SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 13, 1996 (November 13, 1996)
VERMONT FINANCIAL SERVICES CORP.
( Exact Name of Registrant as Specified in Charter)
Delaware 0-11012 03-0284445
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification
Incorporation) Number)
100 Main Street
Brattleboro, Vermont 05301
(Address of Principal Executive Offices)
802-257-7151
(Registrant's Telephone Number,
including Area Code)
<PAGE>
Item 5. OTHER EVENTS.
On November 13, 1996, Vermont Financial Services Corp. ("VFSC") entered
into an Agreement and Plan of Reorganization (the "Merger Agreement") by and
among VFSC, Eastern Bancorp, Inc., a Delaware corporation ("Eastern"), and
Vermont Federal Bank, FSB, a federally chartered stock savings bank and a wholly
owned subsidiary of Eastern ("Vermont Federal"). Pursuant to the Merger
Agreement, Eastern will merge with and into VFSC (the "Merger"), and Vermont
Federal will become a wholly owned subsidiary of VFSC.
The Merger price for each outstanding share of Common Stock, par value
$.01 per share, of Eastern ("Eastern Common Stock"), payable in cash or shares
of Common Stock, par value $1.00 per share, of VFSC ("VFSC Common Stock") or a
combination of cash and stock, will be based on the average closing bid price
per share of VFSC Common Stock on the Nasdaq Stock Market during the
20-trading-day period ending on the fifth business day prior to the effective
date of the Merger (the "Average VFSC Closing Price"), and will be equal to the
sum of (i) $7.25 plus (ii) the product of 0.49 and the Average VFSC Closing
Price, subject to the maximum and minimum collars described in the following
sentence. If the Average VFSC Closing Price is equal to or greater than $39.96,
the acquisition price per share of Eastern Common Stock will be fixed at $26.83
and if the Average VFSC Closing Price is equal to or less than $29.54 but not
less than $26.06, the acquisition price per share of Eastern Common Stock will
be fixed at $21.72. The aggregate consideration to be paid in connection with
the Merger will consist of approximately $26.65 million and approximately 1.8
million shares of VFSC Common Stock; the number of shares of VFSC Common Stock
will be decreased if the Average VFSC Closing Price equals or exceeds the $39.96
maximum and increased if the Average VFSC Closing Price equals or falls below
the $29.54 minimum. If the Average VFSC Closing Price is less than $26.06,
Eastern may terminate the Merger unless VFSC agrees to issue additional shares
of VFSC Common Stock such that the adjusted acquisition price per share of
Eastern Common Stock is equal to $21.72.
Eastern's stockholders may elect to receive cash, VFSC Common Stock or
a combination of cash and VFSC Common Stock, subject to pro rata adjustment as
set forth in the Merger Agreement to ensure that the total cash consideration to
be paid and the total number of shares of VFSC Common Stock to be issued will
equal the aggregate cash amount and share number referred to above.
The Merger is intended to constitute a tax-free reorganization, and no
gain or loss is expected to be recognized by VFSC, Eastern or Vermont Federal.
The Merger will be accounted for as a purchase.
The consummation of the Merger and the transactions contemplated by the
Merger Agreement are subject to certain conditions customary in transactions of
this nature, including, among others, approval by the stockholders of VFSC and
Eastern and receipt of all necessary regulatory approvals. No assurance can be
given that the Merger will be consummated. Each party also has the right to
terminate the Merger Agreement under certain customary circumstances, including
failure to complete the Merger by November 30, 1997.
In conjunction with the parties' signing of the Merger Agreement,
Eastern also granted to VFSC an option, exercisable under certain conditions, to
purchase up to 732,425 shares of
Page 2
<PAGE>
Eastern Common Stock at an exercise price of $21.00 per share, subject to
adjustment in certain events. If the option becomes exercisable, Eastern would
also be required to pay to VFSC a cash payment of $1 million.
Four of Eastern's nine Directors, including Eastern's chairman, chief
executive officer and executive vice president, who currently hold in the
aggregate approximately 465,487 shares of Eastern Common Stock (not including
options to purchase additional shares), or approximately 12.66% of the currently
outstanding shares of Eastern Common Stock, have agreed in a separate letter
agreement to vote all of their shares in favor of the Merger and against any
other competing transaction.
Certain additional information regarding the Merger is contained in
VFSC's press release dated November 14, 1996, included as an exhibit hereto and
incorporated herein. Also included as an exhibit hereto and incorporated by
reference herein are materials that may be distributed to, among others,
analysts who follow VFSC's stock.
Cautionary Statement for Purposes of the Private Securities Litigation Reform
Act of 1995
This Current Report and the exhibits attached hereto contain certain
"forward-looking statements," including statements concerning plans, objectives,
future events or performance, assumptions, and other statements which are other
than statements of historical fact. VFSC wishes to caution readers that the
following important factors, among others, may have affected, and could in the
future affect, VFSC's actual results and could cause VFSC's actual results for
subsequent periods to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, VFSC herein.
Economic Conditions and Real Estate Risk. VFSC's lending operations are
concentrated in Vermont and western Massachusetts, and Eastern's lending
operations are concentrated in Vermont and New Hampshire. As a result, the
financial condition and results of operations of the combined company will be
subject to the effects of changes in the business cycle and downturns in the
local and regional, as well as national, economies, as well as other general
economic conditions. In an economic downturn, there tends to be a run-off in
deposits and a decline in asset quality. If economic conditions in the combined
company's market areas worsen or decline, the combined company may not be able
to achieve the level of deposits or originate the volume of high quality
commercial, real estate and consumer loans on which the forward-looking
statements are based.
The economy and real estate markets in New Hampshire, Vermont and
western Massachusetts all showed signs of recovery in 1995 and 1996 from the
recessionary levels of the early 1990s. Consequently, Eastern's delinquencies,
non-performing assets and loss provisions generally improved from earlier
periods, as did VFSC's. The forward-looking statements regarding "Anticipated
Revenue Enhancements" in the combined business assume that the Vermont and New
Hampshire economies and real estate markets will continue the trend of
improvement. These statements also assume that customers in Eastern's market
area will be receptive to the increased mix of financial products expected to be
offered after completion of the Merger. A worsening of current economic
conditions or a significant decline in real estate values in those areas could
cause actual results to vary materially from the forward-looking statements.
Page 3
<PAGE>
Interest Rate Risk. VFSC and Eastern both realize their income
principally from the differential between the interest earned on loans,
investments and other interest-earning assets, and the interest paid on
deposits, borrowings and other interest-bearing liabilities. Net interest
spreads are affected by the difference between the repricing characteristics of
interest-earning assets and deposits and other liabilities. Loan volumes and
yields, as well as those of investments, deposits and borrowings, are also
affected by market interest rates. Unforeseen changes in interest rates could
cause the combined company's earnings to vary materially from the
forward-looking statements.
Operational Issues. The forward-looking statements concerning
"Anticipated Cost Savings" contain VFSC's internal estimates of a variety of
duplicative operating expenses which can be reduced or eliminated as a
consequence of the Merger. Achievement of these anticipated cost savings will
require concerted managerial effort after the Merger, and the savings may not
materialize or may be delayed as a result of difficulties in consolidating
operations. There can be no assurance that VFSC will actually achieve the
anticipated cost savings. To the extent that events differ from the assumptions,
actual results of operations may vary materially from the forward-looking
statements.
The ability of the combined company to operate efficiently, at least in
the short term, will be enhanced by the ability to retain certain existing
management personnel of Eastern. If VFSC is not able to retain such management
personnel the consolidation of the two companies may be more time-consuming,
difficult and expensive, and may negatively affect the predicted cost savings.
The forward-looking statements assume that the deposit base of both
VFSC and Eastern will remain substantially intact pending the Merger and will
grow at historical rates following the Merger. To the extent that the change in
ownership of Eastern or other factors result in either a temporary or long-term
loss of deposits, actual results of operations may vary materially from the
forward-looking information presented.
Competition. VFSC and Eastern both face significant competition in
their respective markets. Increasing consolidation within the banking and
financial services industry, as well as increased competition from larger
regional and out-of-state banking organizations and nonbank providers of various
financial services, may adversely affect the combined company's ability to meet
its financial goals. Many of these large competitors have greater financial
resources, larger market share and greater name recognition in the market area
served by the combined company than the combined company will itself have. The
existence of such competitors may make it difficult for the combined company to
achieve the financial goals reflected in the forward-looking statements.
Laws and Regulations. The business of VFSC and Eastern is subject to
federal and state regulation. Changes in laws and regulations, including federal
and state banking laws and regulations, with which VFSC and its subsidiaries
must comply, and the associated costs of compliance with such laws and
regulations, could cause actual results to vary from the forward-looking
statements. Changes in accounting policies and practices that may be adopted by
applicable regulatory agencies as well as by the Financial Accounting Standards
Board or changes in VFSC's organization, compensation and benefit plans also
could cause actual results to vary from the forward-looking statements.
Page 4
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
99.1 Press Release of VFSC dated November 14, 1996.
99.2 Analyst Materials.
Page 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Vermont Financial Services Corp. has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
VERMONT FINANCIAL SERVICES CORP.
Date: November 21, 1996 By: /s/John D. Hashagen, Jr.
John D. Hashagen, Jr.
President and Chief Executive Officer
Exhibit 99.1
NASDAQ SYMBOL:VFSC
NEWS RELEASE
For Immediate Release
For Additional Information
Contact: J.D. Hashagen Jr.
President & CEO
(802) 258-4000
- --------------------------------------------------------------------------------
VERMONT FINANCIAL SERVICES CORP. AND EASTERN BANCORP, INC.
ANNOUNCE MERGER
Burlington, Vermont -- November 14, 1996 -- Vermont Financial Services Corp.
(NASDAQ:VFSC) and Eastern Bancorp, Inc. (NASDAQ:EBCP) announced today that they
have signed a definitive agreement under which VFSC ("VFSC") will acquire EBCP
in a tax-free merger involving an exchange of stock and cash. EBCP is the
holding company for Vermont Federal Bank, FSB, which operates 15 branches in
Vermont and 10 branches in southern New Hampshire through First Savings of New
Hampshire, an operating division of Vermont Federal Bank.
The acquisition will result in VFSC becoming a $2.1 billion asset bank holding
company. The acquisition will add an additional $640 million in retail and
commercial deposits to VFSC's existing franchise. Significantly, in Vermont the
transaction will give VFSC a 19% statewide deposit market share and a 17%
deposit market share in Chittenden County, the state's largest market. In
southern New Hampshire, the combined company will continue to do business as
First Savings of New Hampshire, providing VFSC with attractive new markets for
the full range of its commercial banking products and services. The acquisition,
which is expected to close in the second quarter of 1997, will be accounted for
by the purchase method of accounting, and is expected to be accretive to VFSC's
earnings by 1997 calendar year end.
Under the terms of the agreement, EBCP shareholders will receive stock and/or
cash equal to the sum of $7.25 plus the product of 0.49 times the average
closing bid price of VFSC common stock for a twenty-trading day period ending
shortly before the effective time of the merger. Prior to closing each EBCP
shareholder may elect to receive either stock or cash or a combination of both
in exchange for the EBCP shares. The acquisition price will be identical without
regard to whether a shareholder has elected to receive stock or cash or a
combination. Based on a twenty day average closing bid price of VFSC common
stock at November 13, 1996 of $34.66, the transaction would be valued at $89.1
million and EBCP shareholders would be entitled to receive stock and/or cash
equal to approximately $24.23 for each share of EBCP common stock. The total
amount of cash to be paid and the number of shares to be issued by VFSC in the
acquisition are fixed, subject to certain dollar adjustments noted below. Based
upon EBCP's unaudited September 30, 1996 financial statements and the
transaction value indicated above, the price payable to EBCP shareholders would
represent 1.40 times book value and, excluding the one-time special statutory
assessment to be paid by EBCP to capitalize the Savings Association Insurance
Fund, 15.6 times trailing twelve month earnings.
<PAGE>
John D. Hashagen, Jr., President and Chief Executive Officer of VFSC said "This
merger creates a $2 billion community banking company with a #1 position in
Vermont and smaller positions in its two adjacent states. The improved market
position of the combined company, the improved operating efficiencies and the
cross-selling opportunities make this a compelling merger story. On top of this
both companies have similar traditions of high quality customer service and
commitment to their employees. We are confident that this merger will be
beneficial to our customers, employees and shareholders."
John Cobb, President and Chief Executive Officer of Eastern Bancorp adds "This
merger with Vermont Financial Services Corp. represents a truly extraordinary
opportunity for the shareholders and employees of Eastern Bancorp and its
subsidiary, Vermont Federal Bank. In combining with VFSC our organization will
be recognized as a part of one of the strongest and most profitable emerging
regional bank holding companies in New England.
"Vermont Federal Bank and First Savings customers will now have access to an
expanded array of financial services including commercial and small business
loans, trust services as well as additional service outlets in which to do
business. With a significant presence in Vermont, New Hampshire and western
Massachusetts, our current employees will have added opportunities for continued
personal and professional growth."
In terms of price adjustment provisions to the acquisition price, if VFSC's
average closing prices during the applicable twenty-trading day valuation period
is between $29.54 and $39.96 each share of EBCP common stock shall become and be
converted into stock or cash equal to the sum of $7.25 plus the product of 0.49
times such average closing price of VFSC common stock. If the average VFSC
closing price during the valuation period is greater than or equal to $39.96,
then the acquisition price shall equal $26.83. If the average VFSC closing price
during the valuation period is less than or equal to $29.54 but greater than or
equal to $26.06, then the acquisition price shall equal $21.72. If the average
VFSC closing price during the valuation period is below $26.06, the acquisition
price shall equal the sum of $7.25 plus the product of 0.5553 times such average
closing price of VFSC common stock. Notwithstanding the foregoing, if VFSC's
average closing price during the valuation period is below $26.06, EBCP can
terminate the transaction unless VFSC agrees to adopt $21.72 as the adjusted
acquisition price.
The definitive agreement has been unanimously approved by the boards of
directors of both VFSC and EBCP. The acquisition is now subject to approval by
the shareholders of both companies and regulatory authorities, including the
Federal Reserve Board, as well as usual and customary closing conditions. EBCP
has granted VFSC an option, exercisable under certain conditions, to purchase a
number of newly issued shares of EBCP common stock equal to 19.9 percent of the
total number of currently outstanding EBCP shares. If the option becomes
exercisable, then EBCP would also be required to pay to VFSC a cash payment of
$1 million.
Tucker Anthony Incorporated is serving as financial adviser to Vermont Financial
Services Corp., and McConnell, Budd and Downes, Inc. is representing Eastern
Bancorp, Inc. in the transaction.
Vermont Financial Services Corp., headquartered in Brattleboro, Vermont is the
holding company for Vermont National Bank and United Bank, a Massachusetts
savings bank. Vermont National Bank and United Bank combined have 38 banking
offices extending from western Massachusetts to northern Vermont. VFSC, through
its banking subsidiaries, provides a full range of commercial and personal
-2-
<PAGE>
banking products and services to individuals and businesses throughout Vermont,
western Massachusetts and adjacent markets.
Contacts: John D. Hashagen, President & CEO
Vermont Financial Services Corp. (802) 258-4000, or
John Cobb, President
David Humphrey, EVP
Eastern Bancorp, Inc. (802) 879-9000
ENDIT
-3-
VERMONT FINANCIAL SERVICES CORP
- --------------------------------------------------------------------------------
ACQUISITION OF
EASTERN BANCORP, INC.
NOVEMBER 14, 1996
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 1
<PAGE>
Transaction Overview
- --------------------------------------------------------------------------------
o Description of Eastern Bancorp, Inc.
o Terms and Structure
o Earnings Impact
o Current Eastern Bancorp Earnings
o Anticipated Noninterest Expense Savings and
Revenue Opportunities
o Estimated EPS Dilution is Breakeven by 12/31/97
with Accretion of 5%+ in 1998
o Internal Rate of Return of approximately 20%
o Merger Related Charges
o Pro Forma Balance Sheet
o Pricing Relative to Recent Transactions
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 2
<PAGE>
Description of Eastern Bancorp, Inc.
- --------------------------------------------------------------------------------
o Eastern's Branch Network Significantly Enhances
VFSC's Existing Franchise
- 19% Pro Forma Share of Statewide Deposits in
Vermont
- 17% Pro Forma Share of Strongest Market in
Vermont - Chittenden County
- Entry into Attractive Southern New Hampshire
Market
[Map showing branch locations of banks in Vermont, New Hampshire
and Massachusetts]
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 3
<PAGE>
Description of Eastern Bancorp, Inc.
- --------------------------------------------------------------------------------
Primary Business Retail Deposit Gathering
Residential and Commercial
Mortgage Lending
Consumer Lending
Headquarters Dover, NH
Subsidiary Vermont Federal Bank
Branches 25: 15 - Vermont Federal Bank
10 - First Savings of New
Hampshire
Employees 422
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 4
<PAGE>
Description of Eastern Bancorp, Inc.
- --------------------------------------------------------------------------------
Fiscal Year Ended 9/30/96
Assets..............................................................$869 million
Deposits............................................................$641 million
Loans...............................................................$489 million
Equity..............................................................$ 64 million
Net Income (1)......................................................$5.7 million
Return on Average Assets (1)...............................................0.69%
Return on Average Equity (1)...............................................9.01%
- --------------------------------------
(1) Excludes effects of one-time SAIF special assessment of $2.4 million, net of
taxes.
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 5
<PAGE>
Terms and Structure
- --------------------------------------------------------------------------------
o Price......................... $89.1 million, or $24.23 per EBCP share
(based on a 20 day avg. VFSC price of
$34.66)
o Exchange Ratio................ Each EBCP share to be exchanged for stock
or cash consideration equal to the value
of $7.25 cash and 0.4900 shares of VFSC.
o Form of Consideration......... Fixed pools of VFSC common stock and
cash, subject to collar adjustments.
o Election Option............... Election option to receive consideration
in form of stock or cash, subject to
aggregate limits.
o Accounting/Tax Treatment...... Purchase accounting. Stock component
tax-free.
o Collars ...................... Capped price per share of $26.83 if
VFSC's stock rises above $39.96.
Floor price per share of $21.72 if VFSC's
stock falls to between $29.54 and $26.06.
Max. exchange ratio of $7.25 cash and
0.5553 shares if VFSC's stock falls below
$26.06.
o Walkaway Provision............ EBCP termination right if VFSC's stock
price falls below $26.06 (representing
merger consideration value of $21.72 per
EBCP share), subject to VFSC option to
cure.
o Stock Option.................. Option granted to VFSC for 19.9% of
stock, with related $1 million fee.
o Fully Diluted Shares Approximately 6.8 million post-closing.
Outstanding...................
o Due Diligence................. Completed
o Approvals..................... Shareholders of both companies. Standard
regulatory reviews.
o Anticipated Closing........... June 1997
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 6
<PAGE>
Earnings Impact
- --------------------------------------------------------------------------------
EBCP SHARE PAYOUT DIAGRAM
[Graph showing consideration to be paid in merger based on value
of VFSC Stock]
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 7
<PAGE>
Earnings Impact
- --------------------------------------------------------------------------------
EASTERN CURRENT EARNINGS (1)
Fiscal Year Ended 9/30/96 ($000s)
Net Interest Income $28,933
Loan Loss Provision 895
Noninterest Income 11,273
Noninterest Expense 30,173
Pre-Tax Income 9,138
Net Income $5,728
- ------------------------------------
(1) Excludes effects of one-time SAIF special assessment of $2.4 million, net of
tax.
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 8
<PAGE>
Earnings Impact
- --------------------------------------------------------------------------------
ANTICIPATED EXPENSE SAVINGS (Annual) (1)(2)
($000s)
Holding Company Costs $1,100
Corporate Functions 1,800
Data Processing 1,600
Lending Functions 1,400
Branches 1,200
Operations 700
Marketing 600
Other 600
Total $9,000
- ------------------------------------
(1) 70% of cost savings of $9.3 million anticipated to be captured by 12/31/97
and 100% by 6/30/98.
(2) Represents 31% of EBCP non-interest expense for the 12 months ended 9/30/96,
excluding SAIF assessment.
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 9
<PAGE>
Earnings Impact
- --------------------------------------------------------------------------------
ANTICIPATED REVENUE ENHANCEMENTS (Annual) (1)
($000s)
ATM and Debit Card Income $ 400
Checking Account Service Charges 250
Credit Card and Merchant Services Income 150
Corporate Cash Management Services Income 100
Credit Card Income 100
Trust Services Income 100
Total $1,100
- ------------------------------------
(1) 100% of revenue enhancements anticipated to be realized by
6/30/98.
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 10
<PAGE>
Merger Related Charges
- --------------------------------------------------------------------------------
NON-RECURRING ITEMS IN 1997
($000s)
Investment Portfolio Mark to Market $8,800
Loan Loss Reserve/OREO Adjustments 6,300
Personnel 2,500
Facilities & Equipment 1,300
Branch Related 750
Other 2,600
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 11
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Balance Sheet
- --------------------------------------------------------------------------------
Pro Forma Pro Forma
As of 9/30/96($mil)(1) VFSC EBCP Combined Adjustments as Adjusted
<S> <C> <C> <C> <C> <C>
Cash & Investments $ 322 $ 343 $ 655 $(140) $ 525
Loans 893 489 1,382 (5) 1,377
Premises & Equipment 22 17 39 (1) 38
Other Assets 40 20 60 52 112
------ ------ ------ ------ ------
Total Assets $1,277 $ 869 $2,146 $2,052
====== ====== ====== ======
Deposits $1,074 $ 641 $1,715 $1,715
Borrowings 78 154 232 (100) 132
Other Liabilities 9 10 19 19
------ ------ ------ ------
Total Liabilities 1,161 805 1,966 1,866
Shareholders' Equity $ 116 $ 64 $ 179 5 $ 184
<FN>
- ------------------------------------
(1) Adjusted for estimated transaction-related restructuring charges,
purchase accounting adjustments, and a paydown of borrowings.
</FN>
</TABLE>
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Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 12
<PAGE>
Pricing Relative to Recent Transactions
- --------------------------------------------------------------------------------
SELLER/BUYER Price Assets Price to Price to
($mil) ($mil) Book Earnings
Eastern Bancorp/VFSC $ 89 $869 140% 15.6
Family Bancorp/Peoples Heritage 113 887 164% 12.2
Marble Financial/Albank 61 413 156% 8.5
NFS Financial/BayBanks 98 614 160% 12.3
- --------------------------------------------------------------------------------
Vermont Financial Services Corp. - Acquisition of Eastern
Bancorp, Inc. Page 13
