<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1997
REGISTRATION NO. 333-32727
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BANKBOSTON CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
------------------------
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<S> <C> <C>
MASSACHUSETTS 6711 04-2471221
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
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 CLERK
BANKBOSTON CORPORATION BANKBOSTON CORPORATION
100 FEDERAL STREET 100 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02110
(617) 434-2870 (617) 434-8630
(Names, Addresses, Including Zip Codes, And Telephone Numbers, Including Area Codes, Of
Agents For Service)
</TABLE>
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 Pacific National Corporation have been satisfied or
waived as described in the enclosed Proxy Statement-Prospectus.
------------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ].
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(3) PRICE(1) FEE(4)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.50 per
share(2)........................ 500,000 -- $11,491,64 9 $3,482*
============================================================================================================
</TABLE>
* Previously paid.
(1) This Registration Statement covers the maximum number of the Registrant's
securities that would be issued in the transaction described herein.
(2) Includes Preferred Stock Purchase Rights. Prior to the occurrence of certain
events, the Rights will not be exercisable or evidenced separately from the
Common Stock.
(3) Not applicable.
(4) Computed pursuant to Rule 457(f)(2), based upon the book value of the
securities to be canceled in the merger, consisting of 487,761 shares of
Pacific National Corporation Common Stock.
------------------------
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
BANKBOSTON CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION IN PROXY
ITEM OF FORM S-4 STATEMENT-PROSPECTUS
---------------- --------------------
<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
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
ITEM 4 -- Terms of the Transaction......... Background of the Merger; Recommendation of
the Pacific Board of Directors; Reasons for
the Merger; Terms of the Merger; Accounting
Treatment; Certain Federal Income Tax
Consequences; Comparative Rights of
Stockholders; Incorporation of Certain
Information by Reference
ITEM 5 -- Pro Forma Financial
Information.............................. *
ITEM 6 -- Material Contracts with the
Company Being Acquired................... Background of the Merger; Recommendation of
the Pacific Board of Directors; Reasons for
the Merger; Interests of Certain Persons in
the Merger; Certain Related Transactions
ITEM 7 -- Additional Information Required
for Reoffering by Persons and Parties
Deemed To Be Underwriters................ *
ITEM 8 -- Interests of Named Experts and
Counsel.................................. Indemnification; Experts; Legal Opinions
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.............................. Recent Developments; Information about
BankBoston; Comparative Rights of
Stockholders; Incorporation of Certain
Information by Reference
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....................... *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CAPTION IN PROXY
ITEM OF FORM S-4 STATEMENT-PROSPECTUS
---------------- --------------------
<S> <C>
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................................ *
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................................ Recent Developments; Comparative Rights of
Stockholders; Description of Pacific's
Business; Management's Discussion and
Analysis of Pacific's Financial Condition
and Results of Operations; Financial
Statements of Pacific National Corporation
D. VOTING AND MANAGEMENT INFORMATION
ITEM 18 -- Information if Proxies, Consents
or Authorizations are to be Solicited.... Special Meeting of Stockholders;
Stockholder Vote Required; Voting
Agreement; Rights of Dissenting
Stockholders
ITEM 19 -- Information if Proxies, Consents
or Authorizations are not to be Solicited
in an Exchange Offer..................... *
</TABLE>
- ---------------
* Omitted because item is inapplicable, immaterial or answer to item is
negative.
<PAGE> 4
[Pacific National Corporation Letterhead]
August , 1997
Dear Fellow Stockholder:
We are pleased to invite you to attend a Special Meeting of Stockholders
(the "Special Meeting") of Pacific National Corporation, a Massachusetts
corporation ("Pacific"), which will be held on Tuesday, September 23, 1997, at
10:00 A.M. in the Board Room of Pacific National Bank of Nantucket, 61 Main
Street, Nantucket, Massachusetts.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Affiliation Agreement and Plan of
Reorganization, dated as of May 23, 1997, as amended (the "Affiliation
Agreement"), by and among Pacific, BankBoston Corporation ("BankBoston") and
Boston Parent Corp., a wholly-owned subsidiary of BankBoston ("Buyer Sub"), and
each of the transactions contemplated thereby, pursuant to which Buyer Sub will
be merged (the "Merger") with and into Pacific, and Pacific, as the surviving
corporation of the Merger, will become a subsidiary of BankBoston. A copy of the
Affiliation Agreement is attached to the accompanying Proxy Statement-Prospectus
as Appendix A.
Upon consummation of the Merger, for each outstanding share of common stock
of Pacific, you will be entitled to receive in a tax-free exchange, shares of
BankBoston common stock with a value (based on the average closing price of
BankBoston common stock during the 20 trading days ending on the fifth business
day before the closing date) equal to $50.00 per share. Tucker Anthony
Incorporated, Pacific's financial advisor, has advised the Pacific Board of
Directors that in its opinion the consideration to be received by Pacific
stockholders in the Merger is fair, from a financial point of view, to Pacific.
THE BOARD OF DIRECTORS OF PACIFIC HAS UNANIMOUSLY APPROVED THE AFFILIATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE AFFILIATION
AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
Enclosed are a Notice of Special Meeting of Stockholders and a Proxy
Statement-Prospectus which contains a description of the Merger as well as the
background of the transaction and the businesses of the two companies to explain
why the Pacific Board of Directors believes this transaction is in the best
interests of Pacific stockholders. Your Board recognizes that the Proxy
Statement-Prospectus is a long document, but encourages you to study the
document carefully. Should you have questions concerning the upcoming meeting
you may call Glenn L. Field of Pacific at (508) 228-1917. The Pacific Board of
Directors has fixed the close of business on August 20, 1997 as the record date
for the Special Meeting. Accordingly, only common stockholders of record on that
date will be entitled to notice of, and to vote at, the Special Meeting. The
affirmative vote of the holders of two-thirds of the shares of Pacific Common
Stock issued and outstanding and entitled to vote is necessary to approve and
adopt the Affiliation Agreement and the transactions contemplated thereby.
YOUR VOTE IS IMPORTANT. Accompanying this letter is a Notice of Special
Meeting of Stockholders, a Proxy Statement-Prospectus and a proxy card with a
return envelope. To ensure that your shares are represented at the meeting,
please sign, date and mail your proxy as promptly as possible in the postage
prepaid envelope provided. If you attend the meeting, you may vote in person
even though you have previously returned the proxy card. If you plan to attend
the Special 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 holder for whom you are acting as proxy.
<PAGE> 5
WE URGE YOU TO VOTE FOR APPROVAL OF THE AFFILIATION AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
On behalf of your Board of Directors, thank you for your continued support.
Sincerely,
s/ Philip C. Murray
-----------------------
Philip C. Murray
Chairman, President and
Chief Executive Officer
<PAGE> 6
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of
Pacific National Corporation:
Notice is hereby given that a Special Meeting of Stockholders of Pacific
National Corporation ("Pacific") will be held in the Board Room of Pacific
National Bank of Nantucket, 61 Main Street, Nantucket, Massachusetts, on
Tuesday, September 23, 1997 at 10:00 a.m. (the "Special Meeting"), for the
purpose of considering and voting upon the following matters:
1. A proposal to approve and adopt the Affiliation Agreement and Plan
of Reorganization, dated as of May 23, 1997, as amended (the "Affiliation
Agreement"), by and among Pacific, BankBoston Corporation ("BankBoston")
and Boston Parent Corp. ("Buyer Sub"), and each of the transactions
contemplated thereby, including the merger (the "Merger") of Buyer Sub with
and into Pacific, pursuant to which Pacific stockholders will receive
$50.00 in value (based on the Average Closing Price (as defined in the
Affiliation Agreement)) of BankBoston common stock for each share of
Pacific common stock exchanged in the Merger. A copy of the Affiliation
Agreement is attached as Appendix A to the accompanying Proxy
Statement-Prospectus.
2. Such other business as may properly be brought before the meeting
or any adjournments or postponements thereof.
Stockholder approval of the Affiliation Agreement and the transactions
contemplated thereby requires the affirmative vote of the holders of at least
two-thirds of the shares of Pacific common stock issued and outstanding and
entitled to vote at the Special Meeting.
Only stockholders of record at the close of business on August 20, 1997 are
entitled to notice of, and to vote at, the Special Meeting and any and all
adjournments or postponements thereof.
Appraisal Rights. If the Affiliation Agreement and the transactions
contemplated thereby are approved by stockholders at the Special Meeting and
consummated by Pacific, any stockholder (a) who, prior to the Special Meeting,
files with Pacific a written objection to the proposed action that states the
stockholder's intention to demand payment for his or her shares if the action is
taken, and (b) whose shares are not voted in favor of such action, has or may
have the right to demand an appraisal of the value of his or her shares and
payment thereof by submitting written notice to Pacific within twenty (20) days
after the date of mailing to the stockholder of notice in writing that the
proposed Merger has become effective. Pacific and any such stockholder shall in
such case have the rights and duties and must follow the procedure set forth in
Sections 85 to 98, inclusive, of Chapter 156B of the Massachusetts General Laws,
a copy of which is attached as Appendix F to the accompanying Proxy
Statement-Prospectus.
By Order of the Board of Directors
/s/ Philip Murray
-----------------------
Philip C. Murray
Chairman, President and
Chief Executive Officer
August , 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WE URGE YOU TO
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON. STOCKHOLDERS OF RECORD WHO ATTEND THE
MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.
<PAGE> 7
PROSPECTUS
500,000 SHARES
COMMON STOCK
<TABLE>
<S> <C>
[BANKBOSTON CORP. LOGO] [LOGO]
BANKBOSTON PACIFIC NATIONAL
CORPORATION CORPORATION
</TABLE>
------------------------
Proxy Statement
for
Special Meeting of Stockholders
September 23, 1997
This Proxy Statement of Pacific National Corporation ("Pacific") is being
furnished to stockholders of Pacific in connection with the solicitation of
proxies by the Board of Directors of Pacific (the "Pacific Board") for use at
the Special Meeting of Stockholders to be held on Tuesday, September 23, 1997,
at 10:00 a.m. in the Board Room of Pacific National Bank of Nantucket, 61 Main
Street, Nantucket, Massachusetts (the "Special Meeting"), including any
adjournments or postponements thereof. See "SPECIAL MEETING OF STOCKHOLDERS."
This Proxy Statement also serves as the Prospectus of BankBoston Corporation
(referred to herein as "BankBoston" or the "Registrant") relating to the
registration of up to 500,000 shares of common stock of BankBoston, par value
$1.50 per share (together with the Preferred Stock Purchase Rights which are
attached to and trade with BankBoston Common Stock, hereinafter, the "Rights")
(the "BankBoston Common Stock"), issuable to stockholders of Pacific upon
consummation of the proposed merger (the "Merger") of Boston Parent Corp., a
wholly-owned subsidiary of BankBoston (the "Buyer Sub"), with and into Pacific,
pursuant to the terms and subject to the conditions of the Affiliation Agreement
and Plan of Reorganization, dated as of May 23, 1997, as amended (the
"Affiliation Agreement"), by and among BankBoston, Buyer Sub and Pacific. The
Affiliation Agreement is attached hereto as Appendix A and is incorporated
herein by reference.
Immediately prior to the Merger, BankBoston will cause its principal bank
subsidiary, BankBoston, N.A., a national banking association (the "Bank"), and
Pacific will cause its bank subsidiary, Pacific National Bank of Nantucket, a
national banking association ("Pacific Bank"), to be merged (the "Bank Merger"),
with BankBoston, N.A. as the surviving national banking association, pursuant to
the terms of an Agreement and Plan of Merger, dated as of May 23, 1997, as
amended, between the Bank and Pacific Bank (the "Bank Merger Agreement"). The
Bank Merger Agreement is attached hereto as Appendix B and incorporated herein
by reference.
Upon consummation of the Merger, except as described herein, each share of
common stock of Pacific, par value $1.00 per share (the "Pacific Common Stock"),
issued and outstanding prior to the effective time of the Merger (except shares
of Pacific Common Stock held directly or indirectly by BankBoston, other than in
a fiduciary capacity or in respect of a debt previously contracted, any shares
held by Pacific as treasury stock and shares held by dissenting stockholders who
have perfected their rights of appraisal) will be converted into the number of
shares of BankBoston Common Stock (together with that number of Rights
associated therewith), equal to the quotient obtained by dividing (i) $50.00 by
(ii) the average of the closing prices of BankBoston Common Stock as reported on
the New York Stock Exchange ("NYSE") composite transactions reporting system for
the twenty consecutive trading days ending on the fifth business day prior to
the Closing Date (as defined herein). See "THE MERGER -- Terms of the Merger."
The transaction is subject to various conditions, including approval by the
stockholders of Pacific and approval by applicable regulatory authorities. See
"THE MERGER -- Conditions to the Merger."
BankBoston Common Stock is listed and traded on the NYSE and the Boston
Stock Exchange ("BSE") under the symbol "BKB." The closing price of BankBoston
Common Stock on the NYSE on August 15, 1997 was $82.313.
This Proxy Statement and Prospectus (the "Proxy Statement-Prospectus") does
not cover any resales of BankBoston Common Stock received by stockholders of
Pacific upon consummation of the Merger, and no person is authorized to make use
of this Proxy Statement-Prospectus in connection with any such resale.
All information concerning BankBoston contained in this Proxy
Statement-Prospectus has been furnished by BankBoston, and all information
concerning Pacific has been furnished by Pacific. BankBoston has represented and
warranted to Pacific and Pacific has represented and warranted to BankBoston
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 in light of the circumstances in which it was
made. See "EXPERTS" with respect to the financial statements of BankBoston and
Pacific. For a more complete description of the Affiliation Agreement and the
terms of the Merger, see "THE MERGER."
This Proxy Statement-Prospectus and the form of proxy are first being mailed
to stockholders of Pacific on or about August , 1997. BankBoston 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 500,000 shares of BankBoston Common Stock,
representing shares to be issued in connection with the Merger. This Proxy
Statement-Prospectus also constitutes the Prospectus of BankBoston filed as a
part of such Registration Statement.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT-PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT-PROSPECTUS IN ITS ENTIRETY.
------------------------
THE SHARES OF BANKBOSTON COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF
BANKBOSTON AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
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 PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement-Prospectus is August , 1997.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION................................................................. 5
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 6
SUMMARY............................................................................... 7
The Companies....................................................................... 7
BankBoston....................................................................... 7
Pacific.......................................................................... 7
The Merger.......................................................................... 7
Effect of the Merger and the Bank Merger............................................ 8
Effective Time...................................................................... 8
The Special Meeting................................................................. 8
Stockholder Vote Required; Letter Agreements........................................ 8
Background of the Merger; Recommendation of the Pacific Board of Directors; Reasons
for the Merger................................................................... 9
Opinion of Financial Advisor to Pacific............................................. 9
Regulatory Approvals................................................................ 9
Management and Operations after the Merger.......................................... 10
Interests of Certain Persons in the Merger.......................................... 10
Employee Matters.................................................................... 10
Stock Option Agreement.............................................................. 10
Indemnification..................................................................... 11
Accounting Treatment................................................................ 11
Certain Federal Income Tax Consequences............................................. 11
Conditions to the Merger............................................................ 11
Business Pending the Merger......................................................... 12
Waiver and Amendment................................................................ 12
Termination......................................................................... 12
Rights of Dissenting Stockholders................................................... 13
Comparative Rights of Stockholders.................................................. 13
Market and Market Prices............................................................ 13
BANKBOSTON SELECTED FINANCIAL DATA.................................................... 14
PACIFIC SELECTED FINANCIAL DATA....................................................... 16
BANKBOSTON CAPITALIZATION............................................................. 18
COMPARATIVE PER SHARE DATA (Unaudited)................................................ 19
SPECIAL MEETING OF STOCKHOLDERS....................................................... 20
Introduction........................................................................ 20
Purposes............................................................................ 20
Quorum and Voting................................................................... 20
Stockholder Vote Required; Letter Agreements........................................ 20
Solicitation of Proxies............................................................. 20
Revocation of Proxies............................................................... 21
INFORMATION ABOUT BANKBOSTON.......................................................... 22
General............................................................................. 22
Recent Developments................................................................. 22
INFORMATION ABOUT PACIFIC............................................................. 23
General............................................................................. 23
Recent Developments................................................................. 23
</TABLE>
1
<PAGE> 9
<TABLE>
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PAGE
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<S> <C>
THE MERGER............................................................................ 24
General............................................................................. 24
Background of the Merger............................................................ 24
Recommendation of the Pacific Board of Directors; Pacific's Reasons for the
Merger........................................................................... 25
Opinion of Financial Advisor to Pacific............................................. 27
Effective Time of the Merger; Closing Date.......................................... 32
Terms of the Merger................................................................. 33
Regulatory Approvals................................................................ 34
Management and Operations after the Merger.......................................... 35
Interests of Certain Persons in the Merger.......................................... 35
Employee Matters.................................................................... 35
Indemnification..................................................................... 36
Accounting Treatment................................................................ 36
Certain Federal Income Tax Consequences............................................. 36
Effect of the Merger............................................................. 36
Backup Withholding............................................................... 37
Resales of BankBoston Common Stock.................................................. 37
Stock Exchange Listings............................................................. 37
Conversion of Shares................................................................ 38
Conversion of Shares of Pacific Common Stock..................................... 38
Exchange Agent; Procedures for Exchange of Certificates.......................... 38
Lost Certificates................................................................ 39
Fractional Shares................................................................ 39
Conditions to the Merger............................................................ 39
Conditions to Each Party's Obligations........................................... 39
Conditions to BankBoston's Obligations........................................... 39
Conditions to Pacific's Obligations.............................................. 40
Business Pending the Merger......................................................... 40
Waiver and Amendment................................................................ 42
Waiver........................................................................... 42
Amendment........................................................................ 43
Expenses............................................................................ 43
Termination......................................................................... 43
Rights of Dissenting Stockholders................................................... 44
CERTAIN RELATED TRANSACTIONS.......................................................... 45
Stock Option Agreement.............................................................. 45
General.......................................................................... 45
Grant of Option.................................................................. 45
Triggering Events; Exercise of Option............................................ 45
Repurchase of Option............................................................. 46
Registration Rights.............................................................. 47
Assignment of Option............................................................. 47
Right of First Refusal........................................................... 47
Additional Provisions............................................................ 47
Letter Agreements................................................................... 47
Bank Merger Agreement............................................................... 48
</TABLE>
2
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF BANKBOSTON CAPITAL STOCK............................................... 49
Common Stock........................................................................ 49
General.......................................................................... 49
Liquidation...................................................................... 49
Voting........................................................................... 49
Dividends........................................................................ 49
Stockholder Rights Plan.......................................................... 49
Preferred Stock..................................................................... 50
General.......................................................................... 50
Dividends........................................................................ 51
Liquidation and Redemption....................................................... 51
Voting........................................................................... 51
COMPARATIVE RIGHTS OF STOCKHOLDERS.................................................... 52
General............................................................................. 52
Size and Classification of the Board of Directors................................... 52
Removal of Directors................................................................ 52
Stockholder Nominations............................................................. 52
BankBoston....................................................................... 52
Pacific.......................................................................... 52
Conflict of Interest Transactions................................................... 52
BankBoston....................................................................... 52
Pacific.......................................................................... 52
Meetings of Stockholders............................................................ 53
BankBoston....................................................................... 53
Pacific.......................................................................... 53
Amendment of By-Laws................................................................ 53
BankBoston....................................................................... 53
Pacific.......................................................................... 53
Required Vote for Certain Business Combinations..................................... 53
BankBoston....................................................................... 53
Pacific.......................................................................... 53
Stockholder Rights Plan............................................................. 54
BankBoston....................................................................... 54
Pacific.......................................................................... 54
State Anti-takeover Statutes........................................................ 54
BankBoston....................................................................... 54
Pacific.......................................................................... 54
OWNERSHIP OF PACIFIC COMMON STOCK..................................................... 55
INFORMATION ABOUT BANKBOSTON.......................................................... 56
DESCRIPTION OF PACIFIC'S BUSINESS..................................................... 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PACIFIC'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 64
EXPERTS............................................................................... 68
LEGAL OPINIONS........................................................................ 68
PACIFIC NATIONAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS........................ F-1
</TABLE>
3
<PAGE> 11
<TABLE>
<CAPTION>
APPENDIX
PAGE
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<S> <C>
APPENDIX A -- Affiliation Agreement and Plan of Reorganization, as amended........ A-1
APPENDIX B -- Agreement and Plan of Merger (for Bank Merger)...................... B-1
APPENDIX C -- Stock Option Agreement.............................................. C-1
APPENDIX D -- Form of Letter Agreement............................................ D-1
APPENDIX E -- Opinion of Tucker Anthony Incorporated.............................. E-1
APPENDIX F -- Text of Sections 85 to 98 of the Massachusetts Business
Corporation Law................................................................. F-1
</TABLE>
4
<PAGE> 12
AVAILABLE INFORMATION
BankBoston is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements, and other information with the
Commission. Such reports, proxy statements and other information filed by
BankBoston 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 BankBoston are listed on the NYSE and the BSE, and such reports, proxy
statements and other information concerning BankBoston also may 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. The Commission also maintains an internet site
(http://www.sec.gov) that contains information regarding BankBoston's electronic
filings with the Commission.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement which BankBoston 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 Section of the
Commission, at the address noted above, and copies thereof may be obtained from
the Commission at prescribed rates.
5
<PAGE> 13
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are hereby incorporated by reference in this Proxy
Statement-Prospectus the following documents and information heretofore filed
with the Commission, which documents are not presented herein or delivered
herewith:
BankBoston's:
1. Annual Report on Form 10-K filed for its fiscal year ended December
31, 1996 (the "BankBoston 1996 10-K");
2. Quarterly Reports on Form 10-Q filed since the BankBoston 1996
10-K;
3. Current Reports on Form 8-K filed since the BankBoston 1996 10-K;
4. 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.
All documents subsequently filed by BankBoston pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date of the Special Meeting
shall be deemed to be incorporated by reference into this Proxy
Statement-Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained 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 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 Proxy Statement-Prospectus.
BANKBOSTON WILL PROVIDE UPON REQUEST AND WITHOUT CHARGE, TO EACH PERSON TO
WHOM THIS PROXY STATEMENT-PROSPECTUS IS DELIVERED, A COPY OF ANY OR ALL OF THE
FOREGOING DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED THEREIN BY REFERENCE).
WRITTEN REQUESTS FOR DOCUMENTS RELATING TO BANKBOSTON SHOULD BE DIRECTED TO
INVESTOR RELATIONS, BANKBOSTON CORPORATION, P.O. BOX 2016, 01-20-02, BOSTON,
MASSACHUSETTS 02106-2016. TELEPHONE REQUESTS MAY BE DIRECTED TO INVESTOR
RELATIONS AT (617) 434-7858. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY OF THE
DOCUMENTS, REQUESTS SHOULD BE MADE BY SEPTEMBER 16, 1997.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS 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 BANKBOSTON OR PACIFIC. THIS
PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE THE BANKBOSTON COMMON STOCK OFFERED BY THIS
PROXY STATEMENT-PROSPECTUS, NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY,
WITHIN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER, OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION WITHIN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR THE
DISTRIBUTION OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BANKBOSTON OR
PACIFIC SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN OR IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OR THE DATES THEREOF.
6
<PAGE> 14
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by reference to more detailed information contained elsewhere in
this Proxy Statement-Prospectus or incorporated by reference in this Proxy
Statement-Prospectus, or in the accompanying Appendices and the documents
referred to herein. Stockholders are urged to carefully read the Proxy
Statement-Prospectus and its Appendices in their entirety. Capitalized terms
which are used and not defined in this Proxy Statement-Prospectus have the
meanings set forth in the Affiliation Agreement.
THE COMPANIES
BankBoston. BankBoston is a registered bank holding company organized in
1970 under Massachusetts law, with both national and international operations.
BankBoston, through its subsidiaries, and, in certain cases, joint ventures, is
engaged in providing a wide variety of personal, corporate and global banking
services to individuals, corporate and institutional customers, governments, and
other financial institutions. BankBoston's principal subsidiary is the Bank
(f/k/a The First National Bank of Boston). As of June 30, 1997, BankBoston had
total assets of $66.1 billion, total deposits of $43.0 billion and total
stockholders' equity of $4.7 billion. See "INFORMATION ABOUT BANKBOSTON."
The executive office of BankBoston and the head office of the Bank are
located at 100 Federal Street, Boston, Massachusetts 02110 (Telephone (617)
434-2200).
Pacific. Pacific is a registered bank holding company organized in 1984
under Massachusetts law, which, through its bank subsidiary, Pacific Bank, is
engaged in providing deposit and lending services to individuals and businesses
on the island of Nantucket, Massachusetts. As of June 30, 1997, Pacific had
total assets of $110.9 million, total deposits of $96.0 million and total
stockholders' equity of $11.5 million. See "INFORMATION ABOUT PACIFIC."
The executive office of Pacific is located at 61 Main Street, Nantucket,
Massachusetts 02554 (Telephone (508) 228-1917).
THE MERGER
The Affiliation Agreement provides for the merger of Buyer Sub with and
into Pacific, with Pacific surviving as a wholly-owned subsidiary of BankBoston.
Except as described below and under "THE MERGER -- Terms of the Merger," upon
consummation of the Merger, each share of Pacific Common Stock issued and
outstanding prior to the Effective Time (except shares of Pacific Common Stock
held directly or indirectly by BankBoston, other than in a fiduciary capacity or
in respect of a debt previously contracted, any shares held by Pacific as
treasury stock and shares held by dissenting stockholders who have perfected
their rights of appraisal) will be converted into the number of shares of
BankBoston Common Stock (together with a corresponding number of preferred stock
purchase rights (the "Rights")), equal to the quotient obtained by dividing (i)
$50.00 by (ii) the Average Closing Price (the "Exchange Ratio"). The Average
Closing Price is the average of the closing prices of shares of BankBoston
Common Stock as reported on the NYSE composite transactions reporting system for
the twenty consecutive trading days ending on the fifth business day prior to
the Closing Date.
The Exchange Ratio is the result of arm's-length negotiations between the
respective managements of Pacific and BankBoston. In negotiating the Exchange
Ratio, the management of Pacific had the benefit of advice from its financial
advisor, the investment banking firm of Tucker Anthony Incorporated ("Tucker
Anthony"). See "THE MERGER -- Opinion of Financial Advisor of Pacific."
No fractional shares of BankBoston Common Stock will be issued in the
Merger. In lieu thereof, each holder of shares of Pacific Common Stock who
otherwise would have been entitled to a fractional share of BankBoston Common
Stock will receive cash in an amount determined by multiplying such holder's
fractional interest by the Average Closing Price (rounded up to the nearest
cent). See "THE MERGER -- Conversion of Shares -- Fractional Shares."
7
<PAGE> 15
Assuming that the number of outstanding shares of Pacific Common Stock
remains unchanged from July 30, 1997, and BankBoston Common Stock continues to
trade at $75.34, the average closing price of BankBoston Common Stock for the
twenty consecutive trading days ending five business days prior to July 30,
1997, the Exchange Ratio would be .664. Based on an Exchange Ratio of .664, the
Merger will be valued at approximately $24.4 million as BankBoston would issue
323,873 shares of BankBoston Common Stock to acquire 487,761 shares of Pacific
Common Stock. Based on such a ratio, immediately after the Effective Time,
former Pacific stockholders will hold approximately .2% of the outstanding
shares of BankBoston Common Stock. Because the Exchange Ratio is based on the
closing prices of BankBoston Common Stock at a time proximate to the Effective
Time, it is not possible to predict with absolute certainty the number of shares
of BankBoston Common Stock that will be received by holders of Pacific Common
Stock in the exchange.
EFFECT OF THE MERGER AND THE BANK MERGER
Pursuant to the Affiliation Agreement, at the Effective Time (as defined
below), Buyer Sub will be merged into Pacific, with Pacific surviving as a
wholly-owned subsidiary of BankBoston. Pacific stockholders will become
stockholders of BankBoston.
Immediately prior to consummation of the Merger, Pacific will cause Pacific
Bank and BankBoston will cause the Bank to merge (the "Bank Merger"). The Bank
will be the surviving national banking association of the Bank Merger. SEE
"CERTAIN RELATED TRANSACTIONS -- Bank Merger Agreement."
EFFECTIVE TIME
The "Effective Time" of the Merger will be the date and time at which the
Articles of Merger of Pacific and Buyer Sub become effective with The
Commonwealth of Massachusetts. The "Closing Date" of the Merger on which the
Effective Time will occur will be on the first business day after the date on
which all conditions contained in Article VI of the Affiliation Agreement are
satisfied or waived, or on such other date that the parties mutually agree.
BankBoston and Pacific anticipate that the Merger will be completed in the
fourth quarter of 1997. If the Merger is not consummated on or before April 30,
1998, the Affiliation Agreement may be terminated by either BankBoston or
Pacific.
THE SPECIAL MEETING
The Special Meeting is scheduled to be held on Tuesday, September 23, 1997,
at 10:00 A.M., in the Board Room of Pacific National Bank of Nantucket, 61 Main
Street, Nantucket, Massachusetts. The Special Meeting will be held for the
purpose of considering and voting upon a proposal to approve and adopt the
Affiliation Agreement and the transactions contemplated thereby, and to conduct
any other business that may properly come before such meeting, or any
adjournments or postponements thereof. See "SPECIAL MEETING OF
STOCKHOLDERS -- Introduction" and "-- Purposes."
STOCKHOLDER VOTE REQUIRED; LETTER AGREEMENTS
Only stockholders of record at the close of business on August 20, 1997
(the "Record Date") are entitled to notice of and to vote at the Special
Meeting. As of the Record Date, there were issued and outstanding 487,761 shares
of Pacific Common Stock entitled to vote. The presence, in person or by proxy,
of a majority of the aggregate number of shares of Pacific Common Stock
outstanding on the Record Date is necessary to constitute a quorum at the
Special Meeting. Each stockholder is entitled to one vote, in person or by
proxy, for each share of Pacific Common Stock held of record in the
stockholder's name at the close of business on the Record Date. See "SPECIAL
MEETING OF STOCKHOLDERS -- Quorum and Voting."
The approval and adoption of the Affiliation Agreement and the transactions
contemplated thereby requires the affirmative vote of the holders of at least
two-thirds of the shares of Pacific Common Stock issued and outstanding and
entitled to vote at the Special Meeting. In connection with the execution of the
Affiliation Agreement, each of the directors of Pacific and the executive
officers of Pacific and Pacific Bank, owning 208,172 shares, representing 42.68%
of the shares issued and outstanding, agreed by separate letter (the "Letter
Agreements") to BankBoston, dated May 23, 1997, to vote or cause to be voted all
of the shares of
8
<PAGE> 16
Pacific Common Stock over which he or she has beneficial ownership as of the
Record Date in favor of the Affiliation Agreement and the Merger. Execution of
the Letter Agreements was a condition to BankBoston entering into the
Affiliation Agreement and no compensation was paid to any director or executive
officer in consideration for executing a Letter Agreement. See "SPECIAL MEETING
OF STOCKHOLDERS -- Quorum and Voting; Stockholder Vote Required; Letter
Agreements and Revocation of Proxies" and "CERTAIN RELATED
TRANSACTIONS -- Letter Agreements."
BACKGROUND OF THE MERGER; RECOMMENDATION OF THE PACIFIC BOARD OF DIRECTORS;
REASONS FOR THE MERGER
The terms of the Affiliation Agreement, including the Exchange Ratio, were
the result of arm's-length negotiations between BankBoston and Pacific. The
Pacific Board believes that the terms of the Affiliation Agreement, including
the Exchange Ratio, and each of the transactions contemplated thereby, are in
the best interests of Pacific and are fair to and in the best interests of its
stockholders and unanimously recommends that the stockholders of Pacific vote
for approval and adoption of the Affiliation Agreement and each of the
transactions contemplated thereby. In reaching its determination, the Pacific
Board consulted with management and with Pacific's financial and legal advisors,
and considered a number of factors. These factors are described in "THE
MERGER -- Background of the Merger" and "-- Recommendation of the Pacific Board
of Directors; Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR TO PACIFIC
Tucker Anthony was retained by the Pacific Board in May 1997 for the
purpose of rendering a fairness opinion in connection with the Merger. Tucker
Anthony has rendered written opinions to the Pacific Board, dated as of May 23,
1997, the business day immediately prior to the announcement of the Merger, and
as of the date of this Proxy Statement-Prospectus, to the effect that, as of
such dates, the Exchange Ratio is fair, from a financial point of view, to the
holders of Pacific Common Stock. The full text of the opinion of Tucker Anthony
is attached as Appendix E to this Proxy Statement-Prospectus. Pacific
stockholders are urged to read the opinion in its entirety for a description of
the procedures followed, assumptions made, matters considered and qualifications
and limitations on the review undertaken by Tucker Anthony in connection
therewith. Tucker Anthony's opinion is directed only to the Pacific Board about
the Exchange Ratio and does not constitute a recommendation to any Pacific
stockholder as to how such stockholder should vote at the Special Meeting. See
"THE MERGER -- Opinion of Financial Advisor to Pacific."
REGULATORY APPROVALS
The Affiliation Agreement provides that the obligation of BankBoston and
Pacific to consummate the Merger is conditioned upon the receipt of any required
approvals from governmental or regulatory authorities or agencies. The
regulatory approvals and consents necessary to consummate the Merger include the
approval of the Office of the Comptroller of the Currency (the "OCC") of the
Bank Merger. The Bank Merger may not be consummated until the 30th day after the
date OCC approval is received, during which time the United States Department of
Justice ("DOJ") has the authority to challenge the Merger on antitrust grounds
(or until the 15th day after OCC approval is received if the DOJ consents to
such shorter period).
Pursuant to regulations of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), BankBoston requested confirmation from the
Federal Reserve Bank of Boston (the "Reserve Bank") that an exemption from the
requirement to file an application is applicable to the Merger, or
alternatively, provided the Reserve Bank with prior written notice of the
Merger, in lieu of filing an application under the Bank Holding Company ("BHC")
Act, since among other things, the Bank Merger requires the prior approval of a
federal supervisory agency under the Bank Merger Act, as amended ("BMA"). The
Reserve Bank has notified BankBoston in writing that no application is required
to be filed in connection with the consummation of the Merger. Under these
circumstances, the Merger does not require the prior approval of the Federal
Reserve Board (or the Reserve Bank, acting on delegated authority).
There can be no assurance that such required regulatory approvals will be
obtained, and, if the Merger is approved, there can be no assurances as to the
date of any such approval. There can also be no assurance that the DOJ will not
challenge the Merger on antitrust grounds, or if such a challenge is made, as to
the result thereof. See "THE MERGER -- Regulatory Approvals" and "-- Conditions
to the Merger."
9
<PAGE> 17
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the Merger, the directors and officers of the Buyer Sub
immediately prior to the Effective Time will be the directors and officers of
Pacific. See "THE MERGER -- Management and Operations after the Merger."
As set forth in the Bank Merger Agreement, after the Bank Merger, the
former offices of Pacific Bank will be owned by the Bank and may be operated in
the Bank's sole discretion and subject to applicable law, under the name,
"Pacific National, a division of BankBoston, N.A."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
By resolution of the Board of Directors of Pacific, two directors of
Pacific and five employees of Pacific Bank are entitled to receive certain bonus
payments from Pacific, or BankBoston, as successor thereto, conditioned upon
consummation of the Merger. The aggregate total of all such bonus payments is
$815,000. As set forth in such resolution, Pacific has agreed to cause such
employees to execute and deliver a Protection Agreement containing certain
non-compete and non-disclosure provisions in favor of BankBoston at the
Effective Time upon payment of such bonuses.
Charles K. Gifford, the Chief Executive Officer and a director of
BankBoston, is the brother of John F. Gifford, a director of Pacific. The
Gifford family, including Charles K. Gifford, beneficially owns, in the
aggregate, 30,588 shares, or 6.27% of the issued and outstanding shares of
Pacific Common Stock. Charles Gifford did not participate at any time in the
negotiations between Pacific and BankBoston, during internal discussions at
BankBoston regarding the proposed Merger, or in the approval of the Merger by
BankBoston. Currently, Charles Gifford intends to donate the proceeds he
receives from his interest in Pacific, which is held in an irrevocable trust for
his benefit, to charity. See "THE MERGER -- Background of the Merger."
See "THE MERGER -- Management and Operations after the Merger," "--
Interests of Certain Persons in the Merger," and "-- Employee Matters."
EMPLOYEE MATTERS
At the Effective Time, all employees of Pacific and Pacific Bank will be
offered continued employment with BankBoston until at least May 31, 1998. In the
event that after May 31, 1998, the position of any qualified employee of Pacific
or Pacific Bank is eliminated by BankBoston, BankBoston has agreed to offer such
employee a comparable position with BankBoston or an affiliate of BankBoston at
another location of BankBoston or an affiliate of BankBoston. All former
employees of Pacific Bank who become employees of BankBoston or an affiliate of
BankBoston at the Effective Time will be subject to the employment arrangements
and pay practices generally made available by BankBoston to its employees.
As promptly as practicable after the Effective Time, BankBoston has agreed
to provide the former employees of Pacific and Pacific Bank who remain employees
of BankBoston or an affiliate of BankBoston with levels of employee benefits in
the aggregate no less favorable than those maintained by BankBoston for
BankBoston employees. BankBoston will cause each such plan or program to treat
the prior service of Pacific employees (to the extent such prior service is
recognized under the comparable plan or program of Pacific) as service rendered
to BankBoston or its affiliate. Such prior service will be recognized for
purposes of eligibility to participate, vesting, and eligibility for special
benefits under such plan or program of BankBoston, but not for benefit accrual
where such accrual would duplicate benefits under any plan maintained by Pacific
or Pacific Bank.
STOCK OPTION AGREEMENT
As a condition precedent to BankBoston's entering into the Affiliation
Agreement and in consideration therefor (without other consideration or monetary
payment), BankBoston and Pacific entered into the Stock Option Agreement, dated
as of May 23, 1997 (the "Stock Option Agreement"). The Stock Option Agreement is
intended to increase the likelihood that the Merger will be consummated in
accordance with the
10
<PAGE> 18
terms of the Affiliation Agreement. See "CERTAIN RELATED TRANSACTIONS -- Stock
Option Agreement." A copy of the Stock Option Agreement is attached hereto as
Appendix C.
Pursuant to the Stock Option Agreement, Pacific granted BankBoston an
option (the "Option") to purchase, under certain circumstances and subject to
adjustment, up to 121,452 fully paid and nonassessable shares of Pacific Common
Stock at a price of $35.00 per share. The Option is exercisable upon the
occurrence of certain events that create the potential for a third party to
acquire control of Pacific. In lieu of exercising the Option, BankBoston or any
permitted transferee can require Pacific, under certain circumstances, to
repurchase for a formula price the Option or any shares of Pacific Common Stock
acquired upon exercise of the Option. To the best knowledge of BankBoston and
Pacific, no such event which would permit exercise of the Option has occurred as
of the date hereof. See "CERTAIN RELATED TRANSACTIONS -- Stock Option
Agreement."
INDEMNIFICATION
BankBoston has agreed that rights to indemnification existing in favor, and
all limitations on the personal liability, of any director, officer, or other
employee of Pacific or Pacific Bank provided for in the Articles of Organization
or By-Laws of Pacific or Pacific Bank as in effect on May 23, 1997, will remain
in effect for not less than six years after the Closing Date. See "THE
MERGER -- Indemnification."
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase and certain adjustments will
be made with respect to those Pacific assets and liabilities acquired or assumed
by BankBoston pursuant to the Affiliation Agreement whose carrying values differ
from their estimated fair market values. The actual adjustments will be made on
the basis of appraisals and evaluations as of the dates of consummation of the
Merger and the Bank Merger. See "THE MERGER -- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned on the delivery by the respective
counsel to BankBoston and Pacific of opinions to the effect that, among other
things, if consummated in accordance with the Affiliation Agreement, the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). If the
Merger constitutes such a reorganization, the following would be the material
federal income tax consequences of the Merger to Pacific stockholders: (a) no
gain or loss will be recognized by the stockholders of Pacific upon their
receipt of BankBoston Common Stock on conversion of their Pacific Common Stock,
except in respect of cash received in lieu of fractional shares or by dissenting
stockholders, if any; (b) the tax basis of the shares of BankBoston Common Stock
received by the stockholders of Pacific will be the same as the tax basis of
their converted Pacific Common Stock (reduced by any amount allocable to a
fractional share interest for which cash is received); (c) the holding period of
the BankBoston Common Stock held by Pacific stockholders will generally include
the holding period of their converted Pacific Common Stock; and (d) gain or loss
will be recognized by stockholders of Pacific who receive cash proceeds for
fractional interests in BankBoston Common Stock and by stockholders who dissent
from the Merger on their receipt of cash in redemption of their Pacific Common
Stock. Stockholders should consult their personal tax advisors as to the tax
consequences of the Merger to them under federal, state, local or other
applicable law. See "THE MERGER -- Certain Federal Income Tax Consequences."
CONDITIONS TO THE MERGER
The obligation of each of BankBoston and Pacific to consummate the Merger
is subject to satisfaction of a number of conditions, including (a) the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of Pacific Common Stock approving the Affiliation Agreement
and the transactions contemplated thereby, (b) the approval of the Merger and
the Bank Merger by certain federal regulatory authorities, (c) the effectiveness
of BankBoston's registration statement under the Securities Act with respect
11
<PAGE> 19
to the BankBoston Common Stock to be issued pursuant to the Affiliation
Agreement, (d) the receipt by BankBoston of the opinion of Bingham, Dana & Gould
LLP, and the receipt by Pacific of the opinion of Choate, Hall & Stewart, each
opinion substantially to the effect that, if consummated in accordance with the
Affiliation Agreement, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, and addressing such other matters relating to federal
income tax effects as are customary in such transactions, (e) the absence of any
change in the business, assets, financial condition, results of operations, or
prospects of Pacific or Pacific Bank or BankBoston or any of its subsidiaries
which has had, individually or in the aggregate, a Material Adverse Effect (as
defined in the Affiliation Agreement) on Pacific or BankBoston, as the case may
be, and (f) certain other conditions customary in transactions of this nature.
Pacific's obligation to consummate the Merger is also subject to the
authorization for listing on the NYSE of the BankBoston Common Stock issuable in
connection with the Merger. See "THE MERGER -- Conditions to the Merger."
BUSINESS PENDING THE MERGER
Pursuant to the Affiliation Agreement, Pacific has agreed to, and will
cause Pacific Bank to, undertake or refrain from undertaking certain actions
pending the Merger. For a full discussion of the conduct of the business of
Pacific pending the Merger and the other agreements made by the parties with
respect to certain matters, see "THE MERGER -- Business Pending the Merger."
WAIVER AND AMENDMENT
Subject to applicable law and as may be authorized by their respective
Boards of Directors, at any time prior to the consummation of the transactions
contemplated by the Affiliation Agreement or the termination of the Affiliation
Agreement, whether before or after approval by the Pacific stockholders of the
Affiliation Agreement and the transactions contemplated thereby, the parties may
(a) amend the Affiliation Agreement by written agreement, (b) extend the time
for the performance of any of the obligations or other acts of any other party
thereunder, (c) waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto, or (d) waive
compliance with any of the agreements or conditions contained in Articles V and
VI (other than those identified in Section 6.01) thereof. Any agreement on the
part of any party to any extension or waiver will be valid only if set forth in
writing signed on behalf of such party, but such waiver or failure to insist on
strict compliance with such obligation, covenant, agreement or condition will
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. See "THE MERGER -- Waiver and Amendment."
TERMINATION
The Affiliation Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after the approval of
Pacific's stockholders, under the following circumstances: (a) by mutual written
consent of the respective Boards of Directors of Pacific and BankBoston; (b) by
either Pacific or BankBoston (i) if the Merger has not occurred on or prior to
April 30, 1998, or such later date as agreed to in writing by BankBoston and
Pacific; (ii) if any governmental or regulatory authority or agency, or a court
of competent jurisdiction, issues a final permanent order or Injunction (as
defined in the Affiliation Agreement) enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the Affiliation Agreement and
the time for appeal or petition of such order or Injunction has expired without
such appeal or petition being granted; (iii) in the event of a material breach
by the other party of the Affiliation Agreement or the Stock Option Agreement
(as more fully described at "CERTAIN RELATED TRANSACTIONS -- Stock Option
Agreement") which is not cured within 15 days after written notice thereof; or
(iv) if the stockholders of Pacific fail to approve the Merger at the Special
Meeting, provided in each case that the terminating party is not then in
material breach of the Affiliation Agreement or the Stock Option Agreement. See
"THE MERGER -- Termination."
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<PAGE> 20
RIGHTS OF DISSENTING STOCKHOLDERS
A holder of Pacific Common Stock will have appraisal rights provided under
Massachusetts law, if the Merger is consummated and all requirements of
Massachusetts law are satisfied by such stockholder seeking to exercise such
rights. See "THE MERGER -- Rights of Dissenting Stockholders" and Sections 86
through 98 of Chapter 156B of the Massachusetts Business Corporation Law
("MBCL") attached hereto as Appendix F.
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of holders of shares of Pacific Common Stock currently are
governed by the Massachusetts General Laws, including in particular, the MBCL,
and the Articles of Organization and By-Laws of Pacific. At the Effective Time,
holders of shares of Pacific Common Stock (except shares of Pacific Common Stock
held directly or indirectly by BankBoston, other than in a fiduciary capacity or
in respect of a debt previously contracted, any shares held as treasury stock by
Pacific and shares held by dissenting stockholders who have perfected their
rights of appraisal) will become stockholders of BankBoston, and their rights
will be governed by the MBCL and BankBoston's Articles of Organization and
By-Laws. See "COMPARATIVE RIGHTS OF STOCKHOLDERS," for a discussion of the
material differences in the rights of the holders of Pacific Common Stock and
BankBoston Common Stock.
MARKET AND MARKET PRICES
BankBoston Common Stock is traded on the NYSE and BSE. There is no public
trading market for the Pacific Common Stock. The Affiliation Agreement provides
as a condition to Pacific's obligation to consummate the Merger that the shares
of BankBoston Common Stock issuable in connection with the Merger be authorized
for listing on the NYSE. See "THE MERGER -- Conditions to the Merger." The
information set forth in the table below presents the closing prices for
BankBoston Common Stock, as reported on the NYSE composite transactions
reporting system and the "equivalent per share price" (as defined below) of
Pacific Common Stock on (a) May 23, 1997, the business day immediately preceding
the public announcement of the Merger, and (b) August 15, 1997. The "equivalent
per share price" of the Pacific Common Stock is calculated by multiplying the
closing price of BankBoston Common Stock on the NYSE on such dates by the
Exchange Ratio:
<TABLE>
<CAPTION>
PACIFIC
PRICE PER SHARE BANKBOSTON PACIFIC EQUIVALENT PER
AT COMMON STOCK COMMON STOCK SHARE PRICE
- ----------------- ------------ ------------ --------------
<S> <C> <C> <C>
May 23, 1997 $ 74.875 $23.04(1) $50.00
August 15, 1997 $ 82.313 $23.61(2) $50.00
</TABLE>
- ---------------
(1) Pacific Common Stock is not traded on any established market. At March 31,
1997, the book value (unaudited) per share of Pacific Common Stock was
$23.04.
(2) At July 31, 1997, the book value (unaudited) per share of Pacific Common
Stock was $23.61.
No assurance can be given as to what the Exchange Ratio or the market price
of BankBoston Common Stock will be if and when the Merger is consummated.
13
<PAGE> 21
BANKBOSTON
SELECTED FINANCIAL DATA
The following table sets forth certain condensed consolidated historical
financial data of BankBoston and is based on the consolidated financial
statements of BankBoston, including the respective notes thereto, which are
incorporated by reference in this Proxy Statement-Prospectus and should be read
in conjunction therewith. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." Interim unaudited financial data for the six months ended June 30,
1997 and 1996 reflect, in the opinion of management of BankBoston, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data. Results for the six months ended June 30, 1997
are not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income........................... $ 2,556 $ 2,443 $ 4,893 $ 5,119 $ 4,376 $ 3,330 $ 3,664
Interest expense.......................... 1,320 1,306 2,553 2,870 2,339 1,561 1,992
------- ------- ------- ------- ------- ------- -------
Net interest revenue.................. 1,236 1,137 2,340 2,249 2,037 1,769 1,672
Provision for credit losses............... 120 114 231 275 154 107 288
------- ------- ------- ------- ------- ------- -------
Net interest revenue after provision
for credit losses................... 1,116 1,023 2,109 1,974 1,881 1,662 1,384
Noninterest income........................ 707 668 1,344 1,309 1,035 945 1,020
Noninterest expense (1)................... 1,122 1,059 2,320 2,076 1,947 2,002 1,949
------- ------- ------- ------- ------- ------- -------
Income before income taxes, extraordinary
items and cumulative effect of changes
in accounting principles................ 701 632 1,133 1,207 971 605 455
Provision for income taxes................ 282 263 483 529 422 262 190
------- ------- ------- ------- ------- ------- -------
Income before extraordinary items and
cumulative effect of changes in
accounting principles................... 419 369 650 678 549 343 265
Extraordinary items
Loss from early extinguishment of debt,
net of tax............................ (7)
Recognition of prior year tax benefit
carryforwards......................... 73
Cumulative effect of changes in accounting
principles, net (2)..................... 24
------- ------- ------- ------- ------- ------- -------
Net income............................ $ 419 $ 369 $ 650 $ 678 $ 542 $ 367 $ 338
======= ======= ======= ======= ======= ======= =======
Net income applicable to common
stock............................... $ 400 $ 350 $ 613 $ 641 $ 505 $ 332 $ 318
======= ======= ======= ======= ======= ======= =======
Per common share
Income before extraordinary items and
cumulative effect of changes in
accounting principles
Primary............................... $ 2.66 $ 2.27 $ 3.99 $ 4.17 $ 3.44 $ 2.09 $ 1.77
Fully diluted......................... 2.62 2.24 3.93 4.09 3.36 2.05 1.73
Net income
Primary............................... 2.66 2.27 3.99 4.17 3.39 2.26 2.30
Fully diluted......................... 2.62 2.24 3.93 4.09 3.31 2.21 2.24
Book value.............................. 28.32 28.42 28.89 27.01 23.07 21.13 18.98
Cash dividends declared................. .95 .81 1.69 1.28 .93 .40 .10
Average number of common shares (in
thousands)
Primary............................... 150,650 154,318 153,529 153,856 148,913 147,033 138,444
Fully diluted......................... 152,691 156,018 156,112 156,768 153,616 152,067 144,044
</TABLE>
14
<PAGE> 22
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCE SHEET DATA:
Loans and lease financing................. $41,923 $39,646 $40,589 $38,283 $36,017 $32,565 $31,568
Total earning assets...................... 56,738 52,444 53,410 49,567 47,517 42,880 41,658
Total average assets...................... 63,580 58,485 59,523 55,744 53,389 47,937 46,290
Deposits.................................. 42,073 40,875 41,603 38,406 37,919 37,163 37,643
Notes payable............................. 3,333 2,502 2,666 2,142 2,123 1,797 1,252
Stockholders' equity...................... 4,802 4,698 4,744 4,304 3,766 3,390 2,762
SELECTED RATIOS:
Net interest margin (3)................... 4.43% 4.40% 4.42% 4.58% 4.32% 4.16% 4.05%
Return on average assets(3)............... 1.33 1.27 1.09 1.22 1.01 .76 .73
Return on average common equity(3) (4).... 18.79 16.80 14.47 16.86 15.50 11.39 12.86
Common equity to total assets............. 6.3 7.1 7.1 7.1 6.2 6.1 5.9
Average total stockholders' equity to
average total assets.................... 7.6 8.0 8.0 7.7 7.1 7.1 6.0
Risk-based capital ratios
Tier 1.................................. 8.8 8.6 9.3 8.5 7.7 7.7 7.4
Total................................... 12.8 12.7 13.6 12.8 12.7 12.4 11.8
Leverage ratio............................ 7.8 7.8 8.2 7.4 6.7 6.9 6.6
Net credit losses to average loans and
lease financing(3)...................... .76 .51 .57 .51 .81 .87 1.38
Reserve for credit losses to loans and
lease financing......................... 2.00 2.20 2.15 2.29 2.19 2.70 3.57
Reserve for credit losses to nonaccrual
loans and lease financing............... 240.2 224.8 219.6 238.9 197.0 142.2 116.3
Nonaccrual loans and OREO as a percent of
related asset categories ............... .9 1.1 1.1 1.1 1.5 2.5 4.2
</TABLE>
- ---------------
(1) Includes, in 1996, $180 million of charges primarily composed of employee
severance and property-related costs recorded in connection with
BankBoston's acquisition of BayBanks, Inc. Includes, in 1995, $28 million of
charges mainly related to exiting, reorganizing and downsizing certain
business and corporate staff units. Includes, in 1994, costs of $21 million
recorded in connection with BankBoston's acquisitions of BankWorcester
Corporation and Pioneer Financial, A Co-operative Bank; and includes, in
1993, acquisition-related costs and reorganization charges of $85 million,
recorded primarily in connection with BankBoston's mergers with Society for
Savings Bancorp, Inc. and Multibank Financial Corp., as well as estimated
costs of downsizing and reconfiguring certain of BankBoston's business and
corporate units.
(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 principles pertaining to the valuation of purchased
mortgage servicing rights.
(3) Ratios for the six-month periods are annualized.
(4) For purposes of this ratio, preferred stock dividends have been deducted
from net income.
15
<PAGE> 23
PACIFIC
SELECTED FINANCIAL DATA
The following table sets forth certain condensed consolidated historical
financial data of Pacific and is based on the consolidated financial statements
of Pacific, including the respective notes thereto, which are included elsewhere
in this Proxy Statement-Prospectus and should be read in conjunction therewith.
See "PACIFIC NATIONAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS." Interim
unaudited financial data for the six months ended June 30, 1997 and 1996
reflect, in the opinion of management of Pacific, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of such
data. Results for the six months ended June 30, 1997 are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- ------- -------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income................................ $ 3,983 $ 3,912 $ 8,193 $ 7,520 $ 6,466 $ 6,569 $ 7,248
Interest expense............................... 1,080 985 2,064 1,959 1,769 1,909 2,856
-------- ------- -------- ------- ------- ------- -------
Net interest revenue....................... 2,903 2,927 6,129 5,561 4,697 4,660 4,392
Provision for credit losses.................... 348 852
-------- ------- -------- ------- ------- ------- -------
Net interest revenue after provision for
credit losses............................ 2,903 2,927 6,129 5,561 4,697 4,312 3,540
Noninterest income............................. 560 648 1,503 1,325 1,547 1,396 999
Noninterest expense............................ 2,323 2,197 4,711 4,477 4,641 4,251 4,011
-------- ------- -------- ------- ------- ------- -------
Income before income taxes and cumulative
effect of change in accounting principle..... 1,140 1,378 2,921 2,409 1,603 1,457 528
Provision for income taxes..................... 485 589 1,197 1,026 600 475 225
-------- ------- -------- ------- ------- ------- -------
Income before cumulative effect of change in
accounting principle......................... 655 789 1,724 1,383 1,003 982 303
Cumulative effect of change in accounting for
postretirement benefits other than
pensions..................................... (71)
-------- ------- -------- ------- ------- ------- -------
Net income................................. $ 655 $ 789 $ 1,724 $ 1,383 $ 1,003 $ 911 $ 303
======== ======= ======== ======= ======= ======= =======
Per common share
Income before cumulative effect of change in
accounting principle....................... $ 1.34 $ 1.62 $ 3.53 $ 2.84 $ 2.06 $ 2.01 $ .95
Net income................................... 1.34 1.62 3.53 2.84 2.06 1.87 .95
Book value................................... 23.56 21.50 22.52 20.16 18.20 16.24 14.38
Cash dividends declared...................... .30 .28 1.18 .88 .10
Average number of common shares (in
thousands)................................... 488 488 488 488 488 488 318
</TABLE>
16
<PAGE> 24
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- ------- -------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCE SHEET DATA:
Loans and lease financing...................... $ 86,482 $79,079 $ 78,195 $78,143 $68,177 $63,316 $62,997
Total earning assets........................... 98,141 92,090 98,293 92,352 91,574 88,220 89,584
Total average assets........................... 102,267 96,061 102,651 96,866 96,465 95,349 96,993
Deposits....................................... 90,467 84,967 91,158 85,814 86,634 85,651 90,084
Notes payable.................................. 200 350
Stockholders' equity........................... 11,259 10,188 10,503 9,355 8,399 7,467 6,067
SELECTED RATIOS:
Net interest margin(1)......................... 5.98% 6.39% 6.24% 6.02% 5.13% 5.28% 4.90%
Return on average assets(1).................... 1.29 1.65 1.68 1.43 1.04 .96 .31
Return on average common equity(1)............. 11.73 15.57 16.41 14.78 11.94 12.20 4.99
Common equity to total assets.................. 10.4 10.1 10.7 10.1 9.0 8.5 7.5
Average total stockholders' equity to average
total assets................................. 11.0 10.6 10.2 9.7 8.7 7.8 6.3
Risk-based capital ratios
Tier 1....................................... 16.1 17.6 18.1 15.9 17.5 14.7 14.2
Total........................................ 17.4 18.8 19.4 17.2 18.8 16.0 15.7
Leverage ratio................................. 11.2 10.8 10.3 9.8 9.0 7.9 7.3
Net credit losses (recoveries) to average loans
and lease financing(1)....................... (.32) (.15) (.15) (.09) .29 .92 1.00
Reserve for credit losses to loans and lease
financing.................................... 2.61 2.99 2.99 2.75 3.02 3.47 4.33
Reserve for credit losses to nonaccrual loans
and lease financing.......................... 451.0 234.7 402.2 222.9 127.0 115.5 61.4
Nonaccrual loans and OREO as a percent of
related asset categories..................... .58 1.27 .74 1.23 2.79 3.84 10.21
</TABLE>
- ---------------
(1) Ratios for the six-month periods are annualized.
17
<PAGE> 25
BANKBOSTON
CAPITALIZATION
The following table presents the capitalization of BankBoston and its
subsidiaries at June 30, 1997, and the capitalization of BankBoston and its
subsidiaries adjusted to give effect to the Merger. This information should be
read in conjunction with the historical consolidated financial statements of
BankBoston and Pacific, including the respective notes thereto, which are
incorporated by reference, in the case of BankBoston, and included elsewhere in
this Proxy Statement-Prospectus, in the case of Pacific. See "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE" and "PACIFIC NATIONAL CORPORATION CONSOLIDATED
FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------------
OUTSTANDING AS ADJUSTED(1)
----------- --------------
(IN MILLIONS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
NOTES PAYABLE:
Parent Company
Subordinated equity contract notes, due August 1997.............. $ 129 $ 129
Floating rate subordinated equity commitment notes, due August
1998.......................................................... 107 107
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
Medium-term senior notes, due 1998 through 2000.................. 325 325
------ ------
1,495 1,495
Subsidiaries
Notes, due 1997 through 2006..................................... 1,201 1,201
Guaranteed Preferred Beneficial Interests in Corporation's Junior
Subordinated Debentures.......................................... 747 747
STOCKHOLDERS' EQUITY:
Preferred Stock without par value
Authorized shares -- 10,000,000
Issued shares -- 4,593,941.................................... 508 508
Common stock, par value $1.50
Authorized shares -- 300,000,000
Issued shares -- 154,187,493; 154,511,366 shares as
adjusted(1)
Outstanding shares -- 147,110,689; 147,434,562 shares as
adjusted(1).................................................. 231 232
Surplus.......................................................... 1,244 1,267
Retained earnings................................................ 3,168 3,168
Net unrealized gain on securities available for sale, net of
tax........................................................... 54 54
Cumulative translation adjustments, net of tax................... (10) (10)
Treasury stock, at cost.......................................... (521) (521)
------ ------
Total Stockholders' Equity.................................... 4,674 4,698
------ ------
Total Notes Payable and Stockholders' Equity............. $ 8,117 $8,141
====== ======
</TABLE>
- ---------------
(1) As 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.
18
<PAGE> 26
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for BankBoston Common Stock and Pacific
Common Stock certain historical, pro forma and pro forma equivalent per share
information for the six months ended June 30, 1997 and for the year ended
December 31, 1996. The information presented herein should be read in
conjunction with the historical consolidated financial statements of BankBoston
and Pacific, including the respective notes thereto, which are incorporated by
reference and included, respectively, in this Proxy Statement-Prospectus. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PACIFIC NATIONAL
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
BANKBOSTON COMMON STOCK:
Net income per share:
Primary:
Historical............................................. $ 2.66 $ 3.99
Pro forma -- BankBoston and Pacific(1)................. 2.65 3.99
Fully diluted:
Historical............................................. 2.62 3.93
Pro forma -- BankBoston and Pacific(1)................. 2.62 3.93
Dividends per share:
Historical............................................. .95 1.69
Pro forma -- BankBoston and Pacific(2)................. .95 1.69
Book value per share at period-end:
Historical............................................. 28.32 28.89
Pro forma -- BankBoston and Pacific(1)................. 28.42 28.99
PACIFIC COMMON STOCK:
Net income per share:
Primary:
Historical............................................. 1.34 3.53
Pro forma equivalent -- BankBoston and Pacific(3)...... 1.76 2.65
Fully diluted:
Historical............................................. 1.34 3.53
Pro forma equivalent -- BankBoston and Pacific(3)...... 1.74 2.61
Dividends per share:
Historical............................................. .30 1.18
Pro forma equivalent -- BankBoston and Pacific(3)...... .63 1.12
Book value per share at period-end:
Historical............................................. 23.56 22.52
Pro forma equivalent -- BankBoston and Pacific(3)...... 18.87 19.25
</TABLE>
- ---------------
(1) Includes the effect of the Merger.
(2) Pro forma combined dividends per share amounts represent the historical
dividends per share of BankBoston.
(3) The Pacific pro forma equivalent per share amounts are calculated by
multiplying the BankBoston pro forma information as described in Note (1) by
the estimated exchange ratio of .664, determined by dividing $50.00 by the
average closing price of BankBoston Common Stock as reported on the NYSE for
the twenty consecutive trading days ending five business days prior to
July 30, 1997.
19
<PAGE> 27
SPECIAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement-Prospectus is being furnished to holders of Pacific
Common Stock in connection with the solicitation of proxies by the Pacific Board
of Directors (the "Pacific Board") for use at the Special Meeting of
Stockholders scheduled to be held on Tuesday, September 23, 1997, at 10:00 A.M.,
in the Board Room of Pacific National Bank of Nantucket, 61 Main Street,
Nantucket, Massachusetts, and at any adjournments or postponements thereof.
PURPOSES
The Special Meeting will be held for the purposes of (i) considering and
voting upon a proposal to approve and adopt the Affiliation Agreement and the
transactions contemplated thereby, and (ii) to conduct any other business that
may properly come before such meeting, or any adjournments or postponements
thereof. With the exception of these matters, the management of Pacific knows of
no other matters at this time to be brought before the Special Meeting.
THE PACIFIC BOARD UNANIMOUSLY RECOMMENDS THAT PACIFIC STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE AFFILIATION AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
QUORUM AND VOTING
Only stockholders of record at the close of business on August 20, 1997
(the "Record Date") are entitled to notice of and to vote at the Special
Meeting. As of the Record Date, there were issued and outstanding 487,761 shares
of Pacific Common Stock entitled to vote. The presence, in person or by proxy,
of a majority of the aggregate number of shares of Pacific Common Stock
outstanding on the Record Date is necessary to constitute a quorum at the
Special Meeting. Each stockholder is entitled to one vote, in person or by
proxy, for each share of Pacific Common Stock held of record in his or her name
at the close of business on the Record Date.
STOCKHOLDER VOTE REQUIRED; LETTER AGREEMENTS
The approval and adoption of the Affiliation Agreement, and the
transactions contemplated thereby, require the affirmative vote of the holders
of at least two-thirds of the shares of Pacific Common Stock issued and
outstanding and entitled to vote at the Special Meeting. If the approval of the
Pacific stockholders is not obtained, each of Pacific and BankBoston will have
the right to terminate the Affiliation Agreement, provided that the terminating
party is not in material breach of the Affiliation Agreement or the Stock Option
Agreement. If the Affiliation Agreement is terminated because of the failure to
obtain the requisite stockholder approval, the Affiliation Agreement will become
null and void and there will be no liability on the part of Pacific or
BankBoston or their respective officers or directors to the other, except as
specifically provided in the Affiliation Agreement. See "THE
MERGER -- Termination."
In connection with the execution of the Affiliation Agreement, each of the
directors of Pacific and executive officers of Pacific and Pacific Bank, who in
the aggregate own 208,172 shares, representing 42.68% of the Pacific Common
Stock issued and outstanding, agreed by separate letter (the "Letter
Agreements") to BankBoston, dated May 23, 1997, to vote or cause to be voted all
of the shares over which he or she has beneficial ownership as of the Record
Date in favor of the Affiliation Agreement and the Merger. Execution of the
Letter Agreements was a condition to BankBoston entering into the Affiliation
Agreement and no compensation was paid to any director or executive officer in
consideration for entering into such agreement.
SOLICITATION OF PROXIES
The proxy enclosed herewith is being solicited by the Pacific Board. Each
proxy received will be voted as directed; however, if a proxy is received,
signed but with no direction indicated, the proxy will be voted FOR the approval
and adoption of the Affiliation Agreement and the transactions contemplated
thereby, and in
20
<PAGE> 28
such manner as management's proxyholders may decide on such other matters as may
properly come before the Special Meeting. In determining the required vote
necessary for approval, abstentions and broker non-votes (a "broker non-vote"
occurs when a registered broker holding a customer's shares in the name of the
broker has not received voting instructions on a matter from the customer and is
barred from exercising discretionary authority to vote on the matter) will have
the effect of negative votes for purposes of the two-thirds requirement. In
addition, stockholders whose shares of Pacific Common Stock are not registered
in their own name will need additional documentation from the record holder of
such shares to vote personally at the Special Meeting.
In addition to solicitation of proxies by mail, proxies may also be
solicited by telephone or personal interview by employees of Pacific and Pacific
Bank, who will not receive additional compensation therefor. Pacific will
reimburse brokerage firms and others who hold record ownership for third parties
for their expenses in forwarding proxy materials to the beneficial owners of
Pacific Common Stock. Pacific and BankBoston will each bear its own expenses
incurred in connection with this Proxy Statement-Prospectus; however, pursuant
to the Affiliation Agreement, the expense of preparing, filing and distributing
the Registration Statement and this Proxy Statement-Prospectus will be shared
equally by Pacific and BankBoston if the Affiliation Agreement is terminated in
accordance with its terms and neither party is liable to the other party for a
willful breach of the Affiliation Agreement.
REVOCATION OF PROXIES
Any stockholder giving a proxy prior to the Special Meeting has the right
to revoke it prior to its exercise by delivering a written notice to the Clerk
of Pacific, or by returning a duly executed proxy bearing a later date, or by
attending the Special Meeting, revoking prior proxies, and voting in person. A
stockholder of record may revoke a proxy by filing an instrument of revocation
with Glenn L. Field, Clerk of Pacific, 61 Main Street, Nantucket, Massachusetts
02554, by filing a duly executed proxy bearing a later date, or by appearing at
the Special Meeting in person, notifying the Clerk, and voting by ballot at the
Special Meeting. Any stockholder of record attending the Special Meeting may
vote in person whether or not a proxy has been previously given, but the mere
presence (without notifying the Clerk) of a stockholder at the Special Meeting
will not constitute revocation of a previously given proxy.
21
<PAGE> 29
INFORMATION ABOUT BANKBOSTON
GENERAL
BankBoston is a registered bank holding company, organized in 1970 under
Massachusetts law with both national and international operations. Through its
subsidiaries and, in certain cases, joint ventures, BankBoston is engaged in
providing a wide variety of personal, corporate and global banking 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.
BankBoston's principal subsidiary is the Bank, a national banking association.
Other major banking subsidiaries of BankBoston are Bank of Boston Connecticut
and Rhode Island Hospital Trust National Bank.
For more information about BankBoston, reference is made to BankBoston'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 July 29, 1996, BankBoston completed its previously announced acquisition
of BayBanks, Inc., a Boston-based bank holding company. Thereafter, in order to
facilitate the establishment of a new brand identity for the combined entity,
BankBoston changed its name from "Bank of Boston Corporation" to "BankBoston
Corporation" effective April 25, 1997. The Bank's name was changed from "The
First National Bank of Boston" to "BankBoston, N.A." effective April 24, 1997.
In addition, on May 23, 1997, BayBank NH, N.A. was merged with and into BayBank,
N.A. and BayBank, N.A. was merged with and into the Bank.
In June 1997, the Bank sold Ganis Credit Corporation ("Ganis") of Newport
Beach, California, one of its national consumer lending businesses. Prior to
this sale, in March 1997, the Bank sold approximately $950 million of Ganis
loans.
In June 1997, the Bank announced an agreement to sell Fidelity Acceptance
Corporation, headquartered in Kansas City, Missouri, another of its national
consumer lending businesses. The sale is expected to be completed in the second
half of 1997, subject to regulatory approval.
On July 10, 1997, BankBoston announced that William J. Shea, Vice Chairman
and Chief Financial Officer was leaving to pursue other interests and that
Susannah M. Swihart, an Executive Vice President at BankBoston, would replace
Mr. Shea as its Chief Financial Officer.
22
<PAGE> 30
INFORMATION ABOUT PACIFIC
GENERAL
Pacific, a bank holding company registered with the Federal Reserve Board,
was organized as a Massachusetts business corporation in 1984 for the purpose of
serving as the holding company of Pacific Bank, a national banking association.
Pacific has two full service retail banking offices and one loan office
located in Nantucket, Massachusetts. Through these offices, Pacific offers a
wide range of commercial and retail banking products and services. Pacific's
lending operations focus on residential first and second mortgages, residential
construction loans, commercial and small business lending, commercial real
estate loans, home equity lines of credit and consumer loans.
Pacific's business activities are concentrated exclusively in Nantucket,
Massachusetts. All retail banking activity is conducted through the banking
offices. Lending operations, particularly loan originations, are conducted from
its loan office where Pacific also services the loans it originates. Pacific
does not conduct business on a regional, national or international basis.
RECENT DEVELOPMENTS
On May 27, 1997, and subsequently ratified on June 20, 1997, the Pacific
Board appointed Denis Gazaille, President of Nantucket Marine Lumber, to serve
as a director of Pacific Bank.
23
<PAGE> 31
THE MERGER
GENERAL
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Merger, including the principal provisions of the Affiliation
Agreement. The following description of the Merger does not purport to be
complete and is qualified in its entirety by reference to the Affiliation
Agreement, the Bank Merger Agreement, the Stock Option Agreement and the form of
Letter Agreement which are attached as Appendices A, B, C and D, respectively,
to this Proxy Statement-Prospectus and are incorporated herein by reference. All
stockholders of Pacific are urged to read the Affiliation Agreement, the Bank
Merger Agreement, the Stock Option Agreement and the form of Letter Agreement in
their entirety.
BACKGROUND OF THE MERGER
The Pacific Board regularly considers the operational and strategic options
available to Pacific to improve its operating results, strengthen its ability to
compete in its market and improve stockholder value. In the winter of 1997,
notwithstanding its excellent financial results in fiscal 1996, several members
of the Pacific Board recognized and discussed that Pacific faced a variety of
long-term strategic and operating challenges including its increasing need for
additional capital to respond to the ever-changing needs of Pacific's customer
base. In particular, these directors recognized that Pacific required greater
resources to (i) respond to the needs of its niche market -- that of providing
residential mortgage loans on Nantucket and (ii) acquire state of the art
technology to enable it to offer a wide range of electronic and Internet banking
services in light of competitive pressures in the financial services and banking
industries. Capital and lending limitations were making it increasingly
difficult for Pacific to compete effectively in providing residential mortgage
loans on Nantucket, as property values greatly increased. Having informally
discussed the costs of investing in more advanced technology on a stand-alone
basis, these directors realized that Pacific did not have sufficient capital and
human resources to make such a commitment to technological improvements. While
desiring to maintain Pacific's independence and ability to serve its unique
customer base on Nantucket, it was recognized that it would be prudent to
explore alternatives to best position Pacific for continued growth and
profitability in an increasingly competitive marketplace.
At the request of several of the directors who were also significant
stockholders of Pacific, Frederick J. Boling, Jr. and John F. Gifford, the two
Boston-based Pacific directors, were asked to contact BankBoston to explore the
possibility of a business combination that could address the long-term issues
identified by the Pacific Board members. These directors perceived that
BankBoston was a potentially viable merger partner because of its capital and
lending capabilities and its commitment to state of the art technology and
banking services, particularly in light of its recent merger with BayBanks,
Inc., because of its long-standing relationships with Pacific as the provider of
certain correspondent banking services to Pacific and because a number of its
top executives were familiar with the unique community aspects of Nantucket by
virtue of owning residences on the island. Following several initial meetings
among Mr. Boling and Mr. John Gifford on behalf of Pacific, and Peter J.
Manning, Executive Vice President, Mergers and Acquisitions and other
representatives of BankBoston to discuss the respective benefits to Pacific and
BankBoston of a business combination, ensuing meetings in March and April of
1997 centered on the amount of consideration that BankBoston might be willing to
exchange for the stock of Pacific. John Gifford is the brother of Charles K.
Gifford, the Chief Executive Officer and a director of BankBoston. Charles
Gifford did not participate at any time in the negotiations between Pacific and
BankBoston, during internal discussions at BankBoston regarding the proposed
Merger, or in the approval of the Merger by BankBoston.
On April 18, 1997, Mr. Boling reported to the Pacific Board on BankBoston's
interest in exploring a business combination and proceeding with due diligence.
At that meeting, the Pacific Board voted (i) to permit BankBoston to begin due
diligence, subject to the execution of an appropriate Confidentiality Agreement,
(ii) to engage an investment banker to advise the Pacific Board with respect to
a potential transaction and (iii) to designate Mr. Boling as the Pacific Board's
representative in connection with such a transaction.
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<PAGE> 32
On April 25, 1997, Pacific and BankBoston entered into a Non-Disclosure
Agreement pursuant to which each party agreed to keep confidential the
information provided to it by the other in connection with a proposed
transaction. Following the execution of this Agreement, several representatives
of BankBoston went to Nantucket to meet with the senior officers of Pacific Bank
and begin the due diligence process which continued for several weeks.
Also on April 25, 1997, the Pacific Board met to discuss what steps would
be appropriate to ensure that the senior officers of Pacific Bank remained at
Pacific Bank and worked diligently to effectuate a proposed transaction with
BankBoston in the event that the Pacific Board determined to proceed with such a
transaction. At that meeting, the Pacific Board voted to provide special
incentive payments to certain senior officers of Pacific Bank, the payment of
which is contingent upon consummation of the Merger. See "-- Interests of
Certain Persons in the Merger."
During the due diligence period, a great deal of consideration was given by
Pacific and BankBoston to structuring the proposed transaction in a manner that
recognized the unique nature of the Nantucket island community. Thus, during
meetings and telephone conferences during early May between Mr. Boling and
representatives of BankBoston, the parties agreed that after the Merger
BankBoston would retain Pacific's identity by using the name "Pacific National,
a division of BankBoston, N.A." for the Nantucket branches of BankBoston and
that all employees of Pacific and Pacific Bank would be retained until May 31,
1998. In addition, the parties discussed the possibility of the Pacific Bank
Board serving in an advisory capacity for a period following the closing if
requested by BankBoston. In addition, Mr. Boling met with William M. Crozier,
Jr., Chairman of BankBoston, and Mr. Manning on May 14, 1997 to discuss the
presentation of the Merger to the Nantucket community so as to reflect the
parties concern for the long-term interests of the employees and customers of
Pacific Bank as well as the community at large.
On May 16, 1997, the Pacific Board met to review the status of the proposed
transaction. At the request of Philip C. Murray, Chairman of the Pacific Board,
Mr. Boling informed the Pacific Board of the progress of the proposed
transaction. He reiterated the concern of BankBoston for the employees and
customers of Pacific and its commitment to the community. At Mr. Boling's
request, the Pacific Bank Board voted unanimously to stay on in an advisory
capacity for a period following the closing of the proposed transaction, if so
requested by BankBoston.
On May 21, 1997, the Pacific Board again met to review the status of the
proposed transaction. At that meeting, the Pacific Board voted to engage the
investment banking firm of Tucker Anthony to advise the Pacific Board on the
fairness of the proposed transaction to Pacific's stockholders.
On May 23, 1997, the Pacific Board met to formally consider the proposed
transaction. Mr. Boling informed the Pacific Board that BankBoston had agreed to
permit Pacific to continue the payment of regular dividends and to permit a
special pro-rated dividend immediately prior to the closing of the proposed
transaction. Mr. Boling further informed the Pacific Board that the BankBoston
Board of Directors (the "BankBoston Board") had voted to make a definite offer
to purchase each share of Pacific Common Stock for $50 per share payable in
BankBoston common stock, based on the average closing price of BankBoston Common
Stock for the twenty consecutive trading days ending on the fifth business day
prior to the closing and on the other terms provided in the Affiliation
Agreement. Following discussions, a presentation by Tucker Anthony and Tucker
Anthony's written opinion that the price was fair from a financial point of
view, the Pacific Board unanimously voted to approve the Affiliation Agreement
and to recommend to its stockholders that they approve the Affiliation
Agreement.
RECOMMENDATION OF THE PACIFIC BOARD OF DIRECTORS; PACIFIC'S REASONS FOR MERGER
The terms of the Affiliation Agreement, including the Exchange Ratio, were
the result of arm's-length negotiations between Pacific and BankBoston. Pacific
entered into negotiations with BankBoston based upon its belief that a
privately-negotiated transaction with BankBoston represented the best means of
achieving the strategic interests of Pacific and its stockholders and provided
greater value to Pacific stockholders than other possible alternatives. Pacific
did not solicit alternative offers for Pacific, Pacific Bank or its assets,
based upon BankBoston's sensitivity to the unique nature of the Nantucket
community and Pacific's role in that
25
<PAGE> 33
community, the attractiveness of BankBoston's offer and the opportunities that a
combination with BankBoston presented, the analysis of BankBoston's offer
presented by Tucker Anthony (see "-- Opinion of Financial Advisor"),
BankBoston's desire to negotiate with Pacific on an exclusive basis, the risk
that BankBoston might withdraw its offer if Pacific were to solicit other
offers, and the disruption and potential harm to Pacific that could result from
an auction process. The Pacific Board determined that a strategic combination
with BankBoston on the terms that Pacific was able to negotiate with BankBoston
was in the best interest of Pacific and its stockholders. The Pacific Board also
considered the substantial benefits to Pacific's other constituencies, including
its employees and customers and the Nantucket community it serves, that would
result from the enhanced strength and diversity of the combined company.
In the course of reaching its decision to approve the Affiliation
Agreement, the Pacific Board consulted with its legal advisors regarding the
legal terms of the Affiliation Agreement and Pacific Board's obligations in its
consideration of the proposed transaction, its financial advisors regarding the
financial aspects and fairness of the proposed transaction, as well as with
management of Pacific and Pacific Bank, and, without assigning any relative or
specific weights, considered the following factors:
1. The Pacific Board's familiarity with and review of Pacific's
business, results of operations, prospects, and financial condition,
including its capital position, technological capacity, regulatory
requirements and future growth prospects were it to remain independent. In
this regard, the Pacific Board considered that although Pacific's operating
results were excellent in 1996, its ability to continue to grow and remain
profitable as an independent entity and to continue to serve its unique
client base would be enhanced by a combination with a larger financial
parent such as BankBoston. Such a combination would give Pacific additional
capital to strengthen its capacity to serve its client base's biggest need,
that of providing residential mortgage loans in an increasingly expensive
Nantucket market, as well as to obtain the technology, such as electronic
and Internet banking services, to allow it to attract and retain customers
in the future;
2. BankBoston's understanding of, and expressed commitment to serving,
the unique needs of the Nantucket community and Pacific's special
relationship with that community. In this regard, the Pacific Board
considered BankBoston's commitment to retain all Pacific and Pacific Bank
employees until May 31, 1998 and to maintain the Pacific National name at
the Nantucket branches after the Merger. The Pacific Board also considered
BankBoston's request that the Pacific Bank Board stay on in an advisory
capacity for some period following the closing, if so requested by
BankBoston, as well as BankBoston's decision to send its Chairman, Mr.
Crozier, a summer resident of Nantucket, together with other senior
officers to join the Pacific Board in announcing the proposed transaction
to the Nantucket Community.
3. A business combination with a larger bank holding company, such as
BankBoston, would provide both greater short-term and long-term value to
Pacific's stockholders than other alternatives available and would enhance
Pacific's competitiveness and its ability to serve its borrowers,
depositors and other customers. In this regard, the Pacific Board
considered that the short and long-term values obtainable by Pacific
stockholders as a result of the Merger would likely be greater than the
values achievable were Pacific to remain independent and that BankBoston
was well-positioned to offer full and fair value to Pacific stockholders
based upon the increased technological capacity, greater capital resources
and operational synergies associated with the proposed affiliation and
BankBoston's commitment to strengthening its community banking presence;
4. The Merger would offer Pacific's stockholders the prospect of
greater liquidity and a higher current trading value for their shares and
better prospects for future growth than if Pacific were to remain
independent. In this regard, the Pacific Board considered that the public
market for BankBoston Common Stock was far more liquid than the private
market for Pacific Common Stock and that the resources and financial
strength and diversity of the combined company would likely lead to a
stronger financial performance for BankBoston and its stockholders
(including Pacific stockholders who become stockholders of BankBoston
following the Merger) on a combined basis than could be obtained by Pacific
and its stockholders on an independent basis;
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<PAGE> 34
5. The presentation and written opinion of Pacific's financial
advisor, Tucker Anthony, to the effect that the Exchange Ratio was fair,
from a financial point of view, to the holders of Pacific Common Stock. The
presentation of Tucker Anthony is summarized below. In addition, a copy of
the written opinion rendered by Tucker Anthony to the Pacific Board, dated
as of the date of this Proxy Statement-Prospectus, setting forth the
procedures followed, the matters considered, the scope of the review
undertaken and the assumptions made by Tucker Anthony in connection with
their opinion, is attached as Appendix E to this Proxy
Statement-Prospectus. See "-- Opinion of Financial Advisor;"
6. The anticipated tax-free nature of the Merger to Pacific
stockholders receiving BankBoston Common Stock in exchange for Pacific
Common Stock (except for the portion of the consideration paid in cash for
fractional shares). See "-- Certain Federal Income Tax Consequences;"
7. The terms of the Stock Option Agreement. See "CERTAIN
TRANSACTIONS -- Stock Option Agreement." The Pacific Board was aware that
the existence of the Stock Option Agreement would make it expensive for a
third party to offer a price that was in excess of BankBoston's proposal.
The Pacific Board was thus aware that the Stock Option Agreement might
significantly deter a potential competing acquirer from making an offer.
PACIFIC'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE AFFILIATION
AGREEMENT AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY BE APPROVED BY THE
STOCKHOLDERS OF PACIFIC.
OPINION OF FINANCIAL ADVISOR TO PACIFIC
Pacific has received an opinion that the Merger is fair to Pacific's
stockholders from a financial point of view from Tucker Anthony, an investment
banking broker/dealer founded in 1892.
Tucker Anthony Opinion. Tucker Anthony was retained by the Pacific Board
in May 1997 for the purpose of rendering a fairness opinion in connection with
the Merger. Pacific selected Tucker Anthony for a number of reasons, including
its familiarity with Pacific and its business. Pacific also considered Tucker
Anthony's experience and reputation in the area of valuation and financial
advisory work generally, and in relation to financial institutions specifically.
Tucker Anthony is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, private placements and valuations for corporate and other
purposes. Tucker Anthony has provided financial advisory services to Pacific in
the past, specifically in the form of a fairness opinion in connection with the
private placement of equity securities in 1992.
Tucker Anthony has rendered written opinions to the Pacific Board to the
effect that, as of May 23, 1997, and as of the date of this Proxy
Statement-Prospectus, the consideration per share of Pacific Common Stock in
shares of BankBoston Common Stock to be received in the Merger is fair, from a
financial point of view, to the holders of Pacific Common Stock. THE FULL TEXT
OF THE FAIRNESS OPINION DATED AS OF THE DATE OF THIS PROXY STATEMENT-PROSPECTUS,
SETTING FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
CERTAIN LIMITATIONS ON THE REVIEW UNDERTAKEN BY TUCKER ANTHONY, IS INCLUDED AS
APPENDIX E TO THIS PROXY STATEMENT-PROSPECTUS. HOLDERS OF PACIFIC COMMON STOCK
ARE URGED TO READ THE FAIRNESS OPINION IN ITS ENTIRETY. This opinion is directed
to the Pacific Board only and does not constitute a recommendation to any holder
of Pacific Common Stock as to how such stockholder should vote at the Special
Meeting. The May 23, 1997 opinion is substantially identical to the opinion
attached hereto as Appendix E. Tucker Anthony has advised the Pacific Board that
it does not believe any person other than the Pacific Board has the legal right
to rely on the opinion and, absent any controlling precedent, would resist any
assertion otherwise.
In connection with rendering its opinions dated May 23, 1997, and as of the
date of this Proxy Statement-Prospectus, Tucker Anthony performed a variety of
financial analyses, including those summarized below. The summary set forth
below, which has been provided by Tucker Anthony, does not purport to be a
complete description of the analyses performed by Tucker Anthony in this regard.
The preparation of a fairness opinion
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<PAGE> 35
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
summary description. Accordingly, notwithstanding the separate factors
summarized below, Tucker Anthony 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 of such analyses or factors, could create an
incomplete view of the evaluation process underlying Tucker Anthony's opinion.
In addition, Tucker Anthony may have used the various analyses 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 Tucker Anthony's
view of the actual value of Pacific. 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.
The analyses performed by Tucker Anthony are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as a part of Tucker Anthony's analysis of the fairness of the
consideration to be received by holders of Pacific Common Stock, from a
financial point of view, and were provided to the Pacific Board in connection
with the delivery of Tucker Anthony's opinion. The analyses do not purport to be
appraisals or to reflect the prices at which Pacific might actually be sold at
the present time or at any time in the future. In addition, as described above,
Tucker Anthony's opinion is just one of the many factors taken into
consideration by the Pacific Board (see "-- Background of the Merger"; and
"-- Recommendation of the Pacific Board of Directors; Pacific's Reasons for the
Merger").
In arriving at its opinion, Tucker Anthony, among other things, reviewed
the Affiliation Agreement; reviewed certain historical financial and other
information concerning Pacific for the five fiscal years ended December 31, 1996
and the four month period ended April 30, 1997, including Pacific's Annual
Reports, quarterly report for the period ended March 31, 1997 and internal
monthly financial forecasts; reviewed certain historical financial and other
information concerning BankBoston for the five fiscal years ended December 31,
1996 and the fiscal quarter ended March 31, 1997, including BankBoston reports
on Forms 10-K and 10-Q; held discussions with the senior management of Pacific
with respect to their past and current financial performance, financial
condition and future prospects; reviewed certain internal financial data,
projections and other information of Pacific including financial projections
prepared by management; analyzed certain publicly-available information of other
financial institutions that it deemed comparable or otherwise relevant to its
inquiry, and compared Pacific and BankBoston from a financial point of view with
certain of these institutions; compared the consideration to be received by the
stockholders of Pacific pursuant to the Affiliation Agreement with the
consideration received by stockholders in other acquisitions of financial
institutions that it deemed comparable or otherwise relevant to its inquiry;
reviewed publicly available earnings estimates, historical trading activity and
ownership data of BankBoston Common Stock and considered the prospects for
dividends and price movement in it; and conducted such other financial studies,
analyses and investigations and reviewed such other information as it deemed
appropriate to enable it to render its opinion. In its review, it also took into
account an assessment of general economic, market and financial conditions and
certain industry trends and related matters. Tucker Anthony's opinions were
necessarily based upon conditions as they existed and could be evaluated on the
date thereof and the information made available to Tucker Anthony through the
date thereof.
No limitations were imposed by the Pacific Board upon Tucker Anthony with
respect to the investigations made or procedures followed by Tucker Anthony in
its review and analysis. In its review and analysis and in arriving at its
opinions, Tucker Anthony assumed and relied upon the accuracy and completeness
of all the financial information publicly available or provided to it by Pacific
and BankBoston, and did not attempt to verify any of such information. Tucker
Anthony assumed (i) that the financial projections of Pacific provided to it
with respect to the results of operations likely to be achieved by Pacific
through the Effective Time were prepared on a basis reflecting the best
currently available estimates and judgments of Pacific management as to future
financial performance and results, and (ii) that such forecasts and estimates
would be realized in the amounts and in the time periods estimated by
management. Tucker Anthony further assumed, without
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<PAGE> 36
independent verification, that the aggregate reserves for possible loan losses
for Pacific and BankBoston were adequate to cover such losses. Tucker Anthony
did not make or obtain any independent evaluations or appraisals of any assets
or liabilities of Pacific, BankBoston or any of their respective subsidiaries
nor did it verify any of Pacific's or BankBoston's books and records or review
any individual loan credit files. In addition, Tucker Anthony did not
participate in the negotiation of the Affiliation Agreement nor was Tucker
Anthony engaged or authorized to solicit, and Tucker Anthony did not solicit,
any indications of interest from any third party with respect to the purchase of
all or part of the Pacific Common Stock or business of Pacific, and, other than
with respect to the issuance of its opinion as to the fairness of the Merger
Consideration, Tucker Anthony made no recommendation to the Board of Directors
of either party as to the amount of the Merger Consideration.
Tucker Anthony made a presentation to the Pacific Board on May 23, 1997 and
rendered a written opinion to the Pacific Board just prior to the execution and
public announcement of the Affiliation Agreement. Set forth below is a brief
summary of the report presented to the Pacific Board on May 23, 1997. In
connection with its opinion dated as of the date of this Proxy
Statement-Prospectus, Tucker Anthony performed procedures to update certain
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith and concluded that its updated
analysis was consistent with its prior analysis.
Historical Financial Performance. Tucker Anthony examined the financial
performance of Pacific over the five-year period ended December 31, 1996 and the
four-month interim period ended April 30, 1997, and examined the financial
performance of BankBoston over the five-year period ended December 31, 1996 and
the three-month interim period ended March 31, 1997. The analysis of historical
performance showed among other things that: i) over the five-year period ended
December 31, 1996, the compound annual growth rate in total assets was 2.2% for
Pacific and 7.2 % for BankBoston; ii) over the five-year period ended December
31, 1996, the compound annual growth rate in net loans was 7.4% for Pacific and
7.5% for BankBoston; iii) over the five-year period ended December 31, 1996, the
compound annual growth rate in total deposits was 1.3% for Pacific and 3.0% for
BankBoston; iv) the equity to asset ratio as of April 30, 1997 was 11.0% for
Pacific and as of March 31, 1997 was 7.5% for BankBoston; v) the net loan to
deposit ratio as of April 30, 1997 was 97.0% for Pacific and as of March 31,
1997 was 94.9% for BankBoston; vi) the latest four months annualized net
interest margin was 6.48% for Pacific and the latest quarter annualized net
interest margin was 4.47% for BankBoston; vii) the latest four months annualized
return on average assets was 1.65% for Pacific and the latest quarter annualized
return on average assets was 1.33% for BankBoston; and viii) the latest four
months annualized return on average equity was 14.73% for Pacific and the latest
quarter annualized return on average equity was 16.70% for BankBoston.
Stock Trading Analysis. Tucker Anthony examined the historical trading
prices and volume of BankBoston Common Stock, and compared the historical
trading prices of BankBoston Common Stock in relation to movements in certain
stock indices, specifically, selected regional bank stock indices and the
Standard and Poor's 500 Index. Tucker Anthony also analyzed the historical
trading data, price/book value and price/earnings multiples of BankBoston Common
Stock and compared them to those of certain other publicly traded financial
institutions deemed to be comparable or otherwise relevant as described below.
Analysis of Selected Publicly Traded Comparable Commercial Banks and
Thrifts. Tucker Anthony compared the selected financial data and financial
ratios of Pacific and BankBoston to the corresponding data and ratios of certain
publicly traded commercial banks and thrifts located in northeastern United
States in the case of Pacific, and in selected regions of the United States in
the case of BankBoston, with total assets comparable to those of Pacific and
BankBoston, respectively. The institutions included in the comparison to Pacific
were: Atlantic Bank & Trust Company, Boston Private Bancorp, Inc., Bank of
Southington, Cornerstone Bank, Cape Cod Bank & Trust Company, First Financial
Corporation, Glastonbury Bank and Trust Company, Home Port Bancorp, Inc.,
Patriot Bank, Sandwich Co-Operative Bank, Village Bancorp, Inc., Wainwright Bank
& Trust Company, Washington Trust Bancorp and Westbank Corporation (the "Pacific
Selected Reference Banks"). The Pacific Selected Reference Banks, as a group,
exhibited certain characteristics -- including asset size (assets between $50
million and $900 million), geographic proximity (located in northeastern United
States) and business risk -- similar to those exhibited by Pacific. The
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<PAGE> 37
commercial banks included in the comparison to BankBoston were: Bank of New York
Corporation, CoreStates Financial Corp, First Bank System, Inc., Fleet Financial
Group, Inc., First Union Corporation, Mellon Bancorp, NationsBank Corporation
and Norwest Corporation (the "BankBoston Selected Reference Banks"). The
BankBoston Selected Reference Banks, as a group, exhibited certain
characteristics -- including asset size (assets between $30 billion and $250
billion), market dominance within their respective regions and business
risk -- similar to those exhibited by BankBoston.
The comparison of Pacific to the Pacific Selected Reference Banks showed
among other things that: (i) the ratio of Pacific net loans to assets was 85.3%
as of April 30, 1997, compared to an average of 65.6% for the Pacific Selected
Reference Banks as of March 31, 1997; (ii) the ratio of Pacific non-performing
assets to the sum of shareholders' equity and loan loss reserves was 4.1% as of
April 30, 1997, compared to an average of 12.6% for the Pacific Selected
Reference Banks as of March 31, 1997; (iii) the ratio of Pacific equity to total
assets was 11.0% as of April 30, 1997, compared to an average of 8.9% for the
Pacific Selected Reference Banks as of March 31, 1997; (iv) the latest four
months annualized return on assets for Pacific as of April 30, 1997 was 1.65%,
compared to an average latest quarter annualized return on assets of 1.13% for
the Pacific Selected Reference Banks as of March 31, 1997; and (v) the latest
four months annualized return on equity for Pacific as of April 30, 1997 was
14.73%, compared to an average latest quarter annualized return on equity of
12.60% for the Pacific Selected Reference Banks as of March 31, 1997.
The comparison of BankBoston to the BankBoston Selected Reference Banks
showed among other things that: (i) the ratio of BankBoston's net loans to
assets was 62.0% as of March 31, 1997, compared to an average of 65.4% for the
BankBoston Selected Reference Banks as of March 31, 1997; (ii) the ratio of
BankBoston's non-performing assets to the sum of shareholders' equity and loan
loss reserves was 7.8% as of March 31, 1997, compared to an average of 7.8% for
the BankBoston Selected Reference Banks as of March 31, 1997; (iii) the ratio of
BankBoston's equity to total assets was 7.5% as of March 31, 1997, compared to
an average of 8.1% for the BankBoston Selected Reference Banks as of March 31,
1997; (iv) the latest quarter annualized return on average assets for BankBoston
as of March 31, 1997 was 1.33%, compared to an average of 1.85% for the
BankBoston Selected Reference Banks as of March 31, 1997; (v) the latest quarter
annualized return on average equity for BankBoston as of March 31, 1997 was
16.70%, compared to an average of 22.26% for the BankBoston Selected Reference
Banks as of March 31, 1997; (vi) as of May 20, 1997, the ratio of BankBoston's
market price to its March 31, 1997 book value per common share was 267.7%,
compared to an average of 293.6% for the BankBoston Selected Reference Banks in
relation to their March 31, 1997 book value per common share; (vii) as of May
20, 1997, the price/earnings ratio for BankBoston based on the latest quarter
annualized earnings per share was 14.4x compared to an average of 13.0x for the
BankBoston Selected Reference Banks for their latest quarter annualized earnings
per share; and (viii) as of May 20, 1997, the average latest quarter annualized
dividend yield for BankBoston was 2.3% as compared to 2.7% for the BankBoston
Selected Reference Banks.
Analysis of Selected Comparable Merger and Acquisition Transactions.
Tucker Anthony reviewed and performed analysis on 69 unassisted acquisitions of
commercial bank institutions in northeastern U.S. (the "Selected Northeast
Transactions") and 130 unassisted acquisitions of commercial bank institutions
in the U.S. with a transaction size between $20 million and $50 million (the
"Selected U.S. Transactions") announced between January 1, 1995 and May 20,
1997, comparing the target financial institutions' capital structure and
profitability with Pacific's current results of operations and financial
condition. The Selected Northeast Transactions and Selected U.S. Transactions
were chosen because they represented merger and acquisition transactions which
involve target financial institutions exhibiting certain characteristics --
including asset size, geographic proximity and business risk -- similar to
those exhibited by Pacific. Excluding the highest and lowest ratios, the target
financial institutions involved in the Selected Northeast Transactions and the
Selected U.S. Transactions had an average return on assets for the latest
twelve months prior to announcement date of 1.04% and 1.13%, respectively, and
an average return on equity for the latest twelve months prior to announcement
date of 12.50% and 12.73%, respectively, as compared to 1.65% and 14.73%,
respectively, for Pacific.
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Set forth below is a summary of the information presented to the Pacific
Board with respect to the Selected Northeast Transactions and the Selected U.S.
Transactions based upon an estimated value of $50.00 per share of Pacific Common
Stock.
<TABLE>
<CAPTION>
SELECTED NORTHEAST SELECTED U.S.
TRANSACTIONS TRANSACTIONS
--------------------- ---------------------
BANKBOSTON BANKBOSTON
OFFER OFFER
BANKBOSTON PERCENTILE PERCENTILE
OFFER(1) MEDIAN (2) MEDIAN (2)
---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Consideration/Latest Twelve Months
Earnings............................ 14.9x 16.7x 31% 17.2x 34%
Consideration/Book Value.............. 216% 203% 64% 199% 64%
Premium to Market Price(3)............ N/A 138% N/A 135% N/A
Deposit Premium....................... 14.5% 10.8% 87% 12.7% 63%
</TABLE>
- ---------------
(1) Based on value of the Merger Consideration of $50.00 per share of Pacific
Common Stock as of May 20, 1997.
(2) Position of the BankBoston offer in relation to percentile ranking of the
Selected Northeast Transactions and the Selected U.S. Transactions,
respectively.
(3) Closing market price seven days prior to announcement.
Discounted Cash Flow Analysis. At the Pacific Board meeting on May 23,
1997, Tucker Anthony presented the results of a discounted cash flow analysis
through the fiscal year ended December 31, 2002 designed to compare the present
value, under certain assumptions, that would be attained if Pacific remained
independent through the year 2002. The results produced in the analysis did not
purport to be indicative of actual values or expected values of Pacific or the
shares of Pacific Common Stock.
For the purpose of the analysis, Tucker Anthony made reference to financial
forecasts and projections prepared by Pacific management (the "Base Case"). The
projections assumed, among other things, that Pacific would achieve annual
growth in average assets averaging approximately 3.0% per year, annual growth in
average loans averaging approximately 3.0% per year, a net interest margin
averaging approximately 6.00% per year, operating expenses as a percentage of
average assets averaging approximately 4.50% per year and annual return on
average assets averaging approximately 1.65% per year. Tucker Anthony noted that
for the five fiscal years ended December 31, 1996, average assets increased an
average of 0.64% per year, average loans increased an average of 6.33% per year,
net interest margin ("NIM") averaged approximately 5.44% per year, operating
expenses averaged approximately 4.56% of the average assets per year and return
on average assets averaged approximately 1.09% per year. The projections assumed
that Pacific would maintain a target equity to assets ratio of 11.50%. In
addition to the Base Case, Tucker Anthony reviewed Base Case financial forecasts
and projections revised to assume variations in net interest margin (the "Stress
Test Scenarios"). The Stress Test Scenarios were based on increases and declines
in net interest margin of up to 20 basis points.
The projected cash flows of Pacific were comprised of the dividends per
share paid in fiscal years ended December 31, 1998 through 2002 plus the
terminal value of Pacific Common Stock at fiscal year end 2002 calculated as
described below. The cash flows were discounted at a range of rates from 11.0%
to 15.0%. Based upon Tucker Anthony's experience and judgment, Tucker Anthony
believes that holders of Pacific Common Stock would typically seek returns
within the indicated range of discount rates, in view of Pacific operating
projections, historical performance, financial condition and market
capitalization, among other matters.
In estimating the appropriate terminal value of Pacific at fiscal year end
2002, Tucker Anthony used methods based on multiples of earnings. Tucker Anthony
applied price/earnings multiples in the range of 9.0x to 17.0x to the estimate
of fiscal year December 31, 2002 earnings per share. The low end of the range of
multiples reflected the bottom of an estimated future trading range for Pacific
as an independent entity, while the high end of the range of multiples was more
indicative of the top of an estimated range assuming a future sale of Pacific to
a larger financial institution. Acquisition and trading multiples from time to
time fluctuate
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<PAGE> 39
considerably, and no assurance can be made that future acquisition or trading
multiples will be comparable to historical levels.
Set forth below is a summary of the results of Tucker Anthony's discounted
cash flow analysis, indicating the range of derived present values per share of
Pacific Common Stock, as presented to the Pacific Board on May 23, 1997 and
compared to the Merger Consideration of $50.00 per share of Pacific Common Stock
as of that date.
<TABLE>
<CAPTION>
DISCOUNT RATE
TERMINAL ----------------------------
P/E 11% 13% 15%
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Base Case.............................. 9.0x $32.31 $29.60 $27.19
13.0x $41.60 $37.99 $34.77
17.0x $50.89 $46.38 $42.36
NIM Up 20 Basis Points................. 9.0x $34.74 $31.83 $29.23
13.0x $44.69 $40.81 $37.35
17.0x $54.63 $49.79 $45.47
NIM Down 20 Basis Points............... 9.0x $29.88 $27.38 $25.14
13.0x $38.52 $35.17 $32.19
17.0x $47.15 $42.97 $39.24
</TABLE>
The summary of the Tucker Anthony opinion set forth above provides a
description of the main elements of Tucker Anthony's presentation to the Pacific
Board on May 23, 1997. It does not purport to be a complete description of the
presentation of Tucker Anthony to the Pacific Board or of the analyses of Tucker
Anthony. The preparation of a fairness opinion is not necessarily susceptible to
partial analysis or summary description. Tucker Anthony believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or
selecting part of the above summary, without considering all factors and
analyses, would create an incomplete view of the procedures underlying the
analyses set forth in the Tucker Anthony presentation and opinion. In addition,
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Tucker Anthony's opinion of the actual value of
Pacific. The fact that any specific analysis has been referred to in the summary
above is not meant to indicate that such analysis was given more weight than any
other analysis.
In performing its analyses, Tucker Anthony made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of Pacific. The analyses
performed by Tucker Anthony are not necessarily indicative of actual value or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as a part of
Tucker Anthony's analysis of the fairness of the consideration to be received by
Pacific stockholders from a financial point of view and were provided to the
Pacific Board in connection with the delivery of Tucker Anthony's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which any
securities may trade at the present time or at any time in the future. In
addition, as described above, Tucker Anthony's opinion and presentation to the
Pacific Board is just one of many factors taken into consideration by the
Pacific Board (see "-- Background of the Merger"; and "Recommendation of the
Pacific Board of Directors; Pacific's Reasons for the Merger").
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
As soon as practicable after satisfaction or waiver of all conditions to
the Merger under the Affiliation Agreement, BankBoston, Buyer Sub and Pacific
shall cause Articles of Merger complying with the requirements of the MBCL to be
filed with the Secretary of The Commonwealth of Massachusetts. The date and time
set forth in the Articles of Merger as the effective time, will be the
"Effective Time." The "Closing Date" will occur on the first business day after
the date on which all conditions contained in Article VI of the
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<PAGE> 40
Affiliation Agreement are satisfied or waived; or at such other date as the
parties may mutually agree. BankBoston and Pacific anticipate that the Merger
will be completed in the fourth quarter of 1997. The consummation of the Merger
could be delayed however, as a result of delays in obtaining the necessary
regulatory and stockholder approvals. There can be no assurances that such
approvals will be obtained or that the Merger will be completed. If the Merger
has not been consummated on or before April 30, 1998, the Affiliation Agreement
may be terminated by either BankBoston or Pacific. See "-- Regulatory
Approvals;" "-- Conditions to the Merger;" and "-- Termination."
Immediately prior to consummation of the Merger, Pacific will cause Pacific
Bank and BankBoston will cause the Bank to be merged. The Bank will be the
surviving national banking institution of the Bank Merger.
TERMS OF THE MERGER
The Affiliation Agreement provides for the merger of Buyer Sub with and
into Pacific. Pacific will be the surviving corporation as a wholly-owned
subsidiary of BankBoston. Except as described below, upon consummation of the
Merger, each share of Pacific Common Stock issued and outstanding prior to the
Effective Time (except shares of Pacific Common Stock held directly or
indirectly by BankBoston, other than in a fiduciary capacity or in respect of a
debt previously contracted, any shares held by Pacific as treasury stock and
shares held by dissenting stockholders who have perfected their rights of
appraisal) will be converted into the number of shares of BankBoston Common
Stock, equal to the quotient obtained by dividing (i) $50.00 by (ii) the Average
Closing Price (the "Exchange Ratio"). The "Average Closing Price" is defined as
the average of the closing prices of BankBoston Common Stock as reported on the
NYSE composite transactions reporting system for the twenty consecutive trading
days ending on the fifth business day prior to the Closing Date.
Shares of Pacific Common Stock that are owned directly or indirectly by
BankBoston at the Effective Time, other than shares held in a fiduciary capacity
or in respect of a debt previously contracted, and any such shares held by
Pacific as treasury stock will be canceled, retired and cease to exist, and no
payment will be made with respect thereto.
Shares of Pacific Common Stock held by a stockholder who has demanded
appraisal rights in compliance with the provisions of the MBCL (see "-- Rights
of Dissenting Stockholders") will not be converted into BankBoston Common Stock
at the Effective Time. If, however, the stockholder subsequently withdraws his
or her demand for appraisal or loses his or her right of appraisal, the
stockholder's shares will be deemed to be so converted as of the Effective Time.
The Affiliation Agreement provides that, in the event prior to the
Effective Time, the outstanding shares of BankBoston Common Stock or Pacific
Common Stock have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities as a result of a stock split,
reverse stock split, stock (or other non-cash) dividend, recapitalization,
reclassification, reorganization, or other similar changes in BankBoston's or
Pacific's capitalization (a "Recapitalization"), then, to the extent necessary
or appropriate, an appropriate and proportionate adjustment will be made to the
number and/or kind of securities to be delivered to the holders of Pacific
Common Stock so that each holder of Pacific Common Stock receives under the
Exchange Ratio formula the number of shares of BankBoston Common Stock or Rights
and/or other securities that such holder would have received if the
Recapitalization had occurred immediately after the Effective Time.
No fractional shares of BankBoston Common Stock will be issued in the
Merger. Instead, the Affiliation Agreement provides that each holder of shares
of Pacific Common Stock who otherwise would have been entitled to a fractional
share of BankBoston Common Stock will receive a cash adjustment (without
interest) in an amount determined by multiplying such holder's fractional
interest by the Average Closing Price. See "THE MERGER -- Conversion of
Shares -- Fractional Shares."
Shares of BankBoston capital stock (including BankBoston Common Stock)
issued and outstanding immediately prior to the Effective Time will remain
issued and outstanding immediately after the Merger.
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<PAGE> 41
The Articles of Organization and the By-Laws of Buyer Sub, as in effect
immediately prior to the Effective Time, will be the Articles of Organization
and the By-Laws of Pacific after the Effective Time, subject to the rights of
BankBoston as its sole stockholder to later amend them. The directors and
officers of Buyer Sub immediately prior to the Effective Time will be the
directors and officers of Pacific after the Effective Time, subject to the
rights of BankBoston as sole stockholder to change such directors and officers
thereafter.
The Exchange Ratio is the result of arm's-length negotiations between the
respective managements of Pacific and BankBoston. In negotiating the Exchange
Ratio, the management of Pacific had the benefit of advice from its financial
advisor, the investment banking firm of Tucker Anthony. See "-- Opinion of
Financial Advisor to Pacific."
After the Effective Time, holders of Pacific Common Stock will have no
rights as stockholders of Pacific other than (i) to receive shares of BankBoston
Common Stock into which such shares of Pacific Common Stock have been converted
and fractional share payments, and (ii) the rights afforded to dissenting
stockholders under the laws of The Commonwealth of Massachusetts. See "-- Rights
of Dissenting Stockholders."
Assuming that the number of outstanding shares of Pacific Common Stock
remains unchanged from July 30, 1997, and BankBoston Common Stock continues to
trade at $75.34, the average closing price of BankBoston Common Stock for the
twenty consecutive trading days ending five business days prior to July 30,
1997, the Exchange Ratio would be .664. Based on an Exchange Ratio of .664, the
Merger would be valued at approximately $24.4 million as BankBoston would issue
323,873 shares of BankBoston Common Stock to acquire 487,761 shares of Pacific
Common Stock. Based on such a ratio, immediately after the Effective Time,
former Pacific stockholders will hold approximately .2% of the outstanding
shares of BankBoston Common Stock. Because the Exchange Ratio is based on the
closing prices of BankBoston Common Stock at a time proximate to the Effective
Time, it is not possible to predict with absolute certainty the number of shares
of BankBoston Common Stock that will be received by holders of Pacific Common
Stock in the exchange.
REGULATORY APPROVALS
The Bank Merger is subject to the prior approval of the OCC under the BMA,
and other provisions of federal law. Applications for such approvals have been
filed with the OCC. In reviewing the BMA application, 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
the Bank Merger if it would be anti-competitive, 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, the Bank
Merger may not be consummated until the thirtieth day following the date of OCC
approval of the Bank Merger, during which time the DOJ has the authority to
challenge the Bank Merger on antitrust grounds (or until the 15th day after OCC
approval is received if the DOJ consents to such shorter period). The
commencement of an antitrust action during the waiting period would stay the
effectiveness of such approval unless a court specifically orders otherwise.
Pursuant to regulations of the Federal Reserve Board, BankBoston requested
confirmation from the Reserve Bank that an exemption from the requirement to
file an application is applicable to the Merger, or alternatively, provided the
Reserve Bank with prior written notice of the Merger, in lieu of filing an
application under the BHC Act, since among other things, the Bank Merger
requires the prior approval of a federal supervisory agency under the BMA. The
Reserve Bank has notified BankBoston in writing that no application is required
to be filed in connection with the consummation of the Merger. Under these
circumstances, the Merger does not require the prior approval of the Federal
Reserve Board (or the Reserve Bank, acting on delegated authority).
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<PAGE> 42
Neither BankBoston nor Pacific is aware of any regulatory approvals that
would be required for consummation of the Merger or the Bank Merger, except as
described above. Should any other approval(s) be required, it is presently
contemplated that such approval(s) would be sought. There can be no assurance
that any of the necessary regulatory approvals will be obtained.
The Merger will not be consummated unless all of the requisite regulatory
approvals for the transactions contemplated by the Affiliation Agreement,
including the Bank Merger, are obtained. See "-- Conditions to the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The Articles of Organization and the By-Laws of Buyer Sub, as in effect
immediately prior to the Effective Time, will be the Articles of Organization
and the By-Laws of Pacific after the Effective Time, subject to the rights of
BankBoston as its sole stockholder to later amend them. The directors and
officers of the Buyer Sub immediately prior to the Effective Time will be the
directors and officers of Pacific after the Effective Time, subject to the
rights of BankBoston as sole stockholder to change such directors and officers
thereafter.
As set forth in the Bank Merger Agreement, after the Bank Merger, the bank
branches formerly owned and operated by Pacific Bank and acquired by the Bank
pursuant to the Bank Merger may be operated in the Bank's sole discretion and
subject to applicable law, under the name "Pacific National, a division of
BankBoston, N.A."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
By resolution of the Board of Directors of Pacific, two directors of
Pacific and five employees of Pacific Bank are entitled to receive certain bonus
payments from Pacific, or BankBoston as successor thereto, conditioned upon
consummation of the Merger. The aggregate amount of such bonus payments is
$815,000. As set forth in such resolution, Pacific has agreed to cause such
employees to execute and deliver a Protection Agreement containing
non-competition and non-disclosure provisions in favor of BankBoston at the
Effective Time upon payment of such bonuses.
Charles K. Gifford, the Chief Executive Officer and a director of
BankBoston, is the brother of John F. Gifford, a director of Pacific. The
Gifford family, including Charles K. Gifford, beneficially owns, in the
aggregate, 30,588 or 6.27% of the issued and outstanding shares of Pacific
Common Stock. Charles Gifford did not participate at any time in the
negotiations between Pacific and BankBoston, during internal discussions at
BankBoson regarding the proposed Merger, or in the approval of the Merger by
BankBoston. Currently, Charles Gifford intends to donate the proceeds he
receives from his interest in Pacific, which is held in an irrevocable trust for
his benefit, to charity. See "-- Background of the Merger."
EMPLOYEE MATTERS
BankBoston has agreed that at the Effective Time, all employees of Pacific
and Pacific Bank will be offered continued employment at BankBoston until at
least May 31, 1998. In the event that after May 31, 1998, the position of any
qualified employee of Pacific or Pacific Bank is eliminated by BankBoston,
BankBoston has agreed to offer such employee a comparable position with
BankBoston or an affiliate of BankBoston at another location of BankBoston or an
affiliate of BankBoston. All former employees of Pacific Bank who also become
employees of BankBoston or an affiliate of BankBoston will be subject to the
employment arrangements and pay practices, including without limitation
severance benefits, generally made available by BankBoston to its employees.
Except as otherwise provided in the Affiliation Agreement, as promptly as
practicable after the Effective Time, BankBoston has agreed to provide the
employees of Pacific and Pacific Bank who remain employees of BankBoston with
levels of employee benefits in the aggregate no less favorable than those
maintained by BankBoston and its affiliates. BankBoston has agreed to cause each
such plan or program to treat the prior service of Pacific employees (to the
extent such prior service is recognized under the comparable plan or
35
<PAGE> 43
program of Pacific), as service rendered to BankBoston or its affiliate. Such
prior service will be recognized for purposes of eligibility to participate,
vesting and eligibility for special benefits under each such plan or program of
BankBoston, but not for benefit accrual where such accrual would duplicate
benefits under any plan maintained by Pacific or Pacific Bank.
INDEMNIFICATION
The Affiliation Agreement provides that all rights to indemnification
existing in favor, and all limitations on the personal liability, of any
director, officer or other employee of Pacific or Pacific Bank as provided for
in their respective charters or by-laws as in effect on May 23, 1997 with
respect to matters occurring prior to the Effective Time will survive the Merger
and the Bank Merger and will continue in force for not less then six years from
the Closing Date.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase and certain adjustments will
be made with respect to those Pacific assets and liabilities acquired or assumed
by BankBoston pursuant to the Affiliation Agreement whose carrying values differ
from their estimated fair market values. The actual adjustments will be made on
the basis of appraisals and evaluations as of the dates of consummation of the
Merger and the Bank Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Effect of the Merger. Neither BankBoston nor Pacific 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 opinions by Bingham, Dana & Gould LLP, counsel to BankBoston, and
Choate, Hall & Stewart, counsel to Pacific, that for federal income tax
purposes, under current law, assuming that the Merger and related transactions
will take place as described in the Affiliation Agreement, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, and BankBoston, Buyer Sub, and Pacific each will be a party to the
reorganization within the meaning of Section 368(b) of the Internal Revenue
Code. In rendering such opinions, the parties' respective counsel will be
entitled to rely on representations from BankBoston, Pacific and others as to
certain factual matters. If such opinions cannot be delivered because the Merger
is not deemed a reorganization under the Internal Revenue Code in the opinion of
their respective counsel, the Merger may not be consummated. If, however, the
parties waive this condition and the Merger is consummated but not treated as a
reorganization within the meaning of Section 368 of the Internal Revenue Code,
no gain or loss will be recognized by BankBoston, Buyer Sub or Pacific; in that
event, however, exchanges of Pacific Common Stock, whether for cash or for
BankBoston Common Stock pursuant to the Merger, would be taxable transactions
and each exchanging holder of Pacific Common Stock will recognize capital gain
or loss equal to the difference between such holder's adjusted basis in the
Pacific Common Stock exchanged and the amount of cash (if any) plus the fair
market value of BankBoston Common Stock (if any) received by such holder in the
Merger.
If the Merger constitutes such a reorganization, the following would be the
material federal income tax consequences of the Merger: (a) no gain or loss will
be recognized by BankBoston or Pacific in the Merger; (b) no gain or loss will
be recognized by the stockholders of Pacific upon their receipt of BankBoston
Common Stock in exchange for Pacific Common Stock, except that a Pacific
stockholder who receives cash proceeds for fractional interests in BankBoston
Common Stock, and a dissenting stockholder who receives cash proceeds on
redemption of Pacific Common Stock, will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated to the fractional
share interests or Pacific Common Stock, as applicable, and such gain or loss
will generally constitute capital gain or loss if such stockholder's Pacific
Common Stock is held as a capital asset at the Effective Time; (c) the tax basis
of the shares of BankBoston Common Stock received by a stockholder of Pacific
will be the same as the tax basis of its converted Pacific Common Stock,
decreased by the tax basis allocated to any such fractional share interests (for
which cash is paid); and (d) the holding period for federal income tax purposes
of the BankBoston Common Stock in the hands of the Pacific stockholders will
include the holding period of their converted Pacific Common Stock, provided
such Pacific Common Stock is held as a capital asset at the Effective Time.
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<PAGE> 44
Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments of cash to a holder who exchanges his or her Pacific
Common Stock, or a portion of his or her Pacific 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%.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS NOT A COMPLETE DESCRIPTION OF ALL THE TAX CONSEQUENCES OF THE MERGER. IT DOES
NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER WITH RESPECT
TO ANY STOCKHOLDER OF PACIFIC. THE DISCUSSION IS BASED ON CURRENTLY EXISTING
PROVISIONS OF THE INTERNAL REVENUE CODE, EXISTING AND PROPOSED REGULATIONS OF
THE UNITED STATES DEPARTMENT OF THE TREASURY THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. PACIFIC STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM IN THEIR
CIRCUMSTANCES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
TAX LAWS.
RESALES OF BANKBOSTON COMMON STOCK
BankBoston Common Stock to be issued to stockholders of Pacific in
connection with the Merger has been registered under the Securities Act. All
shares of BankBoston Common Stock received by holders of Pacific Common Stock
upon consummation of the Merger will be freely transferable by those
stockholders of Pacific not deemed to be "Affiliates" of Pacific. "Affiliates"
are generally defined as persons (then considered to include, but not be limited
to executive officers, directors and ten percent stockholders) who control, are
controlled by, or are under common control with Pacific at the time of the
Special Meeting.
Rule 145 promulgated by the SEC under the Securities Act restricts the sale
of BankBoston Common Stock received in the Merger by Affiliates and certain of
their family members and related interests. Generally speaking, during the one
year following the Effective Time, Affiliates of Pacific may publicly resell the
BankBoston Common Stock received by them in the Merger provided that such sales
comply with Rule 145 limitations as to the amount of BankBoston Common Stock
sold in any three-month period and as to the manner of sale. After such one-year
period, such former Affiliates of Pacific, who are not Affiliates of BankBoston,
may resell their shares without such restrictions. The ability of Affiliates to
resell shares of BankBoston Common Stock received in the Merger under Rule 145
as summarized herein generally will be subject to BankBoston's having satisfied
its Exchange Act reporting requirements for specified periods prior to the time
of sale. Affiliates also would be permitted to resell BankBoston 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 Proxy Statement-Prospectus does not cover any resales of
BankBoston Common Stock received by persons who may be deemed to be Affiliates
of Pacific.
Pacific has agreed to use all reasonable efforts to cause each person who
may be deemed to be an Affiliate of Pacific to execute and deliver to
BankBoston, a letter providing that such Affiliate will not sell, assign,
transfer, or otherwise dispose of any BankBoston 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. Pacific Common Stock certificates
surrendered for exchange by any person who is an Affiliate of Pacific for
purposes of Rule 145(c) under the Securities Act will not be exchanged for
certificates representing shares of BankBoston Common Stock until Pacific has
received such a written agreement from such person. The stock certificates
representing BankBoston Common Stock issued to Affiliates in the Merger will
bear a legend summarizing the applicable Rule 145 restrictions.
STOCK EXCHANGE LISTINGS
The Affiliation Agreement provides for the filing of, and BankBoston has
filed or will file, a listing application with the NYSE and the BSE covering the
shares of BankBoston Common Stock issuable pursuant
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<PAGE> 45
to the Merger. The obligation of Pacific to effect the Merger is subject to the
condition that such shares of BankBoston Common Stock be authorized for listing
on the NYSE.
CONVERSION OF SHARES
Conversion of Shares of Pacific Common Stock. By virtue of the Merger
automatically and without any action on the part of any holder thereof: (a) each
then-outstanding share of Pacific Common Stock not owned by BankBoston directly
or indirectly (except for any such shares of Pacific Common Stock held by
BankBoston in a fiduciary capacity or in respect of debts previously
contracted), and other than those shares of Pacific Common Stock held by Pacific
as treasury stock and shares held by dissenting stockholders who have perfected
their rights of appraisal, will be converted into such number of shares of
BankBoston Common Stock called for by the Exchange Ratio and each holder will
also receive a corresponding amount of preferred stock purchase rights
associated therewith pursuant to the BankBoston Rights Agreement (See "-- Terms
of the Merger" and "DESCRIPTION OF BANKBOSTON CAPITAL STOCK -- Common
Stock -- Stockholder Rights Plan"); (b) each then-outstanding share of Pacific
Common Stock owned by BankBoston or its subsidiaries other than in a fiduciary
capacity or in respect of debts previously contracted) will be canceled, retired
and cease to exist; and (c) each share of Pacific Common Stock issued and held
in Pacific's treasury will be canceled and retired. No conversion or payment
will be made with respect to the cancellation of shares referred to in clauses
(b) and (c) above. For a discussion of the treatment of shares held by
dissenting stockholders, see "-- Rights of Dissenting Stockholders."
Exchange Agent; Procedures for Exchange of Certificates. As promptly as
practicable after the Effective Time, and in no event later than three days
thereafter, the Bank, through Boston Equiserve Limited Partnership, a 50%-owned
indirect subsidiary, acting in the capacity of exchange agent (the "Exchange
Agent"), will mail to each holder of record of Pacific Common Stock outstanding
at the Effective Time transmittal materials, together with instructions for (i)
the exchange of such holder's certificates representing shares of Pacific Common
Stock for certificates representing the shares of BankBoston Common Stock into
which the holder's Pacific Common Stock has been converted, and (ii) the receipt
by such holder of a cash adjustment (without interest) in lieu of fractional
shares into which such holder's shares of Pacific Common Stock have been
converted.
HOLDERS OF PACIFIC COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL FORM AND INSTRUCTIONS FROM THE EXCHANGE AGENT.
Upon surrender to the Exchange Agent of the one or more certificates
representing shares of Pacific Common Stock, together with a properly completed
letter of transmittal, there will be issued and mailed to the holder of Pacific
Common Stock surrendering such items a certificate or certificates representing
the number of shares of BankBoston Common Stock to which such holder is
entitled, if any, and, where applicable, a check for the amount representing any
fractional share, without interest. The Pacific certificate or certificates so
surrendered will be canceled.
No dividend or other distribution payable after the Effective Time with
respect to BankBoston Common Stock will be paid to the holder of any
unsurrendered Pacific certificate until the holder surrenders such
certificate(s) in accordance with the Affiliation Agreement and the transmittal
materials, at which time the holder will be entitled to receive all dividends
and distributions, without interest thereon, previously payable but withheld
from such holder.
After the Effective Time, there will be no transfers on the stock transfer
books of Pacific of shares of Pacific Common Stock which were issued and
outstanding at the Effective Time and converted pursuant to Article II of the
Affiliation Agreement. If certificates representing shares of Pacific Common
Stock are presented for transfer after the Effective Time, they will be canceled
and exchanged for certificates representing the shares of BankBoston Common
Stock deliverable in respect thereof as determined in accordance with Article II
of the Affiliation Agreement.
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<PAGE> 46
Neither BankBoston nor Pacific nor any other person will be liable to any
former holder of Pacific Common Stock for any shares or any dividends or
distributions with respect thereto which are properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
If any certificate representing shares of BankBoston 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 accompanied by appropriate evidence 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 required in connection
with the issuance of a certificate for shares of BankBoston Common Stock in a
name other than that of the registered holder of the surrendered certificate.
Lost Certificates. If a certificate for Pacific Common Stock has been
lost, stolen or destroyed, the Exchange Agent will issue, in exchange for such
lost, stolen or destroyed certificate, shares of BankBoston Common Stock and the
fractional share payment, if any, deliverable in respect thereof in accordance
with the Affiliation Agreement upon receipt of appropriate evidence as to such
loss, theft or destruction, (ii) appropriate evidence as to the ownership of
such certificate by the claimant, and (iii) appropriate and customary
indemnification.
Fractional Shares. No fractional shares of BankBoston Common Stock will be
issued in the Merger. Instead, the Affiliation Agreement provides that each
holder of shares of Pacific Common Stock exchanged pursuant to the Merger, who
would otherwise have been entitled to receive a fraction of a share of
BankBoston Common Stock (after taking into account all certificates delivered by
such holder) will receive, in lieu thereof, cash (without interest) in an amount
determined by multiplying such holder's fractional interest by the Average
Closing Price rounded up to the nearest cent.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations. The respective obligations of each
of BankBoston and Pacific to effect the Merger are subject to the fulfillment of
the following conditions, none of which may be waived by the parties:
(a) the Affiliation Agreement and the transactions contemplated
thereby must be approved by the affirmative vote of the holders of at least
two-thirds of the issued and outstanding shares of Pacific Common Stock;
(b) all authorizations, consents, orders or approvals of, or
declarations or filings with, and all expirations of waiting periods
imposed by, any governmental or regulatory authority or agency which are
necessary for the consummation of the Merger and Bank Merger, have been
filed, occurred or been obtained and all such authorizations, orders,
declarations, approvals, filings and consents are in full force and effect;
(c) the Registration Statement has become effective under the
Securities Act and is not subject to a stop order or a threatened stop
order; and
(d) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger is in effect.
Conditions to BankBoston's Obligations. The obligations of BankBoston to
effect the Merger also are subject to the satisfaction of additional conditions,
including, but not limited to, the following conditions, any of which may be
waived by BankBoston:
(a) there has not been any change in the business, assets, financial
condition, results of operations, or prospects of Pacific or Pacific Bank
which, individually or in the aggregate, has had a Material Adverse Effect
(as defined in the Affiliation Agreement) on Pacific;
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<PAGE> 47
(b) the obligations of Pacific under the Affiliation Agreement have
been duly performed or complied with, and the representations and
warranties of Pacific contained in the Affiliation Agreement are true and
correct in all material respects as of the date of the Affiliation
Agreement and as of the Effective Time;
(c) all necessary permits, consents, waivers, clearances, approvals
and authorizations of all nongovernmental and nonregulatory third parties
have been received by Pacific or Pacific Bank, other than those that would
neither make it impossible to consummate the Merger nor result in a
Material Adverse Effect on Pacific;
(d) Bingham, Dana & Gould LLP has delivered to BankBoston its tax
opinion as to the tax effects of the Merger to BankBoston;
(e) Pacific has delivered to BankBoston letters executed by each of
the Affiliates of Pacific; and
(f) there has not been any action taken by any federal or state
governmental agency or authority which imposes any condition or restriction
upon BankBoston or any of its subsidiaries, or Pacific, after the Merger
which would materially adversely impact the economic or business benefits
of the Merger or the Bank Merger, as to render such transactions
inadvisable in the reasonable judgment of BankBoston.
Conditions to Pacific's Obligations. The obligations of Pacific to effect
the Merger also are subject to the satisfaction of certain additional
conditions, including, but not limited to, the following conditions, any of
which may be waived by Pacific:
(a) there has not been any change in the business, assets, financial
condition, results of operations or prospects of BankBoston or any of its
subsidiaries which, individually or in the aggregate, has had a Material
Adverse Effect on BankBoston;
(b) the obligations of BankBoston under the Affiliation Agreement have
been duly performed or complied with and the representations and warranties
of BankBoston contained in the Affiliation Agreement are true and correct
in all material respects as of the date of the Affiliation Agreement and as
of the Effective Time;
(c) all necessary permits, consents, waivers, clearances, approvals
and authorizations of all nongovernmental and nonregulatory third parties
have been received by BankBoston, other than those that would neither make
it impossible to consummate the Merger nor result in a Material Adverse
Effect on BankBoston;
(d) Choate, Hall & Stewart has delivered to Pacific its tax opinion as
to the tax effects of the Merger to the stockholders of Pacific.
(e) the shares of BankBoston Common Stock issuable to Pacific
stockholders pursuant to the Affiliation Agreement have been authorized for
listing on the NYSE.
BUSINESS PENDING THE MERGER
Pursuant to the Affiliation Agreement, Pacific has agreed that, until the
Effective Time, Pacific:
(a) will, and will cause Pacific Bank to, conduct its business and
engage in transactions only in the ordinary, regular and usual course of
business consistent with past practices which includes:
(A) maintaining its corporate existence and good standing;
(B) using all commercially reasonable efforts to maintain and keep
its properties in good repair and condition;
(C) using all commercially reasonable efforts to maintain in full
force and effect insurance generally comparable in amount and in scope
of coverage to that now maintained by it;
(D) complying with and performing in all material respects its
obligations and duties (y) under contracts, leases and documents
relating to or affecting its assets, properties and business and
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(z) imposed upon it by all federal, state and local laws and all rules,
regulations and orders imposed by federal, state or local governmental
authorities, judicial orders, judgments, decrees and similar
determinations; and
(E) using all commercially reasonable efforts to preserve its
business organization intact and the goodwill of those having business
relationships with Pacific or Pacific Bank, to keep available the
services of its officers and employees as a group and to maintain
satisfactory relationships with borrowers, depositors, other customers
and others having business relationships with it;
(b) will not, and will not permit Pacific Bank, without the prior
written consent of BankBoston, to (i) engage or participate in any material
transaction or incur or sustain any material obligation or liability except
in the ordinary, regular and usual course of its business consistent with
past practices, (ii) offer an interest rate on any deposit such that such
deposit would be deemed a "brokered deposit," (iii) except in the ordinary
course of business consistent with past practices and in an immaterial
amount sell, lease, transfer, assign, encumber or otherwise dispose of any,
or enter into any contract, agreement or understanding to lease, transfer,
assign, encumber or dispose of any, of its assets, (iv) file any
application or give any notice to customers or governmental authorities or
agencies to open, close or relocate any branch or open, close, relocate or
terminate the operations of any branch, or (v) waive any material right it
has with respect to any asset except in the ordinary, regular and usual
course of business consistent with past practice;
(c) will cooperate with BankBoston with respect to the preparation for
the combination and integration as of the Effective Time of the businesses,
systems and operations of Pacific and BankBoston;
(d) will not pay or declare any dividends or make other distributions
in respect of the Pacific Common Stock except for (1) quarterly cash
dividends not exceeding $.15 per share per quarter and (2) a special
onetime cash dividend payable prior to the Effective Time in an amount
equal to the per share number determined by multiplying .30 by a fraction,
the numerator of which is the number of calendar days from January 1, 1997
to the payment date of the special dividend referred to herein and the
denominator of which is 365, subject to certain other provisions of the
Affiliation Agreement;
(e) will not adopt or amend in any material respect any pension,
benefit or other plans or enter into any employment, retention, severance
or similar contracts or amend such contracts or plans to increase the
amount payable or benefits provided thereunder, or pay any bonuses to its
or its subsidiaries' employees except in the ordinary course of business
consistent with past practices;
(f) will not and will not permit Pacific Bank, to authorize,
recommend, propose or enter into an agreement with respect to any merger,
consolidation, purchase and assumption transaction or business combination
(other than the Merger), any acquisition of a material amount of assets or
securities or assumption of liabilities, any disposition of a material
amount of assets or securities, or any release or relinquishment of any
material contract rights;
(g) will not propose or adopt amendments to its or Pacific Bank's
Articles of Organization or By-laws;
(h) will not issue, deliver or sell shares of its or Pacific Bank's
capital stock or securities convertible into its or Pacific Bank's capital
stock, and except upon exercise of the Option, or effect any stock split,
reclassification or similar transaction or otherwise change its
capitalization as it existed on March 31, 1997;
(i) will not grant any options or rights to acquire any of its capital
stock;
(j) will not and will not permit Pacific Bank to purchase, redeem or
otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for shares of its capital stock, except in
a fiduciary capacity;
(k) will not impose or permit to exist any material lien, charge or
encumbrance on any capital stock held by it or Pacific Bank;
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(l) will not, and will not permit Pacific Bank to, incur any debt
obligations or obligations for borrowed money, or to guarantee the same,
other than in the ordinary course of business consistent with past
practices;
(m) will not incur or commit to any capital expenditures or any
obligations or liabilities in connection therewith, other than in the
ordinary and usual course of business consistent with past practices and,
in all cases, will consult with BankBoston with respect to capital
expenditures that individually exceed $75,000 or cumulatively exceed
$300,000;
(n) will use all reasonable efforts to improve its business, results
of operations, financial condition and prospects;
(o) will not, except as expressly contemplated by the Affiliation
Agreement, enter into any contract with any Affiliate;
(p) will not, except for transactions in the ordinary course of
business consistent with past practices, enter into, terminate, renew or
amend any material contract or alter any material leases or contracts,
except as provided in the Affiliation Agreement;
(q) will not, except in the ordinary course of business and consistent
with past practice, materially change its investment securities portfolio
or its "gap position" without prior consultation with BankBoston; and
(r) will not agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any of its representations
or warranties made in the Affiliation Agreement untrue or incorrect in any
material respect.
Pacific has agreed not to cancel, terminate or take any other action that
is likely to result in any cancellation or termination of any lease with respect
to any of its real or personal properties without prior written notice to
BankBoston.
In addition to the above, Pacific has specifically agreed that it will not
and Pacific Bank will not, directly or indirectly, solicit, encourage, initiate
or participate in any discussion or negotiations with (subject to the fiduciary
obligations of the Pacific Board as determined in good faith in consultation
with outside counsel), or provide any information to, any corporation,
partnership, person or other entity (other than BankBoston and its affiliates)
concerning any merger, tender offer, sale of substantial assets (other than as
permitted under the Affiliation Agreement), or sales of stock or securities
involving Pacific or Pacific Bank (an "Other Acquisition Transaction"). Pacific
has agreed to immediately communicate to BankBoston the identity of the parties
and terms of any proposal, discussion or inquiry relating to a possible Other
Acquisition Transaction.
BankBoston and Pacific have agreed to cooperate and use all reasonable
efforts to prepare all necessary documentation and file all applications,
notices, petitions and filings, and to obtain and to cooperate in obtaining
permits, consents, approvals and authorizations of all third parties and
governmental entities necessary or advisable to consummate the transactions
contemplated by the Affiliation Agreement and to comply with the terms and
conditions of all such permits, consents, approvals and authorizations.
Pacific has further agreed (i) not to change its method of accounting, as
in effect at December 31, 1996; and (ii) to advise BankBoston promptly of any
change or event having a Material Adverse Effect (as defined in the Affiliation
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 Affiliation Agreement.
WAIVER AND AMENDMENT
Waiver. Subject to applicable law and as may be authorized by their
respective Boards of Directors, at any time prior to the consummation of the
transactions contemplated by the Affiliation Agreement or its termination,
whether before or after approval by the Pacific stockholders of the Affiliation
Agreement and the transactions contemplated thereby, the parties may extend the
time for the performance of any of the
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obligations or other acts of any other party in the Affiliation Agreement, waive
any inaccuracies in the representations and warranties contained therein or in
any document delivered pursuant thereto, or waive compliance with any of the
agreements or conditions contained in Articles V and VI. Notwithstanding the
foregoing provisions, under Section 6.01 of the Affiliation Agreement, the
Merger cannot be consummated unless certain conditions are fulfilled. See
"-- Conditions to the Merger." Any agreement on the part of any party to any
extension or waiver will be valid only if set forth in writing signed on behalf
of such party, but such waiver or failure to insist on strict compliance with
such obligation, covenant, agreement or condition will not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Amendment. Subject to applicable law and as may be authorized by their
respective Boards of Directors, at any time prior to the consummation of the
transactions contemplated by the Affiliation Agreement or its termination,
whether before or after approval by the Pacific stockholders of the Affiliation
Agreement and the transactions contemplated thereby, the parties may amend the
Affiliation Agreement by written agreement.
EXPENSES
The Affiliation Agreement provides that Pacific and BankBoston will each
pay its own expenses in connection with the Merger, including fees and expenses
of its own financial consultants, accountants, and counsel provided, however,
that all costs and expenses of preparing, filing and distributing the
Registration Statement and this Proxy Statement-Prospectus will be shared
equally by Pacific and BankBoston in the event that the Affiliation Agreement is
terminated and neither party is in breach of the Affiliation Agreement or the
Stock Option Agreement.
TERMINATION
The Affiliation Agreement may be terminated at any time prior to the
Effective Time, whether before or after the approval by Pacific stockholders of
the Affiliation Agreement, and the transactions contemplated thereby, under the
following circumstances:
(a) by the mutual written consent of the respective Boards of
Directors of BankBoston and Pacific;
(b) by BankBoston or Pacific if the Effective Time has not occurred on
or prior to April 30, 1998 (the "Termination Date") or such later date as
agreed to in writing by BankBoston and Pacific;
(c) by BankBoston or Pacific if any governmental or regulatory
authority or agency, or court of competent jurisdiction, issues a final
permanent order or Injunction (as defined in the Affiliation Agreement)
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by the Affiliation Agreement and the time for appeal or
petition for reconsideration of such order or Injunction has expired
without such appeal or petition being granted;
(d) by BankBoston or Pacific (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or
other agreement contained in the Affiliation Agreement or in the Stock
Option Agreement), in the event of a material breach by the other party of
any representation, warranty, covenant or other agreement contained in the
Affiliation Agreement or in the Stock Option Agreement which breach is not
cured after fifteen (15) days written notice thereof is given to the party
committing such breach; or
(e) by BankBoston or Pacific (provided that the terminating party is
not then in material breach of any representation, warranty or covenant or
other agreement contained in the Affiliation Agreement or in the Stock
Option Agreement), if the approval of Pacific's stockholders of the
Affiliation Agreement and the transactions contemplated thereby has not
been obtained by reason of Pacific's failure to have obtained the requisite
stockholder vote at a duly held meeting of Pacific's stockholders or at any
adjournment thereof.
In the event of termination of the Affiliation Agreement by either
BankBoston or Pacific as provided above, the Affiliation Agreement will become
null and void (other than Sections 5.02(b) and 9.01 thereof,
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which will remain in full force and effect) and there will be no further
liability on the part of any of the parties or their respective officers or
directors to the others, except (a) any liability of any party under said
Sections 5.02(b) and 9.01, (b) that the Stock Option Agreement will be governed
by its own terms as to termination, and (c) in the event of a willful breach of
any representation, warranty, covenant or agreement contained in the Affiliation
Agreement, in which case, the breaching party will remain liable for any and all
damages, costs and expenses, including all reasonable attorneys' fees, sustained
or incurred by the non-breaching party as a result thereof or in connection
therewith or with the enforcement of its rights thereunder.
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger becomes effective, a stockholder of Pacific who does not vote
in favor of the Merger and who follows the procedures prescribed under
Massachusetts law may require Pacific (as it exists after the Effective Time) to
pay the fair value of his or her shares as determined in an appraisal proceeding
brought in accordance with Sections 85 through 98 of the MBCL. The text of
Sections 85 through 98 is set forth in full in Appendix 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.
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 law,
dissenting stockholders may not be limited to the statutory remedy of judicial
appraisal where violations of fiduciary duty are found.
A dissenting stockholder of Pacific who desires to pursue the appraisal
rights available must adhere to the following procedures: (1) file a written
objection to the Merger with Pacific before the taking of the stockholders' vote
on the Merger, stating the intention of such stockholder to demand payment for
shares owned by such stockholder if the Merger is approved and consummated; (2)
refrain from voting shares owned by such stockholder in favor of the Merger; and
(3) within twenty days of the date of mailing of a notice by Pacific (as it
exists after the Effective Time) to objecting stockholders that the Merger has
become effective, make written demand to Pacific (as it exists after the
Effective Time) for payment for said stockholder's shares. Such written
objection should be delivered to Pacific National Corporation, 61 Main Street,
Nantucket, Massachusetts 02554, Attn: Glenn L. Field, Clerk, and such written
demand should be delivered to Pacific National Corporation (as it exists after
the Effective Time), c/o BankBoston Corporation, 100 Federal Street, Mail Stop
01-25-01, Boston, Massachusetts 02110, Attn: 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, who filed the required written objection with
Pacific prior to the stockholder vote, need not vote against the Merger, but a
vote in favor of the Merger will constitute a waiver of such stockholder's
statutory appraisal rights. Stockholders should note that returning a properly
signed proxy card that does not indicate a vote or an abstention on approval of
the Affiliation Agreement will constitute a vote in favor of the Affiliation
Agreement. A vote against the Merger does not, alone, constitute a written
objection. Pursuant to the applicable statutory provisions, notice that the
Merger has become effective will be sent to each objecting stockholder of
Pacific within ten days after the date on which the Merger becomes effective.
The value of the Pacific Common Stock will be determined initially by
Pacific (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, Pacific (as it exists after
the Effective Time) and the dissenting stockholder fail to agree on an appraisal
value, either of them may file a bill in equity in the Superior Court of
Nantucket County, Massachusetts, asking that the court determine the matter in
issue. The bill in equity must be filed within four months after the date of
expiration of the foregoing thirty-day period. After a hearing, the court shall
enter a decree determining the fair value of the Pacific Common Stock and shall
order Pacific (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 Pacific (as it exists after the
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Effective Time) of the certificate or certificates representing the Pacific
Common Stock held by said stockholders.
For appraisal proceeding purposes, value is determined as of the day before
the approval of the Merger by stockholders, excluding any element of value
arising from the expectation or accomplishment of the Merger.
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT
General. As a condition to BankBoston's entering into the Affiliation
Agreement, and in consideration therefor (without other consideration or
monetary payment), Pacific entered into the Stock Option Agreement, dated May
23, 1997, pursuant to which Pacific granted to BankBoston an option to purchase
shares of Pacific Common Stock (the "Option"). The Stock Option Agreement is
intended to increase the likelihood that the Merger will be consummated by
making it more difficult and more expensive for another party to obtain control
of or acquire Pacific.
Grant of Option. The Option entitles BankBoston to purchase up to 121,452
fully paid and non-assessable shares of Pacific Common Stock (the "Option
Shares"), representing 24.9% of the shares of Pacific Common Stock issued and
outstanding as of May 23, 1997, without giving effect to any shares subject or
issued pursuant to the Option, at a price of $35.00 per share (the "Option
Price"). The aggregate purchase price for the original number of Option Shares
at the original Option Price is $4,250,820.
Triggering Events; Exercise of Option. The Stock Option Agreement provides
that BankBoston may exercise the Option, in whole or in part, if both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) occur prior to the occurrence of an Exercise Termination Event
(as defined below); provided that BankBoston has sent to Pacific written notice
of such exercise within 30 days following such Subsequent Triggering Event and
prior to the Exercise Termination Event.
For purposes of the Stock Option Agreement:
(a) The term "Initial Triggering Event" means any of the following
events or transactions occurring after May 23, 1997: (i) Pacific, or
Pacific Bank, without BankBoston's prior written consent, enters into an
agreement to engage in, or the Pacific Board approves or recommends
approval of, an Acquisition Transaction (as defined below) with any person
other than BankBoston or any of its subsidiaries; (ii) any person, other
than BankBoston or any of its subsidiaries or Pacific acting in a fiduciary
capacity, acquires beneficial ownership, or the right to acquire beneficial
ownership, of 17.5% or more of the outstanding shares of Pacific Common
Stock if such person beneficially owned less than 17.5% on May 23, 1997, or
acquires beneficial ownership of an additional 3% if such person
beneficially owned 17.5% or more on May 23, 1997; (iii) any person other
than BankBoston or any of its subsidiaries has made a bona fide proposal to
Pacific or its stockholders to engage in an Acquisition Transaction by
public announcement or written communication that shall become public; (iv)
after any person, other than BankBoston or any of its subsidiaries, has
proposed an Acquisition Transaction, Pacific breaches any covenant or
obligation contained in the Affiliation Agreement and such breach (A) would
entitle BankBoston to terminate the Affiliation Agreement and (B) is not
remedied prior to the date of BankBoston's notice to Pacific of the
exercise of the Option; or (v) any person, other than BankBoston or any of
its subsidiaries, without BankBoston's consent, files an application or
notice with any federal or state bank regulatory authority for approval to
engage in an Acquisition Transaction and such application or notice has
been accepted for processing. For purposes of the Stock Option Agreement,
the term "Acquisition Transaction" means (A) a merger or consolidation, or
any similar transaction, with Pacific or Pacific Bank, (B) an acquisition
of all or substantially all of the assets of Pacific or Pacific Bank, or
(C) an acquisition of 17.5% or more of the voting power of Pacific or any
of its Significant Subsidiaries.
(b) The term "Subsequent Triggering Event" means either of the
following events or transactions occurring after May 23, 1997: (i) the
acquisition by any person of beneficial ownership of 25% or more of the
then outstanding shares of Pacific Common Stock; or (ii) the occurrence of
the Initial Triggering
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Event described above in clause (a)(i), except that the percentage referred
to in subclause (C) of the definition of "Acquisition Transaction" set
forth above shall be 25%.
The Option will expire upon the earliest of: (i) the Effective Time; (ii)
termination of the Affiliation Agreement if such termination occurs prior to an
Initial Triggering Event; and (iii) nine months after termination of the
Affiliation Agreement if such termination follows an Initial Triggering Event
(each of (i), (ii) and (iii), an "Exercise Termination Event").
As of the date of this Proxy Statement-Prospectus, to the best knowledge of
BankBoston and Pacific, no Initial Triggering Event or Subsequent Triggering
Event has occurred.
In the event of any change in the shares of Pacific 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 Option Shares and the Option Price will be adjusted appropriately. The
Pacific Board may make such increases in the number of Option Shares, in
addition to those made in accordance with the events described in the
immediately preceding sentence, in order to avoid taxation of any dividend of
stock or stock rights or any event treated as such for federal income tax
purposes to the recipients.
Whenever the number of Option Shares (or other securities) purchasable upon
exercise of the Option is adjusted as provided in the Stock Option Agreement,
the Option Price will be adjusted by multiplying the Option Price by a fraction,
the numerator of which will be equal to the number of Option Shares prior to the
adjustment and the denominator of which will be equal to the number of Option
Shares (or other securities purchasable) after the adjustment.
Repurchase of Option. In the event that, at any time prior to an Exercise
Termination Event, (i) any person acquires beneficial ownership of 25% or more
of the then outstanding shares of Pacific Common Stock, or (ii) an Initial
Triggering Event of the type described in clause (i) of Section 2(e) of the
Stock Option Agreement (except that the percentage reference in clause (C) of
the definition of "Acquisition Transaction" set forth above shall be 25%)
occurs, then, at the request of BankBoston or any subsequent holder of the
Option delivered within 30 days of such occurrence, Pacific or any successor (a)
shall repurchase the Option from BankBoston or such holder at a price (the
"Option Repurchase Price") equal to the amount by which (i) the market/offer
price (as defined below) exceeds (ii) the Option Price, multiplied by the number
of shares for which the Option may then be exercised, plus BankBoston's or such
holder's reasonable out-of-pocket expenses incurred in connection with the
transactions contemplated by the Affiliation Agreement (the "out-of-pocket
expenses") and (b) shall repurchase such number of Option Shares from any owner
of Option Shares (the "Owner") as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the greater of (i) the market/offer
price and (ii) the average exercise price per share paid by the Owner for the
Option Shares so designated, plus BankBoston's out of pocket expenses.
The term "market/offer price" means the highest of (i) the price per share
of Pacific Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the price per share of Pacific Common Stock to be paid by any
third party pursuant to an agreement with Pacific, (iii) the highest sale price
for shares of Pacific Common Stock within the six-month period immediately
preceding the date of the required repurchase of the Option or Option Shares, as
the case may be, or (iv) in the event of a sale of all or a substantial portion
of Pacific's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of Pacific as determined by a
nationally recognized investment banking firm selected by a majority in the
interest of the Holders or the Owners as the case may be, divided by the number
of shares of Pacific 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
Pacific. However, if Pacific 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 Option or
the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Pacific will promptly (I) deliver to the Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share
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Repurchase Price that Pacific 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 Pacific
Common Stock obtained by multiplying the number of shares of Pacific 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.
In the event that, on the Payment Date (as defined in the Stock Option
Agreement), Pacific does not have sufficient cash to pay in full the Option
Share Repurchase Price or the Option Repurchase Price, Pacific shall deliver to
BankBoston or any holder, (a) cash, to the extent readily available, including
but not limited to, amounts Pacific may legally borrow, and (b) a promissory
note issued by Pacific in the principal amount equal to the difference between
the Option Repurchase Price or the Option Share Repurchase Price and any cash
payment made by Pacific. The promissory note must be in a form reasonably
acceptable to the Holder or Owner, with principal and interest payable in twelve
equal monthly installments and shall bear interest at a rate of 2% above the
Prime Rate as reported in The Wall Street Journal. The promissory note is also
to be secured by security reasonably acceptable to BankBoston or any holder.
Registration Rights. After exercise of the Option, whether in whole or in
part, if Pacific proposes to register any of its securities under the Securities
Act, either for its own account or for the account of any stockholder,
BankBoston has the right to participate pro-rata in such registration, subject
to certain limitations set forth in the Stock Option Agreement.
Assignment of Option. Neither BankBoston nor Pacific may assign any of its
rights or obligations under the Stock Option Agreement or the Option to any
other person without the express written consent of the other party, except that
in the event a Subsequent Triggering Event occurs prior to an Exercise
Termination Event, BankBoston may assign, in whole or in part, its rights and
obligations under the Stock Option Agreement or the Option within 30 days
following such Subsequent Triggering Event.
Right of First Refusal. If BankBoston desires to sell, assign, transfer or
otherwise dispose of the Option, in whole or in part, or prior to the expiration
of twenty-four (24) months after the expiration of the Option, all or any of the
shares of Pacific Common Stock or other securities acquired by BankBoston
pursuant to the Option, BankBoston shall give Pacific written notice of the
proposed transaction. Such notice shall identify the proposed transferee, and be
accompanied by a signed copy of a binding offer to purchase the Option, or such
shares or securities. Pacific will have ten business days from such notice to
purchase the Option, or such shares or securities, on the same terms or
conditions and at the same price at which BankBoston proposes to transfer the
same.
Additional Provisions. Certain rights and obligations of BankBoston and
Pacific under the Stock Option Agreement are subject to receipt of required
regulatory approvals. The exercise of the Option by BankBoston would require the
approval of the Federal Reserve Board under the BHCA.
LETTER AGREEMENTS
As a condition to BankBoston entering into the Affiliation Agreement, the
directors of Pacific and executive officers of Pacific and Pacific Bank, owning
in the aggregate 208,172 shares, representing 42.68% of the issued and
outstanding shares of Pacific Common Stock, have agreed pursuant to the Letter
Agreements, to vote or cause to be voted all shares owned by each such person at
the Special Meeting for approval of the Merger, and vote or cause to be voted
such shares against approval of any other agreement for a merger, acquisition,
consolidation, material asset sale, or other business combination of Pacific or
any of its subsidiaries with any other party other than BankBoston or any of its
affiliates.
The Letter Agreements remain in force until the earlier of the consummation
of the Merger or the termination of the Affiliation Agreement in accordance with
its terms.
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BANK MERGER AGREEMENT
Immediately prior to the Effective Time, and pursuant to the Agreement and
Plan of Merger, by and between Pacific Bank and the Bank dated as of May 23,
1997 (the "Bank Merger Agreement), Pacific Bank will merge with and into the
Bank, and all of the issued and outstanding shares of capital stock of Pacific
Bank will automatically be converted and become exchangeable for shares of
capital stock of the Bank. In accordance with the Bank Merger Agreement, the
outstanding shares of common stock of the Bank will remain outstanding
immediately following the Effective Time of the Bank Merger, and the holders
thereof will retain all of their rights thereunder. The outstanding shares of
common stock of Pacific Bank will, ipso facto, and without any action on the
part of the holder thereof, be converted into and become exchangeable for such
number of shares or fraction of a share of common stock of the combined entity
(the "Association") based upon the aggregate fair market value of Pacific Bank's
shares of common stock as compared to the aggregate fair market value of the
Bank's shares of common stock, in each case as such shares are issued and
outstanding immediately prior to the Effective Time of the Bank Merger. All
assets of each of the Bank and Pacific Bank as they exist at the Effective Time
of the Bank Merger will pass and vest in the Association without any conveyance
or other transfer, and the Association will be responsible for all of the
liabilities of each of the Bank and Pacific Bank existing as of the Effective
Time of the Bank Merger. The Board of Directors and principal officers of the
Bank in place and holding office immediately prior to the Effective Time of the
Bank Merger will continue to serve as the Board of Directors and principal
officers of the Association. The Articles of Association and By-Laws of the Bank
in effect immediately prior to the Effective Time of the Bank Merger will
constitute the Articles of Association and By-Laws of the Association. Pursuant
to the Bank Merger Agreement, the parties intend that the internal systems and
operations of the Bank and Pacific Bank will be integrated and consolidated on
or after the Effective Time of the Bank Merger. Notwithstanding the foregoing,
and subject to applicable law, the Association may in its sole discretion
conduct the business and operations conducted at the former offices of Pacific
Bank following the Effective Time of the Bank Merger as a separate division of
the Association under the name "Pacific National, a division of BankBoston,
N.A." The respective obligations of the Bank and Pacific Bank to affect the Bank
Merger pursuant to the Bank Merger Agreement are subject to the satisfaction
prior to the Effective Time of the Bank Merger of certain conditions, including:
(i) the satisfaction of the conditions contained in the Affiliation Agreement,
(ii) the absence of any order, injunction or decree preventing the consummation
of the Bank Merger, and (iii) the receipt of all necessary approvals, all as
more fully described in the Bank Merger Agreement.
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<PAGE> 56
DESCRIPTION OF BANKBOSTON CAPITAL STOCK
COMMON STOCK
General. As of June 30, 1997, BankBoston Common Stock consisted of
300,000,000 authorized shares, par value $1.50 per share, of which there were
147,110,689 shares outstanding. BankBoston Common Stock is traded on the NYSE
and the BSE. The transfer agent and registrar for BankBoston Common Stock is the
Bank.
Shares of BankBoston Common Stock may be issued from time to time, in such
amounts and proportion and for such consideration as may be fixed by the
BankBoston Board. No holder of BankBoston 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 BankBoston. The BankBoston Common
Stock has no redemption or sinking fund provisions applicable thereto. The
BankBoston Common Stock does not have any conversion rights.
BankBoston issues authorized but unissued shares of BankBoston Common Stock
in connection with several employee and director benefit and stock option and
incentive plans maintained by BankBoston or its subsidiaries, and BankBoston's
Automatic Dividend Reinvestment and Common Stock Purchase Plan.
The shares of BankBoston Common Stock are fully paid and non-assessable.
Section 45 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, will 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
BankBoston, whether voluntary or involuntary, the holders of the BankBoston
Common Stock are entitled to receive, on a share for share basis, any assets or
funds of BankBoston which are distributable to its holders of BankBoston Common
Stock upon such events, subject to the prior rights of creditors of BankBoston
and holders of BankBoston's outstanding preferred stock.
Voting. Holders of BankBoston Common Stock are entitled to one vote for
each share on all matters voted upon by the stockholders. The shares of
BankBoston 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
BankBoston Board.
Dividends. When, as and if dividends, payable in cash, stock or other
property, are declared by the BankBoston Board out of funds legally available
therefor, the holders of BankBoston Common Stock are entitled to share equally,
share for share, in such dividends. The payment of dividends on the BankBoston
Common Stock is subject to the prior payment of dividends on BankBoston's
preferred stock.
Stockholder Rights Plan. A Rights Agreement dated as of June 28, 1990, as
amended in December 1995, between BankBoston and the Bank, as Rights Agent (the
"Rights Agreement"), which is incorporated herein by reference to Exhibit 1 to
BankBoston's Registration Statement on Form 8-A, provides for a dividend of one
Preferred Stock Purchase Right for each outstanding share of BankBoston Common
Stock (the "Rights"). The dividend was distributed on July 12, 1990 to
stockholders of record on that date. Holders of shares of BankBoston Common
Stock issued subsequent to that date receive the Rights with their shares. The
Rights trade automatically with shares of Common Stock and become exercisable
only under certain circumstances as described below. The Rights are designed to
protect the interests of BankBoston and its stockholders against coercive
takeover tactics. The purpose of the Rights is to encourage potential acquirors
to negotiate with the BankBoston Board prior to attempting a takeover and to
provide the BankBoston Board with leverage in negotiating on behalf of all
stockholders the terms of any proposed takeover. The Rights may
49
<PAGE> 57
have certain anti-takeover effects. The Rights should not, however, interfere
with any merger or other business combination approved by the BankBoston Board.
Until a Right is exercised, the holder of a Right, as such, will have no
rights as a stockholder of BankBoston including, without limitation, the right
to vote or receive dividends. Upon becoming exercisable, each Right will entitle
the holder thereof to purchase from BankBoston a unit equal to one
one-thousandth of a share of BankBoston'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 BankBoston that a person or group has acquired beneficial
ownership of 15% or more of BankBoston Common Stock or voting securities
representing 15% or more of the total voting power of BankBoston (the "Stock
Acquisition Date") or (ii) ten business days (or such later date as the
BankBoston 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 BankBoston Common Stock or voting securities representing 15% or more of
the total voting power of BankBoston.
Generally, in the event that a person or group becomes the beneficial owner
of 15% or more of BankBoston Common Stock or voting securities representing 15%
or more of the total voting power of BankBoston (other than pursuant to an offer
for all outstanding shares of Common Stock and other voting securities which the
BankBoston Board determines to be fair to stockholders and otherwise in the best
interests of BankBoston) (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, BankBoston 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 BankBoston Board may exchange the then exercisable Rights (other than Rights
held by the acquiror) for BankBoston Common Stock at one share of BankBoston
Common Stock for each Right. In the event that, any time after the Stock
Acquisition Date, BankBoston is acquired in a merger or other business
combination transaction or more than 50% of BankBoston'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 BankBoston 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 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
Rights Agreement.
PREFERRED STOCK
General. Under BankBoston's Restated Articles of Organization, the
BankBoston 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 BankBoston; 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
BankBoston Board.
BankBoston 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").
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 have been deposited with the Bank, as Depositary (the
"Depositary"), under Deposit Agreements (the "Deposit Agreement"), among
BankBoston, the Depositary and the holders from time to time of the depositary
receipts issued by the Depositary
50
<PAGE> 58
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 June 30, 1997, 4,593,941 shares of Preferred Stock were issued and
outstanding with an aggregate liquidation preference of $508 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 BankBoston
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 BankBoston
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 BankBoston 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
BankBoston, the holders of each share of outstanding Preferred Stock will be
entitled to receive, prior to any payment upon BankBoston 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 BankBoston, with the
prior approval of the Federal Reserve Board, if then required, except that the
Series E and Series F Preferred Stock are not redeemable prior to September 15,
1997 and July 15, 1998, respectively. On July 24, 1997, BankBoston announced its
intention to redeem all 920,000 issued and outstanding shares of Series E
Preferred Stock (equivalent to 9,200,000 Depositary Shares) on September 15,
1997. The Series E Preferred Stock has an aggregate liquidation preference of
$230 million.
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 will be entitled (by series,
voting as a single class) to elect one director who will serve until such time
as the arrearage in the payment of dividends has been cured.
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<PAGE> 59
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
Upon consummation of the transactions contemplated in the Affiliation
Agreement, the stockholders of Pacific who do not perfect and exercise their
statutory dissenters' rights will become stockholders of BankBoston. Since both
BankBoston and Pacific are Massachusetts corporations, Pacific stockholders who
receive BankBoston 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 BankBoston will be governed by the Articles of
Organization and By-Laws of BankBoston, which differ in certain respects from
Pacific's 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 BankBoston and Pacific.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Consistent with the MBCL, each of the BankBoston Board and the Pacific
Board is divided into three classes and the directors of each class are elected
by the stockholders to serve staggered three-year terms. The BankBoston By-Laws
provide that the BankBoston Board be composed of not less than three nor more
than thirty-five directors. Presently there are 18 directors on the BankBoston
Board. The Pacific By-Laws provide that the Pacific Board be composed of not
less than 5 nor more than 25 directors. Presently there are 10 directors on the
Pacific Board.
REMOVAL OF DIRECTORS
Pursuant to the MBCL, the directors on the BankBoston Board and the Pacific
Board may be removed only "for cause" as defined in the MBCL.
STOCKHOLDER NOMINATIONS
BankBoston. The By-Laws of BankBoston set forth procedures that must be
followed for stockholders to nominate individuals for election to the BankBoston
Board. Nominations by stockholders must be made in writing and received by the
Clerk of BankBoston not less than 75 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 75 days
prior to such anniversary date, a stockholder's nomination notice must be
received not later than the close of business on the 20th 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.
Pacific. Pacific's By-Laws contain no provisions with respect to
stockholder nomination of directors.
CONFLICT OF INTEREST TRANSACTIONS
BankBoston. The By-Laws of BankBoston provide that contracts or other
transactions between BankBoston and one or more of its directors or between
BankBoston and any other corporation or other entity with respect to which any
of BankBoston's directors is a director, officer or has a financial interest,
are permitted if: (a) the material facts as to the contract or transaction and
the director's relationship or interest are disclosed to the BankBoston Board or
committee and the BankBoston 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 BankBoston as of the time
it is approved by the BankBoston Board, a committee, or the stockholders.
Pacific. Pacific's By-Laws do not contain any provisions with respect to
conflict of interest transactions.
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<PAGE> 60
MEETINGS OF STOCKHOLDERS
BankBoston. Under the By-Laws of BankBoston, special meetings of
stockholders may be called by the Chief Executive Officer, by the Chairman of
the BankBoston Board or by a majority of the BankBoston Directors and shall be
called by the Clerk, upon the written request of stockholders who hold 100% in
interest of the capital stock of BankBoston entitled to vote at the proposed
meeting. BankBoston'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 or at the direction of the BankBoston Board; (b) brought before the meeting
by or at the direction of the BankBoston 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 BankBoston's proxy statement under Rule 14a-8
under the Exchange Act). Those procedures require that a stockholder's notice be
received by the Clerk (i) not less than 75 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 75
days prior to such anniversary date, not later than the close of business on the
20th 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.
Pacific. Under the By-Laws of Pacific, special meetings of stockholders
may be called by the directors of Pacific or by such other persons as may be
authorized by law.
AMENDMENT OF BY-LAWS
BankBoston. The provisions of BankBoston'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
BankBoston Board. However, no amendment may be made by the BankBoston Board 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.
Pacific. The By-Laws of Pacific provide that the Pacific Board may make,
repeal, and amend the By-Laws of Pacific, except with respect to any provision
thereof, which by law, the Articles, or the By-Laws, requires action by the
stockholders. Such action by the Pacific Board shall require the affirmative
vote of a majority of the directors then in office at a duly constituted meeting
of the Pacific Board called expressly for such purpose. The By-Laws also provide
that the stockholders may make, repeal, and amend the By-Laws upon the vote of a
majority of the total votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders called expressly for such purpose.
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS
BankBoston. 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 at least
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 BankBoston do not contain provisions which require a specific lower
or higher stockholder vote for such transactions.
Pacific. Pacific's Articles provide that certain business combinations
require the affirmative vote of the holders of at least three-fourths of the
voting power of the outstanding shares of voting stock of Pacific, voting
together as a single class. However, if the proposed business combination is
approved by certain directors or satisfies certain price and procedure
requirements specified in the Articles, such business combination requires only
the affirmative vote that is required by the MBCL. As the Merger was unanimously
approved by the Pacific Board, the Merger requires only the affirmative vote
required by the MBCL -- approval by two-thirds of the holders of Pacific Common
Stock. See "SPECIAL MEETING OF STOCKHOLDERS -- Stockholder Vote Required; Letter
Agreements." Pacific's Articles also provide that when evaluating any offer to
merge Pacific with another institution, the Pacific Board will, in connection
with the exercise of its judgment
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<PAGE> 61
in determining what is in the best interest of Pacific and its stockholders,
give due consideration to all relevant factors, including without limitation the
social and economic effects of acceptance of such offer on (a) the employees and
stockholders of Pacific, and (b) the depositors, borrowers and employees, and
communities served by Pacific's banking subsidiaries.
STOCKHOLDER RIGHTS PLAN
BankBoston. BankBoston has distributed to each holder of BankBoston Common
Stock one Right for each outstanding share of BankBoston Common Stock. The
Rights entitle the stockholder to certain rights in the event of certain
transactions involving BankBoston. See "DESCRIPTION OF BANKBOSTON CAPITAL
STOCK -- Common Stock -- Stockholder Rights Plan."
Pacific. Pacific has not adopted a stockholder rights plan.
STATE ANTI-TAKEOVER STATUTES
BankBoston. 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 Affiliation
Agreement or the Stock Option Agreement, or any of the transactions contemplated
by such agreements, because the BankBoston Board and the Pacific Board each
approved the Affiliation Agreement and the Stock Option Agreement prior to their
execution.
The Massachusetts General Laws include a statute concerning "control share
acquisitions," which limits the voting rights of shares held by persons who have
acquired a certain percentage of the voting power of 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 of BankBoston provide that the
Massachusetts control share acquisition statute does not apply to it.
Pacific. Pacific has not elected to "opt out" of the Massachusetts
business combination law described above. The Articles and the By-Laws of
Pacific do not contain a provision with respect to control share acquisitions.
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<PAGE> 62
OWNERSHIP OF PACIFIC COMMON STOCK
The following table sets forth, as of August 15, 1997, certain information
with respect to the beneficial ownership of Pacific Common Stock by: (i) each of
Pacific's directors and executive officers, (ii) all directors and executive
officers of Pacific as a group, and (iii) each other person (including any
"group," as that term is used in Section 13(d)(3) of the Exchange Act) who is
known by Pacific to own beneficially 5% or more of Pacific Common Stock. Pacific
believes that the beneficial owners of Pacific Common Stock listed below, based
on information furnished by such owners, have sole voting and investment power
with respect to such shares, except as noted below.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK(1)
- --------------------------------------------------------------- ------------ ---------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Frederick J. Boling, Jr. ...................................... 16,000 3.28%
Richard R. Congdon(2).......................................... 39,634 8.13%
Stephen J. DeCesare(3)......................................... 539 *
Glenn L. Field................................................. 2,200 *
John F. Gifford(4)............................................. 30,588 6.27%
Augustine F. Gouveia........................................... 83 *
Robert A. Hawkins.............................................. 1,000 *
Brock Lewis(5)................................................. 28,195 5.75%
Phillip C. Murray(6)........................................... 12,370 2.54%
Lydle L. Rickard(7)............................................ 3,060 *
Gilbert F. Waine(8)............................................ 61,467 12.60%
David E. Webster(9)............................................ 13,036 2.67%
------- ------
All executive officers and directors as a group (12 persons)... 208,172 42.68%
OTHER PRINCIPAL STOCKHOLDERS
Nelson Doubleday............................................... 30,315 6.22%
Ann B. Oliver(10).............................................. 27,105 5.56%
Richard Salem.................................................. 27,815 5.70%
J.F. Waine Trust(11)........................................... 61,467 12.60%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to the shares.
(2) Includes 23,519 shares held by Congdon & Coleman Insurance Agency and
15,000 shares owned by the Helen Congdon Trust.
(3) Includes 439 shares jointly owned by Mr. DeCesare and his wife.
(4) Includes 29,418 shares owned by other members of the Gifford family. Mr.
Gifford disclaims beneficial ownership in such shares owned by other
members of the Gifford family.
(5) Includes 1,690 shares owned by other members of the Lewis family. Mr. Lewis
disclaims beneficial ownership in such shares owned by other members of the
Lewis family.
(6) Includes 5,310 shares owned by other members of the Murray family. Mr.
Murray disclaims beneficial ownership in such shares owned by other members
of the Murray family.
(7) Includes 150 shares owned by Mr. Rickard's wife.
(8) Includes 56,034 shares owned by the Josephine F. Waine Trust and 5,406
shares owned by other members of the Waine family. Mr. Waine disclaims
beneficial ownership in such shares owned by other members of the Waine
family and by the Josephine F. Waine Trust.
(9) Includes 3,963 shares owned by the Webster Family Trust.
(10) Includes 24,150 shares owned by Osceola Foundation of which Ms. Oliver is
President.
(11) Includes 5,380 shares owned by other members of the Waine Family.
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<PAGE> 63
INFORMATION ABOUT BANKBOSTON
BankBoston is a registered bank holding company, organized in 1970 under
Massachusetts law, with both national and international operations. BankBoston,
through its subsidiaries and, in certain cases, joint ventures, is engaged in
providing a wide variety of personal, corporate and global financial services to
individuals, corporate and institutional customers, governments, and other
financial institutions. BankBoston's principal subsidiary is the Bank. Other
major banking subsidiaries of BankBoston are Bank of Boston Connecticut and
Rhode Island Hospital Trust National Bank.
For more information about BankBoston, reference is made to BankBoston'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.")
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<PAGE> 64
DESCRIPTION OF PACIFIC'S BUSINESS
GENERAL
Pacific is a Massachusetts bank holding company whose principal asset is
Pacific Bank, a national banking association, which commenced banking operations
in 1804. Pacific provides full service retail banking services to the island of
Nantucket, Massachusetts, where the major industries are real estate development
and sales and tourism. The business of Pacific consists primarily of attracting
deposits from the island community and originating loans secured by mortgages on
residential and commercial properties located on the island. Pacific also
originates commercial and consumer loans. As a locally-owned and operated bank,
Pacific provides its customers, particularly consumers and smaller and
privately-held businesses, with a level and quality of personal service attuned
to the needs of the island of Nantucket due, in part, to the relationships and
understanding of Pacific's officers, directors and employees of the needs of
this unique island community.
BANKING SERVICES
Deposit Services. Pacific offers a wide array of business and consumer
checking accounts, NOW and savings accounts, money market deposit accounts,
individual retirement accounts, certificates of deposit and other deposit
services such as automated teller machine cards.
Lending Services. Pacific's lending activities include residential and
commercial, construction and real estate mortgages and commercial and consumer
loans. Pacific also provides commercial loans to small and medium-sized business
in the form of seasonal lines of credit and consumer credit card lines.
MARKET AREA
Pacific has served the island community of Nantucket through its main
office located at 61 Main Street since 1818, and one branch office located in
the center of the island. Pacific also maintains a loan office and four
automated teller machines on the island.
The island of Nantucket is one of the world's leading tourist and vacation
destinations. During its peak season, July through September, there is
significant growth in the level of deposit activity. During the off-season,
Pacific experiences anticipated decreases in the level of deposit activity from
the peak season months. Loan originations continue during both the on and
off-season. Loan volume, although less seasonal than deposit activity, reflects
heightened merchant credit line activity in the spring of each year. In recent
years, there has been increasing demand for housing on Nantucket and housing
prices have risen dramatically since 1991. In response to this demand, Pacific
offers residential mortgage loans to both year-round residents as well as
second-home, seasonal residents. Pacific faces competition from one other
on-island banking institution, which directly competes for deposits and loan
originations, as well as from off-island banking and mortgage loan originators.
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<PAGE> 65
LOAN PORTFOLIO
Pacific's loan portfolio is comprised of residential real estate loans,
commercial and construction real estate loans and commercial, consumer and other
loans. Loans are a source of liquidity for Pacific. At June 30, 1997, Pacific's
total loan portfolio was $95.2 million compared to $78.4 million at December 31,
1996. The following table lists Pacific's total loan portfolio by category of
loans for the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Real Estate
Residential.............................. $61.1 $67.8 $60.9 $50.4 $44.3
Commercial & Construction................ 13.4 9.2 6.7 13.7 11.7
Commercial................................. 2.0 2.0 2.0 2.7 2.4
Consumer................................... 1.9 2.2 1.7 1.1 1.3
----- ----- ----- ----- -----
Total Loans...................... $78.4 $81.2 $71.3 $67.9 $59.8
===== ===== ===== ===== =====
</TABLE>
Residential Real Estate. For the year ended December 31, 1996, Pacific
originated over $29.7 million of residential real estate loans to Nantucket
island home buyers. These loans are made primarily for the construction,
purchase or re-finance of detached 1-4 family homes that serve as the primary or
secondary residence of the owner.
The majority of Pacific's residential loan originations are one year
adjustable rate mortgages, the pricing of which is a U.S. Treasury security
constant index plus a margin. Repricing limitations contain maximum 2% annual
and 6% life-of-loan rate caps.
Pacific originates fixed rate loans under Federal Home Loan Mortgage
Corporation ("FHLMC") standards or other private organization's standards, for
resale in the secondary mortgage market. These standards include guidelines for
ratios, credit, income, loan to value, appraisals, closing requirements, and
similar standards. Loans which do not meet the "standard" secondary market
guidelines may be approved under special products provided by Pacific or others,
which allow less stringent underwriting guidelines.
Residential loans are written for a term not to exceed thirty years and are
made as construction or permanent loans, typically for amounts up to 80% of
appraised value. In all cases where a loan is approved in which the loan to
value ratio exceeds 80%, private mortgage insurance is required on such excess.
Pacific does not currently offer loans on properties when the loan to value
ratio exceeds 95%.
Under customary FHLMC arrangements, loans sold to FHLMC are with recourse
to Pacific in the event of noncompliance with FHLMC underwriting and
documentation requirements or foreclosure resulting from a delinquency that
began within four months of origination. At December 31, 1996, Pacific had no
loans held for sale identified in its portfolio.
Commercial Real Estate and Construction Loans. Pacific finances owner and
non-owner occupied commercial buildings. Commercial real estate loans generally
have a maximum loan to value ratio of 80% and a maximum term of 25 years. Loans
are priced based on a variable rate, require a debt coverage ratio of 1.0 to
1.2:1 and are typically guaranteed by the principals and/or the corporate entity
owning the building. Pacific also originates loans to fund the construction of
commercial buildings. In order to determine the value of the real estate
property, an appraisal report is required. Such appraisals are reviewed by
Pacific's credit department. Where deemed appropriate, Pacific also undertakes a
level of environmental due diligence prior to entering into commercial loan
transactions. Pacific also makes use of the loan programs of the Small Business
Administration ("SBA") when financing commercial real estate, pursuant to which
the SBA will guarantee a significant portion of a loan originated in compliance
with SBA standards.
Commercial Loans. Pacific makes secured and unsecured loans to businesses
that are sole proprietorships, partnerships and corporations. These loans
typically range in size from approximately $5,000 to $100,000. In-depth credit
analysis precedes the originating of each loan. Analyzing a potential loan
requires careful consideration of (1) the character of the borrower's business,
(2) the borrower's financial condition
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<PAGE> 66
and cash flow as reflected in current financial statements, (3) the borrower's
management capability, (4) the borrower's industry, and (5) the economic
environment in which the loan will be repaid.
Many of the loans made by Pacific are secured, but collateral is not
considered a substitute for the borrower's ability to pay. Collateral is taken
as a way to provide a backup source of repayment. Cash flow is the primary
source of repayment while collateral is a secondary source of repayment.
The quality and liquidity of collateral are important and must be confirmed
before the loan is made. Securities are margined so that money received from the
collateral under liquidation conditions will be sufficient to repay the loan.
Personal guarantees are required on almost all loans. Loans are typically priced
at variable rates based on the Prime Rate published by the Wall Street Journal
("Prime").
Commonly requested commercial loans include short-term single payment
loans, commercial lines of credit and term loans for specific asset
acquisitions. Pacific also makes use of SBA programs to lend to small
businesses.
Consumer Loans. Pacific offers a wide range of consumer loans including
personal secured loans, home equity lines of credit, second mortgage loans,
credit cards, as well as auto and boat loans.
Pacific offers home equity lines of credit in amounts up to 70% of the
appraised value of the property less the first mortgage balance for terms of up
to 30 years. The lines of credit are written on an adjustable rate basis at the
rate of 2.0% over Prime, adjusted yearly as Prime changes. There were no such
loans in Pacific's total loan portfolio at December 31, 1996.
Credit Risk Management. The management of credit risk occurs as an
on-going function that begins with the underwriting of a loan at its inception
and adherence to Pacific's loan policies and procedures and continues through
the life of a loan through the portfolio management efforts of the lending
staff. All members of the lending staff are tasked with monitoring and
identifying changes in the economy or in a borrower's business which may affect
the ability of the borrower to repay his/her loan or impact the value of
collateral securing the loan. Pacific assures that the proper amount of due
diligence and management attention occurs in the process of managing credit risk
through several established policies and procedures. These include a well-
defined loan approval process that requires dual signatures on all loans and has
defined lending authorities for individual lenders, a loan committee made up of
5 members of the Pacific Bank Board on a rotating basis and, ultimately, the
full Pacific Bank Board. Another credit management practice is a weekly meeting
of the officers in the loan department to discuss and evaluate delinquencies
which are reported monthly to the Pacific Bank Board.
Maturities & Sensitivities of Loans to Changes in Interest Rates.
The following table presents the maturities and interest rate sensitivity,
based on original contractual terms, of loans outstanding at December 31, 1996:
<TABLE>
<CAPTION>
REPRICING DATE
-----------------------------------------------------------
1 DAY TO 3 MO. TO 12 MOS. OVER
3 MONTHS 12 MONTHS TO 5 YEARS 5 YEARS TOTAL
-------- --------- ---------- ------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Fixed....................... $4.3 $ 9.5 $1.9 $ 4.3 $20.0
Floating.................... 3.8 54.6 58.4
---- ----- ---- ---- -----
Total Loans....... $8.1 $64.1 $1.9 $ 4.3 $78.4
==== ===== ==== ==== =====
</TABLE>
Nonperforming Assets.
Nonperforming assets are defined as loans on nonaccrual status, modified
loans, and other real estate owned. Pacific classifies loans as nonaccrual when
the loan is past due 90 days or more as to principal or interest except those
loans which, in management's judgment, are fully secured and in process of
collection. When a loan is placed on nonaccrual status, all previously accrued
but uncollected interest is reversed against current period income. The loan
remains on nonaccrual status until the borrower has brought the loan current
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<PAGE> 67
and demonstrated the ability to make future payments of principal and interest
as scheduled or the loan is deemed to be uncollectible and is charged off
against the allowance for possible loan losses (the "ALLL").
Other real estate owned ("OREO") is real estate that has been acquired
through foreclosure.
The following table shows the composition of nonperforming assets for the
five years ended as indicated:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........................ $ 584 $ 1,001 $ 1,699 $ 2,039 $ 4,215
OREO, net............................... 299 592 2,097
-------- ------- ------- ------- -------
Total nonperforming assets.............. $ 584 $ 1,001 $ 1,998 $ 2,631 $ 6,312
======== ======= ======= ======= =======
Loans past due 90 days or more and
still accruing........................ $ 88 $ 28
Percentage of nonperforming assets to
total loans & OREO.................... .74% 1.23% 2.79% 3.84% 10.21%
Nonperforming assets to total assets.... .57% 1.03% 2.04% 2.81% 6.73%
ALLL to nonaccrual loans................ 402% 223% 127% 115% 61%
Total assets............................ $102,373 $97,619 $98,179 $93,520 $93,778
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
The ALLL is maintained at a level which management considers adequate to
absorb potential losses in the loan portfolio. At December 31, 1996, Pacific
maintained an allowance of approximately 3.0% of its outstanding loans.
ALLL is increased by provisions charged to operations, and realized losses,
net of recoveries, are charged directly to the allowance. The allowance is an
estimate, and ultimate losses may vary from current estimates. As adjustments
become necessary, they are reported in the results of operations of the periods
in which they become known.
The following table summarizes the activity in Pacific's ALLL for the five
years ended as indicated:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance of ALLL at beginning of year..... $ 2,231 $ 2,158 $ 2,355 $ 2,589 $ 2,368
Provision charged to expense............. 348 852
------- ------- ------- ------- -------
Balance of ALLL after provision.......... 2,231 2,158 2,355 2,937 3,220
------- ------- ------- ------- -------
Loans charged off........................ (22) (25) (299) (783) (1,010)
Loan recoveries.......................... 140 98 102 201 379
------- ------- ------- ------- -------
Balance of ALLL at end of year........... $ 2,349 $ 2,231 $ 2,158 $ 2,355 $ 2,589
======= ======= ======= ======= =======
Amount of loans outstanding at end of
year................................... $78,463 $81,224 $71,349 $67,887 $59,753
Average amount of loans outstanding...... $78,195 $78,143 $68,177 $63,316 $62,997
Ratio of net charge-offs (recoveries)
during year to average loans
outstanding............................ (.15)% (.09)% .29% .92% 1.00%
ALLL as percent of loans outstanding at
end of year............................ 2.99% 2.75% 3.02% 3.47% 4.33%
</TABLE>
INVESTMENT SECURITIES
The investment portfolio is used to meet seasonal liquidity demands,
provide a reasonable rate return commensurate with safety of principal, pledging
and interest sensitivity concerns. Portfolio securities include
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<PAGE> 68
U.S. Treasury and government agency obligations as well as non-marketable
membership equity securities of the Reserve Bank and the Federal Home Loan Bank
of Boston (the "FHLB").
At December 31, 1996, Pacific's investment portfolio totaled $17.3 million,
of which $16.7 million was classified as held-to-maturity and $547 thousand was
classified as available-for-sale, equalling in total approximately 17% of total
assets. Investment securities with a carrying value of $5.5 million at December
31, 1996 have been pledged to collateralize various liabilities.
Pacific, during its peak season, notably July through September, purchases
planned, seasonal liquidity securities comprised of U.S. Treasury and government
agency issues whose maturities coincide with anticipated seasonal deposit
outflow. At June 30, 1997, Pacific's investment portfolio totaled $6.3 million,
a decrease of $11.0 million, from December 31, 1996, as such U.S. Treasury and
government agency issues matured and were used to fund anticipated seasonal
deposit outflow and additional loan growth in the residential mortgage loan
portfolio as a result of Pacific's special adjustable rate program.
The following table shows a comparison of the amortized costs and fair
values (based on quoted market prices) of investment securities held-to-maturity
as at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ----------- ----------- -------
1996 (IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury......................... $ 3,445 $29 $ 3 $ 3,471
U.S. government agencies.............. 13,084 5 11 13,078
Other................................. 187 187
------- --- --- -------
Total......................... $16,716 $34 $14 $16,736
======= === === =======
1995
U.S. Treasury......................... $ 1,099 $17 $ 1,116
U.S. government agencies.............. 3,998 4 $ 4 3,998
Other................................. 187 187
------- --- --- -------
Total......................... $ 5,284 $21 $ 4 $ 5,301
======= === === =======
</TABLE>
The amortized cost and fair value of investment securities at December 31,
1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Less than one year.......................... $11,986 $11,986 $ 2,099 $2,120
One to five years........................... 4,543 4,563 2,998 2,994
More than five years........................ 187 187 187 187
------- ------- ------ ------
Total............................. $16,716 $16,736 $ 5,284 $5,301
======= ======= ====== ======
</TABLE>
Pacific's investments are subject to Pacific's internal policies and to
federal regulations that govern the types and amount of investment securities
that Pacific may purchase and hold. All proposed investment purchases are
reviewed by the Asset/Liability Management Committee and ratified by the full
Pacific Bank Board.
DEPOSITS
Deposits are Pacific's primary source of funds for lending and for
purchasing investment securities. Core deposit growth has occurred during
Pacific's one hundred and ninety-four years of operations, with seasonal deposit
increases primarily attributable to island merchant and tourist activity.
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<PAGE> 69
Each of Pacific's borrowers is encouraged to develop a full banking
relationship. Pacific sets interest rates on its various types of deposit
accounts based on an examination of island competition, mainland market
conditions and in conformity with prudent banking practices.
At December 31, 1996, Pacific's outstanding time deposits had scheduled
maturities as follows (in thousands):
<TABLE>
<S> <C>
1997............................................... $12,934
1998............................................... 801
1999 and thereafter................................ 1,691
-------
$15,426
=======
</TABLE>
SHORT-TERM BORROWINGS
Short-term borrowings may include FHLB borrowings, Reserve Bank seasonal
borrowings and federal funds purchases. Pacific Bank has been a member of the
FHLB since November 1991. All borrowings from the FHLB are secured under a
general blanket lien, listing or delivery basis. Pacific Bank, in 1996 and 1995,
has borrowed from the FHLB on a general lien status. At December 31, 1996,
Pacific Bank had no outstanding short-term borrowings.
In March 1994, through the auspices of the FHLB's Community Investment Fund
(CIF) Program, a program designed to assist members in their efforts to
rehabilitate, redevelop, and revitalize the communities they serve, Pacific Bank
borrowed $190 thousand to match-fund an affordable housing transaction. The
fixed-rate (7.16%) borrowing and related mortgage amortize on a twenty-year
schedule. At December 31, 1996 and 1995, the long-term, fixed-rate borrowing
balance was $179 thousand and $182 thousand, respectively.
Pacific Bank is a member of the Reserve Bank and is eligible, when
applicable, to borrow short-term funds on a preauthorized, seasonal borrowing
line basis. Pacific Bank did not access this borrowing line in either 1996 or
1995. Borrowed funds are an alternative source of funds that have neither
reserve requirements nor Federal Deposit Insurance Corporation ("FDIC")
insurance costs.
EMPLOYEES
At December 31, 1996, Pacific had 49 full-time equivalent employees. None
of the employees are covered by a collective bargaining agreement. In addition
to cash compensation, Pacific compensates its employees with health insurance,
on a shared-cost basis, accident insurance, vacation and sick leave, and other
normal fringe benefits.
EFFECTS OF ENVIRONMENTAL PROTECTION LAWS
Pacific, to the best of its knowledge, is not aware of any facts relating
to its present loan portfolio that reasonably indicate that compliance by
Pacific with federal, state or local provisions relating to the protection of
the environment will have an material adverse effect on the financial resources,
earnings or competitive position of Pacific.
PROPERTIES
Pacific's head office location of 61 Main Street, Nantucket, Massachusetts,
was constructed in 1818. Pacific provides full service banking services at its
Main Street location and its full service branch office at Sparks Avenue,
Nantucket, which was approved for operation by the OCC in 1979. The Pacific head
office location and Pacific's branch office are owned by Pacific. Pacific
provides customers with automated teller machines located at 61 Main Street and
on leased property at Steamship Wharf, an A&P Supermarket and a Stop & Shop
Supermarket and leases office space in the Nantucket Commons for its loan
department. Additionally, Pacific owns two commercially zoned property lots
totaling three quarters of an acre in combined area.
Pacific believes its current facilities are adequate to meet its present
and immediately foreseeable needs.
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<PAGE> 70
LEGAL PROCEEDINGS
Neither Pacific nor Pacific Bank is involved in any legal proceeding except
for routine litigation incidental to the business of banking, none of which is
expected to have a material adverse effect on the financial resources, earnings
or competitive position of Pacific.
REGULATION AND SUPERVISION
Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal
regulatory agencies. Pacific is subject to the BHCA and to regulation and
supervision by the Federal Reserve Board. Pacific Bank, a national banking
association, is subject to regulation and supervision by the OCC. Federal laws
and regulations govern numerous matters, including changes in the ownership or
control of banks and bank holding companies, maintenance of adequate capital and
the financial condition of a financial institution, permissible types, amounts
and terms of extensions of credit and investments, permissible non-banking
activities, the level of reserves against deposits, and restrictions on dividend
payments. The Federal Reserve Board, OCC and FDIC possess cease and desist
powers to prevent or remedy unsafe or similar unsound practices or violations of
law by bank holding companies and national banks. These and other restrictions
limit the manner in which Pacific and Pacific Bank may conduct business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions, but also by the monetary policies of the
Federal Reserve Board. Changes in monetary or legislative policies may affect
the interest rates Pacific Bank must offer to attract deposits and the interest
rates it must charge on its loans, as well as the manner in which it offers
deposits and makes loans. These monetary policies have had, and are expected to
continue to have, significant effects on the operating results of commercial
banks, including Pacific Bank.
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<PAGE> 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PACIFIC'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Pacific is a closely-held Massachusetts business corporation formed on
November 23, 1984 under the laws of The Commonwealth of Massachusetts for the
purpose of becoming a bank holding company. The principal asset of Pacific is
all of the outstanding capital stock of its wholly-owned subsidiary, Pacific
Bank, a federally chartered national bank.
The business of Pacific Bank consists primarily of attracting deposits from
the general public through its offices and originating loans secured by
mortgages on residential and commercial properties in its sole market area, the
island of Nantucket, Massachusetts, as well as commercial business loans and
consumer loans.
The operating results of Pacific depend primarily upon its net interest
income, which is determined by the difference between interest on
interest-earning assets, principally loans and investment securities, and
interest expense on interest-bearing liabilities, which principally consist of
transaction and term deposits. Pacific's net income also is affected by its
level of other income, including service charges on deposit accounts and fee
income from loan generation, and its other expenses, such as salaries and
employee benefits, occupancy expense, equipment expense, miscellaneous other
expenses and income tax expense.
CHANGES IN FINANCIAL CONDITION
General. At June 30, 1997, Pacific's assets totaled $110.9 million as
compared to $102.4 million at December 31, 1996. The $8.5 million, or 8.3%
increase in assets was primarily due to a $17.2 million increase in residential
and commercial real estate loans, offset by an $11.0 million decrease in the
investment securities portfolio due to the maturity of certain U.S. Treasury and
government agency securities.
At December 31, 1996, Pacific's assets totaled $102.4 million, as compared
to $97.6 million at December 31, 1995. The $4.8 million or 4.9% increase in
total assets during 1996 was primarily attributable to increases in the
investment portfolio, which were partially offset by a decline in total loans
due to customer preference for fixed rate mortgage financing which Pacific
originates but does not retain in its portfolio for interest rate sensitivity
purposes.
Cash, Interest-Bearing Deposits and Federal Funds Sold. At June 30, 1997,
cash, interest-bearing deposits with other banks and federal funds sold equaled
$9.3 million, an increase of $2.9 million from $6.4 million at December 31,
1996. Cash balances increased $1.9 million and federal funds sold increased $1.0
million. These increases were largely attributable to a $5.7 million increase in
total deposits.
Cash, interest-bearing deposits with other banks and federal funds sold
amounted to, in the aggregate, $6.4 million and $10.6 million at December 31,
1996 and 1995, respectively. The 1996 decrease in federal funds sold was due to
management's decision to invest its excess funds into higher yielding investment
portfolio securities with seasonally scheduled maturities.
Investment Securities. At June 30, 1997, the investment securities
held-to-maturity portfolio totaled $5.7 million, as compared to $16.7 million at
December 31, 1996. The decrease of $11.0 million in the investment securities
portfolio was attributable to the maturity of certain U.S. Treasury and
government agency securities which funded anticipated seasonal deposit outflow.
During Pacific's peak summer season of July through September, it purchases
planned, seasonal liquidity securities in anticipation of deposit outflow during
Pacific's off-season.
As of December 31, 1996 and 1995, held-to-maturity investment securities
amounted to $16.7 million and $5.3 million, respectively. The $11.4 million or
215% increase during 1996 reflected management's decision to seek a higher yield
with respect to a portion of its seasonal excess liquidity.
Pacific also holds non-marketable equity securities as a result of Pacific
Bank's membership participation in the Reserve Bank and the FHLB. As of June 30,
1997, December 31, 1996 and 1995, these non-marketable equity securities
amounted to $707 thousand, $707 thousand and $669 thousand, respectively.
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<PAGE> 72
Loans. At June 30, 1997, total loans were $95.2 million, compared to $78.4
million at December 31, 1996. The increase in loans was largely attributable to
Pacific's offer of a special, adjustable rate mortgage program which included no
points and no application fee features. The $16.8 million increase in the total
loan portfolio, reflected growth in the residential and commercial real estate
loan portfolios, which increased by $17.2 million.
Total loans were $78.4 million at December 31, 1996, as compared to $81.2
million at December 31, 1995. The $2.8 million decrease in net loans was
primarily the result of fixed rate loan originations and aggregate loan
principal reductions and loans sold during the year exceeding adjustable rate
mortgage originations retained in portfolio.
At December 31, 1996, $61.1 million or 77.9% of Pacific's total loans
consisted of residential real estate loans, compared to $67.8 million or 83.5%
at December 31, 1995. For the same respective periods, there were $13.4 million
or 17.1% and $9.2 million or 11.3% of commercial and construction real estate
loans, $3.9 million or 5.0% and $4.2 million or 5.2% of commercial, consumer and
other loans (consisting primarily of secured and unsecured loans for commercial
and business purposes). Substantially all of Pacific's mortgage loans are
secured by real estate located on Nantucket. Management believes that
concentration risk associated with collateral concentration is mitigated by
diversification of borrower profile.
At June 30, 1997, $551 thousand, or .6% of the total loan portfolio,
consisted of nonaccrual loans and all modified loans, deemed to be impaired
loans, compared to $584 thousand, or .7%, at December 31, 1996 and $1.0 million
or 1.2% of total loans at December 31, 1995. There were no charge-offs of
impaired loans during 1996 or 1995. The amount of interest income recorded for
nonaccrual loans would have been $46 thousand and $86 thousand in 1996 and 1995,
respectively, if nonaccrual loans had performed in accordance with their
original terms. Actual interest income recorded on these loans was $37 thousand
and $81 thousand in 1996 and 1995, respectively.
Allowance for Possible Loan Losses. At June 30, 1997, the allowance for
possible loan losses was $2.5 million, as compared to $2.3 million at December
31, 1996. At December 31, 1996 and 1995, the allowance for possible loan losses
was $2.3 million and $2.2 million, respectively. No provisions for possible loan
losses were made during 1996 and 1995. The increase in the allowance reflects
the net difference between loans charged-off and loan recoveries. Loans
charged-off amounted to $22 thousand and $25 thousand, with loan recoveries of
$140 thousand and $98 thousand in 1996 and 1995, respectively.
Deposits. Retail deposits are the major source of the funds for lending
and other investment purposes. Individual, commercial and municipal deposits are
attracted principally from customers on the island of Nantucket through the
offering of a broad selection of deposit instruments, including demand deposits,
regular saving, NOW accounts, money market accounts and time deposits ranging in
terms from 90 days to five years. Included among these deposit products are time
deposits with balances of $100,000 or more which amounted to $3.0 million, or
3.2% of total deposits at June 30, 1997 and $2.0 million or 2.2% of the total
deposits at December 31, 1996. Deposit account terms vary according to the
minimum balance required, the time periods the funds must remain on deposit and
the interest rate, among other factors.
At June 30, 1997, deposits totaled $96.0 million, an increase of $5.7
million, or 6.3% over the December 31, 1996 total of $90.3 million. At December
31, 1996 deposits totaled $90.3 million, as compared to $86.8 million at
December 31, 1995. The $3.5 million or 4% increase in deposits during 1996 was
primarily due to an increase in transactional account balances, particularly
demand deposit and money market balances, which was partially offset by a $1
million or 2.2% decline in regular savings and NOW account balances.
Short-Term Borrowings. Pacific may use federal funds purchased or other
similar wholesale fund purchases to supplement its supply of lendable funds, to
meet seasonal deposit withdrawals, loans and other business purposes. Pacific
Bank has been a member of the FHLB since November 1991. All borrowings from FHLB
are secured under a general blanket lien, listing or delivery basis, depending
upon, among other things, the member's ratio of tangible capital to assets.
Pacific Bank has borrowed from the FHLB on a general lien status, with
borrowings secured by certain qualified collateral, defined principally as 90%
of the carrying value of U.S. Government and Agency obligations and 75% of the
carrying value of residential mortgage loans. At
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June 30, 1997, Pacific had a $2.0 million one-month fixed-rate note, with an
interest rate of 5.63%, which matured on July 18, 1997. At December 31, 1996 and
1995, Pacific Bank had no short-term borrowings outstanding.
Annually, Pacific Bank applies for a seasonal borrowing line available
through the Reserve Bank, a program specifically designed to accommodate member
banks whose deposits reflect a recurring, seasonal pattern. Historically, the
Reserve Bank has granted Pacific Bank borrowing privileges during the months
from January through August on a variable, market-rate overnight basis. As of
June 30, 1997, Pacific Bank had not accessed this borrowing line.
Shareholders' Equity. At June 30, 1997, shareholders' equity was $11.5
million, an increase of $508 thousand from $11.0 million at December 31, 1996.
The $508 thousand increase is the difference between $655 thousand of net income
recognized during the period and $147 thousand of dividends declared and paid
during the period.
Pacific's shareholders' equity was $11.0 million at December 31, 1996,
compared to $9.8 million at December 31, 1995. This $1.2 million or 11.7%
increase was due to $1.7 million of net income recognized during the year,
partially offset by $573 thousand of dividends declared and paid during the
year.
RESULTS OF OPERATIONS
General. Pacific reported net income of $655 thousand for the six months
ending June 30, 1997 as compared to $789 thousand for the six months ending June
30, 1996. The $134 thousand or 17.0% decline in net income is principally
attributable to an $88 thousand decline in total noninterest income due to
Pacific's offering of a no points, no application fee adjustable rate mortgage
program and a $126 thousand increase in total noninterest expense largely
attributed to costs associated with the Merger.
Pacific reported net income of $1.7 million, $1.4 million and $1.0 million
for 1996, 1995 and 1994, respectively. Net income increased $341 thousand or
24.7% during 1996. Increases of 8.9% in total interest and dividend income and
13.4% in total noninterest income exceeded the 5.4% and 5.2% increases in total
interest expense and total noninterest expense, respectively, in 1996 as
compared to 1995.
Net Interest Income. Net interest income for the six months ending June
30, 1997 declined $24 thousand from the six months ending June 30, 1996, largely
owing to lower loan earning yields and slightly higher interest expense due to a
4.4% deposit volume increase. During the year ended December 31, 1996, interest
income increased $673 thousand, or 8.9%, from the prior year, primarily due to
higher earning rates on loans and increased investment securities balances,
while total interest expense, reflecting higher deposit balances, rose a modest
$105 thousand or 5.4%. At December 31, 1996, the $6.7 million volume decline in
residential mortgage balances was offset by the $4.2 million volume gain in
commercial and construction balances, as compared to the balance at December 31,
1995. For the year 1996, net interest income increased $568 thousand or 10.2%.
For the year 1995, net interest income increased $864 thousand or 18.4% to $5.6
million over 1994's $4.7 million level.
Provision for Possible Loan Losses. Provisions for loan losses are charged
to earnings to bring the total allowance to a level considered appropriate by
management and the Pacific Board based on historical experience, the volume and
type of lending, the status of past due principal and interest payments, general
economic conditions, particularly as they relate to Pacific's market area, and
other factors related to the collectability of Pacific's loan portfolio.
For the six months ending June 30, 1997 and 1996, no provisions were made
to the allowance for possible loan losses. At December 31, 1996, Pacific's
allowance for possible loan losses amounted to $2.3 million, or 3.0%, of total
loans, as compared to $2.2 million, or 2.7%, and $2.2 million, or 3.0%, at
December 31, 1995 and 1994, respectively. At December 31, 1996, Pacific's
allowance amounted to 402.2% of impaired loans, as compared to 222.9% and 127.0%
at December 31, 1995 and 1994, respectively. No provisions for possible loan
losses were made during 1996, 1995 and 1994. Although management and the Pacific
Board believe that the balance of the loan loss allowance is adequate to absorb
any reasonably foreseeable loan losses, there can be no
66
<PAGE> 74
assurance that future provisions for loan losses will not be necessary based on
the performance of the loan portfolio or future lending activities.
Other Income. Noninterest income, comprised of service charges on deposits
and other service charges, commissions, and fees declined $88 thousand in the
six months ending June 30, 1997 as compared to the six months ending June 30,
1996. The decline was due to a no points loan offering during the first half of
1997. Noninterest income increased $178 thousand or 13.4% for the year ended
December 31, 1996 from the $1.3 million level for the year ended December 31,
1995. Noninterest income for 1994 was $1.5 million.
Other Expense. Noninterest expense increased $126 thousand to $2.3 million
for the six months ending June 30, 1997 as compared to $2.2 million for the six
months ending June 30, 1996. Noninterest expense is comprised primarily of
salaries, employee benefits, equipment and data processing fees, professional,
legal, occupancy and other fees. Of the $126 thousand increase in total other
expense, other noninterest expense rose $74 thousand due largely to costs
associated with the Merger. In 1996, salaries and employee benefits increased
$386 thousand, or 22.1% compared to 1995, due in part to a 16.7% increase in the
number of full time employees which totaled 49 at December 31, 1996. Reductions
in professional, legal, occupancy and other expense categories moderated the
increase in total noninterest expense to $234 thousand, or 5.2%, to $4.7 million
through December 31, 1996 from $4.4 million at December 31, 1995 as compared to
$4.6 million at December 31, 1994.
Income Taxes. The provision for income taxes for the six months ending
June 30, 1997 was $485 thousand as compared to $589 thousand for the six months
ending June 30, 1996. Pacific incurred provision for income tax expense of $1.2
million, $1.0 million and $600 thousand during 1996, 1995 and 1994,
respectively, reflecting an effective combined tax rate of 41.0%, 42.5% and
37.4%, during the respective periods. Pacific accounts for income taxes in
accordance with the liability method of accounting pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Liquidity and Commitments. Pacific's liquidity, represented by cash and
cash equivalents, is a product of its operating, investing and financing
activities. Primary sources of funds are deposits, short-term borrowings,
amortization and prepayment of outstanding loans, maturities of investment
securities and other short term investments and sales of loans. Although
scheduled loan amortization and maturing investment securities and other
short-term investments are relatively predictable sources of funds, deposit
flows are highly seasonal and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. Liquidity management is
both a daily and long-term function of business management. Excess liquidity is
generally invested in short term investments such as federal funds sold and U.S.
Government and agency securities of three months to less than one year duration.
Pacific uses its sources of funds primarily to meet its ongoing
commitments, to pay maturing time deposits and savings withdrawals, fund loan
commitments and maintain a portfolio of investment securities.
Pacific's commitments and conditional obligations include commitments to
extend credit, standby letters of credit and various financial guarantees.
Management uses the same credit policies in making commitments and conditional
obligations as it does for loans. Collateral consists predominantly of
residential and commercial real estate and personal property. At June 30, 1997,
Pacific Bank's credit commitments and conditional obligations totaled $22.7
million compared to $14.2 million at June 30, 1996. The $8.5 million, or 60%,
increase was principally the result of an $8.0 million increase in residential
mortgage commitments and a $422 thousand increase in seasonal borrowing line
commitments over the June 30, 1996 period. Credit commitments and conditional
obligations involving Pacific's reserve checking facility, letters of credit,
commercial mortgages and credit cards remained essentially unchanged from June
30, 1996 to June 30, 1997.
At December 31, 1996, Pacific's credit commitments and conditional
obligations totaled $27.3 million of which $13.6 million or 49.8% were
residential mortgage loan commitments. At December 31, 1995, Pacific's credit
commitments and conditional obligations totaled $17.9 million of which $7.2
million or 40.2% were residential loan commitments. All outstanding commitments
to extend credit, except for unadvanced portions of cash reserve loans, were
variable-rate arrangements.
67
<PAGE> 75
EXPERTS
The consolidated financial statements of BankBoston and subsidiaries, as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, included in BankBoston's 1996 Annual Report to Stockholders
and in Exhibit 13 to BankBoston's 1996 Annual Report on Form 10-K for the year
ended December 31, 1996, have been incorporated herein by reference in reliance
upon the reports set forth therein of Coopers & Lybrand L.L.P., independent
accountants, and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Pacific as of December 31, 1996
and December 31, 1995 and for each of the three years in the period ended
December 31, 1996, included in the Registration Statement, have been included in
the Registration Statement in reliance upon the report of Arthur Andersen LLP,
independent auditors, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL OPINIONS
The validity of the BankBoston Common Stock offered hereby will be passed
upon for BankBoston by Gary A. Spiess, General Counsel. As of August 1, 1997,
Mr. Spiess had a direct or indirect interest in 28,577 shares of BankBoston
Common Stock and had options to purchase an additional 61,723 shares, of which
options to purchase 47,348 shares will be exercisable within 60 days after
August 1, 1997.
The Affiliation Agreement provides as a condition to Pacific's obligation
to consummate the Merger that it receive the opinion of its counsel Choate, Hall
& Stewart, substantially to the effect, among other things, that, for federal
income tax purposes, the Affiliation Agreement and the transactions contemplated
thereby constitute a reorganization as described in Section 368(a) of the
Internal Revenue Code and if the Merger is consummated in accordance with the
Affiliation Agreement and certain instruments described therein, no gain or loss
will be recognized by the stockholders of Pacific who exchange their shares of
Pacific Common Stock solely for shares of BankBoston Common Stock pursuant to
the Merger (except with respect to cash received by dissenting stockholders and
in lieu of a fractional interest in BankBoston Common Stock). The Affiliation
Agreement also provides as a condition to BankBoston's obligation to consummate
the Merger that it receive the opinion of its counsel, Bingham Dana & Gould LLP,
substantially to the effect, among other things, that, for federal income tax
purposes, the Affiliation Agreement and the transactions contemplated thereby
constitute a reorganization as described in Section 368(a) of the Internal
Revenue Code and addressing such other substantial federal income tax effects of
such transactions as BankBoston may reasonably require and which are customary
in transactions of a like character. See "The Merger -- Certain Federal Income
Tax Consequences."
68
<PAGE> 76
PACIFIC NATIONAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants..................................................... F-2
Financial Statements of Pacific National Corporation
Consolidated Balance Sheets as of December 31, 1995
and 1996 and June 30, 1997 (unaudited)........................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996 and for the six months ended June 30, 1996 and 1997 (unaudited)......... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1997
(unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and for the six months ended June 30, 1996 and 1997 (unaudited)......... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
PACIFIC NATIONAL CORPORATION:
We have audited the accompanying consolidated balance sheets of Pacific
National Corporation (a Massachusetts corporation) and subsidiary (the Company)
as of December 31, 1995 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. The consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
National Corporation and subsidiary as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 14, 1997
F-2
<PAGE> 78
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------- AT JUNE 30,
1995 1996 1997
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks..................................... $ 3,411 $ 4,677 $ 6,552
Federal Funds Sold.......................................... 7,100 1,650 2,675
Interest-Bearing Deposits................................... 123 103 95
Investment Securities Held-to-Maturity, Market Value of
$5,301 in 1995, $16,736 in 1996 and $5,750 in 1997 (Notes
2 and 3).................................................. 5,284 16,716 5,743
Loans, net of allowance for possible loan losses of $2,231
in 1995, $2,349 in 1996 and $2,485 in 1997 (Notes 2
and 4..................................................... 78,993 76,114 92,721
Federal Home Loan Bank Stock (Note 6)....................... 509 547 547
Bank Premises and Equipment, net (Notes 2 and 5)............ 844 901 881
Accrued Interest Receivable................................. 520 755 680
Other Real Estate Owned, net of valuation reserve of $172 in
1995, 1996 and 1997....................................... -- -- --
Other Assets (Notes 8 and 9)................................ 835 910 957
------- -------- --------
$97,619 $102,373 $110,851
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 7):
Demand................................................. $13,274 $ 15,779 $ 17,243
Savings and NOW........................................ 47,006 45,971 47,138
Money market........................................... 11,719 13,173 14,214
Certificates of deposit over $100...................... 2,169 2,047 3,443
Other time deposits.................................... 12,673 13,379 13,920
------- -------- --------
Total deposits.................................... 86,841 90,349 95,958
------- -------- --------
Federal Home Loan Bank Borrowings (Note 6).................. 182 179 175
All Other Borrowings........................................ -- -- 2,000
Other Liabilities........................................... 762 860 1,225
------- -------- --------
Total liabilities................................. 87,785 91,388 99,358
------- -------- --------
Commitments and Contingencies (Note 11)
Shareholders' Equity (Note 10):
Cumulative preferred stock -- Class A, $1.00 par value
-- Authorized and unissued -- 50,000 shares.......... -- -- --
Class B, $1.00 par value -- Authorized and unissued
-- 50,000 shares.................................. -- -- --
Common stock, $1.00 par value -- Authorized --
1,000,000 shares; Issued and outstanding -- 487,761
shares............................................... 488 488 488
Surplus................................................ 4,888 4,888 4,888
Retained earnings...................................... 4,458 5,609 6,117
------- -------- --------
Total shareholders' equity........................ 9,834 10,985 11,493
------- -------- --------
$97,619 $102,373 $110,851
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 79
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ----------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest and Dividend Income:
Loans (Note 4)......................... $ 5,292 $ 6,685 $ 7,004 $ 3,554 $ 3,716
Investment securities.................. 968 515 635 153 195
Other.................................. 206 320 554 205 72
-------- -------- -------- -------- ---------
Total interest and dividend
income.......................... 6,466 7,520 8,193 3,912 3,983
-------- -------- -------- -------- ---------
Interest Expense:
Deposits............................... 1,753 1,906 2,051 978 1,047
Short-term borrowings and subordinated
debt................................. 16 53 13 7 33
-------- -------- -------- -------- ---------
Total interest expense............ 1,769 1,959 2,064 985 1,080
-------- -------- -------- -------- ---------
Net interest income............... 4,697 5,561 6,129 2,927 2,903
Provision for Possible Loan Losses (Notes 2
and 4)...................................... -- -- -- -- --
-------- -------- -------- -------- ---------
Net interest income after
provision for possible loan
losses.......................... 4,697 5,561 6,129 2,927 2,903
-------- -------- -------- -------- ---------
Noninterest Income:
Service charges on deposits............ 545 507 538 270 259
Other service charges, commissions,
fees and rental income............... 1,002 818 965 378 301
-------- -------- -------- -------- ---------
Total noninterest income.......... 1,547 1,325 1,503 648 560
-------- -------- -------- -------- ---------
Noninterest Expense:
Salaries and employee benefits
(Note 9)............................. 1,600 1,743 2,129 1,028 1,094
Professional, legal and other fees..... 550 336 252 -- 5
Occupancy, net......................... 227 313 262 150 111
Equipment and data processing.......... 563 665 703 337 357
Forms, supplies, postage and freight... 192 198 234 -- --
Other.................................. 1,509 1,222 1,131 682 756
-------- ------- ------- ------- -------
Total noninterest expense......... 4,641 4,477 4,711 2,197 2,323
-------- ------- ------- ------- -------
Income before provision for
income taxes...................... 1,603 2,409 2,921 1,378 1,140
Provision for Income Taxes (Note 8)......... 600 1,026 1,197 589 485
-------- ------- ------- ------- -------
Net income........................ $ 1,003 $ 1,383 $ 1,724 $ 789 $ 655
======== ======== ======== ======== =========
Earnings per Share (Note 2)................. $ 2.06 $ 2.84 $ 3.53 $ 1.62 $ 1.34
======== ======== ======== ======== =========
Weighted Average Shares Outstanding......... 487,661 487,669 487,761 487,761 487,761
======== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 80
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ RETAINED
SHARES AMOUNT SURPLUS EARNINGS TOTAL
------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................. 487,661 $488 $4,886 $2,548 $ 7,922
Net income................................ -- -- -- 1,003 1,003
Dividends declared........................ -- -- -- (49) (49)
------- ---- ------ ------ -------
Balance, December 31, 1994.................. 487,661 488 4,886 3,502 8,876
Net income................................ -- -- -- 1,383 1,383
Dividends paid/declared................... -- -- -- (427) (427)
Issuance of common stock.................. 100 -- 2 -- 2
------- ---- ------ ------ -------
Balance, December 31, 1995.................. 487,761 488 4,888 4,458 9,834
Net income................................ -- -- -- 1,724 1,724
Dividends paid/declared................... -- -- -- (573) (573)
------- ---- ------ ------ -------
Balance, December 31, 1996.................. 487,761 488 4,888 5,609 10,985
Net income (unaudited).................... -- -- -- 655 655
Dividends paid/declared (unaudited)....... -- -- -- (147) (147)
------- ---- ------ ------ -------
Balance, June 30, 1997 (unaudited).......... 487,761 $488 $4,888 $6,117 $11,493
======= ==== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 81
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.............................................. $ 1,003 $ 1,383 $ 1,724 $ 789 $ 655
Adjustments to reconcile net income to net cash provided
by operating activities --
Provision for possible loan losses....................
Depreciation.......................................... 161.... 143 152 76 88
Amortization of fees, discounts and premiums, net..... (136) 62 (149) (1) (27)
Write-down of other real estate owned................. 3......
Gain on sale of loans................................. (20) (12)
Provision for deferred income taxes................... 59 67 26
Changes in operating assets and liabilities --
Interest receivable................................. (125) 146 (235) (82) 75
Interest payable.................................... (8) 61 62 24 1
Other............................................... (117) (253) (72) (25) 325
-------- -------- -------- -------- --------
Net cash provided by operating activities........ 820 1,609 1,496 781 1,117
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Proceeds from maturity of investment securities......... 20,100 15,000 4,129 1,002 11,000
Purchases of investment securities...................... (19,482) (5) (15,441) (1,935)
Purchase of Federal Home Loan Bank stock................ (38) (38)
(Increase) decrease in loans, net....................... (4,434) (11,200) 1,110 4,558 (16,607)
Purchase of bank premises and equipment, net............ (214) (348) (209) (74) (68)
Proceeds from sale of loans............................. 795 1,317 1,837
Sales of assets acquired in foreclosure proceedings..... 347 299
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities..................................... (2,888) 5,063 (8,612) 3,513 (5,675)
-------- -------- -------- -------- --------
Cash Flows from Financing Activities:
Net increase (decrease) in demand deposits, NOW
accounts, money markets and savings accounts.......... 1,987 131 2,924 (7,898) 3,672
Net increase (decrease) in time deposits................ (547) 624 584 12,962 1,937
Proceeds from issuance of common stock.................. 2
Increase (decrease) in FHLB borrowings.................. 2,387 (2,205) (3) (2) (4)
Increase in All Other Borrowings........................ 2,000
Dividends paid.......................................... (427) (573) (144) (147)
Principal payments under capital lease obligations...... (24)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities..................................... 3,803 (1,875) 2,932 4,918 7,458
-------- -------- -------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents.......... 1,735 4,797 (4,184) 9,212 2,900
Cash and Cash Equivalents, beginning of period............ 3,979.. 5,714 10,511 10,511 6,327
-------- -------- -------- -------- --------
Cash and Cash Equivalents, end of period.................. $ 5,714 $ 10,511 $ 6,327 $19,723 $ 9,227
======== ======== ======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for --
Interest.............................................. $ 1,761 $ 1,898 $ 2,064 $ 961 $ 1,071
======== ======== ======== ======== ========
Income taxes paid..................................... $ 541 $ 1,308 $ 1,125 $ 660 $ 625
======== ======== ======== ======== ========
Supplemental Disclosure of Noncash Transactions:
Sale of other real estate owned financed by the bank.... $ 299
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 82
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(1) CURRENT OPERATING ENVIRONMENT
Pacific National Corporation (the Company) and its wholly owned subsidiary,
Pacific National Bank of Nantucket (the Bank), serves the island community of
Nantucket, Massachusetts. As a result, its marketplace is real estate oriented
and primarily driven by tourism. Management believes that certain recent
economic factors indicate that the Nantucket economy is stable and, in some
instances, improving after a period of inconsistent growth. However, there is
still a risk inherent in this geographic concentration due to the lack of
diversification in lending activities. Although collateral is predominantly
Nantucket real estate, management believes that risk associated with collateral
concentration is mitigated by diversification of borrower profiles.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company, a bank holding company, and its subsidiary, the Bank. All
intercompany transactions have been eliminated in consolidation. The
accompanying consolidated financial statements and notes to consolidated
financial statements include amounts and disclosures related to June 30, 1996
and 1997. All such interim information is unaudited.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Securities
The Company accounts for investment securities in accordance with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, which addresses accounting and reporting for investment and equity
securities that have readily determinable fair values and for all investments in
debt securities. Under this statement, investments in debt securities may be
classified as held-to-maturity and measured at amortized cost only if the
Company has the positive intent and ability to hold such securities to maturity.
Investments in debt securities that are not classified as held-to-maturity and
equity securities that have readily determinable fair values are classified as
trading securities or available-for-sale securities. Trading securities are
investments purchased and held principally for the purpose of selling in the
near term; available-for-sale securities are investments not classified as
trading or held-to-maturity. Unrealized holding gains and losses for trading
securities are included in earnings; unrealized holding gains and losses for
available-for-sale securities are reported as a separate component of
shareholders' equity, net of applicable income taxes.
The Bank has the ability and intent to hold its investment securities to
maturity. As a result, investment securities are accounted for at amortized
cost. Gains or losses on disposition of securities are determined using the
specific-identification method.
Allowance for Possible Loan Losses
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. The adequacy of the reserve is
evaluated regularly by management. As adjustments become
F-7
<PAGE> 83
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
necessary, they are reported in operations for the period in which they become
known. Factors considered in evaluating the adequacy of the reserve include
previous loss experience, current economic conditions and their effect on
borrowers, the performance of individual loans in relation to contract terms and
the estimated fair values of any collateral held by the bank. Losses are charged
against the reserve when management believes that collection is doubtful.
Key elements of the estimates, including those used in independent
appraisals, are dependent upon the economic conditions prevailing at the time
the estimates are made. The inherent uncertainties in the assumptions relative
to real estate project sales, prices or rental rates and the ability of various
borrowers to continue to perform under their current contractual lending
arrangements may result in the ultimate realization of amounts on certain loans
which are significantly different from the amounts reflected in these
consolidated financial statements.
Income Taxes
The Bank accounts for income taxes in accordance with the liability method
of accounting pursuant to SFAS No. 109, Accounting for Income Taxes. Under the
liability method, deferred taxes are recognized for the future consequences of
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates. Deferred income tax expense (benefit) is
based on the change in the assets or liabilities from period to period.
Bank Premises and Equipment
Bank premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed principally on the straight-line method
over the estimated useful lives of the related assets, which range from
twenty-five to forty years for buildings and five to seven years for furniture,
fixtures and equipment.
Earnings per Share
Earnings per share is based on the weighted average number of common shares
outstanding during the year.
Mortgage Servicing Rights
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights, amended by SFAS No. 125, effective for transfers occurring
after December 31, 1996. This statement required a banking enterprise that sells
or securitizes loans and retains the mortgage servicing rights to allocate the
total cost of the loans to the mortgage servicing rights and the loans based on
their relative fair values, if it is practicable to estimate those fair values.
If it is not practicable to estimate the fair values of the mortgage servicing
rights and loans, the entire cost of acquiring the loans should be allocated to
the loans, and no cost should be allocated to the mortgage servicing rights. Any
cost allocated to mortgage servicing rights should be recognized as a separate
asset. Mortgage servicing rights should be amortized in proportion to and over
the period of estimated net servicing income and should be evaluated for
impairment based on their fair value. The Bank was required to adopt the new
standard on January 1, 1996. The adoption of this standard did not have a
significant impact on the Bank's consolidated financial condition or results of
operations.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold.
F-8
<PAGE> 84
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENT SECURITIES
A comparison of the amortized costs and fair values (based on quoted market
prices) of investment securities held-to-maturity at June 30, 1997 (unaudited)
and December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
June 30, 1997
-------------
U.S. Treasury................................ $ 3,458 $14 -- $ 3,472
U.S. Government agencies..................... 2,099 -- $ 7 2,092
Other........................................ 186 -- -- 186
------- ---- --- -------
Total................................... $ 5,743 $14 $ 7 $ 5,750
======= === === =======
December 31, 1996
-----------------
U.S. Treasury................................ $ 3,445 $29 $ 3 $ 3,471
U.S. Government agencies..................... 13,084 5 11 13,078
Other........................................ 187 -- -- 187
------- --- --- -------
Total................................... $16,716 $34 $14 $16,736
======= ==== === =======
December 31, 1995
-----------------
U.S. Treasury................................ $ 1,099 $17 -- $ 1,116
U.S. Government agencies..................... 3,998 4 $ 4 3,998
Other........................................ 187 -- -- 187
------- --- --- -------
Total................................... $ 5,284 $21 $ 4 $ 5,301
======= === === =======
</TABLE>
For the six-month period ending June 30, 1997 and the years ending December
31, 1996 and 1995, there were no sales of investment securities.
The amortized cost and fair value of investment securities at June 30, 1997
(unaudited), December 31, 1996 and December 31, 1995 are summarized by maturity
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
JUNE 30,
1997 1996 1995
---------------------- ---------------------- ----------------------
AMORTIZED AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Less than one year......... $1,000 $,1000 $11,986 $11,986 $2,099 $2,120
One to five years.......... 4,581 4,588 4,543 4,563 2,998 2,994
More than five years....... 162 162 187 187 187 187
------ ------ ------- ------- ------ ------
Total................. $5,743 $5,750 $16,716 $16,736 $5,284 $5,301
====== ====== ======= ======= ====== ======
</TABLE>
Investment securities with a carrying value of $5,557 at June 30, 1997,
$5,543 at December 31, 1996 and $4,099 at December 31, 1995 have been pledged to
collateralize various liabilities.
F-9
<PAGE> 85
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES
The loan portfolio at June 30, 1997 and December 31, 1996 and 1995 consists
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- ------- JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Real estate mortgages --
Residential......................... $61,136 $67,803 $70,622
Commercial and construction......... 13,420 9,196 18,646
Commercial............................... 2,039 2,042 4,459
Consumer................................. 1,394 1,655 990
Other.................................... 474 528 489
------- ------- -------
Total loans.............................. 78,463 81,224 95,206
Less -- Reserve for possible loan
losses................................. 2,349 2,231 2,485
------- ------- -------
Net loans................................ $76,114 $78,993 $92,721
======= ======= =======
</TABLE>
Interest on loans is accrued based on the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Generally, a loan is placed on nonaccrual status when the loan
becomes 90 days past due, as to principal or interest, unless the loan is
adequately collateralized and is in the process of collection. The accrued and
unpaid interest recognized prior to placement of a loan on a nonaccrual basis is
reversed when its collection is considered doubtful. Cash receipts from
nonaccrual loans are credited directly to the outstanding principal balance
until such time that, in management's opinion, the collection of the remaining
principal is no longer doubtful.
Loans, Discounts and Reserves
The Bank adopted SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures, as of January 1, 1995. SFAS No. 114 requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral if the loan is collateral-dependent.
When the measure of the impaired loan is less than the recorded balance of the
loan, the impairment is recorded through a valuation allowance.
The Bank considers all loans on non-accrual and all modified loans as
equivalent to impaired loans for purposes of SFAS No. 114 and 118. Additionally,
the Bank continuously reviews all other classified assets for potential
impairment.
The Bank had previously measured the allowance for credit losses using
methods similar to those prescribed in SFAS No. 114. As a result, no additional
provision was required by the adoption of this pronouncement. SFAS No. 114 also
requires that impaired loans for which foreclosure is probable continue to be
accounted for as loans. The Bank had no such loans as of January 1, 1995.
F-10
<PAGE> 86
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1997 (unaudited), and December 31, 1996 and 1995, the Bank's
impaired loans and the related valuation allowance (which is included in the
allowance for loan losses) calculated under SFAS No. 114 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
JUNE 30,
1997 1996 1995
-------------------- -------------------- --------------------
IMPAIRED VALUATION IMPAIRED VALUATION IMPAIRED VALUATION
LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Valuation allowance required... -- -- -- -- -- --
No valuation allowance
required..................... $551 -- $584 -- $1,001 --
---- ---- ---- ---- ------ ----
Total impaired loans...... $551 -- $584 -- $1,001 --
==== ==== ==== ==== ====== ====
</TABLE>
There were no charge-offs against impaired loans during 1996 or 1995. The
average amount of impaired loans during 1996 and 1995 was $897 and $1,394,
respectively.
The amount of interest income recorded for non-accrual loans would have
been $46 and $86 in 1996 and 1995, respectively, if non-accrual loans had
performed in accordance with their original terms. Actual interest income
recorded on these loans was $37 and $81 in 1996 and 1995, respectively.
Changes in the reserve for possible loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1996 1995 1994 1997
------ ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of period............... $2,231 $2,158 $2,355 $2,349
Provision for loan losses.................. -- -- -- --
Loans charged off.......................... (22) (25) (299) (17)
Recoveries................................. 140 98 102 153
------ ------ ------ ------
Balance, end of period..................... $2,349 $2,231 $2,158 $2,485
====== ====== ====== ======
</TABLE>
In the ordinary course of business, the Bank makes loans to directors and
executive officers, including companies with which they are affiliated. Such
loans are made on substantially the same terms prevailing at the time for
comparable transactions with other borrowers. Activity in loans to related
parties during 1996 and the first half of 1997 was as follows:
<TABLE>
<S> <C>
Balance, December 31, 1995...................................... $ 3,301
Additions....................................................... 1,390
Payments/reclassifications...................................... (1,501)
-------
Balance, December 31, 1996...................................... 3,190
Additions (unaudited)........................................... 2,200
Payments/reclassifications (unaudited).......................... (1,622)
-------
Balance, June 30, 1997 (unaudited).............................. $ 3,768
=======
</TABLE>
(5) BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land and building....................................... $ 799 $ 802
Furniture, fixtures and equipment....................... 911 727
------ ------
1,710 1,529
Less -- Accumulated depreciation........................ 809 685
------ ------
Total.............................................. $ 901 $ 844
====== ======
</TABLE>
F-11
<PAGE> 87
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) FEDERAL HOME LOAN BANK BORROWINGS
The Bank has been a member of the Federal Home Loan Bank of Boston (FHLB)
since November 1991. At June 30, 1997 and December 31, 1996, the Bank holds
5,470 shares of membership stock, which is carried at a cost of $547 in the
accompanying consolidated balance sheet.
All borrowings from the FHLB are secured under a general blanket lien,
listing or delivery basis, depending upon, among other things, the member's
ratio of tangible capital to assets. The Bank, in 1996 and 1995, has borrowed
from the FHLB on a general lien status, with borrowings secured by certain
qualified collateral, defined principally as 90% of the carrying value of U. S.
Government and Agency obligations and 75% of the carrying value of residential
mortgage loans.
The Bank has a variable-rate overnight line of credit with the FHLB. On
June 30, 1997, the Bank had a $2.0 million one-month fixed-rate note, with an
interest rate of 5.63%, which matured on July 18, 1997. At December 31, 1996,
the Bank had no short-term borrowings.
In March 1994, through the auspices of the FHLB's Community Investment Fund
(CIF) Program, a program designed to assist members in their efforts to
rehabilitate, redevelop, and revitalize the communities they serve, the Bank
borrowed $190 to match fund a Nantucket Community Services affordable housing
transaction. The fixed-rate (7.16%) borrowing and related mortgage amortize on a
twenty-year schedule. At June 30, 1997 and at December 31, 1996 and 1995, the
long-term, fixed-rate borrowing balance was $175, $179 and $182, respectively.
(7) TIME DEPOSITS
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1997........................................................... $12,934
1998........................................................... 801
1999 and thereafter............................................ 1,691
-------
$15,426
=======
</TABLE>
At June 30, 1997, the scheduled maturities of time deposits are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 8,574
1998........................................................... 5,684
1999 and thereafter............................................ 3,105
-------
$17,363
=======
</TABLE>
F-12
<PAGE> 88
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The provision for income taxes for the years ended December 31, 1996, 1995
and 1994 is summarized as follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- ------
<S> <C> <C> <C>
1996:
Current........................................... $ 837 $ 334 $1,171
Deferred.......................................... 14 12 26
----- ----- ------
Total........................................ $ 851 $ 346 $1,197
===== ===== ======
1995:
Current........................................... $ 679 $ 280 $ 959
Deferred.......................................... 43 24 67
----- ----- ------
Total........................................ $ 722 $ 304 $1,026
===== ===== ======
1994:
Current........................................... $ 380 $ 161 $ 541
Deferred.......................................... 44 15 59
----- ----- ------
Total........................................ $ 424 $ 176 $ 600
===== ===== ======
</TABLE>
Prepaid and deferred income taxes result from differences between financial
reporting income and taxable income. These differences relate mostly to the
provision for possible loan losses, write-downs of other real estate owned not
deducted for tax purposes and accelerated tax depreciation. The resulting net
deferred tax asset amounted to $561 and $486 at December 31, 1996 and 1995,
respectively, and is included in other assets in the consolidated balance
sheets. The 1996 and 1994 federal and state tax provision included a decrease in
the valuation allowance of $100 and $88, respectively.
The differences between the statutory federal income tax rate and the
Bank's effective income tax rate were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................. 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit..... 8.3 8.3 8.3
Change in valuation reserve................. (.3) -- (5.4)
Other, net.................................. (1.0) .2 .5
---- ---- ----
Effective tax rate.......................... 41.0% 42.5% 37.4%
==== ==== ====
</TABLE>
The components of the net deferred tax asset at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Loan loss reserve.................................... $546 $ 549
Depreciation......................................... (28) (19)
OREO write-downs..................................... 72 72
Loan fees............................................ 9 6
Other................................................ (38) (22)
---- -----
561 586
Valuation allowance.................................. -- (100)
---- -----
Total........................................... $561 $ 486
==== =====
</TABLE>
F-13
<PAGE> 89
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) EMPLOYEE BENEFIT PLAN
The Bank sponsors a noncontributory defined-benefit plan (the Plan) that
provides retirement benefits for employees who have completed one year of
service and work at least 1,000 hours per year. The Plan is a final-average pay
plan, using covered compensation as the integration level, with full retirement
benefits earned after 30 years of service. It is the Bank's policy to fund the
cost of benefits expected to accrue during the year plus amortization of any
unfunded accrued liabilities that had accumulated prior to the valuation date.
Net pension cost for the years ended December 31, 1996, 1995 and 1994
includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Service cost.......................................... $ 18 $ 10 $ 14
Interest cost......................................... 55 57 53
Actual return on plan assets.......................... (107) (139) (25)
Net amortization and deferral......................... 45 79 (19)
----- ----- ----
Net periodic pension cost............................. $ 11 $ 7 $ 23
===== ===== ====
</TABLE>
The following table sets forth the Plan's funded status at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations--
Accumulated benefit obligation, including vested benefit obligation of
$768 in 1996 and $725 in 1995........................................... $ 773 $ 731
===== =====
Projected benefit obligation for service rendered to date................. $ 857 $ 803
Fair value of plan assets, primarily equities and fixed-income
securities.............................................................. 865 815
----- -----
Plan assets in excess of projected benefit obligation..................... (8) (12)
Unrecognized net loss..................................................... (114) (103)
Unrecognized prior service cost........................................... 24 31
Unrecognized net obligation at transition date, being recognized over 11.1
years................................................................... (14) (21)
----- -----
Prepaid pension asset included in other assets............................ $(112) $(105)
===== =====
</TABLE>
The weighted average discount rate and the expected long-term rate of
return on assets was 7.25% and 8.0%, respectively, for 1996. The discount rate
and expected rate of return on assets were 7.0% and 8.0%, respectively, for
1995. The rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation was 4% for 1996 and
1995.
(10) SHAREHOLDERS' EQUITY
Dividends
Dividends paid by the Bank are the primary source of funds available to the
Company for payment of dividends to its shareholders and for other working
capital needs. Applicable statutes, regulations and guidelines impose
restrictions on the amount of dividends that may be declared by a bank.
The payment and level of future dividends to the Company will continue to
be determined by the Bank's Board of Directors based on the Bank's financial
condition, safe and sound banking practices, and other factors such as current
period net income, capital adequacy, liquidity and asset quality.
F-14
<PAGE> 90
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES
As of December 31, 1996, the Company was obligated under noncancelable
operating leases for bank premises expiring in 1999. The total minimum rental
due in future periods under these existing agreements is as follows as of
December 31, 1996:
<TABLE>
<S> <C>
1997............................................................... $24
1998............................................................... 24
1999............................................................... 12
---
Total minimum lease payments....................................... $60
===
</TABLE>
In the ordinary course of business, the Company becomes involved in
litigation. Based on its review of such litigation, management, with the
assistance of legal counsel, does not expect any material adverse effect upon
the Company's consolidated financial position or results of operations.
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company and the Bank are parties to financial instruments with
off-balance-sheet risk in the normal course of business, primarily to meet the
financing needs of the Bank's customers. The financial instruments include
commitments to extend credit and standby letters of credit, and various
financial guarantees. These instruments involve, to varying degrees, elements of
credit and interest-rate risk in excess of the amounts recognized in the
accompanying consolidated balance sheets. The contractual amount of those
instruments reflect the extent of involvement that the Company or the Bank has
in particular classes of financial instruments. Management uses the same credit
policies in making commitments and conditional obligations as it does for loans.
The contractual amounts of the aforementioned commitments and conditional
obligations at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Commitments to extend credit........................... $14,637 $7,454
Unadvanced portions of construction loans.............. 6,396 4,883
Unadvanced credit card lines........................... 1,736 1,736
Unadvanced portions of commercial lines of credit...... 4,440 3,697
Unadvanced portions of cash reserve loans.............. 54 54
Standby letters of credit.............................. 13 78
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates and may require payment of a
fee. Management evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by management upon
the extension of credit, is based on management's credit evaluation of the
borrower. Collateral consists predominantly of residential and commercial real
estate and personal property. Included in the total commitments to extend credit
at December 31, 1996 were residential mortgage loan commitments of $13,623 and
commercial mortgage loan commitments of $1,014. All outstanding commitments to
extend credit, except for unadvanced portions of cash reserve loans, were
variable-rate arrangements.
Standby letters of credit are contingent commitments issued by the Bank to
support the financial obligations of a customer to a third party and are issued
to support payment obligations of the customer as buyer in a commercial contract
for the purchase of goods.
Letters of credit have maturities that generally reflect the maturities of
the underlying obligations. Since the conditions under which the Bank must fund
letters of credit may not materialize, the cash requirements are expected to be
less than the total outstanding commitments. The credit risk involved in issuing
letters of
F-15
<PAGE> 91
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit is the same as that involved in extending loans to customers. If deemed
necessary, the Bank holds various forms of collateral to support letters of
credit.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments at December 31, 1996 and 1995.
Cash and Cash Equivalents
The fair values of cash and cash equivalents approximate their carrying
value. Cash and cash equivalents include cash and due from banks and federal
funds sold.
Interest-Bearing Deposits
The fair values of interest-bearing deposits approximate their carrying
value.
Investment Securities
The fair value of investment securities, excluding Federal Home Loan Bank,
is estimated on bid prices published in financial newspapers or bid quotations
received from securities dealers. The carrying value of Federal Home Loan Bank
approximates fair value.
Loans
For variable-rate loans that reprice frequently and have no significant
credit risk, fair values are based on carrying values. The fair values of
fixed-rate loans (e.g., one to four family residentials) are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics.
Deposits
The fair values disclosed for certain deposits (e.g., interest and
non-interest-bearing checking, passbook savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on a schedule of aggregated
expected monthly maturities of time deposits.
Borrowed Funds
The fair-values of borrowed funds at December 31, 1996 and 1995 approximate
their carrying value.
Accrued Interest
The fair-values of accrued interest receivable and accrued interest payable
approximate their carrying amount.
Commitments to Extend Credit and Standby Letters of Credit
The fair values of the Company's off-balance-sheet instruments (lending
commitments and letters of credit) are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreement and the counterparties' credit standing.
At December 31, 1996 and 1995, the estimated fair value of
off-balance-sheet financial instruments, consisting primarily of loan
commitments, was not material.
F-16
<PAGE> 92
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the carrying value and estimated fair value
of the Company's financial instruments at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial Assets--
Cash and cash equivalents.......... $ 6,327 $ 6,327 $ 10,511 $10,511
Interest-bearing deposits.......... 103 103 123 123
Investment securities
held-to-maturity................. 16,716 16,736 5,284 5,301
Loans.............................. 76,114 76,303 78,993 79,519
Accrued interest receivable........ 755 755 520 520
Financial Liabilities--
Deposits........................... $ 90,349 $90,406 $ 86,841 $86,912
Borrowed funds..................... 179 179 182 182
Accrued interest payable........... 302 302 240 240
</TABLE>
(14) REGULATORY MATTERS
The Bank and the Company are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Bank's and the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's and the Company's assets,
liabilities and certain off-balance-sheet items, as calculated under regulatory
accounting practices. The Bank's and the Company's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank and the Company to maintain minimum amounts and ratios (set
forth in the table below) of total Tier-I capital to risk-weighted assets, and
of Tier-I capital to average assets. Management believes, as of December 31,
1996, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as well-capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain minimum total risk-based, Tier-I risk-
based, Tier-I leverage ratios, as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
F-17
<PAGE> 93
PACIFIC NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Bank's and the consolidated actual capital amounts and ratios are
presented in the table:
<TABLE>
<CAPTION>
TO BE WELL-
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
---------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997 (unaudited):
Total Capital (to Risk-Weighted Assets) --
Bank..................................... $12,400 17.4% $5,694 8.0% $7,118 10.0%
Consolidated............................. 12,400 17.4 5,694 8.0 N/A N/A
Tier-I Capital (to Risk-Weighted Assets) --
Bank..................................... $11,491 16.1% $2,847 4.0% $4,271 6.0%
Consolidated............................. 11,491 16.1 2,847 4.0 N/A N/A
Tier-I Capital (to Average Assets) --
Bank..................................... $11,491 11.2% $4,095 4.0% $5,118 5.0%
Consolidated............................. 11,491 11.2 4,095 4.0 N/A N/A
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets) --
Bank..................................... $11,752 19.4% $4,851 8.0% $6,064 10.0%
Consolidated............................. 11,752 19.4 4,851 8.0 N/A N/A
Tier-I Capital (to Risk-Weighted Assets) --
Bank..................................... $10,974 18.1% $2,425 4.0% $3,638 6.0%
Consolidated............................. 10,974 18.1 2,425 4.0 N/A N/A
Tier-I Capital (to Average Assets) --
Bank..................................... $10,974 10.3% $4,266 4.0% $5,332 5.0%
Consolidated............................. 10,974 10.3 4,266 4.0 N/A N/A
As of December 31, 1995 (unaudited):
Total Capital (to Risk-Weighted Assets) --
Bank..................................... $10,618 17.2% $4,939 8.0% $6,173 10.0%
Consolidated............................. 10,618 17.2 4,939 8.0 N/A N/A
Tier-I Capital (to Risk-Weighted Assets) --
Bank..................................... $ 9,827 15.9% $2,472 4.0% $3,708 6.0%
Consolidated............................. 9,827 15.9 2,472 4.0 N/A N/A
Tier-I Capital (to Average Assets) --
Bank..................................... $ 9,827 9.8% $4,011 4.0% $5,014 5.0%
Consolidated............................. 9,827 9.8 4,011 4.0 N/A N/A
</TABLE>
F-18
<PAGE> 94
APPENDIX A
AFFILIATION AGREEMENT AND PLAN OF REORGANIZATION
AFFILIATION AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated
as of May 23, 1997, by and among BANKBOSTON CORPORATION, a Massachusetts
corporation (the "Buyer"), BOSTON PARENT CORP., a newly incorporated and
wholly-owned subsidiary of the Buyer (the "Buyer Sub") and PACIFIC NATIONAL
CORPORATION, a Massachusetts corporation (the "Seller").
WHEREAS, the Boards of Directors of the Buyer and the Seller have
determined that it is in the best interests of their respective stockholders to
consummate, and have approved, the business combination transactions provided
for herein, in which the Seller will, subject to the terms and conditions set
forth herein, merge (the "Merger") with and into the Buyer Sub, with the Buyer
Sub as the surviving corporation of the Merger; and
WHEREAS, as a condition to, and after the execution of, this Agreement, the
Buyer and the Seller are entering into the Seller Option Agreement (the "Seller
Option Agreement"), attached hereto as Exhibit A, pursuant to which the Seller
has granted the option (the "Seller Option") to the Buyer; and
WHEREAS, as a condition to, and after the execution of, this Agreement, the
Buyer and certain of the officers and directors of the Seller are entering into
the Stockholders Agreements; and
WHEREAS, simultaneously with the execution and delivery of this Agreement,
BankBoston, N.A., a national banking association and direct subsidiary of the
Buyer (the "Buyer Bank") and Pacific National Bank of Nantucket., a national
banking association and wholly-owned subsidiary of the Seller (the "Seller
Bank") are entering into an Agreement and Plan of Merger (the "Bank Merger
Agreement"), providing for the merger (the "Bank Merger") of the Seller Bank
with and into the Buyer Bank; it being intended that the Bank Merger be
consummated immediately prior to the Merger; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to prescribe certain conditions to
the Merger;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein or as otherwise clearly required by the
context, the following terms shall have the respective meanings indicated when
used in this Agreement:
"Acquisition Price" shall have the meaning ascribed thereto in Section
2.07(b) hereof.
"Acquisition Transaction" shall have the meaning ascribed thereto in
Section 5.03 hereof.
"Agreement" shall mean this Affiliation Agreement and Plan of
Reorganization by and between the Buyer and the Seller.
"Average Closing Price" shall have the meaning ascribed thereto in Section
2.07(b) hereof.
"Bank Merger" shall have the meaning ascribed thereto in the recitals
hereto.
"Bank Merger Agreement" shall have the meaning ascribed thereto in the
recitals hereto.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Buyer" shall have the meaning ascribed thereto in the recitals hereto.
"Buyer Balance Sheet" shall have the meaning ascribed thereto in Section
3.05 hereof.
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"Buyer Bank" shall have the meaning ascribed thereto in the recitals
hereto.
"Buyer Common Stock" shall have the meaning ascribed thereto in Section
2.07(b) hereof.
"Buyer Disclosure Schedule" shall mean the disclosure schedule delivered to
the Seller together herewith.
"Buyer Preferred Stock" shall have the meaning ascribed thereto in Section
3.02(a) hereof.
"Buyer Reports" shall have the meaning ascribed thereto in Section 3.10
hereof.
"Buyer Rights Plan" shall mean that certain Shareholder Rights Plan which
was adopted by the Buyer on June 28, 1990.
"Buyer Sub" shall have the meaning ascribed thereto in the recitals hereto.
"Buyer Sub Common Stock" shall have the meaning ascribed thereto in Section
2.07(a) hereof.
"Closing" shall mean the consummation of the Merger.
"Closing Date" shall mean the time and date specified pursuant to Section
7.01 hereof as the time and date on which the parties hereto shall consummate
the Merger.
"CMPs" has the meaning ascribed to such term in Section 4.16 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Companies" shall have the meaning ascribed thereto in Section 4.10(a)
hereof.
"Confidential Information" shall have the meaning ascribed thereto in
Section 5.02(b) hereof.
"Confidentiality Agreement" shall mean that certain Non-Disclosure
Agreement between the Buyer and the Seller dated April 25, 1997.
"Consents" shall have the meaning ascribed thereto in Section 6.01(b)
hereof.
"Conversion Number" shall have the meaning ascribed thereto in Section
2.07(b)(i)(B) hereof.
"Disclosure Schedules" shall mean the Buyer Disclosure Schedule and the
Seller Disclosure Schedule, considered together.
"DOJ" shall mean the United States Department of Justice.
"Effective Time" shall mean the date and time at which the Merger has
become effective pursuant to the applicable laws of The Commonwealth of
Massachusetts.
"Electing Shares" shall have the meaning ascribed thereto in Section
2.07(b)(i)(A) hereof.
"Election Date" shall have the meaning ascribed thereto in Section 2.08(c)
hereof.
"EPA" shall mean the United States Environmental Protection Agency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall have the meaning ascribed thereto in Section 3.05
hereof.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System or the Federal Reserve Bank of Boston, as applicable.
"Filed Tax Returns" shall have the meaning ascribed thereto in Section
4.10(a) hereof.
"GAAP" shall mean generally accepted accounting principles and practices in
effect from time to time within the United States applied consistently
throughout the period involved.
"Hazardous Material" shall have the meaning ascribed to such term in
Section 4.17(h) hereof.
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"Injunction" shall have the meaning ascribed thereto in Section 6.01(d)
hereof.
"IRS" shall mean the United States Internal Revenue Service.
"MBCL" shall mean the Massachusetts Business Corporation Law.
"Massachusetts Board" shall have the meaning ascribed thereto in Section
3.04 hereof.
"Material Adverse Effect" shall mean, with respect to any Person, a
material adverse effect on the assets, properties, liabilities, business,
results of operations, or financial condition of such Person.
"Merger" shall have the meaning ascribed thereto in the recitals hereto.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NYSE" shall mean the New York Stock Exchange.
"OCC" shall mean the Office of the Comptroller of the Currency.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other legal entity,
or any governmental agency or political subdivision thereof.
"Public Announcement" shall mean an oral or written press release, public
announcement or public information disclosure by the Seller or the Buyer or any
of their subsidiaries relating to the Merger or the other transactions
contemplated hereby.
"Recapitalization" shall have the meaning ascribed thereto in Section 2.10
hereof.
"Records" means all records and original documents in the Seller's
possession which pertain to and are utilized by the Seller or any of its
subsidiaries to administer, reflect, monitor, evidence or record information
respecting its business and operations, including but not limited to all records
and documents relating to (a) corporate, regulatory, supervisory and litigation
matters, (b) tax planning and payment of taxes, (c) personnel and employment
matters, and (d) the business or conduct of the business of the Seller or any of
its subsidiaries.
"Representative(s)" shall have the meaning ascribed thereto in Section
5.02(b) hereof.
"Requisite Regulatory Approvals" shall have the meaning ascribed thereto in
Section 6.01(b) hereof.
"SEC" shall have the meaning ascribed thereto in Section 3.04 hereof.
"S-4" shall have the meaning ascribed thereto in Section 5.04(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning ascribed thereto in the preamble to this
Agreement and, in addition, shall mean throughout this Agreement, unless the
context contemplates otherwise, the Seller and each of its subsidiaries,
considered separately and on a consolidated basis.
"Seller Affiliates" shall have the meaning ascribed thereto in Section 5.06
hereof.
"Seller Affiliates Agreement" shall mean the form of written agreement to
be executed and delivered to the Buyer prior to the Effective Time by the Seller
Affiliates, substantially in the form attached hereto as Exhibit C.
"Seller Balance Sheet" shall have the meaning ascribed thereto in Section
4.05 hereof.
"Seller Bank" shall have the meaning ascribed thereto in the recitals
hereto.
"Seller Benefit Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Common Stock" shall have the meaning ascribed thereto in Section
2.07(b) hereof.
"Seller Disclosure Schedule" shall mean the disclosure schedule delivered
to Buyer together herewith.
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"Seller Option" shall have the meaning ascribed thereto in the recitals
hereto.
"Seller Option Agreement" shall have the meaning ascribed thereto in the
recitals hereto.
"Seller Other Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Pension Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Proxy Statement" shall mean the proxy statement relating to the
meeting of the Seller's stockholders to be held in connection with this
Agreement and the transactions contemplated hereby.
"Seller Reports" shall have the meaning ascribed thereto in Section 4.15
hereof.
"Significant Subsidiary" shall mean, when used with reference to a party,
any "significant subsidiary" of such party as such term is defined in Regulation
S-X of the SEC.
"Stockholders Agreements" shall mean those certain Stockholder Agreements
dated as of the date hereof respectively between the Buyer and members of the
Seller's board of directors and executive management and substantially in the
form attached hereto as Exhibit B.
"subsidiaries" shall mean, when used with reference to a party, any
corporation or other organization, whether incorporated or unincorporated, of
which such party or any other subsidiary of such party is a general partner
(excluding partnerships the general partnership interests of which held by such
party or any subsidiary of such party do not have a majority of the voting
interests in such partnership) or, with respect to such corporation or other
organization, at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries.
"Surviving Corporation" shall have the meaning ascribed thereto in Section
2.01 hereof.
"Surviving Corporation Common Stock" shall have the meaning ascribed
thereto in Section 2.07(a) hereof.
"Tax" shall have the meaning ascribed thereto in Section 4.10(h)(A) hereof.
"Tax Return" shall have the meaning ascribed thereto in Section 4.10(h)(B)
hereof.
"Termination Date" shall have the meaning ascribed thereto in Section
8.01(b) hereof.
"Transaction Documents" shall mean this Agreement, the Confidentiality
Agreement, the Seller Option Agreement, the Shareholders Agreement, and each
other agreement, document or instrument executed in connection herewith or
therewith.
"Transferred Employee" shall have the meaning ascribed thereto in Section
5.13(a) hereof.
"Trust Account Shares" shall have the meaning ascribed thereto in Section
3.12 hereof.
"Valuation Period" shall have the meaning ascribed thereto in Section
2.07(b) hereof.
ARTICLE II
THE MERGER
2.01 The Merger. Subject to the terms and conditions of this Agreement,
in accordance with the MBCL, at the Effective Time, the Seller shall merge with
and into the Buyer Sub, and the separate corporate existence of the Seller shall
cease. The Buyer Sub shall be the surviving corporation in the Merger
(hereinafter sometimes referred to as the "Surviving Corporation") and shall
continue its corporate existence under the laws of The Commonwealth of
Massachusetts.
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2.02 Effect of the Merger.
(a) Upon the Effective Time, all of the estate, property, rights,
privileges, powers and franchises of each of the Seller and the Buyer Sub
and all of their property, real, personal and mixed, and all the debts due
on whatever account to any of them, as well as all stock subscriptions and
other choses in action belonging to any of them, shall be transferred to
and vested in the Surviving Corporation, without further act or deed, and
all claims, demands, property and other interest shall be the property of
the Surviving Corporation, and the title to all real estate vested in each
of the Seller or the Buyer Sub shall not revert or be in any way impaired
by reason of the Merger, but shall be vested in the Surviving Corporation.
(b) Upon the Effective Time, the rights of creditors of each of the
Seller and the Buyer Sub shall not in any manner be impaired, nor shall any
liability or obligation, including taxes due or to become due, or any claim
or demand in any cause existing against such corporation, or any
stockholder, director, or officer thereof, be released or impaired by the
Merger, but the Surviving Corporation shall be deemed to have assumed, and
shall be liable for, all liabilities and obligations of each of the Seller
and the Buyer Sub in the same manner and to the same extent as if the
Surviving Corporation had itself incurred such liabilities or obligations.
The stockholders, directors, and officers of each of the Seller and the
Buyer Sub shall continue to be subject to all liabilities, claims and
demands existing against them as such at or before the Merger. No action or
proceeding then pending before any court or tribunal of The Commonwealth of
Massachusetts or otherwise in which either the Seller and the Buyer Sub is
a party, or in which any such stockholder, director, or officer is a party,
shall abate or be discontinued by reason of the Merger, but any such action
or proceeding may be prosecuted to final judgment as though no merger had
taken place, or the Surviving Corporation may be substituted as a party in
place of either the Seller and the Buyer Sub by the court in which such
action or proceeding is pending.
2.03 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Buyer Sub acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger, the
officers and directors of the Surviving Corporation shall and will be authorized
to execute and deliver, in the name and on behalf of either the Seller or the
Buyer Sub or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of either the Seller or
the Buyer Sub or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or to otherwise carry out this Agreement.
2.04 Articles of Organization and By-Laws. At the Effective Time, the
Articles of Organization of the Buyer Sub shall be the Articles of Organization
of the Surviving Corporation and the By-Laws of the Buyer Sub shall be the
By-Laws of the Surviving Corporation and, subject to the rights of the Buyer as
the sole stockholder, shall thereafter continue to be its Articles of
Organization and By-Laws until amended as provided therein or by law.
2.05 Directors and Officers. At the Effective Time, the Board of
Directors of the Surviving Corporation shall consist of those persons comprising
the Board of Directors of the Buyer Sub prior to the Effective Time, each to
hold office in accordance with the Articles of Organization and By-Laws of the
Surviving Corporation. The officers of the Buyer Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation from and,
subject to the rights of the Buyer as the sole stockholder, after the Effective
Time each to hold office in accordance with the Articles of Organization and
By-Laws of the Surviving Corporation.
2.06 Effective Time; Conditions. The Merger shall become effective as set
forth in the articles of merger which shall be submitted for filing to the
Secretary of the Commonwealth pursuant to Section 78(d) of the MBCL (the
"Articles of Merger"). The term "Effective Time" shall be, the date and time
specified in the Articles of Merger.
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2.07 Effect on Outstanding Shares.
(a) Buyer Sub Common Stock. Each of the 100 shares of common stock of
the Buyer Sub, par value $0.01 per share (the "Buyer Sub Common Stock"),
issued and outstanding immediately prior to the Effective Time, shall
remain issued and outstanding after the Merger as shares of the Surviving
Corporation, which shall thereafter constitute all of the issued and
outstanding shares of the Surviving Corporation.
(b) Seller Common Stock. By virtue of the Merger, automatically and
without any action on the part of the holder thereof, each share of common
stock of the Seller, par value $1.00 per share (the "Seller Common Stock"),
issued and outstanding immediately prior to the Effective Time (other than
any such shares held directly or indirectly by the Buyer, except in a
fiduciary capacity, and any such shares held as treasury stock by the
Seller) shall become and be converted into the right to receive from the
Buyer the number of shares of the common stock of the Buyer, par value
$2.25 per share (the "Buyer Common Stock"), together with that number of
Buyer Rights issued pursuant to the Buyer Rights Agreement associated
therewith, equal to the number obtained by dividing $50.00 (such per share
price being referred to herein as the "Acquisition Price") by the Average
Closing Price (such number being referred to herein as the "Exchange
Ratio"). For purposes of this Agreement, "Average Closing Price" shall mean
the average of the closing prices of shares of Buyer Common Stock as
reported on the NYSE composite transactions reporting system for the twenty
consecutive trading days (the "Valuation Period") ending on the fifth
business day prior to the Closing Date.
(ii) As of the Effective Time, each share of Seller Common Stock held
either directly or indirectly by the Buyer (other than in a fiduciary
capacity) or as treasury stock of the Seller shall be canceled, retired and
cease to exist, and no payment shall be made with respect thereto.
(c) Shares of Dissenting Holders. No conversion under Section 2.07(b)
hereof shall be made with respect to the shares of Seller Common Stock held
by a Dissenting Holder (as such term is defined below); provided, however,
that each share of Seller Common Stock outstanding immediately prior to the
Effective Time and held by a Dissenting Holder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of
appraisal, in either case pursuant to the applicable provisions of the
MBCL, shall be deemed to be converted, as of the Effective Time, into
shares of Buyer Common Stock as specified in Section 2.07(b) hereof. The
term "Dissenting Holder" shall mean a holder of the Seller Common Stock who
has demanded appraisal rights in compliance with the applicable provisions
of the MBCL concerning the right of such holder to dissent from the Merger
and demand appraisal of such holder's shares of Seller Common Stock.
(d) Dissenter's Rights. Any Dissenting Holder (i) who files with the
Seller a written objection to the Merger before the taking of the vote to
approve this Agreement by the shareholders of the Seller and who states in
such objection that he intends to demand payment for his shares if the
Merger is concluded and (ii) whose shares are not voted in favor of the
Merger shall be entitled to demand payment for his shares of Seller Common
Stock and an appraisal of the value thereof, in accordance with the
provisions of Sections 86 through 98 of the MBCL.
2.08 Exchange Agent. Prior to the Effective Time, the Buyer shall appoint
an exchange agent (the "Exchange Agent"). On the Effective Date, the Buyer shall
issue and deliver to the Exchange Agent certificates representing the shares of
Buyer Common Stock to be issued pursuant to this Agreement in exchange for the
outstanding shares of Seller Common Stock and shall pay to the Exchange Agent
the aggregate cash amount to be paid in lieu of fractional share interests, all
in accordance with the terms of this Article II.
2.09 Anti-Dilution. In the event that, subsequent to the date of this
Agreement but prior to the Effective Time, the outstanding shares of Buyer
Common Stock or Seller Common Stock shall have been increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
through reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, or other like changes in the Buyer's or the
Seller's capitalization, other than pursuant to this Agreement, as the case may
be
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(a "Recapitalization"), then an appropriate and proportionate adjustment shall
be made to the number and/or kind of securities to be delivered to the holders
of Seller Common Stock so that each holder of Seller Common Stock shall receive
under Section 2.07(b) hereof the number of shares of Buyer Common Stock (except
for fractional shares) that such holder would have held immediately following
the Recapitalization if the Merger had occurred immediately prior to the
Recapitalization or the record date therefor, as applicable. For purposes of
this Section 2.09, in no event shall the issuance of shares or securities by the
Buyer in connection with the Buyer acquiring directly or indirectly the stock or
assets of any corporation, bank or other entity be deemed to be a
"Recapitalization".
2.10 Procedures.
(a) Certificates which represent shares of Seller Common Stock that
are outstanding immediately prior to the Effective Time (a "Certificate")
and are converted into shares of Buyer Common Stock pursuant to this
Article II shall, after the Effective Time, be deemed to represent shares
of Buyer Common Stock into which such shares have been converted and shall
be exchangeable by the holders thereof for new certificates representing
the shares of Buyer Common Stock into which such shares have been
converted.
(b) Buyer shall use all reasonable efforts to cause the Exchange Agent
to send to each holder of record of shares of Seller Common Stock
outstanding at the Effective Time as promptly as practicable, and in any
event within five days after the Effective Time, transmittal materials
(which shall be reviewed with and be reasonably acceptable to Seller) for
use in exchanging the certificates for such shares for certificates for
shares of Buyer Common Stock into which such shares of Seller Common Stock
have been converted pursuant to this Article II. As promptly as practicable
after the Effective Time, each holder of an outstanding Certificate, upon
surrender of such Certificate, together with any other required documents,
shall be entitled to receive, in exchange therefor a certificate for the
number of shares of Buyer Common Stock to which such holder is entitled
pursuant to Section 2.07(b)(i) hereof, and such Certificate as surrendered
shall forthwith be canceled. No dividend or other distribution payable
after the Effective Time with respect to Buyer Common Stock shall be paid
to the holder of any unsurrendered Certificate until the holder thereof
surrenders such Certificate, at which time such holder shall receive all
dividends and distributions, without interest thereon, previously payable
but withheld from such holder pursuant hereto. After the Effective Time,
there shall be no transfers on the stock transfer books of the Seller of
shares of Seller Common Stock which were issued and outstanding at the
Effective Time and converted pursuant to the provisions of this Article II.
If, after the Effective Time, Certificates are presented for transfer to
the Seller, they shall be canceled and exchanged for the shares of Buyer
Common Stock deliverable in respect thereof as determined in accordance
with the provisions and procedures set forth in this Article II.
(c) In lieu of the issuance of fractional shares of Buyer Common Stock
pursuant to Section 2.07(b) of this Agreement, cash adjustments, without
interest, will be paid to the holders of Seller Common Stock in respect of
any fractional share that would otherwise be issuable and the amount of
such cash adjustment shall be equal to an amount in cash determined by
multiplying such holder's fractional interest by the Average Closing Price
(rounded up to the nearest cent). For purposes of determining whether, and
in what amounts, a particular holder of Seller Common Stock would be
entitled to receive cash adjustments under this Section 2.10(c), shares of
record held by such holder and represented by two or more Certificates
shall be aggregated.
(d) After the Effective Time, holders of certificates of Seller Common
Stock shall cease to be, and shall have no rights as, stockholders of the
Seller, other than (i) to receive shares of Buyer Common Stock into which
such shares have been converted as provided by Section 2.07(b) hereof and
(ii) the rights afforded to any Dissenting Holder (as defined in Section
2.07(c)) under applicable provisions of the MBCL.
(e) Notwithstanding the foregoing, neither the Buyer nor the Seller
nor any other person shall be liable to any former holder of shares of
Seller Common Stock for any shares or any dividends or
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distributions with respect thereto properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon receipt of appropriate evidence as to such loss, theft or
destruction and to the ownership of such Certificate by the person claiming
such Certificate to be lost, stolen or destroyed, and the receipt by the
Buyer of appropriate and customary indemnification, the Buyer will issue in
exchange for such lost, stolen or destroyed Certificate shares of Buyer
Common Stock and cash, deliverable in respect thereof, as determined in
accordance with this Article II.
(g) If any certificate representing shares of Buyer Common Stock is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer (including, but not limited to, that the signature
of the transferor shall be properly guaranteed by a commercial bank, trust
company, member firm of the NASD or other eligible guarantor institution),
and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Buyer Common Stock in any
name other than that of the registered holder of the Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
2.11 Subsidiary Bank Merger. The Seller shall take such actions as the
Buyer shall reasonably determine to be desirable to effectuate the Bank Merger.
2.12 Possible Alternative Structure. Notwithstanding any other provision
of this Agreement to the contrary, prior to the Effective Time, the Buyer shall
be entitled to (i) revise the sequence of the Merger and the Bank Merger to
provide that the Merger shall be consummated prior to the Bank Merger, (ii)
revise the structure of the Merger to provide that Buyer Sub shall be merged
with and into the Seller at the Effective Time, and/or (iii) contribute all of
the capital stock of Buyer Sub to the Buyer Bank or another affiliate of the
Buyer. Notwithstanding the foregoing or any other provision of this Agreement to
the contrary, the Buyer and the Seller may jointly elect prior to the Effective
Time, to substitute an alternative structure for the accomplishment of the
transactions contemplated by this Agreement and the Bank Merger Agreement. Buyer
and Seller agree that this Agreement and the Bank Merger Agreement shall be
appropriately amended in order to reflect any such contribution or revised
sequence or structure.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
3.01 Corporate Organization.
(a) The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts. The
Buyer has all requisite corporate power and authority to own, lease or
operate all of its properties and assets and to carry on its business as it
is now being conducted. The Buyer is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned,
leased or operated by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not result
in, with respect to the Buyer, a Material Adverse Effect. The Buyer is a
bank holding company registered with the Federal Reserve Board under the
BHCA.
(b) Each Significant Subsidiary of the Buyer is duly organized,
validly existing and in corporate good standing under the laws of the
jurisdiction of its incorporation. Each Significant Subsidiary of the Buyer
has all requisite corporate power and authority to own, lease or operate
all of its properties and assets and to carry on its business as it is now
being conducted. Each Significant Subsidiary is duly licensed or qualified
to do business in each jurisdiction in which the nature of the business
conducted by it
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or the character or location of the properties and assets owned, leased, or
operated by it makes such licensing or qualification necessary, except
where the failure to be so licensed or qualified would neither individually
nor in the aggregate result in any Material Adverse Effect on the Buyer.
3.02 Capitalization.
The authorized capital stock of the Buyer consists of (i) 200,000,000
shares of Buyer Common Stock of which, as of March 31, 1997, 151,806,747 shares
were issued and outstanding and 2,458,614 of which were held in treasury, (ii)
10,000,000 shares of preferred stock, without par value ("Buyer Preferred
Stock"), of which, as of March 31, 1997, (A) 3,393,941 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 Buyer Rights Agreement. All of the issued and outstanding shares
of Buyer Common Stock and Buyer Preferred Stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof. As of January 1,
1997, 4,764,182 shares of Buyer Common Stock were reserved for issuance pursuant
to outstanding warrants, rights, and stock options.
3.03 Authority; No Violation.
(a) The Buyer has all requisite corporate power and authority to
execute and deliver this Agreement, the other Transaction Documents and to
consummate the transactions contemplated hereby and thereby. The Buyer Sub
has or will have prior to the Closing Date all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement, the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of the Buyer. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby and thereby have been or will be prior to the Closing Date duly and
validly approved by the Buyer, as sole stockholder of the Buyer Sub, and by
the Board of Directors of the Buyer Sub. No other corporate proceedings on
the part of the Buyer are necessary to consummate any of the transactions
so contemplated by this Agreement. This Agreement and the other Transaction
Documents have been duly and validly executed and delivered by the Buyer
and (assuming due authorization, execution and delivery by the Seller)
constitute the valid and binding obligations of the Buyer, enforceable
against the Buyer in accordance with their respective terms, except that
enforcement thereof may be limited by the receivership, conservatorship and
supervisory powers of bank regulatory agencies generally as well as
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally and except that
enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) and the availability of equitable remedies.
(b) The Buyer Bank has full corporate power and authority to execute
and deliver the Bank Merger Agreement and to consummate the Bank Merger.
The execution of the Bank Merger Agreement and the consummation of the
transactions contemplated thereby have been duly and validly approved by
the Board of Directors of the Buyer Bank. The Bank Merger Agreement has
been duly and validly executed and delivered by the Buyer Bank, and
(assuming due authorization, execution and delivery by the Seller Bank)
constitutes the valid and binding obligation of the Buyer Bank, enforceable
against the Buyer Bank in accordance with its terms, except that
enforcement thereof may be limited by receivership, conservatorship and
supervisory powers of bank regulatory agencies generally as well as
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally and except that
enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) and the availability of equitable remedies. The Board of
Directors of the Buyer Bank has directed that the Bank Merger Agreement and
the transactions contemplated thereby be adopted by the Buyer as the sole
stockholder of the Buyer Bank, and except for the adoption of the Bank
Merger Agreement by the Buyer in its capacity as the sole
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stockholder of the Buyer Bank, all as contemplated by Section 5.22 hereof,
no other corporate proceedings on the part of the Buyer Bank are necessary
to consummate the Bank Merger.
(c) Neither the execution and delivery of this Agreement, the Bank
Merger Agreement or the other Transaction Documents by the Buyer and the
Buyer Bank, respectively, nor the consummation by the Buyer or the Buyer
Bank, as applicable, of the transactions contemplated by this Agreement and
the Bank Merger Agreement, nor compliance by the Buyer or the Buyer Bank,
as applicable, with any of the terms or provisions of this Agreement or the
Bank Merger Agreement, will (i) assuming that the consents and approvals
referred to in Section 3.04 hereof are duly obtained, violate in any
material respect any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to the Buyer or any of its
subsidiaries or any of their respective properties or assets, or (ii)
violate, conflict with, result in a breach of any provisions of, constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or
other encumbrance upon any of the respective properties or assets of the
Buyer or any of its subsidiaries under, any of the terms, conditions or
provisions of (A) the Articles of Organization or other charter document of
like nature or By-Laws of the Buyer, or such subsidiary, as the case may
be, or (B) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Buyer or
any of its subsidiaries is a party as issuer, guarantor or obligor, or by
which they or any of their respective properties or assets may be bound or
affected, except, in the case of clause (ii)(B) above, for such violations,
conflicts, breaches or defaults which either individually or in the
aggregate will not have a Material Adverse Effect on the Buyer.
3.04 Consents and Approvals. Except for consents, waivers or approvals
of, or filings or registrations with, the Federal Reserve Board, the OCC, the
Board of Bank Incorporation of The Commonwealth of Massachusetts (the
"Massachusetts Board"), the Securities and Exchange Commission (the "SEC"), the
Secretary of State of The Commonwealth of Massachusetts, the NYSE, certain state
"Blue Sky" or securities commissioners and the DOJ, no consents, waivers or
approvals of or filings or registrations with any public body or authority are
necessary, and no consents or approvals of any third parties (which term does
not include the Board of Directors of the Buyer, the Buyer Sub or the Buyer Bank
or the stockholders of the Buyer Sub or the Buyer Bank) are necessary, in
connection with (a) the execution and delivery by the Buyer of this Agreement,
(b) the execution and delivery by the Buyer Sub of this Agreement, (c) the
execution and delivery by the Buyer Bank of the Bank Merger Agreement or (d) the
consummation by the Buyer, the Buyer Sub, or the Buyer Bank, as applicable, of
the transactions contemplated by this Agreement and the Bank Merger Agreement.
3.05 Financial Statements. The Buyer has made available to the Seller
copies of (a) the consolidated balance sheets of the Buyer and its subsidiaries
as of December 31 for the fiscal years 1994 through 1996, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1994 through 1996, inclusive, as reported in the
Annual Reports of the Buyer on Form 10-K for each of the three (3) fiscal years
ended December 31, 1994 through December 31, 1996 filed with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each case
accompanied by the audit report of Coopers & Lybrand LLP, independent public
accountants for the Buyer, and (b) the unaudited consolidated balance sheet of
the Buyer and its subsidiaries as of March 31, 1997, the related unaudited
consolidated statements of income and changes in stockholders' equity for the
three (3) months ended March 31, 1997 and March 31, 1996 and the related
unaudited consolidated statements of cash flows for the three (3) months ended
March 31, 1997 and March 31, 1996, all as reported in the Buyer's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 filed with the SEC
under the Exchange Act. The December 31, 1996 consolidated balance sheet ("Buyer
Balance Sheet") of the Buyer (including the related notes, where applicable) and
the other financial statements referred to herein (including the related notes,
where applicable) fairly present, and the financial statements to be included in
any reports or statements (including reports on Forms 10-Q and 10-K) to be filed
by the Buyer with the SEC after the date hereof will fairly present, the
consolidated financial position and results of the consolidated operations and
cash flows and changes in stockholders' equity of the Buyer and its subsidiaries
for the respective fiscal periods or as of the
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respective dates therein set forth; and each of such statements (including the
related notes, where applicable) has been and will be prepared in accordance
with GAAP consistently applied during the periods involved, except as otherwise
set forth in the notes thereto (subject, in the case of unaudited interim
statements, to normal year-end adjustments). The books and records of the Buyer
and its subsidiaries have been, and are being, maintained in accordance with
GAAP and applicable legal and regulatory requirements.
3.06 Absence of Undisclosed Liabilities. None of the Buyer or any of its
subsidiaries has any obligation or liability (contingent or otherwise) that is
material on a consolidated basis to the Buyer, or that when combined with all
similar obligations or liabilities has had, or reasonably could be expected to
have, a Material Adverse Effect on the Buyer, except as disclosed or reflected
in the Buyer Balance Sheet or any of the other financial statements of the Buyer
described in Section 3.05.
3.07 Broker's Fees. Neither the Buyer nor any of its officers, directors,
employees or agents has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with any of the
transactions contemplated by this Agreement.
3.08 Absence of Certain Changes or Events. Except as set forth in Section
3.08 of the Buyer Disclosure Schedule or as disclosed in the Buyer's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 or in any Current
Reports of the Buyer on Form 8-K filed prior to the date of this Agreement,
since December 31, 1996, the Buyer and its subsidiaries have not incurred any
material liability, except in the ordinary course of their business consistent
with their past practices, nor has there been any change in the business,
assets, financial condition or results of operations of the Buyer or any of its
subsidiaries which has had, or is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on the Buyer.
3.09 Legal Proceedings. There is no suit, action or proceeding pending
or, to the best knowledge of the Buyer, threatened, against the Buyer or any
subsidiary of the Buyer or challenging the validity or propriety of the
transactions contemplated by this Agreement or the Bank Merger Agreement, as to
which there is a reasonable possibility of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, have a
Material Adverse Effect on the Buyer or otherwise materially adversely affect
the Buyer's or the Buyer Bank's ability to perform its obligations under this
Agreement and the Bank Merger Agreement, as applicable, nor is there any
judgment, decree, injunction, rule or order of any legal or administrative body
or arbitrator outstanding against the Buyer or any subsidiary of the Buyer
having, or which insofar as reasonably can be foreseen, in the future could
have, any such effect.
3.10 Reports. Since January 1, 1994, the Buyer and its subsidiaries have
filed, and subsequent to the date hereof will file, all reports, registrations
and statements, together with any amendments required to be made with respect
thereto, that were and are required to be filed with (a) the SEC, including, but
not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements (and all
such reports, registrations and statements have been or will be made available
by the Buyer to the Seller), (b) the Federal Reserve Board, (c) the OCC, and (d)
any applicable state securities or banking authorities (except, in the case of
state securities authorities, no such representation is made as to filings which
are not material) (all such reports and statements are collectively referred to
herein as the "Buyer Reports"). As of their respective dates, the Buyer Reports
complied and, with respect to filings made after the date of this Agreement,
will at the date of filing comply, in all material respects with all of the
statutes, rules and regulations enforced or promulgated by the regulatory
authority with which they were filed and did not contain and, with respect to
filings made after the date of this Agreement, will not at the date of filing
contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.11 Buyer Common Stock. Buyer Common Stock to be issued pursuant to
Section 2.07(b) hereof is duly authorized and, when issued at the Effective
Time, will be validly issued, fully paid and nonassessable and not subject to
preemptive rights, with no personal liability attaching thereto.
3.12 Ownership of Seller Common Stock. Except as set forth on Section
3.12 of the Buyer Disclosure Schedule, neither the Buyer nor, to its best
knowledge, any of its affiliates or associates (as such terms are defined under
the Exchange Act) (a) beneficially own, directly or indirectly, or (b) are
parties to any
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agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of capital stock of the Seller,
which in the aggregate represent five percent (5%) or more of the outstanding
shares of capital stock of the Seller entitled to vote generally in the election
of directors (other than shares in trust accounts, managed accounts and the like
that are beneficially owned by third parties (any such shares, "Trust Account
Shares")).
3.13 Compliance with Applicable Law. The Buyer holds all material
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business, and the Buyer has complied with, and is not in default
in any respect under any, applicable law, statute, order, rule, regulation or
policy of, or agreement with, any federal, state or local governmental agency or
authority relating to the Buyer, other than where such default or noncompliance
will not result in or create a reasonable probability of resulting in a Material
Adverse Effect on the Buyer or otherwise materially adversely affect the Buyer's
or the Buyer Bank's ability to perform its obligations under this Agreement and
the Bank Merger Agreement, as applicable.
3.14 Buyer Information. The information relating to the Buyer and its
subsidiaries to be contained in the Seller Proxy Statement and the S-4, as
described in Section 5.04 hereof, and any other documents filed with the SEC or
any regulatory agency in connection herewith, to the extent such information is
provided in writing by the Buyer, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make such
information not misleading.
3.15 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any certificate, list or other writing
furnished to the Seller pursuant to the provisions hereof, to the best knowledge
of the Buyer, contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer as follows:
4.01 Corporate Organization.
(a) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts. The
Seller is a bank holding company registered with the Federal Reserve Board
under the BHCA. The Seller Bank is a national banking association organized
and validly existing under the laws of the United States. Each of the
Seller and the Seller Bank has all requisite corporate power and authority
to own, lease or operate all of its properties and assets and to carry on
its business as it is now being conducted. Each of the Seller and the
Seller Bank is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, leased or
operated by it makes such licensing or qualification necessary, except
where the failure to be so licensed or qualified would not result in, with
respect to the Seller or the Seller Bank, any Material Adverse Effect.
(b) Except for the Seller Bank, the Seller has no subsidiaries.
(c) The minute books of each of the Seller and the Seller Bank contain
complete and accurate records of all meetings and other corporate actions
authorized at such meetings held or taken since January 1, 1992 to date of
its stockholders and Board of Directors.
4.02 Capitalization.
(a) The authorized capital stock of the Seller consists of (i)
1,000,000 shares of Seller Common Stock, of which, as of March 31, 1997,
487,761 shares were issued and outstanding and (ii) (A) 50,000 shares of
Class A preferred stock, par value, $1.00 per share (the "Class A Preferred
Stock"), of which as of March 31, 1997, no shares were issued and
outstanding and (B) 50,000 shares of Class B preferred stock, par value,
$1.00 per share (the "Class B Preferred Stock"), of which, as of March 31,
1997, no shares were issued and outstanding (the Class A Preferred Stock
and Class B Preferred are hereinafter
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referred to together as, the "Seller Preferred Stock"). All issued and
outstanding shares of Seller Common Stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof.
Except as referred to in this Section 4.02, and except for the Stock Option
Agreement, the Seller does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the Seller to issue, deliver or sell, or cause to be
issued, delivered or sold any shares of Seller Common Stock, Seller
Preferred Stock, or any other equity security of the Seller or any
subsidiary of the Seller or any securities convertible into, exchangeable
for or representing the right to subscribe for, purchase or otherwise
receive any shares of Seller Common Stock, Seller Preferred Stock or any
other equity security of the Seller or any subsidiary of the Seller or
obligating the Seller to grant, extend or enter into any such
subscriptions, options, warrants, calls, commitments or agreements. As of
the date hereof, there are no outstanding contractual obligations of the
Seller to repurchase, redeem or otherwise acquire any shares of capital
stock of the Seller or any subsidiary of the Seller.
(b) The Seller Bank is an "insured depository institution" as defined
in the FDIA and applicable regulations thereunder, and the deposits of the
Seller Bank are insured by the Bank Insurance Fund of the FDIC in
accordance with the FDIA. The Seller Bank has paid all assessments and
filed all reports required by the FDIA. As of the date hereof no
proceedings for the revocation or termination of such deposit insurance are
pending or to the knowledge of the Seller, threatened. The Seller Bank is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the Seller Bank to
issue, deliver or sell, or cause to be issued, delivered or sold, any
equity security of the Seller or the Seller Bank or any securities
convertible into, exchangeable for or representing the right to subscribe
for, purchase or otherwise receive any such equity security or obligating a
subsidiary of the Seller to grant, extend or enter into any such
subscriptions, options, warrants, calls, commitments or agreements. As of
the date hereof, there are no outstanding contractual obligations of the
Seller Bank to repurchase, redeem or otherwise acquire any shares of
capital stock of the Seller or the Seller Bank. All of the issued and
outstanding shares of capital stock of the Seller Bank are owned by the
Seller. All of the shares of capital stock of the Seller Bank held by the
Seller are fully paid and nonassessable and, except for directors'
qualifying shares, are owned by the Seller free and clear of any claim,
lien, encumbrance or agreement with respect thereto.
4.03 Authority; No Violation.
(a) The Seller has full corporate power and authority to execute and
deliver this Agreement, the other Transaction Documents and to consummate
the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement, the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly approved by three-fourths of the members of the Board of
Directors of the Seller. The Board of Directors of the Seller has directed
that this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby be submitted to the stockholders of the
Seller for approval at a meeting of such stockholders and, except for the
adoption of this Agreement by its stockholders, no other corporate
proceedings on the part of the Seller are necessary to consummate any of
the transactions so contemplated by this Agreement. This Agreement and the
other Transaction Documents have been duly and validly executed and
delivered by the Seller and (assuming due authorization, execution and
delivery by the Buyer and the Buyer Sub) constitute the valid and binding
obligations of the Seller, enforceable against the Seller in accordance
with their respective terms, except that enforcement thereof may be limited
by the receivership, conservatorship and supervisory powers of bank
regulatory agencies generally as well as bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement of
creditors' rights generally and except that enforcement thereof may be
subject to general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law) and the availability of
equitable remedies.
(b) The Seller Bank has full corporate power and authority to execute
and deliver the Bank Merger Agreement and to consummate the Bank Merger.
The execution of the Bank Merger Agreement and the consummation of the
transactions contemplated thereby have been duly and validly approved by
the
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Board of Directors of the Seller Bank. The Bank Merger Agreement has been
duly and validly executed and delivered by the Seller Bank and (assuming
the authorization, execution and delivery by the Buyer Bank), constitutes
the valid and binding obligation of the Seller Bank, enforceable against
the Seller Bank in accordance with its terms, except that enforcement
thereof may be limited by receivership, conservatorship and supervisory
powers of bank regulatory agencies generally as well as bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and except that enforcement
thereof may be subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law) and
the availability of equitable remedies. The Board of Directors of the
Seller Bank has directed that the Bank Merger Agreement and the
transactions thereby be adopted by the Seller as the sole stockholder of
the Seller Bank, and except for the adoption of the Bank Merger Agreement
by the Seller as the sole stockholder of the Seller Bank, no other
corporate proceedings on the part of the Seller Bank are necessary to
consummate the Bank Merger.
(c) Neither the execution and delivery of this Agreement, the Bank
Merger Agreement, or the other Transaction Documents by the Seller and the
Seller Bank, respectively, nor the consummation by the Seller or the Seller
Bank, as applicable, of the transactions contemplated by this Agreement,
the Bank Merger Agreement, or the other Transaction Documents, nor
compliance by the Seller or the Seller Bank, as applicable, with any of the
terms or provisions thereof, will (i) assuming that the consents and
approvals referred to in Section 4.04 are duly obtained, violate in any
material respect any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to the Seller or any of its
subsidiaries or any of their respective properties or assets, or (ii)
violate, conflict with, result in a breach of any provisions of, constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or
other encumbrance upon any of the respective properties or assets of the
Seller or the Seller Bank under, any of the terms, conditions or provisions
of (A) the Articles of Organization or other charter document of like
nature or By-Laws of the Seller or the Seller Bank, as the case may be, or
(B) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Seller or the
Seller Bank is a party as issuer, guarantor or obligor, or by which they or
any of their respective properties or assets may be bound or affected,
except, in the case of clause (ii)(B) above, for such violations,
conflicts, breaches or defaults which either individually or in the
aggregate will not have a Material Adverse Effect on the Seller or the
Seller Bank.
4.04 Consents and Approvals. Except for consents, waivers or approvals
of, or filings or registrations with, the Federal Reserve Board, the OCC, the
Massachusetts Board, the SEC, the Secretary of State of The Commonwealth of
Massachusetts, the NYSE, certain state "Blue Sky" or securities commissioners,
the DOJ or the stockholders of the Seller, no consents, waivers or approvals of
or filings or registrations with any public body or authority are necessary, and
except as set forth on Section 4.04 of the Seller Disclosure Schedule, no
consents or approvals of any third parties (which term does not include the
Board of Directors and stockholders of the Seller and the Seller Bank) are
necessary, in connection with (a) the execution and delivery by the Seller of
this Agreement, (b) the execution and delivery by the Seller Bank of the Bank
Merger Agreement or (c) the consummation by the Seller or the Seller Bank, as
applicable, of the transactions contemplated by this Agreement or the Bank
Merger Agreement. The affirmative vote of holders of two-thirds of the
outstanding shares of Seller Common Stock is the only vote of the holders of any
class or series of capital stock or other securities of the Seller necessary to
approve of this Agreement and the transactions contemplated hereby.
4.05 Financial Statements. The Seller has made available to the Buyer
copies of (a) the consolidated balance sheets of the Seller and its subsidiaries
as of December 31 for the fiscal years 1994 through 1996, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1994 through 1996, inclusive, in each case
accompanied by the audit report of Arthur Andersen LLP, independent accountants
for the Seller, and (b) the unaudited consolidated balance sheets of the Seller
and its subsidiaries as of March 31, 1997 and March 31, 1996, the related
unaudited consolidated
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statements of income and changes in stockholders' equity for the three (3)
months ended March 31, 1997 and March 31, 1996 and the related unaudited
consolidated statements of cash flows for the three (3) months ended March 31,
1997 and March 31, 1996, consolidated balance sheet (the "Seller Balance Sheet")
of the Seller (including the related notes, where applicable) and the other
financial statements referred to herein (including the related notes, where
applicable) fairly present, the consolidated financial position and results of
the consolidated operations and cash flows and changes in shareholders' equity
of the Seller and its subsidiaries for the respective fiscal periods or as of
the respective dates therein set forth; and each of such statements (including
the related notes, where applicable) has been prepared in accordance with GAAP
consistently applied during the periods involved, except as otherwise set forth
in the notes thereto (subject, in the case of unaudited interim statements, to
normal year-end adjustments). The books and records of the Seller and its
subsidiaries have been, and are being, maintained in accordance with GAAP and
applicable legal and regulatory requirements.
4.06 Absence of Undisclosed Liabilities. None of the Seller or the Seller
Bank has any obligation or liability (contingent or otherwise) that is material
on a consolidated basis to the Seller, except as disclosed or reflected in the
Seller Balance Sheet or any of the other financial statements described in
Section 4.05 above or Section 4.06 of the Seller Disclosure Schedule.
4.07 Broker's Fees. Except as set forth in Section 4.07 of the Seller
Disclosure Schedule, neither the Seller nor any of its officers, directors,
employees or agents has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with any of the
transactions contemplated by this Agreement.
4.08 Absence of Certain Changes or Events. Except as set forth in Section
4.08 of the Seller Disclosure Schedule, since December 31, 1996, the Seller and
the Seller Bank have not incurred any material liability, except in the ordinary
course of their business consistent with their past practices, nor has there
been any change in the business, assets, financial condition or results of
operations of the Seller or the Seller Bank.
4.09 Legal Proceedings. Section 4.09 of the Seller Disclosure Schedule
lists all suits, actions or proceedings pending against the Seller or the Seller
Bank. Except as set forth in Section 4.09 of the Seller Disclosure Schedule,
there is no suit, action or proceeding pending or, to the best knowledge of the
Seller, threatened, against the Seller or the Seller Bank or challenging the
validity or propriety of the transactions contemplated by this Agreement or the
Bank Merger Agreement, as to which there is a reasonable possibility of an
adverse determination and which, if adversely determined, would, individually or
in the aggregate, have a Material Adverse Effect on the Seller or the Seller
Bank or otherwise materially adversely affect the Seller's or the Seller Bank's,
as applicable, ability to perform its obligations under this Agreement or the
Bank Merger Agreement, nor is there any judgment, decree, injunction, rule or
order of any legal or administrative body or arbitrator outstanding against the
Seller or the Seller Bank having, or which insofar as reasonably can be
foreseen, in the future could have, any such effect.
4.10 Taxes and Tax Returns.
(a) The Seller and each of its subsidiaries (referred to for purposes
of this Section 4.10, collectively, as the "Companies") have timely filed
in correct form all Tax Returns that were required to be filed by any of
them on or prior to the date hereof (the "Filed Tax Returns"), each Filed
Tax Return has been prepared in compliance with all applicable laws and
regulations, and all Filed Tax Returns are true and accurate in all
respects. The Companies have made available to the Buyer correct and
complete copies of all federal income Tax Returns filed with respect to the
Companies for taxable periods ended on or after December 31, 1991, and all
examination reports, and statements of deficiencies assessed against or
agreed to by any of the Companies with respect to such taxable periods..
(b) The Companies have paid all Taxes required to be paid.
(c) No assessment that has not been settled or otherwise resolved has
been made with respect to Taxes not shown on the Filed Tax Returns No
deficiency in Taxes or other proposed adjustment that has not been settled
or otherwise resolved has been asserted in writing by any taxing authority
against any of the Companies. No Tax Return of any of the Companies is now
under examination by any applicable
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taxing authority nor have any of the Companies consented to any extension
of the period for assessment or collection with respect to any Tax. There
are no liens for Taxes (other than current Taxes not yet due and payable)
on any of the assets of any Company. None of the Companies has requested or
been granted an extension of the time for filing any Tax Return to a date
later than the Effective Time. No claim has ever been made by a taxing
authority in a jurisdiction where any of the Companies does not pay Tax or
file Tax Returns that such of the Companies is or may be subject to Taxes
assessed by that jurisdiction.
(d) Adequate provision has been made on the Seller Balance Sheet for
all Taxes of the Companies in respect of all periods through the date
hereof.
(e) None of the Companies is a party to or bound by any Tax
indemnification, Tax allocation or Tax sharing agreement with any person or
entity or has any current or potential contractual obligation to indemnify
any other person or entity with respect to Taxes.
(f) None of the Companies has filed or been included in a combined,
consolidated or unitary income Tax Return (including any consolidated
federal income Tax Return) other than one of which one of the Companies or
the Seller was the parent.
(g) Except as set forth in Section 4.10(g) of the Seller Disclosure
Schedule, none of the Companies has made any payments, is obligated to make
any payments, or is a party to any agreement that could obligate it to make
any payments that will not be deductible under Code Section 280G.
(h) None of the Companies has made or is affected by any elections
under Code Sections 108(b)(5), 338(g), or 565, or Treasury Regulation
Sections 1.1502-20(g) or 1.1502-32(f)(2).
(i) The Companies have withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
(j) None of the Companies has a permanent establishment in any foreign
country, as defined in the relevant tax treaty between the United States of
America and such foreign country, or otherwise operates or conducts
business through any branch in any foreign country.
(k) None of the Companies will be required, as a result of a change in
method of accounting for any period ending on or before the Effective Time,
to include any adjustment under Section 481(c) of the Code (or any similar
or corresponding provision or requirement of federal, state, local or
foreign income Tax law) in taxable income for any period ending after the
Effective Time.
(l) None of the assets of any of the Companies directly or indirectly
secures any indebtedness the interest on which is tax-exempt under Section
103(a) of the Code, and none of the Companies is directly or indirectly an
obligor or a guarantor with respect to any such indebtedness.
(m) None of the Companies has not filed a consent under Code Sec.
341(f) concerning collapsible corporations or agreed to have Section
341(f)(2) of the Code apply to any disposition of an asset owned by the
Seller.
(n) None of the assets of the Companies constitutes a taxable mortgage
pool as defined in Section 7701(i) of the Code.
(o) None of the Companies is or has been a United States real property
holding company (as defined in Section 897(c)(2) of the Code).
(p) None of the Companies owns any residual interest in a real estate
mortgage investment conduit as defined in Section 860D of the Code.
(q) No property of the Companies is property that any of the Companies
is or will be required to treat as being owned by another Person pursuant
to the provisions of Section 168(f)(8) of the Code (as in effect prior to
amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Section 168 of the Code.
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(r) For purposes of this Section 4.10:
(A) "Tax" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property,
capital stock, intangibles, social security, unemployment, disability,
payroll, license, employee or other tax or levy, of any kind whatsoever,
including any interest, penalties or additions to tax in respect of the
foregoing.
(B) "Tax Return" means any return, declaration, report, claim for
refund, information return or other document (including any related or
supporting estimates, elections, schedules, statements or information)
filed or required to be filed in connection with the determination,
assessment or collection of any Tax or the administration of any laws,
regulations or administrative requirements relating to any Tax.
4.11 Employees.
(a) Except as set forth in Section 4.11(a) of the Seller Disclosure
Schedule, neither the Seller nor the Seller Bank maintains or contributes
to any "employee pension benefit plan" (the "Seller Pension Plans"), as
such term is defined in Section 3 of ERISA, "employee welfare benefit plan"
(the "Seller Benefit Plans"), as such term is defined in Section 3 of
ERISA, stock option plan, stock purchase plan, deferred compensation plan,
other employee benefit plan for employees of the Seller or the Seller Bank,
or any other plan, program or arrangement of the same or similar nature
that provides benefits to non-employee directors of the Seller or the
Seller Bank (collectively, the "Seller Other Plans").
(b) The Seller shall have delivered to the Buyer contemporaneous with
the delivery of the Seller Disclosure Schedule a complete and accurate copy
of each of the following with respect to each of the Seller Pension Plans,
the Seller Benefit Plans and the Seller Other Plans: (i) plan document;
(ii) trust agreement or insurance contract, if any; (iii) most recent IRS
determination letter, if any; (iv) most recent actuarial report, if any;
and (v) most recent annual report on Form 5500.
(c) The current value of the assets of each of the Seller Pension
Plans subject to Title IV of ERISA exceeds that plan's "Benefit
Liabilities" as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if that plan terminated
in accordance with all applicable legal requirements.
(d) Each of the Seller Pension Plans and each of the Seller Benefit
Plans has been administered in compliance with its terms in all material
respects and is in compliance in all material respects with the applicable
provisions of ERISA (including, but not limited to, the funding and
prohibited transactions provisions thereof), the Code and other applicable
laws.
(e) There has been no reportable event within the meaning of Section
4043(b) of ERISA or any waived funding deficiency within the meaning of
Section 412(d)(3) (or any predecessor section) of the Code with respect to
any the Seller Pension Plan.
(f) The Seller and the Seller Bank have made or provided for all
contributions to the Seller Pension Plans required thereunder.
(g) Neither the Seller nor the Seller Bank contributes or has
contributed to any "Multiemployer Plan," as such term is defined in Section
3(37) of ERISA.
(h) Each of the Seller Pension Plans which is intended to be a
qualified plan within the meaning of Section 401(a) of the Code is so
qualified, and the Seller is not aware of any fact or circumstance which
would adversely affect the qualified status of any such plan.
(i) Except as set forth in Section 4.11(i) of the Seller Disclosure
Schedule, neither the Seller nor the Seller Bank is party to or maintains
any contract or other arrangement with any employee or group of employees,
providing severance payments, stock or stock-equivalent payments or
post-employment
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benefits of any kind or providing that any otherwise disclosed plan,
program or arrangement will irrevocably continue, with respect to any or
all of its participants, for any period of time.
4.12 Agreements with Banking Authorities. Section 4.12 of the Seller
Disclosure Schedule lists all prior written agreements, memoranda of
understanding or orders to cease and desist between the Seller and the Seller
Bank with any federal or state governmental entity charged with the supervision
or regulation of banks or bank holding companies. All agreements listed in
Section 4.12 of the Seller Disclosure Schedule have been terminated. Neither the
Seller nor the Seller Bank is currently a party to any commitment, letter (other
than letters addressed to regulated depository institutions generally), written
agreement, memorandum of understanding or order to cease and desist with any
federal or state governmental entity charged with the supervision or regulation
of banks or bank holding companies or engaged in the insurance of bank deposits
which restricts materially the conduct of its business, or in any manner relates
to its capital adequacy, credit policies, management or overall safety and
soundness or such entity's ability to perform its obligations hereunder, and
neither the Seller nor the Seller Bank has received written notification from
any such federal or state governmental entity that any such Person may be
requested to enter into, or otherwise be subject to, any such commitment,
letter, written agreement, memorandum of understanding or cease and desist
order.
4.13 Material Agreements. Section 4.13 of the Seller Disclosure Schedule
lists the following contracts and other agreements to which the Seller or the
Seller Bank is currently a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $100,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
of supplies, products or other personal property, or for the furnishing or
receipt of services that involves consideration in excess of $100,000 per
annum;
(iii) any agreement constituting a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which the
Seller has created, incurred, assumed or guaranteed any indebtedness for
borrowed money in excess of $100,000 or under which it has imposed a
security interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with the Seller or any of its affiliates (other
than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other plan or arrangement
for the benefit of its current or former directors, officers and employees;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis providing annual
compensation in excess of $100,000 or providing severance benefits;
(ix) any agreement under which it has advanced or loaned any amount to
any of its directors, officers and employees outside the ordinary course of
business;
(x) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on the Seller; or
(xi) any other agreement (or group of related agreements), the
performance of which involves consideration in excess of $100,000.
The Seller has made available to the Buyer a correct and complete copy of
each written agreement listed in Section 4.13 of the Seller Disclosure Schedule
and a written summary setting forth the terms and conditions of each oral
agreement, if any, referred to in Section 4.13 of the Seller Disclosure
Schedule. Each such written agreement constitutes the legal, valid and binding
obligation of the parties thereto, enforceable against such obligor in
accordance with the terms thereof (except as enforcement may be limited by
general principles of equity whether applied in a court of law or equity and by
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally). Neither the Seller nor the Seller Bank is in default under,
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or with the giving of notice or the lapse of time, or both, would be in default
under, any of the terms or conditions of any contract, agreement or commitment
to which the Seller or the Seller Bank is a party (including but not limited to
the matters listed in paragraph (a) above.) To the knowledge of any of the
Seller's officers and directors, or those of the Seller Bank, there have
occurred no default or event which, with the giving of notice or the lapse of
time, or both, would constitute a default by any other party to any such
contract, agreement or commitment.
4.14 Ownership of Property. Section 4.14 of the Seller Disclosure
Schedule sets forth a true and complete list of all real property owned, leased
or operated by the Seller or the Seller Bank (including all of the branches of
the Seller Bank and all of the Seller's properties acquired by foreclosure
proceedings in the ordinary course of business) as of the date hereof. The
Seller directly or indirectly through the Seller Bank has good and marketable
title to all assets and properties, whether real or personal, tangible or
intangible, including, without limitation, the capital stock of the Seller Bank
and all other assets and properties reflected in its consolidated balance sheet
as of March 31, 1997, or acquired subsequent thereto subject to no encumbrances,
liens, mortgages, security interests or pledges, except (a) those items that
secure liabilities that are reflected in said balance sheet or the notes thereto
or incurred in the ordinary course of business after the date of such balance
sheet and not otherwise prohibited by the terms hereof, (b) dispositions for
adequate consideration in the ordinary course of business or as expressly
permitted by the terms hereof, (c) statutory liens for amounts not yet
delinquent or which are being contested in good faith, (d) those items that
secure public or statutory obligations or any discount with, borrowing from, or
other obligations to, any Federal Reserve Bank or Federal Home Loan Bank,
inter-bank credit facilities, or any transaction by a subsidiary acting in a
fiduciary capacity, and (e) such encumbrances, liens, mortgages, security
interests, and pledges that are not material in character, amount or extent.
Neither the Seller nor the Seller Bank has received any notice of violation of
any applicable zoning or environmental regulation, ordinance or other law,
order, regulation, or requirement relating to its properties. The Seller and the
Seller Bank as lessees have the right under valid and existing leases to occupy,
use, possess and control all property leased by the Seller and its subsidiaries
as presently occupied, used, possessed and controlled by the Seller and the
Seller Bank. Neither the Seller nor the Seller Bank is in default, and there has
not occurred any event that with the lapse of time or giving of notice or both
would constitute a default, under any leases pursuant to which the Seller or the
Seller Bank leases any real property. All such leases constitute legal, valid
and binding obligations of the Seller or the Seller Bank and, to the knowledge
of the Seller, the other party thereto, enforceable by the Seller or the Seller
Bank in accordance with their respective terms, except that enforcement thereof
may be limited by the receivership, conservatorship and supervisory powers of
bank regulatory agencies generally as well as bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement of
creditors' rights generally and except that enforcement thereof may be subject
to general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law) and the availability of equitable remedies.
Section 4.14 of the Seller Disclosure Schedule sets forth the expiration date
and renewal terms of each such lease. Neither the Seller nor the Seller Bank has
received notice of, or made a claim with respect to, any breach or default under
any leases pursuant to which the Seller or the Seller Bank lease any real
property.
4.15 Reports. Since January 1, 1994, the Seller and the Seller Bank have
filed, and subsequent to the date hereof will file, all reports, together with
any amendments required to be made with respect thereto, that were and are
required to be filed with (a) the Federal Reserve Board, (b) the OCC, and (c)
any applicable state securities or banking authorities (all such reports and
statements are collectively referred to herein as the "Seller Reports"). As of
their respective dates, the Seller Reports complied and, with respect to filings
made after the date of this Agreement, will at the date of filing comply, in all
material respects with all of the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed and did not
contain and, with respect to filings made after the date of this Agreement, will
not at the date of filing contain, any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.16 Compliance with Applicable Law. Each of the Seller and the Seller
Bank holds all licenses, franchises, permits and authorizations necessary for
the lawful conduct of its business, and each of the Seller
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and the Seller Bank has complied with and is not in default in any respect under
any, applicable law, statute, order, rule, regulation or policy of, or agreement
with, any federal, state or local governmental agency or authority relating to
the Seller or the Seller Bank, and neither the Seller nor the Seller Bank has
received any notice of any violation of, or commencement of any proceeding in
connection with any such violation (including but not limited to any hearing or
investigation relating to the imposition or contemplated imposition of fines or
penalties), and does not know of any violation of, any such law, statute, order,
rule, regulation, policy or agreement which would have such a result.
4.17 Environmental Matters. Except as disclosed in Section 4.17 of the
Seller Disclosure Schedule, the Seller and the Seller Bank are in material
compliance and have always been in material compliance with all environmental
laws, rules, regulations and standards promulgated, adopted or enforced by the
United States Environmental Protection Agency (the "EPA") and of similar
agencies in states in which they conduct their respective business. Except as
disclosed in Section 4.17 of the Disclosure Schedule, there is no suit, claim,
action or proceeding now pending before any court, governmental agency or board
or other forum, or, to the knowledge of the Seller, threatened by any person, as
to which there is a reasonable probability of an adverse determination (i) for
alleged noncompliance with any environmental law, rule or regulation or (ii)
relating to the discharge or release into the environment of any hazardous
material or waste at or on a site presently or formerly owned, leased or
operated by the Seller or the Seller Bank or in which the Seller or the Seller
Bank has a lien or other security interest.
4.18 Chapters 110D and 110F Not Applicable. The provisions of Chapters
110D and 110F of the Massachusetts General Laws will not, prior to the
termination of this Agreement, assuming the accuracy of the representations
contained in Section 3.12 hereof (without giving effect to the knowledge
qualification thereof), apply to this Agreement or any of the transactions
contemplated hereby.
4.19 Ownership of Buyer Common Stock. Except as set forth in Section 4.19
of the Seller Disclosure Schedule, as of the date hereof, neither the Seller
nor, to its best knowledge, any of its affiliates or associates (as such terms
are defined under the Exchange Act), (a) beneficially own, directly or
indirectly, or (b) are parties to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case,
shares of capital stock of the Buyer, which in the aggregate represent five
percent (5%) or more of the outstanding shares of capital stock of the Buyer
entitled to vote generally in the election of directors (other than Trust
Account Shares).
4.20 Insurance. The Seller and the Seller Bank is presently insured, and
since January 1, 1992 has been insured, for reasonable amounts against such
risks as companies engaged in a similar business in a similar location would, in
accordance with good business practice, customarily be insured. The Seller has
made available to the Buyer copies of policies relating to insurance maintained
by the Seller or the Seller Bank with respect to their properties and the
conduct of their respective businesses.
4.21 Labor. No work stoppage involving the Seller or the Seller Bank is
pending or, to the best knowledge of the Seller's management, threatened.
Neither the Seller nor the Seller Bank is involved in, or, to the best knowledge
of the Seller's management, threatened with or affected by, any dispute,
arbitration, lawsuit or administrative proceeding relating to labor or
employment matters. No employees of the Seller or the Seller Bank are
represented by any labor union, and, to the best knowledge of the Seller's
management, no labor union is attempting to organize employees of the Seller or
the Seller Bank.
4.22 Material Interests of Certain Persons. Except as disclosed in
Section 4.22 of the Seller Disclosure Schedule, no officer or director of the
Seller, or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any material interest in any
material contract or property (real or personal), tangible or intangible, used
in or pertaining to the business of the Seller or the Seller Bank.
4.23 Absence of Registration Obligations. Neither the Seller nor the
Seller Bank is under any obligation, contingent or otherwise, by reason of any
agreement to register any of its securities under the Securities Act which will
survive the Merger.
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4.24 Loans. All currently outstanding loans of, or current extensions of
credit by, the Seller or the Seller Bank (individually, a "Loan," and
collectively, the "Loans") were solicited, originated and currently exist in
material compliance with all applicable requirements of federal and state law
and regulations promulgated thereunder and applicable loan policies of the
Person extending the same, except for such changes to the circumstances of the
obligor thereunder or the collateral occurring subsequent to the origination
thereof and over which the Seller or the Seller Bank had no control. The Loans
are adequately documented and each note evidencing a Loan or loan or credit
agreement or security instrument related to the Loans constitutes a valid, legal
and binding obligation of the obligor thereunder, enforceable in accordance with
the terms thereof except when the failure thereof, individually or in the
aggregate, would not have a Material Adverse Effect with respect to the Seller
or the Seller Bank. There are no oral modifications or amendments or additional
agreements related to the Loans that are not reflected in the records of the
Seller or the Seller Bank, and no claims of defense as to the enforcement of any
Loan has been asserted and the Seller is aware of no acts or omissions which
would give rise to any claim or right of rescission, set-off, counterclaim or
defense except where such would not have a Material Adverse Effect with respect
to the Seller or the Seller Bank. The Seller and the Seller Bank currently
maintain, and shall continue to maintain, an allowance for loan losses allocable
to the Loans which is adequate to provide for all known and estimable losses,
net of any recoveries relating to such extensions of credit previously charged
off, on the Loans, such allowance for loan losses complying in all material
respects with all applicable loan loss reserve requirements established in
accordance with GAAP and by any governmental authorities having jurisdiction
with respect to the Seller or the Seller Bank. Except as set forth in Section
4.24 of the Seller Disclosure Schedule, none of the Loans are presently serviced
by third parties and there is no obligation which could result in any Loan
becoming subject to any third party servicing.
4.25 Capitalization. As of the date hereof, without giving effect to the
transactions contemplated hereby, the Seller Bank will (a) remain "well
capitalized", as defined in the FDIA, and (b) meet all capital requirements,
standards and ratios required by each state or federal bank regulator with
jurisdiction over such Persons, including without limitation, any such higher
requirement, standard or ratio as shall apply to institutions engaging in the
acquisition of insured institution deposits, assets or branches, and no such
regulator has indicated that it will condition any of the regulatory approvals
upon an increase in such Persons' capital or compliance with any special capital
requirement, standard or ratio.
4.26 CRA Rating. The Seller Bank was rated "Satisfactory" following its
most recent Community Reinvestment Act examination by the OCC. Neither the
Seller nor the Seller Bank has received any notice of and none of such Persons
has any knowledge of any planned or threatened objection by any community group
to the transactions contemplated hereby.
4.27 Seller Information. The information relating to the Seller and the
Seller Bank to be contained in the Seller Proxy Statement as described in
Section 5.04 hereof, and any other documents filed with the SEC or any
regulatory agency in connection herewith, to the extent such information is
provided in writing by the Seller, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make such
information not misleading.
4.28 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in any certificate, list or other writing,
including but not necessarily limited to the Seller Disclosure Schedule,
furnished to the Buyer pursuant to the provisions hereof, to the best knowledge
of the Seller, contains or will contain any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
herein or therein not misleading.
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ARTICLE V
COVENANTS OF THE PARTIES
5.01 Conduct of the Business of the Seller. During the period from the
date of this Agreement to the Effective Time, the Seller:
(a) shall, and shall cause the Seller Bank to, conduct its business
and engage in transactions only in the ordinary and usual course of
business consistent with past practices, which shall mean (i) conducting
its banking and other business in the ordinary and usual course, (ii)
refraining from any of the activities described in Section 5.01(b) below,
(iii) not entering into any material transactions except in the ordinary
and usual course of business consistent with past practices and (iv)
complying with the following covenants:
(A) maintaining its corporate existence and good standing;
(B) using all commercially reasonable efforts to maintain and keep
its properties in as good repair and condition in all material respects
as they presently exist, except for ordinary wear and tear and damage
due to casualty;
(C) using all commercially reasonable efforts to maintain in full
force and effect insurance generally comparable in amount and in scope
of coverage to that now maintained by it;
(D) complying with and performing in all material respects its
obligations and duties (y) under contracts, leases and documents
relating to or affecting its assets, properties and business and (z)
imposed upon it by all federal, state and local laws and all rules,
regulations and orders imposed by federal, state or local governmental
authorities, judicial orders, judgments, decrees and similar
determinations; and
(E) using all commercially reasonable efforts to preserve its
business organization intact and the goodwill of those having business
relationships with the Seller or the Seller Bank, to keep available the
services of its officers and employees as a group and to maintain
satisfactory relationships with borrowers, depositors, other customers
and others having business relationships with it;
(b) shall not and shall not permit any of its subsidiaries to, without
the prior written consent of the Buyer:
(i) engage or participate in any material transaction or incur or
sustain any material obligation or liability except in the ordinary,
regular and usual course of its businesses consistent with past
practices;
(ii) offer an interest rate with respect to any deposit that would
constitute such deposit a "brokered deposit" under 12 C.F.R.
sec.337.6(a)(l)(ii);
(iii) except in the ordinary, regular and usual course of business
consistent with past practices and in an immaterial aggregate amount,
sell, lease, transfer, assign, encumber or otherwise dispose of or enter
into any contract, agreement or understanding to lease, transfer,
assign, encumber or dispose of any of its assets;
(iv) file any application to open, close or relocate any branch
office;
(v) open, close, relocate, or give any notice (written or verbal)
to customers or governmental authorities or agencies to open, close or
relocate the operations of any branch office; or
(vi) waive any material right, whether in equity or at law, that it
has with respect to any asset except in the ordinary, regular and usual
course of business consistent with past practice;
(c) shall, at the Buyer's request and expense, use all commercially
reasonable efforts to cooperate with the Buyer with respect to preparation
for the combination and integration of the businesses, systems
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and operations of the Buyer and the Seller, and shall confer on a regular
and frequent basis with one or more representatives of the Buyer to report
on operational and related matters;
(d) shall, subject to any restrictions under applicable law or
regulation, promptly notify the Buyer of any emergency or other change in
the normal course of its or the Seller Bank's businesses or in the
operation of its or the Seller Bank's properties and of any governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated) if such emergency, change, complaint,
investigation or hearing would be material to the business, results of
operations, financial condition or prospects of either the Seller on a
consolidated basis or the Seller Bank considered independently;
(e) shall not declare or pay any dividends on or make any other
distributions in respect of Seller Common Stock or Seller Preferred Stock,
except for (1) quarterly cash dividends not exceeding $.15 per share per
quarter; provided, however, that after the date of this Agreement, the
Seller shall coordinate with the Buyer the declaration of any quarterly
dividends in respect of Seller Common Stock and, if necessary, change the
record dates and the payment dates relating thereto, it being the intention
of the parties hereto that the holders of Seller Common Stock shall not
receive two dividends or fail to receive one dividend, for any single
calendar quarter with respect to their shares of Seller Common Stock and
any share of Buyer Common Stock any such holder received in exchange
therefor in the Merger and (2) a special one-time cash dividend declared
and payable prior to the Effective Time in an amount equal to the per share
number determined by multiplying .30 by a fraction, the numerator of which
is the number of calendar days from January 1, 1997 to the payment date of
the special dividend referred to herein and the denominator of which is
365;
(f) shall not adopt or amend (other than amendments required by
applicable law or amendments that reduce amounts payable by it or the
Seller Bank) in any material respect any Seller Pension Plan, any Seller
Benefit Plan or any Seller Other Plan or enter (or permit any of its
subsidiaries to enter) into any employment, severance or similar contract
with any person (including, without limitation, contracts with management
which might require that payments be made upon the consummation of the
transactions contemplated hereby) or amend any such existing agreements,
plans or contracts to increase any amounts payable thereunder or benefits
provided thereunder, or grant or permit any increase in compensation to its
or the Seller Bank's employees as a class or pay any bonus;
(g) shall not, with respect to itself or any of its subsidiaries,
authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into an agreement with respect to, any
merger, consolidation, purchase and assumption transaction or business
combination (other than the Merger or the Bank Merger), any acquisition of
a material amount of assets or securities or assumption of liabilities
(including deposit liabilities), any disposition of a material amount of
assets or securities, or any release or relinquishment of any material
contract rights not in the ordinary course of business and consistent with
past practices;
(h) shall not propose or adopt amendments to its or any of its
subsidiaries articles of organization or By-Laws;
(i) shall not issue, deliver or sell any shares (whether original
issuance or from treasury shares) of its capital stock or securities
convertible into or exercisable for shares of its capital stock (or permit
any of its subsidiaries to issue, deliver or sell any shares of such
subsidiaries' capital stock or securities convertible into or exercisable
for shares of such subsidiaries' capital stock), except upon exercise of
the Seller Option, as applicable, or effect any stock split, reverse stock
split, recapitalization, reclassification or similar transaction or
otherwise change its equity capitalization as it existed on March 31, 1997;
(j) shall not grant, confer or award any options, warrants, conversion
rights or other rights to acquire any shares of its capital stock;
(k) shall not purchase, redeem or otherwise acquire, or permit the
Seller Bank to purchase, redeem or otherwise acquire, any shares of its
capital stock or any securities convertible into or exercisable for any
shares of its capital stock, except in a fiduciary capacity;
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(l) shall not impose, or suffer the imposition, on any share of
capital stock held by it or the Seller Bank of any material lien, charge,
or encumbrance, or permit any such lien, charge, or encumbrance to exist;
(m) shall not incur, or permit any of its subsidiaries to incur, any
additional debt obligation or other obligation for borrowed money, or to
guaranty any additional debt obligation or other obligation for borrowed
money, except in the ordinary course of business consistent with past
practices, which shall include but not necessarily be limited to creation
of deposit liabilities, purchases of federal funds, sales of certificates
of deposit and entry into repurchase agreements or other similar
arrangements commonly employed by banks;
(n) shall not incur or commit to any capital expenditures or any
obligations or liabilities in connection therewith, other than capital
expenditures and such related obligations or liabilities incurred or
committed to in the ordinary and usual course of business consistent with
past practices, and, in all cases, the Seller agrees to consult with the
Buyer with respect to capital expenditures that individually exceed $75,000
or cumulatively exceed $300,000;
(o) shall not change its methods of accounting in effect at December
31, 1996, except as may be required by changes in GAAP as concurred in by
the Seller's independent auditors, and the Seller shall not change its
fiscal year;
(p) shall file all reports, applications and other documents required
to be filed by it with the SEC or any other governmental entity between the
date of this Agreement and the Effective Time and shall make available to
the Buyer copies of all such reports promptly after the same are filed;
(q) shall use its commercially reasonable efforts to improve its
business, results of operations, financial condition and prospects;
(r) shall not take any action which would prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368 of
the Code;
(s) shall not, except as expressly contemplated hereby, enter into any
contract with any Affiliate;
(t) shall not, except for transactions in the ordinary course of
business consistent with past practice, enter into or terminate any
material contract or agreement, or make any changes in any of its material
leases or contracts, other than renewals of contracts and, subject to the
provisions of Section 5.18 hereof, leases without material adverse change
of terms;
(u) shall not, other than in prior consultation with the other party
to this Agreement, restructure or materially change its investment
securities portfolio or its gap position through purchases, sales or
otherwise, or the manner in which the portfolio is classified or reported;
(v) shall not agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any of its representations
or warranties contained herein untrue or incorrect in any material respect.
5.02 Access to Properties and Records; Confidentiality.
(a) The Seller shall permit the Buyer reasonable access to its
properties and those of the Seller Bank, and shall disclose and make
available to the Buyer all Records, including all books, papers and records
relating to the assets, stock ownership, properties, operations,
obligations and liabilities of the Seller and the Seller Bank, including,
but not limited to, all books of account (including the general ledger),
tax records, minute books of directors and stockholders meetings,
organizational documents, By-Laws, material contracts and agreements,
filings with any regulatory authority, accountants' work papers, litigation
files, plans affecting employees, and any other business activities or
prospects in which the Buyer may reasonably have an interest in light of
the transactions contemplated hereby. The Seller shall make arrangements
with each third party provider of services to the Seller to permit the
Buyer reasonable access to all of the Seller's Records held by each such
third party. The Buyer shall permit the Seller reasonable access to such
properties and records of the Buyer and/or its subsidiaries in which the
Seller
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may reasonably have an interest in light of the transactions contemplated
hereby. Neither the Buyer nor the Seller nor any of their respective
subsidiaries shall be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of any customer, would jeopardize the attorney-client privilege of
the institution in possession or control of such information, or would
contravene any law, rule, regulation, order, judgment, decree or binding
agreement. The parties will use all reasonable efforts to make appropriate
substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) All Confidential Information furnished by each party hereto to the
other, or to any of its affiliates, directors, officers, employees,
representatives or agents (such persons being collectively referred to
herein as "Representatives"), shall be treated as the sole property of the
party furnishing the information until consummation of the transactions
contemplated hereby, and, if such transactions shall not occur, the party
receiving the information, or any of its affiliates or Representatives, as
the case may be, shall return to the party which furnished such information
all documents or other materials containing, reflecting or referring to
such information, shall keep confidential all such information for the
period hereinafter referred to, and shall not directly or indirectly at any
time use such information for any competitive or other commercial purpose;
provided, however, that the Buyer and its affiliates shall be permitted to
retain and share with their regulators, examiners and auditors (who need to
know such information and are informed of the confidential nature thereof
and directed to treat such information confidentially) such materials,
files and information relating to or constituting the Buyer's or any of its
affiliate's or Representatives' work product, presentations or evaluation
materials as the Buyer deems reasonably necessary or advisable in
connection with auditing or examination purposes. The obligation to keep
such information confidential shall continue for two (2) years from the
date this Agreement is terminated. In the event that either party or its
affiliates or Representatives are requested or required in the context of a
litigation, governmental, judicial or regulatory investigation or other
similar proceeding (by oral questions, interrogatories, requests for
information or documents, subpoenas, civil investigative demands or similar
process) to disclose any Confidential Information, the party or its
affiliate or its Representative so requested or required will directly or
through the party of such affiliate or Representative, if practicable and
legally permitted, prior to providing such information, and as promptly as
practicable after receiving such request, provide the other party with
notice of each such request or requirement so that the other party may seek
an appropriate protective order or other remedy or, if appropriate, waive
compliance with the provisions of this Agreement. If, in the absence of a
protective order or the receipt of a waiver hereunder, the party or
affiliate or Representative so requested or required is, in the written
opinion of its counsel, legally required to disclose Confidential
Information to any tribunal, governmental or regulatory authority, or
similar body, the party or affiliate or Representative so required may
disclose that portion of the Confidential Information which it is advised
in writing by such counsel it is legally required to so disclose to such
tribunal or authority or similar body without liability to the other party
hereto for such disclosure. The parties and their affiliates and
Representatives will exercise reasonable efforts to obtain assurance that
confidential treatment will be accorded the information so disclosed.
As used in this Section 5.02(b), "Confidential Information" means all data,
reports, interpretations, forecasts and records (whether in written form,
electronically stored or otherwise) containing or otherwise reflecting
information concerning the disclosing party or its affiliates which is not
available to the general public and which the disclosing party or any affiliate
or any of their respective Representatives provides or has previously provided
to the receiving party or to the receiving party's affiliates or Representatives
at any time in connection with the transactions contemplated by this Agreement,
including but not limited to any information obtained by meeting with
Representatives of the disclosing party or its affiliates, together with
summaries, analyses, extracts, compilations, studies, personal notes or other
documents or records, whether prepared by the receiving party or others, which
contain or otherwise reflect such information. Notwithstanding the foregoing,
the following information will not constitute "Confidential Information": (i)
information that is or becomes generally available to the public other than as a
result of a disclosure by the receiving party or any affiliate or Representative
of the receiving party, (ii) information that was previously known to the
receiving party or its affiliates or Representatives on a nonconfidential basis
prior to its disclosure by the
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disclosing party, its affiliates or Representatives, (iii) information that
became or becomes available to the receiving party or any affiliate or
Representative thereof on a nonconfidential basis from a source other than the
disclosing party or any affiliate or Representatives of the disclosing party,
provided that such source is not known by the disclosing party or its affiliates
or Representatives to be subject to any confidentiality agreement or other legal
restriction on disclosing such information and (iv) information that has been
independently acquired or developed by the receiving party or its affiliates or
Representatives without violating the obligations of this Section 5.02(b).
5.03 No Solicitation. Unless and until this Agreement shall have been
properly terminated by either party pursuant to Section 8.01 hereof, neither the
Seller nor any of its subsidiaries shall (and the Seller and the Seller Bank
shall use all commercially reasonable efforts to cause its Representatives,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, initiate or participate in
any discussions or negotiations with, or, subject to the fiduciary obligations
of the Seller's Board of Directors (as advised in writing by outside counsel),
provide any information to, any corporation, partnership, person or other entity
or group (other than the Buyer and its affiliates or Representatives) concerning
any merger, tender offer, sale of substantial assets, sale of shares of capital
stock or debt securities or similar transaction involving the Seller or the
Seller Bank (an "Acquisition Transaction"). The Seller will immediately
communicate to the Buyer the terms of any proposal, discussion, negotiation or
inquiry relating to an Acquisition Transaction and the identity of the party
making such proposal or inquiry which it may receive in respect of any such
transaction (which shall mean that any such communication shall be delivered no
less promptly than by telephone within 24 hours of the Seller's receipt of any
such proposal or inquiry) or its receipt of any request for information from the
Federal Reserve Board, the DOJ, or any other governmental agency or authority
with respect to a proposed Acquisition Transaction.
5.04 Regulatory Matters; Consents.
(a) The Seller shall promptly assist in the preparation of the Seller
Proxy Statement and seek clearance of such Seller Proxy Statement by the
OCC, if required, and the Buyer shall promptly prepare and file with the
SEC a registration statement on Form S-4 (the "S-4") in which the Seller
Proxy Statement will be included as a prospectus. The Buyer shall use all
reasonable efforts to have the S-4 declared effective under the Securities
Act as promptly as practicable after such filing, and the Seller shall
thereafter mail the Seller Proxy Statement to the Seller's stockholders.
The Buyer shall also use all reasonable efforts to obtain all necessary
state securities law or "Blue Sky" permits and approvals required to carry
out the transactions contemplated by this Agreement, and the Seller shall
furnish all information concerning the Seller and the holders of the Seller
Common Stock as may be reasonably requested in connection with any such
action.
(b) The Seller and the Buyer shall have the right to review in
advance, and to the extent practicable each will consult the other on, in
each case subject to applicable laws relating to the exchange of
information, all the information relating to the Seller or the Buyer, as
the case may be, and any of their respective subsidiaries, which appear in
any filing made with, or written materials submitted to, any third party or
any government regulatory body, department, agency or authority in
connection with the transactions contemplated by this Agreement or the Bank
Merger Agreement. In exercising the foregoing right, each of the parties
hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all
third parties and government regulatory bodies, departments, agencies or
authorities necessary or advisable to consummate the transactions
contemplated by this Agreement or the Bank Merger Agreement, and each party
will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein and therein.
(c) The Buyer and the Seller shall, upon request, furnish each other
with all information concerning themselves, their subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Seller Proxy Statement, the
S-4 or any other statement, filing, notice or application made by or on
behalf of the Buyer, the Seller or any of their respective subsidiaries to
any governmental regulatory body, department, agency or authority in
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connection with the Merger, the Bank Merger and the other transactions
contemplated by this Agreement or the Bank Merger Agreement.
(d) The Seller and the Buyer shall promptly advise each other upon
receiving any communication from any government regulatory body,
department, agency or authority whose consent or approval is required for
consummation of the transactions contemplated by this Agreement or the Bank
Merger Agreement which causes such party to believe that there is a
reasonable likelihood that such requisite approval will not be obtained or
that the receipt of such approval will be materially delayed.
(e) Each of the Seller and the Buyer will cooperate with the other and
use all reasonable efforts to prepare all necessary documentation, to
obtain all necessary permits, consents, approvals and authorizations of all
third parties and governmental bodies necessary to consummate the
transactions contemplated by this Agreement and the Bank Merger Agreement.
5.05 Approval of Stockholders. The Seller will (a) as promptly as
practicable, take all steps necessary to duly call, give notice of, convene and
hold a meeting of its stockholders for the purpose of approving this Agreement
and the Merger, and for such other purposes as may be necessary or desirable,
(b) subject to the fiduciary responsibility of the Board of Directors of the
Seller as advised by counsel in writing, recommend to its stockholders the
approval of the aforementioned matters to be submitted by it to its
stockholders, and (c) cooperate and consult with the Buyer with respect to each
of the matters set forth in (a) above.
5.06 Agreements of the Seller's Affiliates. The Seller shall identify in
a letter to the Buyer, after consultation with counsel, all persons who, at the
time of the meeting of its stockholders referred to in Section 5.05 hereof, it
believes may be deemed to be "affiliates" of the Seller, as that term is defined
for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Seller Affiliates"). The Seller shall use all reasonable efforts to cause each
person who is identified as a Seller Affiliate in the letter referred to above
to deliver to the Buyer at least thirty (30) days prior to the Effective Time an
executed copy of the Seller Affiliates Agreement. Prior to the Effective Time,
the Seller shall use all reasonable efforts to cause each additional person who
is identified as a Seller Affiliate to execute a copy of the Seller Affiliates
Agreement.
5.07 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to, as
promptly as practicable, take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, the Bank Merger Agreement or to vest the Buyer
with full title to all properties, assets, rights, approvals, immunities and
franchises of the Seller. In case at any time after the Effective Time any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement, the Bank Merger Agreement or to vest the Buyer with full title
to all properties, assets, rights, approvals, immunities and franchises of the
Seller, the proper officers and directors of each party to this Agreement shall
take all such necessary action.
5.08 Public Announcements. From the date of this Agreement to the Closing
Date, neither of the parties hereto shall make or send a Public Announcement
unless the other party shall have first been afforded reasonable opportunity to
review and comment on the text of such Public Announcement prior to the delivery
of the same; provided, however, that nothing in this Section shall prohibit any
party hereto from making any Public Announcement which its legal counsel deems
necessary under law, if it makes a good faith effort to obtain the other party's
comment to the text of the Public Announcement before making it public.
5.09 The Buyer Sub. The Buyer has caused the Buyer Sub to be organized
under the laws of The Commonwealth of Massachusetts. The authorized capital
stock of the Buyer Sub consists or will consist of one hundred (100) shares of
common stock, $0.01 par value per share, all of which shares are directly owned
by the Buyer. The Buyer will directly or indirectly cause all outstanding shares
of capital stock of the Buyer Sub to be voted in favor of this Agreement and the
Merger and not to be voted to modify or rescind, or otherwise permit the
modification or rescission of, such vote prior to a termination of this
Agreement in accordance with Section 8.01 hereof.
5.10 Tax-Free Reorganization Treatment. Neither the Buyer nor the Seller
shall intentionally take or cause to be taken any action, whether before or
after the Effective Time, which would disqualify the Merger or
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the Bank Merger as a "reorganization" within the meaning of Section 368(a) of
the Code; provided, however, that nothing herein shall limit the ability of the
Buyer to exercise its rights under the Seller Option Agreement.
5.11 Stock Exchange Listing. The Buyer shall use all reasonable efforts
to cause the shares of the Buyer Common Stock to be issued in connection with
the Merger to be approved for listing on the NYSE, subject to official notice of
issuance, as of or prior to the Effective Time.
5.12 Employment and Benefit Matters.
Offer of Employment; Service Credit. The Buyer will continue to offer
employment to all employees of the Seller and the Seller Bank until at least May
31, 1998. In the event that after May 31, 1998, the position of any qualified
employee of the Seller or Seller Bank is eliminated by the Buyer, the Buyer will
offer such employee a comparable position with the Buyer or an affiliate of the
Buyer at another location of the Buyer or an affiliate of the Buyer.
Notwithstanding the foregoing, the Buyer shall retain the right to terminate any
employee of the Seller or the Seller Bank for cause. In the event that any
employee of the Seller or the Seller Bank is transferred to the Buyer or any
affiliate of the Buyer or becomes a participant in an employee benefit plan,
program or arrangement maintained by or contributed to by the Buyer or its
affiliates (any such employee, a "Transferred Employee"), the Buyer shall cause
such plan, program or arrangement to treat the prior service of such Transferred
Employee with the Seller or the Seller Bank, to the extent such prior service is
recognized under the comparable plan, program or arrangement of the Seller, as
service rendered to the Buyer or its affiliate, as the case may be, for purposes
of eligibility to participate, vesting and eligibility for special benefits
under such plan, program or arrangement of the Buyer, but not for benefit
accrual generally where such accrual would duplicate benefits receivable under a
Seller Pension Plan, Seller Benefit Plan or Seller Other Plan. The Buyer agrees
to provide the Transferred Employees with the types of employee benefits
maintained by the Buyer immediately prior to the Effective Time and with levels
of employee benefits in the aggregate no less favorable than those maintained by
the Buyer for the Buyer's own employees.
5.13 Accountants' Letters. The Seller shall use all reasonable efforts to
cause to be delivered to the Buyer letters from its independent public
accountants, dated the date on which the S-4 (or last amendment thereto) shall
become effective and dated the date of the Closing, relating to the financial
condition of the Seller and the transactions contemplated by this Agreement, and
addressed to the Buyer, in form and substance which is reasonably satisfactory
to the Buyer and customary in transactions of the nature contemplated hereby.
5.14. Maintenance of Records. Through the Effective Time, the Seller will
maintain the Records in the same manner and with the same care that the Records
have been maintained prior to the execution of this Agreement. The Buyer may, at
its own expense, make such copies of and excerpts from the Records as it may
deem desirable. All Records, whether held by the Buyer or the Seller, shall be
maintained for such periods as are required by law, unless the parties shall,
applicable law permitting, agree in writing to a different period. From and
after the Effective Time, the Buyer shall be solely responsible for continuing
maintenance of such Records.
5.15 Leases. The Seller shall consult with the Buyer before renewing or
extending any material lease of the Seller or the Seller Bank of real property
or lease relating to furniture, fixtures or equipment that is currently in
effect but that would otherwise expire on or prior to the Effective Time. The
Seller shall not cancel, terminate or take other action that is likely to result
in any cancellation or termination of any such lease without prior written
notice to the Buyer.
5.16 Advice of Changes. The Buyer and the Seller 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. From time to time prior to the Effective Time, each party will promptly
supplement or amend the Disclosure Schedules delivered in connection with the
execution of this Agreement to reflect any matter which, if existing, occurring
or known at the date of this Agreement, would have been required to be set forth
or described in such Disclosure Schedules or which is necessary to correct any
information in such Disclosure
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Schedules which has been rendered inaccurate thereby. No supplement or amendment
to such Disclosure Schedules shall have any effect for the purpose of
determining satisfaction of the conditions set forth in Sections 6.02(a) or
6.03(a) hereof, as the case may be, or the compliance by the Seller, with the
covenants set forth in Sections 5.01.
5.17 Simultaneous Execution of Bank Merger Agreement. Simultaneously
herewith, the Buyer Bank and the Seller Bank are executing the Bank Merger
Agreement. The Buyer, with respect to the Buyer Bank, and the Seller, with
respect to the Seller Bank, shall each cause the Bank Merger Agreement to be
approved as the sole stockholder of the Buyer Bank and the Seller Bank,
respectively.
5.18 Directors' and Officers' Indemnification. The Buyer agrees that all
rights to indemnification existing in favor, and all limitations in the personal
liability, of any director, officer or employee of the Seller or the Seller Bank
provided for in the Seller's or the Seller Bank's articles of organization,
articles of association or by-laws as in effect as of the date hereof, with
respect to matters occurring prior to the Effective Time, shall survive the
Merger and the Bank Merger and shall continue in full force and effect for a
period of not less than six (6) years from the Closing Date; provided, however,
that all rights to indemnification in respect of any claims asserted or made
within such period shall continue until the disposition of each claim.
ARTICLE VI
CLOSING CONDITIONS
6.01 Conditions to Each Party's Obligations Under This Agreement. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions,
none of which may be waived:
(a) Stockholder's Approval. This Agreement and the transactions
contemplated hereby shall have been approved by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Seller Common
Stock or such greater number as may be required pursuant to the Articles of
Organization of the Seller in accordance with applicable law.
(b) Governmental Consents. All authorizations, consents, orders or
approvals of, or declarations or filings with, and all expirations of
waiting periods imposed by, any governmental or regulatory authority or
agency (all of the foregoing being referred to as "Consents") which are
necessary for the consummation of the Merger and the Bank Merger, if the
Buyer has determined to proceed with the Bank Merger, shall have been
filed, occurred or been obtained (all such authorizations, orders,
declarations, approvals, filings and consents and the lapse of all such
waiting periods being referred to as the "Requisite Regulatory Approvals")
and all such Requisite Regulatory Approvals shall be in full force and
effect. In addition, the Buyer shall have received all state securities or
blue sky permits and other authorizations necessary to issue Buyer Common
Stock pursuant to the Merger in accordance with all applicable state
securities or blue sky laws.
(c) S-4. The S-4 shall have become effective under the Securities Act
and shall not be subject to a stop order or a threatened stop order.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect.
6.02 Conditions to the Obligations of the Buyer Under This Agreement. The
obligations of the Buyer under this Agreement shall be further subject to the
satisfaction of or waiver by the Buyer, at or prior to the Effective Time, of
the following conditions:
(a) Absence of Material Adverse Changes. There shall not have
occurred any change in the business, assets, financial condition, results
of operations or prospects of the Seller or any of its subsidiaries which
has had, or is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on the Seller or any of its subsidiaries.
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(b) Representations and Warranties; Performance of Obligations. The
obligations of the Seller required to be performed by it at or prior to the
Closing pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects and the
representations and warranties of the Seller contained in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Effective Time as though made at and as of the
Effective Time (except as otherwise specifically contemplated by this
Agreement and except as to any representation or warranty which
specifically relates to an earlier date) and the Buyer shall have received
a certificate to that effect signed by the chairman or president and the
chief financial officer or chief accounting officer of the Seller.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of all non-governmental and
non-regulatory third parties which are necessary in connection with the
consummation of the transactions contemplated by this Agreement and are
required to be received or obtained by the Seller, shall have been obtained
by the Seller, other than permits, consents, waivers, clearances, approvals
and authorizations the failure of which to obtain would neither make it
impossible to consummate the Merger nor result in any Material Adverse
Effect with respect to the Seller.
(d) Tax Opinion. The Buyer shall have received opinions dated the
date of the Closing from its counsel, Bingham, Dana & Gould LLP, or other
counsel acceptable to the Buyer and the Seller, substantially to the effect
that, on the basis of facts and representations set forth therein, or set
forth in writing elsewhere and referred to therein, for federal income tax
purposes the Merger constitutes a reorganization as described in Section
368(a) of the Code and addressing such other substantial federal income tax
effects of the Merger and, if applicable, the Bank Merger, as the Buyer may
reasonably require and which are customary in transactions of a like
character. In rendering any such opinion, such counsel may rely, to the
extent they deem necessary or appropriate, upon opinions of other counsel
and upon representations of an officer or officers of the Seller and the
Buyer or any of their affiliates.
(e) The Seller Affiliates Agreements. The Seller shall have delivered
to the Buyer the letter pertaining to the Seller Affiliates, as
contemplated under Section 5.06 above, and each of the executed Seller
Affiliates Agreements that have been received by the Seller as of the
Effective Time.
(f) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, the Bank Merger, the Buyer or the Buyer Bank
after the Effective Time, by any federal or state governmental agency or
authority which, in connection with the granting of any Consent or
Requisite Regulatory Approval necessary to consummate the Merger, the Bank
Merger or otherwise, imposes any condition or restriction upon the Buyer,
any subsidiary of the Buyer or the Seller after the Merger or the Buyer
Bank after the Bank Merger (including, without limitation, requirements
relating to the disposition of assets or limitations on interest rates),
which would so materially adversely impact the economic or business
benefits of the transactions contemplated by this Agreement as to render
inadvisable in the reasonable judgment of the Buyer the consummation of the
Merger or the Bank Merger.
6.03 Conditions to the Obligations of the Seller Under This
Agreement. The obligations of the Seller under this Agreement shall be further
subject to the satisfaction of or waiver by the Seller, at or prior to the
Effective Time, of the following conditions:
(a) Absence of Material Adverse Changes. There shall not have
occurred any change in the business, assets, financial condition, results
of operations or prospects of the Buyer or any of its subsidiaries which
has had, or is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on the Buyer.
(b) Representations and Warranties; Performance of Obligations. The
obligations of the Buyer required to be performed by it at or prior to the
Closing pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects and the
representations and warranties of the Buyer contained in this Agreement
shall be true and correct in all material respects as of
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the date of this Agreement and as of the Effective Time as though made at
and as of the Effective Time (except as otherwise specifically contemplated
by this Agreement and except as to any representation or warranty which
specifically relates to an earlier date) and the Seller shall have received
a certificate to that effect signed by the chairman or president and the
chief financial officer or chief accounting officer of the Buyer.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of all non-governmental and
non-regulatory third parties which are necessary in connection with the
consummation of the transactions contemplated by this Agreement and the
Bank Merger Agreement and are required to be received or obtained by the
Buyer, shall have been obtained by the Buyer, other than permits, consents,
waivers, clearances, approvals and authorizations the failure of which to
obtain would neither make it impossible to consummate the Merger or the
Bank Merger nor result in a Material Adverse Effect on the Buyer (on a
consolidated basis with the Seller) after the Merger.
(d) Tax Opinion. The Seller shall have received opinions dated the
dates of the Seller Proxy Statement and the Closing from its counsel, or
other counsel acceptable to the Buyer and the Seller, substantially to the
effect that, on the basis of facts and representations set forth therein,
or set forth in writing elsewhere and referred to therein, for federal
income tax purposes the Merger constitutes a reorganization as described in
Section 368(a) of the Code and that no gain or loss will be recognized by
the stockholders of the Seller upon the receipt, pursuant to this
Agreement, of Buyer Common Stock in exchange for Seller Common Stock (it
being understood that such opinion will not extend to cash received in lieu
of fractional share interests or cash received by dissenters, if any) and
in respect of such other substantial federal income tax effects of the
Merger or the Bank Merger, if applicable, as the Seller may reasonably
require and which are customary in transactions of a like character. In
rendering any such opinion, such counsel may rely, to the extent they deem
necessary or appropriate, upon opinions of other counsel and upon
representations of an officer or officers of the Seller and the Buyer or
any of their affiliates.
(e) NYSE Listing. The shares of Buyer Common Stock issuable to the
Seller's stockholders pursuant to this Agreement shall have been authorized
for listing on the NYSE upon official notice of issuance.
ARTICLE VII
CLOSING
7.01 Time and Place. Subject to the provisions of Articles VI and VIII
hereof, the Closing of the transactions contemplated hereby shall take place at
the Boston, Massachusetts offices of Bingham, Dana & Gould LLP at 10:00 A.M.,
local time, on the first business day after the date on which all of the
conditions contained in Article VI are satisfied or waived; or at such other
place, at such other time, or on such other date as the Seller and the Buyer may
mutually agree upon for the Closing to take place.
7.02 Deliveries at the Closing. Subject to the provisions of Articles VI
and VIII hereof, at the Closing there shall be delivered to the Seller and the
Buyer, the opinions, certificates, and other documents and instruments required
to be delivered under Article VI hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of this Agreement and the
transactions contemplated hereby by the Seller's stockholders:
(a) by mutual written consent of the Seller and the Buyer authorized
by their respective Boards of Directors;
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(b) by the Seller or the Buyer if the Effective Time shall not have
occurred on or prior to April 30, 1998 (the "Termination Date") or such
later date as shall have been agreed to in writing by the Buyer and the
Seller;
(c) by the Buyer or the Seller if any governmental or regulatory
authority or agency, or court of competent jurisdiction, shall have issued
a final permanent order or Injunction enjoining, denying approval of, or
otherwise prohibiting the consummation of the Merger or the Bank Merger and
the time for appeal or petition for reconsideration of such order or
Injunction shall have expired without such appeal or petition being
granted; or
(d) by the Buyer or the Seller (provided that the terminating party is
not then in material breach of any representation, warranty or covenant or
other agreement contained herein or in the Seller Option Agreement) if the
approval of the Seller's stockholders specified in Section 5.05 shall not
have been obtained by reason of the failure to obtain the required vote at
a duly held meeting of the Seller's stockholders or at any adjournment
thereof.
(e) by the Board of Directors of the Buyer or the Board of Directors
of the Seller (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein or in the Seller Option Agreement), in the event of a
material breach by the other party of any representation, warranty,
covenant or other agreement contained herein or in the Seller Option
Agreement which breach is not cured after fifteen (15) days written notice
thereof is given to the party committing such breach; or
8.02 Effect of Termination. In the event of termination of this Agreement
by either the Seller or the Buyer as provided above, this Agreement shall
forthwith become null and void (other than Sections 5.02(b) and 9.01 hereof,
which shall remain in full force and effect) and there shall be no further
liability on the part of the Seller or the Buyer or their respective officers or
directors to the other, except (i) any liability of the Seller and the Buyer
under said Sections 5.02(b) and 9.01, (ii) that the Seller Option Agreement
shall be governed by its own terms as to termination, and (iii) in the event of
a willful breach of any representation, warranty, covenant or agreement
contained in this Agreement, in which case, the breaching party shall remain
liable for any and all damages, costs and expenses, including all reasonable
attorneys' fees, sustained or incurred by the non-breaching party as a result
thereof or in connection therewith or with the enforcement of its rights
hereunder.
8.03 Amendment, Extension and Waiver. Subject to applicable law and as
may be authorized by their respective Boards of Directors, at any time prior to
the consummation of the transactions contemplated by this Agreement or
termination of this Agreement in accordance with the provisions of Section 8.01
hereof, whether before or after approval thereof by the stockholders of the
Seller, the Buyer and the Seller may, (a) amend this Agreement, (b) extend the
time for the performance of any of the obligations or other acts of any other
party hereto, (c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions contained in Articles V and
VI (other than Section 6.01) hereof; provided, however, that after any approval
of the transactions contemplated by this Agreement by the Seller's stockholders,
there may not be, without further approval of such stockholders, any amendment,
extension or waiver of this Agreement which reduces the amount or changes the
form of the consideration to be delivered to the stockholders of the Seller
hereunder other than as contemplated by this Agreement. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party, but such waiver or failure to insist on strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
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ARTICLE IX
MISCELLANEOUS
9.01 Expenses. Except as may otherwise be agreed to hereunder or in other
writing by the parties, all legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses; provided, however, that all
such costs and expenses incurred in connection with the preparation, filing and
distribution of the S-4 and the Proxy Statement shall be borne equally by the
Buyer and the Seller.
9.02 Survival. None of the representations, warranties, covenants and
agreements of the Seller or the Buyer shall survive after the Effective Time,
except for the agreements and covenants contained or referred to in Article II,
Section 5.02(b), the last sentence of Section 5.07, and Sections 5.13 and 5.15
hereof, and the agreements of the "affiliates" of the Seller delivered pursuant
to Section 5.06, which agreements and covenants shall survive the Effective
Time.
9.03 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by prepaid
registered or certified mail (return receipt requested) or by telecopy, cable,
telegram or telex addressed as follows:
(a) If to the Seller, to:
Pacific National Corporation
61 Main Street
Nantucket, Massachusetts 02554
Attention: Philip C. Murray, Chairman,
President and Chief Executive Officer
Tel: 508-228-1917
Fax: 508-228-3334
with a required copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Lyman G. Bullard, Jr., Esq.
Tel: 617-248-5000
Fax: 617-248-4000
(b) If to the Buyer, to:
BankBoston Corporation
100 Federal Street
Boston, Massachusetts 02110
Attention: Peter J. Manning, Executive
Director/Mergers and Acquisitions
Tel: 617-434-8592
Fax: 617-434-7825
with required copies to:
Bingham, Dana & Gould LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Norman J. Shachoy, Esq.
and Neal J. Curtin, Esq.
Tel: 617-951-8000
Fax: 617-951-8736
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<PAGE> 127
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
9.04 Parties in Interest. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other parties, and that nothing in this
Agreement is intended to confer, expressly or by implication, upon any other
person any rights or remedies under or by reason of this Agreement.
9.05 Complete Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, including the
Confidentiality Agreement and this Agreement contains the entire agreement and
understanding of the parties with respect to its subject matter. Except as set
forth in this Agreement or in the Disclosure Schedules, there are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties other than those expressly set forth herein or therein. This
Agreement supersedes all prior agreements, including without limitation, the
Confidentiality Agreement, and understandings between the parties, both written
and oral, with respect to its subject matter.
9.06 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and each of which shall be
deemed to be an original and shall become effective when a counterpart has been
signed by each of the parties and delivered to each of the other parties.
9.07 Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, without giving effect to the principles of
conflicts of laws thereof.
9.08 Captions. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.09 Effect of Investigations. No investigation by the parties hereto
made heretofore or hereafter, whether pursuant to this Agreement or otherwise
shall affect the representations and warranties of the parties which are
contained herein and each such representation and warranty shall survive such
investigation, subject, however, to Section 9.02 hereof.
9.10 Severability. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, by any court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement and the
parties shall use their best efforts to substitute a valid, legal and
enforceable provision which, insofar as practicable, implements the purposes and
intents of this Agreement.
9.11 Specific Enforceability. The parties recognize and hereby
acknowledge that it is impossible to measure in money the damages that would
result to a party by reason of the failure of either of the parties to perform
any of the obligations imposed on it by this Agreement. Accordingly, if any
party should institute an action or proceeding seeking specific enforcement of
the provisions hereof, each party against which such action or proceeding is
brought hereby waives the claim or defense that the party instituting such
action or proceeding has an adequate remedy at law and hereby agrees not to
assert in any such action or proceeding the claim or defense that such a remedy
at law exists.
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<PAGE> 128
IN WITNESS WHEREOF, the Seller and the Buyer have caused this Agreement to
be executed as a sealed instrument by their duly authorized officers as of the
day and year first above written.
BANKBOSTON CORPORATION
By: /s/ PETER J. MANNING
------------------------------------
Peter J. Manning
Executive Director, Mergers and
Acquisitions
BOSTON PARENT CORP.
By: /s/ PETER J. MANNING
------------------------------------
Peter J. Manning
President
PACIFIC NATIONAL CORPORATION
By: /s/ PHILIP C. MURRAY
------------------------------------
Philip C. Murray
President and Chief Executive
Officer
A-35
<PAGE> 129
BANKBOSTON CORPORATION
PACIFIC NATIONAL CORPORATION
August 19, 1997
BankBoston Corporation
Pacific National Corporation
Gentlemen:
This Letter Agreement amends certain provisions of the Affiliation
Agreement and Plan of Reorganization, by and among BankBoston Corporation
("BANKBOSTON"), Boston Parent Corp. ("BUYER SUB") and Pacific National
Corporation ("PACIFIC"), dated as of May 23, 1997 (the "AFFILIATION AGREEMENT").
BankBoston and Pacific have agreed to modify certain terms of the Affiliation
Agreement as follows:
A. AMENDMENTS TO THE AFFILIATION AGREEMENT
1. Section 2.01 of the Affiliation Agreement is hereby amended by deleting
such section in its entirety and inserting the following new section in place
thereof:
2.01 The Merger. Subject to the terms and conditions of this
Agreement, in accordance with the MBCL, at the Effective Time, Buyer Sub
shall merge with and into the Seller, and the separate corporate existence
of Buyer Sub shall cease. Seller shall be the surviving corporation in the
Merger (hereinafter sometimes referred to as the "SURVIVING CORPORATION")
and shall continue its corporate existence under the laws of The
Commonwealth of Massachusetts.
2. Article II of the Affiliation Agreement is hereby amended by inserting
the following new Sections 2.02A and 2.02B immediately after Section 2.02
thereof:
2.02A. Authorized Capital Stock of Surviving Corporation. As of the
Effective Time, the Surviving Corporation shall be authorized to issue that
number of shares of $0.01 par value voting common stock which Buyer Sub is
authorized to issue immediately prior to the Effective Time.
2.02B. Description of Classes of Stock. As of the Effective Timer
each class or series of capital stock of the Surviving Corporation shall
have the same preferences, voting powers, qualifications, special or
relative rights or privileges as such class or series of capital stock of
Buyer Sub possessed immediately prior to the Effective Time.
3. Section 2.04 of the Affiliation Agreement is hereby amended by
inserting the following phrase after the word "be" in the second line thereof,
"by amendment affected hereby,"
4. Section 2.07 of the Affiliation Agreement is hereby amended by deleting
subsection (a) in its entirety and inserting the following new subsection (a) in
place thereof:
(a) Buyer Sub Common Stock. By virtue of the Merger, automatically
and without any action on the part of the holder thereof, each share of
common stock of Buyer Sub, par value $0.01 per share ("BUYER SUB COMMON
STOCK"), issued and outstanding immediately prior to the Effective Time,
shall become and be converted into 1.00 share of common stock of the
Surviving Corporation, par value $0.01 per share ("SURVIVING CORPORATION
COMMON STOCK"). Each certificate which immediately prior to the Effective
Time represented outstanding shares of Buyer Sub Common Stock shall on and
after the Effective Time be deemed for all purposes to represent the number
of shares of Surviving Corporation Common Stock into which the shares of
Buyer Sub Common Stock represented by such certificate shall have been
converted pursuant to this Section 2.07(a).
5. Section 2.07(b) of the Affiliation Agreement is hereby amended by
deleting the number "$2.25" in the tenth line thereof and inserting the number
"$1.50" in place thereof.
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<PAGE> 130
6. Section 3.02 of the Affiliation Agreement is hereby amended by:
(a) deleting the number "200,000,000" in the second line thereof and
inserting the number "300,000,000" in place thereof;
(b) deleting the number "120,000" in the ninth line thereof and
inserting the number "12,000,000" in place thereof; and
(c) deleting the number "4,764,182" in the third line from the bottom
of such section and inserting the number "3,583,231" in place thereof.
Except as expressly set forth herein, all terms and conditions of the
Affiliation Agreement are hereby ratified and confirmed and shall remain in full
force and effect and each party hereto expressly affirms all of its obligations
under the Affiliation Agreement. Please acknowledge your agreement with the
foregoing amendments by signing the enclosed copy of this letter in the places
provided below.
Very truly yours,
BANKBOSTON CORPORATION
BY: /S/ PETER J. MANNING
------------------------
Peter J. Manning
BOSTON PARENT CORP.
BY: /S/ PETER J. MANNING
------------------------
Peter J. Manning
PACIFIC NATIONAL CORPORATION
BY: /S/ PHILIP C. MURRAY
------------------------
Philip C. Murray
A-37
<PAGE> 131
APPENDIX B
AGREEMENT AND PLAN OF MERGER
BETWEEN
BANKBOSTON, N.A.
AND
PACIFIC NATIONAL BANK OF NANTUCKET
UNDER THE CHARTER OF
BANKBOSTON, N.A.
This AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of May 23,
1997 between BANKBOSTON, N.A. ("Buyer Bank"), a national banking association and
wholly-owned subsidiary of BankBoston Corporation (the "Buyer"), organized under
the laws of the United States, being located at 100 Federal Street, in the City
of Boston, County of Suffolk, in The Commonwealth of Massachusetts, with capital
of $3,264,190,000.00, divided into 88,409,000 shares of common stock, each of
$12.50 par value, surplus of $1,261,343,000.00, and undivided profits, including
capital reserves, of $1,902,106,000.00, as of December 31, 1996, and PACIFIC
NATIONAL BANK OF NANTUCKET. ("Seller Bank"), a national banking association and
wholly-owned subsidiary of Pacific National Corporation (the "Seller"),
organized under the laws of the United States, being located at 61 Main Street,
in the City of Nantucket, County of Nantucket, in The Commonwealth of
Massachusetts, with capital of $11,277,000.00 divided into 309,000 shares of
common stock, each of $10.00 par value, surplus of $5,035,000.00, and undivided
profits, including capital reserves, of $5,883,000.00, as of December 31, 1996.;
WHEREAS, the Boards of Directors of the Buyer and the Seller have approved,
and deem it advisable and in the best interests of their respective stockholders
to consummate, the business combination transaction set forth in the Affiliation
Agreement and Plan of Reorganization (the "Parent Acquisition Agreement"), dated
as of May 23, 1997, by and among the Buyer, Boston Parent Corp., a wholly-owned
direct or indirect subsidiary of Buyer ("Buyer Sub") and the Seller, and in
accordance with the terms and conditions of the Parent Acquisition Agreement,
Seller shall be merged with and into Buyer Sub, with Buyer Sub as the surviving
corporation of the merger (the "Parent Merger");
WHEREAS, not less than a majority of each of the Boards of Directors of
Buyer Bank and Seller Bank have approved, and deem it advisable to consummate,
the Bank Merger provided for herein, in accordance with the provisions of 12
U.S.C. sec.215a;
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, guaranties and agreements set forth herein and in
the Parent Acquisition Agreement, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1.
Subject to the terms and conditions of this Agreement, the Seller Bank
shall merge (the "Bank Merger") with and into the Buyer Bank under the charter
of the Buyer Bank (Buyer Bank is sometimes referred to herein as the
"Association"), and upon the effectiveness of the Bank Merger all of the issued
and outstanding shares of capital stock of the Seller Bank shall automatically
be converted and become exchangeable for shares of the capital stock of the
Association in accordance with Section 7 hereof.
SECTION 2.
The Bank Merger shall become effective upon the date specified in the
certificate to be issued by the Comptroller of the Currency of the United States
of America (the "Comptroller") under the seal of his office approving the Bank
Merger. As used in this Agreement, the term "Effective Time of the Bank Merger"
shall mean the date and time when the Bank Merger becomes effective.
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<PAGE> 132
SECTION 3.
The closing of the Bank Merger will take place immediately prior to the
Parent Merger on the date and at the time specified in the Parent Acquisition
Agreement with respect to the Parent Merger or at such other time, and date as
may be agreed to by the parties hereto (the "Closing Date").
SECTION 4.
The business of the Association shall be that of a national banking
association. This business shall be conducted by the Association at its main
office which shall be One-Hundred Federal Street, Boston, Massachusetts, and at
its legally established branches. Upon the Effective Time of the Bank Merger,
the main office and each of the branch offices of the Seller Bank established
and authorized immediately prior to the Effective Time of the Bank Merger shall
become established and authorized branch offices of the Association. It is the
parties' intention that the internal systems and operations of the Buyer Bank
and the Seller Bank shall be integrated and consolidated on or after the
Effective Time of the Bank Merger. Notwithstanding the foregoing, subject to
applicable law, the Association may, in its sole discretion, conduct the
business and operations conducted at former offices of the Seller Bank following
the Effective Time of the Bank Merger as a separate division of the Association
under the name "Pacific National, a division of BankBoston, N.A."
SECTION 5.
Immediately following the Effective Time of the Bank Merger, the
Association shall have capital stock and surplus which shall be equal to the
capital stock and surplus of the Buyer Bank as stated in the preamble to this
Agreement, adjusted, however, to reflect the completion of the Bank Merger and
the attendant conversion of the outstanding shares of the Seller Bank's capital
stock into shares of the Buyer Bank's capital stock in accordance with Section 7
hereof. Immediately following the Effective Time of the Bank Merger, the
Association shall have undivided profits, including capital reserves, which when
combined with capital and surplus will be equal to the combined capital
structures of the Buyer Bank and the Seller Bank as stated in the preamble to
this Agreement, adjusted, however, for normal earnings and expenses between
December 31, 1996 and the Effective Time of the Bank Merger.
SECTION 6.
All assets of each of the Buyer Bank and the Seller Bank as they exist at
the Effective Time of the Bank Merger shall pass to and vest in the Association
without any conveyance or other transfer. The Association shall be responsible
for all of the liabilities of every kind and description, of each of the Buyer
Bank and the Seller Bank existing as of the Effective Time of the Bank Merger.
SECTION 7.
With respect to the capital stock of the Buyer Bank, the presently
outstanding 88,409,000 shares of common stock of the Buyer Bank, each of $12.50
par value, shall remain outstanding shares of capital stock of the Association
immediately following the Effective Time of the Bank Merger and the holders of
such shares shall retain all of their present rights thereunder. With respect to
the capital stock of the Seller Bank, each of the presently outstanding 309,000
shares of common stock of the Seller Bank, each of $10.00 par value, shall, ipso
facto and without any action on the part of the holder thereof, be converted
into and become exchangeable for such number of shares or fraction of a share of
common stock of the Association, par value $12.50 per share, based upon the
aggregate fair market value of the Seller Bank's shares of common stock as
compared to the aggregate fair market value of the Buyer Bank's shares of common
stock, in each case as such shares are issued and outstanding immediately prior
to the Effective Time of the Bank Merger.
SECTION 8.
The board of directors and principal officers of the Buyer Bank in place
and holding office immediately prior to the Effective Time of the Bank Merger
shall continue to serve as the board of directors and principal
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officers of the Association, each to hold office in accordance with the articles
of association and by-laws of the Association until such time as their
respective successors are duly elected or appointed and qualified.
SECTION 9.
The articles of association and by-laws of the Buyer Bank in effect
immediately prior to the Effective Time of the Bank Merger shall constitute the
articles of association and by-laws of the Association.
SECTION 10.
During the period from the date of this Agreement to the Effective Time of
the Bank Merger, the Seller Bank agrees to observe and perform all applicable
agreements and covenants thereof contained in the Parent Acquisition Agreement.
SECTION 11.
The respective obligations of the Buyer Bank and the Seller Bank to effect
the Bank Merger shall be subject to the satisfaction prior to the Effective Time
of the Bank Merger of the following conditions:
(a) Each condition contained in the Parent Acquisition Agreement to
the consummation of the Parent Merger (as such term is defined in the
Parent Acquisition Agreement) shall have been satisfied (or waived as
provided in the Parent Acquisition Agreement).
(b) 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 Bank Merger contemplated hereunder shall be in
effect. No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
agency or authority which prohibits, restricts or makes illegal the
consummation of the Bank Merger.
(c) This Agreement and the transactions contemplated hereby shall have
been duly approved, ratified and confirmed in accordance with the
applicable provisions of 12 U.S.C. sec. 215a(a)(2) and the respective
articles of association, as applicable, and by-laws of the Buyer Bank and
the Seller Bank by the affirmative vote of the holders of not less than
two-thirds of the outstanding shares of each of the Buyer Bank and the
Seller Bank entitled to vote thereon, each such vote to be adopted at a
duly called and held meeting of such stockholder(s) or, if permissible
under applicable law or otherwise, by the unanimous written consent of such
stockholder(s) in lieu thereof.
(d) All necessary approvals or consents of, notices to, or other
filings with, all requisite governmental agencies or authorities relating
to the Bank Merger, including without limitation the necessary approval of
the Comptroller under 12 U.S.C. sec. 215a(a), shall have been obtained,
filed or submitted or shall have otherwise occurred and shall continue to
be in full force and effect. In addition, all consents, approvals or
permits of, and notices to, any nongovernmental third parties that are
necessary to consummate the Bank Merger shall have been obtained or
delivered or shall have otherwise occurred and shall continue to be in full
force and effect.
SECTION 12.
This Agreement shall be terminated immediately and without any action on
the part of either the Buyer Bank or the Seller Bank upon any termination of the
Parent Acquisition Agreement in accordance with the terms thereof. This
Agreement may be terminated at any time prior to the Effective Time of the Bank
Merger by mutual consent of the Buyer Bank and the Seller Bank evidenced by a
written instrument, if the Board of Directors of each so determines by a vote of
not less than a majority of its members. In the event of the termination of this
Agreement as provided herein, this Agreement shall forthwith become null and
void and of no further force or effect and there shall be no liability or
obligation under this Agreement on the part of the parties hereto or any of
their respective offices, directors or affiliates.
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SECTION 13.
This Agreement may be adopted, certified and executed in separate
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when all counterparts have been signed by each of the
parties and delivered to each of the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 14.
Except as otherwise set forth in this Agreement (including any documents or
instruments referred to herein), this Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
WITNESS, the signatures and seals of each of the Buyer Bank and the Seller
Bank as of the date first written above, each set by its president or a vice
president and attested to by its cashier or clerk, pursuant to a resolution of
its board of directors, acting by a majority, and witness the signature of a
majority of the board of directors of each of the Buyer Bank and the Seller
Bank.
<TABLE>
<S> <C>
Attest: BANKBOSTON, N.A.
/s/ JANICE B. LIVA By: /s/ HENRIQUE DE CAMPOS MEIRELLES
- ----------------------------------------- -----------------------------------------------
Name: Janice B. Liva Henrique de Campos Meirelles
Title: Assistant Secretary President and Chief Operating Officer
By: /s/ GARY A. SPEISS
-----------------------------------------------
Gary A. Speiss
Cashier
</TABLE>
(Seal of Bank)
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<PAGE> 135
BOARD OF DIRECTORS:
<TABLE>
<S> <C>
/s/ WAYNE A. BUDD /s/ HENRIQUE DE CAMPOS MEIRELLES
- --------------------------------------------- ---------------------------------------------
Wayne A. Budd Henrique de Campos Meirelles
/s/ JOHN A. CERVIERI, JR. /s/ PAUL C. O'BRIEN
- --------------------------------------------- ---------------------------------------------
John A. Cervieri, Jr. Paul C. O'Brien
/s/ WILLIAM F. CONNELL /s/ THOMAS R. PIPER
- --------------------------------------------- ---------------------------------------------
William F. Connell Thomas R. Piper
/s/ FRAN S. RODGERS
- --------------------------------------------- ---------------------------------------------
Gary L. Countryman Fran S. Rodgers
/s/ WILLIAM M. CROZIER, JR. /s/ JOHN W. ROWE
- --------------------------------------------- ---------------------------------------------
William M. Crozier, Jr. John W. Rowe
/s/ ALICE F. EMERSON /s/ GLENN P. STREHLE
- --------------------------------------------- ---------------------------------------------
Alice F. Emerson Glenn P. Strehle
/s/
- --------------------------------------------- ---------------------------------------------
Charles K. Gifford William C. Van Faasen
/s/ DONALD F. MCHENRY /s/ THOMAS B. WHEELER
- --------------------------------------------- ---------------------------------------------
Donald F. McHenry Thomas B. Wheeler
/s/ THOMAS J. MAY /s/ ALFRED M. ZEIEN
- --------------------------------------------- ---------------------------------------------
Thomas J. May Alfred M. Zeien
</TABLE>
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<PAGE> 136
PACIFIC NATIONAL BANK OF NANTUCKET
ATTEST:
<TABLE>
<S> <C>
/s/ GLENN L. FIELD By: /s/ STEPHEN J. DECESARE
- ------------------------------------------ ------------------------------------------
Glenn L. Field Stephen J. DeCesare,
Clerk President and Chief Executive Officer
By: /s/ AUGUSTINE F. GOUVEIA
------------------------------------------
Augustine F. Gouveia
Treasurer
</TABLE>
(Seal of Bank)
BOARD OF DIRECTORS:
<TABLE>
<S> <C>
/s/ PHILIP C. MURRAY /s/ FREDERICK J. BOLING, JR.
- --------------------------------------------- ---------------------------------------------
Philip C. Murray Frederick J. Boling, Jr.
/s/ RICHARD R. CONGDON /s/ STEPHEN J. DECESARE
- --------------------------------------------- ---------------------------------------------
Richard R. Congdon Stephen J. DeCesare
/s/ MATTHEW G. FEE /s/ JOHN F. GIFFORD
- --------------------------------------------- ---------------------------------------------
Matthew G. Fee John F. Gifford
/s/ ROBERT A. HAWKINS /s/ BROCK LEWIS
- --------------------------------------------- ---------------------------------------------
Robert A. Hawkins Brock Lewis
/s/ MARY D. MALAVASE /s/ LYDLE L. RICKARD
- --------------------------------------------- ---------------------------------------------
Mary D. Malavase Lydle L. Rickard
/s/ GILBERT F. WAINE /s/ DAVID E. WEBSTER
- --------------------------------------------- ---------------------------------------------
Gilbert F. Waine David E. Webster
</TABLE>
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<PAGE> 137
APPENDIX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 23, 1997, between PACIFIC NATIONAL
CORPORATION, a Massachusetts corporation (the "Issuer") and BANKBOSTON
CORPORATION, a Massachusetts corporation (the "Grantee").
WHEREAS, the Grantee and the Issuer are entering into an Affiliation
Agreement and Plan of Reorganization of even date herewith (as amended and in
effect from time to time, the "Acquisition Agreement"), which agreement is being
executed by the parties thereto simultaneously with this Agreement; and
WHEREAS, as a condition to the Grantee's entry into the Acquisition
Agreement and in consideration for such entry, the Issuer has agreed to grant
the 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 Acquisition Agreement, the parties
hereto agree as follows:
1. (a) The Issuer hereby grants to the Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 121,452 fully paid and nonassessable shares (the "Option Shares") of common
stock, par value $1.00 per share, of the Issuer ("Common Stock") at a price of
Thirty-Five Dollars ($35) per share (the "Option Price"). The number of shares
of Common Stock that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth provided that in no
event shall the number of shares for which this Option is exercisable exceed
24.9% of the Issuer's issued and outstanding shares of Common Stock (without
giving effect to any shares of Common Stock issued pursuant to the Option) less
the number of shares previously issued pursuant to exercise of the Option.
(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 exercise of the Option pursuant to this Agreement or as contemplated
by Section 5(a) of this Agreement), including, without limitation, pursuant to
stock option or other employee plans or as a result of the exercise of
conversion rights, the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, it equals 24.9% 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 the
Issuer or the Grantee to breach any provision of the Acquisition Agreement.
2. (a) The Holder (as such term is defined in paragraph (c) below) may
exercise the Option, in whole or part, if, but only if, both an Initial
Triggering Event (as defined in paragraph (d) below) and a Subsequent Triggering
Event (as defined in paragraph (e) below) shall have occurred prior to the
occurrence of an Exercise Termination Event (as defined in paragraph (b) below),
provided that the Holder shall have sent the written notice of such exercise (as
provided in paragraph (g) of this Section 2) within thirty (30) days following
such Subsequent Triggering Event and prior to the Exercise Termination Event.
(b) The term "Exercise Termination Event" shall mean the earliest of (i)
the Effective Time, (ii) any termination of the Acquisition Agreement in
accordance with the provisions thereof if such termination occurs prior to the
occurrence of an Initial Triggering Event, and (iii) in the event of any
termination of the Acquisition Agreement in accordance with the provisions
thereof after the occurrence of an Initial Triggering Event, the passage of
twelve (12) months after such termination. Notwithstanding the termination of
the Option, the Grantee shall be entitled to purchase those Option Shares with
respect to which it has exercised the Option in whole or in part prior to the
termination of the Option.
(c) The term "Holder" shall mean the holder or holders of the Option.
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(d) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The Issuer or any subsidiary of the Issuer, without having
received the Grantee's prior written consent, shall have entered into an
agreement to engage in an Acquisition Transaction with any Person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act and the rules and
regulations thereunder), other than the Grantee or any subsidiary of the
Grantee, or, without the consent of the Grantee, the Board of Directors of
the Issuer shall have approved an Acquisition Transaction or recommended
that the shareholders of the Issuer approve or accept any Acquisition
Transaction other than as contemplated by the Acquisition Agreement. For
purposes of this Agreement, the term "Acquisition Transaction" shall mean
(A) a merger or consolidation, or any similar transaction, with the Issuer
or any subsidiary of the Issuer that is a "significant subsidiary" as
defined in Regulation S-X promulgated by the Securities and Exchange
Commission (a "Significant Subsidiary"), or any subsidiary of the Issuer
which, after such transaction, would be a Significant Subsidiary of the
Issuer, (B) a purchase, lease or other acquisition of all or substantially
all of the assets of the Issuer or any Significant Subsidiary of the Issuer
or (C) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
seventeen and one-half percent (17.5%) or more of the voting power of the
Issuer or any Significant Subsidiary of the Issuer;
(ii) Any Person, other than the Grantee or any subsidiary of the
Grantee or the Issuer in a fiduciary capacity shall have acquired
beneficial ownership (as hereinafter defined) or the right to acquire
beneficial ownership of seventeen and one-half percent (17.5%) or more of
the outstanding shares of Common Stock if such Person owned beneficially
less than seventeen and one-half percent (17.5%) of the outstanding shares
of Common Stock on the date of this Agreement, or any Person shall have
acquired beneficial ownership of an additional three percent (3%) of the
outstanding shares of Common Stock if such Person owned beneficially
seventeen and one-half percent (17.5%) or more of the outstanding shares of
Common Stock on the date of this Agreement (the term "beneficial ownership"
for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the Exchange Act, and in the rules and regulations
thereunder);
(iii) Any Person, other than the Grantee or any subsidiary of the
Grantee, shall have made a bona-fide proposal to the Issuer or its
shareholders to engage in an Acquisition Transaction by public announcement
or written communication that shall be or become the subject of public
disclosure;
(iv) After any Person other than the Grantee or any subsidiary of the
Grantee has made a proposal to the Issuer or its shareholders to engage in
an Acquisition Transaction, the Issuer shall have breached any covenant or
obligation contained in the Acquisition Agreement and such breach (A) would
entitle the Grantee to terminate the Acquisition Agreement and (B) shall
not have been remedied prior to the Notice Date (as defined in paragraph
(h) below); or
(v) Any Person other than the Grantee or any subsidiary of the
Grantee, other than in connection with a transaction to which the Grantee
has given its prior written consent, shall have filed an application or
notice with the Federal Reserve Board or other federal or state bank
regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(e) 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
twenty-five percent (25%) or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
subparagraph (i) of paragraph (d) of this Section 2, except that the
percentage referenced in clause (C) thereof shall be twenty-five percent
(25%) in lieu of seventeen and one-half percent (17.5%).
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(f) The Issuer shall notify the Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event"), it being understood that the giving of such
notice by the Issuer shall not be a condition to the right of the Holder to
exercise the Option.
(g) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to the Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares of Common Stock it will purchase pursuant to such exercise, and (ii) a
place and date not earlier than three (3) business days nor later than sixty
(60) business days from the Notice Date for the closing of such purchase (the
"Closing"); provided that if prior notification to or approval of the Federal
Reserve Board or any other regulatory agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods shall
have passed. The term "business day" for purposes of this Agreement means any
day, excluding Saturdays, Sundays and any other day that is a legal holiday in
The Commonwealth of Massachusetts or a day on which banking institutions in The
Commonwealth of Massachusetts are authorized by law or executive order to close.
(h) At the Closing, the Holder shall pay to the Issuer the aggregate
purchase price for the shares of Common Stock purchased pursuant to the exercise
of the Option in immediately available funds by a wire transfer to a bank
account designated by the Issuer, provided that failure or refusal of the Issuer
to designate such a bank account shall not preclude the Holder from exercising
the Option.
(i) At such Closing, simultaneously with the delivery of immediately
available funds as provided in paragraph (h) above, the Issuer shall deliver to
the Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option should be exercised in
part only, a new Option evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder, and the Holder shall deliver to
the Issuer a copy of this Agreement and a letter agreeing that the Holder will
not offer to sell or otherwise dispose of such shares in violation of applicable
law or the provisions of this Agreement.
(j) Certificates for the Common Stock delivered at a Closing hereunder may
(in the sole discretion of the Issuer) be endorsed with a restrictive legend
that shall read substantially as follows:
"THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTION PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS
OF MAY 23, 1997, A COPY OF WHICH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST
THEREFOR."
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if the shares have
been sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such legend. In
addition, such certificates shall bear any other legend as may be required by
law.
(k) Upon the giving by the Holder to the Issuer of the written notice of
exercise of the Option provided for under paragraph (g) above, the tender of the
applicable purchase price in immediately available funds and the tender of a
copy of this Agreement to the Issuer, such Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Issuer shall then be closed
or that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder. The Issuer shall pay all expenses, and any and
all United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. The Issuer agrees (a) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without requiring the Issuer's
stockholders to approve an increase in the number of authorized shares of Common
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Stock after giving effect to all other options, warrants, convertible securities
and other rights to purchase Common Stock, (b) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Issuer, (c) promptly to take all action
as may from time to time be required (including without limitation cooperating
fully with any Holders in preparing any applications or notices required under
the Bank Holding Company Act of 1956, as amended, or the Change in Bank Control
Act of 1978, as amended, or any state banking law), in order to permit such
Holders to exercise the Option and the Issuer duly and effectively to issue
shares of Common Stock pursuant hereto, and (d) promptly to take all action
provided herein to protect the rights of any Holders against dilution.
4. This Agreement (and the Option granted hereby) is exchangeable, without
expense, at the option of each Holder, upon presentation and surrender of this
Agreement at the principal office of the Issuer, for other Agreements providing
for Options of different denominations entitling the Holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by the Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, the Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute for all purposes and under all circumstances an additional
contractual obligation on the part of the Issuer, whether or not this Agreement
so lost, stolen, destroyed or mutilated shall at any time be enforceable by
anyone.
5. In addition to the adjustment in the number of Option Shares pursuant
to Section 1 of this Agreement, the number of Option Shares shall be subject to
adjustment from time to time as provided in this Section 5.
(a) (i) In the event of any change in the shares of Common Stock by
reason of stock dividend, split up, merger, recapitalization, subdivision,
conversion, combination, exchange of shares or similar transaction, the
type and number of Option Shares, and the Option Price therefor, shall be
adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction, so that the Grantee shall receive
upon exercise of the Option the number and class of shares or other
securities or property that the Grantee would have held immediately after
such event if the Option had been exercised immediately prior to such
event, or the record date therefor, as applicable.
(ii) The Issuer may make such increases in the number of Option
Shares, in addition to those required under subparagraph (a)(i) above, as
shall be determined by its Board of Directors to be advisable in order to
avoid taxation, so far as practicable, of any dividend of stock or stock
rights or any event treated as such for federal income tax purposes to the
recipients.
(b) Whenever the number of Option Shares (or other securities)
purchasable upon exercise hereof is adjusted as provided in this Section 5,
the Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which is equal to the number of Option Shares
prior to the adjustment and the denominator of which is equal to the number
of Option Shares (or other securities) purchasable after the adjustment.
6. (a) (i) If (and on each occasion that) the Issuer proposes to register
any of its securities under the Securities Act either for the Issuer's own
account or for the account of any of its stockholders (other than owners of
Option Shares (each, an "Owner")) (each such registration not withdrawn or
abandoned prior to the effective date thereof being herein called a "Piggyback
Registration"), the Issuer will give written notice to all Owners of such
proposal not later than the thirtieth day prior to the anticipated filing date
of such Piggyback Registration. The Issuer will not be obligated or required to
include any Option Shares in any registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 of the Securities
Exchange Commission is applicable.
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(ii) Subject to the provisions contained in paragraph (b) of this
Section 6 and in the last sentence of this subparagraph (ii), (A) the
Issuer will be obligated and required to include in each Piggyback
Registration all Option Shares with respect to which the Issuer shall
receive from Owners within fifteen (15) days after the date on which the
Issuer shall have given written notice of such Piggyback Registration to
all Owners pursuant to Section 6(a)(i) hereof, the written requests of such
Owners for inclusion in such Piggyback Registration, and (B) the Issuer
will use its reasonable efforts in good faith to effect promptly the
registration of all such Option Shares for which the Issuer receives
written notice pursuant to Section 6(a)(ii)(A) hereof (the "Registrable
Securities"). The Issuer shall register such Registrable Securities on the
same terms and subject to the same conditions as the other securities of
the Issuer being included in such registration. Each owner of Registrable
Securities shall provide all information reasonably requested by the Issuer
for inclusion in any registration statement to be filed hereunder.
(b) If a Piggyback Registration is an underwritten registration, and the
managing underwriters shall give written advice to the Issuer of a maximum
number of securities which, in the opinion of the managing underwriters of such
registration in the light of marketing factors, can be sold in such offering
without materially and adversely affecting the success or offering price of such
offering (the "Underwriters' Maximum Number"), and if the sum of (i) the number
of shares that the Issuer wishes to register, (ii) plus the number of
Registrable Securities, exceeds the Underwriters' Maximum Number, then the
number of Registrable Securities to be included in the Piggyback Registration
shall be an amount determined by multiplying the Underwriters' Maximum Amount by
a fraction, the numerator of which is the number of Registrable Securities, and
the denominator of which is the sum of (i) the number of Registrable Securities,
plus (ii) the number of shares that the Issuer wishes to register.
(c) Selection of Underwriters. In any Piggyback Registration, the Issuer
shall (unless the Issuer shall otherwise agree) have the right to select the
investment bankers and managing underwriters in such registration.
(d) Registration Expenses. All costs and expenses incurred or sustained in
connection with or arising out of each registration hereof will be borne and
paid by the Issuer.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of any Holder,
delivered within thirty (30) days following such occurrence (or such later
period as provided in Section 10), the Issuer shall repurchase the Option from
the Holder at a price (the "Option Repurchase Price") equal to the amount by
which (A) the market/offer price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then be
exercised, plus, to the extent not previously reimbursed, the Grantee's
reasonable out-of-pocket expenses incurred in connection with the transactions
contemplated by, and the enforcement of the Grantee's rights under, the
Acquisition Agreement, including without limitation legal, accounting and
investment banking fees (the "Grantee's Out-of-Pocket Expenses"), and (ii) at
the request of any owner of Option Shares from time to time (the "Owner"),
delivered within thirty (30) days following such occurrence (or such later
period as provided in Section 10), the Issuer shall repurchase such number of
the Option Shares from such Owner as the Owner shall designate at a price per
share ("Option Share Repurchase Price") equal to the greater of (A) the
market/offer price and (B) the average exercise price per share paid by the
Owner for the Option Shares so designated, plus, to the extent not previously
reimbursed, the Grantee's Out-of-Pocket Expenses. The term "market/offer price"
shall mean the highest of (w) the price per share of the Common Stock at which a
tender offer or exchange offer therefor has been made, (x) the price per share
of the Common Stock to be paid by any Person, other than the Grantee or a
subsidiary of the Grantee, pursuant to an agreement with the Issuer, (y) the
highest sale price for shares of Common Stock within the six (6) month period
immediately preceding the required repurchase of Options or Option Shares, as
the case may be, or (z) in the event of a sale of all or substantially all of
the Issuer's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of the Issuer as determined by
a nationally recognized investment banking firm selected by a majority in the
interest of the Holders or the Owners, as the case may be, and reasonably
acceptable to the Issuer, divided by the number of shares of Common Stock of the
Issuer outstanding at the time of such sale. In determining the market/offer
price, the value of
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consideration other than cash shall be determined by a nationally recognized
investment banking firm selected by a majority in interest of the Holders or the
Owners, as the case may be, and reasonably acceptable to the Issuer.
(b) (i) Each Holder and Owner, as the case may be, may exercise its right
to require the Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to the Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that such Holder
or Owner elects to require the Issuer to repurchase this Option and/or Option
Shares in accordance with the provisions of this Section 7. As promptly as
practicable, and in any event within ten (10) business days (the "Payment Date")
after the surrender of the Option and/or certificates representing Option Shares
and the receipt of such notice or notices relating thereto (the "Surrender
Date"), the Issuer shall deliver or cause to be delivered to each Holder the
Option Repurchase Price and/or to each Owner the Option Share Repurchase Price
therefor or the portion thereof that the Issuer is not then prohibited under
applicable law and regulation from so delivering.
(ii) In the event that, on the Payment Date, the Issuer does not have
sufficient cash to pay in full the Option Repurchase Price or the Option Share
Repurchase Price as determined by Section 7(a) hereof, the Issuer shall deliver
to each Holder or Owner, as applicable, on the Payment Date (a) cash, to the
extent readily available, including but not limited to, amounts the Issuer may
legally borrow, and (b) a promissory note (the "Promissory Note") issued by the
Issuer in principal amount equal to the difference between the Option Repurchase
Price or the Option Share Repurchase Price and any cash payments made by the
Issuer under (a) above. The Promissory Note shall be in a form reasonably
acceptable to the Holder or Owner, as applicable. Principal and interest shall
be payable in twelve equal monthly installments and the Promissory Note shall
bear interest at a rate of two-percent (2%) above the Prime Rate. The Promissory
Note shall be secured by security reasonably acceptable to the Holder or Owner,
as applicable.
(c) To the extent that the Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, or as a result of a
written agreement or other binding obligation with a governmental or regulatory
body or agency, from repurchasing the Option and/or the Option Shares in full,
the Issuer shall immediately so notify each Holder and/or each Owner and
thereafter deliver or cause to be delivered, from time to time, to such Holder
and/or Owner, as appropriate, the portion of the Option Repurchase Price and the
Option Share Repurchase Price, respectively, that it is no longer prohibited
from delivering, within ten (10) business days after the date on which the
Issuer is no longer so prohibited; provided, however, that if the 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, or as a consequence
of administrative policy, from delivering to any Holder and/or Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase Price,
respectively, in part or in full (and the Issuer hereby undertakes to use its
best efforts to receive all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), such Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon the Issuer shall promptly (i) deliver to such Holder and/or Owner, as
appropriate, that portion of the Option Purchase Price or the Option Share
Repurchase Price that the Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to such Holder, a new Stock Option Agreement
evidencing the right of such Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the portion thereof theretofore delivered to the Holder
and the denominator of which is the Option Repurchase Price, or (B) to such
Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing.
8. (a) In the event that prior to an Exercise Termination Event, the
Issuer shall enter into an agreement (i) to consolidate with or merge into any
Person, other than the Grantee or one of the Grantee's subsidiaries, and the
Issuer shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any Person, other than the Grantee or
one of its subsidiaries, to merge into the Issuer and the Issuer shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any
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other Person or cash or any other property, or the then outstanding shares of
Common Stock shall, after such merger, represent less than fifty percent (50%)
of the outstanding shares and share equivalents of the merged company, or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
Person, other than the Grantee or one of the Grantee's subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall upon the consummation of any such transaction
and upon the terms and conditions set forth herein, be converted into, or
exchanged for, an option (the "Substitute Option"), at the election of the
Holder, of either (A) the Acquiring Corporation (as defined in paragraph (b)
below) or (B) any Person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) The term "Acquiring Corporation" shall mean (A) the continuing or
surviving corporation of a consolidation or merger with the Issuer (if
other than the Issuer), (B) the Issuer in a merger in which the Issuer is
the continuing or surviving Person, and (C) the transferee of all or
substantially all of the Issuer's assets.
(ii) The term "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(iii) The term "Assigned Value" shall mean the "market/offer price",
as defined in paragraph (a) of Section 7 hereof.
(iv) The term "Average Price" shall mean the average closing or sale
price of a share of the Substitute Common Stock for the one (1) year period
immediately preceding the consolidation, merger or sale in question, but in
no event higher than the closing price of the shares of the Substitute
Common Stock on the day preceding such consolidation, merger or sale,
provided that if the Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by the Person merging into the Issuer or by any company which
controls such Person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option, provided
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall, to the extent legally permissible, be as
similar as possible to, and in no event less advantageous to the Holder than,
the terms of the Option. The issuer of the Substitute Option shall also enter
into an agreement with the then Holder or Holders of the Substitute Option in
substantially the same form as this Agreement, which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock as is equal to 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 the Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction in which the numerator is the number of Option Shares
and the denominator is the number of shares of the Substitute Common Stock for
which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 24.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option (without giving effect to any shares of Substitute Common
Stock issued pursuant to the Substitute Option) less the number of shares
previously issued pursuant to the Substitute Option. In the event that the
Substitute Option would be exercisable for more than 24.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this paragraph
(e), the issuer of the Substitute Option (the "Substitute Option Issuer") shall
make a cash payment to the Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this paragraph (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this paragraph (e). The difference in value shall be determined by
a nationally recognized investment banking firm selected by a majority in
interest of the Holders or the Owners, as the case may be.
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(f) The Issuer shall not enter into any transaction described in paragraph
(a) of this Section 8 unless the Acquiring Corporation and any Person that
controls the Acquiring Corporation shall have assumed in writing all the
obligations of the Issuer hereunder.
9. (a) At the written 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 the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of the Substitute Common Stock for which the Substitute
Option may then be exercised, plus the Grantee's Out-of-Pocket Expenses, and at
the request of each owner (the "Substitute Share Owner") of shares of the
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price per share (the "Substitute
Share Repurchase Price") equal to the greater of (A) the Highest Closing Price
and (B) the average exercise price per share paid by the Substitute Share Owner
for the Substitute Shares so designated, plus, to the extent not previously
reimbursed, the Grantee's Out-of-Pocket Expenses. The term "Highest Closing
Price" shall mean the highest closing price for shares of the Substitute Common
Stock within the six (6) month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) Each Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that such
Substitute Option Holder or Substitute Share Owner elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within five (5) business days after
the surrender of the Substitute Option and/or the certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor, or the
portion(s) thereof which the Substitute Option Issuer is not then prohibited
under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, or
as a result of a written agreement or other binding obligation with a
governmental or regulatory body or agency, from repurchasing the Substitute
Option and/or the Substitute Shares in full, the Substitute Option Issuer shall
immediately so notify each Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or Substitute Share Owner, as appropriate, that
portion of the Substitute Option Repurchase Price and the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five (5) business days after the date on which the Substitute
Option Issuer is no longer so prohibited, provided, however, that if the
Substitute Option Issuer is, at any time after delivery of a notice of
repurchase pursuant to paragraph (b) of this Section 9 prohibited under
applicable law or regulation, or as a consequence of administrative policy, or
as a result of a written agreement or other binding obligation with a
governmental or regulatory body or agency, from delivering to the Substitute
Option Holder and/or the Substitute Share Owner, as appropriate, the Substitute
Option Repurchase Price and the Substitute Share Repurchase Price, respectively,
in part or in full (and the Substitute Option Issuer shall use its best efforts
to receive all required regulatory and legal approvals as promptly as
practicable in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and
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(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 thirty (30) day period for exercise of certain rights under
Sections 2, 6, 7 and 12 hereof shall be extended in each such case to the extent
necessary to obtain all regulatory approvals for the exercise of such rights and
for the expiration of all statutory waiting periods, provided that notice of
intent to exercise such rights shall be given to the Issuer within the requisite
thirty (30) day period and the Grantee and the Holders shall use their best
efforts to promptly obtain all requisite approvals and cause the expiration of
all requisite waiting periods.
11. The Issuer hereby represents and warrants to the Grantee as follows:
(a) The Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Issuer and no other corporate
proceedings on the part of the Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by the Issuer. This
Agreement is the valid and legally binding obligation of the Issuer.
(b) The Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of
Common Stock at any time and from time to time issuable hereunder, and all
such shares, upon issuance pursuant hereto, will be duly authorized,
validly issued, fully paid, nonassessable, and will be delivered free and
clear of all claims, liens, encumbrances and security interests and not
subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other Person, whether by operation of law or otherwise, without the express
written consent of the other party, except that in the event a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination Event, the
Grantee may, subject to the right of first refusal set forth in Section 13,
assign, transfer or sell in whole or in part its rights and obligations
hereunder within thirty (30) days following such Subsequent Triggering Event (or
such later period as provided in Section 10); provided, however, that in the
event the Grantee sells, assigns or transfers all or a portion of the Option to
other Holders as permitted by this Agreement, the Grantee may exercise its
rights hereunder on behalf of itself and such Holders.
13. If at any time after the occurrence of a Subsequent Triggering Event
and, with respect to shares of Common Stock or other securities acquired by the
Grantee pursuant to an exercise of the Option, prior to the expiration of
twenty-four (24) months after the expiration of the Option pursuant to Section
2(b), the Grantee shall desire to sell, assign, transfer or otherwise dispose of
the Option, in whole or in part, or all or any of the shares of Common Stock or
other securities acquired by the Grantee pursuant to the Option, the Grantee
shall give the Issuer written notice of the proposed transaction (an "Offeror's
Notice"), identifying the proposed transferee, accompanied by a copy of a
binding offer to purchase the Option or such shares or other securities signed
by such transferee and setting forth the terms of the proposed transaction. An
Offeror's Notice shall be deemed an offer by the Grantee to the Issuer, which
may be accepted within ten (10) business days of the receipt of such Offeror's
Notice, on the same terms and conditions and at the same price at which the
Grantee is proposing to transfer the Option or such shares or other securities
to such transferee. The purchase of the Option or such shares or other
securities by the Issuer shall be settled within five (5) business
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days of the date of the acceptance of the offer and the purchase price shall be
paid to the Grantee in immediately available funds, provided that, if prior
notification to or approval, consent or waiver of the Federal Reserve Board or
any other regulatory authority is required in connection with such purchase, the
Issuer shall promptly file the required notice or application for approval,
consent or waiver and shall expeditiously process the same (and the Grantee
shall cooperate with the Issuer in the filing of any such notice or application
and the obtaining of any such approval) and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which, as
the case may be, (a) the required notification period has expired or been
terminated or (b) such approval has been obtained and, in either event, any
requisite waiting period shall have passed. In the event of the failure or
refusal of the Issuer to purchase the Option or the shares or other securities,
as the case may be, covered by an Offeror's Notice or if the Federal Reserve
Board or any other regulatory authority disapproves the Issuer's proposed
purchase of the Option or such shares or other securities, the Grantee may,
within sixty (60) days following the date of the Offeror's Notice (subject to
any necessary extension for regulatory notification, approval, or waiting
periods), sell all, but not less than all, of the portion of the Option (which
may be one hundred percent (100%)) or such shares or other securities, as the
case may be, proposed to be transferred to the proposed transferee identified in
the Offeror's Notice at no less than the price specified and on terms no more
favorable to the proposed transferee than those set forth in the Offeror's
Notice. The requirements of this Section 13 shall not apply to (i) any
disposition of the Option or any shares of Common Stock or other securities by a
Person to whom the Grantee has assigned its rights under the Option with the
prior written consent of the Issuer, (ii) any sale by means of a public offering
in which steps are taken to reasonably ensure that no purchaser will acquire
securities representing more than five percent (5%) of the outstanding shares of
Common Stock of the Issuer or (iii) any transfer to a direct or indirect
wholly-owned subsidiary of the Grantee which agrees in writing to be bound by
the terms hereof.
14. Each of the Grantee and the Issuer will use all reasonable efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation applying to the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended,
for approval to acquire the shares issuable hereunder.
15. Notwithstanding anything to the contrary herein, in the event that the
Holder or the Owner or any Related Person thereof (as hereinafter defined) is a
Person making an offer or proposal to engage in an Acquisition Transaction
(other than the transaction contemplated by the Acquisition Agreement), then (a)
in the case of a Holder or any Related Person thereof, the Option held by it
shall immediately terminate and be of no further force or effect, and (b) in the
case of an Owner or any Related Person thereof, the Option Shares held by it
shall be immediately repurchasable by the Issuer at the Option Price. For
purposes of this Agreement, a "Related Person" of a Holder or Owner means any
Affiliate (as defined in Rule 12b-2 of the rules and regulations under the
Exchange Act) of the Holder or the Owner.
16. 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.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or the Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Sections 1(b) or 5(a)
hereof), it is the express intention of the Issuer to allow the Holder to
acquire or to require the Issuer to repurchase such lesser number of shares as
may be permissible, without any amendment or modification hereof.
18. 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
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certified mail (postage prepaid, return receipt requested) at the respective
addresses of the parties set forth in the Acquisition Agreement.
19. 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.
20. 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.
21. 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.
22. Except as otherwise expressly provided herein, this Agreement contains
the entire agreement between the parties with respect to the transactions
contemplated hereunder and supersedes all prior arrangements or understandings
with respect thereof, written or oral. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Acquisition Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed as a sealed instrument on its behalf by its officers thereunder duly
authorized, all as of the day and year first above written.
PACIFIC NATIONAL CORPORATION
By: /s/ PHILIP C. MURRAY
----------------------------------
Philip C. Murray
President and Chief Executive
Officer
BANKBOSTON CORPORATION
By: /s/ PETER J. MANNING
----------------------------------
Peter J. Manning
Executive Director, Mergers and
Acquisitions
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APPENDIX D
May 23, 1997
BankBoston Corporation
100 Federal Street
Boston, Massachusetts 02110
Attention: Peter J. Manning
Ladies and Gentlemen:
The undersigned (the "Stockholder") beneficially owns and has sole or
shared voting power with respect to the number of shares of the common stock,
par value $1.00 per share (the "Shares"), of Pacific National Corporation, a
Massachusetts corporation (the "Seller"), indicated opposite the Stockholder's
name on Schedule 1 attached hereto.
Simultaneously with the execution of this letter agreement, BankBoston
Corporation (the "Buyer") and the Seller are entering into an Affiliation
Agreement and Plan of Reorganization (as amended and in effect from time to
time, the "Acquisition Agreement") providing, among other things, for the direct
or indirect acquisition of the Seller by the Buyer (the "Acquisition"). The
undersigned understands that Buyer has undertaken and will continue to undertake
substantial expenses in connection with the negotiation and execution of the
Acquisition Agreement and the subsequent actions necessary to consummate the
transactions contemplated by the Acquisition Agreement.
In consideration of, and as a condition to, the Buyer's entering into the
Acquisition Agreement, and in consideration of the expenses incurred and to be
incurred by the Buyer in connection therewith, the Stockholder and the Buyer
agree as follows:
1. The Stockholder, while this letter agreement is in effect, shall vote
or cause to be voted all of the Shares that such Stockholder shall be entitled
to so vote, whether such Shares are beneficially owned by such Stockholder on
the date of this letter agreement or are subsequently acquired, whether pursuant
to the exercise of stock options or otherwise, at the Special Meeting of the
Seller's stockholders to be called and held following the date hereof, for the
approval of the Acquisition Agreement and the Acquisition and shall vote or
cause to be voted all such Shares, at such Special Meeting or any other meeting
of the Seller's stockholders following the date hereof, against the approval of
any other agreement providing for a merger, acquisition, consolidation, sale of
a material amount of assets or other business combination of the Seller or any
of its subsidiaries with any person or entity other than the Buyer, or any
subsidiary of the Buyer.
2. The Stockholder will not sell, assign, transfer or otherwise dispose of
(including, without limitation, by the creation of a Lien (as defined in
paragraph 4 below)), or permit to be sold, assigned, transferred or otherwise
disposed of, any Shares owned by the Stockholder, whether such Shares are held
by the Stockholder on the date of this letter agreement or are subsequently
acquired, whether pursuant to the exercise of stock options or otherwise, except
(a) transfers by will or by operation of law (in which case this letter
agreement shall bind the transferee), (b) transfers pursuant to any pledge
agreement (subject to the pledgee agreeing in writing to be bound by the terms
of this letter agreement), (c) transfers in connection with estate planning
purposes, including transfers to relatives, trusts and charitable organizations,
subject to the transferee agreeing in writing to be bound by the terms of this
letter agreement, and (d) as the Buyer may otherwise agree in its sole
discretion. The Buyer shall have the option to elect to have any existing
certificates representing Shares subject to this letter agreement canceled and
reissued bearing the following legend:
"THIS CERTIFICATE, AND THE SHARES REPRESENTED HEREBY, ARE SUBJECT TO
CERTAIN VOTING AND TRANSFER RESTRICTIONS CONTAINED IN A VOTING AGREEMENT BY
AND BETWEEN BANKBOSTON CORPORATION AND THE BENEFICIAL OWNER OF THESE SHARES
AND MAY BE TRANSFERRED ONLY IN COMPLI-
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ANCE THEREWITH. COPIES OF THE ABOVE-REFERENCED AGREEMENT ARE ON FILE
AT THE OFFICES OF PACIFIC NATIONAL CORPORATION".
3. The agreements contained herein are intended to relate to restrictions
on transferability and to continue only for such time as may reasonably be
necessary to obtain all necessary approvals, including shareholder approval and
all necessary governmental approvals, of the Acquisition and all other
transactions contemplated by the Acquisition Agreement.
4. The Stockholder represents that the Stockholder has the complete and
unrestricted power and the unqualified right to enter into and perform the terms
of this letter agreement. The Stockholder further represents that this letter
agreement (assuming this letter agreement constitutes a valid and binding
agreement of the Buyer) constitutes a valid and binding agreement with respect
to the Stockholder, enforceable against the Stockholder in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
Except as may be set forth in Schedule 1, the Stockholder represents that the
Stockholder beneficially owns the number of Shares indicated opposite such
Stockholder's name on said Schedule 1, free and clear of any liens, claims,
charges or other encumbrances or restrictions of any kind whatsoever ("Liens"),
and has sole or shared, and otherwise unrestricted, voting power with respect to
such Shares.
5. Notwithstanding anything herein to the contrary, the agreements
contained herein shall remain in full force and effect until the earlier of (a)
the consummation of the Acquisition or (b) the termination of the Acquisition
Agreement in accordance with Article VII thereof.
6. The Stockholder has signed this letter agreement intending to be bound
thereby. The Stockholder expressly agrees that this letter agreement shall be
specifically enforceable in any court of competent jurisdiction in accordance
with its terms against the Stockholder. All of the covenants and agreements
contained in this letter agreement shall be binding upon, and inure to the
benefit of, the respective parties and their permitted successors, assigns,
heirs, executors, administrators and other legal representatives, as the case
may be.
7. This letter agreement may be executed in one or more counterparts, each
of which will be deemed an original but all of which together shall constitute
one and the same instrument.
8. No waivers of any breach of this letter agreement extended by the Buyer
to the Stockholder shall be construed as a waiver of any rights or remedies of
the Buyer with respect to any subsequent breach of the Stockholder hereunder.
9. This letter agreement is deemed to be signed as a sealed instrument and
is to be governed by the laws of The Commonwealth of Massachusetts, without
giving effect to the principles of conflicts of laws thereof. If any provision
hereof is deemed unenforceable, the enforceability of the other provisions
hereof shall not be affected.
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If the foregoing accurately reflects your understanding of the subject
matter intended to be contained herein, please confirm our agreement by signing
this letter where indicated below.
Very truly yours,
AGREED TO AND ACCEPTED BY AS
OF THE DATE FIRST ABOVE WRITTEN
BANKBOSTON CORPORATION
By: /s/ PETER J. MANNING
-------------------------------------------------
Peter J. Manning
Executive Director, Mergers and
Acquisitions
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SCHEDULE 1
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES SHARES
STOCKHOLDER BENEFICIALLY OWNED SUBJECT TO PLEDGE
----------- --------------------- --------------------------------
<S> <C> <C>
</TABLE>
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[LETTERHEAD OF TUCKER ANTHONY INCORPORATED]
August , 1997
Board of Directors
Pacific National Corporation
61 Main Street
Nantucket, MA 02554-1850
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, of the consideration to be received by the holders of Pacific National
Corporation ("Pacific" or the "Company") common stock, par value $1.00 per share
(the "Common Stock"), pursuant to the Affiliation Agreement and Plan of
Reorganization (the "Agreement") by and between the Company and a newly
incorporated and wholly-owned subsidiary of BankBoston Corporation
("BankBoston"). At the Effective Time, Pacific will be merged with and into
BankBoston (the "Merger") and each share of Common Stock held by Pacific's
shareholders shall be converted into the right to receive from BankBoston the
number of shares of the common stock of BankBoston, par value $2.25 per share,
equal to the number obtained by dividing $50.00 by the Average Closing Price of
BankBoston common stock as reported on the NYSE for the twenty (20) trading days
ending five business days prior to the Closing Date.
Tucker Anthony Incorporated ("Tucker Anthony") as part of its investment
banking business is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. In the ordinary course of our business, we may actively trade the
securities of BankBoston for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
In arriving at our opinion, we have among other things:
<TABLE>
<C> <S>
(i) Reviewed the Affiliation Agreement and Plan of Reorganization;
(ii) Reviewed certain historical financial and other information concerning the Company for
the five fiscal years ended December 31, 1996, and the seven months ended July 31,
1997;
(iii) Reviewed certain historical financial and other information concerning BankBoston for
the five fiscal years ended December 31, 1996, and for the six months ended June 30,
1997, including BankBoston's reports on Forms 10-K and 10-Q;
(iv) Held discussions with the senior management of the Company with respect to its past
and current financial performance, financial condition and future prospects;
(v) Reviewed certain internal financial data, projections and other information of the
Company including financial projections prepared by management;
(vi) Analyzed certain publicly available information of other financial institutions that
we deemed comparable or otherwise relevant to our inquiry, and compared the Company
and BankBoston from a financial point of view with certain of these institutions;
(vii) Compared the consideration to be received by the stockholders of the Company pursuant
to the Agreement with the consideration received by stockholders in other acquisitions
of financial institutions that we deemed comparable or otherwise relevant to our
inquiry;
(viii) Reviewed publicly available earnings estimates, historical trading activity and
ownership data of the Common Stock and BankBoston common stock and considered the
prospects for dividends and price movement in each; and
(ix) Conducted such other financial studies, analyses and investigations and reviewed such
other information as we deemed appropriate to enable us to render our opinion. In our
review, we have also taken into account an assessment of general economic, market and
financial conditions and certain industry trends and related matters.
</TABLE>
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<PAGE> 153
In our review and analysis and in arriving at our opinion we have assumed
and relied upon the accuracy and completeness of all the financial information
publicly available or provided to us by the Company and BankBoston and have not
attempted to verify any of such information. We have assumed that (i) the
financial projections of the Company provided to us with respect to the results
of operations likely to be achieved by the Company have been prepared on a basis
reflecting the best currently available estimates and judgments of the Company's
management and advisors as to future financial performance and results and (ii)
that such forecasts and estimates will be realized in the amounts and in the
time periods currently estimated by management. We have also assumed, without
independent verification, that the aggregate reserves for possible loan losses
for the Company and BankBoston are adequate to cover such losses. We did not
make or obtain any independent evaluations or appraisals of any assets or
liabilities of the Company, BankBoston or any of their respective subsidiaries
nor did we verify any of the Company's or BankBoston's books or records or
review any individual loan credit files.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated as of the date of this letter.
This opinion is being furnished for the use and benefit of the Board of
Directors of the Company and is not a recommendation to shareholders. Tucker
Anthony has advised the Board that it does not believe any person other than the
Board has the legal right to rely on the opinion and, absent any controlling
precedent, would resist any assertion otherwise.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the consideration to be received by the stockholders of the Company
pursuant to the Agreement is fair to such stockholders from a financial point of
view.
Very truly yours,
Tucker Anthony Incorporated
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<PAGE> 154
Appendix F
TEXT OF SECTIONS 85 TO 98 OF CHAPTER 156B OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
SS.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.
SS.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.
SS.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
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-2-
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."
SS.88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
SS.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.
SS.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.
SS.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
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-3-
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.
SS.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.
SS.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.
SS.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.
SS.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.
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<PAGE> 157
-4-
SS.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.
SS.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.
SS.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.
F-4
<PAGE> 158
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.
(2)(a) Affiliation Agreement and Plan of Reorganization, dated as of May
23, 1997, as amended, by and among BankBoston, Buyer Sub and
Pacific (included as Appendix A to the Proxy Statement-Prospectus).
(2)(b) Agreement and Plan of Merger, dated as of May 23, 1997, by and
between BankBoston, N.A. and Pacific National Bank of Nantucket
(included as Appendix B to the Proxy Statement-Prospectus).
(2)(c) Stock Option Agreement, dated as of May 23, 1997, by and between
BankBoston and Pacific (included as Appendix C to the Proxy
Statement-Prospectus).
(3)(a) Restated Articles of Organization of BankBoston, as amended through
April 25, 1997, incorporated by reference to Exhibit 3(a) to
BankBoston's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 and Exhibit 3(b) to BankBoston's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997. (File No: 1-6522)
(3)(b) By-Laws of BankBoston, as amended through April 25, 1997,
incorporated herein by reference to Exhibit 3(c) to BankBoston's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(File No. 1-6522)
(5) Opinion of Gary A. Spiess, Esq.*
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<PAGE> 159
(8)(a) Opinion of Bingham, Dana & Gould LLP as to certain tax matters.*
(8)(b) Opinion of Choate, Hall & Stewart as to certain tax matters.*
(23)(a) Consent of Coopers & Lybrand L.L.P.
(23)(b) Consent of Arthur Andersen LLP.
(23)(c) Consent of Gary A. Spiess, Esq.
(23)(d) Consent of Bingham, Dana & Gould LLP.*
(23)(e) Consent of Choate, Hall & Stewart.*
(23)(f) Consent of Tucker Anthony Incorporated.
(24) Power of Attorney of certain directors and officers.*
(99)(a) Form of Proxy for Special Meeting of Stockholders of Pacific.*
(99)(b) Form of Letter Agreement, dated as of May 23, 1997, by and between
BankBoston and the directors and executive officers of Pacific
National Corporation and executive officers of Pacific National
Bank of Nantucket (included as Appendix D to the Proxy
Statement-Prospectus).
(99)(c) Opinion of Tucker Anthony Incorporated (included as Appendix E to
the Proxy Statement-Prospectus).
(99)(d) Text of Sections 85 to 98 of the Massachusetts Business Corporation
Law (included as Appendix F to the Proxy Statement-Prospectus).
(99)(e) Opinion of Arthur Andersen LLP (included on p. F-2).
- ---------------
* Previously filed.
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
(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
II-2
<PAGE> 160
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 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> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the 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 19th day of August, 1997.
BANKBOSTON CORPORATION
By: /s/ GARY A. SPIESS
------------------------------------
(Gary A. Spiess)
(General Counsel and Clerk)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ----------------
<C> <S> <C>
/s/ CHARLES K. GIFFORD* Chief Executive Officer and August 19, 1997
- ------------------------------------------ Director (Chief Executive
(Charles K. Gifford) Officer)
/s/ WILLIAM M. CROZIER, JR.* Chairman of the Board of August 19, 1997
- ------------------------------------------ Directors and Director
(William M. Crozier, Jr.)
/s/ HENRIQUE DE CAMPOS MEIRELLES* President and Chief Operating August 19, 1997
- ------------------------------------------ Officer and Director
(Henrique de Campos Meirelles)
/s/ SUSANNAH M. SWIHART* Executive Vice President, Chief August 19, 1997
- ------------------------------------------ Financial Officer, and Treasurer
(Susannah M. Swihart) (Chief Financial Officer)
/s/ ROBERT T. JEFFERSON* Comptroller August 19, 1997
- ------------------------------------------ (Chief Accounting Officer)
(Robert T. Jefferson)
</TABLE>
II-4
<PAGE> 162
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ----------------
<C> <S> <C>
/s/ WAYNE A. BUDD* Director August 19, 1997
- ------------------------------------------
(Wayne A. Budd)
/s/ JOHN A. CERVIERI JR.* Director August 19, 1997
- ------------------------------------------
(John A. Cervieri Jr.)
/s/ WILLIAM F. CONNELL* Director August 19, 1997
- ------------------------------------------
(William F. Connell)
/s/ GARY L. COUNTRYMAN* Director August 19, 1997
- ------------------------------------------
(Gary L. Countryman)
/s/ ALICE F. EMERSON* Director August 19, 1997
- ------------------------------------------
(Alice F. Emerson)
/s/ THOMAS J. MAY* Director August 19, 1997
- ------------------------------------------
(Thomas J. May)
/s/ DONALD F. MCHENRY* Director August 19, 1997
- ------------------------------------------
(Donald F. McHenry)
/s/ PAUL C. O'BRIEN* Director August 19, 1997
- ------------------------------------------
(Paul C. O'Brien)
/s/ THOMAS R. PIPER* Director August 19, 1997
- ------------------------------------------
(Thomas R. Piper)
/s/ FRANCENE S. RODGERS* Director August 19, 1997
- ------------------------------------------
(Francene S. Rodgers)
/s/ JOHN W. ROWE* Director August 19, 1997
- ------------------------------------------
(John W. Rowe)
/s/ GLENN P. STREHLE* Director August 19, 1997
- ------------------------------------------
(Glenn P. Strehle)
/s/ WILLIAM C. VAN FAASEN* Director August 19, 1997
- ------------------------------------------
(William C. Van Faasen)
/s/ THOMAS B. WHEELER* Director August 19, 1997
- ------------------------------------------
(Thomas B. Wheeler)
/s/ ALFRED M. ZEIEN* Director August 19, 1997
- ------------------------------------------
(Alfred M. Zeien)
</TABLE>
*By: /S/ GARY A. SPIESS
---------------------------------------------------------
Attorney-in-Fact
II-5
<PAGE> 163
INDEX TO EXHIBITS
(2)(a) Affiliation Agreement and Plan of Reorganization, dated as of May
23, 1997, as amended, by and among BankBoston, Buyer Sub and
Pacific (included as Appendix A to the Proxy Statement-Prospectus).
(2)(b) Agreement and Plan of Merger, dated as of May 23, 1997, by and
between BankBoston, N.A. and Pacific National Bank of Nantucket
(included as Appendix B to the Proxy Statement-Prospectus).
(2)(c) Stock Option Agreement, dated as of May 23, 1997, by and between
BankBoston and Pacific (included as Appendix C to the Proxy
Statement-Prospectus).
(3)(a) Restated Articles of Organization of BankBoston, as amended through
April 25, 1997, incorporated by reference to Exhibit 3(a) to
BankBoston's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 and Exhibit 3(b) to BankBoston's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997. (File No: 1-6522)
(3)(b) By-Laws of BankBoston, as amended through April 25, 1997,
incorporated herein by reference to Exhibit 3(c) to BankBoston's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(File No. 1-6522)
(5) Opinion of Gary A. Spiess, Esq.*
(8)(a) Opinion of Bingham, Dana & Gould LLP as to certain tax matters.*
(8)(b) Opinion of Choate, Hall & Stewart as to certain tax matters.*
(23)(a) Consent of Coopers & Lybrand L.L.P.
(23)(b) Consent of Arthur Andersen LLP.
(23)(c) Consent of Gary A. Spiess, Esq.
(23)(d) Consent of Bingham, Dana & Gould LLP.*
(23)(e) Consent of Choate, Hall & Stewart.*
(23)(f) Consent of Tucker Anthony Incorporated.
(24) Power of Attorney of certain directors and officers.*
(99)(a) Form of Proxy for Special Meeting of Stockholders of Pacific.*
(99)(b) Form of Letter Agreement, dated as of May 23, 1997, by and between
BankBoston and the directors and executive officers of Pacific
National Corporation and executive officers of Pacific National
Bank of Nantucket (included as Appendix D to the Proxy
Statement-Prospectus).
(99)(c) Opinion of Tucker Anthony Incorporated (included as Appendix E to
the Proxy Statement-Prospectus).
(99)(d) Text of Sections 85 to 98 of the Massachusetts Business Corporation
Law (included as Appendix F to the Proxy Statement-Prospectus).
(99)(e) Opinion of Arthur Andersen LLP (included on p. F-2).
--------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
BankBoston Corporation
We consent to the incorporation by reference, in pre-effective amendment No. 1
to the registration statement on Form S-4, of our report dated January 16, 1997
on our audits of the consolidated financial statements of BankBoston Corporation
(formerly known as Bank of Boston Corporation) and Subsidiaries as of December
31, 1996, included in the Corporation's 1996 Annual Report to Stockholders and
in Exhibit 13 to the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996. The consolidated financial statements of BayBanks, Inc., as
of December 31, 1995 and for the years ended December 31, 1995 and 1994, prior
to the restatement for the 1996 pooling of interests, included in the 1995 and
1994 restated consolidated financial statements were audited by other auditors
whose reports expressed unqualified opinions on those financial statements. We
audited the combination of the accompanying consolidated balance sheet as of
December 31, 1995, and the consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994, after restatement for the 1996 pooling of interests; in our opinion, such
consolidated financial statements have been properly combined on the basis
described in Note 2 to the financial statements. We also consent to the
reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 18, 1997
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 14, 1997 (and all references to our Firm) included in or made a
part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 18, 1997
<PAGE> 1
EXHIBIT 23(c)
BANKBOSTON CORPORATION
CONSENT OF COUNSEL
I, Gary A. Spiess, General Counsel of BankBoston Corporation, hereby
consent to the use of my name in the Registration Statement, as amended, and any
related Proxy Statement-Prospectus.
/s/ GARY A. SPIESS
--------------------------------------
Gary A. Spiess
General Counsel
Boston, Massachusetts
August 19, 1997
<PAGE> 1
EXHIBIT 23(F)
[TUCKER ANTHONY INCORPORATED LETTERHEAD]
One Beacon Street
Boston, Massachusetts 02108
(617) 725-1762
(617) 725-2483 Fax
Investing Banking
August 18, 1997
BankBoston Corporation
100 Federal Street
Boston, MA 02110
Gentlemen:
Tucker Anthony Incorporated hereby consents to the inclusion of its fairness
opinion letter to the Board of Directors of Pacific National Corporation under
the heading "Opinion of Tucker Anthony Incorporated" of the Proxy Statement-
Prospectus forming a part of the BankBoston Corporation Form S-4 registration
statement relating to the merger of Pacific National Corporation with and into
BankBoston Corporation.
Sincerely,
Tucker Anthony Incorporated
By: /s/ Francesca E. Scarito
------------------------
Francesca E. Scarito
Vice President
