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REGISTRATION NO. 333-21023
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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VERMONT FINANCIAL SERVICES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6021 03-0284445
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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100 MAIN STREET, BRATTLEBORO, VERMONT 05301
(802) 257-7151
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOHN D. HASHAGEN, JR.
VERMONT FINANCIAL SERVICES CORP.
100 MAIN STREET
BRATTLEBORO, VERMONT 05301
(802) 257-7151
TELECOPY: (802) 258-4097
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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STEPHEN J. COUKOS, ESQ. EDWARD YOUNG, ESQ.
SULLIVAN & WORCESTER LLP HALE AND DORR LLP
ONE POST OFFICE SQUARE 60 STATE STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109
(617) 338-2800 (617) 526-6000
TELECOPY: (617) 338-2880 TELECOPY: (617) 526-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective and all other
conditions to the merger of Eastern Bancorp, Inc. with and into Vermont
Financial Services Corp. pursuant to the Agreement and Plan of Reorganization
described in the accompanying Joint Proxy Statement-Prospectus have been
satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT WILL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT WILL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
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VERMONT FINANCIAL SERVICES CORP.
100 MAIN STREET
BRATTLEBORO, VERMONT 05301
April , 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Vermont Financial Services Corp. ("VFSC") to be held on
May 30, 1997 at 10:00 a.m., local time, at the Holiday Inn, Rutland, Vermont.
At the Special Meeting, stockholders will be asked to approve and adopt an
Agreement and Plan of Reorganization (the "Merger Agreement") entered into on
November 13, 1996 providing for the merger of Eastern Bancorp, Inc. with and
into VFSC (the "Merger").
Your Board of Directors has carefully evaluated the proposed Merger and
believes that the Merger is advisable and in the best interests of VFSC and its
stockholders. The Board has unanimously approved the Merger and the related
transactions and recommends that stockholders vote FOR that proposal.
The enclosed Joint Proxy Statement-Prospectus contains a description of the
Merger as well as the background of the proposed transaction and the businesses
of the two merging companies and their subsidiaries. I encourage you to read
this document closely. Should you have any questions concerning the Special
Meeting, you may call us at (802) 257-7151.
Accompanying this letter are a Notice of the Special Meeting, a Proxy and
the Joint Proxy Statement- Prospectus. To assure that your shares are properly
represented at the Special Meeting, please sign, date and return your Proxy as
soon as possible in the envelope provided. If you attend the Special Meeting in
person, you may vote your shares even if you have previously returned a Proxy.
YOUR VOTE IS IMPORTANT. FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT. WE URGE YOU TO VOTE FOR THE PROPOSED MERGER.
Sincerely,
JOHN D. HASHAGEN, JR.
President and Chief Executive Officer
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VERMONT FINANCIAL SERVICES CORP.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997
TO THE STOCKHOLDERS OF VERMONT FINANCIAL SERVICES CORP.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "VFSC
Meeting") of VERMONT FINANCIAL SERVICES CORP. ("VFSC") will be held on May 30,
1997 at 10:00 a.m., local time, at the Holiday Inn, Rutland, Vermont, for the
purpose of considering and voting upon the following matter:
- To approve and adopt the Agreement and Plan of Reorganization dated as of
November 13, 1996 (the "Merger Agreement"), by and among VFSC, Eastern
Bancorp, Inc. ("Eastern") and Eastern's wholly owned subsidiary, Vermont
Federal Bank, FSB, and each of the transactions contemplated thereby,
including the merger (the "Merger") of Eastern with and into VFSC upon
the terms and subject to the conditions set forth in the Merger
Agreement, as more fully described in the accompanying Joint Proxy
Statement-Prospectus. A copy of the Merger Agreement is attached as
Appendix A to the accompanying Joint Proxy Statement-Prospectus, and
certain related documents are attached as exhibits thereto.
The VFSC Board of Directors has fixed the close of business on April 2,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the VFSC Meeting and any adjournments or postponements
thereof. Only stockholders of record at the close of business on such date are
entitled to notice of and to vote at the VFSC Meeting. A list of VFSC
stockholders entitled to vote at the VFSC Meeting or any adjournments or
postponements thereof will be available for examination for any purpose germane
to the VFSC Meeting, for 10 days prior to the VFSC Meeting during ordinary
business hours, at the principal executive offices of VFSC located at 100 Main
Street, Brattleboro, Vermont.
Shares of VFSC Common Stock are the only securities of VFSC the holders of
which are entitled to vote upon the matters to be presented at the VFSC Meeting.
Your vote is important regardless of the number of shares you own. Approval
of the Merger requires the affirmative vote of the holders of not less than
two-thirds of the issued and outstanding shares of VFSC Common Stock. Each
stockholder, even though he or she now plans to attend the VFSC Meeting, is
requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid return envelope. You may revoke your Proxy at any time
prior to its exercise. Any stockholder present at the VFSC Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the VFSC Meeting.
By Order of the Board of Directors,
RICHARD O. MADDEN
Secretary
April , 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT AND EACH OF THE TRANSACTIONS CONTEMPLATED
THEREBY.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
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EASTERN BANCORP, INC.
537 CENTRAL AVENUE
DOVER, NEW HAMPSHIRE 03820
(603) 749-2150
April , 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Eastern Bancorp, Inc. ("Eastern") to be held on May 30, 1997 at 10:00 a.m., at
the Portsmouth Courtyard by Marriott, Portsmouth, New Hampshire (the "Special
Meeting").
At the Special Meeting, stockholders will be asked to approve the Agreement
and Plan of Reorganization (the "Merger Agreement"), dated as of November 13,
1996, by and among Eastern, its wholly owned subsidiary Vermont Federal Bank,
FSB, and Vermont Financial Services Corp. ("VFSC"). VFSC, a Delaware
corporation, is a registered bank holding company with its principal place of
business in Brattleboro, Vermont.
If the Merger Agreement is approved and the merger between VFSC and Eastern
(the "Merger") is consummated, each outstanding share of Eastern Common Stock,
other than shares as to which dissenters' rights have been perfected and shares
held by Eastern as treasury stock, will be converted into the right to receive
(in cash and/or shares of VFSC Common Stock, as described below) the sum of (i)
$7.25 plus (ii) the product of 0.49 times the average closing bid price per
share of VFSC Common Stock on the Nasdaq National Market during the
20-trading-day period ending on the fifth business day prior to the effective
date of the Merger (the "Average Closing Price"). 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 provided 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 below.
The price per share will be subject to maximum and minimum collars as
follows: if the Average 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 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 total consideration to be paid in connection with the Merger will
consist of approximately $26.65 million in cash and approximately 1.8 million
shares of VFSC Common Stock; the number of shares of VFSC Common Stock will be
decreased if the Average Closing Price equals or exceeds the $39.96 maximum and
increased if the Average Closing Price equals or falls below the $29.54 minimum.
If the Average Closing Price is less than $26.06, the price per share will be
adjusted to the sum of (i) $7.25 plus (ii) the product of 0.5553 times the
Average Closing Price; in addition, 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 stock certificates should not be returned with the proxy and should
not be forwarded until you receive a letter of transmittal that will be provided
approximately four weeks before the Merger is consummated.
VFSC's banking subsidiaries have a total of 39 offices, located primarily
in central and southern Vermont and the contiguous market of Greenfield,
Massachusetts, with total deposits of approximately $1.1 billion and total
assets of approximately $1.3 billion at December 31, 1996. Vermont Federal Bank
conducts business through a network of 25 offices located primarily in northern
Vermont and southeastern New Hampshire, with total deposits of approximately
$627.2 million and total assets of approximately $866.0 million at December 31,
1996.
The Merger and the Merger Agreement are described in the accompanying Joint
Proxy Statement- Prospectus, the forepart of which includes a summary of the
terms of the Merger and certain other information relating to the proposed
transaction. Consummation of the Merger is subject to certain conditions,
including the approval of the Merger Agreement by the holders of two-thirds of
Eastern's outstanding
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Common Stock and two-thirds of VFSC's outstanding Common Stock, as well as
regulatory approvals. We urge you to read the Joint Proxy Statement-Prospectus
carefully.
Eastern's Board of Directors (the "Eastern Board") has received the opinion
of its financial advisor, McConnell, Budd & Downes, Inc. ("MB&D"), that the
Merger Consideration (as defined in the Joint Proxy Statement-Prospectus) is
fair to the stockholders of Eastern from a financial point of view, and has
determined that the Merger Agreement is in the best interest of Eastern
stockholders.
ACCORDINGLY, THE EASTERN BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER AND RELATED TRANSACTIONS, AND RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
MB&D's opinion is summarized in the Joint Proxy Statement-Prospectus, and
the complete opinion is included as Appendix B to the Joint Proxy
Statement-Prospectus. We urge you to read these items carefully.
YOUR VOTE IS IMPORTANT. FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT. You are urged to sign, date and mail the enclosed
proxy card promptly in the postage-prepaid envelope provided, whether or not you
plan to attend the Special Meeting. If you attend the Special Meeting, you may
vote in person even if you have already mailed your proxy card.
On behalf of the Eastern Board, I thank you for your continued support. We
appreciate your interest in Eastern.
Sincerely yours,
W. STEVENS SHEPPARD
Chairman of the Board
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EASTERN BANCORP, INC.
537 CENTRAL AVENUE
DOVER, NEW HAMPSHIRE 03820
(603) 749-2150
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997
To the Stockholders of Eastern Bancorp, Inc.
Notice is hereby given that a Special Meeting of the Stockholders of
Eastern Bancorp, Inc. ("Eastern") will be held on May 30, 1997 at 10:00 a.m.,
local time, at the Portsmouth Courtyard by Marriott, Portsmouth, New Hampshire,
for the purpose of considering and voting upon the following matters:
1. A proposal to approve and adopt the Agreement and Plan of
Reorganization, dated as of November 13, 1996 (the "Merger Agreement"), by
and among Eastern, Eastern's wholly owned subsidiary, Vermont Federal Bank,
FSB, and Vermont Financial Services Corp. ("VFSC") and each of the
transactions contemplated thereby, pursuant to which Merger Agreement
Eastern would be merged with and into VFSC, and shareholders of Eastern
would receive cash and/or shares of Common Stock of VFSC, all as more fully
described in the attached Joint Proxy Statement-Prospectus. A copy of the
Merger Agreement is attached as Appendix A to the accompanying Joint Proxy
Statement-Prospectus and certain related documents are attached as exhibits
thereto.
2. Such other matter or matters which may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 2, 1997 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting. The
affirmative vote of the holders of two-thirds of the shares of Common Stock of
Eastern outstanding on the Record Date is required for approval of the Merger
Agreement.
The persons named as proxies may propose and vote for one or more
adjournments or postponements of the Special Meeting to permit further
solicitation of proxies in favor of the foregoing proposal.
If the proposal described in Item 1 above is approved by the stockholders
at the Special Meeting and effected by Eastern, stockholders of Eastern who
follow the procedures set forth in Section 262 of the Delaware General
Corporation Law will have dissenters' rights of appraisal as therein provided.
A JOINT PROXY STATEMENT-PROSPECTUS IS SET FORTH ON THE FOLLOWING PAGES AND
A PROXY CARD IS ENCLOSED HEREWITH. TO ENSURE THAT YOUR VOTE IS COUNTED, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED, POSTAGE-PAID
RETURN ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE
YOUR SHARES IN PERSON. HOWEVER, ATTENDANCE AT THE MEETING WILL NOT OF ITSELF
CONSTITUTE REVOCATION OF A PROXY. IF YOUR SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM THE HOLDER OF RECORD OF SUCH
SHARES IN ORDER TO VOTE PERSONALLY AT THE SPECIAL MEETING.
By Order of the Board of Directors,
W. STEVENS SHEPPARD
Chairman of the Board
Dover, New Hampshire
April , 1997
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JOINT PROXY STATEMENT
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VERMONT FINANCIAL SERVICES CORP. EASTERN BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997 TO BE HELD ON MAY 30, 1997
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VERMONT FINANCIAL SERVICES CORP.
PROSPECTUS
1,994,484 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE
(SUBJECT TO ADJUSTMENT AS DESCRIBED BELOW)
This Joint Proxy Statement-Prospectus is furnished in connection with the
solicitation of proxies from the holders of the common stock of Eastern Bancorp,
Inc. ("Eastern"), par value $0.01 per share ("Eastern Common Stock"), for use at
the Special Meeting of Stockholders of Eastern to be held on May 30, 1997 and
any adjournments or postponements thereof (the "Eastern Meeting") and from the
holders of the common stock of Vermont Financial Services Corp. ("VFSC"), $1.00
par value per share ("VFSC Common Stock"), for use at the Special Meeting of
stockholders of VFSC, to be held on May 30, 1997 and any adjournments or
postponements thereof (the "VFSC Meeting" and, together with the Eastern
Meeting, the "Special Meetings"). The solicitation of proxies from VFSC
stockholders is made by VFSC's Board of Directors (the "VFSC Board"), and the
solicitation of proxies from Eastern's stockholders is made by Eastern's Board
of Directors (the "Eastern Board").
At the Special Meetings, the Eastern and VFSC stockholders will be asked to
consider and act upon a proposal to approve and adopt the Agreement and Plan of
Reorganization by and among VFSC, Eastern and Vermont Federal Bank, FSB, dated
as of November 13, 1996 (the "Merger Agreement"), pursuant to which Eastern will
be merged with and into VFSC, with VFSC being the surviving corporation (the
"Merger"). A copy of the Merger Agreement is attached hereto as Appendix A and
is incorporated herein by reference.
As more fully described herein, pursuant to the Merger Agreement, Eastern
will be merged with and into VFSC and each then outstanding share of Eastern
Common Stock (other than shares with respect to which appraisal rights are
perfected) will be converted into either a cash amount or a number of shares of
VFSC Common Stock. The amount of cash and the number of shares (the "Merger
Consideration") will be determined pursuant to a formula set forth in the Merger
Agreement that is based upon the average closing bid price per share of VFSC
Common Stock on the Nasdaq National Market during the 20-trading-day period
ending on the fifth business day prior to the effective time of the Merger (the
"Average Closing Price"). The formula will be adjusted if the Average Closing
Price is more than $39.96 or less than $26.06, and is subject to possible
further adjustment if the Average Closing Price is less than $21.72. If the
Average Closing Price were $39.96, a holder of Eastern Common Stock receiving
all cash would receive $26.83 and a holder receiving all stock would receive
0.6714 shares of VFSC Common Stock; if it were $26.06, such holders would
receive, respectively, $21.72 in cash or 0.8335 shares of VFSC Common Stock.
Holders of Eastern Common Stock may elect to receive the Merger
Consideration in the form of cash or shares of VFSC Common Stock or a
combination of the two, but elections will be subject to proration as more fully
described herein if the cash to be paid or the stock to be issued under the
formula is not sufficient to accommodate all elections. The Average Closing
Price will not be determined by the time of the Eastern Meeting or when holders
of Eastern Common Stock will be required to submit their elections, and holders
will not know at such times the per share amount of cash or number of shares of
VFSC Common Stock to be delivered in the Merger. Persons wishing to inquire
about the Merger Consideration may telephone VFSC toll-free between 9:00 a.m.
and 5:00 p.m., Eastern standard time, at (800) 482-6245, ext. 4003.
Consummation of the Merger is conditioned upon, among other things, receipt
of all required stockholder and regulatory approvals. If there are not
sufficient votes at the time of their respective Special Meetings to approve and
adopt the Merger Agreement, the stockholders of Eastern and/or VFSC may be asked
to approve adjournment of the Special Meeting to permit further solicitation of
proxies.
This Joint Proxy Statement-Prospectus also constitutes a prospectus of VFSC
in respect of up to 1,994,484 shares of VFSC Common Stock to be issued to
Eastern stockholders in connection with the Merger (subject to increase to an
amount which cannot currently be determined if the Average Closing Price of VFSC
Common Stock at the Effective Time (as those terms are hereinafter defined) is
less than $26.06 per share). Such shares of VFSC Common Stock are to be issued
on the conversion of the outstanding shares of Eastern Common Stock, as
described in this Joint Proxy Statement-Prospectus. See "THE MERGER -- Terms of
the Merger."
All information contained in this Joint Proxy Statement-Prospectus relating
to VFSC and its subsidiaries has been supplied by VFSC, and all information
contained in this Joint Proxy Statement-Prospectus relating to Eastern and its
subsidiaries has been supplied by Eastern. The pro forma financial information
contained herein relating to VFSC has been prepared by VFSC and includes
historical financial information regarding Eastern that was supplied to VFSC by
Eastern.
The Joint Proxy Statement-Prospectus and the respective proxy forms for the
Special Meetings are first being mailed to stockholders of Eastern and VFSC on
or about April , 1997.
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THE SHARES OF VFSC COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS APRIL , 1997.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT-PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN IN CONNECTION WITH THE
SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY VFSC OR EASTERN. THIS JOINT PROXY STATEMENT-PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT- PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF VFSC OR
EASTERN SINCE THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS OR THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. 1
INFORMATION INCORPORATED BY REFERENCE................................................. 1
SUMMARY............................................................................... 3
The Companies....................................................................... 3
The Merger.......................................................................... 4
The Special Meetings................................................................ 8
Record Date and Vote Required....................................................... 8
Management and Operations after the Merger.......................................... 8
Recommendation of the Boards of Directors and Reasons for the Merger................ 9
Opinions of Financial Advisors...................................................... 9
No Solicitation..................................................................... 10
Interests of Certain Persons in the Merger.......................................... 10
Employment Matters.................................................................. 10
Conditions to Consummation of the Merger; Termination............................... 11
Amendment and Waiver of the Merger Agreement; Extensions............................ 11
Regulatory Approvals................................................................ 11
Certain Federal Income Tax and Accounting Consequences.............................. 12
Stock Option Agreement.............................................................. 12
Appraisal Rights and Dissenting Eastern Stockholders................................ 12
Certain Differences in the Rights of Stockholders................................... 13
Market Prices and Dividend Data..................................................... 13
SELECTED FINANCIAL DATA............................................................... 15
COMPARATIVE UNAUDITED PER SHARE FINANCIAL DATA........................................ 19
RECENT DEVELOPMENTS................................................................... 21
THE SPECIAL MEETINGS.................................................................. 23
Record Date, Quorum and Voting for Eastern Meeting.................................. 23
Required Vote at Eastern Meeting.................................................... 23
Record Date, Quorum and Voting for VFSC Meeting..................................... 24
Required Vote at VFSC Meeting....................................................... 24
Solicitation Expenses............................................................... 25
Beneficial Ownership of Eastern Common Stock........................................ 25
Appraisal Rights and Dissenting Eastern Stockholders................................ 26
THE MERGER............................................................................ 29
General............................................................................. 29
Background of the Merger............................................................ 29
Recommendation of the Eastern Board and Reasons for the Merger...................... 32
Recommendation of the VFSC Board and Reasons for the Merger......................... 33
Opinion of Financial Advisors....................................................... 34
Effective Time of the Merger; Closing Date.......................................... 43
Conversion of Shares of Eastern Common Stock Pursuant to the Merger................. 43
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Election Procedures................................................................. 46
Certificate Exchange Procedures..................................................... 47
Treatment of Eastern Stock Options.................................................. 48
Conduct of Business Pending the Merger.............................................. 48
Conditions to Consummation of the Merger............................................ 51
Termination......................................................................... 52
Amendment, Extension and Waiver..................................................... 52
Requisite Regulatory Approvals...................................................... 53
Expenses............................................................................ 54
Stock Option Agreement.............................................................. 54
Stockholders Agreement.............................................................. 55
No Solicitation..................................................................... 55
Interests of Certain Persons in the Merger.......................................... 56
Employment Obligations.............................................................. 57
Resale of VFSC Common Stock......................................................... 57
Certain Federal Income Tax Consequences............................................. 58
Accounting Treatment................................................................ 61
PRO FORMA COMBINED FINANCIAL DATA..................................................... 62
INFORMATION REGARDING VFSC............................................................ 68
DESCRIPTION OF VFSC CAPITAL STOCK..................................................... 68
Common Stock........................................................................ 68
Preferred Stock..................................................................... 68
MARKET FOR VFSC COMMON STOCK.......................................................... 69
COMPARISON OF RIGHTS OF HOLDERS OF EASTERN COMMON STOCK AND VFSC COMMON STOCK......... 70
Special Meetings of Stockholders.................................................... 70
Inspection Rights................................................................... 70
Action by Consent of Stockholders................................................... 70
Cumulative Voting................................................................... 70
Preemptive Rights................................................................... 70
Classification of the Board of Directors............................................ 70
Removal of Directors................................................................ 70
Additional Directorships and Vacancies on the Board of Directors.................... 71
Exculpation of Directors and Officers............................................... 71
Indemnification of Directors, Officers and Others................................... 71
Restrictions upon Certain Business Combinations..................................... 71
Mergers, Share Exchanges or Asset Sales............................................. 72
Certain Issuances of Stock.......................................................... 72
Amendments to Charter............................................................... 72
Amendments to By-laws............................................................... 73
Appraisal Rights.................................................................... 73
LEGAL MATTERS......................................................................... 73
EXPERTS............................................................................... 73
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APPENDICES
Appendix A -- Agreement and Plan of Reorganization dated as of November 13, 1996
Appendix B -- Form of Opinion of McConnell, Budd & Downes, Inc.
Appendix C -- Form of Opinion of Tucker Anthony Incorporated
Appendix D -- Text of Section 262 of Delaware General Corporation Law (Appraisal
Rights)
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AVAILABLE INFORMATION
VFSC has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
S-4 under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the securities to be issued in connection with the Merger. For
further information pertaining to the securities of VFSC to which this Joint
Proxy Statement-Prospectus relates, reference is made to the Registration
Statement, including the exhibits and schedules filed as a part thereof. In
addition, VFSC and Eastern are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Commission. Proxy statements, reports and other information concerning VFSC
and Eastern can be inspected and copied at the Commission's office at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's Regional Offices in New York (7 World Trade Center, Suite 1300, New
York, New York 10048) and Chicago (CitiCorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661), and copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site (located at http://www.sec.gov) which contains
reports, proxy and information statements and other information regarding VFSC
and Eastern. VFSC Common Stock and Eastern Common Stock are listed on the Nasdaq
National Market (the "Nasdaq NM"). Consequently, reports, proxy statements and
other information concerning VFSC and Eastern may also be inspected at the
offices of the NASD, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. This
Joint Proxy Statement-Prospectus does not contain all the information set forth
in the Registration Statement and exhibits thereto which VFSC has filed with the
Commission under the Securities Act, which Registration Statement and exhibits
thereto may be obtained from the Public Reference Section of the Commission at
its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 upon
payment of the prescribed fees, and to which reference is hereby made.
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
RELATING TO VFSC AND EASTERN THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS THERETO, ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF VFSC
COMMON STOCK OR EASTERN COMMON STOCK, TO WHOM THIS JOINT PROXY
STATEMENT-PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE
OF VFSC, VERMONT FINANCIAL SERVICES CORP., 100 MAIN STREET, BRATTLEBORO, VERMONT
05301, ATTENTION: RICHARD O. MADDEN, SECRETARY (TELEPHONE: 802-257-7151), OR IN
THE CASE OF EASTERN, EASTERN BANCORP, INC., 537 CENTRAL AVENUE, DOVER, NEW
HAMPSHIRE 03820, ATTENTION: PRESIDENT (TELEPHONE: 603-749-2150). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 23,
1997.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by VFSC with the Commission are
incorporated by reference herein:
(1) VFSC's Annual Report on Form 10-K for the year ended December 31,
1996; and
(2) VFSC's Current Reports on Form 8-K, dated March 18, 1996 and
November 21, 1996.
VFSC's Exchange Act file number with the Commission is 0-11012.
The following documents previously filed by Eastern with the Commission are
incorporated by reference herein:
(1) Eastern's Annual Report on Form 10-K for the year ended September
30, 1996;
(2) Eastern's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996; and
<PAGE> 11
(3) Eastern's Current Report on Form 8-K, dated November 21, 1996.
Eastern's Exchange Act file number with the Commission is 0-14853.
Also incorporated herein by reference are the following portions of
Eastern's Annual Report to Stockholders for the fiscal year ended September 30,
1996, which accompanies this Joint Proxy Statement-Prospectus: (i) Business
(pages 1 to 9); (ii) Market for Registrant's Common Stock and Related
Stockholder Matters (page 10); (iii) Selected Financial Data (pages 11 to 13);
(iv) Management's Discussion and Analysis of Financial Condition and Results of
Operations (pages 14 to 31); and (v) Consolidated Financial Statements and Notes
thereto (pages 32 to 61).
In addition, all documents subsequently filed by VFSC with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
date of the Special Meetings shall be deemed to be incorporated by reference
into this Joint Proxy Statement-Prospectus and to be a part hereof from the date
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement- Prospectus to the
extent that a statement contained herein, or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Joint
Proxy Statement-Prospectus.
THIS JOINT PROXY STATEMENT-PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF VFSC FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS
RELATING TO THE COST SAVINGS, REVENUE ENHANCEMENTS AND FUNDING ADVANTAGES THAT
ARE EXPECTED TO BE REALIZED FROM THE MERGER AND THE EXPECTED IMPACT OF THE
MERGER ON VFSC'S FINANCIAL PERFORMANCE (SEE "THE MERGER -- RECOMMENDATION OF THE
EASTERN BOARD AND REASONS FOR THE MERGER" AND "-- RECOMMENDATION OF THE VFSC
BOARD AND REASONS FOR THE MERGER"). THESE FORWARD-LOOKING STATEMENTS INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED
HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE WORDS
"BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) INABILITY
FULLY TO REALIZE EXPECTED COST SAVINGS FROM THE MERGER ; (2) GREATER THAN
EXPECTED DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE MERGER;
(3) SIGNIFICANT INCREASES IN COMPETITIVE PRESSURE IN THE BANKING INDUSTRY; (4)
GREATER THAN ANTICIPATED COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF VFSC AND EASTERN; (5) REDUCTIONS IN MARGINS BECAUSE OF CHANGES IN
THE INTEREST RATE ENVIRONMENT; (6) LESS FAVORABLE GENERAL ECONOMIC CONDITIONS,
EITHER NATIONALLY OR REGIONALLY, THAN EXPECTED, RESULTING IN, AMONG OTHER
THINGS, A DETERIORATION IN CREDIT QUALITY, (7) CHANGES IN THE REGULATORY
ENVIRONMENT, (8) CHANGES IN BUSINESS CONDITIONS AND INFLATION, AND (9) CHANGES
IN THE SECURITIES MARKETS.
2
<PAGE> 12
- --------------------------------------------------------------------------------
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement-Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained herein,
the appendices hereto and the documents incorporated by reference herein.
Stockholders of VFSC and Eastern are urged to read this Joint Proxy
Statement-Prospectus with care in its entirety.
THE COMPANIES
VFSC. VFSC, a Delaware corporation, is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). VFSC has
two wholly owned subsidiaries, Vermont National Bank, a national banking
association ("VNB"), and United Bank, a Massachusetts chartered stock savings
bank ("UB" and, together with VNB, the "Banks"). At December 31, 1996, VFSC had
total consolidated assets of approximately $1.3 billion and total consolidated
stockholders' equity of approximately $119.7 million. VFSC intends to fund the
cash portion of the Merger Consideration out of cash from operations, consisting
primarily of dividend income received from the Banks.
VNB, which operates 32 branches throughout the State of Vermont, and UB,
which operates seven branches in western Massachusetts, are engaged in
commercial and retail banking and in the trust business, including the taking of
deposits, the making of secured and unsecured loans, the financing of commercial
transactions, and the performance of corporate, pension and personal trust
services.
The principal offices of VFSC and VNB are located at 100 Main Street,
Brattleboro, Vermont 05301. VFSC's telephone number is (802) 257-7151. The
principal offices of UB are located at 45 Federal Street, Greenfield,
Massachusetts 01301.
VFSC and the Banks are subject to federal, state and local laws applicable
to state savings banks, national banks and bank holding companies and to the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the Comptroller of the Currency (the "OCC"), the
Federal Deposit Insurance Corporation (the "FDIC") and the Massachusetts
Division of Banks.
For further information concerning VFSC, see "INFORMATION REGARDING VFSC"
and the VFSC documents incorporated by reference herein as described under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Eastern. Eastern, a Delaware corporation, is a nondiversified savings and
loan holding company. It owns 100% of the stock of Vermont Federal Bank, FSB
("Vermont Federal"), a federally chartered stock savings bank. Eastern also owns
Vermont Service Corporation ("VSC"), a real estate development company which it
purchased from Vermont Federal in 1991. VSC and its subsidiary company, Vermont
East Coast Company ("VECC"), are joint venture partners in the ownership of
development rights in a mobile home association known as "Williston Woods." At
present, Eastern is not significantly engaged in operating business activities
other than management of its investments and operations through Vermont Federal,
VSC, and VECC. At December 31, 1996, Eastern had total consolidated assets of
approximately $866.0 million and total consolidated stockholders' equity of
approximately $64.8 million.
The principal offices of Eastern are located at 537 Central Avenue, Dover,
New Hampshire 03820. Eastern's telephone number is (603) 749-2150. The principal
offices of Vermont Federal are located at 282 Williston Road, Williston, Vermont
05495. Vermont Federal's telephone number is (802) 879-9000.
Eastern and Vermont Federal are subject to federal, state and local laws
applicable to savings and loan holding companies and federal savings banks and
to the regulations, principally, of the Office of Thrift Supervision (the
"OTS").
For further information concerning Eastern, see "INFORMATION INCORPORATED
BY REFERENCE," "SELECTED HISTORICAL FINANCIAL DATA OF EASTERN" and the
information contained in the form of Annual Report to Stockholders for the
fiscal year ended September 30, 1996 accompanying this Joint Proxy
Statement-Prospectus.
- --------------------------------------------------------------------------------
3
<PAGE> 13
- --------------------------------------------------------------------------------
Comparison of Loan Portfolios. Through its subsidiary Banks, VFSC makes
commercial loans to small and medium-sized businesses in Vermont and
Massachusetts. VNB is the leading commercial lender in the State of Vermont. At
the close of its 1996 fiscal year, approximately 19.5% of VFSC's outstanding
loans consisted of commercial real estate loans, 19.9% consisted of commercial
loans and 2.8% consisted of construction loans. These percentages are somewhat
higher than for Eastern in the case of commercial real estate and construction
loans, which accounted for 16.8% and 2%, respectively, of Eastern's loan
portfolio at the end of fiscal year 1996, and significantly higher in the case
of commercial loans, which accounted for 1.5% of Eastern's portfolio as of such
date. After the Merger is consummated, the proportion of the combined company's
loan portfolio consisting of such loans will be greater than is the case with
Eastern's current loan portfolio, and the proportion consisting of residential
mortgage loans will be less. Because commercial real estate and commercial
lending generally involves larger loan balances to single borrowers or groups of
related borrowers, and because repayment of the loan depends in part on the
underlying business and financial condition of the borrower and is more
susceptible to adverse future developments, such lending typically accounts for
a disproportionate share of delinquent loans and real estate owned through
foreclosure when compared with residential mortgage lending. In addition to such
factors, construction loans are, in general, subject to uncertainties inherent
in estimating construction costs, delays arising from labor problems, shortages
of material, uncertain marketability of a completed project and other
unpredictable contingencies that make it relatively difficult to determine
accurately the total loan funds required to complete a project or the value of
the completed project. For certain historical indicia of the performance of
VFSC's loan portfolio, see the information on Selected Financial Ratios in
"SELECTED FINANCIAL DATA -- Selected Historical Financial Data of VFSC."
VFSC and Eastern both realize 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. However, residential mortgage loans, which generally have a longer
maturity than commercial and commercial real estate loans, tend to respond
differently to increases in interest rates. Because the proportion of
residential mortgage loans to commercial and commercial real estate loans in the
combined company will be different from that in Eastern's current portfolio,
unanticipated changes in interest rates could have a different, and possibly
adverse, effect on the combined company's actual interest rate spread and net
income.
For further information concerning the portfolios and interest rate
experience of VFSC and Eastern, see "INFORMATION INCORPORATED BY REFERENCE,"
"SELECTED FINANCIAL DATA," and the information contained in the form of
Eastern's Annual Report to Stockholders for the fiscal year ended September 30,
1996 accompanying this Joint Proxy Statement-Prospectus.
THE MERGER
General. Pursuant to the terms of the Merger Agreement, Eastern is to be
merged with and into VFSC, with VFSC being the surviving entity. It is
anticipated that the Merger will close in the second quarter of 1997, although
there can be no assurance in this regard. See "-- Conditions to Consummation of
the Merger; Termination."
Merger Consideration. The Merger Agreement provides that, on the closing
date (the "Closing Date") and at the effective time of the Merger (the
"Effective Time") and subject to the election and allocation procedures provided
for therein, each share of Eastern Common Stock outstanding at the Effective
Time (other than shares with respect to which appraisal rights are perfected)
shall be converted into either (i) an amount in cash equal to the sum of (x)
$7.25 plus (y) the product of 0.49 times the average closing bid price per share
of VFSC Common Stock on the Nasdaq NM during the 20-trading-day period ending on
the fifth business day prior to the Effective Time (the "Average Closing Price")
(such total per share purchase price being referred to herein as the
"Acquisition Price" and such total per share cash amount being referred to
herein as the "Cash Distribution"), or (ii) the number of whole and fractional
shares of VFSC Common Stock, rounded to the nearest ten-thousandth of a share,
equal to the number obtained by dividing the Acquisition Price by the Average
Closing Price (such number being referred to herein as the "Exchange Ratio" or
the "Stock Distribution" and, together with the Cash Distribution, as the
"Merger Consideration").
- --------------------------------------------------------------------------------
4
<PAGE> 14
However, if the Average Closing Price is greater than or equal to $39.96 per
share, the Acquisition Price shall equal $26.83, and if the Average Closing
Price is less than or equal to $29.54 per share but greater than or equal to
$26.06 per share, the Acquisition Price shall equal $21.72. If the Average
Closing Price is less than $26.06, the Acquisition Price shall equal the sum of
(x) $7.25 and (y) the product of 0.5553 times the Average Closing Price.
If the Average Closing Price is less than $26.06 per share, then Eastern
shall have the right to terminate the Merger Agreement, unless VFSC elects, in
its sole discretion, to adopt $21.72 as the Acquisition Price (the "Adjusted
Acquisition Price"). In determining whether to elect to terminate the Merger
Agreement in these circumstances, Eastern will, consistent with its fiduciary
duties, take into account all relevant facts and circumstances existing at the
time, including without limitation: whether it believes that VFSC is prepared to
(i) adopt $21.72 as the Acquisition Price, (ii) acquiesce in the termination of
the Merger or (iii) seek to negotiate for a lesser increase in the Acquisition
Price; the market for bank and thrift stocks in general; and the relative value
of the Eastern Common Stock in the market and the advice of its financial
advisors and legal counsel. By approving the Merger Agreement, the Eastern
stockholders would be permitting the Eastern Board to determine, in the exercise
of its fiduciary duties, to proceed with the Merger even if the Average Closing
Price of the VFSC Common Stock during the pricing period were less than $26.06
per share.
The total amount of the Cash Distribution to be made to all holders of
shares of Eastern Common Stock will equal the product of $7.25 times the number
of shares of Eastern Common Stock outstanding at the Effective Time (which
product is currently estimated at $26.6 million). The balance of the Merger
Consideration will consist of shares of VFSC Common Stock; if the Average
Closing Price is between $29.54 and $39.96 per share, Eastern's stockholders
will receive approximately 1.8 million shares of VFSC Common Stock, or
approximately 28.1% of all shares outstanding upon consummation of the Merger
and, if the Average Closing Price is less than $29.54, they will receive an
increasing number of shares, up to approximately 2.0 million shares of VFSC
Common Stock, or approximately 30.7% of all shares outstanding upon consummation
of the Merger, if the Average Closing Price is $26.06 per share. Each holder of
shares of Eastern Common Stock may, by means of an election form that will be
mailed following the Special Meetings, elect to receive, with respect to some or
all of such holder's shares of Eastern Common Stock, shares of VFSC Common Stock
or cash, or may make no election. Any election may be revoked or changed by the
person submitting such form, provided such notice is timely received. See "THE
MERGER -- Election Procedures."
Because the aggregate amount of cash and the aggregate number of shares of
VFSC Common Stock are determined in accordance with the formula set forth in the
Merger Agreement and will be allocated among Eastern's stockholders pursuant to
the election and allocation procedures described herein, the extent to which
individual elections to receive cash or VFSC Common Stock can be accommodated
will depend upon the number of Eastern stockholders who elect to receive cash or
VFSC Common Stock or who make no election. The Merger Agreement provides that,
if necessary, elections to receive cash (or stock) will be subject to proration,
ratably with all similar elections, if sufficient cash (or stock) is not
available to accommodate fully all such elections. No prediction can be made as
to the election that any Eastern stockholder may make and, consequently, no
assurance can be given that an election by any given holder of Eastern Common
Stock will be honored with respect to any or all shares of Eastern Common Stock
held by such holder, or that holders will receive their requested form or mix of
consideration.
For example, pursuant to the Merger Agreement, if holders of Eastern Common
Stock in the aggregate elect to receive fewer shares of VFSC Common Stock and
more cash than is available to be issued and paid under the formula, then shares
of VFSC Common Stock will be distributed first to those holders who had elected
to receive only VFSC Common Stock and then to holders who had made no election.
If shares of VFSC Common Stock still remain following such distributions, then
such shares will be allocated ratably among the holders who had elected to
receive only cash. Conversely, if holders of Eastern Common Stock elect to
receive in the aggregate more shares of VFSC Common Stock than are available
under the formula, then cash will be distributed first to those holders who had
elected to receive only cash and then to holders who had made no election. If
cash still remains following such distributions, then such cash and the shares
of VFSC Common Stock will be allocated ratably among holders who had elected to
receive VFSC Common Stock.
5
<PAGE> 15
- --------------------------------------------------------------------------------
Holders of Eastern Common Stock who do not submit properly completed
election forms by 5:00 p.m., Eastern standard time, on the 15th calendar day
following, but not including, the mailing date of the election forms will be
deemed to have made no election as to whether they receive VFSC Common Stock or
cash in the Merger. Such persons will be allocated cash or shares of VFSC Common
Stock based on the effect of valid elections on the amount of cash and number of
shares of VFSC Common Stock available under the allocation formula. Because the
deadline for return of the election forms will occur prior to the end of the
valuation period, the Average Closing Price will not be determined by the time
holders of Eastern Common Stock will be required to submit their election forms.
See "THE MERGER -- Election Procedures." In the event a holder of Eastern Common
Stock receives both VFSC Common Stock and cash (other than cash for fractional
shares), the receipt of such cash could be subject to tax as a dividend. See
"THE MERGER -- Certain Federal Income Tax Consequences."
- --------------------------------------------------------------------------------
6
<PAGE> 16
TABULAR AND GRAPHIC ILLUSTRATION OF THE MERGER CONSIDERATION
AT VARIOUS AVERAGE CLOSING PRICES
The table below shows the Merger Consideration corresponding to various
possible values of the Acquisition Price and Adjusted Acquisition Price,
respectively. If the Average Closing Price is less than $26.06 and VFSC in its
sole discretion so elects, the Merger Consideration will be based on the
Adjusted Acquisition Price of $21.72. The Merger Consideration will be in the
form of the Cash Distribution per share of Eastern Common Stock or the Stock
Distribution of the number of shares of VFSC Common Stock to be exchanged for
each share of Eastern Common Stock.
There can be no assurance as to what the Average Closing Price will be or
what the value of the Merger Consideration will be at or following the Effective
Time. The table and graph below are intended as illustrative examples only. This
illustration is qualified in its entirety by reference to the Merger Agreement.
The highest and lowest Average Closing Prices depicted in the illustration are
not intended to suggest that the Average Closing Price, when computed, will not
be higher or lower than these respective values.
As shown below, if the Average Closing Price were to be $41.625, the
closing price of VFSC Common Stock on March 27, 1997, the Acquisition Price
would be $26.83; an Eastern Stockholder receiving all cash would receive $26.83
per share of Eastern Common Stock, and an Eastern Stockholder receiving all
stock would receive 0.6446 shares of VFSC Common Stock per share of Eastern
Common Stock.
<TABLE>
<CAPTION>
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
AVERAGE ------------------------------
CLOSING PRICE ACQUISITION STOCK
(OF VFSC PRICE (PER CASH DISTRIBUTION
SHARES) EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ------------- -------------- ------------ -------------
<S> <C> <C> <C>
$44.000 $26.8300 $26.8300 0.6098
42.000 26.8300 26.8300 0.6388
41.625 26.8300 26.8300 0.6446
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
40.000 26.8300 26.8300 0.6708
39.960 26.8300 26.8300 0.6714
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
38.000 25.8700 25.8700 0.6808
36.000 24.8900 24.8900 0.6914
34.000 23.9100 23.9100 0.7032
32.000 22.9300 22.9300 0.7166
30.000 21.9500 21.9500 0.7317
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
29.540 21.7200 21.7200 0.7353
28.000 21.7200 21.7200 0.7757
26.060 21.7200 21.7200 0.8335
</TABLE>
<TABLE>
<CAPTION>
If Eastern elects to terminate the Merger
but VFSC elects to keep the Merger Agreement in effect:
- --------------------------------------------------------------
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
ADJUSTED -----------------------------------
ACQUISITION PRICE (PER CASH STOCK DISTRIBUTION
EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ---------------------- ------------ ------------------
<S> <C> <C>
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C> <C> <C>
26.000 21.6878 21.6878 0.8341 $21.7200 $21.7200
24.000 20.5772 20.5772 0.8574 21.7200 21.7200
22.000 19.4666 19.4666 0.8848 21.7200 21.7200
<CAPTION>
26.000 0.8354
<S> <C>
24.000 0.9050
22.000 0.9873
</TABLE>
- --------------------------------------------------------------------------------
Graph showing range of values of merger consideration per share of target
company's stock as determined by price of acquiring company's stock, with
example of value based on March 27, 1997 price of acquiring company's stock.
7
<PAGE> 17
Because the tax consequences of receiving cash or VFSC Common Stock will
differ, holders of Eastern Common Stock are urged to read carefully the
information set forth under the caption "THE MERGER -- Certain Federal Income
Tax Consequences."
THE SPECIAL MEETINGS
At the Special Meetings, the stockholders of Eastern and VFSC will consider
and vote upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby.
The VFSC Meeting will be held on May 30, 1997 at 10:00 a.m. at the Holiday
Inn, Rutland, Vermont.
The Eastern Meeting will be held on May 30, 1997 at 10:00 a.m. at the
Portsmouth Courtyard by Marriott, Portsmouth, New Hampshire.
RECORD DATE AND VOTE REQUIRED
VFSC. The VFSC Board has fixed the close of business on April 2, 1997 as
the record date (the "VFSC Record Date") for determination of stockholders
entitled to notice of and to vote at the VFSC Meeting and any adjournments or
postponements thereof. The Merger 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 VFSC Common Stock. Proxies
may be revoked by filing a written notice of revocation, submitting a
subsequently executed proxy or attending the VFSC Meeting and voting in person.
See "THE SPECIAL MEETINGS -- Required Vote at VFSC Meeting." Stockholders of
VFSC are entitled to one vote at the VFSC Meeting for each share of VFSC Common
Stock held of record at the close of business on the VFSC Record Date. At the
close of business on the VFSC Record Date, 4,606,728 shares of VFSC Common Stock
were outstanding and entitled to vote, of which approximately 297,841 shares, or
6.5%, were held by directors and executive officers of VFSC and their respective
affiliates. See "THE SPECIAL MEETINGS -- Record Date, Quorum and Voting for VFSC
Meeting."
Eastern. The Eastern Board has fixed the close of business on April 2,
1997 as the record date (the "Eastern Record Date") for determination of
stockholders entitled to notice of and to vote at the Eastern Meeting and any
adjournments or postponements thereof. The affirmative vote of the holders of at
least two-thirds of the outstanding shares of Eastern Common Stock entitled to
vote is required to approve and adopt the Merger Agreement and the transactions
contemplated thereby. Proxies may be revoked by filing a written notice of
revocation, submitting a subsequently executed proxy or attending the Eastern
Meeting and voting in person. See "THE SPECIAL MEETINGS -- Required Vote at
Eastern Meeting." Stockholders of Eastern are entitled to one vote at the
Eastern Meeting for each share of Eastern Common Stock held of record at the
close of business on the Eastern Record Date. At the close of business on the
Eastern Record Date, 3,673,834 shares of Eastern Common Stock were outstanding
and entitled to vote, of which approximately 469,540 shares, or approximately
12.8%, were beneficially owned by directors and executive officers of Eastern
and their respective affiliates. See "THE SPECIAL MEETINGS -- Record Date,
Quorum and Voting for Eastern Meeting" and "-- Beneficial Ownership of Eastern
Common Stock."
Certain Eastern directors, who beneficially own in the aggregate 465,488
shares on the Eastern Record Date, representing approximately 12.7% of the
shares of Eastern Common Stock issued and outstanding on the Eastern Record
Date, have entered into a letter agreement with VFSC dated as of November 13,
1996 (the "Stockholders Agreement") to vote their shares of Eastern Common Stock
in favor of the Merger Agreement. See "THE SPECIAL MEETINGS -- Beneficial
Ownership of Eastern Common Stock" and "THE MERGER -- Stockholders Agreement."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The Merger will become effective on the Closing Date and at the Effective
Time as set forth in a Certificate of Merger to be filed with the Secretary of
State of the State of Delaware. The directors and officers of VFSC will continue
to serve in such offices after the Effective Time. However, the size of the VFSC
Board will be increased, and three members of the current Eastern Board will be
designated by VFSC to serve
8
<PAGE> 18
as members of the VFSC Board. VFSC has not yet designated the members of the
Eastern Board who will serve on the VFSC Board.
RECOMMENDATION OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
THE BOARDS OF DIRECTORS OF VFSC AND EASTERN EACH UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND EACH UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
Eastern. The Eastern Board has determined the Merger to be fair to and in
the best interests of Eastern and its stockholders and has unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Merger. Accordingly, the Board unanimously recommends that stockholders vote
"for" approval of the Merger Agreement.
In the course of reaching its decision to enter into the Merger Agreement
with VFSC, the Eastern Board consulted with its advisors and considered a number
of factors, including without limitation, the following: (i) its belief that the
Merger represents an attractive strategic alternative to Eastern for enhancing
stockholder value; (ii) the presentation and opinion of its financial advisor,
McConnell, Budd & Downes, Inc. ("MB&D"), as to the fairness from a financial
point of view of the Merger Consideration to Eastern and its stockholders; and
(iii) a number of factors relating to Eastern, VFSC and Eastern's stockholders.
See "THE MERGER -- Background of the Merger," and "-- Recommendation of the
Eastern Board and Reasons for the Merger" for a discussion of the reasons for
the Eastern Board's recommendation to approve the Merger Agreement and the
transactions contemplated thereby.
VFSC. The VFSC Board believes that the terms of the Merger Agreement and
the transactions contemplated thereby are in the best interests of its
stockholders and recommends that its stockholders vote FOR the approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
In reaching its determination, the VFSC Board considered the following
factors: (i) the opportunity for VFSC to expand and strengthen its existing
franchise in Vermont and to establish a presence in the attractive market of
southeastern New Hampshire; (ii) the opportunity for cost savings arising from
Eastern's existing presence in Vermont; (iii) cross-selling opportunities
provided by Eastern's customer base; and (iv) the opinion of its financial
advisor, Tucker Anthony Incorporated ("Tucker Anthony"), that, subject to
certain assumptions, the consideration to be paid by VFSC to Eastern's
stockholders was fair to the stockholders of VFSC, from a financial point of
view.
OPINIONS OF FINANCIAL ADVISORS
Eastern. MB&D has delivered to the Eastern Board its written opinion dated
the date of this Joint Proxy Statement-Prospectus that, in its opinion, the
consideration to be received in the Merger is fair, from a financial point of
view, to the stockholders of Eastern. The full text of MB&D's opinion as of the
date of this Joint Proxy Statement-Prospectus, which describes the procedures
followed, assumptions made, limitations on the review undertaken and other
matters in connection with rendering such opinion, is set forth in Appendix B
attached hereto. Stockholders of Eastern are urged to read this opinion in its
entirety. MB&D's opinion is directed only to the consideration to be received in
the Merger and does not constitute a recommendation to Eastern stockholders as
to how they should vote at the Eastern Meeting.
VFSC. Tucker Anthony has delivered to the VFSC Board its written opinions
dated November 13, 1996 and the date of this Joint Proxy Statement-Prospectus
that the consideration to be paid in the Merger is fair, from a financial point
of view, to the stockholders of VFSC. The full text of Tucker Anthony's opinion
as of the date of this Joint Proxy Statement-Prospectus, which sets forth
assumptions made, matters considered and limits on the review undertaken by it,
is attached hereto as Appendix C. Stockholders of VFSC are urged to read this
opinion in its entirety. Tucker Anthony's opinions are directed only to the
consideration to be paid in the Merger and do not constitute a recommendation to
VFSC stockholders as to how they should vote at the VFSC Meeting.
9
<PAGE> 19
See "THE MERGER -- Background of the Merger," "-- Opinions of Financial
Advisors" and Appendix B and Appendix C to this Joint Proxy
Statement-Prospectus.
NO SOLICITATION
Eastern has also agreed that neither it nor Vermont Federal will encourage,
solicit, initiate or, subject to the fiduciary obligations of the Eastern Board
(as advised by outside counsel), participate in any discussions or negotiations
with, or provide information to, any other party concerning any merger, tender
offer, sale of substantial assets, sale of shares of capital stock or debt
securities or similar transaction involving Eastern or any of its subsidiaries
(any of the foregoing being referred to as an "Acquisition Transaction"), except
that Eastern may communicate or disclose certain information to its stockholders
pursuant to applicable securities or other law. Eastern has also agreed that it
will immediately communicate to VFSC 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 or its receipt of any request for information from any
governmental agency or authority with respect to a proposed Acquisition
Transaction. See "THE MERGER -- No Solicitation."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to the Merger Agreement, VFSC has, subject to certain limitations,
agreed to indemnify, defend and hold harmless each present and past director,
officer and employee of Eastern against certain claims and related expenses and
liabilities. VFSC has also agreed to maintain for six years the directors' and
officers' liability insurance maintained by Eastern prior to the Effective Time
(or provide an appropriate substitute therefor), but VFSC is not required to
expend more than $207,000 for such insurance coverage. VFSC is also required to
designate three members of the current Eastern Board to serve on the VFSC Board
after the Merger is consummated. VFSC has not yet designated the members of the
Eastern Board who will serve on the VFSC Board.
Certain members of Eastern's management and of the Eastern Board have
certain arrangements, including certain benefits under existing employment
agreements and severance and benefit plans, which are likely to be triggered in
connection with the Merger resulting in cash severance payments of approximately
$1.9 million in the aggregate. In addition, at the Effective Time, certain
options granted to one executive officer of Eastern to purchase 1,200 shares of
Eastern Common Stock will become immediately exercisable in full pursuant to the
accelerated vesting provisions contained in the agreements under which such
options were granted. Such options have an aggregate value (based on the
difference between their exercise price and the $24.875 per share closing price
of Eastern Common Stock on March 27, 1997) of approximately $16,000; the
aggregate value, on such basis, of all vested options held by executive officers
of Eastern is approximately $3.9 million. See "THE MERGER -- Interests of
Certain Persons in the Merger."
EMPLOYMENT MATTERS
VFSC is not obligated to employ any person who is employed by Eastern
immediately prior to the Effective Time. Following the Effective Time, VFSC
will, or will cause its subsidiaries to, honor in accordance with their terms
all employment, severance and other compensation contracts between Eastern or
any subsidiary thereof and any director, officer or employee thereof, and all
provisions for benefits or other amounts earned or accrued through the Effective
Time under Eastern's pension or benefit plans. VFSC has agreed to provide those
persons who are employees of Eastern or any subsidiary of Eastern at the
Effective Time and who are thereafter employed by VFSC or a subsidiary of VFSC
with the benefits maintained by VFSC and its affiliates from time to time for
the benefit of their employees similarly situated. VFSC will cause each plan,
program or arrangement included among the benefits of VFSC to be provided after
the Effective Time (other than VFSC's defined benefit pension plan) to treat the
prior service of each such employee with Eastern or its affiliates, to the
extent such prior service is recognized under the comparable plan, program or
arrangement of Eastern, as service rendered to VFSC or its affiliate, as the
case may be, for purposes of eligibility to participate, vesting, and
eligibility for special benefits under each such plan, program or arrangement of
VFSC, but not in any case for benefit accrual attributable to any period before
the Effective
10
<PAGE> 20
Time. Any employee of Eastern or any subsidiary of Eastern who becomes an
employee of VFSC or any subsidiary of VFSC immediately following the Effective
Time who is not otherwise covered by an employment, severance or other
compensation agreement and who has been identified by VFSC within the first six
months from and after the Closing Date as an employee whose employment is
terminated as a result of VFSC's consolidation and/or cost-saving efforts in
connection with the Merger following the Effective Time, will be entitled to
receive from and after the date of such employee's termination of employment
certain salary continuation payments based on the length of the employee's
employment by Eastern. See "THE MERGER -- Employment Obligations."
CONDITIONS TO CONSUMMATION OF THE MERGER; TERMINATION
Conditions to the Merger. The obligations of VFSC and Eastern to
consummate the Merger are subject to various conditions, including, but not
limited to, obtaining requisite stockholder, regulatory and third-party
approvals, the absence of breaches of representations and warranties by the
other party, authorization for listing (subject to official notice of issuance)
on the Nasdaq NM of the additional shares of VFSC Common Stock to be issued in
connection with the Merger, and the receipt by each of VFSC and Eastern of an
opinion of counsel with respect to certain federal income tax consequences of
the Merger. In addition, it is a condition to the obligations of VFSC to
consummate the Merger that none of the requisite regulatory approvals pertaining
to the Merger impose any term, condition or restriction upon VFSC or its
subsidiaries after the Merger that, in VFSC's reasonable business judgment,
would be burdensome in the context of the transactions contemplated by the
Merger Agreement. It is also a condition to the obligations of each party that,
since the date of the end of the other party's most recent fiscal year, there
will have been no material adverse change in the financial condition, results of
operations, business, assets or prospects of the other party. Finally, it is a
condition of VFSC's obligations to effect the Merger that the number of shares
of Eastern Common Stock held by persons dissenting from the Merger and electing
statutory appraisal rights shall not exceed 20% of the issued and outstanding
shares of Eastern Common Stock. See "THE MERGER -- Conditions to Consummation of
the Merger."
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time by the mutual consent of VFSC and Eastern, or by either party
if: (i) a requisite regulatory approval of the Merger is denied and such denial
becomes final and nonappealable or the requisite approval of the other party's
stockholders is not obtained; (ii) the Merger is not consummated on or before
November 30, 1997, unless the failure to consummate the Merger is due to the
failure of the party seeking to terminate the Merger Agreement to perform its
obligations thereunder; or (iii) the other party materially breaches its
obligations under the Merger Agreement or the Stock Option Agreement (as defined
below) and fails to cure such breach within 30 days after notice of such breach.
The Merger Agreement may also be terminated at Eastern's election if the
Average Closing Price of VFSC Stock is less than $26.06 per share, unless VFSC
elects to adjust upward the consideration payable to holders of Eastern Common
Stock. Reference is made to the Merger Agreement for a description of additional
termination provisions contained therein. See "THE MERGER -- Termination."
AMENDMENT AND WAIVER OF THE MERGER AGREEMENT; EXTENSIONS
At any time prior to the consummation of the Merger or termination of the
Merger Agreement, the parties may amend the Merger Agreement, extend the time
for performance of any obligations or waive any inaccuracies in representations
and warranties or compliance with any conditions; provided, that stockholder
approval shall be necessary to amend the Merger Agreement to change the amount
or form of the consideration to be paid in the Merger. See "THE
MERGER -- Amendment, Extension and Waiver."
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board in
accordance with the requirements of Section 4(c)(8) of the BHC Act and
applicable regulations of the Federal Reserve Board and the Massachusetts Board
of Bank Incorporation (the "MBBI") under Chapter 167A of the Massachusetts
11
<PAGE> 21
- --------------------------------------------------------------------------------
General Laws. Prior notices of the Merger have also been filed with the Vermont
Department of Banking, Insurance, Securities and Health Care Administration (the
"Vermont Department"), the United States Department of Justice ("Department of
Justice") and the Federal Trade Commission (the "FTC"). There can be no
assurance that the Merger will be approved by the Federal Reserve Board, the
MBBI or any other applicable regulatory agency or body. If such approvals are
received, there can be no assurance as to the date of such approvals or the
absence of any litigation challenging any such approval. The Merger will not
occur until all regulatory approvals, notices or other filings required to
consummate the Merger have been obtained or made and are in full force and
effect, and any statutory waiting periods in respect thereof have expired. While
it is not a condition to the Merger, VFSC also intends to merge Vermont Federal
into VNB as soon as practicable following the completion of the Merger, which
will require certain additional regulatory filings and approvals. See "THE
MERGER -- Requisite Regulatory Approvals."
CERTAIN FEDERAL INCOME TAX AND ACCOUNTING CONSEQUENCES
Neither VFSC nor Eastern has requested or will receive an advance ruling
from the Internal Revenue Service as to the tax consequences of the Merger. The
respective obligations of VFSC and Eastern to effect the Merger are conditioned
upon receipt of opinions dated as of the Closing Date of their respective
counsel, substantially to the effect that, for federal income tax purposes, the
Merger constitutes a reorganization within the meaning of section 368 of the
Internal Revenue Code of 1986, as amended (the "Code") (noting, however, that
the nontaxability to the stockholders of Eastern resulting from such
reorganization does not extend to cash received as part of the Merger
Consideration, cash in lieu of a fractional share interest in VFSC Common Stock
or cash received by dissenting stockholders, if any).
It is intended that the Merger will constitute a tax-free reorganization
and that no gain or loss will be recognized by VFSC, Eastern or Vermont Federal
and that no gain or loss will be recognized by Eastern stockholders with respect
to their receipt of VFSC Common Stock in exchange for their shares of Eastern
Common Stock. The receipt of cash by Eastern stockholders in exchange for shares
of Eastern Common Stock, in lieu of fractional shares of VFSC Common Stock or as
a dissenting stockholder will be taxable to the extent of any taxable gain
realized upon such receipt of cash.
Stockholders of Eastern should consult their own tax advisors as to the tax
consequences of the Merger under federal, state, local or any other applicable
law. See "THE MERGER -- Certain Federal Income Tax Consequences."
It is intended that the Merger will be accounted for by VFSC as a purchase.
See "THE MERGER -- Accounting Treatment."
STOCK OPTION AGREEMENT
As a condition to, and in consideration for entering into, the Merger
Agreement, Eastern entered into an agreement dated November 13, 1996 (the "Stock
Option Agreement"), pursuant to which it granted VFSC an option to purchase up
to 732,425 shares of Eastern Common Stock (the "Option Shares") at an exercise
price of $21.00 per share (the "Option"). The Option is exercisable only upon
the occurrence of certain events after execution of the Merger Agreement as set
forth in the Stock Option Agreement, none of which has occurred as of the date
hereof. In the event that VFSC's rights to purchase the Option Shares become
exercisable under the Stock Option Agreement, VFSC is also entitled under the
Merger Agreement to receive a fee of up to $1 million. See "THE MERGER -- Stock
Option Agreement" and "-- Termination." The Stock Option Agreement and such fee
are intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement and may have the effect of
discouraging persons who might now or prior to the Effective Time be interested
in acquiring all of or a significant interest in Eastern from considering or
proposing such an acquisition.
APPRAISAL RIGHTS AND DISSENTING EASTERN STOCKHOLDERS
Holders of Eastern Common Stock who do not vote to approve and adopt the
Merger Agreement and who comply with the requirements of Section 262 of the
Delaware General Corporation Law (the "DGCL")
- --------------------------------------------------------------------------------
12
<PAGE> 22
- --------------------------------------------------------------------------------
will be entitled to dissenters' rights under Delaware law. A copy of Section 262
of the DGCL is attached to this Joint Proxy Statement-Prospectus as Appendix D.
Holders of VFSC Common Stock do not have appraisal rights with respect to the
Merger. See "THE SPECIAL MEETINGS -- Appraisal Rights and Dissenting Eastern
Stockholders" and "COMPARISON OF RIGHTS OF HOLDERS OF EASTERN COMMON STOCK AND
VFSC COMMON STOCK -- Appraisal Rights."
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
The rights of stockholders of Eastern are currently governed by the DGCL,
Eastern's Restated Certificate of Incorporation, as amended (the "Eastern
Certificate"), and Eastern's by-laws, as amended (the "Eastern By-laws"). Upon
consummation of the Merger, Eastern stockholders who do not receive all cash in
the Merger will automatically become stockholders of VFSC, and their rights will
be governed by the DGCL, VFSC's Certificate of Incorporation (the "VFSC
Certificate") and VFSC's by-laws (the "VFSC By-laws"). See "COMPARISON OF RIGHTS
OF HOLDERS OF EASTERN COMMON STOCK AND VFSC COMMON STOCK."
MARKET PRICES AND DIVIDEND DATA
VFSC Common Stock and Eastern Common Stock are both listed for trading on
the Nasdaq NM.
The following table sets forth, for the periods indicated, the range of
high and low asked and bid prices per share for VFSC Common Stock and Eastern
Common Stock on the Nasdaq NM as reported on the Lexis-Nexis IDD Information
Services, Tradeline quotation service. Such prices are approximate and reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
necessarily reflect actual transactions. The table also sets forth, for the
periods indicated, the quarterly cash dividends per share paid by VFSC and
Eastern, respectively, on such shares. All per share information with respect to
Eastern Common Stock has been adjusted to reflect Eastern's June 19, 1996
three-for-two stock split paid to stockholders of record as of June 5, 1996.
<TABLE>
<CAPTION>
CASH DIVIDENDS
VFSC EASTERN PER SHARE OF
COMMON STOCK COMMON STOCK COMMON STOCK
----------------- ----------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW VFSC EASTERN
- -------------------------------------- ------ ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
1994
March 31............................ $19.25 $16.25 $12.33 $10.42 $0.10 $0.03
June 30............................. 20.00 16.50 15.67 10.25 0.12 0.03
September 30........................ 24.25 19.00 16.33 13.33 0.15 0.03
December 31......................... 22.25 19.75 14.83 10.83 0.17 0.03
1995
March 31............................ 23.50 20.75 14.33 12.50 0.20 0.07
June 30............................. 27.25 21.75 15.00 12.33 0.20 0.07
September 30........................ 30.88 26.00 16.00 14.17 0.22 0.08
December 31......................... 35.00 29.50 19.67 14.67 0.25 0.11
1996
March 31............................ 35.00 31.50 17.50 15.67 0.25 0.12
June 30............................. 34.00 31.00 17.67 15.17 0.27 0.12
September 30........................ 35.13 31.25 22.25 16.00 0.27 0.14
December 31......................... 36.50 34.25 24.00 20.00 0.27 0.14
1997
through March 27.................... 45.00 35.25 26.00 22.75 0.30 0.16
</TABLE>
On January 9, 1997, VFSC announced a first quarter dividend of $0.30 per
share, payable on February 25, 1997 to stockholders of record as of January 24,
1997. On January 23, 1997, Eastern announced a first quarter dividend of $0.16
per share, payable on February 19, 1997 to stockholders of record as of February
5, 1997. See "RECENT DEVELOPMENTS."
- --------------------------------------------------------------------------------
13
<PAGE> 23
The following table sets forth the last reported bid prices per share of
VFSC Common Stock and Eastern Common Stock, reported as described above, on
November 12, 1996, the last trading day before the announcement of the Merger
Agreement, and on March 27, 1997, the latest practicable trading day before the
printing of this Joint Proxy Statement-Prospectus, and equivalent per share
prices for Eastern Common Stock based on the VFSC Common Stock prices using
assumed Exchange Ratios of 0.69 and 0.6446, respectively, as of such dates. See
Note 1 to "COMPARATIVE UNAUDITED PER SHARE DATA."
<TABLE>
<CAPTION>
VFSC EASTERN EASTERN
COMMON STOCK COMMON STOCK PRO FORMA
PRICE PRICE EQUIVALENT
------------ ------------ ---------
<S> <C> <C> <C>
November 12, 1996.................................... $36.50 $22.00 $ 25.14
March 27, 1997....................................... 41.625 24.875 $ 26.83
</TABLE>
On March 27, 1997, there were approximately 2,500 holders of record of VFSC
Common Stock and approximately 1,100 holders of record of Eastern Common Stock.
HOLDERS OF EASTERN COMMON STOCK ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR VFSC COMMON STOCK AND EASTERN COMMON STOCK IN CONNECTION WITH
VOTING THEIR SHARES AND MAKING ELECTIONS TO RECEIVE SHARES OF VFSC COMMON STOCK
AND/OR CASH DURING THE ELECTION PERIOD.
14
<PAGE> 24
SELECTED FINANCIAL DATA
The following tables set forth (i) consolidated historical summary
financial data for the periods and as of the dates indicated for VFSC and its
consolidated subsidiaries and for Eastern and its consolidated subsidiaries and
(ii) pro forma combined summary financial data for the periods and as of the
dates indicated, giving effect to the Merger as if it had been consummated on
January 1, 1995 for income statement information and on December 31, 1996 for
balance sheet information. Pro forma adjustments made to arrive at the pro forma
combined amounts are based on the purchase method of accounting and a
preliminary allocation of the purchase price. However, changes to the
adjustments included in the pro forma combined financial information set forth
below are expected as evaluations of assets and liabilities are completed and
additional information becomes available. Accordingly, the final pro forma
combined amounts will differ from those set forth below.
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of VFSC included in the documents described under
"INFORMATION INCORPORATED BY REFERENCE," the selected consolidated financial
statements and accompanying notes of Eastern contained in the form of Annual
Report to Stockholders for the fiscal year ended September 30, 1996 accompanying
this Joint Proxy-Prospectus and the pro forma combined financial statements and
accompanying discussion and notes set forth under "PRO FORMA COMBINED FINANCIAL
DATA."
The combined company expects to realize benefits from the Merger, including
operating cost savings and revenue enhancements. The pro forma earnings, which
do not reflect any direct costs, potential savings or revenue enhancements that
are expected to result from the consolidation of operations of VFSC and Eastern,
are not indicative of the results of future operations. No assurances can be
given with respect to the actual amount of expense savings or revenue
enhancements that may be realized, if any. The pro forma combined summary
financial data are intended for informational purposes and are not necessarily
indicative of the future financial position or future results of operations of
the combined company or of the financial position or the results of operations
of the combined company that would have actually occurred had the Merger been in
effect as of the date or for the periods presented.
15
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA OF VFSC
<TABLE>
<CAPTION>
AT OR FOR THE
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income........................... $ 98,105 $ 96,457 $ 84,391 $ 82,142 $ 88,265
Interest expense.......................... 41,351 41,969 33,293 31,361 41,164
----------- ----------- ----------- ----------- -----------
Net interest income..................... 56,754 54,488 51,098 50,781 47,101
Provision for loan losses................. 3,350 3,900 4,000 5,053 9,430
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
loan losses........................... 53,404 50,588 47,098 45,728 37,671
Other operating income.................... 19,161 17,549 16,692 17,348 15,223
Other operating expense................... 47,411 45,999 46,763 52,459 45,384
----------- ----------- ----------- ----------- -----------
Income before income taxes.............. 25,154 22,138 17,027 10,617 7,510
Applicable income tax expense............. 8,539 7,241 5,159 3,386 2,436
----------- ----------- ----------- ----------- -----------
Net income.............................. $ 16,615 $ 14,897 $ 11,868 $ 7,231 $ 5,074
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Total assets.............................. $1,312,981 $1,246,669 $1,205,421 $1,158,101 $1,124,578
Loans, net of unearned income............. 910,436 893,470 911,503 872,441 856,768
Securities available for sale............. 291,120 249,682 173,865 184,400 149,487
Total deposits............................ 1,083,258 1,033,957 1,012,869 967,582 941,882
Stockholders' equity...................... 119,717 111,833 90,457 91,027 83,484
PER SHARE DATA:
Net Income, primary and fully diluted..... $ 3.45 $ 3.10 $ 2.51 $ 1.54 $ 1.08
Total cash dividends declared............. 1.06 0.87 0.54 0.24 0.13
Tangible book value at period end, fully
diluted(1).............................. 23.73 22.47 18.36 18.61 17.00
Average primary shares outstanding........ 4,817,324 4,807,553 4,735,480 4,710,228 4,686,116
SELECTED FINANCIAL RATIOS:
Return on average total assets(2)......... 1.31% 1.23% 1.00% 0.64% 0.46%
Return on average stockholders'
equity(3)............................... 14.51 14.69 13.23 8.36 6.31
Net interest margin (4)................... 4.93 4.92 4.74 4.97 4.72
Cash dividends as a percentage of earnings
per share............................... 31 28 22 16 12
Average stockholders' equity to average
assets.................................. 9.19 8.69 7.97 7.67 7.32
Core (leverage) capital ratio at period
end(5).................................. 8.49 8.77 7.26 7.59 7.11
Total risk-based capital ratio at period
end(6).................................. 15.09 14.67 13.03 12.06 11.11
Allowance for loan losses to period end
loans, net of unearned income........... 1.50 1.65 1.78 2.04 2.46
Nonperforming assets to period end loans,
plus other real estate owed(7).......... 1.01 1.67 2.32 3.64 5.71
Net charge-offs to average net loans...... 0.49 0.59 0.62 0.95 0.90
</TABLE>
- ---------------
(1) Equal to stockholders' equity less intangibles divided by fully diluted end
of period shares outstanding.
(2) Based on average total assets after adjustment for securities available for
sale.
(3) Based on average total equity after adjustment for securities available for
sale.
(4) Net interest income stated on a fully taxable equivalent basis divided by
average earning assets.
(5) Equal to stockholders' equity less intangibles divided by total assets less
intangibles.
(6) Equal to stockholders' equity less intangibles plus the allowable portion of
the allowance for loan losses divided by total risk weighted assets.
(7) Nonperforming assets include nonaccrual loans, restructured loans and other
real estate owned.
16
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA OF EASTERN
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED AT OR FOR THE
DECEMBER 31, YEARS ENDED SEPTEMBER 30,
-------------------- -----------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income........................ $ 15,881 $ 15,476 $ 61,273 $ 60,098 $ 51,546 $ 49,066 $ 49,898
Interest expense....................... 8,153 8,574 32,340 32,218 25,613 25,881 30,427
-------- -------- -------- -------- -------- -------- --------
Net interest income.................. 7,728 6,902 28,933 27,880 25,933 23,185 19,471
Provision for loan losses.............. 145 435 895 1,822 797 1,330 2,118
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................... 7,583 6,467 28,038 26,058 25,136 21,855 17,353
Other operating income................. 2,606 3,069 11,273 10,017 8,022 8,208 8,345
Other operating expense................ 7,956 7,193 33,952 29,533 27,192 26,471 24,168
-------- -------- -------- -------- -------- -------- --------
Income before income taxes........... 2,233 2,343 5,359 6,542 5,966 3,592 1,530
Applicable income tax expense.......... 812 856 2,055 2,347 2,307 878 513
Cumulative effect of accounting
change............................... -- -- -- -- -- 1,000 --
-------- -------- -------- -------- -------- -------- --------
Net income........................... $ 1,421 $ 1,487 $ 3,304 $ 4,195 $ 3,659 $ 3,714 $ 1,017
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA AT YEAR END:
Total assets........................... $866,018 $831,775 $868,678 $846,085 $819,236 $776,504 $739,263
Loans, net of unearned income.......... 496,852 450,312 491,644 457,614 422,577 422,024 427,376
Investment and mortgage-backed
securities available for sale........ 9,997 16,743 9 4,177 3,878 162,912 7
Securities held to maturity............ 276,909 254,595 293,649 312,392 319,102 106,999 227,584
Total deposits......................... 627,217 619,048 641,286 616,350 584,389 571,954 573,183
Stockholders' equity................... 64,778 62,490 63,580 60,983 57,203 54,683 49,968
PER SHARE DATA:
Net income, primary and fully
diluted.............................. $ 0.37 $ 0.39 $ 0.87 $ 1.13 $ 1.00 $ 1.05 $ 0.29
Total cash dividends paid.............. 0.14 0.11 0.49 0.24 0.10 0.07 0.05
Tangible book value at period end,
fully diluted(1)..................... 17.64 17.48 17.41 17.07 16.15 15.66 14.49
Average primary shares outstanding..... 3,888,890 3,784,731 3,807,724 3,721,573 3,658,510 3,511,321 3,451,015
SELECTED FINANCIAL RATIOS:
Return on average total assets......... 0.66% 0.71% 0.40% 0.50% 0.46% 0.49% 0.16%
Return on average stockholders'
equity............................... 8.72 9.53 5.20 6.95 6.60 7.15 2.06
Net interest margin(2)................. 3.87 3.58 3.75 3.63 3.55 3.40 3.30
Cash dividends per share as a
percentage of earnings per share..... 37.84 28.21 56.32 21.24 10.00 6.67 17.24
Average stockholders' equity to average
assets............................... 7.64 7.26 6.94 6.89 7.51
Core (leverage) capital ratio at period
end(3)(6)............................ 6.75 6.78 6.50 5.70* 5.50* 5.50* 5.14*
8.00** 7.90** 8.30** 7.76**
Total risk-based capital ratio at
period end(4)(6)..................... 12.48 12.67 12.30 10.50* 10.30* 10.50* 9.21*
16.10** 15.90** 13.30** 13.26**
Allowance for loan losses to period-end
loans, net of unearned income........ 0.58 0.89 0.58 0.79 0.88 1.12 1.12
Nonperforming assets to period-end
loans plus other real estate owned &
ISF(5)............................... 2.39 4.18 2.42 3.62 3.38 5.85 6.13
Net charge-offs to average net loans... 0.08 0.04 0.36 0.44 0.44 0.40 0.74
</TABLE>
- ---------------
(1) Equal to stockholders' equity divided by end of period shares outstanding.
(2) Net interest income stated on a fully taxable equivalent basis divided by
average earning assets.
(3) Equal to stockholders' equity less intangibles divided by total assets less
intangibles.
(4) Equal to stockholders' equity less intangibles plus the allowable portion of
the allowance for loan losses divided by total risk weighted assets.
(5) Nonperforming assets include nonaccrual loans, restructured loans and other
real estate owned.
(6) Prior to 1996, the capital ratios were separately stated for: * Vermont
Federal Bank
(VFB)
** First
Savings of New
Hampshire (FS)
17
<PAGE> 27
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
RESULTS OF OPERATIONS:
Interest income.......................................... $ 161,015 $ 158,941
Interest expense......................................... 73,138 75,315
---------- --------
Net interest income...................................... 87,877 83,626
Provision for loan losses................................ 3,955 5,897
---------- --------
Net interest income after provision for loan losses...... 83,922 77,729
Other operating income................................... 29,971 28,379
Other operating expense.................................. 85,152 78,736
---------- --------
Income before income taxes............................... 28,741 27,372
Applicable income tax expense............................ 11,132 10,237
---------- --------
Net income............................................... $ 17,609 $ 17,135
========== ========
BALANCE SHEET DATA:
Total assets............................................. $ 2,191,434 --
Loans, net of unearned income............................ 1,401,663 --
Securities available for sale............................ 301,117 --
Securities held to maturity.............................. 272,628 --
Total deposits........................................... 1,711,968 --
Stockholders' equity..................................... 192,017 --
PER SHARE DATA:
Net income, primary and fully diluted.................... $ 2.58 $ 2.52
Cash dividends declared.................................. 1.06 0.87
Tangible book value at period end, fully diluted......... -- --
Average primary shares outstanding....................... 6,814,157 6,802,037
</TABLE>
18
<PAGE> 28
COMPARATIVE UNAUDITED PER SHARE FINANCIAL DATA
The following table sets forth (i) selected unaudited comparative per share
data for each of VFSC Common Stock and Eastern Common Stock and (ii) selected
unaudited pro forma comparative per share data reflecting the consummation of
the Merger for the twelve months ended December 31, 1996. The unaudited pro
forma comparative per share data assume that the Merger had been consummated at
the beginning of the period presented, and are based on the purchase method of
accounting and a preliminary allocation of the purchase price. For a description
of the effect of purchase accounting on the Merger and the historical statements
of VFSC, see "THE MERGER -- Accounting Treatment."
The unaudited pro forma comparative per share data reflect the Merger based
upon preliminary purchase accounting adjustments. Actual adjustments, which may
include adjustments to additional assets, liabilities and other items, will be
made on the basis of appraisals and evaluations as of the Effective Time and,
therefore, are likely to differ from those reflected in the unaudited pro forma
comparative per share data. Accordingly, the information herein should be read
in conjunction with the pro forma combined financial information, including the
notes thereto, appearing elsewhere in this Joint Proxy Statement - Prospectus.
See "SELECTED FINANCIAL DATA" AND "PRO FORMA COMBINED FINANCIAL DATA." Results
of Eastern for the three months ended December 31, 1996 are not necessarily
indicative of results expected for the entire year, nor are pro forma amounts
necessarily indicative of results of operations or the combined financial
position that would have resulted had the Merger been consummated at the
beginning of the periods indicated. All adjustments consisting of only normal
recurring adjustments necessary for a fair statement of results of interim
periods have been included.
<TABLE>
<CAPTION>
AT OR FOR THE
TWELVE MONTHS ENDED
DECEMBER 31, 1996
-------------------
<S> <C>
INCOME PER SHARE(1)
VFSC.................................................................... $ 3.45
Eastern................................................................. $ 0.85
VFSC Pro Forma.......................................................... $ 2.58
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 2.15
At minimum Exchange Ratio (0.6446)................................... $ 1.66
FULLY DILUTED INCOME PER SHARE(1)
VFSC.................................................................... $ 3.45
Eastern................................................................. $ 0.85
VFSC Pro Forma.......................................................... $ 2.58
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 2.15
At minimum Exchange Ratio (0.6446)................................... $ 1.66
DIVIDENDS DECLARED PER SHARE(2)
VFSC.................................................................... $ 1.06
Eastern................................................................. $ 0.52
VFSC Pro Forma.......................................................... $ 1.06
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 0.88
At minimum Exchange Ratio (0.6446)................................... $ 0.68
BOOK VALUE PER SHARE AT PERIOD END(3)
VFSC.................................................................... $ 23.73
Eastern................................................................. $ 17.64
VFSC Pro Forma.......................................................... $ 19.67
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 16.39
At minimum Exchange Ratio (0.6446)................................... $ 12.68
</TABLE>
19
<PAGE> 29
(footnotes to preceding page)
- ---------------
(1) Pro forma income per share data is calculated using pro forma VFSC net
income divided by the average pro forma shares of the combined entity. The
average pro forma shares of the combined entity have been calculated by
combining VFSC's historical average shares with the historical average
shares of Eastern as adjusted by an assumed Exchange Ratio of 0.69 (computed
using the VFSC stock price of $36.25 on November 11, 1996), resulting in the
issuance of 1,994,484 shares of VFSC Common Stock. See "Pro Forma Combined
Financial Data." The Exchange Ratio is subject to change based on the
determination of a value of VFSC Common Stock according to the Average
Closing Price prior to the Effective Time and there can be no assurance as
to whether the actual Exchange Ratio will be equal to, greater than or
smaller than the assumed ratios used in this table or elsewhere in this
Joint Proxy Statement -- Prospectus. See "THE MERGER -- Conversion of Shares
of Eastern Common Stock Pursuant to the Merger." The Eastern pro forma
equivalent income per share amounts are computed by multiplying the VFSC pro
forma amounts by assumed Exchange Ratios of (i) 0.8335 (computed using an
assumed Average Closing Price for VFSC Common Stock of $26.06, below which
the Acquisition Price would be subject to adjustment) and (ii) 0.6446
(computed using an assumed Average Closing Price for VFSC Common Stock of
$41.625, the closing bid price of VFSC Common Stock on March 27, 1997).
(2) VFSC pro forma dividends per share represent historical dividends paid by
VFSC. Eastern pro forma equivalent dividends per share represent such
amounts multiplied by the assumed maximum and minimum Exchange Ratios
described in footnote (1) above. See "THE MERGER -- Conversion of Shares of
Eastern Common Stock Pursuant to the Merger."
(3) VFSC pro forma book value per share is based on the pro forma stockholders'
equity of the combined entity divided by the pro forma common shares of the
combined entity less intangibles. Eastern pro forma book value per share
represents such amount multiplied by the assumed maximum and minimum
Exchange Ratios described in footnote (1) above. See "THE
MERGER -- Conversion of Shares of Eastern Common Stock Pursuant to the
Merger."
20
<PAGE> 30
RECENT DEVELOPMENTS
VFSC 1996 FOURTH QUARTER AND YEAR-END RESULTS
On January 22, 1997, VFSC announced the unaudited results of its
consolidated operations for the fourth quarter of 1996.
Net income for the fourth quarter of 1996 was $4.5 million, a 12% increase
over the $4.0 million earned during the fourth quarter of 1995. Net income per
share for the fourth quarter of 1996 was $0.94, a 13% increase over per share
net income of $0.83 for the fourth quarter of 1995. Net overhead increased by
$213,000 or 3.1% from the fourth quarter of 1995, as a result of a 17% increase
in noninterest income and a 9% increase in noninterest expense.
Net income for the year was $16.6 million, a 12% increase over the $14.9
million earned in 1995. Net income per share for 1996 was $3.45, an 11% increase
over per share net income of $3.10 for 1995.
Total assets at December 31, 1996 were $1.3 billion, a 5.3% increase from
1995. Core deposits increased 4.8% to $1.03 billion. Total loans increased 1.9%
to $910.4 million.
Nonperforming assets (nonaccrual loans, restructured loans and other real
estate owned ("OREO")) were $9.2 million at December 31, 1996, down from $11.0
million at September 30, 1996 and $15.0 million at December 31, 1995, a decrease
of 39%. The decline in nonperforming assets during the year was the result of
loan charge-offs and normal problem asset resolutions and sales. From December
31, 1995 to December 31, 1996, nonperforming assets were reduced by $5.8 million
or 39%, and nonperforming loans were reduced by $3.5 million or 29%. VFSC's
allowance for loan losses of $13.6 million at December 31, 1996 represented 161%
of nonperforming loans and 149% of nonperforming assets, as opposed to 123% and
98%, respectively, at December 31, 1995.
On January 9, 1997, VFSC announced a first quarter dividend of $0.30 per
share, payable on February 25, 1997 to stockholders of record as of January 24,
1997.
SUMMARY OF VFSC OPERATING RESULTS
The following table sets forth selected historical data regarding VFSC's
operating results and financial position for and at the periods indicated. The
financial data in the following table for, and as of the end of, the fiscal
years ended December 31, 1996 and 1995 are derived from VFSC's consolidated
financial statements and the notes thereto which have been audited by Coopers &
Lybrand LLP, VFSC's independent certified public accountants. The data as of and
for the three-month periods ended December 31, 1996 and 1995 are derived from
unaudited financial statements, and reflect, in the opinion of management of
VFSC, all adjustments necessary for the fair presentation of such data.
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Interest Income....................................... $14,530 $13,706 $56,754 $54,488
Provision for Loan Losses................................. 750 900 3,350 3,900
Noninterest Income (excluding securities transactions).... 5,377 4,585 19,161 17,549
OREO and Collection Expense and Losses.................... 549 528 1,780 2,244
Other Noninterest Expense................................. 11,908 10,924 45,631 43,755
Securities Gains.......................................... -- -- 11 79
Net Income After Taxes.................................... 4,498 4,000 16,615 14,897
Per Common Share:
Net Income.............................................. $ 0.94 $ 0.83 $ 3.45 $ 3.10
Dividend Declared During Period......................... $ 0.27 $ 0.25 $ 1.06 $ 0.87
Fully Diluted Tangible Book Value at Period End........... $ 23.73 $ 22.47 $ 23.73 $ 22.47
</TABLE>
21
<PAGE> 31
EASTERN 1997 FIRST QUARTER RESULTS
On January 23, 1997, Eastern announced the unaudited results of its
consolidated operations for the first quarter ended December 31, 1996.
Net income for the first quarter was $1.4 million, a $66,000 decrease from
the first quarter of its 1996 fiscal year. Net income per share for the first
quarter was $0.37, a 5% decrease from net income per share of $0.39 for the
first quarter of fiscal 1996.
Total assets at December 31, 1996 were $866.0 million, a 4.1% increase over
December 31, 1995. Core deposits increased 1.3% to 627.2 million. Total loans
increased 10.1% to $486.9 million.
Nonperforming assets at December 31, 1996 were $12.0 million, substantially
unchanged from September 30, 1996. Non-accruing loans decreased approximately
$1.4 million from the balance a quarter earlier, offset primarily by an increase
of approximately $1.3 million on other real estate owned. The decrease in non-
accruing loans and the increase in OREO was due primarily to the
reclassification of one commercial property from non-accruing loans to OREO.
Fiscal 1997 results included $391,000 in nonrecurring charges related to
the proposed merger with VFSC, a $273,000 increase in office occupancy expense
and a $599,000 increase in OREO operations expense. Office occupancy expense
increased primarily due to increased depreciation expense on technology
initiatives and increased equipment maintenance contract fees. OREO operations
expense increased due primarily to an increase in foreclosure expenses and
provisions for losses and a decrease in gain on sale of OREO property.
On January 23 1997, Eastern announced a first quarter dividend of $0.16 per
share, payable on February 19, 1997 to stockholders of record as of February 5,
1997.
SUMMARY OF EASTERN OPERATING RESULTS
The following table sets forth selected historical data regarding Eastern's
operating results and financial position for and at the periods indicated. The
financial data in the following table for, and as of the end of, the fiscal
quarter ended December 31, 1996 are derived from unaudited financial statements,
and reflect, in the opinion of management of Eastern, all adjustments necessary
for the fair presentation of such data.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31,
-----------------
1996 1995
------ ------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net Interest Income........................................................ $7,728 $6,902
Provision for Loan Losses.................................................. 145 435
Noninterest Income (excluding securities transactions)..................... 2,592 2,548
OREO and Collection Expense and Losses..................................... 647 48
Other Noninterest Expense.................................................. 7,309 7,145
Securities Gains........................................................... 14 521
Net Income After Taxes..................................................... 1,421 1,487
Per Common Share:
Net Income............................................................... $ 0.37 $ 0.39
Dividend Declared During Period.......................................... $ 0.14 $ 0.11
Fully Diluted Tangible Book Value at Period End............................ $17.64 $17.48
</TABLE>
22
<PAGE> 32
THE SPECIAL MEETINGS
This Joint Proxy Statement-Prospectus is being furnished by VFSC to its
stockholders and by Eastern to its stockholders in connection with the
solicitation of proxies from such stockholders for use at the VFSC Meeting and
the Eastern Meeting, respectively.
The Special Meetings will be held for the purpose of considering and voting
on a proposal to approve the Merger Agreement and the transactions contemplated
thereby, including the Merger, which is being submitted to both the VFSC
stockholders and the Eastern stockholders.
THE BOARD OF DIRECTORS OF VFSC HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
THE BOARD OF DIRECTORS OF EASTERN HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
RECORD DATE, QUORUM AND VOTING FOR EASTERN MEETING
Only the holders of record of shares of Eastern Common Stock at the close
of business on April 2, 1997 will be entitled to notice of and to vote at the
Eastern Meeting and any adjournments or postponements thereof. At the Eastern
Record Date, 3,673,834 shares of Eastern Common Stock were outstanding and
entitled to vote.
The presence in person or by proxy of the holders of not less than
one-third of the issued and outstanding shares of Eastern Common Stock entitled
to vote as of the Eastern Record Date is required to constitute a quorum for the
transaction of business at any meeting of stockholders. Abstentions are included
in the determination of the number of shares of Eastern Common Stock present and
entitled to vote, but broker non-votes are not. "Broker non-votes" are proxies
with respect to shares held in record name by brokers or nominees, as to which
(i) instructions have not been received from the beneficial owners or persons
entitled to vote, (ii) the broker or nominee does not have discretionary voting
power under applicable national securities exchange rules or the instrument
under which it serves in such capacity or (iii) the record holder has indicated
on the proxy card or otherwise notified Eastern that it does not have authority
to vote such shares on that matter.
REQUIRED VOTE AT EASTERN MEETING
The affirmative vote of the holders of two-thirds of the outstanding shares
of Eastern Common Stock (2,449,223 shares) is required for approval of the
Merger Agreement and the transactions contemplated thereby. Abstentions and
broker non-votes will have the same effect as votes against the Merger
Agreement. Stockholders of Eastern are entitled to one vote at the Eastern
Meeting for each share of Eastern Common Stock held of record at the close of
business on the Eastern Record Date.
At the close of business on the Eastern Record Date, 3,673,834 shares of
Eastern Common Stock were outstanding and entitled to vote. Certain Eastern
directors who own a total of 465,488 shares of Eastern Common Stock,
representing approximately 12.7% of the shares of Eastern Common Stock issued
and outstanding on the Eastern Record Date, have entered into the Stockholders
Agreement, pursuant to which such stockholders have agreed to certain
restrictions on their respective shares of Eastern Common Stock. Specifically,
such stockholders have agreed, with respect to all Eastern Common Stock owned by
them at the time of the Eastern Meeting, (a) to vote such stock in favor of the
Merger and against any other acquisition transaction with a party other than
VFSC or its affiliates and (b) generally not to sell, assign, transfer, encumber
or otherwise dispose of such stock. The Stockholders Agreement will remain in
effect until the earlier of the consummation of the Merger or the termination of
the Merger Agreement in accordance with its terms. Assuming that all of the
shares subject to the Stockholders Agreement are in fact voted in favor of the
23
<PAGE> 33
Merger Agreement, the vote of holders of approximately 1,983,735 additional
shares of Eastern Common Stock, representing approximately 54.0% of the shares
of Eastern Common Stock issued and outstanding on the Eastern Record Date, will
be required to approve and adopt the Merger Agreement and the transactions
contemplated thereby.
Proxies in the form enclosed are being solicited by the Eastern Board.
Stockholders are requested to complete, date, sign and promptly return the
accompanying proxy card in the enclosed envelope. Shares represented by a
properly executed proxy received prior to the vote at the Eastern Meeting and
not revoked will be voted at the Eastern Meeting as directed in the proxy. IF A
PROXY IS SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The persons named as proxies by an Eastern stockholder may propose and vote
for one or more adjournments or postponements of the Eastern Meeting to permit
further solicitation of proxies in favor of the proposals to be considered at
the Eastern Meeting; provided, that a proxy that withholds discretionary
authority or that is voted against the Merger Agreement will not be voted in
favor of any adjournment or postponement of the Eastern Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the President of Eastern, at or before the Eastern Meeting, a written
notice of revocation bearing a date later than the date of the proxy, (ii) duly
executing a subsequent proxy relating to the same shares and delivering it to
the President of Eastern at or before the Eastern Meeting or (iii) attending the
Eastern Meeting and voting in person (although attendance at the Eastern Meeting
will not by itself constitute revocation of a proxy). Any written notice
revoking a proxy should be sent to Eastern Bancorp, Inc., 537 Central Avenue,
Dover, New Hampshire 03820, Attention: President.
RECORD DATE, QUORUM AND VOTING FOR VFSC MEETING
Only holders of record of shares of VFSC Common Stock at the close of
business on April 2, 1997 will be entitled to notice of and to vote at the VFSC
Meeting or any adjournments or postponements thereof. As of the VFSC Record
Date, there were 4,606,728 shares of VFSC Common Stock outstanding and entitled
to vote.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding shares of VFSC Common Stock entitled to vote as of the
VFSC Record Date is required to constitute a quorum for the transaction of
business at any meeting of stockholders. Abstentions and broker non-votes are
included in the determination of the number of shares of VFSC Common Stock
present and voting. "Broker non-votes" are proxies with respect to shares held
in record name by brokers or nominees, as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote, (ii) the
broker or nominee does not have discretionary voting power under applicable
national securities exchange rules or the instrument under which it serves in
such capacity or (iii) the record holder has indicated on the proxy card or
otherwise notified VFSC that it does not have authority to vote such shares on
that matter.
REQUIRED VOTE AT VFSC MEETING
The affirmative vote of the holders of two-thirds of the outstanding shares
of VFSC Common Stock (3,071,152 votes) is required for approval of the Merger
Agreement and the transactions contemplated thereby. Abstentions and broker
non-votes will have the same effect as votes against the Merger Agreement.
Stockholders of VFSC are entitled to one vote at the VFSC Meeting for each share
of VFSC Common Stock held of record at the close of business on the VFSC Record
Date. At the close of business on the VFSC Record Date, 4,606,728 shares of VFSC
Common Stock were outstanding and entitled to vote, of which approximately
297,841 shares, or approximately 6.5%, were held by directors and executive
officers of VFSC.
Stockholders of record on the VFSC Record Date are entitled to cast their
votes, in person or by properly executed proxy, at the VFSC Meeting. All shares
represented at the VFSC Meeting by properly executed
24
<PAGE> 34
proxies received prior to or at the VFSC Meeting and not properly revoked will
be voted at the VFSC Meeting in accordance with the instructions indicated in
such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
If a quorum is not present at the time the VFSC Meeting is convened, or if
for any other reason VFSC believes that additional time should be allowed for
the solicitation of proxies or for the satisfaction of conditions to the Merger
or the transactions contemplated thereby, VFSC may adjourn the VFSC Meeting with
a vote of the holders of a majority of the voting power represented by the VFSC
Common Stock present at such meeting. If VFSC proposes to adjourn the VFSC
Meeting, the persons named in the enclosed proxy card will vote all shares for
which they have voting authority in favor of such adjournment; provided that a
proxy that withholds discretionary authority or that is voted against the Merger
Agreement will not be voted in favor of any adjournment or postponement of the
VFSC Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of VFSC, at or before the VFSC Meeting, a written notice of
revocation bearing a date later than the date of the proxy, (ii) duly executing
a subsequent proxy relating to the same shares and delivering it to the
Secretary of VFSC at or before the VFSC Meeting or (iii) attending the VFSC
Meeting and voting in person (although attendance at the VFSC Meeting will not
in and of itself constitute revocation of a proxy). Any written notice revoking
a proxy should be sent to Vermont Financial Services Corp., 100 Main Street,
Brattleboro, Vermont 05301, Attention: Richard O. Madden, Secretary.
SOLICITATION EXPENSES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, by directors, officers and employees of VFSC and Eastern. Such
directors, officers and employees will not be specifically compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses in connection
with such solicitation. Nominees, fiduciaries and other custodians will be
requested to forward solicitation materials to beneficial owners and to secure
their voting instructions, if necessary, and may be reimbursed for the expenses
incurred in sending proxy materials to beneficial owners. In addition, VFSC
intends to engage the services of Regan & Associates, a proxy solicitation firm,
to assist in the solicitation of proxies at an estimated cost of $5,000 plus
expenses, and Eastern intends to engage the services of Corporate Investor
Communications, Inc., a proxy solicitation firm, to assist in the solicitation
of proxies at an estimated cost of $4,750 plus expenses.
VFSC and Eastern will pay their respective expenses in connection with the
solicitation of proxies.
BENEFICIAL OWNERSHIP OF EASTERN COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Eastern Common Stock as of April 2, 1997 by (i) each person known
by Eastern to own beneficially more than 5% of Eastern Common Stock, (ii) each
director and executive officer of Eastern, and (iii) all directors and executive
officers of Eastern as a group. The number of shares beneficially owned by such
persons is determined according to rules of the Commission, and the information
is not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power, and
also any shares that the individual or entity has the right to acquire within 60
days of April 2, 1997 through the exercise of an option, conversion feature or
similar right. Except as noted below, each holder has sole voting and investment
power with respect to shares of Eastern Common Stock listed as owned by such
person or entity.
25
<PAGE> 35
<TABLE>
<CAPTION>
PERCENTAGE
OF
NUMBER OF SHARES OUTSTANDING
OF EASTERN EASTERN
NAME COMMON STOCK COMMON STOCK
------------------------------------------------------ ---------------- ------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John A. Cobb.......................................... 195,888 5.1%
E. David Humphrey..................................... 94,441 2.5%
John K. Dwight(1)..................................... 13,200 *
Michael D. Flynn...................................... 6,900 *
John S. Kimbell....................................... 7,590 *
Mary Alice McKenzie................................... 7,571 *
Garry T. Melia........................................ 7,650 *
Ernest A. Pomerleau................................... 14,500 *
W. Stevens Sheppard(1)................................ 43,800 1.2%
James M. Sutton(2).................................... 361,500 9.8%
All Directors and Executive Officers as a group (12
persons)............................................ 753,040 19.0%
5% STOCKHOLDERS
Kramer Spellman, L.P.................................. 331,450 9.0%
James M. Sutton(2).................................... 361,500 9.8%
Wellington Management Company......................... 353,700 9.6%
</TABLE>
- ---------------
* Less than 1%
(1) Mr. Sheppard's share amount includes 4,500 shares individually owned by his
wife as to which Mr. Sheppard disclaims beneficial ownership. Mr. Dwight's
share amount includes 1,800 shares held in trust for his two children.
(2) Includes 267,750 shares owned by JMS Investors, Ltd., 11,400 shares owned
through an IRA, 4,500 shares owned by Mr. Sutton as custodian for his
children, 4,950 shares owned by Mr. Sutton's wife, and 63,900 shares owned
by Mr. Sutton's wife as custodian for their children.
APPRAISAL RIGHTS AND DISSENTING EASTERN STOCKHOLDERS
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW IS REPRINTED IN ITS
ENTIRETY AS APPENDIX D TO THIS JOINT PROXY STATEMENT-PROSPECTUS. THE FOLLOWING
DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO APPRAISAL RIGHTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX D. THIS DISCUSSION AND
APPENDIX D SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE
STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS
FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN
THE LOSS OF APPRAISAL RIGHTS.
A holder of record of Eastern Common Stock as of the Eastern Record Date
who makes the demand described below with respect to such shares, who
continuously is the record holder of such shares through the Effective Time, who
otherwise complies with the statutory requirements of Section 262 of the DGCL
and who neither votes in favor of the Merger Agreement nor consents thereto in
writing may be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of his, her or its shares of Eastern Common
Stock. All references in this summary of appraisal rights to a "stockholder" are
to the record holder or holders of shares of Eastern Common Stock. Except as set
forth herein, stockholders of Eastern will not be entitled to appraisal rights
in connection with the Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Eastern Meeting, not less than 20 days prior
to the meeting, each constituent corporation must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and
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include in each such notice a copy of Section 262. This Joint Proxy
Statement-Prospectus shall constitute such notice to the record holders of
Eastern Common Stock.
Holders of Eastern Common Stock who desire to exercise their appraisal
rights must not vote in favor of the Merger Agreement or the Merger and must
deliver a separate written demand for appraisal to Eastern prior to the vote by
the stockholders of Eastern on the Merger Agreement and the Merger. A
stockholder who signs and returns a proxy without expressly directing by
checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of Eastern Common Stock be voted against the
proposal or that an abstention be registered with respect to his, her or its
shares of Eastern Common Stock in connection with the proposal will effectively
have thereby waived his, her or its appraisal rights as to those shares of
Eastern Common Stock because, in the absence of express contrary instructions,
such shares of Eastern Common Stock will be voted in favor of the proposal. (See
"-- Required Vote at Eastern Meeting"). Accordingly, a stockholder who desires
to perfect appraisal rights with respect to any shares of Eastern Common Stock
must, as one of the procedural steps involved in such perfection, either (i)
refrain from executing and returning the enclosed proxy and from voting in
person in favor of the proposal to approve the Merger Agreement or (ii) check
either the "Against" or the "Abstain" box next to the proposal on such proxy or
affirmatively vote in person against the proposal or register in person in
abstention with respect thereto. A demand for appraisal must be executed by or
on behalf of the stockholder of record and must reasonably inform Eastern of the
identity of the stockholder of record and that such stockholder intends thereby
to demand appraisal of the Eastern Common Stock. A proxy or vote against the
Merger does not constitute such a demand for appraisal. A person having a
beneficial interest in shares of Eastern Common Stock that are held of record in
the name of another person, such as a broker, fiduciary or other nominee, must
act promptly to cause the record holder to follow the steps summarized herein
properly and in a timely manner to perfect whatever appraisal rights are
available. If the shares of Eastern Common Stock are owned of record by a person
other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If the shares of Eastern Common Stock are owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Eastern Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of Eastern Common Stock outstanding in the name of such record
owner.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his, her or its written demand to: Eastern Bancorp, Inc., 537
Central Avenue, Dover, New Hampshire 03820, Attention: President.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Eastern Common Stock owned, and that
the stockholder is thereby demanding appraisal of his, her or its shares. A
proxy or vote against the Merger Agreement will not itself constitute such a
demand. Within ten days after the Effective Time, the surviving corporation must
provide notice of the Effective Time to all stockholders who have complied with
Section 262.
Within 120 days after the Effective Time, either the surviving corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the surviving
corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
Accordingly, Eastern stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262. If
appraisal rights are available, within
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120 days after the Effective Time, any stockholder who has theretofore complied
with the applicable provisions of Section 262 will be entitled, upon written
request, to receive from the surviving corporation a statement setting forth the
aggregate number of shares of Eastern Common Stock not voting in favor of the
Merger Agreement and with respect to which demands for appraisal were received
by Eastern and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the surviving corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; if any stockholder fails to comply with
such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of Eastern Common Stock owned by such stockholders,
determining the fair value of such shares exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts
ascertainable as of the date of the merger that throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Section 262, however, provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of Eastern, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of Eastern Common Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote for any purpose any shares subject to such demand or to receive
payment of dividends or other distributions on such shares, except for dividends
or distributions payable to stockholders of record at a date prior to the
Effective Time.
If no petition for appraisal is filed with the Delaware Court within 120
days after the Effective Time, stockholders' rights to appraisal shall cease.
Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the surviving corporation a written withdrawal of his or her
demand for appraisal and acceptance of the Merger, except that (i) any such
attempt to withdraw made more than 60 days after the Effective Time will require
written approval of the surviving corporation and (ii) no appraisal proceeding
in the Delaware Court shall be dismissed as to any stockholder without the
approval of the Delaware Court, and such approval may be conditioned upon such
terms as the Delaware Court deems just.
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THE MERGER
GENERAL
This section of the Joint Proxy Statement-Prospectus describes the material
terms and provisions of the proposed Merger, including the principal provisions
of the Merger Agreement, and related transactions. A copy of the Merger
Agreement is attached to this Joint Proxy Statement-Prospectus as Appendix A and
is incorporated by reference herein. All stockholders are urged to read the
Merger Agreement in its entirety.
The Merger Agreement provides that, subject to the satisfaction or waiver
(where permissible) of certain conditions, which are described more fully herein
and therein, Eastern will be merged with and into VFSC. In connection with the
Merger, each outstanding share of Eastern Common Stock will be converted into
and become exchangeable for either the Stock Distribution or the Cash
Distribution in accordance with the terms of the Merger Agreement. See
"-- Conversion of Shares of Eastern Common Stock Pursuant to the Merger."
BACKGROUND OF THE MERGER
VFSC's business strategy calls for it to augment its internal growth with
carefully selected acquisitions. Its merger and acquisition policy defines its
expansion territory as Vermont and adjacent states. In accordance with this
policy, since early 1991 VFSC has acquired one bank from the FDIC, two branches
from another Vermont bank, two credit card portfolios, two trust departments and
a Massachusetts-based savings bank and, with assistance from its financial
advisors, has been continuously evaluating acquisition opportunities both in
Vermont and in adjacent market areas. During 1996 VFSC pursued several
acquisition possibilities, including the submission of a bid on several
Fleet/Shawmut branches. Two of VFSC's business plan objectives are to improve
its market share in Vermont's major market, the Burlington area of Chittenden
County, and to improve its geographic diversification by increasing the mix of
its business outside of Vermont. Eastern was identified in mid-1996 as an
acquisition candidate within the territory defined by VFSC's policy that would
help VFSC achieve both of these objectives.
Since the first quarter of 1994, Eastern has retained a financial advisory
firm to assist the Eastern Board in comprehensively analyzing and periodically
reviewing Eastern's strategic alternatives for maximizing long-term stockholder
value. These alternatives have included the continuation of independent
operations, growth through acquisitions, growth through merger-of-equals
transactions, and being acquired for cash and/or stock. Since July 1995,
representatives of MB&D have periodically made detailed presentations to
management and the Eastern Board describing changing conditions in the mergers
and acquisitions ("M&A") market and Eastern's strengths and weaknesses either as
potential acquiror or acquiree. Concurrently, management has provided to the
Board its analysis of what Eastern needed to accomplish in order to increase
stockholder value through internal growth and performance.
At the request of the Eastern Board, MB&D developed a list of financial
institutions, primarily but not exclusively headquartered in New England,
believed to have a strategic interest in expanding in New England as well as the
financial and other capacity to do so, including certain Vermont-based
institutions that might be expected to have a particular strategic interest and
the operating ability to derive synergistic benefits. Certain of these
institutions from time to time contacted representatives of MB&D or Eastern, and
MB&D contacted selected institutions which did not contact MB&D or Eastern. Any
expressions of interest were preliminary and inconclusive, and no agreements or
understandings concerning any transaction were reached.
During the first half of 1995, the Eastern Board focused on the choice
between (i) integrating the operations of Eastern's New Hampshire banking
subsidiary with those of Vermont Federal or (ii) evaluating the potential for
selling the New Hampshire subsidiary and either redeploying the sales proceeds
in Vermont operations or distributing them to Eastern's stockholders. Based upon
the analysis at that time, the Eastern Board concluded that integration of
Vermont and New Hampshire operations was the preferable alternative.
In early August 1996, VFSC's management contacted Eastern's management to
see if Eastern might be interested in a possible combination of the two
companies. On August 9, 1996, John D. Hashagen, Jr., President and Chief
Executive Officer of VFSC, met with John A. Cobb, President and Chief Executive
Officer of Eastern, to discuss on a preliminary basis the possibility of a
combination of the two companies. Although no agreements or understandings
concerning such a possible combination were reached at that
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meeting, both parties agreed that there was sufficient mutual interest in a
possible combination of the two companies to continue the discussions. They also
agreed that a confidentiality agreement should be drafted and signed by both
parties so that certain non-public information regarding VFSC and Eastern could
be shared. The confidentiality agreement was signed by VFSC and Eastern as of
August 15, 1996.
During the last half of August 1996 and the first three weeks of September
1996, VFSC senior management and Eastern senior management conducted off-site
due diligence and exchanged detailed information on each's companies, deposit
products, operations, markets, loan portfolios and financial condition. Senior
management of the two companies met in person and held telephone conference
calls several times as a part of this information exchange process. During these
meetings, issues such as potential cost savings, revenue enhancement
opportunities, deposit product compatibility and loan quality were discussed
generally (although no formal quantitative studies were presented at the
meetings) and possible consolidation strategies were reviewed. During this
process the senior management of the two companies kept their respective Boards
of Directors advised of the status of the preliminary merger discussions and the
content of the information exchanges.
On September 25, 1996, VFSC senior management and the Merger and
Acquisition Committee of the VFSC Board (the "M&A Committee") reviewed and
evaluated in detail the business strategy of VFSC and information on Eastern and
its operations, and discussed the business aspects of a potential acquisition of
Eastern by VFSC. At the conclusion of the meeting, the M&A Committee authorized
VFSC's senior management to submit a preliminary nonbinding expression of
interest to acquire 100% of Eastern's common stock at a price of $23.00 per
share, with consideration to be either 100% VFSC stock or a combination of 60%
VFSC stock and 40% cash. VFSC senior management submitted a letter dated
September 25, 1996 to Eastern offering those terms on a preliminary, nonbinding
basis.
During late September and October 1996, senior management and the Boards of
Directors of VFSC and Eastern continued their evaluation of the potential
combination of the two companies and, with the assistance of their respective
financial advisors, continued discussion of the possible structure and pricing
of an acquisition of Eastern by VFSC. On October 4, 1996, VFSC senior management
and its investment advisor met with Eastern's Chief Executive Officer and its
financial advisor to review the offer contained in the September 25 letter. No
agreement was reached as to price or terms, but Eastern's Chief Executive
Officer agreed to review the letter with Eastern's Board of Directors.
At an Eastern Board meeting held on October 10, 1996, Fred Schluter of MB&D
made a comprehensive presentation with regard to New England M&A market
conditions and the possibility of receiving other offers; Eastern's current
estimated value as an acquisition candidate, based upon such customary financial
measures as (i) multiples of earnings and cash flow, (ii) premiums to adjusted
book value, deposits and market capitalization and (iii) recent acquisition
prices for comparable companies; and the terms of VFSC's nonbinding discussion
proposal. Eastern's value as an acquisition candidate was estimated to be in the
range of $21.49 to $24.96 per share. See "-- Opinion of Financial
Advisors -- Opinion of McConnell, Budd & Downes, Inc. -- Discounted Cash Flow
Analysis." The directors considered, in particular, structural issues such as an
all-stock transaction versus a transaction involving a mixture of cash and
stock; pooling and purchase accounting; tax-deferred treatment; the possible
combination of Vermont Federal with VNB; the timetable for the transaction; and
factors affecting VFSC's future earnings potential and potentially influencing
future market values for the VFSC stock to be received by Eastern stockholders
in such a transaction. The Eastern Board concluded that VFSC's expression of
interest deserved serious consideration; expressed its preference for a
transaction involving both a significant tax-deferred stock component and a cash
component, as well as an opportunity for Eastern stockholders to elect between
stock and cash; desired to avoid making qualification for pooling treatment a
condition to closing; concluded that capping and collaring the merger
consideration (as well as including a cash component) would reduce the potential
volatility of such consideration based upon future trading prices for VFSC
stock; and authorized Messrs. Cobb and Schluter to conduct further discussions
and report back to the Eastern Board. Starting on October 11, 1996, MB&D and
Tucker Anthony were in regular ongoing communication concerning all aspects of
the possible transaction, focusing particularly on the points described above.
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On October 23, 1996, VFSC senior management met with the M&A Committee and
its financial advisors and reviewed once again all aspects of a possible
acquisition of Eastern, including a proposed transaction structure, a possible
pricing range and other elements of such a transaction. At the conclusion of
this review, the M&A Committee authorized VFSC senior management to submit an
amended indication of interest subject to satisfactory due diligence, with a
transaction value of up to $24.25 per share and upon other terms and conditions
as reviewed at the meeting. VFSC's financial advisor subsequently advised
Eastern's financial advisor of the revised transaction value and terms.
On October 24, 1996, Messrs. Cobb and Schluter reported to the Eastern
Board that VFSC was prepared to consider a per share payment of as much as $7.25
per share in cash and 0.4892 shares of VFSC Common Stock under a collared
formula, subject to satisfactory due diligence review, agreement upon structure
and timetable, and negotiation of mutually satisfactory agreements. The value of
the proposed offer amounted to $24.13 per share of Eastern Common Stock based on
the $34.50 per share closing bid price of the VFSC Common Stock on October 23,
1996 (the value would be $26.83 per share based on the $41.625 per share closing
bid price on March 27, 1997). The directors reviewed and commented on numerous
aspects of the proposed transaction and authorized Messrs. Cobb and Schluter to
continue negotiations in the expectation that, should such negotiations proceed
satisfactorily, the parties would arrange to perform reciprocal on-site due
diligence and VFSC's legal counsel would prepare a draft merger agreement and
related documents.
During the period from October 23, 1996 to October 29, 1996 VFSC's
financial advisor and Eastern's financial advisor continued negotiations of the
terms and conditions of the proposed acquisition, including the transaction
value, the pricing formula and collars, a lockup option and other nonfinancial
issues. Under the pricing formula agreed to by the parties, the value of the
offer amounted to $24.13 per share of Eastern Common Stock based on the $34.50
per share closing bid price of VFSC Common Stock on October 23, 1996 and $26.83
per share based on the $41.625 per share closing bid price of VFSC Common Stock
on March 27, 1997. By October 29, 1996, both parties determined that there were
no significant unresolved issues of disagreement. Eastern's Board authorized the
commencement of reciprocal on-site due diligence, and VFSC instructed its legal
counsel to begin drafting merger documents.
During late October 1996 and early November 1996, the senior managements of
VFSC and Eastern, with the assistance of their respective financial advisors and
legal counsel, continued active discussions of possible merger terms, including
the precise exchange ratio, which was adjusted from 0.4892 to 0.4900; the
breakpoints for caps, collars and termination rights; the ability of Eastern
stockholders to elect between stock and cash; the circumstances in which VFSC's
stock option would become exercisable; restrictions on dividends, capital
expenditures and other matters prior to closing and conditions to closing.
Discussions were conducted in the ordinary course during this period, and no
issue presented an insurmountable obstacle to negotiations. In the meantime,VFSC
conducted on-site due diligence on Eastern during November 2-8, 1996 and Eastern
conducted on-site due diligence on VFSC during November 9-11, 1996. Draft
documents were circulated on November 6, 1996.
At a meeting held on November 11, 1996, MB&D updated the Eastern Board in
regard to the status of the ongoing discussions with VFSC. Legal counsel
described the key provisions of the documents that had been or were being
negotiated or which had been left open pending Board review. The directors
considered and stated their views in regard to these issues. Eastern's credit
review team and members of management then presented the results of their due
diligence review of VFSC. Further negotiation with VFSC ensued over the next 48
hours.
Separate special meetings of the VFSC Board and Eastern Board were held on
November 13, 1996 to consider the merger proposal. At the VFSC Board meeting,
presentations were delivered by VFSC senior management concerning the strategic
rationale for the proposed transaction and the results of its due diligence
review, by its financial advisor concerning the financial terms of the proposed
transaction and by its legal counsel regarding the terms of the proposed Merger
Agreement and Stock Option Agreement. After discussion and consideration by the
VFSC Board of the potential financial and strategic benefits and risks of the
proposed transaction and other factors described below under "-- Recommendations
of the VFSC Board and Reasons for the Merger," the VFSC Board unanimously
approved the Merger Agreement and Stock
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Option Agreement that were presented to them and authorized Mr. Hashagen to
execute them on behalf of VFSC.
At the Eastern Board Meeting, the Eastern Board reviewed the changes agreed
to by the negotiators during the previous two days. Legal counsel then made a
presentation and answered directors' questions. MB&D reviewed and updated its
previous financial analysis of the merger consideration, after which it advised
the Eastern Board orally that, in its opinion, and based on facts known to MB&D
at that time, the merger consideration was fair, from a financial point of view,
to Eastern's stockholders as of that date and confirmed its readiness, in the
absence of any intervening significant change, to render a written opinion to
that effect immediately prior to the circulation of proxy materials for the
Special Meeting. The Eastern Board then unanimously approved the Merger
Agreement and related agreements, and authorized Mr. Cobb to sign them on behalf
of Eastern.
Messrs. Hashagen and Cobb executed the Merger Agreement and the Stock
Option Agreement, as authorized, on November 13, 1996.
RECOMMENDATION OF THE EASTERN BOARD AND REASONS FOR THE MERGER
In reaching its determination to approve and adopt the Merger Agreement and
the transactions contemplated thereby, the Eastern Board considered a number of
factors, including, without limitation, the following:
(1) its belief, based on the analysis of and presentation to Eastern's
Board by MB&D of Eastern's strategic alternatives, that the Merger
represents an attractive strategic alternative to Eastern for enhancing
stockholder value;
(2) the financial presentation of MB&D and the opinion of MB&D as to
the fairness from a financial point of view of the Merger Consideration to
Eastern and its stockholders (see "-- Opinions of Financial
Advisors -- Opinion of McConnell, Budd & Downes, Inc.");
(3) its belief that the Merger will provide an opportunity for the
stockholders of Eastern to receive increased dividends and to enjoy
increased liquidity in their investment;
(4) the ability of Eastern stockholders, subject to the limitations
contained in the Merger Agreement, to specify a preference for payment in
cash or stock; and the expectation that the Merger will be a tax-deferred
transaction for stockholders who receive payment in stock (see "-- Certain
Federal Income Tax Consequences");
(5) its review, with the assistance of management and MB&D, of the
financial condition, results of operations, loan portfolio composition,
classified assets, loan and deposit products, marketing methods, business
infrastructure, management, and strategic goals and overall prospects of
VFSC, as well as of management's best estimates of Eastern's prospects as
an independent business entity in light of the foregoing factors as they
affect Eastern's future financial condition, results of operations,
business infrastructure and strategy;
(6) its review of the banking environment in which Eastern is now, and
in the future would be, competing, including, but not limited to, the
significant consolidation and increasingly competitive climate in the
banking and financial services markets, both in the United States as a
whole and in New England in particular, the prospect for further changes in
these markets and the competitive constraints facing relatively small,
independent financial institutions;
(7) its view of the increasing importance to a bank's ability to
capitalize on opportunities in the banking and financial services markets
of economies of scale and access to greater financial resources such as may
be expected to be realized as a result of the Merger;
(8) its assessment that affiliation with another community-based
institution such as VFSC, which has a commitment to community reinvestment
that has been rated "outstanding," would put Eastern in a good position to
be able to continue its high level of personal service to its customers and
the Vermont and New Hampshire communities that it serves;
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(9) its view that VFSC's approach to the banking business, with its
emphasis on quality products and customer service, is congruent with that
of Eastern and its perception that VFSC uniquely values Vermont Federal's
approach, so that the combination of their respective products and services
should enhance the business of the combined institution; and
(10) the geographic concentration of VFSC's branch network in central
and southern Vermont and the contiguous market of Greenfield,
Massachusetts, the complementary nature of such concentration to Eastern's
geographic concentration in northern Vermont and southeastern New Hampshire
and the effect such complementary nature would have on the combined
enterprise's ability to prosper in its three-state banking market.
The Eastern Board did not assign any particular weights to any of the
factors mentioned above.
FOR THE REASONS DESCRIBED ABOVE, THE EASTERN BOARD HAS DETERMINED THE
MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF EASTERN AND ITS STOCKHOLDERS
AND HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER. ACCORDINGLY, THE BOARD UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
RECOMMENDATION OF THE VFSC BOARD AND REASONS FOR THE MERGER
In reaching its determination that the Merger is in the best interests of
the VFSC stockholders, and recommending that the VFSC stockholders approve the
Merger, the VFSC Board considered a number of factors. The following are the
material factors considered by the Board in reaching its determination:
(1) The Merger will enable VFSC to expand and strengthen its existing
franchise in Vermont and to establish a presence in the market of
southeastern New Hampshire, which VFSC considers attractive;
(2) The Board believes that, given Eastern's existing presence in
Vermont, the acquisition of Eastern offers significant opportunity for cost
savings, which have been estimated through the due diligence process to be
approximately $9 million annually (once fully implemented, which
implementation is expected to take approximately one year), and represents
an opportunity to leverage VFSC's infrastructure, technology, products,
marketing and lines of business through Eastern's established distribution
network;
(3) Eastern's customer base provides VFSC with significant
cross-selling opportunities;
(4) The Merger is expected to provide revenue growth opportunities
based on the combined company's leadership in its major markets, its broad
product line, its delivery channels and its brand name; and
(5) Tucker Anthony's opinion that, subject to certain assumptions, the
consideration to be paid by VFSC to Eastern's stockholders was fair to the
stockholders of VFSC, from a financial point of view.
The VFSC Board did not assign any particular weights to any of the factors
mentioned above.
FOR THE REASONS DESCRIBED ABOVE, THE VFSC BOARD HAS DETERMINED THE MERGER
TO BE FAIR TO AND IN THE BEST INTERESTS OF VFSC AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
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OPINION OF FINANCIAL ADVISORS
Opinion of McConnell, Budd & Downes, Inc.
MB&D has delivered to the Board of Directors of Eastern its written
opinion, dated as of the date of this Joint Proxy Statement-Prospectus, that
both the Exchange Ratio of VFSC Common Stock to be exchanged for outstanding
shares of Eastern Common Stock and the Cash Distribution for outstanding shares
of Eastern Common Stock are fair, from a financial point of view, to Eastern's
stockholders. The mechanisms for determination of the Exchange Ratio and the
Cash Distribution are each described in detail elsewhere in this Joint Proxy
Statement-Prospectus and shareholders should read this with care. MB&D has acted
as financial advisor to Eastern since July 1995 in connection with Eastern's
evaluation of its strategic alternatives, including hypothetical affiliation
opportunities.
MB&D advised Eastern during the negotiation process leading up to the
execution of the Merger Agreement and provided Eastern with various analyses as
to the range of financially feasible exchange ratios and cash acquisition prices
that might be received in such a transaction. Representatives of MB&D met with
the executive management and the full Board of Directors of Eastern on a number
of occasions in connection with the analysis of Eastern's options. Each of the
Exchange Ratio and alternative Cash Distribution was arrived at in arms length
negotiations between VFSC and Eastern in a process in which MB&D advised
Eastern.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions, knowledge of the Vermont,
New Hampshire, Massachusetts, New York and Maine banking markets in particular
and New England banking markets in general, and its experience with merger and
acquisition transactions involving banking institutions. Members of the
Corporate Finance Department of MB&D have advised financial institution clients
on more than 60 successfully completed mergers or acquisitions of financial
institutions, many of those in New England marketplaces.
The full text of the opinion of MB&D, which sets forth assumptions made,
matters considered and limits on the review undertaken by MB&D, is attached
hereto as a part of Appendix B. Eastern's stockholders are urged to read the
opinion in its entirety. MB&D's opinion is directed only to the Exchange Ratio
or Cash Distribution and does not constitute a recommendation to any holder of
Eastern Common Stock as to how such holder should vote at the Eastern Meeting.
The summary of the opinion of MB&D set forth in this Joint Proxy
Statement-Prospectus was provided to Eastern by MB&D and is qualified in its
entirety by reference to the full text of the opinion itself. MB&D's opinion was
necessarily based upon conditions as they existed and should be evaluated as of
the date of the written opinion and the information made available to MB&D
through such date.
In arriving at its opinion, MB&D (i) reviewed the Merger Agreement and this
Joint Proxy Statement-Prospectus in substantially the form to be sent to Eastern
stockholders; (ii) reviewed publicly available business and financial
information with respect to both Eastern and VFSC and certain internal financial
information and financial projections prepared by the managements of Eastern and
VFSC; (iii) held discussions with members of the senior management and Board of
Directors of Eastern concerning the past and current results of operations of
Eastern, its current financial condition and management's opinion of its future
prospects; (iv) reviewed the historical reported price and record of trading
volume for both Eastern Common Stock and VFSC Common Stock; (v) held discussions
with the senior management of VFSC concerning the current and past results of
operations of VFSC, its current financial condition and management's opinion of
its future prospects; (vi) considered the current state of and future prospects
for the economies of Vermont, New Hampshire and north central Massachusetts
generally and the relevant market areas for Eastern and VFSC in particular;
(vii) reviewed the specific acquisition analysis models employed by MB&D to
evaluate potential business combinations of banking companies; (viii) reviewed
the reported financial terms of certain recent business combinations in the
banking industry; and (ix) performed such other studies and analyses (all of
which have been disclosed and are discussed herein) as MB&D considered
appropriate under the circumstances associated with this particular transaction.
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<PAGE> 44
In rendering its opinion, no limitations were imposed by Eastern or VFSC
upon MB&D with respect to the investigations made or procedures followed by MB&D
in rendering its opinion. As part of its ongoing financial advisory business,
MB&D had in 1992 entered into and maintained a nonexclusive financial advisory
relationship with VFSC. In the context of this transaction, MB&D rendered
financial advisory services exclusively to Eastern and disclosed to the Eastern
Board and management the relationship with VFSC. VFSC retained and relied upon
an independent third party firm as financial advisor for purposes of this
transaction.
MB&D's opinion takes into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in bank securities valuation and its knowledge of the
banking industry generally. For purposes of reaching its opinion, MB&D has
assumed and relied upon the accuracy and completeness of the information
provided to it by Eastern and VFSC, including the adequacy of the reserve for
loan losses established by each company, and does not assume any responsibility
for the independent verification of such information or any independent
valuation or appraisal of any of the assets or liabilities of either Eastern or
VFSC. In the course of reaching its opinion, MB&D did not make or receive any
independent valuation or appraisal of any of the assets or liabilities of either
Eastern or VFSC. With respect to the financial projections reviewed by MB&D in
the course of rendering its opinion, MB&D has assumed that such projections have
been reasonably prepared to reflect the best currently available estimates and
judgment of the management of each of Eastern and VFSC as to the most likely
future performance of their respective companies.
The following is a summary of material analyses employed by MB&D in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of all matters considered by MB&D in
arriving at its opinion. The preparation of a fairness opinion is a complicated
process, involving a determination as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to a summary description. In arriving at its fairness opinion, MB&D did not
attribute any particular weight to any one specific analysis or factor
considered by it and made qualitative as well as quantitative judgments as to
the significance of each analysis and factor. Therefore, MB&D believes that its
analyses must be considered as a whole and feels that attributing undue weight
to any single analysis or factor considered could create a misleading or
incomplete view of the process leading to the formation of its opinion. In its
analyses, MB&D has made certain assumptions with respect to banking industry
performance, general business and economic conditions and other factors, many of
which are beyond the control of management of either Eastern or VFSC. Any
estimates which are referred to in MB&D's analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
vary significantly from those set forth.
Analysis of the Anticipated Merger and the Exchange Ratio in Relation to
VFSC. The anticipated consideration to be paid in the merger for each
outstanding share of Eastern Common Stock is (i) cash equal to $7.25 plus the
product of 0.49 times the average closing bid price of VFSC common stock for a
twenty day trading period ending on the fifth business day prior to the
Effective Time of the Merger, or (ii) the number of whole and fractional shares
of VFSC Common Stock, rounded to the nearest ten-thousandth of a share, equal to
the number obtained by dividing the Acquisition Price by the Average Closing
Price. However, if the Average Closing Price is greater than or equal to $39.96
per Common Share, the Acquisition Price shall equal $26.83, and if the Average
Closing Price is less than or equal to $29.54 per share but greater than or
equal to $26.06 per Common Share, the Acquisition Price shall equal $21.72. If
the Average Closing Price is less than $26.06, the Acquisition Price shall be
equal the sum of $7.25 and the product of 0.5553 times the Average Closing
Price. However, if the Average Closing Price is less than $26.06, Eastern shall
have the right to terminate the Merger Agreement unless VFSC elects, in its sole
discretion, to adopt $21.72 as the adjusted Acquisition Price.
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<PAGE> 45
When valued at the closing bid price of VFSC Common Stock, $41.625, on
Thursday, March 27, 1997, as well as the 20-day average closing bid price of
VFSC Common Stock computed as of, and including Thursday, March 27, 1997,
$42.24, the consideration represents the following transaction multiples:
Transaction Value : $26.83 per Eastern Common Share based upon the single day
VFSC closing bid price on Thursday, March 27, 1997. Based upon the 20-day
average closing bid price for VFSC for the period ending Thursday, March 27,
1997 the transaction value would be worth $26.83 per Eastern Common Share.
- - Multiple of Earnings based upon the March 27, 1997 VFSC single day closing bid
price: 30.84 times Eastern's reported earnings per share for the twelve
months ended September 30, 1996, and 14.12 times Eastern's budgeted earnings
per share for the fiscal year 1997 ending September 30, 1997. After removing
the one time impact of the federally mandated Savings Association Insurance
Fund ("SAIF") adjustment, the comparable multiple of reported earnings for the
twelve month period ending September 30, 1996 would be 17.89.
- - Multiple of Earnings based upon the 20-day average closing bid price for VFSC
for the period ending March 27, 1997: 30.84 times Eastern's reported earnings
per share for the twelve months ended September 30, 1996, and 14.12 times
Eastern's budgeted earnings per share for the fiscal year 1997 ending
September 30, 1997. After removing the one time impact of the federally
mandated SAIF adjustment, the comparable multiple of reported earnings for the
twelve month period ending September 30, 1996 would be 17.89.
- - Multiple of Tangible Book Value based upon the March 27, 1997 VFSC single day
closing bid price: 1.631 times Eastern's tangible book value per share as of
September 30, 1996.
- - Multiple of Tangible Book Value based upon the 20-day average closing bid
price for VFSC for the period ending March 27, 1997: 1.631 times Eastern's
book value per share as of September 30, 1996.
- - Multiple of Accounting Book Value based upon the March 27, 1997 VFSC single
day closing bid price: 1.541 times Eastern's book value per share as of
September 30, 1996.
- - Multiple of Accounting Book Value based upon the 20-day average closing bid
price for VFSC for the period ending March 27, 1997: 1.541 times Eastern's
book value per share as of September 30, 1996.
- - Multiples of Eastern's Market Value based upon the March 27, 1997 VFSC single
day closing bid price: The approximate $26.83 in market value of the
consideration for each share of Eastern Common Stock, based upon the VFSC
closing bid price on March 27, 1997, represents a 22% premium over the closing
price of Eastern's Common Stock reported on the Nasdaq NM as of the close of
business on Wednesday, November 13, 1996.
- - Multiples of Eastern's Market Value based upon the 20-day average closing bid
price for VFSC for the period ending March 27, 1997: The approximate $26.83
in market value of the consideration for each share of Eastern Common Stock,
based upon the VFSC 20-day average closing bid price for the period ending on
March 27, 1997, represents a 22% premium over the closing price of Eastern's
Common Stock reported on the Nasdaq NM as of the close of business on
Wednesday, November 13, 1996.
Specific Acquisition Analysis. MB&D employs a number of proprietary
analysis models to examine hypothetical transactions involving banking and/or
thrift companies. The models involve the use of forecast earnings data, selected
current period balance sheet, fully diluted common share information and income
statement data, current and historic market and trading information and a number
of assumptions as to interest rates for borrowed funds, opportunity costs of
funds, discount rates, dividend streams, effective tax rates and transaction
structures (the alternative or combined uses of common equity, cash, debt or
other securities to fund a transaction). The models distinguish between purchase
and pooling accounting treatments and inquire into the likely economic
feasibility of a given hypothetical transaction at a given price level or
specified exchange rate while employing a specified transaction structure. The
models also permit evaluation of various levels of potential non-interest
expense savings which might be achieved and potential implementation timetables
for such savings as well as the possibility of revenue enhancement opportunities
which may arise in a hypothetical transaction. The models also permit an
examination of pro forma capital adequacy.
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<PAGE> 46
In this transaction, MB&D evaluated an exchange ratio of VFSC Common Stock
for each share of Eastern Common Stock and a Cash Distribution price, each based
upon $7.25 plus the product of 0.49 times the average closing bid price of VFSC
Common Stock for a 20-day period (subject to adjustment as provided in the
Merger Agreement and detailed in this proxy statement) in a joint common stock
and cash merger transaction which is to be accounted for as a purchase
transaction.
Discounted Cash Flow Analysis. MB&D reviewed a discounted cash flow
analysis to permit the conceptual examination of the present discounted values
of potential future results employing selected assumptions and discount rates.
In the discounted cash flow analysis, MB&D reviewed a cash flow model with
the management and Board of Directors of Eastern that used a projection of
hypothetical earnings for the three twelve-month periods subsequent to September
1996 of $1.90, $2.18 and $2.45 per common share, respectively, with projected
earnings in two subsequent twelve-month periods equal to a return on assets of
0.95% and 1.00% respectively. A hypothetical dividend payout ratio assumption
which depicted average annual payouts as a percentage of earnings increasing
gradually from a level of 31.5% to 33.0% over a five-year period was used. A
long-term growth rate of 4.00% was also used. MB&D then assumed that the control
sale price/earnings ratio at the end of a five year period would approximate
13.0 times earnings, and in a separate exercise, a price-to-tangible-book-value
ratio of 160%. Given the five-year time horizon and a discount rate of 12.5%,
these cash flow calculations resulted in a range of present discounted values of
cash flows of $21.49 to $24.96, which can be compared to the nominal value of
the proposed exchange ratio of approximately $26.83 based upon the closing bid
price of VFSC on March 27, 1997 as described above and $26.83 based upon the
trailing 20-day average closing bid price of VFSC prior to and including March
27, 1997.
It is important to note that the discount factors employed embody both the
concept of a riskless time value of money and risk factors that reflect the
uncertainty of the forecast cash flows, terminal price/earnings and price/book
multiples, growth assumptions and other economic and financial variables subject
to change. Use of higher discount rates would result in lower discounted present
values. Conversely, use of lower discount rates would result in higher
discounted present values. MB&D advised the Eastern Board that although
discounted cash flow analysis is a widely used valuation methodology, it relies
on numerous assumptions, including discount rates, terminal values, earnings and
asset growth, as well as dividend payout ratios. Any or all of these assumptions
may vary from actual future performance and results.
Analysis of Other Comparable Transactions. MB&D is reluctant to place much
emphasis on "comparables analysis" as a valuation methodology because of what it
considers to be inherent limitations of the process, which renders application
of the results to specific cases questionable. It has observed that such
analyses as performed by some industry observers and financial advisors often
fail to adequately take into consideration such factors as material differences
in the underlying capitalization of the comparable institutions which are being
acquired; differences in the historic earnings (or loss) patterns recorded by
the compared institutions, which can depict a very different trend than might be
implied by examining only recent financial results; failure to exclude
nonrecurring profit or loss items from the last twelve months' earnings streams
of target companies, which can distort apparent earnings multiples; differences
in the form or forms of consideration used to complete the transaction;
differences between the planned method of accounting for the completed
transaction; and such less accessible factors as the relative population,
business and economic demographics of the acquired entities' markets as compared
or contrasted to such factors for the markets in which comparables are doing
business. Comparables analysis also rarely seems to take into consideration the
degree or absence of facilities overlap between the acquiror's market and that
of the target or the absence of such overlap and the resulting cost savings
differentials between otherwise apparently comparable transactions. MB&D
consequently believes that comparables analysis has serious limitations.
Nevertheless, in the course of its analysis of the proposed transaction,
MB&D reviewed a universe of 21 publicly announced transactions in the financial
institutions industry in which either a savings bank or thrift or their
respective holding companies were acquired by another financial institution.
These transactions were announced after March 1, 1994 and prior to November 12,
1996. All of the examined transactions involved entities doing business in New
England.
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<PAGE> 47
The 21 transactions reviewed by MB&D are as follows: Citizens Financial
Group's acquisition of Grove Bank; Webster Financial Corp.'s acquisition of DS
Bancorp; UST Corporation's acquisition of Walden Bancorp; Grove Bank's
acquisition of Greater Boston Bank; First Union Corp.'s acquisition of Center
Financial Corp.; Peoples Heritage's acquisition of Family Bancorp; CFX
Corporation's acquisition of Milford Co-op Bank; Center Financial Corp.'s
acquisition of Great Country Bank; Albank Financial Corp.'s acquisition of
Marble Financial Corp.; Webster Financial Corp.'s acquisition of Shelton
Bancorp; The Co-operative Bank of Concord's acquisition of Bank of Braintree;
Main Street Community Bancorp's acquisition of Lexington Savings Bank; Baybanks,
Inc.'s acquisition of NFS Financial Corp.; Bank of Ireland's acquisition of
Great Bay Bankshares; CFX Corporation's acquisition of Orange Savings Bank;
Citizens Financial Group's acquisition of Quincy Savings Bank; Shawmut Bank's
acquisition of Northeast Federal Corp.; Fleet Financial Group's acquisition of
NBB Bancorp, Inc.; Shawmut National's acquisition of West Newton SB; Bank of
Boston's acquisition of Pioneer Financial; and Shawmut National's acquisition of
Cohasset Savings Bank.
Within this group of 21 transactions, the median multiple of tangible book
value paid by the acquiror was 159.7%, the maximum multiple paid was 263.5% and
the minimum multiple was 95.6%. These statistics can be compared to multiples
derived using the indicated values on March 27, 1997, which can be derived for
the proposed acquisition of Eastern by VFSC as 163.1% based upon the nominal
present value of the proposed exchange ratio of approximately $26.83 based upon
the closing price of VFSC on March 27, 1997. Based upon the trailing 20-day
average closing bid price of VFSC through March 27, 1997, the same ratio was
163.1% using the nominal present value of the proposed exchange ratio of
approximately $26.83.
With respect to trailing 12-months earnings multiples for this same data
sample of 21 transactions, the median price/earnings multiple paid was 13.13 and
the maximum multiple was 20.66, while the minimum multiple was 9.95. These
statistics can be compared to multiples derived using the indicated values on
March 27, 1997, which can be derived for the proposed acquisition of Eastern by
VFSC as 30.84 based upon the nominal present value of the proposed exchange
ratio of approximately $26.83 based upon the closing bid price of VFSC on March
27, 1997 as described above and 30.84 based upon the nominal present value of
the proposed exchange ratio of approximately $26.83 based upon the trailing
20-day average closing bid price of VFSC through March 27, 1997. For the reasons
detailed above, MB&D does not believe that the comparable data presented should
be viewed as the most meaningful analytic tool with respect to a thorough review
and understanding of the proposed transaction.
Pursuant to a letter agreement with Eastern dated November 1, 1996, MB&D
will receive a fee equal to 1.00% of the fair market value of all consideration
received by Eastern shareholders and option holders for services rendered to
Eastern in conjunction with the proposed transaction, if the transaction is
consummated. The fee represents compensation for services rendered in connection
with the analysis of the hypothetical transaction, support of the negotiations
and for the rendering of its opinions. Eastern paid MB&D $100,000 upon signing
the agreement and $100,000 following the execution of the Merger Agreement. An
additional $200,000 became payable at the mailing of this proxy statement and
the remainder will become payable at the closing of the transaction. Based upon
a hypothetical transaction value at closing of $95 million, MB&D would receive
compensation of $950,000. In addition, Eastern has agreed to reimburse MB&D for
its reasonable out-of-pocket expenses incurred in connection with the
transaction. Eastern also has agreed to indemnify MB&D and its directors,
officers and employees against certain losses, claims, damages and liabilities
relating to or arising out of MB&D's engagement, including liabilities under the
federal securities laws.
Opinion of Tucker Anthony Incorporated
Tucker Anthony was retained by VFSC in October 1996 for the purpose of
providing financial advice and consultation in connection with a potential
acquisition of Eastern, including assistance in developing an overall strategy
for the acquisition of Eastern, advice on valuation and transaction structure,
assistance in bid presentation, negotiations and related strategy and analysis,
and, if appropriate, the rendering of a fairness opinion in connection with a
proposed acquisition.
VFSC selected Tucker Anthony for a number of reasons including its
familiarity with VFSC and Eastern and their respective businesses. VFSC also
considered Tucker Anthony's experience and reputation in the area
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<PAGE> 48
of valuation and financial advisory work generally, and in relation to financial
institutions specifically. Tucker Anthony makes a market in VFSC Common Stock
and Eastern Common Stock. 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 rendered written opinions to the Board of Directors of
VFSC to the effect that, as of November 13, 1996 and as of the date of this
Joint Proxy Statement-Prospectus, the consideration to be paid to the holders of
Eastern Common Stock in the Merger pursuant to the Merger Agreement is fair,
from a financial point of view, to the holders of VFSC Common Stock. THE FULL
TEXT OF THE FAIRNESS OPINION DATED AS OF THE DATE OF THIS JOINT 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 C TO THIS JOINT PROXY STATEMENT-PROSPECTUS.
HOLDERS OF VFSC COMMON STOCK ARE URGED TO READ THE FAIRNESS OPINION IN ITS
ENTIRETY. This opinion is directed to the VFSC Board only and does not
constitute a recommendation to any holder of VFSC Common Stock as to how such
stockholder should vote at the meeting. The November 13, 1996 opinion is
substantially identical to the opinion attached hereto as Appendix C.
As compensation for its services as financial advisor, including issuance
of the opinions, VFSC has agreed to pay Tucker Anthony a total of $500,000 of
which amount $300,000 has been paid as of the date hereof and the balance is
payable at the closing of the Merger. VFSC has also agreed to reimburse Tucker
Anthony for its out-of-pocket expenses and to indemnify Tucker Anthony against
certain liabilities arising out of its services.
In arriving at its opinion, Tucker Anthony, among other things, reviewed
the Agreement; reviewed the Registration Statement on Form S-4, including this
Joint Proxy Statement-Prospectus in the form first filed with the Commission;
reviewed certain historical financial and other information concerning VFSC for
the five fiscal years ended December 31, 1996, including VFSC's reports on Forms
10-K and 10-Q; reviewed certain historical financial and other information
concerning Eastern for the five fiscal years ended September 30, 1996 and for
the fiscal quarter ended December 31, 1996, including Eastern's reports on Forms
10-K and 10-Q; held discussions with the senior management of VFSC and Eastern
with respect to their past and current financial performance, financial
condition and future prospects; reviewed certain internal financial data,
projections and other information of VFSC and Eastern 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 VFSC and Eastern from a
financial point of view with certain of these institutions; compared the
consideration to be paid by VFSC pursuant to the Merger Agreement with the
consideration paid by acquirors 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 VFSC Common Stock and Eastern Common Stock and considered the prospects
for dividends and price movement in each; 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 VFSC Board or the Eastern 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 VFSC and Eastern, and did not attempt to verify any of such
information. Tucker Anthony assumed (i) that the financial projections of VFSC
and Eastern provided to it with respect to the results of operations likely to
be achieved by each company were prepared on a basis reflecting the best
currently available estimates and reasonable judgments of VFSC's and Eastern's
management and advisors 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. Tucker Anthony also assumed, without independent
verification, that the current and projected aggregate
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<PAGE> 49
reserves for possible loan losses for VFSC and Eastern were adequate to cover
such losses. Tucker Anthony did not make or obtain any independent evaluations
or appraisals of any assets or liabilities of VFSC, Eastern or any of their
respective subsidiaries nor did it verify any of VFSC's or Eastern's books or
records or review any individual loan credit files.
On November 13, 1996, Tucker Anthony made a presentation, and subsequently
rendered a written fairness opinion, to the VFSC Board. Set forth below is a
summary of the main elements of the financial analyses performed by Tucker
Anthony in connection with rendering its written opinion of November 13, 1996.
It does not purport to be a complete description of the analyses performed by
Tucker Anthony or of the presentation of Tucker Anthony to the VFSC Board. In
connection with its opinion dated as of the date of this Joint 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.
Pro Forma Accretion/Dilution Analysis. Tucker Anthony developed financial
projections of the expected future performance of the pro forma combined entity
assuming the consummation of the Merger based on: financial forecasts for VFSC
and Eastern prepared by their respective managements; projected pro forma
noninterest income enhancements and noninterest expense savings, and their
respective phase-in schedules, as identified by VFSC; and one-time
transaction-related adjustments and expenses as identified by VFSC. Tucker
Anthony did not develop such forecasts and projections, and assumed their
validity. The projections assumed, among other things, that Eastern's
stand-alone baseline projected earnings per share for its fiscal year ended
September 30, 1997 would be $1.85, and that noninterest income enhancements of
approximately $1.1 million and noninterest expense savings of approximately $9
million (approximately 30% of Eastern's noninterest expense for the twelve
months ended September 30, 1996, excluding a one-time special statutory
assessment of $3.8 million pre-tax paid by Eastern to capitalize the SAIF) would
be phased in during the year after the closing of the Merger.
This analysis suggested that the Merger would result in earnings accretion
in VFSC's fiscal year ended December 31, 1998; that is, that earnings per share
for the pro forma combined entity would be higher than for VFSC as a stand-alone
entity. This analysis also suggested that tangible book value per share and
capital ratios for the pro forma combined entity at the time of closing of the
Merger would be lower than for VFSC as a stand-alone entity.
Discounted Dividend Stream Analysis. Tucker Anthony presented the results
of a discounted dividend stream analysis through VFSC's fiscal year ended
December 31, 2002 designed to estimate the internal rate of return ("IRR") of
the future streams of after-tax cash flows, under certain assumptions, that
would be achieved in the Merger. Tucker Anthony based its analysis on the
portion of the detailed financial model developed for the accretion/dilution
analysis referred to above, which focused on the contribution of Eastern to the
pro forma combined entity (including the net effect of noninterest income
enhancements, noninterest expense savings and one-time transaction-related
adjustments and expenses).
The projected cash flows from the portion of the pro forma combined entity
representing the contribution of Eastern consisted of dividends (to maintain a
target tangible-equity-to-tangible-assets ratio of 7.00%) in the quarters ended
September 30, 1997 and December 31, 1997 and VFSC fiscal years ended December
31, 1998 through 2002 plus the terminal value at fiscal year end 2002. In
estimating the appropriate terminal value at fiscal year 2002, Tucker Anthony
applied to estimated earnings in fiscal year 2002 multiples of 9.0x, 10.0x and
11.0x, representing a range which approximated the trading range of VFSC Common
Stock in the prior eighteen months. Acquisition and trading multiples from time
to time fluctuate considerably, and no assurance can be made that future trading
multiples will be comparable to historical levels. Under the terms of the
Merger, based on the foregoing assumptions, this analysis suggested an IRR in
the range 16.6% to 26.9% for an Acquisition Price in the range $21.72 to $26.83
per share and terminal earnings multiples in the range 9.0x to 11.0x.
Based upon Tucker Anthony's experience and judgment and its estimate of
VFSC's required return on equity, Tucker Anthony estimated that holders of VFSC
Common Stock would typically expect returns on
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equity on acquisitions such as the Merger of approximately 14% to 16%, in view
of VFSC's operating projections, historical performance, financial condition and
market capitalization, among other matters.
Acquisition Price/Exchange Ratio Analysis. Tucker Anthony considered the
ranges of possible acquisition prices and exchange ratios that could result
under the Merger, and the impact of these on its analyses.
Stock Trading Analysis. Tucker Anthony examined the historical trading
prices, volume, price/book value and price/earnings multiples of VFSC Common
Stock and Eastern Common Stock, and compared the historical trading prices of
VFSC Common Stock and Eastern Common Stock in relation to movements in certain
stock indices, specifically the Standard and Poor's Regional Bank Index and the
Standard and Poor's Savings & Loan Index, as well as to other selected publicly
traded financial institutions.
Analysis of Selected Transactions. Tucker Anthony reviewed and performed
analysis on 84 unassisted acquisitions of thrift institutions in the
Northeastern US (the "Selected Northeast Transactions") and 71 unassisted
acquisitions of thrift institutions in the US with a transaction size between
$50 million and $150 million (the "Selected US Transactions") announced since
January 1, 1993, comparing the target financial institutions' capital structure
and profitability to Eastern's current results of operations and financial
condition. The Selected Northeast Transactions and Selected US Transactions were
chosen because they represented merger and acquisition transactions that
involved target financial institutions exhibiting certain
characteristics -- including asset size, geographic proximity and business
risk -- similar to those exhibited by Eastern. Excluding the highest and lowest
ratios, the target financial institutions involved in the Selected Northeast
Transactions and the Selected US Transactions had an average return on assets
for the latest twelve months prior to announcement date of 0.83% and 0.90% and
an average return on equity for the latest twelve months prior to announcement
date of 8.90% and 11.07%, respectively, as compared to 0.69% and 9.01%
(excluding a one-time special statutory assessment of $2.4 million after tax
paid by Eastern to capitalize the SAIF), respectively, for Eastern. Set forth
below is a summary of the analysis with respect to the Selected Northeast
Transactions and the Selected US Transactions.
<TABLE>
<CAPTION>
SELECTED NORTHEAST SELECTED US
TRANSACTIONS TRANSACTIONS
VERMONT ------------------------ ------------------------
FINANCIAL OFFER OFFER
OFFER(1) MEDIAN PERCENTILE(2) MEDIAN PERCENTILE(2)
--------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C>
Price/Trailing Twelve Months
Earnings(3)......................... 16.0x 14.5x 64% 15.1x 59%
Price/Book Value...................... 1.45x 1.53x 42% 1.58x 36%
Premium to Market Price(4)............ 125% 130% 43% 130% 41%
</TABLE>
- ---------------
(1) Based upon value of $25.01 per share of Eastern Common Stock (based on the
November 11, 1996 closing price of VFSC Common Stock of $36.25). If the
value of the VFSC Common Stock were based on its average closing bid price
per share during the twenty trading day period ending on the fifth business
day prior to the announcement of the Merger of $34.66, implying a value of
$24.23 per share of Eastern Common Stock, the corresponding multiples in the
table would be: price/trailing twelve months earnings of 15.6x; price/book
value of 1.40x; and premium to market price of 121%.
(2) Position of the VFSC offer in relation to percentile rankings of the
Selected Northeast Transactions and the Selected US Transactions,
respectively.
(3) Excludes a one-time special statutory assessment paid by Eastern to
capitalize the SAIF.
(4) Premium to market price for Selected Northeast Transactions and the Selected
US Transactions based on stock price one week prior to announcement; market
price for Eastern of $20.00/share based on price one month prior to
announcement.
Analysis of Selected Publicly Traded Companies. Tucker Anthony compared
selected financial data and financial ratios of VFSC and Eastern to the
corresponding data and ratios of certain publicly traded commercial bank and
thrift institutions located in New England with total assets comparable to VFSC
and Eastern, respectively. The commercial bank and thrift institutions included
in the comparison to VFSC were: Banknorth Group, Inc., Chittenden Corporation,
Merchants Bankshares, Inc., Peoples Heritage Financial
41
<PAGE> 51
Group, Inc. and TrustCo Bank Corp NY (the "Selected Banks"). The thrift
institutions included in the comparison to Eastern were: Andover Bancorp, Inc.,
CFX Corporation, Community Bancshares, Inc., First Essex Bancorp, Inc., MASSBANK
Corp., Medford Savings Bank, MetroWest Bank, New Hampshire Thrift Bancshares,
Inc., People's Bancshares, Inc., Sandwich Co-operative Bank and SIS Bancorp,
Inc. (the "Selected Thrifts"). The Selected Banks and the Selected Thrifts, as
groups, exhibited certain characteristics -- including asset size, geographic
proximity and business risk -- similar to those exhibited by VFSC and Eastern,
respectively.
The comparison of VFSC to the Selected Banks showed among other things that
based on financial data as of September 30, 1996 (other than certain instances
in which June 30, 1996 data was the latest available data): (i) the ratio of
VFSC's net loans to assets was 70.0% compared to an average of 66.2% for the
Selected Banks; (ii) the ratio of VFSC's non-performing assets to total loans
plus real estate owned was 1.2% compared to 1.9% for the Selected Banks; (iii)
the ratio of VFSC's non-performing assets to the sum of stockholders' equity and
loan loss reserves was 8.5% compared to an average of 13.0% for the Selected
Banks; (iv) the ratio of VFSC's equity to total assets was 9.04% as compared to
an average of 8.04% for the Selected Banks; (v) the latest quarter annualized
return on assets for VFSC was 1.30% compared to an average of 1.19% for the
Selected Banks; (vi) the latest quarter annualized return on equity for VFSC was
14.51%, compared to an average of 14.89% for the Selected Banks; (vii) the ratio
of VFSC's market price to its book value per common share was 1.48x compared to
an average of 1.87x for the Selected Banks; (viii) the price/earnings ratio for
the trailing twelve months earnings for VFSC was 10.9x, compared to an average
of 11.4x for the Selected Banks; and (ix) the average latest quarter annualized
dividend yield for VFSC was 3.0% as compared to 3.6% for the Selected Banks.
The comparison of Eastern to the Selected Thrifts showed among other things
that based on financial data as of September 30, 1996 (other than certain
instances in which June 30, 1996 data was the latest available data): (i) the
ratio of Eastern's net loans to assets was 56.3% compared to an average of 56.3%
for the Selected Thrifts; (ii) the ratio of Eastern's non-performing assets to
total loans plus real estate owned was 2.4% compared to 2.6% for the Selected
Thrifts; (iii) the ratio of Eastern's non-performing assets to the sum of
stockholders' equity and loan loss reserves was 18.1% compared to an average of
11.3% for the Selected Thrifts; (iv) the ratio of Eastern's equity to total
assets was 7.32% as compared to an average of 7.77% for the Selected Thrifts;
(v) the latest quarter annualized return on assets for Eastern was 0.67%
compared to an average of 0.99% for the Selected Thrifts; (vi) the latest
quarter annualized return on equity for Eastern was 8.89%, compared to an
average of 12.73% for the Selected Thrifts; (vii) the ratio of Eastern's market
price to its book value per common share was 1.28x compared to an average of
1.34x for the Selected Thrifts; (viii) the price/earnings ratio for the trailing
twelve months earnings for Eastern was 14.8x, compared to an average of 10.6x
for the Selected Thrifts; and (ix) the average latest quarter annualized
dividend yield for Eastern was 2.5% as compared to 3.1% for the Selected
Thrifts.
The foregoing is a summary of the main elements of the financial analyses
performed by Tucker Anthony, but it does not purport to be a complete
description of such analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to a
summary description. Accordingly, notwithstanding the separate factors
summarized above, 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 above should not be taken to be Tucker Anthony's
view of the actual value of Eastern to VFSC.
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 VFSC and Eastern. 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
42
<PAGE> 52
by such analyses. Such analyses were prepared solely as a part of Tucker
Anthony's analysis of the fairness, from a financial point of view, to the
holders of VFSC Common Stock of the consideration to be paid in the Merger to
the holders of Eastern Common Stock, and were provided to VFSC's Board of
Directors 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
Eastern or VFSC might actually be sold or 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 is just one of the many factors taken
into consideration by VFSC's Board of Directors. See "-- Recommendation of the
VFSC Board and Reasons for the Merger" and "-- Background of the Merger".
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
If the Merger Agreement is approved and adopted by the requisite vote of
VFSC and Eastern stockholders, and the other conditions to the Merger are
satisfied or (where permissible) waived, the Merger will be consummated and
become effective when the Certificate of Merger is filed with the Secretary of
State of Delaware, or at such later date and time as is specified therein. Under
the terms of the Merger Agreement, the Closing Date shall be the date on which
the Effective Time occurs.
CONVERSION OF SHARES OF EASTERN COMMON STOCK PURSUANT TO THE MERGER
At the Effective Time, automatically and without any action on the part of
the holder thereof, each share of Eastern Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held by dissenting
stockholders ("Dissenting Shares"), shares held directly or indirectly by VFSC,
other than shares in trust accounts, merged accounts and the like which are
beneficially owned by third parties ("Trust Account Shares") and other shares
held in respect of a debt previously contracted ("DPC Shares"), and any shares
held as treasury stock by Eastern) shall become and be converted into either:
(i) an amount in cash equal to the sum of (x) $7.25 plus (y) the
product of 0.49 times the Average Closing Price (such total per share
purchase price being referred to herein as the "Acquisition Price" and such
total per share cash amount being referred to herein as the "Cash
Distribution"); or
(ii) the number of whole and fractional shares of VFSC Common Stock,
rounded to the nearest ten-thousandth of a share, equal to the number
obtained by dividing the Acquisition Price by the Average Closing Price
(such number being referred to herein as the "Exchange Ratio" or the "Stock
Distribution"); provided, however, that if the Average Closing Price is
greater than or equal to $39.96 per share, the Acquisition Price shall
equal $26.83, and if the Average Closing Price is less than or equal to
$29.54 per share but greater than or equal to $26.06 per share, the
Acquisition Price shall equal $21.72. If the Average Closing Price is less
than $26.06, the Acquisition Price shall equal the sum of (x) $7.25 plus
(y) the product of 0.5553 times the Average Closing Price.
If the Average Closing Price is less than $26.06 per share (the "Minimum
Price"), then Eastern shall have the right to terminate the Merger Agreement,
unless VFSC elects, in its sole discretion, to adopt $21.72 as the Adjusted
Acquisition Price. The Acquisition Price shall be identical without regard to
any election made pursuant to the procedures set forth in the Merger Agreement
(see "-- Election Procedures"). In determining whether to elect to terminate the
Merger Agreement in these circumstances, Eastern will take into account,
consistent with its fiduciary duties, all relevant facts and circumstances
existing at the time, including, without limitation, whether it believes that
VFSC is prepared to (i) adopt $21.72 as the Acquisition Price, (ii) acquiesce in
the termination of the transaction or (iii) seek to negotiate for a lesser
increase in the Acquisition Price; the market for bank and thrift stocks in
general; and the relative value of the Eastern Common Stock in the market and
the advice of its financial advisors and legal counsel. By approving the Merger
Agreement, the Eastern stockholders would be permitting the Eastern Board to
determine, in the exercise of its fiduciary duties, to proceed with the Merger
even if the Average Closing Price of the VFSC Common Stock during the pricing
period is less than $26.06 per share.
As of the Effective Time, each share of Eastern Common Stock held directly
or indirectly by VFSC, other than Trust Account Shares, and DPC Shares, and each
share of Eastern Common Stock held by
43
<PAGE> 53
Eastern as treasury stock shall be canceled and retired and shall cease to
exist, and no payment shall be made with respect thereto.
The Merger Agreement defines "Average Closing Price" as the average of the
closing bid prices of shares of VFSC Common Stock as reported on the Nasdaq NM
composite transactions reporting system for the twenty consecutive trading days
(the "Valuation Period") ending on the fifth business day prior to the Closing
Date. The Merger Agreement defines "Merger Consideration" as the shares of VFSC
Common Stock and/or cash that holders of Eastern Common Stock are entitled to
receive under the Merger Agreement. Subject to the provisions of the Merger
Agreement with respect to Dissenting Shares, each certificate that immediately
prior to the Effective Time represented outstanding shares of Eastern Common
Stock shall on and after the Effective Time be deemed for all purposes to
represent the Merger Consideration into which the shares of Eastern Common Stock
represented by such certificate shall have been converted.
The total amount of the Cash Distribution to be made to all holders of
shares of Eastern Common Stock will equal the product of $7.25 times the number
of shares of Eastern Common Stock outstanding at the Effective Time (which
product is currently estimated at $26.6 million). The balance of the Merger
Consideration will consist of shares of VFSC Common Stock; if the Average
Closing Price is between $29.54 and $39.96 per share, Eastern's stockholders
will receive approximately 1.8 million shares of VFSC Common Stock, or
approximately 28.1% of all shares outstanding upon consummation of the Merger
and, if it is less than $29.54, they will receive an increasing number or
shares, up to approximately 2.0 million shares of VFSC Common Stock, or
approximately 30.7% of all shares outstanding upon consummation of the Merger,
if the Average Closing Price is $26.06 per share.
44
<PAGE> 54
TABULAR AND GRAPHIC ILLUSTRATION OF THE MERGER CONSIDERATION
AT VARIOUS AVERAGE CLOSING PRICES
The table below shows the Merger Consideration corresponding to various
possible values of the Acquisition Price and Adjusted Acquisition Price,
respectively. If the Average Closing Price is less than $26.06 and VFSC in its
sole discretion so elects, the Merger Consideration will be based on the
Adjusted Acquisition Price of $21.72. The Merger Consideration will be in the
form of the Cash Distribution per share of Eastern Common Stock or the Stock
Distribution of the number of shares of VFSC Common Stock to be exchanged for
each share of Eastern Common Stock.
There can be no assurance as to what the Average Closing Price will be or
what the value of the Merger Consideration will be at or following the Effective
Time. The table and graph below are intended as illustrative examples only. This
illustration is qualified in its entirety by reference to the Merger Agreement.
The highest and lowest Average Closing Prices depicted in the illustration are
not intended to suggest that the Average Closing Price, when computed, will not
be higher or lower than these respective values.
As shown below, if the Average Closing Price were to be $41.625, the
closing price of VFSC Common Stock on March 27, 1997, the Acquisition Price
would be $26.83; an Eastern Stockholder receiving all cash would receive $26.83
per share of Eastern Common Stock, and an Eastern Stockholder receiving all
stock would receive 0.6446 shares of VFSC Common Stock per share of Eastern
Common Stock.
<TABLE>
<CAPTION>
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
AVERAGE ------------------------------
CLOSING PRICE ACQUISITION STOCK
(OF VFSC PRICE (PER CASH DISTRIBUTION
SHARES) EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ------------- -------------- ------------ -------------
<S> <C> <C> <C>
$44.000 $26.8300 $26.8300 0.6098
42.000 26.8300 26.8300 0.6388
41.625 26.8300 26.8300 0.6446
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
40.000 26.8300 26.8300 0.6708
39.960 26.8300 26.8300 0.6714
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
38.000 25.8700 25.8700 0.6808
36.000 24.8900 24.8900 0.6914
34.000 23.9100 23.9100 0.7032
32.000 22.9300 22.9300 0.7166
30.000 21.9500 21.9500 0.7317
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
29.540 21.7200 21.7200 0.7353
28.000 21.7200 21.7200 0.7757
26.060 21.7200 21.7200 0.8335
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
26.000 21.6878 21.6878 0.8341
24.000 20.5772 20.5772 0.8574
22.000 19.4666 19.4666 0.8848
</TABLE>
<TABLE>
<CAPTION>
If Eastern elects to terminate the Merger
but VFSC elects to keep the Merger Agreement in effect:
- --------------------------------------------------------------
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
ADJUSTED -----------------------------------
ACQUISITION PRICE (PER CASH STOCK DISTRIBUTION
EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ---------------------- ------------ ------------------
<S> <C> <C>
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C> <C> <C>
29.540 21.7200 21.7200 0.7353 $21.7200 $21.7200
28.000 21.7200 21.7200 0.7757 21.7200 21.7200
26.060 21.7200 21.7200 0.8335 21.7200 21.7200
<CAPTION>
29.540 0.8354
<S> <C>
28.000 0.9050
26.060 0.9873
</TABLE>
- --------------------------------------------------------------------------------
Graph showing range of values of merger consideration per share of target
company's stock as determined by price of acquiring company's stock, with
example of value based on March 27, 1997 price of acquiring company's stock.
45
<PAGE> 55
ELECTION PROCEDURES
Following the Special Meetings and 25 business days prior to the
anticipated Closing Date, or on such other date as may be mutually agreed upon
by the parties (the "Mailing Date"), VNB, acting as an exchange agent appointed
by VFSC (the "Exchange Agent"), will mail to each holder of record of shares of
Eastern Common Stock outstanding as of five business days prior to the Mailing
Date an election form (the "Election Form"), together with appropriate
transmittal materials.
The Election Form will permit a holder of shares of Eastern Common Stock to
elect, with respect to some or all of such holder's shares of Eastern Common
Stock, (i) to receive the Stock Distribution (the "Stock Election Shares"), (ii)
to receive the Cash Distribution (the "Cash Election Shares"), or (iii) to
indicate that such holder makes no election (the "No Election Shares").
Any shares of Eastern Common Stock with respect to which the holder thereof
shall not, as of the Election Deadline (as defined below), have made such an
election by submission to the Exchange Agent of a properly completed Election
Form, will be deemed to be No Election Shares. "Election Deadline" means 5:00
p.m., local time, on the 15th business day following but not including the
Mailing Date or such other date as VFSC and Eastern shall mutually agree upon in
writing.
Any election shall have been properly made only if the Exchange Agent has
received a properly completed Election Form by the Election Deadline. An
Election Form will be properly completed only if accompanied by either (i)
certificates representing all shares of Eastern Common Stock covered thereby or
(ii) an appropriate guarantee of delivery of such certificates as set forth in
the Election Form from a member of a national securities exchange or the NASD,
or a commercial bank or trust company in the United States, provided that if the
certificates are not delivered by the time set forth in the guarantee of
delivery (which time may not be later than two business days after the Election
Deadline), the holder shall be entitled only to receive in respect of each share
of Eastern Common Stock represented by such certificates the Merger
Consideration to be received by holders of No Election Shares, as determined in
accordance with the allocation provisions set forth below. As a result of this
requirement, stockholders who submit Election Forms will not be able to sell
their shares on the Nasdaq NM, or otherwise, after submitting their Election
Forms and will be irrevocably bound to receive the Merger Consideration rather
than retaining the ability to choose, up to the Effective Time, whether to sell
their shares or to receive the Merger Consideration. Any Election Form may be
revoked or changed by the person submitting such Election Form to the Exchange
Agent by written notice to the Exchange Agent, provided such notice is received
by the Exchange Agent at or prior to the Election Deadline. The Exchange Agent
will have reasonable discretion to determine when any election, modification or
revocation is received and whether any such election, modification or revocation
has been properly made.
The total amount of the Cash Distribution to be made to all holders of
shares of Eastern Common Stock will equal the product of $7.25 times the number
of shares of Eastern Common Stock outstanding at the Effective Time (currently
estimated at $26.6 million); the balance of the consideration to be paid to such
holders will consist of shares of VFSC Common Stock. The allocation procedures
contained in the Merger Agreement are intended to cause these aggregate amounts
to be distributed among such holders as nearly as possible in accordance with
their expressed wishes as set forth in their Election Forms.
If the aggregate number of Stock Election Shares does not equal the Stock
Conversion Number (as defined below), the Exchange Agent will within 10 business
days after the Election Deadline, unless the Effective Time has not yet
occurred, in which case as soon thereafter as practicable, allocate among
holders of shares of Eastern Common Stock outstanding at the Effective Time the
right to receive with respect to each such share the Stock Distribution or the
Cash Distribution as follows:
(i) if the aggregate number of Stock Election Shares is less than the
Stock Conversion Number (as defined below), then
(a) all Stock Election Shares will be converted into the right to
receive the Stock Distribution;
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<PAGE> 56
(b) the Exchange Agent will select, on a pro rata basis, first from
among the holders of No Election Shares and then (if necessary) from
among the holders of Cash Election Shares, a sufficient number of such
shares ("Stock Designee Shares") such that the number of Stock Designee
Shares will, when added to the number of Stock Election Shares, equal as
closely as practicable, but in no event be less than, the Stock
Conversion Number, and all Stock Designee Shares will be converted into
the right to receive the Stock Distribution; and
(c) the Cash Election Shares and the No Election Shares not so
selected as Stock Designee Shares will be converted into the right to
receive the Cash Distribution; or
(ii) if the aggregate number of Stock Election Shares is greater than
the Stock Conversion Number, then
(a) all Cash Election Shares will be converted into the right to
receive the Cash Distribution;
(b) the Exchange Agent will select, on a pro rata basis, first from
among the holders of No Election Shares and then (if necessary) from
among the holders of Stock Election Shares, a sufficient number of such
shares ("Cash Designee Shares") such that the number of Cash Designee
Shares will, when added to the number of Cash Election Shares, equal as
closely as practicable, but in no event will it exceed, the Cash
Conversion Number (as defined below), and all Cash Designee Shares will
be converted into the right to receive the Cash Distribution; and
(c) the Stock Election Shares and the No Election Shares not so
selected as Cash Designee Shares will be converted into the right to
receive the Stock Distribution.
"Cash Conversion Number" means the number of outstanding shares of Eastern
Common Stock as of the Effective Time, including all Dissenting Shares, if any,
multiplied by the ratio of $7.25 to the Acquisition Price. "Stock Conversion
Number" means the number of outstanding shares of Eastern Common Stock as of the
Effective Time minus the Cash Conversion Number.
The proration process to be used by the Exchange Agent shall be as the
Exchange Agent deems equitable in its sole reasonable discretion, provided that
each holder of Stock Election Shares shall, to the greatest extent possible,
except for rounding to whole numbers of shares, be subject to the same degree of
proration as each other holder of Stock Election Shares.
CERTIFICATE EXCHANGE PROCEDURES
Certificates representing shares of Eastern Common Stock outstanding
immediately prior to the Effective Time that are converted into the Merger
Consideration (the "Certificates"), shall, after the Effective Time, be deemed
to represent the Merger Consideration into which such shares have been converted
and shall be exchangeable by the holders thereof for (i) new certificates
representing the shares of VFSC Common Stock into which such shares have been
converted and/or (ii) a check for the total cash amount into which such shares
have been converted.
Upon surrender of a Certificate, together with a duly executed letter of
transmittal and any other required documents, the holder of such Certificate
will be entitled to receive, in exchange therefor, as soon as practicable, a
certificate for the number of shares of VFSC Common Stock and/or a check for the
cash amount to which such holder is entitled, and such Certificate shall
forthwith be canceled. No interest will be paid on the cash amount payable with
respect to any unsurrendered Certificate representing Cash Election Shares.
In lieu of the issuance of fractional shares of VFSC Common Stock, a
payment in cash, without interest, will be made to the holders of Eastern Common
Stock in respect of any fractional share that would otherwise be issuable, equal
to an amount in cash determined by multiplying such holder's fractional interest
by the Acquisition Price (rounded up to the nearest cent). If any Certificate
has 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 VFSC of appropriate
47
<PAGE> 57
and customary indemnification, VFSC will deliver in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration and any fractional
share payment.
If any Merger Consideration is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that the Certificate so surrendered shall
be properly endorsed (or accompanied by an appropriate instrument of transfer)
and otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the delivery of the Merger Consideration.
TREATMENT OF EASTERN STOCK OPTIONS
As soon as practicable following the Eastern Meeting and in any event not
later than 10 business days prior to the Effective Time, each holder of a
then-outstanding stock option to purchase shares of Eastern Common Stock
pursuant to Eastern's 1984 and 1987 stock option plans (the aggregate number of
shares of Eastern Common Stock subject to purchase under which options shall not
at the Effective Time exceed 398,975 shares) shall be entitled to exercise such
option (whether or not such option would otherwise have been exercisable) at the
exercise price thereof. If such options are not so exercised, then each such
holder shall be entitled to elect by written notice to VFSC, delivered not later
than 10 business days prior to the Effective Time, either (i) to receive,
immediately prior to the Effective Time, from Eastern in cancellation of each
such option a cash payment in an amount equal to the excess of $24.28 over the
per share exercise price of such option, multiplied by the number of shares
covered by such option (less any withholding required under applicable federal
or state income tax law), or (ii) to have each such option, upon the Effective
Time, converted into an option to purchase shares of VFSC Common Stock. Any
option so converted shall have the following terms:
(a) the number of shares of VFSC Common Stock subject to such option
shall be equal to the product of the number of shares of Eastern Common
Stock previously subject thereto multiplied by the Exchange Ratio, rounded
down to the nearest whole share;
(b) the exercise price per share of VFSC Common Stock subject to such
option shall be equal to the exercise price per share of Eastern Common
Stock previously subject thereto divided by the Exchange Ratio, rounded up
to the nearest cent;
(c) the duration and other terms of such option shall be unchanged,
except that all references to Eastern shall be deemed to be references to
VFSC;
(d) VFSC shall assume the option as contemplated by section 424(a) of
the Code; and
(e) with respect to any such option that is an incentive stock option
within the meaning of section 422 of the Code, VFSC shall take such actions
(other than delaying the date on which such option becomes exercisable
beyond the date on which it would otherwise become exercisable pursuant to
the terms thereof) as may be necessary or appropriate to cause such option,
upon being converted into an option to purchase shares of VFSC Common
Stock, to remain an incentive stock option.
If any such holder fails either to exercise such holder's options as
provided for above or to elect one of the other two foregoing alternatives, then
such holder's options shall terminate at the Effective Time as provided in the
applicable Eastern stock option plans.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Eastern and Vermont Federal has
agreed that, except as specifically required or permitted pursuant to the Merger
Agreement or as otherwise specifically disclosed therein, it will prior to the
Effective Time carry on its business in the ordinary course consistent with past
practice.
48
<PAGE> 58
In addition, each of Eastern and Vermont Federal has agreed that, except as
contemplated by the Merger Agreement, prior to the Effective Time, it will not,
directly or indirectly, do any of the following without the prior written
consent of VFSC:
(a) 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,
including without limitation entering into any settlement agreement or
understanding with respect to any material litigation matters;
(b) accept, renew or roll over any "brokered deposit" or offer an
interest rate with respect to any deposit that would either constitute an
impermissible interest rate with respect to deposits of an undercapitalized
insured depository institution or otherwise set interest rates on deposits
that depart from past practices of Vermont Federal;
(c) 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;
(d) relocate, or file any application to relocate, any branch office;
(e) terminate, or give any notice (written or verbal) to customers or
governmental authorities or agencies to terminate the operations of any
branch office;
(f) 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 practices;
(g) declare or pay any dividends on or make any other distributions in
respect of the Eastern Common Stock, except that Eastern shall be permitted
to declare and pay regular quarterly cash dividends to its stockholders of
$0.14 per share for the quarter ending September 30, 1996, $0.16 per share
for the quarters ending December 31 and March 31, 1997 and $0.18 per share
for the quarter ending June 30, 1997, provided, however, that Eastern may
not declare or pay any such regular quarterly cash dividend hereunder
greater than $0.14 per share if the aggregate amount of such dividend would
exceed forty percent (40%) of Eastern's net income for the fiscal quarter
for which the dividend would be declared or paid;
(h) adopt or amend in any material respect any pension plan or benefit
plan or enter into any employment, severance or similar contract with any
person or amend any such existing agreement, plan or contract to increase
any amounts payable thereunder or benefits provided thereunder, or grant or
permit any increase in compensation to its employees as a class, except in
the ordinary course of business consistent with past practices, or pay any
bonus except as agreed to by Eastern or Vermont Federal and VFSC and as
disclosed in the Merger Agreement;
(i) subject to its directors' fiduciary duties and obligations,
authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into an agreement with respect to, any
merger, consolidation, purchase and assumption transaction or business
combination (other than the Merger), any acquisition of a material amount
of assets or securities or assumption of liabilities, 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
inconsistent with past practices;
(j) propose or adopt amendments to its certificate or articles of
incorporation or by-laws;
(k) issue, deliver or sell any shares of its capital stock except upon
exercise or fulfillment of options issued or existing on the date of the
Merger Agreement, or effect any stock split, reverse stock split,
recapitalization, reclassification or similar transaction or otherwise
change its equity capitalization;
(l) grant, confer or award any options, warrants, conversion rights or
other rights, not existing on the date of the Merger Agreement, to acquire
any shares of its capital stock;
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(m) 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;
(n) impose, or suffer to exist the imposition, on any share of capital
stock held by it or by any of its subsidiaries of any material lien, charge
or encumbrance, or permit any such lien, charge or encumbrance;
(o) incur, or permit any of its subsidiaries to incur, any additional
debt obligation or other obligation for borrowed money, or guaranty any
additional debt obligation or other obligation for borrowed money, except
in the ordinary course of business consistent with past practices;
(p) 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,
which, in all cases, do not individually exceed $50,000 or cumulatively
exceed $150,000;
(q) change its methods of accounting in effect at September 30, 1995,
except as may be required by changes in generally accepted accounting
principles, or change its fiscal year;
(r) make any loan or extension of credit or enter into any commitment
therefor on other than Vermont Federal's customary terms, conditions and
standards and in accordance with applicable law and regulation and
consistent with prudent banking practices, and in any event Eastern and
Vermont Federal are required to provide VFSC with monthly reports of all
loans, extensions of credit and commitments therefor equal to or greater
than $500,000, individually, and to consult with VFSC prior to making or
entering into any new loan, extension of credit or commitment therefor
equal to or greater than $750,000 individually, or which, when aggregated
with all other loans, extensions of credit and commitments therefor to a
single borrower or affiliated group of borrowers, equals at least
$1,500,000; and
(s) agree, in writing or otherwise, to take any actions prohibited
under the Merger Agreement or any action that would make any of its
representations or warranties contained in the Merger Agreement untrue or
incorrect or would otherwise violate any of its other agreements or
commitments contained in the Merger Agreement in any material respect.
Each of Eastern and Vermont Federal has also agreed that, except as may be
specifically required or permitted pursuant to the Merger Agreement or
specifically described therein or in the accompanying disclosure schedule, it
shall:
(a) use all reasonable efforts, and cause each of its subsidiaries to
use all reasonable efforts, to preserve intact its business organization
and goodwill in all material respects, keep available the services of its
officers and employees as a group and maintain satisfactory relationships
with borrowers, depositors, other customers and others having business
relationships with it;
(b) at VFSC's request, use all reasonable efforts to cooperate with
VFSC with respect to preparation for the combination and integration of the
businesses, systems and operations of Eastern and VFSC, and confer on a
regular and frequent basis with one or more representatives of VFSC to
report on operational and related matters;
(c) subject to any restrictions under applicable law or regulation,
promptly notify VFSC of any emergency or other change in the normal course
of its or its subsidiaries' businesses or in the operation of its or its
subsidiaries' 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 its or its subsidiaries' assets, properties,
liabilities, business, results of operations, condition (financial or
regulatory); and
(d) file all reports, applications and other documents required to be
filed by it with the OTS, the Federal Reserve Board, the FDIC, any other
federal or state banking or other governmental agency or authority between
the date of the Merger Agreement and the Effective Time and shall furnish
to VFSC copies of all such reports promptly after the same are filed.
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CONDITIONS TO CONSUMMATION OF THE MERGER
Mutual Conditions. The respective obligations of VFSC and Eastern to
consummate the Merger are subject to satisfaction at or prior to the Effective
Time of the following conditions:
(a) The Merger Agreement and the transactions contemplated thereby
shall have been approved and adopted by the requisite vote of Eastern and
VFSC stockholders;
(b) Other than the filing of the Certificate of Merger, all necessary
approvals, authorizations and consents of any governmental or regulatory
authority or agency necessary for the consummation of the transactions
contemplated by the Merger Agreement shall have occurred or been file or
obtained and shall be in full force and effect, and all statutory waiting
periods in respect thereof shall have expired or been terminated (all such
approvals and the expiration of all such waiting periods being referred to
herein as the "Requisite Regulatory Approvals");
(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated by
the Merger Agreement shall be in effect; and
(d) No stop order suspending the effectiveness of the Form S-4
Registration Statement registering the shares of VFSC Common Stock to be
issued in the Merger of which this Joint Proxy Statement-Prospectus forms a
part shall have been issued, and no proceedings for that purpose shall have
been initiated or threatened by the Commission.
Conditions to VFSC's Obligations. The obligation of VFSC to effect the
Merger and the transactions contemplated thereby is also subject to the
following conditions, any or all of which may be waived in whole or in part by
VFSC in its sole discretion:
(a) No material adverse change shall have occurred since September 30,
1996 in the business, operations, results of operations, assets,
liabilities or condition of Eastern or Vermont Federal;
(b) VFSC shall have received assurances that Eastern and Vermont
Federal's representations and warranties are true at the Closing Date and
that all of Eastern's pre-closing obligations have been complied with;
(c) All required approvals of non-governmental third parties that are
the responsibility of Eastern or Vermont Federal to obtain shall have been
received;
(d) None of the Requisite Regulatory Approvals shall contain any
materially burdensome condition or restriction;
(e) VFSC shall have received a legal opinion from Sullivan & Worcester
LLP, VFSC's outside counsel, that the Merger will constitute a tax-free
reorganization within the meaning of section 368(a) of the Code;
(f) VFSC shall have received a legal opinion from Hale and Dorr LLP,
Eastern's outside counsel, regarding certain corporate and other matters in
such form as is customary in transactions of this type;
(g) Eastern shall have delivered a letter identifying persons deemed
to be its affiliates and, to the extent received by Eastern, delivery of
letters from such persons agreeing to comply with certain limitations
applicable after the Effective Time to their sales of VFSC Common Stock
received in the Merger; and
(h) The Dissenting Shares shall not represent more than 20% of the
shares of Eastern Common Stock issued and outstanding immediately prior to
the Effective Time.
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Conditions to Eastern and Vermont Federal's Obligations. The obligation of
Eastern to effect the Merger and the other transactions contemplated in the
Merger Agreement is also subject to the satisfaction of the following
conditions, any or all of which may be waived by Eastern in its sole discretion:
(a) No material adverse change shall have occurred since December 31,
1995 in the business, operations, results of operations, assets,
liabilities, or condition of VFSC;
(b) Eastern shall have received assurances that VFSC's representation
and warranties are true at the Effective Time and that all of VFSC's
pre-closing obligations have been complied with;
(c) All required approvals of non-governmental third parties that are
the responsibility of VFSC to obtain shall have been received;
(d) Eastern shall have received a legal opinion from Hale and Dorr LLP
that the Merger will constitute a tax-free reorganization within the
meaning of section 368(a) of the Code and any taxable gain realized by any
Eastern stockholder as a result of the Merger will not exceed the amount of
cash received by such stockholder;
(e) The shares of VFSC Common Stock issuable at the Effective Time
shall have been authorized for listing on the Nasdaq NM upon official
notice of issuance; and
(f) Eastern shall have received a legal opinion from Sullivan &
Worcester LLP regarding certain corporate and other matters in such form as
is customary in transactions of this type.
TERMINATION
The Merger Agreement will be subject to termination any time prior to the
Effective Time (i) by mutual agreement of the parties; (ii) by either party if
the Merger shall not have been consummated on or before November 30, 1997 or
such later date as the parties may agree; (iii) by either party if any Requisite
Regulatory Approval or the approval of the stockholders of Eastern or the
stockholders of VFSC is not obtained or if consummation of the transactions
contemplated by the Merger Agreement is enjoined or otherwise prohibited; (iv)
by either party for a material breach of any representation, warranty or
covenant or other agreement contained in the Merger Agreement by the other
party, which breach is not cured after 30 days written notice thereof is given
to the party committing such breach; (v) by Eastern if the Average Closing Price
is less than $26.06 per share, subject to VFSC's right to elect to increase the
number of shares of VFSC Common Stock issuable in the Merger by using the
Adjusted Acquisition Price; and (vi) by VFSC if the Eastern Board does not
recommend to Eastern's stockholders the approval of the proposals to be
submitted to such stockholders in accordance with the Merger Agreement or if
such recommendation is subsequently withdrawn, modified or amended in any way
that is materially adverse to VFSC.
If either party terminates the Merger Agreement for any of the foregoing
reasons, neither party shall have any further liability under the Merger
Agreement; provided, however, in the event of a party's gross negligence or
willful breach of any material representation, warranty, covenant or agreement
contained in the Merger Agreement, the breaching party shall remain liable for
any and all damages, costs and expenses sustained or incurred by the
non-breaching party. In addition, Eastern will be liable for a cash payment of
up to $1 million if there should occur an event that would entitle VFSC to
exercise the option granted to it under the Stock Option Agreement. This
termination fee is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms of the Merger Agreement and may have
the effect of discouraging persons who might now or prior to the Effective Time
be interested in acquiring all of or a significant interest in Eastern from
considering or proposing such an acquisition.
AMENDMENT, EXTENSION AND WAIVER
At any time prior to the consummation of the transactions contemplated by
the Merger Agreement or termination of the Merger Agreement, whether before or
after the approvals of the parties' respective stockholders, the parties may
amend the Merger Agreement, extend the time for the performance of any of the
obligations or other acts of any other party hereto, waive any inaccuracies in
the representations and
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warranties contained therein or in any document delivered pursuant thereto, or
waive compliance with any of the agreements or conditions with respect to
covenants of the parties or closing conditions of the Merger (other than the
mutual conditions described above); provided, however, that there may not be,
without further approval of the parties' stockholders, to the extent required by
law, any amendment, extension or waiver of the Merger Agreement that changes the
amount or form of the consideration to be delivered to the Eastern stockholders
other than as may be expressly contemplated by the Merger Agreement. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties thereto. Any agreement on the part of any party 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.
REQUISITE REGULATORY APPROVALS
The Merger is subject to approval by the Federal Reserve Board upon notice
by VFSC of the Merger pursuant to Section 4(c)(8) of the BHC Act, and by the
MBBI upon application by VFSC pursuant to Sections 2 and 4 of Chapter 167A of
the Massachusetts General Laws. VFSC has also provided prior notice of the
Merger to the Vermont Department, the Department of Justice and the FTC. In
evaluating whether to approve VFSC's notice of the Merger, the Federal Reserve
Board, or the Federal Reserve Bank of Boston, acting on delegated authority, is
required to consider whether the activities of a federal savings bank (i.e.
those of Vermont Federal) to be undertaken by VFSC as a result of the Merger can
reasonably be expected to produce benefits to the public (such as greater
convenience, increased competition or gains in efficiency) that outweigh
possible adverse effects (such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices). Such
consideration includes an evaluation of the financial and managerial resources
of VFSC and Eastern and the effect of the Merger on such resources. With respect
to the approval of the Merger by the MBBI, the approval criteria under the
Massachusetts statute are ordinarily applicable to acquisitions of banking
institutions located in Massachusetts, and the MBBI's approval should depend
upon its determination that the Merger does not unreasonably affect competition
among Massachusetts banking institutions and that it promotes public convenience
and advantage. The MBBI must also receive notice from the Massachusetts Housing
Partnership Fund the ("MHPF") that arrangements satisfactory to the MHPF have
been made, to the extent applicable, for the proposed acquiror to fund certain
statutory pledge obligations. In the case of an acquisition of a target
institution that is not doing business or otherwise deemed to have any assets
located in Massachusetts, as is the case with respect to the Merger, such
statutory obligation should not result in any additional financial obligation
being imposed upon the acquiror by the MHPF. There can be no assurance that the
Merger will be approved by the Federal Reserve Board, the MBBI or any other
applicable regulatory agency or body. If such approvals are received, there can
be no assurance as to the date of such approvals or the absence of any
litigation challenging the Merger. The Merger will not occur until all
regulatory approvals, notices or other filings required to consummate the Merger
have been obtained or made and are in full force and effect, and any statutory
waiting periods in respect thereof have expired.
Except for state securities ("blue sky") filings, the parties are not aware
of any other regulatory approvals or filings that are required for consummation
of the Merger, except as described above. Should any other approvals or filings
be required, it is presently contemplated that such approvals or filings will be
sought or made, as appropriate. There can be no assurances given, however, that
any other approvals, if required, will be obtained.
The Merger will not be consummated unless all of the requisite regulatory
approvals or other filings pertaining to the transactions contemplated by the
Merger Agreement are obtained or made, as appropriate. See "-- Conditions to
Consummation of the Merger."
While it is not a condition to the consummation of the Merger, VFSC also
intends to consolidate the operations of Vermont Federal with those of VNB, by
causing Vermont Federal to be merged into VNB (the "Subsidiary Merger") as soon
as practicable following the completion of the Merger. The consummation of
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the Subsidiary Merger will require certain additional regulatory filings and
approvals, including the prior approval of the OCC and prior notice to the OTS.
EXPENSES
In general, each party will pay its own expenses in connection with the
Merger, except that in the event of gross negligence or willful breach, a party
breaching the Merger Agreement shall be liable for damages, costs and expenses
including reasonable attorneys' fees incurred by the nonbreaching party.
STOCK OPTION AGREEMENT
Simultaneously with the execution of the Merger Agreement, VFSC and Eastern
entered into the Stock Option Agreement. Pursuant to the Stock Option Agreement,
Eastern granted to VFSC an option to purchase, subject to adjustment in certain
events, up to 732,425 shares of Eastern Common Stock at an exercise price of
$21.00 per share. The Option becomes exercisable in whole or in part, after the
occurrence of both an Initial Triggering Event and a Subsequent Triggering Event
(each as defined below).
The term "Initial Triggering Event" means the occurrence at any time after
November 13, 1996 of: (i) the agreement by Eastern or any subsidiary thereof to
enter into, or the approval or acceptance by Eastern's Board of Directors of or
recommendation by Eastern's Board of Directors to Eastern's stockholders of, any
transaction involving a merger or consolidation, a purchase, lease or other
acquisition of all or substantially all of the assets of Eastern or any
significant subsidiary of Eastern (except as contemplated by the Merger
Agreement), or a purchase or other acquisition of securities representing
fifteen percent 15% or more of the voting power of Eastern or any significant
subsidiary of Eastern (each of the foregoing an "Acquisition Transaction")
without VFSC's prior written consent; (ii) the acquisition by any person (other
than VFSC, its subsidiaries and Eastern acting in a fiduciary capacity) owning
beneficially less than 15% of the outstanding shares of Eastern Common Stock on
November 13, 1996 of beneficial ownership or the right to acquire beneficial
ownership of 15% or more of the outstanding shares of Eastern Common Stock, or
the acquisition by any person owning beneficially more than 15% of the
outstanding shares of Eastern Common Stock on November 13, 1996 of beneficial
ownership of an additional 5% of the outstanding shares of Eastern Common Stock;
(iii) the making by any person, other than VFSC or any subsidiary of VFSC, of a
bona-fide proposal to Eastern 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) the breach by Eastern after a
proposal as described in the preceding clause (iii) of certain covenants in the
Merger Agreement, unless remedied within an applicable notice period; or (v) the
filing by any person other than VFSC or any subsidiary of VFSC, other than in
connection with a transaction to which VFSC has given its prior written consent,
of an application or notice with the OTS or 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.
The term "Subsequent Triggering Event" means either (i) the acquisition
after November 13, 1996 by any person of beneficial ownership of 24.9% or more
of the then outstanding Eastern Common Stock; or (ii) the occurrence of the
Initial Triggering Event described in subparagraph (i) of the foregoing
paragraph, except that, in respect of the purchase or other acquisition of
securities of Eastern or any significant subsidiary of Eastern, the percentage
of voting power represented by such securities shall be 24.9% rather than 15%.
The Option will expire upon the earliest of:
(i) the Effective Time of the Merger;
(ii) any termination of the Merger Agreement in accordance with the
provisions thereof if such termination (w) occurs prior to the occurrence
of an Initial Triggering Event, (x) is because of a failure to obtain any
Requisite Regulatory Approvals, (y) is made at the election of Eastern
because of a specified decline in the price per share of the common stock
of VFSC, or (z) by Eastern because of a material breach by VFSC of a
representation, warranty, covenant or other agreement; or
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(iii) except as provided in the foregoing clause (ii), twelve months
after the termination of the Merger Agreement in accordance with the
provisions thereof after the occurrence of an Initial Triggering Event.
Notwithstanding the termination of the Option, VFSC will 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.
The Stock Option Agreement also provides that upon the occurrence of any
event which would cause the Option to be exercisable, Eastern shall (i) at the
request of VFSC, prepare and file a registration statement under the Securities
Act with respect to any or all of the Option Shares and shall use its best
efforts to cause such registration statement to become effective and (ii) notify
VFSC of any determination by Eastern to proceed with the preparation and filing
of a registration statement under the Securities Act with respect to any Eastern
Common Stock and cause any or all Option Shares which VFSC shall request to be
included in such registration statement. VFSC may also require, upon the Option
becoming exercisable, that Eastern repurchase the unexercised Option, in whole
or in part, at a purchase price intended to provide VFSC with the same economic
benefit as it would realize if it exercised the Option and subsequently sold the
Option Shares.
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement
and may have the effect of discouraging persons who might now or prior to the
Effective Time be interested in acquiring all of or a significant interest in
Eastern from considering or proposing such an acquisition.
STOCKHOLDERS AGREEMENT
Four members of the Eastern Board, who beneficially own in the aggregate
465,488 shares of Eastern Common Stock (not including 246,000 shares that may be
acquired upon the exercise of options), representing approximately 12.7% of the
shares of Eastern Common Stock issued and outstanding on the Eastern Record
Date, have executed the Stockholders Agreement with respect to such shares.
Pursuant to the Stockholders Agreement, each such director has agreed (i) to
vote all shares of Eastern Common Stock beneficially owned by such director and
entitled to vote thereon in favor of the Merger, (ii) to vote all such shares
against any other proposal involving a merger, acquisition, consolidation, sale
of a material amount of assets or other business combination with respect to
Eastern, (iii) generally not to sell, assign, transfer, encumber or otherwise
dispose of such shares, and (iv) to recommend the Merger, subject to such
director's fiduciary duty, to Eastern's stockholders. The Stockholders Agreement
shall remain in effect until the earlier of the consummation of the Merger or
the termination of the Merger Agreement in accordance with its terms.
NO SOLICITATION
Eastern has agreed that it shall not (and shall use all reasonable efforts
to cause its officers, directors, employees, representatives and agents, not
to), directly or indirectly, encourage, solicit, initiate or, subject to the
fiduciary obligations of the Eastern Board (as advised by outside counsel),
participate in any discussions or negotiations with, or provide any information
to, any corporation, partnership, person or other entity or group (other than
VFSC and its affiliates or representatives) concerning any Acquisition
Transaction. Notwithstanding the foregoing, Eastern and the Eastern Board are
not prohibited from taking and disclosing to Eastern's stockholders a position
with respect to a tender offer by a third party pursuant to certain rules
promulgated under the Exchange Act or from making such disclosure to Eastern's
stockholders as, in the judgment of the Eastern Board with the advice of outside
counsel, may be required under applicable law. Eastern will immediately
communicate to VFSC the terms of any proposal, discussion, negotiation or
inquiry and the identity of the party making such proposal or inquiry. Any such
communication shall be delivered no less promptly than by telephone within 24
hours after Eastern's receipt of any such proposal or inquiry or its receipt of
any request for information from the Federal Reserve Board, the OTS, the
Department of Justice or any other governmental agency or authority with respect
to a proposed Acquisition Transaction.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Indemnification of Directors and Officers. The Merger Agreement provides
that the provisions with respect to indemnification existing in favor of, and
all limitations on the personal liability of, any director, officer or other
employee of Eastern or any of its subsidiaries contained in the Eastern
Certificate and Eastern By-laws on the date of the Merger Agreement with respect
to matters occurring prior to the Effective Time shall survive the Merger and
shall continue in full force and effect in perpetuity. VFSC has also agreed to
use all reasonable efforts to cause to be maintained in effect for a period of
not less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance of Eastern (or substitute policies
of at least the same coverage with terms and conditions that are not less
favorable than those presently maintained by Eastern), with respect to matters
occurring at or prior to the Effective Time. However, VFSC is not required to
expend an aggregate amount in excess of $207,000 for such insurance.
As described under "SUMMARY -- Management and Operation after the Merger,"
VFSC is required to designate three members of the current Eastern Board to
serve as members of the VFSC Board. VFSC has not yet designated the members of
the Eastern Board who will serve on the VFSC Board.
Employment Agreements with Named Officers. Eastern has employment
agreements (collectively, the "Employment Agreements") with each of Messrs. Cobb
and Humphrey (collectively, the "Named Officers"), pursuant to which each of the
Named Officers is entitled, upon the termination of employment with Eastern in
connection with a "change of control," to receive a lump-sum payment equal to
three times his average annual compensation for the five most recent years, less
$1.00 and less any special bonus paid in connection with such change of control.
Eastern also has severance agreements (collectively, the "Severance Agreements")
with Janine Pinel and Robert Hamme, its two executive officers other than the
Named Officers, pursuant to which each is entitled, upon this termination of
employment in connection with a "change of control," to receive a lump-sum
payment equal to 12 times such officer's current monthly compensation. The
Merger will constitute a "change of control" under the Employment Agreements and
Severance Agreements. Assuming that the Merger were to be consummated during
1997 and that there were to be no increase in the monthly compensation of Ms.
Pinel and Mr. Hamme, the aggregate amounts of such lump-sum payments would be
approximately $955,000, $714,000, $76,000 and $120,000, respectively. Messrs.
Cobb and Humphrey will also be entitled to certain health insurance benefits, as
described under "-- Employment Obligations."
Executive Officer Stock Options. Eastern has granted stock options (the
"Eastern Stock Options") to the Named Officers and to certain other executive
level officers under Eastern's stock option plans. As described above under
"-- Treatment of Eastern Stock Options," at the Effective Time such stock
options will become immediately exercisable in full pursuant to the accelerated
vesting provisions contained in the agreements under which such options were
granted.
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The following table sets forth, as of March 27, 1997, with respect to the
Named Officers and all executive officers as a group (i) the number of shares
covered by Eastern Stock Options held by such person, (ii) the number of shares
covered by currently-exercisable Eastern Stock Options held by any such persons,
(iii) the number of additional shares covered by Eastern Stock Options held by
such persons that will become exercisable upon consummation of the Merger, (iv)
the weighted average exercise price of all such Eastern Stock Options held by
such persons, and (v) the aggregate value (i.e. the Acquisition Price less the
weighted average option exercise price per option) of all such options based
upon the $24.875 per share closing price of Eastern Common Stock on March 27,
1997.
<TABLE>
<CAPTION>
OPTIONS
BECOMING
EXERCISABLE WEIGHTED
OPTIONS UPON AVERAGE
CURRENTLY CONSUMMATION EXERCISE PRICE AGGREGATE VALUE
NAME OPTIONS HELD EXERCISABLE OF MERGER PER OPTION OF OPTIONS
- ------------------------- ------------ ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
John A. Cobb............. 157,500 157,500 -- $ 8.79 $ 2,533,388
E. David Humphrey........ 75,000 75,000 -- 8.27 1,245,375
Robert K. Hamme.......... 6,000 4,800 1,200 11.85 78,150
All executive officers as
a group (4 persons).... 238,500 237,300 1,200 $ 8.70 $ 3,856,913
</TABLE>
EMPLOYMENT OBLIGATIONS
VFSC is not obligated to employ any person who is employed by Eastern
immediately prior to the Effective Time. Following the Effective Time, VFSC
will, or will cause its subsidiaries to, honor in accordance with their terms
all employment, severance and other compensation contracts between Eastern or
any subsidiary thereof and any director, officer or employee thereof, and all
provisions for benefits or other amounts earned or accrued through the Effective
Time under Eastern's pension or benefit plans. VFSC agrees to provide those
persons who are employees of Eastern or any subsidiary of Eastern at the
Effective Time and who are thereafter employed by VFSC or a subsidiary of VFSC
with the benefits maintained by VFSC and its affiliates from time to time for
the benefit of their employees similarly situated. VFSC will cause each plan,
program or arrangement included among the benefits of VFSC to be provided after
the Effective Time (other than VFSC's defined benefit pension plan) to treat the
prior service of each such employee with Eastern or its affiliates, to the
extent such prior service is recognized under the comparable plan, program or
arrangement of the Eastern, as service rendered to VFSC or its affiliate, as the
case may be, for purposes of eligibility to participate, vesting, and
eligibility for special benefits under each such plan, program or arrangement of
VFSC, but not in any case for benefit accrual attributable to any period before
the Effective Time. Any employee of Eastern or any subsidiary of Eastern who
becomes an employee of VFSC or any subsidiary of VFSC immediately following the
Effective Time who is not otherwise covered by an employment, severance or other
compensation agreement and who has been identified by VFSC within the first six
months from and after the Closing Date as an employee whose employment shall be
terminated as a result of VFSC's consolidation and/or cost-saving efforts
following the Effective Time, shall be entitled to receive from and after the
date of such employee's termination of employment certain salary continuation
payments based on the length of the employee's employment by Eastern (two weeks
of continued salary for each full year of service with Eastern, up to a maximum
of 26 weeks of salary continuation). In addition to the foregoing, Messrs. Cobb
and Humphrey will continue to receive, following any termination of their
employment with VFSC or any VFSC subsidiary following the Effective Time, health
care continuation coverage under VFSC's appropriate group health plan until such
persons reach the age at which they become eligible to receive Medicare health
coverage, subject to certain conditions.
RESALE OF VFSC COMMON STOCK
The shares of VFSC Common Stock to be issued pursuant to the Merger
Agreement have been registered under the Securities Act by means of the
Registration Statement of which this Joint Proxy Statement-Prospectus forms a
part. Accordingly, such shares will be freely transferable under the Securities
Act, except for shares issued to persons who are affiliates of Eastern at the
time of the Eastern Meeting and
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persons who are affiliates of VFSC at the time of such proposed transfer. Such
persons will generally be able to resell such shares only pursuant to an
effective registration statement under the Securities Act or pursuant to a
statutory or regulatory exemption or "safe harbor" from the registration
requirements of the Securities Act, including the provisions of Rule 144 and
Rule 145 under the Securities Act discussed below. Affiliates of a person are
other persons who control, are controlled by, or are under common control with
the person. The affiliates of a corporation are generally deemed to include its
executive officers, directors and significant (i.e. 10% or more) stockholders.
Affiliates of VFSC who desire to dispose of shares of VFSC Common Stock
acquired in the Merger may utilize the "safe harbor" provided by Rule 144
promulgated under the Securities Act ("Rule 144"). Rule 144 permits, among other
things, the resale of such shares if certain conditions are met. These
conditions include the requirement that VFSC have filed all reports required of
it under the Exchange Act for the past 12 months, a limitation on the number of
shares sold by the affiliate in any three-month period, and a restriction on the
manner in which the sale is made. In most cases, a notice of proposed sale must
also be filed with the Commission.
Persons who are affiliates of Eastern at the time of the Eastern meeting
and are not affiliates of VFSC at the time of a proposed resale may utilize the
resale provisions of Rule 145 promulgated under the Securities Act ("Rule 145").
During the two years following the Effective Time, such resale would be subject
to the satisfaction of the conditions imposed under Rule 144 which are described
above, other than the notice of proposed sale requirements. After two years,
only the condition relating to VFSC's Exchange Act reports is applied and, after
three years, Rule 145 imposes no restriction on dispositions by persons who were
not affiliates of VFSC for at least three months preceding the proposed
disposition.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the Merger, including certain consequences to stockholders of Eastern who are
citizens or residents of the United States and who hold their shares as capital
assets. It does not discuss all aspects of federal income taxation that may be
relevant to a particular Eastern stockholder in light of the stockholder's
personal circumstances (for example, an Eastern stockholder who acquired shares
of Eastern stock pursuant to the exercise of employee stock options or otherwise
as compensation), or to Eastern stockholders subject to special federal income
tax treatment (such as foreign persons, insurance companies, regulated
investment companies, dealers in securities, certain retirement plans, financial
institutions, tax exempt organizations, persons subject to the alternative
minimum tax, persons that have a functional currency other than the U.S. dollar,
or persons who hold Eastern stock as part of a straddle, hedging transaction or
conversion transaction). In addition, this summary does not address any aspects
of state, local, foreign or other tax laws that may be relevant to Eastern
stockholders.
It is the policy of the Internal Revenue Service (the "IRS") not to rule
directly on the tax status of transactions such as the Merger, and no such
ruling will be sought. The obligations of VFSC and Eastern to effect the Merger
are each conditioned upon receipt by each from its counsel of an opinion dated
as of the Effective Time, in form and substance reasonably satisfactory to it,
regarding certain tax consequences of the Merger. Such opinions are collectively
substantially to the effect that for federal income tax purposes the Merger
constitutes a reorganization within the meaning of section 368 of the Code, that
no gain or loss will be recognized by Eastern or VFSC as a result of the Merger
and that no gain or loss will be recognized by the stockholders of Eastern as a
result of the Merger except to the extent of cash received as part of the Merger
Consideration, cash received in lieu of a fractional share of VFSC Common Stock
or cash received by dissenting stockholders, if any. In rendering their
opinions, counsel will reply upon, and assume the factual accuracy of,
representations of VFSC, Eastern, and certain stockholders of Eastern, including
a representation that there is no plan or intent on the part of the stockholders
of Eastern receiving VFSC stock to engage in a sale or other disposition of such
stock that would result in the reduction of the ownership of shares of VFSC
stock received by the Eastern stockholders in the Merger to a number of shares
having a value as of the Effective Time of less than 50% of the aggregate fair
market value of all the outstanding shares of Eastern
58
<PAGE> 68
stock. Such opinions are not binding on the IRS and would not, in any event,
prevent the IRS from challenging the tax-free nature of the Merger under the
Code.
Tax opinions of Hale and Dorr LLP and Sullivan & Worcester LLP have been
filed as exhibits (the "Exhibit Opinions") to the Registration Statement of
which this Joint Proxy Statement-Prospectus is a part. However, it is a
condition of the respective obligations of VFSC and Eastern to consummate the
Merger that VFSC and Eastern receive confirming tax opinions from their
respective counsel to the effect that for federal income tax purposes, the
Merger will constitute a reorganization within the meaning of section 368 of the
Code. The Exhibit Opinions are not intended to satisfy this closing condition.
These closing opinions, which are collectively referred to herein as the "Tax
Opinions," neither bind the IRS nor preclude the IRS from adopting a contrary
position. As with the Exhibit Opinions, the Tax Opinions will be subject to
certain assumptions, exceptions and qualifications and will be based on the
truth and accuracy of certain representations of VFSC, Eastern, and certain
Eastern stockholders.
A successful IRS challenge to the tax-free reorganization status of the
Merger would result in an Eastern stockholder recognizing gain or loss with
respect to each share of Eastern Common Stock surrendered equal to the
difference between the stockholder's basis in such share and the sum of the cash
and fair market value, as of the Effective Time, of the VFSC Common Stock
received in exchange therefor. In such event, a stockholder's aggregate basis in
the VFSC Common Stock so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Merger. Even if the Merger qualifies as a tax-free reorganization, a recipient
of shares of VFSC Common Stock would recognize gain to the extent that such
shares were considered to be received in exchange for services or property
(other than solely for Eastern Common Stock), and all or a portion of such gain
may be taxable as ordinary income. Gain would also be recognized to the extent
that an Eastern stockholder was treated as receiving (directly or indirectly)
consideration other than VFSC Common Stock in exchange for such stockholder's
Eastern Common Stock.
The discussion below summarizes certain federal income tax consequences of
the Merger assuming that the Merger will qualify as a tax-free reorganization.
Tax Consequences to Holders of Eastern Common Stock
In General. As discussed below, the federal income tax consequences of the
Merger to an Eastern stockholder depend on whether such stockholder receives
cash or VFSC Common Stock or some combination thereof for such stockholder's
shares of Eastern Common Stock, as well as for any shares of Eastern Common
Stock that such stockholder constructively owns within the meaning of section
318 of the Code (which generally deems a person to own stock that is owned by
certain family members or related entities or that is the subject of options
owned or deemed owned by such person), and may further depend on whether such
stockholder actually or constructively owns any VFSC Common Stock.
Only VFSC Common Stock Received. Except as discussed below with respect to
cash received in lieu of a fractional share of VFSC Common Stock, a stockholder
of Eastern that receives only VFSC Common Stock in exchange for such
stockholder's shares of Eastern Common Stock will not recognize gain or loss.
The tax basis of the VFSC Common Stock received in the Merger will be the same
as the tax basis of the shares of Eastern Common Stock exchanged therefor. The
holding period of the VFSC Common Stock received will include the holding period
of shares of Eastern Common Stock exchanged therefor, assuming that the shares
of Eastern Common Stock are held as capital assets.
Only Cash Received. An Eastern stockholder that receives solely cash in
the Merger in exchange for such stockholder's shares of Eastern Common Stock, or
that exercises such stockholder's right to seek an appraisal of his shares of
Eastern Common Stock and obtain cash therefor, generally will recognize capital
gain or loss measured by the difference between the amount of cash received and
the tax basis of the shares of Eastern Common Stock surrendered. If, however,
any such stockholder constructively owns shares of Eastern Common Stock that are
exchanged for VFSC Common Stock in the Merger, or, possibly, owns VFSC Common
Stock actually or constructively after the Merger, the consequences to such
stockholder may in certain circumstances be similar to the consequences
discussed below in "-- VFSC Common Stock and Cash
59
<PAGE> 69
Received," except that the amount of consideration treated as a dividend, if
any, will not be limited to the amount of such stockholder's gain.
VFSC Common Stock and Cash Received. Except as discussed below with
respect to cash received in lieu of a fractional share of VFSC Common Stock, an
Eastern stockholder that, as a result of prorations or allocations resulting
from limitations on cash (see "THE MERGER -- Election Procedures") or as a
result of not electing either Stock Election Shares or Cash Election Shares,
receives both VFSC Common Stock and cash in exchange for his Eastern Common
Stock, will not recognize loss in such exchange. However, under section
356(a)(1) of the Code, such stockholder will recognize gain (measured by the sum
of the fair market value of the VFSC Common Stock received plus the amount of
any cash received (other than in lieu of a fractional share of VFSC Common
Stock), minus the tax basis of the shares of Eastern Common Stock exchanged
(less basis allocable to cash received in lieu of a fractional share of VFSC
Common Stock)), if any, but only to the extent of the amount of any cash
received (other than in lieu of a fractional share of VFSC Common Stock). Under
applicable U.S. Supreme Court precedent, such gain will be capital gain except
in the circumstances described in the next paragraph. The tax basis of the VFSC
Common Stock received will be the same as the tax basis of the shares of Eastern
Common Stock exchanged, decreased by the basis allocable to any fractional share
of VFSC Common Stock for which cash is received in the Merger, and further
decreased by the amount of cash received (other than cash received in lieu of a
fractional share of VFSC Common Stock), and increased by the amount of gain
recognized on the exchange (including any portion that is treated as a dividend
but excluding gain recognized on cash received in lieu of a fractional share of
VFSC Common Stock). Provided the Eastern Common Stock surrendered was held as a
capital asset at the time of the exchange, the holding period of VFSC Common
Stock received will include the holding period of the shares of Eastern Common
Stock surrendered.
The gain recognized by an Eastern stockholder on the exchange generally
will be capital gain unless the receipt of cash in the Merger by such
stockholder is treated as having the effect of the distribution of a dividend.
This determination is made separately for each Eastern stockholder by treating
the Eastern stockholder as first receiving solely shares of VFSC Common Stock in
the Merger and then receiving cash from VFSC in a hypothetical redemption of a
portion of those shares. The recognized gain will not be treated as having the
effect of a dividend if the hypothetical redemption satisfies the requirements
for a stock redemption to be treated as a sale of stock under section 302 of the
Code. For this purpose, the constructive ownership rules in section 318 of the
Code apply. These rules apply in certain specified circumstances to attribute
ownership of shares of a corporation from the stockholder actually owning the
shares (whether an individual, a trust, a partnership or a corporation) to
certain members of the individual's family or to certain individuals, trusts,
partnerships or corporations in which that stockholder has an ownership or
beneficial interest, or that have an ownership or beneficial interest in that
stockholder. A stockholder is also considered under these rules generally to own
any shares with respect to which he holds exercisable options. The amount of any
such dividend, so determined, is limited to that stockholder's ratable share of
the accumulated earnings and profits of Eastern at the Effective Time.
Under IRS rulings interpreting the rules of section 302(b)(1) of the Code,
if a hypothetical redemption involves a minority VFSC stockholder whose relative
stock interest in VFSC is minimal, who exercises no control over the affairs of
VFSC and who experiences a reduction in his proportionate stock interest, such
stockholder will not receive dividend treatment on cash received. Because the
determination of whether the receipt of cash will be treated as having the
effect of the distribution of a dividend generally will depend in part upon the
facts and circumstances of each stockholder, Eastern stockholders are strongly
advised to consult their own tax advisors regarding the tax treatment of cash
received in the Merger.
Fractional Shares. If a holder of shares of Eastern Common Stock receives
cash in lieu of a fractional share of VFSC Common Stock in the Merger, such cash
amount will be treated as received in exchange for the fractional share of VFSC
Common Stock. Gain or loss recognized as a result of that exchange will be equal
to the cash amount received for the fractional share of VFSC Common Stock
reduced by the proportion of the holder's tax basis in shares of Eastern Common
Stock exchanged and allocable to the fractional share of VFSC Common Stock.
60
<PAGE> 70
Tax Consequences to Holders of VFSC Common Stock
The holders of VFSC Common Stock, as such, will not recognize gain or loss
as a result of the Merger.
Backup Withholding
Under the federal income tax backup withholding rules, unless an exemption
applies, the Exchange Agent will be required to withhold, and will withhold, 31%
of any cash payments to which an Eastern stockholder or other payee is entitled
pursuant to the Merger Agreement unless such stockholder or other payee provides
his tax identification number (social security number or employer identification
number) and certifies that such number is correct. Each Eastern stockholder and,
if applicable, each other payee should complete and sign the substitute Form W-9
that will be included as part of the transmittal letter to avoid back-up
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to VFSC and the Exchange Agent. Any amounts withheld will be
allowed as a credit against the payee's federal income tax liability.
THE ABOVE DISCUSSION SUMMARIZES CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER AND ASSUMES THAT THE MERGER WILL QUALIFY AS A TAX-FREE
REORGANIZATION. THE DISCUSSION IS BASED UPON CURRENTLY EXISTING PROVISIONS OF
THE INTERNAL REVENUE CODE, EXISTING AND PROPOSED U.S. TREASURY REGULATIONS
THEREUNDER, JUDICIAL DECISIONS AND ADMINISTRATIVE AUTHORITY WITH RESPECT
THERETO, ALL AS OF THE DATE HEREOF. THE IRS IS NOT PRECLUDED FROM ADOPTING A
CONTRARY POSITION. IN ADDITION, ALL OF THE FOREGOING AUTHORITIES RELIED UPON ARE
SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECT, AND ANY SUCH CHANGE COULD
ADVERSELY AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. MOREOVER, THE
DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. EASTERN STOCKHOLDERS
ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND RELATED TRANSACTIONS,
INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS, AS WELL AS THE
EFFECT OF ANY PROPOSED CHANGES IN SUCH TAX LAWS.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "purchase"
transaction under generally accepted accounting principles. Under such method of
accounting, the book value of the assets and liabilities of Eastern, as reported
on its balance sheet, will be increased or decreased to their fair value at the
Effective Time and intangible assets will be recorded to the extent that the
purchase price exceeds the fair value of the net assets and liabilities in
addition to any assets or liabilities assumed or incurred as a result of the
Merger. The results of operations of Eastern will be included in the
consolidated income of VFSC from the Effective Time and not for the entire
fiscal year.
61
<PAGE> 71
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data have
been prepared to give effect to the Merger of Eastern with and into VFSC. The
unaudited pro forma combined condensed financial data assume that the Merger had
been consummated at the beginning of the periods presented, and are based on the
purchase method of accounting and a preliminary allocation of the purchase
price. For a description of the effect of purchase accounting on the Merger and
the historical statements of VFSC, see "THE MERGER -- Accounting Treatment."
The unaudited pro forma combined condensed financial data reflect the
Merger based upon preliminary purchase accounting adjustments. Actual
adjustments, which may include adjustments to additional assets, liabilities and
other items, will be made on the basis of appraisals and evaluations as of the
Effective Time and, therefore, are likely to differ from those reflected in the
unaudited pro forma comparative per share data. Accordingly, the information
herein should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of VFSC, contained in VFSC's Annual
Report to Stockholders for 1996, which report is incorporated herein by
reference, and the historical consolidated financial statements of Eastern,
including their notes thereto, contained in Eastern's Annual Report to
Stockholders for the fiscal year ended September 30, 1996, which report
accompanies this Joint Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Results of Eastern for the three months ended December 31, 1996 are not
necessarily indicative of results expected for the entire year, nor are pro
forma amounts necessarily indicative of results of operations or the combined
financial position that would have resulted had the Merger been consummated at
the beginning of the periods indicated. All adjustments consisting of only
normal recurring adjustments necessary for a fair statement of results of
interim periods have been included. The combined company expects to realize
benefits from the Merger, including operating cost savings and revenue
enhancements. The pro forma earnings, which do not reflect any direct costs,
potential savings or revenue enhancements that are expected to result from the
consolidation of operations of VFSC and Eastern, are not indicative of the
results of future operations. No assurances can be given with respect to the
actual amount of expense savings or revenue enhancements that may be realized.
62
<PAGE> 72
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
VFSC EASTERN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS VFSC
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks............ $ 61,962 $ 30,626 $(25,424)(D) $ 67,164
Interest Bearing Balances with
Banks............................ 60 60
Securities Available for Sale...... 291,120 9,997 301,117
Securities Held to Maturity........ 276,909 (4,281)(A) 272,628
FHLB Stock......................... 9,283 9,283
Federal Funds Sold................. 1,775 6,598 8,373
Loans.............................. 910,436 496,852 (5,625)(A) 1,401,663
Allowance for Loan Losses........ (13,647) (2,906) (16,553)
---------- -------- -------- ----------
Net Loans..................... 896,789 493,946 (5,625) 1,385,110
Premises and Equipment............. 23,618 17,185 (757)(A) 40,046
Real Estate Held for Investment.... 1,360 261 1,621
Other Real Estate Owned............ 697 4,951 5,648
Goodwill and Other Intangibles..... 6,327 6,512 45,150(A)(E) 57,989
Other Assets....................... 29,273 9,750 3,372(B) 42,395
---------- -------- -------- ----------
Total Assets..................... $1,312,981 $ 866,018 $ 12,435 $2,191,434
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Total Deposits................... $1,083,258 $ 627,217 $ (1,493)(A) $1,711,968
Federal Funds Purchased and
Securities Sold with
Agreements to Repurchase...... 77,672 77,672
Borrowed Money................... 23,169 168,780 333(A) 191,616
Other Liabilities................ 9,165 5,243 (3,753)(C) 18,161
---------- -------- -------- ----------
Total Liabilities............. 1,193,264 801,240 (4,913) 1,999,417
Stockholders' Equity:
Common Stock..................... 4,892 41 41(E) 6,886
(1,994)(D)
Capital Surplus.................. 49,590 36,543(E) 36,543(E) 119,896
(70,306)(D)
Undivided Profits................ 71,151 31,043 31,043(E) 71,151
Security Valuation Allowance..... (1,029) (2) (2)(E) (1,029)
Treasury Stock, at Cost.......... (4,887) (2,847) (2,847)(E) (4,887)
---------- -------- -------- ----------
Total Stockholders' Equity.... 119,717 64,778 (7,522) 192,017
---------- -------- -------- ----------
Total Liabilities and
Stockholders' Equity........ $1,312,981 $ 866,018 $(12,435) $2,191,434
========== ======== ======== ==========
</TABLE>
63
<PAGE> 73
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
VFSC EASTERN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS VFSC
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and Fees on Loans............ $ 81,281 $ 42,173 $ (804)(G) $ 124,258
Interest on Securities Available for
Sale............................... 15,982 321 (428)(F) 16,731
Interest on Securities Held to
Maturity........................... 19,184 19,184
Other................................. 842 842
---------- ------- --------- ---------
Total Interest Income......... 98,105 61,678 (1,232) 161,015
Interest Expense
Deposits.............................. 37,057 23,734 (299)(I) 60,492
Other................................. 4,294 8,185 167(K) 12,646
---------- ------- --------- ---------
Total Interest Expense........ 41,351 31,919 (132) 73,138
Net Interest Income..................... 56,754 29,759 (1,364) 87,877
Provision for loan losses............... 3,350 605 3,955
---------- ------- --------- ---------
53,404 29,154 (1,364) 83,922
Other Income............................ 19,161 10,810 29,971
Other Expenses.......................... 47,411 34,715 3,026(H)(J) 85,152
---------- ------- --------- ---------
Income Before Income Taxes............ 25,154 5,249 1,662 28,741
Applicable Income Taxes................. 8,539 2,011 582(L) 11,132
---------- ------- --------- ---------
Net Income............................ $ 16,615 $ 3,238 $ 2,244 $ 17,609
========== ======= ========= =========
Weighted average common shares
outstanding........................... 4,819,673 1,994,484 6,814,157
Earnings per share...................... $ 3.45 $ 0.85 $ 2.58
</TABLE>
64
<PAGE> 74
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
VFSC EASTERN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS VFSC
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and Fees on Loans............ $ 83,506 $ 39,764 $ (804)(G) $ 124,074
Interest on Securities Available for
Sale............................... 11,923 552 (428)(F) 12,903
Interest on Securities Held to
Maturity........................... 20,936 20,936
Other................................. 1,028 1,028
--------- ------- --------- ---------
Total Interest Income......... 96,457 61,252 (1,232) 158,941
Interest Expense
Deposits.............................. 36,945 23,109 (299)(I) 59,755
Other................................. 5,024 10,369 167(K) 15,560
--------- ------- --------- ---------
Total Interest Expense........ 41,969 33,478 (132) 75,315
Net Interest Income..................... 54,488 27,774 (1,364) 83,626
Provision for loan losses............... 3,900 1,997 5,897
--------- ------- --------- ---------
50,588 25,777 (1,364) 77,729
Other Income............................ 17,549 10,830 28,379
Other Expenses.......................... 45,999 29,711 3,026(H)(J) 78,736
--------- ------- --------- ---------
Income Before Income Taxes............ 22,138 6,896 1,662 27,372
Applicable Income Taxes................. 7,241 2,414 582(L) 10,237
--------- ------- --------- ---------
Net Income............................ $ 14,897 $ 4,482 $ 2,244 $ 17,135
========= ======= ========= =========
Weighted average common shares
outstanding........................... 4,812,831 1,994,484 6,802,037
Earnings per share...................... $ 3.10 $ 1.19 $ 2.52
</TABLE>
65
<PAGE> 75
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C>
Note (A) To adjust assets and liabilities to their estimated fair values:
DR.
(CR.)
--------
Investments.......................................................... $ (4,281)
Loans................................................................ (5,625)
Premises and Equipment............................................... (757)
Deposits............................................................. (1,493)
Mortgage Servicing Rights............................................ 2,188
FHLB Advances........................................................ 333
Note (B) To reflect tax effects of transaction:
DR.
(CR.)
--------
Tax effect of fair value adjustments................................. $ 3,372
Note (C) To accrue estimated professional and other costs associated with the merger of
$3,753.
Note (D) To reflect issuance of stock and payment of cash to Eastern:
DR.
(CR.)
--------
Market value of 1,801,032 shares of VFSC Common Stock (based on
closing bid price per share of $36.25 for VFSC Common Stock on
November 11, 1996)................................................... $ 65,286
Cash to be paid...................................................... 26,648
Consideration for Eastern stock option spread........................ 5,790
--------
$ 97,724
========
This assumes that all holders of Eastern stock options exercise such options and
an additional 193,452 shares of VFSC common stock are issued. See "THE
MERGER -- Treatment of Eastern Stock Options."
Note (E) Goodwill is calculated as follows:
DR.
(CR.)
--------
Stockholders' equity of Eastern at December 31, 1996................. $ 64,778
Increase (decrease) to Eastern's equity as a result of estimated
fair value adjustments:
Investments.......................................................... (4,281)
Loans................................................................ (5,625)
Premises and Equipment............................................... (757)
Deposits............................................................. (1,493)
Mortgage Servicing Rights............................................ 2,188
FHLB Advances........................................................ 333
Tax effect of fair value adjustments................................. 3,372
--------
58,515
Unallocated purchase price (goodwill)................................ 42,962
--------
Total purchase price (including merger costs)........................ $101,477
========
</TABLE>
66
<PAGE> 76
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL DATA -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C>
Note (F) To accrete fair value adjustment for investments (10 years).
Note (G) To accrete fair value adjustment for loans (7 years).
Note (H) To accrete fair value adjustment for premises and equipment (5
years).
Note (I) To accrete fair value adjustment for deposits (5 years).
Note (J) To amortize intangibles:
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C> <C>
Mortgage Servicing Rights (7 years)......... $ 313 $ 313
Goodwill (15 years)......................... 2,864 2,864
------ -------
Total....................................... $ 3,177 $ 3,177
====== =======
Note (K) To amortize fair value adjustment of FHLB advances (2 years).
Note (L) To record tax impact of accretion and amortization of fair value adjustments.
Pursuant to the Merger Agreement described elsewhere in this document, VFSC will issue
1,801,032 shares of VFSC Common Stock in connection with the Merger, provided that the
price of VFSC Common Stock at the Effective Date, as defined in the Merger Agreement, is
greater than $26.06 per share (minimum price) and less than $39.96 per share (maximum
price). The following table presents the pro forma effect on selected financial data
assuming these minimum and maximum per share prices. This table assumes that all holders
of Eastern stock options exercise such options and an additional 193,452 shares of VFSC
Note (M) common stock are issued. See "THE MERGER -- Treatment of Eastern Stock Options."
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------- --------
<S> <C> <C> <C>
In thousands, except per share data
Purchase Price............................................... $77,404 $105,128
Goodwill..................................................... 22,642 50,366
Net Income:
Twelve months ended December 31, 1995...................... 18,490 16,641
Twelve months ended December 31, 1996...................... 18,964 17,115
Earnings per share:
Twelve months ended December 31, 1995...................... 2.72 2.45
Twelve months ended December 31, 1996...................... 2.78 2.51
</TABLE>
67
<PAGE> 77
INFORMATION REGARDING VFSC
VFSC is a multi-bank holding company established as a Delaware corporation
in 1990 and is registered under the BHC Act, with its principal assets being the
stock of its subsidiaries. Through its banking subsidiaries, VFSC provides
banking and banking-related services in Vermont and western Massachusetts. The
principal executive offices of VFSC are located at 100 Main Street, Brattleboro,
Vermont 05301. Its telephone number is (802) 257-7151. For more information
about VFSC, reference is made to VFSC's most recent annual report on Form 10-K
and subsequent quarterly reports on Form 10-Q, which are incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INFORMATION INCORPORATED BY
REFERENCE."
DESCRIPTION OF VFSC CAPITAL STOCK
COMMON STOCK
General. As of December 31, 1996, VFSC Common Stock consisted of
20,000,000 authorized shares, $1.00 par value per share, 15,000,000 of which are
shares of VFSC Common Stock, of which 4,705,825 were issued and outstanding
(exclusive of treasury shares), and 5,000,000 of which are shares of VFSC
Preferred Stock, none of which are outstanding. VFSC Common Stock is traded on
the Nasdaq NM under the trading symbol "VFSC."
Shares of VFSC Common Stock may be issued from time to time, in such amount
and proportions and for such consideration as may be fixed by the Board of
Directors of VFSC. No holder of VFSC 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 VFSC. VFSC Common Stock has no
redemption or sinking fund provisions applicable thereto and has no conversion
rights.
The outstanding shares of VFSC Common Stock are fully paid and
nonassessable.
Liquidation. In the event of any liquidation, dissolution or winding up of
VFSC, whether voluntary or involuntary, the holders of VFSC Common Stock are
entitled to receive, on a share-for-share basis, any assets or funds of VFSC
which are distributable to the holders of VFSC Common Stock upon such events,
subject to the prior rights of creditors of VFSC and the holders of outstanding
shares of VFSC Preferred Stock, if any.
Voting. The holders of VFSC Common Stock are entitled to one vote for each
share in all matters voted upon by the stockholders of VFSC. The shares of VFSC
Common Stock have noncumulative voting rights; consequently, the holders of a
majority in interest of VFSC Common Stock can conceivably elect all of the
directors of VFSC and, in such event, the holders of the remaining shares voting
for election of directors would not be able to elect any person or persons to
the Board of Directors of VFSC.
Dividends. When and if dividends, payable as cash, stock or other
property, are declared by the Board of Directors of VFSC out of funds legally
available therefor, the holders of VFSC Common Stock are entitled to share
equally, share for share, in such dividends. The payment of dividends on VFSC
Common Stock is subject to applicable bank regulatory approval.
PREFERRED STOCK
Under the VFSC Certificate, the Board of Directors of VFSC is authorized,
without further stockholder action, to provide for the issuance of the VFSC
Preferred Stock, 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 VFSC; any sinking
fund provisions; any redemption or purchase account provision; any conversions;
and any voting rights thereof, as shall be set forth as and when established by
the Board of Directors of VFSC.
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MARKET FOR VFSC COMMON STOCK
VFSC Common Stock is traded over-the-counter on the Nasdaq NM under the
symbol "VFSC."
At December 31, 1996, there were 4,705,825 shares outstanding and
approximately 2,500 stockholders of record. This does not reflect the number of
persons or entities who hold their stock in nominee or street name through
various brokerage firms.
The price information regarding VFSC Common Stock in the following table is
based on high and low asked and bid prices on the Nasdaq NM.
<TABLE>
<CAPTION>
PRICE PER SHARE DIVIDENDS
----------------- DECLARED
QUARTER ENDED HIGH LOW PER SHARE
- ---------------------------------------------------------------- ------ ------ ---------
<S> <C> <C> <C>
1994
March 31........................................................ $19.25 $16.25 $0.10
June 30......................................................... 20.00 16.25 0.12
September 30.................................................... 24.25 19.00 0.15
December 31..................................................... 22.25 19.75 0.17
1995
March 31........................................................ 23.50 20.75 0.20
June 30......................................................... 27.25 21.75 0.20
September 30.................................................... 30.88 26.00 0.22
December 31..................................................... 35.00 29.50 0.25
1996
March 31........................................................ 35.00 31.50 0.25
June 30......................................................... 34.00 31.00 0.27
September 30.................................................... 35.13 31.25 0.27
December 31..................................................... 36.50 34.25 0.27
1997
through March 27................................................ 45.00 35.25 0.30
</TABLE>
On January 9, 1997, VFSC announced a first quarter dividend of $0.30 per
share, payable on February 25, 1997 to its stockholders of record as of January
24, 1997. See "RECENT DEVELOPMENTS."
On November 12, 1996, the last business day prior to the public
announcement of the Merger, the closing price of VFSC Common Stock on the Nasdaq
NM was $36.50.
DIVIDENDS
The Federal Reserve Board has authority to prohibit bank holding companies
from paying dividends if such payment would constitute an unsafe or unsound
practice. The Federal Reserve Board has indicated generally that it may be an
unsound practice for bank holding companies to pay dividends unless the bank
holding company's net income over the preceding year is sufficient to fund the
dividends and the expected rate of earnings retention is consistent with the
organization's capital needs, asset quality, and overall financial condition.
VFSC's ability to pay dividends is dependent upon the flow of dividend income to
it from the Banks, which may be affected or limited by regulatory restrictions
imposed by federal or state bank regulatory agencies. At September 30, 1996 the
Banks had available approximately $25 million for payment of dividends to VFSC
under regulatory guidelines. VFSC has a policy to pay out over time between 30%
and 35% of net income to shareholders in the form of cash dividends. Earnings
for prior years as well as prospective earnings are analyzed to determine
compliance with this policy. Dividend payout rates for any one year may vary
from this long-term payout policy based on these analyses and projections of
future earnings and future capital needs.
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COMPARISON OF RIGHTS OF HOLDERS OF
EASTERN COMMON STOCK AND VFSC COMMON STOCK
At the Effective Time, the stockholders of Eastern, other than those
stockholders exercising appraisal rights, will become stockholders of VFSC. As
stockholders of Eastern, their rights are presently governed by Delaware law and
by the Eastern Certificate and the Eastern By-laws. As stockholders of VFSC,
their rights will be governed by Delaware law and by the VFSC Certificate and
the VFSC By-laws. The following discussion summarizes the material differences
between the rights of holders of Eastern Common Stock and holders of VFSC Common
Stock and differences between the Eastern and VFSC Certificates and the Eastern
and VFSC By-laws. This summary does not purport to be complete and is qualified
in its entirety by reference to the Eastern Certificate, the Eastern By-laws,
the VFSC Certificate and the VFSC By-laws and the relevant provisions of
Delaware law.
SPECIAL MEETINGS OF STOCKHOLDERS
The Eastern By-laws provide that special meetings of the stockholders may
be called at any time only by a majority of the Eastern Board.
The VFSC By-laws provide that, unless otherwise provided by statute,
special meetings may be called by the Board of Directors or by the Chairman of
the Board or the President.
INSPECTION RIGHTS
Both the Eastern By-laws and the VFSC By-laws provide that stockholders
may, during ordinary business hours in the period beginning at least 10 days
prior to a meeting of stockholders through the date of such meeting, inspect the
stockholder list prepared for such meeting for any purpose germane to such
meeting.
ACTION BY CONSENT OF STOCKHOLDERS
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action to be taken by stockholders may be taken without a
meeting, without prior notice, and without a vote, if the stockholders having
the number of votes that would be necessary to take such action at a meeting at
which all stockholders were present and voted consent to the action in writing.
The Eastern Certificate does not so otherwise provide.
Under the VFSC Certificate, any action required or permitted to be taken by
stockholders must be effected at a duly called annual or special meeting and may
not be effected by any consent in writing.
CUMULATIVE VOTING
Neither the Eastern Certificate nor the VFSC Certificate provides for
cumulative voting.
PREEMPTIVE RIGHTS
The VFSC Certificate does not provide for, and the Eastern Certificate
provides that stockholders do not have, preemptive rights.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Both the Eastern Certificate and the VFSC Certificate provide that their
respective Boards of Directors are to be divided into three classes, with the
directors in each class being elected for staggered three-year terms.
REMOVAL OF DIRECTORS
The DGCL provides that members of a classified board may be removed only
for cause and only if such removal is approved by a majority of the shares then
entitled to vote for the election of directors. Both the Eastern By-laws and the
VFSC By-laws provide that any director or the entire Board of Directors may be
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removed from office only for cause and only by an affirmative vote of at least a
majority of the outstanding shares of voting stock of the corporation.
ADDITIONAL DIRECTORSHIPS AND VACANCIES ON THE BOARD OF DIRECTORS
The Eastern By-laws provide that the Board of Directors shall consist of 10
members. The VFSC By-laws provide that the number of directors shall be
determined from time to time by a majority vote of the entire Board of
Directors. Both the Eastern By-laws and the VFSC By-laws provide that vacancies
shall be filled by a majority vote of the directors then in office and that the
director chosen to fill a vacancy shall hold office for the unexpired term of
such director's predecessor.
EXCULPATION OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to provide, and both the Eastern
Certificate and the VFSC Certificate provide, that no director shall be
personally liable to the corporation or its stockholders for monetary damages
for breaches of fiduciary duty except where such exculpation is expressly
prohibited. In Delaware, a director is not exculpated from liability under
provisions of Delaware law relating to unlawful payments of dividends and
unlawful stock purchases or redemptions. In addition, both the Eastern and the
VFSC Certificate provide that this limitation cannot apply to liability of a
director (i) for breach of the director's duty of loyalty to the corporation or
its stockholders; (ii) for acts and omissions not in good faith or which involve
intentional misconduct or knowing violation of law; (iii) pursuant to Section
174 of the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Delaware law generally permits indemnification of directors and officers
for expenses incurred by them by reason of their position with the corporation,
if the director or officer has acted in good faith and with the reasonable
belief that his conduct was in the best interests of the corporation. Delaware
law does not permit a corporation to indemnify persons in actions brought by or
in the right of the corporation if the person is adjudged to be liable to the
corporation (although it does permit indemnification in such situations if, and
only to the extent, approved by the Delaware Court of Chancery). Both the
Eastern By-laws and the VFSC By-laws provide indemnification to the fullest
extent permitted by the DGCL to directors, officers, employees and agents
designated by the Board of Directors and any person serving, at the request of
the Board, as a director, officer, employee or agent of another corporation or
enterprise affiliated with the corporation; provided, however, that except with
respect to actions to enforce indemnification rights, the corporation shall
indemnify any such person for actions initiated by that person only if the
action was authorized or ratified by the Board of Directors.
RESTRICTIONS UPON CERTAIN BUSINESS COMBINATIONS
Both Eastern and VFSC, as Delaware corporations, are subject to Section 203
of the DGCL, which governs business combinations with interested stockholders.
Subject to certain exceptions set forth therein, Section 203 of the DGCL
provides that a corporation shall not engage in any business combination with
any "interested stockholder" for a three-year period following the date that
such stockholder becomes an interested stockholder unless (i) prior to such
date, the Board of Directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (iii) on or subsequent to such date, the
business combination is approved by the Board of Directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. Except as specified therein,
an interested stockholder is defined to mean any person that (a) is the owner of
15% or more of the outstanding voting stock of the corporation or (b) is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date, or any affiliate or associate of such
person referred to in (a) or (b) of this sentence. Under certain circumstances,
Section 203 of the DGCL makes it
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more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective
twelve months after adoption.
Neither the Eastern Certificate and the Eastern By-laws nor the VFSC
Certificate and the VFSC By-laws exclude Eastern and VFSC, respectively, from
the restrictions imposed by Section 203 of the DGCL.
In addition, the Eastern Certificate contains a "fair price" provision
relating to certain business combinations (including certain mergers, security
issuances, recapitalizations, and the sale, lease or transfer of a substantial
part of Eastern's assets) involving Eastern or a subsidiary and an owner of 10%
or more of the voting power of the outstanding shares of Eastern Common Stock
(an "interested shareholder"). Any such business combination requires the
affirmative vote of (i) the holders of 75% of the voting power of the
outstanding shares of Eastern Common Stock and (ii) the holders of a majority of
the outstanding shares of Eastern Common Stock not held by such interested
shareholder and such shareholder's affiliates, unless either (i) the business
combination is approved by a majority of the directors who are unaffiliated with
the interested shareholder and who were directors prior to the time such owner
became an interested shareholder or (ii) the shareholders receive the "fair
market value" (as defined therein) of their holdings and other procedural
requirements are met. Neither the VFSC Certificate nor the VFSC By-laws contain
a similar provision.
MERGERS, SHARE EXCHANGES OR ASSET SALES
Delaware law requires the approval of the directors and the vote of the
holders of a majority of the outstanding stock entitled to vote thereon for the
merger of the corporation into any other corporation, although the certificate
of incorporation may require a higher stockholder vote. The VFSC Certificate
provides that the affirmative vote of holders of two-thirds or more of the
outstanding shares of capital stock of VFSC is required to authorize, or to
approve any agreement, contract or other arrangement providing for, (i) any plan
of merger or consolidation to which VFSC is to be a party and which requires
shareholder approval, (ii) any sale or other disposition of substantially all of
the VFSC's property and assets, if not made in the usual and regular course of
its business, or (iii) a combination or majority share acquisition in which VFSC
is the acquiring corporation and a majority of its voting shares are issued or
transferred to another corporation or another entity or person, or to
shareholders (or their equivalent) of such other corporation or entity. Neither
the Eastern Certificate nor the Eastern By-laws contain a similar provision.
The Eastern Certificate contains provisions limiting certain acquisitions
by any person of beneficial ownership of 10% or more of the voting stock of the
corporation unless such acquisition has been approved prior to its consummation
by the affirmative vote of the holders of at least two-thirds of the voting
power of the outstanding shares of Eastern Common Stock. Neither the VFSC
Certificate nor the VFSC By-laws contain a similar provision.
CERTAIN ISSUANCES OF STOCK
The Eastern Certificate provides that no shares of capital stock (except
for certain issuances upon conversion, exchange or exercise of other securities)
shall be issued, directly or indirectly, to officers, directors or controlling
persons of Eastern other than as part of a general public offering or as
qualifying shares to a director, unless such issuance or the plan under which
such shares would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting. The VFSC Certificate contains no
comparable provision.
AMENDMENTS TO CHARTER
Under Delaware law, charter amendments require the approval of the
directors and the vote of the holders of a majority of the outstanding stock and
a majority of each class of stock outstanding and entitled to vote thereon as a
class, unless the certificate of incorporation requires a greater vote. In
addition, Delaware law requires a class vote when, among other things, an
amendment will adversely affect the powers, preferences or special rights of a
class of stock. The VFSC Certificate provides that no amendment, addition,
alteration, change or repeal of Articles 6 (relating to constitution and
classification of the VFSC Board), 9 (relating to
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certain provisions for conduct of the corporation, including director liability
and indemnification), 10 (prohibiting stockholder action by written consent), 12
(providing for greater than majority stockholder votes to approve mergers, sales
of substantially all assets and other transactions) or 13 (requiring the vote of
two-thirds of the outstanding voting stock to amend the foregoing Articles and
Article 13) of the VFSC Certificate shall be made unless approved by the
stockholders by not less than two-thirds of the total votes entitled to vote
thereon.
AMENDMENTS TO BY-LAWS
Under Delaware law, the power to adopt, amend or repeal by-laws lies in
stockholders entitled to vote; provided, however, that any corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
by-laws upon the directors. The Eastern Certificate provides that the Eastern
By-laws may be amended by the affirmative vote of at least two-thirds of the
directors then in office, or by the affirmative vote of at least two-thirds of
the stockholders to vote thereon. The VFSC Certificate provides that the VFSC
By-Laws may be amended by the affirmative vote of a majority of the directors.
APPRAISAL RIGHTS
Under Delaware law, appraisal rights are available in connection with a
statutory merger or consolidation in certain specified situations. Appraisal
rights are not available for shares of stock of a corporation which is to be the
surviving corporation if no vote of its stockholders is required to approve the
merger. In addition, unless otherwise provided in the charter, no appraisal
rights are available to holders of shares of any class of stock which is either:
(a) listed on a national securities exchange or designated as a national market
system security on an inter-dealer quotation system by the NASD or (b) held of
record by more than 2,000 stockholders, unless such stockholders are required by
the terms of the merger to accept anything other than: (i) shares of stock of
the surviving corporation; (ii) shares of stock of another corporation which are
or will be so listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the NASD
or held of record by more than 2,000 stockholders; (iii) cash in lieu of
fractional shares of such stock; or (iv) any combination of the foregoing.
Neither the VFSC Certificate nor the Eastern Certificate provides for such
appraisal rights.
Holders of VFSC Common Stock will not have appraisal rights with respect to
the Merger.
LEGAL MATTERS
The validity of the VFSC Common Stock offered in connection with the Merger
will be passed upon by Sullivan & Worcester LLP, Boston, Massachusetts, counsel
to VFSC. Certain federal income tax consequences of the Merger and other legal
matters in connection with the Merger will be passed upon by Sullivan &
Worcester LLP and Hale and Dorr LLP.
EXPERTS
The consolidated financial statements of Eastern Bancorp, Inc. and
subsidiaries as of September 30, 1996 and 1995, and for each of the years in the
three-year period ended September 30, 1996, have been incorporated by reference
herein and in the Registration Statement in reliance on the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP refers to the adoption in 1995 of
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights, an Amendment of FASB Statement No. 65." Representatives of
KPMG Peat Marwick LLP are expected to be present at the Eastern Meeting, will
have an opportunity to make a statement if they wish to do so and are expected
to be available to respond to appropriate questions.
The consolidated financial statements of VFSC and subsidiaries appearing in
VFSC's Annual Report on Form 10-K for the year ended December 31, 1996
incorporated by reference herein have been certified by Coopers & Lybrand LLP,
independent certified public accountants, as set forth in their report thereon
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included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. Representatives of Coopers & Lybrand LLP are expected to be present at
the VFSC Meeting, will have an opportunity to make a statement if they wish to
do so and are expected to be available to respond to appropriate questions.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of
November 13, 1996, by and among Vermont Financial Services Corporation, a
Delaware Corporation (the "Buyer"), Eastern Bancorp, Inc., a Delaware
corporation (the "Seller") and Vermont Federal Bank, FSB, the wholly owned
subsidiary of the Seller and a federal savings bank in stock form (the "Bank").
The parties deem it advisable and in the best interests of their respective
stockholders to consummate the business combination provided for herein.
In consideration of the mutual covenants, representations, warranties and
agreements contained herein, and in consideration of (a) the execution and
delivery of the Seller Option Agreement (as hereinafter defined in Article I
hereof) between the Seller and the Buyer, pursuant to which the Seller has on
this day granted the Seller Option (as defined in Article I hereof) to the
Buyer, and (b) the execution and delivery by the Principal Stockholders of the
Seller Stockholders' Agreement (as such terms are defined in Article I hereof),
each as a condition and inducement to the Buyer to enter into this Agreement,
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 Merger" shall mean the merger of Seller with and into Buyer in
accordance with the terms and conditions of this Agreement.
"Acquisition Price" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Acquisition Transaction" shall have the meaning ascribed thereto in
Section 5.03 hereof.
"Adjusted Acquisition Price" shall have the meaning ascribed thereto in
Section 2.09(a) hereof.
"Agreement" shall mean this Agreement and Plan of Reorganization by and
among the Buyer, the Seller and the Bank.
"Average Closing Price" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Bank" shall have the meaning ascribed thereto in the preamble to this
agreement.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Buyer" shall have the meaning ascribed thereto in the preamble to this
Agreement.
"Buyer Balance Sheet" shall have the meaning ascribed thereto in Section
3.05 hereof.
"Buyer Common Stock" shall have the meaning ascribed thereto in Section
3.02(a) hereof.
"Buyer Benefit Plan" shall have the meaning ascribed thereto in Section
3.18 hereof.
"Buyer Pension Plan" shall have the meaning ascribed thereto in Section
3.18 hereof.
"Buyer Preferred Stock" shall have the meaning ascribed thereto in Section
3.02(a) hereof.
"Buyer Registration Statement" shall have the meaning ascribed thereto in
Section 5.04 hereof.
"Buyer Reports" shall have the meaning ascribed thereto in Section 3.12
hereof.
"Buyer Requisite Vote" shall have the meaning ascribed thereto in Section
3.04 hereof.
"Cash Conversion Number" shall have the meaning ascribed thereto in Section
2.14(e) hereof.
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"Cash Designee Shares" shall have the meaning ascribed thereto in Section
2.14(e) hereof.
"Cash Distribution" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Cash Election Designee Shares" shall have the meaning ascribed thereto in
Section 2.14(e) hereof.
"Cash Election Shares" shall have the meaning ascribed thereto in Section
2.14(b) hereof.
"Certificate" shall have the meaning ascribed thereto in Section 2.11(a)
hereof.
"Certificate of Merger" shall have the meaning ascribed thereto in Section
2.07 hereof.
"Closing Date" shall mean the date on which the Effective Time occurs.
"CMPs" shall have the meaning ascribed thereto in Section 3.13 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.
"Confidentiality Agreement" shall mean that certain letter agreement
between the Buyer and the Seller dated August 15, 1996.
"Confidential Information" shall have the meaning ascribed thereto in
Section 5.02(b) hereof.
"Constituent Corporations" shall have the meaning ascribed thereto in
Section 2.01 hereof.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Dissenting Holder" shall have the meaning ascribed thereto in section
2.09(c) hereof.
"Dissenting Shares" shall have the meaning ascribed thereto in Section
2.09(c) hereof.
"DOJ" shall mean the United States Department of Justice.
"DPC Shares" shall have the meaning ascribed thereto in Section 3.16
hereof.
"Effective Time" shall mean the specific time on the Closing Date at which
the Acquisition Merger has become effective pursuant to the laws of the State of
Delaware.
"Election Deadline" shall have the meaning ascribed thereto in Section
2.14(c) hereof.
"Election Form" shall have the meaning ascribed thereto in Section 2.14(a)
hereof.
"Election Form Record Date" shall have the meaning ascribed thereto in
Section 2.11(b) hereof.
"EPA" shall mean the United States Environmental Protection Agency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean, with reference to any person, within the
meaning of Section 414 (b), (c), (m) or (o) of the Code, (a) any member of a
controlled group of corporations that includes such person, (b) any trade or
business, whether or not incorporated, under common control with such person,
(c) any member of an affiliated service group with such person, and (iv) any
member of a group that is treated as a single employer by regulation and that
includes such person.
"Exchange Act" shall have the meaning ascribed thereto in Section 3.05
hereof.
"Exchange Agent" shall have the meaning ascribed thereto in Section 2.13
hereof.
"Exchange Ratio" shall have the meaning ascribed thereto in Section 2.09(a)
hereof.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System or the Federal Reserve Bank of Boston, as applicable.
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"FTC" shall mean the Federal Trade Commission.
"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.
"HOLA" shall mean the Home Owners Loan Act of 1933, as amended.
"Injunction" shall have the meaning ascribed thereto in Section 6.01(d)
hereof.
"IRS" shall mean the United States Internal Revenue Service.
"Loans" shall have the meaning ascribed thereto in Section 4.24 hereof.
"Mailing Date" shall have the meaning ascribed thereto in Section 2.11(b)
hereof.
"Material Adverse Effect" shall mean with respect to Buyer or Seller, or
any other entity, a material adverse effect on the assets, liabilities,
business, operations, results of operations or condition (financial or
regulatory) of Buyer or Seller or such other entity, as the case may be, and its
subsidiaries, taken as a whole.
"Merger Consideration" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Minimum Price" shall have the meaning ascribed thereto in Section 2.09(a)
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq-NM" shall mean the National Association of Securities Dealers
Automated Quotation -- National Market.
"No Election Cash Designee Shares" shall have the meaning ascribed thereto
in Section 2.14(e) hereof.
"No Election Designee Shares" shall have the meaning ascribed thereto in
Section 2.14(e) hereof.
"No Election Shares" shall have the meaning ascribed thereto in Section
2.14(b) hereof.
"OCC" shall mean the Office of the Comptroller of the Currency of the
United States Department of the Treasury.
"OTS" shall mean the Office of Thrift Supervision of the United States
Department of the Treasury.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Principal Stockholders" shall mean John A. Cobb, E. David Humphrey, W.
Stevens Sheppard and James M. Sutton.
"Proxy Statement" shall have the meaning ascribed thereto in Section
5.04(a) hereof.
"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 and its subsidiaries
to administer, reflect, monitor, evidence or record information respecting
Seller's consolidated 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 consolidated business
of the Seller.
"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.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning ascribed thereto in the preamble to this
Agreement.
"Seller Affiliates" shall have the meaning ascribed thereto in Section 5.06
hereof.
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"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 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
4.02(a) hereof.
"Seller Disclosure Schedule" shall have the meaning ascribed thereto in
Section 4.01(a) hereof.
"Seller Option" shall mean the option granted to the Buyer pursuant to the
Seller Option Agreement.
"Seller Option Agreement" shall mean that certain stock option agreement of
even date herewith by and between the Buyer and the Seller in the form attached
as Exhibit A.
"Seller Other Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Pension Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Preferred Stock" shall have the meaning ascribed thereto in Section
4.02(a) hereof.
"Seller Reports" shall have the meaning ascribed thereto in Section 4.15
hereof.
"Seller Stock Option Plans" shall mean the 1984 and 1987 stock option plans
of Seller.
"Seller Stockholders' Agreement" shall mean that certain letter agreement
of even date herewith executed and delivered to the Buyer by the Principal
Stockholders in the form attached hereto as Exhibit B.
"Seller Requisite Vote" shall have the meaning ascribed thereto in Section
4.04 hereof.
"Stock Conversion Number" shall have the meaning ascribed thereto in
Section 2.14(e) hereof.
"Stock Distribution" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Stock Election Cash Designee Shares" shall have the meaning ascribed
thereto in Section 2.14(e) hereof.
"Stock Election Shares" shall have the meaning ascribed thereto in Section
2.14(b) hereof.
"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.
"Tax" shall have the meaning ascribed thereto in Section 4.10(t)(A) hereof.
"Tax Return" shall have the meaning ascribed thereto in Section 4.10(t)(B)
hereof.
"Termination Date" shall have the meaning ascribed thereto in Section
8.01(b) hereof.
"Trust Account Shares" shall have the meaning ascribed thereto in Section
3.16 hereof.
"Valuation Period" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Vermont Commissioner" shall mean the Vermont Commissioner of Banking,
Insurance and Securities.
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ARTICLE II
THE ACQUISITION MERGER
2.01 Surviving Corporation. In accordance with the provisions of this
Article II and Section 251 of the DGCL, at the Effective Time, Seller shall be
merged with and into Buyer (the two merging corporations being sometimes
collectively referred to herein as the "Constituent Corporations") and the
separate corporate existence of Seller shall cease. Buyer shall be the surviving
corporation in the Acquisition Merger (hereinafter sometimes referred to as the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Delaware. The name of the Surviving Corporation shall
continue to be "Vermont Financial Services Corporation".
2.02 Purposes and Authorized Capital Stock of Surviving Corporation. As
of the Effective Time, the purposes and authorized capital stock of the
Surviving Corporation shall be as stated in the Certificate of Incorporation of
Buyer immediately prior to the Effective Time.
2.03 Effect of the Acquisition Merger.
(a) At the Effective Time, all of the estate, property, rights,
privileges, powers and franchises of the Constituent Corporations 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 any
of the Constituent Corporations shall not revert or be in any way impaired
by reason of the Acquisition Merger, but shall be vested in the Surviving
Corporation.
(b) From and after the Effective Time, the rights of creditors of any
Constituent Corporation 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
Acquisition Merger, but the Surviving Corporation shall be deemed to have
assumed, and shall be liable for, all liabilities and obligations of each
of the Constituent Corporations 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 the Constituent
Corporations shall continue to be subject to all liabilities, claims and
demands existing against them as such at or before the Acquisition Merger.
No action or proceeding then pending before any court or tribunal of the
State of Delaware, the State of Vermont, the State of New Hampshire or
otherwise in which any Constituent Corporation is a party, or in which any
such stockholder, director, or officer is a party, shall abate or be
discontinued by reason of the Acquisition 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 any Constituent Corporation by the court in which such action or
proceeding is pending.
2.04 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 either of the Constituent Corporations acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Acquisition Merger or to otherwise carry out this Agreement, the officers and
directors of the Surviving Corporation shall and will be authorized to execute
and deliver, in the name and on behalf of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of the Constituent Corporations 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 the purposes and intent of this Agreement.
2.05 Certificate of Incorporation and By-laws. The Certificate of
Incorporation and the By-Laws of Buyer, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and the
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By-laws of the Surviving Corporation and shall thereafter continue to be the
Surviving Corporation's Certificate of Incorporation and By-Laws until amended
as provided therein or by applicable law.
2.06 Directors and Officers. The directors and officers of the Surviving
Corporation shall be the directors and officers of Buyer immediately prior to
the Effective Time and, in addition, the Board of Directors of the Surviving
Corporation shall include at least three (3) and up to four (4) additional
persons to be designated by Buyer prior to the Effective Time, who shall be
selected from among the members of Seller's Board of Directors, and each such
director and officer shall hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation. Subject to the first
sentence of this Section 2.06, the exact number of Seller directors who shall be
selected to serve on the Board of Directors of the Surviving Corporation upon
the Effective Time shall be determined by Buyer in its sole discretion.
2.07 Effective Time; Conditions. If all of the conditions precedent set
forth in Article VI hereof have been satisfied or waived (to the extent
permitted by law), and this Agreement has not otherwise been properly terminated
under Article VIII hereof, the appropriate form of certificate of merger with
respect to the Acquisition Merger shall be prepared by Buyer and Seller and
filed and recorded pursuant to Section 251 of the DGCL with the Delaware
Secretary of State (as so filed and recorded, the "Certificate of Merger"). The
Acquisition Merger shall become effective at, and the Effective Time shall be,
the time specified in the Certificate of Merger.
2.08 Dissenters' Appraisal Rights. Any Dissenting Holder (i) who files
with Seller an objection to the Acquisition Merger in writing before the
approval of this Agreement by the stockholders of Seller and who states in such
objection that he intends to demand payment for his shares of Seller Common
Stock if the Acquisition Merger is concluded and (ii) whose shares of Seller
Common Stock are not voted in favor of the Acquisition Merger shall be entitled
to demand payment for his shares of Seller Common Stock and an appraisal of the
value thereof, subject to and in accordance with the provisions of Section 262
of the DGCL.
2.09 Effect on Outstanding Shares.
(a) Seller Common Stock. By virtue of the Acquisition Merger,
automatically and without any action on the part of the holder thereof, and
subject to and in accordance with Section 2.14 hereof, each share of Seller
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Shares and any such shares held directly or
indirectly by Buyer, other than Trust Account Shares and DPC Shares, and
any such shares held as treasury stock by Seller) shall become and be
converted into either (i) an amount in cash equal to the sum of (x) $7.25
and (y) the product of 0.4900 and the Average Closing Price (such total per
share purchase price being referred to herein as the "Acquisition Price"
and such total per share cash amount being referred to herein as the "Cash
Distribution") or (ii) the number of shares or fraction of a share of Buyer
Common Stock, rounded to the nearest ten-thousandth of a share, equal to
the number obtained by dividing the Acquisition Price by the Average
Closing Price (such number being referred to herein as the "Exchange Ratio"
or the "Stock Distribution"); provided, however, that if the Average
Closing Price is greater than or equal to $39.96 per share the Acquisition
Price shall equal $26.83 and if the Average Closing Price is less than or
equal to $29.54 per share but greater than or equal to $26.06 per share the
Acquisition Price shall equal $21.72. If the Average Closing Price is less
than $26.06, the Acquisition Price shall equal the sum of (x) $7.25 and (y)
the product of 0.5553 and the Average Closing Price. Notwithstanding the
foregoing, however, if the Average Closing Price is less than $26.06 per
share (the "Minimum Price"), then Seller shall have the right to terminate
this Agreement pursuant to Section 8.01(f) of this Agreement, unless Buyer
elects, in its sole discretion, to adopt $21.72 (the "Adjusted Acquisition
Price") as the Acquisition Price. The parties hereto acknowledge and agree
that the Acquisition Price shall be identical without regard to any
election made pursuant to Section 2.14 hereof. As of the Effective Time,
each share of Seller Common Stock held directly or indirectly by Buyer,
other than Trust Account Shares and DPC Shares, and held by Seller as
treasury stock shall be canceled, retired and cease to exist, and no
payment shall be made with respect thereto. For purposes of this Agreement,
"Average Closing Price" shall mean the average of the closing bid prices of
shares of Buyer Common Stock as reported on the Nasdaq-NM composite
transactions reporting system for the twenty consecutive trading days (the
"Valuation Period") ending on
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the fifth business day prior to the Closing Date and "Merger Consideration"
shall mean the shares of Buyer Common Stock and/or cash that holders of
Seller Common Stock are entitled to receive hereunder. Subject to the
provisions of Section 2.09(c) with respect to Dissenting Shares, each
certificate which immediately prior to the Effective Time represented
outstanding shares of Seller Common Stock shall on and after the Effective
Time be deemed for all purposes to represent the Merger Consideration into
which the shares of Seller Common Stock represented by such certificate
shall have been converted pursuant to this Section 2.09(a).
(b) Buyer Common Stock. Each share of Buyer Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding upon the Effective Time and shall constitute one share of
common stock of the Surviving Corporation ("Surviving Corporation Common
Stock"). Each certificate which immediately prior to the Effective Time
represented outstanding shares of Buyer Common Stock shall on and after the
Effective Time be deemed for all purposes to represent such like number of
shares of Surviving Corporation Common Stock issued and outstanding as of
the Effective Time in accordance with this Section 2.09(b).
(c) Dissenting Shares. No conversion under Section 2.09(a) hereof
shall be made with respect to the shares of Seller Common Stock held by a
Dissenting Holder (such shares being referred to herein as "Dissenting
Shares"); provided, however, (i) each Dissenting Share outstanding
immediately prior to the Effective Time and held by a Dissenting Holder who
shall, at or prior to the Effective Time, withdraw his demand for appraisal
or lose his right of appraisal, in either case pursuant to the applicable
provisions of the DGCL shall be deemed to be converted, as of the Effective
Time, into the Merger Consideration payable with respect to such Dissenting
Share in accordance with the terms of Section 2.09(a) hereof and (ii) each
Dissenting Share 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 DGCL, shall be deemed to be
converted, as of the Effective Time, into the Stock Distribution or the
Cash Distribution as the Buyer shall determine in its sole and absolute
discretion. For purposes of this Agreement, the term "Dissenting Holder"
shall mean a holder of shares of Seller Common Stock who has demanded
appraisal rights in compliance with the applicable provisions of the DGCL
concerning the right of such holder to dissent from the Acquisition Merger
and demand appraisal of such holder's shares of Seller Common Stock.
2.10 Anti-Dilution. In the event that during the period beginning on the
first day of the Valuation Period and ending on the Closing Date the outstanding
shares of Buyer 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 (or other non-cash)
dividend, stock split, reverse stock split, or other like changes in Buyer's
capitalization (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 who are to receive the Stock Distribution
so that each such holder of Seller Common Stock shall receive under Section
2.09(a) hereof the number of shares of Buyer Common Stock and/or other
securities that such holder would have received if the Recapitalization had
occurred immediately after the Effective Time. Nothing contained in this Section
2.10 is intended to mean that Buyer may engage in a Recapitalization for the
intended purpose of affecting the Average Closing Price in a way that would be
adverse to the interests of Seller and its stockholders.
2.11 Exchange Procedures.
(a) Certificates which represent shares of Seller Common Stock that
are outstanding immediately prior to the Effective Time (each a
"Certificate") and are converted into the Merger Consideration pursuant to
this Article II shall, after the Effective Time, be deemed to represent the
Merger Consideration into which such shares have been converted and shall
be exchangeable by the holders thereof in the manner provided in the
transmittal materials described below for (i) new certificates representing
the shares of Buyer Common Stock into which such shares have been converted
and/or (ii) a check for the total cash amount into which such shares have
been converted.
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(b) Following the meeting of Seller's and Buyer's respective
stockholders contemplated by Section 5.05 hereof and twenty-five business
days prior to the anticipated Closing Date, or on such other date as may be
mutually agreed upon by the parties (the "Mailing Date"), the Exchange
Agent shall send to each holder of record of shares of Seller Common Stock
outstanding as of five business days prior to the Mailing Date (the
"Election Form Record Date"), transmittal materials and the Election Form
as provided for in Section 2.14 hereof (which materials and form shall be
approved by Seller, which approval shall not be unreasonably withheld) for
use in exchanging the Certificates for such shares for the Merger
Consideration into which such shares of Seller Common Stock have been
converted pursuant to this Article II. Upon surrender of a Certificate,
together with a duly executed letter of transmittal and any other required
documents, the holder of such Certificate shall be entitled to receive, in
exchange therefor, as soon as practicable following the Effective Time, a
certificate for the number of shares of Buyer Common Stock and/or a check
for the cash amount to which such holder is entitled, and such Certificate
shall forthwith be canceled. Buyer shall use all reasonable efforts to
cause the Exchange Agent to distribute the Merger Consideration as promptly
as practicable to the former holders of the Certificates. 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
representing Stock Election Shares until the holder thereof surrenders such
Certificate in accordance with the provisions of this Article II and the
transmittal materials, at which time such holder shall receive all
dividends and distributions, without interest thereon, previously payable
but withheld from such holder pursuant hereto. No interest shall be paid on
the cash amount payable with respect to any unsurrendered Certificate
representing Cash Election Shares, and such cash amount shall be paid at
such time as such Certificate is properly surrendered by the holder
thereof. After the Effective Time, there shall be no transfers on the stock
transfer books of 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 Seller, they shall be canceled and exchanged
for the Merger Consideration 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 the applicable provisions of Section 2.09(a) hereof, cash
adjustments, without interest, shall 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 Acquisition 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 2.11(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 Seller Common Stock shall
have no rights as stockholders of Seller, other than (i) to receive the
Merger Consideration into which such shares of Seller Common Stock have
been converted and fractional share payments, if any, pursuant to the
provisions of Section 2.11(c) above and (ii) the rights afforded to any
Dissenting Holder under applicable provisions of the DGCL.
(e) Any amounts remaining unclaimed by stockholders of Seller
twenty-four months after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to
or become property of any governmental entity) shall, to the extent
permitted by applicable law, become the property of Buyer free and clear of
any claims of interest of any person previously entitled thereto; provided,
however, that Buyer shall send 30-days' prior written notice to former
stockholders of Seller at such stockholders' last known addresses as
reflected in Seller's stockholder records prior to Buyer's taking
possession of any such unclaimed amounts
(f) Notwithstanding anything contained in this Section 2.11, neither
Buyer, Seller, the Surviving Corporation nor any other person shall be
liable to any former holder of shares of Seller Common Stock for any shares
or any dividends or distributions with respect thereto or any other cash
amounts properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
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(g) 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 Buyer
of appropriate and customary indemnification, Buyer will deliver in
exchange for such lost, stolen or destroyed Certificate the Merger
Consideration and the fractional share payment, if any, deliverable in
respect thereof as determined in accordance with this Article II.
(h) If any Merger Consideration 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
or member firm of the New York Stock Exchange 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 delivery of the Merger Consideration in any name other than that of the
registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the reasonable satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
2.12 Treatment of Seller Stock Options. As soon as practicable following
the date of the meeting of Seller's stockholders contemplated by Section 5.05
hereof, and in any event not later than ten (10) business days prior to the
Effective Time, each holder of a then outstanding stock option to purchase
shares of Seller Common Stock pursuant to the Seller Stock Option Plans (it
being understood that the aggregate number of shares of Seller Common Stock
subject to purchase under such stock options is not or shall not at the
Effective Time be more than 398,975 shares) shall be entitled to exercise such
option (whether or not such option would otherwise have been exercisable) at the
exercise price thereof, and if such options are not so exercised at such time
prior to the Effective Time, then each such holder shall be entitled to elect by
written notice to Buyer, delivered not later than such ten (10) business days
prior to the Effective Time, one of the two following alternatives: (i) to
receive, immediately prior to the Effective Time, from Seller in cancellation of
each such option a cash payment in an amount equal to the excess of $24.28 over
the per share exercise price of such option, multiplied by the number of shares
covered by such option or (ii) to have each such option, upon the Effective
Time, converted into an option to purchase shares of Buyer Common Stock with the
following terms:
(A) the number of shares of Buyer Common Stock subject to such option
shall be equal to the product of the number of shares of Seller Common
Stock previously subject thereto and the Exchange Ratio, rounded down to
the nearest whole share;
(B) the exercise price per share of Buyer Common Stock subject to such
option shall be equal to the exercise price per share of Seller Common
Stock previously subject thereto divided by the Exchange Ratio, rounded up
to the nearest cent;
(C) the duration and other terms of such option shall be unchanged,
except that all references to Seller shall be deemed to be references to
Buyer;
(D) Buyer shall assume the option as contemplated by Section 424(a) of
the Code; and
(E) with respect to any such option that is an incentive stock option
within the meaning of Section 422 of the Code, Buyer shall take such
actions (other than delaying the date on which such option becomes
exercisable beyond the date on which it would otherwise become exercisable
pursuant to the terms thereof) as may be necessary or appropriate to cause
such option, upon being converted into an option to purchase shares of
Buyer Common Stock, to remain such an incentive stock option.
If any such holder fails to either exercise such holder's options as
provided for above or elect either of the other two foregoing alternatives, then
such holder's options shall terminate at the Effective Time as provided in the
Seller Stock Option Plans.
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2.13 Exchange Agent. Prior to the Election Form Record Date, Buyer shall
appoint an exchange agent reasonably acceptable to Seller (it being acknowledged
and agreed by Seller that Vermont National Bank is so acceptable) for the
purpose of exchanging certificates representing shares of Buyer Common Stock for
Certificates (the "Exchange Agent"). Buyer shall issue and deliver on the
Closing Date to the Exchange Agent certificates representing the shares of Buyer
Common Stock to be issued and shall deposit with the Exchange Agent the
aggregate cash amount to be paid in consideration of the aggregate Cash
Distribution and in lieu of fractional share interests, all in accordance with
the terms of this Article II.
2.14 Election Procedures. The election to receive shares of Buyer Common
Stock or cash in exchange for shares of Seller Common Stock and the allocation
of shares of Buyer Common Stock and cash among holders of shares of Seller
Common Stock shall be conducted as follows:
(a) The Exchange Agent shall mail to each holder of record (or, in the
case of individuals who have established individual retirement accounts
("IRAs"), to such individuals, treating each such individual and his or her
IRA(s) as a single holder of record for this purpose) of shares of Seller
Common Stock outstanding at the Election Form Record Date an election form
(the "Election Form"), together with appropriate transmittal materials, on
the Mailing Date.
(b) The Election Form shall permit a holder of shares of Seller Common
Stock to elect, with respect to some or all of such holder's shares of
Seller Common Stock, (i) to receive the Stock Distribution (the "Stock
Election Shares"), (ii) to receive the Cash Distribution (the "Cash
Election Shares"), or (iii) to indicate that such holder makes no election
(the "No Election Shares").
(c) Any shares of Seller Common Stock with respect to which the holder
thereof shall not, as of the Election Deadline (as defined below), have
made such an election by submission to the Exchange Agent, of a properly
completed Election Form shall be deemed to be No Election Shares. "Election
Deadline" means 5:00 p.m., local time, on the fifteenth business day
following but not including the Mailing Date or such other date as Buyer
and Seller shall mutually agree upon in writing.
(d) Any election shall have been properly made only if the Exchange
Agent shall have received a properly completed Election Form by the
Election Deadline. Subject to Section 2.11(g) hereof, an Election Form will
be properly completed only if accompanied by either (i) certificates
representing all shares of Seller Common Stock covered thereby or (ii) an
appropriate guarantee of delivery of such certificates as set forth in the
Election Form from a member of a national securities exchange or the NASD,
or a commercial bank or trust company in the United States, provided that
if the certificates are not delivered by the time set forth in the
guarantee of delivery (which time may not be later than two business days
after the Election Deadline), the holder shall be entitled only to receive
in respect of each share of Seller Common Stock represented by such
certificates the Merger Consideration to be received by holders of No
Election Shares, subject to the allocation and other provisions of this
Section 2.14 and Section 2.11 hereof. Any Election Form may be revoked or
changed by the person submitting such Election Form to the Exchange Agent
by written notice to the Exchange Agent, provided such notice is received
by the Exchange Agent at or prior to the Election Deadline. The Exchange
Agent shall have reasonable discretion to determine when any election,
modification or revocation is received and whether any such election,
modification or revocation has been properly made.
(e) If the aggregate number of Stock Election Shares does not equal
the Stock Conversion Number (as defined below), within ten business days
after the Election Deadline, unless the Effective Time has not yet
occurred, in which case as soon thereafter as practicable, the Exchange
Agent shall allocate among holders of shares of Seller Common Stock
outstanding at the Effective Time the rights to receive with respect to
each such share the Stock Distribution or the Cash Distribution as follows:
(i) if the number of Stock Election Shares is less than the Stock
Conversion Number, then
(A) all Stock Election Shares will be converted into the right
to receive the Stock Distribution,
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(B) the Exchange Agent will select, on a pro rata basis, first
from among the holders of No Election Shares, a sufficient number of
such shares ("No Election Designee Shares") such that the number of
No Election Designee Shares will, when added to the number of Stock
Election Shares, equal as closely as practicable the Stock Conversion
Number, and all such No Election Designee Shares will be converted
into the right to receive the Stock Distribution,
(C) if, after giving effect to clauses (A) and (B) above, the
number of Stock Election Shares plus No Election Designee Shares is
less than the Stock Conversion Number, the Exchange Agent will
select, on a pro rata basis, from among the holders of Cash Election
Shares, a sufficient number of such shares ("Cash Election Designee
Shares") such that the number of Cash Election Designee Shares will,
when added to the number of No Election Designee Shares and Stock
Election Shares, equal as closely as practicable the Stock Conversion
Number, and all Cash Election Designee Shares will be converted into
the right to receive the Stock Distribution, and
(D) the Cash Election Shares and the No Election Shares not so
selected as Cash Election Designee Shares or No Election Designee
Shares, respectively, shall be converted into the right to receive
the Cash Distribution; or
(ii) if the aggregate number of Stock Election Shares is greater
than the Stock Conversion Number, then
(A) all Cash Election Shares will be converted into the right to
receive the Cash Distribution,
(B) the Exchange Agent will select, on a pro rata basis, first
from among the holders of No Election Shares, a sufficient number of
such shares ("No Election Cash Designee Shares") such that the number
of No Election Cash Designee Shares will, when added to the number of
Cash Election Shares and Dissenting Shares, equal as closely as
practicable the Cash Conversion Number (as defined below), and all No
Election Cash Designee Shares will be converted into the right to
receive the Cash Distribution,
(C) if, after giving effect to clauses (A) and (B) above, the
number of Cash Election Shares plus No Election Cash Designee Shares
plus Dissenting Shares is less than the Cash Conversion Number, the
Exchange Agent will select, on a pro rata basis, from among the
holders of Stock Election Shares, a sufficient number of such shares
("Stock Election Cash Designee Shares") such that the number of Stock
Election Cash Designee Shares will, when added to the number of Cash
Election Shares and No Election Cash Designee Shares and Dissenting
Shares, equal as closely as practicable the Cash Conversion Number,
and all Stock Election Cash Designee Shares will be converted into
the right to receive the Cash Distribution, and
(D) the Stock Election Shares and the No Election Shares not so
selected as Stock Election Cash Designee Shares or No Election Cash
Designee Shares, respectively, will be converted into the right to
receive the Stock Distribution.
"Cash Conversion Number" means the number of outstanding shares of Seller Common
Stock as of the Effective Time, including all Dissenting Shares, if any,
multiplied by the ratio of $7.25 to the Acquisition Price. "Stock Conversion
Number" means the number of outstanding shares of Seller Common Stock as of the
Effective Time minus the Cash Conversion Number.
(f) The proration process to be used by the Exchange Agent shall be as
the Exchange Agent deems equitable in its sole reasonable discretion,
provided that each holder of Stock Election Shares shall, to the greatest
extent possible, except for rounding to whole numbers of shares, be subject
to the same degree of proration as each other holder of Stock Election
Shares.
(g) In the event that this Agreement is duly terminated in accordance
with Section 8.01 hereof after the Mailing Date, the Exchange Agent shall
use all reasonable efforts to effect the prompt return of
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stock certificates representing shares of Seller Common Stock submitted
thereto with Election Forms as provided for hereunder.
ARTICLE
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller and the Bank 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 State of Delaware. The Buyer has the
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, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, 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 duly registered with the Federal Reserve Board under the
BHCA. The certificate of incorporation and the by-laws of Buyer, copies of
which have been provided to Seller, are true, complete and correct copies
of such documents as in effect on the date hereof.
(b) Each subsidiary of the Buyer is duly organized, validly existing
and in corporate good standing under the laws of the jurisdiction of its
incorporation. Each subsidiary of the Buyer has the 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, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned, 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, with
respect to the Buyer, a Material Adverse Effect.
3.02 Capitalization. The authorized capital stock of the Buyer consists
of 20,000,000 shares of common stock, par value $1.00 per share (the "Buyer
Common Stock"), and 5,000,000 shares of preferred stock, par value $1.00 per
share (the "Buyer Preferred Stock"). As of the close of business on October 31,
1996, there were 4,886,704 shares of the Buyer Common Stock issued and
outstanding and no shares of the Buyer Preferred Stock issued and outstanding.
As of the close of business on October 31, 1996, there were also 184,018 shares
of the Buyer Common Stock held in the Buyer's treasury and 214,125 shares of the
Buyer Common Stock reserved for issuance upon exercise of outstanding stock
options. All issued and outstanding shares of the Buyer 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.
3.03 Authority; No Violation.
(a) The Buyer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly approved
by the Board of Directors of the Buyer. The Board of Directors of Buyer has
directed that this Agreement and the transactions contemplated hereby be
submitted to the stockholders of Buyer for approval at a meeting of such
stockholders and 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 has been duly and validly executed and delivered
by the Buyer and (assuming due authorization, execution and delivery by the
Seller and the Bank) constitutes the valid and binding obligation of the
Buyer, enforceable against the Buyer in accordance with its terms, except
that enforcement hereof 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
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equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) and the availability of equitable remedies.
(b) Neither the execution and delivery of this Agreement by the Buyer
nor the consummation by the Buyer of the transactions contemplated by this
Agreement, nor compliance by the Buyer with any of the terms or provisions
of this Agreement, will (i) assuming that the consents and approvals
referred to in Section 3.04 hereof are duly obtained, violate 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 certificate of
incorporation or other charter document of like nature or by-laws of the
Buyer, or such Buyer 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 thereto 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 result,
with respect to the Buyer, in a Material Adverse Effect.
3.04 Consents and Approvals. Except for consents, waivers or approvals
of, notice to, or filings or registrations with, the Federal Reserve Board, the
DOJ, the FTC, the Vermont Commissioner, the Securities and Exchange Commission
(the "SEC"), the NASD, the Delaware Secretary of State, and certain state "Blue
Sky" or securities commissioners, no consents, waivers or approvals of, notices
to, or filings or registrations with, any public body or authority are
necessary, and no permits, consents, waivers, clearances, approvals or
authorizations of or notices to any non-governmental or non-regulatory third
parties (which term does not include the stockholders of the Buyer) are
necessary, in connection with the execution and delivery by the Buyer of this
Agreement or the consummation by the Buyer of the transactions contemplated by
this Agreement (except Section 5.17 hereof). The affirmative vote of the holders
of two-thirds of the outstanding shares of the Buyer Common Stock (the "Buyer
Requisite Vote") is the only vote of the holders of any class or series of the
Buyer's capital stock or other securities necessary to approve this Agreement
and the transactions contemplated hereby, including without limitation the
Acquisition Merger.
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 1993 through 1995, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1993 through 1995, inclusive, as reported in the
Buyer's Annual Reports on Form 10-K for each of the three fiscal years ended
December 31, 1993 through December 31, 1995 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
accountants for the Buyer, and (b) the unaudited consolidated balance sheets of
Buyer and its subsidiaries as of September 30, 1996 and September 30, 1995, the
related unaudited consolidated statements of income and changes in stockholders'
equity for the nine months ended September 30, 1996 and September 30, 1995 and
the related unaudited consolidated statements of cash flows for the nine months
ended September 30, 1996 and September 30, 1995, all as reported in Buyer's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 filed
with the SEC under the Exchange Act. The December 31, 1995 consolidated balance
sheet of the Buyer (the "Buyer Balance Sheet") (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, 10-K and 8-K) to be filed by the Buyer with the SEC after
the date hereof will fairly present, the consolidated financial position and
results of the consolidated operations and cash flows and changes in
stockholders' equity of the Buyer and its subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; and each of such
statements (including the related notes, where applicable) has been and will be
prepared in accordance with GAAP consistently
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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 and reflect only actual transactions.
3.06 Absence of Undisclosed Liabilities. As of December 31, 1995, none of
the Buyer or any of its subsidiaries had any obligation or liability (contingent
or otherwise) that is material on a consolidated basis to the Buyer, or that
when combined with all similar obligations or liabilities would be material on a
consolidated basis to the Buyer, except as disclosed or reflected in the Buyer's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
3.07 Broker's Fees. Neither the Buyer nor any of its officers or
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement, except that Buyer has engaged, and
will pay a fee or commission to, Tucker Anthony Incorporated.
3.08 Absence of Certain Changes or Events. Since December 31, 1995, 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 assets, liabilities, business, operations,
results of operations or condition of the Buyer or any of its subsidiaries which
has had or could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Buyer.
3.09 Legal Proceedings. There is no pending or, to the Buyer's knowledge,
threatened legal, administrative, arbitral, or other proceeding, claim, action
or governmental investigation against Buyer or any subsidiary of the Buyer or
challenging the validity or propriety of the transactions contemplated by this
Agreement, as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would have or could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Buyer or otherwise materially adversely affect the Buyer's
ability to perform its obligations under this Agreement, nor is there any
judgment, decree, injunction, rule or order of any legal, administrative or
governmental body or arbitrator outstanding against the Buyer or any subsidiary
of the Buyer having any such effect.
3.10 Agreements with Banking Authorities. Neither Buyer nor any of its
subsidiaries is a party to any commitment letter, written agreement, memorandum
of understanding or order to cease and desist with, or has adopted any
resolutions at the request of, any federal or state governmental entity charged
with the supervision or regulation of banks, bank holding companies, savings
associations or savings and loan holding companies or engaged in the insurance
of bank or savings association 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.
3.11 Material Agreements. Except as set forth in the index of exhibits in
Buyer's Annual Report on Form 10-K for the year ended December 31, 1995 or in
Buyer's Quarterly Reports for the fiscal quarters ended March 31, 1996, June 30,
1996 and September 30, 1996, and except for this Agreement and the agreements
specifically referred to herein, neither the Buyer nor any of its subsidiaries
is a party to or is bound by any other contract or agreement or amendment
thereto that would be required to be filed as an exhibit to a Form 10-K filed by
the Buyer as of the date hereof or is otherwise material to the business,
operations, results of operations or condition of the Buyer on a consolidated
basis.
3.12 Reports. Since January 1, 1993, the Buyer and its subsidiaries have
timely filed, and subsequent to the date hereof will timely 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 made
available by the Buyer to the Seller), (b) the OCC, (c) the FDIC, (d) the
Federal Reserve Board and (e) 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,
registrations and statements are collectively referred to herein as the "Buyer
Reports"). As
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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.
As of their respective dates, the Buyer Reports 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.
3.13 Compliance with Applicable Law. Buyer and its subsidiaries hold all
material licenses, franchises, permits and authorizations necessary for the
lawful conduct of Buyer's consolidated business, and Buyer and its subsidiaries
have complied with, and are 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 Buyer on a
consolidated basis, other than where such default or noncompliance does not have
and could not reasonably be expected to have a Material Adverse Effect on Buyer
or otherwise materially adversely affect Buyer's ability to perform its
obligations under this Agreement. Buyer has not received any notice of any
violation of, or commencement of any proceeding in connection with any violation
(including without limitation any hearing or investigation relating to the
imposition or contemplated imposition of civil money penalties or other
financial penalty under Section 8(i) of the FDIA or applicable state law
("CMPs")) of any such law, statute, order, rule, regulation, policy or
agreement.
3.14 Environmental Matters. Buyer and its subsidiaries are in compliance
and have always been in compliance with all environmental laws, rules,
regulations and standards promulgated, adopted or enforced by the EPA and of
similar agencies in states in which they conduct their respective business,
except for any noncompliance that singly or in the aggregate would not have a
Material Adverse Effect on Buyer. 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 Buyer, threatened by any person, as to which there is a
reasonable probability of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have a Material Adverse
Effect on Buyer (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 Buyer or any subsidiary of Buyer or in which Buyer or any
Buyer subsidiary has a lien or other security interest.
3.15 Buyer Common Stock. The Buyer Common Stock to be issued in
connection with the Acquisition Merger is duly authorized and, when issued in
accordance with Article II hereof, will be validly issued, fully paid and
nonassessable and not subject to preemptive rights, with no personal liability
attaching thereto.
3.16 Ownership of Seller Common Stock. Neither the Buyer nor, to its best
knowledge, any of its affiliates or associates (as such terms are defined under
the Exchange Act), (a) beneficially own, directly or indirectly, or (b) are
parties to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of the Seller, which in the aggregate represent five percent (5%) or more
of the outstanding shares of capital stock of the Seller entitled to vote
generally in the election of directors (other than shares in trust accounts,
managed accounts and the like that are beneficially owned by third parties (any
such shares, "Trust Account Shares") and any other shares held in respect of a
debt previously contracted (any such shares, "DPC Shares").
3.17 Financing. Buyer's ability to pay the total amount of the cash
consideration to be paid with respect to those shares of Seller Common Stock
that are converted into the Cash Distribution in accordance with Section 2.09(a)
above is not contingent upon raising additional equity capital (which does not
include receipt of cash dividends from its banking or other subsidiaries) or
obtaining specific financing from any third-party lender.
3.18 Buyer Benefit Plans.
(a) Buyer represents that with respect to each employee pension
benefit plan (as defined in Section 3(2) of ERISA) ("Buyer Pension Plan")
and each employee welfare benefit plan (as defined in Section 3(1) of
ERISA) ("Buyer Benefit Plan") which the Buyer, any subsidiary of Buyer or
any ERISA
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Affiliate maintains or to which the Buyer, any subsidiary of Buyer or any
ERISA Affiliate contributes, each such plan 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, the Code and
other applicable laws, and each of the Buyer Pension Plans intended to
qualify under Section 401(a) of the Code is so qualified. Neither the Buyer
nor any subsidiary of Buyer has taken any action, nor has any event
occurred, that has resulted, or will likely result in liability under Title
IV of ERISA or has engaged in a prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code).
(b) There is no "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA and Section 412 of the Code), whether or not
waived, with respect to any Buyer Pension Plan. The Buyer, its
subsidiaries, and their ERISA Affiliates have made all contributions to the
Buyer Pension Plans and Buyer Benefit Plans required thereunder as of the
date of this representation, and have established adequate reserves on
their books for all contributions to Buyer Pension Plans and Buyer Benefit
Plans required thereunder for the period prior to the date of this
representation, to the extent such contributions are not required to have
been made, and have not been made, prior to the date of this
representation.
3.19 Buyer Information. The information relating to the Buyer and its
subsidiaries to be contained or incorporated by reference in the Buyer
Registration Statement and the 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 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.
3.20 Disclosure. To the best of Buyer's knowledge, 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, 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. No information believed by Buyer to be material to
Seller's interests in the transactions contemplated by this Agreement, which has
not otherwise been disclosed to Seller in connection with this Agreement, has
been intentionally withheld from Seller.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE BANK
Seller and the Bank hereby represent and warrant to 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 State of Delaware. The Bank is a
federal savings bank in stock form duly organized, validly existing and in
good standing under the laws of the United States. Each of the Seller and
the Bank has the corporate power and authority to own, lease or operate all
of its respective properties and assets and to carry on its respective
business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned, 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, any Material Adverse Effect. The
deposits of the Bank are insured by the FDIC in accordance with the FDIA,
and, except as disclosed in Section 4.01(a) of the disclosure schedule
prepared by Seller and delivered to Buyer on the date hereof in conjunction
with the parties' execution and delivery of this Agreement (the "Seller
Disclosure Schedule"), the Bank has paid all assessments that have become
due and payable to the FDIC. The Seller is a savings and loan holding
company registered with the OTS under the HOLA.
(b) Each subsidiary of the Seller, other than the Bank, is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each subsidiary of the Seller has the
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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, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, 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, with respect to the Seller, a
Material Adverse Effect.
(c) Except as disclosed in Section 4.01(c) of the Seller Disclosure
Schedule, the minute books of the Seller and its subsidiaries contain
complete and accurate records of all meetings and other corporate actions
authorized at such meetings held or taken since December 31, 1990 by its
stockholders and Board of Directors. The certificate of incorporation and
the by-laws of the Seller and the federal stock charter and bylaws of the
Bank, copies of which have been provided to the Buyer, are true, complete
and correct copies of such documents as in effect on the date hereof.
4.02 Capitalization.
(a) The authorized capital stock of the Seller consists of 5,000,000
shares of common stock, par value $0.01 per share (the "Seller Common
Stock"), and 1,000,000 shares of preferred stock, par value $0.01 per share
(the "Seller Preferred Stock"). As of October 31, 1996, there were
3,677,226 shares of the Seller Common Stock and no shares of the Seller
Preferred Stock issued and outstanding, 418,323 shares of the Seller Common
Stock held in the Seller's treasury and 392,775 shares of Seller Common
Stock reserved for issuance upon the exercise of outstanding stock options.
All issued and outstanding shares of the 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. Section 4.02(a) of the Seller Disclosure Schedule identifies by
name all of the holders of record as of the date hereof of any options or
rights, whether or not presently exercisable, to purchase any shares of
Seller Common Stock, the number of shares of Seller Common Stock subject to
such outstanding stock options or rights held by each such holder, together
with the various dates on which such options or rights were granted and the
various exercise prices for such options or rights, the number of shares
for which such options or rights are presently vested and the vesting
schedule for the remaining balance of shares for which such options or
rights are not presently vested. Except as referred to in this Section 4.02
or disclosed in Section 4.02(a) of the Seller Disclosure Schedule, and
except for the Seller Option Agreement and the Seller Stock Option Plans,
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 the Seller Common Stock or any other equity
security of the Seller or any Seller subsidiary or any securities
convertible into, exchangeable for or representing the right to subscribe
for, purchase or otherwise receive any shares of the Seller Common Stock or
any other equity security of the Seller or any Seller subsidiary 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 Seller subsidiary.
(b) Section 4.02(b) to the Seller Disclosure Schedule lists each of
the subsidiaries of the Seller as of the date of this Agreement and
indicates for such subsidiary as of such date, the number, percentage and
type of equity securities owned or controlled by the Seller and the
jurisdiction of incorporation. No subsidiary of the Seller has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for such Seller subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, any equity
security of the Seller or of any Seller subsidiary 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
Seller subsidiary to grant, extend or enter into any such subscriptions,
options, warrants, calls, commitments or agreements. As of the date hereof,
there are no outstanding contractual obligations of any Seller subsidiary
to repurchase, redeem or otherwise acquire any shares of capital stock of
the Seller or any Seller subsidiary. All of the shares of capital stock
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of each of the Seller's subsidiaries held by the Seller are fully paid and
nonassessable and 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 and the Seller Option Agreement and to consummate
the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Seller Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly approved by the Board of Directors of the Seller. The
Board of Directors of Seller has directed that this Agreement and the
transactions contemplated hereby be submitted to the stockholders of the
Seller for approval at a meeting of such stockholders and no other
corporate proceedings on the part of Seller are necessary to consummate any
of the transactions so contemplated by this Agreement or the Seller Option
Agreement. This Agreement and the Seller Option Agreement have been duly
and validly executed and delivered by the Seller and (assuming due
authorization, execution and delivery of this Agreement and the Seller
Option Agreement by the Buyer) constitute the valid and binding obligations
of the Seller, enforceable against it in accordance with their respective
terms, except that enforcement thereof may be limited by the receivership,
conservatorship and supervisory powers of bank regulatory agencies
generally as well as bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting enforcement of creditors' rights generally and
except that enforcement thereof may be subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) and the availability of equitable remedies.
(b) Neither the execution and delivery of this Agreement and the
Seller Option Agreement by the Seller nor the consummation by the Seller of
the transactions contemplated hereby and thereby, nor compliance by the
Seller with any of the terms or provisions hereof or thereof, will (i)
assuming that the consents and approvals referred to in Section 4.04 are
duly obtained, violate 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) except as set forth in Section 4.03(b) of the Seller Disclosure
Schedule, 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 any of its subsidiaries under, any of the terms, conditions or
provisions of (A) the certificate of incorporation or other charter
documents of like nature or by-laws of the Seller or such Seller
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 Seller or any of its subsidiaries is a party thereto 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 result, with respect
to the Seller, in a Material Adverse Effect.
4.04 Consents and Approvals. Except for consents, waivers or approvals
of, notices to, or filings or registrations with, the Federal Reserve Board, the
DOJ, the FTC, the Vermont Commissioner, the SEC, the Delaware Secretary of
State, or as may be set forth in Section 4.04 or 4.03(b) of the Seller
Disclosure Schedule, no consents, waivers or approvals of, notices to, or
filings or registrations with, any public body or authority are necessary, and
no permits, consents, waivers, clearances, approvals or authorizations of or
notices to any non-governmental or nonregulatory third parties (which term does
not include the stockholders of the Seller) are necessary, in connection with
the execution and delivery by the Seller of this Agreement and the Seller Option
Agreement or the consummation by the Seller of the transactions contemplated by
this Agreement (except Section 5.17 hereof) or the Seller Option Agreement. The
affirmative vote of holders of two-thirds of the outstanding shares of the
Seller Common Stock (the "Seller Requisite Vote") is the only vote of the
holders of any class or series of the Seller's capital stock or other securities
necessary to approve this Agreement and the transactions contemplated hereby,
including without limitation the Acquisition Merger.
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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 September 30 for the fiscal years 1993 through 1995, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for such fiscal years 1993 through 1995, inclusive, as reported in
the Seller's Annual Reports on Form 10-K for each of the three fiscal years
ended September 30, 1993 through September 30, 1995 filed with the SEC under the
Exchange Act, in each case accompanied by the audit report of KPMG Peat Marwick
LLP, independent accountants for the Seller, (b) the unaudited consolidated
balance sheets of Seller and its subsidiaries as of June 30, 1996 and June 30,
1995, the related unaudited consolidated statements of income and changes in
stockholders' equity for the nine months ended June 30, 1996 and June 30, 1995
and the related unaudited consolidated statements of cash flows for the nine
months ended June 30, 1996 and June 30, 1995, all as reported in Seller's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 filed with the
SEC under the Exchange Act, and (c) the unaudited consolidated balance sheet of
Seller and its subsidiaries as of September 30, 1996, the related unaudited
consolidated statements of income and changes in stockholders' equity for the
fiscal year ended September 30, 1996 and the related unaudited consolidated
statement of cash flows for the fiscal year ended September 30, 1996, all as
prepared by management, but not yet certified by KPMG Peat Marwick LLP as of the
date hereof. The September 30, 1995 consolidated balance sheet of the Seller
(the "Seller Balance Sheet") (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, 10-K and 8-K) to be
filed by the Seller 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 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 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 Seller and its
subsidiaries have been, and are being, maintained in accordance with GAAP and
applicable legal and regulatory requirements and reflect only actual
transactions.
4.06 Absence of Undisclosed Liabilities. As of September 30, 1995, none
of the Seller or any of its subsidiaries had any obligation or liability
(contingent or otherwise) that is material on a consolidated basis to the
Seller, or that when combined with all similar obligations or liabilities would
be material on a consolidated basis to the Seller, except as disclosed or
reflected in the Seller's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 or Section 4.06 of the Seller Disclosure Schedule.
4.07 Broker's Fees. Neither the Seller or any of its subsidiaries nor any
of their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, except
that Seller has engaged, and will pay a fee or commission to, McConnell, Budd &
Downes, Inc.
4.08 Absence of Certain Changes or Events. Except as disclosed in
Schedule 4.08 of the Seller Disclosure Schedule, since September 30, 1995 the
Seller 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 assets, liabilities, business, operations,
results of operations or condition of the Seller or any of its subsidiaries
which has had or could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Seller.
4.09 Legal Proceedings. Except as disclosed in Section 4.09 of the Seller
Disclosure Schedule, there is no pending or, to Seller's knowledge, threatened
legal, administrative, arbitral, or other proceeding, claim, action or
governmental investigation against the Seller or any subsidiary of the Seller or
challenging the validity or propriety of the transactions contemplated by this
Agreement, as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would have or could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Seller or otherwise materially adversely affect the
Seller's ability to perform its obligations under this Agreement, nor is there
any judgment, decree, injunction, rule or order of any legal, administrative or
governmental body or arbitrator outstanding against the Seller or any subsidiary
of the Seller having any such effect.
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4.10 Taxes and Tax Returns. Except as may be set forth in Section 4.10 of
the Seller Disclosure Schedule:
(a) The Seller has timely filed all Tax Returns required to be filed
by it, each such Tax Return has been prepared in compliance with all
applicable laws and regulations, and all such Tax Returns are true and
accurate in all respects material to the financial condition of the Seller
and its subsidiaries, taken as a whole. All Taxes shown on such Tax Returns
as due and payable by Seller have been paid and, to Seller's knowledge,
Seller will not be liable for any additional Taxes for any taxable period
ending on or before the Effective Time in excess of the amounts set up as
reserves for taxes on the Seller Balance Sheet. Seller has made available
to Buyer correct and complete copies of all federal income Tax Returns
filed with respect to Seller for taxable periods ended on or after December
31, 1990, and all examination reports, and statements of deficiencies
assessed against or agreed to by Seller with respect to such taxable
periods;
(b) Seller has neither requested nor been granted an extension of the
time for filing any Tax Return to a date later than the Effective Time;
(c) With respect to each taxable period of Seller through September
30, 1992, either such taxable period has been audited by the relevant
taxing authority or the time for assessing or collecting income Tax with
respect to each such taxable period has closed and such taxable period is
not subject to review by any relevant taxing authority or the statute of
limitations for assessing or collecting income Tax with respect to each
such taxable period has not yet expired;
(d) Seller has not consented to extend the time in which any Tax may
be assessed or collected by any tax authority;
(e) No deficiency or proposed adjustment which has not been settled or
otherwise resolved for any amount of Tax has been asserted or assessed by
any taxing authority against Seller, other than such additional Taxes as
are being contested in good faith and which if determined adversely to
Seller would not have a Material Adverse Effect on Seller, and Seller has
not executed or entered into a closing agreement pursuant to Code Section
7121 or any predecessor provision thereof or any similar provision of
state, local or foreign law;
(f) There is no action, suit, taxing authority proceeding or audit now
in progress, pending or, to the knowledge of Seller, threatened against or
with respect to Seller with respect to any Tax;
(g) To the best of Seller's knowledge, no claim has ever been made by
a taxing authority in a jurisdiction where Seller does not pay Tax or file
Tax Returns that Seller is or may be subject to Taxes assessed by that
jurisdiction;
(h) To the best of Seller's knowledge, there are no liens for Taxes
(other than current Taxes not yet due and payable) on the assets of Seller;
(i) Seller has not filed or been included in a combined, consolidated
or unitary income Tax Return (other than consolidated Tax Returns in which
it is the parent corporation);
(j) Seller has neither made nor is affected by any elections under
Code Sections 108(b)(5), 338(g), or 565, or Treasury Regulation Section
1.1502-20(g);
(k) Seller is not a party to or bound by any Tax allocation or Tax
sharing agreement nor does Seller have any current or potential contractual
obligation to indemnify any other person or entity with respect to Taxes
(other than the tax sharing agreement among Seller and its subsidiaries, a
copy of which has been made available to Buyer);
(l) Seller has 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;
(m) Seller has no permanent establishment in any foreign country, as
defined in the relevant tax treaty between the United States of America and
such foreign country, nor otherwise operates or conducts business through
any branch in any foreign country;
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(n) Seller will not be required, as a result of a change in method of
accounting for any period before and immediately prior to 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;
(o) None of the assets of Seller directly or indirectly secures any
indebtedness the interest on which is tax-exempt under Section 103(a) of
the Code, and Seller is not directly or indirectly an obligor or a
guarantor with respect to any such indebtedness;
(p) Seller has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations;
(q) Seller has not made any payments, nor is obligated to make any
payments, nor is it a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G;
(r) Seller and each of its subsidiaries is not currently, has not been
within the last five years and does not anticipate becoming a "United
States real property holding corporation" within the meaning of Code
Section 897(c).
(s) The liabilities of the Bank will not, as of the Effective Time,
exceed the tax basis of its assets;
(t) 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. Except as set forth in Section 4.11 of the Seller
Disclosure Schedule:
(a) Neither the Seller, any of its subsidiaries, nor any ERISA
Affiliate of the Seller or any of its subsidiaries maintains or contributes
to any "employee pension benefit plan" (the "Seller Pension Plans"), as
such term is defined in Section 3(2) of ERISA, "employee welfare benefit
plan" (the "Seller Benefit Plans"), as such term is defined in Section 3(1)
of ERISA, for the employees of Seller, any of its subsidiaries, or any
ERISA Affiliate of Seller or any of its subsidiaries, and neither Seller
nor any of its subsidiaries maintains or contributes to any stock option
plan, stock purchase plan, deferred compensation plan, other employee
benefit plan for employees of the Seller or any subsidiary thereof, or any
other plan, program or arrangement of the same or similar nature that
provides benefits to non-employee directors of the Seller or any subsidiary
thereof (collectively, the "Seller Other Plans").
(b) The Seller shall have delivered or made available to the Buyer
prior to, or contemporaneously 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 (including all amendments, if any);
(ii) trust agreement or insurance contract, if any; (iii) most recent IRS
determination letter, if any; (iv) most recent financial statements and
actuarial report, if any;(v) most recent annual report on Form 5500
(including all schedules thereto), if any; and (vi) summary plan
description currently in effect and all material modifications thereto, if
any, and any written communications to employees to the extent the
substance of the plan described therein differs materially from the other
documentation relating to such plan furnished by Seller to Buyer hereunder.
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(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) Neither Seller, any of its subsidiaries, any of their ERISA
Affiliates, nor any plan administrator of a Seller Pension Plan subject to
Title IV of ERISA has given notice of intent to terminate such plan, nor,
to the knowledge of Seller or any of its subsidiaries, has the PBGC
instituted proceedings to terminate any such plan.
(e) Neither Seller, any of its subsidiaries, nor any of their ERISA
Affiliates has incurred any liability to the PBGC (other than for premium
payments that are not yet due), to any Seller Pension Plan subject to Title
IV of ERISA, or to any trustee under Section 4042 of ERISA, on account of
the termination of or withdrawal as a contributing employer from, any
Seller Pension Plan, which liability has not been satisfied in full as of
the date of this representation.
(f) 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.
(g) There has been no reportable event within the meaning of Section
4043(c) of ERISA (except for any such event, notice of which has been
waived by PBGC regulation) or any waived funding deficiency within the
meaning of Section 412(d)(3) (or any predecessor section) of the Code with
respect to any Seller Pension Plan.
(h) There is no "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA and Section 412 of the Code), whether or not
waived, with respect to any Seller Pension Plan. The Seller, its
subsidiaries, and their ERISA Affiliates have made all contributions to the
Seller Pension Plans and Seller Benefit Plans required thereunder as of the
date of this representation, and have established adequate reserves on
their books for all contributions to Seller Pension Plans and Seller
Benefit Plans required thereunder for the period prior to the date of this
representation, to the extent such contributions are not required to have
been made, and have not been made, prior to the date of this
representation.
(i) Neither the Seller, any of its subsidiaries, nor any of their
ERISA Affiliates has, since September 2, 1974, contributed to any
"Multiemployer Plan," as such term is defined in Section 3(37) of ERISA.
(j) 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 Seller is not aware of any fact or circumstance which would
adversely affect the qualified status of any such plan.
(k) Neither the Seller nor any of its subsidiaries has engaged in a
prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) which could have a Material Adverse Effect on
Seller or its subsidiaries.
(l) There are no material pending or, to the knowledge of the Seller,
threatened or anticipated claims by or on behalf of any of the Seller
Pension Plans, Seller Benefit Plans, or Seller Other Plans, by any employee
or beneficiary covered under any such plan, or otherwise involving such
plan, other than routine claims for benefits or actions seeking qualified
domestic relations orders.
(m) Neither Seller, any of its subsidiaries, nor any of their ERISA
Affiliates 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 benefits other than health
benefit continuation rights under federal or state law, 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.
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4.12 Agreements with Banking Authorities. Except as disclosed in Section
4.12 of the Seller Disclosure Schedule, neither the Seller nor any of its
subsidiaries is a party to any commitment letter, written agreement, memorandum
of understanding or order to cease and desist with, or has adopted any
resolutions at the request of, any federal or state governmental entity charged
with the supervision or regulation of savings associations, savings and loan
holding companies, banks or bank holding companies or engaged in the insurance
of savings association or 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.
4.13 Material Agreements. Except as set forth in the index of exhibits in
Seller's Annual Report on Form 10-K for the year ended September 30, 1995 or in
Seller's Quarterly Reports for the fiscal quarters ended December 31, 1995,
March 31, 1996 and June 30, 1996 or as otherwise disclosed in Section 4.13 of
the Seller Disclosure Schedule, and except for this Agreement and the agreements
specifically referred to herein, neither the Seller nor any of its subsidiaries
is a party to or is bound by (a) any agreement, arrangement, or commitment
(other than contracts entered into in the ordinary course of the Bank's banking
business that are consistent with past practice and have terms of not more than
one year and require payments by the Seller or any subsidiary of not more than
$100,000 annually); (b) any written or oral agreement, arrangement, or
commitment relating to the employment (including severance) of any person; (c)
any contract, agreement, or understanding with any labor union; or (d) any other
contract or agreement or amendment thereto that would be required to be filed as
an exhibit to a Form 10-K filed by the Seller as of the date hereof or is
otherwise material to the business, operations, results of operations or
condition of the Seller on a consolidated basis.
4.14 Ownership of Property. Except as disclosed in Section 4.14 of the
Seller Disclosure Schedule, the Seller and its subsidiaries have good and, as to
real property, marketable title to all assets and properties, whether real or
personal, tangible or intangible (including, without limitation, the capital
stock of its subsidiaries and all other assets and properties), reflected on the
Seller Balance Sheet, 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 the Seller Balance Sheet or the notes
thereto or incurred in the ordinary course of business after the date of such
balance sheet, (b) statutory liens for amounts not yet delinquent or which are
being contested in good faith, (c) those items that secure public or statutory
obligations or any discount with, borrowing from, or other obligations to any
Federal Reserve Bank, Federal Home Loan Bank, inter-bank credit facilities, or
any transaction by the Seller or any subsidiary acting in a fiduciary capacity,
and (d) such encumbrances, liens, mortgages, security interests, and pledges
that are not in the aggregate material to the Seller on a consolidated basis.
The Seller and its subsidiaries as lessees have the right under valid and
existing leases to use, possess and control all of the personal property and
real estate leased by Seller and its subsidiaries as presently used, possessed
and controlled by the Seller and its subsidiaries.
4.15 Reports. Except as disclosed in Section 4.15 of the Seller
Disclosure Schedule, since January 1, 1993, the Seller and its subsidiaries have
timely filed, and subsequent to the date hereof will timely 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, (b) the OTS, (c) the FDIC, and (d) any applicable state securities
or banking authorities (except, in the case of state securities authorities, no
such representation is made as to filings which are not material) (and all such
reports, registrations and statements have been made available by Seller to
Buyer and 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. As of their
respective dates, the Seller Reports 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. Except as disclosed in Section 4.16
of the Seller Disclosure Schedule, Seller and its subsidiaries hold all material
licenses, franchises, permits and authorizations
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necessary for the lawful conduct of Seller's consolidated business, and each of
the Seller, its subsidiaries and each "institution-affiliated party" of Seller
or the Bank, as such term is defined in Section 3(u) of the FDIA, 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 its business on
a consolidated basis or any such institution-affiliated party, other than where
such default or noncompliance does not have and could not reasonably be expected
to have a Material Adverse Effect on Seller or otherwise materially adversely
affect Seller's or the Bank's ability to perform its obligations under this
Agreement or otherwise result in the imposition of CMPs on the Seller, the Bank
or any such institution-affiliated party, and neither the Seller nor the Bank
has received notice of any violation of, or commencement of any proceeding in
connection with any violation (including without limitation any hearing or
investigation relating to the imposition or contemplated imposition of CMPs) of
any such law, statute, order, rule, regulation, policy or agreement, which could
have any such result.
4.17 Environmental Matters. Except as disclosed in Section 4.17 of the
Seller Disclosure Schedule, Seller and its subsidiaries are in compliance and
have always been in compliance with all environmental laws, rules, regulations
and standards promulgated, adopted or enforced by the EPA and of similar
agencies in states in which they conduct their respective business, except for
any noncompliance that singly or in the aggregate would not have a Material
Adverse Effect on Seller. 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
Seller, threatened by any person, as to which there is a reasonable probability
of an adverse determination and which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect on Seller (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 Seller or any subsidiary of Seller or in which Seller or any Seller
subsidiary has a lien or other security interest.
4.18 Antitakeover Statutes Not Applicable. Assuming the accuracy of
Buyer's representation in Section 3.14 above, no "fair price," "moratorium,"
"control share acquisition" or other form of antitakeover statute or regulation
is applicable to the transactions contemplated by this Agreement.
4.19 Ownership of Buyer Common Stock. 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 or DPC Shares).
4.20 Insurance. Except as disclosed in Section 4.20 of the Seller
Disclosure Schedule, the Seller and each of its subsidiaries is presently
insured, and since January 1, 1993 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.
4.21 Labor. No work stoppage involving the Seller or any of its
subsidiaries is pending or, to the best knowledge of the Seller, threatened.
Except as disclosed in Section 4.21 of the Seller Disclosure Schedule, neither
the Seller nor any of its subsidiaries is involved in, or, to the best knowledge
of the Seller, threatened with or affected by, any dispute, arbitration, lawsuit
or administrative proceeding relating to labor or employment matters which might
reasonably be expected to result in a Material Adverse Effect with respect to
the Seller. No employees of the Seller or any of its subsidiaries are
represented by any labor union, and, to the best knowledge of the Seller, no
labor union is attempting to organize employees of the Seller or any of its
subsidiaries.
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 any of its subsidiaries.
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4.23 Absence of Registration Obligations. Neither the Seller nor any of
its subsidiaries is under any obligation, contingent or otherwise, by reason of
any agreement to register or otherwise issue any of its securities which will
continue after the Effective Time.
4.24 Loans. All currently outstanding loans of, or current extensions of
credit by, Seller or the Bank (individually, a "Loan," and collectively, the
"Loans") were solicited, originated and currently exist in compliance with all
applicable requirements of federal and state statutory and common law and
regulations and regulatory policies promulgated thereunder, except to the extent
that any such non-compliance, individually or in the aggregate, would not have a
Material Adverse Effect with respect to Seller. Except as disclosed in Section
4.24 of the Seller Disclosure Schedule, 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 where the failure thereof,
individually or in the aggregate, would not have a Material Adverse Effect with
respect to Seller. There are no oral modifications or amendments or additional
agreements related to the Loans that are not reflected in Seller's records, no
claims of defense as to the enforcement of any Loan has been asserted and Seller
has committed no acts or omissions which would give rise to any claim or right
of rescission, set-off, counterclaim or defense, except where any of the
foregoing would not have, either individually or in the aggregate, a Material
Adverse Effect with respect to Seller. Seller currently maintains, and shall
continue to maintain, an allowance for loan losses allocable to the Loans which
is adequate to provide for all known and estimable losses, net of any recoveries
relating to such extensions of credit previously charged off, on the Loans, such
allowance for loan losses complying in all material respects with all applicable
loan loss reserve requirements established in accordance with GAAP and by any
governmental authorities having jurisdiction with respect to Seller or any of
its subsidiaries, except to the extent that any such inadequacy or
non-compliance would not have, either individually or in the aggregate, a
Material Adverse Effect with respect to Seller. Except as disclosed in Section
4.24 of the Seller Disclosure Schedule, (i) 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 and (ii) no Loan has been
sold with continuing recourse liability on the part of Seller or any of its
subsidiaries.
4.25 Investment Securities. Except as disclosed in Section 4.25 of the
Seller Disclosure Schedule, none of the investments reflected in the
consolidated balance sheet contained in Seller's Quarterly Report on Form 10-Q
filed with the SEC for the quarter ended June 30, 1996, and none of the
investments made by the Seller or the Bank since June 30, 1996, is subject to
any restriction (contractual, statutory or otherwise) that would materially
impair the ability of the entity holding such investment freely to dispose of
such investment at any time, except to the extent that any such restriction
would not have, either individually or in the aggregate, a Material Adverse
Effect with respect to Seller. Seller and the Bank have (a) properly reported as
such any investment securities which are required under GAAP to be classified as
"available for sale" at fair value, and (b) accounted for any decline in the
market value of its securities portfolio in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 115, including
without limitation the recognition through the Seller's consolidated statement
of income of any unrealized loss with respect to any individual security as a
realized loss in the accounting period in which a decline in the market value of
such security is determined to be "other than temporary", except to the extent
that any such failure to so properly report or to so properly account would not
have, either individually or in the aggregate, a Material Adverse Effect with
respect to Seller.
4.26 Derivative Transactions. Except as disclosed in Section 4.26 of the
Seller Disclosure Schedule, neither Seller nor the Bank has engaged in
transactions in or involving forwards, futures, options on futures, swaps or
other derivative instruments.
4.27 Intellectual Property. Seller and the Bank each owns or, to Seller's
knowledge, possesses valid and binding licenses and other rights to use all
material patents, copyrights, trade secrets, trade names, servicemarks and
trademarks used in its businesses, each without payment, and neither Seller nor
the Bank has received any notice of conflict with respect thereto that asserts
the rights of others. Seller and the Bank have performed in all material
respects all the obligations required to be performed by them and are not in
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default in any material respect under any contract, agreement, arrangement or
commitment relating to any of the foregoing.
4.28 Seller Information. The information relating to the Seller and its
subsidiaries to be contained or incorporated by reference in the Buyer
Registration Statement and the 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.
4.29 Disclosure. To the best of Seller's knowledge, 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 Schedules, furnished to the Buyer pursuant to the provisions
hereof, 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. No information believed by Seller to be material to Buyer's
interests in the transactions contemplated by this Agreement, which has not
otherwise been disclosed to Buyer in connection with this Agreement, has been
intentionally withheld from Buyer.
ARTICLE
COVENANTS OF THE PARTIES
5.01 Conduct of Business. During the period from the date of this
Agreement to the Effective Time or for such other period as may otherwise be
expressly provided for below, and except as may be specifically required or
permitted pursuant to this Agreement or as specifically described in Section
5.01 of the Seller Disclosure Schedule, the parties shall comply with the
following applicable requirements:
(a) Seller and the Bank shall, and shall cause each of its
subsidiaries 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, trust and other businesses in
the ordinary and usual course, (ii) refraining from any of the activities
described in Section 5.01(b) below and (iii) not entering into any material
transactions except in the ordinary and usual course of business consistent
with past practices;
(b) Seller and the Bank 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, including without limitation entering into any settlement
agreement or understanding with respect to any material litigation
matters;
(ii) accept, renew or roll over any "brokered deposit" as defined
under 12 C.F.R. 337.6(a)(3) or offer an interest rate with respect to
any deposit that would either constitute an impermissible interest rate
with respect to deposits of an undercapitalized insured depository
institution pursuant to the limitations contained under 12 C.F.R.
337.6(b)(3)(ii) or otherwise set interest rates on deposits that depart
from past practices of the Bank with respect to the setting of interest
rates on deposits;
(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) relocate, or file any application to relocate, any branch
office;
(v) terminate, or give any notice (written or verbal) to customers
or governmental authorities or agencies to terminate the operations of
any branch office; or
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(vi) waive any material right, whether in equity or at law, that it
has with respect to any asset except in the ordinary, regular and usual
course of business consistent with past practice;
(c) each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall use all reasonable efforts, and cause each of its
subsidiaries to use all reasonable efforts, to preserve intact its
respective business organization and goodwill in all material respects,
keep available the services of its respective officers and employees as a
group and maintain satisfactory relationships with its respective
borrowers, depositors, other customers and others having business
relationships with it;
(d) each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall use all reasonable efforts to cooperate with the other
with respect to preparation for the combination and integration of the
businesses, systems and operations of Buyer and Seller, including without
limitation their respective banking subsidiaries, and shall confer on a
regular and frequent basis with one or more representatives of the other to
report on operational and related matters;
(e) each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall, subject to any restrictions under applicable law or
regulation, promptly notify the other of any emergency or other change in
the normal course of its or its subsidiaries' businesses or in the
operation of its or its subsidiaries' 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 assets, properties,
liabilities, business, operations, results of operations or condition
(financial or regulatory) of Buyer or Seller, as the case may be, or any of
its respective subsidiaries;
(f) Seller shall not declare or pay any dividends on or make any other
distributions in respect of the Seller Common Stock, except that Seller
shall be permitted to declare and pay regular quarterly cash dividends to
its stockholders of $0.14 per share for the quarter ending September 30,
1996, $0.16 per share for the quarters ending December 31 and March 31,
1997 and $0.18 per share for the quarter ending June 30, 1997; provided,
however, that in no event shall Seller be permitted to declare or pay any
such regular quarterly cash dividend hereunder greater than $0.14 per share
if the aggregate amount of such dividend would exceed forty percent (40%)
of Seller's net income for the fiscal quarter for which the dividend would
be declared or paid, as such net income is calculated in accordance with
GAAP and then adjusted to include the amount of all non-recurring expenses
incurred by Seller in such fiscal quarter that result from actions taken by
Seller to prepare for or otherwise complete the consummation of the
Acquisition Merger; and provided further, however, that the parties agree
to consult with respect to the amount of the last Seller quarterly cash
dividend payable prior to the Effective Time with the objective of ensuring
that the stockholders of Seller do not receive a shortfall or a premium
based on the record and payment dates of their last dividend prior to the
Effective Time and the record and payment dates of the first dividend of
Buyer following the Effective Time, and that Seller may pay a special
dividend to holders of record of Seller Common Stock immediately prior to
the Effective Time consistent with the objective described herein;
(g) Buyer shall not declare or pay any dividend on or make any other
distribution in respect of the Buyer Common Stock during the Valuation
Period, except that Buyer shall be permitted to declare and pay a cash
dividend to its stockholders for the quarter in which the Valuation Period
occurs or the quarter immediately following thereafter if such dividend
does not exceed, on a per share basis, the dividend paid by Buyer to
stockholders for the immediately preceding quarter or if it does so exceed
such prior dividend then the aggregate amount of such dividend shall not
exceed forty percent (40%) of Buyer's net income for such quarter, as such
net income is calculated in accordance with GAAP and then adjusted to
include the amount of all nonrecurring expenses incurred by Buyer in such
quarter that result from actions taken by Buyer to prepare for or otherwise
complete the consummation of the Acquisition Merger;
(h) neither Seller nor the Bank shall adopt or amend (other than
amendments required by applicable law or amendments that reduce amounts
payable by it or its subsidiaries) 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
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(including, without limitation, contracts with management which might
require that payments be made upon the consummation of the transactions
contemplated hereby, including without limitation the consummation of the
Acquisition Merger) 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 its
subsidiaries' employees as a class, except in the ordinary course of
business consistent with past practices, or pay any bonus except as agreed
to by the parties and disclosed in Section 5.12 of the Seller Disclosure
Schedule;
(i) Seller, subject to its directors' fiduciary duties and obligations
referred to in Section 5.03 below, 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 Acquisition 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;
(j) neither Seller nor the Bank shall propose or adopt any amendments
to its certificate of incorporation or other charter documents or by-laws;
(k) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
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, in the case of Buyer, upon
exercise or fulfillment of options issued or existing immediately prior to
the Valuation Period pursuant to stock option or other plans of Buyer, and,
in the case of Seller, upon exercise or fulfillment of options issued or
existing on the date hereof pursuant to the Seller Stock Option Plans or as
required under the terms of any other Seller Benefit Plans in effect as of
the date hereof and in all such cases listed in Section 4.02(a) of the
Seller Disclosure Schedule, or effect any stock split, reverse stock split,
recapitalization, reclassification or similar transaction or otherwise
change its equity capitalization as it exists, in the case of Buyer, on the
date immediately prior to the commencement of the Valuation Period, and, in
the case of Seller and the Bank, on the date hereof;
(l) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
shall not grant, confer or award any options, warrants, conversion rights
or other rights, not existing, in the case of Buyer, on the date
immediately prior to the commencement of the Valuation Period, and, in the
case of Seller and the Bank, on the date hereof, to acquire any shares of
its capital stock;
(m) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
shall not purchase, redeem or otherwise acquire, or permit any of its
subsidiaries 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;
(n) neither Seller nor the Bank shall impose, or suffer the
imposition, on any share of capital stock held by it or by any of its
subsidiaries of any material lien, charge, or encumbrance, or permit any
such lien, charge, or encumbrance to exist;
(o) neither Seller nor the Bank shall 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, borrowings from the Federal Home Loan
Bank of Boston and entry into repurchase agreements or other similar
arrangements commonly employed by banks;
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(p) neither Seller nor the Bank shall 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, which do not individually exceed $50,000 or
cumulatively exceed $150,000;
(q) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
shall not change its methods of accounting in effect, in the case of Buyer,
at December 31, 1995, and, in the case of Seller and the Bank, at September
30, 1995, except as may be required by changes in GAAP as concurred in by
the Seller's and the Buyer's respective independent auditors, and Buyer,
during the Valuation Period, and Seller, at all time during the term of
this Agreement, shall not change its fiscal year;
(r) Each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall file all reports, applications and other documents
required to be filed by it with the OTS, FDIC, Federal Reserve Board and
any other federal or state banking or other governmental agency or
authority between the date of this Agreement and the Effective Time and
shall furnish to the other copies of all such reports promptly after the
same are filed;
(s) neither Seller nor the Bank shall make any loan or extension of
credit or enter into any commitment therefor on other than the Bank's
customary terms, conditions and standards and in accordance with applicable
law and regulation and consistent with prudent banking practices, and in
any event shall provide Buyer with monthly reports of all loans, extensions
of credit and commitments therefor equal to or greater than $500,000,
individually, and shall consult with Buyer prior to making or entering into
any new loan, extension of credit or commitment therefor equal to or
greater than $750,000 individually, or which, when aggregated with all
other loans, extensions of credit and commitments therefor to a single
borrower or affiliated group of borrowers equals at least $1,500,000; and
(t) neither Seller nor the Bank nor Buyer shall agree, in writing or
otherwise, to take any of the actions applicable to it prohibited under
this Section 5.01 or any action which would make any of its representations
or warranties contained in this Agreement untrue or incorrect or would
otherwise violate any of its other agreements or commitments contained in
this Agreement in any material respect.
5.02 Access to Properties and Records; Confidentiality.
(a) The Seller shall permit the Buyer reasonable access, upon
reasonable advance notice, to its properties and those of its subsidiaries,
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 its
subsidiaries, 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 use all reasonable efforts to make arrangements
with each third party provider of services to the Seller to permit the
Buyer reasonable access to all of the Seller's Records held by each such
third party. The Buyer shall permit the Seller reasonable access to such
properties and records of the Buyer and/or its subsidiaries in which the
Seller may reasonably have an interest in light of the transactions
contemplated hereby. Neither the Buyer nor the Seller nor any of their
respective subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would violate or
prejudice the rights of any customer, would jeopardize the attorney-client
privilege of the institution in possession or control of such information,
or would contravene any law, rule, regulation, order, judgment, decree or
binding agreement. The parties will use all reasonable efforts to make
appropriate substitute disclosure arrangements under circumstances in which
the restrictions of the preceding sentence apply.
(b) All Confidential Information, as such term is defined below,
furnished by each party hereto to the other, or to any of its affiliates or
to any of its affiliates' directors, officers, employees, or
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representatives or agents (such persons being referred to collectively
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, upon request, 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), and with no other persons, such materials, files and
information relating to or constituting the Buyer's or any of its
affiliates' or Representatives' work product, presentations or evaluation
materials as the Buyer deems reasonably necessary or advisable in
connection with auditing or examination purposes, and Buyer shall not make
use of any such materials, files or information for any other purpose. The
obligation to keep such information confidential shall continue for two
years from the date this Agreement is terminated or as long as may be
required by law. 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
or 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, at the expense of the party who disclosed Confidential Information
to the other party, 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 without the consent of the party providing such
information (including without limitation all information of Seller disclosed or
otherwise utilized by Buyer, with the knowledge of Seller, in connection with
presentations to securities analysts or other investor relations-related
activities), (ii) information that was previously known to the receiving party
or its affiliates or Representatives on a nonconfidential basis prior to its
disclosure by the disclosing party, its affiliates or Representatives, (iii)
information that became or becomes available to the receiving party or any
affiliate or Representative thereof on a nonconfidential basis from a source
other than the disclosing party or any affiliate or Representatives of the
disclosing party, provided that such source is not known by the disclosing party
or its
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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. Neither the Seller nor any of its subsidiaries shall
(and the Seller and each of its subsidiaries shall use all reasonable efforts to
cause its officers, directors, employees, representatives and agents, including,
but not limited to, investment bankers, attorneys and accountants, not to),
directly or indirectly, encourage, solicit, initiate or, subject to the
fiduciary obligations of the Seller's Board of Directors (as advised by outside
counsel), participate in any discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than the Buyer and its affiliates or representatives) concerning any
merger, tender offer, sale of substantial assets, sale of shares of capital
stock or debt securities or similar transaction involving the Seller or any of
its subsidiaries (any of the foregoing being referred to herein as an
"Acquisition Transaction"). Notwithstanding the foregoing, nothing contained in
this Section 5.03 shall prohibit the Seller or its Board of Directors from
taking and disclosing to the Seller's stockholders a position with respect to a
tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act or from making such disclosure to the Seller's
stockholders which, in the judgment of the Board of Directors, with the advice
of outside counsel, may be required under applicable law. 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 twenty-four (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, OTS, DOJ or any other
governmental agency or authority with respect to a proposed Acquisition
Transaction.
5.04 Regulatory Matters; Consents.
(a) The parties will cooperate in connection with (i) the preparation
and filing by the Buyer with the SEC under the Securities Act of a
registration statement on Form S-4 and/or such other form as may be
necessary or appropriate relating to the shares of the Buyer Common Stock
to be issued in connection with the Acquisition Merger (the "Buyer
Registration Statement"), and (ii) the preparation and filing by the Buyer
and the Seller of a joint proxy statement (the "Proxy Statement") as shall
be necessary or desirable in order to consummate the transactions
contemplated by this Agreement, each to be undertaken as promptly as
practicable, and the Buyer and the Seller will use their respective best
efforts to have the Buyer Registration Statement declared effective by the
SEC and to mail the Proxy Statement to the Buyer's and the Seller's
stockholders as promptly as practicable. The parties shall also take any
reasonable action required to be taken under any state "Blue Sky" laws in
connection with the consummation of the transactions contemplated by this
Agreement. In addition to the foregoing, neither party shall take or permit
any of its subsidiaries to take any action that materially adversely
affects its ability to consummate the transactions contemplated under this
Agreement in a timely manner.
(b) Each of the Seller and the Buyer will cooperate with the other and
use its best efforts to prepare all documentation, to effect all filings
and to obtain all permits, consents, approvals and authorizations of all
third parties and governmental bodies necessary or appropriate to
consummate the transactions contemplated by this Agreement as promptly as
practicable, including without limitation that Seller shall use its best
efforts to obtain all of the non-governmental third-party permits,
consents, approvals and authorizations disclosed in Sections 4.03(c) and
4.04 of the Seller Disclosure Schedule. Each party hereto shall have the
right to review and approve in advance all descriptions of it and its
subsidiaries which appear in any filing made in connection with the
transactions contemplated by this Agreement, including without limitation
all filings contemplated by Section 5.04(a) above, with any governmental
body. In exercising the foregoing right, the parties hereto shall act
reasonably and as promptly as practicable.
(c) The Buyer shall take all actions necessary or appropriate to
ensure that all shares of Buyer Common Stock received in the Acquisition
Merger are fully registered on the appropriate form to facilitate sale of
such shares by the holders in accordance with the Securities Act (including
in
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accordance with any applicable exemption from registration requirements) to
the extent customary in transactions of this nature.
5.05 Approval of Stockholders. Each of the Buyer and 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 transactions contemplated hereby, including without limitation
the Acquisition Merger, and, in each case, for such other purposes as may be
necessary or desirable, (b) subject to the fiduciary duties of its Board of
Directors as advised by outside counsel, recommend to its stockholders the
approval of such foregoing matters to be submitted by it to its stockholders,
and (c) cooperate and consult with each other with respect to each of the
foregoing matters. Subject to the fiduciary duties of its Board of Directors as
advised in writing by outside counsel, each of the Buyer and the Seller will use
all reasonable efforts to obtain the necessary approvals of its stockholders of
the proposals described above to be submitted by it in connection with this
Agreement. If the Board of Directors of either party is required by applicable
law to review or restate the recommendation to its stockholders contemplated in
clause (b) of the preceding sentence, this Section 5.05 shall not prohibit
accurate disclosure by a party that is required in any release or regulatory
filing (including the Proxy Statement and the Buyer Registration Statement) or
otherwise under applicable law in the opinion of such party's Board of
Directors, upon the written advice of outside counsel, as of the date of such
release or regulatory filing or such other required disclosure as to the
transactions contemplated hereby or, in the case of the Seller, as to any
Acquisition Transaction.
5.06 Agreements of Seller's Affiliates. The Seller shall identify in a
letter to the Buyer, after consultation with counsel, all persons who, at the
time of the meeting of its stockholders referred to in Section 5.05 hereof, it
believes may be deemed to be "affiliates" of the Seller, as that term is defined
for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Seller Affiliates"). The Seller shall use all reasonable efforts to cause each
person who is identified as a Seller Affiliate in the letter referred to above
to deliver to the Buyer at least forty (40) days prior to the Closing Date an
executed copy of the Seller Affiliates Agreement. Prior to the Closing Date, the
Seller shall amend and supplement such letter and use all reasonable efforts to
cause each additional person who is identified as a Seller Affiliate as of the
Closing Date 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. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
5.08 Disclosure Supplements. On the Closing Date, Seller will supplement
or amend the Seller Disclosure Schedule with respect to any matter hereafter
arising which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in the Seller Disclosure
Schedule or which is necessary to correct any information in the Seller
Disclosure Schedule which has become inaccurate. To the extent that any such
supplement or amendment to the Seller Disclosure Schedules pursuant to this
Section 5.08 discloses the existence of any material misstatement of fact or
other material misrepresentation contained in any of Seller's representations or
warranties as made as of the date of this Agreement or otherwise discloses facts
or circumstances which constitute or have resulted in the occurrence of a
Material Adverse Effect on Seller, Seller's delivery of such supplement or
amendment to Buyer shall have no effect for the purpose of determining Seller's
satisfaction of any of the conditions set forth in Article VI hereof.
5.09 Public Announcements. Except as otherwise required by law or the
rules of the Nasdaq-NM, the Seller and the Buyer will cooperate with each other
in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby.
5.10 Tax-Free Reorganization Treatment. None of the parties hereto or any
of their respective subsidiaries or affiliates has taken, shall take or cause to
be taken any action, whether before or after the
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Effective Time, which would disqualify the Acquisition Merger as a
reorganization within the meaning of Section 368(a) of the Code. Each of the
parties hereto shall use all reasonable efforts to cause the Acquisition Merger
to qualify as a tax-free reorganization under Section 368(a) of the Code and to
obtain the opinions of counsel referred to in Sections 6.02(d) and 6.03(d)
hereof.
5.11 Stock Exchange Listing. The Buyer shall cause the shares of the
Buyer Common Stock to be issued in connection with the Acquisition Merger to be
approved for listing on the Nasdaq-NM, subject to official notice of issuance,
as of or prior to the Effective Time.
5.12 Employment and Benefit Matters.
(a) Termination of Existing Seller Plans; Benefits Service
Credit. Except as otherwise provided herein, Buyer agrees to provide to
those persons who are employees of Seller or any subsidiary of Seller at
the Effective Time and who are employed by Buyer or a subsidiary of Buyer
thereafter with the benefits maintained by Buyer and its affiliates from
time to time for the benefit of their employees similarly situated. Buyer
shall not be required to provide any benefits with respect to persons who
at the Effective Time are former employees or beneficiaries of former
employees of Seller, except as provided under the terms of the governing
documents of the Buyer Pension Plans and Buyer Benefit Plans or as may be
otherwise required under any health benefit continuation rights provisions
of federal or state law. Buyer shall provide all such Buyer benefits as
soon as practicable following the Effective Time. Until such time as Buyer
is able to provide such benefits to such persons (such time being referred
to as the "Transition Date"), Buyer agrees to provide such persons with the
employee benefits set forth in Section 4.11 of the Seller Disclosure
Schedule as maintained for their benefit immediately prior to the Effective
Time. Buyer shall cause each plan, program or arrangement included among
the benefits of Buyer to be provided after the Effective Time, except for
the Buyer's defined benefit pension plan, to treat the prior service of
each such employee with the Seller or its affiliates, to the extent such
prior service is recognized under the comparable plan, program or
arrangement of the Seller, as service rendered to Buyer or its affiliate,
as the case may be, for purposes of eligibility to participate, vesting,
and eligibility for special benefits under each such plan, program or
arrangement of Buyer, but not in any case for benefit accrual attributable
to any period before the Effective Time. Without limiting the foregoing,
Buyer and its affiliates shall not treat any employee of Seller or any of
its affiliates as a "new" employee for purposes of any exclusion under any
health or similar plan of Buyer or any of its affiliates for a preexisting
medical condition. Nothing herein shall impose any obligation upon Buyer
and its subsidiaries to maintain, continue or adopt any employee pension
plans, employee benefit plans, or other benefit arrangements after the
Transition Date, nor prohibit the Buyer or its subsidiaries from amending
any such plan or plans after the Transition Date, to the extent permitted
by the terms of such plans and applicable law.
(b) Additional Benefits Matters. Following the Effective Time, Buyer
shall, or shall cause its subsidiaries to, honor in accordance with their
terms all employment, severance and other compensation contracts between
Seller or any subsidiary thereof and any director, officer or employee
thereof, and all provisions for benefits or other amounts earned or accrued
through the Effective Time under the Seller Pension Plans or the Seller
Benefit Plans. Any employee of Seller or any subsidiary of Seller who
becomes an employee of Buyer or any subsidiary of Buyer immediately
following the Effective Time who is not otherwise covered by an employment,
severance or other compensation agreement and who has been identified by
Buyer within the first six months from and after the Closing Date as an
employee whose employment shall be terminated as a result of Buyer's
consolidation and/or cost-saving efforts in respect of the Acquisition
Merger following the Effective Time, shall be entitled to receive from and
after the date of such employee's termination of employment two weeks of
salary continuation for each full year of prior service with Seller prior
to the Effective Time, such salary continuation to continue for a maximum
period, regardless of such employee's length of such prior service, of
twenty-six weeks. Buyer shall not be obligated under any circumstances to
employ any person who is employed by Seller immediately prior to the
Effective Time. In addition to the foregoing, (i) Buyer has agreed to
provide the employee benefits set forth in Section 5.12 of the Seller
Disclosure Schedule and (ii) those persons who are identified in Section
5.12 of the Seller Disclosure Schedule shall continue to receive, following
any termination of their employment with Buyer or any Buyer subsidiary
following the Effective Time, health
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care continuation coverage under Buyer's appropriate group health plan
until such persons reach the age at which they become eligible to receive
Medicare health coverage; provided, however, that such persons must pay to
Buyer at all times during which they receive such continuing coverage the
same premium amounts as would be required of persons receiving such health
care continuation coverage pursuant to the requirements of COBRA and such
health care continuation coverage shall terminate for any such person at
such time as he becomes eligible to receive substantially equivalent health
care coverage from any other employer after the Effective Time.
5.13 Directors' and Officers' Indemnification and Insurance.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior
to the date of this Agreement, or who becomes prior to the Effective Time,
a director or officer or employee of the Seller or any of Seller's
subsidiaries or a trustee of any Seller Benefit Plans, Seller Pension Plans
or Seller Other Plans (the "Indemnified Parties") is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in
part out of, or pertaining to (i) the fact that he or she is or was a
director, officer or employee of the Seller or any of Seller's subsidiaries
or (ii) this Agreement or any of the transactions contemplated hereby,
whether in any case asserted or arising before or after the Effective Time,
the parties hereto agree to cooperate and use all reasonable efforts to
defend against and respond thereto. It is understood and agreed that prior
to the Effective Time, Seller shall indemnify and hold harmless, and that
from and after the Effective Time the Surviving Corporation shall indemnify
and hold harmless, as and to the fullest extent permitted by applicable
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and
expenses), judgments, fines and amounts paid in settlement in connection
with any such threatened or actual claim, action, suit, proceeding or
investigation. In the event of any such threatened or actual claim, action,
suit, proceeding or investigation (whether asserted or arising before or
after the Effective Time), (i) Seller and, from and after the Effective
Time, the Surviving Corporation shall promptly pay all reasonably
documented expenses in advance of the final disposition of any claim,
action, suit, proceeding or investigation to each Indemnified Party to the
full extent permitted by law, (ii) the Indemnified Parties may retain
counsel mutually satisfactory to them and Seller and, from and after the
Effective Time, the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties within thirty days
after statements therefor are received, and (iii) Seller and, from and
after the Effective Time, the Surviving Corporation will use all reasonable
efforts to assist in the vigorous defense of any such matter; provided,
however, that neither Seller, Buyer nor the Surviving Corporation shall be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld); and provided further, however,
that the Surviving Corporation shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by applicable law. Any Indemnified
Party wishing to claim indemnification, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify Seller and, from
and after the Effective Time, the Surviving Corporation thereof, provided
that the failure to so notify shall not affect the obligations of Seller,
Buyer or the Surviving Corporation, except to the extent such failure to
notify materially prejudices such party.
(b) Buyer agrees that all rights to indemnification existing in favor,
and all limitations on the personal liability, of any director, officer or
other employee of Seller or any of its subsidiaries provided for in
Seller's certificate of incorporation or by-laws as in effect as of the
date hereof with respect to matters occurring prior to the Effective Time
shall survive the Acquisition Merger and shall continue in full force and
effect in perpetuity. In the event Buyer or the Surviving Corporation or
any of its successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in
each such case, to the extent necessary, proper
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provision shall be made so that the successors and assigns of Buyer or the
Surviving Corporation, as the case may be, assume the obligations set forth
in this Section 5.13.
(c) Buyer shall use all reasonable efforts to cause the persons
serving as officers and directors of the Seller and any subsidiary of
Seller immediately prior to the Effective Time to be covered for a period
of six (6) years from the Closing Date by the directors' and officers'
liability insurance policy maintained as of the date hereof by the Seller
(provided that Buyer may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not less
advantageous than such policy) with respect to acts or omissions occurring
at or prior to the Effective Time, which were committed by such officers
and directors in their capacity as such; provided, however, that if such
coverage cannot be obtained at a total cost to Buyer of not more than
$207,000 then Buyer shall only be required hereunder to obtain such lesser
coverage as may be obtained for such amount.
5.14 Accountants' Letters. Each of the parties shall cause to be
delivered to the other "comfort" letters from its independent public
accountants, dated the date on which the Buyer Registration Statement (or last
amendment thereto) shall become effective and dated the Closing Date, relating
to the information about such party included in the Buyer Registration
Statement, including the Proxy Statement, and addressed to the other party, in
form and substance which is reasonably satisfactory to the receiving party and
customary in transactions of the nature contemplated hereby.
5.15 Maintenance of Records. Through the Effective Time, the Seller will
maintain the Records in the same manner and with the same care that the Records
have been maintained prior to the execution of this Agreement. The Buyer may, at
its own expense, make such copies of and excerpts from the Records as it may
deem desirable. All Records, whether held by the Buyer or the Seller, shall be
maintained for such periods as are required by law, unless the parties shall,
applicable law permitting, agree in writing to a different period. From and
after the Effective Time, the Buyer shall be solely responsible for continuing
maintenance of the Records.
5.16 Leases. Seller shall consult with Buyer before renewing or extending
any lease of Seller or any subsidiary of real property or any material lease of
Seller or any subsidiary relating to furniture, fixtures or equipment or other
personal property , in each case that is currently in effect but that would
otherwise expire on or prior to the Effective Time. Seller shall not cancel,
terminate or take any other action that is likely to result in any cancellation
or termination of any such lease without first consulting with Buyer.
5.17 Bank Merger. To the extent requested by Buyer, Seller shall take,
and cause the Bank to take, all necessary and appropriate actions to effect the
merger of the Bank with and into Buyer's principal banking subsidiary, Vermont
National Bank, on or after the Closing Date, in accordance with the requirements
of all applicable laws and regulations.
5.18 Certain Policies of Seller. At the request of Buyer, after the time
at which all Requisite Regulatory Approvals have been received for the
Acquisition Merger, all other conditions precedent to Seller's obligations under
this Agreement have been satisfied or waived and Buyer has confirmed in writing
that all other conditions precedent to Buyer's obligations under this Agreement
have been satisfied or waived, and prior to the Effective Time, Seller shall
cooperate with Buyer with the objective of modifying and changing its
receivables, loan accrual, charge-off, real estate valuation, loan loss reserve
and investment policies and practices and such other accounting and/or financial
policies and practices as may be requested by Buyer to reflect Buyer's plans
with respect to the conduct of Seller's business following the Acquisition
Merger and to make adequate provision for the cost and expenses relating
thereto. The Seller's representations, warranties and covenants contained in
this Agreement shall not be deemed to be untrue or breached in any respect for
any purpose as a consequence of any modifications or changes undertaken solely
on account of this Section 5.18.
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ARTICLE
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) Stockholders' Approvals. This Agreement and/or the transactions
contemplated hereby shall have been approved by the Buyer Requisite Vote
and the Seller Requisite Vote.
(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 which are necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation the
Acquisition 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 the Buyer Common Stock in connection with
the Acquisition Merger in accordance with all applicable state securities
or blue sky laws.
(c) Buyer Registration Statement. The Buyer Registration Statement
shall have been declared 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 transactions contemplated
by this Agreement shall be in effect.
6.02 Conditions to the Obligations of Buyer Under This Agreement. The
obligations of the Buyer under this Agreement shall be further subject to the
satisfaction or waiver by the Buyer, at or prior to the Effective Time, of the
following conditions:
(a) Absence of Material Adverse Changes. There shall not have
occurred any change since September 30, 1995 in the assets, liabilities,
business, operations, results of operations or condition of the Seller or
any of its subsidiaries which has had, individually or in the aggregate, a
Material Adverse Effect on the Seller.
(b) Representations and Warranties; Performance of Obligations. The
obligations of the Seller to the Bank required to be performed by them at
or prior to the Effective Time pursuant to the terms of this Agreement
shall have been duly performed and complied with and the representations
and warranties of the Seller and the Bank 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
certificates to that effect signed by the chairman or president and the
chief financial officer or chief accounting officer of each of the Seller
and the Bank.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of or notices to 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, made or obtained by the Seller
or the Bank, shall have been so received, made or obtained by the Seller or
the Bank, as applicable, other than permits, consents, waivers, clearances,
approvals, authorizations and notices the failure of which to have
received, made or obtained would neither make it impossible to consummate
the transactions contemplated by this Agreement nor result in any Material
Adverse Effect on the Buyer after the Effective Time.
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(d) Tax Opinion. The Buyer shall have received an opinion dated the
Closing Date from its counsel, Sullivan & Worcester LLP, or other counsel
selected by the Buyer and reasonably acceptable to the Seller,
substantially to the effect that (A) the Acquisition Merger should be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, (B) each of the Buyer and the Seller
should be a party to a reorganization within the meaning of Section 368(b)
of the Code, and (C) no gain or loss should be recognized by the Buyer or
the Seller as a result of the Acquisition Merger. In rendering such
opinion, Sullivan & Worcester LLP shall be entitled to require delivery of,
and to refer to and rely upon, such facts and representations set forth in
certificates received from the Buyer, the Seller, their respective
officers, directors and affiliates, and from the stockholders of the
Seller, as Sullivan & Worcester LLP shall deem necessary or appropriate to
enable it to render such opinion, and the parties hereto agree to use their
respective best efforts to obtain such representations and certificates.
(e) Seller Affiliates Agreements. Seller shall have delivered to
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 Seller as of the Effective Time.
(f) Burdensome Condition. None of the Requisite Regulatory Approvals
shall impose any term, condition or restriction upon Buyer or any Buyer
subsidiary that Buyer in good faith reasonably determines 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 Buyer the consummation of the Acquisition Merger.
(g) Dissenting Shares. The Dissenting Shares, as defined in Section
2.09(c) hereof, shall not represent more than 20% of the shares of Seller
Common Stock issued and outstanding immediately prior to the Effective
Time.
(h) Legal Opinion. Buyer shall have received the opinion of Hale and
Dorr, counsel to Seller and the Bank, dated the Closing Date, in a form
that is customary for transactions of this type.
In addition to the foregoing, the Seller and the Bank will furnish the
Buyer with such additional certificates, instruments or other documents in the
name or on behalf of the Seller or the Bank, as the case may be, executed by
appropriate officers or others, including without limitation certificates or
correspondence of governmental agencies or authorities or nongovernmental third
parties, to evidence fulfillment of the conditions set forth in this Section
6.02 as the Buyer may reasonably request.
6.03 Conditions to the Obligations of Seller and Bank Under This
Agreement. The obligations of the Seller and the Bank under this Agreement
shall be further subject to the satisfaction or waiver by the Seller, at or
prior to the Effective Time, of the following conditions:
(a) Absence of Material Adverse Changes. There shall not have
occurred any change since December 31, 1995 in the assets, liabilities,
business, operations, results of operations or condition (financial or
otherwise) of the Buyer or any of its subsidiaries which has had,
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
Effective Time pursuant to the terms of this Agreement shall have been duly
performed and complied with and the representations and warranties of the
Buyer contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time as
though made at and as of the Effective Time (except as otherwise
specifically contemplated by this Agreement and except as to any
representation or warranty which specifically relates to an earlier date)
and the Seller and the Bank shall have received a certificate to that
effect signed by the executive vice president and chief financial officer
(or other authorized officer(s)) of the Buyer.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of or notices to all
non-governmental and non-regulatory third parties which are necessary
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in connection with the consummation of the transactions contemplated by
this Agreement and are required to be received, made or obtained by the
Buyer, shall have been so received, made or obtained by the Buyer, other
than permits, consents, waivers, clearances, approvals, authorizations and
notices the failure of which to obtain would neither make it impossible to
consummate the transactions contemplated by this Agreement nor result in a
Material Adverse Effect on the Buyer after the Effective Time.
(d) Tax Opinion. The Seller shall have received an opinion dated the
Closing Date from its counsel, Hale and Dorr, or other counsel selected by
the Seller and reasonably acceptable to the Buyer, substantially to the
effect that (A) the Acquisition Merger should be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, (B) each of the Buyer and the Seller should be a party to a
reorganization within the meaning of Section 368(b) of the Code, and (C)
gain, if any, realized will be recognized by a stockholder of the Seller as
a result of the Acquisition Merger, but not in excess of the amount of cash
received by such stockholder. In rendering such opinion, Hale and Dorr
shall be entitled to require delivery of, and to refer to and rely upon,
such facts and representations set forth in certificates received from the
Buyer and the Seller, their respective officers, directors and affiliates,
and from the stockholders of the Seller, as Hale and Dorr shall deem
necessary or appropriate to enable it to render such opinion, and the
parties hereto agree to use their respective best efforts to obtain such
representations and certificates.
(e) Nasdaq-NM Listing. The shares of the Buyer Common Stock issuable
upon the Effective Time shall have been authorized for listing on the
Nasdaq-NM upon official notice of issuance.
(f) Legal Opinion. Seller shall have received the opinion of Sullivan
& Worcester LLP, counsel to Buyer, dated the Closing Date, in a form that
is customary for transactions of this type.
In addition to the foregoing, the Buyer will furnish the Seller with such
additional certificates, instruments or other documents in the name or on behalf
of the Buyer, executed by appropriate officers or others, including without
limitation certificates or correspondence of governmental agencies or
authorities or nongovernmental third parties, to evidence fulfillment of the
conditions set forth in this Section 6.03 as the Seller may reasonably request.
ARTICLE VII
CLOSING
7.01 Time and Place. Subject to the provisions of Articles VI and VIII
hereof, the closing of the transactions contemplated by this Agreement shall
take place at the Boston, Massachusetts offices of Sullivan & Worcester LLP at
10:00 A.M., local time, on such date that is not later than the fifth business
day after the date on which all of the conditions contained in Article VI hereof
are satisfied or waived; or at such other place, at such other time, or on such
other date as Seller and Buyer may mutually agree upon for such closing to take
place.
7.02 Deliveries at the Closing. Subject to the provisions of Articles VI
and VIII hereof, at the closing contemplated by Section 7.01 above there shall
be delivered to Seller and Buyer and their respective subsidiaries as
applicable, 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 parties' respective 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 either Buyer or Seller, if the Effective Time shall not have
occurred on or prior to November 30, 1997 (the "Termination Date") or such
later date as shall have been agreed to in writing by the Buyer and the
Seller, unless the failure of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe its
agreements herein required to be performed or observed at or prior to the
Effective Time;
(c) by the Buyer or the Seller (i) thirty days after the date on which
any request or application for a Requisite Regulatory Approval shall have
been denied, unless within the thirty-day period following such denial a
petition for rehearing or an amended application has been filed with such
governmental regulatory authority or agency, except that no party shall
have the right to terminate this Agreement pursuant to this clause (i) if
such denial shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe in any material respects the covenants
and agreements of such party set forth herein, or (ii) if any governmental
or regulatory authority or agency, or court of competent jurisdiction,
shall have issued a final permanent order or Injunction enjoining or
otherwise prohibiting the consummation of the transactions contemplated by
this Agreement 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 such order or Injunction shall otherwise have become final
and non-appealable;
(d) by the Buyer or 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 thirty (30) days written
notice thereof is given to the party committing such breach;
(e) by Buyer or 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 either party's stockholders specified in Section 5.05 above
shall not have been obtained by reason of such party's failure to have
obtained the requisite stockholder vote at a duly held meeting of such
party's stockholders or at any adjournment thereof;
(f) by Seller, by action of its Board of Directors, by giving written
notice of such election to Buyer within two business days after the
Valuation Period, in the event the Average Closing Price is less than the
Minimum Price; provided, however, that no right of termination shall arise
under this Section 8.01(f) if Buyer elects within two business days of
receipt of such written notice to increase the Acquisition Price by
notifying Seller in writing that it has elected to utilize the Adjusted
Acquisition Price in lieu of the Acquisition Price that would otherwise be
required under Section 2.09(a) hereof; or
(g) by Buyer if Seller's Board of Directors does not publicly
recommend in the Proxy Statement that Seller's stockholders approve the
proposals submitted to them in accordance with this Agreement, or if after
recommending in the Proxy Statement that Seller's stockholders approve such
proposals, Seller's Board of Directors shall have withdrawn, modified or
amended such recommendation in any respect materially adverse to Buyer.
8.02 Effect of Termination.
(a) 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), 8.02 (if applicable) and 9.01
hereof, which shall remain in full force and effect) and there shall be no
further liability on the part of any of the parties hereto or their
respective officers or directors to the others, except (i) any liability of
any party under said Sections 5.02(b), 8.02 (as may be applicable) 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 party's gross
negligence or willful breach of any material 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.
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(b) As a condition of Buyer's willingness, and in order to induce
Buyer, to enter into this Agreement and to reimburse Buyer for incurring
the costs and expenses related to entering into this Agreement and
consummating the transactions contemplated by this Agreement, Seller shall
make a cash payment to Buyer of $1,000,000 if a Subsequent Triggering Event
occurs at any time after the date hereof and prior to an Exercise
Termination Event (as such terms are defined in Sections 2(b) and 2(e),
respectively, of the Seller Option Agreement). Any payment required under
this Section 8.02(b) shall be (i) payable by Seller to Buyer (by wire
transfer of immediately available funds to an account designated by Buyer)
within five business days after demand by Buyer and (ii) net of any expense
reimbursement paid or to be paid by Seller to Buyer in accordance with
Section 7(a) of the Seller Option Agreement and any other payments made on
or prior to the date of such payment under this Section 8.02(b) by Seller
to Buyer pursuant to the provisions of Section 8.02(a) (but in no event
shall the amount payable under this Section 8.02(b) be less than zero).
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 the approvals of the parties' respective
stockholders contemplated by Section 5.05 above, the parties 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 there may not be, without further approval of the
parties' stockholders, to the extent required by law, any amendment, extension
or waiver of this Agreement which changes the amount or form of the
consideration to be delivered to Seller's stockholders hereunder other than as
may be expressly contemplated by this Agreement. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party, but such waiver or failure to insist on strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
MISCELLANEOUS
9.01 Expenses. Except as otherwise agreed to in Section 8.02 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.
9.02 Non-Survival. None of the representations, warranties, covenants and
agreements of the parties 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 5.10, 5.12, 5.13, 8.02,
9.01 and 9.02, 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:
Eastern Bancorp, Inc.
537 Central Avenue
Dover, New Hampshire 03820
Attention: John A. Cobb
President and Chief Executive Officer
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Copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Edward G. Young, Esq.
(b) If to the Buyer, to:
Vermont Financial Services Corporation
100 Main Street
Brattleboro, Vermont 05302
Attention: John D. Hashagen, Jr.
President and Chief Executive Officer
Copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher Cabot, Esq. and Stephen J. Coukos, Esq.
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
delivered to the recipient party.
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, except for Sections 5.12 and 5.13 above, 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 Entire Agreement. This Agreement, including the documents and other
writing referred to herein or delivered pursuant hereto, including the Seller
Disclosure Schedule, the Seller Option Agreement and the Seller Stockholders'
Agreement, is complete, and all promises, representations, understandings,
warranties and agreements with reference to the subject matter hereof, and all
inducements to the making of this Agreement relied upon by either party hereto,
have been expressed herein. This Agreement (including the aforementioned
documents and writings) supersedes any prior or contemporaneous agreement or
understanding between the parties hereto, oral or written, pertaining to any
such matters, including without limitation the Confidentiality Agreement, which
agreements or understandings shall be of no further force or effect for any
persons.
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
State of Delaware, without giving effect to the principles of conflicts of laws
thereof, and, to the extent applicable, by federal law.
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,
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illegality or unenforceability shall not affect any other provisions of this
Agreement and the parties shall use their best efforts to substitute a valid,
legal and enforceable provision which, insofar as practicable, implements the
purposes and intents of this Agreement.
9.11 Specific Enforceability. The parties recognize and hereby
acknowledge that it is impossible to measure in money the damages that would
result to a party by reason of the failure of either of the parties to perform
any of the obligations imposed on it by this Agreement. Accordingly, if any
party should institute an action or proceeding seeking specific enforcement of
the provisions hereof, each party against which such action or proceeding is
brought hereby waives the claim or defense that the party instituting such
action or proceeding has an adequate remedy at law and hereby agrees not to
assert in any such action or proceeding the claim or defense that such a remedy
at law exists.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Reorganization to be executed as a sealed instrument by their duly authorized
officers as of the day and year first above written.
VERMONT FINANCIAL SERVICES
CORPORATION
By: /s/ JOHN D. HASHAGEN, JR.
------------------------------------
John D. Hashagen, Jr.
President and Chief Executive
Officer
EASTERN BANCORP, INC.
By: /s/ JOHN A. COBB
------------------------------------
John A. Cobb
President and Chief Executive
Officer
VERMONT FEDERAL BANK, FSB
By: /s/ E. DAVID HUMPHREY
------------------------------------
E. David Humphrey
President and Chief Operating
Officer
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EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 13, 1996, between Eastern
Bancorp, Inc., a Delaware corporation (the "Issuer"), and Vermont Financial
Services Corporation, a Delaware corporation (the "Grantee").
WHEREAS, the Grantee, the Issuer and Issuer's wholly owned banking
subsidiary, Vermont Federal Bank, FSB, are entering into an Agreement and Plan
of Reorganization of even date herewith (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 and non-transferable option (the "Option") to purchase, subject to
the terms hereof, up to 732,425 fully paid and nonassessable shares (the "Option
Shares") of common stock, $0.01 par value per share, of the Issuer ("Common
Stock") at a price of $21.00 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
19.9% of the Issuer's issued and outstanding shares of Common Stock (without
giving effect to any shares of Common Stock issuable pursuant to the Option)
less the number of shares, if any, 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 Option Shares shall be increased so that, after
such issuance, it equals 19.9% of the number of shares of Common Stock then
issued and outstanding without giving effect to any shares subject or issued
pursuant to the Option less the number of shares, if any, previously issued
pursuant to exercise of 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) Provided that the Grantee is not in material breach of the
Acquisition Agreement, the Grantee may exercise the Option, in whole or part,
if, but only if, both an Initial Triggering Event (as defined in paragraph (e)
below) and a Subsequent Triggering Event (as defined in paragraph (f) below)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
defined in paragraph (b) below), provided that the Grantee shall have sent the
written notice of such exercise (as provided in paragraph (h) of this Section 2)
within thirty (30) days following such Subsequent Triggering Event and prior to
the Exercise Termination Event.
(b) The term "Exercise Termination Event" shall mean the earliest of (i)
the Effective Time of the Acquisition Merger, (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 or if
such termination is pursuant to Section 8.01(c) or 8.01(f) or by the Issuer
pursuant to Section 8.01(d) thereof, and (iii) except as provided in
subparagraph 2(b)(ii) hereof, 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.
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(c) [THIS PARAGRAPH INTENTIONALLY OMITTED]
(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
(except as contemplated by the Acquisition Agreement), or (C) a purchase or
other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing fifteen percent (15%) 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 fifteen percent (15%) or more of the outstanding
shares of Common Stock if such Person owned beneficially less than fifteen
percent (15%) of the outstanding shares of Common Stock on the date of this
Agreement, or any Person shall have acquired beneficial ownership of an
additional five percent (5%) of the outstanding shares of Common Stock if
such Person owned beneficially fifteen percent (15%) 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 Sections 5.01, 5.03, 5.04 or 5.05 of 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 OTS or 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 24.9% 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) shall be 24.9% in lieu of fifteen
percent (15%).
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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 Grantee to
exercise the Option.
(g) In the event the Grantee 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
forty-five (45) business days from the Notice Date for the closing of such
purchase (the "Closing"); provided that if prior notification to or approval of
the OTS or Federal Reserve Board or any other regulatory agency is required in
connection with such purchase, the Grantee 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; provided, however, that in no event shall
the Closing be more than twelve (12) months after the Notice Date, and if the
Closing shall not have occurred within twelve (12) months after the Notice Date
due to the failure of the Grantee to obtain any such required approval, the
exercise of the Option effected on the Notice Date shall be deemed to have
expired. 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 Grantee 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 Grantee from exercising
the Option.
(i) At such Closing, simultaneously with the delivery of immediately
available funds as provided in paragraph (i) above, the Issuer shall deliver to
the Grantee a certificate or certificates representing the number of shares of
Common Stock purchased by the Grantee and, if the Option should be exercised in
part only, a new Option evidencing the rights of the Grantee thereof to purchase
the balance of the shares purchasable hereunder and in accordance with the
provisions hereof, and the Grantee shall deliver to the Issuer a copy of this
Agreement and a letter agreeing that the Grantee 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
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER 13, 1996, 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 (i) the reference to the resale restrictions of
the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Grantee shall have
delivered to the Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or an opinion of counsel, in form and substance reasonably
satisfactory to the Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(k) Upon the giving by the Grantee to the Issuer of the written notice of
exercise of the Option provided for under paragraph (h) above, the tender of the
applicable purchase price in immediately available funds and
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the tender of a copy of this Agreement to the Issuer, the Grantee 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 Grantee. 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 Grantee
or its assignee, transferee or designee.
3. The Issuer agrees (a) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without requiring the Issuer's
stockholders to approve an increase in the number of authorized shares of Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to purchase Common Stock, (b) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Issuer, and (c) promptly to take all
action as may from time to time be required (including without limitation (i)
complying with all applicable premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec. 18a and regulations promulgated
thereunder and (ii) cooperating fully with any Holders in preparing any
applications or notices required under the Home Owners Loan Act of 1933, as
amended, 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
the Grantee to exercise the Option and the Issuer duly and effectively to issue
shares of Common Stock pursuant hereto.
4. This Agreement and the Option granted hereby are exchangeable, without
expense, at the option of the Grantee, 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 Grantee 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.
5. (a) 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.
(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 in accordance with subsection (b) of this Section 5,
and proper provision shall be made in the agreements governing such
transaction, so that Grantee shall receive upon exercise of the Option the
number and class of shares of Common Stock that 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) Issuer may (but in no event shall be required to) make such
increases in the number of Option Shares, in addition to those required
under subsection (a)(i), 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 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
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of Option Shares prior to the adjustment and the denominator of which is equal
to the number of Option Shares after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, and provided that the Grantee is not
precluded, pursuant to subsection (a) of Section 2 hereof, from exercising the
Option, the Issuer shall, at the request of the Grantee delivered within thirty
(30) days following such Subsequent Triggering Event, promptly prepare, file and
keep current, with respect to the Option and the Option Shares, a "shelf "
registration statement under Rule 415 of the Securities Act or any successor
provision and the Issuer shall use all reasonable efforts to qualify such shares
under any applicable state securities laws. The Issuer will use all reasonable
efforts to cause such registration statement first to become effective and then
to remain effective for such period not in excess of 120 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect sales or other dispositions of Option Shares. The
Grantee shall have the right to demand two (2) such registrations, at least one
of which shall be on Form S-3. The foregoing notwithstanding, if, at the time of
any request by the Grantee for registration of the Option or Option Shares as
provided above, the Issuer is in registration with respect to any underwritten
public offering of share of Common Stock, and if in the good faith judgment of
the managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering, the inclusion of the Option or
Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by the Issuer in such underwritten public offering, the
number of shares represented by the Option and/or the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced (to zero, if necessary or advisable); provided, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable in the good faith judgment of such
underwriters and no reduction shall thereafter occur. The Grantee shall provide
all information reasonably requested by the Issuer for inclusion in any
registration statement to be filed hereunder. If requested by the Grantee in
connection with such registration, the Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, and provided that the Grantee is not
precluded, pursuant to subsection (a) of Section 2 hereof, from exercising the
Option, (i) at the request of the Grantee, delivered within thirty (30) days
following such occurrence (or such later period as provided in Section 10), the
Issuer or any successor shall repurchase the Option from the Grantee 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 of the kind described in Section 2(e)(i), (y) the highest closing price
for shares of Common Stock within the shorter of the period from the date of
this Agreement up to the date on which such required repurchase of Options or
Option Shares, as the case may be, occurs or the six (6) month period
immediately preceding the date of such 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 in good faith by a nationally recognized investment banking
firm selected by the
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Grantee and reasonably acceptable to the Issuer, divided by the number of shares
of Common Stock of the Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined in good faith by a nationally recognized investment banking
firm selected by the Grantee and reasonably acceptable to the Issuer.
(b) The Grantee 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 the Grantee 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 after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, the Issuer
shall deliver or cause to be delivered to the Grantee the Option Repurchase
Price and/or 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.
(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 the Grantee and thereafter deliver or
cause to be delivered, from time to time, to the Grantee the portion of the
Option Repurchase Price and/or the Option Share Repurchase Price 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 the
Grantee the Option Repurchase Price and/or the Option Share Repurchase Price in
part or in full (and the Issuer hereby undertakes to use all reasonable 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), the
Grantee may revoke its notice of repurchase of the Option or the Option Shares,
as applicable, either in whole or to the extent of the prohibition, whereupon
the Issuer shall promptly (i) deliver to the Grantee that portion of the Option
Purchase Price or the Option Share Repurchase Price that the Issuer is not
prohibited from delivering with respect to Options or Option Shares as to which
the Grantee has not revoked its repurchase demand; and (ii) deliver, as
appropriate, either (A) a new Stock Option Agreement evidencing the right of the
Grantee 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 Grantee and the
denominator of which is the Option Repurchase Price, or (B) 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, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or any subsidiary of Grantee, and Issuer shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or a subsidiary of Grantee, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property, or the then outstanding shares of Common Stock
shall, after such merger, represent less than 50% of the outstanding 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 Grantee or a
subsidiary of Grantee, 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 Grantee, of either (y) the Acquiring
Corporation (as hereinafter defined) or (z) any corporation or other business
entity that controls the Acquiring Corporation.
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(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 Issuer (if other
than Issuer), (B) Issuer in a merger in which Issuer is the continuing or
surviving person, and (C) the transferee of all or substantially all of
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 Section 7.
(iv) The term "Average Price" shall mean the average closing price of
a share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of the Substitute Common Stock
on the day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls such person, as the
Grantee 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 Grantee
than, the terms of the Option. The issuer of the Substitute Option shall also
enter into an agreement with the Grantee 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 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option (without giving effect to any shares of Substitute Common
Stock issued pursuant to the Substitute Option) less the number of shares, if
any, previously issued pursuant to the Substitute Option. In the event that the
Substitute Option would be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this clause (e),
the issuer of the Substitute Option (the "Substitute Option Issuer") shall make
a cash payment to the Grantee equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). The difference in value shall be determined by a
nationally recognized investment banking firm selected by the Grantee.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any corporation or other
business entity that controls the Acquiring Corporation shall have assumed in
writing all the obligations of Issuer hereunder.
9. (a) At the request of the Grantee, as the holder of the Substitute
Option (referred to herein as 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 the Grantee as the owner (referred
to herein as 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 (y) the Highest Closing Price and (z) the
average exercise price per share paid by the Substitute Share Owner for the
Substitute Shares so designated, plus Grantee's Out-of-Pocket Expenses. The term
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"Highest Closing Price" shall mean the highest closing price for shares of the
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Grantee, as the Substitute Option Holder and/or the Substitute
Share Owner, as the case may be, may exercise its right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or Substitute Share
Owner, as applicable, elects to require the Substitute Option Issuer to
repurchase the Substitute Option and/or the Substitute Shares in accordance with
the provisions of this Section 9. As promptly as practicable, and in any event
within five business days after the surrender of the Substitute Option and/or
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 Grantee, as the Substitute Option Holder, the Substitute
Option Repurchase Price, and/or as 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 the Grantee, as the Substitute Option Holder and/or the
Substitute Share Owner, and thereafter deliver or cause to be delivered, from
time to time, to the Grantee, as the Substitute Option Holder and/or Substitute
Share Owner, as appropriate, that portion of the Substitute Option Repurchase
Price and/or the Substitute Share Repurchase Price which it is no longer
prohibited from delivering, within five business days after the date on which
the Substitute Option Issuer is no longer so prohibited; provided, however, that
if the Substitute Option Issuer is, at any time after delivery of a notice of
repurchase pursuant to subsection (b) of this Section 9 prohibited under
applicable law or regulation, 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 Grantee, as
the Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and/or the Substitute Share Repurchase
Price, 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 Grantee, as the
Substitute Option Holder or Substitute Share Owner, as applicable, 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 Grantee, as the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share Repurchase Price that
the Substitute Option Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) 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) 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: (i) in the
manner, and subject to the limitations, provided in Section 2(g) hereof, to the
extent necessary to obtain all regulatory approvals for the exercise of such
rights and for the expiration of all statutory waiting periods; and (ii) to the
extent necessary to avoid liability under Section 16(b) of the Exchange Act by
reason of such exercise, provided that notice of intent to exercise such rights
shall be given to the Issuer within the requisite thirty (30) day period and the
Grantee shall use all reasonable efforts to promptly obtain all requisite
approvals and cause the expiration of all requisite waiting periods.
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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,
enforceable against it in accordance with its terms, except that
enforcement thereof may be limited by the receivership, conservatorship and
supervisory powers of bank regulatory agencies generally as well as
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally and except that
enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) and the availability of equitable remedies.
(b) The Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of
Common Stock at any time and from time to time issuable hereunder, and all
such shares, upon issuance pursuant hereto, will be duly authorized,
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 and
the Grantee is not precluded, pursuant to Section 2(a), from exercising the
Option, 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 in any
Option Shares held by the Grantee following any exercise, in whole or in part,
of the Option.
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
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 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 such shares or
other securities to such transferee. The purchase of such shares or other
securities by the Issuer shall be settled within ten (10) business days of the
date of the acceptance of the offer and the purchase price shall be paid to the
Grantee in immediately available funds, provided that, if prior notification to
or approval, consent or waiver of the OTS or 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 shares or other securities covered by an Offeror's Notice or if
the OTS or Federal Reserve Board or any other regulatory authority disapproves
the Issuer's proposed purchase of 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 such shares
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or other securities 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 any
sale by means of a public offering registered under the Securities Act in which
steps are taken to reasonably ensure that no purchaser will own securities
representing more than two percent (2%) of the outstanding shares of Common
Stock of the Issuer or 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. Notwithstanding anything to the contrary herein, in the event that the
Grantee 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 the Option held
by it shall immediately terminate and be of no further force or effect and the
Option Shares held by it shall, at the Issuer's election, be immediately
repurchasable by Issuer at the Option Price. For purposes of this Agreement, a
Related Person of the Grantee means any Affiliate (as defined in Rule 12b-2 of
the rules and regulations under the Exchange Act) of the Grantee and any person
that is required to file a Schedule 13D with the Grantee with respect to shares
of Common Stock or options to acquire the Common Stock.
15. Each of the Grantee and the Issuer will use all reasonable efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation applying to the OTS
or the Federal Reserve Board, as applicable, for approval to acquire the shares
issuable hereunder.
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 Grantee 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 l(a) hereof (as adjusted pursuant to Sections l(b) or 5
hereof), it is the express intention of the Issuer to allow the Grantee 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 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 State of Delaware, 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 or in the Acquisition
Agreement, 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
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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 Stock Option
Agreement to be executed as a sealed instrument on its behalf by its officers
thereunder duly authorized, all as of the day and year first above written.
EASTERN BANCORP, INC.
By:
--------------------------------------
John A. Cobb
President and Chief Executive
Officer
VERMONT FINANCIAL SERVICES
CORPORATION
By:
--------------------------------------
John D. Hashagen, Jr.
President and Chief Executive
Officer
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<PAGE> 137
EXHIBIT B
November 13, 1996
Vermont Financial Services Corporation
100 Main Street
Brattleboro, Vermont 05302
Ladies and Gentlemen:
Each of the undersigned (each a "Stockholder") beneficially owns and has
sole or shared voting power with respect to the number of shares of the common
stock, par value $0.01 per share (the "Shares"), of Eastern Bancorp, Inc., a
Delaware corporation (the "Seller"), indicated opposite such Stockholder's name
on Schedule 1 attached hereto.
Simultaneously with the execution of this letter agreement, Vermont
Financial Services Corporation (the "Buyer"), the Seller and Seller's wholly
owned banking subsidiary, Vermont Federal Bank, FSB, are entering into an
Agreement and Plan of Reorganization (the "Acquisition Agreement") providing,
among other things, for the acquisition of Seller by Buyer by means of a merger
of Seller with and into Buyer (the "Acquisition"). Each of the undersigned
understands that the 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, each Stockholder and the Buyer
agree as follows:
1. Each 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 any meeting of the Seller's stockholders that may be called and held
following the date hereof, for the approval of the Acquisition, as
contemplated under the Acquisition Agreement, and shall vote or cause to be
voted all such Shares, at any such 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. Each Stockholder, while this letter
agreement is in effect, shall support at all times, and recommend for
approval by the Seller's stockholders, the Acquisition, subject only to the
Stockholder's fiduciary obligations as a director of the Seller, to the
extent applicable, and each Stockholder shall conduct himself or herself,
both publicly and privately, in a manner consistent with such support and
recommendation of the Acquisition, subject to the Stockholder's fiduciary
obligations as a director of the Seller as applicable.
2. Each 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 such 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, to members of the
Stockholder's immediate family, trusts or charitable organizations, subject
to the transferee agreeing in writing to be bound by the
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<PAGE> 138
terms of this letter agreement, and (d) such other transfers (subject to
the transferee agreeing in writing to be bound by the terms of this letter
agreement) as may be consented to by the Buyer, which consent shall not be
unreasonably withheld. 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 VERMONT FINANCIAL SERVICES CORPORATION AND THE BENEFICIAL
OWNER OF THESE SHARES AND MAY BE TRANSFERRED ONLY IN COMPLIANCE
THEREWITH. COPIES OF THE ABOVE-REFERENCED AGREEMENT ARE ON FILE AT THE
OFFICES OF VERMONT FINANCIAL SERVICES 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 all
necessary shareholder and governmental approvals, of the Acquisition and
all other transactions contemplated by the Acquisition Agreement.
4. Each Stockholder represents that such Stockholder has the complete
and unrestricted power and the unqualified right to enter into and perform
the terms of this letter agreement. Each 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, each Stockholder represents that such 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 VIII thereof.
6. Each Stockholder has signed this letter agreement intending to be
bound hereby. Each Stockholder expressly agrees that this letter agreement
shall be specifically enforceable in any court of competent jurisdiction in
accordance with its terms against such 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 any Stockholder shall be construed as a waiver of any rights or
remedies of the Buyer with respect to any other Stockholder with respect to
Shares held by such other Stockholder or with respect to any subsequent
breach of the Stockholder or any other 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 State of Delaware, 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.
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.
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<PAGE> 139
Very truly yours,
<TABLE>
<S> <C>
/s/ JOHN A. COBB /s/ E. DAVID HUMPHREY
- -------------------------------------------- --------------------------------------------
John A. Cobb E. David Humphrey
/s/ W. STEVENS SHEPPARD /s/ JAMES M. SUTTON
- -------------------------------------------- --------------------------------------------
W. Stevens Sheppard James M. Sutton
</TABLE>
AGREED TO AND ACCEPTED BY AS
OF THE DATE FIRST ABOVE WRITTEN
VERMONT FINANCIAL SERVICES CORPORATION
By: /s/ JOHN D. HASHAGEN, JR.
----------------------------------------------------
John D. Hashagen, Jr.
President and Chief Executive Officer
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<PAGE> 140
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
SHARES SHARES
BENEFICIALLY SUBJECT TO
NAME OF STOCKHOLDER OWNED* PLEDGE
- -------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
John A. Cobb........................................................ 195,888.64 -0-
E. David Humphrey................................................... 94,441.15 -0-
W. Stevens Sheppard................................................. 57,801 -0-
James M. Sutton..................................................... 363,357 -0-
</TABLE>
- ---------------
* Includes the following numbers of shares subject to stock options: Mr. Cobb:
157,500; Mr. Humphrey: 75,000; Mr. Sheppard: 8,250 and Mr. Sutton: 5,250.
A-57
<PAGE> 141
EXHIBIT C
, 199
Vermont Financial Services Corporation
100 Main Street
Brattleboro, Vermont 05302
Gentlemen:
I have been advised that, as of the date hereof, I may be deemed to be an
"affiliate" of Eastern Bancorp, Inc. ("Seller"), as the term "affiliate" is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"). In accordance with the terms of that certain Agreement and Plan of
Reorganization, dated as of November 13, 1996 (the "Agreement"), by and among
Vermont Financial Services Corporation ("Buyer"), Seller and Seller's wholly
owned banking subsidiary, Vermont Federal Bank, FSB, Seller will be merged with
and into Buyer (the "Merger").
Following the consummation of the Merger, I may receive shares of the
common stock of Buyer, par value $1.00 per share ("Buyer Common Stock"). I would
receive such shares of Buyer Common Stock in exchange for shares of the common
stock of Seller, par value $0.01 per share ("Seller Common Stock"), held by me
immediate prior to the consummation of the Merger.
I represent, warrant and covenant to Buyer that, in the event I receive any
shares of Buyer Common Stock following the Merger:
1. I shall not make any sale, transfer or other disposition of such
shares of Buyer Common Stock in violation of the Act or the Rules and
Regulations.
2. I have carefully read this letter and the Agreement and discussed
its requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of shares of Buyer Common Stock to the extent
I felt necessary, with my counsel or counsel for Seller.
3. I have been advised that the issuance of shares of Buyer Common
Stock to me in accordance with the terms of the Agreement has been
registered with the Commission under the Act. However, I have also been
advised that, since, at the time the Merger was submitted for a vote of the
stockholders of Seller, I may be deemed to have been an affiliate of
Seller, and that the distribution by me of shares of Buyer Common Stock has
not been registered under the Act, that I may not sell, transfer or
otherwise dispose of any shares of Buyer Common Stock issued to me
following the Merger unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act, or (iii) in the
opinion of counsel reasonably acceptable to Buyer, such sale, transfer or
other disposition is otherwise exempt from registration under the Act.
4. Except as may be otherwise contemplated by the Agreement, I
understand that Buyer is under no obligation to register the sale, transfer
or other disposition of shares of Buyer Common Stock by me or on my behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
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5. I also understand that stop transfer instructions will be given to
Buyer's transfer agents with respect to the Buyer Common Stock and that
there will be placed on the certificates for the shares of Buyer Common
Stock issued to me, or any substitutions therefor, a legend stating in
substance:
The shares represented by this certificate were issued in a transaction
to which Rule 145 promulgated under the Securities Act of 1933 applied.
The shares represented by this certificate may only be transferred in
accordance with the terms of an agreement dated as of ,
199 , between the registered holder hereof and Vermont Financial
Services Corporation, a copy of which agreement is on file at the
principal offices of Vermont Financial Services Corporation.
It is understood and agreed that the legend set forth in paragraph 5 above
shall be removed by delivery of substitute certificates without such legend if
the undersigned shall have delivered to Buyer a copy of a letter from the staff
of the Commission, or an opinion of counsel in form and substance reasonably
satisfactory to Buyer, to the effect that such legend is not required for
purposes of the Act.
Very truly yours,
--------------------------------------
Accepted this day of , 19 , by
VERMONT FINANCIAL SERVICES CORPORATION
By:
----------------------------------------------------
Name:
Title:
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<PAGE> 143
APPENDIX B
April , 1997
The Board of Directors
Eastern Bancorp, Inc.
537 Central Avenue
Dover, New Hampshire 03820
The Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Eastern Bancorp, Inc. ("Eastern") of the
consideration to be paid (the "Merger Consideration") to the shareholders of
Eastern in connection with the proposed acquisition of Eastern by Vermont
Financial Services Corp. ("VFSC") pursuant to the Agreement and Plan of Merger
(the "Merger Agreement") dated November 13, 1996 by and among Eastern, Vermont
Federal Bank, FSB, and VFSC. Pursuant to the Merger Agreement, Eastern will
merge with and into VFSC (the "Merger").
As is more specifically set forth in the Merger Agreement, upon
consummation of the Merger, each outstanding share of the common stock of
Eastern, par value $0.01 per share ("Eastern Common Stock"), except for any
dissenting shares and except for shares held by VFSC and its subsidiaries or by
Eastern and its subsidiaries (in both cases, other than shares held in a
fiduciary capacity or as a result of debts previously contracted), will be
entitled to receive Merger Consideration payable in cash or shares of common
stock, $1.00 par value per share, of VFSC ("VFSC Common Stock") or a combination
of cash and stock, based on the average closing bid price per share of VFSC
Common Stock on the Nasdaq-NM during the 20 day trading period ending on the
fifth business day prior to the effective date of the Merger (the "Average VFSC
Closing Price"), which 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 below. If the Average VFSC Closing Price is equal to
or greater than $39.96, the acquisition price ("Acquisition Price") per share of
Eastern Common Stock will be fixed at $26.83. If the Average VFSC Closing Price
is equal to or greater than $29.54 but not less than $26.06, the acquisition
price per share of Eastern Common Stock shall equal $21.72. If the Average VFSC
Closing Price is less than $26.06, the Acquisition Price shall equal the sum of
$7.25 and the product of 0.5553 times the Average VFSC Closing Price. It should
be noted that, in the event the Average VFSC Closing Price is less than $26.06
per share, then Eastern shall have the right to terminate the Merger Agreement,
unless VFSC elects in its sole discretion to adopt $21.72 as the adjusted
acquisition price.
Eastern shareholders 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.
In addition, upon consummation of the Merger, each stock option with
respect to Eastern Common Stock granted by Eastern under Eastern's stock option
plans (the "Eastern Stock Option Plans") which is outstanding at the Effective
Time, whether or not then exercisable, will receive either (i) an amount equal
to the excess of $24.28 over the per share exercise price of such option, in
cash, or (ii) have such options to purchase Eastern Common Stock converted into
options to purchase shares of VFSC Common Stock in accordance with the
provisions of the Merger Agreement.
The reader is urged to carefully read all the terms of the Merger
Agreement, which is reproduced in its entirety elsewhere in the Proxy
Statement-Prospectus.
McConnell, Budd & Downes, Inc., as part of its investment banking business,
is engaged in the valuation of bank holding companies and banks, thrift holding
companies and thrifts and their securities in connection with mergers and
acquisitions, underwriting, private placements, competitive bidding processes,
market making as a NASD market maker, secondary distributions of listed
securities and valuations for corporate, estate and other purposes. Our
experience and familiarity with Eastern includes having worked as a financial
advisor to Eastern since July of 1995 on a contractual basis and specifically
includes our participation in the process and negotiations leading up to the
proposed transaction with VFSC. Our experience and familiarity with VFSC
includes having worked for VFSC as a financial advisor since 1992 on a
contractual basis. With respect to this specific transaction, however, MB&D has
exclusively represented Eastern, while VFSC engaged an independent financial
advisor. In the course of our role as financial advisor to Eastern in connection
with the transaction we have received fees for our services and will receive
additional fees contingent on the occurrence of certain defined events. We will
receive a fee in connection with the rendering of this opinion. In the ordinary
course of our business, we may, from time to time, trade the equity securities
of
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either or both Eastern and VFSC in our capacity as a NASD market maker, for our
own account, for the accounts of our customers and for the accounts of
individual employees of McConnell, Budd & Downes, Inc. Accordingly we may, from
time to time, hold a long or short position in the equity securities of either
Eastern or VFSC.
In arriving at our opinion, we have reviewed the Merger Agreement and Proxy
Statement -- Prospectus in substantially the form to be mailed to Eastern
shareholders. We have also reviewed publicly available business, financial and
shareholder information relating to Eastern and its subsidiaries, certain
publicly available financial information relating to VFSC and its subsidiaries
and certain financial information relating to Eastern provided by Eastern
management as well as certain financial information relating to VFSC provided by
VFSC management. In addition, we have reviewed certain other information,
including internal reports and documents of Eastern and certain management
prepared financial information provided to us by VFSC. We have also met with and
had discussions with members of the senior management of each of Eastern and
VFSC to discuss their past and current business operations, current financial
condition and future prospects. In connection with the foregoing, we have
reviewed the annual reports to stockholders of Eastern for the fiscal years
ended September 30, 1994, 1995 and 1996. In addition we have reviewed the
unaudited financial report of Eastern for the three months ended December 31,
1996. We have similarly reviewed the annual reports of VFSC for the calendar
years ended December 31, 1993, 1994, 1995 and 1996. We have reviewed and studied
the historical stock prices and trading volumes of the common stock of both
Eastern and VFSC as well as the terms and conditions of 21 recent acquisition
transactions involving publicly traded financial institutions conducting
business in the northeast and conditionally compared those transactions to the
proposed acquisition of Eastern by VFSC. We also considered the current state of
and future prospects for the economy of New Hampshire, the economy of Vermont
and the economy of Massachusetts generally and the relevant market areas for
VFSC and Eastern in particular. We have also conducted such other studies,
analyses and investigations as we deemed appropriate under the circumstances
surrounding this proposed transaction.
In the course of our review and analysis we considered, among other things,
such topics as relative capitalization, capital adequacy, profitability,
availability of non-interest income, relative asset quality, adequacy of the
reserve for loan losses and the composition of the loan portfolio of each of
VFSC and Eastern. We also considered estimates of cost savings and (to a lesser
extent) revenue enhancements which might result from a consolidation of VFSC and
Eastern which were provided to us by the management of VFSC and Eastern. In the
conduct of our review and analysis we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial
information provided to us by VFSC and Eastern or otherwise publicly obtainable.
In reaching our opinion we have not assumed any responsibility for the
independent verification of such information or any independent valuation or
appraisal of any of the assets or the liabilities of either VFSC or Eastern nor
have we obtained from any other source, any current appraisals of the assets or
liabilities of either VFSC or Eastern. We have also relied on the management of
Eastern as to the reasonableness of various financial and operating forecasts,
cost savings estimates and of the assumptions on which they are based, which
were provided to us for use in our analyses.
In the course of rendering this opinion, which is being rendered prior to
the receipt of certain required regulatory approvals necessary before
consummation of the transaction, we have assumed that no conditions will be
imposed by any regulatory agency in connection with its approval of the
transaction that will have a material adverse effect on the results of
operations, the financial condition or the prospects of VFSC following
consummation of the transaction.
Based upon and subject to the foregoing, it is our opinion, that as of the
date of this letter, the Merger Consideration is fair to the shareholders of
Eastern from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
By:
------------------------------------
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APPENDIX C
[TUCKER ANTHONY LETTERHEAD]
April , 1997
Board of Directors
Vermont Financial Services Corp.
100 Main Street
Brattleboro, VT 05302
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Vermont Financial Services Corp. (the "Company")
common stock (the "Buyer Common Stock"), par value $1.00, of the consideration
to be paid by the Company to the holders of Eastern Bancorp, Inc. ("Eastern")
common stock (the "Seller Common Stock"), par value $0.01 per share, pursuant to
the Agreement and Plan of Reorganization (the "Agreement") by and between the
Company and Eastern. On the Closing Date, as defined in the Agreement, each
share of Seller Common Stock held by Eastern's shareholders (other than shares
held by dissenting shareholders) shall become and be converted into either (i)
an amount in cash equal to the sum of (x) $7.25 and (y) the product of 0.4900
and the Average Closing Price (such total per share purchase price being
referred to herein as the "Acquisition Price" and such total per share cash
amount being referred to as the "Cash Distribution") or (ii) the number of
shares or fraction of a share of Buyer Common Stock, rounded to the nearest
ten-thousandth of a share, equal to the number obtained by dividing the
Acquisition Price by the Average Closing Price (such number being referred to as
the "Exchange Ratio" or the "Stock Distribution"); provided, however, that if
the Average Closing Price is greater than or equal to $39.96 per share the
Acquisition Price shall equal $26.83 and if the Average Closing Price is less
than or equal to $29.54 per share but greater than or equal to $26.06 per share
the Acquisition Price shall equal $21.72. If the Average Closing Price is less
than $26.06, the Acquisition Price shall equal the sum of (x) $7.25 and (y) the
product of 0.5553 and the Average Closing Price. Notwithstanding the foregoing,
however, if the Average Closing Price is less than $26.06 per share (the
"Minimum Price"), then Eastern shall have the right to terminate the Agreement,
unless the Company elects, in its sole discretion to adopt $21.72 as the
Acquisition Price. The "Average Closing Price" as referenced above shall be
determined by calculating the average of the daily closing bid prices of the
Buyer Common Stock on each of the twenty (20) trading days ending on the fifth
business day prior to the Closing Date. The Company and Eastern have agreed that
the Acquisition Price shall be identical without regard to any election made by
holders of Seller Common Stock to receive Buyer Common Stock or cash.
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 both the Company and Eastern 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. Tucker Anthony has served as financial advisor to
the Company in the negotiation of the Agreement, and will receive a fee from the
Company for those services.
In arriving at our opinion, we have among other things:
(i) Reviewed the Agreement;
(ii) Reviewed certain historical financial and other information concerning the
Company for the five fiscal years ended December 31, 1996, including the
Company's reports on Forms 10-K and 10-Q;
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(iii) Reviewed certain historical financial and other information concerning
Eastern for the five fiscal years ended September 30, 1996 and for the
quarter ended December 31, 1996, including Eastern's reports on Forms
10-K and 10-Q;
(iv) Held discussions with the senior management of the Company and Eastern
with respect to their past and current financial performance, financial
condition and future prospects;
(v) Reviewed certain internal financial data, projections and other
information of the Company and Eastern, 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 Eastern from a financial point of
view with certain of these institutions;
(vii) Compared the consideration to be paid by the Company pursuant to the
Agreement with the consideration paid by acquirors 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 both the Buyer Common Stock and Seller
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.
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 Eastern and have not
attempted to verify any of such information. We have assumed (i) that the
financial projections of the Company and Eastern provided to us with respect to
the results of operations likely to be achieved by each company have been
prepared on a basis reflecting the best currently available estimates and
judgments of the Company's and Eastern'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. We
have also assumed, without independent verification, that the current and
projected aggregate reserves for possible loan losses for the Company and
Eastern 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, Eastern or any of their respective subsidiaries nor did we verify any
of the Company's or Eastern'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. In the absence of applicable
state law authority, the ability of a stockholder to rely on Tucker Anthony's
opinion would be resolved by a court of competent jurisdiction. Resolution of
the question of a stockholder's ability to rely on Tucker Anthony's opinion will
have no effect on the rights and responsibilities of the Board of Directors of
the Company under applicable state law or on the rights and responsibilities of
either Tucker Anthony or the Board under the federal securities laws.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the consideration to be paid by the Company pursuant to the
Agreement is fair to the Company's stockholders from a financial point of view.
Very truly yours,
TUCKER ANTHONY INCORPORATED
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APPENDIX D
TEXT OF DGCL SECTION 262 -- APPRAISAL RIGHTS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Sections 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given; provided that, if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest, which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
D-3
<PAGE> 150
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that it no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
349, L. '96, eff. 7-1-96.)
D-4
<PAGE> 151
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that a corporation may, and in certain cases must, indemnify any
person made a party to any action by reason of the fact that he is or was a
director, officer, employee or agent of the corporation against, in the case of
a nonderivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorney's fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation. This indemnification does not apply, in a derivative action, to
matters as to which it is adjudged that the director, officer, employee or agent
is liable to the Company, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonable entitled to indemnity for expenses, and, in a
nonderivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article Nine of VFSC's Certificate of Incorporation provides that VFSC
shall indemnify each person who is or was an officer or director of VFSC to the
fullest extent permitted by Section 145 of the DGCL.
Article Nine of VFSC's Certificate of Incorporation states that no director
of the Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liability is not permitted under the DGCL as in effect when
such breach occurred.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
*Previously filed.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of November 13, 1996 (incorporated by
reference to Exhibit 2 to VFSC's Report on Schedule 13D dated November 25, 1996;
included as Appendix A to Joint Proxy Statement-Prospectus).*
3.1 Certificate of Incorporation of VFSC (incorporated by reference to Exhibit 3.1 to
VFSC's Report on Form 8-K dated April 23, 1990).*
3.2 Bylaws of VFSC (incorporated by reference to Exhibit 3.2 to VFSC's Report on Form
8-K dated April 23, 1990).*
4 Form of certificate of VFSC Common Stock (not required to be filed under EDGAR).
5 Opinion of Sullivan & Worcester LLP as to legality (filed herewith as Exhibit 5).
8.1 Opinion of Sullivan & Worcester LLP as to tax matters (filed herewith as Exhibit
8.1).
8.2 Opinion of Hale and Dorr LLP as to tax matters (filed herewith as Exhibit 8.2).
10.1 Management Continuity Agreements dated February 9, 1990 between VFSC's predecessor
and each of the following four executive officers:
(a) John D. Hashagen, Jr.
(b) Richard O. Madden
(c) W. Bruce Fenn
(d) Robert G. Soucy
(incorporated by reference to Exhibit 3.2 to VFSC's Annual Report on Form 10-K for
the year ended December 31, 1990).*
</TABLE>
II-1
<PAGE> 152
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.2 Management Continuity Agreement dated March 17, 1994 between VFSC and Louis J.
Dunham. (incorporated by reference to Exhibit 10.1 of VFSC's Annual Report on Form
10-K for the year ended December 31, 1994).*
10.3 Executive Deferred Compensation Agreement dated July 19, 1988 by and between VFSC,
as and for VNB, and W. Bruce Fenn (incorporated by reference to Exhibit 10.2 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.4 Executive Deferred Compensation Agreement dated August 9, 1988 by and between VFSC,
as and for VNB, and Robert G. Soucy (incorporated by reference to Exhibit 10.3 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.5 Executive Deferred Compensation Agreement dated May 13, 1988 by and between VNB and
William H. George (incorporated by reference to Exhibit 10.4 of VFSC's Registration
Statement on Form S-4, File No. 33-72554, filed on December 3, 1993).*
10.6 Executive Deferred Compensation Agreement dated April 11, 1989 by and between VFSC,
as an for VNB, and Richard O. Madden (incorporated by reference to Exhibit 10.5 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.7 Executive Deferred Compensation Agreement dated August 1, 1988 by and between VFSC,
as and for VNB, and John D. Hashagen (incorporated by reference to Exhibit 10.6 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.8 Employment Agreement dated October 19, 1993 by and among United Savings Bank, VFSC
and Kenneth R. Cole (incorporated by reference to Exhibit 10.8 of VFSC's
Registration Statement on Form S-4, File No. 33-72554, filed on December 3, 1993).*
10.9 Agreement of Merger dated February 28, 1990 between Vermont Financial Services
Corp., a Vermont corporation, and VFSC (incorporated by reference to Exhibit 3.2 to
VFSC's Annual Report on Form 10-K for the year ended December 31, 1990).*
10.10 Agreement and Plan of Reorganization dated as of August 24, 1993 Merger dated
February 28, 1990 between West Mass Bankshares, Inc. and VFSC (incorporated by
reference to Exhibit 2.1 of VFSC's Registration Statement on Form S-4, File No.
33-72554, filed on December 3, 1993).*
10.11 Stock Purchase Agreement, dated as of February 26, 1996, between Arrow Financial
Corporation, Arrow Vermont Corporation, Green Mountain Bank and Vermont National
Bank (incorporated by reference to Exhibit 2 to VFSC's 8-K filed on March 18,
1996).*
10.12 Stock Option Agreement dated as of November 13, 1996 (incorporated by reference to
Exhibit 4 to VFSC's Report on Schedule 13D dated November 25, 1996; contained as
Exhibit A in Appendix A to Joint Proxy Statement-Prospectus).*
10.13 Stockholders Agreement dated as of November 13, 1996 among certain stockholders of
Eastern and VFSC (incorporated by reference to Exhibit 99.1 to VFSC's Report on
Schedule 13D dated November 25, 1996; contained as Exhibit B in Appendix A to Joint
Proxy Statement- Prospectus).*
21 Subsidiaries of VFSC (incorporated by reference to Exhibit 22 to VFSC's Annual
Report on Form 10-K for the year ended December 31, 1995).*
22.1 Form of Proxy for Eastern Meeting.*
22.2 Form of Proxy for VFSC Meeting (filed herewith as Exhibit 22.2).
22.3 Opinion of McConnell, Budd & Downes, Inc. (included as Appendix B to the Joint Proxy
Statement-Prospectus; filed herewith).
22.4 Opinion of Tucker Anthony Incorporated (included as Appendix C to the Joint Proxy
Statement- Prospectus; filed herewith).
23.1 Consent of Coopers & Lybrand LLP with respect to VFSC (filed herewith as Exhibit
23.1).
23.2 Consent of KPMG Peat Marwick LLP with respect to Eastern (filed herewith as Exhibit
23.2).
</TABLE>
II-2
<PAGE> 153
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
23.3 Consent of Sullivan & Worcester LLP (included in Exhibit 5 -- filed herewith).
23.4 Consent of Hale and Dorr LLP (included in Exhibit 8.2 -- filed herewith).
23.5 Consent of McConnell, Budd & Downes, Inc. (filed herewith as Exhibit 23.5).
23.6 Consent of Tucker Anthony Incorporated (filed herewith as Exhibit 23.6).
24 Powers of Attorney of certain directors and officers of VFSC.*
99.1 Annual Report of Eastern Bancorp, Inc. for the fiscal year ended September 30,
1996.*
</TABLE>
(b) Financial Statement Schedules -- Not applicable.
(c) Not applicable.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the registrant, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by 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 prospectus pursuant to
Items 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 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 Securities Exchange Act
of 1934, as amended (the "Exchange Act") (and where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act), that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, 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 to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Vermont Financial Services Corp. has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Brattleboro, State of Vermont, on April 3, 1997.
VERMONT FINANCIAL SERVICES CORP.
By: /s/ JOHN D. HASHAGEN, JR.
------------------------------------
Name: John D. Hashagen, Jr.
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement on Form S-4 relating to the Common
Stock of Vermont Financial Services Corp. has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- ----------------
<C> <S> <C>
/s/ JOHN D. HASHAGEN, JR. President, Director and Chief April 3, 1997
- ---------------------------------------- Executive Officer (Principal
John D. Hashagen, Jr. Executive Officer)
/s/ RICHARD O. MADDEN Executive Vice President, Treasurer April 3, 1997
- ---------------------------------------- and Chief Financial Officer
Richard O. Madden (Principal Financial and Accounting
Officer)
/s/ ANTHONY F. ABATIELL* Director April 3, 1997
- ----------------------------------------
Anthony F. Abatiell
/s/ ZANE V. AKINS* Director April 3, 1997
- ----------------------------------------
Zane V. Akins
/s/ CHARLES A. CAIRNS* Director April 3, 1997
- ----------------------------------------
Charles A. Cairns
/s/ WILLIAM P. CODY* Director April 3, 1997
- ----------------------------------------
William P. Cody
/s/ ALLYN W. COOMBS* Director April 3, 1997
- ----------------------------------------
Allyn W. Coombs
/s/ BEVERLY G. DAVIDSON* Director April 3, 1997
- ----------------------------------------
Beverly G. Davidson
/s/ PHILIP M. DRUMHELLER* Director April 3, 1997
- ----------------------------------------
Philip M. Drumheller
/s/ JAMES E. GRIFFIN* Director April 3, 1997
- ----------------------------------------
James E. Griffin
</TABLE>
II-4
<PAGE> 155
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- ----------------
<C> <S> <C>
/s/ FRANCIS L. LEMAY* Director April 3, 1997
- ----------------------------------------
Francis L. Lemay
/s/ KIMBALL E. MANN* Director April 3, 1997
- ----------------------------------------
Kimball E. Mann
/s/ STEPHAN A. MORSE* Director April 3, 1997
- ----------------------------------------
Stephan A. Morse
/s/ DONALD E. O'BRIEN* Director April 3, 1997
- ----------------------------------------
Donald E. O'Brien
/s/ ROGER M. PIKE* Director April 3, 1997
- ----------------------------------------
Roger M. Pike
/s/ MARK W. RICHARDS* Director April 3, 1997
- ----------------------------------------
Mark W. Richards
*By: /s/ JOHN D. HASHAGEN, JR. April 3, 1997
- ----------------------------------------
John D. Hashagen, Jr.,
Attorney-in-fact
</TABLE>
II-5
<PAGE> 1
REGISTRATION NO. 333-21023
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
VERMONT FINANCIAL SERVICES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 6021 03-0284445
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
100 MAIN STREET, BRATTLEBORO, VERMONT 05301
(802) 257-7151
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN D. HASHAGEN, JR.
VERMONT FINANCIAL SERVICES CORP.
100 MAIN STREET
BRATTLEBORO, VERMONT 05301
(802) 257-7151
TELECOPY: (802) 258-4097
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN J. COUKOS, ESQ. EDWARD YOUNG, ESQ.
SULLIVAN & WORCESTER LLP HALE AND DORR LLP
ONE POST OFFICE SQUARE 60 STATE STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109
(617) 338-2800 (617) 526-6000
TELECOPY: (617) 338-2880 TELECOPY: (617) 526-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective and all other
conditions to the merger of Eastern Bancorp, Inc. with and into Vermont
Financial Services Corp. pursuant to the Agreement and Plan of Reorganization
described in the accompanying Joint Proxy Statement-Prospectus have been
satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT WILL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT WILL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
VERMONT FINANCIAL SERVICES CORP.
100 MAIN STREET
BRATTLEBORO, VERMONT 05301
April , 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Vermont Financial Services Corp. ("VFSC") to be held on
May 30, 1997 at 10:00 a.m., local time, at the Holiday Inn, Rutland, Vermont.
At the Special Meeting, stockholders will be asked to approve and adopt an
Agreement and Plan of Reorganization (the "Merger Agreement") entered into on
November 13, 1996 providing for the merger of Eastern Bancorp, Inc. with and
into VFSC (the "Merger").
Your Board of Directors has carefully evaluated the proposed Merger and
believes that the Merger is advisable and in the best interests of VFSC and its
stockholders. The Board has unanimously approved the Merger and the related
transactions and recommends that stockholders vote FOR that proposal.
The enclosed Joint Proxy Statement-Prospectus contains a description of the
Merger as well as the background of the proposed transaction and the businesses
of the two merging companies and their subsidiaries. I encourage you to read
this document closely. Should you have any questions concerning the Special
Meeting, you may call us at (802) 257-7151.
Accompanying this letter are a Notice of the Special Meeting, a Proxy and
the Joint Proxy Statement- Prospectus. To assure that your shares are properly
represented at the Special Meeting, please sign, date and return your Proxy as
soon as possible in the envelope provided. If you attend the Special Meeting in
person, you may vote your shares even if you have previously returned a Proxy.
YOUR VOTE IS IMPORTANT. FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT. WE URGE YOU TO VOTE FOR THE PROPOSED MERGER.
Sincerely,
JOHN D. HASHAGEN, JR.
President and Chief Executive Officer
<PAGE> 3
VERMONT FINANCIAL SERVICES CORP.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997
TO THE STOCKHOLDERS OF VERMONT FINANCIAL SERVICES CORP.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "VFSC
Meeting") of VERMONT FINANCIAL SERVICES CORP. ("VFSC") will be held on May 30,
1997 at 10:00 a.m., local time, at the Holiday Inn, Rutland, Vermont, for the
purpose of considering and voting upon the following matter:
- To approve and adopt the Agreement and Plan of Reorganization dated as of
November 13, 1996 (the "Merger Agreement"), by and among VFSC, Eastern
Bancorp, Inc. ("Eastern") and Eastern's wholly owned subsidiary, Vermont
Federal Bank, FSB, and each of the transactions contemplated thereby,
including the merger (the "Merger") of Eastern with and into VFSC upon
the terms and subject to the conditions set forth in the Merger
Agreement, as more fully described in the accompanying Joint Proxy
Statement-Prospectus. A copy of the Merger Agreement is attached as
Appendix A to the accompanying Joint Proxy Statement-Prospectus, and
certain related documents are attached as exhibits thereto.
The VFSC Board of Directors has fixed the close of business on April 2,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the VFSC Meeting and any adjournments or postponements
thereof. Only stockholders of record at the close of business on such date are
entitled to notice of and to vote at the VFSC Meeting. A list of VFSC
stockholders entitled to vote at the VFSC Meeting or any adjournments or
postponements thereof will be available for examination for any purpose germane
to the VFSC Meeting, for 10 days prior to the VFSC Meeting during ordinary
business hours, at the principal executive offices of VFSC located at 100 Main
Street, Brattleboro, Vermont.
Shares of VFSC Common Stock are the only securities of VFSC the holders of
which are entitled to vote upon the matters to be presented at the VFSC Meeting.
Your vote is important regardless of the number of shares you own. Approval
of the Merger requires the affirmative vote of the holders of not less than
two-thirds of the issued and outstanding shares of VFSC Common Stock. Each
stockholder, even though he or she now plans to attend the VFSC Meeting, is
requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid return envelope. You may revoke your Proxy at any time
prior to its exercise. Any stockholder present at the VFSC Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the VFSC Meeting.
By Order of the Board of Directors,
RICHARD O. MADDEN
Secretary
April , 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT AND EACH OF THE TRANSACTIONS CONTEMPLATED
THEREBY.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
<PAGE> 4
EASTERN BANCORP, INC.
537 CENTRAL AVENUE
DOVER, NEW HAMPSHIRE 03820
(603) 749-2150
April , 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Eastern Bancorp, Inc. ("Eastern") to be held on May 30, 1997 at 10:00 a.m., at
the Portsmouth Courtyard by Marriott, Portsmouth, New Hampshire (the "Special
Meeting").
At the Special Meeting, stockholders will be asked to approve the Agreement
and Plan of Reorganization (the "Merger Agreement"), dated as of November 13,
1996, by and among Eastern, its wholly owned subsidiary Vermont Federal Bank,
FSB, and Vermont Financial Services Corp. ("VFSC"). VFSC, a Delaware
corporation, is a registered bank holding company with its principal place of
business in Brattleboro, Vermont.
If the Merger Agreement is approved and the merger between VFSC and Eastern
(the "Merger") is consummated, each outstanding share of Eastern Common Stock,
other than shares as to which dissenters' rights have been perfected and shares
held by Eastern as treasury stock, will be converted into the right to receive
(in cash and/or shares of VFSC Common Stock, as described below) the sum of (i)
$7.25 plus (ii) the product of 0.49 times the average closing bid price per
share of VFSC Common Stock on the Nasdaq National Market during the
20-trading-day period ending on the fifth business day prior to the effective
date of the Merger (the "Average Closing Price"). 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 provided 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 below.
The price per share will be subject to maximum and minimum collars as
follows: if the Average 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 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 total consideration to be paid in connection with the Merger will
consist of approximately $26.65 million in cash and approximately 1.8 million
shares of VFSC Common Stock; the number of shares of VFSC Common Stock will be
decreased if the Average Closing Price equals or exceeds the $39.96 maximum and
increased if the Average Closing Price equals or falls below the $29.54 minimum.
If the Average Closing Price is less than $26.06, the price per share will be
adjusted to the sum of (i) $7.25 plus (ii) the product of 0.5553 times the
Average Closing Price; in addition, 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 stock certificates should not be returned with the proxy and should
not be forwarded until you receive a letter of transmittal that will be provided
approximately four weeks before the Merger is consummated.
VFSC's banking subsidiaries have a total of 39 offices, located primarily
in central and southern Vermont and the contiguous market of Greenfield,
Massachusetts, with total deposits of approximately $1.1 billion and total
assets of approximately $1.3 billion at December 31, 1996. Vermont Federal Bank
conducts business through a network of 25 offices located primarily in northern
Vermont and southeastern New Hampshire, with total deposits of approximately
$627.2 million and total assets of approximately $866.0 million at December 31,
1996.
The Merger and the Merger Agreement are described in the accompanying Joint
Proxy Statement- Prospectus, the forepart of which includes a summary of the
terms of the Merger and certain other information relating to the proposed
transaction. Consummation of the Merger is subject to certain conditions,
including the approval of the Merger Agreement by the holders of two-thirds of
Eastern's outstanding
<PAGE> 5
Common Stock and two-thirds of VFSC's outstanding Common Stock, as well as
regulatory approvals. We urge you to read the Joint Proxy Statement-Prospectus
carefully.
Eastern's Board of Directors (the "Eastern Board") has received the opinion
of its financial advisor, McConnell, Budd & Downes, Inc. ("MB&D"), that the
Merger Consideration (as defined in the Joint Proxy Statement-Prospectus) is
fair to the stockholders of Eastern from a financial point of view, and has
determined that the Merger Agreement is in the best interest of Eastern
stockholders.
ACCORDINGLY, THE EASTERN BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER AND RELATED TRANSACTIONS, AND RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
MB&D's opinion is summarized in the Joint Proxy Statement-Prospectus, and
the complete opinion is included as Appendix B to the Joint Proxy
Statement-Prospectus. We urge you to read these items carefully.
YOUR VOTE IS IMPORTANT. FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT. You are urged to sign, date and mail the enclosed
proxy card promptly in the postage-prepaid envelope provided, whether or not you
plan to attend the Special Meeting. If you attend the Special Meeting, you may
vote in person even if you have already mailed your proxy card.
On behalf of the Eastern Board, I thank you for your continued support. We
appreciate your interest in Eastern.
Sincerely yours,
W. STEVENS SHEPPARD
Chairman of the Board
<PAGE> 6
EASTERN BANCORP, INC.
537 CENTRAL AVENUE
DOVER, NEW HAMPSHIRE 03820
(603) 749-2150
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997
To the Stockholders of Eastern Bancorp, Inc.
Notice is hereby given that a Special Meeting of the Stockholders of
Eastern Bancorp, Inc. ("Eastern") will be held on May 30, 1997 at 10:00 a.m.,
local time, at the Portsmouth Courtyard by Marriott, Portsmouth, New Hampshire,
for the purpose of considering and voting upon the following matters:
1. A proposal to approve and adopt the Agreement and Plan of
Reorganization, dated as of November 13, 1996 (the "Merger Agreement"), by
and among Eastern, Eastern's wholly owned subsidiary, Vermont Federal Bank,
FSB, and Vermont Financial Services Corp. ("VFSC") and each of the
transactions contemplated thereby, pursuant to which Merger Agreement
Eastern would be merged with and into VFSC, and shareholders of Eastern
would receive cash and/or shares of Common Stock of VFSC, all as more fully
described in the attached Joint Proxy Statement-Prospectus. A copy of the
Merger Agreement is attached as Appendix A to the accompanying Joint Proxy
Statement-Prospectus and certain related documents are attached as exhibits
thereto.
2. Such other matter or matters which may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 2, 1997 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting. The
affirmative vote of the holders of two-thirds of the shares of Common Stock of
Eastern outstanding on the Record Date is required for approval of the Merger
Agreement.
The persons named as proxies may propose and vote for one or more
adjournments or postponements of the Special Meeting to permit further
solicitation of proxies in favor of the foregoing proposal.
If the proposal described in Item 1 above is approved by the stockholders
at the Special Meeting and effected by Eastern, stockholders of Eastern who
follow the procedures set forth in Section 262 of the Delaware General
Corporation Law will have dissenters' rights of appraisal as therein provided.
A JOINT PROXY STATEMENT-PROSPECTUS IS SET FORTH ON THE FOLLOWING PAGES AND
A PROXY CARD IS ENCLOSED HEREWITH. TO ENSURE THAT YOUR VOTE IS COUNTED, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED, POSTAGE-PAID
RETURN ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE
YOUR SHARES IN PERSON. HOWEVER, ATTENDANCE AT THE MEETING WILL NOT OF ITSELF
CONSTITUTE REVOCATION OF A PROXY. IF YOUR SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM THE HOLDER OF RECORD OF SUCH
SHARES IN ORDER TO VOTE PERSONALLY AT THE SPECIAL MEETING.
By Order of the Board of Directors,
W. STEVENS SHEPPARD
Chairman of the Board
Dover, New Hampshire
April , 1997
<PAGE> 7
JOINT PROXY STATEMENT
<TABLE>
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VERMONT FINANCIAL SERVICES CORP. EASTERN BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997 TO BE HELD ON MAY 30, 1997
</TABLE>
------------------------
VERMONT FINANCIAL SERVICES CORP.
PROSPECTUS
1,994,484 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE
(SUBJECT TO ADJUSTMENT AS DESCRIBED BELOW)
This Joint Proxy Statement-Prospectus is furnished in connection with the
solicitation of proxies from the holders of the common stock of Eastern Bancorp,
Inc. ("Eastern"), par value $0.01 per share ("Eastern Common Stock"), for use at
the Special Meeting of Stockholders of Eastern to be held on May 30, 1997 and
any adjournments or postponements thereof (the "Eastern Meeting") and from the
holders of the common stock of Vermont Financial Services Corp. ("VFSC"), $1.00
par value per share ("VFSC Common Stock"), for use at the Special Meeting of
stockholders of VFSC, to be held on May 30, 1997 and any adjournments or
postponements thereof (the "VFSC Meeting" and, together with the Eastern
Meeting, the "Special Meetings"). The solicitation of proxies from VFSC
stockholders is made by VFSC's Board of Directors (the "VFSC Board"), and the
solicitation of proxies from Eastern's stockholders is made by Eastern's Board
of Directors (the "Eastern Board").
At the Special Meetings, the Eastern and VFSC stockholders will be asked to
consider and act upon a proposal to approve and adopt the Agreement and Plan of
Reorganization by and among VFSC, Eastern and Vermont Federal Bank, FSB, dated
as of November 13, 1996 (the "Merger Agreement"), pursuant to which Eastern will
be merged with and into VFSC, with VFSC being the surviving corporation (the
"Merger"). A copy of the Merger Agreement is attached hereto as Appendix A and
is incorporated herein by reference.
As more fully described herein, pursuant to the Merger Agreement, Eastern
will be merged with and into VFSC and each then outstanding share of Eastern
Common Stock (other than shares with respect to which appraisal rights are
perfected) will be converted into either a cash amount or a number of shares of
VFSC Common Stock. The amount of cash and the number of shares (the "Merger
Consideration") will be determined pursuant to a formula set forth in the Merger
Agreement that is based upon the average closing bid price per share of VFSC
Common Stock on the Nasdaq National Market during the 20-trading-day period
ending on the fifth business day prior to the effective time of the Merger (the
"Average Closing Price"). The formula will be adjusted if the Average Closing
Price is more than $39.96 or less than $26.06, and is subject to possible
further adjustment if the Average Closing Price is less than $21.72. If the
Average Closing Price were $39.96, a holder of Eastern Common Stock receiving
all cash would receive $26.83 and a holder receiving all stock would receive
0.6714 shares of VFSC Common Stock; if it were $26.06, such holders would
receive, respectively, $21.72 in cash or 0.8335 shares of VFSC Common Stock.
Holders of Eastern Common Stock may elect to receive the Merger
Consideration in the form of cash or shares of VFSC Common Stock or a
combination of the two, but elections will be subject to proration as more fully
described herein if the cash to be paid or the stock to be issued under the
formula is not sufficient to accommodate all elections. The Average Closing
Price will not be determined by the time of the Eastern Meeting or when holders
of Eastern Common Stock will be required to submit their elections, and holders
will not know at such times the per share amount of cash or number of shares of
VFSC Common Stock to be delivered in the Merger. Persons wishing to inquire
about the Merger Consideration may telephone VFSC toll-free between 9:00 a.m.
and 5:00 p.m., Eastern standard time, at (800) 482-6245, ext. 4003.
Consummation of the Merger is conditioned upon, among other things, receipt
of all required stockholder and regulatory approvals. If there are not
sufficient votes at the time of their respective Special Meetings to approve and
adopt the Merger Agreement, the stockholders of Eastern and/or VFSC may be asked
to approve adjournment of the Special Meeting to permit further solicitation of
proxies.
This Joint Proxy Statement-Prospectus also constitutes a prospectus of VFSC
in respect of up to 1,994,484 shares of VFSC Common Stock to be issued to
Eastern stockholders in connection with the Merger (subject to increase to an
amount which cannot currently be determined if the Average Closing Price of VFSC
Common Stock at the Effective Time (as those terms are hereinafter defined) is
less than $26.06 per share). Such shares of VFSC Common Stock are to be issued
on the conversion of the outstanding shares of Eastern Common Stock, as
described in this Joint Proxy Statement-Prospectus. See "THE MERGER -- Terms of
the Merger."
All information contained in this Joint Proxy Statement-Prospectus relating
to VFSC and its subsidiaries has been supplied by VFSC, and all information
contained in this Joint Proxy Statement-Prospectus relating to Eastern and its
subsidiaries has been supplied by Eastern. The pro forma financial information
contained herein relating to VFSC has been prepared by VFSC and includes
historical financial information regarding Eastern that was supplied to VFSC by
Eastern.
The Joint Proxy Statement-Prospectus and the respective proxy forms for the
Special Meetings are first being mailed to stockholders of Eastern and VFSC on
or about April , 1997.
------------------------
THE SHARES OF VFSC COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS APRIL , 1997.
<PAGE> 8
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT-PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN IN CONNECTION WITH THE
SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY VFSC OR EASTERN. THIS JOINT PROXY STATEMENT-PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT- PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF VFSC OR
EASTERN SINCE THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS OR THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION................................................................. 1
INFORMATION INCORPORATED BY REFERENCE................................................. 1
SUMMARY............................................................................... 3
The Companies....................................................................... 3
The Merger.......................................................................... 4
The Special Meetings................................................................ 8
Record Date and Vote Required....................................................... 8
Management and Operations after the Merger.......................................... 8
Recommendation of the Boards of Directors and Reasons for the Merger................ 9
Opinions of Financial Advisors...................................................... 9
No Solicitation..................................................................... 10
Interests of Certain Persons in the Merger.......................................... 10
Employment Matters.................................................................. 10
Conditions to Consummation of the Merger; Termination............................... 11
Amendment and Waiver of the Merger Agreement; Extensions............................ 11
Regulatory Approvals................................................................ 11
Certain Federal Income Tax and Accounting Consequences.............................. 12
Stock Option Agreement.............................................................. 12
Appraisal Rights and Dissenting Eastern Stockholders................................ 12
Certain Differences in the Rights of Stockholders................................... 13
Market Prices and Dividend Data..................................................... 13
SELECTED FINANCIAL DATA............................................................... 15
COMPARATIVE UNAUDITED PER SHARE FINANCIAL DATA........................................ 19
RECENT DEVELOPMENTS................................................................... 21
THE SPECIAL MEETINGS.................................................................. 23
Record Date, Quorum and Voting for Eastern Meeting.................................. 23
Required Vote at Eastern Meeting.................................................... 23
Record Date, Quorum and Voting for VFSC Meeting..................................... 24
Required Vote at VFSC Meeting....................................................... 24
Solicitation Expenses............................................................... 25
Beneficial Ownership of Eastern Common Stock........................................ 25
Appraisal Rights and Dissenting Eastern Stockholders................................ 26
THE MERGER............................................................................ 29
General............................................................................. 29
Background of the Merger............................................................ 29
Recommendation of the Eastern Board and Reasons for the Merger...................... 32
Recommendation of the VFSC Board and Reasons for the Merger......................... 33
Opinion of Financial Advisors....................................................... 34
Effective Time of the Merger; Closing Date.......................................... 43
Conversion of Shares of Eastern Common Stock Pursuant to the Merger................. 43
</TABLE>
i
<PAGE> 9
<TABLE>
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Election Procedures................................................................. 46
Certificate Exchange Procedures..................................................... 47
Treatment of Eastern Stock Options.................................................. 48
Conduct of Business Pending the Merger.............................................. 48
Conditions to Consummation of the Merger............................................ 51
Termination......................................................................... 52
Amendment, Extension and Waiver..................................................... 52
Requisite Regulatory Approvals...................................................... 53
Expenses............................................................................ 54
Stock Option Agreement.............................................................. 54
Stockholders Agreement.............................................................. 55
No Solicitation..................................................................... 55
Interests of Certain Persons in the Merger.......................................... 56
Employment Obligations.............................................................. 57
Resale of VFSC Common Stock......................................................... 57
Certain Federal Income Tax Consequences............................................. 58
Accounting Treatment................................................................ 61
PRO FORMA COMBINED FINANCIAL DATA..................................................... 62
INFORMATION REGARDING VFSC............................................................ 68
DESCRIPTION OF VFSC CAPITAL STOCK..................................................... 68
Common Stock........................................................................ 68
Preferred Stock..................................................................... 68
MARKET FOR VFSC COMMON STOCK.......................................................... 69
COMPARISON OF RIGHTS OF HOLDERS OF EASTERN COMMON STOCK AND VFSC COMMON STOCK......... 70
Special Meetings of Stockholders.................................................... 70
Inspection Rights................................................................... 70
Action by Consent of Stockholders................................................... 70
Cumulative Voting................................................................... 70
Preemptive Rights................................................................... 70
Classification of the Board of Directors............................................ 70
Removal of Directors................................................................ 70
Additional Directorships and Vacancies on the Board of Directors.................... 71
Exculpation of Directors and Officers............................................... 71
Indemnification of Directors, Officers and Others................................... 71
Restrictions upon Certain Business Combinations..................................... 71
Mergers, Share Exchanges or Asset Sales............................................. 72
Certain Issuances of Stock.......................................................... 72
Amendments to Charter............................................................... 72
Amendments to By-laws............................................................... 73
Appraisal Rights.................................................................... 73
LEGAL MATTERS......................................................................... 73
EXPERTS............................................................................... 73
</TABLE>
APPENDICES
Appendix A -- Agreement and Plan of Reorganization dated as of November 13, 1996
Appendix B -- Form of Opinion of McConnell, Budd & Downes, Inc.
Appendix C -- Form of Opinion of Tucker Anthony Incorporated
Appendix D -- Text of Section 262 of Delaware General Corporation Law (Appraisal
Rights)
ii
<PAGE> 10
AVAILABLE INFORMATION
VFSC has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
S-4 under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the securities to be issued in connection with the Merger. For
further information pertaining to the securities of VFSC to which this Joint
Proxy Statement-Prospectus relates, reference is made to the Registration
Statement, including the exhibits and schedules filed as a part thereof. In
addition, VFSC and Eastern are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Commission. Proxy statements, reports and other information concerning VFSC
and Eastern can be inspected and copied at the Commission's office at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's Regional Offices in New York (7 World Trade Center, Suite 1300, New
York, New York 10048) and Chicago (CitiCorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661), and copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site (located at http://www.sec.gov) which contains
reports, proxy and information statements and other information regarding VFSC
and Eastern. VFSC Common Stock and Eastern Common Stock are listed on the Nasdaq
National Market (the "Nasdaq NM"). Consequently, reports, proxy statements and
other information concerning VFSC and Eastern may also be inspected at the
offices of the NASD, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. This
Joint Proxy Statement-Prospectus does not contain all the information set forth
in the Registration Statement and exhibits thereto which VFSC has filed with the
Commission under the Securities Act, which Registration Statement and exhibits
thereto may be obtained from the Public Reference Section of the Commission at
its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 upon
payment of the prescribed fees, and to which reference is hereby made.
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
RELATING TO VFSC AND EASTERN THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS THERETO, ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF VFSC
COMMON STOCK OR EASTERN COMMON STOCK, TO WHOM THIS JOINT PROXY
STATEMENT-PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE
OF VFSC, VERMONT FINANCIAL SERVICES CORP., 100 MAIN STREET, BRATTLEBORO, VERMONT
05301, ATTENTION: RICHARD O. MADDEN, SECRETARY (TELEPHONE: 802-257-7151), OR IN
THE CASE OF EASTERN, EASTERN BANCORP, INC., 537 CENTRAL AVENUE, DOVER, NEW
HAMPSHIRE 03820, ATTENTION: PRESIDENT (TELEPHONE: 603-749-2150). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 23,
1997.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by VFSC with the Commission are
incorporated by reference herein:
(1) VFSC's Annual Report on Form 10-K for the year ended December 31,
1996; and
(2) VFSC's Current Reports on Form 8-K, dated March 18, 1996 and
November 21, 1996.
VFSC's Exchange Act file number with the Commission is 0-11012.
The following documents previously filed by Eastern with the Commission are
incorporated by reference herein:
(1) Eastern's Annual Report on Form 10-K for the year ended September
30, 1996;
(2) Eastern's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996; and
<PAGE> 11
(3) Eastern's Current Report on Form 8-K, dated November 21, 1996.
Eastern's Exchange Act file number with the Commission is 0-14853.
Also incorporated herein by reference are the following portions of
Eastern's Annual Report to Stockholders for the fiscal year ended September 30,
1996, which accompanies this Joint Proxy Statement-Prospectus: (i) Business
(pages 1 to 9); (ii) Market for Registrant's Common Stock and Related
Stockholder Matters (page 10); (iii) Selected Financial Data (pages 11 to 13);
(iv) Management's Discussion and Analysis of Financial Condition and Results of
Operations (pages 14 to 31); and (v) Consolidated Financial Statements and Notes
thereto (pages 32 to 61).
In addition, all documents subsequently filed by VFSC with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
date of the Special Meetings shall be deemed to be incorporated by reference
into this Joint Proxy Statement-Prospectus and to be a part hereof from the date
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement- Prospectus to the
extent that a statement contained herein, or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Joint
Proxy Statement-Prospectus.
THIS JOINT PROXY STATEMENT-PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF VFSC FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS
RELATING TO THE COST SAVINGS, REVENUE ENHANCEMENTS AND FUNDING ADVANTAGES THAT
ARE EXPECTED TO BE REALIZED FROM THE MERGER AND THE EXPECTED IMPACT OF THE
MERGER ON VFSC'S FINANCIAL PERFORMANCE (SEE "THE MERGER -- RECOMMENDATION OF THE
EASTERN BOARD AND REASONS FOR THE MERGER" AND "-- RECOMMENDATION OF THE VFSC
BOARD AND REASONS FOR THE MERGER"). THESE FORWARD-LOOKING STATEMENTS INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED
HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE WORDS
"BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) INABILITY
FULLY TO REALIZE EXPECTED COST SAVINGS FROM THE MERGER ; (2) GREATER THAN
EXPECTED DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE MERGER;
(3) SIGNIFICANT INCREASES IN COMPETITIVE PRESSURE IN THE BANKING INDUSTRY; (4)
GREATER THAN ANTICIPATED COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF VFSC AND EASTERN; (5) REDUCTIONS IN MARGINS BECAUSE OF CHANGES IN
THE INTEREST RATE ENVIRONMENT; (6) LESS FAVORABLE GENERAL ECONOMIC CONDITIONS,
EITHER NATIONALLY OR REGIONALLY, THAN EXPECTED, RESULTING IN, AMONG OTHER
THINGS, A DETERIORATION IN CREDIT QUALITY, (7) CHANGES IN THE REGULATORY
ENVIRONMENT, (8) CHANGES IN BUSINESS CONDITIONS AND INFLATION, AND (9) CHANGES
IN THE SECURITIES MARKETS.
2
<PAGE> 12
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement-Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained herein,
the appendices hereto and the documents incorporated by reference herein.
Stockholders of VFSC and Eastern are urged to read this Joint Proxy
Statement-Prospectus with care in its entirety.
THE COMPANIES
VFSC. VFSC, a Delaware corporation, is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). VFSC has
two wholly owned subsidiaries, Vermont National Bank, a national banking
association ("VNB"), and United Bank, a Massachusetts chartered stock savings
bank ("UB" and, together with VNB, the "Banks"). At December 31, 1996, VFSC had
total consolidated assets of approximately $1.3 billion and total consolidated
stockholders' equity of approximately $119.7 million. VFSC intends to fund the
cash portion of the Merger Consideration out of cash from operations, consisting
primarily of dividend income received from the Banks.
VNB, which operates 32 branches throughout the State of Vermont, and UB,
which operates seven branches in western Massachusetts, are engaged in
commercial and retail banking and in the trust business, including the taking of
deposits, the making of secured and unsecured loans, the financing of commercial
transactions, and the performance of corporate, pension and personal trust
services.
The principal offices of VFSC and VNB are located at 100 Main Street,
Brattleboro, Vermont 05301. VFSC's telephone number is (802) 257-7151. The
principal offices of UB are located at 45 Federal Street, Greenfield,
Massachusetts 01301.
VFSC and the Banks are subject to federal, state and local laws applicable
to state savings banks, national banks and bank holding companies and to the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the Comptroller of the Currency (the "OCC"), the
Federal Deposit Insurance Corporation (the "FDIC") and the Massachusetts
Division of Banks.
For further information concerning VFSC, see "INFORMATION REGARDING VFSC"
and the VFSC documents incorporated by reference herein as described under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Eastern. Eastern, a Delaware corporation, is a nondiversified savings and
loan holding company. It owns 100% of the stock of Vermont Federal Bank, FSB
("Vermont Federal"), a federally chartered stock savings bank. Eastern also owns
Vermont Service Corporation ("VSC"), a real estate development company which it
purchased from Vermont Federal in 1991. VSC and its subsidiary company, Vermont
East Coast Company ("VECC"), are joint venture partners in the ownership of
development rights in a mobile home association known as "Williston Woods." At
present, Eastern is not significantly engaged in operating business activities
other than management of its investments and operations through Vermont Federal,
VSC, and VECC. At December 31, 1996, Eastern had total consolidated assets of
approximately $866.0 million and total consolidated stockholders' equity of
approximately $64.8 million.
The principal offices of Eastern are located at 537 Central Avenue, Dover,
New Hampshire 03820. Eastern's telephone number is (603) 749-2150. The principal
offices of Vermont Federal are located at 282 Williston Road, Williston, Vermont
05495. Vermont Federal's telephone number is (802) 879-9000.
Eastern and Vermont Federal are subject to federal, state and local laws
applicable to savings and loan holding companies and federal savings banks and
to the regulations, principally, of the Office of Thrift Supervision (the
"OTS").
For further information concerning Eastern, see "INFORMATION INCORPORATED
BY REFERENCE," "SELECTED HISTORICAL FINANCIAL DATA OF EASTERN" and the
information contained in the form of Annual Report to Stockholders for the
fiscal year ended September 30, 1996 accompanying this Joint Proxy
Statement-Prospectus.
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3
<PAGE> 13
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Comparison of Loan Portfolios. Through its subsidiary Banks, VFSC makes
commercial loans to small and medium-sized businesses in Vermont and
Massachusetts. VNB is the leading commercial lender in the State of Vermont. At
the close of its 1996 fiscal year, approximately 19.5% of VFSC's outstanding
loans consisted of commercial real estate loans, 19.9% consisted of commercial
loans and 2.8% consisted of construction loans. These percentages are somewhat
higher than for Eastern in the case of commercial real estate and construction
loans, which accounted for 16.8% and 2%, respectively, of Eastern's loan
portfolio at the end of fiscal year 1996, and significantly higher in the case
of commercial loans, which accounted for 1.5% of Eastern's portfolio as of such
date. After the Merger is consummated, the proportion of the combined company's
loan portfolio consisting of such loans will be greater than is the case with
Eastern's current loan portfolio, and the proportion consisting of residential
mortgage loans will be less. Because commercial real estate and commercial
lending generally involves larger loan balances to single borrowers or groups of
related borrowers, and because repayment of the loan depends in part on the
underlying business and financial condition of the borrower and is more
susceptible to adverse future developments, such lending typically accounts for
a disproportionate share of delinquent loans and real estate owned through
foreclosure when compared with residential mortgage lending. In addition to such
factors, construction loans are, in general, subject to uncertainties inherent
in estimating construction costs, delays arising from labor problems, shortages
of material, uncertain marketability of a completed project and other
unpredictable contingencies that make it relatively difficult to determine
accurately the total loan funds required to complete a project or the value of
the completed project. For certain historical indicia of the performance of
VFSC's loan portfolio, see the information on Selected Financial Ratios in
"SELECTED FINANCIAL DATA -- Selected Historical Financial Data of VFSC."
VFSC and Eastern both realize 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. However, residential mortgage loans, which generally have a longer
maturity than commercial and commercial real estate loans, tend to respond
differently to increases in interest rates. Because the proportion of
residential mortgage loans to commercial and commercial real estate loans in the
combined company will be different from that in Eastern's current portfolio,
unanticipated changes in interest rates could have a different, and possibly
adverse, effect on the combined company's actual interest rate spread and net
income.
For further information concerning the portfolios and interest rate
experience of VFSC and Eastern, see "INFORMATION INCORPORATED BY REFERENCE,"
"SELECTED FINANCIAL DATA," and the information contained in the form of
Eastern's Annual Report to Stockholders for the fiscal year ended September 30,
1996 accompanying this Joint Proxy Statement-Prospectus.
THE MERGER
General. Pursuant to the terms of the Merger Agreement, Eastern is to be
merged with and into VFSC, with VFSC being the surviving entity. It is
anticipated that the Merger will close in the second quarter of 1997, although
there can be no assurance in this regard. See "-- Conditions to Consummation of
the Merger; Termination."
Merger Consideration. The Merger Agreement provides that, on the closing
date (the "Closing Date") and at the effective time of the Merger (the
"Effective Time") and subject to the election and allocation procedures provided
for therein, each share of Eastern Common Stock outstanding at the Effective
Time (other than shares with respect to which appraisal rights are perfected)
shall be converted into either (i) an amount in cash equal to the sum of (x)
$7.25 plus (y) the product of 0.49 times the average closing bid price per share
of VFSC Common Stock on the Nasdaq NM during the 20-trading-day period ending on
the fifth business day prior to the Effective Time (the "Average Closing Price")
(such total per share purchase price being referred to herein as the
"Acquisition Price" and such total per share cash amount being referred to
herein as the "Cash Distribution"), or (ii) the number of whole and fractional
shares of VFSC Common Stock, rounded to the nearest ten-thousandth of a share,
equal to the number obtained by dividing the Acquisition Price by the Average
Closing Price (such number being referred to herein as the "Exchange Ratio" or
the "Stock Distribution" and, together with the Cash Distribution, as the
"Merger Consideration").
- --------------------------------------------------------------------------------
4
<PAGE> 14
However, if the Average Closing Price is greater than or equal to $39.96 per
share, the Acquisition Price shall equal $26.83, and if the Average Closing
Price is less than or equal to $29.54 per share but greater than or equal to
$26.06 per share, the Acquisition Price shall equal $21.72. If the Average
Closing Price is less than $26.06, the Acquisition Price shall equal the sum of
(x) $7.25 and (y) the product of 0.5553 times the Average Closing Price.
If the Average Closing Price is less than $26.06 per share, then Eastern
shall have the right to terminate the Merger Agreement, unless VFSC elects, in
its sole discretion, to adopt $21.72 as the Acquisition Price (the "Adjusted
Acquisition Price"). In determining whether to elect to terminate the Merger
Agreement in these circumstances, Eastern will, consistent with its fiduciary
duties, take into account all relevant facts and circumstances existing at the
time, including without limitation: whether it believes that VFSC is prepared to
(i) adopt $21.72 as the Acquisition Price, (ii) acquiesce in the termination of
the Merger or (iii) seek to negotiate for a lesser increase in the Acquisition
Price; the market for bank and thrift stocks in general; and the relative value
of the Eastern Common Stock in the market and the advice of its financial
advisors and legal counsel. By approving the Merger Agreement, the Eastern
stockholders would be permitting the Eastern Board to determine, in the exercise
of its fiduciary duties, to proceed with the Merger even if the Average Closing
Price of the VFSC Common Stock during the pricing period were less than $26.06
per share.
The total amount of the Cash Distribution to be made to all holders of
shares of Eastern Common Stock will equal the product of $7.25 times the number
of shares of Eastern Common Stock outstanding at the Effective Time (which
product is currently estimated at $26.6 million). The balance of the Merger
Consideration will consist of shares of VFSC Common Stock; if the Average
Closing Price is between $29.54 and $39.96 per share, Eastern's stockholders
will receive approximately 1.8 million shares of VFSC Common Stock, or
approximately 28.1% of all shares outstanding upon consummation of the Merger
and, if the Average Closing Price is less than $29.54, they will receive an
increasing number of shares, up to approximately 2.0 million shares of VFSC
Common Stock, or approximately 30.7% of all shares outstanding upon consummation
of the Merger, if the Average Closing Price is $26.06 per share. Each holder of
shares of Eastern Common Stock may, by means of an election form that will be
mailed following the Special Meetings, elect to receive, with respect to some or
all of such holder's shares of Eastern Common Stock, shares of VFSC Common Stock
or cash, or may make no election. Any election may be revoked or changed by the
person submitting such form, provided such notice is timely received. See "THE
MERGER -- Election Procedures."
Because the aggregate amount of cash and the aggregate number of shares of
VFSC Common Stock are determined in accordance with the formula set forth in the
Merger Agreement and will be allocated among Eastern's stockholders pursuant to
the election and allocation procedures described herein, the extent to which
individual elections to receive cash or VFSC Common Stock can be accommodated
will depend upon the number of Eastern stockholders who elect to receive cash or
VFSC Common Stock or who make no election. The Merger Agreement provides that,
if necessary, elections to receive cash (or stock) will be subject to proration,
ratably with all similar elections, if sufficient cash (or stock) is not
available to accommodate fully all such elections. No prediction can be made as
to the election that any Eastern stockholder may make and, consequently, no
assurance can be given that an election by any given holder of Eastern Common
Stock will be honored with respect to any or all shares of Eastern Common Stock
held by such holder, or that holders will receive their requested form or mix of
consideration.
For example, pursuant to the Merger Agreement, if holders of Eastern Common
Stock in the aggregate elect to receive fewer shares of VFSC Common Stock and
more cash than is available to be issued and paid under the formula, then shares
of VFSC Common Stock will be distributed first to those holders who had elected
to receive only VFSC Common Stock and then to holders who had made no election.
If shares of VFSC Common Stock still remain following such distributions, then
such shares will be allocated ratably among the holders who had elected to
receive only cash. Conversely, if holders of Eastern Common Stock elect to
receive in the aggregate more shares of VFSC Common Stock than are available
under the formula, then cash will be distributed first to those holders who had
elected to receive only cash and then to holders who had made no election. If
cash still remains following such distributions, then such cash and the shares
of VFSC Common Stock will be allocated ratably among holders who had elected to
receive VFSC Common Stock.
5
<PAGE> 15
- --------------------------------------------------------------------------------
Holders of Eastern Common Stock who do not submit properly completed
election forms by 5:00 p.m., Eastern standard time, on the 15th calendar day
following, but not including, the mailing date of the election forms will be
deemed to have made no election as to whether they receive VFSC Common Stock or
cash in the Merger. Such persons will be allocated cash or shares of VFSC Common
Stock based on the effect of valid elections on the amount of cash and number of
shares of VFSC Common Stock available under the allocation formula. Because the
deadline for return of the election forms will occur prior to the end of the
valuation period, the Average Closing Price will not be determined by the time
holders of Eastern Common Stock will be required to submit their election forms.
See "THE MERGER -- Election Procedures." In the event a holder of Eastern Common
Stock receives both VFSC Common Stock and cash (other than cash for fractional
shares), the receipt of such cash could be subject to tax as a dividend. See
"THE MERGER -- Certain Federal Income Tax Consequences."
- --------------------------------------------------------------------------------
6
<PAGE> 16
TABULAR AND GRAPHIC ILLUSTRATION OF THE MERGER CONSIDERATION
AT VARIOUS AVERAGE CLOSING PRICES
The table below shows the Merger Consideration corresponding to various
possible values of the Acquisition Price and Adjusted Acquisition Price,
respectively. If the Average Closing Price is less than $26.06 and VFSC in its
sole discretion so elects, the Merger Consideration will be based on the
Adjusted Acquisition Price of $21.72. The Merger Consideration will be in the
form of the Cash Distribution per share of Eastern Common Stock or the Stock
Distribution of the number of shares of VFSC Common Stock to be exchanged for
each share of Eastern Common Stock.
There can be no assurance as to what the Average Closing Price will be or
what the value of the Merger Consideration will be at or following the Effective
Time. The table and graph below are intended as illustrative examples only. This
illustration is qualified in its entirety by reference to the Merger Agreement.
The highest and lowest Average Closing Prices depicted in the illustration are
not intended to suggest that the Average Closing Price, when computed, will not
be higher or lower than these respective values.
As shown below, if the Average Closing Price were to be $41.625, the
closing price of VFSC Common Stock on March 27, 1997, the Acquisition Price
would be $26.83; an Eastern Stockholder receiving all cash would receive $26.83
per share of Eastern Common Stock, and an Eastern Stockholder receiving all
stock would receive 0.6446 shares of VFSC Common Stock per share of Eastern
Common Stock.
<TABLE>
<CAPTION>
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
AVERAGE ------------------------------
CLOSING PRICE ACQUISITION STOCK
(OF VFSC PRICE (PER CASH DISTRIBUTION
SHARES) EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ------------- -------------- ------------ -------------
<S> <C> <C> <C>
$44.000 $26.8300 $26.8300 0.6098
42.000 26.8300 26.8300 0.6388
41.625 26.8300 26.8300 0.6446
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
40.000 26.8300 26.8300 0.6708
39.960 26.8300 26.8300 0.6714
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
38.000 25.8700 25.8700 0.6808
36.000 24.8900 24.8900 0.6914
34.000 23.9100 23.9100 0.7032
32.000 22.9300 22.9300 0.7166
30.000 21.9500 21.9500 0.7317
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
29.540 21.7200 21.7200 0.7353
28.000 21.7200 21.7200 0.7757
26.060 21.7200 21.7200 0.8335
</TABLE>
<TABLE>
<CAPTION>
If Eastern elects to terminate the Merger
but VFSC elects to keep the Merger Agreement in effect:
- --------------------------------------------------------------
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
ADJUSTED -----------------------------------
ACQUISITION PRICE (PER CASH STOCK DISTRIBUTION
EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ---------------------- ------------ ------------------
<S> <C> <C>
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C> <C> <C>
26.000 21.6878 21.6878 0.8341 $21.7200 $21.7200
24.000 20.5772 20.5772 0.8574 21.7200 21.7200
22.000 19.4666 19.4666 0.8848 21.7200 21.7200
<CAPTION>
26.000 0.8354
<S> <C>
24.000 0.9050
22.000 0.9873
</TABLE>
- --------------------------------------------------------------------------------
Graph showing range of values of merger consideration per share of target
company's stock as determined by price of acquiring company's stock, with
example of value based on March 27, 1997 price of acquiring company's stock.
7
<PAGE> 17
Because the tax consequences of receiving cash or VFSC Common Stock will
differ, holders of Eastern Common Stock are urged to read carefully the
information set forth under the caption "THE MERGER -- Certain Federal Income
Tax Consequences."
THE SPECIAL MEETINGS
At the Special Meetings, the stockholders of Eastern and VFSC will consider
and vote upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby.
The VFSC Meeting will be held on May 30, 1997 at 10:00 a.m. at the Holiday
Inn, Rutland, Vermont.
The Eastern Meeting will be held on May 30, 1997 at 10:00 a.m. at the
Portsmouth Courtyard by Marriott, Portsmouth, New Hampshire.
RECORD DATE AND VOTE REQUIRED
VFSC. The VFSC Board has fixed the close of business on April 2, 1997 as
the record date (the "VFSC Record Date") for determination of stockholders
entitled to notice of and to vote at the VFSC Meeting and any adjournments or
postponements thereof. The Merger 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 VFSC Common Stock. Proxies
may be revoked by filing a written notice of revocation, submitting a
subsequently executed proxy or attending the VFSC Meeting and voting in person.
See "THE SPECIAL MEETINGS -- Required Vote at VFSC Meeting." Stockholders of
VFSC are entitled to one vote at the VFSC Meeting for each share of VFSC Common
Stock held of record at the close of business on the VFSC Record Date. At the
close of business on the VFSC Record Date, 4,606,728 shares of VFSC Common Stock
were outstanding and entitled to vote, of which approximately 297,841 shares, or
6.5%, were held by directors and executive officers of VFSC and their respective
affiliates. See "THE SPECIAL MEETINGS -- Record Date, Quorum and Voting for VFSC
Meeting."
Eastern. The Eastern Board has fixed the close of business on April 2,
1997 as the record date (the "Eastern Record Date") for determination of
stockholders entitled to notice of and to vote at the Eastern Meeting and any
adjournments or postponements thereof. The affirmative vote of the holders of at
least two-thirds of the outstanding shares of Eastern Common Stock entitled to
vote is required to approve and adopt the Merger Agreement and the transactions
contemplated thereby. Proxies may be revoked by filing a written notice of
revocation, submitting a subsequently executed proxy or attending the Eastern
Meeting and voting in person. See "THE SPECIAL MEETINGS -- Required Vote at
Eastern Meeting." Stockholders of Eastern are entitled to one vote at the
Eastern Meeting for each share of Eastern Common Stock held of record at the
close of business on the Eastern Record Date. At the close of business on the
Eastern Record Date, 3,673,834 shares of Eastern Common Stock were outstanding
and entitled to vote, of which approximately 469,540 shares, or approximately
12.8%, were beneficially owned by directors and executive officers of Eastern
and their respective affiliates. See "THE SPECIAL MEETINGS -- Record Date,
Quorum and Voting for Eastern Meeting" and "-- Beneficial Ownership of Eastern
Common Stock."
Certain Eastern directors, who beneficially own in the aggregate 465,488
shares on the Eastern Record Date, representing approximately 12.7% of the
shares of Eastern Common Stock issued and outstanding on the Eastern Record
Date, have entered into a letter agreement with VFSC dated as of November 13,
1996 (the "Stockholders Agreement") to vote their shares of Eastern Common Stock
in favor of the Merger Agreement. See "THE SPECIAL MEETINGS -- Beneficial
Ownership of Eastern Common Stock" and "THE MERGER -- Stockholders Agreement."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The Merger will become effective on the Closing Date and at the Effective
Time as set forth in a Certificate of Merger to be filed with the Secretary of
State of the State of Delaware. The directors and officers of VFSC will continue
to serve in such offices after the Effective Time. However, the size of the VFSC
Board will be increased, and three members of the current Eastern Board will be
designated by VFSC to serve
8
<PAGE> 18
as members of the VFSC Board. VFSC has not yet designated the members of the
Eastern Board who will serve on the VFSC Board.
RECOMMENDATION OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
THE BOARDS OF DIRECTORS OF VFSC AND EASTERN EACH UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND EACH UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
Eastern. The Eastern Board has determined the Merger to be fair to and in
the best interests of Eastern and its stockholders and has unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Merger. Accordingly, the Board unanimously recommends that stockholders vote
"for" approval of the Merger Agreement.
In the course of reaching its decision to enter into the Merger Agreement
with VFSC, the Eastern Board consulted with its advisors and considered a number
of factors, including without limitation, the following: (i) its belief that the
Merger represents an attractive strategic alternative to Eastern for enhancing
stockholder value; (ii) the presentation and opinion of its financial advisor,
McConnell, Budd & Downes, Inc. ("MB&D"), as to the fairness from a financial
point of view of the Merger Consideration to Eastern and its stockholders; and
(iii) a number of factors relating to Eastern, VFSC and Eastern's stockholders.
See "THE MERGER -- Background of the Merger," and "-- Recommendation of the
Eastern Board and Reasons for the Merger" for a discussion of the reasons for
the Eastern Board's recommendation to approve the Merger Agreement and the
transactions contemplated thereby.
VFSC. The VFSC Board believes that the terms of the Merger Agreement and
the transactions contemplated thereby are in the best interests of its
stockholders and recommends that its stockholders vote FOR the approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
In reaching its determination, the VFSC Board considered the following
factors: (i) the opportunity for VFSC to expand and strengthen its existing
franchise in Vermont and to establish a presence in the attractive market of
southeastern New Hampshire; (ii) the opportunity for cost savings arising from
Eastern's existing presence in Vermont; (iii) cross-selling opportunities
provided by Eastern's customer base; and (iv) the opinion of its financial
advisor, Tucker Anthony Incorporated ("Tucker Anthony"), that, subject to
certain assumptions, the consideration to be paid by VFSC to Eastern's
stockholders was fair to the stockholders of VFSC, from a financial point of
view.
OPINIONS OF FINANCIAL ADVISORS
Eastern. MB&D has delivered to the Eastern Board its written opinion dated
the date of this Joint Proxy Statement-Prospectus that, in its opinion, the
consideration to be received in the Merger is fair, from a financial point of
view, to the stockholders of Eastern. The full text of MB&D's opinion as of the
date of this Joint Proxy Statement-Prospectus, which describes the procedures
followed, assumptions made, limitations on the review undertaken and other
matters in connection with rendering such opinion, is set forth in Appendix B
attached hereto. Stockholders of Eastern are urged to read this opinion in its
entirety. MB&D's opinion is directed only to the consideration to be received in
the Merger and does not constitute a recommendation to Eastern stockholders as
to how they should vote at the Eastern Meeting.
VFSC. Tucker Anthony has delivered to the VFSC Board its written opinions
dated November 13, 1996 and the date of this Joint Proxy Statement-Prospectus
that the consideration to be paid in the Merger is fair, from a financial point
of view, to the stockholders of VFSC. The full text of Tucker Anthony's opinion
as of the date of this Joint Proxy Statement-Prospectus, which sets forth
assumptions made, matters considered and limits on the review undertaken by it,
is attached hereto as Appendix C. Stockholders of VFSC are urged to read this
opinion in its entirety. Tucker Anthony's opinions are directed only to the
consideration to be paid in the Merger and do not constitute a recommendation to
VFSC stockholders as to how they should vote at the VFSC Meeting.
9
<PAGE> 19
See "THE MERGER -- Background of the Merger," "-- Opinions of Financial
Advisors" and Appendix B and Appendix C to this Joint Proxy
Statement-Prospectus.
NO SOLICITATION
Eastern has also agreed that neither it nor Vermont Federal will encourage,
solicit, initiate or, subject to the fiduciary obligations of the Eastern Board
(as advised by outside counsel), participate in any discussions or negotiations
with, or provide information to, any other party concerning any merger, tender
offer, sale of substantial assets, sale of shares of capital stock or debt
securities or similar transaction involving Eastern or any of its subsidiaries
(any of the foregoing being referred to as an "Acquisition Transaction"), except
that Eastern may communicate or disclose certain information to its stockholders
pursuant to applicable securities or other law. Eastern has also agreed that it
will immediately communicate to VFSC 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 or its receipt of any request for information from any
governmental agency or authority with respect to a proposed Acquisition
Transaction. See "THE MERGER -- No Solicitation."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to the Merger Agreement, VFSC has, subject to certain limitations,
agreed to indemnify, defend and hold harmless each present and past director,
officer and employee of Eastern against certain claims and related expenses and
liabilities. VFSC has also agreed to maintain for six years the directors' and
officers' liability insurance maintained by Eastern prior to the Effective Time
(or provide an appropriate substitute therefor), but VFSC is not required to
expend more than $207,000 for such insurance coverage. VFSC is also required to
designate three members of the current Eastern Board to serve on the VFSC Board
after the Merger is consummated. VFSC has not yet designated the members of the
Eastern Board who will serve on the VFSC Board.
Certain members of Eastern's management and of the Eastern Board have
certain arrangements, including certain benefits under existing employment
agreements and severance and benefit plans, which are likely to be triggered in
connection with the Merger resulting in cash severance payments of approximately
$1.9 million in the aggregate. In addition, at the Effective Time, certain
options granted to one executive officer of Eastern to purchase 1,200 shares of
Eastern Common Stock will become immediately exercisable in full pursuant to the
accelerated vesting provisions contained in the agreements under which such
options were granted. Such options have an aggregate value (based on the
difference between their exercise price and the $24.875 per share closing price
of Eastern Common Stock on March 27, 1997) of approximately $16,000; the
aggregate value, on such basis, of all vested options held by executive officers
of Eastern is approximately $3.9 million. See "THE MERGER -- Interests of
Certain Persons in the Merger."
EMPLOYMENT MATTERS
VFSC is not obligated to employ any person who is employed by Eastern
immediately prior to the Effective Time. Following the Effective Time, VFSC
will, or will cause its subsidiaries to, honor in accordance with their terms
all employment, severance and other compensation contracts between Eastern or
any subsidiary thereof and any director, officer or employee thereof, and all
provisions for benefits or other amounts earned or accrued through the Effective
Time under Eastern's pension or benefit plans. VFSC has agreed to provide those
persons who are employees of Eastern or any subsidiary of Eastern at the
Effective Time and who are thereafter employed by VFSC or a subsidiary of VFSC
with the benefits maintained by VFSC and its affiliates from time to time for
the benefit of their employees similarly situated. VFSC will cause each plan,
program or arrangement included among the benefits of VFSC to be provided after
the Effective Time (other than VFSC's defined benefit pension plan) to treat the
prior service of each such employee with Eastern or its affiliates, to the
extent such prior service is recognized under the comparable plan, program or
arrangement of Eastern, as service rendered to VFSC or its affiliate, as the
case may be, for purposes of eligibility to participate, vesting, and
eligibility for special benefits under each such plan, program or arrangement of
VFSC, but not in any case for benefit accrual attributable to any period before
the Effective
10
<PAGE> 20
Time. Any employee of Eastern or any subsidiary of Eastern who becomes an
employee of VFSC or any subsidiary of VFSC immediately following the Effective
Time who is not otherwise covered by an employment, severance or other
compensation agreement and who has been identified by VFSC within the first six
months from and after the Closing Date as an employee whose employment is
terminated as a result of VFSC's consolidation and/or cost-saving efforts in
connection with the Merger following the Effective Time, will be entitled to
receive from and after the date of such employee's termination of employment
certain salary continuation payments based on the length of the employee's
employment by Eastern. See "THE MERGER -- Employment Obligations."
CONDITIONS TO CONSUMMATION OF THE MERGER; TERMINATION
Conditions to the Merger. The obligations of VFSC and Eastern to
consummate the Merger are subject to various conditions, including, but not
limited to, obtaining requisite stockholder, regulatory and third-party
approvals, the absence of breaches of representations and warranties by the
other party, authorization for listing (subject to official notice of issuance)
on the Nasdaq NM of the additional shares of VFSC Common Stock to be issued in
connection with the Merger, and the receipt by each of VFSC and Eastern of an
opinion of counsel with respect to certain federal income tax consequences of
the Merger. In addition, it is a condition to the obligations of VFSC to
consummate the Merger that none of the requisite regulatory approvals pertaining
to the Merger impose any term, condition or restriction upon VFSC or its
subsidiaries after the Merger that, in VFSC's reasonable business judgment,
would be burdensome in the context of the transactions contemplated by the
Merger Agreement. It is also a condition to the obligations of each party that,
since the date of the end of the other party's most recent fiscal year, there
will have been no material adverse change in the financial condition, results of
operations, business, assets or prospects of the other party. Finally, it is a
condition of VFSC's obligations to effect the Merger that the number of shares
of Eastern Common Stock held by persons dissenting from the Merger and electing
statutory appraisal rights shall not exceed 20% of the issued and outstanding
shares of Eastern Common Stock. See "THE MERGER -- Conditions to Consummation of
the Merger."
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time by the mutual consent of VFSC and Eastern, or by either party
if: (i) a requisite regulatory approval of the Merger is denied and such denial
becomes final and nonappealable or the requisite approval of the other party's
stockholders is not obtained; (ii) the Merger is not consummated on or before
November 30, 1997, unless the failure to consummate the Merger is due to the
failure of the party seeking to terminate the Merger Agreement to perform its
obligations thereunder; or (iii) the other party materially breaches its
obligations under the Merger Agreement or the Stock Option Agreement (as defined
below) and fails to cure such breach within 30 days after notice of such breach.
The Merger Agreement may also be terminated at Eastern's election if the
Average Closing Price of VFSC Stock is less than $26.06 per share, unless VFSC
elects to adjust upward the consideration payable to holders of Eastern Common
Stock. Reference is made to the Merger Agreement for a description of additional
termination provisions contained therein. See "THE MERGER -- Termination."
AMENDMENT AND WAIVER OF THE MERGER AGREEMENT; EXTENSIONS
At any time prior to the consummation of the Merger or termination of the
Merger Agreement, the parties may amend the Merger Agreement, extend the time
for performance of any obligations or waive any inaccuracies in representations
and warranties or compliance with any conditions; provided, that stockholder
approval shall be necessary to amend the Merger Agreement to change the amount
or form of the consideration to be paid in the Merger. See "THE
MERGER -- Amendment, Extension and Waiver."
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board in
accordance with the requirements of Section 4(c)(8) of the BHC Act and
applicable regulations of the Federal Reserve Board and the Massachusetts Board
of Bank Incorporation (the "MBBI") under Chapter 167A of the Massachusetts
11
<PAGE> 21
- --------------------------------------------------------------------------------
General Laws. Prior notices of the Merger have also been filed with the Vermont
Department of Banking, Insurance, Securities and Health Care Administration (the
"Vermont Department"), the United States Department of Justice ("Department of
Justice") and the Federal Trade Commission (the "FTC"). There can be no
assurance that the Merger will be approved by the Federal Reserve Board, the
MBBI or any other applicable regulatory agency or body. If such approvals are
received, there can be no assurance as to the date of such approvals or the
absence of any litigation challenging any such approval. The Merger will not
occur until all regulatory approvals, notices or other filings required to
consummate the Merger have been obtained or made and are in full force and
effect, and any statutory waiting periods in respect thereof have expired. While
it is not a condition to the Merger, VFSC also intends to merge Vermont Federal
into VNB as soon as practicable following the completion of the Merger, which
will require certain additional regulatory filings and approvals. See "THE
MERGER -- Requisite Regulatory Approvals."
CERTAIN FEDERAL INCOME TAX AND ACCOUNTING CONSEQUENCES
Neither VFSC nor Eastern has requested or will receive an advance ruling
from the Internal Revenue Service as to the tax consequences of the Merger. The
respective obligations of VFSC and Eastern to effect the Merger are conditioned
upon receipt of opinions dated as of the Closing Date of their respective
counsel, substantially to the effect that, for federal income tax purposes, the
Merger constitutes a reorganization within the meaning of section 368 of the
Internal Revenue Code of 1986, as amended (the "Code") (noting, however, that
the nontaxability to the stockholders of Eastern resulting from such
reorganization does not extend to cash received as part of the Merger
Consideration, cash in lieu of a fractional share interest in VFSC Common Stock
or cash received by dissenting stockholders, if any).
It is intended that the Merger will constitute a tax-free reorganization
and that no gain or loss will be recognized by VFSC, Eastern or Vermont Federal
and that no gain or loss will be recognized by Eastern stockholders with respect
to their receipt of VFSC Common Stock in exchange for their shares of Eastern
Common Stock. The receipt of cash by Eastern stockholders in exchange for shares
of Eastern Common Stock, in lieu of fractional shares of VFSC Common Stock or as
a dissenting stockholder will be taxable to the extent of any taxable gain
realized upon such receipt of cash.
Stockholders of Eastern should consult their own tax advisors as to the tax
consequences of the Merger under federal, state, local or any other applicable
law. See "THE MERGER -- Certain Federal Income Tax Consequences."
It is intended that the Merger will be accounted for by VFSC as a purchase.
See "THE MERGER -- Accounting Treatment."
STOCK OPTION AGREEMENT
As a condition to, and in consideration for entering into, the Merger
Agreement, Eastern entered into an agreement dated November 13, 1996 (the "Stock
Option Agreement"), pursuant to which it granted VFSC an option to purchase up
to 732,425 shares of Eastern Common Stock (the "Option Shares") at an exercise
price of $21.00 per share (the "Option"). The Option is exercisable only upon
the occurrence of certain events after execution of the Merger Agreement as set
forth in the Stock Option Agreement, none of which has occurred as of the date
hereof. In the event that VFSC's rights to purchase the Option Shares become
exercisable under the Stock Option Agreement, VFSC is also entitled under the
Merger Agreement to receive a fee of up to $1 million. See "THE MERGER -- Stock
Option Agreement" and "-- Termination." The Stock Option Agreement and such fee
are intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement and may have the effect of
discouraging persons who might now or prior to the Effective Time be interested
in acquiring all of or a significant interest in Eastern from considering or
proposing such an acquisition.
APPRAISAL RIGHTS AND DISSENTING EASTERN STOCKHOLDERS
Holders of Eastern Common Stock who do not vote to approve and adopt the
Merger Agreement and who comply with the requirements of Section 262 of the
Delaware General Corporation Law (the "DGCL")
- --------------------------------------------------------------------------------
12
<PAGE> 22
- --------------------------------------------------------------------------------
will be entitled to dissenters' rights under Delaware law. A copy of Section 262
of the DGCL is attached to this Joint Proxy Statement-Prospectus as Appendix D.
Holders of VFSC Common Stock do not have appraisal rights with respect to the
Merger. See "THE SPECIAL MEETINGS -- Appraisal Rights and Dissenting Eastern
Stockholders" and "COMPARISON OF RIGHTS OF HOLDERS OF EASTERN COMMON STOCK AND
VFSC COMMON STOCK -- Appraisal Rights."
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
The rights of stockholders of Eastern are currently governed by the DGCL,
Eastern's Restated Certificate of Incorporation, as amended (the "Eastern
Certificate"), and Eastern's by-laws, as amended (the "Eastern By-laws"). Upon
consummation of the Merger, Eastern stockholders who do not receive all cash in
the Merger will automatically become stockholders of VFSC, and their rights will
be governed by the DGCL, VFSC's Certificate of Incorporation (the "VFSC
Certificate") and VFSC's by-laws (the "VFSC By-laws"). See "COMPARISON OF RIGHTS
OF HOLDERS OF EASTERN COMMON STOCK AND VFSC COMMON STOCK."
MARKET PRICES AND DIVIDEND DATA
VFSC Common Stock and Eastern Common Stock are both listed for trading on
the Nasdaq NM.
The following table sets forth, for the periods indicated, the range of
high and low asked and bid prices per share for VFSC Common Stock and Eastern
Common Stock on the Nasdaq NM as reported on the Lexis-Nexis IDD Information
Services, Tradeline quotation service. Such prices are approximate and reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
necessarily reflect actual transactions. The table also sets forth, for the
periods indicated, the quarterly cash dividends per share paid by VFSC and
Eastern, respectively, on such shares. All per share information with respect to
Eastern Common Stock has been adjusted to reflect Eastern's June 19, 1996
three-for-two stock split paid to stockholders of record as of June 5, 1996.
<TABLE>
<CAPTION>
CASH DIVIDENDS
VFSC EASTERN PER SHARE OF
COMMON STOCK COMMON STOCK COMMON STOCK
----------------- ----------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW VFSC EASTERN
- -------------------------------------- ------ ------ ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
1994
March 31............................ $19.25 $16.25 $12.33 $10.42 $0.10 $0.03
June 30............................. 20.00 16.50 15.67 10.25 0.12 0.03
September 30........................ 24.25 19.00 16.33 13.33 0.15 0.03
December 31......................... 22.25 19.75 14.83 10.83 0.17 0.03
1995
March 31............................ 23.50 20.75 14.33 12.50 0.20 0.07
June 30............................. 27.25 21.75 15.00 12.33 0.20 0.07
September 30........................ 30.88 26.00 16.00 14.17 0.22 0.08
December 31......................... 35.00 29.50 19.67 14.67 0.25 0.11
1996
March 31............................ 35.00 31.50 17.50 15.67 0.25 0.12
June 30............................. 34.00 31.00 17.67 15.17 0.27 0.12
September 30........................ 35.13 31.25 22.25 16.00 0.27 0.14
December 31......................... 36.50 34.25 24.00 20.00 0.27 0.14
1997
through March 27.................... 45.00 35.25 26.00 22.75 0.30 0.16
</TABLE>
On January 9, 1997, VFSC announced a first quarter dividend of $0.30 per
share, payable on February 25, 1997 to stockholders of record as of January 24,
1997. On January 23, 1997, Eastern announced a first quarter dividend of $0.16
per share, payable on February 19, 1997 to stockholders of record as of February
5, 1997. See "RECENT DEVELOPMENTS."
- --------------------------------------------------------------------------------
13
<PAGE> 23
The following table sets forth the last reported bid prices per share of
VFSC Common Stock and Eastern Common Stock, reported as described above, on
November 12, 1996, the last trading day before the announcement of the Merger
Agreement, and on March 27, 1997, the latest practicable trading day before the
printing of this Joint Proxy Statement-Prospectus, and equivalent per share
prices for Eastern Common Stock based on the VFSC Common Stock prices using
assumed Exchange Ratios of 0.69 and 0.6446, respectively, as of such dates. See
Note 1 to "COMPARATIVE UNAUDITED PER SHARE DATA."
<TABLE>
<CAPTION>
VFSC EASTERN EASTERN
COMMON STOCK COMMON STOCK PRO FORMA
PRICE PRICE EQUIVALENT
------------ ------------ ---------
<S> <C> <C> <C>
November 12, 1996.................................... $36.50 $22.00 $ 25.14
March 27, 1997....................................... 41.625 24.875 $ 26.83
</TABLE>
On March 27, 1997, there were approximately 2,500 holders of record of VFSC
Common Stock and approximately 1,100 holders of record of Eastern Common Stock.
HOLDERS OF EASTERN COMMON STOCK ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR VFSC COMMON STOCK AND EASTERN COMMON STOCK IN CONNECTION WITH
VOTING THEIR SHARES AND MAKING ELECTIONS TO RECEIVE SHARES OF VFSC COMMON STOCK
AND/OR CASH DURING THE ELECTION PERIOD.
14
<PAGE> 24
SELECTED FINANCIAL DATA
The following tables set forth (i) consolidated historical summary
financial data for the periods and as of the dates indicated for VFSC and its
consolidated subsidiaries and for Eastern and its consolidated subsidiaries and
(ii) pro forma combined summary financial data for the periods and as of the
dates indicated, giving effect to the Merger as if it had been consummated on
January 1, 1995 for income statement information and on December 31, 1996 for
balance sheet information. Pro forma adjustments made to arrive at the pro forma
combined amounts are based on the purchase method of accounting and a
preliminary allocation of the purchase price. However, changes to the
adjustments included in the pro forma combined financial information set forth
below are expected as evaluations of assets and liabilities are completed and
additional information becomes available. Accordingly, the final pro forma
combined amounts will differ from those set forth below.
The following information should be read in conjunction with and is
qualified in its entirety by the consolidated financial statements and
accompanying notes of VFSC included in the documents described under
"INFORMATION INCORPORATED BY REFERENCE," the selected consolidated financial
statements and accompanying notes of Eastern contained in the form of Annual
Report to Stockholders for the fiscal year ended September 30, 1996 accompanying
this Joint Proxy-Prospectus and the pro forma combined financial statements and
accompanying discussion and notes set forth under "PRO FORMA COMBINED FINANCIAL
DATA."
The combined company expects to realize benefits from the Merger, including
operating cost savings and revenue enhancements. The pro forma earnings, which
do not reflect any direct costs, potential savings or revenue enhancements that
are expected to result from the consolidation of operations of VFSC and Eastern,
are not indicative of the results of future operations. No assurances can be
given with respect to the actual amount of expense savings or revenue
enhancements that may be realized, if any. The pro forma combined summary
financial data are intended for informational purposes and are not necessarily
indicative of the future financial position or future results of operations of
the combined company or of the financial position or the results of operations
of the combined company that would have actually occurred had the Merger been in
effect as of the date or for the periods presented.
15
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA OF VFSC
<TABLE>
<CAPTION>
AT OR FOR THE
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income........................... $ 98,105 $ 96,457 $ 84,391 $ 82,142 $ 88,265
Interest expense.......................... 41,351 41,969 33,293 31,361 41,164
----------- ----------- ----------- ----------- -----------
Net interest income..................... 56,754 54,488 51,098 50,781 47,101
Provision for loan losses................. 3,350 3,900 4,000 5,053 9,430
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
loan losses........................... 53,404 50,588 47,098 45,728 37,671
Other operating income.................... 19,161 17,549 16,692 17,348 15,223
Other operating expense................... 47,411 45,999 46,763 52,459 45,384
----------- ----------- ----------- ----------- -----------
Income before income taxes.............. 25,154 22,138 17,027 10,617 7,510
Applicable income tax expense............. 8,539 7,241 5,159 3,386 2,436
----------- ----------- ----------- ----------- -----------
Net income.............................. $ 16,615 $ 14,897 $ 11,868 $ 7,231 $ 5,074
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Total assets.............................. $1,312,981 $1,246,669 $1,205,421 $1,158,101 $1,124,578
Loans, net of unearned income............. 910,436 893,470 911,503 872,441 856,768
Securities available for sale............. 291,120 249,682 173,865 184,400 149,487
Total deposits............................ 1,083,258 1,033,957 1,012,869 967,582 941,882
Stockholders' equity...................... 119,717 111,833 90,457 91,027 83,484
PER SHARE DATA:
Net Income, primary and fully diluted..... $ 3.45 $ 3.10 $ 2.51 $ 1.54 $ 1.08
Total cash dividends declared............. 1.06 0.87 0.54 0.24 0.13
Tangible book value at period end, fully
diluted(1).............................. 23.73 22.47 18.36 18.61 17.00
Average primary shares outstanding........ 4,817,324 4,807,553 4,735,480 4,710,228 4,686,116
SELECTED FINANCIAL RATIOS:
Return on average total assets(2)......... 1.31% 1.23% 1.00% 0.64% 0.46%
Return on average stockholders'
equity(3)............................... 14.51 14.69 13.23 8.36 6.31
Net interest margin (4)................... 4.93 4.92 4.74 4.97 4.72
Cash dividends as a percentage of earnings
per share............................... 31 28 22 16 12
Average stockholders' equity to average
assets.................................. 9.19 8.69 7.97 7.67 7.32
Core (leverage) capital ratio at period
end(5).................................. 8.49 8.77 7.26 7.59 7.11
Total risk-based capital ratio at period
end(6).................................. 15.09 14.67 13.03 12.06 11.11
Allowance for loan losses to period end
loans, net of unearned income........... 1.50 1.65 1.78 2.04 2.46
Nonperforming assets to period end loans,
plus other real estate owed(7).......... 1.01 1.67 2.32 3.64 5.71
Net charge-offs to average net loans...... 0.49 0.59 0.62 0.95 0.90
</TABLE>
- ---------------
(1) Equal to stockholders' equity less intangibles divided by fully diluted end
of period shares outstanding.
(2) Based on average total assets after adjustment for securities available for
sale.
(3) Based on average total equity after adjustment for securities available for
sale.
(4) Net interest income stated on a fully taxable equivalent basis divided by
average earning assets.
(5) Equal to stockholders' equity less intangibles divided by total assets less
intangibles.
(6) Equal to stockholders' equity less intangibles plus the allowable portion of
the allowance for loan losses divided by total risk weighted assets.
(7) Nonperforming assets include nonaccrual loans, restructured loans and other
real estate owned.
16
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA OF EASTERN
<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED AT OR FOR THE
DECEMBER 31, YEARS ENDED SEPTEMBER 30,
-------------------- -----------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income........................ $ 15,881 $ 15,476 $ 61,273 $ 60,098 $ 51,546 $ 49,066 $ 49,898
Interest expense....................... 8,153 8,574 32,340 32,218 25,613 25,881 30,427
-------- -------- -------- -------- -------- -------- --------
Net interest income.................. 7,728 6,902 28,933 27,880 25,933 23,185 19,471
Provision for loan losses.............. 145 435 895 1,822 797 1,330 2,118
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................... 7,583 6,467 28,038 26,058 25,136 21,855 17,353
Other operating income................. 2,606 3,069 11,273 10,017 8,022 8,208 8,345
Other operating expense................ 7,956 7,193 33,952 29,533 27,192 26,471 24,168
-------- -------- -------- -------- -------- -------- --------
Income before income taxes........... 2,233 2,343 5,359 6,542 5,966 3,592 1,530
Applicable income tax expense.......... 812 856 2,055 2,347 2,307 878 513
Cumulative effect of accounting
change............................... -- -- -- -- -- 1,000 --
-------- -------- -------- -------- -------- -------- --------
Net income........................... $ 1,421 $ 1,487 $ 3,304 $ 4,195 $ 3,659 $ 3,714 $ 1,017
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA AT YEAR END:
Total assets........................... $866,018 $831,775 $868,678 $846,085 $819,236 $776,504 $739,263
Loans, net of unearned income.......... 496,852 450,312 491,644 457,614 422,577 422,024 427,376
Investment and mortgage-backed
securities available for sale........ 9,997 16,743 9 4,177 3,878 162,912 7
Securities held to maturity............ 276,909 254,595 293,649 312,392 319,102 106,999 227,584
Total deposits......................... 627,217 619,048 641,286 616,350 584,389 571,954 573,183
Stockholders' equity................... 64,778 62,490 63,580 60,983 57,203 54,683 49,968
PER SHARE DATA:
Net income, primary and fully
diluted.............................. $ 0.37 $ 0.39 $ 0.87 $ 1.13 $ 1.00 $ 1.05 $ 0.29
Total cash dividends paid.............. 0.14 0.11 0.49 0.24 0.10 0.07 0.05
Tangible book value at period end,
fully diluted(1)..................... 17.64 17.48 17.41 17.07 16.15 15.66 14.49
Average primary shares outstanding..... 3,888,890 3,784,731 3,807,724 3,721,573 3,658,510 3,511,321 3,451,015
SELECTED FINANCIAL RATIOS:
Return on average total assets......... 0.66% 0.71% 0.40% 0.50% 0.46% 0.49% 0.16%
Return on average stockholders'
equity............................... 8.72 9.53 5.20 6.95 6.60 7.15 2.06
Net interest margin(2)................. 3.87 3.58 3.75 3.63 3.55 3.40 3.30
Cash dividends per share as a
percentage of earnings per share..... 37.84 28.21 56.32 21.24 10.00 6.67 17.24
Average stockholders' equity to average
assets............................... 7.64 7.26 6.94 6.89 7.51
Core (leverage) capital ratio at period
end(3)(6)............................ 6.75 6.78 6.50 5.70* 5.50* 5.50* 5.14*
8.00** 7.90** 8.30** 7.76**
Total risk-based capital ratio at
period end(4)(6)..................... 12.48 12.67 12.30 10.50* 10.30* 10.50* 9.21*
16.10** 15.90** 13.30** 13.26**
Allowance for loan losses to period-end
loans, net of unearned income........ 0.58 0.89 0.58 0.79 0.88 1.12 1.12
Nonperforming assets to period-end
loans plus other real estate owned &
ISF(5)............................... 2.39 4.18 2.42 3.62 3.38 5.85 6.13
Net charge-offs to average net loans... 0.08 0.04 0.36 0.44 0.44 0.40 0.74
</TABLE>
- ---------------
(1) Equal to stockholders' equity divided by end of period shares outstanding.
(2) Net interest income stated on a fully taxable equivalent basis divided by
average earning assets.
(3) Equal to stockholders' equity less intangibles divided by total assets less
intangibles.
(4) Equal to stockholders' equity less intangibles plus the allowable portion of
the allowance for loan losses divided by total risk weighted assets.
(5) Nonperforming assets include nonaccrual loans, restructured loans and other
real estate owned.
(6) Prior to 1996, the capital ratios were separately stated for: * Vermont
Federal Bank
(VFB)
** First
Savings of New
Hampshire (FS)
17
<PAGE> 27
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
RESULTS OF OPERATIONS:
Interest income.......................................... $ 161,015 $ 158,941
Interest expense......................................... 73,138 75,315
---------- --------
Net interest income...................................... 87,877 83,626
Provision for loan losses................................ 3,955 5,897
---------- --------
Net interest income after provision for loan losses...... 83,922 77,729
Other operating income................................... 29,971 28,379
Other operating expense.................................. 85,152 78,736
---------- --------
Income before income taxes............................... 28,741 27,372
Applicable income tax expense............................ 11,132 10,237
---------- --------
Net income............................................... $ 17,609 $ 17,135
========== ========
BALANCE SHEET DATA:
Total assets............................................. $ 2,191,434 --
Loans, net of unearned income............................ 1,401,663 --
Securities available for sale............................ 301,117 --
Securities held to maturity.............................. 272,628 --
Total deposits........................................... 1,711,968 --
Stockholders' equity..................................... 192,017 --
PER SHARE DATA:
Net income, primary and fully diluted.................... $ 2.58 $ 2.52
Cash dividends declared.................................. 1.06 0.87
Tangible book value at period end, fully diluted......... -- --
Average primary shares outstanding....................... 6,814,157 6,802,037
</TABLE>
18
<PAGE> 28
COMPARATIVE UNAUDITED PER SHARE FINANCIAL DATA
The following table sets forth (i) selected unaudited comparative per share
data for each of VFSC Common Stock and Eastern Common Stock and (ii) selected
unaudited pro forma comparative per share data reflecting the consummation of
the Merger for the twelve months ended December 31, 1996. The unaudited pro
forma comparative per share data assume that the Merger had been consummated at
the beginning of the period presented, and are based on the purchase method of
accounting and a preliminary allocation of the purchase price. For a description
of the effect of purchase accounting on the Merger and the historical statements
of VFSC, see "THE MERGER -- Accounting Treatment."
The unaudited pro forma comparative per share data reflect the Merger based
upon preliminary purchase accounting adjustments. Actual adjustments, which may
include adjustments to additional assets, liabilities and other items, will be
made on the basis of appraisals and evaluations as of the Effective Time and,
therefore, are likely to differ from those reflected in the unaudited pro forma
comparative per share data. Accordingly, the information herein should be read
in conjunction with the pro forma combined financial information, including the
notes thereto, appearing elsewhere in this Joint Proxy Statement - Prospectus.
See "SELECTED FINANCIAL DATA" AND "PRO FORMA COMBINED FINANCIAL DATA." Results
of Eastern for the three months ended December 31, 1996 are not necessarily
indicative of results expected for the entire year, nor are pro forma amounts
necessarily indicative of results of operations or the combined financial
position that would have resulted had the Merger been consummated at the
beginning of the periods indicated. All adjustments consisting of only normal
recurring adjustments necessary for a fair statement of results of interim
periods have been included.
<TABLE>
<CAPTION>
AT OR FOR THE
TWELVE MONTHS ENDED
DECEMBER 31, 1996
-------------------
<S> <C>
INCOME PER SHARE(1)
VFSC.................................................................... $ 3.45
Eastern................................................................. $ 0.85
VFSC Pro Forma.......................................................... $ 2.58
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 2.15
At minimum Exchange Ratio (0.6446)................................... $ 1.66
FULLY DILUTED INCOME PER SHARE(1)
VFSC.................................................................... $ 3.45
Eastern................................................................. $ 0.85
VFSC Pro Forma.......................................................... $ 2.58
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 2.15
At minimum Exchange Ratio (0.6446)................................... $ 1.66
DIVIDENDS DECLARED PER SHARE(2)
VFSC.................................................................... $ 1.06
Eastern................................................................. $ 0.52
VFSC Pro Forma.......................................................... $ 1.06
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 0.88
At minimum Exchange Ratio (0.6446)................................... $ 0.68
BOOK VALUE PER SHARE AT PERIOD END(3)
VFSC.................................................................... $ 23.73
Eastern................................................................. $ 17.64
VFSC Pro Forma.......................................................... $ 19.67
Eastern Pro Forma Equivalent:
At maximum Exchange Ratio (0.8335)................................... $ 16.39
At minimum Exchange Ratio (0.6446)................................... $ 12.68
</TABLE>
19
<PAGE> 29
(footnotes to preceding page)
- ---------------
(1) Pro forma income per share data is calculated using pro forma VFSC net
income divided by the average pro forma shares of the combined entity. The
average pro forma shares of the combined entity have been calculated by
combining VFSC's historical average shares with the historical average
shares of Eastern as adjusted by an assumed Exchange Ratio of 0.69 (computed
using the VFSC stock price of $36.25 on November 11, 1996), resulting in the
issuance of 1,994,484 shares of VFSC Common Stock. See "Pro Forma Combined
Financial Data." The Exchange Ratio is subject to change based on the
determination of a value of VFSC Common Stock according to the Average
Closing Price prior to the Effective Time and there can be no assurance as
to whether the actual Exchange Ratio will be equal to, greater than or
smaller than the assumed ratios used in this table or elsewhere in this
Joint Proxy Statement -- Prospectus. See "THE MERGER -- Conversion of Shares
of Eastern Common Stock Pursuant to the Merger." The Eastern pro forma
equivalent income per share amounts are computed by multiplying the VFSC pro
forma amounts by assumed Exchange Ratios of (i) 0.8335 (computed using an
assumed Average Closing Price for VFSC Common Stock of $26.06, below which
the Acquisition Price would be subject to adjustment) and (ii) 0.6446
(computed using an assumed Average Closing Price for VFSC Common Stock of
$41.625, the closing bid price of VFSC Common Stock on March 27, 1997).
(2) VFSC pro forma dividends per share represent historical dividends paid by
VFSC. Eastern pro forma equivalent dividends per share represent such
amounts multiplied by the assumed maximum and minimum Exchange Ratios
described in footnote (1) above. See "THE MERGER -- Conversion of Shares of
Eastern Common Stock Pursuant to the Merger."
(3) VFSC pro forma book value per share is based on the pro forma stockholders'
equity of the combined entity divided by the pro forma common shares of the
combined entity less intangibles. Eastern pro forma book value per share
represents such amount multiplied by the assumed maximum and minimum
Exchange Ratios described in footnote (1) above. See "THE
MERGER -- Conversion of Shares of Eastern Common Stock Pursuant to the
Merger."
20
<PAGE> 30
RECENT DEVELOPMENTS
VFSC 1996 FOURTH QUARTER AND YEAR-END RESULTS
On January 22, 1997, VFSC announced the unaudited results of its
consolidated operations for the fourth quarter of 1996.
Net income for the fourth quarter of 1996 was $4.5 million, a 12% increase
over the $4.0 million earned during the fourth quarter of 1995. Net income per
share for the fourth quarter of 1996 was $0.94, a 13% increase over per share
net income of $0.83 for the fourth quarter of 1995. Net overhead increased by
$213,000 or 3.1% from the fourth quarter of 1995, as a result of a 17% increase
in noninterest income and a 9% increase in noninterest expense.
Net income for the year was $16.6 million, a 12% increase over the $14.9
million earned in 1995. Net income per share for 1996 was $3.45, an 11% increase
over per share net income of $3.10 for 1995.
Total assets at December 31, 1996 were $1.3 billion, a 5.3% increase from
1995. Core deposits increased 4.8% to $1.03 billion. Total loans increased 1.9%
to $910.4 million.
Nonperforming assets (nonaccrual loans, restructured loans and other real
estate owned ("OREO")) were $9.2 million at December 31, 1996, down from $11.0
million at September 30, 1996 and $15.0 million at December 31, 1995, a decrease
of 39%. The decline in nonperforming assets during the year was the result of
loan charge-offs and normal problem asset resolutions and sales. From December
31, 1995 to December 31, 1996, nonperforming assets were reduced by $5.8 million
or 39%, and nonperforming loans were reduced by $3.5 million or 29%. VFSC's
allowance for loan losses of $13.6 million at December 31, 1996 represented 161%
of nonperforming loans and 149% of nonperforming assets, as opposed to 123% and
98%, respectively, at December 31, 1995.
On January 9, 1997, VFSC announced a first quarter dividend of $0.30 per
share, payable on February 25, 1997 to stockholders of record as of January 24,
1997.
SUMMARY OF VFSC OPERATING RESULTS
The following table sets forth selected historical data regarding VFSC's
operating results and financial position for and at the periods indicated. The
financial data in the following table for, and as of the end of, the fiscal
years ended December 31, 1996 and 1995 are derived from VFSC's consolidated
financial statements and the notes thereto which have been audited by Coopers &
Lybrand LLP, VFSC's independent certified public accountants. The data as of and
for the three-month periods ended December 31, 1996 and 1995 are derived from
unaudited financial statements, and reflect, in the opinion of management of
VFSC, all adjustments necessary for the fair presentation of such data.
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Interest Income....................................... $14,530 $13,706 $56,754 $54,488
Provision for Loan Losses................................. 750 900 3,350 3,900
Noninterest Income (excluding securities transactions).... 5,377 4,585 19,161 17,549
OREO and Collection Expense and Losses.................... 549 528 1,780 2,244
Other Noninterest Expense................................. 11,908 10,924 45,631 43,755
Securities Gains.......................................... -- -- 11 79
Net Income After Taxes.................................... 4,498 4,000 16,615 14,897
Per Common Share:
Net Income.............................................. $ 0.94 $ 0.83 $ 3.45 $ 3.10
Dividend Declared During Period......................... $ 0.27 $ 0.25 $ 1.06 $ 0.87
Fully Diluted Tangible Book Value at Period End........... $ 23.73 $ 22.47 $ 23.73 $ 22.47
</TABLE>
21
<PAGE> 31
EASTERN 1997 FIRST QUARTER RESULTS
On January 23, 1997, Eastern announced the unaudited results of its
consolidated operations for the first quarter ended December 31, 1996.
Net income for the first quarter was $1.4 million, a $66,000 decrease from
the first quarter of its 1996 fiscal year. Net income per share for the first
quarter was $0.37, a 5% decrease from net income per share of $0.39 for the
first quarter of fiscal 1996.
Total assets at December 31, 1996 were $866.0 million, a 4.1% increase over
December 31, 1995. Core deposits increased 1.3% to 627.2 million. Total loans
increased 10.1% to $486.9 million.
Nonperforming assets at December 31, 1996 were $12.0 million, substantially
unchanged from September 30, 1996. Non-accruing loans decreased approximately
$1.4 million from the balance a quarter earlier, offset primarily by an increase
of approximately $1.3 million on other real estate owned. The decrease in non-
accruing loans and the increase in OREO was due primarily to the
reclassification of one commercial property from non-accruing loans to OREO.
Fiscal 1997 results included $391,000 in nonrecurring charges related to
the proposed merger with VFSC, a $273,000 increase in office occupancy expense
and a $599,000 increase in OREO operations expense. Office occupancy expense
increased primarily due to increased depreciation expense on technology
initiatives and increased equipment maintenance contract fees. OREO operations
expense increased due primarily to an increase in foreclosure expenses and
provisions for losses and a decrease in gain on sale of OREO property.
On January 23 1997, Eastern announced a first quarter dividend of $0.16 per
share, payable on February 19, 1997 to stockholders of record as of February 5,
1997.
SUMMARY OF EASTERN OPERATING RESULTS
The following table sets forth selected historical data regarding Eastern's
operating results and financial position for and at the periods indicated. The
financial data in the following table for, and as of the end of, the fiscal
quarter ended December 31, 1996 are derived from unaudited financial statements,
and reflect, in the opinion of management of Eastern, all adjustments necessary
for the fair presentation of such data.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31,
-----------------
1996 1995
------ ------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net Interest Income........................................................ $7,728 $6,902
Provision for Loan Losses.................................................. 145 435
Noninterest Income (excluding securities transactions)..................... 2,592 2,548
OREO and Collection Expense and Losses..................................... 647 48
Other Noninterest Expense.................................................. 7,309 7,145
Securities Gains........................................................... 14 521
Net Income After Taxes..................................................... 1,421 1,487
Per Common Share:
Net Income............................................................... $ 0.37 $ 0.39
Dividend Declared During Period.......................................... $ 0.14 $ 0.11
Fully Diluted Tangible Book Value at Period End............................ $17.64 $17.48
</TABLE>
22
<PAGE> 32
THE SPECIAL MEETINGS
This Joint Proxy Statement-Prospectus is being furnished by VFSC to its
stockholders and by Eastern to its stockholders in connection with the
solicitation of proxies from such stockholders for use at the VFSC Meeting and
the Eastern Meeting, respectively.
The Special Meetings will be held for the purpose of considering and voting
on a proposal to approve the Merger Agreement and the transactions contemplated
thereby, including the Merger, which is being submitted to both the VFSC
stockholders and the Eastern stockholders.
THE BOARD OF DIRECTORS OF VFSC HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
THE BOARD OF DIRECTORS OF EASTERN HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
RECORD DATE, QUORUM AND VOTING FOR EASTERN MEETING
Only the holders of record of shares of Eastern Common Stock at the close
of business on April 2, 1997 will be entitled to notice of and to vote at the
Eastern Meeting and any adjournments or postponements thereof. At the Eastern
Record Date, 3,673,834 shares of Eastern Common Stock were outstanding and
entitled to vote.
The presence in person or by proxy of the holders of not less than
one-third of the issued and outstanding shares of Eastern Common Stock entitled
to vote as of the Eastern Record Date is required to constitute a quorum for the
transaction of business at any meeting of stockholders. Abstentions are included
in the determination of the number of shares of Eastern Common Stock present and
entitled to vote, but broker non-votes are not. "Broker non-votes" are proxies
with respect to shares held in record name by brokers or nominees, as to which
(i) instructions have not been received from the beneficial owners or persons
entitled to vote, (ii) the broker or nominee does not have discretionary voting
power under applicable national securities exchange rules or the instrument
under which it serves in such capacity or (iii) the record holder has indicated
on the proxy card or otherwise notified Eastern that it does not have authority
to vote such shares on that matter.
REQUIRED VOTE AT EASTERN MEETING
The affirmative vote of the holders of two-thirds of the outstanding shares
of Eastern Common Stock (2,449,223 shares) is required for approval of the
Merger Agreement and the transactions contemplated thereby. Abstentions and
broker non-votes will have the same effect as votes against the Merger
Agreement. Stockholders of Eastern are entitled to one vote at the Eastern
Meeting for each share of Eastern Common Stock held of record at the close of
business on the Eastern Record Date.
At the close of business on the Eastern Record Date, 3,673,834 shares of
Eastern Common Stock were outstanding and entitled to vote. Certain Eastern
directors who own a total of 465,488 shares of Eastern Common Stock,
representing approximately 12.7% of the shares of Eastern Common Stock issued
and outstanding on the Eastern Record Date, have entered into the Stockholders
Agreement, pursuant to which such stockholders have agreed to certain
restrictions on their respective shares of Eastern Common Stock. Specifically,
such stockholders have agreed, with respect to all Eastern Common Stock owned by
them at the time of the Eastern Meeting, (a) to vote such stock in favor of the
Merger and against any other acquisition transaction with a party other than
VFSC or its affiliates and (b) generally not to sell, assign, transfer, encumber
or otherwise dispose of such stock. The Stockholders Agreement will remain in
effect until the earlier of the consummation of the Merger or the termination of
the Merger Agreement in accordance with its terms. Assuming that all of the
shares subject to the Stockholders Agreement are in fact voted in favor of the
23
<PAGE> 33
Merger Agreement, the vote of holders of approximately 1,983,735 additional
shares of Eastern Common Stock, representing approximately 54.0% of the shares
of Eastern Common Stock issued and outstanding on the Eastern Record Date, will
be required to approve and adopt the Merger Agreement and the transactions
contemplated thereby.
Proxies in the form enclosed are being solicited by the Eastern Board.
Stockholders are requested to complete, date, sign and promptly return the
accompanying proxy card in the enclosed envelope. Shares represented by a
properly executed proxy received prior to the vote at the Eastern Meeting and
not revoked will be voted at the Eastern Meeting as directed in the proxy. IF A
PROXY IS SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The persons named as proxies by an Eastern stockholder may propose and vote
for one or more adjournments or postponements of the Eastern Meeting to permit
further solicitation of proxies in favor of the proposals to be considered at
the Eastern Meeting; provided, that a proxy that withholds discretionary
authority or that is voted against the Merger Agreement will not be voted in
favor of any adjournment or postponement of the Eastern Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the President of Eastern, at or before the Eastern Meeting, a written
notice of revocation bearing a date later than the date of the proxy, (ii) duly
executing a subsequent proxy relating to the same shares and delivering it to
the President of Eastern at or before the Eastern Meeting or (iii) attending the
Eastern Meeting and voting in person (although attendance at the Eastern Meeting
will not by itself constitute revocation of a proxy). Any written notice
revoking a proxy should be sent to Eastern Bancorp, Inc., 537 Central Avenue,
Dover, New Hampshire 03820, Attention: President.
RECORD DATE, QUORUM AND VOTING FOR VFSC MEETING
Only holders of record of shares of VFSC Common Stock at the close of
business on April 2, 1997 will be entitled to notice of and to vote at the VFSC
Meeting or any adjournments or postponements thereof. As of the VFSC Record
Date, there were 4,606,728 shares of VFSC Common Stock outstanding and entitled
to vote.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding shares of VFSC Common Stock entitled to vote as of the
VFSC Record Date is required to constitute a quorum for the transaction of
business at any meeting of stockholders. Abstentions and broker non-votes are
included in the determination of the number of shares of VFSC Common Stock
present and voting. "Broker non-votes" are proxies with respect to shares held
in record name by brokers or nominees, as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote, (ii) the
broker or nominee does not have discretionary voting power under applicable
national securities exchange rules or the instrument under which it serves in
such capacity or (iii) the record holder has indicated on the proxy card or
otherwise notified VFSC that it does not have authority to vote such shares on
that matter.
REQUIRED VOTE AT VFSC MEETING
The affirmative vote of the holders of two-thirds of the outstanding shares
of VFSC Common Stock (3,071,152 votes) is required for approval of the Merger
Agreement and the transactions contemplated thereby. Abstentions and broker
non-votes will have the same effect as votes against the Merger Agreement.
Stockholders of VFSC are entitled to one vote at the VFSC Meeting for each share
of VFSC Common Stock held of record at the close of business on the VFSC Record
Date. At the close of business on the VFSC Record Date, 4,606,728 shares of VFSC
Common Stock were outstanding and entitled to vote, of which approximately
297,841 shares, or approximately 6.5%, were held by directors and executive
officers of VFSC.
Stockholders of record on the VFSC Record Date are entitled to cast their
votes, in person or by properly executed proxy, at the VFSC Meeting. All shares
represented at the VFSC Meeting by properly executed
24
<PAGE> 34
proxies received prior to or at the VFSC Meeting and not properly revoked will
be voted at the VFSC Meeting in accordance with the instructions indicated in
such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
If a quorum is not present at the time the VFSC Meeting is convened, or if
for any other reason VFSC believes that additional time should be allowed for
the solicitation of proxies or for the satisfaction of conditions to the Merger
or the transactions contemplated thereby, VFSC may adjourn the VFSC Meeting with
a vote of the holders of a majority of the voting power represented by the VFSC
Common Stock present at such meeting. If VFSC proposes to adjourn the VFSC
Meeting, the persons named in the enclosed proxy card will vote all shares for
which they have voting authority in favor of such adjournment; provided that a
proxy that withholds discretionary authority or that is voted against the Merger
Agreement will not be voted in favor of any adjournment or postponement of the
VFSC Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of VFSC, at or before the VFSC Meeting, a written notice of
revocation bearing a date later than the date of the proxy, (ii) duly executing
a subsequent proxy relating to the same shares and delivering it to the
Secretary of VFSC at or before the VFSC Meeting or (iii) attending the VFSC
Meeting and voting in person (although attendance at the VFSC Meeting will not
in and of itself constitute revocation of a proxy). Any written notice revoking
a proxy should be sent to Vermont Financial Services Corp., 100 Main Street,
Brattleboro, Vermont 05301, Attention: Richard O. Madden, Secretary.
SOLICITATION EXPENSES
Solicitation of proxies may be made in person or by mail, telephone or
facsimile, by directors, officers and employees of VFSC and Eastern. Such
directors, officers and employees will not be specifically compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses in connection
with such solicitation. Nominees, fiduciaries and other custodians will be
requested to forward solicitation materials to beneficial owners and to secure
their voting instructions, if necessary, and may be reimbursed for the expenses
incurred in sending proxy materials to beneficial owners. In addition, VFSC
intends to engage the services of Regan & Associates, a proxy solicitation firm,
to assist in the solicitation of proxies at an estimated cost of $5,000 plus
expenses, and Eastern intends to engage the services of Corporate Investor
Communications, Inc., a proxy solicitation firm, to assist in the solicitation
of proxies at an estimated cost of $4,750 plus expenses.
VFSC and Eastern will pay their respective expenses in connection with the
solicitation of proxies.
BENEFICIAL OWNERSHIP OF EASTERN COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of Eastern Common Stock as of April 2, 1997 by (i) each person known
by Eastern to own beneficially more than 5% of Eastern Common Stock, (ii) each
director and executive officer of Eastern, and (iii) all directors and executive
officers of Eastern as a group. The number of shares beneficially owned by such
persons is determined according to rules of the Commission, and the information
is not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power, and
also any shares that the individual or entity has the right to acquire within 60
days of April 2, 1997 through the exercise of an option, conversion feature or
similar right. Except as noted below, each holder has sole voting and investment
power with respect to shares of Eastern Common Stock listed as owned by such
person or entity.
25
<PAGE> 35
<TABLE>
<CAPTION>
PERCENTAGE
OF
NUMBER OF SHARES OUTSTANDING
OF EASTERN EASTERN
NAME COMMON STOCK COMMON STOCK
------------------------------------------------------ ---------------- ------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John A. Cobb.......................................... 195,888 5.1%
E. David Humphrey..................................... 94,441 2.5%
John K. Dwight(1)..................................... 13,200 *
Michael D. Flynn...................................... 6,900 *
John S. Kimbell....................................... 7,590 *
Mary Alice McKenzie................................... 7,571 *
Garry T. Melia........................................ 7,650 *
Ernest A. Pomerleau................................... 14,500 *
W. Stevens Sheppard(1)................................ 43,800 1.2%
James M. Sutton(2).................................... 361,500 9.8%
All Directors and Executive Officers as a group (12
persons)............................................ 753,040 19.0%
5% STOCKHOLDERS
Kramer Spellman, L.P.................................. 331,450 9.0%
James M. Sutton(2).................................... 361,500 9.8%
Wellington Management Company......................... 353,700 9.6%
</TABLE>
- ---------------
* Less than 1%
(1) Mr. Sheppard's share amount includes 4,500 shares individually owned by his
wife as to which Mr. Sheppard disclaims beneficial ownership. Mr. Dwight's
share amount includes 1,800 shares held in trust for his two children.
(2) Includes 267,750 shares owned by JMS Investors, Ltd., 11,400 shares owned
through an IRA, 4,500 shares owned by Mr. Sutton as custodian for his
children, 4,950 shares owned by Mr. Sutton's wife, and 63,900 shares owned
by Mr. Sutton's wife as custodian for their children.
APPRAISAL RIGHTS AND DISSENTING EASTERN STOCKHOLDERS
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW IS REPRINTED IN ITS
ENTIRETY AS APPENDIX D TO THIS JOINT PROXY STATEMENT-PROSPECTUS. THE FOLLOWING
DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO APPRAISAL RIGHTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX D. THIS DISCUSSION AND
APPENDIX D SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE
STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS
FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN
THE LOSS OF APPRAISAL RIGHTS.
A holder of record of Eastern Common Stock as of the Eastern Record Date
who makes the demand described below with respect to such shares, who
continuously is the record holder of such shares through the Effective Time, who
otherwise complies with the statutory requirements of Section 262 of the DGCL
and who neither votes in favor of the Merger Agreement nor consents thereto in
writing may be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of his, her or its shares of Eastern Common
Stock. All references in this summary of appraisal rights to a "stockholder" are
to the record holder or holders of shares of Eastern Common Stock. Except as set
forth herein, stockholders of Eastern will not be entitled to appraisal rights
in connection with the Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Eastern Meeting, not less than 20 days prior
to the meeting, each constituent corporation must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and
26
<PAGE> 36
include in each such notice a copy of Section 262. This Joint Proxy
Statement-Prospectus shall constitute such notice to the record holders of
Eastern Common Stock.
Holders of Eastern Common Stock who desire to exercise their appraisal
rights must not vote in favor of the Merger Agreement or the Merger and must
deliver a separate written demand for appraisal to Eastern prior to the vote by
the stockholders of Eastern on the Merger Agreement and the Merger. A
stockholder who signs and returns a proxy without expressly directing by
checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of Eastern Common Stock be voted against the
proposal or that an abstention be registered with respect to his, her or its
shares of Eastern Common Stock in connection with the proposal will effectively
have thereby waived his, her or its appraisal rights as to those shares of
Eastern Common Stock because, in the absence of express contrary instructions,
such shares of Eastern Common Stock will be voted in favor of the proposal. (See
"-- Required Vote at Eastern Meeting"). Accordingly, a stockholder who desires
to perfect appraisal rights with respect to any shares of Eastern Common Stock
must, as one of the procedural steps involved in such perfection, either (i)
refrain from executing and returning the enclosed proxy and from voting in
person in favor of the proposal to approve the Merger Agreement or (ii) check
either the "Against" or the "Abstain" box next to the proposal on such proxy or
affirmatively vote in person against the proposal or register in person in
abstention with respect thereto. A demand for appraisal must be executed by or
on behalf of the stockholder of record and must reasonably inform Eastern of the
identity of the stockholder of record and that such stockholder intends thereby
to demand appraisal of the Eastern Common Stock. A proxy or vote against the
Merger does not constitute such a demand for appraisal. A person having a
beneficial interest in shares of Eastern Common Stock that are held of record in
the name of another person, such as a broker, fiduciary or other nominee, must
act promptly to cause the record holder to follow the steps summarized herein
properly and in a timely manner to perfect whatever appraisal rights are
available. If the shares of Eastern Common Stock are owned of record by a person
other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian) or other nominee, such demand must be executed
by or for the record owner. If the shares of Eastern Common Stock are owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Eastern Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of Eastern Common Stock outstanding in the name of such record
owner.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his, her or its written demand to: Eastern Bancorp, Inc., 537
Central Avenue, Dover, New Hampshire 03820, Attention: President.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Eastern Common Stock owned, and that
the stockholder is thereby demanding appraisal of his, her or its shares. A
proxy or vote against the Merger Agreement will not itself constitute such a
demand. Within ten days after the Effective Time, the surviving corporation must
provide notice of the Effective Time to all stockholders who have complied with
Section 262.
Within 120 days after the Effective Time, either the surviving corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the surviving
corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
Accordingly, Eastern stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262. If
appraisal rights are available, within
27
<PAGE> 37
120 days after the Effective Time, any stockholder who has theretofore complied
with the applicable provisions of Section 262 will be entitled, upon written
request, to receive from the surviving corporation a statement setting forth the
aggregate number of shares of Eastern Common Stock not voting in favor of the
Merger Agreement and with respect to which demands for appraisal were received
by Eastern and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the surviving corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; if any stockholder fails to comply with
such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of Eastern Common Stock owned by such stockholders,
determining the fair value of such shares exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value, the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts
ascertainable as of the date of the merger that throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Section 262, however, provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of Eastern, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of Eastern Common Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote for any purpose any shares subject to such demand or to receive
payment of dividends or other distributions on such shares, except for dividends
or distributions payable to stockholders of record at a date prior to the
Effective Time.
If no petition for appraisal is filed with the Delaware Court within 120
days after the Effective Time, stockholders' rights to appraisal shall cease.
Any stockholder may withdraw such stockholder's demand for appraisal by
delivering to the surviving corporation a written withdrawal of his or her
demand for appraisal and acceptance of the Merger, except that (i) any such
attempt to withdraw made more than 60 days after the Effective Time will require
written approval of the surviving corporation and (ii) no appraisal proceeding
in the Delaware Court shall be dismissed as to any stockholder without the
approval of the Delaware Court, and such approval may be conditioned upon such
terms as the Delaware Court deems just.
28
<PAGE> 38
THE MERGER
GENERAL
This section of the Joint Proxy Statement-Prospectus describes the material
terms and provisions of the proposed Merger, including the principal provisions
of the Merger Agreement, and related transactions. A copy of the Merger
Agreement is attached to this Joint Proxy Statement-Prospectus as Appendix A and
is incorporated by reference herein. All stockholders are urged to read the
Merger Agreement in its entirety.
The Merger Agreement provides that, subject to the satisfaction or waiver
(where permissible) of certain conditions, which are described more fully herein
and therein, Eastern will be merged with and into VFSC. In connection with the
Merger, each outstanding share of Eastern Common Stock will be converted into
and become exchangeable for either the Stock Distribution or the Cash
Distribution in accordance with the terms of the Merger Agreement. See
"-- Conversion of Shares of Eastern Common Stock Pursuant to the Merger."
BACKGROUND OF THE MERGER
VFSC's business strategy calls for it to augment its internal growth with
carefully selected acquisitions. Its merger and acquisition policy defines its
expansion territory as Vermont and adjacent states. In accordance with this
policy, since early 1991 VFSC has acquired one bank from the FDIC, two branches
from another Vermont bank, two credit card portfolios, two trust departments and
a Massachusetts-based savings bank and, with assistance from its financial
advisors, has been continuously evaluating acquisition opportunities both in
Vermont and in adjacent market areas. During 1996 VFSC pursued several
acquisition possibilities, including the submission of a bid on several
Fleet/Shawmut branches. Two of VFSC's business plan objectives are to improve
its market share in Vermont's major market, the Burlington area of Chittenden
County, and to improve its geographic diversification by increasing the mix of
its business outside of Vermont. Eastern was identified in mid-1996 as an
acquisition candidate within the territory defined by VFSC's policy that would
help VFSC achieve both of these objectives.
Since the first quarter of 1994, Eastern has retained a financial advisory
firm to assist the Eastern Board in comprehensively analyzing and periodically
reviewing Eastern's strategic alternatives for maximizing long-term stockholder
value. These alternatives have included the continuation of independent
operations, growth through acquisitions, growth through merger-of-equals
transactions, and being acquired for cash and/or stock. Since July 1995,
representatives of MB&D have periodically made detailed presentations to
management and the Eastern Board describing changing conditions in the mergers
and acquisitions ("M&A") market and Eastern's strengths and weaknesses either as
potential acquiror or acquiree. Concurrently, management has provided to the
Board its analysis of what Eastern needed to accomplish in order to increase
stockholder value through internal growth and performance.
At the request of the Eastern Board, MB&D developed a list of financial
institutions, primarily but not exclusively headquartered in New England,
believed to have a strategic interest in expanding in New England as well as the
financial and other capacity to do so, including certain Vermont-based
institutions that might be expected to have a particular strategic interest and
the operating ability to derive synergistic benefits. Certain of these
institutions from time to time contacted representatives of MB&D or Eastern, and
MB&D contacted selected institutions which did not contact MB&D or Eastern. Any
expressions of interest were preliminary and inconclusive, and no agreements or
understandings concerning any transaction were reached.
During the first half of 1995, the Eastern Board focused on the choice
between (i) integrating the operations of Eastern's New Hampshire banking
subsidiary with those of Vermont Federal or (ii) evaluating the potential for
selling the New Hampshire subsidiary and either redeploying the sales proceeds
in Vermont operations or distributing them to Eastern's stockholders. Based upon
the analysis at that time, the Eastern Board concluded that integration of
Vermont and New Hampshire operations was the preferable alternative.
In early August 1996, VFSC's management contacted Eastern's management to
see if Eastern might be interested in a possible combination of the two
companies. On August 9, 1996, John D. Hashagen, Jr., President and Chief
Executive Officer of VFSC, met with John A. Cobb, President and Chief Executive
Officer of Eastern, to discuss on a preliminary basis the possibility of a
combination of the two companies. Although no agreements or understandings
concerning such a possible combination were reached at that
29
<PAGE> 39
meeting, both parties agreed that there was sufficient mutual interest in a
possible combination of the two companies to continue the discussions. They also
agreed that a confidentiality agreement should be drafted and signed by both
parties so that certain non-public information regarding VFSC and Eastern could
be shared. The confidentiality agreement was signed by VFSC and Eastern as of
August 15, 1996.
During the last half of August 1996 and the first three weeks of September
1996, VFSC senior management and Eastern senior management conducted off-site
due diligence and exchanged detailed information on each's companies, deposit
products, operations, markets, loan portfolios and financial condition. Senior
management of the two companies met in person and held telephone conference
calls several times as a part of this information exchange process. During these
meetings, issues such as potential cost savings, revenue enhancement
opportunities, deposit product compatibility and loan quality were discussed
generally (although no formal quantitative studies were presented at the
meetings) and possible consolidation strategies were reviewed. During this
process the senior management of the two companies kept their respective Boards
of Directors advised of the status of the preliminary merger discussions and the
content of the information exchanges.
On September 25, 1996, VFSC senior management and the Merger and
Acquisition Committee of the VFSC Board (the "M&A Committee") reviewed and
evaluated in detail the business strategy of VFSC and information on Eastern and
its operations, and discussed the business aspects of a potential acquisition of
Eastern by VFSC. At the conclusion of the meeting, the M&A Committee authorized
VFSC's senior management to submit a preliminary nonbinding expression of
interest to acquire 100% of Eastern's common stock at a price of $23.00 per
share, with consideration to be either 100% VFSC stock or a combination of 60%
VFSC stock and 40% cash. VFSC senior management submitted a letter dated
September 25, 1996 to Eastern offering those terms on a preliminary, nonbinding
basis.
During late September and October 1996, senior management and the Boards of
Directors of VFSC and Eastern continued their evaluation of the potential
combination of the two companies and, with the assistance of their respective
financial advisors, continued discussion of the possible structure and pricing
of an acquisition of Eastern by VFSC. On October 4, 1996, VFSC senior management
and its investment advisor met with Eastern's Chief Executive Officer and its
financial advisor to review the offer contained in the September 25 letter. No
agreement was reached as to price or terms, but Eastern's Chief Executive
Officer agreed to review the letter with Eastern's Board of Directors.
At an Eastern Board meeting held on October 10, 1996, Fred Schluter of MB&D
made a comprehensive presentation with regard to New England M&A market
conditions and the possibility of receiving other offers; Eastern's current
estimated value as an acquisition candidate, based upon such customary financial
measures as (i) multiples of earnings and cash flow, (ii) premiums to adjusted
book value, deposits and market capitalization and (iii) recent acquisition
prices for comparable companies; and the terms of VFSC's nonbinding discussion
proposal. Eastern's value as an acquisition candidate was estimated to be in the
range of $21.49 to $24.96 per share. See "-- Opinion of Financial
Advisors -- Opinion of McConnell, Budd & Downes, Inc. -- Discounted Cash Flow
Analysis." The directors considered, in particular, structural issues such as an
all-stock transaction versus a transaction involving a mixture of cash and
stock; pooling and purchase accounting; tax-deferred treatment; the possible
combination of Vermont Federal with VNB; the timetable for the transaction; and
factors affecting VFSC's future earnings potential and potentially influencing
future market values for the VFSC stock to be received by Eastern stockholders
in such a transaction. The Eastern Board concluded that VFSC's expression of
interest deserved serious consideration; expressed its preference for a
transaction involving both a significant tax-deferred stock component and a cash
component, as well as an opportunity for Eastern stockholders to elect between
stock and cash; desired to avoid making qualification for pooling treatment a
condition to closing; concluded that capping and collaring the merger
consideration (as well as including a cash component) would reduce the potential
volatility of such consideration based upon future trading prices for VFSC
stock; and authorized Messrs. Cobb and Schluter to conduct further discussions
and report back to the Eastern Board. Starting on October 11, 1996, MB&D and
Tucker Anthony were in regular ongoing communication concerning all aspects of
the possible transaction, focusing particularly on the points described above.
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On October 23, 1996, VFSC senior management met with the M&A Committee and
its financial advisors and reviewed once again all aspects of a possible
acquisition of Eastern, including a proposed transaction structure, a possible
pricing range and other elements of such a transaction. At the conclusion of
this review, the M&A Committee authorized VFSC senior management to submit an
amended indication of interest subject to satisfactory due diligence, with a
transaction value of up to $24.25 per share and upon other terms and conditions
as reviewed at the meeting. VFSC's financial advisor subsequently advised
Eastern's financial advisor of the revised transaction value and terms.
On October 24, 1996, Messrs. Cobb and Schluter reported to the Eastern
Board that VFSC was prepared to consider a per share payment of as much as $7.25
per share in cash and 0.4892 shares of VFSC Common Stock under a collared
formula, subject to satisfactory due diligence review, agreement upon structure
and timetable, and negotiation of mutually satisfactory agreements. The value of
the proposed offer amounted to $24.13 per share of Eastern Common Stock based on
the $34.50 per share closing bid price of the VFSC Common Stock on October 23,
1996 (the value would be $26.83 per share based on the $41.625 per share closing
bid price on March 27, 1997). The directors reviewed and commented on numerous
aspects of the proposed transaction and authorized Messrs. Cobb and Schluter to
continue negotiations in the expectation that, should such negotiations proceed
satisfactorily, the parties would arrange to perform reciprocal on-site due
diligence and VFSC's legal counsel would prepare a draft merger agreement and
related documents.
During the period from October 23, 1996 to October 29, 1996 VFSC's
financial advisor and Eastern's financial advisor continued negotiations of the
terms and conditions of the proposed acquisition, including the transaction
value, the pricing formula and collars, a lockup option and other nonfinancial
issues. Under the pricing formula agreed to by the parties, the value of the
offer amounted to $24.13 per share of Eastern Common Stock based on the $34.50
per share closing bid price of VFSC Common Stock on October 23, 1996 and $26.83
per share based on the $41.625 per share closing bid price of VFSC Common Stock
on March 27, 1997. By October 29, 1996, both parties determined that there were
no significant unresolved issues of disagreement. Eastern's Board authorized the
commencement of reciprocal on-site due diligence, and VFSC instructed its legal
counsel to begin drafting merger documents.
During late October 1996 and early November 1996, the senior managements of
VFSC and Eastern, with the assistance of their respective financial advisors and
legal counsel, continued active discussions of possible merger terms, including
the precise exchange ratio, which was adjusted from 0.4892 to 0.4900; the
breakpoints for caps, collars and termination rights; the ability of Eastern
stockholders to elect between stock and cash; the circumstances in which VFSC's
stock option would become exercisable; restrictions on dividends, capital
expenditures and other matters prior to closing and conditions to closing.
Discussions were conducted in the ordinary course during this period, and no
issue presented an insurmountable obstacle to negotiations. In the meantime,VFSC
conducted on-site due diligence on Eastern during November 2-8, 1996 and Eastern
conducted on-site due diligence on VFSC during November 9-11, 1996. Draft
documents were circulated on November 6, 1996.
At a meeting held on November 11, 1996, MB&D updated the Eastern Board in
regard to the status of the ongoing discussions with VFSC. Legal counsel
described the key provisions of the documents that had been or were being
negotiated or which had been left open pending Board review. The directors
considered and stated their views in regard to these issues. Eastern's credit
review team and members of management then presented the results of their due
diligence review of VFSC. Further negotiation with VFSC ensued over the next 48
hours.
Separate special meetings of the VFSC Board and Eastern Board were held on
November 13, 1996 to consider the merger proposal. At the VFSC Board meeting,
presentations were delivered by VFSC senior management concerning the strategic
rationale for the proposed transaction and the results of its due diligence
review, by its financial advisor concerning the financial terms of the proposed
transaction and by its legal counsel regarding the terms of the proposed Merger
Agreement and Stock Option Agreement. After discussion and consideration by the
VFSC Board of the potential financial and strategic benefits and risks of the
proposed transaction and other factors described below under "-- Recommendations
of the VFSC Board and Reasons for the Merger," the VFSC Board unanimously
approved the Merger Agreement and Stock
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Option Agreement that were presented to them and authorized Mr. Hashagen to
execute them on behalf of VFSC.
At the Eastern Board Meeting, the Eastern Board reviewed the changes agreed
to by the negotiators during the previous two days. Legal counsel then made a
presentation and answered directors' questions. MB&D reviewed and updated its
previous financial analysis of the merger consideration, after which it advised
the Eastern Board orally that, in its opinion, and based on facts known to MB&D
at that time, the merger consideration was fair, from a financial point of view,
to Eastern's stockholders as of that date and confirmed its readiness, in the
absence of any intervening significant change, to render a written opinion to
that effect immediately prior to the circulation of proxy materials for the
Special Meeting. The Eastern Board then unanimously approved the Merger
Agreement and related agreements, and authorized Mr. Cobb to sign them on behalf
of Eastern.
Messrs. Hashagen and Cobb executed the Merger Agreement and the Stock
Option Agreement, as authorized, on November 13, 1996.
RECOMMENDATION OF THE EASTERN BOARD AND REASONS FOR THE MERGER
In reaching its determination to approve and adopt the Merger Agreement and
the transactions contemplated thereby, the Eastern Board considered a number of
factors, including, without limitation, the following:
(1) its belief, based on the analysis of and presentation to Eastern's
Board by MB&D of Eastern's strategic alternatives, that the Merger
represents an attractive strategic alternative to Eastern for enhancing
stockholder value;
(2) the financial presentation of MB&D and the opinion of MB&D as to
the fairness from a financial point of view of the Merger Consideration to
Eastern and its stockholders (see "-- Opinions of Financial
Advisors -- Opinion of McConnell, Budd & Downes, Inc.");
(3) its belief that the Merger will provide an opportunity for the
stockholders of Eastern to receive increased dividends and to enjoy
increased liquidity in their investment;
(4) the ability of Eastern stockholders, subject to the limitations
contained in the Merger Agreement, to specify a preference for payment in
cash or stock; and the expectation that the Merger will be a tax-deferred
transaction for stockholders who receive payment in stock (see "-- Certain
Federal Income Tax Consequences");
(5) its review, with the assistance of management and MB&D, of the
financial condition, results of operations, loan portfolio composition,
classified assets, loan and deposit products, marketing methods, business
infrastructure, management, and strategic goals and overall prospects of
VFSC, as well as of management's best estimates of Eastern's prospects as
an independent business entity in light of the foregoing factors as they
affect Eastern's future financial condition, results of operations,
business infrastructure and strategy;
(6) its review of the banking environment in which Eastern is now, and
in the future would be, competing, including, but not limited to, the
significant consolidation and increasingly competitive climate in the
banking and financial services markets, both in the United States as a
whole and in New England in particular, the prospect for further changes in
these markets and the competitive constraints facing relatively small,
independent financial institutions;
(7) its view of the increasing importance to a bank's ability to
capitalize on opportunities in the banking and financial services markets
of economies of scale and access to greater financial resources such as may
be expected to be realized as a result of the Merger;
(8) its assessment that affiliation with another community-based
institution such as VFSC, which has a commitment to community reinvestment
that has been rated "outstanding," would put Eastern in a good position to
be able to continue its high level of personal service to its customers and
the Vermont and New Hampshire communities that it serves;
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(9) its view that VFSC's approach to the banking business, with its
emphasis on quality products and customer service, is congruent with that
of Eastern and its perception that VFSC uniquely values Vermont Federal's
approach, so that the combination of their respective products and services
should enhance the business of the combined institution; and
(10) the geographic concentration of VFSC's branch network in central
and southern Vermont and the contiguous market of Greenfield,
Massachusetts, the complementary nature of such concentration to Eastern's
geographic concentration in northern Vermont and southeastern New Hampshire
and the effect such complementary nature would have on the combined
enterprise's ability to prosper in its three-state banking market.
The Eastern Board did not assign any particular weights to any of the
factors mentioned above.
FOR THE REASONS DESCRIBED ABOVE, THE EASTERN BOARD HAS DETERMINED THE
MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF EASTERN AND ITS STOCKHOLDERS
AND HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER. ACCORDINGLY, THE BOARD UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
RECOMMENDATION OF THE VFSC BOARD AND REASONS FOR THE MERGER
In reaching its determination that the Merger is in the best interests of
the VFSC stockholders, and recommending that the VFSC stockholders approve the
Merger, the VFSC Board considered a number of factors. The following are the
material factors considered by the Board in reaching its determination:
(1) The Merger will enable VFSC to expand and strengthen its existing
franchise in Vermont and to establish a presence in the market of
southeastern New Hampshire, which VFSC considers attractive;
(2) The Board believes that, given Eastern's existing presence in
Vermont, the acquisition of Eastern offers significant opportunity for cost
savings, which have been estimated through the due diligence process to be
approximately $9 million annually (once fully implemented, which
implementation is expected to take approximately one year), and represents
an opportunity to leverage VFSC's infrastructure, technology, products,
marketing and lines of business through Eastern's established distribution
network;
(3) Eastern's customer base provides VFSC with significant
cross-selling opportunities;
(4) The Merger is expected to provide revenue growth opportunities
based on the combined company's leadership in its major markets, its broad
product line, its delivery channels and its brand name; and
(5) Tucker Anthony's opinion that, subject to certain assumptions, the
consideration to be paid by VFSC to Eastern's stockholders was fair to the
stockholders of VFSC, from a financial point of view.
The VFSC Board did not assign any particular weights to any of the factors
mentioned above.
FOR THE REASONS DESCRIBED ABOVE, THE VFSC BOARD HAS DETERMINED THE MERGER
TO BE FAIR TO AND IN THE BEST INTERESTS OF VFSC AND ITS STOCKHOLDERS AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
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OPINION OF FINANCIAL ADVISORS
Opinion of McConnell, Budd & Downes, Inc.
MB&D has delivered to the Board of Directors of Eastern its written
opinion, dated as of the date of this Joint Proxy Statement-Prospectus, that
both the Exchange Ratio of VFSC Common Stock to be exchanged for outstanding
shares of Eastern Common Stock and the Cash Distribution for outstanding shares
of Eastern Common Stock are fair, from a financial point of view, to Eastern's
stockholders. The mechanisms for determination of the Exchange Ratio and the
Cash Distribution are each described in detail elsewhere in this Joint Proxy
Statement-Prospectus and shareholders should read this with care. MB&D has acted
as financial advisor to Eastern since July 1995 in connection with Eastern's
evaluation of its strategic alternatives, including hypothetical affiliation
opportunities.
MB&D advised Eastern during the negotiation process leading up to the
execution of the Merger Agreement and provided Eastern with various analyses as
to the range of financially feasible exchange ratios and cash acquisition prices
that might be received in such a transaction. Representatives of MB&D met with
the executive management and the full Board of Directors of Eastern on a number
of occasions in connection with the analysis of Eastern's options. Each of the
Exchange Ratio and alternative Cash Distribution was arrived at in arms length
negotiations between VFSC and Eastern in a process in which MB&D advised
Eastern.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions, knowledge of the Vermont,
New Hampshire, Massachusetts, New York and Maine banking markets in particular
and New England banking markets in general, and its experience with merger and
acquisition transactions involving banking institutions. Members of the
Corporate Finance Department of MB&D have advised financial institution clients
on more than 60 successfully completed mergers or acquisitions of financial
institutions, many of those in New England marketplaces.
The full text of the opinion of MB&D, which sets forth assumptions made,
matters considered and limits on the review undertaken by MB&D, is attached
hereto as a part of Appendix B. Eastern's stockholders are urged to read the
opinion in its entirety. MB&D's opinion is directed only to the Exchange Ratio
or Cash Distribution and does not constitute a recommendation to any holder of
Eastern Common Stock as to how such holder should vote at the Eastern Meeting.
The summary of the opinion of MB&D set forth in this Joint Proxy
Statement-Prospectus was provided to Eastern by MB&D and is qualified in its
entirety by reference to the full text of the opinion itself. MB&D's opinion was
necessarily based upon conditions as they existed and should be evaluated as of
the date of the written opinion and the information made available to MB&D
through such date.
In arriving at its opinion, MB&D (i) reviewed the Merger Agreement and this
Joint Proxy Statement-Prospectus in substantially the form to be sent to Eastern
stockholders; (ii) reviewed publicly available business and financial
information with respect to both Eastern and VFSC and certain internal financial
information and financial projections prepared by the managements of Eastern and
VFSC; (iii) held discussions with members of the senior management and Board of
Directors of Eastern concerning the past and current results of operations of
Eastern, its current financial condition and management's opinion of its future
prospects; (iv) reviewed the historical reported price and record of trading
volume for both Eastern Common Stock and VFSC Common Stock; (v) held discussions
with the senior management of VFSC concerning the current and past results of
operations of VFSC, its current financial condition and management's opinion of
its future prospects; (vi) considered the current state of and future prospects
for the economies of Vermont, New Hampshire and north central Massachusetts
generally and the relevant market areas for Eastern and VFSC in particular;
(vii) reviewed the specific acquisition analysis models employed by MB&D to
evaluate potential business combinations of banking companies; (viii) reviewed
the reported financial terms of certain recent business combinations in the
banking industry; and (ix) performed such other studies and analyses (all of
which have been disclosed and are discussed herein) as MB&D considered
appropriate under the circumstances associated with this particular transaction.
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In rendering its opinion, no limitations were imposed by Eastern or VFSC
upon MB&D with respect to the investigations made or procedures followed by MB&D
in rendering its opinion. As part of its ongoing financial advisory business,
MB&D had in 1992 entered into and maintained a nonexclusive financial advisory
relationship with VFSC. In the context of this transaction, MB&D rendered
financial advisory services exclusively to Eastern and disclosed to the Eastern
Board and management the relationship with VFSC. VFSC retained and relied upon
an independent third party firm as financial advisor for purposes of this
transaction.
MB&D's opinion takes into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in bank securities valuation and its knowledge of the
banking industry generally. For purposes of reaching its opinion, MB&D has
assumed and relied upon the accuracy and completeness of the information
provided to it by Eastern and VFSC, including the adequacy of the reserve for
loan losses established by each company, and does not assume any responsibility
for the independent verification of such information or any independent
valuation or appraisal of any of the assets or liabilities of either Eastern or
VFSC. In the course of reaching its opinion, MB&D did not make or receive any
independent valuation or appraisal of any of the assets or liabilities of either
Eastern or VFSC. With respect to the financial projections reviewed by MB&D in
the course of rendering its opinion, MB&D has assumed that such projections have
been reasonably prepared to reflect the best currently available estimates and
judgment of the management of each of Eastern and VFSC as to the most likely
future performance of their respective companies.
The following is a summary of material analyses employed by MB&D in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of all matters considered by MB&D in
arriving at its opinion. The preparation of a fairness opinion is a complicated
process, involving a determination as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to a summary description. In arriving at its fairness opinion, MB&D did not
attribute any particular weight to any one specific analysis or factor
considered by it and made qualitative as well as quantitative judgments as to
the significance of each analysis and factor. Therefore, MB&D believes that its
analyses must be considered as a whole and feels that attributing undue weight
to any single analysis or factor considered could create a misleading or
incomplete view of the process leading to the formation of its opinion. In its
analyses, MB&D has made certain assumptions with respect to banking industry
performance, general business and economic conditions and other factors, many of
which are beyond the control of management of either Eastern or VFSC. Any
estimates which are referred to in MB&D's analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
vary significantly from those set forth.
Analysis of the Anticipated Merger and the Exchange Ratio in Relation to
VFSC. The anticipated consideration to be paid in the merger for each
outstanding share of Eastern Common Stock is (i) cash equal to $7.25 plus the
product of 0.49 times the average closing bid price of VFSC common stock for a
twenty day trading period ending on the fifth business day prior to the
Effective Time of the Merger, or (ii) the number of whole and fractional shares
of VFSC Common Stock, rounded to the nearest ten-thousandth of a share, equal to
the number obtained by dividing the Acquisition Price by the Average Closing
Price. However, if the Average Closing Price is greater than or equal to $39.96
per Common Share, the Acquisition Price shall equal $26.83, and if the Average
Closing Price is less than or equal to $29.54 per share but greater than or
equal to $26.06 per Common Share, the Acquisition Price shall equal $21.72. If
the Average Closing Price is less than $26.06, the Acquisition Price shall be
equal the sum of $7.25 and the product of 0.5553 times the Average Closing
Price. However, if the Average Closing Price is less than $26.06, Eastern shall
have the right to terminate the Merger Agreement unless VFSC elects, in its sole
discretion, to adopt $21.72 as the adjusted Acquisition Price.
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When valued at the closing bid price of VFSC Common Stock, $41.625, on
Thursday, March 27, 1997, as well as the 20-day average closing bid price of
VFSC Common Stock computed as of, and including Thursday, March 27, 1997,
$42.24, the consideration represents the following transaction multiples:
Transaction Value : $26.83 per Eastern Common Share based upon the single day
VFSC closing bid price on Thursday, March 27, 1997. Based upon the 20-day
average closing bid price for VFSC for the period ending Thursday, March 27,
1997 the transaction value would be worth $26.83 per Eastern Common Share.
- - Multiple of Earnings based upon the March 27, 1997 VFSC single day closing bid
price: 30.84 times Eastern's reported earnings per share for the twelve
months ended September 30, 1996, and 14.12 times Eastern's budgeted earnings
per share for the fiscal year 1997 ending September 30, 1997. After removing
the one time impact of the federally mandated Savings Association Insurance
Fund ("SAIF") adjustment, the comparable multiple of reported earnings for the
twelve month period ending September 30, 1996 would be 17.89.
- - Multiple of Earnings based upon the 20-day average closing bid price for VFSC
for the period ending March 27, 1997: 30.84 times Eastern's reported earnings
per share for the twelve months ended September 30, 1996, and 14.12 times
Eastern's budgeted earnings per share for the fiscal year 1997 ending
September 30, 1997. After removing the one time impact of the federally
mandated SAIF adjustment, the comparable multiple of reported earnings for the
twelve month period ending September 30, 1996 would be 17.89.
- - Multiple of Tangible Book Value based upon the March 27, 1997 VFSC single day
closing bid price: 1.631 times Eastern's tangible book value per share as of
September 30, 1996.
- - Multiple of Tangible Book Value based upon the 20-day average closing bid
price for VFSC for the period ending March 27, 1997: 1.631 times Eastern's
book value per share as of September 30, 1996.
- - Multiple of Accounting Book Value based upon the March 27, 1997 VFSC single
day closing bid price: 1.541 times Eastern's book value per share as of
September 30, 1996.
- - Multiple of Accounting Book Value based upon the 20-day average closing bid
price for VFSC for the period ending March 27, 1997: 1.541 times Eastern's
book value per share as of September 30, 1996.
- - Multiples of Eastern's Market Value based upon the March 27, 1997 VFSC single
day closing bid price: The approximate $26.83 in market value of the
consideration for each share of Eastern Common Stock, based upon the VFSC
closing bid price on March 27, 1997, represents a 22% premium over the closing
price of Eastern's Common Stock reported on the Nasdaq NM as of the close of
business on Wednesday, November 13, 1996.
- - Multiples of Eastern's Market Value based upon the 20-day average closing bid
price for VFSC for the period ending March 27, 1997: The approximate $26.83
in market value of the consideration for each share of Eastern Common Stock,
based upon the VFSC 20-day average closing bid price for the period ending on
March 27, 1997, represents a 22% premium over the closing price of Eastern's
Common Stock reported on the Nasdaq NM as of the close of business on
Wednesday, November 13, 1996.
Specific Acquisition Analysis. MB&D employs a number of proprietary
analysis models to examine hypothetical transactions involving banking and/or
thrift companies. The models involve the use of forecast earnings data, selected
current period balance sheet, fully diluted common share information and income
statement data, current and historic market and trading information and a number
of assumptions as to interest rates for borrowed funds, opportunity costs of
funds, discount rates, dividend streams, effective tax rates and transaction
structures (the alternative or combined uses of common equity, cash, debt or
other securities to fund a transaction). The models distinguish between purchase
and pooling accounting treatments and inquire into the likely economic
feasibility of a given hypothetical transaction at a given price level or
specified exchange rate while employing a specified transaction structure. The
models also permit evaluation of various levels of potential non-interest
expense savings which might be achieved and potential implementation timetables
for such savings as well as the possibility of revenue enhancement opportunities
which may arise in a hypothetical transaction. The models also permit an
examination of pro forma capital adequacy.
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In this transaction, MB&D evaluated an exchange ratio of VFSC Common Stock
for each share of Eastern Common Stock and a Cash Distribution price, each based
upon $7.25 plus the product of 0.49 times the average closing bid price of VFSC
Common Stock for a 20-day period (subject to adjustment as provided in the
Merger Agreement and detailed in this proxy statement) in a joint common stock
and cash merger transaction which is to be accounted for as a purchase
transaction.
Discounted Cash Flow Analysis. MB&D reviewed a discounted cash flow
analysis to permit the conceptual examination of the present discounted values
of potential future results employing selected assumptions and discount rates.
In the discounted cash flow analysis, MB&D reviewed a cash flow model with
the management and Board of Directors of Eastern that used a projection of
hypothetical earnings for the three twelve-month periods subsequent to September
1996 of $1.90, $2.18 and $2.45 per common share, respectively, with projected
earnings in two subsequent twelve-month periods equal to a return on assets of
0.95% and 1.00% respectively. A hypothetical dividend payout ratio assumption
which depicted average annual payouts as a percentage of earnings increasing
gradually from a level of 31.5% to 33.0% over a five-year period was used. A
long-term growth rate of 4.00% was also used. MB&D then assumed that the control
sale price/earnings ratio at the end of a five year period would approximate
13.0 times earnings, and in a separate exercise, a price-to-tangible-book-value
ratio of 160%. Given the five-year time horizon and a discount rate of 12.5%,
these cash flow calculations resulted in a range of present discounted values of
cash flows of $21.49 to $24.96, which can be compared to the nominal value of
the proposed exchange ratio of approximately $26.83 based upon the closing bid
price of VFSC on March 27, 1997 as described above and $26.83 based upon the
trailing 20-day average closing bid price of VFSC prior to and including March
27, 1997.
It is important to note that the discount factors employed embody both the
concept of a riskless time value of money and risk factors that reflect the
uncertainty of the forecast cash flows, terminal price/earnings and price/book
multiples, growth assumptions and other economic and financial variables subject
to change. Use of higher discount rates would result in lower discounted present
values. Conversely, use of lower discount rates would result in higher
discounted present values. MB&D advised the Eastern Board that although
discounted cash flow analysis is a widely used valuation methodology, it relies
on numerous assumptions, including discount rates, terminal values, earnings and
asset growth, as well as dividend payout ratios. Any or all of these assumptions
may vary from actual future performance and results.
Analysis of Other Comparable Transactions. MB&D is reluctant to place much
emphasis on "comparables analysis" as a valuation methodology because of what it
considers to be inherent limitations of the process, which renders application
of the results to specific cases questionable. It has observed that such
analyses as performed by some industry observers and financial advisors often
fail to adequately take into consideration such factors as material differences
in the underlying capitalization of the comparable institutions which are being
acquired; differences in the historic earnings (or loss) patterns recorded by
the compared institutions, which can depict a very different trend than might be
implied by examining only recent financial results; failure to exclude
nonrecurring profit or loss items from the last twelve months' earnings streams
of target companies, which can distort apparent earnings multiples; differences
in the form or forms of consideration used to complete the transaction;
differences between the planned method of accounting for the completed
transaction; and such less accessible factors as the relative population,
business and economic demographics of the acquired entities' markets as compared
or contrasted to such factors for the markets in which comparables are doing
business. Comparables analysis also rarely seems to take into consideration the
degree or absence of facilities overlap between the acquiror's market and that
of the target or the absence of such overlap and the resulting cost savings
differentials between otherwise apparently comparable transactions. MB&D
consequently believes that comparables analysis has serious limitations.
Nevertheless, in the course of its analysis of the proposed transaction,
MB&D reviewed a universe of 21 publicly announced transactions in the financial
institutions industry in which either a savings bank or thrift or their
respective holding companies were acquired by another financial institution.
These transactions were announced after March 1, 1994 and prior to November 12,
1996. All of the examined transactions involved entities doing business in New
England.
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The 21 transactions reviewed by MB&D are as follows: Citizens Financial
Group's acquisition of Grove Bank; Webster Financial Corp.'s acquisition of DS
Bancorp; UST Corporation's acquisition of Walden Bancorp; Grove Bank's
acquisition of Greater Boston Bank; First Union Corp.'s acquisition of Center
Financial Corp.; Peoples Heritage's acquisition of Family Bancorp; CFX
Corporation's acquisition of Milford Co-op Bank; Center Financial Corp.'s
acquisition of Great Country Bank; Albank Financial Corp.'s acquisition of
Marble Financial Corp.; Webster Financial Corp.'s acquisition of Shelton
Bancorp; The Co-operative Bank of Concord's acquisition of Bank of Braintree;
Main Street Community Bancorp's acquisition of Lexington Savings Bank; Baybanks,
Inc.'s acquisition of NFS Financial Corp.; Bank of Ireland's acquisition of
Great Bay Bankshares; CFX Corporation's acquisition of Orange Savings Bank;
Citizens Financial Group's acquisition of Quincy Savings Bank; Shawmut Bank's
acquisition of Northeast Federal Corp.; Fleet Financial Group's acquisition of
NBB Bancorp, Inc.; Shawmut National's acquisition of West Newton SB; Bank of
Boston's acquisition of Pioneer Financial; and Shawmut National's acquisition of
Cohasset Savings Bank.
Within this group of 21 transactions, the median multiple of tangible book
value paid by the acquiror was 159.7%, the maximum multiple paid was 263.5% and
the minimum multiple was 95.6%. These statistics can be compared to multiples
derived using the indicated values on March 27, 1997, which can be derived for
the proposed acquisition of Eastern by VFSC as 163.1% based upon the nominal
present value of the proposed exchange ratio of approximately $26.83 based upon
the closing price of VFSC on March 27, 1997. Based upon the trailing 20-day
average closing bid price of VFSC through March 27, 1997, the same ratio was
163.1% using the nominal present value of the proposed exchange ratio of
approximately $26.83.
With respect to trailing 12-months earnings multiples for this same data
sample of 21 transactions, the median price/earnings multiple paid was 13.13 and
the maximum multiple was 20.66, while the minimum multiple was 9.95. These
statistics can be compared to multiples derived using the indicated values on
March 27, 1997, which can be derived for the proposed acquisition of Eastern by
VFSC as 30.84 based upon the nominal present value of the proposed exchange
ratio of approximately $26.83 based upon the closing bid price of VFSC on March
27, 1997 as described above and 30.84 based upon the nominal present value of
the proposed exchange ratio of approximately $26.83 based upon the trailing
20-day average closing bid price of VFSC through March 27, 1997. For the reasons
detailed above, MB&D does not believe that the comparable data presented should
be viewed as the most meaningful analytic tool with respect to a thorough review
and understanding of the proposed transaction.
Pursuant to a letter agreement with Eastern dated November 1, 1996, MB&D
will receive a fee equal to 1.00% of the fair market value of all consideration
received by Eastern shareholders and option holders for services rendered to
Eastern in conjunction with the proposed transaction, if the transaction is
consummated. The fee represents compensation for services rendered in connection
with the analysis of the hypothetical transaction, support of the negotiations
and for the rendering of its opinions. Eastern paid MB&D $100,000 upon signing
the agreement and $100,000 following the execution of the Merger Agreement. An
additional $200,000 became payable at the mailing of this proxy statement and
the remainder will become payable at the closing of the transaction. Based upon
a hypothetical transaction value at closing of $95 million, MB&D would receive
compensation of $950,000. In addition, Eastern has agreed to reimburse MB&D for
its reasonable out-of-pocket expenses incurred in connection with the
transaction. Eastern also has agreed to indemnify MB&D and its directors,
officers and employees against certain losses, claims, damages and liabilities
relating to or arising out of MB&D's engagement, including liabilities under the
federal securities laws.
Opinion of Tucker Anthony Incorporated
Tucker Anthony was retained by VFSC in October 1996 for the purpose of
providing financial advice and consultation in connection with a potential
acquisition of Eastern, including assistance in developing an overall strategy
for the acquisition of Eastern, advice on valuation and transaction structure,
assistance in bid presentation, negotiations and related strategy and analysis,
and, if appropriate, the rendering of a fairness opinion in connection with a
proposed acquisition.
VFSC selected Tucker Anthony for a number of reasons including its
familiarity with VFSC and Eastern and their respective businesses. VFSC also
considered Tucker Anthony's experience and reputation in the area
38
<PAGE> 48
of valuation and financial advisory work generally, and in relation to financial
institutions specifically. Tucker Anthony makes a market in VFSC Common Stock
and Eastern Common Stock. 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 rendered written opinions to the Board of Directors of
VFSC to the effect that, as of November 13, 1996 and as of the date of this
Joint Proxy Statement-Prospectus, the consideration to be paid to the holders of
Eastern Common Stock in the Merger pursuant to the Merger Agreement is fair,
from a financial point of view, to the holders of VFSC Common Stock. THE FULL
TEXT OF THE FAIRNESS OPINION DATED AS OF THE DATE OF THIS JOINT 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 C TO THIS JOINT PROXY STATEMENT-PROSPECTUS.
HOLDERS OF VFSC COMMON STOCK ARE URGED TO READ THE FAIRNESS OPINION IN ITS
ENTIRETY. This opinion is directed to the VFSC Board only and does not
constitute a recommendation to any holder of VFSC Common Stock as to how such
stockholder should vote at the meeting. The November 13, 1996 opinion is
substantially identical to the opinion attached hereto as Appendix C.
As compensation for its services as financial advisor, including issuance
of the opinions, VFSC has agreed to pay Tucker Anthony a total of $500,000 of
which amount $300,000 has been paid as of the date hereof and the balance is
payable at the closing of the Merger. VFSC has also agreed to reimburse Tucker
Anthony for its out-of-pocket expenses and to indemnify Tucker Anthony against
certain liabilities arising out of its services.
In arriving at its opinion, Tucker Anthony, among other things, reviewed
the Agreement; reviewed the Registration Statement on Form S-4, including this
Joint Proxy Statement-Prospectus in the form first filed with the Commission;
reviewed certain historical financial and other information concerning VFSC for
the five fiscal years ended December 31, 1996, including VFSC's reports on Forms
10-K and 10-Q; reviewed certain historical financial and other information
concerning Eastern for the five fiscal years ended September 30, 1996 and for
the fiscal quarter ended December 31, 1996, including Eastern's reports on Forms
10-K and 10-Q; held discussions with the senior management of VFSC and Eastern
with respect to their past and current financial performance, financial
condition and future prospects; reviewed certain internal financial data,
projections and other information of VFSC and Eastern 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 VFSC and Eastern from a
financial point of view with certain of these institutions; compared the
consideration to be paid by VFSC pursuant to the Merger Agreement with the
consideration paid by acquirors 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 VFSC Common Stock and Eastern Common Stock and considered the prospects
for dividends and price movement in each; 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 VFSC Board or the Eastern 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 VFSC and Eastern, and did not attempt to verify any of such
information. Tucker Anthony assumed (i) that the financial projections of VFSC
and Eastern provided to it with respect to the results of operations likely to
be achieved by each company were prepared on a basis reflecting the best
currently available estimates and reasonable judgments of VFSC's and Eastern's
management and advisors 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. Tucker Anthony also assumed, without independent
verification, that the current and projected aggregate
39
<PAGE> 49
reserves for possible loan losses for VFSC and Eastern were adequate to cover
such losses. Tucker Anthony did not make or obtain any independent evaluations
or appraisals of any assets or liabilities of VFSC, Eastern or any of their
respective subsidiaries nor did it verify any of VFSC's or Eastern's books or
records or review any individual loan credit files.
On November 13, 1996, Tucker Anthony made a presentation, and subsequently
rendered a written fairness opinion, to the VFSC Board. Set forth below is a
summary of the main elements of the financial analyses performed by Tucker
Anthony in connection with rendering its written opinion of November 13, 1996.
It does not purport to be a complete description of the analyses performed by
Tucker Anthony or of the presentation of Tucker Anthony to the VFSC Board. In
connection with its opinion dated as of the date of this Joint 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.
Pro Forma Accretion/Dilution Analysis. Tucker Anthony developed financial
projections of the expected future performance of the pro forma combined entity
assuming the consummation of the Merger based on: financial forecasts for VFSC
and Eastern prepared by their respective managements; projected pro forma
noninterest income enhancements and noninterest expense savings, and their
respective phase-in schedules, as identified by VFSC; and one-time
transaction-related adjustments and expenses as identified by VFSC. Tucker
Anthony did not develop such forecasts and projections, and assumed their
validity. The projections assumed, among other things, that Eastern's
stand-alone baseline projected earnings per share for its fiscal year ended
September 30, 1997 would be $1.85, and that noninterest income enhancements of
approximately $1.1 million and noninterest expense savings of approximately $9
million (approximately 30% of Eastern's noninterest expense for the twelve
months ended September 30, 1996, excluding a one-time special statutory
assessment of $3.8 million pre-tax paid by Eastern to capitalize the SAIF) would
be phased in during the year after the closing of the Merger.
This analysis suggested that the Merger would result in earnings accretion
in VFSC's fiscal year ended December 31, 1998; that is, that earnings per share
for the pro forma combined entity would be higher than for VFSC as a stand-alone
entity. This analysis also suggested that tangible book value per share and
capital ratios for the pro forma combined entity at the time of closing of the
Merger would be lower than for VFSC as a stand-alone entity.
Discounted Dividend Stream Analysis. Tucker Anthony presented the results
of a discounted dividend stream analysis through VFSC's fiscal year ended
December 31, 2002 designed to estimate the internal rate of return ("IRR") of
the future streams of after-tax cash flows, under certain assumptions, that
would be achieved in the Merger. Tucker Anthony based its analysis on the
portion of the detailed financial model developed for the accretion/dilution
analysis referred to above, which focused on the contribution of Eastern to the
pro forma combined entity (including the net effect of noninterest income
enhancements, noninterest expense savings and one-time transaction-related
adjustments and expenses).
The projected cash flows from the portion of the pro forma combined entity
representing the contribution of Eastern consisted of dividends (to maintain a
target tangible-equity-to-tangible-assets ratio of 7.00%) in the quarters ended
September 30, 1997 and December 31, 1997 and VFSC fiscal years ended December
31, 1998 through 2002 plus the terminal value at fiscal year end 2002. In
estimating the appropriate terminal value at fiscal year 2002, Tucker Anthony
applied to estimated earnings in fiscal year 2002 multiples of 9.0x, 10.0x and
11.0x, representing a range which approximated the trading range of VFSC Common
Stock in the prior eighteen months. Acquisition and trading multiples from time
to time fluctuate considerably, and no assurance can be made that future trading
multiples will be comparable to historical levels. Under the terms of the
Merger, based on the foregoing assumptions, this analysis suggested an IRR in
the range 16.6% to 26.9% for an Acquisition Price in the range $21.72 to $26.83
per share and terminal earnings multiples in the range 9.0x to 11.0x.
Based upon Tucker Anthony's experience and judgment and its estimate of
VFSC's required return on equity, Tucker Anthony estimated that holders of VFSC
Common Stock would typically expect returns on
40
<PAGE> 50
equity on acquisitions such as the Merger of approximately 14% to 16%, in view
of VFSC's operating projections, historical performance, financial condition and
market capitalization, among other matters.
Acquisition Price/Exchange Ratio Analysis. Tucker Anthony considered the
ranges of possible acquisition prices and exchange ratios that could result
under the Merger, and the impact of these on its analyses.
Stock Trading Analysis. Tucker Anthony examined the historical trading
prices, volume, price/book value and price/earnings multiples of VFSC Common
Stock and Eastern Common Stock, and compared the historical trading prices of
VFSC Common Stock and Eastern Common Stock in relation to movements in certain
stock indices, specifically the Standard and Poor's Regional Bank Index and the
Standard and Poor's Savings & Loan Index, as well as to other selected publicly
traded financial institutions.
Analysis of Selected Transactions. Tucker Anthony reviewed and performed
analysis on 84 unassisted acquisitions of thrift institutions in the
Northeastern US (the "Selected Northeast Transactions") and 71 unassisted
acquisitions of thrift institutions in the US with a transaction size between
$50 million and $150 million (the "Selected US Transactions") announced since
January 1, 1993, comparing the target financial institutions' capital structure
and profitability to Eastern's current results of operations and financial
condition. The Selected Northeast Transactions and Selected US Transactions were
chosen because they represented merger and acquisition transactions that
involved target financial institutions exhibiting certain
characteristics -- including asset size, geographic proximity and business
risk -- similar to those exhibited by Eastern. Excluding the highest and lowest
ratios, the target financial institutions involved in the Selected Northeast
Transactions and the Selected US Transactions had an average return on assets
for the latest twelve months prior to announcement date of 0.83% and 0.90% and
an average return on equity for the latest twelve months prior to announcement
date of 8.90% and 11.07%, respectively, as compared to 0.69% and 9.01%
(excluding a one-time special statutory assessment of $2.4 million after tax
paid by Eastern to capitalize the SAIF), respectively, for Eastern. Set forth
below is a summary of the analysis with respect to the Selected Northeast
Transactions and the Selected US Transactions.
<TABLE>
<CAPTION>
SELECTED NORTHEAST SELECTED US
TRANSACTIONS TRANSACTIONS
VERMONT ------------------------ ------------------------
FINANCIAL OFFER OFFER
OFFER(1) MEDIAN PERCENTILE(2) MEDIAN PERCENTILE(2)
--------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C>
Price/Trailing Twelve Months
Earnings(3)......................... 16.0x 14.5x 64% 15.1x 59%
Price/Book Value...................... 1.45x 1.53x 42% 1.58x 36%
Premium to Market Price(4)............ 125% 130% 43% 130% 41%
</TABLE>
- ---------------
(1) Based upon value of $25.01 per share of Eastern Common Stock (based on the
November 11, 1996 closing price of VFSC Common Stock of $36.25). If the
value of the VFSC Common Stock were based on its average closing bid price
per share during the twenty trading day period ending on the fifth business
day prior to the announcement of the Merger of $34.66, implying a value of
$24.23 per share of Eastern Common Stock, the corresponding multiples in the
table would be: price/trailing twelve months earnings of 15.6x; price/book
value of 1.40x; and premium to market price of 121%.
(2) Position of the VFSC offer in relation to percentile rankings of the
Selected Northeast Transactions and the Selected US Transactions,
respectively.
(3) Excludes a one-time special statutory assessment paid by Eastern to
capitalize the SAIF.
(4) Premium to market price for Selected Northeast Transactions and the Selected
US Transactions based on stock price one week prior to announcement; market
price for Eastern of $20.00/share based on price one month prior to
announcement.
Analysis of Selected Publicly Traded Companies. Tucker Anthony compared
selected financial data and financial ratios of VFSC and Eastern to the
corresponding data and ratios of certain publicly traded commercial bank and
thrift institutions located in New England with total assets comparable to VFSC
and Eastern, respectively. The commercial bank and thrift institutions included
in the comparison to VFSC were: Banknorth Group, Inc., Chittenden Corporation,
Merchants Bankshares, Inc., Peoples Heritage Financial
41
<PAGE> 51
Group, Inc. and TrustCo Bank Corp NY (the "Selected Banks"). The thrift
institutions included in the comparison to Eastern were: Andover Bancorp, Inc.,
CFX Corporation, Community Bancshares, Inc., First Essex Bancorp, Inc., MASSBANK
Corp., Medford Savings Bank, MetroWest Bank, New Hampshire Thrift Bancshares,
Inc., People's Bancshares, Inc., Sandwich Co-operative Bank and SIS Bancorp,
Inc. (the "Selected Thrifts"). The Selected Banks and the Selected Thrifts, as
groups, exhibited certain characteristics -- including asset size, geographic
proximity and business risk -- similar to those exhibited by VFSC and Eastern,
respectively.
The comparison of VFSC to the Selected Banks showed among other things that
based on financial data as of September 30, 1996 (other than certain instances
in which June 30, 1996 data was the latest available data): (i) the ratio of
VFSC's net loans to assets was 70.0% compared to an average of 66.2% for the
Selected Banks; (ii) the ratio of VFSC's non-performing assets to total loans
plus real estate owned was 1.2% compared to 1.9% for the Selected Banks; (iii)
the ratio of VFSC's non-performing assets to the sum of stockholders' equity and
loan loss reserves was 8.5% compared to an average of 13.0% for the Selected
Banks; (iv) the ratio of VFSC's equity to total assets was 9.04% as compared to
an average of 8.04% for the Selected Banks; (v) the latest quarter annualized
return on assets for VFSC was 1.30% compared to an average of 1.19% for the
Selected Banks; (vi) the latest quarter annualized return on equity for VFSC was
14.51%, compared to an average of 14.89% for the Selected Banks; (vii) the ratio
of VFSC's market price to its book value per common share was 1.48x compared to
an average of 1.87x for the Selected Banks; (viii) the price/earnings ratio for
the trailing twelve months earnings for VFSC was 10.9x, compared to an average
of 11.4x for the Selected Banks; and (ix) the average latest quarter annualized
dividend yield for VFSC was 3.0% as compared to 3.6% for the Selected Banks.
The comparison of Eastern to the Selected Thrifts showed among other things
that based on financial data as of September 30, 1996 (other than certain
instances in which June 30, 1996 data was the latest available data): (i) the
ratio of Eastern's net loans to assets was 56.3% compared to an average of 56.3%
for the Selected Thrifts; (ii) the ratio of Eastern's non-performing assets to
total loans plus real estate owned was 2.4% compared to 2.6% for the Selected
Thrifts; (iii) the ratio of Eastern's non-performing assets to the sum of
stockholders' equity and loan loss reserves was 18.1% compared to an average of
11.3% for the Selected Thrifts; (iv) the ratio of Eastern's equity to total
assets was 7.32% as compared to an average of 7.77% for the Selected Thrifts;
(v) the latest quarter annualized return on assets for Eastern was 0.67%
compared to an average of 0.99% for the Selected Thrifts; (vi) the latest
quarter annualized return on equity for Eastern was 8.89%, compared to an
average of 12.73% for the Selected Thrifts; (vii) the ratio of Eastern's market
price to its book value per common share was 1.28x compared to an average of
1.34x for the Selected Thrifts; (viii) the price/earnings ratio for the trailing
twelve months earnings for Eastern was 14.8x, compared to an average of 10.6x
for the Selected Thrifts; and (ix) the average latest quarter annualized
dividend yield for Eastern was 2.5% as compared to 3.1% for the Selected
Thrifts.
The foregoing is a summary of the main elements of the financial analyses
performed by Tucker Anthony, but it does not purport to be a complete
description of such analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to a
summary description. Accordingly, notwithstanding the separate factors
summarized above, 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 above should not be taken to be Tucker Anthony's
view of the actual value of Eastern to VFSC.
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 VFSC and Eastern. 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
42
<PAGE> 52
by such analyses. Such analyses were prepared solely as a part of Tucker
Anthony's analysis of the fairness, from a financial point of view, to the
holders of VFSC Common Stock of the consideration to be paid in the Merger to
the holders of Eastern Common Stock, and were provided to VFSC's Board of
Directors 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
Eastern or VFSC might actually be sold or 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 is just one of the many factors taken
into consideration by VFSC's Board of Directors. See "-- Recommendation of the
VFSC Board and Reasons for the Merger" and "-- Background of the Merger".
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
If the Merger Agreement is approved and adopted by the requisite vote of
VFSC and Eastern stockholders, and the other conditions to the Merger are
satisfied or (where permissible) waived, the Merger will be consummated and
become effective when the Certificate of Merger is filed with the Secretary of
State of Delaware, or at such later date and time as is specified therein. Under
the terms of the Merger Agreement, the Closing Date shall be the date on which
the Effective Time occurs.
CONVERSION OF SHARES OF EASTERN COMMON STOCK PURSUANT TO THE MERGER
At the Effective Time, automatically and without any action on the part of
the holder thereof, each share of Eastern Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held by dissenting
stockholders ("Dissenting Shares"), shares held directly or indirectly by VFSC,
other than shares in trust accounts, merged accounts and the like which are
beneficially owned by third parties ("Trust Account Shares") and other shares
held in respect of a debt previously contracted ("DPC Shares"), and any shares
held as treasury stock by Eastern) shall become and be converted into either:
(i) an amount in cash equal to the sum of (x) $7.25 plus (y) the
product of 0.49 times the Average Closing Price (such total per share
purchase price being referred to herein as the "Acquisition Price" and such
total per share cash amount being referred to herein as the "Cash
Distribution"); or
(ii) the number of whole and fractional shares of VFSC Common Stock,
rounded to the nearest ten-thousandth of a share, equal to the number
obtained by dividing the Acquisition Price by the Average Closing Price
(such number being referred to herein as the "Exchange Ratio" or the "Stock
Distribution"); provided, however, that if the Average Closing Price is
greater than or equal to $39.96 per share, the Acquisition Price shall
equal $26.83, and if the Average Closing Price is less than or equal to
$29.54 per share but greater than or equal to $26.06 per share, the
Acquisition Price shall equal $21.72. If the Average Closing Price is less
than $26.06, the Acquisition Price shall equal the sum of (x) $7.25 plus
(y) the product of 0.5553 times the Average Closing Price.
If the Average Closing Price is less than $26.06 per share (the "Minimum
Price"), then Eastern shall have the right to terminate the Merger Agreement,
unless VFSC elects, in its sole discretion, to adopt $21.72 as the Adjusted
Acquisition Price. The Acquisition Price shall be identical without regard to
any election made pursuant to the procedures set forth in the Merger Agreement
(see "-- Election Procedures"). In determining whether to elect to terminate the
Merger Agreement in these circumstances, Eastern will take into account,
consistent with its fiduciary duties, all relevant facts and circumstances
existing at the time, including, without limitation, whether it believes that
VFSC is prepared to (i) adopt $21.72 as the Acquisition Price, (ii) acquiesce in
the termination of the transaction or (iii) seek to negotiate for a lesser
increase in the Acquisition Price; the market for bank and thrift stocks in
general; and the relative value of the Eastern Common Stock in the market and
the advice of its financial advisors and legal counsel. By approving the Merger
Agreement, the Eastern stockholders would be permitting the Eastern Board to
determine, in the exercise of its fiduciary duties, to proceed with the Merger
even if the Average Closing Price of the VFSC Common Stock during the pricing
period is less than $26.06 per share.
As of the Effective Time, each share of Eastern Common Stock held directly
or indirectly by VFSC, other than Trust Account Shares, and DPC Shares, and each
share of Eastern Common Stock held by
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<PAGE> 53
Eastern as treasury stock shall be canceled and retired and shall cease to
exist, and no payment shall be made with respect thereto.
The Merger Agreement defines "Average Closing Price" as the average of the
closing bid prices of shares of VFSC Common Stock as reported on the Nasdaq NM
composite transactions reporting system for the twenty consecutive trading days
(the "Valuation Period") ending on the fifth business day prior to the Closing
Date. The Merger Agreement defines "Merger Consideration" as the shares of VFSC
Common Stock and/or cash that holders of Eastern Common Stock are entitled to
receive under the Merger Agreement. Subject to the provisions of the Merger
Agreement with respect to Dissenting Shares, each certificate that immediately
prior to the Effective Time represented outstanding shares of Eastern Common
Stock shall on and after the Effective Time be deemed for all purposes to
represent the Merger Consideration into which the shares of Eastern Common Stock
represented by such certificate shall have been converted.
The total amount of the Cash Distribution to be made to all holders of
shares of Eastern Common Stock will equal the product of $7.25 times the number
of shares of Eastern Common Stock outstanding at the Effective Time (which
product is currently estimated at $26.6 million). The balance of the Merger
Consideration will consist of shares of VFSC Common Stock; if the Average
Closing Price is between $29.54 and $39.96 per share, Eastern's stockholders
will receive approximately 1.8 million shares of VFSC Common Stock, or
approximately 28.1% of all shares outstanding upon consummation of the Merger
and, if it is less than $29.54, they will receive an increasing number or
shares, up to approximately 2.0 million shares of VFSC Common Stock, or
approximately 30.7% of all shares outstanding upon consummation of the Merger,
if the Average Closing Price is $26.06 per share.
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<PAGE> 54
TABULAR AND GRAPHIC ILLUSTRATION OF THE MERGER CONSIDERATION
AT VARIOUS AVERAGE CLOSING PRICES
The table below shows the Merger Consideration corresponding to various
possible values of the Acquisition Price and Adjusted Acquisition Price,
respectively. If the Average Closing Price is less than $26.06 and VFSC in its
sole discretion so elects, the Merger Consideration will be based on the
Adjusted Acquisition Price of $21.72. The Merger Consideration will be in the
form of the Cash Distribution per share of Eastern Common Stock or the Stock
Distribution of the number of shares of VFSC Common Stock to be exchanged for
each share of Eastern Common Stock.
There can be no assurance as to what the Average Closing Price will be or
what the value of the Merger Consideration will be at or following the Effective
Time. The table and graph below are intended as illustrative examples only. This
illustration is qualified in its entirety by reference to the Merger Agreement.
The highest and lowest Average Closing Prices depicted in the illustration are
not intended to suggest that the Average Closing Price, when computed, will not
be higher or lower than these respective values.
As shown below, if the Average Closing Price were to be $41.625, the
closing price of VFSC Common Stock on March 27, 1997, the Acquisition Price
would be $26.83; an Eastern Stockholder receiving all cash would receive $26.83
per share of Eastern Common Stock, and an Eastern Stockholder receiving all
stock would receive 0.6446 shares of VFSC Common Stock per share of Eastern
Common Stock.
<TABLE>
<CAPTION>
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
AVERAGE ------------------------------
CLOSING PRICE ACQUISITION STOCK
(OF VFSC PRICE (PER CASH DISTRIBUTION
SHARES) EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ------------- -------------- ------------ -------------
<S> <C> <C> <C>
$44.000 $26.8300 $26.8300 0.6098
42.000 26.8300 26.8300 0.6388
41.625 26.8300 26.8300 0.6446
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
40.000 26.8300 26.8300 0.6708
39.960 26.8300 26.8300 0.6714
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
38.000 25.8700 25.8700 0.6808
36.000 24.8900 24.8900 0.6914
34.000 23.9100 23.9100 0.7032
32.000 22.9300 22.9300 0.7166
30.000 21.9500 21.9500 0.7317
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
29.540 21.7200 21.7200 0.7353
28.000 21.7200 21.7200 0.7757
26.060 21.7200 21.7200 0.8335
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C>
26.000 21.6878 21.6878 0.8341
24.000 20.5772 20.5772 0.8574
22.000 19.4666 19.4666 0.8848
</TABLE>
<TABLE>
<CAPTION>
If Eastern elects to terminate the Merger
but VFSC elects to keep the Merger Agreement in effect:
- --------------------------------------------------------------
MERGER CONSIDERATION
(PAYABLE IN CASH OR
IN STOCK)
ADJUSTED -----------------------------------
ACQUISITION PRICE (PER CASH STOCK DISTRIBUTION
EASTERN SHARE) DISTRIBUTION (VFSC SHARES)
- ---------------------- ------------ ------------------
<S> <C> <C>
</TABLE>
................................................................................
<TABLE>
<S> <C> <C> <C> <C> <C>
29.540 21.7200 21.7200 0.7353 $21.7200 $21.7200
28.000 21.7200 21.7200 0.7757 21.7200 21.7200
26.060 21.7200 21.7200 0.8335 21.7200 21.7200
<CAPTION>
29.540 0.8354
<S> <C>
28.000 0.9050
26.060 0.9873
</TABLE>
- --------------------------------------------------------------------------------
Graph showing range of values of merger consideration per share of target
company's stock as determined by price of acquiring company's stock, with
example of value based on March 27, 1997 price of acquiring company's stock.
45
<PAGE> 55
ELECTION PROCEDURES
Following the Special Meetings and 25 business days prior to the
anticipated Closing Date, or on such other date as may be mutually agreed upon
by the parties (the "Mailing Date"), VNB, acting as an exchange agent appointed
by VFSC (the "Exchange Agent"), will mail to each holder of record of shares of
Eastern Common Stock outstanding as of five business days prior to the Mailing
Date an election form (the "Election Form"), together with appropriate
transmittal materials.
The Election Form will permit a holder of shares of Eastern Common Stock to
elect, with respect to some or all of such holder's shares of Eastern Common
Stock, (i) to receive the Stock Distribution (the "Stock Election Shares"), (ii)
to receive the Cash Distribution (the "Cash Election Shares"), or (iii) to
indicate that such holder makes no election (the "No Election Shares").
Any shares of Eastern Common Stock with respect to which the holder thereof
shall not, as of the Election Deadline (as defined below), have made such an
election by submission to the Exchange Agent of a properly completed Election
Form, will be deemed to be No Election Shares. "Election Deadline" means 5:00
p.m., local time, on the 15th business day following but not including the
Mailing Date or such other date as VFSC and Eastern shall mutually agree upon in
writing.
Any election shall have been properly made only if the Exchange Agent has
received a properly completed Election Form by the Election Deadline. An
Election Form will be properly completed only if accompanied by either (i)
certificates representing all shares of Eastern Common Stock covered thereby or
(ii) an appropriate guarantee of delivery of such certificates as set forth in
the Election Form from a member of a national securities exchange or the NASD,
or a commercial bank or trust company in the United States, provided that if the
certificates are not delivered by the time set forth in the guarantee of
delivery (which time may not be later than two business days after the Election
Deadline), the holder shall be entitled only to receive in respect of each share
of Eastern Common Stock represented by such certificates the Merger
Consideration to be received by holders of No Election Shares, as determined in
accordance with the allocation provisions set forth below. As a result of this
requirement, stockholders who submit Election Forms will not be able to sell
their shares on the Nasdaq NM, or otherwise, after submitting their Election
Forms and will be irrevocably bound to receive the Merger Consideration rather
than retaining the ability to choose, up to the Effective Time, whether to sell
their shares or to receive the Merger Consideration. Any Election Form may be
revoked or changed by the person submitting such Election Form to the Exchange
Agent by written notice to the Exchange Agent, provided such notice is received
by the Exchange Agent at or prior to the Election Deadline. The Exchange Agent
will have reasonable discretion to determine when any election, modification or
revocation is received and whether any such election, modification or revocation
has been properly made.
The total amount of the Cash Distribution to be made to all holders of
shares of Eastern Common Stock will equal the product of $7.25 times the number
of shares of Eastern Common Stock outstanding at the Effective Time (currently
estimated at $26.6 million); the balance of the consideration to be paid to such
holders will consist of shares of VFSC Common Stock. The allocation procedures
contained in the Merger Agreement are intended to cause these aggregate amounts
to be distributed among such holders as nearly as possible in accordance with
their expressed wishes as set forth in their Election Forms.
If the aggregate number of Stock Election Shares does not equal the Stock
Conversion Number (as defined below), the Exchange Agent will within 10 business
days after the Election Deadline, unless the Effective Time has not yet
occurred, in which case as soon thereafter as practicable, allocate among
holders of shares of Eastern Common Stock outstanding at the Effective Time the
right to receive with respect to each such share the Stock Distribution or the
Cash Distribution as follows:
(i) if the aggregate number of Stock Election Shares is less than the
Stock Conversion Number (as defined below), then
(a) all Stock Election Shares will be converted into the right to
receive the Stock Distribution;
46
<PAGE> 56
(b) the Exchange Agent will select, on a pro rata basis, first from
among the holders of No Election Shares and then (if necessary) from
among the holders of Cash Election Shares, a sufficient number of such
shares ("Stock Designee Shares") such that the number of Stock Designee
Shares will, when added to the number of Stock Election Shares, equal as
closely as practicable, but in no event be less than, the Stock
Conversion Number, and all Stock Designee Shares will be converted into
the right to receive the Stock Distribution; and
(c) the Cash Election Shares and the No Election Shares not so
selected as Stock Designee Shares will be converted into the right to
receive the Cash Distribution; or
(ii) if the aggregate number of Stock Election Shares is greater than
the Stock Conversion Number, then
(a) all Cash Election Shares will be converted into the right to
receive the Cash Distribution;
(b) the Exchange Agent will select, on a pro rata basis, first from
among the holders of No Election Shares and then (if necessary) from
among the holders of Stock Election Shares, a sufficient number of such
shares ("Cash Designee Shares") such that the number of Cash Designee
Shares will, when added to the number of Cash Election Shares, equal as
closely as practicable, but in no event will it exceed, the Cash
Conversion Number (as defined below), and all Cash Designee Shares will
be converted into the right to receive the Cash Distribution; and
(c) the Stock Election Shares and the No Election Shares not so
selected as Cash Designee Shares will be converted into the right to
receive the Stock Distribution.
"Cash Conversion Number" means the number of outstanding shares of Eastern
Common Stock as of the Effective Time, including all Dissenting Shares, if any,
multiplied by the ratio of $7.25 to the Acquisition Price. "Stock Conversion
Number" means the number of outstanding shares of Eastern Common Stock as of the
Effective Time minus the Cash Conversion Number.
The proration process to be used by the Exchange Agent shall be as the
Exchange Agent deems equitable in its sole reasonable discretion, provided that
each holder of Stock Election Shares shall, to the greatest extent possible,
except for rounding to whole numbers of shares, be subject to the same degree of
proration as each other holder of Stock Election Shares.
CERTIFICATE EXCHANGE PROCEDURES
Certificates representing shares of Eastern Common Stock outstanding
immediately prior to the Effective Time that are converted into the Merger
Consideration (the "Certificates"), shall, after the Effective Time, be deemed
to represent the Merger Consideration into which such shares have been converted
and shall be exchangeable by the holders thereof for (i) new certificates
representing the shares of VFSC Common Stock into which such shares have been
converted and/or (ii) a check for the total cash amount into which such shares
have been converted.
Upon surrender of a Certificate, together with a duly executed letter of
transmittal and any other required documents, the holder of such Certificate
will be entitled to receive, in exchange therefor, as soon as practicable, a
certificate for the number of shares of VFSC Common Stock and/or a check for the
cash amount to which such holder is entitled, and such Certificate shall
forthwith be canceled. No interest will be paid on the cash amount payable with
respect to any unsurrendered Certificate representing Cash Election Shares.
In lieu of the issuance of fractional shares of VFSC Common Stock, a
payment in cash, without interest, will be made to the holders of Eastern Common
Stock in respect of any fractional share that would otherwise be issuable, equal
to an amount in cash determined by multiplying such holder's fractional interest
by the Acquisition Price (rounded up to the nearest cent). If any Certificate
has 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 VFSC of appropriate
47
<PAGE> 57
and customary indemnification, VFSC will deliver in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration and any fractional
share payment.
If any Merger Consideration is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that the Certificate so surrendered shall
be properly endorsed (or accompanied by an appropriate instrument of transfer)
and otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the delivery of the Merger Consideration.
TREATMENT OF EASTERN STOCK OPTIONS
As soon as practicable following the Eastern Meeting and in any event not
later than 10 business days prior to the Effective Time, each holder of a
then-outstanding stock option to purchase shares of Eastern Common Stock
pursuant to Eastern's 1984 and 1987 stock option plans (the aggregate number of
shares of Eastern Common Stock subject to purchase under which options shall not
at the Effective Time exceed 398,975 shares) shall be entitled to exercise such
option (whether or not such option would otherwise have been exercisable) at the
exercise price thereof. If such options are not so exercised, then each such
holder shall be entitled to elect by written notice to VFSC, delivered not later
than 10 business days prior to the Effective Time, either (i) to receive,
immediately prior to the Effective Time, from Eastern in cancellation of each
such option a cash payment in an amount equal to the excess of $24.28 over the
per share exercise price of such option, multiplied by the number of shares
covered by such option (less any withholding required under applicable federal
or state income tax law), or (ii) to have each such option, upon the Effective
Time, converted into an option to purchase shares of VFSC Common Stock. Any
option so converted shall have the following terms:
(a) the number of shares of VFSC Common Stock subject to such option
shall be equal to the product of the number of shares of Eastern Common
Stock previously subject thereto multiplied by the Exchange Ratio, rounded
down to the nearest whole share;
(b) the exercise price per share of VFSC Common Stock subject to such
option shall be equal to the exercise price per share of Eastern Common
Stock previously subject thereto divided by the Exchange Ratio, rounded up
to the nearest cent;
(c) the duration and other terms of such option shall be unchanged,
except that all references to Eastern shall be deemed to be references to
VFSC;
(d) VFSC shall assume the option as contemplated by section 424(a) of
the Code; and
(e) with respect to any such option that is an incentive stock option
within the meaning of section 422 of the Code, VFSC shall take such actions
(other than delaying the date on which such option becomes exercisable
beyond the date on which it would otherwise become exercisable pursuant to
the terms thereof) as may be necessary or appropriate to cause such option,
upon being converted into an option to purchase shares of VFSC Common
Stock, to remain an incentive stock option.
If any such holder fails either to exercise such holder's options as
provided for above or to elect one of the other two foregoing alternatives, then
such holder's options shall terminate at the Effective Time as provided in the
applicable Eastern stock option plans.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, each of Eastern and Vermont Federal has
agreed that, except as specifically required or permitted pursuant to the Merger
Agreement or as otherwise specifically disclosed therein, it will prior to the
Effective Time carry on its business in the ordinary course consistent with past
practice.
48
<PAGE> 58
In addition, each of Eastern and Vermont Federal has agreed that, except as
contemplated by the Merger Agreement, prior to the Effective Time, it will not,
directly or indirectly, do any of the following without the prior written
consent of VFSC:
(a) 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,
including without limitation entering into any settlement agreement or
understanding with respect to any material litigation matters;
(b) accept, renew or roll over any "brokered deposit" or offer an
interest rate with respect to any deposit that would either constitute an
impermissible interest rate with respect to deposits of an undercapitalized
insured depository institution or otherwise set interest rates on deposits
that depart from past practices of Vermont Federal;
(c) 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;
(d) relocate, or file any application to relocate, any branch office;
(e) terminate, or give any notice (written or verbal) to customers or
governmental authorities or agencies to terminate the operations of any
branch office;
(f) 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 practices;
(g) declare or pay any dividends on or make any other distributions in
respect of the Eastern Common Stock, except that Eastern shall be permitted
to declare and pay regular quarterly cash dividends to its stockholders of
$0.14 per share for the quarter ending September 30, 1996, $0.16 per share
for the quarters ending December 31 and March 31, 1997 and $0.18 per share
for the quarter ending June 30, 1997, provided, however, that Eastern may
not declare or pay any such regular quarterly cash dividend hereunder
greater than $0.14 per share if the aggregate amount of such dividend would
exceed forty percent (40%) of Eastern's net income for the fiscal quarter
for which the dividend would be declared or paid;
(h) adopt or amend in any material respect any pension plan or benefit
plan or enter into any employment, severance or similar contract with any
person or amend any such existing agreement, plan or contract to increase
any amounts payable thereunder or benefits provided thereunder, or grant or
permit any increase in compensation to its employees as a class, except in
the ordinary course of business consistent with past practices, or pay any
bonus except as agreed to by Eastern or Vermont Federal and VFSC and as
disclosed in the Merger Agreement;
(i) subject to its directors' fiduciary duties and obligations,
authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into an agreement with respect to, any
merger, consolidation, purchase and assumption transaction or business
combination (other than the Merger), any acquisition of a material amount
of assets or securities or assumption of liabilities, 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
inconsistent with past practices;
(j) propose or adopt amendments to its certificate or articles of
incorporation or by-laws;
(k) issue, deliver or sell any shares of its capital stock except upon
exercise or fulfillment of options issued or existing on the date of the
Merger Agreement, or effect any stock split, reverse stock split,
recapitalization, reclassification or similar transaction or otherwise
change its equity capitalization;
(l) grant, confer or award any options, warrants, conversion rights or
other rights, not existing on the date of the Merger Agreement, to acquire
any shares of its capital stock;
49
<PAGE> 59
(m) 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;
(n) impose, or suffer to exist the imposition, on any share of capital
stock held by it or by any of its subsidiaries of any material lien, charge
or encumbrance, or permit any such lien, charge or encumbrance;
(o) incur, or permit any of its subsidiaries to incur, any additional
debt obligation or other obligation for borrowed money, or guaranty any
additional debt obligation or other obligation for borrowed money, except
in the ordinary course of business consistent with past practices;
(p) 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,
which, in all cases, do not individually exceed $50,000 or cumulatively
exceed $150,000;
(q) change its methods of accounting in effect at September 30, 1995,
except as may be required by changes in generally accepted accounting
principles, or change its fiscal year;
(r) make any loan or extension of credit or enter into any commitment
therefor on other than Vermont Federal's customary terms, conditions and
standards and in accordance with applicable law and regulation and
consistent with prudent banking practices, and in any event Eastern and
Vermont Federal are required to provide VFSC with monthly reports of all
loans, extensions of credit and commitments therefor equal to or greater
than $500,000, individually, and to consult with VFSC prior to making or
entering into any new loan, extension of credit or commitment therefor
equal to or greater than $750,000 individually, or which, when aggregated
with all other loans, extensions of credit and commitments therefor to a
single borrower or affiliated group of borrowers, equals at least
$1,500,000; and
(s) agree, in writing or otherwise, to take any actions prohibited
under the Merger Agreement or any action that would make any of its
representations or warranties contained in the Merger Agreement untrue or
incorrect or would otherwise violate any of its other agreements or
commitments contained in the Merger Agreement in any material respect.
Each of Eastern and Vermont Federal has also agreed that, except as may be
specifically required or permitted pursuant to the Merger Agreement or
specifically described therein or in the accompanying disclosure schedule, it
shall:
(a) use all reasonable efforts, and cause each of its subsidiaries to
use all reasonable efforts, to preserve intact its business organization
and goodwill in all material respects, keep available the services of its
officers and employees as a group and maintain satisfactory relationships
with borrowers, depositors, other customers and others having business
relationships with it;
(b) at VFSC's request, use all reasonable efforts to cooperate with
VFSC with respect to preparation for the combination and integration of the
businesses, systems and operations of Eastern and VFSC, and confer on a
regular and frequent basis with one or more representatives of VFSC to
report on operational and related matters;
(c) subject to any restrictions under applicable law or regulation,
promptly notify VFSC of any emergency or other change in the normal course
of its or its subsidiaries' businesses or in the operation of its or its
subsidiaries' 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 its or its subsidiaries' assets, properties,
liabilities, business, results of operations, condition (financial or
regulatory); and
(d) file all reports, applications and other documents required to be
filed by it with the OTS, the Federal Reserve Board, the FDIC, any other
federal or state banking or other governmental agency or authority between
the date of the Merger Agreement and the Effective Time and shall furnish
to VFSC copies of all such reports promptly after the same are filed.
50
<PAGE> 60
CONDITIONS TO CONSUMMATION OF THE MERGER
Mutual Conditions. The respective obligations of VFSC and Eastern to
consummate the Merger are subject to satisfaction at or prior to the Effective
Time of the following conditions:
(a) The Merger Agreement and the transactions contemplated thereby
shall have been approved and adopted by the requisite vote of Eastern and
VFSC stockholders;
(b) Other than the filing of the Certificate of Merger, all necessary
approvals, authorizations and consents of any governmental or regulatory
authority or agency necessary for the consummation of the transactions
contemplated by the Merger Agreement shall have occurred or been file or
obtained and shall be in full force and effect, and all statutory waiting
periods in respect thereof shall have expired or been terminated (all such
approvals and the expiration of all such waiting periods being referred to
herein as the "Requisite Regulatory Approvals");
(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other transactions contemplated by
the Merger Agreement shall be in effect; and
(d) No stop order suspending the effectiveness of the Form S-4
Registration Statement registering the shares of VFSC Common Stock to be
issued in the Merger of which this Joint Proxy Statement-Prospectus forms a
part shall have been issued, and no proceedings for that purpose shall have
been initiated or threatened by the Commission.
Conditions to VFSC's Obligations. The obligation of VFSC to effect the
Merger and the transactions contemplated thereby is also subject to the
following conditions, any or all of which may be waived in whole or in part by
VFSC in its sole discretion:
(a) No material adverse change shall have occurred since September 30,
1996 in the business, operations, results of operations, assets,
liabilities or condition of Eastern or Vermont Federal;
(b) VFSC shall have received assurances that Eastern and Vermont
Federal's representations and warranties are true at the Closing Date and
that all of Eastern's pre-closing obligations have been complied with;
(c) All required approvals of non-governmental third parties that are
the responsibility of Eastern or Vermont Federal to obtain shall have been
received;
(d) None of the Requisite Regulatory Approvals shall contain any
materially burdensome condition or restriction;
(e) VFSC shall have received a legal opinion from Sullivan & Worcester
LLP, VFSC's outside counsel, that the Merger will constitute a tax-free
reorganization within the meaning of section 368(a) of the Code;
(f) VFSC shall have received a legal opinion from Hale and Dorr LLP,
Eastern's outside counsel, regarding certain corporate and other matters in
such form as is customary in transactions of this type;
(g) Eastern shall have delivered a letter identifying persons deemed
to be its affiliates and, to the extent received by Eastern, delivery of
letters from such persons agreeing to comply with certain limitations
applicable after the Effective Time to their sales of VFSC Common Stock
received in the Merger; and
(h) The Dissenting Shares shall not represent more than 20% of the
shares of Eastern Common Stock issued and outstanding immediately prior to
the Effective Time.
51
<PAGE> 61
Conditions to Eastern and Vermont Federal's Obligations. The obligation of
Eastern to effect the Merger and the other transactions contemplated in the
Merger Agreement is also subject to the satisfaction of the following
conditions, any or all of which may be waived by Eastern in its sole discretion:
(a) No material adverse change shall have occurred since December 31,
1995 in the business, operations, results of operations, assets,
liabilities, or condition of VFSC;
(b) Eastern shall have received assurances that VFSC's representation
and warranties are true at the Effective Time and that all of VFSC's
pre-closing obligations have been complied with;
(c) All required approvals of non-governmental third parties that are
the responsibility of VFSC to obtain shall have been received;
(d) Eastern shall have received a legal opinion from Hale and Dorr LLP
that the Merger will constitute a tax-free reorganization within the
meaning of section 368(a) of the Code and any taxable gain realized by any
Eastern stockholder as a result of the Merger will not exceed the amount of
cash received by such stockholder;
(e) The shares of VFSC Common Stock issuable at the Effective Time
shall have been authorized for listing on the Nasdaq NM upon official
notice of issuance; and
(f) Eastern shall have received a legal opinion from Sullivan &
Worcester LLP regarding certain corporate and other matters in such form as
is customary in transactions of this type.
TERMINATION
The Merger Agreement will be subject to termination any time prior to the
Effective Time (i) by mutual agreement of the parties; (ii) by either party if
the Merger shall not have been consummated on or before November 30, 1997 or
such later date as the parties may agree; (iii) by either party if any Requisite
Regulatory Approval or the approval of the stockholders of Eastern or the
stockholders of VFSC is not obtained or if consummation of the transactions
contemplated by the Merger Agreement is enjoined or otherwise prohibited; (iv)
by either party for a material breach of any representation, warranty or
covenant or other agreement contained in the Merger Agreement by the other
party, which breach is not cured after 30 days written notice thereof is given
to the party committing such breach; (v) by Eastern if the Average Closing Price
is less than $26.06 per share, subject to VFSC's right to elect to increase the
number of shares of VFSC Common Stock issuable in the Merger by using the
Adjusted Acquisition Price; and (vi) by VFSC if the Eastern Board does not
recommend to Eastern's stockholders the approval of the proposals to be
submitted to such stockholders in accordance with the Merger Agreement or if
such recommendation is subsequently withdrawn, modified or amended in any way
that is materially adverse to VFSC.
If either party terminates the Merger Agreement for any of the foregoing
reasons, neither party shall have any further liability under the Merger
Agreement; provided, however, in the event of a party's gross negligence or
willful breach of any material representation, warranty, covenant or agreement
contained in the Merger Agreement, the breaching party shall remain liable for
any and all damages, costs and expenses sustained or incurred by the
non-breaching party. In addition, Eastern will be liable for a cash payment of
up to $1 million if there should occur an event that would entitle VFSC to
exercise the option granted to it under the Stock Option Agreement. This
termination fee is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms of the Merger Agreement and may have
the effect of discouraging persons who might now or prior to the Effective Time
be interested in acquiring all of or a significant interest in Eastern from
considering or proposing such an acquisition.
AMENDMENT, EXTENSION AND WAIVER
At any time prior to the consummation of the transactions contemplated by
the Merger Agreement or termination of the Merger Agreement, whether before or
after the approvals of the parties' respective stockholders, the parties may
amend the Merger Agreement, extend the time for the performance of any of the
obligations or other acts of any other party hereto, waive any inaccuracies in
the representations and
52
<PAGE> 62
warranties contained therein or in any document delivered pursuant thereto, or
waive compliance with any of the agreements or conditions with respect to
covenants of the parties or closing conditions of the Merger (other than the
mutual conditions described above); provided, however, that there may not be,
without further approval of the parties' stockholders, to the extent required by
law, any amendment, extension or waiver of the Merger Agreement that changes the
amount or form of the consideration to be delivered to the Eastern stockholders
other than as may be expressly contemplated by the Merger Agreement. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties thereto. Any agreement on the part of any party 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.
REQUISITE REGULATORY APPROVALS
The Merger is subject to approval by the Federal Reserve Board upon notice
by VFSC of the Merger pursuant to Section 4(c)(8) of the BHC Act, and by the
MBBI upon application by VFSC pursuant to Sections 2 and 4 of Chapter 167A of
the Massachusetts General Laws. VFSC has also provided prior notice of the
Merger to the Vermont Department, the Department of Justice and the FTC. In
evaluating whether to approve VFSC's notice of the Merger, the Federal Reserve
Board, or the Federal Reserve Bank of Boston, acting on delegated authority, is
required to consider whether the activities of a federal savings bank (i.e.
those of Vermont Federal) to be undertaken by VFSC as a result of the Merger can
reasonably be expected to produce benefits to the public (such as greater
convenience, increased competition or gains in efficiency) that outweigh
possible adverse effects (such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices). Such
consideration includes an evaluation of the financial and managerial resources
of VFSC and Eastern and the effect of the Merger on such resources. With respect
to the approval of the Merger by the MBBI, the approval criteria under the
Massachusetts statute are ordinarily applicable to acquisitions of banking
institutions located in Massachusetts, and the MBBI's approval should depend
upon its determination that the Merger does not unreasonably affect competition
among Massachusetts banking institutions and that it promotes public convenience
and advantage. The MBBI must also receive notice from the Massachusetts Housing
Partnership Fund the ("MHPF") that arrangements satisfactory to the MHPF have
been made, to the extent applicable, for the proposed acquiror to fund certain
statutory pledge obligations. In the case of an acquisition of a target
institution that is not doing business or otherwise deemed to have any assets
located in Massachusetts, as is the case with respect to the Merger, such
statutory obligation should not result in any additional financial obligation
being imposed upon the acquiror by the MHPF. There can be no assurance that the
Merger will be approved by the Federal Reserve Board, the MBBI or any other
applicable regulatory agency or body. If such approvals are received, there can
be no assurance as to the date of such approvals or the absence of any
litigation challenging the Merger. The Merger will not occur until all
regulatory approvals, notices or other filings required to consummate the Merger
have been obtained or made and are in full force and effect, and any statutory
waiting periods in respect thereof have expired.
Except for state securities ("blue sky") filings, the parties are not aware
of any other regulatory approvals or filings that are required for consummation
of the Merger, except as described above. Should any other approvals or filings
be required, it is presently contemplated that such approvals or filings will be
sought or made, as appropriate. There can be no assurances given, however, that
any other approvals, if required, will be obtained.
The Merger will not be consummated unless all of the requisite regulatory
approvals or other filings pertaining to the transactions contemplated by the
Merger Agreement are obtained or made, as appropriate. See "-- Conditions to
Consummation of the Merger."
While it is not a condition to the consummation of the Merger, VFSC also
intends to consolidate the operations of Vermont Federal with those of VNB, by
causing Vermont Federal to be merged into VNB (the "Subsidiary Merger") as soon
as practicable following the completion of the Merger. The consummation of
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the Subsidiary Merger will require certain additional regulatory filings and
approvals, including the prior approval of the OCC and prior notice to the OTS.
EXPENSES
In general, each party will pay its own expenses in connection with the
Merger, except that in the event of gross negligence or willful breach, a party
breaching the Merger Agreement shall be liable for damages, costs and expenses
including reasonable attorneys' fees incurred by the nonbreaching party.
STOCK OPTION AGREEMENT
Simultaneously with the execution of the Merger Agreement, VFSC and Eastern
entered into the Stock Option Agreement. Pursuant to the Stock Option Agreement,
Eastern granted to VFSC an option to purchase, subject to adjustment in certain
events, up to 732,425 shares of Eastern Common Stock at an exercise price of
$21.00 per share. The Option becomes exercisable in whole or in part, after the
occurrence of both an Initial Triggering Event and a Subsequent Triggering Event
(each as defined below).
The term "Initial Triggering Event" means the occurrence at any time after
November 13, 1996 of: (i) the agreement by Eastern or any subsidiary thereof to
enter into, or the approval or acceptance by Eastern's Board of Directors of or
recommendation by Eastern's Board of Directors to Eastern's stockholders of, any
transaction involving a merger or consolidation, a purchase, lease or other
acquisition of all or substantially all of the assets of Eastern or any
significant subsidiary of Eastern (except as contemplated by the Merger
Agreement), or a purchase or other acquisition of securities representing
fifteen percent 15% or more of the voting power of Eastern or any significant
subsidiary of Eastern (each of the foregoing an "Acquisition Transaction")
without VFSC's prior written consent; (ii) the acquisition by any person (other
than VFSC, its subsidiaries and Eastern acting in a fiduciary capacity) owning
beneficially less than 15% of the outstanding shares of Eastern Common Stock on
November 13, 1996 of beneficial ownership or the right to acquire beneficial
ownership of 15% or more of the outstanding shares of Eastern Common Stock, or
the acquisition by any person owning beneficially more than 15% of the
outstanding shares of Eastern Common Stock on November 13, 1996 of beneficial
ownership of an additional 5% of the outstanding shares of Eastern Common Stock;
(iii) the making by any person, other than VFSC or any subsidiary of VFSC, of a
bona-fide proposal to Eastern 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) the breach by Eastern after a
proposal as described in the preceding clause (iii) of certain covenants in the
Merger Agreement, unless remedied within an applicable notice period; or (v) the
filing by any person other than VFSC or any subsidiary of VFSC, other than in
connection with a transaction to which VFSC has given its prior written consent,
of an application or notice with the OTS or 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.
The term "Subsequent Triggering Event" means either (i) the acquisition
after November 13, 1996 by any person of beneficial ownership of 24.9% or more
of the then outstanding Eastern Common Stock; or (ii) the occurrence of the
Initial Triggering Event described in subparagraph (i) of the foregoing
paragraph, except that, in respect of the purchase or other acquisition of
securities of Eastern or any significant subsidiary of Eastern, the percentage
of voting power represented by such securities shall be 24.9% rather than 15%.
The Option will expire upon the earliest of:
(i) the Effective Time of the Merger;
(ii) any termination of the Merger Agreement in accordance with the
provisions thereof if such termination (w) occurs prior to the occurrence
of an Initial Triggering Event, (x) is because of a failure to obtain any
Requisite Regulatory Approvals, (y) is made at the election of Eastern
because of a specified decline in the price per share of the common stock
of VFSC, or (z) by Eastern because of a material breach by VFSC of a
representation, warranty, covenant or other agreement; or
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(iii) except as provided in the foregoing clause (ii), twelve months
after the termination of the Merger Agreement in accordance with the
provisions thereof after the occurrence of an Initial Triggering Event.
Notwithstanding the termination of the Option, VFSC will 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.
The Stock Option Agreement also provides that upon the occurrence of any
event which would cause the Option to be exercisable, Eastern shall (i) at the
request of VFSC, prepare and file a registration statement under the Securities
Act with respect to any or all of the Option Shares and shall use its best
efforts to cause such registration statement to become effective and (ii) notify
VFSC of any determination by Eastern to proceed with the preparation and filing
of a registration statement under the Securities Act with respect to any Eastern
Common Stock and cause any or all Option Shares which VFSC shall request to be
included in such registration statement. VFSC may also require, upon the Option
becoming exercisable, that Eastern repurchase the unexercised Option, in whole
or in part, at a purchase price intended to provide VFSC with the same economic
benefit as it would realize if it exercised the Option and subsequently sold the
Option Shares.
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement
and may have the effect of discouraging persons who might now or prior to the
Effective Time be interested in acquiring all of or a significant interest in
Eastern from considering or proposing such an acquisition.
STOCKHOLDERS AGREEMENT
Four members of the Eastern Board, who beneficially own in the aggregate
465,488 shares of Eastern Common Stock (not including 246,000 shares that may be
acquired upon the exercise of options), representing approximately 12.7% of the
shares of Eastern Common Stock issued and outstanding on the Eastern Record
Date, have executed the Stockholders Agreement with respect to such shares.
Pursuant to the Stockholders Agreement, each such director has agreed (i) to
vote all shares of Eastern Common Stock beneficially owned by such director and
entitled to vote thereon in favor of the Merger, (ii) to vote all such shares
against any other proposal involving a merger, acquisition, consolidation, sale
of a material amount of assets or other business combination with respect to
Eastern, (iii) generally not to sell, assign, transfer, encumber or otherwise
dispose of such shares, and (iv) to recommend the Merger, subject to such
director's fiduciary duty, to Eastern's stockholders. The Stockholders Agreement
shall remain in effect until the earlier of the consummation of the Merger or
the termination of the Merger Agreement in accordance with its terms.
NO SOLICITATION
Eastern has agreed that it shall not (and shall use all reasonable efforts
to cause its officers, directors, employees, representatives and agents, not
to), directly or indirectly, encourage, solicit, initiate or, subject to the
fiduciary obligations of the Eastern Board (as advised by outside counsel),
participate in any discussions or negotiations with, or provide any information
to, any corporation, partnership, person or other entity or group (other than
VFSC and its affiliates or representatives) concerning any Acquisition
Transaction. Notwithstanding the foregoing, Eastern and the Eastern Board are
not prohibited from taking and disclosing to Eastern's stockholders a position
with respect to a tender offer by a third party pursuant to certain rules
promulgated under the Exchange Act or from making such disclosure to Eastern's
stockholders as, in the judgment of the Eastern Board with the advice of outside
counsel, may be required under applicable law. Eastern will immediately
communicate to VFSC the terms of any proposal, discussion, negotiation or
inquiry and the identity of the party making such proposal or inquiry. Any such
communication shall be delivered no less promptly than by telephone within 24
hours after Eastern's receipt of any such proposal or inquiry or its receipt of
any request for information from the Federal Reserve Board, the OTS, the
Department of Justice or any other governmental agency or authority with respect
to a proposed Acquisition Transaction.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Indemnification of Directors and Officers. The Merger Agreement provides
that the provisions with respect to indemnification existing in favor of, and
all limitations on the personal liability of, any director, officer or other
employee of Eastern or any of its subsidiaries contained in the Eastern
Certificate and Eastern By-laws on the date of the Merger Agreement with respect
to matters occurring prior to the Effective Time shall survive the Merger and
shall continue in full force and effect in perpetuity. VFSC has also agreed to
use all reasonable efforts to cause to be maintained in effect for a period of
not less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance of Eastern (or substitute policies
of at least the same coverage with terms and conditions that are not less
favorable than those presently maintained by Eastern), with respect to matters
occurring at or prior to the Effective Time. However, VFSC is not required to
expend an aggregate amount in excess of $207,000 for such insurance.
As described under "SUMMARY -- Management and Operation after the Merger,"
VFSC is required to designate three members of the current Eastern Board to
serve as members of the VFSC Board. VFSC has not yet designated the members of
the Eastern Board who will serve on the VFSC Board.
Employment Agreements with Named Officers. Eastern has employment
agreements (collectively, the "Employment Agreements") with each of Messrs. Cobb
and Humphrey (collectively, the "Named Officers"), pursuant to which each of the
Named Officers is entitled, upon the termination of employment with Eastern in
connection with a "change of control," to receive a lump-sum payment equal to
three times his average annual compensation for the five most recent years, less
$1.00 and less any special bonus paid in connection with such change of control.
Eastern also has severance agreements (collectively, the "Severance Agreements")
with Janine Pinel and Robert Hamme, its two executive officers other than the
Named Officers, pursuant to which each is entitled, upon this termination of
employment in connection with a "change of control," to receive a lump-sum
payment equal to 12 times such officer's current monthly compensation. The
Merger will constitute a "change of control" under the Employment Agreements and
Severance Agreements. Assuming that the Merger were to be consummated during
1997 and that there were to be no increase in the monthly compensation of Ms.
Pinel and Mr. Hamme, the aggregate amounts of such lump-sum payments would be
approximately $955,000, $714,000, $76,000 and $120,000, respectively. Messrs.
Cobb and Humphrey will also be entitled to certain health insurance benefits, as
described under "-- Employment Obligations."
Executive Officer Stock Options. Eastern has granted stock options (the
"Eastern Stock Options") to the Named Officers and to certain other executive
level officers under Eastern's stock option plans. As described above under
"-- Treatment of Eastern Stock Options," at the Effective Time such stock
options will become immediately exercisable in full pursuant to the accelerated
vesting provisions contained in the agreements under which such options were
granted.
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The following table sets forth, as of March 27, 1997, with respect to the
Named Officers and all executive officers as a group (i) the number of shares
covered by Eastern Stock Options held by such person, (ii) the number of shares
covered by currently-exercisable Eastern Stock Options held by any such persons,
(iii) the number of additional shares covered by Eastern Stock Options held by
such persons that will become exercisable upon consummation of the Merger, (iv)
the weighted average exercise price of all such Eastern Stock Options held by
such persons, and (v) the aggregate value (i.e. the Acquisition Price less the
weighted average option exercise price per option) of all such options based
upon the $24.875 per share closing price of Eastern Common Stock on March 27,
1997.
<TABLE>
<CAPTION>
OPTIONS
BECOMING
EXERCISABLE WEIGHTED
OPTIONS UPON AVERAGE
CURRENTLY CONSUMMATION EXERCISE PRICE AGGREGATE VALUE
NAME OPTIONS HELD EXERCISABLE OF MERGER PER OPTION OF OPTIONS
- ------------------------- ------------ ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
John A. Cobb............. 157,500 157,500 -- $ 8.79 $ 2,533,388
E. David Humphrey........ 75,000 75,000 -- 8.27 1,245,375
Robert K. Hamme.......... 6,000 4,800 1,200 11.85 78,150
All executive officers as
a group (4 persons).... 238,500 237,300 1,200 $ 8.70 $ 3,856,913
</TABLE>
EMPLOYMENT OBLIGATIONS
VFSC is not obligated to employ any person who is employed by Eastern
immediately prior to the Effective Time. Following the Effective Time, VFSC
will, or will cause its subsidiaries to, honor in accordance with their terms
all employment, severance and other compensation contracts between Eastern or
any subsidiary thereof and any director, officer or employee thereof, and all
provisions for benefits or other amounts earned or accrued through the Effective
Time under Eastern's pension or benefit plans. VFSC agrees to provide those
persons who are employees of Eastern or any subsidiary of Eastern at the
Effective Time and who are thereafter employed by VFSC or a subsidiary of VFSC
with the benefits maintained by VFSC and its affiliates from time to time for
the benefit of their employees similarly situated. VFSC will cause each plan,
program or arrangement included among the benefits of VFSC to be provided after
the Effective Time (other than VFSC's defined benefit pension plan) to treat the
prior service of each such employee with Eastern or its affiliates, to the
extent such prior service is recognized under the comparable plan, program or
arrangement of the Eastern, as service rendered to VFSC or its affiliate, as the
case may be, for purposes of eligibility to participate, vesting, and
eligibility for special benefits under each such plan, program or arrangement of
VFSC, but not in any case for benefit accrual attributable to any period before
the Effective Time. Any employee of Eastern or any subsidiary of Eastern who
becomes an employee of VFSC or any subsidiary of VFSC immediately following the
Effective Time who is not otherwise covered by an employment, severance or other
compensation agreement and who has been identified by VFSC within the first six
months from and after the Closing Date as an employee whose employment shall be
terminated as a result of VFSC's consolidation and/or cost-saving efforts
following the Effective Time, shall be entitled to receive from and after the
date of such employee's termination of employment certain salary continuation
payments based on the length of the employee's employment by Eastern (two weeks
of continued salary for each full year of service with Eastern, up to a maximum
of 26 weeks of salary continuation). In addition to the foregoing, Messrs. Cobb
and Humphrey will continue to receive, following any termination of their
employment with VFSC or any VFSC subsidiary following the Effective Time, health
care continuation coverage under VFSC's appropriate group health plan until such
persons reach the age at which they become eligible to receive Medicare health
coverage, subject to certain conditions.
RESALE OF VFSC COMMON STOCK
The shares of VFSC Common Stock to be issued pursuant to the Merger
Agreement have been registered under the Securities Act by means of the
Registration Statement of which this Joint Proxy Statement-Prospectus forms a
part. Accordingly, such shares will be freely transferable under the Securities
Act, except for shares issued to persons who are affiliates of Eastern at the
time of the Eastern Meeting and
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persons who are affiliates of VFSC at the time of such proposed transfer. Such
persons will generally be able to resell such shares only pursuant to an
effective registration statement under the Securities Act or pursuant to a
statutory or regulatory exemption or "safe harbor" from the registration
requirements of the Securities Act, including the provisions of Rule 144 and
Rule 145 under the Securities Act discussed below. Affiliates of a person are
other persons who control, are controlled by, or are under common control with
the person. The affiliates of a corporation are generally deemed to include its
executive officers, directors and significant (i.e. 10% or more) stockholders.
Affiliates of VFSC who desire to dispose of shares of VFSC Common Stock
acquired in the Merger may utilize the "safe harbor" provided by Rule 144
promulgated under the Securities Act ("Rule 144"). Rule 144 permits, among other
things, the resale of such shares if certain conditions are met. These
conditions include the requirement that VFSC have filed all reports required of
it under the Exchange Act for the past 12 months, a limitation on the number of
shares sold by the affiliate in any three-month period, and a restriction on the
manner in which the sale is made. In most cases, a notice of proposed sale must
also be filed with the Commission.
Persons who are affiliates of Eastern at the time of the Eastern meeting
and are not affiliates of VFSC at the time of a proposed resale may utilize the
resale provisions of Rule 145 promulgated under the Securities Act ("Rule 145").
During the two years following the Effective Time, such resale would be subject
to the satisfaction of the conditions imposed under Rule 144 which are described
above, other than the notice of proposed sale requirements. After two years,
only the condition relating to VFSC's Exchange Act reports is applied and, after
three years, Rule 145 imposes no restriction on dispositions by persons who were
not affiliates of VFSC for at least three months preceding the proposed
disposition.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the Merger, including certain consequences to stockholders of Eastern who are
citizens or residents of the United States and who hold their shares as capital
assets. It does not discuss all aspects of federal income taxation that may be
relevant to a particular Eastern stockholder in light of the stockholder's
personal circumstances (for example, an Eastern stockholder who acquired shares
of Eastern stock pursuant to the exercise of employee stock options or otherwise
as compensation), or to Eastern stockholders subject to special federal income
tax treatment (such as foreign persons, insurance companies, regulated
investment companies, dealers in securities, certain retirement plans, financial
institutions, tax exempt organizations, persons subject to the alternative
minimum tax, persons that have a functional currency other than the U.S. dollar,
or persons who hold Eastern stock as part of a straddle, hedging transaction or
conversion transaction). In addition, this summary does not address any aspects
of state, local, foreign or other tax laws that may be relevant to Eastern
stockholders.
It is the policy of the Internal Revenue Service (the "IRS") not to rule
directly on the tax status of transactions such as the Merger, and no such
ruling will be sought. The obligations of VFSC and Eastern to effect the Merger
are each conditioned upon receipt by each from its counsel of an opinion dated
as of the Effective Time, in form and substance reasonably satisfactory to it,
regarding certain tax consequences of the Merger. Such opinions are collectively
substantially to the effect that for federal income tax purposes the Merger
constitutes a reorganization within the meaning of section 368 of the Code, that
no gain or loss will be recognized by Eastern or VFSC as a result of the Merger
and that no gain or loss will be recognized by the stockholders of Eastern as a
result of the Merger except to the extent of cash received as part of the Merger
Consideration, cash received in lieu of a fractional share of VFSC Common Stock
or cash received by dissenting stockholders, if any. In rendering their
opinions, counsel will reply upon, and assume the factual accuracy of,
representations of VFSC, Eastern, and certain stockholders of Eastern, including
a representation that there is no plan or intent on the part of the stockholders
of Eastern receiving VFSC stock to engage in a sale or other disposition of such
stock that would result in the reduction of the ownership of shares of VFSC
stock received by the Eastern stockholders in the Merger to a number of shares
having a value as of the Effective Time of less than 50% of the aggregate fair
market value of all the outstanding shares of Eastern
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stock. Such opinions are not binding on the IRS and would not, in any event,
prevent the IRS from challenging the tax-free nature of the Merger under the
Code.
Tax opinions of Hale and Dorr LLP and Sullivan & Worcester LLP have been
filed as exhibits (the "Exhibit Opinions") to the Registration Statement of
which this Joint Proxy Statement-Prospectus is a part. However, it is a
condition of the respective obligations of VFSC and Eastern to consummate the
Merger that VFSC and Eastern receive confirming tax opinions from their
respective counsel to the effect that for federal income tax purposes, the
Merger will constitute a reorganization within the meaning of section 368 of the
Code. The Exhibit Opinions are not intended to satisfy this closing condition.
These closing opinions, which are collectively referred to herein as the "Tax
Opinions," neither bind the IRS nor preclude the IRS from adopting a contrary
position. As with the Exhibit Opinions, the Tax Opinions will be subject to
certain assumptions, exceptions and qualifications and will be based on the
truth and accuracy of certain representations of VFSC, Eastern, and certain
Eastern stockholders.
A successful IRS challenge to the tax-free reorganization status of the
Merger would result in an Eastern stockholder recognizing gain or loss with
respect to each share of Eastern Common Stock surrendered equal to the
difference between the stockholder's basis in such share and the sum of the cash
and fair market value, as of the Effective Time, of the VFSC Common Stock
received in exchange therefor. In such event, a stockholder's aggregate basis in
the VFSC Common Stock so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Merger. Even if the Merger qualifies as a tax-free reorganization, a recipient
of shares of VFSC Common Stock would recognize gain to the extent that such
shares were considered to be received in exchange for services or property
(other than solely for Eastern Common Stock), and all or a portion of such gain
may be taxable as ordinary income. Gain would also be recognized to the extent
that an Eastern stockholder was treated as receiving (directly or indirectly)
consideration other than VFSC Common Stock in exchange for such stockholder's
Eastern Common Stock.
The discussion below summarizes certain federal income tax consequences of
the Merger assuming that the Merger will qualify as a tax-free reorganization.
Tax Consequences to Holders of Eastern Common Stock
In General. As discussed below, the federal income tax consequences of the
Merger to an Eastern stockholder depend on whether such stockholder receives
cash or VFSC Common Stock or some combination thereof for such stockholder's
shares of Eastern Common Stock, as well as for any shares of Eastern Common
Stock that such stockholder constructively owns within the meaning of section
318 of the Code (which generally deems a person to own stock that is owned by
certain family members or related entities or that is the subject of options
owned or deemed owned by such person), and may further depend on whether such
stockholder actually or constructively owns any VFSC Common Stock.
Only VFSC Common Stock Received. Except as discussed below with respect to
cash received in lieu of a fractional share of VFSC Common Stock, a stockholder
of Eastern that receives only VFSC Common Stock in exchange for such
stockholder's shares of Eastern Common Stock will not recognize gain or loss.
The tax basis of the VFSC Common Stock received in the Merger will be the same
as the tax basis of the shares of Eastern Common Stock exchanged therefor. The
holding period of the VFSC Common Stock received will include the holding period
of shares of Eastern Common Stock exchanged therefor, assuming that the shares
of Eastern Common Stock are held as capital assets.
Only Cash Received. An Eastern stockholder that receives solely cash in
the Merger in exchange for such stockholder's shares of Eastern Common Stock, or
that exercises such stockholder's right to seek an appraisal of his shares of
Eastern Common Stock and obtain cash therefor, generally will recognize capital
gain or loss measured by the difference between the amount of cash received and
the tax basis of the shares of Eastern Common Stock surrendered. If, however,
any such stockholder constructively owns shares of Eastern Common Stock that are
exchanged for VFSC Common Stock in the Merger, or, possibly, owns VFSC Common
Stock actually or constructively after the Merger, the consequences to such
stockholder may in certain circumstances be similar to the consequences
discussed below in "-- VFSC Common Stock and Cash
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Received," except that the amount of consideration treated as a dividend, if
any, will not be limited to the amount of such stockholder's gain.
VFSC Common Stock and Cash Received. Except as discussed below with
respect to cash received in lieu of a fractional share of VFSC Common Stock, an
Eastern stockholder that, as a result of prorations or allocations resulting
from limitations on cash (see "THE MERGER -- Election Procedures") or as a
result of not electing either Stock Election Shares or Cash Election Shares,
receives both VFSC Common Stock and cash in exchange for his Eastern Common
Stock, will not recognize loss in such exchange. However, under section
356(a)(1) of the Code, such stockholder will recognize gain (measured by the sum
of the fair market value of the VFSC Common Stock received plus the amount of
any cash received (other than in lieu of a fractional share of VFSC Common
Stock), minus the tax basis of the shares of Eastern Common Stock exchanged
(less basis allocable to cash received in lieu of a fractional share of VFSC
Common Stock)), if any, but only to the extent of the amount of any cash
received (other than in lieu of a fractional share of VFSC Common Stock). Under
applicable U.S. Supreme Court precedent, such gain will be capital gain except
in the circumstances described in the next paragraph. The tax basis of the VFSC
Common Stock received will be the same as the tax basis of the shares of Eastern
Common Stock exchanged, decreased by the basis allocable to any fractional share
of VFSC Common Stock for which cash is received in the Merger, and further
decreased by the amount of cash received (other than cash received in lieu of a
fractional share of VFSC Common Stock), and increased by the amount of gain
recognized on the exchange (including any portion that is treated as a dividend
but excluding gain recognized on cash received in lieu of a fractional share of
VFSC Common Stock). Provided the Eastern Common Stock surrendered was held as a
capital asset at the time of the exchange, the holding period of VFSC Common
Stock received will include the holding period of the shares of Eastern Common
Stock surrendered.
The gain recognized by an Eastern stockholder on the exchange generally
will be capital gain unless the receipt of cash in the Merger by such
stockholder is treated as having the effect of the distribution of a dividend.
This determination is made separately for each Eastern stockholder by treating
the Eastern stockholder as first receiving solely shares of VFSC Common Stock in
the Merger and then receiving cash from VFSC in a hypothetical redemption of a
portion of those shares. The recognized gain will not be treated as having the
effect of a dividend if the hypothetical redemption satisfies the requirements
for a stock redemption to be treated as a sale of stock under section 302 of the
Code. For this purpose, the constructive ownership rules in section 318 of the
Code apply. These rules apply in certain specified circumstances to attribute
ownership of shares of a corporation from the stockholder actually owning the
shares (whether an individual, a trust, a partnership or a corporation) to
certain members of the individual's family or to certain individuals, trusts,
partnerships or corporations in which that stockholder has an ownership or
beneficial interest, or that have an ownership or beneficial interest in that
stockholder. A stockholder is also considered under these rules generally to own
any shares with respect to which he holds exercisable options. The amount of any
such dividend, so determined, is limited to that stockholder's ratable share of
the accumulated earnings and profits of Eastern at the Effective Time.
Under IRS rulings interpreting the rules of section 302(b)(1) of the Code,
if a hypothetical redemption involves a minority VFSC stockholder whose relative
stock interest in VFSC is minimal, who exercises no control over the affairs of
VFSC and who experiences a reduction in his proportionate stock interest, such
stockholder will not receive dividend treatment on cash received. Because the
determination of whether the receipt of cash will be treated as having the
effect of the distribution of a dividend generally will depend in part upon the
facts and circumstances of each stockholder, Eastern stockholders are strongly
advised to consult their own tax advisors regarding the tax treatment of cash
received in the Merger.
Fractional Shares. If a holder of shares of Eastern Common Stock receives
cash in lieu of a fractional share of VFSC Common Stock in the Merger, such cash
amount will be treated as received in exchange for the fractional share of VFSC
Common Stock. Gain or loss recognized as a result of that exchange will be equal
to the cash amount received for the fractional share of VFSC Common Stock
reduced by the proportion of the holder's tax basis in shares of Eastern Common
Stock exchanged and allocable to the fractional share of VFSC Common Stock.
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Tax Consequences to Holders of VFSC Common Stock
The holders of VFSC Common Stock, as such, will not recognize gain or loss
as a result of the Merger.
Backup Withholding
Under the federal income tax backup withholding rules, unless an exemption
applies, the Exchange Agent will be required to withhold, and will withhold, 31%
of any cash payments to which an Eastern stockholder or other payee is entitled
pursuant to the Merger Agreement unless such stockholder or other payee provides
his tax identification number (social security number or employer identification
number) and certifies that such number is correct. Each Eastern stockholder and,
if applicable, each other payee should complete and sign the substitute Form W-9
that will be included as part of the transmittal letter to avoid back-up
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to VFSC and the Exchange Agent. Any amounts withheld will be
allowed as a credit against the payee's federal income tax liability.
THE ABOVE DISCUSSION SUMMARIZES CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER AND ASSUMES THAT THE MERGER WILL QUALIFY AS A TAX-FREE
REORGANIZATION. THE DISCUSSION IS BASED UPON CURRENTLY EXISTING PROVISIONS OF
THE INTERNAL REVENUE CODE, EXISTING AND PROPOSED U.S. TREASURY REGULATIONS
THEREUNDER, JUDICIAL DECISIONS AND ADMINISTRATIVE AUTHORITY WITH RESPECT
THERETO, ALL AS OF THE DATE HEREOF. THE IRS IS NOT PRECLUDED FROM ADOPTING A
CONTRARY POSITION. IN ADDITION, ALL OF THE FOREGOING AUTHORITIES RELIED UPON ARE
SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECT, AND ANY SUCH CHANGE COULD
ADVERSELY AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. MOREOVER, THE
DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. EASTERN STOCKHOLDERS
ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND RELATED TRANSACTIONS,
INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS, AS WELL AS THE
EFFECT OF ANY PROPOSED CHANGES IN SUCH TAX LAWS.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "purchase"
transaction under generally accepted accounting principles. Under such method of
accounting, the book value of the assets and liabilities of Eastern, as reported
on its balance sheet, will be increased or decreased to their fair value at the
Effective Time and intangible assets will be recorded to the extent that the
purchase price exceeds the fair value of the net assets and liabilities in
addition to any assets or liabilities assumed or incurred as a result of the
Merger. The results of operations of Eastern will be included in the
consolidated income of VFSC from the Effective Time and not for the entire
fiscal year.
61
<PAGE> 71
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined condensed financial data have
been prepared to give effect to the Merger of Eastern with and into VFSC. The
unaudited pro forma combined condensed financial data assume that the Merger had
been consummated at the beginning of the periods presented, and are based on the
purchase method of accounting and a preliminary allocation of the purchase
price. For a description of the effect of purchase accounting on the Merger and
the historical statements of VFSC, see "THE MERGER -- Accounting Treatment."
The unaudited pro forma combined condensed financial data reflect the
Merger based upon preliminary purchase accounting adjustments. Actual
adjustments, which may include adjustments to additional assets, liabilities and
other items, will be made on the basis of appraisals and evaluations as of the
Effective Time and, therefore, are likely to differ from those reflected in the
unaudited pro forma comparative per share data. Accordingly, the information
herein should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of VFSC, contained in VFSC's Annual
Report to Stockholders for 1996, which report is incorporated herein by
reference, and the historical consolidated financial statements of Eastern,
including their notes thereto, contained in Eastern's Annual Report to
Stockholders for the fiscal year ended September 30, 1996, which report
accompanies this Joint Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Results of Eastern for the three months ended December 31, 1996 are not
necessarily indicative of results expected for the entire year, nor are pro
forma amounts necessarily indicative of results of operations or the combined
financial position that would have resulted had the Merger been consummated at
the beginning of the periods indicated. All adjustments consisting of only
normal recurring adjustments necessary for a fair statement of results of
interim periods have been included. The combined company expects to realize
benefits from the Merger, including operating cost savings and revenue
enhancements. The pro forma earnings, which do not reflect any direct costs,
potential savings or revenue enhancements that are expected to result from the
consolidation of operations of VFSC and Eastern, are not indicative of the
results of future operations. No assurances can be given with respect to the
actual amount of expense savings or revenue enhancements that may be realized.
62
<PAGE> 72
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
VFSC EASTERN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS VFSC
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks............ $ 61,962 $ 30,626 $(25,424)(D) $ 67,164
Interest Bearing Balances with
Banks............................ 60 60
Securities Available for Sale...... 291,120 9,997 301,117
Securities Held to Maturity........ 276,909 (4,281)(A) 272,628
FHLB Stock......................... 9,283 9,283
Federal Funds Sold................. 1,775 6,598 8,373
Loans.............................. 910,436 496,852 (5,625)(A) 1,401,663
Allowance for Loan Losses........ (13,647) (2,906) (16,553)
---------- -------- -------- ----------
Net Loans..................... 896,789 493,946 (5,625) 1,385,110
Premises and Equipment............. 23,618 17,185 (757)(A) 40,046
Real Estate Held for Investment.... 1,360 261 1,621
Other Real Estate Owned............ 697 4,951 5,648
Goodwill and Other Intangibles..... 6,327 6,512 45,150(A)(E) 57,989
Other Assets....................... 29,273 9,750 3,372(B) 42,395
---------- -------- -------- ----------
Total Assets..................... $1,312,981 $ 866,018 $ 12,435 $2,191,434
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Total Deposits................... $1,083,258 $ 627,217 $ (1,493)(A) $1,711,968
Federal Funds Purchased and
Securities Sold with
Agreements to Repurchase...... 77,672 77,672
Borrowed Money................... 23,169 168,780 333(A) 191,616
Other Liabilities................ 9,165 5,243 (3,753)(C) 18,161
---------- -------- -------- ----------
Total Liabilities............. 1,193,264 801,240 (4,913) 1,999,417
Stockholders' Equity:
Common Stock..................... 4,892 41 41(E) 6,886
(1,994)(D)
Capital Surplus.................. 49,590 36,543(E) 36,543(E) 119,896
(70,306)(D)
Undivided Profits................ 71,151 31,043 31,043(E) 71,151
Security Valuation Allowance..... (1,029) (2) (2)(E) (1,029)
Treasury Stock, at Cost.......... (4,887) (2,847) (2,847)(E) (4,887)
---------- -------- -------- ----------
Total Stockholders' Equity.... 119,717 64,778 (7,522) 192,017
---------- -------- -------- ----------
Total Liabilities and
Stockholders' Equity........ $1,312,981 $ 866,018 $(12,435) $2,191,434
========== ======== ======== ==========
</TABLE>
63
<PAGE> 73
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
VFSC EASTERN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS VFSC
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and Fees on Loans............ $ 81,281 $ 42,173 $ (804)(G) $ 124,258
Interest on Securities Available for
Sale............................... 15,982 321 (428)(F) 16,731
Interest on Securities Held to
Maturity........................... 19,184 19,184
Other................................. 842 842
---------- ------- --------- ---------
Total Interest Income......... 98,105 61,678 (1,232) 161,015
Interest Expense
Deposits.............................. 37,057 23,734 (299)(I) 60,492
Other................................. 4,294 8,185 167(K) 12,646
---------- ------- --------- ---------
Total Interest Expense........ 41,351 31,919 (132) 73,138
Net Interest Income..................... 56,754 29,759 (1,364) 87,877
Provision for loan losses............... 3,350 605 3,955
---------- ------- --------- ---------
53,404 29,154 (1,364) 83,922
Other Income............................ 19,161 10,810 29,971
Other Expenses.......................... 47,411 34,715 3,026(H)(J) 85,152
---------- ------- --------- ---------
Income Before Income Taxes............ 25,154 5,249 1,662 28,741
Applicable Income Taxes................. 8,539 2,011 582(L) 11,132
---------- ------- --------- ---------
Net Income............................ $ 16,615 $ 3,238 $ 2,244 $ 17,609
========== ======= ========= =========
Weighted average common shares
outstanding........................... 4,819,673 1,994,484 6,814,157
Earnings per share...................... $ 3.45 $ 0.85 $ 2.58
</TABLE>
64
<PAGE> 74
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
VFSC EASTERN PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS VFSC
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and Fees on Loans............ $ 83,506 $ 39,764 $ (804)(G) $ 124,074
Interest on Securities Available for
Sale............................... 11,923 552 (428)(F) 12,903
Interest on Securities Held to
Maturity........................... 20,936 20,936
Other................................. 1,028 1,028
--------- ------- --------- ---------
Total Interest Income......... 96,457 61,252 (1,232) 158,941
Interest Expense
Deposits.............................. 36,945 23,109 (299)(I) 59,755
Other................................. 5,024 10,369 167(K) 15,560
--------- ------- --------- ---------
Total Interest Expense........ 41,969 33,478 (132) 75,315
Net Interest Income..................... 54,488 27,774 (1,364) 83,626
Provision for loan losses............... 3,900 1,997 5,897
--------- ------- --------- ---------
50,588 25,777 (1,364) 77,729
Other Income............................ 17,549 10,830 28,379
Other Expenses.......................... 45,999 29,711 3,026(H)(J) 78,736
--------- ------- --------- ---------
Income Before Income Taxes............ 22,138 6,896 1,662 27,372
Applicable Income Taxes................. 7,241 2,414 582(L) 10,237
--------- ------- --------- ---------
Net Income............................ $ 14,897 $ 4,482 $ 2,244 $ 17,135
========= ======= ========= =========
Weighted average common shares
outstanding........................... 4,812,831 1,994,484 6,802,037
Earnings per share...................... $ 3.10 $ 1.19 $ 2.52
</TABLE>
65
<PAGE> 75
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C>
Note (A) To adjust assets and liabilities to their estimated fair values:
DR.
(CR.)
--------
Investments.......................................................... $ (4,281)
Loans................................................................ (5,625)
Premises and Equipment............................................... (757)
Deposits............................................................. (1,493)
Mortgage Servicing Rights............................................ 2,188
FHLB Advances........................................................ 333
Note (B) To reflect tax effects of transaction:
DR.
(CR.)
--------
Tax effect of fair value adjustments................................. $ 3,372
Note (C) To accrue estimated professional and other costs associated with the merger of
$3,753.
Note (D) To reflect issuance of stock and payment of cash to Eastern:
DR.
(CR.)
--------
Market value of 1,801,032 shares of VFSC Common Stock (based on
closing bid price per share of $36.25 for VFSC Common Stock on
November 11, 1996)................................................... $ 65,286
Cash to be paid...................................................... 26,648
Consideration for Eastern stock option spread........................ 5,790
--------
$ 97,724
========
This assumes that all holders of Eastern stock options exercise such options and
an additional 193,452 shares of VFSC common stock are issued. See "THE
MERGER -- Treatment of Eastern Stock Options."
Note (E) Goodwill is calculated as follows:
DR.
(CR.)
--------
Stockholders' equity of Eastern at December 31, 1996................. $ 64,778
Increase (decrease) to Eastern's equity as a result of estimated
fair value adjustments:
Investments.......................................................... (4,281)
Loans................................................................ (5,625)
Premises and Equipment............................................... (757)
Deposits............................................................. (1,493)
Mortgage Servicing Rights............................................ 2,188
FHLB Advances........................................................ 333
Tax effect of fair value adjustments................................. 3,372
--------
58,515
Unallocated purchase price (goodwill)................................ 42,962
--------
Total purchase price (including merger costs)........................ $101,477
========
</TABLE>
66
<PAGE> 76
VERMONT FINANCIAL SERVICES CORP.-EASTERN BANCORP, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL DATA -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C>
Note (F) To accrete fair value adjustment for investments (10 years).
Note (G) To accrete fair value adjustment for loans (7 years).
Note (H) To accrete fair value adjustment for premises and equipment (5
years).
Note (I) To accrete fair value adjustment for deposits (5 years).
Note (J) To amortize intangibles:
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C> <C>
Mortgage Servicing Rights (7 years)......... $ 313 $ 313
Goodwill (15 years)......................... 2,864 2,864
------ -------
Total....................................... $ 3,177 $ 3,177
====== =======
Note (K) To amortize fair value adjustment of FHLB advances (2 years).
Note (L) To record tax impact of accretion and amortization of fair value adjustments.
Pursuant to the Merger Agreement described elsewhere in this document, VFSC will issue
1,801,032 shares of VFSC Common Stock in connection with the Merger, provided that the
price of VFSC Common Stock at the Effective Date, as defined in the Merger Agreement, is
greater than $26.06 per share (minimum price) and less than $39.96 per share (maximum
price). The following table presents the pro forma effect on selected financial data
assuming these minimum and maximum per share prices. This table assumes that all holders
of Eastern stock options exercise such options and an additional 193,452 shares of VFSC
Note (M) common stock are issued. See "THE MERGER -- Treatment of Eastern Stock Options."
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------- --------
<S> <C> <C> <C>
In thousands, except per share data
Purchase Price............................................... $77,404 $105,128
Goodwill..................................................... 22,642 50,366
Net Income:
Twelve months ended December 31, 1995...................... 18,490 16,641
Twelve months ended December 31, 1996...................... 18,964 17,115
Earnings per share:
Twelve months ended December 31, 1995...................... 2.72 2.45
Twelve months ended December 31, 1996...................... 2.78 2.51
</TABLE>
67
<PAGE> 77
INFORMATION REGARDING VFSC
VFSC is a multi-bank holding company established as a Delaware corporation
in 1990 and is registered under the BHC Act, with its principal assets being the
stock of its subsidiaries. Through its banking subsidiaries, VFSC provides
banking and banking-related services in Vermont and western Massachusetts. The
principal executive offices of VFSC are located at 100 Main Street, Brattleboro,
Vermont 05301. Its telephone number is (802) 257-7151. For more information
about VFSC, reference is made to VFSC's most recent annual report on Form 10-K
and subsequent quarterly reports on Form 10-Q, which are incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INFORMATION INCORPORATED BY
REFERENCE."
DESCRIPTION OF VFSC CAPITAL STOCK
COMMON STOCK
General. As of December 31, 1996, VFSC Common Stock consisted of
20,000,000 authorized shares, $1.00 par value per share, 15,000,000 of which are
shares of VFSC Common Stock, of which 4,705,825 were issued and outstanding
(exclusive of treasury shares), and 5,000,000 of which are shares of VFSC
Preferred Stock, none of which are outstanding. VFSC Common Stock is traded on
the Nasdaq NM under the trading symbol "VFSC."
Shares of VFSC Common Stock may be issued from time to time, in such amount
and proportions and for such consideration as may be fixed by the Board of
Directors of VFSC. No holder of VFSC 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 VFSC. VFSC Common Stock has no
redemption or sinking fund provisions applicable thereto and has no conversion
rights.
The outstanding shares of VFSC Common Stock are fully paid and
nonassessable.
Liquidation. In the event of any liquidation, dissolution or winding up of
VFSC, whether voluntary or involuntary, the holders of VFSC Common Stock are
entitled to receive, on a share-for-share basis, any assets or funds of VFSC
which are distributable to the holders of VFSC Common Stock upon such events,
subject to the prior rights of creditors of VFSC and the holders of outstanding
shares of VFSC Preferred Stock, if any.
Voting. The holders of VFSC Common Stock are entitled to one vote for each
share in all matters voted upon by the stockholders of VFSC. The shares of VFSC
Common Stock have noncumulative voting rights; consequently, the holders of a
majority in interest of VFSC Common Stock can conceivably elect all of the
directors of VFSC and, in such event, the holders of the remaining shares voting
for election of directors would not be able to elect any person or persons to
the Board of Directors of VFSC.
Dividends. When and if dividends, payable as cash, stock or other
property, are declared by the Board of Directors of VFSC out of funds legally
available therefor, the holders of VFSC Common Stock are entitled to share
equally, share for share, in such dividends. The payment of dividends on VFSC
Common Stock is subject to applicable bank regulatory approval.
PREFERRED STOCK
Under the VFSC Certificate, the Board of Directors of VFSC is authorized,
without further stockholder action, to provide for the issuance of the VFSC
Preferred Stock, 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 VFSC; any sinking
fund provisions; any redemption or purchase account provision; any conversions;
and any voting rights thereof, as shall be set forth as and when established by
the Board of Directors of VFSC.
68
<PAGE> 78
MARKET FOR VFSC COMMON STOCK
VFSC Common Stock is traded over-the-counter on the Nasdaq NM under the
symbol "VFSC."
At December 31, 1996, there were 4,705,825 shares outstanding and
approximately 2,500 stockholders of record. This does not reflect the number of
persons or entities who hold their stock in nominee or street name through
various brokerage firms.
The price information regarding VFSC Common Stock in the following table is
based on high and low asked and bid prices on the Nasdaq NM.
<TABLE>
<CAPTION>
PRICE PER SHARE DIVIDENDS
----------------- DECLARED
QUARTER ENDED HIGH LOW PER SHARE
- ---------------------------------------------------------------- ------ ------ ---------
<S> <C> <C> <C>
1994
March 31........................................................ $19.25 $16.25 $0.10
June 30......................................................... 20.00 16.25 0.12
September 30.................................................... 24.25 19.00 0.15
December 31..................................................... 22.25 19.75 0.17
1995
March 31........................................................ 23.50 20.75 0.20
June 30......................................................... 27.25 21.75 0.20
September 30.................................................... 30.88 26.00 0.22
December 31..................................................... 35.00 29.50 0.25
1996
March 31........................................................ 35.00 31.50 0.25
June 30......................................................... 34.00 31.00 0.27
September 30.................................................... 35.13 31.25 0.27
December 31..................................................... 36.50 34.25 0.27
1997
through March 27................................................ 45.00 35.25 0.30
</TABLE>
On January 9, 1997, VFSC announced a first quarter dividend of $0.30 per
share, payable on February 25, 1997 to its stockholders of record as of January
24, 1997. See "RECENT DEVELOPMENTS."
On November 12, 1996, the last business day prior to the public
announcement of the Merger, the closing price of VFSC Common Stock on the Nasdaq
NM was $36.50.
DIVIDENDS
The Federal Reserve Board has authority to prohibit bank holding companies
from paying dividends if such payment would constitute an unsafe or unsound
practice. The Federal Reserve Board has indicated generally that it may be an
unsound practice for bank holding companies to pay dividends unless the bank
holding company's net income over the preceding year is sufficient to fund the
dividends and the expected rate of earnings retention is consistent with the
organization's capital needs, asset quality, and overall financial condition.
VFSC's ability to pay dividends is dependent upon the flow of dividend income to
it from the Banks, which may be affected or limited by regulatory restrictions
imposed by federal or state bank regulatory agencies. At September 30, 1996 the
Banks had available approximately $25 million for payment of dividends to VFSC
under regulatory guidelines. VFSC has a policy to pay out over time between 30%
and 35% of net income to shareholders in the form of cash dividends. Earnings
for prior years as well as prospective earnings are analyzed to determine
compliance with this policy. Dividend payout rates for any one year may vary
from this long-term payout policy based on these analyses and projections of
future earnings and future capital needs.
69
<PAGE> 79
COMPARISON OF RIGHTS OF HOLDERS OF
EASTERN COMMON STOCK AND VFSC COMMON STOCK
At the Effective Time, the stockholders of Eastern, other than those
stockholders exercising appraisal rights, will become stockholders of VFSC. As
stockholders of Eastern, their rights are presently governed by Delaware law and
by the Eastern Certificate and the Eastern By-laws. As stockholders of VFSC,
their rights will be governed by Delaware law and by the VFSC Certificate and
the VFSC By-laws. The following discussion summarizes the material differences
between the rights of holders of Eastern Common Stock and holders of VFSC Common
Stock and differences between the Eastern and VFSC Certificates and the Eastern
and VFSC By-laws. This summary does not purport to be complete and is qualified
in its entirety by reference to the Eastern Certificate, the Eastern By-laws,
the VFSC Certificate and the VFSC By-laws and the relevant provisions of
Delaware law.
SPECIAL MEETINGS OF STOCKHOLDERS
The Eastern By-laws provide that special meetings of the stockholders may
be called at any time only by a majority of the Eastern Board.
The VFSC By-laws provide that, unless otherwise provided by statute,
special meetings may be called by the Board of Directors or by the Chairman of
the Board or the President.
INSPECTION RIGHTS
Both the Eastern By-laws and the VFSC By-laws provide that stockholders
may, during ordinary business hours in the period beginning at least 10 days
prior to a meeting of stockholders through the date of such meeting, inspect the
stockholder list prepared for such meeting for any purpose germane to such
meeting.
ACTION BY CONSENT OF STOCKHOLDERS
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action to be taken by stockholders may be taken without a
meeting, without prior notice, and without a vote, if the stockholders having
the number of votes that would be necessary to take such action at a meeting at
which all stockholders were present and voted consent to the action in writing.
The Eastern Certificate does not so otherwise provide.
Under the VFSC Certificate, any action required or permitted to be taken by
stockholders must be effected at a duly called annual or special meeting and may
not be effected by any consent in writing.
CUMULATIVE VOTING
Neither the Eastern Certificate nor the VFSC Certificate provides for
cumulative voting.
PREEMPTIVE RIGHTS
The VFSC Certificate does not provide for, and the Eastern Certificate
provides that stockholders do not have, preemptive rights.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Both the Eastern Certificate and the VFSC Certificate provide that their
respective Boards of Directors are to be divided into three classes, with the
directors in each class being elected for staggered three-year terms.
REMOVAL OF DIRECTORS
The DGCL provides that members of a classified board may be removed only
for cause and only if such removal is approved by a majority of the shares then
entitled to vote for the election of directors. Both the Eastern By-laws and the
VFSC By-laws provide that any director or the entire Board of Directors may be
70
<PAGE> 80
removed from office only for cause and only by an affirmative vote of at least a
majority of the outstanding shares of voting stock of the corporation.
ADDITIONAL DIRECTORSHIPS AND VACANCIES ON THE BOARD OF DIRECTORS
The Eastern By-laws provide that the Board of Directors shall consist of 10
members. The VFSC By-laws provide that the number of directors shall be
determined from time to time by a majority vote of the entire Board of
Directors. Both the Eastern By-laws and the VFSC By-laws provide that vacancies
shall be filled by a majority vote of the directors then in office and that the
director chosen to fill a vacancy shall hold office for the unexpired term of
such director's predecessor.
EXCULPATION OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to provide, and both the Eastern
Certificate and the VFSC Certificate provide, that no director shall be
personally liable to the corporation or its stockholders for monetary damages
for breaches of fiduciary duty except where such exculpation is expressly
prohibited. In Delaware, a director is not exculpated from liability under
provisions of Delaware law relating to unlawful payments of dividends and
unlawful stock purchases or redemptions. In addition, both the Eastern and the
VFSC Certificate provide that this limitation cannot apply to liability of a
director (i) for breach of the director's duty of loyalty to the corporation or
its stockholders; (ii) for acts and omissions not in good faith or which involve
intentional misconduct or knowing violation of law; (iii) pursuant to Section
174 of the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Delaware law generally permits indemnification of directors and officers
for expenses incurred by them by reason of their position with the corporation,
if the director or officer has acted in good faith and with the reasonable
belief that his conduct was in the best interests of the corporation. Delaware
law does not permit a corporation to indemnify persons in actions brought by or
in the right of the corporation if the person is adjudged to be liable to the
corporation (although it does permit indemnification in such situations if, and
only to the extent, approved by the Delaware Court of Chancery). Both the
Eastern By-laws and the VFSC By-laws provide indemnification to the fullest
extent permitted by the DGCL to directors, officers, employees and agents
designated by the Board of Directors and any person serving, at the request of
the Board, as a director, officer, employee or agent of another corporation or
enterprise affiliated with the corporation; provided, however, that except with
respect to actions to enforce indemnification rights, the corporation shall
indemnify any such person for actions initiated by that person only if the
action was authorized or ratified by the Board of Directors.
RESTRICTIONS UPON CERTAIN BUSINESS COMBINATIONS
Both Eastern and VFSC, as Delaware corporations, are subject to Section 203
of the DGCL, which governs business combinations with interested stockholders.
Subject to certain exceptions set forth therein, Section 203 of the DGCL
provides that a corporation shall not engage in any business combination with
any "interested stockholder" for a three-year period following the date that
such stockholder becomes an interested stockholder unless (i) prior to such
date, the Board of Directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (iii) on or subsequent to such date, the
business combination is approved by the Board of Directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. Except as specified therein,
an interested stockholder is defined to mean any person that (a) is the owner of
15% or more of the outstanding voting stock of the corporation or (b) is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date, or any affiliate or associate of such
person referred to in (a) or (b) of this sentence. Under certain circumstances,
Section 203 of the DGCL makes it
71
<PAGE> 81
more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective
twelve months after adoption.
Neither the Eastern Certificate and the Eastern By-laws nor the VFSC
Certificate and the VFSC By-laws exclude Eastern and VFSC, respectively, from
the restrictions imposed by Section 203 of the DGCL.
In addition, the Eastern Certificate contains a "fair price" provision
relating to certain business combinations (including certain mergers, security
issuances, recapitalizations, and the sale, lease or transfer of a substantial
part of Eastern's assets) involving Eastern or a subsidiary and an owner of 10%
or more of the voting power of the outstanding shares of Eastern Common Stock
(an "interested shareholder"). Any such business combination requires the
affirmative vote of (i) the holders of 75% of the voting power of the
outstanding shares of Eastern Common Stock and (ii) the holders of a majority of
the outstanding shares of Eastern Common Stock not held by such interested
shareholder and such shareholder's affiliates, unless either (i) the business
combination is approved by a majority of the directors who are unaffiliated with
the interested shareholder and who were directors prior to the time such owner
became an interested shareholder or (ii) the shareholders receive the "fair
market value" (as defined therein) of their holdings and other procedural
requirements are met. Neither the VFSC Certificate nor the VFSC By-laws contain
a similar provision.
MERGERS, SHARE EXCHANGES OR ASSET SALES
Delaware law requires the approval of the directors and the vote of the
holders of a majority of the outstanding stock entitled to vote thereon for the
merger of the corporation into any other corporation, although the certificate
of incorporation may require a higher stockholder vote. The VFSC Certificate
provides that the affirmative vote of holders of two-thirds or more of the
outstanding shares of capital stock of VFSC is required to authorize, or to
approve any agreement, contract or other arrangement providing for, (i) any plan
of merger or consolidation to which VFSC is to be a party and which requires
shareholder approval, (ii) any sale or other disposition of substantially all of
the VFSC's property and assets, if not made in the usual and regular course of
its business, or (iii) a combination or majority share acquisition in which VFSC
is the acquiring corporation and a majority of its voting shares are issued or
transferred to another corporation or another entity or person, or to
shareholders (or their equivalent) of such other corporation or entity. Neither
the Eastern Certificate nor the Eastern By-laws contain a similar provision.
The Eastern Certificate contains provisions limiting certain acquisitions
by any person of beneficial ownership of 10% or more of the voting stock of the
corporation unless such acquisition has been approved prior to its consummation
by the affirmative vote of the holders of at least two-thirds of the voting
power of the outstanding shares of Eastern Common Stock. Neither the VFSC
Certificate nor the VFSC By-laws contain a similar provision.
CERTAIN ISSUANCES OF STOCK
The Eastern Certificate provides that no shares of capital stock (except
for certain issuances upon conversion, exchange or exercise of other securities)
shall be issued, directly or indirectly, to officers, directors or controlling
persons of Eastern other than as part of a general public offering or as
qualifying shares to a director, unless such issuance or the plan under which
such shares would be issued has been approved by a majority of the total votes
eligible to be cast at a legal meeting. The VFSC Certificate contains no
comparable provision.
AMENDMENTS TO CHARTER
Under Delaware law, charter amendments require the approval of the
directors and the vote of the holders of a majority of the outstanding stock and
a majority of each class of stock outstanding and entitled to vote thereon as a
class, unless the certificate of incorporation requires a greater vote. In
addition, Delaware law requires a class vote when, among other things, an
amendment will adversely affect the powers, preferences or special rights of a
class of stock. The VFSC Certificate provides that no amendment, addition,
alteration, change or repeal of Articles 6 (relating to constitution and
classification of the VFSC Board), 9 (relating to
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certain provisions for conduct of the corporation, including director liability
and indemnification), 10 (prohibiting stockholder action by written consent), 12
(providing for greater than majority stockholder votes to approve mergers, sales
of substantially all assets and other transactions) or 13 (requiring the vote of
two-thirds of the outstanding voting stock to amend the foregoing Articles and
Article 13) of the VFSC Certificate shall be made unless approved by the
stockholders by not less than two-thirds of the total votes entitled to vote
thereon.
AMENDMENTS TO BY-LAWS
Under Delaware law, the power to adopt, amend or repeal by-laws lies in
stockholders entitled to vote; provided, however, that any corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
by-laws upon the directors. The Eastern Certificate provides that the Eastern
By-laws may be amended by the affirmative vote of at least two-thirds of the
directors then in office, or by the affirmative vote of at least two-thirds of
the stockholders to vote thereon. The VFSC Certificate provides that the VFSC
By-Laws may be amended by the affirmative vote of a majority of the directors.
APPRAISAL RIGHTS
Under Delaware law, appraisal rights are available in connection with a
statutory merger or consolidation in certain specified situations. Appraisal
rights are not available for shares of stock of a corporation which is to be the
surviving corporation if no vote of its stockholders is required to approve the
merger. In addition, unless otherwise provided in the charter, no appraisal
rights are available to holders of shares of any class of stock which is either:
(a) listed on a national securities exchange or designated as a national market
system security on an inter-dealer quotation system by the NASD or (b) held of
record by more than 2,000 stockholders, unless such stockholders are required by
the terms of the merger to accept anything other than: (i) shares of stock of
the surviving corporation; (ii) shares of stock of another corporation which are
or will be so listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the NASD
or held of record by more than 2,000 stockholders; (iii) cash in lieu of
fractional shares of such stock; or (iv) any combination of the foregoing.
Neither the VFSC Certificate nor the Eastern Certificate provides for such
appraisal rights.
Holders of VFSC Common Stock will not have appraisal rights with respect to
the Merger.
LEGAL MATTERS
The validity of the VFSC Common Stock offered in connection with the Merger
will be passed upon by Sullivan & Worcester LLP, Boston, Massachusetts, counsel
to VFSC. Certain federal income tax consequences of the Merger and other legal
matters in connection with the Merger will be passed upon by Sullivan &
Worcester LLP and Hale and Dorr LLP.
EXPERTS
The consolidated financial statements of Eastern Bancorp, Inc. and
subsidiaries as of September 30, 1996 and 1995, and for each of the years in the
three-year period ended September 30, 1996, have been incorporated by reference
herein and in the Registration Statement in reliance on the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP refers to the adoption in 1995 of
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights, an Amendment of FASB Statement No. 65." Representatives of
KPMG Peat Marwick LLP are expected to be present at the Eastern Meeting, will
have an opportunity to make a statement if they wish to do so and are expected
to be available to respond to appropriate questions.
The consolidated financial statements of VFSC and subsidiaries appearing in
VFSC's Annual Report on Form 10-K for the year ended December 31, 1996
incorporated by reference herein have been certified by Coopers & Lybrand LLP,
independent certified public accountants, as set forth in their report thereon
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included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. Representatives of Coopers & Lybrand LLP are expected to be present at
the VFSC Meeting, will have an opportunity to make a statement if they wish to
do so and are expected to be available to respond to appropriate questions.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of
November 13, 1996, by and among Vermont Financial Services Corporation, a
Delaware Corporation (the "Buyer"), Eastern Bancorp, Inc., a Delaware
corporation (the "Seller") and Vermont Federal Bank, FSB, the wholly owned
subsidiary of the Seller and a federal savings bank in stock form (the "Bank").
The parties deem it advisable and in the best interests of their respective
stockholders to consummate the business combination provided for herein.
In consideration of the mutual covenants, representations, warranties and
agreements contained herein, and in consideration of (a) the execution and
delivery of the Seller Option Agreement (as hereinafter defined in Article I
hereof) between the Seller and the Buyer, pursuant to which the Seller has on
this day granted the Seller Option (as defined in Article I hereof) to the
Buyer, and (b) the execution and delivery by the Principal Stockholders of the
Seller Stockholders' Agreement (as such terms are defined in Article I hereof),
each as a condition and inducement to the Buyer to enter into this Agreement,
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 Merger" shall mean the merger of Seller with and into Buyer in
accordance with the terms and conditions of this Agreement.
"Acquisition Price" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Acquisition Transaction" shall have the meaning ascribed thereto in
Section 5.03 hereof.
"Adjusted Acquisition Price" shall have the meaning ascribed thereto in
Section 2.09(a) hereof.
"Agreement" shall mean this Agreement and Plan of Reorganization by and
among the Buyer, the Seller and the Bank.
"Average Closing Price" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Bank" shall have the meaning ascribed thereto in the preamble to this
agreement.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Buyer" shall have the meaning ascribed thereto in the preamble to this
Agreement.
"Buyer Balance Sheet" shall have the meaning ascribed thereto in Section
3.05 hereof.
"Buyer Common Stock" shall have the meaning ascribed thereto in Section
3.02(a) hereof.
"Buyer Benefit Plan" shall have the meaning ascribed thereto in Section
3.18 hereof.
"Buyer Pension Plan" shall have the meaning ascribed thereto in Section
3.18 hereof.
"Buyer Preferred Stock" shall have the meaning ascribed thereto in Section
3.02(a) hereof.
"Buyer Registration Statement" shall have the meaning ascribed thereto in
Section 5.04 hereof.
"Buyer Reports" shall have the meaning ascribed thereto in Section 3.12
hereof.
"Buyer Requisite Vote" shall have the meaning ascribed thereto in Section
3.04 hereof.
"Cash Conversion Number" shall have the meaning ascribed thereto in Section
2.14(e) hereof.
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"Cash Designee Shares" shall have the meaning ascribed thereto in Section
2.14(e) hereof.
"Cash Distribution" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Cash Election Designee Shares" shall have the meaning ascribed thereto in
Section 2.14(e) hereof.
"Cash Election Shares" shall have the meaning ascribed thereto in Section
2.14(b) hereof.
"Certificate" shall have the meaning ascribed thereto in Section 2.11(a)
hereof.
"Certificate of Merger" shall have the meaning ascribed thereto in Section
2.07 hereof.
"Closing Date" shall mean the date on which the Effective Time occurs.
"CMPs" shall have the meaning ascribed thereto in Section 3.13 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.
"Confidentiality Agreement" shall mean that certain letter agreement
between the Buyer and the Seller dated August 15, 1996.
"Confidential Information" shall have the meaning ascribed thereto in
Section 5.02(b) hereof.
"Constituent Corporations" shall have the meaning ascribed thereto in
Section 2.01 hereof.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Dissenting Holder" shall have the meaning ascribed thereto in section
2.09(c) hereof.
"Dissenting Shares" shall have the meaning ascribed thereto in Section
2.09(c) hereof.
"DOJ" shall mean the United States Department of Justice.
"DPC Shares" shall have the meaning ascribed thereto in Section 3.16
hereof.
"Effective Time" shall mean the specific time on the Closing Date at which
the Acquisition Merger has become effective pursuant to the laws of the State of
Delaware.
"Election Deadline" shall have the meaning ascribed thereto in Section
2.14(c) hereof.
"Election Form" shall have the meaning ascribed thereto in Section 2.14(a)
hereof.
"Election Form Record Date" shall have the meaning ascribed thereto in
Section 2.11(b) hereof.
"EPA" shall mean the United States Environmental Protection Agency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean, with reference to any person, within the
meaning of Section 414 (b), (c), (m) or (o) of the Code, (a) any member of a
controlled group of corporations that includes such person, (b) any trade or
business, whether or not incorporated, under common control with such person,
(c) any member of an affiliated service group with such person, and (iv) any
member of a group that is treated as a single employer by regulation and that
includes such person.
"Exchange Act" shall have the meaning ascribed thereto in Section 3.05
hereof.
"Exchange Agent" shall have the meaning ascribed thereto in Section 2.13
hereof.
"Exchange Ratio" shall have the meaning ascribed thereto in Section 2.09(a)
hereof.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System or the Federal Reserve Bank of Boston, as applicable.
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"FTC" shall mean the Federal Trade Commission.
"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.
"HOLA" shall mean the Home Owners Loan Act of 1933, as amended.
"Injunction" shall have the meaning ascribed thereto in Section 6.01(d)
hereof.
"IRS" shall mean the United States Internal Revenue Service.
"Loans" shall have the meaning ascribed thereto in Section 4.24 hereof.
"Mailing Date" shall have the meaning ascribed thereto in Section 2.11(b)
hereof.
"Material Adverse Effect" shall mean with respect to Buyer or Seller, or
any other entity, a material adverse effect on the assets, liabilities,
business, operations, results of operations or condition (financial or
regulatory) of Buyer or Seller or such other entity, as the case may be, and its
subsidiaries, taken as a whole.
"Merger Consideration" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Minimum Price" shall have the meaning ascribed thereto in Section 2.09(a)
hereof.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq-NM" shall mean the National Association of Securities Dealers
Automated Quotation -- National Market.
"No Election Cash Designee Shares" shall have the meaning ascribed thereto
in Section 2.14(e) hereof.
"No Election Designee Shares" shall have the meaning ascribed thereto in
Section 2.14(e) hereof.
"No Election Shares" shall have the meaning ascribed thereto in Section
2.14(b) hereof.
"OCC" shall mean the Office of the Comptroller of the Currency of the
United States Department of the Treasury.
"OTS" shall mean the Office of Thrift Supervision of the United States
Department of the Treasury.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Principal Stockholders" shall mean John A. Cobb, E. David Humphrey, W.
Stevens Sheppard and James M. Sutton.
"Proxy Statement" shall have the meaning ascribed thereto in Section
5.04(a) hereof.
"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 and its subsidiaries
to administer, reflect, monitor, evidence or record information respecting
Seller's consolidated 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 consolidated business
of the Seller.
"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.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning ascribed thereto in the preamble to this
Agreement.
"Seller Affiliates" shall have the meaning ascribed thereto in Section 5.06
hereof.
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"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 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
4.02(a) hereof.
"Seller Disclosure Schedule" shall have the meaning ascribed thereto in
Section 4.01(a) hereof.
"Seller Option" shall mean the option granted to the Buyer pursuant to the
Seller Option Agreement.
"Seller Option Agreement" shall mean that certain stock option agreement of
even date herewith by and between the Buyer and the Seller in the form attached
as Exhibit A.
"Seller Other Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Pension Plans" shall have the meaning ascribed thereto in Section
4.11(a) hereof.
"Seller Preferred Stock" shall have the meaning ascribed thereto in Section
4.02(a) hereof.
"Seller Reports" shall have the meaning ascribed thereto in Section 4.15
hereof.
"Seller Stock Option Plans" shall mean the 1984 and 1987 stock option plans
of Seller.
"Seller Stockholders' Agreement" shall mean that certain letter agreement
of even date herewith executed and delivered to the Buyer by the Principal
Stockholders in the form attached hereto as Exhibit B.
"Seller Requisite Vote" shall have the meaning ascribed thereto in Section
4.04 hereof.
"Stock Conversion Number" shall have the meaning ascribed thereto in
Section 2.14(e) hereof.
"Stock Distribution" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Stock Election Cash Designee Shares" shall have the meaning ascribed
thereto in Section 2.14(e) hereof.
"Stock Election Shares" shall have the meaning ascribed thereto in Section
2.14(b) hereof.
"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.
"Tax" shall have the meaning ascribed thereto in Section 4.10(t)(A) hereof.
"Tax Return" shall have the meaning ascribed thereto in Section 4.10(t)(B)
hereof.
"Termination Date" shall have the meaning ascribed thereto in Section
8.01(b) hereof.
"Trust Account Shares" shall have the meaning ascribed thereto in Section
3.16 hereof.
"Valuation Period" shall have the meaning ascribed thereto in Section
2.09(a) hereof.
"Vermont Commissioner" shall mean the Vermont Commissioner of Banking,
Insurance and Securities.
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ARTICLE II
THE ACQUISITION MERGER
2.01 Surviving Corporation. In accordance with the provisions of this
Article II and Section 251 of the DGCL, at the Effective Time, Seller shall be
merged with and into Buyer (the two merging corporations being sometimes
collectively referred to herein as the "Constituent Corporations") and the
separate corporate existence of Seller shall cease. Buyer shall be the surviving
corporation in the Acquisition Merger (hereinafter sometimes referred to as the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Delaware. The name of the Surviving Corporation shall
continue to be "Vermont Financial Services Corporation".
2.02 Purposes and Authorized Capital Stock of Surviving Corporation. As
of the Effective Time, the purposes and authorized capital stock of the
Surviving Corporation shall be as stated in the Certificate of Incorporation of
Buyer immediately prior to the Effective Time.
2.03 Effect of the Acquisition Merger.
(a) At the Effective Time, all of the estate, property, rights,
privileges, powers and franchises of the Constituent Corporations 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 any
of the Constituent Corporations shall not revert or be in any way impaired
by reason of the Acquisition Merger, but shall be vested in the Surviving
Corporation.
(b) From and after the Effective Time, the rights of creditors of any
Constituent Corporation 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
Acquisition Merger, but the Surviving Corporation shall be deemed to have
assumed, and shall be liable for, all liabilities and obligations of each
of the Constituent Corporations 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 the Constituent
Corporations shall continue to be subject to all liabilities, claims and
demands existing against them as such at or before the Acquisition Merger.
No action or proceeding then pending before any court or tribunal of the
State of Delaware, the State of Vermont, the State of New Hampshire or
otherwise in which any Constituent Corporation is a party, or in which any
such stockholder, director, or officer is a party, shall abate or be
discontinued by reason of the Acquisition 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 any Constituent Corporation by the court in which such action or
proceeding is pending.
2.04 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 either of the Constituent Corporations acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Acquisition Merger or to otherwise carry out this Agreement, the officers and
directors of the Surviving Corporation shall and will be authorized to execute
and deliver, in the name and on behalf of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of the Constituent Corporations 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 the purposes and intent of this Agreement.
2.05 Certificate of Incorporation and By-laws. The Certificate of
Incorporation and the By-Laws of Buyer, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and the
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By-laws of the Surviving Corporation and shall thereafter continue to be the
Surviving Corporation's Certificate of Incorporation and By-Laws until amended
as provided therein or by applicable law.
2.06 Directors and Officers. The directors and officers of the Surviving
Corporation shall be the directors and officers of Buyer immediately prior to
the Effective Time and, in addition, the Board of Directors of the Surviving
Corporation shall include at least three (3) and up to four (4) additional
persons to be designated by Buyer prior to the Effective Time, who shall be
selected from among the members of Seller's Board of Directors, and each such
director and officer shall hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation. Subject to the first
sentence of this Section 2.06, the exact number of Seller directors who shall be
selected to serve on the Board of Directors of the Surviving Corporation upon
the Effective Time shall be determined by Buyer in its sole discretion.
2.07 Effective Time; Conditions. If all of the conditions precedent set
forth in Article VI hereof have been satisfied or waived (to the extent
permitted by law), and this Agreement has not otherwise been properly terminated
under Article VIII hereof, the appropriate form of certificate of merger with
respect to the Acquisition Merger shall be prepared by Buyer and Seller and
filed and recorded pursuant to Section 251 of the DGCL with the Delaware
Secretary of State (as so filed and recorded, the "Certificate of Merger"). The
Acquisition Merger shall become effective at, and the Effective Time shall be,
the time specified in the Certificate of Merger.
2.08 Dissenters' Appraisal Rights. Any Dissenting Holder (i) who files
with Seller an objection to the Acquisition Merger in writing before the
approval of this Agreement by the stockholders of Seller and who states in such
objection that he intends to demand payment for his shares of Seller Common
Stock if the Acquisition Merger is concluded and (ii) whose shares of Seller
Common Stock are not voted in favor of the Acquisition Merger shall be entitled
to demand payment for his shares of Seller Common Stock and an appraisal of the
value thereof, subject to and in accordance with the provisions of Section 262
of the DGCL.
2.09 Effect on Outstanding Shares.
(a) Seller Common Stock. By virtue of the Acquisition Merger,
automatically and without any action on the part of the holder thereof, and
subject to and in accordance with Section 2.14 hereof, each share of Seller
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Shares and any such shares held directly or
indirectly by Buyer, other than Trust Account Shares and DPC Shares, and
any such shares held as treasury stock by Seller) shall become and be
converted into either (i) an amount in cash equal to the sum of (x) $7.25
and (y) the product of 0.4900 and the Average Closing Price (such total per
share purchase price being referred to herein as the "Acquisition Price"
and such total per share cash amount being referred to herein as the "Cash
Distribution") or (ii) the number of shares or fraction of a share of Buyer
Common Stock, rounded to the nearest ten-thousandth of a share, equal to
the number obtained by dividing the Acquisition Price by the Average
Closing Price (such number being referred to herein as the "Exchange Ratio"
or the "Stock Distribution"); provided, however, that if the Average
Closing Price is greater than or equal to $39.96 per share the Acquisition
Price shall equal $26.83 and if the Average Closing Price is less than or
equal to $29.54 per share but greater than or equal to $26.06 per share the
Acquisition Price shall equal $21.72. If the Average Closing Price is less
than $26.06, the Acquisition Price shall equal the sum of (x) $7.25 and (y)
the product of 0.5553 and the Average Closing Price. Notwithstanding the
foregoing, however, if the Average Closing Price is less than $26.06 per
share (the "Minimum Price"), then Seller shall have the right to terminate
this Agreement pursuant to Section 8.01(f) of this Agreement, unless Buyer
elects, in its sole discretion, to adopt $21.72 (the "Adjusted Acquisition
Price") as the Acquisition Price. The parties hereto acknowledge and agree
that the Acquisition Price shall be identical without regard to any
election made pursuant to Section 2.14 hereof. As of the Effective Time,
each share of Seller Common Stock held directly or indirectly by Buyer,
other than Trust Account Shares and DPC Shares, and held by Seller as
treasury stock shall be canceled, retired and cease to exist, and no
payment shall be made with respect thereto. For purposes of this Agreement,
"Average Closing Price" shall mean the average of the closing bid prices of
shares of Buyer Common Stock as reported on the Nasdaq-NM composite
transactions reporting system for the twenty consecutive trading days (the
"Valuation Period") ending on
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the fifth business day prior to the Closing Date and "Merger Consideration"
shall mean the shares of Buyer Common Stock and/or cash that holders of
Seller Common Stock are entitled to receive hereunder. Subject to the
provisions of Section 2.09(c) with respect to Dissenting Shares, each
certificate which immediately prior to the Effective Time represented
outstanding shares of Seller Common Stock shall on and after the Effective
Time be deemed for all purposes to represent the Merger Consideration into
which the shares of Seller Common Stock represented by such certificate
shall have been converted pursuant to this Section 2.09(a).
(b) Buyer Common Stock. Each share of Buyer Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding upon the Effective Time and shall constitute one share of
common stock of the Surviving Corporation ("Surviving Corporation Common
Stock"). Each certificate which immediately prior to the Effective Time
represented outstanding shares of Buyer Common Stock shall on and after the
Effective Time be deemed for all purposes to represent such like number of
shares of Surviving Corporation Common Stock issued and outstanding as of
the Effective Time in accordance with this Section 2.09(b).
(c) Dissenting Shares. No conversion under Section 2.09(a) hereof
shall be made with respect to the shares of Seller Common Stock held by a
Dissenting Holder (such shares being referred to herein as "Dissenting
Shares"); provided, however, (i) each Dissenting Share outstanding
immediately prior to the Effective Time and held by a Dissenting Holder who
shall, at or prior to the Effective Time, withdraw his demand for appraisal
or lose his right of appraisal, in either case pursuant to the applicable
provisions of the DGCL shall be deemed to be converted, as of the Effective
Time, into the Merger Consideration payable with respect to such Dissenting
Share in accordance with the terms of Section 2.09(a) hereof and (ii) each
Dissenting Share 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 DGCL, shall be deemed to be
converted, as of the Effective Time, into the Stock Distribution or the
Cash Distribution as the Buyer shall determine in its sole and absolute
discretion. For purposes of this Agreement, the term "Dissenting Holder"
shall mean a holder of shares of Seller Common Stock who has demanded
appraisal rights in compliance with the applicable provisions of the DGCL
concerning the right of such holder to dissent from the Acquisition Merger
and demand appraisal of such holder's shares of Seller Common Stock.
2.10 Anti-Dilution. In the event that during the period beginning on the
first day of the Valuation Period and ending on the Closing Date the outstanding
shares of Buyer 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 (or other non-cash)
dividend, stock split, reverse stock split, or other like changes in Buyer's
capitalization (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 who are to receive the Stock Distribution
so that each such holder of Seller Common Stock shall receive under Section
2.09(a) hereof the number of shares of Buyer Common Stock and/or other
securities that such holder would have received if the Recapitalization had
occurred immediately after the Effective Time. Nothing contained in this Section
2.10 is intended to mean that Buyer may engage in a Recapitalization for the
intended purpose of affecting the Average Closing Price in a way that would be
adverse to the interests of Seller and its stockholders.
2.11 Exchange Procedures.
(a) Certificates which represent shares of Seller Common Stock that
are outstanding immediately prior to the Effective Time (each a
"Certificate") and are converted into the Merger Consideration pursuant to
this Article II shall, after the Effective Time, be deemed to represent the
Merger Consideration into which such shares have been converted and shall
be exchangeable by the holders thereof in the manner provided in the
transmittal materials described below for (i) new certificates representing
the shares of Buyer Common Stock into which such shares have been converted
and/or (ii) a check for the total cash amount into which such shares have
been converted.
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(b) Following the meeting of Seller's and Buyer's respective
stockholders contemplated by Section 5.05 hereof and twenty-five business
days prior to the anticipated Closing Date, or on such other date as may be
mutually agreed upon by the parties (the "Mailing Date"), the Exchange
Agent shall send to each holder of record of shares of Seller Common Stock
outstanding as of five business days prior to the Mailing Date (the
"Election Form Record Date"), transmittal materials and the Election Form
as provided for in Section 2.14 hereof (which materials and form shall be
approved by Seller, which approval shall not be unreasonably withheld) for
use in exchanging the Certificates for such shares for the Merger
Consideration into which such shares of Seller Common Stock have been
converted pursuant to this Article II. Upon surrender of a Certificate,
together with a duly executed letter of transmittal and any other required
documents, the holder of such Certificate shall be entitled to receive, in
exchange therefor, as soon as practicable following the Effective Time, a
certificate for the number of shares of Buyer Common Stock and/or a check
for the cash amount to which such holder is entitled, and such Certificate
shall forthwith be canceled. Buyer shall use all reasonable efforts to
cause the Exchange Agent to distribute the Merger Consideration as promptly
as practicable to the former holders of the Certificates. 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
representing Stock Election Shares until the holder thereof surrenders such
Certificate in accordance with the provisions of this Article II and the
transmittal materials, at which time such holder shall receive all
dividends and distributions, without interest thereon, previously payable
but withheld from such holder pursuant hereto. No interest shall be paid on
the cash amount payable with respect to any unsurrendered Certificate
representing Cash Election Shares, and such cash amount shall be paid at
such time as such Certificate is properly surrendered by the holder
thereof. After the Effective Time, there shall be no transfers on the stock
transfer books of 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 Seller, they shall be canceled and exchanged
for the Merger Consideration 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 the applicable provisions of Section 2.09(a) hereof, cash
adjustments, without interest, shall 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 Acquisition 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 2.11(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 Seller Common Stock shall
have no rights as stockholders of Seller, other than (i) to receive the
Merger Consideration into which such shares of Seller Common Stock have
been converted and fractional share payments, if any, pursuant to the
provisions of Section 2.11(c) above and (ii) the rights afforded to any
Dissenting Holder under applicable provisions of the DGCL.
(e) Any amounts remaining unclaimed by stockholders of Seller
twenty-four months after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to
or become property of any governmental entity) shall, to the extent
permitted by applicable law, become the property of Buyer free and clear of
any claims of interest of any person previously entitled thereto; provided,
however, that Buyer shall send 30-days' prior written notice to former
stockholders of Seller at such stockholders' last known addresses as
reflected in Seller's stockholder records prior to Buyer's taking
possession of any such unclaimed amounts
(f) Notwithstanding anything contained in this Section 2.11, neither
Buyer, Seller, the Surviving Corporation nor any other person shall be
liable to any former holder of shares of Seller Common Stock for any shares
or any dividends or distributions with respect thereto or any other cash
amounts properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
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(g) 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 Buyer
of appropriate and customary indemnification, Buyer will deliver in
exchange for such lost, stolen or destroyed Certificate the Merger
Consideration and the fractional share payment, if any, deliverable in
respect thereof as determined in accordance with this Article II.
(h) If any Merger Consideration 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
or member firm of the New York Stock Exchange 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 delivery of the Merger Consideration in any name other than that of the
registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the reasonable satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
2.12 Treatment of Seller Stock Options. As soon as practicable following
the date of the meeting of Seller's stockholders contemplated by Section 5.05
hereof, and in any event not later than ten (10) business days prior to the
Effective Time, each holder of a then outstanding stock option to purchase
shares of Seller Common Stock pursuant to the Seller Stock Option Plans (it
being understood that the aggregate number of shares of Seller Common Stock
subject to purchase under such stock options is not or shall not at the
Effective Time be more than 398,975 shares) shall be entitled to exercise such
option (whether or not such option would otherwise have been exercisable) at the
exercise price thereof, and if such options are not so exercised at such time
prior to the Effective Time, then each such holder shall be entitled to elect by
written notice to Buyer, delivered not later than such ten (10) business days
prior to the Effective Time, one of the two following alternatives: (i) to
receive, immediately prior to the Effective Time, from Seller in cancellation of
each such option a cash payment in an amount equal to the excess of $24.28 over
the per share exercise price of such option, multiplied by the number of shares
covered by such option or (ii) to have each such option, upon the Effective
Time, converted into an option to purchase shares of Buyer Common Stock with the
following terms:
(A) the number of shares of Buyer Common Stock subject to such option
shall be equal to the product of the number of shares of Seller Common
Stock previously subject thereto and the Exchange Ratio, rounded down to
the nearest whole share;
(B) the exercise price per share of Buyer Common Stock subject to such
option shall be equal to the exercise price per share of Seller Common
Stock previously subject thereto divided by the Exchange Ratio, rounded up
to the nearest cent;
(C) the duration and other terms of such option shall be unchanged,
except that all references to Seller shall be deemed to be references to
Buyer;
(D) Buyer shall assume the option as contemplated by Section 424(a) of
the Code; and
(E) with respect to any such option that is an incentive stock option
within the meaning of Section 422 of the Code, Buyer shall take such
actions (other than delaying the date on which such option becomes
exercisable beyond the date on which it would otherwise become exercisable
pursuant to the terms thereof) as may be necessary or appropriate to cause
such option, upon being converted into an option to purchase shares of
Buyer Common Stock, to remain such an incentive stock option.
If any such holder fails to either exercise such holder's options as
provided for above or elect either of the other two foregoing alternatives, then
such holder's options shall terminate at the Effective Time as provided in the
Seller Stock Option Plans.
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2.13 Exchange Agent. Prior to the Election Form Record Date, Buyer shall
appoint an exchange agent reasonably acceptable to Seller (it being acknowledged
and agreed by Seller that Vermont National Bank is so acceptable) for the
purpose of exchanging certificates representing shares of Buyer Common Stock for
Certificates (the "Exchange Agent"). Buyer shall issue and deliver on the
Closing Date to the Exchange Agent certificates representing the shares of Buyer
Common Stock to be issued and shall deposit with the Exchange Agent the
aggregate cash amount to be paid in consideration of the aggregate Cash
Distribution and in lieu of fractional share interests, all in accordance with
the terms of this Article II.
2.14 Election Procedures. The election to receive shares of Buyer Common
Stock or cash in exchange for shares of Seller Common Stock and the allocation
of shares of Buyer Common Stock and cash among holders of shares of Seller
Common Stock shall be conducted as follows:
(a) The Exchange Agent shall mail to each holder of record (or, in the
case of individuals who have established individual retirement accounts
("IRAs"), to such individuals, treating each such individual and his or her
IRA(s) as a single holder of record for this purpose) of shares of Seller
Common Stock outstanding at the Election Form Record Date an election form
(the "Election Form"), together with appropriate transmittal materials, on
the Mailing Date.
(b) The Election Form shall permit a holder of shares of Seller Common
Stock to elect, with respect to some or all of such holder's shares of
Seller Common Stock, (i) to receive the Stock Distribution (the "Stock
Election Shares"), (ii) to receive the Cash Distribution (the "Cash
Election Shares"), or (iii) to indicate that such holder makes no election
(the "No Election Shares").
(c) Any shares of Seller Common Stock with respect to which the holder
thereof shall not, as of the Election Deadline (as defined below), have
made such an election by submission to the Exchange Agent, of a properly
completed Election Form shall be deemed to be No Election Shares. "Election
Deadline" means 5:00 p.m., local time, on the fifteenth business day
following but not including the Mailing Date or such other date as Buyer
and Seller shall mutually agree upon in writing.
(d) Any election shall have been properly made only if the Exchange
Agent shall have received a properly completed Election Form by the
Election Deadline. Subject to Section 2.11(g) hereof, an Election Form will
be properly completed only if accompanied by either (i) certificates
representing all shares of Seller Common Stock covered thereby or (ii) an
appropriate guarantee of delivery of such certificates as set forth in the
Election Form from a member of a national securities exchange or the NASD,
or a commercial bank or trust company in the United States, provided that
if the certificates are not delivered by the time set forth in the
guarantee of delivery (which time may not be later than two business days
after the Election Deadline), the holder shall be entitled only to receive
in respect of each share of Seller Common Stock represented by such
certificates the Merger Consideration to be received by holders of No
Election Shares, subject to the allocation and other provisions of this
Section 2.14 and Section 2.11 hereof. Any Election Form may be revoked or
changed by the person submitting such Election Form to the Exchange Agent
by written notice to the Exchange Agent, provided such notice is received
by the Exchange Agent at or prior to the Election Deadline. The Exchange
Agent shall have reasonable discretion to determine when any election,
modification or revocation is received and whether any such election,
modification or revocation has been properly made.
(e) If the aggregate number of Stock Election Shares does not equal
the Stock Conversion Number (as defined below), within ten business days
after the Election Deadline, unless the Effective Time has not yet
occurred, in which case as soon thereafter as practicable, the Exchange
Agent shall allocate among holders of shares of Seller Common Stock
outstanding at the Effective Time the rights to receive with respect to
each such share the Stock Distribution or the Cash Distribution as follows:
(i) if the number of Stock Election Shares is less than the Stock
Conversion Number, then
(A) all Stock Election Shares will be converted into the right
to receive the Stock Distribution,
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(B) the Exchange Agent will select, on a pro rata basis, first
from among the holders of No Election Shares, a sufficient number of
such shares ("No Election Designee Shares") such that the number of
No Election Designee Shares will, when added to the number of Stock
Election Shares, equal as closely as practicable the Stock Conversion
Number, and all such No Election Designee Shares will be converted
into the right to receive the Stock Distribution,
(C) if, after giving effect to clauses (A) and (B) above, the
number of Stock Election Shares plus No Election Designee Shares is
less than the Stock Conversion Number, the Exchange Agent will
select, on a pro rata basis, from among the holders of Cash Election
Shares, a sufficient number of such shares ("Cash Election Designee
Shares") such that the number of Cash Election Designee Shares will,
when added to the number of No Election Designee Shares and Stock
Election Shares, equal as closely as practicable the Stock Conversion
Number, and all Cash Election Designee Shares will be converted into
the right to receive the Stock Distribution, and
(D) the Cash Election Shares and the No Election Shares not so
selected as Cash Election Designee Shares or No Election Designee
Shares, respectively, shall be converted into the right to receive
the Cash Distribution; or
(ii) if the aggregate number of Stock Election Shares is greater
than the Stock Conversion Number, then
(A) all Cash Election Shares will be converted into the right to
receive the Cash Distribution,
(B) the Exchange Agent will select, on a pro rata basis, first
from among the holders of No Election Shares, a sufficient number of
such shares ("No Election Cash Designee Shares") such that the number
of No Election Cash Designee Shares will, when added to the number of
Cash Election Shares and Dissenting Shares, equal as closely as
practicable the Cash Conversion Number (as defined below), and all No
Election Cash Designee Shares will be converted into the right to
receive the Cash Distribution,
(C) if, after giving effect to clauses (A) and (B) above, the
number of Cash Election Shares plus No Election Cash Designee Shares
plus Dissenting Shares is less than the Cash Conversion Number, the
Exchange Agent will select, on a pro rata basis, from among the
holders of Stock Election Shares, a sufficient number of such shares
("Stock Election Cash Designee Shares") such that the number of Stock
Election Cash Designee Shares will, when added to the number of Cash
Election Shares and No Election Cash Designee Shares and Dissenting
Shares, equal as closely as practicable the Cash Conversion Number,
and all Stock Election Cash Designee Shares will be converted into
the right to receive the Cash Distribution, and
(D) the Stock Election Shares and the No Election Shares not so
selected as Stock Election Cash Designee Shares or No Election Cash
Designee Shares, respectively, will be converted into the right to
receive the Stock Distribution.
"Cash Conversion Number" means the number of outstanding shares of Seller Common
Stock as of the Effective Time, including all Dissenting Shares, if any,
multiplied by the ratio of $7.25 to the Acquisition Price. "Stock Conversion
Number" means the number of outstanding shares of Seller Common Stock as of the
Effective Time minus the Cash Conversion Number.
(f) The proration process to be used by the Exchange Agent shall be as
the Exchange Agent deems equitable in its sole reasonable discretion,
provided that each holder of Stock Election Shares shall, to the greatest
extent possible, except for rounding to whole numbers of shares, be subject
to the same degree of proration as each other holder of Stock Election
Shares.
(g) In the event that this Agreement is duly terminated in accordance
with Section 8.01 hereof after the Mailing Date, the Exchange Agent shall
use all reasonable efforts to effect the prompt return of
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stock certificates representing shares of Seller Common Stock submitted
thereto with Election Forms as provided for hereunder.
ARTICLE
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller and the Bank 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 State of Delaware. The Buyer has the
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, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, 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 duly registered with the Federal Reserve Board under the
BHCA. The certificate of incorporation and the by-laws of Buyer, copies of
which have been provided to Seller, are true, complete and correct copies
of such documents as in effect on the date hereof.
(b) Each subsidiary of the Buyer is duly organized, validly existing
and in corporate good standing under the laws of the jurisdiction of its
incorporation. Each subsidiary of the Buyer has the 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, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned, 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, with
respect to the Buyer, a Material Adverse Effect.
3.02 Capitalization. The authorized capital stock of the Buyer consists
of 20,000,000 shares of common stock, par value $1.00 per share (the "Buyer
Common Stock"), and 5,000,000 shares of preferred stock, par value $1.00 per
share (the "Buyer Preferred Stock"). As of the close of business on October 31,
1996, there were 4,886,704 shares of the Buyer Common Stock issued and
outstanding and no shares of the Buyer Preferred Stock issued and outstanding.
As of the close of business on October 31, 1996, there were also 184,018 shares
of the Buyer Common Stock held in the Buyer's treasury and 214,125 shares of the
Buyer Common Stock reserved for issuance upon exercise of outstanding stock
options. All issued and outstanding shares of the Buyer 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.
3.03 Authority; No Violation.
(a) The Buyer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly approved
by the Board of Directors of the Buyer. The Board of Directors of Buyer has
directed that this Agreement and the transactions contemplated hereby be
submitted to the stockholders of Buyer for approval at a meeting of such
stockholders and 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 has been duly and validly executed and delivered
by the Buyer and (assuming due authorization, execution and delivery by the
Seller and the Bank) constitutes the valid and binding obligation of the
Buyer, enforceable against the Buyer in accordance with its terms, except
that enforcement hereof 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
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equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) and the availability of equitable remedies.
(b) Neither the execution and delivery of this Agreement by the Buyer
nor the consummation by the Buyer of the transactions contemplated by this
Agreement, nor compliance by the Buyer with any of the terms or provisions
of this Agreement, will (i) assuming that the consents and approvals
referred to in Section 3.04 hereof are duly obtained, violate 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 certificate of
incorporation or other charter document of like nature or by-laws of the
Buyer, or such Buyer 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 thereto 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 result,
with respect to the Buyer, in a Material Adverse Effect.
3.04 Consents and Approvals. Except for consents, waivers or approvals
of, notice to, or filings or registrations with, the Federal Reserve Board, the
DOJ, the FTC, the Vermont Commissioner, the Securities and Exchange Commission
(the "SEC"), the NASD, the Delaware Secretary of State, and certain state "Blue
Sky" or securities commissioners, no consents, waivers or approvals of, notices
to, or filings or registrations with, any public body or authority are
necessary, and no permits, consents, waivers, clearances, approvals or
authorizations of or notices to any non-governmental or non-regulatory third
parties (which term does not include the stockholders of the Buyer) are
necessary, in connection with the execution and delivery by the Buyer of this
Agreement or the consummation by the Buyer of the transactions contemplated by
this Agreement (except Section 5.17 hereof). The affirmative vote of the holders
of two-thirds of the outstanding shares of the Buyer Common Stock (the "Buyer
Requisite Vote") is the only vote of the holders of any class or series of the
Buyer's capital stock or other securities necessary to approve this Agreement
and the transactions contemplated hereby, including without limitation the
Acquisition Merger.
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 1993 through 1995, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1993 through 1995, inclusive, as reported in the
Buyer's Annual Reports on Form 10-K for each of the three fiscal years ended
December 31, 1993 through December 31, 1995 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
accountants for the Buyer, and (b) the unaudited consolidated balance sheets of
Buyer and its subsidiaries as of September 30, 1996 and September 30, 1995, the
related unaudited consolidated statements of income and changes in stockholders'
equity for the nine months ended September 30, 1996 and September 30, 1995 and
the related unaudited consolidated statements of cash flows for the nine months
ended September 30, 1996 and September 30, 1995, all as reported in Buyer's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 filed
with the SEC under the Exchange Act. The December 31, 1995 consolidated balance
sheet of the Buyer (the "Buyer Balance Sheet") (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, 10-K and 8-K) to be filed by the Buyer with the SEC after
the date hereof will fairly present, the consolidated financial position and
results of the consolidated operations and cash flows and changes in
stockholders' equity of the Buyer and its subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; and each of such
statements (including the related notes, where applicable) has been and will be
prepared in accordance with GAAP consistently
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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 and reflect only actual transactions.
3.06 Absence of Undisclosed Liabilities. As of December 31, 1995, none of
the Buyer or any of its subsidiaries had any obligation or liability (contingent
or otherwise) that is material on a consolidated basis to the Buyer, or that
when combined with all similar obligations or liabilities would be material on a
consolidated basis to the Buyer, except as disclosed or reflected in the Buyer's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
3.07 Broker's Fees. Neither the Buyer nor any of its officers or
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement, except that Buyer has engaged, and
will pay a fee or commission to, Tucker Anthony Incorporated.
3.08 Absence of Certain Changes or Events. Since December 31, 1995, 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 assets, liabilities, business, operations,
results of operations or condition of the Buyer or any of its subsidiaries which
has had or could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Buyer.
3.09 Legal Proceedings. There is no pending or, to the Buyer's knowledge,
threatened legal, administrative, arbitral, or other proceeding, claim, action
or governmental investigation against Buyer or any subsidiary of the Buyer or
challenging the validity or propriety of the transactions contemplated by this
Agreement, as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would have or could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Buyer or otherwise materially adversely affect the Buyer's
ability to perform its obligations under this Agreement, nor is there any
judgment, decree, injunction, rule or order of any legal, administrative or
governmental body or arbitrator outstanding against the Buyer or any subsidiary
of the Buyer having any such effect.
3.10 Agreements with Banking Authorities. Neither Buyer nor any of its
subsidiaries is a party to any commitment letter, written agreement, memorandum
of understanding or order to cease and desist with, or has adopted any
resolutions at the request of, any federal or state governmental entity charged
with the supervision or regulation of banks, bank holding companies, savings
associations or savings and loan holding companies or engaged in the insurance
of bank or savings association 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.
3.11 Material Agreements. Except as set forth in the index of exhibits in
Buyer's Annual Report on Form 10-K for the year ended December 31, 1995 or in
Buyer's Quarterly Reports for the fiscal quarters ended March 31, 1996, June 30,
1996 and September 30, 1996, and except for this Agreement and the agreements
specifically referred to herein, neither the Buyer nor any of its subsidiaries
is a party to or is bound by any other contract or agreement or amendment
thereto that would be required to be filed as an exhibit to a Form 10-K filed by
the Buyer as of the date hereof or is otherwise material to the business,
operations, results of operations or condition of the Buyer on a consolidated
basis.
3.12 Reports. Since January 1, 1993, the Buyer and its subsidiaries have
timely filed, and subsequent to the date hereof will timely 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 made
available by the Buyer to the Seller), (b) the OCC, (c) the FDIC, (d) the
Federal Reserve Board and (e) 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,
registrations and statements are collectively referred to herein as the "Buyer
Reports"). As
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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.
As of their respective dates, the Buyer Reports 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.
3.13 Compliance with Applicable Law. Buyer and its subsidiaries hold all
material licenses, franchises, permits and authorizations necessary for the
lawful conduct of Buyer's consolidated business, and Buyer and its subsidiaries
have complied with, and are 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 Buyer on a
consolidated basis, other than where such default or noncompliance does not have
and could not reasonably be expected to have a Material Adverse Effect on Buyer
or otherwise materially adversely affect Buyer's ability to perform its
obligations under this Agreement. Buyer has not received any notice of any
violation of, or commencement of any proceeding in connection with any violation
(including without limitation any hearing or investigation relating to the
imposition or contemplated imposition of civil money penalties or other
financial penalty under Section 8(i) of the FDIA or applicable state law
("CMPs")) of any such law, statute, order, rule, regulation, policy or
agreement.
3.14 Environmental Matters. Buyer and its subsidiaries are in compliance
and have always been in compliance with all environmental laws, rules,
regulations and standards promulgated, adopted or enforced by the EPA and of
similar agencies in states in which they conduct their respective business,
except for any noncompliance that singly or in the aggregate would not have a
Material Adverse Effect on Buyer. 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 Buyer, threatened by any person, as to which there is a
reasonable probability of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have a Material Adverse
Effect on Buyer (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 Buyer or any subsidiary of Buyer or in which Buyer or any
Buyer subsidiary has a lien or other security interest.
3.15 Buyer Common Stock. The Buyer Common Stock to be issued in
connection with the Acquisition Merger is duly authorized and, when issued in
accordance with Article II hereof, will be validly issued, fully paid and
nonassessable and not subject to preemptive rights, with no personal liability
attaching thereto.
3.16 Ownership of Seller Common Stock. Neither the Buyer nor, to its best
knowledge, any of its affiliates or associates (as such terms are defined under
the Exchange Act), (a) beneficially own, directly or indirectly, or (b) are
parties to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of the Seller, which in the aggregate represent five percent (5%) or more
of the outstanding shares of capital stock of the Seller entitled to vote
generally in the election of directors (other than shares in trust accounts,
managed accounts and the like that are beneficially owned by third parties (any
such shares, "Trust Account Shares") and any other shares held in respect of a
debt previously contracted (any such shares, "DPC Shares").
3.17 Financing. Buyer's ability to pay the total amount of the cash
consideration to be paid with respect to those shares of Seller Common Stock
that are converted into the Cash Distribution in accordance with Section 2.09(a)
above is not contingent upon raising additional equity capital (which does not
include receipt of cash dividends from its banking or other subsidiaries) or
obtaining specific financing from any third-party lender.
3.18 Buyer Benefit Plans.
(a) Buyer represents that with respect to each employee pension
benefit plan (as defined in Section 3(2) of ERISA) ("Buyer Pension Plan")
and each employee welfare benefit plan (as defined in Section 3(1) of
ERISA) ("Buyer Benefit Plan") which the Buyer, any subsidiary of Buyer or
any ERISA
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Affiliate maintains or to which the Buyer, any subsidiary of Buyer or any
ERISA Affiliate contributes, each such plan 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, the Code and
other applicable laws, and each of the Buyer Pension Plans intended to
qualify under Section 401(a) of the Code is so qualified. Neither the Buyer
nor any subsidiary of Buyer has taken any action, nor has any event
occurred, that has resulted, or will likely result in liability under Title
IV of ERISA or has engaged in a prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code).
(b) There is no "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA and Section 412 of the Code), whether or not
waived, with respect to any Buyer Pension Plan. The Buyer, its
subsidiaries, and their ERISA Affiliates have made all contributions to the
Buyer Pension Plans and Buyer Benefit Plans required thereunder as of the
date of this representation, and have established adequate reserves on
their books for all contributions to Buyer Pension Plans and Buyer Benefit
Plans required thereunder for the period prior to the date of this
representation, to the extent such contributions are not required to have
been made, and have not been made, prior to the date of this
representation.
3.19 Buyer Information. The information relating to the Buyer and its
subsidiaries to be contained or incorporated by reference in the Buyer
Registration Statement and the 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 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.
3.20 Disclosure. To the best of Buyer's knowledge, 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, 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. No information believed by Buyer to be material to
Seller's interests in the transactions contemplated by this Agreement, which has
not otherwise been disclosed to Seller in connection with this Agreement, has
been intentionally withheld from Seller.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE BANK
Seller and the Bank hereby represent and warrant to 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 State of Delaware. The Bank is a
federal savings bank in stock form duly organized, validly existing and in
good standing under the laws of the United States. Each of the Seller and
the Bank has the corporate power and authority to own, lease or operate all
of its respective properties and assets and to carry on its respective
business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned, 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, any Material Adverse Effect. The
deposits of the Bank are insured by the FDIC in accordance with the FDIA,
and, except as disclosed in Section 4.01(a) of the disclosure schedule
prepared by Seller and delivered to Buyer on the date hereof in conjunction
with the parties' execution and delivery of this Agreement (the "Seller
Disclosure Schedule"), the Bank has paid all assessments that have become
due and payable to the FDIC. The Seller is a savings and loan holding
company registered with the OTS under the HOLA.
(b) Each subsidiary of the Seller, other than the Bank, is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each subsidiary of the Seller has the
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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, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, 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, with respect to the Seller, a
Material Adverse Effect.
(c) Except as disclosed in Section 4.01(c) of the Seller Disclosure
Schedule, the minute books of the Seller and its subsidiaries contain
complete and accurate records of all meetings and other corporate actions
authorized at such meetings held or taken since December 31, 1990 by its
stockholders and Board of Directors. The certificate of incorporation and
the by-laws of the Seller and the federal stock charter and bylaws of the
Bank, copies of which have been provided to the Buyer, are true, complete
and correct copies of such documents as in effect on the date hereof.
4.02 Capitalization.
(a) The authorized capital stock of the Seller consists of 5,000,000
shares of common stock, par value $0.01 per share (the "Seller Common
Stock"), and 1,000,000 shares of preferred stock, par value $0.01 per share
(the "Seller Preferred Stock"). As of October 31, 1996, there were
3,677,226 shares of the Seller Common Stock and no shares of the Seller
Preferred Stock issued and outstanding, 418,323 shares of the Seller Common
Stock held in the Seller's treasury and 392,775 shares of Seller Common
Stock reserved for issuance upon the exercise of outstanding stock options.
All issued and outstanding shares of the 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. Section 4.02(a) of the Seller Disclosure Schedule identifies by
name all of the holders of record as of the date hereof of any options or
rights, whether or not presently exercisable, to purchase any shares of
Seller Common Stock, the number of shares of Seller Common Stock subject to
such outstanding stock options or rights held by each such holder, together
with the various dates on which such options or rights were granted and the
various exercise prices for such options or rights, the number of shares
for which such options or rights are presently vested and the vesting
schedule for the remaining balance of shares for which such options or
rights are not presently vested. Except as referred to in this Section 4.02
or disclosed in Section 4.02(a) of the Seller Disclosure Schedule, and
except for the Seller Option Agreement and the Seller Stock Option Plans,
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 the Seller Common Stock or any other equity
security of the Seller or any Seller subsidiary or any securities
convertible into, exchangeable for or representing the right to subscribe
for, purchase or otherwise receive any shares of the Seller Common Stock or
any other equity security of the Seller or any Seller subsidiary 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 Seller subsidiary.
(b) Section 4.02(b) to the Seller Disclosure Schedule lists each of
the subsidiaries of the Seller as of the date of this Agreement and
indicates for such subsidiary as of such date, the number, percentage and
type of equity securities owned or controlled by the Seller and the
jurisdiction of incorporation. No subsidiary of the Seller has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for such Seller subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, any equity
security of the Seller or of any Seller subsidiary 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
Seller subsidiary to grant, extend or enter into any such subscriptions,
options, warrants, calls, commitments or agreements. As of the date hereof,
there are no outstanding contractual obligations of any Seller subsidiary
to repurchase, redeem or otherwise acquire any shares of capital stock of
the Seller or any Seller subsidiary. All of the shares of capital stock
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of each of the Seller's subsidiaries held by the Seller are fully paid and
nonassessable and 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 and the Seller Option Agreement and to consummate
the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Seller Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly approved by the Board of Directors of the Seller. The
Board of Directors of Seller has directed that this Agreement and the
transactions contemplated hereby be submitted to the stockholders of the
Seller for approval at a meeting of such stockholders and no other
corporate proceedings on the part of Seller are necessary to consummate any
of the transactions so contemplated by this Agreement or the Seller Option
Agreement. This Agreement and the Seller Option Agreement have been duly
and validly executed and delivered by the Seller and (assuming due
authorization, execution and delivery of this Agreement and the Seller
Option Agreement by the Buyer) constitute the valid and binding obligations
of the Seller, enforceable against it in accordance with their respective
terms, except that enforcement thereof may be limited by the receivership,
conservatorship and supervisory powers of bank regulatory agencies
generally as well as bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting enforcement of creditors' rights generally and
except that enforcement thereof may be subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) and the availability of equitable remedies.
(b) Neither the execution and delivery of this Agreement and the
Seller Option Agreement by the Seller nor the consummation by the Seller of
the transactions contemplated hereby and thereby, nor compliance by the
Seller with any of the terms or provisions hereof or thereof, will (i)
assuming that the consents and approvals referred to in Section 4.04 are
duly obtained, violate 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) except as set forth in Section 4.03(b) of the Seller Disclosure
Schedule, 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 any of its subsidiaries under, any of the terms, conditions or
provisions of (A) the certificate of incorporation or other charter
documents of like nature or by-laws of the Seller or such Seller
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 Seller or any of its subsidiaries is a party thereto 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 result, with respect
to the Seller, in a Material Adverse Effect.
4.04 Consents and Approvals. Except for consents, waivers or approvals
of, notices to, or filings or registrations with, the Federal Reserve Board, the
DOJ, the FTC, the Vermont Commissioner, the SEC, the Delaware Secretary of
State, or as may be set forth in Section 4.04 or 4.03(b) of the Seller
Disclosure Schedule, no consents, waivers or approvals of, notices to, or
filings or registrations with, any public body or authority are necessary, and
no permits, consents, waivers, clearances, approvals or authorizations of or
notices to any non-governmental or nonregulatory third parties (which term does
not include the stockholders of the Seller) are necessary, in connection with
the execution and delivery by the Seller of this Agreement and the Seller Option
Agreement or the consummation by the Seller of the transactions contemplated by
this Agreement (except Section 5.17 hereof) or the Seller Option Agreement. The
affirmative vote of holders of two-thirds of the outstanding shares of the
Seller Common Stock (the "Seller Requisite Vote") is the only vote of the
holders of any class or series of the Seller's capital stock or other securities
necessary to approve this Agreement and the transactions contemplated hereby,
including without limitation the Acquisition Merger.
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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 September 30 for the fiscal years 1993 through 1995, inclusive, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for such fiscal years 1993 through 1995, inclusive, as reported in
the Seller's Annual Reports on Form 10-K for each of the three fiscal years
ended September 30, 1993 through September 30, 1995 filed with the SEC under the
Exchange Act, in each case accompanied by the audit report of KPMG Peat Marwick
LLP, independent accountants for the Seller, (b) the unaudited consolidated
balance sheets of Seller and its subsidiaries as of June 30, 1996 and June 30,
1995, the related unaudited consolidated statements of income and changes in
stockholders' equity for the nine months ended June 30, 1996 and June 30, 1995
and the related unaudited consolidated statements of cash flows for the nine
months ended June 30, 1996 and June 30, 1995, all as reported in Seller's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 filed with the
SEC under the Exchange Act, and (c) the unaudited consolidated balance sheet of
Seller and its subsidiaries as of September 30, 1996, the related unaudited
consolidated statements of income and changes in stockholders' equity for the
fiscal year ended September 30, 1996 and the related unaudited consolidated
statement of cash flows for the fiscal year ended September 30, 1996, all as
prepared by management, but not yet certified by KPMG Peat Marwick LLP as of the
date hereof. The September 30, 1995 consolidated balance sheet of the Seller
(the "Seller Balance Sheet") (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, 10-K and 8-K) to be
filed by the Seller 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 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 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 Seller and its
subsidiaries have been, and are being, maintained in accordance with GAAP and
applicable legal and regulatory requirements and reflect only actual
transactions.
4.06 Absence of Undisclosed Liabilities. As of September 30, 1995, none
of the Seller or any of its subsidiaries had any obligation or liability
(contingent or otherwise) that is material on a consolidated basis to the
Seller, or that when combined with all similar obligations or liabilities would
be material on a consolidated basis to the Seller, except as disclosed or
reflected in the Seller's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 or Section 4.06 of the Seller Disclosure Schedule.
4.07 Broker's Fees. Neither the Seller or any of its subsidiaries nor any
of their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, except
that Seller has engaged, and will pay a fee or commission to, McConnell, Budd &
Downes, Inc.
4.08 Absence of Certain Changes or Events. Except as disclosed in
Schedule 4.08 of the Seller Disclosure Schedule, since September 30, 1995 the
Seller 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 assets, liabilities, business, operations,
results of operations or condition of the Seller or any of its subsidiaries
which has had or could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Seller.
4.09 Legal Proceedings. Except as disclosed in Section 4.09 of the Seller
Disclosure Schedule, there is no pending or, to Seller's knowledge, threatened
legal, administrative, arbitral, or other proceeding, claim, action or
governmental investigation against the Seller or any subsidiary of the Seller or
challenging the validity or propriety of the transactions contemplated by this
Agreement, as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would have or could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Seller or otherwise materially adversely affect the
Seller's ability to perform its obligations under this Agreement, nor is there
any judgment, decree, injunction, rule or order of any legal, administrative or
governmental body or arbitrator outstanding against the Seller or any subsidiary
of the Seller having any such effect.
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4.10 Taxes and Tax Returns. Except as may be set forth in Section 4.10 of
the Seller Disclosure Schedule:
(a) The Seller has timely filed all Tax Returns required to be filed
by it, each such Tax Return has been prepared in compliance with all
applicable laws and regulations, and all such Tax Returns are true and
accurate in all respects material to the financial condition of the Seller
and its subsidiaries, taken as a whole. All Taxes shown on such Tax Returns
as due and payable by Seller have been paid and, to Seller's knowledge,
Seller will not be liable for any additional Taxes for any taxable period
ending on or before the Effective Time in excess of the amounts set up as
reserves for taxes on the Seller Balance Sheet. Seller has made available
to Buyer correct and complete copies of all federal income Tax Returns
filed with respect to Seller for taxable periods ended on or after December
31, 1990, and all examination reports, and statements of deficiencies
assessed against or agreed to by Seller with respect to such taxable
periods;
(b) Seller has neither requested nor been granted an extension of the
time for filing any Tax Return to a date later than the Effective Time;
(c) With respect to each taxable period of Seller through September
30, 1992, either such taxable period has been audited by the relevant
taxing authority or the time for assessing or collecting income Tax with
respect to each such taxable period has closed and such taxable period is
not subject to review by any relevant taxing authority or the statute of
limitations for assessing or collecting income Tax with respect to each
such taxable period has not yet expired;
(d) Seller has not consented to extend the time in which any Tax may
be assessed or collected by any tax authority;
(e) No deficiency or proposed adjustment which has not been settled or
otherwise resolved for any amount of Tax has been asserted or assessed by
any taxing authority against Seller, other than such additional Taxes as
are being contested in good faith and which if determined adversely to
Seller would not have a Material Adverse Effect on Seller, and Seller has
not executed or entered into a closing agreement pursuant to Code Section
7121 or any predecessor provision thereof or any similar provision of
state, local or foreign law;
(f) There is no action, suit, taxing authority proceeding or audit now
in progress, pending or, to the knowledge of Seller, threatened against or
with respect to Seller with respect to any Tax;
(g) To the best of Seller's knowledge, no claim has ever been made by
a taxing authority in a jurisdiction where Seller does not pay Tax or file
Tax Returns that Seller is or may be subject to Taxes assessed by that
jurisdiction;
(h) To the best of Seller's knowledge, there are no liens for Taxes
(other than current Taxes not yet due and payable) on the assets of Seller;
(i) Seller has not filed or been included in a combined, consolidated
or unitary income Tax Return (other than consolidated Tax Returns in which
it is the parent corporation);
(j) Seller has neither made nor is affected by any elections under
Code Sections 108(b)(5), 338(g), or 565, or Treasury Regulation Section
1.1502-20(g);
(k) Seller is not a party to or bound by any Tax allocation or Tax
sharing agreement nor does Seller have any current or potential contractual
obligation to indemnify any other person or entity with respect to Taxes
(other than the tax sharing agreement among Seller and its subsidiaries, a
copy of which has been made available to Buyer);
(l) Seller has 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;
(m) Seller has no permanent establishment in any foreign country, as
defined in the relevant tax treaty between the United States of America and
such foreign country, nor otherwise operates or conducts business through
any branch in any foreign country;
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(n) Seller will not be required, as a result of a change in method of
accounting for any period before and immediately prior to 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;
(o) None of the assets of Seller directly or indirectly secures any
indebtedness the interest on which is tax-exempt under Section 103(a) of
the Code, and Seller is not directly or indirectly an obligor or a
guarantor with respect to any such indebtedness;
(p) Seller has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations;
(q) Seller has not made any payments, nor is obligated to make any
payments, nor is it a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G;
(r) Seller and each of its subsidiaries is not currently, has not been
within the last five years and does not anticipate becoming a "United
States real property holding corporation" within the meaning of Code
Section 897(c).
(s) The liabilities of the Bank will not, as of the Effective Time,
exceed the tax basis of its assets;
(t) 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. Except as set forth in Section 4.11 of the Seller
Disclosure Schedule:
(a) Neither the Seller, any of its subsidiaries, nor any ERISA
Affiliate of the Seller or any of its subsidiaries maintains or contributes
to any "employee pension benefit plan" (the "Seller Pension Plans"), as
such term is defined in Section 3(2) of ERISA, "employee welfare benefit
plan" (the "Seller Benefit Plans"), as such term is defined in Section 3(1)
of ERISA, for the employees of Seller, any of its subsidiaries, or any
ERISA Affiliate of Seller or any of its subsidiaries, and neither Seller
nor any of its subsidiaries maintains or contributes to any stock option
plan, stock purchase plan, deferred compensation plan, other employee
benefit plan for employees of the Seller or any subsidiary thereof, or any
other plan, program or arrangement of the same or similar nature that
provides benefits to non-employee directors of the Seller or any subsidiary
thereof (collectively, the "Seller Other Plans").
(b) The Seller shall have delivered or made available to the Buyer
prior to, or contemporaneously 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 (including all amendments, if any);
(ii) trust agreement or insurance contract, if any; (iii) most recent IRS
determination letter, if any; (iv) most recent financial statements and
actuarial report, if any;(v) most recent annual report on Form 5500
(including all schedules thereto), if any; and (vi) summary plan
description currently in effect and all material modifications thereto, if
any, and any written communications to employees to the extent the
substance of the plan described therein differs materially from the other
documentation relating to such plan furnished by Seller to Buyer hereunder.
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(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) Neither Seller, any of its subsidiaries, any of their ERISA
Affiliates, nor any plan administrator of a Seller Pension Plan subject to
Title IV of ERISA has given notice of intent to terminate such plan, nor,
to the knowledge of Seller or any of its subsidiaries, has the PBGC
instituted proceedings to terminate any such plan.
(e) Neither Seller, any of its subsidiaries, nor any of their ERISA
Affiliates has incurred any liability to the PBGC (other than for premium
payments that are not yet due), to any Seller Pension Plan subject to Title
IV of ERISA, or to any trustee under Section 4042 of ERISA, on account of
the termination of or withdrawal as a contributing employer from, any
Seller Pension Plan, which liability has not been satisfied in full as of
the date of this representation.
(f) 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.
(g) There has been no reportable event within the meaning of Section
4043(c) of ERISA (except for any such event, notice of which has been
waived by PBGC regulation) or any waived funding deficiency within the
meaning of Section 412(d)(3) (or any predecessor section) of the Code with
respect to any Seller Pension Plan.
(h) There is no "accumulated funding deficiency" (within the meaning
of Section 302 of ERISA and Section 412 of the Code), whether or not
waived, with respect to any Seller Pension Plan. The Seller, its
subsidiaries, and their ERISA Affiliates have made all contributions to the
Seller Pension Plans and Seller Benefit Plans required thereunder as of the
date of this representation, and have established adequate reserves on
their books for all contributions to Seller Pension Plans and Seller
Benefit Plans required thereunder for the period prior to the date of this
representation, to the extent such contributions are not required to have
been made, and have not been made, prior to the date of this
representation.
(i) Neither the Seller, any of its subsidiaries, nor any of their
ERISA Affiliates has, since September 2, 1974, contributed to any
"Multiemployer Plan," as such term is defined in Section 3(37) of ERISA.
(j) 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 Seller is not aware of any fact or circumstance which would
adversely affect the qualified status of any such plan.
(k) Neither the Seller nor any of its subsidiaries has engaged in a
prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) which could have a Material Adverse Effect on
Seller or its subsidiaries.
(l) There are no material pending or, to the knowledge of the Seller,
threatened or anticipated claims by or on behalf of any of the Seller
Pension Plans, Seller Benefit Plans, or Seller Other Plans, by any employee
or beneficiary covered under any such plan, or otherwise involving such
plan, other than routine claims for benefits or actions seeking qualified
domestic relations orders.
(m) Neither Seller, any of its subsidiaries, nor any of their ERISA
Affiliates 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 benefits other than health
benefit continuation rights under federal or state law, 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.
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4.12 Agreements with Banking Authorities. Except as disclosed in Section
4.12 of the Seller Disclosure Schedule, neither the Seller nor any of its
subsidiaries is a party to any commitment letter, written agreement, memorandum
of understanding or order to cease and desist with, or has adopted any
resolutions at the request of, any federal or state governmental entity charged
with the supervision or regulation of savings associations, savings and loan
holding companies, banks or bank holding companies or engaged in the insurance
of savings association or 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.
4.13 Material Agreements. Except as set forth in the index of exhibits in
Seller's Annual Report on Form 10-K for the year ended September 30, 1995 or in
Seller's Quarterly Reports for the fiscal quarters ended December 31, 1995,
March 31, 1996 and June 30, 1996 or as otherwise disclosed in Section 4.13 of
the Seller Disclosure Schedule, and except for this Agreement and the agreements
specifically referred to herein, neither the Seller nor any of its subsidiaries
is a party to or is bound by (a) any agreement, arrangement, or commitment
(other than contracts entered into in the ordinary course of the Bank's banking
business that are consistent with past practice and have terms of not more than
one year and require payments by the Seller or any subsidiary of not more than
$100,000 annually); (b) any written or oral agreement, arrangement, or
commitment relating to the employment (including severance) of any person; (c)
any contract, agreement, or understanding with any labor union; or (d) any other
contract or agreement or amendment thereto that would be required to be filed as
an exhibit to a Form 10-K filed by the Seller as of the date hereof or is
otherwise material to the business, operations, results of operations or
condition of the Seller on a consolidated basis.
4.14 Ownership of Property. Except as disclosed in Section 4.14 of the
Seller Disclosure Schedule, the Seller and its subsidiaries have good and, as to
real property, marketable title to all assets and properties, whether real or
personal, tangible or intangible (including, without limitation, the capital
stock of its subsidiaries and all other assets and properties), reflected on the
Seller Balance Sheet, 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 the Seller Balance Sheet or the notes
thereto or incurred in the ordinary course of business after the date of such
balance sheet, (b) statutory liens for amounts not yet delinquent or which are
being contested in good faith, (c) those items that secure public or statutory
obligations or any discount with, borrowing from, or other obligations to any
Federal Reserve Bank, Federal Home Loan Bank, inter-bank credit facilities, or
any transaction by the Seller or any subsidiary acting in a fiduciary capacity,
and (d) such encumbrances, liens, mortgages, security interests, and pledges
that are not in the aggregate material to the Seller on a consolidated basis.
The Seller and its subsidiaries as lessees have the right under valid and
existing leases to use, possess and control all of the personal property and
real estate leased by Seller and its subsidiaries as presently used, possessed
and controlled by the Seller and its subsidiaries.
4.15 Reports. Except as disclosed in Section 4.15 of the Seller
Disclosure Schedule, since January 1, 1993, the Seller and its subsidiaries have
timely filed, and subsequent to the date hereof will timely 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, (b) the OTS, (c) the FDIC, and (d) any applicable state securities
or banking authorities (except, in the case of state securities authorities, no
such representation is made as to filings which are not material) (and all such
reports, registrations and statements have been made available by Seller to
Buyer and 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. As of their
respective dates, the Seller Reports 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. Except as disclosed in Section 4.16
of the Seller Disclosure Schedule, Seller and its subsidiaries hold all material
licenses, franchises, permits and authorizations
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necessary for the lawful conduct of Seller's consolidated business, and each of
the Seller, its subsidiaries and each "institution-affiliated party" of Seller
or the Bank, as such term is defined in Section 3(u) of the FDIA, 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 its business on
a consolidated basis or any such institution-affiliated party, other than where
such default or noncompliance does not have and could not reasonably be expected
to have a Material Adverse Effect on Seller or otherwise materially adversely
affect Seller's or the Bank's ability to perform its obligations under this
Agreement or otherwise result in the imposition of CMPs on the Seller, the Bank
or any such institution-affiliated party, and neither the Seller nor the Bank
has received notice of any violation of, or commencement of any proceeding in
connection with any violation (including without limitation any hearing or
investigation relating to the imposition or contemplated imposition of CMPs) of
any such law, statute, order, rule, regulation, policy or agreement, which could
have any such result.
4.17 Environmental Matters. Except as disclosed in Section 4.17 of the
Seller Disclosure Schedule, Seller and its subsidiaries are in compliance and
have always been in compliance with all environmental laws, rules, regulations
and standards promulgated, adopted or enforced by the EPA and of similar
agencies in states in which they conduct their respective business, except for
any noncompliance that singly or in the aggregate would not have a Material
Adverse Effect on Seller. 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
Seller, threatened by any person, as to which there is a reasonable probability
of an adverse determination and which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect on Seller (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 Seller or any subsidiary of Seller or in which Seller or any Seller
subsidiary has a lien or other security interest.
4.18 Antitakeover Statutes Not Applicable. Assuming the accuracy of
Buyer's representation in Section 3.14 above, no "fair price," "moratorium,"
"control share acquisition" or other form of antitakeover statute or regulation
is applicable to the transactions contemplated by this Agreement.
4.19 Ownership of Buyer Common Stock. 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 or DPC Shares).
4.20 Insurance. Except as disclosed in Section 4.20 of the Seller
Disclosure Schedule, the Seller and each of its subsidiaries is presently
insured, and since January 1, 1993 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.
4.21 Labor. No work stoppage involving the Seller or any of its
subsidiaries is pending or, to the best knowledge of the Seller, threatened.
Except as disclosed in Section 4.21 of the Seller Disclosure Schedule, neither
the Seller nor any of its subsidiaries is involved in, or, to the best knowledge
of the Seller, threatened with or affected by, any dispute, arbitration, lawsuit
or administrative proceeding relating to labor or employment matters which might
reasonably be expected to result in a Material Adverse Effect with respect to
the Seller. No employees of the Seller or any of its subsidiaries are
represented by any labor union, and, to the best knowledge of the Seller, no
labor union is attempting to organize employees of the Seller or any of its
subsidiaries.
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 any of its subsidiaries.
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4.23 Absence of Registration Obligations. Neither the Seller nor any of
its subsidiaries is under any obligation, contingent or otherwise, by reason of
any agreement to register or otherwise issue any of its securities which will
continue after the Effective Time.
4.24 Loans. All currently outstanding loans of, or current extensions of
credit by, Seller or the Bank (individually, a "Loan," and collectively, the
"Loans") were solicited, originated and currently exist in compliance with all
applicable requirements of federal and state statutory and common law and
regulations and regulatory policies promulgated thereunder, except to the extent
that any such non-compliance, individually or in the aggregate, would not have a
Material Adverse Effect with respect to Seller. Except as disclosed in Section
4.24 of the Seller Disclosure Schedule, 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 where the failure thereof,
individually or in the aggregate, would not have a Material Adverse Effect with
respect to Seller. There are no oral modifications or amendments or additional
agreements related to the Loans that are not reflected in Seller's records, no
claims of defense as to the enforcement of any Loan has been asserted and Seller
has committed no acts or omissions which would give rise to any claim or right
of rescission, set-off, counterclaim or defense, except where any of the
foregoing would not have, either individually or in the aggregate, a Material
Adverse Effect with respect to Seller. Seller currently maintains, and shall
continue to maintain, an allowance for loan losses allocable to the Loans which
is adequate to provide for all known and estimable losses, net of any recoveries
relating to such extensions of credit previously charged off, on the Loans, such
allowance for loan losses complying in all material respects with all applicable
loan loss reserve requirements established in accordance with GAAP and by any
governmental authorities having jurisdiction with respect to Seller or any of
its subsidiaries, except to the extent that any such inadequacy or
non-compliance would not have, either individually or in the aggregate, a
Material Adverse Effect with respect to Seller. Except as disclosed in Section
4.24 of the Seller Disclosure Schedule, (i) 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 and (ii) no Loan has been
sold with continuing recourse liability on the part of Seller or any of its
subsidiaries.
4.25 Investment Securities. Except as disclosed in Section 4.25 of the
Seller Disclosure Schedule, none of the investments reflected in the
consolidated balance sheet contained in Seller's Quarterly Report on Form 10-Q
filed with the SEC for the quarter ended June 30, 1996, and none of the
investments made by the Seller or the Bank since June 30, 1996, is subject to
any restriction (contractual, statutory or otherwise) that would materially
impair the ability of the entity holding such investment freely to dispose of
such investment at any time, except to the extent that any such restriction
would not have, either individually or in the aggregate, a Material Adverse
Effect with respect to Seller. Seller and the Bank have (a) properly reported as
such any investment securities which are required under GAAP to be classified as
"available for sale" at fair value, and (b) accounted for any decline in the
market value of its securities portfolio in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 115, including
without limitation the recognition through the Seller's consolidated statement
of income of any unrealized loss with respect to any individual security as a
realized loss in the accounting period in which a decline in the market value of
such security is determined to be "other than temporary", except to the extent
that any such failure to so properly report or to so properly account would not
have, either individually or in the aggregate, a Material Adverse Effect with
respect to Seller.
4.26 Derivative Transactions. Except as disclosed in Section 4.26 of the
Seller Disclosure Schedule, neither Seller nor the Bank has engaged in
transactions in or involving forwards, futures, options on futures, swaps or
other derivative instruments.
4.27 Intellectual Property. Seller and the Bank each owns or, to Seller's
knowledge, possesses valid and binding licenses and other rights to use all
material patents, copyrights, trade secrets, trade names, servicemarks and
trademarks used in its businesses, each without payment, and neither Seller nor
the Bank has received any notice of conflict with respect thereto that asserts
the rights of others. Seller and the Bank have performed in all material
respects all the obligations required to be performed by them and are not in
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default in any material respect under any contract, agreement, arrangement or
commitment relating to any of the foregoing.
4.28 Seller Information. The information relating to the Seller and its
subsidiaries to be contained or incorporated by reference in the Buyer
Registration Statement and the 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.
4.29 Disclosure. To the best of Seller's knowledge, 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 Schedules, furnished to the Buyer pursuant to the provisions
hereof, 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. No information believed by Seller to be material to Buyer's
interests in the transactions contemplated by this Agreement, which has not
otherwise been disclosed to Buyer in connection with this Agreement, has been
intentionally withheld from Buyer.
ARTICLE
COVENANTS OF THE PARTIES
5.01 Conduct of Business. During the period from the date of this
Agreement to the Effective Time or for such other period as may otherwise be
expressly provided for below, and except as may be specifically required or
permitted pursuant to this Agreement or as specifically described in Section
5.01 of the Seller Disclosure Schedule, the parties shall comply with the
following applicable requirements:
(a) Seller and the Bank shall, and shall cause each of its
subsidiaries 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, trust and other businesses in
the ordinary and usual course, (ii) refraining from any of the activities
described in Section 5.01(b) below and (iii) not entering into any material
transactions except in the ordinary and usual course of business consistent
with past practices;
(b) Seller and the Bank 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, including without limitation entering into any settlement
agreement or understanding with respect to any material litigation
matters;
(ii) accept, renew or roll over any "brokered deposit" as defined
under 12 C.F.R. 337.6(a)(3) or offer an interest rate with respect to
any deposit that would either constitute an impermissible interest rate
with respect to deposits of an undercapitalized insured depository
institution pursuant to the limitations contained under 12 C.F.R.
337.6(b)(3)(ii) or otherwise set interest rates on deposits that depart
from past practices of the Bank with respect to the setting of interest
rates on deposits;
(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) relocate, or file any application to relocate, any branch
office;
(v) terminate, or give any notice (written or verbal) to customers
or governmental authorities or agencies to terminate the operations of
any branch office; or
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(vi) waive any material right, whether in equity or at law, that it
has with respect to any asset except in the ordinary, regular and usual
course of business consistent with past practice;
(c) each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall use all reasonable efforts, and cause each of its
subsidiaries to use all reasonable efforts, to preserve intact its
respective business organization and goodwill in all material respects,
keep available the services of its respective officers and employees as a
group and maintain satisfactory relationships with its respective
borrowers, depositors, other customers and others having business
relationships with it;
(d) each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall use all reasonable efforts to cooperate with the other
with respect to preparation for the combination and integration of the
businesses, systems and operations of Buyer and Seller, including without
limitation their respective banking subsidiaries, and shall confer on a
regular and frequent basis with one or more representatives of the other to
report on operational and related matters;
(e) each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall, subject to any restrictions under applicable law or
regulation, promptly notify the other of any emergency or other change in
the normal course of its or its subsidiaries' businesses or in the
operation of its or its subsidiaries' 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 assets, properties,
liabilities, business, operations, results of operations or condition
(financial or regulatory) of Buyer or Seller, as the case may be, or any of
its respective subsidiaries;
(f) Seller shall not declare or pay any dividends on or make any other
distributions in respect of the Seller Common Stock, except that Seller
shall be permitted to declare and pay regular quarterly cash dividends to
its stockholders of $0.14 per share for the quarter ending September 30,
1996, $0.16 per share for the quarters ending December 31 and March 31,
1997 and $0.18 per share for the quarter ending June 30, 1997; provided,
however, that in no event shall Seller be permitted to declare or pay any
such regular quarterly cash dividend hereunder greater than $0.14 per share
if the aggregate amount of such dividend would exceed forty percent (40%)
of Seller's net income for the fiscal quarter for which the dividend would
be declared or paid, as such net income is calculated in accordance with
GAAP and then adjusted to include the amount of all non-recurring expenses
incurred by Seller in such fiscal quarter that result from actions taken by
Seller to prepare for or otherwise complete the consummation of the
Acquisition Merger; and provided further, however, that the parties agree
to consult with respect to the amount of the last Seller quarterly cash
dividend payable prior to the Effective Time with the objective of ensuring
that the stockholders of Seller do not receive a shortfall or a premium
based on the record and payment dates of their last dividend prior to the
Effective Time and the record and payment dates of the first dividend of
Buyer following the Effective Time, and that Seller may pay a special
dividend to holders of record of Seller Common Stock immediately prior to
the Effective Time consistent with the objective described herein;
(g) Buyer shall not declare or pay any dividend on or make any other
distribution in respect of the Buyer Common Stock during the Valuation
Period, except that Buyer shall be permitted to declare and pay a cash
dividend to its stockholders for the quarter in which the Valuation Period
occurs or the quarter immediately following thereafter if such dividend
does not exceed, on a per share basis, the dividend paid by Buyer to
stockholders for the immediately preceding quarter or if it does so exceed
such prior dividend then the aggregate amount of such dividend shall not
exceed forty percent (40%) of Buyer's net income for such quarter, as such
net income is calculated in accordance with GAAP and then adjusted to
include the amount of all nonrecurring expenses incurred by Buyer in such
quarter that result from actions taken by Buyer to prepare for or otherwise
complete the consummation of the Acquisition Merger;
(h) neither Seller nor the Bank shall adopt or amend (other than
amendments required by applicable law or amendments that reduce amounts
payable by it or its subsidiaries) 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
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(including, without limitation, contracts with management which might
require that payments be made upon the consummation of the transactions
contemplated hereby, including without limitation the consummation of the
Acquisition Merger) 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 its
subsidiaries' employees as a class, except in the ordinary course of
business consistent with past practices, or pay any bonus except as agreed
to by the parties and disclosed in Section 5.12 of the Seller Disclosure
Schedule;
(i) Seller, subject to its directors' fiduciary duties and obligations
referred to in Section 5.03 below, 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 Acquisition 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;
(j) neither Seller nor the Bank shall propose or adopt any amendments
to its certificate of incorporation or other charter documents or by-laws;
(k) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
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, in the case of Buyer, upon
exercise or fulfillment of options issued or existing immediately prior to
the Valuation Period pursuant to stock option or other plans of Buyer, and,
in the case of Seller, upon exercise or fulfillment of options issued or
existing on the date hereof pursuant to the Seller Stock Option Plans or as
required under the terms of any other Seller Benefit Plans in effect as of
the date hereof and in all such cases listed in Section 4.02(a) of the
Seller Disclosure Schedule, or effect any stock split, reverse stock split,
recapitalization, reclassification or similar transaction or otherwise
change its equity capitalization as it exists, in the case of Buyer, on the
date immediately prior to the commencement of the Valuation Period, and, in
the case of Seller and the Bank, on the date hereof;
(l) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
shall not grant, confer or award any options, warrants, conversion rights
or other rights, not existing, in the case of Buyer, on the date
immediately prior to the commencement of the Valuation Period, and, in the
case of Seller and the Bank, on the date hereof, to acquire any shares of
its capital stock;
(m) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
shall not purchase, redeem or otherwise acquire, or permit any of its
subsidiaries 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;
(n) neither Seller nor the Bank shall impose, or suffer the
imposition, on any share of capital stock held by it or by any of its
subsidiaries of any material lien, charge, or encumbrance, or permit any
such lien, charge, or encumbrance to exist;
(o) neither Seller nor the Bank shall 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, borrowings from the Federal Home Loan
Bank of Boston and entry into repurchase agreements or other similar
arrangements commonly employed by banks;
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(p) neither Seller nor the Bank shall 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, which do not individually exceed $50,000 or
cumulatively exceed $150,000;
(q) Buyer, on the one hand during the Valuation Period, and Seller and
the Bank, on the other hand at all times during the term of this Agreement,
shall not change its methods of accounting in effect, in the case of Buyer,
at December 31, 1995, and, in the case of Seller and the Bank, at September
30, 1995, except as may be required by changes in GAAP as concurred in by
the Seller's and the Buyer's respective independent auditors, and Buyer,
during the Valuation Period, and Seller, at all time during the term of
this Agreement, shall not change its fiscal year;
(r) Each of Buyer, on the one hand, and Seller and the Bank, on the
other hand, shall file all reports, applications and other documents
required to be filed by it with the OTS, FDIC, Federal Reserve Board and
any other federal or state banking or other governmental agency or
authority between the date of this Agreement and the Effective Time and
shall furnish to the other copies of all such reports promptly after the
same are filed;
(s) neither Seller nor the Bank shall make any loan or extension of
credit or enter into any commitment therefor on other than the Bank's
customary terms, conditions and standards and in accordance with applicable
law and regulation and consistent with prudent banking practices, and in
any event shall provide Buyer with monthly reports of all loans, extensions
of credit and commitments therefor equal to or greater than $500,000,
individually, and shall consult with Buyer prior to making or entering into
any new loan, extension of credit or commitment therefor equal to or
greater than $750,000 individually, or which, when aggregated with all
other loans, extensions of credit and commitments therefor to a single
borrower or affiliated group of borrowers equals at least $1,500,000; and
(t) neither Seller nor the Bank nor Buyer shall agree, in writing or
otherwise, to take any of the actions applicable to it prohibited under
this Section 5.01 or any action which would make any of its representations
or warranties contained in this Agreement untrue or incorrect or would
otherwise violate any of its other agreements or commitments contained in
this Agreement in any material respect.
5.02 Access to Properties and Records; Confidentiality.
(a) The Seller shall permit the Buyer reasonable access, upon
reasonable advance notice, to its properties and those of its subsidiaries,
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 its
subsidiaries, 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 use all reasonable efforts to make arrangements
with each third party provider of services to the Seller to permit the
Buyer reasonable access to all of the Seller's Records held by each such
third party. The Buyer shall permit the Seller reasonable access to such
properties and records of the Buyer and/or its subsidiaries in which the
Seller may reasonably have an interest in light of the transactions
contemplated hereby. Neither the Buyer nor the Seller nor any of their
respective subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would violate or
prejudice the rights of any customer, would jeopardize the attorney-client
privilege of the institution in possession or control of such information,
or would contravene any law, rule, regulation, order, judgment, decree or
binding agreement. The parties will use all reasonable efforts to make
appropriate substitute disclosure arrangements under circumstances in which
the restrictions of the preceding sentence apply.
(b) All Confidential Information, as such term is defined below,
furnished by each party hereto to the other, or to any of its affiliates or
to any of its affiliates' directors, officers, employees, or
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representatives or agents (such persons being referred to collectively
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, upon request, 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), and with no other persons, such materials, files and
information relating to or constituting the Buyer's or any of its
affiliates' or Representatives' work product, presentations or evaluation
materials as the Buyer deems reasonably necessary or advisable in
connection with auditing or examination purposes, and Buyer shall not make
use of any such materials, files or information for any other purpose. The
obligation to keep such information confidential shall continue for two
years from the date this Agreement is terminated or as long as may be
required by law. 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
or 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, at the expense of the party who disclosed Confidential Information
to the other party, 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 without the consent of the party providing such
information (including without limitation all information of Seller disclosed or
otherwise utilized by Buyer, with the knowledge of Seller, in connection with
presentations to securities analysts or other investor relations-related
activities), (ii) information that was previously known to the receiving party
or its affiliates or Representatives on a nonconfidential basis prior to its
disclosure by the disclosing party, its affiliates or Representatives, (iii)
information that became or becomes available to the receiving party or any
affiliate or Representative thereof on a nonconfidential basis from a source
other than the disclosing party or any affiliate or Representatives of the
disclosing party, provided that such source is not known by the disclosing party
or its
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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. Neither the Seller nor any of its subsidiaries shall
(and the Seller and each of its subsidiaries shall use all reasonable efforts to
cause its officers, directors, employees, representatives and agents, including,
but not limited to, investment bankers, attorneys and accountants, not to),
directly or indirectly, encourage, solicit, initiate or, subject to the
fiduciary obligations of the Seller's Board of Directors (as advised by outside
counsel), participate in any discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than the Buyer and its affiliates or representatives) concerning any
merger, tender offer, sale of substantial assets, sale of shares of capital
stock or debt securities or similar transaction involving the Seller or any of
its subsidiaries (any of the foregoing being referred to herein as an
"Acquisition Transaction"). Notwithstanding the foregoing, nothing contained in
this Section 5.03 shall prohibit the Seller or its Board of Directors from
taking and disclosing to the Seller's stockholders a position with respect to a
tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act or from making such disclosure to the Seller's
stockholders which, in the judgment of the Board of Directors, with the advice
of outside counsel, may be required under applicable law. 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 twenty-four (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, OTS, DOJ or any other
governmental agency or authority with respect to a proposed Acquisition
Transaction.
5.04 Regulatory Matters; Consents.
(a) The parties will cooperate in connection with (i) the preparation
and filing by the Buyer with the SEC under the Securities Act of a
registration statement on Form S-4 and/or such other form as may be
necessary or appropriate relating to the shares of the Buyer Common Stock
to be issued in connection with the Acquisition Merger (the "Buyer
Registration Statement"), and (ii) the preparation and filing by the Buyer
and the Seller of a joint proxy statement (the "Proxy Statement") as shall
be necessary or desirable in order to consummate the transactions
contemplated by this Agreement, each to be undertaken as promptly as
practicable, and the Buyer and the Seller will use their respective best
efforts to have the Buyer Registration Statement declared effective by the
SEC and to mail the Proxy Statement to the Buyer's and the Seller's
stockholders as promptly as practicable. The parties shall also take any
reasonable action required to be taken under any state "Blue Sky" laws in
connection with the consummation of the transactions contemplated by this
Agreement. In addition to the foregoing, neither party shall take or permit
any of its subsidiaries to take any action that materially adversely
affects its ability to consummate the transactions contemplated under this
Agreement in a timely manner.
(b) Each of the Seller and the Buyer will cooperate with the other and
use its best efforts to prepare all documentation, to effect all filings
and to obtain all permits, consents, approvals and authorizations of all
third parties and governmental bodies necessary or appropriate to
consummate the transactions contemplated by this Agreement as promptly as
practicable, including without limitation that Seller shall use its best
efforts to obtain all of the non-governmental third-party permits,
consents, approvals and authorizations disclosed in Sections 4.03(c) and
4.04 of the Seller Disclosure Schedule. Each party hereto shall have the
right to review and approve in advance all descriptions of it and its
subsidiaries which appear in any filing made in connection with the
transactions contemplated by this Agreement, including without limitation
all filings contemplated by Section 5.04(a) above, with any governmental
body. In exercising the foregoing right, the parties hereto shall act
reasonably and as promptly as practicable.
(c) The Buyer shall take all actions necessary or appropriate to
ensure that all shares of Buyer Common Stock received in the Acquisition
Merger are fully registered on the appropriate form to facilitate sale of
such shares by the holders in accordance with the Securities Act (including
in
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accordance with any applicable exemption from registration requirements) to
the extent customary in transactions of this nature.
5.05 Approval of Stockholders. Each of the Buyer and 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 transactions contemplated hereby, including without limitation
the Acquisition Merger, and, in each case, for such other purposes as may be
necessary or desirable, (b) subject to the fiduciary duties of its Board of
Directors as advised by outside counsel, recommend to its stockholders the
approval of such foregoing matters to be submitted by it to its stockholders,
and (c) cooperate and consult with each other with respect to each of the
foregoing matters. Subject to the fiduciary duties of its Board of Directors as
advised in writing by outside counsel, each of the Buyer and the Seller will use
all reasonable efforts to obtain the necessary approvals of its stockholders of
the proposals described above to be submitted by it in connection with this
Agreement. If the Board of Directors of either party is required by applicable
law to review or restate the recommendation to its stockholders contemplated in
clause (b) of the preceding sentence, this Section 5.05 shall not prohibit
accurate disclosure by a party that is required in any release or regulatory
filing (including the Proxy Statement and the Buyer Registration Statement) or
otherwise under applicable law in the opinion of such party's Board of
Directors, upon the written advice of outside counsel, as of the date of such
release or regulatory filing or such other required disclosure as to the
transactions contemplated hereby or, in the case of the Seller, as to any
Acquisition Transaction.
5.06 Agreements of Seller's Affiliates. The Seller shall identify in a
letter to the Buyer, after consultation with counsel, all persons who, at the
time of the meeting of its stockholders referred to in Section 5.05 hereof, it
believes may be deemed to be "affiliates" of the Seller, as that term is defined
for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Seller Affiliates"). The Seller shall use all reasonable efforts to cause each
person who is identified as a Seller Affiliate in the letter referred to above
to deliver to the Buyer at least forty (40) days prior to the Closing Date an
executed copy of the Seller Affiliates Agreement. Prior to the Closing Date, the
Seller shall amend and supplement such letter and use all reasonable efforts to
cause each additional person who is identified as a Seller Affiliate as of the
Closing Date 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. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
5.08 Disclosure Supplements. On the Closing Date, Seller will supplement
or amend the Seller Disclosure Schedule with respect to any matter hereafter
arising which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in the Seller Disclosure
Schedule or which is necessary to correct any information in the Seller
Disclosure Schedule which has become inaccurate. To the extent that any such
supplement or amendment to the Seller Disclosure Schedules pursuant to this
Section 5.08 discloses the existence of any material misstatement of fact or
other material misrepresentation contained in any of Seller's representations or
warranties as made as of the date of this Agreement or otherwise discloses facts
or circumstances which constitute or have resulted in the occurrence of a
Material Adverse Effect on Seller, Seller's delivery of such supplement or
amendment to Buyer shall have no effect for the purpose of determining Seller's
satisfaction of any of the conditions set forth in Article VI hereof.
5.09 Public Announcements. Except as otherwise required by law or the
rules of the Nasdaq-NM, the Seller and the Buyer will cooperate with each other
in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby.
5.10 Tax-Free Reorganization Treatment. None of the parties hereto or any
of their respective subsidiaries or affiliates has taken, shall take or cause to
be taken any action, whether before or after the
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Effective Time, which would disqualify the Acquisition Merger as a
reorganization within the meaning of Section 368(a) of the Code. Each of the
parties hereto shall use all reasonable efforts to cause the Acquisition Merger
to qualify as a tax-free reorganization under Section 368(a) of the Code and to
obtain the opinions of counsel referred to in Sections 6.02(d) and 6.03(d)
hereof.
5.11 Stock Exchange Listing. The Buyer shall cause the shares of the
Buyer Common Stock to be issued in connection with the Acquisition Merger to be
approved for listing on the Nasdaq-NM, subject to official notice of issuance,
as of or prior to the Effective Time.
5.12 Employment and Benefit Matters.
(a) Termination of Existing Seller Plans; Benefits Service
Credit. Except as otherwise provided herein, Buyer agrees to provide to
those persons who are employees of Seller or any subsidiary of Seller at
the Effective Time and who are employed by Buyer or a subsidiary of Buyer
thereafter with the benefits maintained by Buyer and its affiliates from
time to time for the benefit of their employees similarly situated. Buyer
shall not be required to provide any benefits with respect to persons who
at the Effective Time are former employees or beneficiaries of former
employees of Seller, except as provided under the terms of the governing
documents of the Buyer Pension Plans and Buyer Benefit Plans or as may be
otherwise required under any health benefit continuation rights provisions
of federal or state law. Buyer shall provide all such Buyer benefits as
soon as practicable following the Effective Time. Until such time as Buyer
is able to provide such benefits to such persons (such time being referred
to as the "Transition Date"), Buyer agrees to provide such persons with the
employee benefits set forth in Section 4.11 of the Seller Disclosure
Schedule as maintained for their benefit immediately prior to the Effective
Time. Buyer shall cause each plan, program or arrangement included among
the benefits of Buyer to be provided after the Effective Time, except for
the Buyer's defined benefit pension plan, to treat the prior service of
each such employee with the Seller or its affiliates, to the extent such
prior service is recognized under the comparable plan, program or
arrangement of the Seller, as service rendered to Buyer or its affiliate,
as the case may be, for purposes of eligibility to participate, vesting,
and eligibility for special benefits under each such plan, program or
arrangement of Buyer, but not in any case for benefit accrual attributable
to any period before the Effective Time. Without limiting the foregoing,
Buyer and its affiliates shall not treat any employee of Seller or any of
its affiliates as a "new" employee for purposes of any exclusion under any
health or similar plan of Buyer or any of its affiliates for a preexisting
medical condition. Nothing herein shall impose any obligation upon Buyer
and its subsidiaries to maintain, continue or adopt any employee pension
plans, employee benefit plans, or other benefit arrangements after the
Transition Date, nor prohibit the Buyer or its subsidiaries from amending
any such plan or plans after the Transition Date, to the extent permitted
by the terms of such plans and applicable law.
(b) Additional Benefits Matters. Following the Effective Time, Buyer
shall, or shall cause its subsidiaries to, honor in accordance with their
terms all employment, severance and other compensation contracts between
Seller or any subsidiary thereof and any director, officer or employee
thereof, and all provisions for benefits or other amounts earned or accrued
through the Effective Time under the Seller Pension Plans or the Seller
Benefit Plans. Any employee of Seller or any subsidiary of Seller who
becomes an employee of Buyer or any subsidiary of Buyer immediately
following the Effective Time who is not otherwise covered by an employment,
severance or other compensation agreement and who has been identified by
Buyer within the first six months from and after the Closing Date as an
employee whose employment shall be terminated as a result of Buyer's
consolidation and/or cost-saving efforts in respect of the Acquisition
Merger following the Effective Time, shall be entitled to receive from and
after the date of such employee's termination of employment two weeks of
salary continuation for each full year of prior service with Seller prior
to the Effective Time, such salary continuation to continue for a maximum
period, regardless of such employee's length of such prior service, of
twenty-six weeks. Buyer shall not be obligated under any circumstances to
employ any person who is employed by Seller immediately prior to the
Effective Time. In addition to the foregoing, (i) Buyer has agreed to
provide the employee benefits set forth in Section 5.12 of the Seller
Disclosure Schedule and (ii) those persons who are identified in Section
5.12 of the Seller Disclosure Schedule shall continue to receive, following
any termination of their employment with Buyer or any Buyer subsidiary
following the Effective Time, health
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care continuation coverage under Buyer's appropriate group health plan
until such persons reach the age at which they become eligible to receive
Medicare health coverage; provided, however, that such persons must pay to
Buyer at all times during which they receive such continuing coverage the
same premium amounts as would be required of persons receiving such health
care continuation coverage pursuant to the requirements of COBRA and such
health care continuation coverage shall terminate for any such person at
such time as he becomes eligible to receive substantially equivalent health
care coverage from any other employer after the Effective Time.
5.13 Directors' and Officers' Indemnification and Insurance.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior
to the date of this Agreement, or who becomes prior to the Effective Time,
a director or officer or employee of the Seller or any of Seller's
subsidiaries or a trustee of any Seller Benefit Plans, Seller Pension Plans
or Seller Other Plans (the "Indemnified Parties") is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in
part out of, or pertaining to (i) the fact that he or she is or was a
director, officer or employee of the Seller or any of Seller's subsidiaries
or (ii) this Agreement or any of the transactions contemplated hereby,
whether in any case asserted or arising before or after the Effective Time,
the parties hereto agree to cooperate and use all reasonable efforts to
defend against and respond thereto. It is understood and agreed that prior
to the Effective Time, Seller shall indemnify and hold harmless, and that
from and after the Effective Time the Surviving Corporation shall indemnify
and hold harmless, as and to the fullest extent permitted by applicable
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and
expenses), judgments, fines and amounts paid in settlement in connection
with any such threatened or actual claim, action, suit, proceeding or
investigation. In the event of any such threatened or actual claim, action,
suit, proceeding or investigation (whether asserted or arising before or
after the Effective Time), (i) Seller and, from and after the Effective
Time, the Surviving Corporation shall promptly pay all reasonably
documented expenses in advance of the final disposition of any claim,
action, suit, proceeding or investigation to each Indemnified Party to the
full extent permitted by law, (ii) the Indemnified Parties may retain
counsel mutually satisfactory to them and Seller and, from and after the
Effective Time, the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties within thirty days
after statements therefor are received, and (iii) Seller and, from and
after the Effective Time, the Surviving Corporation will use all reasonable
efforts to assist in the vigorous defense of any such matter; provided,
however, that neither Seller, Buyer nor the Surviving Corporation shall be
liable for any settlement effected without its prior written consent (which
consent shall not be unreasonably withheld); and provided further, however,
that the Surviving Corporation shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and
non-appealable, that indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by applicable law. Any Indemnified
Party wishing to claim indemnification, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify Seller and, from
and after the Effective Time, the Surviving Corporation thereof, provided
that the failure to so notify shall not affect the obligations of Seller,
Buyer or the Surviving Corporation, except to the extent such failure to
notify materially prejudices such party.
(b) Buyer agrees that all rights to indemnification existing in favor,
and all limitations on the personal liability, of any director, officer or
other employee of Seller or any of its subsidiaries provided for in
Seller's certificate of incorporation or by-laws as in effect as of the
date hereof with respect to matters occurring prior to the Effective Time
shall survive the Acquisition Merger and shall continue in full force and
effect in perpetuity. In the event Buyer or the Surviving Corporation or
any of its successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in
each such case, to the extent necessary, proper
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provision shall be made so that the successors and assigns of Buyer or the
Surviving Corporation, as the case may be, assume the obligations set forth
in this Section 5.13.
(c) Buyer shall use all reasonable efforts to cause the persons
serving as officers and directors of the Seller and any subsidiary of
Seller immediately prior to the Effective Time to be covered for a period
of six (6) years from the Closing Date by the directors' and officers'
liability insurance policy maintained as of the date hereof by the Seller
(provided that Buyer may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not less
advantageous than such policy) with respect to acts or omissions occurring
at or prior to the Effective Time, which were committed by such officers
and directors in their capacity as such; provided, however, that if such
coverage cannot be obtained at a total cost to Buyer of not more than
$207,000 then Buyer shall only be required hereunder to obtain such lesser
coverage as may be obtained for such amount.
5.14 Accountants' Letters. Each of the parties shall cause to be
delivered to the other "comfort" letters from its independent public
accountants, dated the date on which the Buyer Registration Statement (or last
amendment thereto) shall become effective and dated the Closing Date, relating
to the information about such party included in the Buyer Registration
Statement, including the Proxy Statement, and addressed to the other party, in
form and substance which is reasonably satisfactory to the receiving party and
customary in transactions of the nature contemplated hereby.
5.15 Maintenance of Records. Through the Effective Time, the Seller will
maintain the Records in the same manner and with the same care that the Records
have been maintained prior to the execution of this Agreement. The Buyer may, at
its own expense, make such copies of and excerpts from the Records as it may
deem desirable. All Records, whether held by the Buyer or the Seller, shall be
maintained for such periods as are required by law, unless the parties shall,
applicable law permitting, agree in writing to a different period. From and
after the Effective Time, the Buyer shall be solely responsible for continuing
maintenance of the Records.
5.16 Leases. Seller shall consult with Buyer before renewing or extending
any lease of Seller or any subsidiary of real property or any material lease of
Seller or any subsidiary relating to furniture, fixtures or equipment or other
personal property , in each case that is currently in effect but that would
otherwise expire on or prior to the Effective Time. Seller shall not cancel,
terminate or take any other action that is likely to result in any cancellation
or termination of any such lease without first consulting with Buyer.
5.17 Bank Merger. To the extent requested by Buyer, Seller shall take,
and cause the Bank to take, all necessary and appropriate actions to effect the
merger of the Bank with and into Buyer's principal banking subsidiary, Vermont
National Bank, on or after the Closing Date, in accordance with the requirements
of all applicable laws and regulations.
5.18 Certain Policies of Seller. At the request of Buyer, after the time
at which all Requisite Regulatory Approvals have been received for the
Acquisition Merger, all other conditions precedent to Seller's obligations under
this Agreement have been satisfied or waived and Buyer has confirmed in writing
that all other conditions precedent to Buyer's obligations under this Agreement
have been satisfied or waived, and prior to the Effective Time, Seller shall
cooperate with Buyer with the objective of modifying and changing its
receivables, loan accrual, charge-off, real estate valuation, loan loss reserve
and investment policies and practices and such other accounting and/or financial
policies and practices as may be requested by Buyer to reflect Buyer's plans
with respect to the conduct of Seller's business following the Acquisition
Merger and to make adequate provision for the cost and expenses relating
thereto. The Seller's representations, warranties and covenants contained in
this Agreement shall not be deemed to be untrue or breached in any respect for
any purpose as a consequence of any modifications or changes undertaken solely
on account of this Section 5.18.
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ARTICLE
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) Stockholders' Approvals. This Agreement and/or the transactions
contemplated hereby shall have been approved by the Buyer Requisite Vote
and the Seller Requisite Vote.
(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 which are necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation the
Acquisition 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 the Buyer Common Stock in connection with
the Acquisition Merger in accordance with all applicable state securities
or blue sky laws.
(c) Buyer Registration Statement. The Buyer Registration Statement
shall have been declared 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 transactions contemplated
by this Agreement shall be in effect.
6.02 Conditions to the Obligations of Buyer Under This Agreement. The
obligations of the Buyer under this Agreement shall be further subject to the
satisfaction or waiver by the Buyer, at or prior to the Effective Time, of the
following conditions:
(a) Absence of Material Adverse Changes. There shall not have
occurred any change since September 30, 1995 in the assets, liabilities,
business, operations, results of operations or condition of the Seller or
any of its subsidiaries which has had, individually or in the aggregate, a
Material Adverse Effect on the Seller.
(b) Representations and Warranties; Performance of Obligations. The
obligations of the Seller to the Bank required to be performed by them at
or prior to the Effective Time pursuant to the terms of this Agreement
shall have been duly performed and complied with and the representations
and warranties of the Seller and the Bank 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
certificates to that effect signed by the chairman or president and the
chief financial officer or chief accounting officer of each of the Seller
and the Bank.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of or notices to 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, made or obtained by the Seller
or the Bank, shall have been so received, made or obtained by the Seller or
the Bank, as applicable, other than permits, consents, waivers, clearances,
approvals, authorizations and notices the failure of which to have
received, made or obtained would neither make it impossible to consummate
the transactions contemplated by this Agreement nor result in any Material
Adverse Effect on the Buyer after the Effective Time.
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(d) Tax Opinion. The Buyer shall have received an opinion dated the
Closing Date from its counsel, Sullivan & Worcester LLP, or other counsel
selected by the Buyer and reasonably acceptable to the Seller,
substantially to the effect that (A) the Acquisition Merger should be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, (B) each of the Buyer and the Seller
should be a party to a reorganization within the meaning of Section 368(b)
of the Code, and (C) no gain or loss should be recognized by the Buyer or
the Seller as a result of the Acquisition Merger. In rendering such
opinion, Sullivan & Worcester LLP shall be entitled to require delivery of,
and to refer to and rely upon, such facts and representations set forth in
certificates received from the Buyer, the Seller, their respective
officers, directors and affiliates, and from the stockholders of the
Seller, as Sullivan & Worcester LLP shall deem necessary or appropriate to
enable it to render such opinion, and the parties hereto agree to use their
respective best efforts to obtain such representations and certificates.
(e) Seller Affiliates Agreements. Seller shall have delivered to
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 Seller as of the Effective Time.
(f) Burdensome Condition. None of the Requisite Regulatory Approvals
shall impose any term, condition or restriction upon Buyer or any Buyer
subsidiary that Buyer in good faith reasonably determines 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 Buyer the consummation of the Acquisition Merger.
(g) Dissenting Shares. The Dissenting Shares, as defined in Section
2.09(c) hereof, shall not represent more than 20% of the shares of Seller
Common Stock issued and outstanding immediately prior to the Effective
Time.
(h) Legal Opinion. Buyer shall have received the opinion of Hale and
Dorr, counsel to Seller and the Bank, dated the Closing Date, in a form
that is customary for transactions of this type.
In addition to the foregoing, the Seller and the Bank will furnish the
Buyer with such additional certificates, instruments or other documents in the
name or on behalf of the Seller or the Bank, as the case may be, executed by
appropriate officers or others, including without limitation certificates or
correspondence of governmental agencies or authorities or nongovernmental third
parties, to evidence fulfillment of the conditions set forth in this Section
6.02 as the Buyer may reasonably request.
6.03 Conditions to the Obligations of Seller and Bank Under This
Agreement. The obligations of the Seller and the Bank under this Agreement
shall be further subject to the satisfaction or waiver by the Seller, at or
prior to the Effective Time, of the following conditions:
(a) Absence of Material Adverse Changes. There shall not have
occurred any change since December 31, 1995 in the assets, liabilities,
business, operations, results of operations or condition (financial or
otherwise) of the Buyer or any of its subsidiaries which has had,
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
Effective Time pursuant to the terms of this Agreement shall have been duly
performed and complied with and the representations and warranties of the
Buyer contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time as
though made at and as of the Effective Time (except as otherwise
specifically contemplated by this Agreement and except as to any
representation or warranty which specifically relates to an earlier date)
and the Seller and the Bank shall have received a certificate to that
effect signed by the executive vice president and chief financial officer
(or other authorized officer(s)) of the Buyer.
(c) Third-Party Approvals. Any and all permits, consents, waivers,
clearances, approvals and authorizations of or notices to all
non-governmental and non-regulatory third parties which are necessary
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in connection with the consummation of the transactions contemplated by
this Agreement and are required to be received, made or obtained by the
Buyer, shall have been so received, made or obtained by the Buyer, other
than permits, consents, waivers, clearances, approvals, authorizations and
notices the failure of which to obtain would neither make it impossible to
consummate the transactions contemplated by this Agreement nor result in a
Material Adverse Effect on the Buyer after the Effective Time.
(d) Tax Opinion. The Seller shall have received an opinion dated the
Closing Date from its counsel, Hale and Dorr, or other counsel selected by
the Seller and reasonably acceptable to the Buyer, substantially to the
effect that (A) the Acquisition Merger should be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, (B) each of the Buyer and the Seller should be a party to a
reorganization within the meaning of Section 368(b) of the Code, and (C)
gain, if any, realized will be recognized by a stockholder of the Seller as
a result of the Acquisition Merger, but not in excess of the amount of cash
received by such stockholder. In rendering such opinion, Hale and Dorr
shall be entitled to require delivery of, and to refer to and rely upon,
such facts and representations set forth in certificates received from the
Buyer and the Seller, their respective officers, directors and affiliates,
and from the stockholders of the Seller, as Hale and Dorr shall deem
necessary or appropriate to enable it to render such opinion, and the
parties hereto agree to use their respective best efforts to obtain such
representations and certificates.
(e) Nasdaq-NM Listing. The shares of the Buyer Common Stock issuable
upon the Effective Time shall have been authorized for listing on the
Nasdaq-NM upon official notice of issuance.
(f) Legal Opinion. Seller shall have received the opinion of Sullivan
& Worcester LLP, counsel to Buyer, dated the Closing Date, in a form that
is customary for transactions of this type.
In addition to the foregoing, the Buyer will furnish the Seller with such
additional certificates, instruments or other documents in the name or on behalf
of the Buyer, executed by appropriate officers or others, including without
limitation certificates or correspondence of governmental agencies or
authorities or nongovernmental third parties, to evidence fulfillment of the
conditions set forth in this Section 6.03 as the Seller may reasonably request.
ARTICLE VII
CLOSING
7.01 Time and Place. Subject to the provisions of Articles VI and VIII
hereof, the closing of the transactions contemplated by this Agreement shall
take place at the Boston, Massachusetts offices of Sullivan & Worcester LLP at
10:00 A.M., local time, on such date that is not later than the fifth business
day after the date on which all of the conditions contained in Article VI hereof
are satisfied or waived; or at such other place, at such other time, or on such
other date as Seller and Buyer may mutually agree upon for such closing to take
place.
7.02 Deliveries at the Closing. Subject to the provisions of Articles VI
and VIII hereof, at the closing contemplated by Section 7.01 above there shall
be delivered to Seller and Buyer and their respective subsidiaries as
applicable, 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 parties' respective 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 either Buyer or Seller, if the Effective Time shall not have
occurred on or prior to November 30, 1997 (the "Termination Date") or such
later date as shall have been agreed to in writing by the Buyer and the
Seller, unless the failure of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe its
agreements herein required to be performed or observed at or prior to the
Effective Time;
(c) by the Buyer or the Seller (i) thirty days after the date on which
any request or application for a Requisite Regulatory Approval shall have
been denied, unless within the thirty-day period following such denial a
petition for rehearing or an amended application has been filed with such
governmental regulatory authority or agency, except that no party shall
have the right to terminate this Agreement pursuant to this clause (i) if
such denial shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe in any material respects the covenants
and agreements of such party set forth herein, or (ii) if any governmental
or regulatory authority or agency, or court of competent jurisdiction,
shall have issued a final permanent order or Injunction enjoining or
otherwise prohibiting the consummation of the transactions contemplated by
this Agreement 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 such order or Injunction shall otherwise have become final
and non-appealable;
(d) by the Buyer or 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 thirty (30) days written
notice thereof is given to the party committing such breach;
(e) by Buyer or 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 either party's stockholders specified in Section 5.05 above
shall not have been obtained by reason of such party's failure to have
obtained the requisite stockholder vote at a duly held meeting of such
party's stockholders or at any adjournment thereof;
(f) by Seller, by action of its Board of Directors, by giving written
notice of such election to Buyer within two business days after the
Valuation Period, in the event the Average Closing Price is less than the
Minimum Price; provided, however, that no right of termination shall arise
under this Section 8.01(f) if Buyer elects within two business days of
receipt of such written notice to increase the Acquisition Price by
notifying Seller in writing that it has elected to utilize the Adjusted
Acquisition Price in lieu of the Acquisition Price that would otherwise be
required under Section 2.09(a) hereof; or
(g) by Buyer if Seller's Board of Directors does not publicly
recommend in the Proxy Statement that Seller's stockholders approve the
proposals submitted to them in accordance with this Agreement, or if after
recommending in the Proxy Statement that Seller's stockholders approve such
proposals, Seller's Board of Directors shall have withdrawn, modified or
amended such recommendation in any respect materially adverse to Buyer.
8.02 Effect of Termination.
(a) 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), 8.02 (if applicable) and 9.01
hereof, which shall remain in full force and effect) and there shall be no
further liability on the part of any of the parties hereto or their
respective officers or directors to the others, except (i) any liability of
any party under said Sections 5.02(b), 8.02 (as may be applicable) 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 party's gross
negligence or willful breach of any material 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.
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(b) As a condition of Buyer's willingness, and in order to induce
Buyer, to enter into this Agreement and to reimburse Buyer for incurring
the costs and expenses related to entering into this Agreement and
consummating the transactions contemplated by this Agreement, Seller shall
make a cash payment to Buyer of $1,000,000 if a Subsequent Triggering Event
occurs at any time after the date hereof and prior to an Exercise
Termination Event (as such terms are defined in Sections 2(b) and 2(e),
respectively, of the Seller Option Agreement). Any payment required under
this Section 8.02(b) shall be (i) payable by Seller to Buyer (by wire
transfer of immediately available funds to an account designated by Buyer)
within five business days after demand by Buyer and (ii) net of any expense
reimbursement paid or to be paid by Seller to Buyer in accordance with
Section 7(a) of the Seller Option Agreement and any other payments made on
or prior to the date of such payment under this Section 8.02(b) by Seller
to Buyer pursuant to the provisions of Section 8.02(a) (but in no event
shall the amount payable under this Section 8.02(b) be less than zero).
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 the approvals of the parties' respective
stockholders contemplated by Section 5.05 above, the parties 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 there may not be, without further approval of the
parties' stockholders, to the extent required by law, any amendment, extension
or waiver of this Agreement which changes the amount or form of the
consideration to be delivered to Seller's stockholders hereunder other than as
may be expressly contemplated by this Agreement. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party, but such waiver or failure to insist on strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
MISCELLANEOUS
9.01 Expenses. Except as otherwise agreed to in Section 8.02 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.
9.02 Non-Survival. None of the representations, warranties, covenants and
agreements of the parties 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 5.10, 5.12, 5.13, 8.02,
9.01 and 9.02, 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:
Eastern Bancorp, Inc.
537 Central Avenue
Dover, New Hampshire 03820
Attention: John A. Cobb
President and Chief Executive Officer
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Copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Edward G. Young, Esq.
(b) If to the Buyer, to:
Vermont Financial Services Corporation
100 Main Street
Brattleboro, Vermont 05302
Attention: John D. Hashagen, Jr.
President and Chief Executive Officer
Copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher Cabot, Esq. and Stephen J. Coukos, Esq.
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
delivered to the recipient party.
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, except for Sections 5.12 and 5.13 above, 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 Entire Agreement. This Agreement, including the documents and other
writing referred to herein or delivered pursuant hereto, including the Seller
Disclosure Schedule, the Seller Option Agreement and the Seller Stockholders'
Agreement, is complete, and all promises, representations, understandings,
warranties and agreements with reference to the subject matter hereof, and all
inducements to the making of this Agreement relied upon by either party hereto,
have been expressed herein. This Agreement (including the aforementioned
documents and writings) supersedes any prior or contemporaneous agreement or
understanding between the parties hereto, oral or written, pertaining to any
such matters, including without limitation the Confidentiality Agreement, which
agreements or understandings shall be of no further force or effect for any
persons.
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
State of Delaware, without giving effect to the principles of conflicts of laws
thereof, and, to the extent applicable, by federal law.
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,
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illegality or unenforceability shall not affect any other provisions of this
Agreement and the parties shall use their best efforts to substitute a valid,
legal and enforceable provision which, insofar as practicable, implements the
purposes and intents of this Agreement.
9.11 Specific Enforceability. The parties recognize and hereby
acknowledge that it is impossible to measure in money the damages that would
result to a party by reason of the failure of either of the parties to perform
any of the obligations imposed on it by this Agreement. Accordingly, if any
party should institute an action or proceeding seeking specific enforcement of
the provisions hereof, each party against which such action or proceeding is
brought hereby waives the claim or defense that the party instituting such
action or proceeding has an adequate remedy at law and hereby agrees not to
assert in any such action or proceeding the claim or defense that such a remedy
at law exists.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Reorganization to be executed as a sealed instrument by their duly authorized
officers as of the day and year first above written.
VERMONT FINANCIAL SERVICES
CORPORATION
By: /s/ JOHN D. HASHAGEN, JR.
------------------------------------
John D. Hashagen, Jr.
President and Chief Executive
Officer
EASTERN BANCORP, INC.
By: /s/ JOHN A. COBB
------------------------------------
John A. Cobb
President and Chief Executive
Officer
VERMONT FEDERAL BANK, FSB
By: /s/ E. DAVID HUMPHREY
------------------------------------
E. David Humphrey
President and Chief Operating
Officer
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EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 13, 1996, between Eastern
Bancorp, Inc., a Delaware corporation (the "Issuer"), and Vermont Financial
Services Corporation, a Delaware corporation (the "Grantee").
WHEREAS, the Grantee, the Issuer and Issuer's wholly owned banking
subsidiary, Vermont Federal Bank, FSB, are entering into an Agreement and Plan
of Reorganization of even date herewith (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 and non-transferable option (the "Option") to purchase, subject to
the terms hereof, up to 732,425 fully paid and nonassessable shares (the "Option
Shares") of common stock, $0.01 par value per share, of the Issuer ("Common
Stock") at a price of $21.00 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
19.9% of the Issuer's issued and outstanding shares of Common Stock (without
giving effect to any shares of Common Stock issuable pursuant to the Option)
less the number of shares, if any, 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 Option Shares shall be increased so that, after
such issuance, it equals 19.9% of the number of shares of Common Stock then
issued and outstanding without giving effect to any shares subject or issued
pursuant to the Option less the number of shares, if any, previously issued
pursuant to exercise of 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) Provided that the Grantee is not in material breach of the
Acquisition Agreement, the Grantee may exercise the Option, in whole or part,
if, but only if, both an Initial Triggering Event (as defined in paragraph (e)
below) and a Subsequent Triggering Event (as defined in paragraph (f) below)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
defined in paragraph (b) below), provided that the Grantee shall have sent the
written notice of such exercise (as provided in paragraph (h) of this Section 2)
within thirty (30) days following such Subsequent Triggering Event and prior to
the Exercise Termination Event.
(b) The term "Exercise Termination Event" shall mean the earliest of (i)
the Effective Time of the Acquisition Merger, (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 or if
such termination is pursuant to Section 8.01(c) or 8.01(f) or by the Issuer
pursuant to Section 8.01(d) thereof, and (iii) except as provided in
subparagraph 2(b)(ii) hereof, 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.
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(c) [THIS PARAGRAPH INTENTIONALLY OMITTED]
(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
(except as contemplated by the Acquisition Agreement), or (C) a purchase or
other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing fifteen percent (15%) 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 fifteen percent (15%) or more of the outstanding
shares of Common Stock if such Person owned beneficially less than fifteen
percent (15%) of the outstanding shares of Common Stock on the date of this
Agreement, or any Person shall have acquired beneficial ownership of an
additional five percent (5%) of the outstanding shares of Common Stock if
such Person owned beneficially fifteen percent (15%) 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 Sections 5.01, 5.03, 5.04 or 5.05 of 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 OTS or 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 24.9% 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) shall be 24.9% in lieu of fifteen
percent (15%).
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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 Grantee to
exercise the Option.
(g) In the event the Grantee 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
forty-five (45) business days from the Notice Date for the closing of such
purchase (the "Closing"); provided that if prior notification to or approval of
the OTS or Federal Reserve Board or any other regulatory agency is required in
connection with such purchase, the Grantee 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; provided, however, that in no event shall
the Closing be more than twelve (12) months after the Notice Date, and if the
Closing shall not have occurred within twelve (12) months after the Notice Date
due to the failure of the Grantee to obtain any such required approval, the
exercise of the Option effected on the Notice Date shall be deemed to have
expired. 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 Grantee 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 Grantee from exercising
the Option.
(i) At such Closing, simultaneously with the delivery of immediately
available funds as provided in paragraph (i) above, the Issuer shall deliver to
the Grantee a certificate or certificates representing the number of shares of
Common Stock purchased by the Grantee and, if the Option should be exercised in
part only, a new Option evidencing the rights of the Grantee thereof to purchase
the balance of the shares purchasable hereunder and in accordance with the
provisions hereof, and the Grantee shall deliver to the Issuer a copy of this
Agreement and a letter agreeing that the Grantee 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
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER 13, 1996, 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 (i) the reference to the resale restrictions of
the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Grantee shall have
delivered to the Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or an opinion of counsel, in form and substance reasonably
satisfactory to the Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(k) Upon the giving by the Grantee to the Issuer of the written notice of
exercise of the Option provided for under paragraph (h) above, the tender of the
applicable purchase price in immediately available funds and
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the tender of a copy of this Agreement to the Issuer, the Grantee 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 Grantee. 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 Grantee
or its assignee, transferee or designee.
3. The Issuer agrees (a) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without requiring the Issuer's
stockholders to approve an increase in the number of authorized shares of Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to purchase Common Stock, (b) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Issuer, and (c) promptly to take all
action as may from time to time be required (including without limitation (i)
complying with all applicable premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec. 18a and regulations promulgated
thereunder and (ii) cooperating fully with any Holders in preparing any
applications or notices required under the Home Owners Loan Act of 1933, as
amended, 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
the Grantee to exercise the Option and the Issuer duly and effectively to issue
shares of Common Stock pursuant hereto.
4. This Agreement and the Option granted hereby are exchangeable, without
expense, at the option of the Grantee, 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 Grantee 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.
5. (a) 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.
(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 in accordance with subsection (b) of this Section 5,
and proper provision shall be made in the agreements governing such
transaction, so that Grantee shall receive upon exercise of the Option the
number and class of shares of Common Stock that 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) Issuer may (but in no event shall be required to) make such
increases in the number of Option Shares, in addition to those required
under subsection (a)(i), 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 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
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of Option Shares prior to the adjustment and the denominator of which is equal
to the number of Option Shares after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, and provided that the Grantee is not
precluded, pursuant to subsection (a) of Section 2 hereof, from exercising the
Option, the Issuer shall, at the request of the Grantee delivered within thirty
(30) days following such Subsequent Triggering Event, promptly prepare, file and
keep current, with respect to the Option and the Option Shares, a "shelf "
registration statement under Rule 415 of the Securities Act or any successor
provision and the Issuer shall use all reasonable efforts to qualify such shares
under any applicable state securities laws. The Issuer will use all reasonable
efforts to cause such registration statement first to become effective and then
to remain effective for such period not in excess of 120 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect sales or other dispositions of Option Shares. The
Grantee shall have the right to demand two (2) such registrations, at least one
of which shall be on Form S-3. The foregoing notwithstanding, if, at the time of
any request by the Grantee for registration of the Option or Option Shares as
provided above, the Issuer is in registration with respect to any underwritten
public offering of share of Common Stock, and if in the good faith judgment of
the managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering, the inclusion of the Option or
Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by the Issuer in such underwritten public offering, the
number of shares represented by the Option and/or the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced (to zero, if necessary or advisable); provided, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable in the good faith judgment of such
underwriters and no reduction shall thereafter occur. The Grantee shall provide
all information reasonably requested by the Issuer for inclusion in any
registration statement to be filed hereunder. If requested by the Grantee in
connection with such registration, the Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for the Issuer.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, and provided that the Grantee is not
precluded, pursuant to subsection (a) of Section 2 hereof, from exercising the
Option, (i) at the request of the Grantee, delivered within thirty (30) days
following such occurrence (or such later period as provided in Section 10), the
Issuer or any successor shall repurchase the Option from the Grantee 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 of the kind described in Section 2(e)(i), (y) the highest closing price
for shares of Common Stock within the shorter of the period from the date of
this Agreement up to the date on which such required repurchase of Options or
Option Shares, as the case may be, occurs or the six (6) month period
immediately preceding the date of such 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 in good faith by a nationally recognized investment banking
firm selected by the
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Grantee and reasonably acceptable to the Issuer, divided by the number of shares
of Common Stock of the Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined in good faith by a nationally recognized investment banking
firm selected by the Grantee and reasonably acceptable to the Issuer.
(b) The Grantee 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 the Grantee 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 after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, the Issuer
shall deliver or cause to be delivered to the Grantee the Option Repurchase
Price and/or 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.
(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 the Grantee and thereafter deliver or
cause to be delivered, from time to time, to the Grantee the portion of the
Option Repurchase Price and/or the Option Share Repurchase Price 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 the
Grantee the Option Repurchase Price and/or the Option Share Repurchase Price in
part or in full (and the Issuer hereby undertakes to use all reasonable 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), the
Grantee may revoke its notice of repurchase of the Option or the Option Shares,
as applicable, either in whole or to the extent of the prohibition, whereupon
the Issuer shall promptly (i) deliver to the Grantee that portion of the Option
Purchase Price or the Option Share Repurchase Price that the Issuer is not
prohibited from delivering with respect to Options or Option Shares as to which
the Grantee has not revoked its repurchase demand; and (ii) deliver, as
appropriate, either (A) a new Stock Option Agreement evidencing the right of the
Grantee 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 Grantee and the
denominator of which is the Option Repurchase Price, or (B) 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, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or any subsidiary of Grantee, and Issuer shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or a subsidiary of Grantee, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property, or the then outstanding shares of Common Stock
shall, after such merger, represent less than 50% of the outstanding 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 Grantee or a
subsidiary of Grantee, 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 Grantee, of either (y) the Acquiring
Corporation (as hereinafter defined) or (z) any corporation or other business
entity that controls the Acquiring Corporation.
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(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 Issuer (if other
than Issuer), (B) Issuer in a merger in which Issuer is the continuing or
surviving person, and (C) the transferee of all or substantially all of
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 Section 7.
(iv) The term "Average Price" shall mean the average closing price of
a share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of the Substitute Common Stock
on the day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls such person, as the
Grantee 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 Grantee
than, the terms of the Option. The issuer of the Substitute Option shall also
enter into an agreement with the Grantee 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 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option (without giving effect to any shares of Substitute Common
Stock issued pursuant to the Substitute Option) less the number of shares, if
any, previously issued pursuant to the Substitute Option. In the event that the
Substitute Option would be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this clause (e),
the issuer of the Substitute Option (the "Substitute Option Issuer") shall make
a cash payment to the Grantee equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). The difference in value shall be determined by a
nationally recognized investment banking firm selected by the Grantee.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any corporation or other
business entity that controls the Acquiring Corporation shall have assumed in
writing all the obligations of Issuer hereunder.
9. (a) At the request of the Grantee, as the holder of the Substitute
Option (referred to herein as 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 the Grantee as the owner (referred
to herein as 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 (y) the Highest Closing Price and (z) the
average exercise price per share paid by the Substitute Share Owner for the
Substitute Shares so designated, plus Grantee's Out-of-Pocket Expenses. The term
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"Highest Closing Price" shall mean the highest closing price for shares of the
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Grantee, as the Substitute Option Holder and/or the Substitute
Share Owner, as the case may be, may exercise its right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or Substitute Share
Owner, as applicable, elects to require the Substitute Option Issuer to
repurchase the Substitute Option and/or the Substitute Shares in accordance with
the provisions of this Section 9. As promptly as practicable, and in any event
within five business days after the surrender of the Substitute Option and/or
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 Grantee, as the Substitute Option Holder, the Substitute
Option Repurchase Price, and/or as 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 the Grantee, as the Substitute Option Holder and/or the
Substitute Share Owner, and thereafter deliver or cause to be delivered, from
time to time, to the Grantee, as the Substitute Option Holder and/or Substitute
Share Owner, as appropriate, that portion of the Substitute Option Repurchase
Price and/or the Substitute Share Repurchase Price which it is no longer
prohibited from delivering, within five business days after the date on which
the Substitute Option Issuer is no longer so prohibited; provided, however, that
if the Substitute Option Issuer is, at any time after delivery of a notice of
repurchase pursuant to subsection (b) of this Section 9 prohibited under
applicable law or regulation, 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 Grantee, as
the Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and/or the Substitute Share Repurchase
Price, 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 Grantee, as the
Substitute Option Holder or Substitute Share Owner, as applicable, 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 Grantee, as the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share Repurchase Price that
the Substitute Option Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) 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) 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: (i) in the
manner, and subject to the limitations, provided in Section 2(g) hereof, to the
extent necessary to obtain all regulatory approvals for the exercise of such
rights and for the expiration of all statutory waiting periods; and (ii) to the
extent necessary to avoid liability under Section 16(b) of the Exchange Act by
reason of such exercise, provided that notice of intent to exercise such rights
shall be given to the Issuer within the requisite thirty (30) day period and the
Grantee shall use all reasonable efforts to promptly obtain all requisite
approvals and cause the expiration of all requisite waiting periods.
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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,
enforceable against it in accordance with its terms, except that
enforcement thereof may be limited by the receivership, conservatorship and
supervisory powers of bank regulatory agencies generally as well as
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally and except that
enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) and the availability of equitable remedies.
(b) The Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of
Common Stock at any time and from time to time issuable hereunder, and all
such shares, upon issuance pursuant hereto, will be duly authorized,
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 and
the Grantee is not precluded, pursuant to Section 2(a), from exercising the
Option, 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 in any
Option Shares held by the Grantee following any exercise, in whole or in part,
of the Option.
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
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 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 such shares or
other securities to such transferee. The purchase of such shares or other
securities by the Issuer shall be settled within ten (10) business days of the
date of the acceptance of the offer and the purchase price shall be paid to the
Grantee in immediately available funds, provided that, if prior notification to
or approval, consent or waiver of the OTS or 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 shares or other securities covered by an Offeror's Notice or if
the OTS or Federal Reserve Board or any other regulatory authority disapproves
the Issuer's proposed purchase of 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 such shares
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or other securities 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 any
sale by means of a public offering registered under the Securities Act in which
steps are taken to reasonably ensure that no purchaser will own securities
representing more than two percent (2%) of the outstanding shares of Common
Stock of the Issuer or 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. Notwithstanding anything to the contrary herein, in the event that the
Grantee 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 the Option held
by it shall immediately terminate and be of no further force or effect and the
Option Shares held by it shall, at the Issuer's election, be immediately
repurchasable by Issuer at the Option Price. For purposes of this Agreement, a
Related Person of the Grantee means any Affiliate (as defined in Rule 12b-2 of
the rules and regulations under the Exchange Act) of the Grantee and any person
that is required to file a Schedule 13D with the Grantee with respect to shares
of Common Stock or options to acquire the Common Stock.
15. Each of the Grantee and the Issuer will use all reasonable efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation applying to the OTS
or the Federal Reserve Board, as applicable, for approval to acquire the shares
issuable hereunder.
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 Grantee 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 l(a) hereof (as adjusted pursuant to Sections l(b) or 5
hereof), it is the express intention of the Issuer to allow the Grantee 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 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 State of Delaware, 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 or in the Acquisition
Agreement, 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
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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 Stock Option
Agreement to be executed as a sealed instrument on its behalf by its officers
thereunder duly authorized, all as of the day and year first above written.
EASTERN BANCORP, INC.
By:
--------------------------------------
John A. Cobb
President and Chief Executive
Officer
VERMONT FINANCIAL SERVICES
CORPORATION
By:
--------------------------------------
John D. Hashagen, Jr.
President and Chief Executive
Officer
A-53
<PAGE> 137
EXHIBIT B
November 13, 1996
Vermont Financial Services Corporation
100 Main Street
Brattleboro, Vermont 05302
Ladies and Gentlemen:
Each of the undersigned (each a "Stockholder") beneficially owns and has
sole or shared voting power with respect to the number of shares of the common
stock, par value $0.01 per share (the "Shares"), of Eastern Bancorp, Inc., a
Delaware corporation (the "Seller"), indicated opposite such Stockholder's name
on Schedule 1 attached hereto.
Simultaneously with the execution of this letter agreement, Vermont
Financial Services Corporation (the "Buyer"), the Seller and Seller's wholly
owned banking subsidiary, Vermont Federal Bank, FSB, are entering into an
Agreement and Plan of Reorganization (the "Acquisition Agreement") providing,
among other things, for the acquisition of Seller by Buyer by means of a merger
of Seller with and into Buyer (the "Acquisition"). Each of the undersigned
understands that the 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, each Stockholder and the Buyer
agree as follows:
1. Each 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 any meeting of the Seller's stockholders that may be called and held
following the date hereof, for the approval of the Acquisition, as
contemplated under the Acquisition Agreement, and shall vote or cause to be
voted all such Shares, at any such 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. Each Stockholder, while this letter
agreement is in effect, shall support at all times, and recommend for
approval by the Seller's stockholders, the Acquisition, subject only to the
Stockholder's fiduciary obligations as a director of the Seller, to the
extent applicable, and each Stockholder shall conduct himself or herself,
both publicly and privately, in a manner consistent with such support and
recommendation of the Acquisition, subject to the Stockholder's fiduciary
obligations as a director of the Seller as applicable.
2. Each 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 such 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, to members of the
Stockholder's immediate family, trusts or charitable organizations, subject
to the transferee agreeing in writing to be bound by the
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<PAGE> 138
terms of this letter agreement, and (d) such other transfers (subject to
the transferee agreeing in writing to be bound by the terms of this letter
agreement) as may be consented to by the Buyer, which consent shall not be
unreasonably withheld. 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 VERMONT FINANCIAL SERVICES CORPORATION AND THE BENEFICIAL
OWNER OF THESE SHARES AND MAY BE TRANSFERRED ONLY IN COMPLIANCE
THEREWITH. COPIES OF THE ABOVE-REFERENCED AGREEMENT ARE ON FILE AT THE
OFFICES OF VERMONT FINANCIAL SERVICES 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 all
necessary shareholder and governmental approvals, of the Acquisition and
all other transactions contemplated by the Acquisition Agreement.
4. Each Stockholder represents that such Stockholder has the complete
and unrestricted power and the unqualified right to enter into and perform
the terms of this letter agreement. Each 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, each Stockholder represents that such 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 VIII thereof.
6. Each Stockholder has signed this letter agreement intending to be
bound hereby. Each Stockholder expressly agrees that this letter agreement
shall be specifically enforceable in any court of competent jurisdiction in
accordance with its terms against such 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 any Stockholder shall be construed as a waiver of any rights or
remedies of the Buyer with respect to any other Stockholder with respect to
Shares held by such other Stockholder or with respect to any subsequent
breach of the Stockholder or any other 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 State of Delaware, 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.
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.
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<PAGE> 139
Very truly yours,
<TABLE>
<S> <C>
/s/ JOHN A. COBB /s/ E. DAVID HUMPHREY
- -------------------------------------------- --------------------------------------------
John A. Cobb E. David Humphrey
/s/ W. STEVENS SHEPPARD /s/ JAMES M. SUTTON
- -------------------------------------------- --------------------------------------------
W. Stevens Sheppard James M. Sutton
</TABLE>
AGREED TO AND ACCEPTED BY AS
OF THE DATE FIRST ABOVE WRITTEN
VERMONT FINANCIAL SERVICES CORPORATION
By: /s/ JOHN D. HASHAGEN, JR.
----------------------------------------------------
John D. Hashagen, Jr.
President and Chief Executive Officer
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<PAGE> 140
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
SHARES SHARES
BENEFICIALLY SUBJECT TO
NAME OF STOCKHOLDER OWNED* PLEDGE
- -------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
John A. Cobb........................................................ 195,888.64 -0-
E. David Humphrey................................................... 94,441.15 -0-
W. Stevens Sheppard................................................. 57,801 -0-
James M. Sutton..................................................... 363,357 -0-
</TABLE>
- ---------------
* Includes the following numbers of shares subject to stock options: Mr. Cobb:
157,500; Mr. Humphrey: 75,000; Mr. Sheppard: 8,250 and Mr. Sutton: 5,250.
A-57
<PAGE> 141
EXHIBIT C
, 199
Vermont Financial Services Corporation
100 Main Street
Brattleboro, Vermont 05302
Gentlemen:
I have been advised that, as of the date hereof, I may be deemed to be an
"affiliate" of Eastern Bancorp, Inc. ("Seller"), as the term "affiliate" is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"). In accordance with the terms of that certain Agreement and Plan of
Reorganization, dated as of November 13, 1996 (the "Agreement"), by and among
Vermont Financial Services Corporation ("Buyer"), Seller and Seller's wholly
owned banking subsidiary, Vermont Federal Bank, FSB, Seller will be merged with
and into Buyer (the "Merger").
Following the consummation of the Merger, I may receive shares of the
common stock of Buyer, par value $1.00 per share ("Buyer Common Stock"). I would
receive such shares of Buyer Common Stock in exchange for shares of the common
stock of Seller, par value $0.01 per share ("Seller Common Stock"), held by me
immediate prior to the consummation of the Merger.
I represent, warrant and covenant to Buyer that, in the event I receive any
shares of Buyer Common Stock following the Merger:
1. I shall not make any sale, transfer or other disposition of such
shares of Buyer Common Stock in violation of the Act or the Rules and
Regulations.
2. I have carefully read this letter and the Agreement and discussed
its requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of shares of Buyer Common Stock to the extent
I felt necessary, with my counsel or counsel for Seller.
3. I have been advised that the issuance of shares of Buyer Common
Stock to me in accordance with the terms of the Agreement has been
registered with the Commission under the Act. However, I have also been
advised that, since, at the time the Merger was submitted for a vote of the
stockholders of Seller, I may be deemed to have been an affiliate of
Seller, and that the distribution by me of shares of Buyer Common Stock has
not been registered under the Act, that I may not sell, transfer or
otherwise dispose of any shares of Buyer Common Stock issued to me
following the Merger unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act, or (iii) in the
opinion of counsel reasonably acceptable to Buyer, such sale, transfer or
other disposition is otherwise exempt from registration under the Act.
4. Except as may be otherwise contemplated by the Agreement, I
understand that Buyer is under no obligation to register the sale, transfer
or other disposition of shares of Buyer Common Stock by me or on my behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available.
A-58
<PAGE> 142
5. I also understand that stop transfer instructions will be given to
Buyer's transfer agents with respect to the Buyer Common Stock and that
there will be placed on the certificates for the shares of Buyer Common
Stock issued to me, or any substitutions therefor, a legend stating in
substance:
The shares represented by this certificate were issued in a transaction
to which Rule 145 promulgated under the Securities Act of 1933 applied.
The shares represented by this certificate may only be transferred in
accordance with the terms of an agreement dated as of ,
199 , between the registered holder hereof and Vermont Financial
Services Corporation, a copy of which agreement is on file at the
principal offices of Vermont Financial Services Corporation.
It is understood and agreed that the legend set forth in paragraph 5 above
shall be removed by delivery of substitute certificates without such legend if
the undersigned shall have delivered to Buyer a copy of a letter from the staff
of the Commission, or an opinion of counsel in form and substance reasonably
satisfactory to Buyer, to the effect that such legend is not required for
purposes of the Act.
Very truly yours,
--------------------------------------
Accepted this day of , 19 , by
VERMONT FINANCIAL SERVICES CORPORATION
By:
----------------------------------------------------
Name:
Title:
A-59
<PAGE> 143
APPENDIX B
April , 1997
The Board of Directors
Eastern Bancorp, Inc.
537 Central Avenue
Dover, New Hampshire 03820
The Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Eastern Bancorp, Inc. ("Eastern") of the
consideration to be paid (the "Merger Consideration") to the shareholders of
Eastern in connection with the proposed acquisition of Eastern by Vermont
Financial Services Corp. ("VFSC") pursuant to the Agreement and Plan of Merger
(the "Merger Agreement") dated November 13, 1996 by and among Eastern, Vermont
Federal Bank, FSB, and VFSC. Pursuant to the Merger Agreement, Eastern will
merge with and into VFSC (the "Merger").
As is more specifically set forth in the Merger Agreement, upon
consummation of the Merger, each outstanding share of the common stock of
Eastern, par value $0.01 per share ("Eastern Common Stock"), except for any
dissenting shares and except for shares held by VFSC and its subsidiaries or by
Eastern and its subsidiaries (in both cases, other than shares held in a
fiduciary capacity or as a result of debts previously contracted), will be
entitled to receive Merger Consideration payable in cash or shares of common
stock, $1.00 par value per share, of VFSC ("VFSC Common Stock") or a combination
of cash and stock, based on the average closing bid price per share of VFSC
Common Stock on the Nasdaq-NM during the 20 day trading period ending on the
fifth business day prior to the effective date of the Merger (the "Average VFSC
Closing Price"), which 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 below. If the Average VFSC Closing Price is equal to
or greater than $39.96, the acquisition price ("Acquisition Price") per share of
Eastern Common Stock will be fixed at $26.83. If the Average VFSC Closing Price
is equal to or greater than $29.54 but not less than $26.06, the acquisition
price per share of Eastern Common Stock shall equal $21.72. If the Average VFSC
Closing Price is less than $26.06, the Acquisition Price shall equal the sum of
$7.25 and the product of 0.5553 times the Average VFSC Closing Price. It should
be noted that, in the event the Average VFSC Closing Price is less than $26.06
per share, then Eastern shall have the right to terminate the Merger Agreement,
unless VFSC elects in its sole discretion to adopt $21.72 as the adjusted
acquisition price.
Eastern shareholders 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.
In addition, upon consummation of the Merger, each stock option with
respect to Eastern Common Stock granted by Eastern under Eastern's stock option
plans (the "Eastern Stock Option Plans") which is outstanding at the Effective
Time, whether or not then exercisable, will receive either (i) an amount equal
to the excess of $24.28 over the per share exercise price of such option, in
cash, or (ii) have such options to purchase Eastern Common Stock converted into
options to purchase shares of VFSC Common Stock in accordance with the
provisions of the Merger Agreement.
The reader is urged to carefully read all the terms of the Merger
Agreement, which is reproduced in its entirety elsewhere in the Proxy
Statement-Prospectus.
McConnell, Budd & Downes, Inc., as part of its investment banking business,
is engaged in the valuation of bank holding companies and banks, thrift holding
companies and thrifts and their securities in connection with mergers and
acquisitions, underwriting, private placements, competitive bidding processes,
market making as a NASD market maker, secondary distributions of listed
securities and valuations for corporate, estate and other purposes. Our
experience and familiarity with Eastern includes having worked as a financial
advisor to Eastern since July of 1995 on a contractual basis and specifically
includes our participation in the process and negotiations leading up to the
proposed transaction with VFSC. Our experience and familiarity with VFSC
includes having worked for VFSC as a financial advisor since 1992 on a
contractual basis. With respect to this specific transaction, however, MB&D has
exclusively represented Eastern, while VFSC engaged an independent financial
advisor. In the course of our role as financial advisor to Eastern in connection
with the transaction we have received fees for our services and will receive
additional fees contingent on the occurrence of certain defined events. We will
receive a fee in connection with the rendering of this opinion. In the ordinary
course of our business, we may, from time to time, trade the equity securities
of
B-1
<PAGE> 144
either or both Eastern and VFSC in our capacity as a NASD market maker, for our
own account, for the accounts of our customers and for the accounts of
individual employees of McConnell, Budd & Downes, Inc. Accordingly we may, from
time to time, hold a long or short position in the equity securities of either
Eastern or VFSC.
In arriving at our opinion, we have reviewed the Merger Agreement and Proxy
Statement -- Prospectus in substantially the form to be mailed to Eastern
shareholders. We have also reviewed publicly available business, financial and
shareholder information relating to Eastern and its subsidiaries, certain
publicly available financial information relating to VFSC and its subsidiaries
and certain financial information relating to Eastern provided by Eastern
management as well as certain financial information relating to VFSC provided by
VFSC management. In addition, we have reviewed certain other information,
including internal reports and documents of Eastern and certain management
prepared financial information provided to us by VFSC. We have also met with and
had discussions with members of the senior management of each of Eastern and
VFSC to discuss their past and current business operations, current financial
condition and future prospects. In connection with the foregoing, we have
reviewed the annual reports to stockholders of Eastern for the fiscal years
ended September 30, 1994, 1995 and 1996. In addition we have reviewed the
unaudited financial report of Eastern for the three months ended December 31,
1996. We have similarly reviewed the annual reports of VFSC for the calendar
years ended December 31, 1993, 1994, 1995 and 1996. We have reviewed and studied
the historical stock prices and trading volumes of the common stock of both
Eastern and VFSC as well as the terms and conditions of 21 recent acquisition
transactions involving publicly traded financial institutions conducting
business in the northeast and conditionally compared those transactions to the
proposed acquisition of Eastern by VFSC. We also considered the current state of
and future prospects for the economy of New Hampshire, the economy of Vermont
and the economy of Massachusetts generally and the relevant market areas for
VFSC and Eastern in particular. We have also conducted such other studies,
analyses and investigations as we deemed appropriate under the circumstances
surrounding this proposed transaction.
In the course of our review and analysis we considered, among other things,
such topics as relative capitalization, capital adequacy, profitability,
availability of non-interest income, relative asset quality, adequacy of the
reserve for loan losses and the composition of the loan portfolio of each of
VFSC and Eastern. We also considered estimates of cost savings and (to a lesser
extent) revenue enhancements which might result from a consolidation of VFSC and
Eastern which were provided to us by the management of VFSC and Eastern. In the
conduct of our review and analysis we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial
information provided to us by VFSC and Eastern or otherwise publicly obtainable.
In reaching our opinion we have not assumed any responsibility for the
independent verification of such information or any independent valuation or
appraisal of any of the assets or the liabilities of either VFSC or Eastern nor
have we obtained from any other source, any current appraisals of the assets or
liabilities of either VFSC or Eastern. We have also relied on the management of
Eastern as to the reasonableness of various financial and operating forecasts,
cost savings estimates and of the assumptions on which they are based, which
were provided to us for use in our analyses.
In the course of rendering this opinion, which is being rendered prior to
the receipt of certain required regulatory approvals necessary before
consummation of the transaction, we have assumed that no conditions will be
imposed by any regulatory agency in connection with its approval of the
transaction that will have a material adverse effect on the results of
operations, the financial condition or the prospects of VFSC following
consummation of the transaction.
Based upon and subject to the foregoing, it is our opinion, that as of the
date of this letter, the Merger Consideration is fair to the shareholders of
Eastern from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
By:
------------------------------------
B-2
<PAGE> 145
APPENDIX C
[TUCKER ANTHONY LETTERHEAD]
April , 1997
Board of Directors
Vermont Financial Services Corp.
100 Main Street
Brattleboro, VT 05302
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Vermont Financial Services Corp. (the "Company")
common stock (the "Buyer Common Stock"), par value $1.00, of the consideration
to be paid by the Company to the holders of Eastern Bancorp, Inc. ("Eastern")
common stock (the "Seller Common Stock"), par value $0.01 per share, pursuant to
the Agreement and Plan of Reorganization (the "Agreement") by and between the
Company and Eastern. On the Closing Date, as defined in the Agreement, each
share of Seller Common Stock held by Eastern's shareholders (other than shares
held by dissenting shareholders) shall become and be converted into either (i)
an amount in cash equal to the sum of (x) $7.25 and (y) the product of 0.4900
and the Average Closing Price (such total per share purchase price being
referred to herein as the "Acquisition Price" and such total per share cash
amount being referred to as the "Cash Distribution") or (ii) the number of
shares or fraction of a share of Buyer Common Stock, rounded to the nearest
ten-thousandth of a share, equal to the number obtained by dividing the
Acquisition Price by the Average Closing Price (such number being referred to as
the "Exchange Ratio" or the "Stock Distribution"); provided, however, that if
the Average Closing Price is greater than or equal to $39.96 per share the
Acquisition Price shall equal $26.83 and if the Average Closing Price is less
than or equal to $29.54 per share but greater than or equal to $26.06 per share
the Acquisition Price shall equal $21.72. If the Average Closing Price is less
than $26.06, the Acquisition Price shall equal the sum of (x) $7.25 and (y) the
product of 0.5553 and the Average Closing Price. Notwithstanding the foregoing,
however, if the Average Closing Price is less than $26.06 per share (the
"Minimum Price"), then Eastern shall have the right to terminate the Agreement,
unless the Company elects, in its sole discretion to adopt $21.72 as the
Acquisition Price. The "Average Closing Price" as referenced above shall be
determined by calculating the average of the daily closing bid prices of the
Buyer Common Stock on each of the twenty (20) trading days ending on the fifth
business day prior to the Closing Date. The Company and Eastern have agreed that
the Acquisition Price shall be identical without regard to any election made by
holders of Seller Common Stock to receive Buyer Common Stock or cash.
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 both the Company and Eastern 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. Tucker Anthony has served as financial advisor to
the Company in the negotiation of the Agreement, and will receive a fee from the
Company for those services.
In arriving at our opinion, we have among other things:
(i) Reviewed the Agreement;
(ii) Reviewed certain historical financial and other information concerning the
Company for the five fiscal years ended December 31, 1996, including the
Company's reports on Forms 10-K and 10-Q;
C-1
<PAGE> 146
(iii) Reviewed certain historical financial and other information concerning
Eastern for the five fiscal years ended September 30, 1996 and for the
quarter ended December 31, 1996, including Eastern's reports on Forms
10-K and 10-Q;
(iv) Held discussions with the senior management of the Company and Eastern
with respect to their past and current financial performance, financial
condition and future prospects;
(v) Reviewed certain internal financial data, projections and other
information of the Company and Eastern, 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 Eastern from a financial point of
view with certain of these institutions;
(vii) Compared the consideration to be paid by the Company pursuant to the
Agreement with the consideration paid by acquirors 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 both the Buyer Common Stock and Seller
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.
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 Eastern and have not
attempted to verify any of such information. We have assumed (i) that the
financial projections of the Company and Eastern provided to us with respect to
the results of operations likely to be achieved by each company have been
prepared on a basis reflecting the best currently available estimates and
judgments of the Company's and Eastern'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. We
have also assumed, without independent verification, that the current and
projected aggregate reserves for possible loan losses for the Company and
Eastern 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, Eastern or any of their respective subsidiaries nor did we verify any
of the Company's or Eastern'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. In the absence of applicable
state law authority, the ability of a stockholder to rely on Tucker Anthony's
opinion would be resolved by a court of competent jurisdiction. Resolution of
the question of a stockholder's ability to rely on Tucker Anthony's opinion will
have no effect on the rights and responsibilities of the Board of Directors of
the Company under applicable state law or on the rights and responsibilities of
either Tucker Anthony or the Board under the federal securities laws.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the consideration to be paid by the Company pursuant to the
Agreement is fair to the Company's stockholders from a financial point of view.
Very truly yours,
TUCKER ANTHONY INCORPORATED
C-2
<PAGE> 147
APPENDIX D
TEXT OF DGCL SECTION 262 -- APPRAISAL RIGHTS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Sections 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
D-1
<PAGE> 148
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given; provided that, if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
D-2
<PAGE> 149
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest, which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
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<PAGE> 150
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that it no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
349, L. '96, eff. 7-1-96.)
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<PAGE> 151
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that a corporation may, and in certain cases must, indemnify any
person made a party to any action by reason of the fact that he is or was a
director, officer, employee or agent of the corporation against, in the case of
a nonderivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorney's fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation. This indemnification does not apply, in a derivative action, to
matters as to which it is adjudged that the director, officer, employee or agent
is liable to the Company, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonable entitled to indemnity for expenses, and, in a
nonderivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article Nine of VFSC's Certificate of Incorporation provides that VFSC
shall indemnify each person who is or was an officer or director of VFSC to the
fullest extent permitted by Section 145 of the DGCL.
Article Nine of VFSC's Certificate of Incorporation states that no director
of the Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liability is not permitted under the DGCL as in effect when
such breach occurred.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
*Previously filed.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of November 13, 1996 (incorporated by
reference to Exhibit 2 to VFSC's Report on Schedule 13D dated November 25, 1996;
included as Appendix A to Joint Proxy Statement-Prospectus).*
3.1 Certificate of Incorporation of VFSC (incorporated by reference to Exhibit 3.1 to
VFSC's Report on Form 8-K dated April 23, 1990).*
3.2 Bylaws of VFSC (incorporated by reference to Exhibit 3.2 to VFSC's Report on Form
8-K dated April 23, 1990).*
4 Form of certificate of VFSC Common Stock (not required to be filed under EDGAR).
5 Opinion of Sullivan & Worcester LLP as to legality (filed herewith as Exhibit 5).
8.1 Opinion of Sullivan & Worcester LLP as to tax matters (filed herewith as Exhibit
8.1).
8.2 Opinion of Hale and Dorr LLP as to tax matters (filed herewith as Exhibit 8.2).
10.1 Management Continuity Agreements dated February 9, 1990 between VFSC's predecessor
and each of the following four executive officers:
(a) John D. Hashagen, Jr.
(b) Richard O. Madden
(c) W. Bruce Fenn
(d) Robert G. Soucy
(incorporated by reference to Exhibit 3.2 to VFSC's Annual Report on Form 10-K for
the year ended December 31, 1990).*
</TABLE>
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<PAGE> 152
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.2 Management Continuity Agreement dated March 17, 1994 between VFSC and Louis J.
Dunham. (incorporated by reference to Exhibit 10.1 of VFSC's Annual Report on Form
10-K for the year ended December 31, 1994).*
10.3 Executive Deferred Compensation Agreement dated July 19, 1988 by and between VFSC,
as and for VNB, and W. Bruce Fenn (incorporated by reference to Exhibit 10.2 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.4 Executive Deferred Compensation Agreement dated August 9, 1988 by and between VFSC,
as and for VNB, and Robert G. Soucy (incorporated by reference to Exhibit 10.3 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.5 Executive Deferred Compensation Agreement dated May 13, 1988 by and between VNB and
William H. George (incorporated by reference to Exhibit 10.4 of VFSC's Registration
Statement on Form S-4, File No. 33-72554, filed on December 3, 1993).*
10.6 Executive Deferred Compensation Agreement dated April 11, 1989 by and between VFSC,
as an for VNB, and Richard O. Madden (incorporated by reference to Exhibit 10.5 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.7 Executive Deferred Compensation Agreement dated August 1, 1988 by and between VFSC,
as and for VNB, and John D. Hashagen (incorporated by reference to Exhibit 10.6 of
VFSC's Registration Statement on Form S-4, File No. 33-72554, filed on December 3,
1993).*
10.8 Employment Agreement dated October 19, 1993 by and among United Savings Bank, VFSC
and Kenneth R. Cole (incorporated by reference to Exhibit 10.8 of VFSC's
Registration Statement on Form S-4, File No. 33-72554, filed on December 3, 1993).*
10.9 Agreement of Merger dated February 28, 1990 between Vermont Financial Services
Corp., a Vermont corporation, and VFSC (incorporated by reference to Exhibit 3.2 to
VFSC's Annual Report on Form 10-K for the year ended December 31, 1990).*
10.10 Agreement and Plan of Reorganization dated as of August 24, 1993 Merger dated
February 28, 1990 between West Mass Bankshares, Inc. and VFSC (incorporated by
reference to Exhibit 2.1 of VFSC's Registration Statement on Form S-4, File No.
33-72554, filed on December 3, 1993).*
10.11 Stock Purchase Agreement, dated as of February 26, 1996, between Arrow Financial
Corporation, Arrow Vermont Corporation, Green Mountain Bank and Vermont National
Bank (incorporated by reference to Exhibit 2 to VFSC's 8-K filed on March 18,
1996).*
10.12 Stock Option Agreement dated as of November 13, 1996 (incorporated by reference to
Exhibit 4 to VFSC's Report on Schedule 13D dated November 25, 1996; contained as
Exhibit A in Appendix A to Joint Proxy Statement-Prospectus).*
10.13 Stockholders Agreement dated as of November 13, 1996 among certain stockholders of
Eastern and VFSC (incorporated by reference to Exhibit 99.1 to VFSC's Report on
Schedule 13D dated November 25, 1996; contained as Exhibit B in Appendix A to Joint
Proxy Statement- Prospectus).*
21 Subsidiaries of VFSC (incorporated by reference to Exhibit 22 to VFSC's Annual
Report on Form 10-K for the year ended December 31, 1995).*
22.1 Form of Proxy for Eastern Meeting.*
22.2 Form of Proxy for VFSC Meeting (filed herewith as Exhibit 22.2).
22.3 Opinion of McConnell, Budd & Downes, Inc. (included as Appendix B to the Joint Proxy
Statement-Prospectus; filed herewith).
22.4 Opinion of Tucker Anthony Incorporated (included as Appendix C to the Joint Proxy
Statement- Prospectus; filed herewith).
23.1 Consent of Coopers & Lybrand LLP with respect to VFSC (filed herewith as Exhibit
23.1).
23.2 Consent of KPMG Peat Marwick LLP with respect to Eastern (filed herewith as Exhibit
23.2).
</TABLE>
II-2
<PAGE> 153
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
23.3 Consent of Sullivan & Worcester LLP (included in Exhibit 5 -- filed herewith).
23.4 Consent of Hale and Dorr LLP (included in Exhibit 8.2 -- filed herewith).
23.5 Consent of McConnell, Budd & Downes, Inc. (filed herewith as Exhibit 23.5).
23.6 Consent of Tucker Anthony Incorporated (filed herewith as Exhibit 23.6).
24 Powers of Attorney of certain directors and officers of VFSC.*
99.1 Annual Report of Eastern Bancorp, Inc. for the fiscal year ended September 30,
1996.*
</TABLE>
(b) Financial Statement Schedules -- Not applicable.
(c) Not applicable.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the registrant, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by 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 prospectus pursuant to
Items 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 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 Securities Exchange Act
of 1934, as amended (the "Exchange Act") (and where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act), that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, 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 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> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Vermont Financial Services Corp. has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Brattleboro, State of Vermont, on April 3, 1997.
VERMONT FINANCIAL SERVICES CORP.
By: /s/ JOHN D. HASHAGEN, JR.
------------------------------------
Name: John D. Hashagen, Jr.
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the Registration Statement on Form S-4 relating to the Common
Stock of Vermont Financial Services Corp. has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- ----------------
<C> <S> <C>
/s/ JOHN D. HASHAGEN, JR. President, Director and Chief April 3, 1997
- ---------------------------------------- Executive Officer (Principal
John D. Hashagen, Jr. Executive Officer)
/s/ RICHARD O. MADDEN Executive Vice President, Treasurer April 3, 1997
- ---------------------------------------- and Chief Financial Officer
Richard O. Madden (Principal Financial and Accounting
Officer)
/s/ ANTHONY F. ABATIELL* Director April 3, 1997
- ----------------------------------------
Anthony F. Abatiell
/s/ ZANE V. AKINS* Director April 3, 1997
- ----------------------------------------
Zane V. Akins
/s/ CHARLES A. CAIRNS* Director April 3, 1997
- ----------------------------------------
Charles A. Cairns
/s/ WILLIAM P. CODY* Director April 3, 1997
- ----------------------------------------
William P. Cody
/s/ ALLYN W. COOMBS* Director April 3, 1997
- ----------------------------------------
Allyn W. Coombs
/s/ BEVERLY G. DAVIDSON* Director April 3, 1997
- ----------------------------------------
Beverly G. Davidson
/s/ PHILIP M. DRUMHELLER* Director April 3, 1997
- ----------------------------------------
Philip M. Drumheller
/s/ JAMES E. GRIFFIN* Director April 3, 1997
- ----------------------------------------
James E. Griffin
</TABLE>
II-4
<PAGE> 155
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- ----------------
<C> <S> <C>
/s/ FRANCIS L. LEMAY* Director April 3, 1997
- ----------------------------------------
Francis L. Lemay
/s/ KIMBALL E. MANN* Director April 3, 1997
- ----------------------------------------
Kimball E. Mann
/s/ STEPHAN A. MORSE* Director April 3, 1997
- ----------------------------------------
Stephan A. Morse
/s/ DONALD E. O'BRIEN* Director April 3, 1997
- ----------------------------------------
Donald E. O'Brien
/s/ ROGER M. PIKE* Director April 3, 1997
- ----------------------------------------
Roger M. Pike
/s/ MARK W. RICHARDS* Director April 3, 1997
- ----------------------------------------
Mark W. Richards
*By: /s/ JOHN D. HASHAGEN, JR. April 3, 1997
- ----------------------------------------
John D. Hashagen, Jr.,
Attorney-in-fact
</TABLE>
II-5
<PAGE> 1
Exhibit 8.1
[FORM OF TAX OPINION TO BE DELIVERED BY SULLIVAN & WORCESTER LLP]
[date]
Vermont Financial Services Corp,
100 Main Street
Brattleboro, Vermont 05302
Attention: John D. Hashagen, Jr.
President and Chief Executive Officer
Ladies and Gentlemen:
In connection with the registration by Vermont Financial Services
Corporation, a Delaware corporation ("VFSC"), of shares of Common Stock, par
value $1.00 per share, for issuance in connection with the Agreement and Plan of
Reorganization, dated as of November 13, 1996, by and among VFSC, Eastern
Bancorp, Inc., a Delaware corporation ("Eastern"), and Vermont Federal Bank,
FSB, the wholly owned subsidiary of Eastern and a federal savings bank in stock
form, which agreement, as amended, and all other agreements contemplated
thereby, are collectively referred to herein as the "MERGER AGREEMENT," this
opinion is furnished to you to be filed as Exhibit 8.1 to the Registration
Statement on Form S-4 (Registration No. 333-21023) (the "REGISTRATION
STATEMENT") under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
filed with the Securities and Exchange Commission. Capitalized terms used herein
shall have the same meaning they have in the Registration Statement, except as
otherwise defined herein. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
FACTS. Pursuant to the Merger Agreement, Eastern will be merged with and
into VFSC (the "MERGER"), and the Eastern stockholders will in the Merger
receive a mix of cash and common stock of VFSC in exchange for their Eastern
stock surrendered. In the aggregate, the Eastern stockholders will receive
consideration in the Merger whose composition is at least 50% VFSC Common Stock,
and the balance cash. For federal income tax purposes, the Merger is intended to
qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A)
of the Code.
ASSUMPTIONS. In rendering our opinions, we have with your permission
assumed the accuracy of the following assumptions, and we have assumed that the
Merger will be consummated pursuant to the terms of and in accordance with the
Merger Agreement.
A. The fair market value of the VFSC stock and other consideration received
by an Eastern stockholder in the Merger will be approximately equal to the fair
market value of the Eastern shares surrendered by him in exchange therefor.
<PAGE> 2
Vermont Financial Services Corp.
[date]
Page 2
B. There is no present plan or intention by the stockholders of Eastern who
own, directly or indirectly, a five percent (5%) or greater interest (by value)
in Eastern, and to the best knowledge of the management of Eastern, there is no
present plan or intention on the part of the remaining stockholders of Eastern,
to sell, exchange or otherwise dispose of a number of shares of VFSC stock
received in the Merger that would reduce the Eastern stockholders' ownership of
VFSC stock to a number of shares having a value, as of the date of the Merger,
of less than fifty percent (50%) of the value of all of the formerly outstanding
stock of Eastern as of the same date. For purposes of this assumption, shares of
Eastern stock surrendered by dissenters or exchanged for cash in lieu of
fractional shares of VFSC stock will be treated as outstanding Eastern stock on
the date of the Merger. Moreover, shares of Eastern stock and shares of VFSC
stock held by Eastern stockholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the Merger have been considered in making this
assumption.
C. At the time of the Merger, VFSC has no plan or intention to redeem or
otherwise reacquire any of the VFSC stock to be issued in the Merger.
D. At the time of the Merger, VFSC has no plan or intention to sell or
otherwise dispose of any of the assets of Eastern acquired in the Merger, except
for dispositions made in the ordinary course of business or transfers described
in Section 368(a)(2)(C) of the Code.
E. Following the Merger, VFSC will continue the historic business of
Eastern or use a significant portion of Eastern's business assets in a business.
F. VFSC, Eastern, and the stockholders of Eastern will pay their respective
expenses, if any, incurred in connection with the Merger.
G. There is no intercorporate indebtedness existing between VFSC and
Eastern that was issued, acquired, or will be settled at a discount.
H. Neither VFSC nor Eastern is an "investment company" as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
I. Both the fair market value of Eastern's assets being transferred to VFSC
in the Merger and such transferred assets' aggregate adjusted bases will exceed
the sum of Eastern's liabilities being assumed by VFSC, plus the amount of
liabilities, if any, to which such transferred assets are subject.
J. The liabilities of Eastern assumed by VFSC and the liabilities to which
the transferred assets of Eastern are subject were incurred by Eastern in the
ordinary course of its business.
K. Neither Eastern nor VFSC is under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
<PAGE> 3
Vermont Financial Services Corp.
[date]
Page 3
L. No consideration for the Merger has been or will be provided by VFSC or
any affiliate of VFSC to Eastern or to the stockholders of Eastern other than as
expressly provided for in the Merger Agreement.
M. The payment of cash in lieu of fractional shares of VFSC stock is solely
for the purpose of avoiding the expense and inconvenience to VFSC of issuing
fractional shares and does not represent separately bargained for consideration.
The total cash consideration that will be paid in the Merger to Eastern
stockholders instead of issuing fractional shares of VFSC stock will not exceed
one percent (1%) of the total consideration that will be issued in the Merger to
Eastern stockholders in exchange for their shares of Eastern stock. The
fractional share interests of each holder of Eastern stock will be aggregated,
and no holder of Eastern stock will receive cash in lieu of a fractional share
in an amount equal to or greater than the value of one full share of VFSC stock.
OPINIONS. Based on the foregoing facts and assumptions and assuming the
accuracy thereof, we are of the opinion that for federal income tax purposes:
1. The merger of Eastern with and into VFSC pursuant to the Merger
Agreement will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code.
2. Eastern and VFSC will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by VFSC upon the receipt of
Eastern's assets in the Merger. Code Section 1032(a).
4. No gain or loss will be recognized by Eastern upon the transfer of its
assets to VFSC in the Merger. Code Sections 357 and 361.
5. The basis of Eastern's assets in the hands of VFSC immediately after
the Merger will be the same as the basis of such assets in the hands
of Eastern immediately prior to the Merger. Code Section 362.
6. No gain or loss will be recognized by a VFSC stockholder as a result
of the Merger, and such stockholder's tax basis and holding period in
his VFSC stock will be the same following the Merger as they were
preceding.
No opinion is expressed concerning the consequences to any party of any
matter other than those specifically addressed above. In particular, we express
no opinion with respect to the state or local tax treatment of the Merger.
MISCELLANEOUS. The foregoing opinions are based on the Code as in effect on
the date hereof and administrative and judicial interpretations of it. No
assurance can be given that the
<PAGE> 4
Vermont Financial Services Corp.
[date]
Page 4
Code will not change or that such interpretations will not be revised or amended
adversely, possibly with retroactive effect.
This opinion is not intended to satisfy the opinion required by Section
6.02(d) of the Merger Agreement, which opinion will be delivered at the Closing
and be based upon executed representations made by VFSC, Eastern, and certain
Eastern stockholders.
This opinion is intended solely for the benefit and use of VFSC and its
stockholders, and is not to be used, released, quoted, or relied upon by anyone
else for any purpose (other than as required by law) without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm made therein under the
caption "Legal Matters." In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act or the Rules and Regulations of the Commission promulgated
thereunder.
Very truly yours,
SULLIVAN & WORCESTER LLP
<PAGE> 1
EXHIBIT 8.2
[Hale and Dorr LLP letterhead]
D R A F T
=========
[______], 199[_]
Eastern Bancorp, Inc.
537 Central Avenue
Dover, New Hampshire 03820
Attention: John A. Cobb, President &
Chief Executive Officer
Re: Merger pursuant to Agreement and Plan of Reorganization
by and among Vermont Financial Services Corporation,
Eastern Bancorp, Inc. and Vermont Federal Bank, FSB.
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Reorganization dated as of November 13, 1996 (the "Merger Agreement"),
by and among Vermont Financial Services Corporation, a Delaware corporation
("VFS"), Eastern Bancorp, Inc., a Delaware corporation ("EBC") and Vermont
Federal Bank, FSB, a federal savings bank in stock form (the "Bank"), a wholly
owned subsidiary of EBC. Pursuant to the Merger Agreement, EBC will merge with
and into VFS (the "Merger"). Except as otherwise provided, capitalized terms not
defined herein have the meanings set forth in the Merger Agreement and the
exhibits thereto or in the letters delivered to Hale and Dorr by VFS and EBC and
certain EBC shareholders containing certain representations of VFS and EBC and
the shareholders relevant to this opinion (the "Representation Letters"). All
section references, unless otherwise indicated, are to the United States
Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 2
Eastern Bancorp, Inc.
[_________], 199[__]
Page 2
In our capacity as counsel to EBC in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person or
entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders
-2-
<PAGE> 3
Eastern Bancorp, Inc.
[_________], 199[__]
Page 3
of EBC that are subject to special tax rules, and we express no opinion
regarding the tax consequences of the Merger arising in connection with the
ownership of options or warrants for EBC stock.
On the basis of, and subject to the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. Each of VFS and EBC will be a party to the reorganization within the
meaning of Section 368(b);
3. Gain, if any, realized by a shareholder of EBC, as a result of the
Merger, but not in excess of the cash received by such shareholder, will be
recognized by the shareholders of EBC.
In rendering this opinion, we have assumed that Sullivan and Worcester has
delivered, and has not withdrawn, the opinion provided for in Section 6.02(d).
No opinion is expressed as to any federal income tax consequence of the Merger
except as specifically set forth herein, and this opinion may not be relied upon
except with respect to the consequences specifically discussed herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and further
consent to the use of our name in the Registration Statement in connection with
references to this opinion and the tax consequences of the Merger. In giving
this consent, however, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
HALE AND DORR LLP
-3-
<PAGE> 1
EXHIBIT 22.2
FORM OF VFSC PROXY
(FRONT OF CARD)
VERMONT FINANCIAL SERVICES CORP.
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints John D. Hashagen, Jr., Anthony F. Abatiell
and Richard O. Madden, and each of them, attorneys and proxies with full power
of substitution in each, to vote all of the stock of Vermont Financial Services
Corp. (the "Company") which the undersigned is/are entitled to vote at the
Special Meeting of Stockholders of the Company to be held at The Woodstock Inn,
Woodstock, Vermont, on __________, 1997 at 10:00 a.m. and at any and all
adjournments thereof. All powers may be exercised by a majority of said
proxyholders or substitutes voting or acting, or if only one votes and acts, by
that one. Receipt of the Company's joint Proxy Statement-Prospectus dated
__________, 1997 (the "Proxy Statement") is acknowledged. If not revoked, this
Proxy shall be voted, unless authority specifically to the contrary is provided,
as specified below, and as to any other business which may legally come before
the meeting, in accordance with the recommendation of the Board of Directors. IF
NO SPECIFICATION IS MADE, SUCH SHARES WILL BE VOTED "FOR" THE FOLLOWING
PROPOSAL:
1. To approve and adopt an Agreement and Plan of Reorganization dated
November 13, 1996, as amended (the "Merger Agreement"), by and among the
Company, Eastern Bancorp, Inc. ("Eastern") and Vermont Federal Bank, FSB, and
each of the transactions contemplated thereby, pursuant to which, among other
things, Eastern will be merged with and into the Company and stockholders of
Eastern will receive consideration of cash and/or a certain number of shares of
Company Common Stock, $1.00 par value, in exchange for their shares of Eastern
Common Stock, $0.01 par value, to be determined according to the Exchange Ratio
as set forth and defined in the Merger Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting
(over)
<PAGE> 2
(BACK OF CARD)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" ITEM #1 ABOVE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND
MAY BE REVOKED PRIOR TO ITS EXERCISE
Date _____________________________________
__________________________________________
__________________________________________
__________________________________________
Please sign here exactly as name(s)
appear(s) on the left. When signing as
attorney, executor, administrator,
trustee, guardian, or in any other
fiduciary capacity, give full title. If
more than one person acts as trustee, all
should sign. ALL JOINT OWNERS MUST SIGN.
[ ] I/we plan to attend the Special Meeting: _______________ Number
PLEASE MARK (ON REVERSE SIDE), SIGN AND DATE, AND MAIL
IN THE ENCLOSED POSTAGE PAID ENVELOPE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Vermont Financial Services Corp. on Form S-4 (Registration No. 333-21023) of our
report, dated January 21, 1997, on our audits of the consolidated financial
statements of Vermont Financials Services Corp. and subsidiaries as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996, which report is included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. We also consent to the reference to our
firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Springfield, Massachusetts
April 2, 1997
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Eastern Bancorp, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the joint proxy
statement-prospectus. Our report dated November 8, 1996, except as to note 20
which is as of November 13, 1996, contains an explanatory paragraph that states
that Eastern Bancorp, Inc. adopted in 1995 Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of
FASB Statement No. 65."
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 31, 1997
<PAGE> 1
EXHIBIT 23.5
MCCONNELL, BUDD & DOWNES, INC.
365 SOUTH STREET
MORRISTOWN, NEW JERSEY 07960
201-538-7800
FAX: 201-538-0522
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of the Opinion of McConnell, Budd & Downes,
Inc. on the Form S-4 Registration Statement of Vermont Financial Services Corp.,
("VFSC") to be filed with the Securities and Exchange Commission in connection
with the proposed merger of Eastern Bancorp, Inc. with VFSC and to the
references to our firm as Financial Advisor to Eastern Bancorp, Inc. in the text
of the related Proxy Statement-Prospectus. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission.
McConnell, Budd & Downes, Inc.
By: /s/David A. Budd
-------------------------------
David A. Budd
Managing Director
April 1, 1997
<PAGE> 1
EXHIBIT 23.6
March 27, 1997
Members of the Board of Directors
Vermont Financial Services Corp.
100 Main Street
Brattleboro, Vermont 05301
Members of the Board of Directors
Eastern Bancorp, Inc.
537 Central Avenue
Dover, New Hampshire 03820
Members of the Board:
We hereby consent to the reference to the opinion of our Firm under the
heading "The Merger -- Opinion of Financial Advisors" and to the inclusion of
the foregoing opinion in the Registration Statement of Vermont Financial
Services Corp. on Form S-4 to be filed with the Securities and Exchange
Commission in connection with the proposed merger of Eastern Bancorp., Inc. with
Vermont Financial Services Corp. In giving such consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
TUCKER ANTHONY INCORPORATED
By: /s/Gregory W. Benning
-------------------------------
Gregory W. Benning
Managing Director
