
fractions thereof remaining from the date of termination to the end of the term
of the Employment Agreement, (b) in the case of Mr. Vasily and Ms. Beal, three
years and (c) in the case of Ms. Tonra, two years, (in each case, the
"Continuation Period") and (ii) an increase in benefits under the SERP to the
benefit that would be payable assuming the Executive continued to be employed at
the same rate of pay for the Continuation Period (and, in the case of Mr. Isaacs
and Ms. Beal, assuming certain age and service levels had been attained). The
amounts payable by Bank of Boston to each of the Executives under the
arrangements described in the preceding sentence cannot be known at the present
time but may be estimated. Based on certain assumptions described below, the
aggregate amounts payable pursuant to clause (i) are: Mr. Crozier ($4,812,500),
Mr. Pollard ($945,000), Mr. Isaacs ($376,875), Mr. Vasily ($1,092,000), Ms. Beal
($924,000), and Ms. Tonra ($405,000) and the increases in annual benefits
payable under the SERP pursuant to clause (ii) are: Mr. Crozier ($196,502), Mr.
Pollard ($44,091), Mr. Isaacs ($85,601), Mr. Vasily ($65,446), Ms. Beal
($29,008), and Ms. Tonra ($13,405). These amounts are calculated on the
assumptions that the employment of the Executives with Bank of Boston is
terminated immediately after the anticipated Effective Time of the Merger and in
circumstances entitling them to the maximum benefits possible under the
Employment Agreements, which Bank of Boston and BayBanks believe to be unlikely.
In Mr. Crozier's case, they are based on the current salary and the incentive
award payable to Mr. Gifford for 1995, as described above. The Executives also
will be entitled to continuation of health, medical and life insurance coverage
and other employee welfare plans and programs for each Executive after
termination of employment for the Continuation Period or, if sooner, until such
benefits are provided through the Executive's reemployment. Under the Employment
Agreements, a termination of employment by the Executive during the thirty-day
period
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immediately following the first anniversary of the Effective Date will be deemed
a termination for good reason. In the event that any payments received by the
Executives are subjected to the excise tax imposed upon certain change in
control payments under federal tax laws, the Employment Agreements provide for
an additional payment sufficient to restore the Executive to the same after-tax
position the Executive would have been in if the excise tax had not been imposed
but only if such additional payment would result in the Executive receiving
after-tax benefits at least equal to 110% of the after-tax benefit that would
have been received assuming payments were reduced to an amount not subject to
the excise tax.
The Employment Agreements entered into by the three officers other than the
Executives contain similar provisions. From and after the Effective Date, the
Employment Agreements supersede any other change in control agreement between
BayBanks and the Executives and such other officers, including their
participation in the BayBanks Severance Benefits Plan.
Options and Restricted Stock. No stock options or restricted stock are
being granted in connection with the Merger. Officers and employees with
outstanding stock options under stock option plans of BayBanks will have their
options converted into options with respect to Bank of Boston Common Stock. See
"THE MERGER -- Conversion of Shares" and "-- Employee Benefits and Plans."
Vesting of previously granted restricted stock and stock options held by
officers and employees under BayBanks plans will be accelerated upon approval of
the Merger Agreement by BayBanks stockholders. This includes shares of
restricted stock and stock options held by the Executives as follows: Mr.
Crozier (15,000 shares and 83,334 options), Mr. Pollard (none), Mr. Isaacs
(3,330 shares and 16,668 options), Mr. Vasily (2,498 shares and 3,334 options),
Ms. Beal (2,498 shares and 3,334 options), and Ms. Tonra (1,665 shares and 1,667
options). Further information about the restricted stock and stock options
previously granted to Executives is provided in "THE BAYBANKS
MEETING -- ADDITIONAL MATTERS -- Executive Compensation."
Directors' Restricted Stock. Certain directors have elected to have their
directors' fees earned in prior years payable in restricted stock. Vesting of
this restricted stock will be accelerated upon approval of the Merger Agreement
by BayBanks stockholders.
Payment of Deferred Directors' Fees. Certain directors have elected to
have payment of previously deferred directors' fees earned in prior years
accelerated upon a change in control. These directors will receive an immediate
payment of deferred amounts upon approval of the Merger by BayBanks
stockholders.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that, in the event of any threatened or
actual claim or proceeding in which any person who is or has been a director,
officer or employee of BayBanks, its subsidiaries or any of their predecessors
(the "Indemnified Parties") is, or is threatened to be, made a party in whole or
in part on account of, or pertaining to (i) the fact that such person was a
director, officer or employee of BayBanks, its subsidiaries or any of their
predecessors, or (ii) the Merger Agreement, the Stock Option Agreements or the
transactions contemplated thereby, Bank of Boston will, subject to the
conditions set forth in the Merger Agreement, indemnify such person to the
fullest extent permitted by law against any liability or expense incurred in
connection with any such claim or proceeding. The Merger Agreement provides that
Bank of Boston's obligations to indemnify any Indemnified Party will continue
for a period of six years following the Effective Time, provided that rights to
indemnification in respect to any claim asserted or made within such period will
continue until final disposition of such claim. The Merger Agreement further
provides that Bank of Boston will, subject to the conditions set forth in the
Merger Agreement, use its best efforts, subject to certain pricing
considerations, to cause the persons serving as officers and directors of
BayBanks immediately prior to the Merger to be covered for a period of four
years following the Effective Time by BayBanks' directors and officers liability
insurance policy (or any equivalent substitute therefor).
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger becomes effective, a stockholder of BayBanks who does not
vote in favor of the Merger and who follows the procedures prescribed under
Massachusetts law may require BayBanks (as it exists after the Effective Time as
the surviving corporation) to pay the fair value, determined as provided under
the MBCL, for the Dissenting Shares held by such stockholder. Bank of Boston
stockholders do not have such appraisal
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rights with respect to the Merger. The following is a summary of certain
features of the relevant Massachusetts law, the statutory provisions of which
are set forth in full in Exhibit F 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 BayBanks who desires to pursue the appraisal
rights available thereto must adhere to the following procedures: (i) file a
written objection to the Merger with BayBanks before the taking of the
stockholders' vote on approval of the Merger Agreement, stating the intention of
such stockholder to demand payment for shares owned by such stockholder if the
Merger Agreement is approved and the Merger is consummated; (ii) shares owned by
such stockholder must not be voted in favor of the Merger Agreement; and (iii)
within twenty days of the date of mailing of a notice by BayBanks (as its exists
after the Effective Time) to objecting stockholders that the Merger has become
effective, make written demand to BayBanks (as it exists after the Effective
Time) for payment for said stockholder's shares. Such written objection should
be delivered to BayBanks, 175 Federal Street, Boston, MA 02110, Attention: Ilene
Beal, Executive Vice President, Secretary, and Clerk, and such written demand
should be delivered to BayBanks (as it exists after the Effective Time), c/o
Bank of Boston, 100 Federal Street, Boston, MA 02110, Attention: Gary A. Spiess,
General Counsel and Clerk. It is recommended that such objection and such demand
be sent by registered or certified mail, return receipt requested.
A dissenting stockholder (other than a participant in the BayBanks Common
Stock Fund or ESOP portions of the BayBanks Savings, Profit Sharing and Stock
Ownership Plan) who files the required written objection with BayBanks prior to
the stockholder vote need not vote against the Merger Agreement. However, a vote
in favor of the Merger Agreement will constitute a waiver of such stockholder's
statutory appraisal rights. Since a participant's shares in the BayBanks Common
Stock Fund and ESOP will be voted by the trustee of the BayBanks Plan if timely
voting instructions are not received from the participant, any such participant
who wishes to exercise appraisal rights should vote against the Merger Agreement
in order to preserve such rights. Stockholders should note that returning a
properly signed proxy card that does not indicate a vote or abstention on
approval of the Merger Agreement will constitute a vote in favor of the Merger
Agreement. A vote against the Merger Agreement 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
BayBanks within ten days after the date on which the Merger becomes effective.
The value of the BayBanks Common Stock will be determined initially by
BayBanks (as it exists after the Effective Time) and the dissenting stockholder.
If, during the period of thirty days after the expiration of the period during
which the foregoing demand for payment may be made, BayBanks (as it exists 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 Suffolk
County, Massachusetts, asking that the court determine the value of the BayBanks
Common Stock of all objecting stockholders. 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 will enter a decree determining the fair
value of the BayBanks Common Stock and will order BayBanks (as it exists 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 BayBanks (as it
exists after the Effective Time) of the certificate or certificates representing
the BayBanks Common Stock held by said stockholders. BayBanks and Bank of Boston
have made no decision whether or not the surviving company would file such a
bill in equity in Superior Court if no agreement on value is reached. If it does
not, any dissenting stockholder with whom agreement has not been reached will
likely be required to incur the expense of initiating any such proceeding.
For appraisal proceeding purposes, value is determined as of the day before
the approval of the Merger Agreement by BayBanks stockholders, excluding any
element of value arising from the expectation or accomplishment of the Merger.
If a stockholder withdraws his or her demand for appraisal or fails to
establish entitlement to appraisal rights under the MBCL, such stockholder will
forfeit the right to appraisal and his or her Dissenting Shares will be deemed
to have been converted into the right to receive shares of Bank of Boston Common
Stock as of the Effective Time (without interest or entitlement to the payment
of dividends or other distributions unless
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payable to stockholders of record at a date prior to the date the dissenting
stockholder exercises appraisal rights).
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 upon the grounds that the Merger will be or is
illegal or fraudulent as to such 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 Exhibit F.
STOCK EXCHANGE LISTINGS
The Merger Agreement provides for the filing of, and Bank of Boston has
filed or will file, a listing application with the NYSE covering the shares of
Bank of Boston Common Stock issuable pursuant to the Merger. The obligation of
BayBanks to effect the Merger is subject to the condition that such shares of
Bank of Boston Common Stock be authorized for listing on the NYSE effective upon
official notice of issuance.
RESALES OF BANK OF BOSTON COMMON STOCK
Bank of Boston Common Stock to be issued to stockholders of BayBanks in
connection with the Merger has been registered under the Securities Act. All
shares of Bank of Boston Common Stock received by holders of BayBanks Common
Stock upon consummation of the Merger will be freely transferable by those
stockholders of BayBanks not deemed to be "Affiliates" of Bank of Boston or
BayBanks. "Affiliates" are generally defined as persons (often considered to
include, but not necessarily be limited to, executive officers, directors and
ten percent stockholders) who control, are controlled by, or are under common
control with (i) Bank of Boston or BayBanks at the time of the BayBanks Meeting
or (ii) Bank of Boston at the Effective Time.
Rule 145 promulgated by the Commission under the Securities Act restricts
the sale of Bank of Boston Common Stock received in the Merger by Affiliates of
BayBanks and certain of their family members and related interests. Generally
speaking, during the two years following the Effective Time, Affiliates of
BayBanks may publicly resell the Bank of Boston Common Stock received by them in
the Merger within certain limitations as to the amount of Bank of Boston Common
Stock sold in any three-month period and as to the manner of sale. After such
two-year period, such Affiliates of BayBanks, provided they are not then
Affiliates of Bank of Boston, may resell their shares without such restrictions.
Persons who are Affiliates of Bank of Boston will remain subject to limitations
and restrictions under Commission Rule 144 with respect to shares they may
receive in connection with the Merger (and any other shares of Bank of Boston
Common Stock they may own), so long as they continue to be Affiliates. The
ability of Affiliates to resell shares of Bank of Boston Common Stock received
in the Merger under Rule 145 as summarized herein generally will be subject to
Bank of Boston's having satisfied its Exchange Act reporting requirements for
specified periods prior to the time of sale. Affiliates also would be permitted
to resell Bank of Boston Common Stock received in the Merger pursuant to an
effective registration statement under the Securities Act or any available
exemption from the Securities Act registration requirements. This Joint Proxy
Statement-Prospectus does not cover any resales of Bank of Boston Common Stock
received by persons who may be deemed to be Affiliates of BayBanks or Bank of
Boston.
Bank of Boston and BayBanks have agreed to use their best efforts to cause
each person who may be deemed to be an Affiliate (for purposes of Rule 145 and
for purposes of qualifying the Merger for pooling of interests accounting
treatment) of such party to deliver to the other party, a letter (an
"Affiliate's Letter") intended to ensure compliance with the Securities Act and
preserve the ability to treat the Merger as a pooling of interests. The
Affiliate's Letter will provide that such Affiliate will not sell, assign,
transfer, or otherwise dispose of any Bank of Boston Common Stock obtained as a
result of the Merger, except in compliance with the Securities Act and the rules
and regulations of the Commission thereunder. BayBanks certificates surrendered
for exchange by any person who is an Affiliate of BayBanks for purposes of Rule
145(c) under the
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Securities Act shall not be exchanged for certificates representing shares of
Bank of Boston Common Stock until BayBanks has received such a written agreement
from such person. The stock certificates representing Bank of Boston Common
Stock issued to Affiliates in the Merger will bear a legend summarizing the
applicable Rule 145 restrictions.
Commission guidelines regarding qualifying for the pooling of interests
method of accounting also limit sales of shares of the acquiring and acquired
company by affiliates of either company in a business combination. Commission
guidelines indicate further that the pooling of interests method of accounting
will generally 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 thirty days before the merger and ending
when financial results covering at least thirty days of post-merger operations
of the combined entity have been published. In the Affiliate's Letter,
Affiliates agree not to sell, transfer or otherwise dispose of, or reduce the
risk of ownership with respect to shares of Bank of Boston Common Stock or
BayBanks Common Stock (as the case may be) in violation of these guidelines.
Bank of Boston has agreed in the Merger Agreement to use its best efforts
to publish not later than ninety days after the end of the first month after the
Effective Time in which there are at least thirty days of post-Merger combined
operations, combined sales and net income figures as contemplated by and in
accordance with the terms of the Commission's Accounting Series Release No. 135.
CONVERSION OF SHARES
At the Effective Time of the Merger, each share of BayBanks Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares held in the BayBanks treasury or held by Bank of Boston or BayBanks or
any subsidiary thereof (but including Trust Account Shares and DPC Shares) and
Dissenting Shares) will automatically (without any action on the part of Bank of
Boston, BayBanks or the holder of any BayBanks Common Stock) be converted into
the right to receive 2.2 shares of Bank of Boston Common Stock (the "Common
Exchange Ratio"). Because the Common Exchange Ratio is fixed and because the
market price of Bank of Boston Common Stock is subject to fluctuation, the value
of the shares of Bank of Boston Common Stock that holders of BayBanks Common
Stock will receive in the Merger may increase or decrease prior to and following
the Merger.
The Common Exchange Ratio is the product of arms' length negotiations
between the respective managements of Bank of Boston and BayBanks. In
determining the fairness of the Common Exchange Ratio, the management of Bank of
Boston had the benefit of advice from its financial advisor, the investment
banking firm of Merrill Lynch, and the management of BayBanks had the benefit of
advice from its financial advisor, the investment banking firm of Morgan
Stanley. See "THE MERGER -- Opinion of Financial Advisor to Bank of Boston" and
"-- Opinion of Financial Advisor to BayBanks."
The Merger Agreement provides that, if prior to the Effective Time the
outstanding shares of Bank of Boston Common Stock are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
as a result of a reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar change in Bank of
Boston's capitalization, an appropriate and proportionate adjustment will be
made to the Common Exchange Ratio.
All of the shares of BayBanks Common Stock will automatically be cancelled
and will cease to exist as of the Effective Time. Each certificate representing
shares of BayBanks Common Stock (except Dissenting Shares and shares owned by
Bank of Boston or its subsidiaries or BayBanks or its subsidiaries (other than
Trust Account Shares or DPC Shares)) will, as of the Effective Time, represent
the right to receive (i) a certificate representing the number of whole shares
of Bank of Boston Common Stock and (ii) cash in lieu of fractional shares into
which the shares of BayBanks Common Stock have been converted pursuant to the
Merger Agreement. For the treatment of Dissenting Shares, see "THE
MERGER -- Rights of Dissenting Stockholders." No fractional shares of Bank of
Boston Common Stock will be issued to any holder of BayBanks Common Stock upon
consummation of the Merger. For each fractional share that would otherwise be
issued, Bank of Boston will pay cash in an amount equal to such fraction
multiplied by the average of the
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closing sale prices of Bank of Boston Common Stock on the NYSE as reported by
The Wall Street Journal for the five trading days immediately preceding the date
of the Effective Time. No interest will be paid or accrued on the cash in lieu
of fractional shares payable to holders of such certificates. All shares of Bank
of Boston Common Stock that are owned by BayBanks or any of its subsidiaries
(other than Trust Account Shares and DPC Shares) will become treasury stock of
Bank of Boston.
Each stock option to acquire BayBanks Common Stock granted under the
BayBanks stock option plans that is outstanding and unexercised immediately
prior to the Effective Time will be converted at the Effective Time into, and
will become, a stock option to purchase Bank of Boston Common Stock and will
continue to be governed by the terms of BayBanks' stock plans, which will be
assumed by Bank of Boston. The number of shares of Bank of Boston Common Stock
subject to the new Bank of Boston option will be equal to the product of the
number of shares of BayBanks Common Stock subject to the BayBanks option
multiplied by the Common Exchange Ratio, rounded down to the nearest share, and
the exercise price per share of Bank of Boston Common Stock subject to the new
Bank of Boston option will be equal to the exercise price per share of BayBanks
Common Stock under the BayBanks option divided by the Common Exchange Ratio,
rounded up to the nearest cent. The duration and other terms of each new Bank of
Boston option shall be substantially the same as the BayBanks option. Each
option granted under BayBanks' stock plans will, pursuant to the terms of each
such plan, automatically become vested and exercisable upon approval and
adoption of the Merger Agreement by the stockholders of BayBanks. Approval of
the Merger by Bank of Boston stockholders will also constitute approval of
BayBanks stock option plans to be assumed by Bank of Boston as provided in the
Merger Agreement.
Shares of BayBanks Common Stock held by a stockholder who has demanded
appraisal rights in compliance with the provisions of the MBCL will not be
converted into the right to receive, or be exchangeable for, the shares of Bank
of Boston Common Stock otherwise issuable in exchange for such shares of
BayBanks Common Stock unless the stockholder withdraws or fails to perfect the
demand. Instead, the stockholder who perfects appraisal rights will receive
payment of the appraised value of the Dissenting Shares in accordance with the
MBCL. For a further discussion of stockholder appraisal rights, see "THE
MERGER -- Rights of Dissenting Stockholders."
EXCHANGE OF CERTIFICATES
Bank of Boston. Shares of Bank of Boston Common Stock issued and
outstanding immediately prior to the Effective Time will remain issued and
outstanding and be unaffected by the Merger, and holders of such stock will not
be required to exchange the certificates representing such stock or take any
other action by reason of the consummation of the Merger.
BayBanks. At or prior to the Effective Time, Bank of Boston will deposit
with FNBB (the "Exchange Agent"), for the benefit of the holders of certificates
of BayBanks Common Stock, certificates representing the shares of Bank of Boston
Common Stock and the cash in lieu of any fractional shares (such certificates
for shares of Bank of Boston Common Stock and the cash in lieu of any fractional
shares, together with any dividends or distributions with respect thereto, being
referred to as the "Exchange Fund") to be issued pursuant to the Merger
Agreement in exchange for outstanding shares of BayBanks Common Stock.
As soon as is practicable after the Effective Time, and in no event later
than five business days thereafter, a form of transmittal letter will be mailed
by the Exchange Agent to the holders of BayBanks Common Stock. The form of
transmittal letter will contain instructions for the surrender of certificates
representing BayBanks Common Stock in exchange for certificates representing
shares of Bank of Boston Common Stock and cash (without interest) in lieu of
fractional shares.
BAYBANKS STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNLESS AND UNTIL THE BAYBANKS
STOCKHOLDERS RECEIVE A TRANSMITTAL LETTER.
Until the certificates representing BayBanks Common Stock are surrendered
for exchange after the Effective Time of the Merger, holders of such
certificates will accrue but will not be paid dividends or other
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distributions declared after the Effective Time with respect to the Bank of
Boston Common Stock into which their shares have been converted. When such
certificates are surrendered, any unpaid dividends or other distributions will
be paid without interest. After the Effective Time, there will be no transfers
of shares of BayBanks Common Stock on the BayBanks stock transfer books. If
certificates representing shares of BayBanks Common Stock are presented after
the Effective Time, they will be cancelled and exchanged for a certificate
representing the applicable shares of Bank of Boston Common Stock and cash
(without interest) in lieu of fractional shares.
No certificate representing shares of Bank of Boston Common Stock or cash
in lieu of fractional shares will be delivered to a person who is an Affiliate
of BayBanks unless such Affiliate has executed and delivered an Affiliate's
Letter to Bank of Boston.
Any portion of the Exchange Fund that remains unclaimed by the stockholders
of BayBanks for twelve months after the Effective Time will be paid to Bank of
Boston. BayBanks stockholders who have not theretofore received consideration
for BayBanks Common Stock as set forth above may thereafter only look to Bank of
Boston for payment of shares of Bank of Boston Common Stock, cash in lieu of any
fractional shares and unpaid dividends and distributions on Bank of Boston
Common Stock (in each case, without interest) deliverable in respect of each
share of BayBanks Common Stock held by such stockholder.
Neither Bank of Boston nor BayBanks nor any other person will be liable to
any former holder of BayBanks Common Stock for any amount properly delivered to
a public official pursuant to applicable abandoned property, escheat or similar
laws.
If a certificate for BayBanks Common Stock has been lost, stolen or
destroyed, the Exchange Agent will issue the applicable Bank of Boston Common
Stock and cash (without interest) in lieu of fractional shares upon receipt of
appropriate evidence as to such loss, theft or destruction, appropriate evidence
as to the ownership of such certificate by the claimant, and appropriate and
customary indemnification.
If any certificate representing shares of Bank of Boston Common Stock is to
be issued in a name other than the name in which the certificate surrendered in
exchange therefor is registered, then the certificate so surrendered must be
properly endorsed or be accompanied by an appropriate instrument of transfer,
and be in proper form for transfer. In such case, the person requesting such
exchange must pay to the Exchange Agent in advance (or otherwise establish that
payment has been made or is not payable) all transfer or other taxes that may be
required.
For a description of the differences between the rights of the holders of
Bank of Boston Common Stock and BayBanks Common Stock, see "COMPARATIVE RIGHTS
OF STOCKHOLDERS." For a description of the Bank of Boston Common Stock, see
"DESCRIPTION OF BANK OF BOSTON CAPITAL STOCK."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the satisfaction
or waiver, where permissible, of the following conditions at or prior to the
Effective Time:
(i) approval and adoption of the Merger Agreement, and the
transactions contemplated thereby, by the respective requisite affirmative
votes of the holders of Bank of Boston Common Stock and BayBanks Common
Stock entitled to vote thereon;
(ii) the shares of Bank of Boston Common Stock which are to be issued
to BayBanks stockholders upon consummation of the Merger are authorized for
listing on the NYSE, subject to official notice of issuance;
(iii) all Requisite Regulatory Approvals have been obtained and are in
full force and effect and all statutory waiting periods with respect to
such approvals have expired (See "THE MERGER -- Regulatory Approvals
Required for the Merger");
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(iv) the registration statement of which this Joint Proxy
Statement-Prospectus forms a part has become effective and no stop order
suspending the effectiveness has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission;
(v) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement is in effect, and no statute, rule,
regulation, order, injunction or decree has been enacted, entered,
promulgated or enforced by any court, administrative agency or commission
or other governmental authority or instrumentality that prohibits or makes
illegal consummation of the Merger;
(vi) Bank of Boston receives a tax opinion of Bingham, Dana & Gould
LLP, counsel to Bank of Boston, and BayBanks receives a tax opinion of
Palmer & Dodge, counsel to BayBanks, in form and substance reasonably
satisfactory to Bank of Boston and BayBanks, each dated as of the Effective
Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion that are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for Federal income tax purposes as part of one or
more reorganizations within the meaning of Section 368 of the Code and that
accordingly (i) no gain or loss will be recognized by Bank of Boston or by
BayBanks as a result of the Merger; (ii) no gain or loss will be recognized
by the stockholders of BayBanks who exchange their BayBanks Common Stock
solely for Bank of Boston Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in Bank of
Boston Common Stock); and (iii) the tax basis of the Bank of Boston Common
Stock received by stockholders who exchange all of their BayBanks Common
Stock solely for Bank of Boston Common Stock in the Merger will be the same
as the tax basis of the BayBanks Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest
for which cash is received) (See "THE MERGER -- Certain Federal Income Tax
Consequences");
(vii) Bank of Boston and BayBanks each receives a letter from Coopers
& Lybrand L.L.P. addressed to each of them, to the effect that the Merger
will qualify for pooling of interests accounting treatment (See "THE
MERGER -- Accounting Treatment");
(viii) (a) the representations and warranties of BayBanks set forth in
Sections 3.2, 3.3(a), 3.6, 3.15, 3.17 and 3.18 of the Merger Agreement and
the representations and warranties of Bank of Boston set forth in Sections
4.2, 4.3(a), 4.6, 4.15, 4.17 and 4.18 of the Merger Agreement are true and
correct in all material respects as of the date of the Merger Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on or as of the Closing
Date; and (b) the other representations and warranties of BayBanks and Bank
of Boston set forth in the Merger Agreement are true and correct in all
material respects as of the date of the Merger Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on or as of the Closing Date as provided
in the Merger Agreement;
(ix) each party performs in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to
the Closing Date; and
(x) the rights issued pursuant to the Rights Agreement dated June 28,
1990, as amended, between Bank of Boston and FNBB as rights agent (the
"Bank of Boston Rights Agreement") or the Rights Agreement dated December
23, 1988, as amended, between BayBanks and FNBB as rights agent (the
"BayBanks Rights Agreement"), respectively, have not become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of the
respective agreement. See "DESCRIPTION OF BANK OF BOSTON CAPITAL STOCK" and
"COMPARATIVE RIGHTS OF STOCKHOLDERS -- Stockholder Rights Plan."
No assurance can be provided as to if or when the Requisite Regulatory
Approvals will be obtained or whether all of the other conditions precedent to
the Merger will be satisfied or waived by the party permitted to do so. If the
Merger is not effected on or before December 31, 1996, the Merger Agreement may
be terminated by either Bank of Boston or BayBanks, unless the failure to effect
the Merger by such date is due
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to the failure of the party seeking to terminate the Merger Agreement to perform
or observe covenants and agreements of such party set forth therein. See "THE
MERGER -- Termination of the Merger Agreement."
CONDUCT OF BUSINESS PENDING THE MERGER AND OTHER AGREEMENTS
Pending the Merger, Bank of Boston and BayBanks have agreed to, and each
will cause its respective subsidiaries to: (i) conduct its business in the
usual, regular and ordinary course consistent with past practice; (ii) use
reasonable best efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees; and (iii) take no action that would
materially adversely affect or delay the ability of either Bank of Boston or
BayBanks to obtain any necessary approvals of any regulatory agency required for
the transactions contemplated by the Merger Agreement or to perform its
covenants and agreements under the Merger Agreement or the Stock Option
Agreements.
Bank of Boston and BayBanks have also agreed to cooperate and use their
best efforts promptly to prepare and file all necessary documentation to effect
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 Merger Agreement and to comply with the terms
and conditions of all such permits, consents, approvals and authorizations. Bank
of Boston and BayBanks have each agreed upon request to furnish to the other
party all information concerning themselves and their subsidiaries, directors,
officers and stockholders and such other matters as may be necessary or
advisable in connection with the Merger. Bank of Boston and BayBanks have also
agreed, subject to the terms and conditions of the Merger Agreement, to use
their best efforts to take, or cause to be taken, all actions necessary, proper
or advisable to comply promptly with all legal requirements that may be imposed
on such party or its subsidiaries and to consummate the Merger. Bank of Boston
and BayBanks have agreed to advise each other promptly of any communication from
any governmental entity whose consent or approval is required for consummation
of the transactions contemplated by the Merger Agreement that indicates that
approval may not be obtained or will be materially delayed. Bank of Boston has
also agreed to cause the shares of Bank of Boston Common Stock to be issued in
the Merger to be approved for listing on the NYSE, subject to official notice of
issuance prior to the Effective Time.
Bank of Boston and BayBanks have further agreed to give each other access
to all of their respective properties, books, contracts, commitments and records
and to furnish information concerning their respective businesses, properties
and personnel, subject to the restrictions set forth in the Merger Agreement.
Bank of Boston and BayBanks have each agreed to advise the other promptly
of any change or event having a Material Adverse Effect (as defined in the
Merger Agreement) on it or that it believes would or would be reasonably likely
to cause or constitute a material breach of any of its representations,
warranties or covenants contained in the Merger Agreement.
Bank of Boston and BayBanks have agreed that they will coordinate with each
other the declaration of any dividends in respect of Bank of Boston Common Stock
and BayBanks Common Stock and the record dates and payment dates relating
thereto, it being their intention that holders of Bank of Boston Common Stock or
BayBanks Common Stock will not receive two dividends, or fail to receive one
dividend, for any single calendar quarter with respect to their shares of Bank
of Boston Common Stock and/or BayBanks Common Stock and any shares of Bank of
Boston Common Stock any such holder receives pursuant to the Merger.
Until the Effective Time, except as expressly contemplated by the Merger
Agreement or specified in a schedule thereto or as contemplated by the Stock
Option Agreements, BayBanks has agreed that, without the written consent of Bank
of Boston, it will not and will not permit any of its subsidiaries to, among
other things:
(i) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness
of BayBanks or any of its subsidiaries to BayBanks or any of its
subsidiaries),
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assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any individual, corporation or other
entity, or make any loan or advance;
(ii) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend or make any other distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or grant any stock
appreciation rights or grant any individual, corporation or other entity
any right to acquire any shares of its capital stock (except regular
quarterly cash dividends at a rate not in excess of $0.60 per share and
except for dividends paid by any of its wholly-owned subsidiaries to
BayBanks or any of its wholly-owned subsidiaries); or issue or sell any
additional shares of capital stock except pursuant to (a) the exercise of
stock options or warrants outstanding as of the date of the Merger
Agreement, (b) the BayBanks Stock Option Agreement, and (c) the BayBanks
Rights Agreement;
(iii) sell, transfer, mortgage, encumber or otherwise dispose of any
of its properties or assets to any individual, corporation or other entity
other than a direct or indirect wholly-owned subsidiary, or cancel, release
or assign any indebtedness to any such entity or any claims held by any
such entity, except in the ordinary course of business consistent with past
practice or pursuant to contracts or agreements in force at the date of the
Merger Agreement;
(iv) except for transactions in the ordinary course of business
consistent with past practice, make any material investment either by
purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other individual,
corporation or other entity other than a wholly-owned subsidiary thereof;
(v) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any material
contract or agreement, or make any change in any of its material leases or
contracts, other than renewals of contracts and leases without material
adverse changes of terms;
(vi) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or become a party to,
amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee other than in the ordinary course of business
consistent with past practice or accelerate the vesting of any stock
options or other stock-based compensation;
(vii) solicit, encourage or authorize any individual, corporation or
other entity to solicit from any third party any inquiries or proposals
relating to the disposition of its business or assets, or the acquisition
of its voting securities, or the merger of it or any of its subsidiaries
with any corporation or other entity other than as provided by the Merger
Agreement (and BayBanks will promptly notify Bank of Boston of all of the
relevant details relating to all inquiries and proposals that it may
receive relating to any of such matters);
(viii) settle any claim, action or proceeding except in the ordinary
course of business consistent with past practice;
(ix) take any action that would prevent or impede the Merger from
qualifying (a) for pooling of interests accounting treatment or (b) as a
reorganization within the meaning of Section 368 of the Code; provided,
however, that nothing contained in the Merger Agreement will limit the
ability of BayBanks to exercise its rights under the Bank of Boston Stock
Option Agreement;
(x) amend its Articles of Organization or its By-Laws;
(xi) other than in prior consultation with Bank of Boston, 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;
(xii) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in the
Merger Agreement being or becoming untrue in any
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material respect at any time prior to the Effective Time, or in any of the
conditions to the Merger not being satisfied or in a violation of any
provision of the Merger Agreement, except, in every case, as may be
required by applicable law; or
(xiii) agree to, or make any commitment to, take any of the actions
listed above.
In addition, until the Effective Time, except as expressly contemplated by
the Merger Agreement or specified in a schedule thereto or as contemplated by
the Stock Option Agreements, Bank of Boston has agreed that, without the written
consent of BayBanks, it will not and will not permit any of its subsidiaries to,
among other things:
(i) reclassify any capital stock or make, declare or pay any dividend
or make any other distribution on any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares
of its capital stock (except for (a) regular quarterly cash dividends on
Bank of Boston Common Stock at a rate not in excess of such rate as Bank of
Boston from time to time adopts as its regular quarterly dividend rate; (b)
ordinary quarterly or semiannual cash dividends on preferred stock of Bank
of Boston at the rates set forth in the Bank of Boston Articles; and (c)
dividends paid by any of its wholly owned subsidiaries or any of their
wholly owned subsidiaries);
(ii) take any action that would prevent or impede the Merger from
qualifying (a) for pooling of interests accounting treatment or (b) as a
reorganization within the meaning of Section 368 of the Code; provided,
however, that nothing contained in the Merger Agreement will limit the
ability of Bank of Boston to exercise its rights under the BayBanks Stock
Option Agreement;
(iii) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in the
Merger Agreement being or becoming untrue in any material respect at any
time prior to the Effective Time, or in any of the conditions to the Merger
not being satisfied or in a violation of any provision of the Merger
Agreement;
(iv) take any action that would materially adversely affect or
materially delay its ability to obtain any necessary approvals of any
Regulatory Agency or other governmental authority required for the
transactions contemplated by the Merger Agreement or to perform its
covenants and agreements under the Merger Agreement or the Bank of Boston
Stock Option Agreement;
(v) amend its Articles of Organization, except with respect to the
establishment of one or more series of preferred stock or to increase its
capital stock to up to 300,000,000 shares of Bank of Boston Common Stock
and change the par value of Bank of Boston Common Stock; or
(vi) agree to, or make any commitment to, take any of the actions
listed above.
WAIVER AND AMENDMENT
Waiver. At any time prior to the Effective Time, Bank of Boston and
BayBanks, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other party; (ii) waive any
inaccuracies in the representations and warranties of the other party contained
in the Merger Agreement or in any document delivered pursuant to the Merger
Agreement; or (iii) waive compliance by the other party of any of its agreements
or conditions contained in the Merger Agreement, except that after BayBanks
stockholder approval, no extension or waiver may reduce the amount or change the
form of consideration to be delivered to each of BayBanks' stockholders under
the Merger Agreement without further approval of BayBanks' stockholders.
Amendment. Subject to compliance with applicable law, the Merger Agreement
may be amended by Bank of Boston and BayBanks by action taken or authorized by
their respective Boards of Directors, at any time, except that after BayBanks
stockholder approval, no amendment may reduce the amount or change the form of
the consideration to be delivered to BayBanks' stockholders under the Merger
Agreement without further approval of BayBanks' stockholders, other than as
contemplated by the Merger Agreement.
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EXPENSES
The Merger Agreement provides that Bank of Boston and BayBanks will each
pay its own expenses in connection with the Merger and the transactions
contemplated thereby, provided that they will divide equally the costs and
expenses of printing and mailing the Joint Proxy Statement-Prospectus, and all
filing and other fees paid to the Commission in connection with the Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Bank of Boston. From and after the Effective Time, the Bank of Boston
Board will be expanded by four members to a total of eighteen members, and Mr.
Crozier and the Executive Committee members of the BayBanks Board, John A.
Cervieri Jr., Thomas R. Piper, and Glenn P. Strehle, will be appointed as
members of the Bank of Boston Board. Messrs. Cervieri, Piper, and Strehle will
each be assigned to one of the three classes of directors of the Bank of Boston
Board, while Mr. Crozier will be appointed to the class of Bank of Boston
directors whose term expires in 1999. Messrs. Cervieri, Piper, and Strehle will
be appointed to such committees of the Bank of Boston Board as Messrs. Crozier
and Gifford mutually determine at or prior to the Effective Time.
Following the Merger, Mr. Crozier, presently the Chairman of the Board and
President of BayBanks, will serve as Chairman of Bank of Boston, and Mr.
Gifford, presently the Chairman of the Board, President and Chief Executive
Officer of Bank of Boston, will serve as President and Chief Executive Officer
of Bank of Boston. Upon Mr. Crozier's retirement in 1998, Mr. Gifford will add
the title of Chairman to his Bank of Boston title. The following persons will
comprise the executive management of Bank of Boston Corporation after the
Merger:
<TABLE>
<CAPTION>
NAME BANK OF BOSTON TITLE
------------------------------------------------- --------------------------------------
<S> <C>
William M. Crozier, Jr........................... Chairman of the Board
Charles K. Gifford............................... President and Chief Executive Officer
Edward A. O'Neal................................. Vice Chairman (New England and
National Consumer Banking)
William J. Shea.................................. Vice Chairman and Chief Financial
Officer (International Banking)
Paul F. Hogan.................................... Executive Vice President (Corporate
Relationship Banking)
</TABLE>
The process of integrating Bank of Boston and BayBanks is being led by an
Integration Steering Committee ("Steering Committee"), chaired by Mr. Gifford,
and three integration task forces have been formed. The Steering Committee is
responsible for various integration matters including: approving overall
integration plans; reviewing high-risk issues and action plans; making decisions
related to philosophy, policies and business priorities; providing oversight of
the merger planning process; and establishing merger goals. In addition to Mr.
Gifford, the Bank of Boston Steering Committee members include Mr. Shea, Mr.
O'Neal and Group Executives Peter Manning and Susannah Swihart. The BayBanks
Steering Committee members include Mr. Crozier, Mr. Isaacs, Mr. Pollard and Mr.
Vasily. The three task forces consist of Regional Banking and Support
Activities, both chaired by Mr. Isaacs, and Corporate/Credit co-chaired by Mr.
Hogan and Mr. Richard Remis of Bank of Boston. The task forces report to the
Steering Committee and are responsible for developing integration plans,
identifying issues and making recommendations to the Steering Committee.
Additional information about these persons and the other individuals who
will serve as the directors and executive officers of Bank of Boston following
the Merger is contained in Bank of Boston's and BayBanks' respective Annual
Reports on Form 10-K for the year ended December 31, 1995, which are
incorporated by reference in this Joint Proxy Statement-Prospectus. See
"AVAILABLE INFORMATION" and " INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." Messrs. Isaacs and Pollard and certain other senior executives of
BayBank, N.A. and FNBB will serve in executive capacities at BayBank of Boston,
N.A.
BayBanks. Following the Merger, BayBanks will survive as a wholly-owned
subsidiary of Bank of Boston. The directors of the Merger Subsidiary immediately
prior to the Effective Time will be the directors of
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BayBanks as it exists after the Effective Time as the surviving corporation,
subject to the rights of Bank of Boston as sole stockholder, each to hold office
in accordance with the Articles of Organization and By-Laws of BayBanks as the
surviving corporation, as amended in the Merger.
The officers of BayBanks immediately prior to the Effective Time will be
the officers of BayBanks as the surviving corporation from and after the
Effective Time, each to hold office in accordance with the Articles of
Organization and By-Laws of BayBanks as the surviving corporation, as amended in
the Merger.
Subsidiary Banks of Bank of Boston and BayBanks. In connection with the
Merger, Bank of Boston and BayBanks will take such actions as they determine to
be mutually desirable to consolidate their subsidiary banks, subject to required
regulatory approvals. Bank of Boston also expects to consolidate the operations
of certain other Bank of Boston and BayBanks subsidiaries that provide similar
services. The name or names of the bank subsidiaries of Bank of Boston in New
England will be changed after the Merger to include the "BayBank" name. For
example, the legal name of the bank subsidiary headquartered in Massachusetts
will be "BayBank of Boston, N.A.," and the name of each bank subsidiary located
in another state will include the "BayBank" name and the name of that state. The
combined bank will continue to use the name "Bank of Boston" for its national
relationship and international activities. BayBanks recently filed applications
with the OCC for approval of a series of transactions that would result in the
merger of BayBank FSB and BayBank NH into BayBank, N.A. It is anticipated that
an application for approval of the merger of BayBank, N.A. and FNBB will be
filed with the OCC during the first quarter of 1996. It is not a condition to
consummation of the Merger that the regulatory approvals required for such
mergers have been received. As of the date of this Joint Proxy
Statement-Prospectus, no final determination with respect to the manner of
consolidating other subsidiaries had been made.
Cost Savings. While no assurance can be given, Bank of Boston and BayBanks
expect to realize annualized cost savings of approximately $190 million
(pre-tax) within approximately eighteen months after the Closing Date and to
achieve revenue enhancements of approximately $40 million (pre-tax) in 1997. The
potential cost savings are expected to be achieved primarily from increased
efficiency as a result of reductions in general staffing levels and the
consolidation, elimination or divestiture of certain operations, systems, and
retail branches. Cost reductions and branch consolidations will come from both
Bank of Boston and BayBanks. The potential revenue enhancements are expected to
be achieved primarily from the funding advantages of BayBanks' retail deposit
base to the combined company. Bank of Boston's and BayBanks' expectations with
respect to potential cost savings and revenue enhancements are forward-looking
statements. Readers are cautioned that many factors could affect the combined
company's future financial performance and cause actual cost savings and revenue
enhancements to differ materially from estimated amounts. These factors, some of
which are beyond the control of Bank of Boston and BayBanks, include, but are
not limited to, the regulatory environment, regional and national economic
conditions, inflation, competition, changes in integration plans, interest rate
fluctuations and unanticipated changes in business conditions. Therefore, the
ultimate level of such expected cost savings and revenue enhancements and the
period within which such cost savings and revenue enhancements may be realized
or achieved cannot be predicted with certainty.
In addition, the Federal Reserve Board or the DOJ may request that Bank of
Boston or BayBanks divest certain operations in order to alleviate what such
agency believes would be an adverse competitive effect. Bank of Boston has not
formulated a divestiture proposal and will not do so unless, after discussions
with the Federal Reserve Board and the DOJ, Bank of Boston agrees that such
divestitures are legally required; accordingly, as of the date of this Joint
Proxy Statement-Prospectus, neither Bank of Boston nor BayBanks can predict if
divestitures will be required or what the aggregate amount of any such
divestitures, if any, may be. While any potential divestitures may affect
certain pro forma combined financial statement amounts, merger and restructuring
costs, cost savings and revenues, Bank of Boston and BayBanks believe that the
aggregate amount and financial impact of any such divestitures is unlikely to be
material to the business, operations or financial condition of the combined
institution and its subsidiaries, taken as a whole. See "THE MERGER --
Regulatory Approvals Required for the Merger."
Bank of Boston and BayBanks also anticipate that they will incur merger and
reorganization costs, estimated to be approximately $140 million (pre-tax) in
the aggregate. It is anticipated that these charges will
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be incurred and paid during 1996 and 1997, except for certain payments under
long-term leases and severance arrangements.
The merger and reorganization costs include: personnel-related costs,
consisting primarily of charges related to employee severance, termination of
certain employee benefit plans, and employee assistance costs for separated
employees; facilities and systems costs, consisting of lease termination costs
and other related costs resulting from the closing of redundant operational
facilities and computer equipment and software write-offs due to duplication or
incompatibility; customer account access/communications costs, consisting of
various initiatives contemplated to affect the Merger with as little disruption
to the customer as possible; and transaction costs, consisting of professional
fees and other costs directly associated with consummating the Merger.
Management's cost estimates are forward-looking. While the costs represent
management's current estimate of merger and restructuring costs that will be
incurred, the ultimate level and timing of recognition of such costs will be
based on the final merger and integration plan to be completed prior to
consummation of the Merger, which is currently being developed by the
corporations' various task forces and integration committees. Readers are
cautioned that the completion of this merger and integration plan and the
resulting management plans detailing actions to be undertaken to effect the
Merger will impact these estimates; the type and amount of actual costs incurred
could vary materially from these estimates if the completed plan differs from
the underlying assumptions used by management in determining its current
estimate of these costs.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement provides that the Merger may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger
Agreement by the stockholders of Bank of Boston or BayBanks:
(i) by mutual consent of Bank of Boston and BayBanks in a written
instrument, if the Bank of Boston Board and the BayBanks Board each so
determines by a vote of a majority of the members of its entire board;
(ii) by either the Bank of Boston Board or the BayBanks Board if any
governmental entity that must grant a Requisite Regulatory Approval has
denied approval of the Merger and such denial has become final and
non-appealable or any governmental entity of competent jurisdiction shall
have issued a final non-appealable order enjoining or otherwise prohibiting
the consummation of the transactions contemplated by the Merger Agreement;
(iii) by either the Bank of Boston Board or the BayBanks Board if the
Merger shall not have been consummated on or before December 31, 1996,
unless the failure of the closing to occur by such date is due to the
failure of the party seeking to terminate the Merger Agreement to perform
or observe the covenants and agreements of such party set forth therein;
(iv) by either the Bank of Boston Board or the BayBanks Board
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained therein) if
there is a material breach of any of the covenants or agreements or any of
the representations or warranties set forth in the Merger Agreement on the
part of the other party, which breach is not cured within forty-five days
following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the closing; provided,
however, that neither Bank of Boston nor BayBanks may terminate the Merger
Agreement unless the breach of representation or warranty would entitle the
party receiving such representation or warranty not to consummate the
transactions contemplated by the Merger Agreement;
(v) by either Bank of Boston or BayBanks if any stockholder approval
required for consummation of the Merger has not been obtained by reason of
the failure to obtain the required vote at a duly held meeting of
stockholders or any adjournment or postponement thereof; or
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(vi) by BayBanks if there is a Significant Decline in the Average
Closing Price of Bank of Boston Common Stock since December 12, 1995.
Pursuant to the Merger Agreement, a Significant Decline in the Average
Closing Price of Bank of Boston Common Stock will be deemed to have
occurred if both:
(a) the Average Closing Price of Bank of Boston Common Stock (as
defined below) is less than 75% of the Closing Price of Bank of Boston
Common Stock of $47.50 on December 8, 1995 (which is $35.625); and
(b) the number obtained by dividing the Average Closing Price of
Bank of Boston Common Stock by 47.50 is less than the number obtained by
subtracting (A) .25 from (B) the quotient obtained by dividing the Final
Regional Index Price (as defined below) by the Initial Regional Index
Price (as defined below).
For purposes of this Joint Proxy Statement-Prospectus:
(1) The term "Average Closing Price" of Bank of Boston Common Stock
means the average of the closing prices of Bank of Boston Common Stock as
reported on the NYSE for the Final Calculation Period.
(2) The term "Final Calculation Period" means the twenty consecutive
trading days ending on the date the Federal Reserve Board issues a final
approval of the Merger, or if the Federal Reserve Board gives notice that
such approval is not required, the later of (x) the date of such notice or
(y) the date the OCC issues its approval of the merger of the parties'
national bank subsidiaries.
(3) The term "Morgan Stanley 35-Bank Regional Peer Group" means the
group of thirty-five comparable regional banks whose performance is equally
weighted and averaged by Morgan Stanley to obtain the Morgan Stanley Bank
Index.
(4) The term "Final Regional Index Price" means the average of the
closing prices of the Morgan Stanley 35-Bank Regional Peer Group during the
Final Calculation Period.
(5) The term "Initial Regional Index Price" means the average of the
closing prices of the Morgan Stanley 35-Bank Regional Peer Group for the
twenty consecutive trading days ending on December 8, 1995.
In the event that the Merger Agreement is terminated as provided above, the
Merger Agreement will forthwith become void and have no effect and none of Bank
of Boston, BayBanks, or any of their respective subsidiaries or any of the
officers or directors of any of them will be liable under the Merger Agreement
or in connection with the transactions contemplated thereby, except (i) Sections
6.2(b), 8.2, 9.2 and 9.3 of the Merger Agreement will survive termination of the
Merger Agreement; and (ii) notwithstanding anything to the contrary in the
Merger Agreement, neither Bank of Boston nor BayBanks will be relieved or
released from any liabilities or damages arising out of its willful breach of
the Merger Agreement.
CERTAIN TERMS OF THE STOCK OPTION AGREEMENTS
General. Following the execution of the Merger Agreement, Bank of Boston
executed and delivered the Bank of Boston Stock Option Agreement, pursuant to
which Bank of Boston granted to BayBanks the Bank of Boston Option. At the same
time, BayBanks executed and delivered the BayBanks Stock Option Agreement,
pursuant to which BayBanks granted to Bank of Boston the BayBanks Option. The
Bank of Boston Stock Option Agreement and BayBanks Stock Option Agreement are
attached to this Joint Proxy Statement-Prospectus as Exhibits B and C and are
incorporated by reference herein. Bank of Boston and BayBanks approved and
entered into the Stock Option Agreements to induce each other to enter into the
Merger Agreement. The Stock Option Agreements are intended to increase the
likelihood that the Merger will be consummated according to the terms of the
Merger Agreement. Consequently, certain aspects of the Stock Option Agreements
may have the effect of discouraging persons who might be interested in acquiring
all of or a significant interest in Bank of Boston or BayBanks from considering
or proposing such an acquisition, even if, in the case of BayBanks, such persons
were prepared to offer to pay consideration to BayBanks stockholders that had a
higher current market price than the shares of Bank of Boston Common Stock to be
received pursuant to the Merger Agreement.
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Except as otherwise stated below, the terms and conditions of the Bank of
Boston Stock Option Agreement and the BayBanks Stock Option Agreement are
identical in all material respects. For purposes of this section, (a) the Bank
of Boston Stock Option Agreement or the BayBanks Stock Option Agreement, as the
case may be, is, at times, referred to as the "Stock Option Agreement," (b) Bank
of Boston, as issuer of Bank of Boston Common Stock, and BayBanks, as issuer of
BayBanks Common Stock upon the exercise of the Bank of Boston Option and
BayBanks Option, respectively, are individually referred to as the "Issuer," (c)
Bank of Boston, as holder of the BayBanks Option, and BayBanks, as holder of the
Bank of Boston Option, are sometimes individually referred to as the "Grantee,"
(d) the Bank of Boston Option and the BayBanks Option, as the case may be, is
sometimes referred to as the "Option," (e) Bank of Boston Common Stock and
BayBanks Common Stock are referred to as "Issuer Common Stock," and (f) the
Grantee and/or any holder or holders of the Option are referred to as the
"Holder."
Grant of Options. The Bank of Boston Stock Option Agreement provides for
the purchase by BayBanks of up to 22,400,761 fully paid and non-assessable
shares (the "Bank of Boston Option Shares" or the "Issuer Option Shares," as the
case may be) of Bank of Boston Common Stock at an exercise price of $47.50 per
share (the "Bank of Boston Option Price" or the "Issuer Option Price," as the
case may be). The Bank of Boston Option Shares, if issued pursuant to the Bank
of Boston Stock Option Agreement, will in no event exceed 19.9% of the Bank of
Boston Common Stock issued and outstanding without giving effect to the issuance
of any Bank of Boston Common Stock subject to the Bank of Boston Option. The
aggregate purchase price for the original number of Bank of Boston Option Shares
at the original Bank of Boston Option Price is $1,064,036,147.50.
The BayBanks Stock Option Agreement provides for the purchase by Bank of
Boston of up to 3,907,120 fully paid and non-assessable shares (the "BayBanks
Option Shares" or the "Issuer Option Shares," as the case may be) of BayBanks
Common Stock at an exercise price of $83.75 per share (the "BayBanks Option
Price" or the "Issuer Option Price," as the case may be). The BayBanks Option
Shares, if issued pursuant to the BayBanks Stock Option Agreement, will in no
event exceed 19.9% of the BayBanks Common Stock issued and outstanding without
giving effect to the issuance of any BayBanks Common Stock subject to the
BayBanks Option. The aggregate purchase price for the original number of
BayBanks Option Shares at the original BayBanks Option Price is $327,221,300.
The number of shares of Issuer Common Stock subject to the applicable
Issuer Option will be increased to the extent that additional shares of Issuer
Common Stock are issued or otherwise become outstanding (other than pursuant to
an exercise of an Option), such that, after such issuance, the number of Issuer
Option Shares will continue to equal 19.9% of the Issuer Common Stock then
issued and outstanding without giving effect to the issuance of any Issuer
Common Stock subject to such Issuer Option. In the event of any change in the
shares of Issuer Common Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, subdivision, conversion, exchange of shares or
similar transaction, the type and number of Issuer Option Shares purchasable and
the Issuer Option Price will be adjusted in such a manner as to preserve the
economic benefits of the Option.
Triggering Events; Exercise of Options. Each Stock Option Agreement
provides that the Holder may exercise the Option, in whole or in part, subject
to regulatory approval, 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); provided
that the Holder shall have sent to the Issuer written notice of such exercise
within ninety days following such Subsequent Triggering Event.
For purposes of each of the Stock Option Agreements:
(a) The term "Initial Triggering Event" means any of the following
events or transactions occurring after December 12, 1995: (i) the Issuer,
or any of its subsidiaries, without Grantee's prior written consent, enters
into an agreement to engage in, or Issuer's Board of Directors recommends
approval of or fails to publicly oppose, an Acquisition Transaction (as
defined below) with any person other than Grantee or any of its
subsidiaries; (ii) Issuer, or any of its subsidiaries, without Grantee's
prior written consent, authorizes, recommends, or proposes, or publicly
announces an intention to authorize, recommend or propose to engage in an
Acquisition Transaction, or Issuer's Board of Directors publicly
76
<PAGE> 86
withdraws or modifies, or publicly announces an intention to withdraw or
modify, its recommendation that Issuer's stockholders approve the
transactions contemplated by the Merger Agreement; (iii) any person, other
than Grantee or any of its subsidiaries acting in a fiduciary capacity in
the ordinary course of business, acquires beneficial ownership, or the
right to acquire beneficial ownership, of 10% or more of the outstanding
shares of Issuer's Common Stock; (iv) any person other than Grantee or any
of its subsidiaries has made a bona fide, publicly disclosed proposal to
Issuer or its stockholders to engage in an Acquisition Transaction; (v)
after any person, other than Grantee or any of its subsidiaries, has
proposed an Acquisition Transaction, Issuer breaches any covenant or
obligation contained in the Merger Agreement and such breach (A) would
entitle Grantee to terminate the Merger Agreement and (B) is not remedied
prior to the date of Holder's notice to Issuer of the exercise of the
Option; or (vi) any person, other than Grantee or any of its subsidiaries,
without Grantee's prior written consent, files an application or notice
with any federal or state bank regulatory authority for approval to engage
in an Acquisition Transaction.
(b) For purposes of each Stock Option Agreement, the term "Acquisition
Transaction" means (i) a merger or consolidation, or any similar
transaction, involving Issuer or any of its Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X of the Commission), (ii) a purchase,
lease or any other acquisition of all or a substantial portion of the
assets of Issuer or any of its Significant Subsidiaries (except as
contemplated by the Merger Agreement), or (iii) an acquisition of 10% or
more of the voting power of Issuer or any of its Significant Subsidiaries,
or (iv) any substantially similar transaction, provided that no such
transaction shall be an Acquisition Transaction if (i) the voting
securities of Issuer outstanding immediately prior to such transaction
continue to represent 65% of the combined voting power of the voting
securities of the Issuer or surviving entity immediately subsequent to such
transaction, or (ii) such transaction involves only the Issuer and one or
more of its subsidiaries or involves only any two or more of such
subsidiaries and is not in violation of the Merger Agreement.
(c) The term "Subsequent Triggering Event" means either of the
following events or transactions occurring after December 12, 1995: (i) the
acquisition by any person of beneficial ownership of 20% or more of the
then outstanding shares of Issuer Common Stock; or (ii) the occurrence of
the Initial Triggering Event described above in clause (a)(i), except that
the percentage referred to in subclause (iii) of the definition of
"Acquisition Transaction" set forth above shall be 20%.
The term "Exercise Termination Event" means the earliest of: (i) the
Effective Time of the Merger; (ii) the termination of the Merger Agreement if
such termination occurs prior to an Initial Triggering Event, except a
termination by Grantee for a volitional, material breach by Issuer of any
representation, warranty, covenant or other agreement in the Merger Agreement;
and (iii) the passage of twelve months after the termination of the Merger
Agreement if such termination follows an Initial Triggering Event or is a
termination by Grantee due to a volitional, material breach by Issuer of any
representation, warranty, covenant or other agreement in the Merger Agreement
(provided that if an Initial Triggering Event continues or occurs beyond such
termination of the Merger Agreement and prior to the passage of such
twelve-month period, the Option will terminate twelve months from the expiration
of the last Initial Triggering Event to expire but in no event more than
eighteen months after such termination of the Merger Agreement. Each Stock
Option Agreement will expire on the happening of an Exercise Termination Event.
As of the date of this Joint Proxy Statement-Prospectus, to the best
knowledge of Bank of Boston and BayBanks, no Initial Triggering Event or
Subsequent Triggering Event has occurred under any of the Stock Option
Agreements.
Registration Rights. 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 ninety days of such Subsequent Triggering Event,
promptly prepare, file and keep current a shelf registration statement with the
Commission. Issuer is required to use its best efforts to cause such
registration statement to become effective and to remain current, for a period
of 180 days or such shorter time as may be reasonably necessary to effect the
sale or other disposition of the Option Shares. Grantee has the right to demand
two such registrations. The foregoing notwithstanding, if, at the time of any
request by Grantee for registration of the Option or the Issuer
77
<PAGE> 87
Option Shares, Issuer is in registration with respect to an underwritten public
offering of Issuer Common Stock, and if in the good faith judgment of the
underwriter the inclusion of the Holder's Option or Option Shares would
interfere with the successful marketing of the shares of Issuer Common Stock,
the number of Issuer Option Shares otherwise to be covered in the registration
may be reduced as provided in the Stock Option Agreement.
Repurchase of Options. Immediately prior to the occurrence of a Repurchase
Event (as defined below), (i) following a request of a Holder, delivered prior
to an Exercise Termination Event, the Issuer (or any successor thereto) is
required to 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 the Option may then be exercised and (ii) at the request of the owner
of Option Shares from time to time (the "Owner"), delivered within ninety days
of such occurrence (or such later period as provided in the Stock Option
Agreements), Issuer must repurchase such number of the Option Shares from the
Owner as the Owner designates at a price (the "Option Share Repurchase Price")
equal to the market/offer price multiplied by the number of Option Shares so
designated.
The term "market/offer price" means the highest of (i) the price per share
of Issuer Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the price per share of Issuer Common Stock to be paid by any
third party pursuant to an agreement with Issuer, (iii) the highest closing
price for shares of Issuer Common Stock within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of the
Option or the Owner gives notice of the required repurchase of Option Shares, as
the case may be, or (iv) in the event of a sale of all or a substantial portion
of Issuer's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, divided by the number of shares of Issuer 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 the Holder or the
Owner, as the case may be, and reasonably acceptable to the Issuer. However, if
Issuer at any time after delivery of a notice of repurchase as described in this
paragraph is prohibited under applicable law or regulation, from delivering to
the Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full, the Holder or Owner may
revoke its notice of repurchase of the Issuer Option or the Issuer Option Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer will promptly (I) deliver to the Holder and/or the Owner, as
appropriate, that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering and (II) deliver,
as appropriate, (a) to the Holder, a new Stock Option Agreement evidencing the
right of the Holder to purchase that number of shares of the Issuer Common Stock
obtained by multiplying the number of shares of the Issuer Common Stock for
which the surrendered Issuer 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 the Owner, a certificate for the Issuer Option Shares it is then so
prohibited from repurchasing. A "Repurchase Event" is deemed to have occurred
(i) upon the consummation of an Acquisition Transaction or (ii) upon the
acquisition by any person of the beneficial ownership of 50% or more of the then
outstanding Issuer Common Stock, provided that a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event. The repurchase of an
Option by an Issuer pursuant to the terms of the Stock Option Agreements may be
subject to prior approval of certain regulatory authorities. See "THE
MERGER -- Regulatory Approvals Required for the Merger."
In the event that prior to an Exercise Termination Event, the Issuer enters
into any agreement (a) to consolidate with or merge into any person, other than
the Grantee or one of its subsidiaries, such that Issuer is not the continuing
or surviving corporation of such consolidation or merger, (b) to permit any
person, other than the Grantee or one of its subsidiaries, to merge into the
Issuer and the Issuer is the continuing or surviving corporation, but in
connection with such consolidation or merger, the outstanding shares of the
Issuer Common Stock are 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 Issuer Common Stock after such merger represent less
78
<PAGE> 88
than 50% of the outstanding voting shares and voting share equivalents of the
merged corporation; or (c) to sell or otherwise transfer all or substantially
all of its assets to any person, other than the Grantee or any of its
subsidiaries, then, and in each such case, the agreement governing such
transaction must provide that, upon consummation of such transaction and upon
terms and conditions set forth in the Stock Option Agreement, the Option will be
converted into, or exchanged for, an option having substantially the same terms
as the Option (the "Substitute Option") to purchase securities, at the election
of the Holder, of either the acquiring person or any person that controls the
acquiring person. At the request of the Holder of the Substitute Option, the
issuer of the Substitute Option is required to repurchase it at a price, and
subject to such other terms and conditions, as set forth in the Stock Option
Agreement.
Assignment of Options. Neither Issuer nor Grantee may assign any of its
rights or obligations under the Stock Option Agreement or the Option created
thereunder to any other person without the express written consent of the other
party, except that if a Subsequent Triggering Event occurs prior to an Exercise
Termination Event, Grantee may (subject to the terms of the Stock Option
Agreement) assign, in whole or in part, its rights and obligations under the
Stock Option Agreement or the Option within ninety days (or such later period as
provided for in the Stock Option Agreement) following such Subsequent Triggering
Event. Grantee, however, may not, assign its rights under the Option until
fifteen days after the Federal Reserve Board approves Grantee's application
under federal law to acquire the shares of Issuer Common Stock subject to the
Option except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of 2%
of the voting shares of Issuer, (iii) an assignment to a single party (e.g., a
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Grantee's behalf, or (iv) any other manner approved by
the Federal Reserve Board.
Additional Provisions. Certain rights and obligations of Bank of Boston and
BayBanks under the Options are subject to receipt of required regulatory
approvals. The approval of the Federal Reserve Board is required for the
acquisition by the Grantee of more than 5% of the outstanding shares of Issuer's
Common Stock. Accordingly, Bank of Boston has included or will include in its
applications with the Federal Reserve Board a request for approval of the right
of each Grantee to exercise its rights under the Stock Option Agreement,
including its rights to purchase more than 5% of the outstanding shares of
Issuer Common Stock. A repurchase of the Option by the Issuer from a Holder at
an Option Repurchase Price pursuant to the Stock Option Agreement may require
prior regulatory approval. See "THE MERGER -- Regulatory Approvals Required for
the Merger." Acquisition of more than certain statutorily specified percentages
of the outstanding shares of Issuer Common Stock on exercise of an Option also
would require certain state and federal regulatory approvals described in "THE
MERGER -- Regulatory Approvals Required for the Merger" and, in the case of
BayBanks' exercise of the Bank of Boston Option, certain other state regulatory
approvals.
79
<PAGE> 89
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information combines
the historical Consolidated Financial Statements of Bank of Boston and BayBanks
giving effect to the Merger as if it had been effective on December 31, 1995,
with respect to the Pro Forma Combined Balance Sheet, and as of the beginning of
the periods indicated herein, with respect to the Pro Forma Combined Statements
of Income. The Merger will be accounted for as a pooling of interests. This
information should be read in conjunction with the historical consolidated
financial statements of Bank of Boston and BayBanks, including their respective
notes thereto, which are incorporated by reference into this Joint Proxy
Statement-Prospectus, and in conjunction with the condensed historical selected
financial data and other pro forma combined financial information, including the
notes thereto, appearing elsewhere in this Joint Proxy Statement-Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." The effect of estimated
merger and reorganization costs expected to be incurred in connection with the
Merger has been reflected in the pro forma combined balance sheet; however,
since the estimated costs are nonrecurring, they have not been reflected in the
pro forma combined statements of income. The pro forma combined financial
information does not give effect to any anticipated cost savings in connection
with the Merger. The pro forma combined balance sheet is not necessarily
indicative of the actual financial position that would have existed had the
Merger been consummated on December 31, 1995, or that may exist in the future.
The pro forma combined statements of income are not necessarily indicative of
the results that would have occurred had the Merger been consummated on the
dated indicated or that may be achieved in the future.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------- ----------- -------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 2,645 $ 922 $ 3,567
Interest bearing deposits in other banks..... 1,250 163 1,413
Federal funds sold and securities purchased
under agreements to resell................. 1,350 198 1,548
Securities held to maturity.................. 613 54 667
Securities available for sale................ 5,014 2,549 7,563
Trading account securities................... 1,109 51 1,160
Mortgages held for sale...................... 889 20 909
Loans and leases............................. 31,067 7,751 38,818
Reserve for credit losses.................... (736) (154) (890)
Premises and equipment....................... 617 216 833
Due from customers on acceptances............ 359 2 361
Other assets................................. 3,220 291 3,511
------- ------- --- -------
Total assets....................... $47,397 $12,063 $59,460
======= ======= === =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits..................................... $30,948 $10,217 $41,165
Funds borrowed............................... 8,763 719 9,482
Acceptances outstanding...................... 359 2 361
Other liabilities............................ 1,437 109 $ 83(2) 1,629
Notes payable................................ 2,139 65 2,204
------- ----------- --- -----------
Total liabilities............................ 43,646 11,112 83 54,841
------- ----------- --- -----------
Stockholders' equity:
Preferred stock............................ 508 508
Common stock............................... 253 39 58(3) 350
Surplus.................................... 932 361 (58)(3) 1,235
Retained earnings.......................... 2,020 533 (83)(2) 2,470
Net unrealized gain on securities available
for sale................................ 64 18 82
Treasury stock, at cost.................... (22) (22)
Cumulative translation adjustments......... (4) (4)
------- ----------- --- -----------
Total stockholders' equity......... 3,751 951 (83) 4,619
------- ----------- --- -----------
Total liabilities and stockholders'
equity........................... $47,397 $12,063 $59,460
======= ========== =========== ==========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Information."
80
<PAGE> 90
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees...................... $3,874 $3,114 $2,584
Securities..................................................... 686 495 362
Mortgages held for sale........................................ 31 43 85
Federal funds sold and securities purchased under agreements to
resell...................................................... 303 605 147
Deposits in other banks........................................ 224 119 152
------ ------ ------
Total interest income....................................... 5,118 4,376 3,330
------ ------ ------
INTEREST EXPENSE:
Deposits....................................................... 1,791 1,301 1,177
Funds borrowed................................................. 920 906 268
Notes payable.................................................. 159 132 116
------ ------ ------
Total interest expense...................................... 2,870 2,339 1,561
------ ------ ------
Net interest revenue........................................... 2,248 2,037 1,769
Provision for credit losses.................................... 275 154 107
------ ------ ------
Net interest revenue after provision for credit losses......... 1,973 1,883 1,662
------ ------ ------
NONINTEREST INCOME:
Financial service fees......................................... 717 580 529
Trust and agency fees.......................................... 231 215 193
Trading profits and commissions................................ 25 18 26
Securities gains............................................... 9 14 32
Other income................................................... 328 208 165
------ ------ ------
Total noninterest income............................... 1,310 1,035 945
------ ------ ------
NONINTEREST EXPENSE:
Salaries and employee benefits................................. 1,145 1,043 984
Occupancy and equipment expense................................ 333 317 312
Other real estate owned expense................................ 11 38 82
Acquisition, divestiture and restructuring charges............. 28 21 85
Other expense.................................................. 560 526 539
------ ------ ------
Total noninterest expense................................... 2,077 1,945 2,002
------ ------ ------
Income before income taxes, extraordinary item and cumulative
effect of accounting change................................. 1,206 973 605
Provision for income taxes..................................... 528 423 262
------ ------ ------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE........................................... $ 678 $ 550 $ 343
====== ====== ======
PER COMMON SHARE:
Income before extraordinary item and cumulative effect of
accounting change
Primary..................................................... $ 4.17 $ 3.44 $ 2.09
Fully diluted............................................... 4.09 3.37 2.05
Average number of common shares (in thousands)
Primary.................................................... 153,856 148,913 147,033
Fully diluted.............................................. 156,768 153,616 152,067
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Information."
81
<PAGE> 91
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------- ----------- -------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including
fees................................... $3,240 $ 634 $ 3,874
Securities................................ 539 147 686
Mortgages held for sale................... 30 1 31
Federal funds sold and securities
purchased under agreements to resell... 293 10 303
Deposits in other banks................... 217 7 224
------ ----- ------
Total interest income............. 4,319 799 5,118
------ ----- ------
INTEREST EXPENSE:
Deposits.................................. 1,557 234 1,791
Funds borrowed............................ 866 54 920
Notes payable............................. 155 4 159
------ ----- ------
Total interest expense............ 2,578 292 2,870
------ ----- ------
Net interest revenue...................... 1,741 507 2,248
Provision for credit losses............... 250 25 275
------ ----- ------
Net interest revenue after provision for
credit losses.......................... 1,491 482 1,973
------ ----- ------
NONINTEREST INCOME:
Financial service fees.................... 523 194 717
Trust and agency fees..................... 217 14 231
Trading profits and commissions........... 22 3 25
Securities gains.......................... 9 9
Other income.............................. 320 8 328
------ ----- ------
Total noninterest income.......... 1,091 219 1,310
------ ----- ------
NONINTEREST EXPENSE:
Salaries and employee benefits............ 897 248 1,145
Occupancy and equipment expense........... 241 92 333
Other real estate owned expense........... 9 2 11
Acquisition and restructuring expense..... 28 28
Other expense............................. 423 137 560
------ ----- ------
Total noninterest expense......... 1,598 479 2,077
------ ----- ------
Income before income taxes................ 984 222 1,206
Provision for income taxes................ 443 85 528
------ ----- ------
NET INCOME............................. $ 541 $ 137 $ 678
====== ===== ======
PER COMMON SHARE:
Net income
Primary................................ $ 4.55 $7.01 $ 4.17
Fully diluted.......................... 4.43 6.99 4.09
Average number of common shares
(in thousands)
Primary............................... 110,716 19,609 153,856
Fully diluted......................... 113,560 19,640 156,768
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Information."
82
<PAGE> 92
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------- ----------- -------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees.... $2,606 $ 508 $ 3,114
Securities................................... 355 140 495
Mortgages held for sale...................... 41 2 43
Federal funds sold and securities
purchased under agreements to resell...... 600 5 605
Deposits in other banks........................ 116 3 119
------ ---- ------
Total interest income................ 3,718 658 4,376
------ ---- ------
INTEREST EXPENSE:
Deposits..................................... 1,148 153 1,301
Funds borrowed............................... 868 38 906
Notes payable................................ 130 2 132
------ ---- ------
Total interest expense............... 2,146 193 2,339
------ ---- ------
Net interest revenue......................... 1,572 465 2,037
Provision for credit losses.................. 130 24 154
------ ---- ------
Net interest revenue after provision for
credit losses............................. 1,442 441 1,883
------ ---- ------
NONINTEREST INCOME:
Financial service fees....................... 396 184 580
Trust and agency fees........................ 201 14 215
Trading profits and commissions.............. 16 2 18
Securities gains............................. 14 14
Other income................................. 201 7 208
------ ---- ------
Total noninterest income............. 828 207 1,035
------ ---- ------
NONINTEREST EXPENSE:
Salaries and employee benefits............... 813 230 1,043
Occupancy and equipment expense.............. 231 86 317
Other real estate owned expense.............. 22 16 38
Acquisition and restructuring expense........ 21 21
Other expense................................ 392 134 526
------ ---- ------
Total noninterest expense............ 1,479 466 1,945
------ ---- ------
Income before income taxes and extraordinary
item...................................... 791 182 973
Provision for income taxes................ 349 74 423
------ ---- ------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE.................. $ 442 $ 108 $ 550
====== ==== ======
PER COMMON SHARE:
Income before extraordinary item and
cumulative effect of accounting change
Primary................................... $ 3.79 $5.65 $ 3.44
Fully diluted............................. 3.67 5.65 3.37
Average number of common shares (in
thousands)
Primary.................................. 106,730 19,174 148,913
Fully diluted............................ 111,427 19,177 153,616
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Information."
83
<PAGE> 93
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
BANK OF PRO FORMA PRO FORMA
BOSTON BAYBANKS(1) ADJUSTMENTS(1) COMBINED
------- ----------- -------------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans and lease financing, including fees.... $2,112 $ 472 $ 2,584
Securities................................... 271 91 362
Mortgages held for sale...................... 76 9 85
Federal funds sold and securities
purchased under agreements to resell...... 139 8 147
Deposits in other banks...................... 141 11 152
------ ---- ------
Total interest income................ 2,739 591 3,330
------ ---- ------
INTEREST EXPENSE:
Deposits..................................... 1,016 161 1,177
Funds borrowed............................... 264 4 268
Notes payable................................ 114 2 116
------ ---- ------
Total interest expense............... 1,394 167 1,561
------ ---- ------
Net interest revenue......................... 1,345 424 1,769
Provision for credit losses.................. 70 37 107
------ ---- ------
Net interest revenue after provision for
credit losses............................. 1,275 387 1,662
------ ---- ------
NONINTEREST INCOME:
Financial service fees....................... 350 179 529
Trust and agency fees........................ 178 15 193
Trading profits and commissions.............. 24 2 26
Securities gains............................. 32 32
Other income................................. 162 3 165
------ ---- ------
Total noninterest income............. 746 199 945
------ ---- ------
NONINTEREST EXPENSE:
Salaries and employee benefits............... 771 213 984
Occupancy and equipment expense.............. 224 88 312
Other real estate owned expense.............. 44 38 82
Acquisition and restructuring expense........ 85 85
Other expense................................ 407 132 539
------ ---- ------
Total noninterest expense............ 1,531 471 2,002
------ ---- ------
Income before income taxes and extraordinary
item...................................... 490 115 605
Provision for income taxes................... 215 47 262
------ ---- ------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE....................................... $ 275 $ 68 $ 343
====== ==== ======
PER COMMON SHARE:
Income before cumulative effect of accounting
change
Primary................................... $ 2.28 $3.57 $ 2.09
Fully diluted............................. 2.22 3.56 2.05
Average number of common shares (in
thousands)
Primary.................................. 105,336 18,953 147,033
Fully diluted............................ 110,258 19,004 152,067
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Information."
84
<PAGE> 94
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Certain historical data of BayBanks have been reclassified on a pro
forma basis to conform to Bank of Boston's classifications.
Transactions between Bank of Boston and BayBanks are not material in
relation to the pro forma combined financial statements, and have not
been eliminated from the pro forma combined amounts.
(2) Reflects management's current estimate, for purposes of pro forma
presentation, of the aggregate estimated merger and restructuring costs
of $140 million ($83 million net of taxes, computed using the federal
statutory income tax rate of 35% plus the applicable state income tax
rate net of related federal tax benefits) expected to be incurred in
connection with the Merger. While a portion of these costs may be
required to be recognized over time, the current estimate of these
costs has been recorded in the pro forma combined balance sheet in
order to disclose the aggregate effect of these activities on Bank of
Boston's pro forma combined financial position. The estimated aggregate
costs, primarily comprised of anticipated cash charges, include the
following:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Employee reduction costs $ 35
Technology-related costs 25
Facilities costs 35
Customer account access costs 30
Other, including transaction costs 15
------
$ 140
------
</TABLE>
These costs include costs of reducing approximately 2,000 positions,
with about half expected to result from normal turnover, comprising
employee severance costs, termination of certain employee benefit plans
and employee assistance costs for separated employees resulting from
reorganizations in connection with the Merger; technology-related
costs, principally costs associated with the elimination of redundant
systems, including service contract terminations and other related
costs of computer equipment and software write-offs due to duplication
or incompatibility, and costs of transitioning customer accounts to a
common system; facilities costs, comprising lease termination costs and
costs related to the closing of approximately 90 redundant branches, as
well as the closing of duplicate operational and other facilities;
customer account access costs, comprising costs to replace customer
checks, ATM cards and other access instruments and related
communication costs; and transaction costs, comprising professional
fees and other costs directly associated with completing the Merger.
Bank of Boston anticipates that the majority of these costs, primarily
comprised of cash charges, will be paid in 1996 and 1997.
Management's cost estimates are forward looking. While the costs
represent management's current estimate of merger and restructuring
costs that will be incurred, the ultimate level and timing of
recognition of such costs will be based on the final merger and
integration plan to be completed prior to consummation of the Merger,
which is currently being developed by various Bank of Boston and
BayBanks task forces and integration committees. Readers are cautioned
that the completion of this merger and integration plan and the
resulting management plans detailing actions to be undertaken to effect
the Merger will impact these estimates; the type and amount of actual
costs incurred could vary materially from these estimates if future
developments differ from the underlying assumptions used by management
in determining its current estimate of these costs.
(3) Pursuant to the Merger Agreement, each outstanding share (19,640,933
shares at December 31, 1995) of BayBanks Common Stock will be converted
into 2.2 shares of Bank of Boston Common Stock, subject to adjustment
in the event of stock dividends, stock splits or similar changes in
Bank of Boston's capitalization. See "THE MERGER -- Conversion of
Shares."
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DESCRIPTION OF BANK OF BOSTON CAPITAL STOCK
COMMON STOCK
General. Bank of Boston Common Stock as of the Record Date consisted of
200,000,000 authorized shares, par value $2.25 per share, of which there were
110,507,016 shares outstanding. Bank of Boston Common Stock is traded on the
NYSE and the BSE. The transfer agent and registrar for Bank of Boston Common
Stock is FNBB.
Shares of Bank of Boston Common Stock may be issued from time to time, in
such amounts and proportion and for such consideration as may be fixed by the
Bank of Boston Board. No holder of Bank of Boston Common Stock has any
preemptive or preferential rights to purchase or to subscribe for any shares of
capital stock or other securities which may be issued by Bank of Boston. Bank of
Boston Common Stock has no redemption or sinking fund provisions applicable
thereto. Bank of Boston Common Stock does not have any conversion rights.
Bank of Boston issues authorized but unissued shares of its Bank of Boston
Common Stock in connection with several employee benefit and stock option and
incentive plans maintained by Bank of Boston or its subsidiaries, and Bank of
Boston's Automatic Dividend Reinvestment and Common Stock Purchase Plan.
The shares of Bank of Boston Common Stock are fully paid and
non-assessable. Section 45 of Chapter 156B of the MBCL provides that
stockholders to whom a corporation makes any distribution, whether by way of
dividend, repurchase or redemption of stock or otherwise (other than a
distribution of stock of the corporation), if the corporation is, or is thereby
rendered, insolvent, shall be liable to the corporation for the amount of such
distribution made, or for the amount of such distribution which exceeds that
which could have been made without rendering the corporation insolvent, but in
either event, only to the extent of the amount paid or distributed to such
stockholders, respectively.
Liquidation. In the event of any liquidation, dissolution or winding up of
Bank of Boston, whether voluntary or involuntary, the holders of Bank of Boston
Common Stock are entitled to receive, on a share for share basis, any assets or
funds of Bank of Boston which are distributable to its holders of Bank of Boston
Common Stock upon such events, subject to the prior rights of creditors of Bank
of Boston and holders of Bank of Boston's outstanding preferred stock.
Voting. Holders of Bank of Boston Common Stock are entitled to one vote
for each share on all matters voted upon by the stockholders. The shares of Bank
of Boston Common Stock have noncumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors to be elected at a particular meeting if they choose
to do so, and in such event, the holders of the remaining shares voting for the
election of directors will not be able to elect any person or persons to the
Bank of Boston Board.
Dividends. When, as and if dividends, payable in cash, stock or other
property, are declared by the Bank of Boston Board out of funds legally
available therefor, the holders of Bank of Boston Common Stock are entitled to
share equally, share for share, in such dividends. The payment of dividends on
Bank of Boston Common Stock is subject to the prior payment of dividends on Bank
of Boston's preferred stock.
Stockholder Rights Plan. On June 28, 1990, the Bank of Boston Board
adopted the Bank of Boston Rights Agreement providing for a dividend of one
Preferred Stock Purchase Right for each outstanding share of Bank of Boston
Common Stock (the "Rights"). The dividend was distributed on July 12, 1990 to
stockholders of record on that date. Holders of shares of Bank of Boston Common
Stock issued subsequent to that date receive the Rights with their shares. The
Rights trade automatically with shares of Bank of Boston Common Stock and become
exercisable only under certain circumstances as described below. The Rights are
designed to protect the interests of Bank of Boston and its stockholders against
coercive takeover tactics. The purpose of the Rights is to encourage potential
acquirors to negotiate with the Bank of Boston Board prior to attempting a
takeover and to provide the Bank of Boston 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
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Rights should not, however, interfere with any merger or other business
combination approved by the Bank of Boston Board.
Until a Right is exercised, the holder of a Right, as such, will have no
rights as a stockholder of Bank of Boston including, without limitation, the
right to vote or receive dividends. Upon becoming exercisable, each Right will
entitle the holder thereof to purchase from Bank of Boston a unit equal to one
one-thousandth of a share of Bank of Boston's Junior Participating Preferred
Stock, Series D at a purchase price of $50 per unit, subject to adjustment. In
general, the Rights will become exercisable upon the earlier of (i) ten days
following a public announcement by Bank of Boston that a person or group has
acquired beneficial ownership of 15% or more of Bank of Boston Common Stock or
voting securities representing 15% or more of the total voting power of Bank of
Boston (the "Stock Acquisition Date") or (ii) ten business days (or such later
date as the Bank of Boston Board may determine) after the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning 15% or more of Bank of Boston Common Stock or voting
securities representing 15% or more of the total voting power of Bank of Boston.
Generally, in the event that a person or group becomes the beneficial owner
of 15% or more of Bank of Boston Common Stock or voting securities representing
15% or more of the total voting power of Bank of Boston (other than pursuant to
an offer for all outstanding shares of Bank of Boston Common Stock and other
voting securities which the Bank of Boston Board determines to be fair to
stockholders and otherwise in the best interests of Bank of Boston) (a "Flip-In
Event"), each Right, other than Rights owned by the acquiror, will thereafter
entitle the holder to receive, upon exercise of the Right, Bank of Boston Common
Stock having a value equal to two times the exercise price of the Right. In
addition, at any time after a Flip-In Event, the Bank of Boston Board may
exchange the then exercisable Rights (other than Rights held by the acquiror)
for Bank of Boston Common Stock at one share of Bank of Boston Common Stock for
each Right. In the event that, any time after the Stock Acquisition Date, Bank
of Boston is acquired in a merger or other business combination transaction or
more than 50% of Bank of Boston's assets, cash flow or earning power is sold or
transferred, each Right, other than Rights owned by the acquiror, will
thereafter entitle the holder thereof to receive, upon the exercise of the
Right, common stock of the acquiror having a value equal to two times the
exercise price of the Right.
The Rights are redeemable by Bank of Boston at $.01 per Right at any time
prior to ten days after the Stock Acquisition Date (which period may be extended
at any time while the Rights are still redeemable). The Rights will expire at
the close of business on July 12, 2000, unless earlier redeemed or exchanged.
The Bank of Boston Rights Agreement was amended on December 12, 1995, to exclude
the Merger Agreement, the Bank of Boston Stock Option Agreement, and all the
transactions contemplated thereby, from the scope of the agreement.
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
Bank of Boston Rights Agreement, dated as of June 28, 1990, between Bank of
Boston and FNBB, as Rights agent, which is incorporated herein by reference to
Exhibit 1 to Bank of Boston's Registration Statement on Form 8-A dated July 2,
1990.
PREFERRED STOCK
General. Under Bank of Boston's Restated Articles of Organization, the
Bank of Boston Board is authorized, without further stockholder action, to
provide for the issuance of up to 10,000,000 shares of preferred stock, without
par value, in one or more series, with such designations or titles, dividend
rates, special or relative rights in the event of liquidation, distribution or
sale of assets or dissolution or winding up of Bank of Boston; any sinking fund
provisions; any redemption or purchase account provisions; any conversion
provisions; and any voting rights thereof, as shall be set forth as and when
established by the Bank of Boston Board.
Bank of Boston has issued and outstanding five series of Preferred Stock;
Adjustable Rate Cumulative Preferred Stock, Series A, Series B and Series C,
8.60% Cumulative Preferred Stock, Series E, and 7 7/8% Cumulative Preferred
Stock, Series F, (collectively, the "Preferred Stock").
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The Series A, B and C Preferred Stock are issued as whole shares, and the
Series E and Series F Preferred Stock are issued as fractional shares
represented by depositary shares ("Depositary Shares"). Each Depositary Share
represents a one-tenth interest in a share of Series E or Series F Preferred
Stock. The shares of Series E and Series F Preferred Stock underlying the
Depositary Shares are deposited with FNBB, as Depositary (the "Depositary"),
under Deposit Agreements (the "Deposit Agreement"), among Bank of Boston, the
Depositary and the holders from time to time of the depositary receipts issued
by the Depositary thereunder (the "Depositary Receipts"). The Depositary
Receipts evidence the Depositary Shares. Subject to the terms of the Deposit
Agreement, each owner of a Depositary Share is entitled through the Depositary,
in proportion to the one-tenth interest in a share of Series E or Series F
Preferred Stock underlying such Depositary Share, to all rights and preferences
of a share of Series E or Series F Preferred Stock (including dividend, voting,
redemption and liquidation rights).
As of the Record Date, 4,593,941 shares of Preferred Stock were issued and
outstanding with an aggregate liquidation preference of $508.4 million. Holders
of the outstanding Preferred Stock (or, Depositary Shares, in the case of Series
E and Series F Preferred Stock) have no preemptive rights with respect to shares
of any other series of Preferred Stock or with respect to shares of Bank of
Boston Common Stock. The outstanding Preferred Stock, and in the case of the
Series E and Series F Preferred Stock, the Depositary Shares, are listed on the
NYSE and the BSE.
The shares of outstanding Preferred Stock are fully paid and
non-assessable, subject to the provisions of Section 45 of the MBCL discussed
above.
Dividends. Holders of shares (or Depositary Shares, in the case of Series
E and Series F Preferred Stock) of each series of outstanding Preferred Stock
are entitled to cumulative dividends, when, as and if declared by the Bank of
Boston Board. Dividends on the existing Preferred Stock must be paid or set
apart for payment before any dividends can be paid to holders of equity
securities which by their terms rank junior to the Preferred Stock, including
Bank of Boston Common Stock. Dividends on the outstanding Preferred Stock are
payable in arrears on the 15th day of March, June, September and December in
each year in which the Preferred Stock is outstanding.
Liquidation and Redemption. In the event of any voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or winding up of Bank
of Boston, the holders of each share of outstanding Preferred Stock shall be
entitled to receive, prior to any payment upon Bank of Boston Common Stock, cash
in the amount of $50 in the case of the Series A and Series B Preferred Stock,
cash in the amount of $100 in the case of the Series C Preferred Stock and cash
in the amount of $250 in the case of Series E and Series F Preferred Stock
(equivalent to $25 per Depositary Share). The outstanding Preferred Stock is
subject to partial or complete redemption at the option of Bank of Boston, with
the prior approval of the Federal Reserve Board, except that the Series E and
Series F Preferred Stock are not redeemable prior to September 15, 1997 and July
15, 1998, respectively.
Voting. Holders of outstanding Preferred Stock have no general voting
rights. However, during any period in which dividends on a series of outstanding
Preferred Stock are cumulatively in arrears in the amount of six or more full
quarterly dividends, the holders of such series shall be entitled (by series,
voting as a single class) to elect one director who shall serve until such time
as the arrearage in the payment of dividends has been cured.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
Upon consummation of the transactions contemplated in the Merger Agreement,
the stockholders of BayBanks who do not perfect and exercise their statutory
dissenters' rights will become stockholders of Bank of Boston. Since both Bank
of Boston and BayBanks are Massachusetts corporations, BayBanks stockholders who
receive Bank of Boston Common Stock will continue to be subject to the
privileges and restrictions provided by the MBCL. In addition, the rights of
such stockholders as stockholders of Bank of Boston will be governed by the
Articles of Organization and By-Laws of Bank of Boston, which differ in certain
respects from BayBanks' Articles of Organization and By-Laws. The material
differences are summarized below. This summary is qualified in its entirety by
reference to the Massachusetts General Laws, the MBCL and the Articles of
Organization and By-Laws of each of Bank of Boston and BayBanks.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Consistent with the MBCL, each of the Bank of Boston Board and the BayBanks
Board is divided into three classes and the directors of each class are elected
by the stockholders to serve staggered three-year terms. The Bank of Boston
By-Laws provide that the Bank of Boston Board be composed of not less than three
nor more than thirty-five directors. Presently there are fourteen directors on
the Bank of Boston Board and eleven directors on the BayBanks Board.
REMOVAL OF DIRECTORS
Bank of Boston. Pursuant to the MBCL, the directors on the Bank of Boston
Board may be removed by the affirmative vote of a majority of the holders of the
shares outstanding and entitled to vote in the election of directors only for
"cause" as defined in the MBCL.
BayBanks. The BayBanks directors may be removed from office only by the
holders of a majority of the shares outstanding and entitled to vote, or by a
majority of the directors then in office, in each case only for "cause" as
defined in the MBCL.
STOCKHOLDER NOMINATIONS
Bank of Boston. The By-Laws of Bank of Boston set forth procedures that
must be followed for stockholders to nominate individuals for election to the
Bank of Boston Board. Nominations by stockholders must be made in writing and
received by the Clerk of Bank of Boston not less than seventy-five nor more than
125 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that if the meeting is called for a
date more than seventy-five days prior to such anniversary date, a stockholder's
nomination notice must be received not later than the close of business on the
twentieth day following the first to occur of the publication or mailing of the
notice of the meeting date. The By-Laws set forth specific requirements as to
the content of the nomination notice.
BayBanks. The procedures required for director nominations under the
BayBanks By-Laws require stockholders to give advance notice of director
nominations during a thirty-day period that begins ninety days before the
calendar date of the prior year's annual meeting and ends sixty days before that
date. Other advance notice periods apply in specified circumstances if the date
of the annual meeting is moved to a date that is earlier than the prior year's
meeting date by thirty days or more, or if the BayBanks Board votes to increase
the number of directors on the BayBanks Board and one or more of the seats added
is subject to election at the Annual Meeting. Stockholders giving notice of
director nominations also are required to meet eligibility criteria and other
requirements specified in the By-Laws.
CONFLICT OF INTEREST TRANSACTIONS
Bank of Boston. The By-Laws of Bank of Boston provide that contracts or
other transactions between Bank of Boston and one or more of its directors or
between Bank of Boston and any other corporation or other entity with respect to
which any of Bank of Boston's directors is a director, officer or has a
financial interest,
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are permitted if: (a) the material facts as to the contract or transaction and
the director's relationship or interest are disclosed to the Board or committee
and the Board or committee authorizes the contract in good faith by vote of a
majority of disinterested directors (even though less than a quorum); (b) if the
material facts as to the contract or transaction and the director's relationship
or interest are disclosed to the stockholders entitled to vote thereon and it is
approved by vote of the stockholders; or (c) if the contract or transaction is
fair and reasonable as to Bank of Boston as of the time it is approved by the
Board, a committee, or the stockholders.
BayBanks. Under the BayBanks Articles, no contract or other transaction
between the corporation and any of its directors or officers or between the
corporation and any entity in which a director or officer has an interest shall
be for that reason invalidated or voidable; provided that the director's or
officer's interest is disclosed to the meeting of the BayBanks Board or the
committee authorizing the contract or transaction, that a quorum of the BayBanks
Board or of such committee is present at such meeting, and that the contract or
transaction is approved by a majority of such quorum consisting of disinterested
directors.
MEETINGS OF STOCKHOLDERS
Bank of Boston. Under the By-Laws of Bank of Boston, special meetings of
stockholders may be called by the President at the direction of the Chairman of
the Board or by a majority of the Directors, and must be called by the Clerk, or
in case of death, absence, incapacity or refusal of the Clerk, by any other
officer upon the written request of stockholders who hold 100% in interest of
the capital stock of Bank of Boston entitled to vote at the proposed meeting.
Bank of Boston's By-Laws also provide that no business may be transacted at a
stockholder meeting except for that (a) specified in the notice thereof given by
the Bank of Boston Board; (b) brought before the meeting at the direction of the
Bank of Boston Board or the presiding officer; or (c) properly brought before
the meeting by a stockholder of record who complies with the notice procedures
set forth in the By-Laws (other than with respect to stockholder proposals
included in Bank of Boston's proxy statement under Rule 14a-8 under the Exchange
Act). Those notice procedures require that a stockholder's notice be received by
the Clerk (i) not less than seventy-five nor more than 125 days prior to the
anniversary date of the immediately preceding annual meeting; or (ii) in the
case of special meetings, or an annual meeting called for a date more than
seventy-five days prior to such anniversary date, not later than the close of
business on the twentieth day following the first to occur of the mailing of the
notice of the date of such meeting or the public disclosure of such meeting
date. The By-Laws set forth specific requirements as to the content of the
notice.
BayBanks. The BayBanks By-Laws provide for the call of a special meeting of
stockholders by the president or directors of BayBanks, or upon written
application of the owners of not less than 66 2/3% (or such lesser percentage as
may be required by law, but not less than the statutory minimum for a
corporation with a class of voting stock registered under the Exchange Act of
40%) in interest of the BayBanks stock entitled to vote at such meeting.
Business may only be conducted at a special meeting that has been specified in
BayBanks' notice of meeting. Business may only be conducted at an annual meeting
that has been specified in the BayBanks notice of meeting or approved by the
Chairman of the meeting or the Board of Directors. Notice of any stockholder
proposal of business to be considered at an annual meeting must be given not
less than 120 days before the calendar date of the mailing of BayBanks' proxy
statement for the previous year's annual meeting, except in certain specified
circumstances. Stockholders submitting proposals also are required to meet
eligibility criteria and other requirements specified in the By-Laws.
AMENDMENT OF BY-LAWS
Bank of Boston. The provisions of Bank of Boston's By-Laws generally may be
amended, added to or repealed in whole or in part (a) by vote of the
stockholders at a meeting where the substance of the proposed amendment is
stated in the notice of the meeting, or (b) by vote of a majority of the entire
Bank of Boston Board. However, no amendment may be made by the Board of
Directors on any matters reserved to the stockholders by law or the Articles of
Organization or which changes the provisions of the By-Laws relating to removal
of Directors or amendment of the By-Laws.
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BayBanks. The BayBanks By-Laws may be amended, subject to compliance with
the MBCL, or repealed (a) by vote of the stockholders, provided that notice of
the proposed amendment is given in the notice of meeting, or (b) by vote of a
majority of the directors then in office, except with respect to any provision
as to which stockholder action is required by law, the Articles of Organization,
or the By-Laws.
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS
Bank of Boston. 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 Articles of Organization and
By-Laws of Bank of Boston do not contain provisions that require a specific
lower or higher stockholder vote for such transactions.
BayBanks. The BayBanks Articles contain a fair price protection provision
designed to discourage attempts to acquire BayBanks in two steps whereby
remaining stockholder interests would be "squeezed out" in a second-step
business combination at a price less than that paid in a first-step hostile
tender offer. Under this provision, in addition to such vote of the BayBanks
stockholders as is otherwise required, any merger, consolidation, other business
reorganization or combination or other transaction with a stockholder who owns
beneficially 10% or more of BayBanks' voting stock (a "Substantial Stockholder")
or with an affiliate of a Substantial Stockholder would require the approval of
either a majority of the Disinterested Directors (as defined in the provision)
of BayBanks or the holders of two-thirds of the voting stock of BayBanks held by
stockholders other than Substantial Stockholders and affiliates thereof unless
(a) the fair market value per share of the consideration to be paid to the
holders of BayBanks Common Stock was at least equal to the highest per share
price paid by the Substantial Stockholder for its shares of BayBanks Common
Stock, and (b) certain procedural and other requirements were satisfied,
including the requirement that the consideration to be paid to BayBanks'
stockholders must be cash or the same type of consideration previously used by
the Substantial Stockholder.
In addition, the BayBanks Articles include an "anti-greenmail" provision
whereby BayBanks' purchase of shares of its voting capital stock from a
Substantial Stockholder at a premium over Fair Market Value (as defined in the
provision) is precluded unless approved by the holders of at least the sum of
two-thirds of BayBanks voting stock held by stockholders other than Substantial
Stockholders and affiliates thereof plus the number of shares of voting stock
held by Substantial Stockholders. Purchases by BayBanks pursuant to an
open-market purchase program or an offer to all holders of the same class of
stock being purchased would not require a stockholder vote.
STOCKHOLDER RIGHTS PLAN
Bank of Boston. Bank of Boston has distributed to each holder of Bank of
Boston Common Stock one Right for each outstanding share of Bank of Boston
Common Stock. The Rights entitle the stockholder to certain rights in the event
of certain transactions involving Bank of Boston. See "DESCRIPTION OF BANK OF
BOSTON CAPITAL STOCK -- Common Stock -- Stockholder Rights Plan."
BayBanks. Pursuant to a Rights Agreement dated December 23, 1988, between
BayBanks and FNBB, as Rights Agent (the "BayBanks Rights Agreement"), stock
purchase rights have been distributed to BayBanks stockholders and are attached
to each new share of BayBanks Common Stock issued in the future. The stock
purchase rights, which are not currently exercisable and which expire in
December 1998, may become exercisable in the event of certain unsolicited
attempts to acquire BayBanks. The rights become exercisable ten business days
after a person (including a group) acquires 20% or more of the outstanding
shares of BayBanks Common Stock, or commences a tender offer that would result
in such person owning 25% or more of such shares, or the Board of Directors
determines that a person owning 10% or more of such shares is an "adverse
person." If any person becomes the owner of 25% or more of the outstanding
shares of BayBanks Common Stock or the BayBanks Board determines that a person
is an adverse person, the rights of holders other than such owner or adverse
person become rights to buy shares of BayBanks Common Stock (or
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of the acquiring company if BayBanks is acquired in any of certain types of
mergers or business combinations) having a market value of twice the exercise
price of each right, with the result that such owner's or adverse person's
interest in BayBanks would be substantially diluted. BayBanks may redeem the
stock purchase rights at a price of $.01 per right until ten business days after
a person acquires 20% or more of the outstanding shares of BayBanks Common Stock
or the BayBanks Board has determined that a person is an adverse person. The
BayBanks Rights Agreement was amended on December 12, 1995, to exclude the
Merger Agreement, the BayBanks Stock Option Agreement, and all the transactions
contemplated thereby from the scope of the agreement.
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 within 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 Merger Agreement or the Stock Option Agreements,
or any of the transactions contemplated by such agreements, because the Bank of
Boston Board and the BayBanks Board each had approved the Merger Agreement and
the Stock Option Agreements 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 the 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 only to the
extent authorized by a vote of the majority of all shares entitled to vote for
the election of directors, excluding such acquired shares. As permitted under
the statute, the By-Laws both of Bank of Boston and of BayBanks provide that the
Massachusetts control share acquisition statute does not apply to them.
EXPERTS
The consolidated financial statements of Bank of Boston appearing in Bank
of Boston's Annual Report on Form 10-K for the year ended December 31, 1995,
have been audited by Coopers & Lybrand L.L.P., independent auditors, as set
forth in their report thereon included therein and incorporated by reference
herein and in the registration statement. Such consolidated financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of BayBanks and subsidiaries as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Bank of Boston Common Stock offered hereby will be
passed upon for Bank of Boston by Gary A. Spiess, General Counsel. As of the
Record Date, Mr. Spiess had a direct or indirect interest in 31,342 shares of
Bank of Boston Common Stock and had options to purchase an additional 66,205
shares, of which options to purchase 49,313 shares will be exercisable within 60
days after the Record Date.
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The Merger Agreement provides that as a condition to Bank of Boston's and
BayBanks' obligation to consummate the Merger, Bank of Boston receives a tax
opinion from its counsel, Bingham, Dana & Gould LLP, and BayBanks receives a tax
opinion from its counsel, Palmer & Dodge, substantially to the effect that,
among other things, for federal income tax purposes, the Merger will be treated
as a reorganization as described in Section 368 of the Code. See "THE
MERGER -- Certain Federal Income Tax Consequences."
SOLICITATION OF PROXIES
The cost of solicitation of proxies from holders of Bank of Boston Common
Stock and BayBanks Common Stock, including the cost of reimbursing brokerage
houses and other custodians, nominees or fiduciaries for forwarding proxies and
proxy statements to their principals, will be borne by each respective party.
D.F. King & Co., Inc. has been retained by Bank of Boston to assist in the
solicitation of proxies and will be compensated in the estimated amount of
$6,500 plus reasonable out-of-pocket expenses. Georgeson & Company, Inc. has
been retained by BayBanks to assist in the solicitation of proxies and will be
compensated in the estimated amount of $11,500 plus reasonable out-of-pocket
expenses. In addition to such solicitation and solicitation by use of the mails,
solicitation may be made in person or by telephone or telegraph by certain
directors, officers and regular employees of Bank of Boston and BayBanks who
will not receive additional compensation therefor. Bank of Boston and BayBanks
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 Bank of Boston Common Stock and BayBanks Common Stock.
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[ALTERNATE BANK OF BOSTON PAGE]
THE BANK OF BOSTON MEETING -- ADDITIONAL MATTERS
ELECTION OF DIRECTORS
(PROXY ITEM 2)
Five director nominees are standing for election at the Bank of Boston
Meeting for terms of office that will expire at the 1999 Annual Meeting of
Stockholders. All of the nominees were elected at the 1993 Annual Meeting of
Stockholders.
Each director will continue in office until the director's term expires and
until his or her successor is elected and qualified or until his or her earlier
death, resignation or removal.
Management has made inquiries and believes that each of the nominees will
be willing and able to serve if elected. If any of the nominees shall be
unwilling or unable to serve, discretionary authority is reserved to vote for a
substitute chosen by the Bank of Boston Board, or the Bank of Boston Board may
reduce the number of directors.
Biographical information is set forth below with respect to the director
nominees and the directors whose terms of office expire in 1997 and 1998.
From and after the Effective Time of the Merger, the Bank of Boston Board
will be expanded by four members, and Messers. Crozier, Cervieri, Piper, and
Strehle will be appointed as directors of Bank of Boston. See "THE
MERGER -- Management and Operations after the Merger -- Bank of Boston."
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[ALTERNATE BANK OF BOSTON PAGE]
NOMINEES FOR ELECTION AS DIRECTORS
TERMS EXPIRE AT THE 1999 ANNUAL STOCKHOLDERS' MEETING
<TABLE>
<S> <C>
WAYNE A. BUDD........... Senior Partner, Goodwin, Procter & Hoar (law firm). United
Age 54 States Attorney, District of Massachusetts, from 1989 to 1992;
Director since 1993 Associate Attorney General of the United States from 1992 to
1993; Senior Partner, Goodwin, Procter & Hoar, since 1993;
Director of FNBB since 1993.
ALICE F. EMERSON........ Senior Fellow, The Andrew W. Mellon Foundation; President
Age 64 Emerita of Wheaton College, Norton, Massachusetts. President of
Director since 1977 Wheaton College from 1975 to 1991; Senior Fellow, The Andrew W.
Mellon Foundation since 1991; Director of FNBB since 1977;
Director of Eastman Kodak Company, Champion International
Corporation and AES Corporation.
CHARLES K. GIFFORD...... Chairman, President and Chief Executive Officer of Bank of
Age 53 Boston and of FNBB. Elected President of Bank of Boston and
Director since 1987 FNBB in 1989, Chief Operating Officer of both in 1993 and
Chairman, President and Chief Executive Officer of both in
July, 1995; Director of FNBB since 1987; Director of
Massachusetts Mutual Life Insurance Company and Boston Edison
Company.
PAUL C. O'BRIEN......... President of The O'Brien Group, Inc. (a firm engaged in
Age 56 providing consulting services to companies in the areas of
Director since 1988 community relations and external affairs). President and Chief
Executive Officer of New England Telephone and Telegraph
Company from 1988 to 1993 and Chairman of the Board from 1993
to 1994; President of The O'Brien Group, Inc. since January,
1995; Director of FNBB since 1988; Director of Cambridge
NeuroScience, Inc., First Pacific Networks Inc. and Shiva
Corporation.
JOHN W. ROWE............ President and Chief Executive Officer of New England Electric
Age 50 System. President and Chief Executive Officer of New England
Director since 1989 Electric System since 1989; Director of FNBB since 1989;
Director of New England Electric System and UNUM Corporation.
</TABLE>
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[ALTERNATE BANK OF BOSTON PAGE]
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRE AT THE 1997 ANNUAL STOCKHOLDERS' MEETING
<TABLE>
<S> <C>
GARY L. COUNTRYMAN...... Chairman and Chief Executive Officer of Liberty Mutual
Age 56 Insurance Company. President of Liberty Mutual Insurance
Director since 1982 Company from 1981 to 1992, Chief Executive Officer since 1987
and Chairman since 1991; Director of FNBB since 1982; Director
of Boston Edison Company, The Neiman-Marcus Group, Inc. and
Alliance of American Insurers.
J. DONALD MONAN, S.J.... President of Boston College, Chestnut Hill, Massachusetts.
Age 71 President of Boston College since 1972; Director of FNBB since
Director since 1976 1976.
RICHARD A. SMITH........ Chairman of the Board of Harcourt General, Inc. (a diversified
Age 71 company engaged in international and domestic publishing, and
Director since 1973 executive outplacement) and The Neiman-Marcus Group, Inc.
(retail specialty stores); Chairman and Chief Executive Officer
of GC Companies Inc. (exhibition of motion pictures). Chairman
and Chief Executive Officer of Harcourt General, Inc. from 1985
to 1991 and Chairman of the Board since 1991; Chairman and
Chief Executive Officer of The Neiman-Marcus Group, Inc. from
1987 to 1991 and Chairman of the Board since 1991; Chairman,
President and Chief Executive Officer of GC Companies Inc. from
1993 to November, 1995, and Chairman and Chief Executive
Officer since November, 1995; Director of FNBB since 1973;
Director of Liberty Mutual Insurance Company and Liberty Mutual
Fire Insurance Company.
WILLIAM C. VAN FAASEN... President and Chief Executive Officer of Blue Cross and Blue
Age 47 Shield of Massachusetts, Inc. (non-profit health services
Director since 1994 company). Executive Vice President and Chief Operating Officer
of Blue Cross and Blue Shield of Massachusetts, Inc. from 1990
to 1992 and President and Chief Executive Officer since 1992;
Director of FNBB since 1994.
</TABLE>
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[ALTERNATE BANK OF BOSTON PAGE]
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRE AT THE 1998 ANNUAL STOCKHOLDERS' MEETING
<TABLE>
<S> <C>
WILLIAM F. CONNELL...... Chairman and Chief Executive Officer of Connell Limited
Age 57 Partnership (a company primarily engaged in metals recycling
Director since 1993 and the manufacture of industrial products). Chairman and Chief
Executive Officer of Connell Limited Partnership since 1987;
Director of FNBB since 1993; Director of Boston Edison Company,
Arthur D. Little, Inc., Harcourt General, Inc. and North
American Mortgage Company.
THOMAS J. MAY........... Chairman, President and Chief Executive Officer of Boston
Age 48 Edison Company. Executive Vice President of Boston Edison
Director since 1994 Company from 1990 to 1993, President and Chief Operating
Officer from 1993 to 1994, Chairman and Chief Executive Officer
since 1994 and President since September, 1995; Director of
FNBB since 1994; Director of New England Mutual Life Insurance
Company.
DONALD F. MCHENRY....... University Research Professor of Diplomacy and International
Age 59 Relations, Georgetown University, Washington, D.C. University
Director since 1981 Research Professor at Georgetown University since 1981 and
President of The IRC Group since 1983; Director of FNBB since
1981; Director of American Telephone & Telegraph Company,
Coca-Cola Company, International Paper Company and SmithKline
Beecham, PLC.
THOMAS B. WHEELER....... President and Chief Executive Officer of Massachusetts Mutual
Age 59 Life Insurance Company. President of Massachusetts Mutual Life
Director since 1989 Insurance Company since 1987 and Chief Executive Officer since
1988; Director of FNBB since 1989; Director of Massachusetts
Mutual Life Insurance Company and Textron Inc.
ALFRED M. ZEIEN......... Chairman of the Board and Chief Executive Officer of The
Age 66 Gillette Company (manufacturer of consumer products). Elected
Director since 1992 Vice Chairman of the Board of The Gillette Company in 1981 and
President and Chief Operating Officer and Chairman of the Board
and Chief Executive Officer in 1991; Director of FNBB since
1992; Director of Polaroid Corporation, Raytheon Company,
Repligen Corporation and Massachusetts Mutual Life Insurance
Company.
</TABLE>
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[ALTERNATE BANK OF BOSTON PAGE]
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the beneficial ownership of Bank of Boston
Common Stock by each current director, by each current executive officer whose
name appears in the "Summary Compensation" table below and by all current
directors and executive officers of Bank of Boston as a group, as of the Record
Date. As of that date, current directors and executive officers, in the
aggregate, beneficially owned 1.9% of the issued and outstanding shares of Bank
of Boston Common Stock. In addition to Bank of Boston Common Stock, Bank of
Boston also has outstanding five series of nonvoting Preferred Stock. As of the
Record Date, no current director or executive officer of Bank of Boston was the
beneficial owner of any shares of Bank of Boston's Preferred Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------------------------
SOLE SHARED SOLE VOTING TOTAL
VOTING AND VOTING AND BUT NO SHARES
NAME OF INDIVIDUAL OR INVESTMENT INVESTMENT INVESTMENT RIGHT TO BENEFICIALLY
IDENTITY OF GROUP POWER POWER POWER(2) ACQUIRE(3) OWNED
- ---------------------------------- ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Wayne A. Budd..................... 1,241 200(4) 1,441
William F. Connell................ 34,780 34,780
Gary L. Countryman................ 2,294 2,294
Alice F. Emerson.................. 2,653(5) 2,653
Charles K. Gifford................ 69,953(6) 414(4) 57,836 244,588 372,791
Paul F. Hogan..................... 12,515(7) 13,286 46,306 72,107
Peter J. Manning.................. 3,832(8) 18,280(4) 10,718 58,822 91,652
Thomas J. May..................... 870(5) 870
Donald F. McHenry................. 4,356(5) 4,356
J. Donald Monan................... 1,177 1,177
Paul C. O'Brien................... 3,838 3,838
Edward A. O'Neal.................. 2,579 34,500 145,000 182,079
John W. Rowe...................... 1,882(5)(9) 1,882
William J. Shea................... 8,666(10) 27,834 98,000 134,500
Richard A. Smith.................. 3,427 3,427
William C. Van Faasen............. 986 986
Thomas B. Wheeler................. 2,051(5) 2,051
Alfred M. Zeien................... 1,677 1,677
Directors and Executive Officers
as a group...................... 309,049(11) 18,894 376,321 1,463,992 2,168,256
</TABLE>
- ---------------
(1) Determined in accordance with Rule 13d-3 under the Exchange Act.
Individuals may disclaim beneficial ownership for other purposes. The
number of shares of Bank of Boston Common Stock beneficially owned by each
director or named executive officer does not equal or exceed 1% of the
outstanding shares of Bank of Boston Common Stock.
(2) Represents shares which are subject to forfeiture and/or transfer
restrictions under the terms of Bank of Boston's 1991 Long-Term Stock
Incentive Plan (the "1991 Plan").
(3) Represents shares which the individual has a right to acquire within 60
days after the Record Date through the exercise of stock options granted
under Bank of Boston's 1982 or 1986 Stock Option Plans or the 1991 Plan.
(4) The individual shares investment and voting power with his spouse or
another relative as to these shares.
(5) Includes 368 shares deferred under the terms of Bank of Boston's Director
Stock Award Plan.
(6) Includes 543 shares held by Mr. Gifford as custodian for two of his
children and an additional 900 shares owned directly by them.
(7) Includes 2,044 shares held for Mr. Hogan's benefit by FNBB as Trustee under
FNBB's Thrift-Incentive Plan (the "Thrift Plan").
(8) Represents shares held for Mr. Manning's benefit by FNBB as Trustee under
the Thrift Plan.
(9) Includes 400 shares held by Mr. Rowe's spouse.
(10) Includes 2,000 shares held by Mr. Shea's spouse.
(11) Includes 35,580 shares held for the benefit of 19 executive officers by
FNBB as Trustee under the Thrift Plan.
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[ALTERNATE BANK OF BOSTON PAGE]
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table below sets forth, to the knowledge of Bank of Boston,
the only beneficial owner of more than five percent (5%) of Bank of Boston's
Common Stock as of December 31, 1995:
<TABLE>
<CAPTION>
SHARES OF BANK OF PERCENTAGE OF
BOSTON COMMON BANK OF BOSTON
STOCK OWNED AND COMMON STOCK
NAME AND ADDRESS TYPE OF BENEFICIAL BENEFICIALLY
OF BENEFICIAL OWNER OWNERSHIP OWNED
-------------------------------------------------- ------------------- --------------
<S> <C> <C>
BayBanks, Inc..................................... 22,404,721(1) 16.6%(1)
175 Federal Street
Boston, Massachusetts 02110
</TABLE>
- ---------------
(1) Based upon information contained in a Schedule 13D, dated December 22, 1995,
and filed under the Exchange Act by BayBanks. In connection with the
execution of the Merger Agreement, Bank of Boston granted BayBanks an option
to purchase up to 22,400,761 shares of Bank of Boston Common Stock upon the
occurrence of certain events, none of which has occurred as of the date
hereof. See "CERTAIN TERMS OF THE STOCK OPTION AGREEMENTS" above. Because
such option is not currently exercisable, BayBanks has disclaimed beneficial
ownership of the shares subject thereto. One director of BayBanks has sole
investment and voting power over a total of 462 shares of Bank of Boston
Common Stock. In addition, as trustee of trusts established by its
customers, a subsidiary of BayBanks has sole investment power over 1,400
shares of Bank of Boston Common Stock, shared investment power over 2,455
shares and sole voting power over 3,855 shares.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires Bank of Boston's executive
officers and directors, and any persons who own more than 10% of a registered
class of Bank of Boston's equity securities, to file reports of ownership and
changes in ownership of securities with the Commission and the NYSE. Executive
officers, directors, and greater than 10% stockholders (of which, to Bank of
Boston's knowledge, there currently are none other than BayBanks) are required
by Commission regulation to furnish Bank of Boston with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such reports received by it or
written representations from certain reporting persons that no other reports
were required, Bank of Boston believes that all Section 16(a) filing
requirements applicable to its executive officers, directors and 10%
stockholders were complied with during 1995.
1995 MEETINGS AND STANDARD FEE ARRANGEMENTS OF THE BANK OF BOSTON BOARD AND
COMMITTEES
1995 Meetings. During 1995, the Bank of Boston Board held fifteen
meetings. The Board has an Audit Committee, a Community Investment Committee and
a Compensation and Nominating Committee, the members of which are appointed each
year following the Annual Meeting of Stockholders. The Bank of Boston Board also
has an Executive Committee, the composition of which changes quarterly and which
meets monthly. Each member of the Executive, Audit and Community Investment
Committees of Bank of Boston is also a member of the corresponding committee of
FNBB, and each member of the Compensation and Nominating Committee of Bank of
Boston, when it is considering compensation matters, is also a member of the
Compensation Committee of FNBB. No member of the Audit Committee is an employee
of Bank of Boston or its subsidiaries. When the Compensation and Nominating
Committee considers compensation matters, none of its members is an employee of
Bank of Boston or its subsidiaries, and when it acts as a nominating committee,
its members include the Chairman, President and Chief Executive Officer of Bank
of Boston. In addition to the FNBB committees noted above, the Board of
Directors of FNBB has a Trust Committee, the members of which are appointed each
year following FNBB's Annual Meeting of Stockholders.
The Executive Committee of Bank of Boston, during the interval between Bank
of Boston Board meetings, may exercise all of the authority of the Bank of
Boston Board, except those powers that are expressly
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[ALTERNATE BANK OF BOSTON PAGE]
reserved to the Board under law or Bank of Boston's By-Laws. The members of the
Executive Committee are also members of the Executive Committee of FNBB and
customarily hold joint meetings of both committees.
The Executive Committee of Bank of Boston held 10 meetings in 1995. As of
March 18, 1996, its members were Messrs. Budd, Countryman, Gifford, May,
O'Brien, Smith and Van Faasen.
The functions of the Audit Committee include recommending the appointment
of Bank of Boston's independent accountants, overseeing the duties of Bank of
Boston's General Auditor and his or her staff and initiating and supervising
examinations of the financial statements or activities of Bank of Boston. The
committee also reviews the reports by bank regulatory authorities of their
examinations of Bank of Boston and its subsidiaries and the reports of the
General Auditor regarding his or her program of continuous financial or
operational audits of Bank of Boston and its subsidiaries. In addition, the
committee is responsible for reviewing matters associated with internal control
and the management of risk. The members of the Audit Committee are also members
of the Audit Committee of FNBB and customarily hold joint meetings of both
committees. FNBB's committee is also responsible for the annual trust audit of
the fiduciary activities of FNBB.
The Audit Committee of Bank of Boston held four meetings in 1995. As of
March 18, 1996, its members were Messrs. McHenry (Chairman), Budd, May, Van
Faasen and Zeien.
The responsibilities of the Compensation and Nominating Committee of Bank
of Boston include (i) approving salaries of top executives of several of Bank of
Boston's subsidiaries, (ii) discharging duties under various benefit and
incentive compensation plans for employees of subsidiaries and under deferred
compensation arrangements with directors and (iii) recommending to the Bank of
Boston Board candidates for appointment or election as directors. FNBB's
Compensation Committee has similar compensation responsibilities, including
approving or recommending to its Board of Directors for approval salaries of
certain senior executives of FNBB.
In 1995, the Compensation and Nominating Committee held seven meetings in
its capacity as a compensation committee and no meetings in its capacity as a
nominating committee. As of March 18, 1996, its members were Messrs. Countryman
(Chairman), Connell, Rowe and Wheeler and Fr. Monan and, when the committee acts
in its capacity as a nominating committee, its members include Mr. Gifford.
The Compensation and Nominating Committee will consider candidates for
appointment or election as directors proposed by the Chairman, President and
Chief Executive Officer, by any other officer of Bank of Boston, or by any
director or stockholder. In addition, stockholders who wish to directly nominate
candidates for the Bank of Boston Board must provide Bank of Boston with a
timely written notice containing information about the candidate and the
stockholder making the nomination as required by Bank of Boston's By-Laws. Any
such stockholder should consult the By-Laws for the timing and other
requirements of this notice. Stockholders seeking to propose candidates to the
Compensation and Nominating Committee or to nominate candidates directly should
submit such proposals or the required notices in writing to the Clerk of Bank of
Boston, at the address set forth above under "THE BANK OF BOSTON MEETING --
Proxies; Voting and Revocation."
The Community Investment Committee of Bank of Boston reviews and oversees
the policies of Bank of Boston's subsidiary banks relating to their
responsibilities under the Community Reinvestment Act of 1977 and any similar
federal or state laws or regulations. The members of the Community Investment
Committee are also members of the Community Investment Committee of FNBB and
customarily hold joint meetings of both committees.
The Community Investment Committee of Bank of Boston held four meetings in
1995. As of March 18, 1996, its members were Messrs. Wheeler (Chairman), Budd,
O'Brien, Rowe and Van Faasen.
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[ALTERNATE BANK OF BOSTON PAGE]
The functions of the Trust Committee of FNBB include reviewing and
approving all general policies pertaining to the exercise of fiduciary powers by
FNBB and overseeing the exercise of FNBB's fiduciary powers and policies.
FNBB's Trust Committee held four meetings in 1995. As of March 18, 1996,
its members included certain officers of FNBB and the following Directors: Ms.
Emerson (Chair), Messrs. McHenry and Zeien and Fr. Monan.
In 1995, each director attended at least 75% of the total number of
meetings of the Bank of Boston Board and the committees of the Bank of Boston
Board on which he or she served, except Messrs. Van Faasen and Zeien.
Fee Arrangements. Fees are paid only to directors who are not officers of
Bank of Boston or FNBB. An annual cash retainer of $15,000 is paid to each
director of Bank of Boston, along with a fee of $1,200 for attendance at each
meeting of the Bank of Boston Board and $1,000 for attendance at each Board
committee meeting. The Chairmen of Bank of Boston's Audit, Compensation and
Nominating and Community Investment Committees and FNBB's Trust Committee
receive annual retainers of $8,000, $5,000 $3,000 and $3,000, respectively. All
annual retainers are prorated if a position is held for less than a year. The
directors do not receive additional fees or retainers for service on FNBB's
Board of Directors or on FNBB's Audit, Compensation, Executive or Community
Investment Committees (except that an additional attendance fee will be paid
when an FNBB Board or committee meeting is not held on the same day as the
comparable Bank of Boston Board or committee meeting).
Non-employee directors of Bank of Boston and FNBB may defer receipt of
their cash fees and retainers. Deferred amounts are generally paid to the
director when the director's term expires or to the director's beneficiary in
the event of death. At the election of the director, deferred accounts
periodically are adjusted to reflect changes in the performance of Bank of
Boston Common Stock, are credited with interest at FNBB's IRA Money Market Rate
or, subject to certain restrictions, are credited at a rate of interest equal to
130% of an average of certain ten-year U.S. Treasury Note rates. Bank of Boston
and FNBB have established trusts for the payment of deferred director fees (and
for payment of the director retirement benefits described below), which will be
funded at the discretion of the Bank of Boston Board or under circumstances
constituting a change of control of Bank of Boston.
Under Bank of Boston's Director Stock Award Plan, each non-employee
director receives on January 1 and July 1 of each year an award of Bank of
Boston Common Stock having a fair market value equal to 50% of the annual cash
retainer in effect at the beginning of the preceding six-month period, exclusive
of meeting fees and committee retainers, for services rendered during that
period. Awards are prorated in the case of any director who was not a director
for all of the preceding award period. Directors may elect annually to defer
receipt of their stock awards for the following calendar year. The number of
shares so deferred, together with dividend equivalents, will be credited to a
share deferral account established for the director.
Each non-employee director of Bank of Boston qualifies for a retirement
benefit from Bank of Boston after serving continuously for 60 months as a
director of Bank of Boston or FNBB, unless he or she resigns in order to serve
on the board of an institution not affiliated with Bank of Boston. The annual
retirement benefit equals the annual director cash retainer in effect at the
director's retirement or earlier death. The payments continue for a period equal
to the length of the individual's service as a director, and certain survivor
benefits are provided. Upon a change of control of Bank of Boston, each
non-employee director will be fully vested in his or her retirement benefit.
101
<PAGE> 111
[ALTERNATE BANK OF BOSTON PAGE]
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION COMMITTEE REPORT
ON
EXECUTIVE COMPENSATION
The Compensation and Nominating Committee (the "Compensation Committee")
has prepared the following report for inclusion in this Joint Proxy
Statement-Prospectus.
Compensation Philosophy.
This report reflects Bank of Boston's compensation philosophy as endorsed
by the Bank of Boston Board and the Compensation Committee and resulting actions
taken by Bank of Boston and FNBB for 1995, as shown in the various tables
supporting this report. The Compensation Committee either approves or recommends
to the Bank of Boston Board payment amounts and award levels for executive
officers of Bank of Boston and its affiliates. With regard to compensation
actions affecting Messrs. Gifford or Stepanian, all of the non-employee members
of the Bank of Boston Board acted as the approving body with respect to the
recommendations of the Compensation Committee.
Essentially, Bank of Boston has designed its executive compensation program
to:
-- Support a pay for performance policy that differentiates compensation
amounts based on a discretionary evaluation of performance results in
three basic areas, ranked in the following order of importance:
corporate, business unit and individual performance;
-- Motivate key executives to achieve strategic business initiatives and
reward them for their achievement;
-- Provide compensation opportunities which are comparable to those offered
by the Comparator Banks Group (as defined below), thus allowing Bank of
Boston to compete for and retain talented executives who are critical to
Bank of Boston's long-term success; and
-- Align the interests of executives with the long-term interests of
stockholders through award opportunities that can result in the
ownership of Bank of Boston Common Stock.
As an executive's level of responsibility increases, a greater portion of
potential total compensation is based on stock- and cash-based performance
incentives and less on salary and employee benefits, often causing greater
variability in the individual's absolute compensation level from year to year.
At present, executive compensation is composed of salary, annual incentive
opportunities, long-term incentive opportunities in the form of stock options
and restricted stock and benefits typically offered to executives by the
Comparator Banks Group. These key elements are designed to provide a
competitive, well-balanced total compensation program which is supportive of
Bank of Boston's strategies.
Each year, Bank of Boston participates in several compensation studies to
determine the competitiveness of its executive compensation program. The
comparator group used for this compensation analysis covers a cross-section of
large regional and money center banks ("the Comparator Banks Group"), including
those with a significant international presence. This group provides a relevant
competitive frame of reference covering Bank of Boston's three strategic
businesses: Personal, Corporate and Global Banking.
The banks within the Comparator Banks Group are included in the Keefe,
Bruyette & Woods 50 Bank Index ("KBW 50") used in the Five-Year Stockholder
Return comparison which is found at the end of the discussion of compensation of
executive officers. The Compensation Committee believes that, while the KBW 50
provides a broader measure of investment performance in the banking industry,
the Comparator Banks Group used for compensation analysis represents Bank of
Boston's most direct competitors for executive talent.
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[ALTERNATE BANK OF BOSTON PAGE]
The value of the total compensation program for achieving targeted
performance will be positioned within a range around the median of total
compensation provided by the Comparator Banks Group. The mix of elements is
designed to approximate the profile of the Comparator Banks Group for target
performance. Merit salary increases, annual bonuses and long-term incentives are
the variable pay elements used to differentiate performance above or below
expectations.
Base Salary.
The purpose of base salary is to attract and retain key executives who are
critical to Bank of Boston's long-term success by providing a basic level of
income that recognizes the market value of the position as well as the
individual's performance and experience. Average salaries are targeted to be in
a range around the median of the Comparator Banks Group. Individual salary
adjustments are determined by considering the following factors: the
individual's personal contribution to business unit and corporate results, the
individual's actual salary level relative to the median for comparable positions
in the Comparator Banks Group and Bank of Boston's overall salary budget for the
year. While no specific weighting is determined, all of these factors are
important, with judgment exercised by the Compensation Committee in determining
individual salary adjustments. In setting salaries for 1995, the Compensation
Committee reviewed Comparator Banks Group data for 1994. According to this data,
salaries for 1995 were within the range targeted by the Compensation Committee.
Annual Discretionary Bonus.
Bonuses are awarded under Bank of Boston's Performance Recognition
Opportunity Plan (the "Performance Plan"). The purpose of the Performance Plan
is to reward and motivate executives for the achievement of strategic business
initiatives in a given year in support of a pay for performance philosophy. This
philosophy differentiates compensation based on the Compensation Committee's
discretion in evaluating results in three basic areas, ranked in the following
order of importance: corporate, business unit and individual performance. Target
award opportunities for achieving expected performance are established for each
executive position. Targets are set within a range around the median annual
bonus payouts for comparable positions in the Comparator Banks Group. Actual
awards may be above or below target depending on performance. Performance is
measured primarily on results achieved against internal and external goals. The
Compensation Committee established 1995 goals for operating income, noninterest
expense, the operating ratio (the ratio of noninterest expense to total
revenue), credit quality (which, for Bank of Boston, is based on a measure of
Bank of Boston's lower quality exposures compared to capital), return on equity,
return on assets, earning per share growth and stock price change. These goals
were not specifically weighted in terms of relative importance. The Compensation
Committee may also review other internal and external criteria in determining
bonus funding levels and individual awards. In setting bonus awards for 1995,
the Compensation Committee reviewed Comparator Banks Group data regarding annual
bonuses paid in 1995 for 1994 performance. According to this data, bonuses for
1995 were at the top of the range targeted by the Compensation Committee due to
performance that significantly exceeded the established goals.
Long-Term Stock Incentive.
Stock options and restricted stock are awarded under the 1991 Plan. The
purpose of the 1991 Plan is to provide a focus on the achievement of future
long-term results by aligning the interests of the executive with the interests
of stockholders through the use of stock awards. Both the annual stock awards to
executive officers and the aggregate annual share usage under the plan are
targeted to be within a range around the median award levels and share usage of
the Comparator Banks Group.
In setting the level of stock awards in 1995, the Compensation Committee
reviewed Comparator Banks Group data on long-term incentive grants made during
1994. According to this data, stock option and restricted stock awards made in
1995 were within the range targeted by the Compensation Committee. In
determining stock awards, the Compensation Committee first establishes the total
number of shares subject to an award and then allocates the total between stock
options and restricted stock. For awards made in 1995, the
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[ALTERNATE BANK OF BOSTON PAGE]
ratio of stock options to restricted stock was set at 4:1, which reflected the
prevailing practices of the Comparator Banks Group as set forth in a survey
provided by an independent consulting firm.
In granting or recommending the grant of stock awards to executive officers
in 1995, the Compensation Committee took into account the executive's level of
responsibility and potential for enhancing, through stock price appreciation,
the long-term interests of stockholders, as well as the practices of the
Comparator Banks Group as verified by external surveys conducted annually. The
Compensation Committee did not consider the amount of stock options or
restricted stock already held by executive officers when it determined
individual stock awards in 1995.
Stock Ownership Guidelines.
In 1995, the Compensation Committee established stock ownership guidelines
for the executive officers named in the Summary Compensation Table (the "named
executive officers") and other executives in charge of core businesses or
corporate-wide support areas. The stock ownership guidelines represent minimum
levels of ownership of Bank of Boston Common Stock and are expected to be
achieved over a five-year period. Guidelines vary by organizational level and
range from three to five times salary.
Chief Executive Officer Compensation for 1995.
Mr. Stepanian served as Chairman and Chief Executive Officer of Bank of
Boston and FNBB through July 27, 1995. In January, 1995, Mr. Stepanian was
awarded 84,000 stock options and 21,000 shares of restricted stock which were
intended to link his compensation to the longer-term performance of Bank of
Boston, consistent with the practices of the Comparator Banks Group. Effective
April 3, 1995, the Bank of Boston Board increased Mr. Stepanian's annual salary
to $880,000. This action took into consideration Comparator Banks Group market
base salary data as provided by an independent consulting firm and the Board's
assessment of Bank of Boston's earnings performance over the prior twelve-month
period.
As of July 27, 1995, Mr. Stepanian retired as Chairman and Chief Executive
Officer of Bank of Boston and FNBB after 32 years of service. Bank of Boston and
FNBB have entered into a retirement transition agreement with Mr. Stepanian
which is described below under "Severance and Retirement Agreements --
Retirement Agreement." Under the Retirement Transition Agreement, the
Compensation Committee determined Mr. Stepanian's bonus for 1995 in accordance
with the Performance Plan criteria described more fully above under the heading
"Annual Discretionary Bonus," prorated to reflect the portion of the year during
which he served as Chief Executive Officer. Based on these considerations, Mr.
Stepanian was awarded a bonus of $1,016,000 for 1995.
Mr. Gifford was elected Chairman, President and Chief Executive Officer of
Bank of Boston and FNBB on July 27, 1995. Effective August 7, 1995, the Bank of
Boston Board increased Mr. Gifford's salary from $670,000 to $800,000 in
recognition of the additional responsibilities he was assuming. In recommending
this increase to the Bank of Boston Board, the Compensation Committee considered
Comparator Banks Group market base salary data provided by an independent
consulting firm.
The Compensation Committee established goals for 1995 which are identified
above under the heading "Annual Discretionary Bonus." These goals, as well as
the development and execution of strategy, provided a basis for the bonus award
to Mr. Gifford. In terms of relative importance, equal weight was placed on
performance versus internal goals, external financial comparisons and the
development and execution of strategy. All of these criteria represented
important factors, with judgment exercised by the Compensation Committee in
conducting a thorough assessment of the 1995 results of Bank of Boston. Overall
performance significantly exceeded the established goals. The Compensation
Committee also considered Comparator Banks Group bonus data provided by an
independent consulting firm. Based on these factors, Mr. Gifford was awarded a
bonus of $1,500,000 for 1995 performance.
Mr. Gifford was also awarded 52,000 stock options and 13,000 shares of
restricted stock in 1995 while serving as President and Chief Operating Officer
of Bank of Boston. These long-term stock incentive awards
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[ALTERNATE BANK OF BOSTON PAGE]
support the Compensation Committee's interest in linking Mr. Gifford's
compensation to the longer term performance of Bank of Boston, consistent with
the practices of the Comparator Banks Group.
Deductibility of Executive Compensation under the Internal Revenue Code.
Under the provisions of the Omnibus Budget Reconciliation Act of 1993, a
publicly held corporation may not deduct in any taxable year compensation in
excess of $1 million paid to its chief executive officer or its four other most
highly compensated officers, subject to a number of exceptions. Internal Revenue
Service ("IRS") regulations and transition rules of Section 162(m) of the Code
specify certain conditions which, if satisfied, will permit the deductibility of
compensation even if it exceeds $1 million.
The Compensation Committee has discussed these tax provisions and has
conducted an assessment of their potential impact on Bank of Boston. Based on
this review, the Compensation Committee has concluded that, in view of the
applicability of the IRS' transition rules to certain past and future awards
under the 1991 Plan, the short-term impact of these provisions on Bank of Boston
will not be material. In addition, Bank of Boston's 1996 Long-Term Incentive
Plan, which is being submitted for stockholder approval under Proxy Item 5, has
been designed to exempt stock options, stock appreciation rights and certain
other awards from the deductibility limits of Section 162(m). The Compensation
Committee will continue to monitor the impact of Section 162(m) on an ongoing
basis in order to balance the benefits of favorable tax treatment for Bank of
Boston with a need to apply prudent judgment in carrying out Bank of Boston's
pay for performance executive compensation philosophy.
This report was submitted by the Compensation Committee, which consists of
the following non-employee directors:
<TABLE>
<S> <C> <C>
Gary L. Countryman, Chairman J. Donald Monan Thomas B. Wheeler
William F. Connell John W. Rowe
</TABLE>
105
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[ALTERNATE BANK OF BOSTON PAGE]
EXECUTIVE COMPENSATION TABLES AND INFORMATION
The tables that appear below, along with the accompanying text and
footnotes, provide information on compensation and benefits for the named
executive officers, as determined by the Commission's requirements. All the data
regarding values for stock options and grants of restricted stock are
hypothetical in terms of the amounts that an individual may or may not receive
because such amounts are contingent on continued employment with Bank of Boston
and the price of Bank of Boston Common Stock. All year-end values shown in these
tables for outstanding stock options and restricted stock reflect a price of
$46.25 per share, which was the closing price of Bank of Boston Common Stock on
December 29, 1995, as reported in the "New York Stock Exchange Composite
Transactions" section of the Eastern Edition of The Wall Street Journal.
The following table displays compensation information for the past three
fiscal years for each of the named executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
PAYOUTS
AWARDS ---------
ANNUAL COMPENSATION(1) -------------------------- LONG-TERM
------------------------------------------- RESTRICTED SECURITIES INCENTIVE
NAME AND OTHER ANNUAL STOCK UNDERLYING PLAN ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(3) AWARDS(4) OPTIONS(#) PAYOUTS(5) COMPENSATION(6)
- -------------------- ---- -------- ---------- --------------- --------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C.K. Gifford........ 1995 $707,884 $1,500,000 -- $ 372,125 106,757(9) $645,469 $ 32,230
Chairman, President 1994 604,807 1,000,000 -- --(8) 65,000 -- 46,849
& CEO (7) 1993 550,000 550,000 -- 107,100 16,800 -- 35,801
E.A. O'Neal......... 1995 443,269 625,000 -- 200,375 28,000 430,313 12,342
Vice Chairman 1994 418,269 500,000 -- --(8) 35,000 -- 11,006
1993 400,000 300,000 $ 128,698 76,500 12,000 -- 6,230
W.J. Shea........... 1995 389,230 625,000 -- 200,375 28,000 430,313 8,671
Vice Chairman, CFO 1994 350,576 500,000 -- --(8) 35,000 -- 6,828
and Treasurer 1993 305,000(10) 400,000(10) -- 268,750(10) 35,000(10) -- 2,989
P.J. Manning........ 1995 252,307 230,000 65,329 80,150 21,168(9) 215,156 10,221
Executive Director, 1994 245,000 210,000 -- --(8) 12,500 -- 10,368
Mergers & 1993 245,000 140,000 -- 45,900 7,200 -- 10,165
Acquisitions
P.F. Hogan.......... 1995 244,615 250,000 -- 91,600 15,248(9) 215,156 10,967
Executive Vice 1994 221,923 175,000 -- --(8) 15,000 -- 14,741
President (11) 1993 194,615 140,000 -- 45,900 7,200 -- 11,016
* * * * *
I. Stepanian........ 1995 561,923(13) 1,016,000 -- 601,125 84,000 903,656 404,300
Retired Chairman 1994 817,884 1,500,000 -- --(8) 105,000 -- 64,657
& CEO (12) 1993 768,846 1,100,000 -- 153,000 24,000 -- 50,625
</TABLE>
- ---------------
(1) Salary and bonus amounts include portions deferred under Bank of Boston's
Non-Qualified Deferred Compensation Plan for Executives (the "Deferral
Plan") and the Thrift Plan.
(2) Except as otherwise indicated, bonus amounts shown were awarded under the
Performance Plan for performance during the year indicated.
(3) During the years covered by the table, none of the named executive
officers, except for Messrs. O'Neal and Manning, received perquisites or
other personal benefits in an amount sufficient to require reporting under
the Commission's rules. The amount shown in 1993 for Mr. O'Neal includes
payments by FNBB of $124,698 in connection with his relocation upon being
hired by FNBB. The amount shown in 1995 for Mr. Manning includes a tax
offset payment of $62,872 in connection with his exercise of certain stock
options under Bank of Boston's 1986 Stock Option Plan
(4) The values shown are based on the closing price of Bank of Boston Common
Stock on the date of each grant, rather than the year-end closing price.
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[ALTERNATE BANK OF BOSTON PAGE]
As of December 31, 1995, each of the named executive officers held the
following number of restricted shares having the corresponding year-end
market values:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-------------------------
TOTAL
NUMBER OF
RESTRICTED AGGREGATE
SHARES MARKET
NAME HELD VALUE
-------------------------------------------------------------- --------- -----------
<S> <C> <C>
C.K. Gifford.................................................. 30,784 $1,423,760
E.A. O'Neal................................................... 20,000 925,000
W.J. Shea..................................................... 17,000 786,250
P.J. Manning.................................................. 10,201 471,796
P.F. Hogan.................................................... 6,501 300,671
* * * * *
I. Stepanian.................................................. 0 0
</TABLE>
These shares vest in installments of one-third on each of the third, fourth
and fifth anniversaries of the grant date if the executive is then employed
by an affiliate of Bank of Boston, subject to earlier vesting in the event
of death, retirement or disability. Half of the shares delivered on each
designated anniversary date will remain subject to certain transferability
restrictions until the earliest of ten years after the grant date, the date
on which the executive attains age 55 or the date of the executive's death
or disability. The Compensation Committee or the Bank of Boston Board may
remove or modify the restrictions on restricted stock at any time. In
addition, all restrictions on restricted stock would automatically lapse
upon a change of control of Bank of Boston. Dividends are paid on the
restricted stock reported in the table to the same extent as they are paid
on Bank of Boston Common Stock generally.
(5) Represents the dollar value of vested shares of Performance Restricted
Stock, calculated by multiplying the closing price of Bank of Boston Common
Stock on each vesting date by the number of shares that vested on that
date. Shares of Performance Restricted Stock vested as follows: (i) when
the closing price of Bank of Boston Common Stock exceeded $40 per share on
July 20 and July 21, 1995, 75% of the shares vested and (ii) when the
closing price of Bank of Boston Common Stock exceeded $45 per share on
September 13 and September 14, 1995, the remaining 25% of the shares
vested. At the time the Performance Restricted Stock was awarded, the
closing price of Bank of Boston Common Stock was $25.50 per share. Half of
the shares delivered on each vesting date remain subject to the
transferability restrictions described above in footnote 4.
(6) Includes matching employer contributions and credits under the Thrift Plan
and the Deferral Plan for the named executive officers as follows:
1995 -- Mr. Gifford, $28,315; Mr. O'Neal, $10,942; Mr. Shea, $5,846; Mr.
Manning, $10,092; Mr. Hogan, $9,785; and Mr. Stepanian, $19,769;
1994 -- Mr. Gifford, $24,192; Mr. O'Neal, $1,962; Mr. Manning, $9,800; Mr.
Hogan, $8,887 and Mr. Stepanian, $32,715; and 1993 -- Mr. Gifford, $22,000;
Mr. Manning, $9,800; Mr. Hogan, $7,784; and Mr. Stepanian, $30,754. Also
includes interest credited on previously earned salary and bonuses deferred
under the Deferral Plan or similar arrangements, to the extent such credits
were made at a rate that exceeded a rate determined by the Commission's
rules, as follows: 1995 -- Mr. Gifford, $3,915; Mr. O'Neal, $1,400; Mr.
Shea, $2,825; Mr. Manning, $129; Mr. Hogan, $1,182; and Mr. Stepanian,
$8,574; 1994 -- Mr. Gifford, $22,657; Mr. O'Neal, $9,044; Mr. Shea, $6,828;
Mr. Manning, $568; Mr. Hogan, $5,864; and Mr. Stepanian, $31,942; and
1993 -- Mr. Gifford, $13,801; Mr. O'Neal, $6,230; Mr. Shea, $2,989; Mr.
Manning, $366; Mr. Hogan, $3,232; and Mr. Stepanian, $19,511. The amount
shown in 1995 for Mr. Stepanian also includes a total of $375,957 paid by
FNBB during 1995 pursuant to the retirement transition agreement between
Mr. Stepanian, Bank of Boston and FNBB (the "Retirement Transition
Agreement"). See "Severance and Retirement Agreements -- Retirement
Agreement" below.
(7) Mr. Gifford served as President and Chief Operating Officer of Bank of
Boston and FNBB until July 27, 1995, the date on which he was elected
Chairman, President and Chief Executive Officer of both.
(8) Awards of Performance Restricted Stock in 1994 are not reported as
"Restricted Stock Awards" because of their performance-based conditions on
vesting. The vesting of these awards in 1995 is reported in the table under
the heading "Long-Term Incentive Plan Payouts."
(9) Includes "reload" option grants. See footnote 2 to the "Option Grants in
1995" table.
(10) Mr. Shea joined Bank of Boston in January of 1993. Prior to joining Bank of
Boston, Mr. Shea signed a written offer of employment providing for (i) an
initial annual salary of $325,000, (ii) a hiring bonus of $125,000, (iii) a
107
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[ALTERNATE BANK OF BOSTON PAGE]
minimum bonus of $125,000 under the Performance Plan for 1993 and (iv)
awards of 35,000 stock options and 10,000 shares of restricted stock upon
the commencement of his employment. Mr. Shea's bonus for 1993, as shown in
the table, consists of the $125,000 hiring bonus plus a bonus of $275,000
under the Performance Plan.
(11) Mr. Hogan served as Executive Director, Credit and Loan Review, of Bank of
Boston and FNBB until December 18, 1995, the date on which he became
Executive Vice President of both.
(12) Mr. Stepanian served as Chairman and Chief Executive Officer of Bank of
Boston and FNBB until his retirement as of July 27, 1995.
(13) Represents salary earned by Mr. Stepanian through his retirement date.
Salary continuation paid to Mr. Stepanian during 1995 pursuant to his
Retirement Transition Agreement is reported in the table under the heading
"All Other Compensation."
STOCK-BASED COMPENSATION
The following table provides details regarding stock options granted to the
named executive officers in 1995 under the 1991 Plan. In addition, in accordance
with the Commission's rules, this table shows hypothetical gains on a pre-tax
basis, or "option spreads," that would exist for the respective options granted
in 1995 to the named executive officers. These gains are based on assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
options were granted over the full option term. To put this data into
perspective, the resulting stock prices for the options granted on January 26,
1995 (expiration date of January 26, 2005) would be $46.63 at a 5% rate of
appreciation and $74.25 at a 10% rate of appreciation.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------------ REALIZABLE VALUE
% OF AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED APPRECIATION FOR
OPTIONS TO EXERCISE OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION -----------------------
NAME (#)(1)(2) IN 1995 ($/SH.)(3) DATE(4) 5% 10%
- ---------------- ---------- --------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
C.K. Gifford.... 52,000shs. 4.65% $ 28.625 1/26/05 $936,260 $2,372,500
9,195(5) 0.82 43.50 2/27/02 151,011 348,214
9,848(5) 0.88 43.50 2/25/03 191,077 452,619
35,714(5) 3.19 43.50 1/27/04 796,151 1,934,475
E.A. O'Neal..... 28,000 2.50 28.625 1/26/05 504,140 1,277,500
W.J. Shea....... 28,000 2.50 28.625 1/26/05 504,140 1,277,500
P.J. Manning.... 11,200 1.00 28.625 1/26/05 201,656 511,000
6,217(5) 0.56 43.75 2/27/02 103,189 238,111
3,751(5) 0.34 43.75 2/25/03 73,514 174,265
P.F. Hogan...... 12,800 1.14 28.625 1/26/05 230,464 584,000
1,115(5) 0.10 43.75 4/11/01 15,661 35,292
1,333(5) 0.12 43.75 2/27/02 22,125 51,054
* * * * *
I. Stepanian.... 84,000 7.51 28.625 7/27/96(6) 183,540(6) 372,540(6)
</TABLE>
- ---------------
(1) Fifty percent of these stock options are exercisable at the date of grant
and the remaining 50% vest and become exercisable one year after the date of
grant. Under the terms of his Retirement Transition Agreement, the unvested
portion of Mr. Stepanian's option grant became fully exercisable as of the
date of his retirement. See "Severance and Retirement
Agreements -- Retirement Agreement" below. The Compensation Committee or the
Bank of Boston Board may accelerate the exercisability of stock options, in
whole or in part, at any time. In addition, the exercisability of stock
options would automatically accelerate upon a change of control of Bank of
Boston.
(2) These stock options have a replenishment provision which provides for a
"reload" option grant if an optionee uses previously acquired shares of Bank
of Boston Common Stock to pay the exercise price of a stock option. The
reload
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[ALTERNATE BANK OF BOSTON PAGE]
option granted will equal the number of whole shares tendered, and the new
exercise price will be the closing price of Bank of Boston Common Stock on
the date the underlying stock option is exercised. The new option will have
the same expiration date as the original option.
(3) The exercise price of all stock options may be no less than the closing
price of Bank of Boston Common Stock on the date of the grant.
(4) All stock options expire 10 years after the date of grant, except as
otherwise noted.
(5) "Reload" option grants. See footnote 2 above.
(6) Mr. Stepanian's options expire one year following his retirement date. As a
result, his potential realizable value has been calculated based upon an
option term of 1 1/2 years, instead of 10 years.
The following table shows stock option exercises by the named executive
officers during 1995, including the aggregate value realized upon exercise. This
represents the net pre-tax gain in excess of the purchase price at time of
purchase. In addition, this table includes the number of shares underlying both
"exercisable" (i.e., vested) and "unexercisable" (i.e., unvested) stock options
as of December 31, 1995. Also reported are the values of "in-the-money" options,
which reflect the positive spread between the exercise price of any such
existing stock options and $46.25, the year-end per share price of Bank of
Boston Common Stock.
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END 1995 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END(#) AT YEAR-END
ACQUIRED VALUE ----------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C.K. Gifford........... 121,590 $2,177,306 237,089shs. 53,379shs. $ 5,398,003 $ 533,542
E.A. O'Neal............ -- -- 131,000 14,000 2,805,750 246,750
W.J. Shea.............. -- -- 75,250 22,750 1,481,594 416,281
P.J. Manning........... 25,636 536,357 53,222 10,585 1,218,276 111,163
P.F. Hogan............. 8,667 272,028 39,906 7,625 850,811 115,863
* * * * *
I. Stepanian........... 46,245 556,645 501,633 0 11,309,809 0
</TABLE>
RETIREMENT BENEFITS
The following table shows the years of service and the estimated annual
retirement benefits payable at Bank of Boston's normal retirement age of 65 to
each of the named executive officers in the form of a single lifetime annuity
based on: current salary; average bonus awarded for the past five years (or, for
Messrs. O'Neal and Shea, estimated future bonuses); and an assumed future annual
interest rate of 7.5% on each individual's cash balance account:
<TABLE>
<CAPTION>
ESTIMATED
PRIOR YEARS OF ANNUAL
SERVICE RETIREMENT
AT AGE 65 BENEFITS
-------------- ----------
<S> <C> <C>
C.K. Gifford................................................ 41 $839,418
E.A. O'Neal................................................. 17 181,845
W.J. Shea................................................... 20 194,235
P.J. Manning................................................ 32 197,484
P.F. Hogan.................................................. 36 241,575
* * * * *
I. Stepanian................................................ 35(1) 824,119(2)
</TABLE>
- ---------------
(1) Under the terms of his Retirement Transition Agreement, Mr. Stepanian will
cease to accrue service credit after age 62. See "Severance and Retirement
Agreements -- Retirement Agreement" below.
(2) This amount includes retirement benefits payable to Mr. Stepanian under his
Retirement Transition Agreement. See "Severance and Retirement
Agreements -- Retirement Agreement" below. Mr. Stepanian will be eligible to
commence a reduced form of this benefit at or after age 62.
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[ALTERNATE BANK OF BOSTON PAGE]
The estimates shown reflect the current cash balance formula discussed
below, plus any accrued benefits (computed as a single lifetime annuity) under
the prior plan formula for service through December 31, 1988. For service
periods after December 31, 1988, credits are made annually to an individual's
account at a rate ranging from zero to 11% of the executive officer's salary and
bonus (as reported in the Summary Compensation Table), depending on the
individual's age and years of service. The maximum credit is made for an
individual with 20 to 34 years of service and no credit is made for an
individual with less than one year of service or 40 or more years of service. An
individual whose employment commences after age 40 receives an additional year
of service for each year by which his or her age at commencement exceeds 40. In
addition, interest ranging from a minimum of 5.5% to a maximum of 10% will be
credited annually on an individual's beginning-of-the-year account balance.
Subject to these minimum and maximum percentages, the interest credit percentage
will represent the average three-month Treasury Bill rate for the calendar year
plus 0.5%. These benefits are provided under a combination of FNBB's
tax-qualified retirement plan and supplemental plans. The supplemental plans
provide retirement income payments to cover benefits not payable under the
tax-qualified plan due to limitations imposed by tax law and the exclusion of
bonus awards from the basic retirement plan formula.
SUPPLEMENTAL DEATH BENEFITS
FNBB is providing for Mr. Gifford supplemental post-retirement death
benefits of up to $1,000,000, increased for any tax liability. These benefits
are integrated with the term life insurance benefit offered to all retired
employees. In order to receive this full supplemental benefit, he must have 10
years of service and retire after age 62; the benefit is reduced to 90% if his
retirement occurs at age 61, and to 80% at age 60; if his retirement occurs
before age 60, there is no supplemental benefit.
SEVERANCE AND RETIREMENT AGREEMENTS
Severance Agreements. The named executive officers have severance
agreements which provide that if termination of employment occurs within the
three-year period (two-year period in the case of Messrs. Manning and Hogan)
following a change of control of Bank of Boston and such termination is by Bank
of Boston for other than "cause" or by the executives for "good reason," the
executives will be entitled to receive, among other things, (i) an amount equal
to three times (two times in the case of Messrs. Manning and Hogan) the sum of
the executive's annual salary and his average annual bonus for the three
preceding years, (ii) an amount equal to the cost to FNBB to provide life,
disability, accident and health insurance benefits for three years (two years in
the case of Messrs. Manning and Hogan), and (iii) service credit accruing, for
three years (two years in the case of Messrs. Manning and Hogan), under FNBB's
retirement plan, the Thrift Plan and certain supplemental plans. These severance
agreements provide no benefits prior to a change in control. In the event any
payments received under these agreements are subjected to the excise tax imposed
under Section 4999 of the Code, such payments will be reduced to the maximum
amount that could be paid without subjecting such payments to the excise tax
(unless the reduction would decrease the net after-tax payment to the
executive).
Retirement Agreement. Bank of Boston and FNBB have entered into the
Retirement Transition Agreement with Mr. Stepanian. Pursuant to this agreement,
Mr. Stepanian will be entitled to receive, until November, 1998, payments of
approximately $1,950,000 per year (representing continuation of his base salary
at retirement plus the average of certain past bonuses) plus the continuation of
pension, certain matching contributions, death benefits and other employee
benefits during that period as though he had remained an active employee, but he
will no longer participate in stock-based benefits. The portion of such payments
and continuation arrangements made in 1995 is set forth above in the Summary
Compensation Table and the footnotes thereto. In addition, Mr. Stepanian is
entitled to office space and other perquisites available to other retired senior
executives of Bank of Boston, to reimbursement of certain fees and expenses
associated with the negotiation and execution of the Retirement Transition
Agreement and to the payment of employee benefits accrued during his service
with Bank of Boston. Mr. Stepanian agreed that, through the above date, he would
not compete with Bank of Boston or any of its subsidiaries in certain activities
in New England.
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[ALTERNATE BANK OF BOSTON PAGE]
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Countryman, Connell, Rowe, Wheeler and Fr. Monan served as members
of the Compensation Committee during 1995. None of these individuals had any
transactions or relationships with Bank of Boston in 1995 requiring specific
disclosure under the Commission's rules. For a general description of the types
of transactions and relationships directors and executive officers of Bank of
Boston and their associates may have had with Bank of Boston and/or its
subsidiaries during 1995, see "THE BANK OF BOSTON MEETING -- ADDITIONAL
MATTERS -- Indirect Interest of Directors and Executive Officers in Certain
Transactions."
During 1995, there were no "interlocking" or cross-board memberships that
are required to be disclosed under the Commission rules, except for the
following:
-- Mr. Gifford was a member of the Compensation Committee of Boston Edison
Company ("Boston Edison"); Mr. May, the Chairman, President and Chief
Executive Officer of Boston Edison, was a director of Bank of Boston (but
not on Bank of Boston's Compensation Committee).
-- Helen G. Drinan, Bank of Boston's Executive Director, Human Resources,
was a member of the Compensation Committee of Blue Cross and Blue Shield of
Massachusetts, Inc. ("Blue Cross/Blue Shield"); Mr. Van Faasen, the
President and Chief Executive Officer of Blue Cross/Blue Shield, was a
director of Bank of Boston (but not on Bank of Boston's Compensation
Committee).
-- Mr. Stepanian was a director of Liberty Mutual Insurance Company
("Liberty Mutual") (but not on Liberty Mutual's compensation committee);
Mr. Countryman, the Chairman and Chief Executive Officer of Liberty Mutual,
was the Chairman of Bank of Boston's Compensation Committee. Mr. Countryman
has been the Chairman of the Compensation Committee for the past eight
years.
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[ALTERNATE BANK OF BOSTON PAGE]
FIVE-YEAR STOCKHOLDER RETURN COMPARISON
The following table compares the total return on Bank of Boston Common
Stock over the last five years to the S&P 500 and the KBW 50. The KBW 50 is
comprised of 50 of the nation's largest banks, including all money-center and
most major regional banks. Total return values for these indices were calculated
based on cumulative total return values, assuming reinvestment of dividends.
COMPARISONS OF FIVE-YEAR TOTAL STOCKHOLDER RETURNS
<TABLE>
<CAPTION>
12/90 12/91 12/92 12/93 12/94 12/95
<S> <C> <C> <C> <C> <C> <C>
Bank of Boston Corporation $100 $186 $415 $381 $444 $820
S&P 500 100 130 140 155 157 215
KBW 50 100 158 202 213 202 324
</TABLE>
INDIRECT INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS IN CERTAIN TRANSACTIONS
Some directors and executive officers of Bank of Boston and their
associates were customers of and had transactions with or involving FNBB and/or
one or more of Bank of Boston's other subsidiaries in the ordinary course of
business during 1995. Additional transactions may be expected to take place in
the ordinary course of business in the future. Some of Bank of Boston's
directors are directors, officers, trustees or principal security holders of
corporations or other organizations which were customers of, or had transactions
with, FNBB and/or one or more of Bank of Boston's other subsidiaries in the
ordinary course of business during 1995. In addition, Mr. Budd is a Senior
Partner at Goodwin, Procter & Hoar, a law firm which Bank of Boston has retained
from time to time in connection with various legal matters.
The outstanding loans and commitments to, and other financial transactions
with, directors or executive officers of Bank of Boston or to or with persons or
business entities affiliated with directors or executive officers of Bank of
Boston were made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and did not involve more than the
normal risk of collection or present other unfavorable features. In addition to
banking and financial transactions, FNBB and other subsidiaries of Bank of
Boston, but not Bank of Boston itself, have had additional transactions with, or
have used products or services of, various organizations of which directors of
Bank of Boston are directors or officers. The amounts involved have in no case
been material in relation to the business of FNBB or other subsidiaries of Bank
of Boston, and it is believed that they have not been material in relation to
the business of such other organizations. It is expected that FNBB
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and other subsidiaries of Bank of Boston will continue to have similar
transactions with, and use products or services of, such organizations in the
future.
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
(PROXY ITEM 3)
The firm of Coopers & Lybrand L.L.P. ("Coopers & Lybrand") has been
selected by the Bank of Boston Board, subject to ratification by the
stockholders, to be Bank of Boston's independent auditors for 1996. Coopers &
Lybrand, independent certified public accountants, has served as independent
auditors of FNBB and its subsidiaries since 1969, and of Bank of Boston since it
commenced activity in 1971, and has significant experience in bank accounting
and auditing. Neither the firm nor any of its partners has any direct or
indirect financial interest in, or any connection (other than as independent
auditors) with, Bank of Boston or FNBB or any of Bank of Boston's other
subsidiaries. Representatives of Coopers & Lybrand are expected to be present at
the Bank of Boston Meeting to respond to appropriate questions and will have the
opportunity to make a statement if they so desire.
The consolidated financial statements of Bank of Boston for the year ended
December 31, 1995 have been audited and reported upon by Coopers & Lybrand. In
connection with its independent audit function during 1995, Coopers & Lybrand
also reviewed certain filings with the Commission, audited the financial
statements of certain subsidiaries and affiliates and issued reports in specific
areas. In addition, Coopers & Lybrand performed certain non-audit services
including consultations with Bank of Boston and its subsidiaries regarding
systems, policies, procedures, internal controls, potential acquisitions,
reviews of certain tax returns, provision of income tax services to certain
officers of Bank of Boston and expatriate employees and assistance in other
operational projects. All of the professional services provided by Coopers &
Lybrand during 1995 were furnished at customary rates and terms. Should the
selection of Coopers & Lybrand as independent auditors of Bank of Boston not be
ratified by the stockholders, the Bank of Boston Board will reconsider the
matter.
THE BANK OF BOSTON BOARD RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
RATIFY THE SELECTION OF THE FIRM OF COOPERS & LYBRAND AS INDEPENDENT AUDITORS TO
EXAMINE BANK OF BOSTON'S FINANCIAL STATEMENTS FOR THE CURRENT FISCAL YEAR.
INCREASE IN NUMBER AND CHANGE IN PAR VALUE
OF AUTHORIZED SHARES OF BANK OF BOSTON COMMON STOCK
(PROXY ITEM 4)
The Bank of Boston Board has adopted a vote recommending that stockholders
amend the Bank of Boston Articles to (i) increase the authorized shares of Bank
of Boston Common Stock from 200,000,000 shares to 300,000,000 shares and (ii)
change the par value of Bank of Boston Common Stock from $2.25 to $1.50 per
share. Based upon the number of shares of Bank of Boston Common Stock issued and
outstanding as of the Record Date, stockholder approval of the proposal will
result in an increase in the number of authorized but unissued shares from
87,468,368 to 187,468,368.
On the Record Date, the number of shares of Bank of Boston Common Stock
either issued or reserved for issuance totaled approximately 126,107,890. Bank
of Boston expects to issue approximately 45,000,000 shares of Bank of Boston
Common Stock to holders of BayBanks Common Stock in the Merger. Thus, out of the
200,000,000 shares currently authorized, Bank of Boston would have only
approximately 28,892,110 shares of Bank of Boston Common Stock available for
future issuance following the Merger.
The Bank of Boston Board believes that the increase in authorized shares is
desirable to provide Bank of Boston with the flexibility to respond to future
business needs and opportunities. The additional authorized shares will be
available for issuance from time to time, without further action or
authorization by the stockholders (except as required by law or by a national
stock exchange), in connection with possible investment opportunities,
acquisitions of other companies or for other corporate purposes as determined by
the
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Bank of Boston Board. These purposes might include raising additional capital
funds through offerings of shares of Bank of Boston Common Stock or of equity or
debt securities convertible into or exchangeable for Bank of Boston Common
Stock, the issuance of shares of Bank of Boston Common Stock in connection with
the declaration of stock dividends, and the issuance of shares of Bank of Boston
Common Stock in connection with Bank of Boston's dividend reinvestment plan and
the employee benefit plans and incentive compensation plans of Bank of Boston
and its subsidiaries.
If such additional authorized shares are issued to other than existing
stockholders, the percentage interest of existing stockholders in Bank of Boston
will be reduced. Although the existence or issuance of authorized but unissued
shares of Bank of Boston capital stock could, under certain circumstances, have
an anti-takeover effect, Bank of Boston has no present intention of issuing such
shares for anti-takeover purposes.
If the amendment is approved, as soon as practicable after the Bank of
Boston Meeting, Bank of Boston will file with the Massachusetts Secretary of
State's Office Articles of Amendment to the Bank of Boston Articles reflecting
the increase in authorized shares and the reduction in par value. The fee for
filing such Articles of Amendment will be based on the increase, if any, in the
aggregate par value of Bank of Boston Common Stock (par value per share
multiplied by the number of authorized shares), subject to a minimum filing fee
of $100. Assuming that stockholders approve the increase in the authorized Bank
of Boston Common Stock from 200,000,000 to 300,000,000 shares, the proposed
change in par value will have the effect of saving Bank of Boston approximately
$225,000 in filing fees. The change in par value will have no effect on the
underlying market value of Bank of Boston Common Stock.
THE BANK OF BOSTON BOARD RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND
THE BANK OF BOSTON ARTICLES TO PROVIDE FOR AN INCREASE IN THE NUMBER OF
AUTHORIZED SHARES AND A REDUCTION IN THE PAR VALUE OF BANK OF BOSTON COMMON
STOCK.
APPROVAL OF 1996 LONG-TERM INCENTIVE PLAN
(PROXY ITEM 5)
The Bank of Boston Board has approved the Bank of Boston Corporation 1996
Long-Term Incentive Plan (the "1996 Plan" or the "Plan") and has directed that
the Plan be submitted to stockholders for their approval at the Bank of Boston
Meeting. The 1996 Plan provides for the granting of stock options, stock
appreciation rights ("SARs"), restricted stock, performance shares and other
awards. The full text of the 1996 Plan is set forth in Exhibit G to this Joint
Proxy Statement-Prospectus, and the following discussion is qualified in its
entirety by the text of the Plan.
BACKGROUND
Bank of Boston's existing long-term incentive plan, the 1991 Plan, is
expiring as of December 31, 1996. The types of awards that may be granted under
the 1991 Plan are limited to stock options, SARs and restricted stock. The Bank
of Boston Board believes that, in order to attract, retain and reward key
officers and employees, it is important for Bank of Boston to adopt a flexible
long-term incentive plan that is both competitive with, and responsive to,
rapidly changing financial services industry standards. The 1996 Plan will
provide Bank of Boston with the ability to devise incentive programs that are
responsive to the demands of the marketplace.
PURPOSE
The 1996 Plan is designed to create and enhance significant ownership of
Bank of Boston Common Stock by key officers and employees of Bank of Boston and
its affiliates. Additional purposes of the Plan include providing a meaningful
incentive to participants to make substantial contributions to Bank of Boston's
future success, enhancing Bank of Boston's ability to attract and retain persons
who will make such contributions,
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and ensuring that Bank of Boston has competitive compensation opportunities for
its key officers and employees. By furthering these objectives, the Plan is
intended to benefit the interests of stockholders.
ADMINISTRATION
The 1996 Plan will be administered by a committee appointed by the Bank of
Boston Board (the "Plan Committee"). It is expected that the Compensation
Committee will serve as the Plan Committee. Except as described below, the Plan
Committee will have full authority to determine the provisions of awards,
including vesting schedules, price, performance standards, length of any
performance, restriction or option period, dividend rights, post-retirement and
termination rights and payment alternatives. The Plan Committee will also have
the authority to interpret the terms of the Plan and of awards made under the
Plan, to adopt, amend and rescind rules and guidelines for the administration of
the Plan and to decide all questions and settle all controversies and disputes
which may arise in connection with the Plan. To the extent permitted by
applicable law, the Plan Committee may delegate to one or more executive
officers who are also directors the power to make awards to participants who are
not subject to the reporting requirements of Section 16(a) of the Exchange Act.
The Bank of Boston Board will approve or ratify awards made under the Plan to
any executive officer who is also a director of Bank of Boston.
Membership of the Plan Committee will be constituted consistent with
exemption under Rule 16b-3 under the Exchange Act (or any successor rule) for
those awards that are intended to be so exempt and with qualification under the
performance-based exception from the deductibility limits set forth in Section
162(m) of the Code and the regulations thereunder (the "performance-based
exception") for those awards that are intended to so qualify.
ELIGIBILITY
Eligibility to receive awards under the 1996 Plan will be limited to
officers and employees of Bank of Boston or its affiliates who, in the opinion
of the Plan Committee, are in a position to have a significant effect upon Bank
of Boston's business and consolidated earnings. As of the date of this Joint
Proxy Statement-Prospectus, no awards have been made under the 1996 Plan and no
definitive determination has been made as to the persons to whom awards will be
made or the number of shares which may be covered by such awards.
SHARES SUBJECT TO THE 1996 PLAN
The 1996 Plan provides that (i) the total number of shares of Bank of
Boston Common Stock as to which awards may be granted in any year may not exceed
one and one-quarter percent of the outstanding Bank of Boston Common Stock as of
the first business day of such year and (ii) the total number of shares of Bank
of Boston Common Stock available for grants of restricted and performance shares
in any year may not exceed one-half of one percent of the outstanding Bank of
Boston Common Stock as of the first business day of such year.
In addition to these shares, there will be carried forward and available
for awards under the Plan in each succeeding year, all of the following: (i) any
unused portion of the limit set forth in the preceding sentence for any
preceding years; (ii) shares of Bank of Boston Common Stock represented by
awards under the 1996 Plan which are canceled, forfeited, surrendered,
terminated or expire unexercised or which are settled in any manner that results
in fewer shares outstanding than were initially awarded (including the surrender
of shares of Bank of Boston Common Stock as full or partial payment for an award
or any tax obligation thereon); (iii) the excess amount of variable awards under
the 1996 Plan which become fixed at less than their maximum limitations; (iv)
authorized shares of Bank of Boston Common Stock as to which stock options,
stock appreciation rights and restricted stock awards have not been granted
under the 1991 Plan as of December 31, 1996 and (v) shares of Bank of Boston
Common Stock under the 1991 Plan subject to stock options, stock appreciation
rights or restricted stock awards which, during the current year or any
preceding year, are canceled, forfeited, surrendered, terminated or expire
unexercised or which are settled in any manner
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that results in fewer shares outstanding than were initially awarded (including
the surrender of shares of Bank of Boston Common Stock as full or partial
payment for an award or any tax obligation thereon).
Assuming that there are approximately 150,000,000 shares of Bank of Boston
Common Stock outstanding as of January 2, 1997, 1,875,000 shares would be
available for grant during 1997 (the first year of the Plan), together with any
shares remaining available for grant under the 1991 Plan as of December 31,
1996. As of the Record Date, approximately 1,511,702 shares were available for
grant under the 1991 Plan, and 4,237,757 shares were subject to outstanding
grants under that plan.
For purposes of calculating the total number of shares of Bank of Boston
Common Stock available for grants of awards, the grant of a performance share is
deemed to be equal to the maximum number of shares of Bank of Boston Common
Stock which may be issued under the award, and where the value of an award is
variable on the date it is granted, the value is deemed to be the maximum
limitation of the award. Awards payable solely in cash will not reduce the
number of shares of Bank of Boston Common Stock available for awards granted
under the 1996 Plan.
In addition to the annual share limits described above, over the term of
the Plan, no more than 5,000,000 shares of Bank of Boston Common Stock may be
issued under incentive stock options.
Shares of Bank of Boston Common Stock issued under the 1996 Plan may
consist of authorized but unissued shares, treasury shares or previously issued
shares reacquired by Bank of Boston, including shares purchased on the open
market.
ANNUAL LIMIT ON AWARDS TO INDIVIDUAL PARTICIPANTS
The 1996 Plan provides that, in any year, the total number of shares of
Bank of Boston Common Stock as to which awards may be granted to any participant
may not exceed the lesser of (i) three-tenths of one percent of the outstanding
Bank of Boston Common Stock as of the first business day of such year or (ii)
600,000 shares. Assuming that there are approximately 150,000,000 shares of Bank
of Boston Common Stock outstanding as of January 2, 1997, 450,000 shares would
be available for grant to any participant during 1997 (the first year of the
Plan).
EFFECTIVE DATE AND TERM
Subject to approval by Bank of Boston's stockholders, the 1996 Plan will
become effective as of January 1, 1997, and awards may be made under the Plan
from and after that date. No awards may be made under the 1996 Plan after
December 31, 2006, but awards granted before then may extend beyond that date.
Incentive stock options may not be granted under the Plan after December 20,
2005.
STOCK OPTIONS
Options granted under the 1996 Plan may be either incentive stock options
(within the meaning of Section 422 of the Code) or nonqualified stock options,
as determined by the Plan Committee. The Plan Committee will also determine the
frequency of granting options and the number of shares of Bank of Boston Common
Stock subject to options granted under the 1996 Plan. The exercise price for the
purchase of shares of Bank of Boston Common Stock subject to an option will not
be less than the fair market value of Bank of Boston Common Stock at the time
the option is granted. The market price of one share of Bank of Boston Common
Stock on March 14, 1996 was $46.875.
It is contemplated that options will not be exercisable after the
expiration of ten years from the date of grant, but the Plan Committee may grant
an option that is exercisable for a greater or lesser period of time. It is also
contemplated that the Plan Committee will generally provide that the right to
exercise an option will accrue one year after the date of grant with respect to
50 percent of the shares of Common Stock subject to the option, and will accrue
as to the remaining shares two years after the date of grant. The Plan Committee
may, however, grant an option that is immediately exercisable with respect to
all of the shares of Bank of
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Boston Common Stock subject to the option or that is exercisable in different
installments and at different times from those described above. The Plan
Committee also may accelerate the time at which one or more option installments
may be exercised.
Shares of Bank of Boston Common Stock purchased on the exercise of an
option will be paid for by the participant at the time of such exercise in one
or more of the following ways, as determined by the Plan Committee at the time
of grant: (i) in cash; (ii) by delivery of previously owned shares of Bank of
Boston Common Stock; (iii) subject to such guidelines as the Plan Committee may
promulgate, by delivery of an "exercise notice" instructing Bank of Boston to
deliver the shares of Bank of Boston Common Stock being purchased to a broker,
subject to the broker's delivery of cash to Bank of Boston for the purchase
price and any applicable withholding taxes; (iv) by delivery of such other
lawful consideration as the Plan Committee may determine or (v) by any
combination of the foregoing. The Plan Committee may provide for the automatic
award of an option upon the delivery of shares to Bank of Boston in payment of
the exercise price of another option for up to the number of shares delivered to
Bank of Boston in payment of the exercise price of such other option.
Each participant's award documentation will set forth the extent to which
an option will be exercisable following the participant's death, retirement or
disability or other termination of employment.
STOCK APPRECIATION RIGHTS
The Plan Committee may award SARs in connection with related options
("tandem SARs") or independently of any options ("freestanding SARs"). The Plan
Committee will determine the frequency of granting SARs and the number of SARs
granted under the 1996 Plan. The grant price of a freestanding SAR will not be
less than the fair market value per share of Bank of Boston Common Stock at the
time the SAR is granted. The grant price of a tandem SAR will not be less than
the option exercise price of the related option.
SARs will be exercisable during a period of time determined by the Plan
Committee. It is contemplated that SARs will not be exercisable after the
expiration of ten years from the date of grant, but the Plan Committee may grant
an SAR that is exercisable for a greater or lesser period of time. It is also
contemplated that the Plan Committee will generally provide that the right to
exercise 50% of any Freestanding SARs granted under the Plan will accrue one
year after the date of grant, and that the right to exercise the balance of such
Freestanding SARs will accrue two years after the date of grant. The Plan
Committee may, however, grant Freestanding SARs that are immediately exercisable
or that are exercisable in different installments and at different times from
those described above. The Plan Committee also may accelerate the time at which
one or more installments of Freestanding SARs may be exercised. Tandem SARs may
be exercised for all or part of the shares subject to the related option upon
the surrender of the right to exercise the equivalent portion of the related
option. A tandem SAR may be exercised only with respect to the shares of Bank of
Boston Common Stock for which its related option is then exercisable.
Upon exercise of an SAR, a participant will be entitled to receive the
excess (if any) of the fair market value of a share of Bank of Boston Common
Stock on the date the SAR is exercised over the grant price of the SAR. SARs may
be payable in cash, shares of Bank of Boston Common Stock or a combination of
the two, as provided by the Plan Committee.
Each participant's award documentation will set forth the extent to which
an SAR will be exercisable following the participant's death, retirement or
disability or other termination of employment.
RESTRICTED STOCK
Subject to the provisions of the 1996 Plan, the Plan Committee may award
shares of restricted stock. The participant's award documentation will set forth
the terms of the award, including the applicable restrictions. Such restrictions
may include performance-based restrictions, employment-based restrictions and
any other
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conditions deemed appropriate by the Plan Committee. The Plan Committee may
remove or modify restrictions on restricted stock at any time.
The participant may not sell, assign, transfer, pledge or otherwise
encumber shares of restricted stock until the applicable restrictions have been
satisfied. Once the restrictions are satisfied, the shares will be delivered to
the participant. Except as otherwise provided by the Plan Committee, a
participant will have dividend and voting rights as to shares of restricted
stock awarded under the 1996 Plan, including shares that are subject to
forfeiture.
Each participant's award documentation will set forth the extent to which
the participant (or his or her legal representative, guardian, estate or
beneficiary) will have the right to receive unvested shares of restricted stock
following the participant's death, retirement or disability or other termination
of employment.
PERFORMANCE SHARES
Subject to the provisions of the 1996 Plan, the Plan Committee may award
performance shares. The number of performance shares granted and/or the vesting
of performance shares, in the Plan Committee's discretion, will be contingent
upon the attainment of certain performance goals over a period of time (the
"performance period"), all as determined by the Plan Committee and evidenced by
the participant's award documentation. During the performance period, the Plan
Committee will determine the number of performance shares (if any) earned by a
participant. Earned performance shares may be paid in cash, shares of Bank of
Boston Common Stock or a combination thereof having an aggregate fair market
value equal to the number of performance shares earned multiplied by the fair
market value of a share of Bank of Boston Common Stock as of the date the
performance shares were earned. Shares of Bank of Boston Common Stock used to
pay earned performance shares may have additional restrictions as determined by
the Committee. To the extent provided by the Committee, participants may defer
receipt of payment of any performance shares or other amounts, such as dividend
equivalent rights, earned pursuant to the participant's award documentation.
Each participant's award documentation will set forth the extent to which
the participant (or his or her legal representative, guardian, estate or
beneficiary) will have the right to receive unearned performance shares
following the participant's death, retirement or disability or other termination
of employment.
OTHER AWARDS
The Plan Committee may grant other awards under the 1996 Plan, consisting
of shares of Bank of Boston Common Stock, fixed or variable units valued or
based on Bank of Boston Common Stock, fixed or variable units valued or based on
measures (including performance measures) that are unrelated to Bank of Boston
Common Stock, or any combination of the foregoing. If any such award consists of
units other than shares of Bank of Boston Common Stock, it may be made payable
in cash or shares of Bank of Boston Common Stock or a combination of the two.
The Plan Committee will determine the terms of such awards including any
transfer restrictions, vesting provisions, the value of such awards and the form
and timing of payment of such awards.
Each participant's award documentation will set forth the extent to which
the participant (or his or her legal representative, guardian, estate or
beneficiary) will have the right to exercise or receive such awards following
the participant's death, retirement or disability or other termination of
employment.
DIVIDEND EQUIVALENT RIGHTS
Subject to the provisions of the 1996 Plan, the Plan Committee may grant
dividend equivalent rights with respect to awards. Dividend equivalent rights
are rights to receive the value of dividends that would have been paid with
respect to an award had the shares subject to the award been owned by the
participant. In the discretion of the Plan Committee, dividend equivalent rights
may be paid in shares of Bank of Boston Common Stock, cash or a combination of
the two.
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SECTION 162(m) OF THE CODE
Section 162(m) of the Code limits to $1 million the deduction a public
corporation may claim for compensation in any year to any of the corporation's
top five officers. Performance-based compensation that satisfies certain
requirements is exempt from this deduction limitation.
Stock options and SARs granted under the 1996 Plan are intended to qualify
as performance-based for purposes of the regulations under Section 162(m).
Accordingly, the employer deduction, if any, associated with those awards should
not be limited by Section 162(m). In addition, the 1996 Plan authorizes the Plan
Committee to make awards of restricted stock or performance shares conditioned
on the satisfaction of performance criteria. In the case of restricted stock or
performance share awards intended to qualify for the Section 162(m)
performance-based exception, the Plan Committee will select performance goals
based on one or more of the following criteria: (i) earnings, (ii) return on
equity, (iii) return on assets, (iv) return on investment, (v) revenues, (vi)
expenses, (vii) the operating ratio (as defined above in the Compensation
Committee Report on Executive Compensation), (viii) stock price, (ix)
stockholder return, (x) market share, (xi) charge-offs, (xii) credit quality (as
defined above in the Compensation Committee Report on Executive Compensation) or
(xiii) customer satisfaction measures. The performance goals selected in any
case may be particular to a participant or the division, branch, line of
business, affiliate or other unit in which the participant works, or may be
based on the performance of Bank of Boston on a consolidated basis. The selected
performance goals will be stated in the form of an objective, nondiscretionary
formula, and the Plan Committee will certify in writing the attainment of such
performance goals prior to any payout with respect to such awards. The Plan
Committee will retain the discretion to reduce the amount payable under an
award, even if the performance goal is achieved.
TRANSFERABILITY OF AWARDS
Except as described in the following sentence, no award under the 1996 Plan
may be transferred by a participant otherwise than by will, by the laws of
descent and distribution or by operation of a "qualified domestic relations
order" (as that term is defined in the Code), and during the participant's
lifetime, an award may be exercised only by the participant or by his or her
guardian or legal representative. The Plan Committee may provide for greater
transferability in the case of any award, including transfers to members of the
participant's family, except where doing so would be inconsistent with exemption
under Rule 16b-3 of the Exchange Act (for awards intended to be so exempt) or
with qualification under the performance-based exception (for awards intended to
so qualify). In addition, incentive stock options awarded under the 1996 Plan
may be transferable only to the extent permitted under the rules prescribed in
the Code for incentive stock options.
ADJUSTMENT OF AWARDS
The 1996 Plan provides that the number and kind of shares of Bank of Boston
Common Stock which may be awarded under the Plan or which are subject to
outstanding awards, as well as the option or grant price of any award, will be
subject to adjustment in the event of a stock dividend, stock split or other
change in corporate structure or capitalization affecting Bank of Boston Common
Stock or certain other transactions which, in the determination of the Plan
Committee, would affect Bank of Boston Common Stock.
CHANGE IN CONTROL
Unless otherwise provided in a participant's award documentation, if there
is a change in control (as defined in the 1996 Plan) of Bank of Boston, (i)
stock options and SARs granted under the Plan will become immediately
exercisable and will remain exercisable through their entire term, (ii) any
restricted periods or restrictions on restricted stock will lapse and (iii) the
target payout opportunities attainable under outstanding awards of restricted
stock and performance shares will be deemed to have been fully earned for the
entire performance period, and the vesting of all awards will be accelerated.
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AMENDMENT OR TERMINATION
The Bank of Boston Board may amend, suspend or terminate the 1996 Plan at
any time. Stockholder approval of any such action will be obtained to the extent
that such approval is required in order for awards intended to be exempt under
Rule 16b-3 of the Exchange Act to be so exempt or for awards intended to be
treated as "qualified performance-based compensation" under Section 162(m) of
the Code to be so treated. The Plan Committee may make non-material amendments
to the 1996 Plan. The Plan Committee may amend, modify, terminate or waive any
condition or provision of any outstanding award under the 1996 Plan, except that
it generally may not increase the number of shares subject to any outstanding
award or decrease the option or award price of the award. The participant's
consent to any such action may be required to the extent provided in the 1996
Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES RELATING TO
STOCK OPTIONS AND SARS GRANTED UNDER THE 1996 PLAN
The following is a summary of the principal federal income tax consequences
associated with stock options and SARs granted under the 1996 Plan. It does not
describe all federal tax consequences associated with stock options and SARs,
nor does it describe foreign, state or local tax consequences associated with
such awards.
Stock Options
General. No taxable income or deduction results by reason of the grant of a
stock option under the 1996 Plan. The income tax treatments associated with the
exercise of nonqualified stock options and the exercise of incentive stock
options are summarized below. Special rules may apply where the exercise price
of a stock option is paid by tendering previously owned shares of stock, or
where the shares acquired upon exercise are subject to restrictions under the
1996 Plan.
Nonqualified stock options. In general, the employee to whom a nonqualified
stock option has been awarded under the 1996 Plan will recognize, upon exercise
of the option, taxable ordinary income (subject to withholding) equal to the
value of the Bank of Boston Common Stock acquired upon exercise minus the
exercise price. The employer will be entitled to a corresponding deduction
provided certain wage-reporting requirements are satisfied. Any gain or loss
upon a subsequent sale or exchange of the shares will be a capital gain or loss,
long-term or short-term, depending on the applicable holding period for the
shares. The employer will not be entitled to a deduction with respect to any
such subsequent gain or loss.
Incentive stock options. No ordinary income to the optionee and no
deduction for the employer results upon the exercise of an incentive stock
option, although an employee exercising an incentive stock option may in some
cases have an alternative minimum tax liability by reason of the exercise. If an
employee holds shares acquired upon exercise of an incentive stock option for at
least one year after exercise and at least two years from the date of grant of
the option, any gain or loss recognized upon a subsequent sale or exchange of
the shares will be a long-term capital gain or loss for which the employer will
be entitled to no deduction. With limited exceptions, if the employee disposes
of any incentive stock option shares before satisfying these holding periods, he
or she will have ordinary income at time of disposition equal to the excess (if
any) of the value of those shares at time of exercise over the exercise price,
and the employer will be entitled to a corresponding deduction. Any additional
gain recognized in connection with the disposition will be treated as capital
gain, short-term or long-term, depending on the applicable holding period for
the shares. The employer will not be entitled to a deduction with respect to any
such additional gain. For purposes of these rules, in general, an incentive
stock option that is exercised more than three months following termination of
employment is treated as a nonqualified stock option, as are incentive stock
options to the extent they first become exercisable in any calendar year for
shares having a grant-date value in excess of $100,000.
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Stock Appreciation Rights
In general, when an SAR is exercised, the employee to whom the SAR was
awarded will recognize ordinary income, and the employer will be able to claim a
deduction, equal to the amount of cash and the fair market value of any property
delivered in satisfaction of the exercise.
Other Rules
Under Section 280G of the Code, payments in excess of specified limits that
are made in connection with a corporate change in control may result in a 20%
additional tax to the recipient and a lost deduction for the employer. Stock
options or SARs deemed to have been granted or to have become exercisable in
connection with a change in control of Bank of Boston may be required to be
valued and taken into account as "payments" for this purpose.
In addition, stock options and SARs awarded under the 1996 Plan are
intended to qualify for the performance-based compensation exemption under
Section 162(m). See "Section 162(m) of the Code" above.
PAYMENT OF WITHHOLDING TAXES
Bank of Boston may withhold, or require a participant to remit to Bank of
Boston, an amount sufficient to satisfy any federal, state or local withholding
tax requirements associated with awards under the 1996 Plan. The Plan Committee
may permit a participant to satisfy such tax withholding requirements, up to the
amount calculated by applying the participant's maximum marginal tax rate, by
delivery to Bank of Boston of shares of Bank of Boston Common Stock owned by the
participant, including shares retained from the award creating the tax
obligation.
THE BANK OF BOSTON BOARD RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
APPROVE THE BANK OF BOSTON CORPORATION 1996 LONG-TERM INCENTIVE PLAN.
121
<PAGE> 131
[ALTERNATE BANK OF BOSTON PAGE]
STOCKHOLDER PROPOSAL A
(PROXY ITEM 6)
Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Ave. N.W., Suite
215, Washington, D.C. 20037, who holds of record 300 shares of Bank of Boston
Common Stock, has informed Bank of Boston that she intends to introduce the
following proposal for action at the Bank of Boston Meeting:
RESOLVED: That the stockholders of Bank of Boston, assembled in Annual
Meeting in person and by proxy, hereby recommend that the Corporation affirm its
political non-partisanship. To this end the following practices are to be
avoided:
(a) The handing of contribution cards of a single political party to an
employee by a supervisor.
(b) Requesting an employee to send a political contribution to an
individual in the Corporation for a subsequent delivery as part of a
group of contributions to a political party or fund raising committee.
(c) Requesting an employee to issue personal checks blank as to payee for
subsequent forwarding to a political party, committee or candidate.
(d) Using supervisory meetings to announce that contribution cards of one
party are available and that anyone desiring cards of a different party
will be supplied one on request to his supervisor.
(e) Placing a preponderance of contribution cards of one party at mail
station locations.
The statement submitted in support of this Stockholder Proposal is as
follows:
The Corporation must deal with a great number of governmental units,
commissions and agencies. It should maintain scrupulous political neutrality to
avoid embarrassing entanglements detrimental to its business. Above all, it must
avoid the appearance of coercion in encouraging its employees to make political
contributions against their personal inclinations. The Troy (Ohio) News has
condemned partisan solicitation for political purposes by managers in a local
company (non Bank of Boston).
If you agree, please mark your proxy FOR this resolution.
THE BANK OF BOSTON BOARD RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSAL A.
Bank of Boston, like all corporations, is subject to many federal and state
laws and regulations governing corporate involvement in partisan political
activity, and is committed to full compliance with those laws and regulations.
Bank of Boston encourages its employees to participate in the political
process, including making personal contributions to candidates and parties they
wish to support. In addition, as authorized by federal law, Bank of Boston
sponsors several employee-funded political action committees, under which
employees make voluntary contributions which are used to support candidates and
incumbent public officials who are willing to listen to Bank of Boston's views
on proposed legislation and on other issues affecting the financial services
industry or the communities served by Bank of Boston and its subsidiaries. In
all cases, Bank of Boston, consistent with its legal obligations and its
internal policies, follows procedures to ensure that contributions from
employees are entirely voluntary.
Bank of Boston's policies, in conjunction with federal and state
regulations, are more than adequate to meet the concerns raised by this
proposal. Accordingly, the Bank of Boston Board believes that the adoption of
the proposed resolution would serve no purpose.
FOR THE FOREGOING REASONS, THE BANK OF BOSTON BOARD RECOMMENDS A VOTE
AGAINST STOCKHOLDER PROPOSAL A.
122
<PAGE> 132
[ALTERNATE BANK OF BOSTON PAGE]
STOCKHOLDER PROPOSAL B
(PROXY ITEM 7)
John Jennings Crapo, Post Office Box 151, Cambridge, MA 02140-0002, who
holds of record 1,034 shares of Bank of Boston Common Stock, has informed Bank
of Boston that he intends to present the following proposal for action at the
Bank of Boston Meeting:
Immediately prior to the approbation by the Board of Directors ("our
Board") of the Bank of Boston Corporation ("our Corporation") of any merger of
our Corporation or subsidiary of it with another entity, part of a subsidiary
with another entity, in each instance our Directors are requested to present to
stockholders of our Corporation as a Shareholder Proposal the proposal to merge
for shareholder ratification by stockholders of our Corporation.
Each proposal is requested to be presented to shareholders and their proxy
representatives at the stockholder meeting of our Corporation.
In no instance it is requested shall a merger of Bank of Boston Corporation
or subsidiary be effectuated without first our Corporation receiving the assent
of stockholders of our Corporation.
Each proposal it is requested shall contain a balanced presentation of the
arguments in Favor and Against said merger.
"Merger" for the purpose of this Proposal it is requested shall include
Friendly Takeover, purchase of Corporation individually, by a group or another
entity, Hostile Takeover or Hostile Bid, white knight overture but shall not
exclude identical or similar demeanor which is described by other speech.
The statement submitted in support of this Stockholder Proposal is as
follows:
Stockholder Proposal at last year's Annual Meeting of Stockholders of Bank
of Boston Corporation (the "Registrant") received substantial support.
Events is the banking industry in recent years emphasize the necessity of
all stockholders carefully scrutinizing acquisitions.
Although it may be boring to some to be historic, I briefly summarize some
pertinent information as follows of the FEDERAL DEPOSIT INSURANCE CORPORATION
re: Bank FAILURES:
<TABLE>
<CAPTION>
CLOSED OR
YEAR ASSISTED
---- ---------
<S> <C>
1982............................................................... 42
1983............................................................... 48
1984............................................................... 72
1985............................................................... 120
1986............................................................... 145
1987............................................................... 184
1988............................................................... 221
1989............................................................... 207
1990............................................................... 169
1991............................................................... 127
1992............................................................... 122
1993............................................................... 42
</TABLE>
Others, too, I know are able to offer additional reasons why this proposal
is worthy of ADOPTION by stockholders of this Registrant
THE BANK OF BOSTON BOARD RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSAL B.
123
<PAGE> 133
[ALTERNATE BANK OF BOSTON PAGE]
At the 1995 Annual Meeting of Stockholders, stockholders overwhelmingly
rejected this proposal. The Bank of Boston Board continues to believe that
adoption of this proposal would not serve the best interests of Bank of Boston
or its stockholders. The proposal requests that Bank of Boston submit to
stockholders for approval every transaction that involves the merger of Bank of
Boston, its subsidiaries or any part of any subsidiary regardless of the
transaction's size, strategic importance or effect on stockholders. Under
current law and applicable stock exchange rules, merger or acquisition proposals
are generally required to be submitted to a company's stockholders when they
involve significant transactions such as the sale of the entire company or the
distribution of a significant portion of a company's stock or assets. In
instances where transactions are less significant, companies make merger and
acquisition decisions based on the business judgment of their management and
boards of directors. The Bank of Boston Board believes that existing laws and
rules adequately protect stockholder interests.
Bank of Boston has participated actively in merger and acquisition
activities over the past several years and has completed a number of
transactions that have increased stockholder value. The Bank of Boston Board
believes that this proposal would significantly inhibit Bank of Boston's ability
to evaluate merger and acquisition proposals in a timely manner and would place
Bank of Boston at a significant disadvantage in competing for acquisition
opportunities. The Bank of Boston Board also believes that this proposal would
provide no added benefit to stockholders and would be expensive, burdensome and
impractical given the size of Bank of Boston and the complexity of its business.
FOR THE FOREGOING REASONS, THE BANK OF BOSTON BOARD RECOMMENDS A VOTE
AGAINST STOCKHOLDER PROPOSAL B.
STOCKHOLDER PROPOSAL C
(PROXY ITEM 8)
Robert Sitka, 198 Burlington Avenue, Bristol, Connecticut 06010, who holds
of record 78 shares of Bank of Boston Common Stock, has informed Bank of Boston
that he intends to introduce the following proposal for action at the Meeting:
RESOLVED: That the SHAREHOLDERS of, BANK OF BOSTON assembled in 1996 Annual
Meeting in Person and by Proxy, hereby request That The BY-LAWS Be AMENDED To
PROVIDE. That the HIGHEST SALARY TO BE PAID be NOT TO EXCEED [$560,000.00] to
the CHAIRMAN or to the CHIEF EXECUTIVE OFFICER as reported in the Compensation
Table listing the Annual Compensation in The Notice of Annual Meeting.
BY-LAW: Amendments:
1. SALARIES listed in the Compensation Table of The Notice of Annual
Meeting MUST BE [PRE-SENTED] EVERY YEAR [ONLY] at the SHAREHOLDERS ANNUAL
MEETING. Have APPROVAL of it's SHAREHOLDERS with a [66 2/3% VOTE in PERSON or by
PROXY or PROXIES. "The Shareholders are the OWNERS of Bank of Boston".
2. NO SALARY increase CAN BE GIVEN to the CHAIRMAN or CHIEF EXECUTIVE
OFFICER. [unless approved by shareholders]
3. NO OTHER "Compensation" can be GIVEN UNLESS APPROVED by the SHAREHOLDERS
of The Bank of Boston, the OWNERS.
4. All other [SALARIES] listed in: NOTICE OF ANNUAL MEETING to be LESS THAN
($420,000.00) to any other OFFICER.
5. SHAREHOLDERS, being the OWNERS must be given the right IN PERSON and by
Proxy or Proxies to APPROVE SALARIES presented in, "The Notice of Annual Meeting
[ONLY].
124
<PAGE> 134
[ALTERNATE BANK OF BOSTON PAGE]
6. NO SALARY INCREASE SHALL be given at any, SPECIAL SHAREHOLDER MEETING,
only at the ANNUAL MEETING of shareholders to be VOTED UPON in person or by
proxy or proxies.
The statement submitted in support of this Stockholder Proposal is as
follows:
A. FORMER [Chairman IRA STEPANIAN] was Paid a Salary of $817,884.00, Bonus
under the Performance Plan of $1,500,000.00, PLUS LONG TERM Stock Option for a
TOTAL of $2,500,000.00 plus or minus Plus other BENEFITS as Health Care; with
only a Dividend Increase of (53 Cents).
B. Mr. Charles Gifford, The New Chairman of Bank of Boston received in 1994
a Salary of ($604,807.00) and a Bonus of $1,000,000.00 almost DOUBLE 1993's
award of $550,000, for a Total of $1,604,807.00 plus or minus; Plus other
Benefits NOT REPORTED such as Health Care. Mr. Charles Gifford gets PAID before
the Shareholders the Owners GET their dividend.
C. SHAREHOLDERS being the OWNERS should be given the rights to AMEND the
BY-LAW'S [to] APPROVE SALARIES listed in The Notice of Annual Meeting.
D. The Shareholders ARE THE LAST TO GET PAID, meaning a CASH Dividend.
E. SALARY INCREASES should be reviewed by the STOCKHOLDERS YEARLY, for the
STOCKHOLDERS are the OWNERS. ESPECIALLY when SALARIES are not submitted for
SHAREHOLDER APPROVAL as in the RESOLUTION PRESENTED.
If you AGREE PLEASE MARK your PROXY -- FOR -- if you disagree mark against.
NOTE: (PROXY OR PROXIES not MARKED WILL BE VOTED AGAINST this RESOLUTION.).
THE BANK OF BOSTON BOARD RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSAL C.
The Bank of Boston Board believes that this proposal would unreasonably and
unnecessarily constrain Bank of Boston's ability to attract and retain talented
executives who are critical to building long-term value for Bank of Boston's
stockholders. As discussed more fully above in the Compensation Committee Report
on Executive Compensation, Bank of Boston has designed its executive
compensation program to support its pay for performance philosophy, to motivate
executives to achieve strategic business initiatives and reward them for their
achievement, to provide compensation opportunities which are comparable to those
offered by other financial institutions and to align the interest of executives
with the long-term interests of stockholders. If this proposal were adopted,
Bank of Boston would be placed at a severe disadvantage relative to the
institutions with which it competes for executive talent because those
institutions would not be subject to similar constraints.
Flexibility is critical if Bank of Boston's compensation program is to
remain competitive with the rapidly changing financial services industry. The
imposition of arbitrary limits on executive compensation, such as those
contemplated by this proposal, would inhibit Bank of Boston's flexibility to
make compensation decisions supportive of Bank of Boston's strategies, to the
detriment of both Bank of Boston and its stockholders.
FOR THE FOREGOING REASONS, THE BANK OF BOSTON BOARD RECOMMENDS A VOTE
AGAINST STOCKHOLDER PROPOSAL C.
STOCKHOLDER PROPOSAL D
(PROXY ITEM 9)
David B. Sitka, Elizabeth Sitka and George Sitka, 198 Burlington Avenue,
Bristol, Connecticut 06010, who collectively hold of record 102 shares of Bank
of Boston Common Stock, have informed Bank of Boston that they intend to
introduce the following proposal for action at the Bank of Boston Meeting:
RESOLVED: That the SHAREHOLDERS of, BANK OF BOSTON assembled in 1996 Annual
Meeting in Person and by Proxy, hereby request that following the ANNUAL
MEETING, an IMPROVED POST MEETING REPORT, contain the following INFORMATION be
SENT to all SHAREHOLDERS.
(a) An IMPROVED SUMMARY of the matters DISCUSSED.
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<PAGE> 135
[ALTERNATE BANK OF BOSTON PAGE]
(b) The number of Shares CAST -- FOR -- and AGAINST each Nominee for
election to the Board of Directors.
(c) The IDENTIFICATION OF PARTICIPANTS, and Shareholder QUESTIONS and
MANAGEMENT'S Answers.
The statement submitted in support of this Stockholder Proposal is as
follows:
1. The 1995 Annual Meeting was [ADJOURNED] by the Former Chairman IRA
STEPANIAN BEFORE THE FOLLOWING "Questions" could [NOT] be asked.
2. JUSTICE HAROLD P. KELLY of the SUPREME COURT of Erie County, N.Y.,
recently STATED, that the ANNUAL MEETING of stockholders is, NOT A SECRET
CONCLAVE.
3. WHY a transcript of the ANNUAL MEETING is NOT available for it's
shareholders, [FREE]? Since the shareholders PAY our directors a Retainers Fee
Plus Other Fees.
4. DO the shareholders have the right to CHANGE the [ BY-LAWS Yes or No]?
5. Do our PRESENT or PAST Directors receive LIFE INSURANCE what AMOUNT and
[WHY] WHO PAYS for the policy? What ;is the COST? [WHO] gets the benefits,
Family or Bank? If Family WHY?
6. DO the DIRECTORS receive a [PENSION] upon retiring and the AMOUNT and
[WHY], did the DIRECTORS [GET] SHAREHOLDER APPROVAL for the Directors PENSION
PLAN?
a. When [was] the PENSION PLAN put into effect and how many directors
participate?
b. What is the yearly COST to the SHAREHOLDERS?
c. The Directors RETAINER FEE they receive yearly, is this amount USED
as the PENSION FEE to be given upon retirement?
d. [DID] management MAKE the Pension Plan [retroactive] when adopted, to
Former Directors who were not in the pension plain?
e. DO the Directors WIFE receive her husbands PENSION [after his passing
away]?
It should be NOTED this is the shareholders money NOT THE directors money.
7. ARE any of the Present or Retired DIRECTORS [COVERED] under any type or
receive ANY KIND of HEALTH CARE BENEFITS or any family members from the Bank of
Boston?
a. What type of Coverage?
b. What is the COST?
Which the SHAREHOLDERS PAY FOR before a Dividend is Paid?
8. Bank of Boston have any LOANS OUTSTANDING to OUR DIRECTORS or family
members?
a. Amount or Amounts of Loans outstanding and to whom at what RATE of
Interest Per-Loan?
b. Give the TYPE of LOANS with Interest Rate Per-Loan?
c. LOANS outstanding to Directors who are heads of companies, amount or
amounts and RATE of Interest Per-Loan?
9. NOTE: Mr. Charles K. Gifford then President, was NOT ALLOWED to answer
the following questions, by the Former Chairman Ira Stepanian:
a. WHY are YOU entitled to a BONUS of $1,000,000.00 with a SALARY of
$604,807.00 when the dividend HAS NOT BEEN INCREASED to the original
dividend as of the year 1988?
126
<PAGE> 136
[ALTERNATE BANK OF BOSTON PAGE]
b. Tell the shareholders the list of benefits you and your family
received from the bank and the COST?
c. HOW many times did you go overseas, give the TOTAL COST?
d. Did you take your [WIFE] overseas and how many times when you went on
bank business what was the TOTAL COST to the SHAREHOLDERS the OWNERS?
e. What was the Banks DERIVATIVES [LOSS] the amount invested in
DERIVATIVES which is another form of gambling? What was the banks
yearly LOSS for the PAST three years?
10. TOTAL amount of LOANS OUT standing to Third World Countries and
Interest RATE [charged] and what was the FOUR LARGEST write offs?
11. Do these third world countries have to give our bank any security? AS
our Customers do when getting a loan or mortgage.
12. HOW much did the bank have to write off from the LOAN LOSS RESERVE
Account [Per-Share], which ARE the shareholders earnings?
If you agree PLEASE mark your PROXY [FOR], if you disagree mark against.
NOTE: [PROXY or PROXIES not MARKED WILL BE VOTED AGAINST this RESOLUTION]
THE BANK OF BOSTON BOARD RECOMMENDS A VOTE AGAINST STOCKHOLDER PROPOSAL D.
The Bank of Boston Board believes that the adoption of this proposal would
not advance the interests of Bank of Boston or its stockholders. The proposal
would require Bank of Boston to prepare and distribute to stockholders,
following each Annual Stockholders' Meeting, a highly detailed recitation of
every matter discussed or voted upon at the meeting. Consistent with the
Commission's requirements, Bank of Boston already includes, in its quarterly
report on Form 10-Q following each stockholder meeting, a brief description of
each matter voted upon at the meeting and a tabulation of the votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
as to each matter considered at the meeting (including a separate tabulation
with respect to each Director nominee). The Form 10-Q is available to any
stockholder, without charge, upon written request to External Affairs at the
address shown below under "10-K REPORT."
The Bank of Boston Board believes that the information disclosed in the
Form 10-Q adequately informs stockholders of the key items of business
considered at each stockholder meeting, and that the additional items called for
in the proponent's report would be of little interest to most stockholders.
Accordingly, the Board sees no need for Bank of Boston to incur the substantial
additional costs that would be involved in preparing and distributing such a
report to stockholders.
FOR THE FOREGOING REASONS, THE BANK OF BOSTON BOARD RECOMMENDS A VOTE
AGAINST STOCKHOLDER PROPOSAL D.
127
<PAGE> 137
[ALTERNATE BANK OF BOSTON PAGE]
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholders who wish to submit proposals pursuant to Rule 14a-8 under the
Exchange Act at the 1997 Annual Meeting of Stockholders will be required to
deliver the proposals to Bank of Boston on or prior to November 20, 1996. Bank
of Boston's By-Laws also contain certain provisions which impose additional
requirements upon the submission of stockholder nominations for director and
other stockholder proposals. Please forward any such proposals or the required
notices to the Clerk of Bank of Boston, at the address set forth above under
"THE BANK OF BOSTON MEETING -- Proxies; Voting and Revocation."
OTHER MATTERS
The Bank of Boston Board knows of no business which will be presented for
consideration at the Bank of Boston Meeting other than those items set forth in
this Joint Proxy Statement-Prospectus. The enclosed proxy confers upon each
person entitled to vote the shares represented thereby discretionary authority
to vote such shares with respect to any other matter which may be properly
presented for action at the Bank of Boston Meeting.
BY-LAWS OF BANK OF BOSTON
Since last year's Annual Meeting of stockholders, there have been no
amendments to the By-Laws of Bank of Boston.
ANNUAL REPORT
A copy of Bank of Boston's Annual Report to stockholders for the year ended
December 31, 1995, which includes financial statements, has been previously
mailed to all stockholders. The Annual Report is not to be regarded as proxy
soliciting material.
10-K REPORT
A copy of Bank of Boston's Annual Report to the Commission on Form 10-K for
the year ended December 31, 1995 will be made available at the Bank of Boston
Meeting and may be obtained without charge by any stockholder upon written
request addressed to Agnes Y. Brooks, External Affairs, The First National Bank
of Boston, P.O. Box 1987, MA BOS 01-28-04, Boston, Massachusetts 02105.
By Order of the Board of Directors,
/s/ GARY A. SPIESS
GARY A. SPIESS
Clerk
Dated: March 18, 1996
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<PAGE> 138
[ALTERNATE BAYBANKS PAGE]
THE BAYBANKS MEETING -- ADDITIONAL MATTERS
ELECTION OF DIRECTORS
In addition to being asked to vote upon approval of the Merger Agreement,
BayBanks stockholders will elect three directors at the BayBanks Meeting, who
will serve on the BayBanks Board for three years and until their respective
successors are chosen and qualified or, if earlier, until consummation of the
Merger. Upon consummation of the Merger, Mr. Crozier and three other members of
the BayBanks Board will become directors of Bank of Boston, and the directors of
the Surviving Corporation will be those persons who were the directors of Boston
Merger Corp. immediately before the Merger.
Unless the enclosed proxy withholds authority to vote for one or more of
the nominees or indicates a broker non-vote, the shares represented by such
proxy will be voted for the election as directors of the nominees indicated
below. If any nominee becomes unavailable for any reason (which event is not
anticipated), the shares represented by the enclosed proxy may be voted for such
other person as may be determined by the holders of such proxy.
The following table contains certain information as to the nominees for
election to the office of director of BayBanks and each other person whose term
of office as a director will continue after the meeting, and includes the number
of shares of BayBanks Common Stock beneficially owned, directly or indirectly,
by each of such persons as of February 12, 1996. The nominees for election to
the office of director at the meeting are Mr. Cervieri, Mr. Isaacs, and Ms.
McNamee and are indicated by an asterisk in the table that follows.
<TABLE>
<CAPTION>
SHARES OF
FIRST COMMON
PRINCIPAL OCCUPATION BECAME PRESENT STOCK
AND OTHER DIRECTORSHIPS DIRECTOR OF TERM BENEFICIALLY
NAME HELD IN PUBLIC CORPORATIONS AGE BAYBANKS EXPIRES OWNED(1)
- ---------------------------- ------------------------------- ---- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
John A. Cervieri Jr.(2)*.... Chairman and President, 65 1980 1996 4,928
Property Capital Associates,
Inc. -- Real estate investment
and consulting firm; Managing
Trustee, Property Capital
Trust, and Chairman of the
Board and Chief Executive
Officer, Americana Hotels and
Realty Corporation
William M. Crozier, Jr.(2).. Chairman of the Board and 63 1974 1998 155,725
President of BayBanks
Robert L. Gable............. Chairman, President, and Chief 65 1994 1998 706
Executive Officer, Unitrode
Corporation -- Manufacturer of
analog integrated circuits
Samuel J. Gerson............ Chairman of the Board and Chief 54 1990 1997 2,347
Executive Officer, Filene's
Basement, Inc. -- Retailer
Donald L. Isaacs*........... Vice Chairman of the Board of 48 1992 1996 35,639
BayBanks
Norman E. MacNeil........... Chairman of the Board, Ark-Les 69 1971 1998 6,587
Corporation -- Manufacturer of
switches and electrical
components
Arlene A. McNamee*.......... Executive Director, Catholic 49 1990 1996 2,942
Social Services, Diocese of
Fall River -- Social services
agency
</TABLE>
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<PAGE> 139
[ALTERNATE BAYBANKS PAGE]
<TABLE>
<CAPTION>
SHARES OF
FIRST COMMON
PRINCIPAL OCCUPATION BECAME PRESENT STOCK
AND OTHER DIRECTORSHIPS DIRECTOR OF TERM BENEFICIALLY
NAME HELD IN PUBLIC CORPORATIONS AGE BAYBANKS EXPIRES OWNED(1)
- ---------------------------- ------------------------------- ---- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Thomas R. Piper(2).......... Lawrence E. Fouraker Professor 58 1979 1997 3,178
of Business Administration,
Harvard University Graduate
School of Business
Administration -- Educational
institution
Richard F. Pollard.......... Vice Chairman of the Board of 63.. 1983 1997 46,631
BayBanks
Glenn P. Strehle(2)......... Vice President for Finance and 59.. 1979 1998 4,328
Treasurer, Massachusetts
Institute of
Technology -- Educational
institution; Director, SofTech,
Inc. and Liberty Financial
Companies; Trustee, Property
Capital Trust
Joseph H. Torras............ Chairman of the Board, Preco 71 1990 1997 52,247
Corporation -- Manufacturer of
pulp, paper, and specialty
products
Directors and Executive..... 429,933
Officers as a Group......... (2.2%)
</TABLE>
- ---------------
* Nominee for election as director.
(1) Does not include a total of 14,286 shares of BayBanks Common Stock that are
held by members of the immediate families of two directors and one officer,
who disclaim beneficial ownership of such shares. Includes the following
shares subject to options exercisable as of February 12, 1996, or within 60
days thereafter: Mr. Crozier 88,178, Mr. Isaacs 8,323, and all executive
officers and directors as a group 127,833; as well as the following shares
of Restricted Stock as to which the holders have voting power but will not
have investment power until the restrictions lapse: Mr. Crozier 16,000, Mr.
Isaacs 3,730, Mr. Pollard 400, and all executive officers and directors as a
group 39,131. The group total also includes 35,587 shares beneficially owned
by Michael W. Vasily, Executive Vice President, of which 17,166 shares are
subject to options exercisable as of February 12, 1996, or within 60 days
thereafter, and 2,898 shares are Restricted Stock, and 61,691 shares
beneficially owned by Ilene Beal, Executive Vice President, of which 14,166
shares are subject to options exercisable as of February 12, 1996, or within
60 days thereafter, and 2,898 shares are Restricted Stock. None of the
persons listed beneficially owns more than 1% of the outstanding Common
Stock.
(2) Member of the Executive Committee.
The preceding table shows the present principal occupation of the directors
listed. Each director has had the same principal occupation for the past five
years except for Ms. McNamee, whose occupation is described in the biography
below.
NOMINEES FOR ELECTION.
JOHN A. CERVIERI JR. -- Mr. Cervieri has been a director of BayBanks since
1980. He is Chairman and President of Property Capital Associates, Inc., and PCA
Capital Corporation, organizations that provide investment advisory services to
institutional investors and investment partnerships. He has held these positions
through predecessor companies since 1971. Mr. Cervieri also is Managing Trustee
of Property Capital Trust, a real estate investment trust with which he has been
affiliated since its inception in 1969, and is Chairman and Chief Executive
Officer of Americana Hotels and Realty Corporation. He graduated from Columbia
College and the Harvard University Graduate School of Business Administration
and served as a pilot in the United States Air Force. Mr. Cervieri is a member
of the American Society of Real Estate Counselors and former
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<PAGE> 140
[ALTERNATE BAYBANKS PAGE]
Chairman of its New England Chapter, as well as former Chairman of the National
Association of Real Estate Investment Trusts and former Chairman of the
Executive Committee of the National Realty Committee. He lectures on real estate
financing and is active in various finance, economic, and trade associations. He
also is a member of the Board and of the Executive Committee of New England
Medical Center, Inc., and a member of the Corporation of the Dana-Farber Cancer
Institute.
DONALD L. ISAACS -- Mr. Isaacs became a director of BayBanks in 1992, when
he was elected a Vice Chairman. Prior to that he served in various management
capacities with the Company beginning in 1974. Earlier in his career Mr. Isaacs
held several positions in the computer technology field, having served at the
Federal Reserve Bank of Boston just prior to joining BayBanks. Mr. Isaacs holds
a bachelor's degree in mathematics from Tufts University and a Master of Science
degree in management from the Sloan School of Management at the Massachusetts
Institute of Technology. He is a director of both CIRRUS and Maestro USA, which
are global electronic banking networks, as well as an overseer of Boston's
Museum of Science and a member of the Boston Economic Club.
ARLENE A. MCNAMEE -- Ms. McNamee has been a director of BayBanks since
1990, and prior to that had been a director of the former BayBank South and its
predecessor banks since 1980. Ms. McNamee is Executive Director, Catholic Social
Services, Diocese of Fall River, in which position she has served since 1994.
Prior to that, during 1993, she was Southeast Regional Administrator for the
Massachusetts Society for the Prevention of Cruelty to Children. From 1988 to
1993, Ms. McNamee was associated with Richards & Davis Co., Inc., a wholesale
distributor of lumber, where she occupied various management positions, becoming
President in 1990. Ms. McNamee continues to serve in that capacity, but it is no
longer her principal occupation. Earlier in her career Ms. McNamee was a founder
and director of shelters for troubled adolescents and was involved in various
capacities in the public welfare sector. Ms. McNamee is a graduate of Stonehill
College and is a Licensed Certified Social Worker. She is a Director of the
United Way of Greater New Bedford and of Saint Luke's Hospital in New Bedford
where she is Vice Chairman of the Board. Ms. McNamee also serves on numerous
state and local boards and committees with particular concentration in the
social services field.
Committees of the Board. The Audit Committee is composed of Mr. Gable, Mr.
Gerson, Ms. McNamee, and Mr. Piper. The Audit Committee's primary functions are
to make annual recommendations to the Board of Directors as to the designation
of independent auditors for BayBanks, to meet with the auditors to review the
scope of the audit, to review the internal audit and loan review programs of
BayBanks and its subsidiaries, and to review reports on those activities. In
addition, the Audit Committee reviews reports of regulatory examinations and
internal reports on credit quality. The Committee reports to the BayBanks Board
on all such matters. In performing its functions, the Audit Committee held four
meetings in 1995. The Corporate Compensation Committee, the members of which
also comprise the Stock Option Committee, is composed of Messrs. Cervieri,
Strehle, and Torras. Its function is to consider and recommend action to the
Board of Directors on compensation matters. The Corporate Compensation Committee
administers BayBanks' Incentive Compensation Plan and Restricted Stock Plan,
and, acting as the Stock Option Committee, the Stock Option Plan. In addition,
it administers BayBanks' Supplemental Executive Retirement Plan and Severance
Benefits Plan. In performing their functions in 1995, the Corporate Compensation
Committee held five meetings and the Stock Option Committee held one meeting.
The entire Board of Directors functions as a nominating committee and considers
nominations submitted to the Chairman of the Board and President. The BayBanks
Board held twelve meetings in 1995.
Compensation of Directors. Directors are paid a fee of $1,000 for each full
meeting of the BayBanks Board or a Committee of the BayBanks Board they attend
and an annual retainer of $15,000. Until 1996, each director in office
immediately after the Annual Meeting of stockholders received the annual
retainer in the form of shares of BayBanks Common Stock. For tax purposes,
directors may elect to defer all or part of their cash compensation and to
receive their retainer shares subject to forfeiture restrictions that permit
deferral of the realization of income on the value received. All such
restrictions will terminate upon approval of the
96
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[ALTERNATE BAYBANKS PAGE]
Merger Agreement by BayBanks stockholders. Officers of BayBanks who are
directors do not receive additional compensation for their service as directors.
Compensation Committee Interlocks and Insider Participation. Certain of
BayBanks' executive officers and directors are at present, as in the past,
customers of its subsidiary banks and have transactions with such banks in the
ordinary course of business. In addition, certain of the directors, including
members of the Corporate Compensation Committee, are at present, as in the past,
also directors or officers of corporations or members of partnerships that are
customers of BayBanks' subsidiary banks and that have transactions with such
banks in the ordinary course of business. Such transactions with executive
officers and directors of BayBanks and with such corporations and partnerships
were at rates and charges comparable to those charged to other customers of the
subsidiary banks. Loans to executive officers and directors and persons and
entities related to them were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other customers and did not involve more than normal risk of
collectibility or present other features unfavorable to the lending bank.
97
<PAGE> 142
[ALTERNATE BAYBANKS PAGE]
EXECUTIVE COMPENSATION
<TABLE>
Summary Compensation Table. The following table provides summary
information on the cash compensation and certain other compensation paid,
awarded, or accrued by BayBanks and its subsidiaries for each of the last three
fiscal years to, or for, the five executive officers of the Corporation who
received the highest compensation for 1995 as measured by their cash
compensation and bonus.
<CAPTION>
LONG TERM COMPENSATION
AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------- STOCK UNDERLYING ALL OTHER
SALARY(1) BONUS(2) AWARDS(3) OPTIONS COMPENSATION(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ------------------------------ ---- --------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William M. Crozier, Jr. 1995 $600,000 $390,000 $937,500 50,000 $70,353
Chairman of the Board, 1994 530,000 333,017 -- -- 43,251
President, and Director 1993 461,250 249,844 -- 50,000 29,696
Richard F. Pollard 1995 335,000 167,500 -- -- 39,280
Vice Chairman of the Board 1994 310,000 149,833 -- -- 23,050
and Director 1993 297,500 99,167 -- -- 17,362
Donald L. Isaacs 1995 315,000 157,500 -- -- 36,935
Vice Chairman of the Board 1994 290,000 140,167 -- -- 21,357
and Director 1993 262,500 109,375 -- 25,000 13,778
Michael W. Vasily 1995 235,000 82,250 -- -- 27,555
Executive Vice President 1994 215,000 72,742 -- -- 16,066
and Chief Financial Officer 1993 183,750 53,594 -- -- 9,551
Ilene Beal 1995 205,000 71,750 -- -- 24,037
Executive Vice President, 1994 190,000 64,283 -- -- 13,819
Secretary, and Clerk 1993 170,625 42,656 -- -- 8,869
<FN>
- ---------------
(1) Includes amounts deferred pursuant to Section 401(k) of the Internal Revenue
Code.
(2) Incentive compensation based on performance for the years shown.
(3) Restricted Stock granted for the year shown, expressed as the dollar value
of the shares granted at the closing price on April 27, 1995, the date of
grant, which was $62.50. Such shares vest over a period of three years in
equal parts; however, all outstanding shares of Restricted Stock will vest
automatically in the event BayBanks stockholders approve the Merger
Agreement. Dividends on Restricted Stock are paid at the same time and in
the same amounts as dividends on stock not subject to restriction. At year
end 1995, the number and aggregate value of Restricted Stock holdings of
each of the executive officers listed in the table were as follows, as
calculated using the year-end closing price of BayBanks Common Stock, which
was $98.25: Mr. Crozier 16,000 shares, $1,572,000; Mr. Pollard 400 shares,
$39,300; Mr. Isaacs 6,400 shares, $628,800; Mr. Vasily 4,900 shares,
$481,425; and Ms. Beal 4,900 shares, $481,425.
(4) Consists of the dollar value of stock and cash payments made under BayBanks'
Employee Stock Ownership Plan ("ESOP") and Profit Sharing Plan and related
Excess Benefit Plans for the years shown. Amounts included for 1993 cover
the ESOP and the Excess Benefit Plan payments for 1993, as well as the
Excess Benefit Plan payments for 1992 and 1991, which were paid in 1993.
ESOP stock payments do not include dividends on shares contributed.
</TABLE>
98
<PAGE> 143
[ALTERNATE BAYBANKS PAGE]
Stock Option Grants in Last Fiscal Year. The following table provides
information on stock options granted during 1995 to Mr. Crozier, who was the
only executive officer named in the Summary Compensation Table who received a
grant of options.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION GRANT DATE
NAME GRANTED(1)(#) FISCAL YEAR ($/SHARE) DATE PRESENT VALUE(2)
- ---------------------- ------------- --------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
William M. Crozier,
Jr.................. 50,000 62.7% $62.50 4/27/01 $659,000
</TABLE>
- ---------------
(1) The options shown were granted on April 27, 1995. Such options become
exercisable in annual increments of one-third of the shares subject thereto
beginning on the first anniversary of the date of the grant; however, all
such options will become exercisable automatically in the event that
BayBanks stockholders approve the Merger Agreement.
(2) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value of the options an executive may
realize, if any, will depend on the excess of the stock price over the
exercise price on the date the option is exercised, so that there is no
assurance the value realized by an executive will be at or near the value
estimated by the Black-Scholes model. The model assumes exercise of options
upon the expiration date; a future risk-free rate of return of 5.38% for an
option term of six years; a stock price volatility of .1748; a dividend
yield of 2.5%; and no forfeiture of options. These assumptions are based
upon historical experience and are not a forecast of future stock price
performance or volatility or of future dividend policy.
Aggregated Option Exercises in Last Fiscal Year and Year-End Stock Option
Values. The following table provides information regarding the aggregate number
of shares of BayBanks Common Stock received upon exercise of options during the
last fiscal year, the aggregate dollar value realized upon exercise, and the
total number of unexercised stock options held as of the end of 1995 by the
executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1995(#) AT DECEMBER 31, 1995(1)($)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William M. Crozier, Jr...... 12,488 $487,170 68,734 102,778 $ 4,168,697 $ 4,772,925
Richard F. Pollard.......... 18,000 546,573 -0- -0- -0- -0-
Donald L. Isaacs............ 16,666 351,683 6,889 26,445 428,840 1,496,198
Michael W. Vasily........... 2,500 113,594 18,722 3,778 1,195,445 235,181
Ilene Beal.................. 7,500 269,250 13,722 3,778 884,195 235,181
</TABLE>
- ---------------
(1) Based on the difference between the 1995 year-end closing price of the
Common Stock, which was $98.25, and the option exercise price for each
underlying grant.
99
<PAGE> 144
[ALTERNATE BAYBANKS PAGE]
<TABLE>
Pension Plan Table. Executive officers of BayBanks participate in the
BayBanks' Retirement Plan and, if designated by the Corporate Compensation
Committee, in BayBanks' supplemental executive retirement plan ("SERP"). The
following table shows the estimated annual lifetime retirement benefits payable
from both plans to the executive officers named in the Summary Compensation
Table, beginning at age 65.
<CAPTION>
AVERAGE YEARS OF SERVICE
ANNUAL ------------------------------------
COMPENSATION 15 20 25-35
------------ -------- -------- --------
<S> <C> <C> <C>
$ 200,000....................................... $ 60,000 $ 80,000 $100,000
300,000....................................... 90,000 120,000 150,000
400,000....................................... 120,000 160,000 200,000
500,000....................................... 150,000 200,000 250,000
600,000....................................... 180,000 240,000 300,000
800,000....................................... 240,000 320,000 400,000
1,000,000....................................... 300,000 400,000 500,000
1,200,000....................................... 360,000 480,000 600,000
</TABLE>
The amounts in the table have been calculated under the Retirement Plan and
SERP benefit formulas using the years of service and average annual compensation
levels specified in the table without taking into account any offsets for Social
Security benefits. Compensation taken into account for the named executive
officers by the Retirement Plan and SERP benefit formulas is the same as the
amounts shown as salary and bonus in the Annual Compensation portion of the
Summary Compensation Table. Average annual compensation is determined using the
three consecutive years in the ten years preceding retirement or earlier
termination of service in which compensation is the highest. Years of service
credited as of year-end 1995 for the named executive officers are as follows:
Mr. Crozier (32 years), Mr. Isaacs (21 years), Mr. Pollard (19 years), Mr.
Vasily (17 years) and Ms. Beal (23 years).
Severance Arrangements. Approval of the Merger by BayBanks stockholders
will constitute a change in control of BayBanks for purposes of determining the
entitlement of BayBanks employees, including executive officers, to certain
severance and other benefits as described below. BayBanks and Bank of Boston
have entered into employment agreements with certain members of management that
will provide employment and severance benefits from and after the Effective
Time, superseding the benefits described below. See "THE MERGER -- Interests of
Certain Persons in the Merger."
BayBanks has a Severance Benefits Plan that provides severance benefits to
certain employees of BayBanks and its subsidiaries in connection with a change
in control of BayBanks. Benefits are payable in the event of termination of
employment without cause or voluntary termination following certain events (such
as a specified reduction in salary or benefits) occurring within two years after
a change in control of BayBanks. Under the Plan, the executive officers named in
the Summary Compensation Table would receive for each year of service a
severance payment of eight weeks' salary and pro rata incentive compensation,
covering up to a maximum of 156 weeks. They also would receive medical, life,
and other insurance coverages for the number of weeks used to compute severance
pay, as well as outplacement assistance valued at not less than 15% of annual
salary.
Under the terms of the Retirement Plan and SERP, the formulas currently
used to determine benefits would be modified in the event of a change in control
of BayBanks. A feature of the formulas provides smaller benefits to terminating
employees who are not yet eligible for retirement as compared to employees with
the same compensation and length of service who are eligible for retirement.
Since a participant's ability to continue as an employee until retirement age
could be affected by a change in control, this feature of the benefit formulas
would be deleted from such plans if a change in control occurs. Also, in the
event of a change in control, the number of weeks used to compute severance pay
under the Severance Benefits Plan will be added to the age and service of SERP
participants when their SERP benefits are calculated.
100
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[ALTERNATE BAYBANKS PAGE]
Vesting of restricted stock and stock options would be accelerated upon a
change in control. Also, protections have been implemented to ensure, to the
extent possible, that employees and directors of BayBanks at the time of a
change in control receive the value of compensation or benefits earned but not
received before the change in control. These protections include payment of a
pro rata portion of incentive compensation plan awards upon a change in control,
immediate payout of award amounts previously deferred under the incentive
compensation plan (providing that a prior election to accelerate payment upon a
change in control was made by those individuals eligible to defer payment of
such awards), entitlement to a profit-sharing allocation during the year a
change in control occurs, and funding of a trust to provide certain non-
qualified benefits.
CORPORATE COMPENSATION COMMITTEE AND STOCK OPTION
COMMITTEE REPORT ON EXECUTIVE OFFICER COMPENSATION
Securities and Exchange Commission regulations require the compensation
committee of the board of directors of a publicly-traded company to publish in
each proxy statement involving the election of directors a report addressing
certain aspects of executive officer compensation for the last completed fiscal
year. The following report is provided in accordance with those regulations.
The compensation of the Corporation's executive officers reported for 1995
was paid or awarded pursuant to plans and arrangements that collectively are
intended to attract, retain, and motivate employees of outstanding ability,
control costs, link changes in compensation to individual and corporate
performance, and align the interests of management with the interests of the
Corporation's stockholders.
The Corporate Compensation Committee reviews executive officer salaries
each year and recommends to the Board of Directors appropriate adjustments based
on the Corporation's salary budget for the year, competitive salary levels,
changes in job responsibilities, and the performance of each executive.
To determine competitive salary levels the Corporation participates in
external compensation studies, subscribes to professional surveys with respect
to salary movements by region and industry, and engages compensation consultants
to provide information and advice on its compensation programs and cash
compensation levels for specific positions. In addition, the Corporate
Compensation Committee engages independently an outside compensation consulting
firm to provide it with research data and analysis regarding the competitiveness
of the salaries and incentive compensation opportunity for the executives of the
Corporation named in the proxy statement Compensation Table. For this purpose
the consulting firm reviews the compensation of executives of selected regional
bank holding companies throughout the United States. Such companies are selected
for comparative purposes based on either a New England regional presence or
comparable asset size and business characteristics. Companies in the
compensation reference group that are located outside of New England tend to
range in size from approximately $7 to $33 billion and have significant consumer
banking operations. There is some overlap between the companies included in the
compensation reference group and the companies comprising the published industry
index in the stock performance graph that follows this report. However, the
majority of the companies comprising the Dow Jones Eastern Regional Banks Index
are considerably larger than those in the compensation reference group or have
substantially different business characteristics (i.e., product/service mix) and
therefore have not been considered appropriate bases of comparison for
compensation study purposes.
In 1995, in determining a recommended salary adjustment for Mr. Crozier for
that year, the Committee considered both the report of its compensation
consultant and the Company's 1994 financial results, as well as the achievement
of organizational objectives. With respect to financial performance the
Committee considered principally the substantial increase in the Corporation's
earnings for the year, which exceeded 14% of stockholders' equity and were well
above budget. The Committee also noted with respect to financial performance
that careful management of the Company's securities portfolio, comprising
investments of very high quality and relatively short maturity, had minimized
the potential adverse effect of declining bond prices during the year and
facilitated an effective reallocation of assets to fund the strong growth in
loans that
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<PAGE> 146
[ALTERNATE BAYBANKS PAGE]
occurred as the local economy recovered from the recession of the early 1990s.
In addition, the Committee noted that increases in operating expenses were
modest while the organization continued to maintain or increase its market share
of deposit accounts and loans in the region. The Committee observed as well that
successful organization changes, which had contributed to the accomplishment of
financial objectives, were facilitated by the strength of the Company's senior
and middle management, the renewal and development of which had been an
important longer term corporate objective. The Committee reviewed its
consultant's report on the competitiveness of the chief executive officer's
salary in the context of 1994 earnings performance and overall financial
results. The report indicated that Mr. Crozier's salary was not only well below
the median salary for chief executives of reference group banks, but was in the
lowest quartile for that group despite Committee action taken over the last
several years in response to prior similar findings by the compensation
consultant. The Committee previously had established as an equitable
compensation target the median range (25th to 75th percentile) for reference
group companies and reaffirmed that objective. The Committee determined that its
recommendation to the Board of Directors with respect to Mr. Crozier's 1995
salary increase, when combined with his incentive compensation opportunity,
should bring his compensation to a level above the lowest quartile of the
reference group.
In connection with its consideration in 1995 of the chief executive
officer's current and future compensation the Committee took note of the
provisions of Section 162(m) of the Internal Revenue Code limiting the income
tax deductions of public companies for certain compensation in excess of $1
million paid to certain executive officers and observed that this limit could be
exceeded in the future based on the level of salary, incentive compensation, and
other applicable taxable compensation paid to Mr. Crozier. It was the consensus
of the Committee that although it generally is a desirable objective to have
executive compensation qualify as tax-deductible whenever in the Committee's
judgment that would be consistent with the objectives pursuant to which
particular compensation is paid, the Corporation should compensate its executive
officers fairly and not be constrained by anticipated tax treatment.
Accordingly, the Committee determined that since its principal objective was to
provide the chief executive officer with competitive financial incentives at
this important stage of the Company's development, it would take such action as
was necessary to do so.
Executive officers of the Corporation (as well as other designated staff
members) are eligible to receive incentive compensation up to specified
percentages of their salaries under the Corporation's Incentive Compensation
Plan. Participants and their award eligibility for each plan year are approved
by the Corporate Compensation Committee, and, in the case of the executive
officers named in the Compensation Table, by the Board. Participants are
intended to be those individuals with positions in which job performance can
significantly affect profits or the achievement of strategic objectives. The
level of incentive compensation for which each participant is eligible is based
on the scope of that individual's responsibility and accountability relative to
other Plan participants. Awards under the Incentive Compensation Plan are based
partly on the performance of the Corporation (the Corporate award) and partly on
an evaluation of individual job performance. Corporate performance normally
accounts for one third of the award opportunity. Under the Plan the Committee
may recommend to the Board exceptions to this formula, but it has not done so.
Determination of the portion of the Corporate award that will be paid for
any year is made by the full Board following the end of that year on the basis
of the Corporate Compensation Committee's review of data comparing the
Corporation's performance with previously established internal budget targets
and with the performance of other similar companies. For these purposes, budget
targets and performance comparisons with other companies focus principally on
net income, return on equity, and operating profit margins, but also may include
other financial measures, such as return on assets, price/earnings ratios, and
market value/book value ratios. The reference group companies, which are
reviewed annually by the Corporate Compensation Committee and the Board, are
substantially the same as the reference group companies comprising the
compensation study group. The overlap of these companies with the Dow Jones
Eastern Regional Banks Index is described above. In early 1996 the Corporate
Compensation Committee and the Board determined that 100% of the Corporate Award
would be paid for 1995 because earnings results and return on equity had
exceeded budgetary targets.
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[ALTERNATE BAYBANKS PAGE]
The portion of each incentive award that is determined specifically by an
evaluation of individual performance is based principally on the extent to which
individual performance goals for the year were achieved and, in the case of
executive officers of the Corporation named in the Compensation Table, an
evaluation by the Corporate Compensation Committee and the Board of the
executive's job performance during the year. In determining awards for
individual job performance by the named executives other than the chief
executive officer, the Committee receives recommendations from the chief
executive officer. Individual performance goals that are the primary bases of
the award evaluations may be budgetary, strategic, organizational, operational,
and administrative. Budgetary goals may include, as applicable, sales, revenues,
profits, asset quality, and expense control. In addition, in accordance with the
Plan, the Committee considers other factors, including, for example, the quality
and effectiveness of an executive's response to significant developments
affecting the Company or a line of business during the year (e.g., economic and
competitive events). The Committee, which has discretion over selection of
individual award determination factors, subject to Board review, does not
necessarily weight performance factors in determining the individual portion of
an award, except that the Plan provides that up to half of the individual
portion of the award may be based on subjective considerations. The results of
the Committee's Plan administration are reviewed by the Board of Directors.
In determining the incentive compensation award for Mr. Crozier for 1995,
the Committee and the Board noted the Company's outstanding achievements with
respect to its most important financial, strategic, and organization objectives.
These included, in particular, negotiation of the merger transaction with Bank
of Boston Corporation on terms favorable to BayBanks shareholders. The Committee
cited the Company's superior 1995 earnings performance (as described in the 1995
Annual Report) and the steep ascent of the stock price during the year. It was
noted as well that the strength of 1995 financial performance allowed the
Corporation to increase the quarterly dividend to shareholders from $.45 at year
end 1994 to $.60 per share. The Committee commended also the success of
initiatives to expand geographically into southern New Hampshire, which had been
an important marketing objective realized in 1995 upon consummation of the
acquisitions of NFS Financial Corp. and Cornerstone Financial Corporation and
the integration by year-end of substantially all of their operations into those
of the rest of the Company. The Committee additionally noted the internal
organization restructuring accomplished in 1995, which simplified operations and
positioned the Company for further future consolidation. This included the
merger into one bank of the three banking subsidiaries located in Massachusetts
and Connecticut and the repositioning of non-bank companies as subsidiaries of
that bank. The Committee observed that the Company also sustained and advanced
important product and service initiatives, including significant developments in
the application of electronic banking technology, while continuing to lead in
its consumer market share position and increase its share in other principal
product lines. The Committee concluded that the full amount of the incentive
award for which the chief executive officer was eligible should therefore be
paid.
The Stock Option Plan and the Restricted Stock Plan are administered by the
Stock Option and Corporate Compensation Committees, subject to review by the
Board. These Plans provide longer term incentives intended to attract, motivate,
and retain outstanding individuals as employees of the Corporation and its
subsidiaries and to reward those who make substantial contributions to the
success and welfare of the Corporation to the benefit of the Corporation's
shareholders. They also are intended to align the future interests of the
executives who receive grants under the Plans with the interests of shareholders
and provide compensation that is directly related to enhancements in shareholder
value. Benefits accrue over a number of years, depending on the terms of the
grants: Stock Options become exercisable and restrictions on shares lapse during
a vesting period, providing that the grantee remains in the employ of the
Corporation or a subsidiary. During the vesting period Restricted Stock
recipients are paid dividends on their restricted shares.
In April 1995 the Corporate Compensation and Stock Option Committees made
grants to Mr. Crozier under both the Restricted Stock Plan and the Stock Option
Plan. At that time the Committee reviewed the total compensation paid to the
chief executive officer in the context of the competitive information considered
in establishing his 1995 salary and in the context of organization plans and
strategic issues facing the
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[ALTERNATE BAYBANKS PAGE]
Company. The Committee noted that certain executive officers, the chief
executive officer among them, had not participated in stock option grants made
in 1991 when the stock price was about one-fifth of the April 1995 market price.
They discussed with Mr. Crozier the management challenges facing the Company and
plans for the Company's future, as well as the Committee's expectations
regarding the chief executive's role in ensuring a secure future for the
Company's shareholders and its other important constituencies. They noted the
importance of providing adequate financial incentives for the Company's leader
and concluded that stock plan awards would be of considerable significance in
establishing competitive compensation opportunity at a time when the challenges
facing the Company, including accelerating financial services competition and
banking industry consolidation, were considerable.
Based on information available from external and internal sources, the
Stock Option Committee determined that a grant of 50,000 stock options -- the
same level as the last stock option grant to the chief executive
officer -- would be appropriate. In this regard the Committee reviewed
information provided by its compensation consultant at the time of the last
stock option grant to the chief executive officer and concluded that the factors
considered in establishing the size of that grant remained relevant. The
Committee determined that the grant should expire in six years, rather than the
more typical ten years associated with grants under the Plan, to reflect Mr.
Crozier's age and career plans. The Corporate Compensation Committee, which
administers the Restricted Stock Plan, determined for the reasons cited above
that a grant to Mr. Crozier of 15,000 shares of restricted stock vesting in
equal parts over a three-year period would complement the stock option grant in
ensuring that his financial reward for successful performance would be
commensurate with that of other banking organization leaders similarly situated.
Respectfully submitted,
Glenn P. Strehle, Chairman
John A. Cervieri Jr.
Joseph H. Torras
104
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[ALTERNATE BAYBANKS PAGE]
Five Year Stock Performance Graph. The following graph shows the cumulative
total stockholder return on BayBanks Common Stock (stock price appreciation plus
dividends) over the five-year period ended December 31, 1995, and compares this
return with that of the S&P Composite -- 500 Stock Index and the Dow Jones
Eastern Regional Banks Index.
<TABLE>
<CAPTION>
Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95
<S> <C> <C> <C> <C> <C> <C>
BayBanks Inc. $100 $150 $320 $406 $434 $833
S&P 500 (R) $100 $130 $140 $155 $157 $215
Dow Jones Eastern
Regional Banks Index $100 $185 $266 $279 $269 $460
</TABLE>
105
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[ALTERNATE BAYBANKS PAGE]
<TABLE>
OWNERSHIP OF BAYBANKS COMMON STOCK
The following are the only known beneficial owners of more than 5% of
BayBanks Common Stock as of December 31, 1995:
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
Bank of Boston Corporation........................ 3,938,640 shares(2) 16.7%
100 Federal Street
Boston, MA 02110(1)
Marine Midland Bank and BayBank, N.A.............. 1,277,791 shares(3)(4) 6.5%
Co-Trustees of the BayBanks Savings,
Profit Sharing and Stock Ownership Plan
250 Park Avenue
New York, New York 10177
<FN>
- ---------------
(1) Bank of Boston has filed a Schedule 13D with the Commission reporting the
above stock ownership as of December 21, 1995.
(2) For purposes of this table, Bank of Boston is deemed the beneficial owner of
the 3,907,120 shares of BayBanks Common Stock subject to the Bank of Boston
Option. The Bank of Boston Option may be exercised and shares of BayBanks
Common Stock issued to Bank of Boston in the circumstances described above
under "CERTAIN TERMS OF THE STOCK OPTION AGREEMENTS." As trustee under
trusts established by their customers, certain subsidiary banks of Bank of
Boston have sole or shared voting and investment power over 31,520 of the
shares shown.
(3) BayBank, N.A., 175 Federal Street, Boston Massachusetts 02110, disclaims
beneficial ownership of 578,238 of the shares shown (2.9% of the class).
BayBank, N.A. also is Trustee of the BayBanks Retirement Plan, in which
capacity it has sole investment power with respect to the 405,000 shares of
BayBanks Common Stock held by that Plan (2.1% of the class). As Trustee,
BayBank, N.A. will vote such shares in accordance with applicable standards
of fiduciary responsibility. As trustee under other trusts established by
its customers, BayBank, N.A. shares voting power and has sole or shared
investment power over an additional 23,885 shares of BayBanks Common Stock.
(4) Investment decisions with respect to the shares in the BayBanks, Inc. Common
Stock Fund portion of the Plan are made by the participants in that fund.
Marine Midland Bank, as Co-Trustee, will vote the shares in the Common Stock
Fund in accordance with timely voting instructions received from the
participants in that fund and will vote the shares allocated to
participants' accounts in the ESOP portion of the Plan in accordance with
timely voting instructions received from the ESOP participants. The
Co-Trustee will vote the shares allocated to participants' accounts in the
Common Stock Fund and ESOP portions of the Plan for which timely voting
instructions are not received from participants, as well as the unallocated
shares in the ESOP portion of the Plan, in accordance with applicable
standards of fiduciary responsibility.
</TABLE>
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[ALTERNATE BAYBANKS PAGE]
ACCOUNTANTS
The firm of KPMG Peat Marwick LLP, independent certified public
accountants, has audited the accounts of BayBanks for a number of years and will
do so during 1996. Representatives of KPMG Peat Marwick LLP are expected to be
present at the Annual Meeting, to be available to respond to appropriate
questions, and to have the opportunity to make a statement if they so desire.
STOCKHOLDER PROPOSALS AT 1997 ANNUAL MEETING
It is anticipated that the Merger will occur during 1996, so that there
will be no 1997 Annual Meeting of BayBanks stockholders. However, in the event
that there will be such a meeting, if any stockholder of BayBanks intends to
present a proposal at the meeting and desires that it be considered for
inclusion in BayBanks' proxy statement and form of proxy for the meeting, it
must be received by BayBanks at 175 Federal Street, Boston, Massachusetts 02110,
no later than November 20, 1996. Any proposal to be presented at the 1997 Annual
Meeting also must comply with the requirements, including timing, specified in
BayBanks' By-Laws.
/s/ Ilene Beal
ILENE BEAL, Secretary and Clerk
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 12, 1995, by and among
Bank of Boston Corporation, a Massachusetts corporation ("Parent"), Boston
Merger Corp., a newly incorporated Massachusetts corporation and a wholly owned
subsidiary of Parent ("Merger Sub") and BayBanks, Inc., a Massachusetts
corporation ("Subject Company").
WHEREAS, the Boards of Directors of Parent and Subject Company have
determined that it is in the best interests of their respective companies and
their stockholders to consummate the business combination transaction provided
for herein in which Merger Sub will, subject to the terms and conditions set
forth herein, merge (the "Merger") with and into Subject Company, with Subject
Company becoming a wholly owned subsidiary of Parent, as the surviving
corporation in the Merger; and
WHEREAS, as a condition to, and after the execution of, this Agreement,
Parent and Subject Company are entering into a Parent Stock Option Agreement
(the "Parent Option Agreement") attached hereto as Exhibit A; and
WHEREAS, as a condition to, and after the execution of, this Agreement,
Parent and Subject Company are entering into a Subject Company Stock Option
Agreement (the "Subject Company Option Agreement"; and together with the Parent
Option Agreement, the "Option Agreements") attached hereto as Exhibit B; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also 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
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the Massachusetts Business Corporation Law (the "MBCL"), at the
Effective Time (as defined in Section 1.2 hereof), Merger Sub shall merge with
and into Subject Company. Subject Company shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") in the Merger, and
shall continue its corporate existence under the laws of the Commonwealth of
Massachusetts. Upon consummation of the Merger, the separate corporate existence
of Merger Sub shall terminate.
1.2 Effective Time. The Merger shall become effective as set forth in the
articles of merger (the "Articles of Merger") which shall be submitted for
filing to the Secretary of the Commonwealth pursuant to Section 78(d) of the
MBCL on the Closing Date (as defined in Section 9.1 hereof). The term "Effective
Time" shall be the date and time when the Merger becomes effective, as set forth
in the Articles of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Section 80 of the MBCL.
1.4 Conversion of Subject Company Common Stock. At the Effective Time,
subject to Section 2.2(e) hereof, by virtue of the Merger and without any action
on the part of Parent, Subject Company or the holder of any of the shares of
Subject Company Common Stock (as defined below):
(a) Each share of the common stock, par value $2.00 per share, of Subject
Company (the "Subject Company Common Stock") issued and outstanding immediately
prior to the Effective Time (other than shares of Subject Company Common Stock
held (x) in Subject Company's treasury or (y) directly or indirectly by Parent
or Subject Company or any of their respective Subsidiaries (as defined below)
(except for Trust Account Shares and DPC shares, as such terms are defined
below)) shall be converted into the right to
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receive 2.2 shares (the "Common Exchange Ratio") of the common stock, par value
$2.25 per share, of Parent ("Parent Common Stock").
(b) All of the shares of Subject Company Common Stock converted into Parent
Common Stock pursuant to this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist as of the Effective Time,
and each certificate (each a "Common Certificate") previously representing any
such shares of Subject Company Common Stock shall thereafter represent the right
to receive (i) a certificate representing the number of whole shares of Parent
Common Stock and (ii) cash in lieu of fractional shares into which the shares of
Subject Company Common Stock represented by such Common Certificate have been
converted pursuant to this Section 1.4 and Section 2.2(e) hereof. Common
Certificates previously representing shares of Subject Company Common Stock
shall be exchanged for certificates representing whole shares of Parent Common
Stock and cash in lieu of fractional shares issued in consideration therefor
upon the surrender of such Common Certificates in accordance with Section 2.2
hereof, without any interest thereon. If prior to the Effective Time the
outstanding shares of Parent Common Stock shall have been increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
as a result of a reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar change in Parent's
capitalization, then an appropriate and proportionate adjustment shall be made
to the Common Exchange Ratio.
(c) At the Effective Time, all shares of Subject Company Common Stock that
are owned by Subject Company as treasury stock and all shares of Subject Company
Common Stock that are owned directly or indirectly by Parent or Subject Company
or any of their respective Subsidiaries (other than shares of Subject Company
Common Stock held directly or indirectly in trust accounts, managed accounts and
the like or otherwise held in a fiduciary capacity that are beneficially owned
by third parties, including all shares held by the Subject Company's Savings,
Profit Sharing and Employee Stock Ownership Plan (any such shares, and shares of
Parent Common Stock which are similarly held, whether held directly or
indirectly by Parent or Subject Company, as the case may be, being referred to
herein as "Trust Account Shares") and other than any shares of Subject Company
Common Stock held by Parent or Subject Company or any of their respective
Subsidiaries in respect of a debt previously contracted (any such shares of
Subject Company Common Stock, and shares of Parent Common Stock which are
similarly held, whether held directly or indirectly by Parent or Subject Company
or any of their respective Subsidiaries, being referred to herein as "DPC
Shares")) shall be cancelled and shall cease to exist and no stock of Parent or
other consideration shall be delivered in exchange therefor. All shares of
Parent Common Stock that are owned by Subject Company or any of its Subsidiaries
(other than Trust Account Shares and DPC Shares) shall become treasury stock of
Parent.
(d) Notwithstanding anything in this Agreement to the contrary, shares of
Subject Company Common Stock which are outstanding immediately prior to the
Effective Time, the holders of which shall have delivered to Subject Company a
written demand for appraisal of such shares in the manner provided in the
applicable provisions of the MBCL ("Dissenting Shares"), shall not be converted
into the right to receive, or be exchangeable for, the shares of Parent Common
Stock otherwise issuable in exchange for such shares of Subject Company Common
Stock pursuant to this Section 1.4 but, instead, the holders thereof shall be
entitled to payment of the appraised value of such Dissenting Shares in
accordance with the provisions of the MBCL; provided, however, that (i) if any
holder of Dissenting Shares shall subsequently deliver a written withdrawal of
his demand for appraisal of such shares or (ii) if any holder fails to establish
his entitlement to appraisal rights as provided in Sections 86 through 98 of the
MBCL, such holder or holders (as the case may be) shall forfeit the right to
appraisal of such shares of Subject Company Common Stock and each of such shares
shall thereupon be deemed to have been converted into the right to receive, and
to have become exchangeable for, as of the Effective Time, the shares of Parent
Common Stock otherwise issuable in exchange for such shares of Subject Company
Common Stock pursuant to this Section 1.4, without any interest thereon.
1.5 Merger Sub Common Stock. At and after the Effective Time, each share
of common stock, par value $0.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall become and be converted into one
share of common stock of the Surviving Corporation.
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1.6 Options. (a) At the Effective Time, each option granted by Subject
Company to purchase shares of Subject Company Common Stock which is outstanding
and unexercised immediately prior thereto shall cease to represent a right to
acquire shares of Subject Company Common Stock and shall be converted
automatically into an option to purchase shares of Parent Common Stock in an
amount and at an exercise price determined as provided below (and otherwise, to
the extent not inconsistent with the foregoing, subject to the terms of the
Subject Company Stock Option Plans (as defined in Section 3.2(a)) as set forth
in Section 3.11 of the Subject Company Disclosure Schedule):
(1) The number of shares of Parent Common Stock to be subject to the
new option shall be equal to the product of the number of shares of Subject
Company Common Stock subject to the original option and the Common Exchange
Ratio, provided that any fractional shares of Parent Common Stock resulting
from such multiplication shall be rounded down to the nearest share; and
(2) The exercise price per share of Parent Common Stock under the new
option shall be equal to the exercise price per share of Subject Company
Common Stock under the original option, divided by the Common Exchange
Ratio, provided that such exercise price shall be rounded up to the nearest
cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code")) shall be and is intended to be effected
in a manner which is consistent with Section 424(a) of the Code. The duration
and other terms of the new option shall be the same as the original option,
except that all references to Subject Company shall be deemed to be references
to Parent.
1.7 Articles of Organization. At the Effective Time, the Articles of
Organization of Merger Sub, as in effect at the Effective Time, shall be by
amendment the Articles of Organization of the Surviving Corporation. The name of
the Surviving Corporation shall be the name of the Merger Sub immediately prior
to the Effective Time and its purposes and authorized capital stock shall be
those of Merger Sub as set forth in its Articles of Organization as in effect
immediately prior to the Effective Time.
1.8 Bylaws. At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.9 Tax Consequences. It is intended 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 purposes of
Section 368 of the Code.
1.10 Directors and Officers of the Surviving Corporation. The directors
of Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation from and after the Effective Time, subject to the
rights of Parent as the sole stockholder, each to hold office in accordance with
the Articles of Organization and Bylaws of the Surviving Corporation. The
officers of the Subject Company immediately prior to the Effective Time shall be
the officers of the Surviving Corporation from and after the Effective Time each
to hold office in accordance with the Articles of Organization and Bylaws of the
Surviving Corporation.
1.11 Board of Directors of Parent. From and after the Effective Time, the
Board of Directors of Parent shall be expanded by four members and Mr. Crozier
and three additional members of the Board of Directors of Subject Company shall
be appointed as directors of Parent. Mr. Crozier shall serve as Chairman of
Parent and Mr. Gifford shall serve as Chief Executive Officer and President of
Parent from and after the Effective Time. The representatives, other than Mr.
Crozier, selected by Subject Company to serve as directors of Parent shall be
divided equally among the three classes of directors of Parent and Mr. Crozier
shall be appointed to the class of directors whose term comes up for reelection
in 1999. The representatives selected by the Subject Company to serve as
directors of Parent from and after the Effective Time shall be appointed to such
committees of the Board of Directors of Parent as Messrs. Crozier and Gifford
shall mutually determine at or prior to the Effective Time.
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1.12 Subsidiary Bank Mergers. Parent and Subject Company shall take such
actions as they determine to be mutually desirable to effectuate a merger of the
subsidiary banks of Parent and Subject Company, either immediately before,
concurrently with or following the Effective Time with the objective of
establishing one national bank subsidiary for each state in New England in which
the parties currently have bank subsidiaries and/or a multi-state national bank
subsidiary. The name or names of the bank subsidiaries of Parent in New England
from and after the Effective Time shall be changed to be as follows: (i) the
name of the bank subsidiary located in Massachusetts shall be changed to BayBank
of Boston, N.A.; and (ii) the name of the bank subsidiaries located in other
states shall be changed to BayBank of [state name], N.A. To the extent there is
more than one bank subsidiary in any state, the name of each bank in such state
shall include the phrase "BayBank of Boston" if the state is Massachusetts and
"BayBank of [state name]" with respect to any other state. To the extent that a
multi-state national bank subsidiary is established, such subsidiary bank shall
be named BayBank of Boston, N.A., to the extent the bank includes the
Massachusetts branches of Parent. It is understood that Parent will continue to
use the tradename Bank of Boston for its national relationship business and
international activities.
ARTICLE II
EXCHANGE OF SHARES
2.1 Parent to Make Shares Available. At or prior to the Effective Time,
Parent shall deposit, or shall cause to be deposited, with a bank or trust
company selected by Parent and reasonably acceptable to Subject Company (which
may be a Subsidiary of Parent) (the "Exchange Agent"), for the benefit of the
holders of Certificates, for exchange in accordance with this Article II,
certificates representing the shares of Parent Common Stock and the cash in lieu
of any fractional shares (such cash and certificates for shares of Parent Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section
1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding shares of
Subject Company Common Stock.
2.2 Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event later than five business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing the
shares of Parent Common Stock and the cash in lieu of fractional shares, if any,
into which the shares of Subject Company Common Stock represented by such
Certificate or Certificates shall have been converted pursuant to this
Agreement. Upon proper surrender of a Certificate for exchange and cancellation
to the Exchange Agent, together with such properly completed letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor, as applicable, (i) a certificate representing that
number of whole shares of Parent Common Stock to which such holder of Subject
Company Common Stock shall have become entitled pursuant to the provisions of
Article I hereof, 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 this Article II,
and the Certificate so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on the cash in lieu of fractional shares and unpaid
dividends and distributions, if any, payable to holders of Certificates.
Notwithstanding anything to the contrary contained herein, no certificate
representing Parent Common Stock or cash in lieu of a fractional share interest
shall be delivered to a person who is an Affiliate (as defined in Section 6.5)
of Subject Company unless such Affiliate has theretofore executed and delivered
to Parent the agreement referred to in Section 6.5.
(b) No dividends or other distributions declared after the Effective Time
with respect to Parent Common Stock shall be paid to the holder of any
unsurrendered Certificate until the holder thereof shall surrender such
Certificate in accordance with this Article II. After the surrender of a
Certificate in accordance with this Article II, the record holder thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Parent Common Stock represented by such Certificate.
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(c) If any certificate representing shares of Parent 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, 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 Parent 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 satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Subject Company of the shares of Subject Company Common Stock
which were issued and outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be cancelled and exchanged for
certificates representing shares of Parent Common Stock as provided in this
Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Parent Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder of
Subject Company. In lieu of the issuance of any such fractional share, Parent
shall pay to each former stockholder of Subject Company who otherwise would be
entitled to receive such fractional share an amount in cash determined by
multiplying (i) the average of the closing-sale prices of Parent Common Stock on
the New York Stock Exchange as reported by The Wall Street Journal for the five
trading days immediately preceding the date of the Effective Time by (ii) the
fraction of a share of Parent Common Stock to which such holder would otherwise
be entitled to receive pursuant to Section 1.4 hereto.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Subject Company for twelve months after the Effective Time shall
be paid to Parent. Any stockholders of Subject Company who have not theretofore
complied with this Article II shall thereafter look only to Parent for payment
of the shares of Parent Common Stock, cash in lieu of any fractional shares and
unpaid dividends and distributions on the Parent Common Stock deliverable in
respect of each share of Subject Company Common Stock such stockholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon. Notwithstanding the foregoing, none of Parent, Subject Company, the
Exchange Agent or any other person shall be liable to any former holder of
shares of Subject Company Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may determine is
reasonably necessary as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the shares of Parent Common Stock and
cash in lieu of fractional shares deliverable in respect thereof pursuant to
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUBJECT COMPANY
Subject Company hereby represents and warrants to Parent as follows:
3.1 Corporate Organization. (a) Subject Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. Subject Company has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and 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 or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have a Material Adverse Effect (as defined
below) on Subject Company. As used in this Agreement, the
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term "Material Adverse Effect" means, with respect to Parent, Subject Company or
the Surviving Corporation, as the case may be, a material adverse effect on the
business, results of operations or financial condition of such party and its
Subsidiaries taken as a whole. As used in this Agreement, the word "Subsidiary"
when used with respect to any party means any bank, corporation, partnership or
other organization, whether incorporated or unincorporated, which is
consolidated with such party for financial reporting purposes. Subject Company
is duly registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHC Act") and as a savings and loan holding company
under the Home Owners' Loan Act ("HOLA"). The Articles of Organization and
Bylaws of Subject Company, copies of which have previously been made available
to Parent, are true, complete and correct copies of such documents as in effect
as of the date of this Agreement.
(b) Each Subject Company Subsidiary is (i) duly organized and validly
existing as a bank, corporation or partnership under the laws of its
jurisdiction of organization, (ii) is duly qualified to do business and in good
standing in all jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its business requires it
to be so qualified and in which the failure to be so qualified would have a
Material Adverse Effect on Subject Company, and (iii) has all requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as now conducted.
(c) The minute books of Subject Company accurately reflect in all material
respects all corporate actions held or taken since January 1, 1993 of its
stockholders and Board of Directors (including committees of the Board of
Directors of Subject Company).
3.2 Capitalization. (a) The authorized capital stock of Subject Company
consists of 50,000,000 shares of Subject Company Common Stock and 1,000,000
shares of preferred stock, $10 par value. At the close of business on November
30, 1995 there were 19,633,771 shares of Subject Company Common Stock
outstanding and no shares of Subject Company Preferred Stock outstanding, and
2,899 shares of Subject Company Common Stock held in Subject Company's treasury.
On November 30, 1995, no shares of Subject Company Common Stock or Subject
Company Preferred Stock were reserved for issuance, except that (i) 1,403,503
shares of Subject Company Common Stock were reserved for issuance pursuant to
Subject Company's 1994 Restricted Stock Plan, 1990 Stock Plan for Directors, and
Savings, Profit Sharing and Employee Stock Ownership Plan, (ii) 722,523 shares
of Subject Company Common Stock were reserved for issuance upon the exercise of
stock options pursuant to the 1978 Stock Option Plan, the 1988 Stock Option
Plan, and the NFS Financial Corp. Stock Option Plan (collectively, the "Subject
Company Stock Option Plans"), (iii) 200,000 shares of Subject Company Series A
Junior Participating Preferred Stock were reserved for issuance upon exercise of
the rights (the "Subject Company Rights") distributed to holders of Subject
Company Common Stock pursuant to the Shareholder Rights Agreement, dated as of
December 23, 1988, between Subject Company and The First National Bank of
Boston, as Rights Agent (the "Subject Company Shareholder Rights Agreement"),
and (iv) the shares of Subject Company Common Stock issuable pursuant to the
Subject Company Option Agreement. All of the issued and outstanding shares of
Subject Company 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. As of the date of this Agreement,
except as set forth in Section 3.2(a) of the disclosure schedule of Subject
Company delivered to Parent concurrently herewith (the "Subject Company
Disclosure Schedule") and except for the Subject Company Shareholder Rights
Agreement and the Subject Company Option Agreement, Subject Company does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of Subject Company Common Stock or Subject Company
Preferred Stock or any other equity securities of Subject Company or any
securities representing the right to purchase or otherwise receive any shares of
Subject Company Common Stock or Subject Company Preferred Stock. Subject Company
has previously provided Parent with a list of the option holders, the date of
each option to purchase Subject Company Common Stock granted, the number of
shares subject to each such option, the expiration date of each such option, and
the price at which each such option may be exercised under an applicable Subject
Company Stock Option Plan. Except as set forth in Section 3.2(a) of the Subject
Company Disclosure Schedule, since November 30, 1995, Subject Company has not
issued any shares of its capital stock or any securities convertible into or
exercisable for any shares of
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its capital stock, other than pursuant to the exercise of employee stock options
granted prior to such date and as disclosed in Section 3.2(a) of the Subject
Company Disclosure Schedule, pursuant to the Subject Company Option Agreement
and pursuant to the Subject Company Shareholder Rights Agreement.
(b) Except as set forth in Section 3.2(b) of the Subject Company Disclosure
Schedule, Subject Company owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Subject Company Subsidiaries,
free and clear of any liens, charges, encumbrances and security interests
whatsoever, and all of such shares are 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 as set forth in Section
3.2(b) of the Subject Company Disclosure Schedule, no Subject Company Subsidiary
has or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity security of such Subsidiary
or any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such Subsidiary.
Assuming compliance by Parent with Section 1.6 hereof, at the Effective Time,
there will not be any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character by which Subject Company or any of
its Subsidiaries will be bound calling for the purchase or issuance of any
shares of the capital stock of Subject Company or any of its Subsidiaries.
3.3 Authority; No Violation. (a) Subject Company 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 approved by the Board of Directors of Subject Company. The Board of
Directors of Subject Company has directed that this Agreement and the
transactions contemplated hereby be submitted to Subject Company's stockholders
for approval at a meeting of such stockholders and, except for the adoption of
this Agreement by the affirmative vote of the holders of two-thirds of the
outstanding shares of Subject Company Common Stock, no other corporate
proceedings on the part of Subject Company are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Subject Company and
(assuming due authorization, execution and delivery by Parent) constitutes a
valid and binding obligation of Subject Company, enforceable against Subject
Company 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.
(b) Except as set forth in Section 3.3(b) of the Subject Company Disclosure
Schedule, neither the execution and delivery of this Agreement by Subject
Company nor the consummation by Subject Company of the transactions contemplated
hereby, nor compliance by Subject Company with any of the terms or provisions
hereof, will (i) violate any provision of the Articles of Organization or Bylaws
of Subject Company or (ii) assuming that the consents and approvals referred to
in Section 3.4 are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Subject Company or any of its Subsidiaries or any of their respective properties
or assets, or (y) violate, conflict with, result in a breach of any provision of
or the loss of any benefit under, 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 or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the respective
properties or assets of Subject Company or any of its Subsidiaries under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
Subject Company or any of its Subsidiaries is a party, or by which they or any
of their respective properties or assets may be bound or affected, except (in
the case of clause (y) above) for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, will not have or be
reasonably likely to have a Material Adverse Effect on Subject Company.
3.4 Consents and Approvals. Except for (i) the filing of applications and
notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act and approval of such
applications and notices, (ii) the filing of applications with the Office of the
Thrift Supervision (the "OTS") under HOLA and approval of such applications,
(iii) the filing of any requisite
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applications with the Office of the Comptroller of the Currency (the "OCC"),
(iv) the filing of any required applications or notices with any state agencies
and approval of such applications and notices (the "State Approvals"), (v) the
filing with the SEC of a joint proxy statement in definitive form relating to
the meetings of Parent's and Subject Company's stockholders to be held in
connection with this Agreement and the transactions contemplated hereby (the
"Joint Proxy Statement") and the registration statement on Form S-4 (the "S-4")
in which the Proxy Statement will be included as a prospectus, (vi) the filing
of the Articles of Merger pursuant to the MBCL, (vii) such filings and approvals
as are required to be made or obtained under the securities or "Blue Sky" laws
of various states in connection with the issuance of the shares of Parent Common
Stock pursuant to this Agreement, (viii) such filings as may be required in
connection with a change of control of entities subject to the Investment
Company Act of 1940, (ix) the approval of this Agreement by the requisite vote
of the stockholders of Parent and Subject Company, and (x) the consents and
approvals set forth in Section 3.4 of the Subject Company Disclosure Schedule,
no consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with (A) the execution and delivery by Subject Company
of this Agreement and (B) the consummation by Subject Company of the Merger and
the other transactions contemplated hereby.
3.5 Reports. Subject Company and each of its Subsidiaries have timely
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 1993 with (i) the Federal Reserve Board, (ii) the OTS,
(iii) any state or foreign regulatory authority (each a "State Regulator"), (iv)
the OCC and (v) any other self-regulatory organization ("SRO") (collectively
"Regulatory Agencies"), and all other material reports and statements required
to be filed by them since January 1, 1993, including, without limitation, any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, any state or foreign governmental or
regulatory body, the Federal Reserve Board, the FDIC, the OCC, the OTS, any
State Regulator or any SRO, and have paid all fees and assessments due and
payable in connection therewith. Except for normal examinations conducted by a
Regulatory Agency in the regular course of the business of Subject Company and
its Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the
best knowledge of Subject Company, investigation into the business or operations
of Subject Company or any of its Subsidiaries since January 1, 1994. There is no
material unresolved violation, criticism, or exception by any Regulatory Agency
with respect to any report or statement relating to any examinations of Subject
Company or any of its Subsidiaries.
3.6 Financial Statements. Subject Company has previously delivered to
Parent copies of (a) the consolidated balance sheets of Subject Company and its
Subsidiaries as of December 31, for the fiscal years 1993 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1992 through 1994, inclusive, as reported in
Subject Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994 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
KPMG Peat Marwick LLP, independent public accountants with respect to Subject
Company, and (b) the unaudited consolidated balance sheet of Subject Company and
its Subsidiaries as of September 30, 1994 and September 30, 1995 and the related
unaudited consolidated statements of income, cash flows and changes in
stockholders' equity for the nine month periods then ended as reported in
Subject Company's Quarterly Report on Form 10-Q for the period ended September
30, 1995 filed with the SEC under the Exchange Act. The December 31, 1994
consolidated balance sheet of Subject Company (including the related notes,
where applicable) fairly presents the consolidated financial position of
Subject Company and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 3.6 (including the related
notes, where applicable) fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and changes in stockholders' equity and
consolidated financial position of Subject Company and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth; each
of such statements (including the related notes, where applicable) comply in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto and each of
such statements (including the related notes, where applicable) has been
prepared in accordance with generally accepted accounting principles
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("GAAP") consistently applied during the periods involved, except in each case
as indicated in such statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of
Subject Company and its Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
3.7 Broker's Fees. Except as set forth in Section 3.7 of the Subject
Company Disclosure Schedule, neither Subject Company nor any Subject Company
Subsidiary nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement or the Option Agreements.
3.8 Absence of Certain Changes or Events. (a) Except as publicly
disclosed in Subject Company Reports (as defined below) filed prior to the date
hereof, since December 31, 1994, (i) neither Subject Company nor any of its
Subsidiaries has incurred any material liability, except in the ordinary course
of their business consistent with their past practices, and (ii) no event has
occurred which has had, individually or in the aggregate, a Material Adverse
Effect on Subject Company.
(b) Except as publicly disclosed in Subject Company Reports filed prior to
the date hereof, and except as set forth in Section 3.8(b) of the Subject
Company Disclosure Schedule, since December 31, 1994, Subject Company and its
Subsidiaries have carried on their respective businesses in the ordinary and
usual course consistent with their past practices.
(c) Except as set forth in Section 3.8(c) of the Subject Company Disclosure
Schedule, since December 31, 1994, neither Subject Company nor any of its
Subsidiaries has (i) except for normal increases in the ordinary course of
business consistent with past practice or except as required by applicable law,
increased the wages, salaries, compensation, pension, or other fringe benefits
or perquisites payable to any executive officer, employee, or director from the
amount thereof in effect as of December 31, 1994, granted any severance or
termination pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonus other than customary year-end bonuses for
fiscal 1994 or 1995 or (ii) suffered any strike, work stoppage, slow-down, or
other labor disturbance.
3.9 Legal Proceedings. (a) Neither Subject Company nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best of
Subject Company's knowledge, threatened, material legal, administrative,
arbitral or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Subject Company or any of its Subsidiaries
or challenging the validity or propriety of the transactions contemplated by
this Agreement or the Subject Company Option Agreement 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 Subject Company.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Subject Company, any of its Subsidiaries or the assets
of Subject Company or any of its Subsidiaries which has had, or might reasonably
be expected to have, a Material Adverse Effect on Subject Company.
3.10 Taxes and Tax Returns. (a) Each of Subject Company and its
Subsidiaries has duly filed all material Federal, state and, to the best of
Subject Company's knowledge, material local information returns and tax returns
required to be filed by it on or prior to the date hereof and has duly paid or
made provisions for the payment of all material Taxes (as defined below) and
other material governmental charges which have been incurred or are due or
claimed to be due from it by Federal, state, county or local taxing authorities
on or prior to the date of this Agreement (including, without limitation, if and
to the extent applicable, those due in respect of its properties, income,
business, capital stock, deposits, franchises, licenses, sales and payrolls)
other than Taxes or other charges (1) which are not yet delinquent or are being
contested in good faith and as to which adequate provision for payment has been
made and (2) have not been finally determined. Except as set forth on Section
3.10 of the Subject Company Disclosure Schedule, the income tax returns of
Subject Company and its Subsidiaries have been examined by the Internal Revenue
Service (the "IRS") and any liability with respect thereto has been satisfied
for all years to and including 1990, and no material deficiencies were asserted
as a result of such examination or all such deficiencies were satisfied, except
where the failure to
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do so would not have a Material Adverse Effect on Subject Company. In addition,
(i) proper and accurate amounts have been withheld by Subject Company and its
Subsidiaries from their employees for all prior periods in compliance in all
material respects with the tax withholding provisions of applicable Federal,
state and local laws, except where failure to do so would not have a Material
Adverse Effect on Subject Company, (ii) Federal, state, county and local returns
which are accurate and complete in all material respects have been filed by
Subject Company and its Subsidiaries for all periods for which returns were due
with respect to income tax withholding, Social Security and unemployment taxes,
except where failure to do so would not have a Material Adverse Effect on
Subject Company, (iii) the amounts shown on such Federal, state, local or county
returns to be due and payable have been paid in full or adequate provision
therefor has been included by Subject Company in its consolidated financial
statements, except where failure to do so would not have a Material Adverse
Effect on Subject Company and (iv) there are no Tax liens upon any property or
assets of the Subject Company or its Subsidiaries except liens for current taxes
not yet due.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all federal,
state, county, local, and foreign income, excise, gross receipts, ad valorem,
profits, gains, property, sales, transfer, use, payroll, employment, severance,
withholding, duties, intangibles, franchise, and other taxes, charges, levies or
like assessments together with all penalties and additions to tax and interest
thereon.
(c) Except as set forth in Section 3.10(c) of the Subject Company
Disclosure Schedule, any amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of Subject
Company or any of its affiliates who is a "Disqualified Individual" (as such
term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Subject Company Benefit Plan currently in effect would not be characterized
as an "excess parachute payment" (as such term is defined in Section 280G(b)(1)
of the Code) that would be likely to have a Material Adverse Effect on Subject
Company.
(d) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by Subject Company or any
Subsidiary of Subject Company under any contract, plan, program, arrangement or
understanding would be reasonably likely to have a Material Adverse Effect on
Subject Company.
3.11 Employees. (a) Section 3.11(a) of the Subject Company Disclosure
Schedule sets forth a true and complete list of each material employee benefit
plan, arrangement or agreement that is maintained as of the date of this
Agreement (the "Plans") by Subject Company or any of its Subsidiaries or by any
trade or business, whether or not incorporated (an "ERISA Affiliate"), all of
which together with Subject Company would be deemed a "single employer" within
the meaning of Section 4001 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(b) Subject Company has heretofore delivered to Parent true and complete
copies of each of the Plans and all related documents, including but not limited
to (i) the actuarial report for such Plan (if applicable) for each of the last
two years, and (ii) the most recent determination letter from the Internal
Revenue Service (if applicable) for such Plan.
(c) Except as set forth in Section 3.11(c) of the Subject Company
Disclosure Schedule, (i) each of the Plans has been operated and administered in
all material respects in compliance with applicable laws, including but not
limited to ERISA and the Code, (ii) each of the Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified or may be
amended to preserve its qualification, (iii) with respect to each Plan which is
subject to Title IV of ERISA, the present value of accrued benefits under such
Plan, based upon the actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by such Plan's actuary with respect to such
Plan, did not, as of its latest valuation date, exceed the then current value of
the assets of such Plan allocable to such accrued benefits, (iv) no Plan
provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of Subject
Company, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (w) coverage mandated by applicable
law, (x) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (y)
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deferred compensation benefits accrued as liabilities on the books of Subject
Company, its Subsidiaries or the ERISA Affiliates or (z) benefits the full cost
of which is borne by the current or former employee (or his beneficiary), (v) no
liability under Title IV of ERISA has been incurred by Subject Company, its
Subsidiaries or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to Subject Company, its
Subsidiaries or any ERISA Affiliate of incurring a material liability
thereunder, (vi) no Plan is a "multiemployer pension plan," as such term is
defined in Section 3(37) of ERISA, (vii) all contributions or other amounts
payable by Subject Company or its Subsidiaries as of the Effective Time with
respect to each Plan in respect of current or prior plan years have been paid or
accrued in accordance with generally accepted accounting practices and Section
412 of the Code, (viii) neither Subject Company, its Subsidiaries nor any ERISA
Affiliate has engaged in a transaction with respect to a Plan in connection with
which Subject Company, its Subsidiaries or any ERISA Affiliate could be subject
to either a material civil penalty assessed pursuant to Section 409 or 502(i) of
ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code,
and (ix) to the best knowledge of Subject Company there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Plans or any trusts related thereto.
(d) Except as set forth in Section 3.11(d) of the Subject Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of Subject Company or any of its affiliates from Subject Company or any
of its affiliates under any Subject Company Benefit Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any Subject Company
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefits to any material extent.
3.12 SEC Reports. Subject Company has previously made available to Parent
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since January
1, 1993 by Subject Company with the SEC pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), or the Exchange Act (the "Subject Company
Reports") and prior to the date hereof and (b) communication mailed by Subject
Company to its stockholders since January 1, 1993 and prior to the date hereof,
and no such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. Subject Company has
timely filed all Subject Company Reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Subject Company Reports complied in all material respects
with the published rules and regulations of the SEC with respect thereto.
3.13 Compliance with Applicable Law. Except as disclosed in Section 3.13
of the Subject Company Disclosure Schedule, Subject Company and each of its
Subsidiaries hold, and have at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not in default in any material respect under any, applicable law, statute,
order, rule, regulation, policy and/or guideline of any Governmental Entity
relating to Subject Company or any of its Subsidiaries, except where the failure
to hold such license, franchise, permit or authorization or such noncompliance
or default would not, individually or in the aggregate, have a Material Adverse
Effect on Subject Company, and neither Subject Company nor any of its
Subsidiaries knows of, or has received notice of, any material violations of any
of the above.
3.14 Certain Contracts. (a) Except as set forth in Section 3.14(a) of the
Subject Company Disclosure Schedule, neither Subject Company nor any of its
Subsidiaries is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral) (i) with respect to the employment of
any directors or executive officers of Subject Company (ii) which, upon the
consummation of the transactions contemplated by this Agreement will (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from Parent,
Subject Company, the Surviving Corporation, or any of their respective
Subsidiaries to any officer or employee thereof, (iii)
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which is a material contract (as defined in Item 601(b)(10) of Regulation S-K of
the SEC) to be performed after the date of this Agreement that has not been
filed or incorporated by reference in the Subject Company Reports, (iv) which
materially restricts the conduct of any line of business by Subject Company, (v)
with or to a labor union or guild (including any collective bargaining
agreement), or (vi) (including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan) any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement, or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. Subject Company has
previously delivered to Parent true and correct copies of all employment,
consulting and deferred compensation agreements relating to any director or
executive officer of Subject Company which are in writing and to which Subject
Company or any of its Subsidiaries is a party. Each contract, arrangement,
commitment or understanding of the type described in this Section 3.14(a),
whether or not set forth in Section 3.14(a) of the Subject Company Disclosure
Schedule, is referred to herein as a "Subject Company Contract", and neither
Subject Company nor any of its Subsidiaries knows of, or has received notice of,
any violation of the above by any of the other parties thereto which,
individually or in the aggregate, would have a Material Adverse Effect on
Subject Company.
(b) (i) Each Subject Company Contract is valid and binding and in full
force and effect, (ii) Subject Company and each of its Subsidiaries has in all
material respects performed all obligations required to be performed by it to
date under each Subject Company Contract, except where such noncompliance,
individually or in the aggregate, would not have a Material Adverse Effect on
Subject Company, and (iii) no event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute, a material default on
the part of Subject Company or any of its Subsidiaries under any such Subject
Company Contract, except where such default, individually or in the aggregate,
would not have a Material Adverse Effect on Subject Company.
3.15 Agreements with Regulatory Agencies. Except as set forth in Section
3.15 of the Subject Company Disclosure Schedule, neither Subject Company nor any
of its Subsidiaries is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section 3.15 of the Subject
Company Disclosure Schedule, a "Regulatory Agreement"), any Regulatory Agency or
other Governmental Entity that currently restricts the conduct of its business
or that in any manner relates to its capital adequacy, its credit policies, its
management or its business, nor has Subject Company or any of its Subsidiaries
been advised by any Regulatory Agency or other Governmental Entity that it is
currently considering issuing or requesting any Regulatory Agreement.
3.16 Undisclosed Liabilities. Except for those liabilities that are fully
reflected or reserved against on the December 31, 1994 consolidated balance
sheet of Subject Company and for liabilities incurred in the ordinary course of
business consistent with past practice, since December 31, 1994, neither Subject
Company nor any of its Subsidiaries has incurred any liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due) that, either alone or when combined with all similar
liabilities, has had, or could reasonably be expected to have, a Material
Adverse Effect on Subject Company.
3.17 State Takeover Laws. The Board of Directors of Subject Company has
approved the transactions contemplated by this Agreement and the Option
Agreements such that the provisions of Ch. 110F of the Massachusetts General
Laws and the provisions of the Subject Company's Articles of Organization
relating to special voting requirements for certain business combinations will
not apply to this Agreement or the Option Agreements or any of the transactions
contemplated hereby or thereby.
3.18 Rights Agreement. Subject Company has taken all necessary action so
that the entering into of this Agreement and the Option Agreements, the Merger,
the acquisition of shares pursuant to the Option Agreements and the other
transactions contemplated hereby and thereby do not and will not result in the
grant
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of any rights to any person under the Subject Company Rights Agreement or enable
or require the Subject Company Rights to be exercised, distributed or triggered.
3.19 Pooling of Interests. As of the date of this Agreement, Subject
Company has no reason to believe that the Merger will not qualify as a pooling
of interests for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent hereby represents and warrants to Subject Company as follows:
4.1 Corporate Organization. (a) Parent is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts. Parent has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and 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 or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Parent. Parent is duly registered as
a bank holding company under the BHC Act. The Articles of Organization and
Bylaws of Parent, copies of which have previously been made available to Subject
Company, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement.
(b) Each Parent Subsidiary is (i) duly organized and validly existing as a
bank, corporation or partnership under the laws of its jurisdiction of
organization, (ii) is duly qualified to do business and in good standing in all
jurisdictions (whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have a Material
Adverse Effect on Parent, and (iii) has all requisite corporate power and
authority to own or lease its properties and assets and to carry on its business
as now conducted.
(c) The minute books of Parent accurately reflect in all material respects
all corporate actions held or taken since January 1, 1993 of its stockholders
and Board of Directors (including committees of the Board of Directors of
Parent).
4.2 Capitalization. (a) The authorized capital stock of Parent consists
of (i) 200,000,000 shares of Parent Common Stock, of which as of November 30,
1995, 112,566,642 shares were issued and outstanding and none of which were held
in treasury, (ii) 10,000,000 shares of Preferred Stock, without par value
("Parent Preferred Stock"), of which as of November 30, 1995, (A) 3,393,977
Shares of Adjustable Rate Cumulative Preferred Stock and 1,200,000 shares of
Fixed Rate Cumulative Preferred Stock were issued and outstanding (represented
by 120,000 depository shares) and (B) 200,000 shares were designated and no
shares were issued as outstanding of the Junior Participating Preferred Stock,
Series D, designated pursuant to the Rights Agreement dated as of June 28, 1990
between Parent and The First National Bank of Boston, as Rights Agent (the
"Parent Rights Agreement"). All of the issued and outstanding shares of Parent
Common Stock and Parent 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. As of the date of this
Agreement, except as set forth in Section 4.2(a) of the disclosure schedule of
Parent delivered to Subject Company concurrently herewith (the "Parent
Disclosure Schedule"), and except for the Parent Rights Agreement and the Parent
Option Agreement, Parent does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Parent Common
Stock or Parent Preferred Stock or any other equity securities of Parent or any
securities representing the right to purchase or otherwise receive any shares of
Parent Common Stock or Parent Preferred Stock. As of November 30, 1995,
3,732,000 shares of Parent Common Stock were reserved for issuance pursuant to
outstanding warrants, rights, options and the employee benefit plans set forth
in Section 4.11(a) of the Parent Disclosure Schedule and no shares of Parent
Preferred Stock were reserved for issuance. Except as set forth in Schedule 4.2
of the Parent Disclosure Schedule, since November 30, 1995,
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Parent has not issued or agreed to issue any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock,
other than pursuant to the exercise of employee stock options granted prior to
such date and as disclosed in Section 4.2(a) of the Parent Disclosure Schedule
and pursuant to the Parent Company Option Agreement. The shares of Parent
Capital Stock to be issued pursuant to the Merger will be duly authorized and
validly issued and, at the Effective Time, all such shares will be fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof.
(b) Except as set forth in Section 4.2(b) of the Parent Disclosure
Schedule, Parent owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the Parent Subsidiaries, free and clear of
any liens, charges, encumbrances and security interests whatsoever, and all of
such shares are 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 as set forth in Section 4.2(b) of the
Parent Disclosure Schedule, no Parent Subsidiary has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of capital
stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
4.3 Authority; No Violation. (a) Parent 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 approved by the Board of Directors of Parent. The Board of Directors of
Parent has directed that this Agreement and the transactions contemplated hereby
be submitted to Parent's stockholders for approval at a meeting of such
stockholders and except for the adoption of this Agreement by the affirmative
vote of the holders of a majority of the shares of Parent Common Stock present
and voting at the meeting of stockholders of Parent at which the Merger is voted
upon as required under the rules and regulations of the NYSE, no other corporate
proceedings on the part of Parent are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Parent and (assuming due authorization,
execution and delivery by Subject Company) constitutes a valid and binding
obligation of Parent, enforceable against Parent 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.
(b) Except as set forth in Section 4.3(b) of the Parent Disclosure
Schedule, neither the execution and delivery of this Agreement by Parent, nor
the consummation by Parent of the transactions contemplated hereby, nor
compliance by Parent with any of the terms or provisions hereof, will (i)
violate any provision of the Articles of Organization or Bylaws of Parent or
(ii) assuming that the consents and approvals referred to in Section 4.4 are
duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Parent or any of its
Subsidiaries or any of their respective properties or assets, or (y) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, 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 or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Parent or any of
its Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Parent or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound or
affected, except (in the case of clause (y) above) for such violations,
conflicts, breaches or defaults which either individually or in the aggregate
will not have or be reasonably likely to have a Material Adverse Effect on
Parent.
4.4 Consents and Approvals. Except for (i) the filing of applications and
notices, as applicable, with the Federal Reserve Board under the BHC Act and
approval of such applications and notices, (ii) the filing of applications with
the OTS under HOLA and approval of such applications, (iii) the filing of any
requisite applications with the OCC, (iv) the filing of the State Approvals, (v)
the filing with the SEC of the Joint Proxy Statement and the S-4, (vi) the
filing of the Articles of Merger pursuant to the MBCL, (vii) such filings and
approvals as are required to be made or obtained under the securities or "Blue
Sky" laws of various
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states in connection with the issuance of the shares of Parent Common Stock
pursuant to this Agreement, (viii) such filings and approvals as may be required
in connection with a change of control of entities subject to the Investment
Company Act of 1940, and (ix) the approval of this Agreement by the requisite
vote of the stockholders of Parent and Subject Company, no consents or approvals
of or filings or registrations with any Governmental Entity or with any third
party are necessary in connection with (A) the execution and delivery by Parent
of this Agreement and (B) the consummation by Parent of the Merger and the other
transactions contemplated hereby.
4.5 Reports. Parent and each of its Subsidiaries have timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
January 1, 1993 with the Regulatory Agencies, and all other material reports and
statements required to be filed by them since January 1, 1993, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state or foreign
governmental or regulatory body, the Federal Reserve Board, the FDIC, the OCC,
the OTS, any State Regulator or any SRO, and have paid all fees and assessments
due and payable in connection therewith. Except for normal examinations
conducted by a Regulatory Agency in the regular course of the business of Parent
and its Subsidiaries, no Regulatory Agency has initiated any proceeding or, to
the best knowledge of Parent, investigation into the business or operations of
Parent or any of its Subsidiaries since January 1, 1994. There is no material
unresolved violation, criticism, or exception by any Regulatory Agency with
respect to any report or statement relating to any examinations of Parent or any
of its Subsidiaries.
4.6 Financial Statements. Parent has previously delivered to Subject
Company copies of (a) the consolidated balance sheets of Parent and its
Subsidiaries as of December 31, for the fiscal years 1993 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1992 through 1994, inclusive, as reported in
Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1994
filed with the SEC under the Exchange Act, in each case accompanied by the audit
report of Coopers & Lybrand LLP, independent public accountants with respect to
Parent, and (b) the unaudited consolidated balance sheet of Parent and its
Subsidiaries as of September 30, 1994 and September 30, 1995 and the related
unaudited consolidated statements of income, cash flows and changes in
stockholders' equity for the nine month periods then ended as reported in
Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1995
filed with the SEC under the Exchange Act. The December 31, 1994 consolidated
balance sheet of Parent (including the related notes, where applicable) fairly
presents the consolidated financial position of Parent and its Subsidiaries as
of the date thereof, and the other financial statements referred to in this
Section 4.6 (including the related notes, where applicable) fairly present
(subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount), the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of Parent and its Subsidiaries for the respective fiscal periods or as
of the respective dates therein set forth; each of such statements (including
the related notes, where applicable) comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto; 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 in each case as
indicated in such statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of Parent
and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
4.7 Broker's Fees. Except as set forth in Section 4.7 of the Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement or the Option
Agreements.
4.8 Absence of Certain Changes or Events. (a) Except as publicly
disclosed in Parent Reports (as defined below) filed prior to the date hereof,
since December 31, 1994, (i) neither Parent nor any of its Subsidiaries has
incurred any material liability, except in the ordinary course of their business
consistent with
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their past practices, and (ii) no event has occurred which has had, individually
or in the aggregate, a Material Adverse Effect on Parent.
(b) Except as publicly disclosed in Parent Reports filed prior to the date
hereof, and except as set forth in Section 4.8(b) of the Parent Disclosure
Schedule, since December 31, 1994, Parent and its Subsidiaries have carried on
their respective businesses in the ordinary and usual course consistent with
their past practices.
(c) Except as set forth in Section 4.8(c) of the Parent Disclosure
Schedule, since December 31, 1994, neither Parent nor any of its Subsidiaries
has (i) except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law, increased
the wages, salaries, compensation, pension, or other fringe benefits or
perquisites payable to any executive officer, employee, or director from the
amount thereof in effect as of December 31, 1994, granted any severance or
termination pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonus other than customary year-end bonuses for
fiscal 1994 or 1995 or (ii) suffered any strike, work stoppage, slow-down, or
other labor disturbance.
4.9 Legal Proceedings. (a) Neither Parent nor any of its Subsidiaries is
a party to any and there are no pending or, to the best of Parent's knowledge,
threatened, material legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against Parent or any of its Subsidiaries or challenging the validity or
propriety of the transactions contemplated by this Agreement or the Parent
Option Agreement 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 Parent.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Parent, any of its Subsidiaries or the assets of Parent
or any of its Subsidiaries which has had, or might reasonably be expected to
have, a Material Adverse Effect on Parent or the Surviving Corporation.
4.10 Taxes and Tax Returns. (a) Each of Parent and its Subsidiaries has
duly filed all material Federal, state and, to the best of Parent's knowledge,
material local information returns and tax returns required to be filed by it on
or prior to the date hereof and has duly paid or made provisions for the payment
of all material Taxes (as defined below) and other material governmental charges
which have been incurred or are due or claimed to be due from it by Federal,
state, county or local taxing authorities on or prior to the date of this
Agreement (including, without limitation, if and to the extent applicable, those
due in respect of its properties, income, business, capital stock, deposits,
franchises, licenses, sales and payrolls) other than Taxes or other charges (1)
which are not yet delinquent or are being contested in good faith and as to
which adequate provision for payment has been made and (2) have not been finally
determined. Except as set forth on Section 4.10 of the Parent Company Disclosure
Statement, the income tax returns of Parent and its Subsidiaries have been
examined by the Internal Revenue Service (the "IRS") and any liability with
respect thereto has been satisfied for all years to and including 1990, and no
material deficiencies were asserted as a result of such examination or all such
deficiencies were satisfied, except where the failure to do so would not have a
Material Adverse Effect on Parent. In addition, (i) proper and accurate amounts
have been withheld by Parent and its Subsidiaries from their employees for all
prior periods in compliance in all material respects with the tax withholding
provisions of applicable Federal, state and local laws, except where failure to
do so would not have a Material Adverse Effect on Parent, (ii) Federal, state,
county and local returns which are accurate and complete in all material
respects have been filed by Parent and its Subsidiaries for all periods for
which returns were due with respect to income tax withholding, Social Security
and unemployment taxes, except where failure to do so would not have a Material
Adverse Effect on Parent, (iii) the amounts shown on such Federal, state, local
or county returns to be due and payable have been paid in full or adequate
provision therefor has been included by Parent in its consolidated financial
statements, except where failure to do so would not have a Material Adverse
Effect on Parent and (iv) there are no Tax liens upon any property or assets of
the Parent or its Subsidiaries except liens for current taxes not yet due.
(b) Any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of Parent or any of its
affiliates who is a "Disqualified Individual" (as such term is defined in
proposed Treasury
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Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Parent Benefit Plan currently in
effect would not be characterized as an "excess parachute payment" (as such term
is defined in Section 280G(b)(1) of the Code) that would be likely to have a
Material Adverse Effect on Parent.
(c) No disallowance of a deduction under Section 162(m) of the Code for
employee remuneration of any amount paid or payable by Parent or any Subsidiary
of Subject Company under any contract, plan, program, arrangement or
understanding would be reasonably likely to have a Material Adverse Effect on
Parent.
4.11 Employees. (a) Section 4.11(a) of the Parent Disclosure Schedule
sets forth a true and complete list of each material employee benefit plan,
arrangement or agreement that is maintained as of the date of this Agreement
(the "Parent Plans") by Parent, any of its Subsidiaries or by any trade or
business; whether or not incorporated (a "Parent ERISA Affiliate"), all of which
together with Parent would be deemed a "single employer" within the meaning of
Section 4001 of ERISA.
(b) Parent has heretofore delivered to Subject Company true and complete
copies of each of the Parent Plans and all related documents, including but not
limited to (i) the actuarial report for such Parent Plan (if applicable) for
each of the last two years, and (ii) the most recent determination letter from
the Internal Revenue Service (if applicable) for such Parent Plan.
(c) Except as set forth in Section 4.11(c) of the Parent Disclosure
Schedule, (i) each of the Parent Plans has been operated and administered in all
material respects in compliance with applicable laws, including but not limited
to ERISA and the Code, (ii) each of the Parent Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified or may be
amended to preserve its qualification, (iii) with respect to each Parent Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such Parent Plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such Parent Plan's
actuary with respect to such Parent Plan, did not, as of its latest valuation
date, exceed the then current value of the assets of such Parent Plan allocable
to such accrued benefits, (iv) no Parent Plan provides benefits, including
without limitation death or medical benefits (whether or not insured), with
respect to current or former employees of Parent, its Subsidiaries or any Parent
ERISA Affiliate beyond their retirement or other termination of service, other
than (w) coverage mandated by applicable law, (x) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (y) deferred compensation benefits accrued as liabilities on the
books of Parent, its Subsidiaries or the Parent ERISA Affiliates or (z) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary), (v) no liability under Title IV of ERISA has been incurred by
Parent, its Subsidiaries or any Parent ERISA Affiliate that has not been
satisfied in full, and no condition exists that presents a material risk to
Parent, its Subsidiaries or any Parent ERISA Affiliate of incurring a material
liability thereunder, (vi) no Parent Plan is a "multiemployer pension plan", as
such term is defined in Section 3(37) of ERISA, (vii) all contributions or other
amounts payable by Parent or its Subsidiaries as of the Effective Time with
respect to each Parent Plan in respect of current or prior plan years have been
paid or accrued in accordance with generally accepted accounting practices and
Section 412 of the Code, (viii) neither Parent, its Subsidiaries nor any Parent
ERISA Affiliate has engaged in a transaction with respect to a Parent Plan in
connection with which Parent, its Subsidiaries or any Parent ERISA Affiliate
could be subject to either a material civil penalty assessed pursuant to Section
409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or
4976 of the Code, and (ix) to the best knowledge of Parent there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Parent Plans or any trusts related thereto.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of Parent or any of its affiliates from Parent or any of its affiliates
under any Parent Benefit Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any Parent Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any such benefits to any
material extent.
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4.12 SEC Reports. Parent has previously made available to Subject Company
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since January
1, 1993 by Parent with the SEC pursuant to the Securities Act or the Exchange
Act (the "Parent Reports") and prior to the date hereof and (b) communication
mailed by Parent to its stockholders since January 1, 1993 and prior to the date
hereof, and no such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. Parent has timely filed
all Parent Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Parent Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
4.13 Compliance with Applicable Law. Except as disclosed in Section 4.13
of the Parent Disclosure Schedule, Parent and each of its Subsidiaries hold, and
have at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
material respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to Parent or any of
its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default would not, individually
or in the aggregate, have a Material Adverse Effect on Parent, and neither
Parent nor any of its Subsidiaries knows of, or has received notice of, any
material violations of any of the above.
4.14 Certain Contracts. (a) Except as set forth in Section 4.14(a) of the
Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors or
executive officers of Parent (ii) which, upon the consummation of the
transactions contemplated by this Agreement will (either alone or upon the
occurrence of any additional acts or events) result in any payment (whether of
severance pay or otherwise) becoming due from Parent, Subject Company, the
Surviving Corporation, or any of their respective Subsidiaries to any officer or
employee thereof, (iii) which is a material contract (as defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the Parent
Reports, (iv) which materially restricts the conduct of any line of business by
Parent, (v) with or to a labor union or guild (including any collective
bargaining agreement) or (vi) (including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan) any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. Parent has previously delivered to Subject Company true correct
copies of all employment, consulting and deferred compensation agreements
relating to any director or executive officer of Parent which are in writing and
to which Parent or any of its Subsidiaries is a party. Each contract,
arrangement, commitment or understanding of the type described in this Section
4.14(a), whether or not set forth in Section 4.14(a) of the Parent Disclosure
Schedule, is referred to herein as a "Parent Contract", and neither Parent nor
any of its Subsidiaries knows of, or has received notice of, any violation of
the above by any of the other parties thereto which, individually or in the
aggregate, would have a Material Adverse Effect on Parent.
(b) (i) Each Parent Contract is valid and binding and in full force and
effect, (ii) Parent and each of its Subsidiaries has in all material respects
performed all obligations required to be performed by it to date under each
Parent Contract, except where such noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect on Parent, and (iii) no
event or condition exists which constitutes or, after notice or lapse of time or
both, would constitute, a material default on the part of Parent or any of its
Subsidiaries under any such Parent Contract, except where such default,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent.
4.15 Agreements with Regulatory Agencies. Except as set forth in Section
4.15 of the Parent Disclosure Schedule, neither Parent nor any of its
Subsidiaries is subject to any cease-and-desist or other order
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issued by, or is a party to any written agreement, consent agreement or
memorandum of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any board
resolutions at the request of (each, whether or not set forth in Section 4.15 of
the Parent Disclosure Schedule, a "Parent Regulatory Agreement"), any Regulatory
Agency or other Governmental Entity that currently restricts the conduct of its
business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has Parent or any of its
Subsidiaries been advised by any Regulatory Agency or other Governmental Entity
that it is currently considering issuing or requesting any Regulatory Agreement.
4.16 Undisclosed Liabilities. Except for those liabilities that are fully
reflected or reserved against on the December 31, 1994 consolidated balance
sheet of Parent and for liabilities incurred in the ordinary course of business
consistent with past practice, since December 31, 1994, neither Parent nor any
of its Subsidiaries has incurred any liability of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
that, either alone or when combined with all similar liabilities, has had, or
could reasonably be expected to have, a Material Adverse Effect on Parent.
4.17 State Takeover Laws. The Board of Directors of Parent has approved
the transactions contemplated by this Agreement and the Option Agreements such
that the provisions of Ch. 110F of the Massachusetts General Laws will not apply
to this Agreement or the Option Agreements or any of the transactions
contemplated hereby or thereby.
4.18 Rights Agreement. Parent has taken all necessary action so that the
entering into of this Agreement and the Option Agreements, the Merger, the
acquisition of shares pursuant to the Option Agreements and the other
transactions contemplated hereby and thereby do not and will not result in the
grant of any rights to any person under the Parent Rights Agreement or enable or
require the Parent Rights to be exercised, distributed or triggered.
4.19 Pooling of Interests. As of the date of this Agreement, Parent has
no reason to believe that the Merger will not qualify as a pooling of interests
for accounting purposes.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. During the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated or permitted by this Agreement or the Option Agreements, each of
Parent and Subject Company shall, and shall cause each of their respective
Subsidiaries to, (i) conduct its business in the usual, regular and ordinary
course consistent with past practice, (ii) use reasonable best efforts to
maintain and preserve intact its business organization, employees and
advantageous business relationships and retain the services of its officers and
key employees and (iii) take no action which would materially adversely affect
or materially delay the ability of either Parent or Subject Company to obtain
any necessary approvals of any Regulatory Agency or other governmental authority
required for the transactions contemplated hereby or to perform its covenants
and agreements under this Agreement or the Option Agreements.
5.2 Subject Company Forbearances. During the period from the date of this
Agreement to the Effective Time, except as set forth in Section 5.2 of the
Subject Company Disclosure Schedule and, except as expressly contemplated or
permitted by this Agreement or the Option Agreements, Subject Company shall not,
and Subject Company shall not permit any of its Subsidiaries to, without the
prior written consent of Parent:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness
of Subject Company or any of its Subsidiaries to Subject Company or any of
its Subsidiaries; it being understood and agreed that incurrence of
indebtedness in the ordinary course of business shall include, without
limitation, the creation of deposit liabilities, purchases of federal
funds,
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sales of certificates of deposit and entering into repurchase agreements),
assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or
other entity, or make any loan or advance;
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend or make any other distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or grant any stock
appreciation rights or grant any individual, corporation or other entity
any right to acquire any shares of its capital stock (except for regular
quarterly cash dividends at a rate not in excess of $0.60 per share of
Subject Company Common Stock and except for dividends paid by any of the
wholly owned Subsidiaries of Subject Company to Subject Company or any of
its wholly owned Subsidiaries); or issue or sell any additional shares of
capital stock except pursuant to (A) the exercise of stock options or
warrants outstanding as of the date of this Agreement, (B) the Subject
Company Option Agreement, or (C) the Subject Company Shareholder Rights
Agreement;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity
other than a direct or indirect wholly owned Subsidiary, or cancel, release
or assign any indebtedness to any such person or any claims held by any
such person, except in the ordinary course of business consistent with past
practice or pursuant to contracts or agreements in force at the date of
this Agreement;
(d) except for transactions in the ordinary course of business
consistent with past practice, make any material investment either by
purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other individual,
corporation or other entity other than a wholly owned Subsidiary thereof;
(e) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any material
contract or agreement, or make any change in any of its material leases or
contracts, other than renewals of contracts and leases without material
adverse changes of terms;
(f) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or become a party to,
amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee other than in the ordinary course of business
consistent with past practice or accelerate the vesting of any stock
options or other stock-based compensation;
(g) solicit, encourage or authorize any individual, corporation or
other entity to solicit from any third party any inquiries or proposals
relating to the disposition of its business or assets, or the acquisition
of its voting securities, or the merger of it or any of its Subsidiaries
with any corporation or other entity other than as provided by this
Agreement (and Subject Company shall promptly notify Parent of all of the
relevant details relating to all inquiries and proposals which it may
receive relating to any of such matters);
(h) settle any claim, action or proceeding, except in the ordinary
course of business consistent with past practice;
(i) take any action that 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; provided,
however, that nothing contained herein shall limit the ability of Subject
Company to exercise its rights under the Parent Option Agreement;
(j) amend its Articles of Organization or its Bylaws; or
(k) 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;
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(l) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Merger set
forth in Article VII not being satisfied or in a violation of any provision
of this Agreement, except, in every case, as may be required by applicable
law; or
(m) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.2.
5.3 Parent Forbearances. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated or permitted
by this Agreement or the Parent Option Agreement, Parent shall not, and shall
not permit any of its Subsidiaries to, without the prior written consent of
Subject Company:
(a) reclassify any of its capital stock or make, declare, or pay any
dividend or make any other distribution on, any shares of its capital stock
or any securities or obligations, convertible into or exchangeable for any
shares of its capital stock (except for regular quarterly cash dividends on
the Parent Common Stock at a rate not in excess of such rate as Parent from
time to time adopts as its regular quarterly dividend rate, ordinary
quarterly or semiannual cash dividends on the Parent Preferred Stock at the
rates set forth in the Parent Articles of Organization and except for
dividends paid by any of its wholly owned Subsidiaries or any of their
wholly owned Subsidiaries);
(b) take any action that 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; provided,
however, that nothing contained herein shall limit the ability of Parent to
exercise its rights under the Subject Company Option Agreement;
(c) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions of the Merger set
forth in Article VII of this Agreement not being satisfied or in a
violation of any provision of this Agreement;
(d) take any action that would materially adversely affect or
materially delay its ability to obtain any necessary approvals of any
Regulatory Agency or other governmental authority required for the
transactions contemplated hereby or to perform its covenants and agreements
under this Agreement or the Parent Option Agreement;
(e) amend its Articles of Organization except with respect to the
establishment of one or more series of preferred stock or to increase its
capital stock to up to 300,000,000 shares of Parent Common Stock and change
the par value of the Parent Common Stock; or
(f) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.3.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters. (a) Parent and Subject Company shall promptly
prepare and file with the SEC the Joint Proxy Statement and Parent shall
promptly prepare and file with the SEC the S-4, in which the Joint Proxy
Statement will be included as a prospectus. Each of Parent and Subject Company
shall use all reasonable efforts to have the S-4 declared effective under the
Securities Act as promptly as practicable after such filing, and Parent and
Subject Company shall thereafter mail the Joint Proxy Statement to their
respective stockholders. Parent 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 Subject
Company shall furnish all information concerning Subject Company and the holders
of Subject Company Common Stock as may be reasonably requested in connection
with any such action.
(b) The parties hereto shall cooperate with each other and use their best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly
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as practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the transactions contemplated by this Agreement (including without limitation
the Merger), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Entities. Parent
and Subject Company 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
Subject Company or Parent, as the case may be, and any of their respective
Subsidiaries, which appear in any filing made with, or written materials
submitted to, any third party or any Governmental Entity 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 Governmental Entities 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.
(c) Parent and Subject Company 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 Joint Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Parent, Subject
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Parent and Subject Company shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval will not be obtained or that
the receipt of any such approval will be materially delayed.
6.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, each of Parent and
Subject Company shall, and shall cause each of their respective Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the other party, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Parent and Subject
Company shall, and shall cause their respective Subsidiaries to, make available
to the other party (i) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of Federal securities laws or Federal or state banking laws,
savings and loan or savings association laws (other than reports or documents
which Parent or Subject Company, as the case may be, is not permitted to
disclose under applicable law) and (ii) all other information concerning its
business, properties and personnel as such party may reasonably request. Neither
Parent nor Subject Company 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 Parent's or Subject
Company's, as the case may be, customers, jeopardize the attorney-client
privilege of the institution in possession or control of such information or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior to the date of this Agreement. The parties
hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
(b) Each of Parent and Subject Company shall hold all information furnished
by the other party or any of such party's Subsidiaries or representatives
pursuant to Section 6.2(a) in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement, dated December
5, 1995 between Parent and Subject Company (the "Confidentiality Agreement").
(c) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein.
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6.3 Stockholders' Approvals. Each of Parent and Subject Company shall
call a meeting of its stockholders (which may be its 1996 Annual Meeting) to be
held as soon as practicable for the purpose of voting upon the requisite
stockholder approvals required in connection with this Agreement and the Merger,
and each shall use its best efforts to cause such meetings to occur on the same
date. The Boards of Directors of Parent and Subject Company shall recommend such
approval to their respective stockholders.
6.4 Legal Conditions to Merger. Each of Parent and Subject Company shall,
and shall cause its Subsidiaries to, use their best efforts (a) to take, or
cause to be taken, all actions necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party or its
Subsidiaries with respect to the Merger and, subject to the conditions set forth
in Article VII hereof, to consummate the transactions contemplated by this
Agreement and (b) to obtain (and to cooperate with the other party to obtain)
any consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party which is required to be obtained
by Subject Company or Parent or any of their respective Subsidiaries in
connection with the Merger and the other transactions contemplated by this
Agreement.
6.5 Affiliates; Publication of Combined Financial Results. (a) Each of
Parent and Subject Company shall use its best efforts to cause each director,
executive officer and other person who is an "affiliate" (for purposes of Rule
145 under the Securities Act and for purposes of qualifying the Merger for
"pooling-of-interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, and
prior to the date of the stockholders meetings called by Parent and Subject
Company to approve this Agreement, a written agreement, in the form of Exhibit
6.5(a) hereto (in the case of affiliates of Subject Company) or Exhibit 6.5(b)
hereto (in the case of affiliates of Parent).
(b) Parent shall use its best efforts to publish no later than ninety (90)
days after the end of the first month after the Effective Time in which there
are at least thirty (30) days of post-Merger combined operations (which month
may be the month in which the Effective Time occurs), combined sales and net
income figures as contemplated by and in accordance with the terms of SEC
Accounting Series Release No. 135.
6.6 Stock Exchange Listing. Parent shall use its best efforts to cause
the shares of Parent Common Stock to be issued in the Merger to be approved for
listing on the New York Stock Exchange, Inc. (the "NYSE"), subject to official
notice of issuance, prior to the Effective Time.
6.7 Employee Benefit Plans. (a) From and after the Effective Time and
through the last day of the calendar year in which the Effective Time occurs,
and subject to applicable law, Parent shall continue Subject Company's Plans as
in effect at the Effective Time. From and after such date, and subject to
applicable law, Parent shall provide to the employees of Parent and its
Subsidiaries who formerly were employees of Subject Company and its Subsidiaries
employee benefits, including but not limited to pension plans, thrift plans,
management incentive plans, group life plans, accidental death and dismemberment
plans, travel accident plans, medical and hospitalization plans and long term
disability plans, substantially the same as those provided to similarly situated
employees of Parent and its Subsidiaries. From and after the Effective Time,
employees of Parent or its Subsidiaries who were employees of the Subject
Company and its Subsidiaries immediately prior to the Effective Time shall
receive full credit for all purposes under such plans, including, without
limitation, for purposes of determining participation levels in a cash balance,
retiree medical or similar plan, but not for the accrual of benefits, for their
years of service prior to the Effective Time with the Subject Company or any of
its Subsidiaries (and any predecessors thereto) and all preexisting conditions
to which any such employees are subject shall be waived under the welfare plans
of Parent and its Subsidiaries.
(b) Parent agrees to honor in accordance with their terms (i) all Plans and
(ii) all contracts, arrangements, commitments, or understandings described in
Section 3.14(a)(i) disclosed on the Subject Company Disclosure Schedule and
(iii) all benefits vested thereunder as of the Effective Time; provided,
however, that nothing in this sentence shall be interpreted as preventing Parent
from amending, modifying or terminating any Plans, contracts, arrangements,
commitments or understandings, in accordance with their terms. Notwithstanding
the foregoing, Parent agrees to recognize compensation paid by Parent or its
Affiliates
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on and after the Effective Time in determining benefits attributable to Subject
Company's defined benefit retirement plan, and any excess or supplemental
retirement plan as in effect at the Effective Time.
(c) The provisions of this Section 6.7 respecting Parent's agreement (i) to
grant service credits as provided in Section 6.7(a) and (ii) to honor the
contracts, arrangements, commitments and understandings referred to Section
6.7(b)(ii) are intended to be for the benefit of and enforceable by the persons
referred to therein or the parties to these agreements, respectively, and their
heirs and representatives.
6.8 Indemnification; Directors' and Officers' Insurance. (a) In the event
of any threatened or actual claim, action, suit, proceeding or investigation,
whether civil, criminal or administrative, including, without limitation, any
such claim, action, suit, proceeding or investigation in which any person who is
now, or has been at any time prior to the date of this Agreement, or who becomes
prior to the Effective Time, a director or officer or employee of Subject
Company or any of its Subsidiaries (the "Indemnified Parties") is, or is
threatened to be, made a party based in whole or in part on, or arising in whole
or in part out of, or pertaining to (i) the fact that he is or was a director,
officer or employee of Subject Company, any of the Subject Company Subsidiaries
or any of their respective predecessors or (ii) this Agreement, the Option
Agreements or any of the transactions contemplated hereby or thereby, whether in
any case asserted or arising before or after the Effective Time, the parties
hereto agree to cooperate and use their best efforts to defend against and
respond thereto. It is understood and agreed that after the Effective Time,
Parent shall indemnify and hold harmless, as and to the fullest extent permitted
by law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted of arising before or after the Effective Time), the Indemnified Parties
may retain counsel reasonably satisfactory to them after consultation with
Parent; provided, however, that (1) Parent shall have the right to assume the
defense thereof and upon such assumption Parent shall not be liable to any
Indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Parent elects not to assume such defense or counsel for
the Indemnified Parties reasonably advises the Indemnified Parties that there
are issues which raise conflicts of interest between Parent and the Indemnified
Parties, the Indemnified Parties may retain counsel reasonably satisfactory to
them after consultation with Parent, and Parent shall pay the reasonable fees
and expenses of such counsel for the Indemnified Parties, (2) Parent shall be
obligated pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties, (3) Parent shall not be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld) and (4) Parent shall have no obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final and nonappealable, that
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law. Any Indemnified Party wishing to claim
Indemnification under this Section 6.8, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify Parent thereof, provided that
the failure to so notify shall not affect the obligations of Parent under this
Section 6.8 except to the extent such failure to notify materially prejudices
Parent. Parent's obligations under this Section 6.8 continue in full force and
effect for a period of six (6) years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claim (a "Claim") asserted
or made within such period shall continue until the final disposition of such
Claim.
(b) Parent shall use its best efforts to cause the persons serving as
officers and directors of Subject Company immediately prior to the Effective
Time to be covered for a period of four (4) years from the Effective Time by the
directors' and officers' liability insurance policy maintained by Subject
Company (provided that Parent may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are not less
advantageous than such policy) with respect to acts or omissions occurring prior
to the Effective Time which were committed by such officers and directors in
their capacity as such; provided, however, that in no event shall Parent be
required to expend more than 200% of the current
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amount expended by Subject Company (the "Insurance Amount") per year of coverage
to maintain or procure insurance coverage pursuant hereto and further provided
that if Parent is unable to maintain or obtain the insurance called for by this
Section 6.8(b), Parent shall use its best efforts to obtain as much comparable
insurance as available for the Insurance Amount.
(c) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent
assume the obligations set forth in this section.
(d) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives, and nothing herein shall affect any indemnification rights that
any Indemnified Party and his or her heirs and representatives may have under
the charter or bylaws of the Subject Company or any of its Subsidiaries, any
contract or applicable law.
6.9 Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement (including, without limitation, any merger between a Subsidiary of
Parent and a Subsidiary of Subject Company) or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of any of the parties to the Merger, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by, and at
the sole expense of, Parent.
6.10 Advice of Changes. Parent and Subject Company shall promptly advise
the other party 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.
6.11 Dividends. After the date of this Agreement, each of Parent and
Subject Company shall coordinate with the other the declaration of any dividends
in respect of Parent Common Stock and Subject Company Common Stock and the
record dates and payment dates relating thereto, it being the intention of the
parties hereto that holders of Parent Common Stock or Subject Company Common
Stock shall not receive two dividends, or fail to receive one dividend, for any
single calendar quarter with respect to their shares of Parent Common Stock
and/or Subject Company Common Stock and any shares of Parent Common Stock any
such holder receives in exchange therefor in the Merger.
6.12 Gains Taxes. Subject Company and its Subsidiaries shall pay all
state or local taxes, if any (collectively, the "Gains Taxes"), attributable to
the transfer of the beneficial ownership of Subject Company's and its
Subsidiaries' real properties, and any penalties or interest with respect
thereto, payable in connection with the consummation of the Merger. Subject
Company and its Subsidiaries shall cooperate with Parent in the filing of any
returns with respect to the Gain Taxes, including supplying in a timely manner a
complete list of all real property interests held by Subject Company and its
Subsidiaries and any information with respect to such properties that is
reasonably necessary to complete such returns. The portion of the consideration
allocable to the real properties of Subject Company and its Subsidiaries shall
be determined by Parent in its reasonable discretion. The shareholders of
Subject Company shall be deemed to be bound by the allocation established
pursuant to this Section 6.12 in the preparation of any return with respect to
the Gains Taxes. Furthermore, Parent will not supply cash or other property to
Subject Company and its Subsidiaries for purposes of replacing cash used by such
companies to pay the Gains Taxes.
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ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the respective
requisite affirmative votes of the holders of Subject Company Common Stock
and Parent Common Stock entitled to vote thereon.
(b) NYSE Listing. The shares of Parent Common Stock which shall be
issued to the stockholders of Subject Company upon consummation of the
Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(c) Other Approvals. All regulatory approvals required to consummate
the transactions contemplated hereby shall have been obtained and shall
remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and the expiration
of all such waiting periods being referred to herein as the "Requisite
Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger or any of the other transactions contemplated by
this Agreement shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Entity which prohibits, restricts or makes
illegal consummation of the Merger.
(f) Federal Tax Opinion. Parent shall have received an opinion of
Bingham, Dana & Gould, counsel to Parent, and Subject Company shall have
received an opinion of Palmer & Dodge, counsel to Subject Company, in form
and substance reasonably satisfactory to Parent and Subject Company, dated
as of the Effective Time, substantially to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for Federal income tax purposes as part of one or
more reorganizations within the meaning of Section 368 of the Code and that
accordingly:
(i) No gain or loss will be recognized by Parent or Subject Company
as a result of the Merger;
(ii) No gain or loss will be recognized by the stockholders of
Subject Company who exchange their Subject Company Common Stock solely
for Parent Common Stock pursuant to the Merger (except with respect to
cash received in lieu of a fractional share interest in Parent Common
Stock); and
(iii) The tax basis of the Parent Common Stock received by
stockholders who exchange all of their Subject Company Common Stock
solely for Parent Common Stock in the Merger will be the same as the tax
basis of the Subject Company Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share interest
for which cash is received).
In rendering such opinion, counsel may require and rely upon
representations contained in certificates of officers of Parent, Subject Company
and others.
(g) Pooling of Interests. Parent and Subject Company shall each have
received a letter from Coopers & Lybrand L.L.P. addressed to Subject
Company and Parent, to the effect that the Merger will qualify for "pooling
of interests" accounting treatment.
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7.2 Conditions to Obligations of Parent. The obligation of Parent to
effect the Merger is also subject to the satisfaction or waiver by Parent at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Subject Company set forth in Sections 3.2, 3.3(a), 3.6, 3.15,
3.17 and 3.18 of the Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on or as of the Closing Date and (ii) the
representations and warranties of Subject Company set forth in this
Agreement other than those specifically enumerated in clause (i) hereof
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and
as of the Closing Date; provided, however, that for purposes of determining
the satisfaction of the condition contained in this clause (ii), no effect
shall be given to any exception in such representations relating to
materiality or a Material Adverse Effect, and provided, further, however,
that, for purposes of this clause (ii), 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, individually or in the aggregate, represent a Material Adverse
Effect upon the Subject Company. Parent shall have received a certificate
signed on behalf of Subject Company by the Chief Executive Officer and the
Chief Financial Officer of Subject Company to the foregoing effect.
(b) Performance of Obligations of Subject Company. Subject Company
shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date,
and Parent shall have received a certificate signed on behalf of Subject
Company by the Chief Executive Officer and the Chief Financial Officer of
Subject Company to such effect.
(c) Subject Company Rights Agreement. The rights issued pursuant to
the Subject Company Rights Agreement shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of such
agreement.
7.3 Conditions to Obligations of Subject Company. The obligation of
Subject Company to effect the Merger is also subject to the satisfaction or
waiver by Subject Company at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Parent set forth in Sections 4.2, 4.3(a), 4.6, 4.15, 4.17 and
4.18 of the Agreement shall be true and correct in all material respects as
of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on or as of the Closing Date and (ii) the
representations and warranties of Parent set forth in this Agreement other
than those specifically enumerated in clause (i) hereof shall be true and
correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the
Closing Date; provided, however, that for purposes of determining the
satisfaction of the condition contained in this clause (ii), no effect
shall be given to any exception in such representations relating to
materiality or a Material Adverse Effect, and provided, further, however,
that, for purposes of this clause (ii), 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, individually or in the aggregate, represent a Material Adverse
Effect upon Parent. Subject Company shall have received a certificate
signed on behalf of Parent by the Chief Executive Officer and the Chief
Financial Officer of Parent to the foregoing effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Subject Company
shall have received a certificate signed on behalf of Parent by the Chief
Executive Officer and the Chief Financial Officer of Parent to such effect.
(c) Parent Rights Agreement. The rights issued pursuant to the Parent
Rights Agreement shall not have become nonredeemable, exercisable,
distributed or triggered pursuant to the terms of such agreement.
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ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Subject Company or Parent:
(a) by mutual consent of Parent and Subject Company in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either the Board of Directors of Parent or the Board of
Directors of Subject Company if any Governmental Entity which must grant a
Requisite Regulatory Approval has denied approval of the Merger and such
denial has become final and nonappealable or any Governmental Entity of
competent jurisdiction shall have issued a final nonappealable order
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement;
(c) by either the Board of Directors of Parent or the Board of
Directors of Subject Company if the Merger shall not have been consummated
on or before December 31, 1996, unless the failure of the Closing to occur
by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements of such
party set forth herein;
(d) by either the Board of Directors of Parent or the Board of
Directors of Subject Company (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of
any of the covenants or agreements or any of the representations or
warranties set forth in this Agreement on the part of the other party,
which breach is not cured within forty-five (45) days following written
notice to the party committing such breach, or which breach, by its nature,
cannot be cured prior to the Closing; provided, however, that neither party
shall have the right to terminate this Agreement pursuant to Section 8.1(d)
unless the breach of representation or warranty, together with all such
other breaches, would entitle the party receiving such representation not
to consummate the transactions contemplated hereby under Section 7.2(a) (in
the case of a breach of representation or warranty by the Subject Company)
or Section 7.3(a) (in the case of a breach of a representation or warranty
by Parent).
(e) by either Parent or the Subject Company if any approval of the
stockholders of Parent or the Subject Company required for the consummation
of the Merger shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of stockholders or at any
adjournment or postponement thereof; or
(f) by Subject Company if there shall have occurred, since the date of
this Agreement, a Significant Decline (as defined below) in the Average
Closing Price (as defined below) of the Parent Common Stock as compared to
the price of $47.50 (the "Conversion Price"). The "Average Closing Price"
of the Parent Common Stock shall mean the average of the closing price of
the Parent Common Stock as reported on the NYSE for the 20 consecutive
trading days ending on the date the Federal Reserve Board issues an order
approving the Merger or, if the Federal Reserve Board gives notice that its
approval is not required, the later of (x) the date of such notice or (y)
the date the Office of the Comptroller of the Currency issues its approval
of the merger of the parties' principal national bank subsidiaries as
contemplated by Section 1.12 (the "Final Calculation Period"). A
"Significant Decline" shall be deemed to have occurred if (i) the Average
Closing Price of the Parent Common Stock is less than 75% of the Conversion
Price and (ii) the number obtained by dividing the Average Closing Price of
the Parent Common Stock by the Conversion Price is less than the number
obtained by dividing the average of the closing prices of the Morgan
Stanley 35-Bank Regional Peer Group during the Final Calculation Period by
the average of the closing prices of the Morgan Stanley 35-Bank Regional
Bank Peer Group for the 20 consecutive trading days ending on December 8,
1995 and subtracting .25 from the quotient.
8.2 Effect of Termination. In the event of termination of this Agreement
by either Parent or Subject Company as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, and none
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of Parent, Subject Company, any of their respective Subsidiaries or any of the
officers or directors or any of them shall have any liability of any nature
whatsoever hereunder, or in connection with the transactions contemplated
hereby, except (i) Sections 6.2(b), 8.2, 9.2 and 9.3, shall survive any
termination of this Agreement, and (ii) notwithstanding anything to the contrary
contained in this Agreement, neither Parent nor Subject Company shall be
relieved or released from any liabilities or damages arising out of its willful
breach of any provision of this Agreement.
8.3 Amendment. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Subject
Company; provided, however, that after any approval of the transactions
contemplated by this Agreement by Subject Company's stockholders, there may not
be, without further approval of such stockholders, any amendment of this
Agreement which reduces the amount or changes the form of the consideration to
be delivered to the Subject Company stockholders 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.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; provided, however,
that after any approval of the transactions contemplated by this Agreement by
Subject Company's stockholders, there may not be, without further approval of
such stockholders, any extension or waiver of this Agreement or any portion
thereof which reduces the amount or changes the form of the consideration to be
delivered to the Subject Company stockholders hereunder other than as
contemplated by this Agreement. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party, but such extension or waiver or
failure to insist on strict compliance with an obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to
be specified by the parties, which shall be no later than two business days
after the satisfaction or waiver (subject to applicable law) of the latest to
occur of the conditions set forth in Article VII hereof (the "Closing Date").
9.2 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement, in
any instrument delivered pursuant to this Agreement or in the Confidentiality
Agreement (other than pursuant to the Option Agreements, which shall terminate
in accordance with its terms) shall survive the Effective Time, except for those
covenants and agreements contained herein and therein which by their terms apply
in whole or in part after the Effective Time.
9.3 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
printing and mailing the Joint Proxy Statement, and all filing and other fees
paid to the SEC in connection with the Merger, shall be borne equally by Parent
and Subject Company.
9.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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(a) if to Parent, to:
Bank of Boston Corporation
100 Federal Street
Boston, Massachusetts 02110
Fax: (617) 434-7825
Attn: Peter J. Manning
Executive Director Mergers
and Acquisitions
with copies to:
Bank of Boston Corporation
100 Federal Street
Boston, Massachusetts 02110
Fax: (617) 434-1029
Attn: Gary A. Spiess
General Counsel
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
Fax: (617) 951-8736
Attn: Norman Shachoy, Esq. and
Neal J. Curtin, Esq.
and
Skadden Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, New York 10019
Fax: (212) 735-2000
Attn: Fred White, Esq.
and
(b) if to Subject Company, to:
BayBanks, Inc.
175 Federal Street
Boston, Massachusetts 02110
Fax: (617) 556-6328
Attn: William M. Crozier, Jr.
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Fax: (617) 227-4420
Attn: Jerry V. Klima, Esq.
and
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Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Fax: (212) 402-2000
Attn: Edward D. Herlihy, Esq.
9.5 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". No provision of this Agreement shall be construed to require
Subject Company, Parent or any of their respective Subsidiaries or affiliates to
take any action which would violate any applicable law, rule or regulation.
9.6 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.7 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof other than the Option
Agreements and the Confidentiality Agreement.
9.8 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
any applicable conflicts of law.
9.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.10 Publicity. Except as otherwise required by applicable law or the
rules of the NYSE or the National Association of Securities Dealers, Inc. (in
which case a party shall consult in advance with the other party), neither
Parent nor Subject Company shall, or shall permit any of its Subsidiaries to,
issue or cause the publication of any press release or other public announcement
with respect to, or otherwise make any public statement concerning, the
transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
9.11 Assignment. Neither this Agreement nor any of the rights, interests
or obligations shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns. Except as otherwise specifically provided in Section 6.7
and Section 6.8 hereof, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
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IN WITNESS WHEREOF, Parent, Merger Sub and Subject Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
BANK OF BOSTON CORPORATION
[Seal] By:/s/ PETER J. MANNING
--------------------------
PETER J. MANNING
Executive Director
BOSTON MERGER CORP.
[Seal] By:/s/ PETER J. MANNING
--------------------------
PETER J. MANNING
President
By:/s/ WILLIAM J. PARENT
--------------------------
WILLIAM J. PARENT
Treasurer
BAYBANKS, INC.
[Seal] By:/s/ WILLIAM M. CROZIER, JR.
-------------------------------
WILLIAM M. CROZIER, JR.
Chairman of the Board and President
By: /s/ MICHAEL W. VASILY
--------------------------
MICHAEL W. VASILY
Treasurer
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<PAGE> 184
EXHIBIT B
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated December 12, 1995, between Bank of Boston
Corporation, a Massachusetts corporation ("Issuer"), and BayBanks, Inc., a
Massachusetts corporation ("Grantee").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 22,400,761
fully paid and nonassessable shares of Issuer's Common Stock, par value $2.25
per share ("Common Stock"), at a price of $47.50 per share (the "Option Price");
provided further that in no event shall the number of shares of Common Stock for
which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to the
Option shall be increased so that, after such issuance, it equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Effective Time of
the Merger; (ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event except a termination by Grantee pursuant to Section
8.1(d) of the Merger Agreement (unless the breach by Issuer giving rise to such
right of termination is non-volitional); or (iii) the passage of twelve months
after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination by Grantee
pursuant to Section 8.1(d) of the Merger Agreement (unless the breach by Issuer
giving rise to such right of termination is nonvolitional) (provided that if an
Initial Triggering Event continues or occurs beyond such termination and prior
to the passage of such twelve-month period, the Exercise Termination Event shall
be twelve months from the expiration of the Last Triggering Event but in no
event more than 18 months after such termination). The "Last Triggering Event"
shall mean the last Initial Triggering Event to expire. The term "Holder" shall
mean the holder or holders of the Option.
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<PAGE> 185
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules
and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer shall
have recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction or shall have failed to publicly oppose an
Acquisition Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC") of Issuer, (x) a purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer or any
Significant Subsidiary of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall any (i) merger,
consolidation or similar transaction involving Issuer or any Significant
Subsidiary in which the voting securities of Issuer outstanding immediately
prior thereto continue to represent (by either remaining outstanding or
being converted into the voting securities of the surviving entity of any
such transaction) at least 65% of the combined voting power of the voting
securities of the Issuer or the surviving entity outstanding immediately
after the consummation of such merger, consolidation, or similar
transaction, or (ii) any merger, consolidation, purchase or similar
transaction involving only the Issuer and one or more of its Subsidiaries
or involving only any two or more of such Subsidiaries, be deemed to be an
Acquisition Transaction, provided any such transaction is not entered into
in violation of the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other than
Grantee or a Grantee Subsidiary, or the Board of Directors of Issuer shall
have publicly withdrawn or modified, or publicly announced its interest to
withdraw or modify, in any manner adverse to Grantee, its recommendation
that the stockholders of Issuer approve the transactions contemplated by
the Merger Agreement;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of
its business shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares of
Common Stock (the term "beneficial ownership" for purposes of this Option
Agreement having the meaning assigned thereto in Section 13(d) of the 1934
Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, whether
in draft or final form, for approval to engage in an Acquisition
Transaction.
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<PAGE> 186
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) shall be 20%.
(d) Issuer shall notify 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
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of the Federal Reserve Board or any other 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. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, 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 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.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
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(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. 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. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec. 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), or the Change in Bank Control Act of 1978, as amended, or
any state banking law, prior approval of or notice to the Federal Reserve Board
or to any state regulatory authority is necessary before the Option may be
exercised, cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
state regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "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 Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration
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statement under the 1933 Act covering the resale of this Option and any shares
issued pursuant to this Option and the issuance of any shares issuable pursuant
to this Option to the extent then permitted under the rules, regulations or
policies of the SEC and, to the extent not so permitted, the resale of such
shares issuable pursuant to this Option. The Issuer shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of this Option and any
shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its reasonable best 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 such
sales or other dispositions. Grantee shall have the right to demand two such
registrations. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of the Option or Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer. Upon receiving any request under this Section 6 from
any Holder, Issuer agrees to send a copy thereof to any other person known to
Issuer to be entitled to registration rights under this Section 6, in each case
by promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies. Notwithstanding anything to the
contrary contained herein, in no event shall Issuer be obligated to effect more
than two registrations pursuant to this Section 6 by reason of the fact that
there shall be more than one Grantee as a result of any assignment or division
of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto) 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 the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence (or such
later period as provided in Section 10), Issuer shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the market/offer price multiplied by
the number of Option Shares so designated. The term "market/offer price" shall
mean the highest of (i) the price per share of Common Stock at which a tender
offer or exchange offer therefor has been made, (ii) the price per share of
Common Stock to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the six-month
period immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm selected by the
Holder or the Owner, as the case may be, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale. In determining the
market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to the Issuer.
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(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Within
the latter to occur of (x) five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be delivered
to the Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the 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 the Owner a certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a substantial portion of the assets of Issuer, other than any such
transaction which would not constitute an Acquisition Transaction pursuant to
the proviso to Section 2 (b) (i) hereof or (ii) upon the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, provided that no such event shall constitute a Repurchase Event
unless a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall not terminate
upon the occurrence of an Exercise Termination Event unless no Subsequent
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be 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 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such 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,
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or exchanged for, an option (the "Substitute Option"), at the election of the
Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or (y)
any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the 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 (x) the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed), and at the request of the owner (the "Substitute
Share Owner") of shares of Substitute Common Stock (the "Substitute Shares"),
the Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to (x) the Highest Closing Price
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multiplied by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
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 the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
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 thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five 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 subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its 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, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2, 6,
7 and 13 shall be extended: (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 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and
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the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by Issuer.
(b) 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, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrance and security interests and not subject to
any preemptive rights.
(c) Issuer has taken all action (including if required redeeming all
of the Rights or amending or terminating the Rights Agreement) so that the
entering into of this Option Agreement, the acquisition of shares of Common
Stock hereunder and the other transactions contemplated hereby do not and
will not result in the grant of any rights to any person under the Rights
Agreement or enable or require the Rights to be exercised, distributed or
triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
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, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); provided, however, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance and applying to the Federal Reserve Board under the
BHCA for approval to acquire the shares issuable hereunder, but Grantee shall
not be obligated to apply to state banking authorities for approval to acquire
the shares of Common Stock issuable hereunder until such time, if ever, as it
deems appropriate to do so.
15. 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.
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16. 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 Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. 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.
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
BANK OF BOSTON CORPORATION
By: /s/ PETER J. MANNING
Peter J. Manning
BAYBANKS, INC.
By: /s/ WILLIAM M. CROZIER, JR.
William M. Crozier, Jr.
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EXHIBIT C
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated December 12, 1995, between BayBanks, Inc., a
Massachusetts corporation ("Issuer"), and Bank of Boston Corporation, a
Massachusetts corporation ("Grantee").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 3,907,120
fully paid and nonassessable shares of Issuer's Common Stock, par value $2.00
per share ("Common Stock"), at a price of $83.75 per share (the "Option Price");
provided further that in no event shall the number of shares of Common Stock for
which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to the
Option shall be increased so that, after such issuance, it equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Effective Time of
the Merger; (ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event except a termination by Grantee pursuant to Section
8.1(d) of the Merger Agreement (unless the breach by Issuer giving rise to such
right of termination is non-volitional); or (iii) the passage of twelve months
after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination by Grantee
pursuant to Section 8.1(d) of the Merger Agreement (unless the breach by Issuer
giving rise to such right of termination is non-volitional) (provided that if an
Initial Triggering Event continues or occurs beyond such termination and prior
to the passage of such twelve-month period, the Exercise Termination Event shall
be twelve months from the expiration of the Last Triggering Event but in no
event more than 18 months after such termination). The "Last Triggering Event"
shall mean the last Initial Triggering Event to expire. The term "Holder" shall
mean the holder or holders of the Option.
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(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules
and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer shall
have recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction or shall have failed to publicly oppose an
Acquisition Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")) of Issuer, (x) a purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer or any
Significant Subsidiary of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall any (i) merger,
consolidation or similar transaction involving Issuer or any Significant
Subsidiary in which the voting securities of Issuer outstanding immediately
prior thereto continue to represent (by either remaining outstanding or
being converted into the voting securities of the surviving entity of any
such transaction) at least 65% of the combined voting power of the voting
securities of the Issuer or the surviving entity outstanding immediately
after the consummation of such merger, consolidation, or similar
transaction, or (ii) any merger, consolidation, purchase or similar
transaction involving only the Issuer and one or more of its Subsidiaries
or involving only any two or more of such Subsidiaries, be deemed to be an
Acquisition Transaction, provided any such transaction is not entered into
in violation of the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other than
Grantee or a Grantee Subsidiary, or the Board of Directors of Issuer shall
have publicly withdrawn or modified, or publicly announced its interest to
withdraw or modify, in any manner adverse to Grantee, its recommendation
that the stockholders of Issuer approve the transactions contemplated by
the Merger Agreement;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of
its business shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares of
Common Stock (the term "beneficial ownership" for purposes of this Option
Agreement having the meaning assigned thereto in Section 13(d) of the 1934
Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, whether
in draft or final form, for approval to engage in an Acquisition
Transaction.
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(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) shall be 20%.
(d) Issuer shall notify 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
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of the Federal Reserve Board or any other 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. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, 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 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.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
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(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. 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. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec.18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), or the Change in Bank Control Act of 1978, as amended, or
any state banking law, prior approval of or notice to the Federal Reserve Board
or to any state regulatory authority is necessary before the Option may be
exercised, cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
state regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "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 Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration
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statement under the 1933 Act covering the resale of this Option and any shares
issued pursuant to this Option and the issuance of any shares issuable pursuant
to this Option to the extent then permitted under the rules, regulations or
policies of the SEC and, to the extent not so permitted, the resale of such
shares issuable pursuant to this Option. The Issuer shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of this Option and any
shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its reasonable best 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 such
sales or other dispositions. Grantee shall have the right to demand two such
registrations. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of the Option or Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer. Upon receiving any request under this Section 6 from
any Holder, Issuer agrees to send a copy thereof to any other person known to
Issuer to be entitled to registration rights under this Section 6, in each case
by promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies. Notwithstanding anything to the
contrary contained herein, in no event shall Issuer be obligated to effect more
than two registrations pursuant to this Section 6 by reason of the fact that
there shall be more than one Grantee as a result of any assignment or division
of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto) 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 the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence (or such
later period as provided in Section 10), Issuer shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the market/offer price multiplied by
the number of Option Shares so designated. The term "market/offer price" shall
mean the highest of (i) the price per share of Common Stock at which a tender
offer or exchange offer therefor has been made, (ii) the price per share of
Common Stock to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the six-month
period immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm selected by the
Holder or the Owner, as the case may be, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale. In determining the
market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to the Issuer.
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(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Within
the latter to occur of (x) five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be delivered
to the Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the 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 the Owner a certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a substantial portion of the assets of Issuer, other than any such
transaction which would not constitute an Acquisition Transaction pursuant to
the proviso to Section 2(b)(i) hereof or (ii) upon the acquisition by any person
of beneficial ownership of 50% or more of the then outstanding shares of Common
Stock, provided that no such event shall constitute a Repurchase Event unless a
Subsequent Triggering Event shall have occurred prior to an Exercise Termination
Event. The parties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 7 shall not terminate upon the
occurrence of an Exercise Termination Event unless no Subsequent Triggering
Event shall have occurred prior to the occurrence of an Exercise Termination
Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be 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 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such 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,
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or exchanged for, an option (the "Substitute Option"), at the election of the
Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or (y)
any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the 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 (x) the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed), and at the request of the owner (the "Substitute
Share Owner") of shares of Substitute Common Stock (the "Substitute Shares"),
the Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to (x) the Highest Closing Price
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multiplied by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
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 the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
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 thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five 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 subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its 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, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2, 6,
7 and 13 shall be extended: (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 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and
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the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by Issuer.
(b) 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, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrance and security interests and not subject to
any preemptive rights.
(c) Issuer has taken all action (including if required redeeming all
of the Rights or amending or terminating the Rights Agreement) so that the
entering into of this Option Agreement, the acquisition of shares of Common
Stock hereunder and the other transactions contemplated hereby do not and
will not result in the grant of any rights to any person under the Rights
Agreement or enable or require the Rights to be exercised, distributed or
triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
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, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); provided, however, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance and applying to the Federal Reserve Board under the
BHCA for approval to acquire the shares issuable hereunder, but Grantee shall
not be obligated to apply to state banking authorities for approval to acquire
the shares of Common Stock issuable hereunder until such time, if ever, as it
deems appropriate to do so.
15. 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.
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16. 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 Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. 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.
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
BAYBANKS, INC.
By: /s/ WILLIAM M. CROZIER, JR.
William M. Crozier, Jr.
BANK OF BOSTON CORPORATION
By: /s/ PETER J. MANNING
Peter J. Manning
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EXHIBIT D
LOGO
March 18, 1996
Board of Directors
Bank of Boston Corporation
100 Federal Street
Boston, MA 02110
Members of the Board:
We understand that Bank of Boston Corporation ("Bank of Boston") and
BayBanks, Inc. ("BayBanks") have entered into an Agreement and Plan of Merger
(the "Agreement") dated December 12, 1995, pursuant to which BayBanks will be
merged with and into Bank of Boston or a subsidiary of Bank of Boston in a
transaction (the "Merger") in which each outstanding share of BayBank's common
stock, par value $2.00 per share (the "BayBanks Shares") will be converted into
the right to receive 2.20 shares (the "Exchange Ratio") of the common stock, par
value $2.25 per share, of Bank of Boston, (the "Bank of Boston Shares"), all as
set forth more fully in the Agreement. In connection with the Merger, the
parties have also entered into agreements, each dated December 12, 1995, (the
"Option Agreements") pursuant to which Bank of Boston and BayBanks will grant to
the other an option to acquire, under certain circumstances 19.9% of their
respective outstanding common shares, all as set forth more fully in the Option
Agreements.
You have asked us whether, in our opinion, the proposed Exchange Ratio in
the Merger is fair to Bank of Boston from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed BayBanks' Annual Reports on Form 10-K and related audited
financial information for the five fiscal years ended December 31,
1995;
(2) Reviewed Bank of Boston's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended
December 31, 1995;
(3) Reviewed certain limited financial information, including financial
forecasts and assumptions regarding cost savings resulting from the
Merger, relating to the respective business, earnings, assets,
contingencies and prospects of BayBanks and Bank of Boston, furnished
to us by senior management of BayBanks and Bank of Boston;
(4) Conducted certain limited discussions with members of senior
management of BayBanks and Bank of Boston concerning their respective
financial condition, businesses, earnings, cash flow, assets,
liabilities, operations, regulatory condition, financial forecasts,
contingencies and prospects;
(5) Reviewed the historical market prices and trading activity for the
BayBanks Shares and the Bank of Boston Shares and compared them with
that of certain publicly traded companies which we deemed to be
relevant;
(6) Compared the respective results of operations of BayBanks and Bank of
Boston with that of certain publicly traded companies which we deemed
to be relevant;
(7) Compared the proposed financial terms of the Merger contemplated by
the Agreement as described to us by senior management of Bank of
Boston with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Reviewed the amount and timing of the projected cost savings for
BayBanks and Bank of Boston following the Merger as prepared, and
discussed with us, by the senior management of Bank of Boston;
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(9) Considered based upon information provided by Bank of Boston's senior
management, the pro forma impact of the transaction on the earnings
and book value per share, consolidated capitalization and certain
balance sheet and profitability ratios of Bank of Boston;
(10) Considered the terms of the Merger set forth in the Agreement;
(11) Considered the terms of the stock options set forth in the Option
Agreements; and
(12) Reviewed such other financial information, studies and analyses and
performed such other investigations and took into account such other
matters as we deemed appropriate.
In preparing our opinion, with your consent we have relied on the accuracy
and completeness of all information supplied or otherwise made available to us
by BayBanks and Bank of Boston, including that contemplated in the numbered
items above, and we have not independently verified such information or
undertaken an independent evaluation or appraisal of the assets and liabilities,
contingent or otherwise, of BayBanks or Bank of Boston or any of their
subsidiaries, nor have we been furnished any such evaluation or appraisal. We
are not experts in the evaluation of allowances for loan losses and, with your
consent, we have not made an independent evaluation of the adequacy of the
allowance for loan losses of BayBanks or Bank of Boston, nor have we reviewed
any individual credit files relating to Bank of Boston or BayBanks and, with
your consent, we have assumed that the aggregate allowance for loan losses for
both Bank of Boston and BayBanks is adequate to cover such losses and will be
adequate on a pro forma basis for the combined entity. With your consent, we
have also assumed and relied upon the managements of BayBanks and Bank of Boston
as to the reasonableness and achievability of the financial forecasts (and the
assumptions and bases therefor) provided to, and discussed with, us. In that
regard, we have assumed and relied with your consent that such forecasts,
including without limitation, financial forecasts, evaluations of contingencies,
projected cost savings and operating synergies resulting from the Merger and
projections regarding underperforming and non-performing assets, net
charge-offs, adequacy of reserves, future economic conditions and results of
operations reflect the best currently available estimates, allocations and
judgments of such respective managements as to the future financial performance
of BayBanks, Bank of Boston or the combined entity, as the case may be. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approval for the
Merger.
We have been retained by the Board of Directors of Bank of Boston as an
independent contractor to act as financial advisor to Bank of Boston with
respect to the Merger and will receive a fee for our services. We may have, in
the past, provided financial advisory and financing services to BayBanks and
Bank of Boston and received customary fees for the rendering of such services.
In addition, in the ordinary course of our securities business, we may actively
trade debt and/or equity securities of BayBanks and Bank of Boston and their
respective affiliates for our own account and the accounts of our customers, and
we therefore may from time to time hold a long or short position in such
securities. We have also provided a bridge loan to a joint venture in which Bank
of Boston is an investor formed to acquire Bank of Boston's mortgage banking
business for which we have received customary compensation paid by Bank of
Boston and which bridge loan is expected to be refinanced by us in the future
through a securities offering or otherwise.
Our opinion is directed to the Board of Directors of Bank of Boston and
does not constitute a recommendation to any shareholder of Bank of Boston as to
how such shareholder should vote at any shareholder meeting of Bank of Boston
held in connection with the Merger. This opinion is directed only to the
proposed Exchange Ratio.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to Bank of Boston from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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EXHIBIT E
MORGAN STANLEY
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
March 18, 1996
Board of Directors
BayBanks, Inc.
175 Federal Street
Boston, MA 02110
Members of the Board:
We understand that BayBanks, Inc. ("BBNK"), Bank of Boston Corporation
("BKB"), and Boston Merger Corp., a newly formed wholly owned subsidiary of BKB
("Merger Sub") have entered into an Agreement and Plan of Merger, dated as of
December 12, 1995 (the "Merger Agreement"), which provides, among other things,
for the merger of Merger Sub with and into BBNK (the "Merger"). Pursuant to the
Merger, BBNK will become a wholly owned subsidiary of BKB and each outstanding
share of common stock, par value $2.00 per share, of BBNK (the "BBNK Common
Stock"), other than shares held by BBNK or BKB or any subsidiary of BBNK or BKB
or as to which dissenters' rights have been perfected, will be converted into
2.2 shares (the "Exchange Ratio") of common stock, par value $2.25 per share, of
BKB (the "BKB Common Stock"). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
BBNK Common Stock (other than BKB and its affiliates).
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of BBNK and BKB, respectively;
(ii) analyzed certain internal financial statements and other
financial and operating data concerning BBNK and BKB prepared by the
managements of BBNK and BKB, respectively;
(iii) analyzed certain financial projections of BBNK and BKB prepared
by the managements of BBNK and BKB, respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of BBNK and BKB with senior executives of BBNK and BKB,
respectively, and analyzed certain pro forma financial projections for the
combined company prepared by senior executives of BBNK and BKB;
(v) reviewed the reported prices and trading activity for the BBNK
Common Stock and the BKB Common Stock;
(vi) compared the financial performance of BBNK and BKB and the prices
and trading activity of the BBNK Common Stock and the BKB Common Stock with
that of certain other comparable publicly-traded companies and their
securities;
(vii) discussed with independent auditors of BBNK their review of the
financial and accounting affairs of BBNK and with the independent auditors
of BKB their review of the financial and accounting affairs of BKB;
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(viii) discussed the results of regulatory examinations of BBNK and
BKB with the senior managements of the respective companies;
(ix) discussed the strategic objectives of the merger and the plan for
the combined company with senior executives of BBNK and BKB;
(x) reviewed and discussed with senior managements of BBNK and BKB
certain estimates of the cost savings projected by BBNK and BKB for the
combined company and compared such amounts to those estimated in certain
precedent transactions;
(xi) reviewed the financial terms, to the extent publicly available,
of certain comparable precedent transactions;
(xii) participated in discussions and negotiations among
representatives of BBNK and BKB and their financial and legal advisors;
(xiii) reviewed the Merger Agreement and certain related documents; and
(xiv) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including the estimates
of cost savings expected to result from the Merger, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of BBNK and BKB. We
have not made any independent valuation or appraisal of the assets or
liabilities of BBNK and BKB, nor have we been furnished with any such appraisals
and we have not examined any individual loan files of BBNK or BKB. Our opinion
is necessarily based on economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any other party with respect to the acquisition of BBNK
or any of its assets.
We have acted as financial advisor to the Board of Directors of BBNK in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for BBNK and have received fees for
the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of BBNK and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by BBNK with the Securities and Exchange Commission with respect to
the Merger. In addition, we express no opinion and make no recommendation as to
how the stockholders of BBNK should vote at the stockholders meeting being held
in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of BBNK Common Stock (other than BKB and its affiliates).
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Donald A. Moore, Jr.
DONALD A. MOORE, JR.
Managing Director
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EXHIBIT F
TEXT OF SECTIONS 85 THROUGH 98 OF CHAPTER 156B OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
SEC.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.
SEC.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.
SEC.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."
SEC.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
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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.
SEC.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.
SEC.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.
SEC.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.
SEC.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 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.
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SEC.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.
SEC.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.
SEC.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.
SEC.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.
SEC.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.
SEC.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.
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EXHIBIT G
BANK OF BOSTON CORPORATION
1996 LONG-TERM INCENTIVE PLAN
1. Purpose.
The Bank of Boston Corporation 1996 Long-Term Incentive Plan (the "Plan")
has been adopted to create and enhance significant ownership of the Common Stock
of the Corporation by key officers and employees of the Corporation and its
Affiliates. Additional purposes of the Plan include providing a meaningful
incentive to Participants to make substantial contributions to the Corporation's
future success, enhancing the Corporation's ability to attract and retain
persons who will make such contributions, and ensuring that the Corporation has
competitive compensation opportunities for such key officers and employees.
By furthering these objectives, the Plan is intended to benefit the
interests of the stockholders of the Corporation.
2. Definitions.
As used herein, the following words or terms have the meanings set forth
below:
2.1. "Affiliate" means (a) a corporation or other entity in which the
Corporation owns, directly or indirectly or has the power to vote or cause to be
voted, stock or other ownership interests representing more than 50% of the
total combined voting power of such entity or (b) any other entity in which the
Corporation has a significant equity interest, as determined by the Committee.
Except as determined by the Committee in particular cases, if an entity ceases
to be an Affiliate for any reason (a "disaffiliation"), the employment of each
individual who was employed by the entity shall be treated as having been
involuntarily terminated by the Corporation and its Affiliates effective upon
such disaffiliation, unless such individual thereafter continues to be employed
by the Corporation or another entity which remains an Affiliate.
2.2. "Award" means any Options, Stock Appreciation Rights, Restricted
Stock, Performance Shares or Other Awards granted under the Plan.
2.3. "Award Documentation" means a writing delivered to a Participant
specifying the terms and conditions of an Award and containing such other terms
and conditions not inconsistent with the provisions of the Plan as the Committee
considers necessary or advisable.
2.4. "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under
the Exchange Act.
2.5. "Board" means the Board of Directors of the Corporation, except that,
whenever action is to be taken under the Plan with respect to a Reporting
Person, "Board" shall mean only such directors who are "disinterested persons"
or "non-employee directors," as applicable, within the meaning of Rule 16b-3
under the Exchange Act or any successor rule.
2.6. A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
2.6.1. There is an acquisition of control of the Corporation as
defined in Section 2(a)(2) of the Bank Holding Company Act of 1956, or any
similar successor provision, as in effect at the time of the acquisition;
or
2.6.2. Continuing Directors constitute two-thirds (2/3) or less of the
membership of the Board, whether as the result of a proxy contest or for
any other reason or reasons; or
2.6.3. Any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation representing twenty-five
percent (25%) or more of the combined voting power of the Corporation's
then outstanding voting securities; or
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2.6.4. There is a change in control of the Corporation of a nature
that would be required to be reported in response to item 1(a) of Current
Report on Form 8-K or item 6(e) of Schedule 14A of Regulation 14A or any
similar item, schedule or form under the Exchange Act, as in effect at the
time of the change, whether or not the Corporation is then subject to such
reporting requirement, including without limitation any merger or
consolidation of the Corporation with any other corporation, other than (A)
a merger or consolidation which would result in the voting securities of
the Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving or parent entity) forty-five percent
(45%) or more of the combined voting power of the voting securities
(entitled to vote generally for the election of directors) of the
Corporation or such surviving or parent entity outstanding immediately
after such merger or consolidation and which would result in those persons
who are Continuing Directors immediately prior to such merger or
consolidation constituting more than two-thirds (2/3) of the membership of
the Board or the board of such surviving or parent entity immediately
after, or subsequently at any time as contemplated by or as a result of,
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Corporation (or similar transaction) in
which no Person acquired twenty-five percent (25%) or more of the combined
voting power of the Corporation's then outstanding securities; or
2.6.5. the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or disposition
by the Corporation of all or substantially all of the Corporation's assets
(or any transaction having a similar effect).
2.7. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
2.8. "Committee" means the committee appointed by the Board with authority
to administer the Plan. Membership of the Committee shall at all times be
constituted consistent with exemption under Rule 16b-3 under the Exchange Act
(or any successor rule) of those Awards that are intended to be so exempt and
with qualification under the Performance-Based Exception of those Awards that
are intended to so qualify. To the extent that the Committee delegates its power
to make Awards as permitted by Section 4.1, all references in the Plan to the
Committee's authority to make Awards and determinations with respect thereto
shall be deemed to include the Committee's delegate or delegates.
2.9. "Common Stock" or "Stock" means the Common Stock, par value $2.25 per
share, of the Corporation.
2.10. "Continuing Director" means any director (a) who has continuously
been a member of the Board since not later than the date of a Potential Change
of Control or (b) who is a successor of a director described in clause (a), if
such successor (and any intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of the then Continuing
Directors.
2.11. "Corporation" means Bank of Boston Corporation, a corporation
established under the laws of the Commonwealth of Massachusetts.
2.12. "Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner acceptable to the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
2.13. "Disability" means a physical or mental condition of such a nature
that it would qualify a Participant for benefits under the long-term disability
insurance plan of The First National Bank of Boston or any successor plan. The
Committee shall have the authority to determine whether and when, consistent
with the foregoing, a Participant has suffered a Disability for purposes of the
Plan.
2.14. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
2.15. "Fair Market Value," in the case of a share of Common Stock on a
particular day, means the closing price of the Common Stock for that day as
reported in the "NYSE-Composite Transactions" section of the Eastern Edition of
The Wall Street Journal, or if no prices are quoted for that day, for the last
preceding
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day on which such prices of Common Stock are so quoted. In the event
"NYSE-Composite Transactions" cease to be reported, the Committee shall adopt
some other appropriate method for determining Fair Market Value.
2.16. "Freestanding SAR" means an SAR that is granted independently of any
Options.
2.17. "Incentive Stock Option" means an Option, granted to a Participant
pursuant to Section 8, which is intended to satisfy the requirements of Section
422(b) of the Code or any successor provision.
2.18. "Nonqualified Stock Option" means an Option, granted to a Participant
pursuant to Section 8, which is not intended to qualify as an Incentive Stock
Option.
2.19. "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.20. "Other Award" means an Award (other than an Option, SAR, Restricted
Stock or Performance Share) granted to a Participant pursuant to Section 12. An
Other Award may consist of Shares, fixed or variable units valued or based on
Common Stock, fixed or variable units valued or based on measures (including
performance measures) that are unrelated to Common Stock, or any combination of
the foregoing. An Other Award that consists of units other than Shares, whether
or not valued or based on Common Stock, may be made payable in cash or Shares or
a combination of cash and Shares.
2.21. "Participant" means an individual selected by the Committee to
receive an Award under the Plan.
2.22. "Performance-Based Exception" means the performance-based exception
from the deductibility limits set forth in Section 162(m) of the Code and the
Section 162(m) Regulations.
2.23. "Performance Goals" means, with respect to Awards that are intended
to qualify for the Performance-Based Exception, objectively determinable
performance goals established by the Committee within the time period specified
in the Section 162(m) Regulations and based on any of the following criteria:
(a) earnings, (b) return on equity, (c) return on assets, (d) return on
investment, (e) revenues, (f) expenses; (g) the operating ratio; (h) stock
price; (i) stockholder return; (j) market share; (k) charge-offs, (l) credit
quality, or (m) customer satisfaction measures. Such Performance Goals may be
particular to a Participant or the division, branch, line of business, Affiliate
or other unit in which the Participant works, or may be based on the performance
of the Corporation on a consolidated basis. Notwithstanding the preestablishment
of a Performance Goal with respect to an Award in accordance with the Section
162(m) Regulations, nothing herein shall be construed as limiting the
Committee's ability to reduce the amount payable under the Award (including, for
this purpose, reducing the amount of any Award that would otherwise be granted,
or reducing the portion of any Award that would otherwise vest) upon attainment
of such Performance Goal.
2.24. "Performance Period" means the period of time designated by the
Committee applicable to a Performance Stock Award during which specified
Performance Goals shall be measured.
2.25. "Performance Share" means an Award granted to a Participant pursuant
to Section 11.
2.26. "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however,
a Person shall not include (a) the Corporation or any of its subsidiaries, (b) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Corporation or any of its subsidiaries, (c) an underwriter temporarily
holding securities pursuant to a registered offering of such securities in
accordance with an agreement with the Corporation, or (d) a corporation owned,
directly or indirectly, by the stockholders of the Corporation in substantially
the same proportions as their ownership of stock of the Corporation.
2.27. "Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
2.27.1. the Corporation enters into an agreement, the consummation of
which would result in a Change in Control;
2.27.2. the Corporation or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
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2.27.3. any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation representing fifteen percent
(15%) or more of the combined voting power of the Corporation's then
outstanding securities (entitled to vote generally for the election of
directors); or
2.27.4. the Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control has occurred.
2.28. "Prior Plan" means the Corporation's 1991 Long-Term Stock Incentive
Plan.
2.29. "Reporting Person" means a person required to file reports under
Section 16(a) of the Exchange Act or any successor statute.
2.30. "Restricted Period" means the period during which the transfer of
shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of Performance Goals or upon the occurrence of other events as
determined by the Committee), and the Shares are subject to a substantial risk
of forfeiture, as provided in Section 10.
2.31. "Restricted Stock" means an Award granted to a Participant pursuant
to Section 10.
2.32. "Retirement" means termination of employment with the Corporation or
any Affiliate if such termination of employment constitutes normal retirement,
early retirement, disability retirement or other retirement as provided for at
the time of such termination of employment under the applicable retirement
program then maintained by the Corporation or the Affiliate, provided that the
Participant does not continue in the employment of the Corporation or any
Affiliate and provided further that such termination does not constitute a
Termination for Cause.
2.33. "Section 162(m) Regulations" means the regulations promulgated under
Section 162(m) of the Code, as amended from time to time.
2.34 "Shares" means shares of Common Stock.
2.35. "Stock Appreciation Right" or "SAR" means an Award granted to a
Participant, alone or in connection with a related Option, pursuant to Section
9.
2.36. "Tandem SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase a share of Common Stock under the related Option (and when a share of
Common Stock is purchased under the related Option, the Tandem SAR shall
similarly be canceled).
2.37. "Termination for Cause" means the termination of a Participant's
employment due to any act which, in the discretionary judgment of the Committee,
is deemed inimical to the best interests of the Corporation or any Affiliate,
including, but not limited to: (a) willful and gross misconduct in respect of
the Participant's duties for the Corporation or the Affiliate, (b) conviction of
a felony or perpetration of a common law fraud, (c) willful failure to comply
with applicable laws or regulations with respect to the execution of the
Corporation's or the Affiliate's businesses or (d) theft, fraud, embezzlement,
dishonesty or other conduct which has resulted or is likely to result in
material economic or other damage to the Corporation or any Affiliate.
3. Effective Date and Term.
Subject to approval by the Corporation's stockholders, the Plan shall
become effective as of January 1, 1997, and Awards may be granted under the Plan
from and after that date. No Awards may be made under the Plan after December
31, 2006, but Awards theretofore granted may extend beyond that date.
Notwithstanding the foregoing, no Incentive Stock Options shall be granted after
December 20, 2005.
4. Administration.
4.1. The Plan shall be administered by the Committee. Subject to the
provisions set forth herein, the Committee shall have full authority to
determine the provisions of Awards, including, without limitation,
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vesting schedules, price, performance standards (including Performance Goals),
length of relevant performance, restriction or option period, dividend rights,
post-retirement and termination rights, payment alternatives such as cash,
stock, contingent awards or other means of payment consistent with the purposes
of the Plan and individual Award Documentation. The Committee also shall have
full authority to interpret the terms of the Plan and of Awards made under the
Plan, to adopt, amend and rescind rules and guidelines for the administration of
the Plan and for its own acts and proceedings and to decide all questions and
settle all controversies and disputes which may arise in connection with the
Plan. To the extent permitted by applicable law, the Committee may delegate to
one or more executive officers who are also directors of the Corporation the
power to make Awards to Participants who are not Reporting Persons at the time
of such Awards and all determinations under the Plan with respect thereto,
provided that the Committee shall fix the maximum amount of Awards for such
Participants as a group.
4.2. Notwithstanding Section 4.1 and subject to the provisions set forth
herein, the Board shall approve or ratify Awards made under the Plan to any
executive officer who is also a director of the Corporation.
4.3. The decision of the Committee on any matter as to which it is given
authority under Section 4.1 above shall be final and binding on all persons
concerned.
5. Shares Subject to the Plan.
5.1. Subject to adjustment in accordance with the provisions of Section
13.8 and subject to Section 5.4, (a) the total number of Shares available for
grants of Awards (including, without limitation, Awards of Restricted Stock and
Performance Shares) in any calendar year shall not exceed one and one-quarter
percent (1.25%) of the outstanding Common Stock as of the first business day of
such calendar year and (b) the total number of Shares available for grants of
Restricted Stock and Performance Shares in any calendar year shall not exceed
one-half of one percent (.5%) of the outstanding Common Stock as of the first
business day of such calendar year. Shares issued under the Plan may consist in
whole or in part of authorized but unissued Shares, Shares held as treasury
stock or previously issued Shares reacquired by the Corporation, including
Shares purchased on the open market. Notwithstanding the foregoing, the maximum
number of Shares that may be issued under Incentive Stock Options awarded under
the Plan, subject to adjustment in accordance with Section 13.8, shall be
5,000,000 Shares.
5.2. Subject to adjustment in accordance with Section 13.8, the total
number of Shares available for grants of Awards in any calendar year to any
Participant shall not exceed the lesser of (a) three-tenths of one percent (.3%)
of the outstanding Common Stock as of the first business day of such calendar
year or (b) 600,000 Shares.
5.3. For purposes of calculating the total number of Shares available for
grants of Awards, (a) the grant of a Performance Share shall be deemed to be
equal to the maximum number of Shares which may be issued upon payment of the
Performance Share and (b) where the value of an Award is variable on the date it
is granted, the value shall be deemed to be the maximum limitation of the Award.
Awards payable solely in cash shall not reduce the number of Shares available
for Awards granted under the Plan.
5.4. There shall be carried forward and available for Awards under the Plan
in each succeeding calendar year, in addition to Shares available for grant
under Section 5.1, all of the following: (a) any unused portion of the limit set
forth in Section 5.1 for any preceding calendar years; (b) Shares represented by
Awards which, during that calendar year or any preceding calendar years, have
been canceled, forfeited, surrendered, terminated or expire unexercised (with
the exception of the termination of a Tandem SAR upon the exercise of the
related Option, or the termination of a related Option upon exercise of the
corresponding Tandem SAR), or which are settled in a manner that results in
fewer Shares outstanding than were initially awarded (including, without
limitation, the surrender of Shares as full or partial payment for the Award or
any tax obligation thereon); (c) the excess amount of variable Awards which
become fixed at less than their maximum limitations; (d) authorized Shares as to
which Options, SARs and Restricted Stock were not granted under the Prior Plan
as of December 31, 1996 and (e) Shares granted under the Prior Plan subject to
Options, SARs or Restricted Stock which, during that calendar year or any
preceding calendar years, have been canceled, forfeited, surrendered, terminated
or expire unexercised or which are settled in a manner that
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results in fewer Shares outstanding than were initially awarded (including,
without limitation, the surrender of Shares as full or partial payment for the
Award or any tax obligation thereon).
6. Eligibility for Awards.
Any officer or employee of the Corporation or its Affiliates who, in the
opinion of the Committee, is in a position to have a significant effect upon the
Corporation's business and consolidated earnings, shall be eligible to receive
an Award under the Plan.
7. Grant of Awards.
From time to time while the Plan is in effect, the Committee may, in its
absolute discretion, select from among the persons eligible to receive Awards
(including persons to whom Awards were previously granted) those persons to whom
Awards are to be granted. Such Awards may be granted on a stand alone,
combination or tandem basis. In addition to granting Awards for purposes of
incentive compensation, Awards may also be made in tandem with or in lieu of
other current or deferred employee compensation.
8. Options.
8.1. Grant of Options. Subject to the provisions of the Plan, the Committee
may award Options, alone or in combination with other Awards under the Plan.
Options granted under the Plan may be either Incentive Stock Options or
Nonqualified Stock Options. The terms and conditions of Incentive Stock Options
shall be subject to and comply with Section 422(b) of the Code or any successor
provision, and any regulations thereunder.
8.2. Option Price. The Option price per share of Common Stock, with respect
to each Option, shall not be less than the Fair Market Value per share at the
time the Option is granted.
8.3. Period of Options. An Option shall be exercisable during such period
of time as the Committee shall determine, subject, in the case of Incentive
Stock Options, to any limitation required by the Code. It is contemplated that
the Committee will provide that an Option shall not be exercisable after the
expiration of ten years from the date the Option is granted.
8.4. Exercise of Options. Each Option shall be made exercisable at such
time or times, and shall be subject to such conditions or restrictions, as the
Committee shall determine. It is contemplated that the Committee will normally
provide that the right to exercise an Option will accrue on the first
anniversary of the date of grant with respect to 50 percent of the number of
shares of Common Stock subject to the Option and that the right to exercise the
Option with respect to the balance of the shares subject thereto will accrue on
the second anniversary of the date of grant. However, the Committee may, in its
discretion, in any case provide that the Option will be exercisable immediately
with respect to all of the shares of Common Stock subject to the Option or that
the right to exercise the Option will accrue in different installments and at
different times from those set forth above.
8.5. Payment for and Delivery of Stock. Payment of the Option exercise
price may be made by any of the following methods, as determined by the
Committee at the time the Option is granted: (a) in cash or its equivalent (b)
by delivery of Shares already owned by the Participant, valued at their Fair
Market Value on the date of exercise (provided that any Shares so delivered
shall have been held by the Participant for such period, if any, as the
Committee shall determine), (c) subject to such guidelines as may be promulgated
by the Committee, by delivery of a notice instructing the Corporation to deliver
the Shares being purchased to a broker, subject to the broker's delivery of cash
to the Corporation equal to the purchase price and any applicable withholding
taxes, (d) by delivery of such other lawful consideration as the Committee may
determine or (e) by any combination of the foregoing. The Committee may provide
for the automatic award of an Option upon the delivery of Shares to the
Corporation in payment of the exercise price of another Option for up to the
number of Shares delivered to the Corporation in payment of the exercise price
of such other Option.
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8.6. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated Beneficiary shall have the right to
exercise an Option following the termination of the Participant's employment
with the Corporation and its Affiliates. Such provisions shall be determined in
the sole discretion of the Committee and may reflect distinctions based on the
reasons for termination of employment, including, without limitation,
termination of employment by reason of the Participant's death, Retirement or
Disability.
9. Stock Appreciation Rights.
9.1. Grant of SARs. Subject to the provisions of the Plan, the Committee
may award SARs alone or in combination with other Awards under the Plan.
9.2. Grant Price. The grant price of a Freestanding SAR shall not be less
than the Fair Market Value of the Common Stock at the time of grant of the SAR.
The grant price of a Tandem SAR shall not be less than the Option exercise price
of the related Option.
9.3. Term of SARs. An SAR shall be exercisable during such period of time
as the Committee shall determine. It is contemplated that the Committee will
provide that an SAR shall not be exercisable after the expiration of ten years
from the date the SAR is granted.
9.4. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
9.5 Exercise of Freestanding SARs. Freestanding SARs shall be made
exercisable at such time or times, and shall be subject to such conditions or
restrictions, as the Committee shall determine. It is contemplated that the
Committee will normally provide that the right to exercise 50 percent of any
Freestanding SARs granted hereunder will accrue on the first anniversary of the
date of grant and that the right to exercise the balance of such Freestanding
SARs will accrue on the second anniversary of the date of grant. However, the
Committee may, in its discretion, in any case provide that Freestanding SARs
will be exercisable immediately or that the right to exercise Freestanding SARs
will accrue in different installments and at different times from those set
forth above.
9.6. Payment of SARs. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Corporation in an amount determined by
multiplying (a) the excess, if any, of the Fair Market Value of a share of
Common Stock on the date of exercise over the grant price by (b) the number of
Shares with respect to which the SAR is exercised. SARs may be payable in cash,
Shares or a combination of the two, as provided by the Committee. Shares issued
on the settlement of the exercise of SARs shall be valued at their Fair Market
Value on the date of exercise.
9.7. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated Beneficiary shall have the right to
exercise an SAR following the termination of the Participant's employment with
the Corporation and its Affiliates. Such provisions shall be determined in the
sole discretion of the Committee and may reflect distinctions based on the
reasons for termination of employment, including, without limitation,
termination of employment by reason of the Participant's death, Retirement or
Disability.
10. Restricted Stock.
10.1. Grant of Restricted Stock. Subject to the provisions of the Plan, the
Committee may award Restricted Stock alone or in combination with other Awards
under the Plan.
10.2. Terms of Restricted Stock. The Restricted Period and other provisions
of each Restricted Stock Award shall be established by the Committee and shall
be set forth in the Participant's Award Documentation.
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10.3. Nontransferability; Other Restrictions. Except as provided in this
Section 10, shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered during the Restricted Period. The Committee may
impose such other conditions and/or restrictions on any shares of Restricted
Stock granted under the Plan as it may deem advisable including, without
limitation, performance-based restrictions (whether or not based upon the
achievement of Performance Goals), employment-based restrictions and/or
restrictions under applicable federal or state securities laws.
10.4. Participants' Rights in Restricted Stock. Shares of Restricted Stock
shall be evidenced in such manner as the Committee may determine. Any
certificates issued in respect of Restricted Stock shall be registered in the
name of the Participant and, except as otherwise determined by the Committee,
shall be delivered to the Participant after the last day of the Restricted
Period. Except as otherwise provided by the Committee, during and after the
Restricted Period, dividends with respect to any Restricted Stock shall be paid
to, and voting rights with respect to any such Shares shall be vested in, the
Participant. To the extent provided by the Committee, Participants may defer the
receipt of any dividends payable during the Restricted Period with respect to
Restricted Stock.
10.5. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent, if any, to which the Participant or the
Participant's legal representative, guardian or Designated Beneficiary shall
have the right to receive unvested shares of Restricted Stock following the
termination of the Participant's employment with the Corporation and its
Affiliates. Such provisions shall be determined in the sole discretion of the
Committee and may reflect distinctions based on the reasons for termination of
employment, including, without limitation, termination of employment by reason
of the Participant's death, Retirement or Disability.
10.6. Consideration for Restricted Stock. Restricted Stock shall be issued
for no cash consideration or such minimum consideration as may be required under
applicable law.
11. Performance Shares.
11.1. Grant of Performance Shares. Subject to the provisions of the Plan,
the Committee may award Performance Shares alone or in combination with other
Awards under the Plan. The number and/or vesting of Performance Shares granted,
in the Committee's discretion, shall be contingent upon the degree of attainment
of the Performance Goals over the Performance Period.
11.2. Form and Timing of Payment of Performance Shares. During the course
of a Performance Period, the Committee shall determine the number of Performance
Shares as to which the Participant has earned the right to be paid based upon
the attainment of the applicable Performance Goals. The Committee shall pay any
earned Performance Shares as soon as practicable after they are earned in the
form of cash, Shares or a combination thereof (as determined by the Committee)
having an aggregate Fair Market Value equal to the number of Performance Shares
earned multiplied by the Fair Market Value of a share of Common Stock determined
as of the date such Performance Shares were earned. Any Shares used to pay out
earned Performance Shares may be granted subject to any restrictions deemed
appropriate by the Committee. To the extent provided by the Committee,
Participants may defer the receipt of payment of any Performance Shares or other
amounts (e.g., dividend equivalent rights) earned pursuant to the Award
Documentation.
11.3. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated Beneficiary shall have the right to
receive unearned Performance Shares following the termination of the
Participant's employment with the Corporation and its Affiliates. Such
provisions shall be determined in the sole discretion of the Committee and may
reflect distinctions based on the reasons for termination of employment,
including, without limitation, termination of employment by reason of the
Participant's death, Retirement or Disability.
12. Other Awards.
12.1. Grant of Other Awards. Subject to the provisions of the Plan, the
Committee may award Other Awards alone or in combination with other Awards under
the Plan.
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12.2. Terms of Other Awards. The Committee shall determine the terms and
provisions of Other Awards including, without limitation, any transfer
restrictions, vesting provisions, the value of such Awards and the form and
timing of payment of such Awards.
12.3. Termination of Employment. Each Participant's Award Documentation
shall set forth the extent to which the Participant or the Participant's legal
representative, guardian or Designated Beneficiary shall have the right to
exercise or receive Other Awards following the termination of the Participant's
employment with the Corporation and its Affiliates. Such provisions shall be
determined in the sole discretion of the Committee and may reflect distinctions
based on the reasons for termination of employment, including, without
limitation, termination of employment by reason of the Participant's death,
Retirement or Disability.
13. General Provisions Applicable to Awards.
13.1. Non-transferability of Awards. Subject to the provisions of this
Section, (a) no Award under the Plan shall be transferable otherwise than by
will, by the laws of descent and distribution, or by operation of a "qualified
domestic relations order," as that term is defined in the Code, and (b) during
the lifetime of the Participant to whom an Award has been granted, rights under
the Award may be exercised only by the Participant, the Participant's guardian
or legal representative, or by the assignee of the Award under a "qualified
domestic relations order." Notwithstanding the foregoing, the Committee may
provide for greater transferability in the case of any Award, including, without
limitation, transfer to one or more members of the Participant's family or to a
partnership or trust established for the benefit of one or more members of the
Participant's family. In no event shall Incentive Stock Options awarded under
the Plan be transferable other than as permitted under the rules prescribed in
the Code for incentive stock options. An Award that is intended to be exempt
under Rule 16b-3 under the Exchange Act or any successor rule, or that is
intended to qualify for the Performance-Based Exception, shall be transferable
only to the extent consistent with such exemption or qualification. Nothing in
this Section shall be construed as restricting the transfer of Shares that have
become free of other transfer restrictions under the Plan or that were awarded
free of any such restrictions.
13.3. Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter. The Committee may grant Awards hereunder
that are intended to satisfy the Performance-Based Exception and Awards that are
not intended to satisfy that exception. Awards hereunder that are intended to
satisfy the Performance-Based Exception shall be subject to the limitations of
Section 5.2. In no event shall an Award hereunder which is not intended to
satisfy the Performance-Based Exception be conditioned upon an Award hereunder
(to the same Participant) which is intended to satisfy the Performance-Based
Exception.
13.4. Tax Withholding. The Committee shall require, on such terms as it
deems necessary, that the Participant pay to the Corporation, or make other
satisfactory provision for payment of, any federal, state or local taxes
required by law to be withheld in respect of Awards under the Plan. In the
Committee's discretion, a Participant may elect to satisfy all or a portion of
his or her federal, state and local tax withholding requirements or liability,
up to the amount calculated by applying the Participant's maximum marginal tax
rate, by having Shares withheld from the Shares otherwise issuable in connection
with the event creating the tax obligation, or by delivering to the Corporation
previously owned Shares, valued at their Fair Market Value on the date that
withholding taxes are determined. The Corporation and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
13.5. Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or comply with applicable laws.
Notwithstanding the provisions of this Section 13.5, Awards to any such
individuals who are Reporting
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Persons shall be made in accordance with the other provisions of the Plan,
except as otherwise permitted by Rule 16b-3 under the Exchange Act or any
successor rule.
13.6. Amendment of Award. The Committee may amend, modify, terminate or
waive any condition or provision of any outstanding Award, including
substituting therefor another Award of the same or a different type, changing
the date of exercise or realization and converting an Incentive Stock Option to
a Nonqualified Stock Option; provided, however, that the Committee may not
(except in accordance with Section 13.8) increase the number of Shares subject
to any outstanding Award or decrease the Option or award price of the Award. The
Participant's consent to any such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
13.7. Acceleration of Vesting; Waiver of Restrictions. Notwithstanding any
provision of the Plan or any Award Documentation to the contrary, the Committee,
in its sole discretion, shall have the power at any time to (a) accelerate the
vesting or exercisability of any Award granted under the Plan, including,
without limitation, acceleration to such date that would result in such Awards
becoming immediately vested or exercisable, or (b) waive any restrictions of any
Award granted under the Plan.
13.8. Changes in Stock; Adjustment of Awards. In the event of a stock
dividend, stock split or other change in corporate structure or capitalization
affecting the Common Stock or any other transaction (including, without
limitation, an extraordinary cash dividend) which, in the determination of the
Committee, affects the Common Stock such that an adjustment is required in order
to preserve the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall equitably adjust any or all of (a) the
number and kind of Shares in respect of which Awards may be made under the Plan,
(b) the number and kind of Shares subject to outstanding Awards, and (c) the
Option or grant price with respect to any of the foregoing, provided that the
number of Shares subject to any Award shall always be a whole number. In the
event of any merger, consolidation, dissolution or liquidation of the
Corporation, the Committee, in its sole discretion, may, as to any outstanding
Awards, make such substitution or adjustment in the aggregate number of Shares
reserved for issuance under the Plan and in the number and purchase price (if
any) of Shares subject to such Awards as it may determine, make outstanding
Awards fully exercisable, or amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Award, shall require payment or other consideration which
the Committee deems equitable in the circumstances). Notwithstanding the
foregoing, in the case of an Award intended to qualify as an Incentive Stock
Option or to qualify for the Performance-Based Exception, adjustment shall be
made under this Section 13.8 only to the extent, if any, consistent with
continued qualification of the Award as an Incentive Stock Option or continued
qualification of the award for the Performance-Based Exception, as the case may
be.
13.9. Change In Control. Unless otherwise provided in a Participant's Award
Documentation, upon the occurrence of a Change in Control of the Corporation,
(a) any and all Options and SARs granted hereunder shall become immediately
exercisable, and shall remain exercisable through their entire term; (b) any
Restricted Periods and restrictions imposed on Restricted Stock shall lapse; and
(c) the target payout opportunities attainable under all outstanding Awards of
Restricted Stock and Performance Shares shall be deemed to have been fully
earned for the entire Performance Period(s) as of the effective date of the
Change in Control, and the vesting of all Awards shall be accelerated as of the
effective date of the Change in Control.
13.10. Dividend Equivalent Rights. The Committee may, in its discretion,
provide that any dividends declared on Shares subject to an Award, and which
would have been paid with respect to such Shares had they been owned by a
Participant, be paid to the Participant in Shares, cash or a combination of cash
and Shares, as specified in the Award Documentation.
14. Miscellaneous.
14.1. No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Corporation and its
Affiliates expressly reserve the right at any time to terminate the employment
of a Participant free from any liability or claim under the Plan, except as may
be expressly provided in the
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applicable Award. Except as specifically provided by the Committee in any
particular case, the loss of existing or potential profit in Awards granted
under the Plan shall not constitute an element of damages in the event of
termination of employment of a Participant, even if termination is in violation
of an obligation of the Corporation or an Affiliate to the Participant, by
contract or otherwise.
14.2. No Rights as a Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any Shares to be distributed under the Plan
until he or she becomes the holder thereof. A Participant to whom Common Stock
is awarded shall be considered the holder of the stock at the time of the Award
except as otherwise provided in the applicable Award.
14.3. No Fractional Shares. No fractional Shares shall be issued under the
Plan, and cash shall be paid in lieu of any fractional Shares in settlement.
14.4. Unfunded Plan. The Plan shall be unfunded, shall not create (or be
construed to create) a trust or a separate fund or funds, and shall not
establish any fiduciary relationship between the Corporation and any Participant
or other person.
14.5. Successors and Assigns. The Plan shall be binding on all successors
and assigns of the Participant, including without limitation the Participant's
Designated Beneficiary or any receiver or trustee in bankruptcy or
representative of the Participant's creditors.
14.6. Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time; provided, however, that no amendment which
requires stockholder approval in order for those Awards that are intended to be
exempt under Rule 16b-3 under the Exchange Act (or any successor rule) to be so
exempt or for those Awards that are intended to qualify under the
Performance-Based Exception to so qualify shall be effective unless approved by
the requisite vote of the Corporation's stockholders. The Committee may make
non-material amendments to the Plan.
14.7. Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
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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 By-Laws provide indemnity to the Registrant's Directors
and Officers in such capacity or as directors or officers of a wholly-owned
subsidiary of the Registrant for liability resulting from judgments, fines,
expenses or settlement amounts incurred in connection with any action, including
an action by or in the right of the Registrant, brought against such person in
such capacity. Under Massachusetts law and the By-Laws, 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 of such subsidiary. The By-Laws also provide that, with respect to
any matter disposed of by a compromise payment by such Director or Officer,
pursuant to a consent decree or otherwise, no indemnification shall be provided
unless such indemnification shall be ordered by a court or such compromise shall
be approved as being in the best interest of the Registrant, after notice that
it involves such indemnification: (a) by a disinterested majority of the
Directors then in office, (b) by a majority of the disinterested Directors then
in office, provided that there has been obtained an opinion in writing of
independent counsel to the effect that such person appears to have acted in good
faith in the reasonable belief that his or her action was in the best interests
of the Registrant, or (c) by the holders of a majority of the outstanding stock
at the time entitled to vote for Directors, exclusive of any stock owned by any
interested Director or Officer. Under Massachusetts law, a court may uphold
indemnification in connection with a suit in which there is a recovery by or in
the right of a corporation.
The By-Laws also provide for indemnification for all other directors and
officers of the Registrant's wholly-owned subsidiaries to the extent authorized
by the Board of Directors on the same statutory standard set forth in the
preceding paragraph. Where such a person is wholly successful in defending the
claim, he or she shall be entitled to indemnification. Directors and officers of
other subsidiaries and employees and agents of the Registrant and any
subsidiaries may be indemnified as determined by the Board from time to time.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) The following is a list of exhibits to this Registration Statement:
(2)(a) Agreement and Plan of Merger, dated as of December 12, 1995,
by and between Bank of Boston, BayBanks and Merger Subsidiary
(included as Exhibit A to the Joint Proxy Statement
-Prospectus).
(2)(b) Stock Option Agreements, dated as of December 12, 1995, by and
between Bank of Boston and BayBanks (included as Exhibits B
and C to the Joint Proxy Statement-Prospectus).
(3)(a) Restated Articles of Organization of Bank of Boston, as
amended through November 24, 1993, incorporated herein by
reference to Exhibit 3(a) to Bank of Boston's Annual Report
on Form 10-K for the year ended December 31, 1993 (File No.
1-6522).
(3)(b) By-Laws of Bank of Boston, as amended through April 28, 1994,
incorporated herein by reference to Exhibit 3(b) to Bank of
Boston's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-6522).
(4)(a) Rights Agreement, dated as of June 28, 1990, between Bank of
Boston and FNBB, as Rights Agent (the "Rights Agreement"),
and the description of the Rights, incorporated herein by
reference to Bank of Boston's Registration Statement on Form
8-A relating to the Rights and to Exhibit 1 of such
registration statement (File No. 1-6522).
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<PAGE> 224
(4)(b) Amendment to the Rights Agreement, dated December 12, 1995,
between Bank of Boston and FNBB, as Rights Agent, incorporated
herein by reference to Bank of Boston's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 1-6522).
(5) Opinion of Gary A. Spiess, Esq.*
(8)(a) Form of Opinion of Bingham, Dana & Gould LLP as to certain
tax matters.*
(8)(b) Form of Opinion of Palmer & Dodge as to certain tax matters.*
(23)(a) Consent of Coopers & Lybrand L.L.P. with respect to Bank of
Boston.*
(23)(b) Consent of KPMG Peat Marwick LLP with respect to BayBanks.*
(23)(c) Consent of Gary A. Spiess, Esq. (included in Exhibit 5).
(23)(d) Consent of Bingham, Dana & Gould LLP.*
(23)(e) Consent of Palmer & Dodge.*
(23)(f) Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.*
(23)(g) Consent of Morgan Stanley & Co. Incorporated.*
(23)(h) Consent of William M. Crozier, Jr.*
(23)(i) Consent of Thomas R. Piper.*
(23)(j) Consent of Glenn P. Strehle.*
(23)(k) Consent of John A. Cervieri Jr.
(24) Power of Attorney of certain officers and directors.*
(99)(a) Form of Proxy for Annual Meeting of Stockholders of Bank of
Boston.*
(99)(b) Form of Proxy for Annual Meeting of Stockholders of BayBanks.*
(99)(c) Text of Sections 85 to 98 of the Massachusetts Business
Corporation Law (included as Exhibit F to the Joint Proxy
Statement-Prospectus).
(99)(d) Employment Agreement dated as of December 12, 1995 by and
among Bank of Boston Corporation, BayBanks, Inc., and William
M. Crozier, Jr.*
- ---------------
*Previously Filed.
(b) Financial Statements Schedules.
Not Applicable.
(c) Fairness Opinions.
Included in Part I as Exhibits D and E to the Joint Proxy Statement-
Prospectus included in this Registration Statement.
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;
(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; or
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<PAGE> 225
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, 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 indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 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 Joint Proxy
Statement-Prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
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.
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<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Form S-4 Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Boston, and Commonwealth of Massachusetts, on the 17th day of April, 1996.
BANK OF BOSTON CORPORATION
By: /S/ GARY A. SPIESS
----------------------------
(Gary A. Spiess)
(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:
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------- --------------
<C> <S> <C>
/S/ CHARLES K. GIFFORD* Chairman of the Board April 17, 1996
- ----------------------------------------------- of Directors,
Charles K. Gifford President, Chief
Executive Officer and
Director (Chief
Executive Officer)
/S/ WILLIAM J. SHEA* Vice Chairman, Chief April 17, 1996
- ----------------------------------------------- Financial Officer and
William J. Shea Treasurer (Chief
Financial Officer)
/S/ ROBERT T. JEFFERSON* Comptroller (Chief April 17, 1996
- ----------------------------------------------- Accounting Officer)
Robert T. Jefferson
/S/ WAYNE A. BUDD* Director April 17, 1996
- -----------------------------------------------
Wayne A. Budd
WILLIAM F. CONNELL* Director April 17, 1996
- -----------------------------------------------
William F. Connell
- ----------------------------------------------- Director April , 1996
Gary L. Countryman
/S/ ALICE F. EMERSON* Director April 17, 1996
- -----------------------------------------------
Alice F. Emerson
</TABLE>
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<PAGE> 227
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------- --------------
<C> <S> <C>
THOMAS J. MAY* Director April 17, 1996
- -----------------------------------------------
Thomas J. May
DONALD F. MCHENRY* Director April 17, 1996
- -----------------------------------------------
Donald F. McHenry
J. DONALD MONAN* Director April 17, 1996
- -----------------------------------------------
J. Donald Monan
PAUL C. O'BRIEN* Director April 17, 1996
- -----------------------------------------------
Paul C. O'Brien
JOHN W. ROWE* Director April 17, 1996
- -----------------------------------------------
John W. Rowe
- ----------------------------------------------- Director April , 1996
Richard A. Smith
- ----------------------------------------------- Director April , 1996
William C.Van Faasen
THOMAS B. WHEELER* Director April 17, 1996
- -----------------------------------------------
Thomas B. Wheeler
ALFRED M. ZEIEN* Director April 17, 1996
- -----------------------------------------------
Alfred M. Zeien
*By: /S/ GARY A. SPIESS
-------------------------------------------
Gary A. Spiess, Attorney-in-Fact
</TABLE>
II-5
<PAGE> 1
EXHIBIT 23(K)
CONSENT OF DIRECTOR DESIGNEE
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, to the references to him in the SUMMARY and under the caption "THE
MERGER -- Management and Operations After the Merger" in the Joint Proxy
Statement -- Prospectus included in this registration statement.
/S/ JOHN A. CERVIERI JR.
------------------------------------
John A. Cervieri Jr.
Boston, Massachusetts
April 3, 1996
