[LETTERHEAD OF CORNERSTONE FINANCIAL CORPORATION]
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Cornerstone Financial Corporation (the "Company"). The Annual Meeting will
be held at the Manchester Country Club, 180 South River Road, Bedford, New
Hampshire, Thursday, August 3, 1995 at 9:00 a.m., Eastern Time.
At the Annual Meeting, stockholders of the Company will consider and
vote upon, in addition to the election of directors and the ratification of
the selection of the Company's independent public accountants, approval of the
Agreement and Plan of Merger, dated as of March 23, 1995 among the Company,
BayBanks, Inc., a Massachusetts corporation ("BayBanks"), and BayBanks, Inc. a
New Hampshire corporation ("BBNH"), a wholly-owned subsidiary of BayBanks (the
"Acquisition Agreement"). Pursuant to the Acquisition Agreement, (i) BBNH will
merge with and into the Company (the "Merger") and (ii) each share of Common
Stock of the Company outstanding immediately prior to consummation of the
Merger, other than shares held by any stockholder who demands and receives
payment of the fair value of his shares pursuant to the applicable provisions
of the New Hampshire Business Corporation Act and certain shares held by
BayBanks, will be converted into and represent the right to receive $8.80. At
the Annual Meeting, if required, stockholders also will vote on a proposal to
approve adjournments of the Annual Meeting for the purpose of soliciting
additional votes on the Acquisition Agreement.
The Board of Directors of the Company unanimously recommends that you
vote in favor of approval of the Acquisition Agreement, which the Board
believes is in the best interests of the Company and its stockholders.
Enclosed is a Notice of Annual Meeting of Stockholders, a Proxy
Statement containing a discussion of the Merger and the other matters to be
considered, a proxy card, the Company's 1994 Annual Report to Stockholders and
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995. Please complete, sign, and date the enclosed proxy card and return it as
soon as possible in the envelope provided. If you decide to attend the Annual
Meeting, you may vote your shares in person whether or not you have previously
submitted a proxy. The Company is seeking the approval of the Acquisition
Agreement by the holders of eighty percent (80%) of all outstanding shares of
Common Stock. As a result, your vote is very important since a failure to vote
will have the same effect as a vote against the Acquisition Agreement.
Your continued support of and interest in Cornerstone Financial
Corporation are sincerely appreciated.
Sincerely,
John M. Terravecchia
President and Chief Executive Officer
CORNERSTONE FINANCIAL CORPORATION
15 EAST BROADWAY
DERRY, NEW HAMPSHIRE 03038
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On August 3, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Cornerstone Financial Corporation (the "Company") will be held at the
Manchester Country Club, 180 South River Road, Bedford, New Hampshire,
Thursday, August 3, 1995 at 9:00 a.m., Eastern Time, for the following
purposes, all of which are more completely set forth in the accompanying
Proxy Statement:
(1) To consider and vote upon the Agreement and Plan of Merger, dated
as of March 23, 1995, among the Company, BayBanks, Inc., a
Massachusetts corporation ("BayBanks"), and BayBanks, Inc., a New
Hampshire corporation ("BBNH"), a wholly-owned subsidiary of
BayBanks (the "Acquisition Agreement"), pursuant to which (i) BBNH
will merge with and into the Company (the "Merger") and (ii) each
share of Common Stock of the Company outstanding immediately prior
to consummation of the Merger, other than shares held by any
stockholder who demands and receives payment of the fair value of
his shares pursuant to the applicable provisions of the New
Hampshire Business Corporation Act and certain shares held by
BayBanks, will be converted into and represent the right to
receive $8.80, as described in the accompanying Proxy Statement
and the Acquisition Agreement which is attached as Annex A
thereto;
(2) To elect three (3) directors for a three-year term and one (1)
director for a two-year term and until their successors are
elected and qualified;
(3) To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31,
1995;
(4) To consider and vote upon a proposal to approve adjournments of
the Annual Meeting to other times and/or places for the purpose of
soliciting additional proxies in the event that there are not
sufficient votes at the time of the Annual Meeting to approve the
Acquisition Agreement; and
(5) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed June 16, 1995, as the voting record
date for the determination of stockholders entitled to notice of and to vote
at the Annual Meeting and at any adjournments thereof. Only those stockholders
of record as of the close of business on that date will be entitled to vote at
the Annual Meeting or at any such adjournments.
Holders of the Company's Common Stock have the right to dissent from the
Merger and to obtain payment for their shares by complying with New Hampshire
Revised Statutes Sections 293-A:13.01 et seq. A copy of Sections 293-A:13.01
et seq. is attached as Annex D to the accompanying Proxy Statement.
By Order of the Board of Directors
Edward D. Bureau
Secretary
Derry, New Hampshire
July ___, 1995
- ------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN
TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING, YOU MAY
VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- ------------------------------------------------------------------------------
CORNERSTONE FINANCIAL CORPORATION
15 EAST BROADWAY
DERRY, NEW HAMPSHIRE 03038
-------------------
PROXY STATEMENT
-------------------
This Proxy Statement is furnished to holders of Common Stock of
Cornerstone Financial Corporation, a bank holding company which holds all of
the stock of Cornerstone Bank. The solicitation of proxies in the enclosed
form is made on behalf of the Board of Directors of the Company. This Proxy
Statement, the attached Notice of Annual Meeting of Stockholders, and the form
of proxy and other documents enclosed herewith are first being mailed to
stockholders on or about July ___, 1995.
The date of this Proxy Statement is July ___, 1995.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <S>
Summary ii
The Annual Meeting 1
Matters to be Considered 1
Shares Outstanding and Entitled to Vote; Record Date 1
Votes Required 1
Voting, Solicitation, and Revocation of Proxies 3
The Merger (Proposal One) 3
General 4
Background of and Reasons for Merger 4
Opinion of Financial Advisor 6
Recommendation of the Board of Directors of the Company 10
Merger Consideration 10
Surrender of Stock Certificates; Payment of Merger Consideration 10
Regulatory Approvals 11
Conditions to the Merger 13
Effective Date and Effective Time 14
Redemption of Debentures 14
Effect on Employee Benefits 15
Interests of Certain Persons in the Merger 15
Business Pending the Merger 17
Option Agreement 19
No Solicitation 22
Certain Federal Income Tax Consequences 22
Accounting Treatment 23
Termination, Amendment, and Waiver 23
Expenses of the Merger and Termination Fee 24
Dissenters' Rights 25
Election of Directors (Proposal Two) 27
General 27
Nominees and Continuing Directors 28
Principal Holders of Voting Securities 30
Executive Officers 30
Executive Compensation and Other Information 31
Stock Option Plans 32
Compliance with Section 16(a) of the Securities Exchange Act of 1934 34
Transactions with Management 34
Independent Public Accountants (Proposal Three) 35
Adjournment of Annual Meeting to Permit Further Solicitation of Proxies (Proposal Four) 35
Annual Report; Quarterly Report on Form 10-Q 35
Incorporation by Reference 36
Stockholder Proposals 36
Other Matters 36
ANNEXES
A. Agreement and Plan of Merger A-1
B. Stock Option Agreement B-1
C. Opinion of Alex Sheshunoff & Co. Investment Banking C-1
D. Sections 293A:13.01 et seq. of New Hampshire Business Corporation Act D-1
</TABLE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and in the documents incorporated herein by reference.
Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained elsewhere in this Proxy Statement and in
the Annexes attached hereto, including the Agreement and Plan of Merger
attached hereto as Annex A, and the information incorporated herein by
reference. Stockholders are urged to read carefully all such information.
The Annual Meeting
The Annual Meeting of Stockholders (the "Annual Meeting") of Cornerstone
Financial Corporation (the "Company") will be held at the Manchester Country
Club, 180 South River Road, Bedford, New Hampshire on Thursday, August 3, 1995
at 9:00 a.m., Eastern Time, and at any adjournments thereof. Only the holders
of record of the outstanding shares of Common Stock, no par value, of the
Company (the "Common Stock") at the close of business on June 16, 1995 (the
"Record Date") will be entitled to notice of and to vote at the Annual
Meeting. At the Record Date, there were 2,109,872 shares of Common Stock
outstanding and entitled to vote. Each share of Common Stock is entitled to
one vote at the Annual Meeting on all matters properly presented thereat.
At the Annual Meeting, stockholders of the Company will be asked to
consider and vote upon (i) a proposal to approve the Agreement and Plan of
Merger dated as of March 23, 1995 among the Company, BayBanks, Inc., a
Massachusetts corporation ("BayBanks") and BayBanks, Inc. a New Hampshire
corporation ("BBNH"), a wholly-owned subsidiary of BayBanks (the "Acquisition
Agreement"); (ii) a proposal to elect three directors for three-year terms and
one director for a two-year term and until their successors are elected and
qualified; (iii) a proposal to ratify the appointment of Price Waterhouse LLP
as the independent public accountants of the Company for the fiscal year
ending December 31, 1995; (iv) a proposal to adjourn the Annual Meeting to
permit the solicitation of additional proxies to vote on the proposal to
approve the Acquisition Agreement, if required; and (v) the transaction of
such other business as may properly come before the Annual Meeting and any
adjournment thereof. The Company is seeking the affirmative vote of eighty
percent (80%) of the outstanding shares of Common Stock, voting in person or
by proxy, to approve the Acquisition Agreement. The vote required for approval
of the Merger and the other proposals to be presented at the Annual Meeting is
discussed under "The Annual Meeting--Votes Required."
As of the Record Date, the directors and officers of the Company and its
subsidiaries and their affiliates in the aggregate beneficially owned 229,180
shares, or 10.9%, of the outstanding Common Stock, excluding shares subject to
stock options. Each of the directors and executive officers of the Company
intends to vote in favor of approval of the Acquisition Agreement, and
directors and executive officers having the right to vote in the aggregate
192,778 shares of Common Stock, or approximately 9% of the presently
outstanding Common Stock, have executed an Affiliate Letter (the "Affiliate
Letter") with BayBanks in which they agreed to vote all shares of Common Stock
they are entitled to vote in favor of approving the Acquisition Agreement and
against approval of any other acquisition proposal. As of the Record Date, a
subsidiary of BayBanks owned beneficially 96,000 shares (4.6% of the
outstanding Common Stock) and intends to vote such shares in favor of approval
of the Acquisition Agreement.
Every stockholder's vote is important. A failure to vote, either by not
returning the enclosed proxy or by checking the "Abstain" box thereon, will
have the same effect as a vote against approval of the Acquisition Agreement.
Parties to the Merger
The Company. The Company is a New Hampshire-chartered bank holding
company registered under the Bank Holding Company Act of 1956, as amended
("BHCA"). The Company was formed in 1982 in order to acquire all of the
capital stock of Derry Bank and Trust Company, now known as Cornerstone Bank
(the "Bank"). The Bank provides a full range of commercial and consumer
banking services through 11 banking offices located in southern New Hampshire.
The Bank has offices in East Hampstead, Candia, Chester and Windham, three
offices in Manchester, two offices in Nashua and two offices in Derry, one of
which is the site of its main office. At March 31, 1995 (unaudited), the
Company had $141.2 million of total assets, $131.2 million of total
liabilities, including $122.2 million of deposits and $9.9 million of
stockholders' equity. At December 31, 1994, the Company had $142.9 million of
total assets, $134.0 million of total liabilities, including $123.3 million of
deposits, and $8.9 million of stockholders' equity.
The executive offices of the Company are located at 15 East Broadway,
Derry, New Hampshire 03038, and its telephone number is (603) 432-9517.
BayBanks. BayBanks is a Massachusetts corporation and a bank holding
company registered under the BHCA. BayBanks was established in 1928 and is one
of the largest bank holding companies in New England. Through its bank and
non-bank subsidiaries it provides a complete range of banking, investment, and
related financial services in the New England region, with particular emphasis
on consumer and middle market business customers. BayBanks has an extensive
banking network with 205 full-service offices and 372 automated banking
facilities serving 153 cities and towns in Massachusetts and two in
Connecticut. As of March 31, 1995 (unaudited), BayBanks had total assets of
$10.8 billion, total deposits of $8.9 billion, and total stockholders' equity
of $814 million.
On December 22, 1994, BayBanks entered into an agreement with NFS
Financial Corp., a New Hampshire-chartered bank holding company ("NFS"),
providing for the acquisition of NFS by BayBanks. The acquisition, which has
been approved by the NFS stockholders, is subject to regulatory approval. NFS
has two federal savings bank subsidiaries, NFS Savings Bank, FSB and Plaistow
Cooperative Bank, FSB. As of March 31, 1995 (unaudited), NFS had total assets
of $618 million, total deposits of $512 million, and total stockholders'
equity of $60 million.
The executive offices of BayBanks are located at 175 Federal Street,
Boston, Massachusetts 02110, and its telephone number is (617) 482-1040.
BBNH. BBNH is a wholly-owned subsidiary of BayBanks incorporated in New
Hampshire in 1975 that has previously been inactive except as a name-holding
company. BBNH's executive offices are located at 175 Federal Street, Boston,
Massachusetts 02110, and its telephone number is (617) 482-1040.
The Merger
The Acquisition Agreement sets forth the terms and conditions under
which BayBanks would acquire the Company and its subsidiaries. BayBanks'
acquisition of the Company will be accomplished through the merger of BBNH
with and into the Company pursuant to the applicable provisions of the New
Hampshire Business Corporation Act ("NHBCA"), with the Company being the
resulting entity (the "Merger") under the name "BayBanks, Inc." Upon
consummation of the Merger, each share of Company Common Stock outstanding
immediately prior thereto (other than shares held by any stockholder who
demands and receives payment of the fair value of his or her shares pursuant
to the applicable provisions of the NHBCA, as discussed under "The Merger--
Dissenters' Rights," and shares held directly or indirectly by BayBanks, other
than shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted in good faith) will be converted into the right to
receive $8.80 in cash without interest (the "Merger Consideration"). As a
result, the Bank will become an indirect subsidiary of BayBanks. In addition,
outstanding options to purchase Common Stock under the Company's stock option
plans will be purchased for an amount equal to the spread between the Merger
Consideration and their respective exercise prices. These options were granted
to directors and officers under the Company's stock option plans on January
21, 1992 (of which options for the purchase of 39,080 shares of Company Common
Stock at an exercise price of $1.00 per share remain outstanding) and June 24,
1993 (of which options for the purchase of 60,670 shares at an exercise price
of $2.75 per share remain outstanding). See "The Merger--General" and
"Election of Directors--Executive and Compensation and Other Information".
Fairness Opinion
Alex Sheshunoff & Co. Investment Banking ("Sheshunoff ") has advised the
Board of Directors of the Company that in its opinion the Merger Consideration
is fair from a financial point of view to the stockholders of the Company. The
full text of Sheshunoff's opinion, dated March 23, 1995, which describes the
procedures followed, assumptions made, matters considered, and limitations on
the review undertaken in connection with Sheshunoff's rendering such opinion,
is attached as Annex C to this Proxy Statement and should be read in its
entirety by stockholders of the Company. See "The Merger--Opinion of Financial
Advisor."
Recommendation of the Board of Directors of the Company;
Background of and Reasons for the Merger
The Board of Directors of the Company has unanimously approved the
Acquisition Agreement and believes that the Merger is in the best interests of
the Company and its stockholders. Accordingly, the Board of Directors of the
Company unanimously recommends that stockholders vote FOR approval of the
Acquisition Agreement.
In reaching its decision, the Board of Directors of the Company
considered, among other things, the relationship between the Merger
Consideration and the market value, book value, and earnings per share of the
Common Stock. The Board of Directors of the Company also considered the
financial and legal ability of potential acquirors other than BayBanks to
acquire the Company and the content of preliminary proposals made by three
other bank holding companies that expressed interest in acquiring the Company.
The Board also considered the long-range prospects and risks of the Company's
business and its financial condition, results of operations, capital levels,
and asset quality. In addition, the Board relied on the opinion of Sheshunoff
that the Merger Consideration is fair to the stockholders of the Company from
a financial point of view. See "The Merger--Background of and Reasons for the
Merger."
Regulatory Approvals; Conditions to the Merger
Consummation of the Merger and related transactions contemplated by the
Acquisition Agreement are subject to the prior receipt of all required
approvals, consents or waivers of (i) the Board of Governors of the Federal
Reserve System (ii) the New Hampshire Board of Trust Company Incorporation,
(iii) the Massachusetts Board of Bank Incorporation, and (iv) all other
governmental authorities or other persons that are necessary or appropriate to
the consummation of the transactions contemplated by the Acquisition
Agreement, in each case without any condition or requirement that, in the
reasonable opinion of BayBanks, would so materially and adversely affect the
economic or business benefit to BayBanks of the transactions contemplated by
the Acquisition Agreement as to render inadvisable the consummation of the
Merger; and the absence of any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which
is then in effect and has the effect of making the Merger illegal or otherwise
restricting, preventing or prohibiting consummation of the transactions
contemplated by the Acquisition Agreement.
In addition to the foregoing conditions, the Acquisition Agreement sets
forth various other conditions to the respective obligations of the Company,
BayBanks and BBNH to consummate the Merger, including among others that, as of
the Effective Time, (i) not more than 200,000 shares of Common Stock be held
by stockholders who have perfected their statutory appraisal rights, (ii) the
Company's total stockholders' equity not be less than $8,921,000, (iii)
neither the Company nor the Bank have a Tier 1 leverage capital ratio of less
than 6.00%, (iv) the total amount of consolidated nonperforming assets and
certain other assets of the Company and its subsidiaries not exceed $5.5
million, and (v) BayBanks have received certain other assurances relating to
corporate and asset quality matters. See "The Merger--Regulatory Approvals"
and "--Conditions to the Merger."
The conditions precedent to consummation of the Merger can be waived by
the benefitted party in its discretion. Neither the Company nor BayBanks has
committed to grant any such waiver.
Effective Time of the Merger
The Merger will become effective at the time and on the date that
articles of merger are filed as required by the NHBCA or on such other date
and time as may be specified in such articles of merger (the "Effective
Time"). Pursuant to the Acquisition Agreement, the Effective Time will only
occur after the receipt of all required regulatory approvals, consents and
waivers, approval of the Acquisition Agreement by the requisite vote of the
stockholders of the Company and the satisfaction or waiver of all other
conditions to the obligations of the parties to consummate the Merger. See
"The Merger--Effective Date and Effective Time."
Interests of Certain Persons in the Merger
In considering the recommendations of the Company's Board of Directors
with respect to the Merger, stockholders should be aware that certain members
of the Board of Directors and management of the Company have certain interests
in the Merger that are in addition to the interests of stockholders generally.
The prospective affiliation with BayBanks may provide expanded employment
opportunities for management. BayBanks has agreed to enter into amended
employment agreements with John M. Terravecchia, Chairman, President and Chief
Executive Officer of the Company and Chairman and Chief Executive Officer of
the Bank; G. Robert Smith, Senior Vice President of the Company and President
and Chief Operating Officer of the Bank; Robert E. Benoit, Vice President,
Treasurer and Chief Financial Officer of the Company and the Bank; and certain
other officers of the Bank. The amended employment agreements contain
provisions relating to continued employment of such persons, the maintenance
of certain employee benefits and the reduction of contractual deferred
compensation payments. The directors and certain officers and key employees of
the Company also hold options for the purchase of an aggregate of 99,750
shares of Common Stock under the Company's stock options plans for which they
will be paid an aggregate of $691,618 upon consummation of the Merger. The
Board of Directors was aware of these interests and considered them, among
other matters, in unanimously approving and adopting the Acquisition Agreement
and the transactions contemplated thereby. See "The Merger--Interests of
Certain Persons in the Merger."
Business Pending the Merger
The Acquisition Agreement contains various covenants of the Company
regarding the conduct of the business of the Company between the date of the
execution of the Acquisition Agreement and the Effective Time. In this regard,
the Company generally is required to conduct its business in the usual,
regular and ordinary course consistent with past practice, as well as to
forebear from taking certain actions without the prior written consent of
BayBanks. See "The Merger--Business Pending the Merger."
Redemption of Debentures
As of June 27, 1995, there were outstanding $155,000 in aggregate
principal amount of 8.75% Convertible Debentures of the Company and $3,353,000
in aggregate principal amount of 7% Convertible Debentures of the Company. The
Acquisition Agreement provides that if so requested by BayBanks, the Company
will take such steps as are necessary to cause the redemption of all
outstanding Company debentures at the Effective Time.
Termination, Amendment and Waiver
The Acquisition Agreement may be terminated, and the Merger abandoned,
either before or after the approval of the stockholders of the Company, under
certain circumstances. Moreover, prior to the Effective Time, any provision of
the Acquisition Agreement may be (i) waived by the party benefitted by the
provision or (ii) amended or modified at any time by an agreement in writing
among the parties approved by their respective Boards of Directors, except
that, after the vote by the stockholders of the Company, no amendment may be
made that reduces or changes the form or amount of compensation payable
pursuant to the Acquisition Agreement without stockholder approval thereof.
See "The Merger--Termination, Amendment and Waiver."
Certain Federal Income Tax Consequences
The Merger will be treated as a taxable sale of the Common Stock of the
Company. Accordingly, none of the Company, BayBanks or BBNH will recognize any
gain or loss as a result of the Merger. Company stockholders will be treated
as if they sold their shares in a fully taxable transaction for the cash they
receive. See "The Merger--Certain Federal Income Tax Consequences."
Dissenters' Rights
Pursuant to Sections 293-A:13.01 et seq. of the NHBCA, holders of Common
Stock who (i) file with the Company prior to the vote on the Merger at the
Annual Meeting a written notice of intention to demand payment for their
shares if the Merger is effected and (ii) do not vote in favor of the Merger,
will be entitled to be paid the fair value of their shares as agreed upon with
the Company or its successor or, if the fair value remains unsettled, as
determined by a New Hampshire court, provided that the Merger is consummated
and such stockholders properly comply with certain statutory procedures. Fair
value of dissenting stock means the value immediately before the Effective
Time, excluding any change in value in anticipation of the Merger if such
exclusion is not inequitable (which amount may be more, less, or the same as
the Merger Consideration). The written notice required to be delivered to the
Company by a dissenting stockholder is in addition to and separate from any
proxy or vote against the Merger. The further procedures which must be
followed in connection with the exercise of dissenters' rights by dissenting
stockholders are described herein under "The Merger--Dissenters' Rights" and
in sections 293-A:13.01 et seq. of the NHBCA, a copy of which is attached as
Annex D to this Proxy Statement. Failure to follow the procedures required to
exercise such rights will result in termination or waiver thereof.
Common Stock Prices
The Common Stock is traded on the Nasdaq National Market under the
symbol "CSTN." On March 22, 1995, the business day prior to the public
announcement of the proposed Merger, the closing sale price of the Common
Stock as reported by the Nasdaq National Market was $6.75 per share. On June
27, 1995, a day shortly prior to the mailing of the Proxy Statement, the
closing sale price of the Common Stock as so reported was $8.375 per share.
The Common Stock consists of shares of common stock originally issued by
Derry Bank & Trust Company, which were converted to shares of common stock of
the Company in the reorganization into a holding company structure in 1982,
and shares of Common Stock subsequently issued by the Company. Shares of
common stock of Derry Bank & Trust Company were originally issued in May 1969
and were the subject of a two-for-one stock split on May 24, 1971. Derry Bank
& Trust Company issued 5% stock dividends on September 30, 1976 and February
29, 1979. The Company's Common Stock was split on a two-for-one basis on two
occasions, October 1, 1983 and January 21, 1987.
For additional information about prices of the Common Stock, see "Market
for Registrant's Common Stock and Related Stockholder Matters--Common Stock
Price Range and Dividends" in the accompanying Annual Report to Stockholders
of the Company.
BayBanks Stock Option
Immediately upon the execution of the Acquisition Agreement and as
contemplated therein, the Company and BayBanks entered into a stock option
agreement (the "Option Agreement") pursuant to which the Company granted to
BayBanks an option (the "Option") to purchase at a price of $6.625 per share
up to 295,000 shares of newly issued Common Stock, which is approximately 14
percent of the shares of Common Stock outstanding as of May 31, 1995. The
Option price is subject to adjustment in the event of certain issuances of
Common Stock. The Option is exercisable upon the occurrence of certain events
that create the potential for a third party to acquire the Company. If the
Option becomes exercisable, BayBanks or any permitted transferee of BayBanks
may under certain circumstances require the Company to repurchase the Option
(in lieu of its exercise). The Company also has a right of first refusal in
certain circumstances to repurchase shares acquired pursuant to the Option.
Stockholder approval of the Acquisition Agreement will also constitute
approval of the Option Agreement. See "The Merger--Option Agreement."
Termination Fee; No Solicitation
In the event the Acquisition Agreement is terminated and certain
circumstances occur involving the acquisition or proposed acquisition of the
Company by another party, the Company may be required to pay BayBanks a
termination fee of $500,000. See "The Merger--No Solicitation" and "--Expenses
of the Merger and Termination Fee."
Subject to the provisions of the Acquisition Agreement, the Company has
agreed that, from the date of the Acquisition Agreement through the Closing
Date, neither the Company nor any of its subsidiaries, nor any of its or their
directors, officers, advisors or other representatives may, directly or
indirectly, without the prior written consent of BayBanks, solicit or
encourage the solicitation from, or, subject to the conditions set forth in
the Acquisition Agreement, engage in negotiation with, any third party
concerning any possible proposal regarding the issuance or sale of Common
Stock or other equity securities of the Company or a merger, consolidation or
sale of substantial assets or other similar transaction involving the Company
or any of its subsidiaries. See "The Merger--No Solicitation."
THE ANNUAL MEETING
The Annual Meeting of Stockholders of the Company will be held at the
Manchester Country Club, 180 South River Road, Bedford, New Hampshire, on
Thursday, August 3, 1995 at 9:00 a.m., Eastern Time and at any adjournment
thereof for the purposes set forth in the Notice of Annual Meeting of
Stockholders.
Matters to be Considered
At the Annual Meeting, stockholders of the Company will consider and
vote upon (i) a proposal to approve the Acquisition Agreement; (ii) a proposal
to elect three directors for three-year terms and one director for a two-year
term and until their successors are elected and qualified; (iii) a proposal to
ratify the appointment of Price Waterhouse LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1995; (iv) a
proposal to adjourn the Annual Meeting to permit the solicitation of
additional proxies to vote on the proposal to approve the Acquisition
Agreement, if required, and (v) the transaction of such other business as may
properly come before the Annual Meeting and any adjournment thereof.
Management is not aware of any such other business.
Shares Outstanding and Entitled to Vote; Record Date
The close of business on June 16, 1995, has been fixed by the Board of
Directors of the Company as the Record Date for the determination of holders
of Common Stock entitled to notice of and to vote at the Annual Meeting and
any adjournments thereof. At the close of business on the Record Date, there
were 2,109,872 shares of Common Stock outstanding and entitled to vote. Each
share of Common Stock entitles the holder thereof to one vote on each matter
to be submitted to stockholders at the Annual Meeting.
As of the Record Date, no person owned of record, or was known to own
beneficially, more than five percent (5%) of the outstanding shares of the
Company's capital stock. Under the rules of the Securities and Exchange
Commission (the "Commission"), BayBanks is deemed to be the beneficial owner
of the 295,000 shares of Common Stock subject to the Option and, together with
96,000 shares of the Common Stock owned by a BayBanks subsidiary, of a total
of 391,000 shares, or approximately 16.3% of the outstanding Common Stock,
giving effect to the exercise of the Option. See "The Merger--Option
Agreement."
Votes Required
A quorum, consisting of a majority of the issued and outstanding Common
Stock, must be present in person or by proxy before any action may be taken at
the Annual Meeting.
Under the generally applicable provisions of the NHBCA, approval of the
Merger would require the affirmative vote of holders of a majority of the
outstanding shares of Common Stock. However, the "Business Combination"
provision of the Company's Articles of Incorporation can be read to require
that a transaction such as a merger of the Company be approved by holders of
at least eighty percent (80%) of the outstanding Company Common Stock unless
the consideration being paid to holders of Common Stock is equal to the
highest price ever paid by the other party or parties to the transaction for
any shares of Company Common Stock. BayBanks purchased 96,000 shares of
Company Common Stock (now held by a separate subsidiary) in 1987 at a higher
price than the $8.80 per share to be paid in Merger. If the Business
Combination provision were to apply to the Merger, the affirmative vote of the
holders of not less than eighty percent (80%) of the outstanding shares of
Common Stock would be required to approve the Acquisition Agreement.
The Company does not believe that this result is clearly required by the
Business Combination provision of the Articles of Incorporation. The shares
which give rise to this question were purchased some eight years ago as a
minority investment wholly unrelated to the Merger and are now held by a
separate subsidiary of BayBanks. Furthermore, applying the Business
Combination provision to the Merger would be inconsistent with its purpose,
which is to discourage a coercive, hostile takeover of the Company. The Merger
is not a coercive or hostile transaction; it was freely negotiated by the
Company and has been unanimously approved by the Company's Board of Directors.
Because the meaning of the Business Combination provision is not clear,
the Company is seeking approval of the Acquisition Agreement by holders of at
least 80% of the outstanding Common Stock. If the proposal to approve the
Acquisition Agreement is approved by the holders of a majority, but less than
80%, of the outstanding Common Stock, the Company would not go forward with
the Merger at that time but would promptly seek a judicial determination that
the Business Combination provision of the Company's Articles of Incorporation
does not apply in this case, which would permit the Merger to take place.
BayBanks also has indicated that it may seek such a determination. There can
be no assurance that such a determination would be made or as to the timing of
any such decision. If the Merger has not become effective by February 28,
1996, the Acquisition Agreement may be terminated by either party, subject to
certain conditions. See "The Merger--Termination, Amendment, and Waiver." If a
judicial determination is not made by that date, either party would be able to
exercise this right of termination. Each party would make that decision in
light of all the circumstances at the time.
Assuming a quorum is present, directors will be elected by a plurality
of the votes cast, and both the proposal to ratify the appointment of Price
Waterhouse LLP as independent public accountants for the fiscal year ending
December 31, 1995 and the proposal to adjourn the Annual Meeting, if required,
to permit the solicitation of additional proxies to vote on the proposal to
approve the Acquisition Agreement will be approved if the votes cast in favor
of thereof exceed the votes cast opposing the proposal.
Under the rules of the Nasdaq National Market, the proposal to approve
the Acquisition Agreement is considered a "non-discretionary item" as to which
brokerage firms may not vote in their discretion on behalf of their clients if
such clients have not furnished voting instructions. Abstentions and such
broker "non-votes" (as well as withheld votes in the case of the election of
directors) will be considered in determining the presence of a quorum at the
Annual Meeting but will not be counted as a vote cast for a proposal. Because
the proposal to approve the Acquisition Agreement is required to be approved
by the holders of at least a majority (and possibly 80%) of the outstanding
shares of Common Stock, abstentions and broker "non-votes" will have the same
effect as votes against this proposal. Assuming the presence of a quorum,
abstentions and broker "non-votes" will not be counted as votes for the
proposal to ratify the Company's independent public accountants for the fiscal
year ending December 31, 1995 and to adjourn the Annual Meeting, if required,
to solicit additional proxies to vote on the proposal to approve the
Acquisition Agreement and will not affect the votes required for such
proposals. Withheld votes and broker "non-votes" also will not affect the vote
required for election of directors.
As of the Record Date, the directors and officers of the Company and its
subsidiaries and their affiliates in the aggregate beneficially owned and are
entitled to vote 229,180 shares, or 10.9%, of the outstanding Common Stock
(exclusive of shares of Common Stock which may be acquired upon the exercise
of outstanding stock options). In the Acquisition Agreement, the Company also
agreed to use its best efforts to cause each director and executive officer to
execute an Affiliate Letter providing that the signatory will vote all shares
of Common Stock that such person is entitled to vote (whether or not such
person is the beneficial owner of such shares) (i) in favor of approving the
Acquisition Agreement and the Merger and (ii) against approval of any other
acquisition proposal. A copy of the form of Affiliate Letter is included as
Annex II to the Acquisition Agreement attached hereto as Annex A. Directors
and executive officers having the right to vote in the aggregate 192,778
shares of Common Stock, or approximately 9% of the presently outstanding
Common Stock, have executed the Affiliate Letter. A subsidiary of BayBanks,
which owns 96,000 shares of Common Stock, or 4.6% of the outstanding shares,
intends to vote all of such shares in favor of the Merger.
Voting, Solicitation, and Revocation of Proxies
A proxy for use at the Annual Meeting accompanies this Proxy Statement
and is solicited by the Board of Directors of the Company. Any stockholder of
the Company executing a proxy may revoke it at any time before it is voted by
filing with the Secretary of the Company (Edward D. Bureau, Secretary,
Cornerstone Financial Corporation, 15 East Broadway, Derry, New Hampshire
03038) written notice of such revocation; by executing a later-dated proxy; or
by attending the Annual Meeting and giving notice of such revocation in
person. Attendance at the Annual Meeting will not, in and of itself,
constitute revocation of a proxy.
Each proxy returned to the Company (and not revoked) will be voted in
accordance with the instructions indicated thereon. If no instructions are
indicated, the proxy will be voted: (1) for approval of the Acquisition
Agreement; (2) for the election as directors of the nominees named in this
Proxy Statement; (3) in favor of ratifying the appointment of Price Waterhouse
LLP as independent public accountants for the Company for the fiscal year
ending December 31, 1995; and (4) in favor of any adjournment of the Annual
Meeting by the Company to permit further solicitation of proxies for the
approval of the Acquisition Agreement. The Board of Directors of the Company
knows of no other matters to be presented at the Annual Meeting; however, if
any other matter properly comes before the Annual Meeting or any adjournments
thereof, all proxies returned to the Company will be voted by the proxy
holders on any such matter in accordance with the determination of a majority
of the Board of Directors of the Company.
The Company will bear the costs of printing and mailing this Proxy
Statement and the proxy, 1994 Annual Report to Stockholders and quarterly
report on Form 10-Q which accompanies this Proxy Statement, as well as all
other costs incurred in connection with the solicitation of proxies from
stockholders of the Company on behalf of the Board of Directors of the
Company. The Company has retained Georgeson and Co., a professional proxy
solicitation firm, to assist in the solicitation of proxies for the Annual
Meeting. Such firm will receive a fee of $8,000 plus reimbursement for out-of-
pocket expenses. Proxies will be solicited by mail and may be further
solicited, for no additional compensation, by directors, officers, or
employees of the Company by telephone or by personal contact. Arrangements
also will be made with brokerage houses, voting trustees, banks, associations,
and other custodians, nominees, and fiduciaries, who are record holders of
Common Stock not beneficially owned by them, for forwarding such materials to
and obtaining proxies from the beneficial owners of Common Stock entitled to
vote at the Annual Meeting, and the Company will reimburse such persons for
their reasonable expenses incurred in doing so.
THE MERGER
(Proposal One)
The following description of the material terms of the Acquisition
Agreement and the Merger does not purport to be complete and is qualified in
its entirety by reference to the Acquisition Agreement, a copy of which is
attached as Annex A hereto. All stockholders of the Company are urged to
carefully read the Acquisition Agreement and the related Annexes attached
hereto.
General
Late on March 23, 1995, the Company, BayBanks and BBNH entered into the
Acquisition Agreement, pursuant to which BayBanks would acquire the Company.
The acquisition of the Company by BayBanks will be accomplished through the
merger of BBNH with and into the Company pursuant to the applicable provisions
of the NHBCA, with the Company being the resulting entity under the name
"BayBanks, Inc." Upon consummation of the Merger, each share of Company
Common Stock outstanding immediately prior thereto (other than shares held by
any stockholder who demands and receives payment of the fair value of his
shares pursuant to the applicable provisions of the NHBCA, as discussed under
"The Merger--Dissenters' Rights," and shares held directly or indirectly by
BayBanks, other than shares in a fiduciary capacity or in satisfaction of a
debt previously contracted in good faith) will be converted into the right to
receive $8.80 in cash without interest. Immediately following the Merger, the
Company will be a direct subsidiary of BayBanks.
Background of and Reasons for the Merger
During the summer of 1994, as a result of an unsolicited contact from
another banking company expressing interest in discussing a possible
affiliation, the Company engaged the services of Chatham Capital Management
("Chatham") to advise the Company on the financial aspects of affiliations and
to assist in identifying and contacting potential acquirors of the Company and
in preparing offering and due diligence materials. During August 1994,
preliminary exploratory meetings were held with two potential acquirors who
had contacted the Company on an unsolicited basis. Management, with Chatham's
assistance, conducted a strategic review of potential acquirors who had
contacted the company on an unsolicited basis to determine those potential
acquirors who might have the highest level of interest in acquiring the
Company. From September through November 1994, offering and due diligence
materials were prepared and due diligence reviews of the Company were
conducted by four potential acquirors, including BayBanks and the two
potential acquirors who had contacted the Company initially.
On December 2, 1994, the Board of Directors reviewed preliminary
acquisition proposals by four prospective bidders, including BayBanks. In
reviewing these proposals, the Board of Directors considered primarily the
financial value, the type of consideration to be received by the Company, and
the likelihood of the transaction being successfully completed. Although one
of the proposals was close to (but below) the BayBanks proposal in value, that
proposal was made by a much smaller institution, and the Board had substantial
doubt as to the financial ability of that potential acquiror to consummate its
proposed transaction due to the size of the transaction in relation to the
capital of the potential acquiror. Accordingly, that proposal was rejected.
The two other proposals provided for Company stockholders to receive stock or
a combination of stock and cash, but the proposals were materially below the
BayBanks proposal in value. The Company notified these potential acquirors
that their proposals had been rejected because they offered insufficient
value, leaving open the possibility of proposals offering substantially more
value; no such further proposals were made. Given the results of this process,
the Board determined to focus primarily on the BayBanks proposal. Therefore,
the Board of Directors instructed management of the Company to enter into
negotiations with BayBanks for the development of a definitive merger
agreement. The Board of Directors also authorized the Company to engage the
services of Sheshunoff, a firm with national experience in bank mergers, to
review the offer of BayBanks to assess the fairness of such offer from a
financial point of view. The negotiations with BayBanks were conducted by the
Company in consultation with its counsel and with Chatham and Sheshunoff. As a
result of these negotiations, BayBanks and the Company reached agreement on
the $8.80 per share purchase price and the other terms of the Acquisition
Agreement.On March 23, 1995, the Board of Directors voted to enter into the
merger transaction with BayBanks and authorized management to execute the
Acquisition Agreement.
In the course of reaching its decision to approve the Acquisition
Agreement, the Board of Directors of the Company consulted with its legal
advisors regarding the legal terms of the Acquisition Agreement and the
obligations of the Board of Directors in its consideration thereof and with
its financial advisors regarding the financial terms and fairness, from a
financial point of view, of the Merger. Without assigning any relative or
specific weights thereto, the Board of Directors considered the factors
outlined below, among others, that it believed relevant to reaching its
determination.
The terms of the Acquisition Agreement were reached on the basis of
arms' length negotiations between the Company and BayBanks. In reaching the
conclusion that the terms of the Acquisition Agreement are fair, the Board of
Directors considered, among other things, the fact that the Merger
Consideration of $8.80 per share would be paid entirely in cash as well as the
market value (a closing price of $6.75 per share on March 22, 1995), book
value ($4.23 per share as of December 31, 1994) and earnings per share of the
Company (acquisition price equal to a multiple of 10 times earnings for the
fiscal year ended December 31, 1994). The Board of Directors considered that
the Merger provides an opportunity for the shareholders of the Company to
receive consideration in cash at a premium over the pre-existing market price
and well in excess of the book value of their shares.
The Board of Directors considered the strategic alternatives available
to the Company, including remaining independent, seeking to solicit additional
competing proposals, and accepting the BayBanks proposal. The Board concluded
that BayBanks had made the highest likely acquisition proposal and that the
Merger offered Company shareholders more value than remaining independent.
Accordingly, the Board concluded that the Merger represents the best available
opportunity to enhance stockholder value at this time.
The Board of Directors took into account and considered the opinion of
Sheshunoff dated March 23, 1995, that the consideration to be received by the
Company's stockholders in the Merger was fair, from a financial point of view.
The Board of Directors also considered the impact of the Merger on the
community and customers which the Company serves and on the employees of the
Company and the Bank. One of the largest bank holding companies in New
England, BayBanks uses state-of-the-art technology in its operations. Its
product offerings include sophisticated deposit, credit, cash management, and
international services for businesses, governments, and not-for-profit
entities; trust, brokerage, investment management, and mutual fund services
for retail and business customers; and a considerably broader range of retail
deposit and credit products than are currently available to the Company's
customers. Accordingly, the Board of Directors believes that the Merger, if
consummated, will provide the Company's customers with expanded services, and
the Bank with greater ability to grow and diversify and access to the
resources of a strong parent.
In reviewing the provisions of the Acquisition Agreement the Board
considered the requirement that the Company pay to BayBanks a termination fee
of $500,000 if, for certain specified reasons, the Merger is not consummated,
and the condition of the BayBanks' proposal that the Company enter into the
Option Agreement described under "The Merger--Option Agreement" granting
BayBanks the option to purchase under specified circumstances up to 295,000
shares of Company Common Stock (14% of the shares outstanding at May 31, 1995)
at a price of $6.625 per share. The Board of Directors was aware that the
existence of such provisions would make it more expensive for a third party to
offer a price that was in excess of BayBanks' proposal and might significantly
deter a potential competing acquiror from making an offer. The Board of
Directors was also aware that BayBanks required these terms as a condition to
entering into the Acquisition Agreement and was of the view that similar terms
would likely be required by other acquirors.
Opinion of Financial Advisor
In December 1994, the Company retained Sheshunoff, an investment banking
firm based in Austin, Texas, on the basis of its experience, to render to the
Board of Directors of the Company a written fairness opinion with respect to
the Merger (the "Opinion"). Sheshunoff has been in the business of consulting
for the banking industry nationwide for twenty years, including the appraisal
and valuation of banking institutions and their securities in connection with
mergers and acquisitions and equity offerings, and it is familiar with the New
England banking industry and recent transactions in this market. Sheshunoff
is not affiliated in any way with the Company or BayBanks.
THE FULL TEXT OF THE OPINION, SETTING FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND CERTAIN LIMITATIONS ON THE REVIEW
UNDERTAKEN BY SHESHUNOFF, IS INCLUDED AS ANNEX C TO THIS PROXY STATEMENT.
STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY. The Opinion does
not constitute a recommendation to any stockholder as to how such stockholder
should vote at the Annual Meeting. Stockholders should consider the Opinion as
one factor in making their own decisions on the matter.
In rendering the Opinion, Sheshunoff reviewed certain publicly available
information concerning the Company, including the Company's audited financial
statements, annual reports and reports of condition and income, and considered
many other factors. In particular, Sheshunoff reviewed: (i) a preliminary
draft of the Acquisition Agreement; (ii) the external auditor's reports to the
Board of Directors of the Company in connection with the results of the audit
examination of the Company's financial statements for the fiscal year ended
December 31, 1993; (iii) the September 30, 1994 Report of Condition and Income
for the Bank, the audited December 31, 1993 Balance Sheet and Income Statement
for the Company and the audited December 31, 1994 Balance Sheet and Income
Statement for the Company; (iv) the Rate Sensitivity Analysis reports for the
Company; (v) the Company's listing of marketable securities showing rate,
maturity and market value as compared to book value; (vi) the Company's
internal loan classification list; (vii) a listing of other real estate owned
by the Company; (viii) the budget and long-range operating plan of the
Company; (ix) a listing of unfunded letters of credit and other off-balance
sheet risks of the Company; (x) the Minutes of the Board of Directors of the
Company; (xi) the most recent Board report for the Company; (xii) the listing
and description of significant real properties of the Company; (xiii) material
leases of real and personal property; (xiv) the directors and officers
liability and blanket bond insurance policies for the Company; and (xv) market
conditions and current trading levels of outstanding equity securities of the
Company. Sheshunoff received a representation from the Company that there had
been no material adverse change in the affairs or condition of the Company or
the Bank between December 31, 1994 and the date of the Opinion. It also
conducted an on-site review of the Company's historical performance and
current financial condition and performed a market area analysis. In
rendering the Opinion, Sheshunoff did not independently verify the asset
quality and financial condition of the Company or the Bank, but instead relied
upon the data provided by or on behalf of the Company and the Bank to be true
and accurate in all material respects. The information described above
provided Sheshunoff with an understanding of the financial performance and
condition of the Company and its market area.
In addition, Sheshunoff discussed with the management of the Company the
relative operating performance and future prospects of the Company and the
Bank, primarily with respect to the current level of their earnings and future
expected operating results, giving weight to Sheshunoff's assessment of the
future of the banking industry and the Company's performance within the
industry. Based on the information analyzed on the Company and its market area
and discussions with management of the Company, Sheshunoff prepared
projections assuming that the Bank will generate a return on average assets of
1.20% in 1995 and 0.98% annually during 1996 through 2004. Sheshunoff also
assumed that the Bank's assets will increase by 5.0% annually during 1995
through 2004. The Company did not impose any limitations upon the scope of the
investigation to be performed by Sheshunoff in formulating the Opinion.
Sheshunoff compared the results of operations of the Company with New
Hampshire banking organ-izations with total assets of $100 to $499 million.
Sheshunoff also reviewed and analyzed the terms and conditions of 16 selected
proposed mergers and acquisitions of New England banking organizations with
assets of less than $2 billion that were announced between January 1, 1994 and
March 17, 1995 (the "Comparable Transactions"). The Comparable Transactions
were utilized in the Market Value Analysis and the Price Equity Index
Analysis, which are described later in this section. The transactions included
in the Comparable Transactions were:
<TABLE>
Acquired Organization City State
<S> <S> <S>
Equity Bank Wethersfield CT
Bankcore, Inc. North Conway NH
Finest Financial Corp Pelham NH
Bank of Western Massachusetts Springfield MA
Shoreline Bank & Trust Company Madison CT
Bank of Mystic Mystic CT
Casco & BankVermont VT/ME
Metro Bancorp Melrose MA
North American Bank Corp Farmington NH
Profile Financial Corp Plaistow NH
Citibank (Maine), NA South Portland ME
Saugus Bank & Trust Company Saugus MA
Martha Vineyard's National Bank Vineyard Haven MA
Liberty National Bank Danbury CT
Depositors Trust Company Lexington MA
</TABLE>
Many variables affect the value of banks, not the least of which is the
uncertainty of future events, so that the relative importance of the valuation
variables differs in different situations. However, the primary financial
variables to be considered are earnings, equity, dividends or dividend-paying
capacity, asset quality and cash flow. In addition, Sheshunoff took into
account non-financial factors such as the marketability and the history of
sales of the Company's Common Stock.
Sheshunoff analyzed the transaction value on a cash equivalent fair
market value basis using stand-ard valuation techniques (as discussed below),
including comparable sales multiples, net present value, cash flow analysis,
return on investment and a price equity index based on certain assumptions of
projected growth, earnings and dividends and a range of discount rates from
10% to 15%. This range of discount rates was considered by Sheshunoff to be an
acceptable rate of return, which, in Sheshunoff's experience, most investors
would demand for an investment of this type. In order to analyze the financial
adequacy of BayBanks' offer for the Company, Sheshunoff adjusted the total
purchase price for the Company of $19,444,674 ($8.80 per share x 2,209,622
shares (assuming exercise of all outstanding stock options)) by subtracting
the book value of the Company's parent company assets ($912,594 as of December
31, 1994) and the cash that would be received by the Company for the exercise
of its common stock options ($211,306), and adding the Company's parent
company liabilities ($3,558,208 as of December 31, 1994), to derive an
implicit total purchase price of $21,878,982 for the Bank.
The implicit purchase price for the Bank was derived because the Bank is
the primary asset of the Company. In Sheshunoff's view, if the derived
implicit purchase price of $21,878,982 for the Bank is a fair value for the
Bank from a financial perspective, the $8.80 per share purchase price for the
Company will also be fair to the Company's stockholders from a financial
perspective, because the Bank is the primary and only material asset of the
Company. Consequently, the following discussion of the valuation methods used
by Sheshunoff focuses on the derived implicit purchase price for the Bank.
Sheshunoff analyzed the implicit purchase price for the Bank by determining
the Bank's net asset value, its market value, and its investment value. These
terms, and the methods Sheshunoff used in determining these values, are
explained below. Each of the valuation methods used by Sheshunoff resulted in
a particular estimated value for the Bank as of December 31, 1994. In
rendering the Opinion, Sheshunoff compared the estimated values of the Bank
obtained using each valuation method to the $21,878,982 derived implicit
purchase price for the Bank based on BayBanks' $8.80 per share offer.
Net asset value. This is the value of the net equity of a bank, after
adjusting a bank's assets and liabilities to market value and giving
consideration to off-balance sheet items and contingent liabilities. Because
this approach normally assumes liquidation on the date of appraisal, it is
less useful than the other methods described below when valuing a going
concern. Accordingly, little weight was given by Sheshunoff to the net asset
value method of valuation.
Market value. This is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers
would agree. Sheshunoff used previous sales of banking companies in the state
or region in determining market value in connection with this transaction.
Sheshunoff maintains substantial records of comparable pricing and financial
performance data for sales of banking companies nationwide, including
transactions involving New England banking companies and banking companies in
the eastern region of the United States in 1994 and over the past five years.
Organized by different peer groups, the data present averages of financial
performance and purchase price levels, thereby facilitating a valid
comparative purchase price analysis. In analyzing the transaction value of
the Bank using the market value approach, Sheshunoff compared the price to
equity and price to earnings ratios (multiples) of the proposed Merger with
those of the Comparable Transactions, as follows.
Sheshunoff determined that the multiple of the acquisition price to the
book value of the target banks included in the Comparable Transactions was an
average of 1.25. Based on a book value for the Bank at December 31, 1994 of
$11,566,000 and the $21,878,982 implicit price for the Bank based on the $8.80
per share offer by BayBanks for the Company, the price to equity multiple in
the proposed Merger would be 1.89. Sheshunoff also determined that the
average price to recent 12-month earnings multiple for the Comparable
Transactions was 13.54. Based on the Bank's actual 1994 earnings of
$1,897,000, the price to earnings multiple in the proposed transaction would
be 11.53. Excluding the Bank's net operating loss carryforward (i.e., if the
Bank's earnings had been fully taxable), the Bank's 1994 earnings would have
been $1,167,000, leading to a price to earnings multiple of 18.75 for the
proposed Merger.
Investment value. This is sometimes referred to as the income value or
earnings value. The investment value of a business may be determined by
estimating the present value of its future earnings or cash flow or,
alternatively, by determining the level of current annual benefits (earnings,
cash flow, dividends, etc.), and then capitalizing one or more of the benefit
types using an appropriate capitalization rate such as an earnings or dividend
yield. Another method of calculating investment value is a cash flow analysis
of the ability of a banking company to service the debt obligations incurred
by an acquiror (at a certain price level) while providing sufficient earnings
for reasonable dividends and capital adequacy requirements. In connection
with the cash flow analysis, a determination of the return on investment that
would accrue to a prospective buyer at the fair market value is calculated.
Sheshunoff analyzed the investment value of the Bank using the following
methods.
Net Present Value Analysis. The investment or earnings value of any
banking organization's stock is an estimate of the present value of the future
benefits, usually earnings, cash flow or dividends, that will accrue to the
stock. An earnings value is calculated using an annual future earnings stream
over a period of time of not less than ten years and the residual value of the
earnings stream after ten years, assuming no earnings growth, and an
appropriate capitalization rate (the net present value discount rate).
Sheshunoff's computations were based on an analysis of the banking industry,
the economic and competitive conditions in the Bank's market area, and the
Bank's current financial condition and historical levels of growth and
earnings. Using a net present value discount rate of 12%, which was deemed to
be an acceptable discount rate as of the valuation date considering the risk-
return relationship that Sheshunoff considered appropriate, the net present
value of future earnings of the Bank equaled $15,906,000.
Cash Flow Analysis. The cash flow method assumes the formation of a
bank holding company with the maximum acquisition debt permitted by the
Federal Reserve guidelines (66.67% of the purchase price of a bank) and
analyzes the ability of the bank to retire holding company acquisition debt
within a reasonable period of time while maintaining adequate capital. Using
this method, Sheshunoff arrived at a value for the Bank of $20,000,000, which
is the maximum price that could be paid for the Bank at December 31, 1994, if
66.67% of the purchase price was financed by debt and the debt was repaid in
ten years.
Return on Investment Analysis. Sheshunoff's return on investment (ROI)
analysis also assumed the formation of a bank holding company using maximum
regulatory leverage and analyzed the ten year ROI of a 33.33% equity
investment at the derived transaction value of $21,878,982 for the Bank,
compared to a liquidation at book value in the year 2004 and a sale at ten
times projected earnings for the year 2004. The ROI analysis provides a
benchmark for assessing the validity of the fair market value of a majority
block of stock. The ROI analysis is one approach to valuing a going concern
and is directly impacted by the earnings stream, dividend payout levels and
levels of debt, if any. Other financial and nonfinancial factors indirectly
affect the ROI; however, these factors more directly influence the rate of ROI
an investor would demand from an investment in a majority block of stock of a
specific bank at a certain point in time. The ROI for the proposed Merger,
assuming liquidation at book value in 2004, is 5.37%, and the ROI, assuming
sale at ten times earnings in 2004, is 11.08%.
Price Equity Index Analysis. A price level indicator, the equity index,
also may be used to measure the adequacy of the transaction value. The equity
index adjusts the price to equity multiple in order to facilitate a truer
price level comparison with comparable banking organizations, regardless of
the differing levels of equity capital. The equity index is derived by
multiplying the price to equity multiple by the equity-to-assets ratio. In
this instance, the Bank's derived transaction value of $21,878,982 results in
an equity index of 15.38. The price equity index for the Comparable
Transactions equaled 10.44. Sheshunoff used the actual, rather than a derived,
transaction price for each of the Comparable Transactions in calculating this
index in order to provide a relative pricing comparison without adjusting each
of the prices of the Comparable Transactions for holding company debt.
Sheshunoff believed that this approach was reasonable due to the number of the
Comparable Transactions and the variety of the corporate structures involved.
Net Present Value-to-Transaction Value Analysis. Another test of
appropriateness for the transaction value used by Sheshunoff was the net
present value-to-transaction value ratio. Theoretically, an earnings stream
may be valued through the use of a net present value analysis. In
Sheshunoff's experience with majority block community bank stock valuations,
it has determined that the relationship between the net present value of an
"average" community banking organization such as the Bank and the transaction
value of a majority block of the banking organization's stock generally falls
under 100.00% (i.e., that the price is greater than the net present value of
projected earnings). The net present value-to-transaction value ratio equals
72.70% for the Bank.
In performing its analysis, Sheshunoff also considered other factors,
including the general condition of the industry, the economic and competitive
situations in the market area, and the expertise of the management of the
Company, which do not directly impact the earnings stream and the net present
value but do exert a degree of influence over the fair market value of a going
concern.
Sheshunoff reviewed the results of the foregoing analyses and determined
that the consideration to be paid by BayBanks in the Merger is fair to the
stockholders of the Company from a financial point of view.
For its services as independent financial analyst for the Merger,
including the rendering of the Opinion, the Company has paid Sheshunoff
aggregate fees of $12,000. The Company also agreed to reimburse Sheshunoff
for its out of pocket expenses not to exceed $250, excluding out of pocket
costs incurred for travel and direct delivery charges.
Recommendation of the Board of Directors of the Company
For the foregoing reasons, the Board of Directors of the Company has
determined that the acquisition of the Company by BayBanks is desirable and in
the best interests of the Company and its stockholders and has unanimously
approved the Acquisition Agreement. Accordingly, the Board of Directors of the
Company unanimously recommends the stockholders vote FOR approval of the
Acquisition Agreement.
Merger Consideration
Pursuant to the Acquisition Agreement, upon consummation of the Merger
each outstanding share of Common Stock (other than shares held by any
stockholder who demands and receives payment of the fair value of his shares
pursuant to the applicable provisions of the NHBCA and shares held directly or
indirectly by BayBanks, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted in good faith) will be converted
into the right to receive $8.80 in cash without interest. The Acquisition
Agreement also provides that each outstanding and unexercised option to
purchase Common Stock under the Company's 1984 and 1987 Stock Option Plans
(the "Stock Option Plans") at the Effective Time shall be terminated in
exchange for a cash payment in an amount equal to the excess of the Merger
Consideration over the per share exercise price of such option, multiplied by
the number of shares covered by the option. The outstanding options were
granted under the Stock Option Plans on January 21, 1992 (of which options for
the purchase of 39,080 shares of the Company Common Stock at an exercise price
of $1.00 per share remain outstanding) and June 24, 1993 (of which options for
the purchase of 60,670 shares at an exercise price of $2.75 per share remain
outstanding ). See "The Merger--General" and "Election of Directors--Executive
and Compensation and Other Information". The total transaction value is
estimated to be approximately $18.6 million based on 2,109,872 shares of
Common Stock outstanding on the Record Date ($19.4 million, inclusive of
outstanding options to purchase 99,750 shares of Common Stock on such date).
Surrender of Stock Certificates; Payment of Merger Consideration
At or after the Effective Time, each certificate previously representing
shares of Common Stock (each a "Certificate"), other than certificates
representing Dissenting Stock (as defined under "The Merger--Dissenters'
Rights"), will represent only the right to receive the Merger Consideration.
As of the Effective Time, BayBanks will deposit, or will cause to be
deposited, with a bank or trust company (the "Paying Agent"), for exchange in
accordance with the Acquisition Agreement the Merger Consideration to be paid
pursuant thereto in exchange for the outstanding shares of Common Stock.
As soon as practicable after the Effective Time, BayBanks will cause the
Paying Agent to mail to each holder of record of Common Stock instructions for
surrendering such holder's stock certificates representing the Common Stock
(the "Certificates") in exchange for the Merger Consideration. Upon the proper
surrender of a Certificate to the Paying Agent, together with a properly
completed and duly executed letter of transmittal, the holder of such
Certificate will be entitled to receive in exchange therefor a check
representing the aggregate Merger Consideration in respect of the Certificate
surrendered, and the Certificate so surrendered will be canceled. No interest
will be paid or accrued on the Merger Consideration. Certificates should not
be forwarded to the Paying Agent until after receipt of the letter of
transmittal and should not be returned to the Company with the enclosed proxy.
The Acquisition Agreement provides that, from and after the Effective
Time, there shall be no transfers on the stock transfer records of the Company
of any shares of Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
BayBanks or BBNH for transfer, they will be canceled and exchanged for the
Merger Consideration deliverable in respect thereof.
Any portion of the aggregate Merger Consideration that remains unclaimed
by the stockholders of the Company for six months after the Effective Time
will be repaid by the Paying Agent to BayBanks. Any stockholders of the
Company who have not theretofore exchanged their Certificates for Merger
Consideration may thereafter look only to BayBanks for payment of the Merger
Consideration. If outstanding Certificates for shares of Common Stock are not
surrendered or the payment for them is not claimed prior to the date on which
such payments escheat to or become the property of any governmental unit or
agency, the unclaimed items shall, to the extent permitted by abandoned
property and any other applicable law, become the property of BayBanks (and to
the extent not in its possession shall be paid over to it), free and clear of
all claims or interests of any person previously entitled to such claims.
Notwithstanding the foregoing, none of BayBanks, the Paying Agent or any other
person shall be liable to any former holder of Common Stock for any amount
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Paying Agent, the posting by such person of a bond in such amount as the
Paying Agent may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Paying Agent will issue the
Merger Consideration deliverable in respect thereof.
Regulatory Approvals
Consummation of the Merger and related transactions contemplated by the
Acquisition Agreement are subject to the prior approval of the Board of
Governors of the Federal Reserve System ("Federal Reserve Board") under the
Bank Holding Company Act of 1956, as amended, ("BHCA") and the prior approval
of the New Hampshire Board of Trust Company Incorporation ("NHBTCI") and the
Massachusetts Board of Bank Incorporation ("MBBI") under the laws of New
Hampshire and Massachusetts, respectively. Pursuant to the applicable
provisions of the BHCA, the Federal Reserve Board may not approve the Merger
if (i) it would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any part of the United States; or (ii) the effect of such
transaction, in any section of the country, may be substantially to lessen
competition, or to tend to create a monopoly, or in any other manner to
restrain trade, in each case unless the Federal Reserve Board finds that the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interests by the probable effect of the transaction in meeting the
convenience and needs of the community to be served. In conducting its review
of the application for approval, the Federal Reserve Board is required to
consider whether BayBanks' financial and managerial resources are adequate
(including consideration by a variety of means of the competence, experience,
and integrity of the directors, officers, and principal stockholders of
BayBanks and certain of its subsidiaries and its compliance with, among other
things, fair lending laws). The Federal Reserve Board has the authority to
deny an application if it concludes that the combined organization would have
an inadequate capital position or if the acquiring organization does not meet
the requirements of the Community Reinvestment Act of 1977.
The BHCA provides that a transaction approved by the Federal Reserve
Board generally may not be consummated until 30 days after such approval. If
the U.S. Department of Justice and the Federal Reserve Board otherwise agree,
this 30-day period may be reduced to as few as 15 days. During such period,
the U.S. Department of Justice may commence a legal action challenging the
transaction under the antitrust laws. The commencement of an action would stay
the effectiveness of the approval of the Federal Reserve Board unless a court
specifically orders otherwise. If, however, the U.S. Department of Justice
does not commence a legal action during such waiting period, it may not
thereafter challenge the transaction except in an action commenced under
Section 2 of the Sherman Antitrust Act. The Company does not anticipate any
challenge to the Merger because of antitrust concerns.
The BHCA also provides for the publication of notice and the opportunity
for administrative hearing relating to the application for approval and
authorizes the Federal Reserve Board to permit interested parties to intervene
in the proceedings. If an interested party is permitted to intervene, such
intervention could substantially delay the required approval.
In order to consummate the Merger, BayBanks must also receive a
certificate to affiliate with the Bank from the NHBTCI. In considering whether
to grant the certificate, the NHBTCI will consider, among other factors,
BayBanks' plans for capital investment in New Hampshire, including the manner
in which the affiliation will bring net new funds to the state, the record of
BayBanks' subsidiary banks in serving the credit needs of the communities in
which they do business, BayBanks' plans for serving the credit needs of the
New Hampshire communities in which the Bank operates and the strength of
BayBanks' management. In addition, because BayBanks is a Massachusetts-
chartered bank holding company, the Merger requires the approval of the MBBI.
The MBBI's approval is based primarily upon its determination that the
proposed acquisition does not unreasonably affect competition among
Massachusetts banking institutions and that it promotes public convenience and
advantage. In making such a determination, the MBBI will consider, among other
factors, whether the Merger will result in net new benefits within the Bank's
local community.
BayBanks' right to exercise the Option is also subject to prior approval
of the Federal Reserve Board, the NHBTCI and the MBBI, to the extent that the
exercise of the Option would result in BayBanks directly or indirectly owning
more than five percent of the voting stock of the Company or the Bank. In
determining whether to approve BayBanks' right to exercise the Option, the
regulatory agencies would generally apply the same statutory criteria that
they apply to their consideration of the approval of the Merger.
BayBanks is in the process of filing applications for the required
approvals with the Federal Reserve Board, the NHBTCI and the MBBI. The Merger
will not proceed until all regulatory approvals required to consummate the
Merger have been obtained, such approvals are in full force and effect and all
statutory waiting periods in respect thereof have expired. There can be no
assurance that the Merger will be approved by any of such agencies. If such
approvals are received, there can be no assurance as to the date of such
approvals, the absence of conditions to such approvals that would cause the
parties to abandon the Merger or the absence of any litigation challenging
such approvals.
BayBanks and the Company are not aware of any other governmental
approvals or actions that are required before the parties may consummate the
Merger. However, the Company also has agreed that, if requested by BayBanks,
it and the Bank will take all necessary action, including seeking necessary
regulatory approvals, to change the name or amend the charter and bylaws of
the Bank, to convert the Bank into a national banking association or federal
savings association and/or to merge the Bank into a bank or savings
association controlled by BayBanks, so that such change or other transaction
may be consummated in conjunction with the consummation of the Merger;
provided that the Company and the Bank need not take any action that would
make consummation of any such change or transaction irreversible other than in
conjunction with the consummation of the Merger. It is presently contemplated
that if any such governmental approvals or actions are required, such
approvals or actions will be sought. There can be no assurance, however, that
any such additional approvals or actions will be obtained.
Conditions to the Merger
The obligations of the parties to the Acquisition Agreement to
consummate the Merger are subject to the satisfaction or waiver (to the extent
permitted by law) of the following conditions: (i) the Acquisition Agreement
and the transactions contemplated thereby (including, without limitation, the
Merger) shall have been approved by the requisite vote of the stockholders of
the Company; (ii) the parties shall have received all required regulatory
approvals, authorizations and consents (provided, however, that no approval,
authorization or consent shall be deemed to have been received if it shall
include any condition or requirement that, in the reasonable opinion of
BayBanks, would so materially and adversely affect the economic or business
benefit to BayBanks of the transactions contemplated by the Acquisition
Agreement as to render inadvisable the consummation of the Merger); and (iii)
no federal or state governmental authority or other agency or commission or
federal or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is then in effect and has the effect of making the Merger
illegal or otherwise restricting, preventing or prohibiting consummation of
the transactions contemplated by the Acquisition Agreement, including the
Merger. In addition to the foregoing, the obligations of BayBanks to
consummate the Merger are subject to the following conditions: (i) the
representations and warranties of the Company in the Acquisition Agreement
shall be true and correct in all material respects (provided, however, that
such representations and warranties shall be deemed to be true and correct in
all material respects unless the failure or failures of such representations
and warranties to be so true and correct represent, in the aggregate, a
material adverse effect on the Company and its subsidiaries, taken as a whole;
(ii) the Company shall have performed in all material respects all obligations
and complied in all material respects with all agreements or covenants of the
Company to be performed or otherwise complied with by it at or prior to the
Effective Date under the Acquisition Agreement and there shall not exist any
default or condition that, with notice and/or the passage of time, would
constitute a default under the Acquisition Agreement on the part of the
Company; (iii) the Company shall have delivered certificates of the Company to
the foregoing effects; (iv) BayBanks shall have received an opinion of its
counsel or a ruling from the Internal Revenue Service substantially to the
effect that no gain or loss shall be recognized by and no federal income tax
liability shall result to BayBanks, BBNH, the Company or any of its
subsidiaries by reason of the Merger; (v) BayBanks shall have received an
opinion from counsel to the Company in a form that is customary for
transactions of this type (generally covering the legal existence of the
Company and its subsidiaries, corporate authority to enter into the
transaction, receipt of regulatory approvals, validity of the outstanding
shares of Common Stock and other matters reasonably requested by BayBanks);
(vi) the Company shall have caused to be delivered to BayBanks a letter from
the Company's independent public accountants dated the Effective Date with
respect to certain agreed upon procedures; (vii) holders of not more than
200,000 shares of Company Common Stock shall have exercised their rights to
dissent from the Merger; (viii) as of the Effective Date, the total
stockholders' equity shown on the consolidated financial statements of the
Company and its subsidiaries in accordance with generally accepted accounting
principles shall not be less than $8,921,000 and neither the Company nor the
Bank shall have a Tier 1 leverage capital ratio which is less than 6.00
percent; (ix) as of the Effective Date the total of consolidated non-
performing assets and loans and leases more than 90 days past due shown on the
consolidated financial statements of the Company and its subsidiaries prepared
in accordance with generally accepted accounting principles shall not exceed
$5,500,000; (x) the employment agreements between the Company and/or the Bank
and each of their respective officers shall have been terminated and replaced
by agreements and forms executed by BayBanks; (xi) all options, warrants and
other rights to purchase equity securities of the Company, whether pursuant to
the Stock Option Plans or otherwise, shall have been exercised in full or
terminated before the Effective Time; (xii) there shall have been no material
adverse change in the financial condition, business, assets or operations of
the Company or the Bank, nor shall any event have occurred that so far as can
reasonably be foreseen on the Effective Date appears reasonably likely to have
a material adverse effect on the Company and its subsidiaries, taken as a
whole; and (xiii) all corporate actions shall have been taken, and consents of
third parties obtained, necessary to effect any name change, charter or bylaw
amendment, conversion or merger of the Bank requested by BayBanks; and (xiv)
BayBanks shall have received certain documentation and the Company and the
Bank shall have taken certain actions requested by BayBanks relating to
environmental matters. BayBanks has agreed for this purpose to exclude a
portion of a certain restructured asset from the computation required by item
ix above, provided that such asset is not subject to downgrade in
classification and the amount of the exclusion is supported by a satisfactory
appraisal. On that basis, the Company currently complies with the financial
requirement of item ix, and management believes that the Company will be able
to satisfy that requirement at closing. Based upon current financial results
and available information, the Company also expects to be able to satisfy the
financial requirements set forth in items viii and xii above. The obligations
of the Company to effect the Merger are also subject to the satisfaction or
waiver prior to the Effective Time of the following conditions: (i) each of
the representations and warranties of BayBanks and BBNH contained in the
Acquisition Agreement shall be true and correct in all material respects
(provided, however, that such representations and warranties shall be deemed
to be true and correct in all material respects unless the failure or failures
of such representations and warranties to be so true and correct represent, in
the aggregate, a material adverse effect on BayBanks and its subsidiaries,
taken as a whole); BayBanks and BBNH shall each have performed, in all
material respects, each of its covenants and agreements contained in the
Acquisition Agreement; the Company shall have received certificates of
BayBanks to the foregoing effects; and the Company shall have received an
opinion of counsel to BayBanks in form customary for transactions of this type
(generally covering the legal existence of BayBanks and BBNH, corporate
authority to enter into the transaction, receipt of required regulatory
approvals and other matters reasonably requested by the Company).
The conditions precedent to the consummation of the Merger can be waived
by the benefitted party. Neither the Company or BayBanks has committed to
grant any such waiver.
Effective Date and Effective Time
The Merger shall occur as promptly as practicable after all regulatory
approvals have been received, all applicable waiting periods in connection
with such approvals have expired and the other conditions precedent to closing
shall have been satisfied or, if permissible, waived by the party entitled to
the benefit of the same. The Merger shall be effected by BBNH and the Company
duly executing and filing articles of merger with the New Hampshire Secretary
of State in accordance with the NHBCA, and the Merger shall become effective
upon such filing or on such date as may be specified in the articles of
merger.
Redemption of Debentures
As of June 27, 1995, there were outstanding $155,000 in aggregate
principal amount of 8.75% Convertible Debentures of the Company and $3,353,000
in aggregate principal amount of 7% Convertible Debentures of the Company. The
Acquisition Agreement provides that if so requested by BayBanks, the Company
will take such steps as are necessary to cause the redemption of all
outstanding Company Debentures at the Effective Time. The Company has been
informed that BayBanks currently intends to request that the Company cause
such redemption.
Effect on Employee Benefits
BayBanks has agreed that for the period from the Effective Time through
December 31, 1995, employees of the Company or the Bank will continue to
receive the same or similar insurance coverages (medical, dental, life,
accidental death and dismemberment, short-term disability, and long-term
disability) as those in effect on the date of the Acquisition Agreement.
Effective January 1, 1996 and continuing thereafter, such insurance coverages
may at the option of BayBanks be discontinued, and employees of the Company
and the Bank will become eligible to receive the same insurance coverages as
are available to the majority of other employees of BayBanks or its
subsidiaries in the same region as the Company, subject to the applicable
terms and conditions of the benefit plans and/or insurance contracts providing
such coverages.
The Acquisition Agreement provides that the Company's severance pay plan
will continue in effect for twelve months following the Effective Time.
The Acquisition Agreement provides for BayBanks to maintain the
Company's profit sharing plan (the "Profit Sharing Plan") from the Effective
Time through December 31, 1995. Thereafter, BayBanks will either maintain the
Profit Sharing Plan, permit Company employees to participate in one or more
savings, profit-sharing, employee stock ownership and/or retirement plans
maintained by another BayBanks subsidiary or permit Company employees to
participate in the BayBanks Savings, Profit Sharing and Stock Ownership Plan.
Pursuant to the Acquisition Agreement, no further stock options may be granted
under the Company's Stock Option Plans before the Effective Time of the
Merger.
Interests of Certain Persons in the Merger
Certain members of the Board of Directors and executive officers of the
Company may be deemed to have interests in the Merger in addition to their
interests as stockholders generally. The Board of Directors of the Company was
aware of these factors and considered them, among other matters, in approving
the Acquisition Agreement and the transactions contemplated thereby.
Employment Agreements. In conjunction with the execution of the
Acquisition Agreement, BayBanks, the Company, the Bank and each of John M.
Terravecchia, Chairman, President and Chief Executive Officer of the Company
and Chairman and Chief Executive Officer of the Bank, G. Robert Smith, Senior
Vice President of the Company and President and Chief Operating Officer of the
Bank, and Robert E. Benoit, Vice President, Treasurer and Chief Financial
Officer of the Company and the Bank (the "Executives") entered into amended
and restated employment agreements to be effective as of the Effective Time (
the "Amended Employment Agreements"). As of the Effective Time of the Merger,
the Amended Employment Agreements will supersede the existing employment
agreements with the Executives (the "Existing Employment Agreements").
Pursuant to the Amended Employment Agreements, Mr. Terravecchia will be
employed as Chief Executive Officer and Vice Chairman of the Bank, Mr. Smith
will be employed as President of the Bank and Mr. Benoit will be employed as
Vice President of the Bank. The Acquisition Agreement also provides for Mr.
Terravecchia and two other current members of the Bank's Board of Directors
(selected by BayBanks in consultation with the Bank's Board of Directors) to
serve as directors of the Bank following the Merger.
Under the Existing Employment Agreements, the Executives receive base
salaries as determined by the Board of Directors, and are entitled to receive
salary increases and formula bonuses to the extent that the Bank's return on
average assets exceeds specified levels, as well as discretionary bonuses as
determined by the Board of Directors. The Amended Employment Agreements
provide for higher base salaries for the Executives, which are substantially
offset by the elimination of directors' fees and certain benefits. The Amended
Employment Agreements also eliminate the provisions relating to salary
increases and formula bonuses based on the return on average assets achieved
by the Bank. The Executives will be eligible to participate in BayBanks'
incentive compensation plan, pursuant to which discretionary bonuses will be
available in maximum amounts of 25% of base salary for Mr. Terravecchia, 20%
for Mr. Smith and 15% for Mr. Benoit.
The terms of the Existing Employment Agreements and the Amended
Employment Agreements provide for Mr. Terravecchia and Mr. Smith to be
employed through December 31, 1998 and Mr. Benoit through December 31, 1997.
Under the Existing and Amended Employment Agreements, if an Executive is
terminated other than for cause, the Executive would be entitled to receive a
lump sum payment equal to the present value of the Executive's current salary
over the remaining term of the respective agreement. However, if such
termination other than for cause occurs in specified circumstances in
connection with a change in control of the Company or the Bank, under the
Existing Employment Agreements, the Executive would be entitled instead to
receive a lump sum severance payment equal to three times the average annual
compensation for the Executive for the previous five years less one dollar.
Under the Amended Employment Agreements, the special provisions as to payments
in the event of a termination after a change in control have been modified.
Following the Merger, Mr. Terravecchia will be entitled to participate in the
BayBanks severance benefits plan but will not be entitled to any special
severance benefits as a result of the Merger. Messrs. Smith and Benoit will
each be entitled in certain events of termination to receive a lump sum
payment equal to three times the average of his annual compensation during the
preceding five years; one of such events is his termination of employment for
any reason during the thirty-day period beginning six months following the
Merger.
The Existing Employment Agreements include deferred compensation
arrangements which provide for fifteen annual payments of $89,600 to Mr.
Terravecchia, $65,600 to Mr. Smith, and $52,800 to Mr. Benoit. Payments
commence at the later of age 62 or retirement, with thirty years of service
being required for full vesting of deferred compensation benefits. Full
vesting also occurs in certain events, such as the Merger, or involving a
change in the control of the Company and the Bank. The Company has created a
trust to retain assets set aside for the payment of these deferred
compensation benefits. Under the Amended Employment Agreements, these deferred
compensation arrangements, including the trust fund, will be eliminated and
replaced with new deferred compensation arrangements providing for Mr.
Terravecchia to be paid $70,086 annually beginning on April 1, 1998 or
retirement, whichever is later; for Mr. Smith to receive $46,338 annually
beginning on January 1, 2002 or retirement, whichever is later; and for Mr.
Benoit to receive $28,000 annually beginning on May 1, 2009 or retirement,
whichever is later. In each case payments continue for a period of fifteen
years.
Indemnification and Insurance. Pursuant to the Acquisition Agreement,
the articles of incorporation and by-laws of the surviving corporation and the
Bank are required to contain provisions that are no less favorable with
respect to indemnification than are set forth in the current by-laws of the
Company and the Bank. The Acquisition Agreement further provides that BayBanks
acknowledges, and the surviving corporation will honor, the right of the
present and former directors and officers of the Company to be indemnified by
the surviving corporation after the Effective Time against losses, claims,
damages or liabilities arising out of actions or omissions occurring at or
prior to the Effective Time to the extent provided by the Company's by-laws as
in effect on the date of the Acquisition Agreement (to the extent consistent
with applicable law). However, in each case, the surviving corporation will
not be required to indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) that was initiated by such
person, unless the initiation thereof was approved or ratified by the Board of
Directors of BayBanks, nor any proceeding or part thereof by or in the right
of the surviving corporation or the Bank, as the case may be. In addition, the
Acquisition Agreement further provides for BayBanks and the surviving
corporation to use their best efforts to maintain in effect for a period of
one year from the Effective Time, if available, the current directors' and
officers' liability insurance policies maintained by the Company (or
substantially equivalent substitute policies) with respect to matters
occurring prior to the Effective Time, provided that the annual premiums for
such insurance do not exceed an amount equal to the lesser of 200 percent of
the current premiums paid by the Company for such insurance or $50,000.
Stock Options. Options to purchase 99,750 shares of Common Stock are
outstanding pursuant to the Stock Option Plans, all of which are vested and
exercisable.
Pursuant to the Acquisition Agreement, outstanding and unexercised
options to purchase Common Stock will be terminated in exchange for an amount
of cash which is equal to the difference between the Merger Consideration and
the applicable exercise price times the number of shares of Common Stock
subject to the option. See "The Merger--Surrender of Stock Certificates;
Payment of Merger Consideration." The estimated aggregate value of the
outstanding stock options held by all officers and directors of the Company as
a group amounts to $691,618, based on the Merger Consideration minus the
exercise price. See "Election of Directors--Executive Compensation and Other
Information".
Other than as set forth above, no Director or Executive Officer of the
Company has any direct or indirect material interest in the Merger, except
insofar as the ownership of Common Stock might be deemed such an interest and,
in the case of Executive Officers, benefits to which they are entitled
pursuant to certain employee benefit plans of the Company on the same terms as
generally are applicable to all participating employees.
Business Pending the Merger
The Company has agreed in the Acquisition Agreement that, to the extent
not otherwise restricted or limited by the terms of the Acquisition Agreement,
the Company and its subsidiaries will carry on their businesses in all
material respects in a manner substantially consistent with past practice,
except for changes approved in writing by BayBanks, and use their best efforts
to preserve their business, to keep available their present officers and key
employees and to preserve the current relationships of customers and others
having business relationships with them.
The Acquisition Agreement also contains certain restrictions on the
conduct of the Company's business pending the consummation of the Merger. In
particular, the Acquisition Agreement provides that, except with the prior
written consent of BayBanks, neither the Company nor any of its subsidiaries
will, among other things, (i) amend or otherwise change its Articles of
Incorporation or By-Laws; (ii) issue, sell, pledge, dispose of, grant,
encumber or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of, any shares of capital stock of any class of the Company or any
subsidiary of the Company, any stock appreciation rights or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest, of the Company
or any subsidiary of the Company (except for the issuance of a maximum of
99,750 shares of Common Stock issuable pursuant to stock options outstanding
under the Stock Option Plans and a maximum of 230,131 shares of Common Stock
issuable upon conversion of the Company's outstanding convertible debentures);
(iii) with respect to the Company, declare, set aside, make or pay any
dividend or other distribution with respect to any of its capital stock; (iv)
split, combine or reclassify any shares of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock; (v) repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any
subsidiary, or any securities convertible into or exercisable for any shares
of the capital stock of the Company or any subsidiary; (vi) enter into any new
line of business; (vii) merge or consolidate with, or purchase an equity
interest in or a portion of the assets of, or acquire by any other manner, any
business or any corporation, partnership, other business organization or any
division thereof, or sell or purchase any material amount of assets other than
in connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of business
consistent with past practice; (viii) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of any
individual, corporation or other entity, other than short-term borrowings with
a maturity of less than 90 days in the ordinary course of business consistent
with past practice; (ix) (A) enter into or amend any lease of real property or
(B) enter into or amend any other contract or agreement other than in the
ordinary course of business consistent with past practice and, in any event,
regardless of whether consistent with past practice, undertake or enter into
any contract or other commitment involving an aggregate payment by or to the
Company, the Bank or any other subsidiary under any such contract or
commitment of more than $50,000 or having a term of one year or more from the
time of execution or any amendment involving an aggregate increase in payments
by the Company or any subsidiary of more than $50,000; (x) authorize any
single capital expenditure which is in excess of $50,000 or capital
expenditures which are, in the aggregate, in excess of $250,000 for the
Company and its subsidiaries taken as a whole, except for contractual
commitments entered into prior to the date of the Acquisition Agreement; (xi)
increase the compensation payable or to become payable to its officers or
employees, except for increases in accordance with past practices in salaries
or wages of employees of the Company or any subsidiary who are not officers of
the Company or any subsidiary, or grant any severance (including severance in
connection with a change in control) or termination pay to, or (except for
specified employment agreements) enter into or amend any employment or
severance agreement with any director, officer or other employee of the
Company or any subsidiary, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance, life insurance or split dollar life
insurance, retiree medical or life insurance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any director, officer or
employee, or make any contribution to fund existing non-qualified deferred
compensation obligations of the Company or any subsidiary, or accrue or make
any contribution with respect to any plan year under the existing profit
sharing plan in any amount or at a rate in excess of the rate at which such
contributions were accrued on the September 30, 1994 financial statements of
the Company and its subsidiaries; (xii) take any action with respect to
accounting policies or procedures in effect at December 31, 1994, other than
in the ordinary course of business or required by changes to GAAP or
regulatory accounting principles as concurred upon by the Company's
independent auditors; (xiii) file any application to relocate or terminate the
operations of any banking office of it or any of its subsidiaries or relocate
or terminate any such operations; (xiv) make any equity investment or
commitment to make such an investment in equity securities or in real estate
or in any real estate development project, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan or debt
restructurings in the ordinary course of business consistent with past
practice; (xv) sell any securities in its securities portfolios, except in the
ordinary course of business, acquire any securities for the Company's or its
subsidiaries' securities portfolios with a final maturity of more than two
years, or engage in any transaction in or involving structured notes,
forwards, futures, options on futures, swaps or other derivative instruments;
(xvi) other than activities in the ordinary course of business consistent with
past practice, sell, lease, encumber, assign or otherwise dispose of, or agree
to sell, lease, encumber, assign or otherwise dispose of, any of its material
assets, properties or other rights or agreements; (xvii) take any action that
is intended or reasonably can be expected to result in any of its
representations and warranties set forth in the Acquisition Agreement being or
becoming untrue in any material respect as of any time to and including the
Effective Time, or any of the conditions to the Merger or the other
transactions contemplated by the Acquisition Agreement not being satisfied in
any material respect, or in any material violation of any provision of the
Acquisition Agreement or Option Agreement, except, in every case, as may be
required by applicable law, but only after reasonable consultation with
BayBanks; (xviii) foreclose upon or take a deed or title to any commercial
real estate without first conducting a Phase I environmental assessment of the
property or foreclose upon any commercial real estate if such environmental
assessment indicates the presence of certain hazardous materials in amounts
which, if such foreclosure were to occur, would result in a material adverse
effect on the Company and its subsidiaries, taken as a whole; or (xix) agree
to do any of the foregoing or permit any of the foregoing to occur.
In the Acquisition Agreement, the Company has agreed to take certain
steps in conformity with New Hampshire environmental laws with respect to real
estate acquired by the Bank pursuant to its rights as a secured party,
including qualifying the Bank for the secured party exemption from clean-up
liability and safe harbor requirements under such laws and obtaining letters
from the state confirming that the Bank so qualifies, obtaining a report from
an environmental consulting firm with respect to certain real property
describing the environmental response actions necessary, if any, and
performing all work described in such report, and taking any and all actions
necessary or desirable to qualify any real property for state reimbursement
for clean-up costs. The Company is not aware of any conditions with respect to
its properties which would be likely to cause it to be unable to meet these
requirements.
Option Agreement
As an inducement to BayBanks to enter into the Acquisition Agreement,
the Company and BayBanks entered into the Option Agreement contemporaneously
with the execution of, and pursuant to, the Acquisition Agreement. The Option
Agreement may have the effect of discouraging the making of alternative
acquisition proposals for the Company and increasing the likelihood that the
Merger will be consummated in accordance with the terms of the Acquisition
Agreement. A copy of the Option Agreement is attached hereto as Annex B, and
the following discussion is qualified by reference to the Option Agreement.
Capitalized terms used and not defined in this discussion have the same
respective meanings as when used in the Option Agreement. Stockholder approval
of the Acquisition Agreement will also constitute approval of the Option
Agreement.
Pursuant to the Option Agreement, the Company granted to BayBanks an
irrevocable Option to purchase up to 295,000 shares of Company Common Stock
("Option Shares"), representing approximately 14 percent of the shares of the
Company Common Stock outstanding on March 23, 1995, at an exercise price of
$6.625 per share (the "Option Price"). In the event of any change in Company
Common Stock by reason of a stock dividend, split-up, recapitalization,
combination, exchange of shares or similar transaction, the type and number of
shares or securities to be delivered by the Company pursuant to the Option
shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction, so that BayBanks shall receive upon
exercise of the Option the number and class of shares or other securities or
property that it would have received if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable.
The number of Option Shares is also subject to adjustment in the event that
the Company issues additional shares of Company Common Stock (including shares
issued pursuant to outstanding options under the Company's Stock Option Plans)
so that, after such issuance, such number equals 14 percent of the number of
shares of Company Common Stock then issued and outstanding without giving
effect to any shares subject to or issued pursuant to the Option.
Exercising the Option would provide BayBanks with, among other things,
(i) the opportunity to profit from increases in the value of the Common Stock,
(ii) the potential as a substantial shareholder to influence the management
and policies of the Company and (iii) the opportunity to vote on future
acquisition proposals.
Exercisability. The Option is exercisable upon the occurrence of an
"Exercise Event". The occurrence of any of the following events or
transactions prior to a Termination Event (discussed below) constitutes an
"Exercise Event": (i) any person (other than BayBanks or an affiliate of
BayBanks) shall have commenced, or filed a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") with respect to, a
tender offer or exchange offer to purchase any shares of Company Common Stock
such that, upon the consummation of such offer, such person would own or
control 15 percent or more of the then outstanding Company Common Stock; (ii)
without having received BayBanks' prior written consent, the Company or any
subsidiary of the Company shall have entered into or proposed or announced an
agreement or intention to enter into, or the Board of Directors of the Company
shall have approved or recommended that shareholders of the Company approve or
accept, an Acquisition Transaction (as hereinafter defined) with any person
(other than BayBanks or an affiliate of BayBanks); (iii) any person other than
BayBanks or an affiliate of BayBanks shall have acquired beneficial ownership
or the right to acquire beneficial ownership of, or any "group" as such term
is defined under the Securities Exchange Act of 1934 (the "Exchange Act")
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 15 percent or more of the then outstanding Company
Common Stock; or (iv) the holders of Company Common Stock shall not have
approved the Acquisition Agreement at a stockholders' meeting held for the
purpose of voting on the Acquisition Agreement or no meeting of stockholders
of the Company to consider approval of the Acquisition Agreement shall have
been held or shall have been held and canceled prior to termination of the
Acquisition Agreement, in each case after it shall have been publicly
announced that any person other than BayBanks or any affiliate of BayBanks
shall have (x) made or disclosed an intention to make, a proposal to engage in
an Acquisition Transaction or (y) filed an application or notice in draft or
final form under the BHCA or the Change in Bank Control Act of 1978 for
approval to engage in an Acquisition Transaction.
The term "Acquisition Transaction" as used in the Option Agreement and
the Acquisition Agreement means (i) a merger, consolidation or similar
transaction involving the Company or any subsidiary of the Company; (ii) the
sale, lease or other disposition of assets of the Company or any subsidiary of
the Company representing 15 percent or more of the consolidated assets of the
Company and its subsidiaries in a single transaction or series of
transactions; or (iii) the issuance, sale, transfer, exchange or other
disposition of (including by way of merger, consolidation, share exchange,
acceptance of a tender or exchange offer or any similar transaction) of
securities representing 15 percent or more of the voting power of the Company
or any subsidiary of the Company.
The Company's Repurchase Obligations. If the Option becomes exercisable,
BayBanks may under certain circumstances require the Company to repurchase the
Option (in lieu of its exercise) and any issued Option Shares. Following the
occurrence of any one of certain Exercise Events that occurs prior to a
Termination Event, (i) at the request (the date of such request being the
"Request Date") of BayBanks, the Company will repurchase the Option and all
shares of Company Common Stock purchased by BayBanks pursuant to the Option
with respect to which BayBanks then has beneficial ownership. Such repurchase
will be at an aggregate price (the "Repurchase Consideration") equal to the
sum of: (i) the aggregate exercise price paid by BayBanks for any shares of
Company Common Stock acquired pursuant to the Option with respect to which
BayBanks then has beneficial ownership; (ii) the excess, if any, of (x) the
Applicable Price (as defined below) for each share of Company Common Stock
over (y) the Option Price paid or payable by BayBanks for each share of
Company Common Stock with respect to which the Option has been exercised and
with respect to which BayBanks then has or has the right to acquire beneficial
ownership, multiplied by the number of such shares. The term "Applicable
Price" means the highest of (i) highest price per share at which a tender or
exchange offer has been made for shares of Company Common Stock after the date
of the Option Agreement and on or prior to the Request Date, (ii) the price
per share to be paid by any third party for shares of Company Common Stock or
the consideration per share to be received by holders of Company Common Stock,
in each case pursuant to an agreement for a merger or other business
combination transaction with the Company entered into on or prior to the
Request Date, or (iii) the highest bid price per share as quoted on the Nasdaq
National Market during the 60 business days preceding the Request Date.
To the extent that prior notification to or approval of the Federal
Reserve Board or other governmental entity is required in connection with the
payment of all or any portion of the Repurchase Consideration or is not then
permissible under RSA 293-A:6.40 of the NHBCA, the Company shall deliver from
time to time that portion of the Repurchase Consideration that it is not then
so prohibited from paying and shall promptly file the required notice or
application for approval and shall expeditiously process the same, and the
period of time for payment of the Repurchase Consideration shall run from the
date on which, as the case may be, (i) any required notification period has
expired or been terminated or (ii) such approval has been obtained and, in
either event any requisite waiting period shall have passed. If the Federal
Reserve Board or any other governmental entity disapproves of any part of the
Company's proposed repurchase of the Option or any issued Option Shares, the
Company shall redeliver to BayBanks any Option Shares which the Company has
repurchased from BayBanks which it is then prohibited from repurchasing, and
BayBanks shall have the right to exercise the Option as to the number of
Option Shares for which the Option was exercisable at the Request Date, less
the number of shares as to which payment has been made; provided that if the
Option shall have expired prior to the date of such notice or shall be
scheduled to expire at any time before the expiration of a period ending on
the 30th business day after such date, BayBanks shall nonetheless have the
right to so exercise the Option or exercise its right with respect to the
registration of Option Shares until the expiration of such period.
Termination. The Option will terminate and be of no further force and
effect upon the earliest to occur of (i) the Effective Time, (ii) 12 months
following the first occurrence of an Exercise Event or (iii) the termination
of the Acquisition Agreement prior to the occurrence of an Exercise Event
(other than a termination of the Acquisition Agreement by BayBanks due to the
failure of the Company to perform its obligations under the Acquisition
Agreement with respect to obtaining shareholder approval of the Acquisition
Agreement (see "The Merger--Termination, Amendment and Waiver") or its
obligations with respect to competing acquisition proposals (see "The Merger--
No Solicitation")) or (iv) 12 months after the termination of the Acquisition
Agreement by BayBanks in the event of a breach by the Company of its
obligations with respect to obtaining shareholder approval of the Acquisition
Agreement or its obligations with respect to competing acquisitions; provided,
however, that if within the period specified under clause (iv) an Exercise
Event shall occur, then the Option shall terminate 12 months after the first
occurrence of such Exercise Event. Each of the events described in clauses
(i)-(iv) in the preceding sentence is referred to as a "Termination Event."
Notwithstanding the termination of the Option, BayBanks will be entitled to
acquire those Option Shares with respect to which it has exercised the Option
prior to its termination.
Registration Rights. The Company shall, if requested by BayBanks within
the two years following the first purchase of Option Shares, as expeditiously
as possible prepare and file up to two registration statements under the
Securities Act if such registration is necessary in order to permit the sale
or other disposition of any or all shares of Company Common Stock or other
securities that have been acquired by or are issuable to BayBanks upon
exercise of the Option by BayBanks, including a "shelf " registration
statement under Rule 415 of the Securities Act or any successor provision, and
the Company shall use all reasonable efforts to qualify such shares or other
securities under any applicable state securities laws. BayBanks has agreed to
use all reasonable efforts to cause, and to cause any underwriters of any sale
or other disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that
upon consummation thereof no purchaser or transferee shall own beneficially
three percent or more of the then outstanding voting power of the Company. The
Company shall use all reasonable efforts to cause each such registration
statement to become effective, to obtain all consents or waivers of other
parties which are required therefor and to keep such registration statement
effective for such period not in excess of 120 days from the date such
registration statement first becomes effective as may be necessary to effect
such sale or other disposition. The obligations of the Company to file a
registration statement and maintain its effectiveness may be suspended for one
or more periods of time not exceeding 90 days in the aggregate for all such
periods if the Board of Directors of the Company shall have determined that
the filing of such registration statement or the maintenance of its
effectiveness would require the disclosure of nonpublic information that would
materially and adversely effect the Company. The preparation and filing of any
such registration statement shall be at the Company's expense except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of BayBanks' counsel related thereto. In addition, if during
such period the Company effects a registration under the Securities Act of
Company Common Stock for its own account or for any other stockholders of the
Company (other than in certain merger or acquisition transactions or in
connection with employee benefit plans), it shall allow BayBanks the right to
participate in such registration, and such participation shall not affect the
obligation of the Company to effect two registration statements for BayBanks
under the Option Agreement; provided that, if the managing underwriters of
such offering advise the Company in writing that in their opinion the number
of shares of Company Common Stock requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely effecting the offering price, timing or distribution of the Company
Common Stock being sold, the Company shall include in such registration first,
the shares intended to be included therein by the Company, and second, the
number of shares requested to be included therein by BayBanks which, in the
opinion of such managing underwriters, can be sold in such offering without
adversely effecting the price, timing or distribution of the Company Common
Stock being sold. In connection with any such registration, the Company and
BayBanks shall provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification and
contribution in connection with such registration. In the event of an
Acquisition Transaction, proper provisions shall be made in the definitive
Acquisition Agreement executed in connection therewith to provide that the
acquiring party or successor party thereto shall be bound by the registration
rights provisions of the Option Agreement.
Right of First Refusal. The Option Agreement provides under certain
circumstances for the Company to have a right of first refusal to repurchase
any Option Shares acquired by BayBanks in the event that BayBanks desires to
sell, assign, transfer or otherwise dispose of all or any of the Option Shares
or other securities acquired by BayBanks pursuant to the Option. The right of
first refusal does not apply to (i) any disposition as a result of which the
proposed transferee would own beneficially not more than three percent of the
outstanding voting power of the Company, (ii) any disposition of Company
Common Stock or other securities by a person to whom BayBanks has assigned its
rights under the Option with the consent of the Company, (iii) any sale by
means of a public offering registered under the Securities Act in which steps
are taken to reasonably assure that no purchaser will acquire securities
representing more than three percent of the outstanding voting power of the
Company or (iv) any transfer to a wholly-owned subsidiary of BayBanks which
agrees in writing to be bound by the terms of the Option Agreement. The
exercise by the Company of such right of first refusal may be subject to
notification to or approval of the Federal Reserve Board or other regulatory
authority.
No Solicitation
In the Acquisition Agreement, the Company has agreed that neither it nor
any of its subsidiaries will, directly or indirectly, through any officer,
director, agent or otherwise, initiate contact with, solicit or encourage the
submission of any proposal or offer from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) any material portion of the assets of, or any equity interest in,
the Company or any of its subsidiaries or any business combination with the
Company or any of its subsidiaries or, except to the extent determined by the
Company's Board of Directors, with the advice of its independent counsel, to
be required by its fiduciary obligations under applicable law, participate in
any discussions or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in or facilitate, any effort or attempt by any other person to
do or seek any of the foregoing. The Acquisition Agreement further provides
for the Company to notify BayBanks promptly if any such proposal or offer, or
any inquiry or contact with any person with respect thereto, is made and is
further required, in any such notice to BayBanks, to indicate in reasonable
detail the identity of the person making such proposal, offer, inquiry or
contact and the terms and conditions of any such proposal, offer, inquiry or
contact.
Certain Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences of the Merger to the Company's stockholders. The discussion is
based on current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations, current
administrative rulings of the Internal Revenue Service ("IRS") and judicial
decisions, all of which are subject to change, and assumes that the Merger is
carried out as described herein. If changes are made to current law or if the
Merger is not carried out as described herein, the federal income tax
consequences of the Merger may vary from those described in this summary. The
discussion does not purport to be a complete analysis or listing of all
potential tax effects relevant to a particular stockholder, nor does it
address the tax consequences that may be relevant to particular categories of
stockholders subject to special treatment under certain federal income tax
laws. In addition, it does not describe any tax consequences arising under the
laws of any state, local or foreign jurisdiction. The discussion also may not
be applicable with respect to Company Common Stock received pursuant to the
exercise of employee stock options or otherwise as compensation. Accordingly,
each stockholder is urged to consult his or her own tax advisor regarding the
tax consequences of the Merger in his or her own particular tax situation and
regarding state, local and foreign tax implications of the Merger and any tax
reporting requirements of the Merger.
Tax Treatment of the Company, BayBanks and BBNH. The Merger will be
treated as a sale of the Company Common Stock. Accordingly, the Company,
BayBanks and BBNH will recognize no gain or loss by reason of the Merger, and
the basis and holding periods of the Company's and BBNH's assets immediately
after the Merger will include the basis and holding periods in their hands
immediately before the Merger.
Tax Consequences to Company's Stockholders. A stockholder who exchanges
his Common Stock for cash in the Merger will be treated as if the shares had
been sold in a taxable transaction. Gain or loss realized will be recognized
by the stockholder with respect to the receipt of the cash in exchange for the
Company Common Stock in the Merger. The amount of gain or loss realized will
be measured by the difference between the amount of cash received and the
adjusted basis of the shares. Such gain or loss will be capital gain or loss,
assuming the shares were a capital asset in the stockholder's hands at the
time of the Merger, and will be long-term capital gain or loss if the
stockholder has held the Common Stock for more than one year at the time of
the Merger.
A Company stockholder who exercises dissenters' rights with respect to
his or her shares will be subject to tax on the receipt of the payments
pursuant to Section 302 of the Code (taking into account the application of
the stock attribution rules of Section 318 of the Code). In general, such
stockholder will recognize capital gain or loss measured by the difference
between the amount of cash received by such stockholder and the basis for his
or her shares, assuming the shares are held by the stockholder as a capital
asset.
THE TAX DISCUSSION SET FORTH ABOVE IS A GENERAL DISCUSSION BASED UPON
PRESENT LAW. EACH STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS
OF CHANGE IN FEDERAL OR OTHER LAWS.
Accounting Treatment
BayBanks expects to account for the Merger under the purchase method of
accounting.
Termination, Amendment, and Waiver
The Acquisition Agreement may be terminated and the Merger abandoned
prior to the Effective Time, either before or after its approval by
stockholders of the Company: (i) by mutual written consent duly authorized by
the Boards of Directors of BayBanks, BBNH and the Company; (ii) by either
BayBanks and BBNH or the Company if the Effective Time shall not have occurred
on or before February 28, 1996 (provided, however, that the right to terminate
the Acquisition Agreement pursuant to this provision shall not be available to
any party whose failure to fulfill any material obligation under the
Acquisition Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date); (iii) by either BayBanks
and BBNH or the Company (x) 90 days after the date on which any request or
application for regulatory approval required to consummate the Merger shall
have been denied or withdrawn at the request or recommendation of the
governmental entity which must grant such requisite regulatory approval,
unless within the 90 period following such denial or withdrawal a petition for
rehearing, a request for reconsideration or an amended application has been
filed with such governmental entity (unless such denial or request or
recommendation for withdrawal shall be due to the failure of the parties
seeking to terminate the Acquisition Agreement to perform or observe the
covenants and agreements of such parties set forth therein) or (y) if any
court of competent jurisdiction or other governmental authority shall have
issued an order, decree or ruling or shall have taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and not appealable;
(iv) by either BayBanks and BBNH or the Company if there shall have been a
material breach of any of the representations and warranties set forth in the
Acquisition Agreement on the part of the other party, which breach by its
nature can not be cured in time to permit the Effective Time to occur no later
than February 28, 1996; (v) by either BayBanks and BBNH or the Company if
there shall have been a material breach of any of the covenants or agreements
set forth in the Acquisition Agreement on the part of the other party, which
breach shall not have been cured within 45 days following receipt by the
breaching party of written notice of such breach from the other party to the
Acquisition Agreement; or (vi) by BayBanks or BBNH or the Company if any
approval of the stockholders of the Company required for the consummation of
the Merger shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or any adjournment or
postponement thereof (provided, that if the terminating party is the Company,
the Company shall not have breached its obligations under the Acquisition
Agreement with respect to the seeking of such shareholder approval).
Prior to the Effective Time, any provision of the Acquisition Agreement
may be (i) waived by the party benefitted by the provision or (ii) amended or
modified at any time by an agreement in writing among the parties approved by
their respective boards of directors, except that, after the approval by the
stockholders of the Company, no amendment may be made that reduces or changes
the form and amount of consideration payable pursuant to the Acquisition
Agreement without stockholder approval thereof.
Expenses of the Merger and Termination Fee
Each party to the Acquisition Agreement will bear all expenses incurred
by it in connection with the Acquisition Agreement and the transactions
contemplated thereby.
Included among the expenses payable by the Company are the fees and
expenses of its financial advisors, Chatham and Sheshunoff. For services in
assisting the Company in preparing for and reviewing acquisition offers and in
negotiating the terms of the Acquisition Agreement, Chatham is to be paid
$204,500 (of which $104,500 is contingent on consummation of the Merger) and
will be reimbursed for its out-of-pocket expenses. The fees and expenses
payable to Sheshunoff in connection with the Merger are described under "The
Merger--Opinion of Financial Advisor."
In order to induce BayBanks to enter into the Acquisition Agreement, the
Company has agreed to pay BayBanks a fee of $500,000 if (i) BayBanks, BBNH or
the Company has terminated the Acquisition Agreement due to the failure to
receive the approval of the Acquisition Agreement and transactions
contemplated therein by the stockholders of the Company or (ii) BayBanks has
terminated the Acquisition Agreement due to a material breach of any of the
representations, warranties, covenants or agreements of the Company and in,
either such event, within twelve months before or after any such termination,
(A) the Company shall have entered into an agreement to engage in an
Acquisition Transaction with any person other than BayBanks or any subsidiary
or affiliate of BayBanks or (B) the Board of Directors of the Company shall
have approved an Acquisition Transaction or recommended that stockholders of
the Company approve or accept any Acquisition Transaction with any person
other than BayBanks or any subsidiary or affiliate of BayBanks or, in the case
of a termination due to the failure to receive the approval of the Acquisition
Agreement by the stockholders of the Company, that at the time of such
termination it shall have been publicly announced that any person, other than
BayBanks or any subsidiary or affiliate of BayBanks, shall have (x) made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction or (y) filed an application or notice in draft or final form,
under the BHCA or the federal Change in Bank Control Act of 1978, for approval
to engage in an Acquisition Transaction. Whether or not the Acquisition
Agreement has been approved by the stockholders would be determined in the
same manner as is described above in "The Annual Meeting--Votes Required,"
namely, if the Acquisition Agreement is approved by holders of a majority, but
less than 80%, of the outstanding Common Stock, a judicial determination would
be required to determine whether or not stockholder approval had been
received. The Acquisition Agreement contains no provision for payment by
BayBanks of a termination fee, even if BayBanks materially breaches its
obligations thereunder. However, the Acquisition Agreement provides that
termination shall not relieve any party from liability for breach thereof.
Dissenters' Rights
Pursuant to sections 293-A:13.01 et seq. of the NHBCA, any holder of
shares of Common Stock who objects to the Merger is entitled to dissent from
the Merger and to have the fair value of such shares ("Dissenting Stock") as
determined by the Company, or if necessary, judicially determined, paid to
him, by complying with the provisions of Sections 293-A:13.01 et seq. of the
NHBCA. Failure to take any steps set forth in Sections 293-A:13.01 et seq. in
connection with the exercise of such rights may result in termination or
waiver thereof.
The following is a summary of the statutory procedures required to be
followed by a holder of Dissenting Stock (a "dissenting stockholder") in order
to exercise his rights under the NHBCA. This summary is qualified in its
entirety by reference to Sections 293-A:13.01 et seq. of the NHBCA, the text
of which is attached as Annex D to this Proxy Statement.
If a stockholder elects to exercise dissenters' rights with respect to
the Merger, such stockholder must (i) file with the Company prior to the vote
on the Merger at the Annual meeting a written notice of intention to demand
payment for his shares if the Merger is effected and (ii) not vote in favor of
the Merger. The written notice required to be delivered to the Company by a
dissenting stockholder is in addition to and separate from any proxy or vote
against the Merger. Neither voting against nor failure to vote for the Merger
will constitute the written notice required to be filed by a dissenting
stockholder. Failure to vote against the Merger, however, will not constitute
a waiver of rights under Sections 293-A:13.01 et seq. of the NHBCA provided
that a written objection has been properly filed. A signed proxy that is
returned but which does not contain any instructions as to how it should be
voted will be voted in favor of approval of the Merger and will be deemed a
waiver of dissenters' rights. See "The Annual Meeting--Voting, Solicitation,
and Revocation of Proxies."
A beneficial stockholder may assert dissenters' rights as to shares held
on his behalf only if (i) he submits to the Company the record stockholder's
written consent to the dissent not later than the time the beneficial
stockholder asserts dissenters' rights and (ii) he does so with respect to all
shares of Common Stock of which he is the beneficial owner or over which he
has the power to direct the vote. A record holder of shares of Common Stock
may dissent on behalf of any beneficial owner with respect to all but not less
than all the shares of such owner if the record holder notifies the Company in
writing of the name and address of each such person on whose behalf he asserts
dissenters' rights. All notices of intention to demand payment should be
addressed to Edward D. Bureau, Secretary, Cornerstone Financial Corporation,
15 East Broadway, Derry, New Hampshire 03038.
If the Merger is approved, the Company is obligated to give written
notice to each dissenting stockholder who timely filed a notice of intention
to demand payment and who did not vote in favor of approval of the Merger no
later than 10 days after the approval of the Merger by the stockholders of the
Company. The notice must be accompanied by a copy of Sections 293-A:13.01 et
seq. and must (i) state where a demand for payment must be sent and where and
when Certificates for Dissenting Stock must be deposited in order to obtain
payment, (ii) inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received, (iii)
be accompanied by a form demanding payment that includes the date of the first
announcement to news media or to stockholders of the terms of the proposed
Merger (March 23, 1995) and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the
Dissenting Stock before that date and (iv) set a date by which the Company
shall receive the payment demand, which date shall not be less than 30 days
nor more than 60 days after the date the notice is delivered.
A dissenting stockholder who fails to demand payment or to deposit
Certificates for Dissenting Stock as required shall have no right under
Sections 293-A:13.01 et seq. to receive payment for the Dissenting Stock.
Unless the Merger has been effected and the Company has made the payment
required below within 60 days after the date for demanding payment and
depositing Certificates for Dissenting Stock, the Company shall return any
Certificates for Dissenting Stock so deposited. If such Dissenting Stock has
been returned by the Company, the Company may at a later time send a new
notice conforming to the requirements herein described.
Upon consummation of the Merger, the obligations of the Company under
Sections 293-A:13.01 et seq. will be assumed by the surviving corporation.
As soon as the Merger has been consummated, or upon receipt of demand
for payment if the Merger has already been consummated, the Company shall
remit to each dissenting stockholder who has made proper demand and deposited
his Certificates the amount which the Company deems to be the fair value of
his Dissenting Stock, with accrued interest, if any, accompanied by (i) the
Company's balance sheet as of the end of a fiscal year ending not more than 16
months before the date of payment, (ii) an income statement and a statement of
changes in stockholders' equity for such fiscal year, (iii) the Company's
latest available interim financial statements, if any, (iv) a statement of the
Company's estimate of the fair value of shares, (v) an explanation of how the
interest was calculated and (vi) a statement of the dissenting stockholders'
right to demand supplemental payment pursuant to Section 293-A:13.28, as well
as a copy of Sections 293-A:13.01 et seq. "Fair value" of Dissenting Stock
means the value immediately before the Effective Time, excluding any change in
value in anticipation of the Merger if such exclusion is not inequitable
(which amount may be more, less, or the same as the Merger Consideration).
If the Company fails to remit such fair value to the dissenting
stockholder or if such dissenting stockholder believes the amount so remitted
to be less than fair value (or that the interest, if any, is not correct),
such dissenting stockholder may send the Company his own estimate of fair
value (and interest, if any) and demand payment of the deficiency. If the
dissenting stockholder does not file the estimate within 30 days of remittance
by the Company, such stockholder shall be entitled to no more than the amount
remitted.
Within 60 days after a demand for payment of a deficiency, if the demand
remains unsettled, the Company shall file a petition with the Superior Court
of Rockingham County, New Hampshire (the "Court") requesting determination of
the fair value of the Dissenting Stock and accrued interest. All dissenting
stockholders whose demands have not been settled shall be parties to such
action and shall be served a copy of the petition. The Court shall determine
the fair value of the Dissenting Stock and each dissenting stockholder shall
be entitled to judgment for the amount by which the amount previously remitted
by the Company is exceeded by the Court's determination of fair value, if any.
If the Company does not file a petition, each dissenting stockholder who has
made a demand and who has not settled his claim shall be entitled to receive
the amount demanded with interest and may sue to enforce his claim in an
appropriate court.
There are no specific valuation methods prescribed under New Hampshire
law to which the Court would be bound in determining fair value. The Court
would consider the evidence which it deemed relevant and material and render
its decision based on that evidence.
The Company may elect to withhold remittances to any dissenting
stockholder who did not own his shares before March 23, 1995, the day the
Merger was announced. With respect to these shares, upon consummation of the
Merger, the Company shall give its fair value estimate and explain the basis
thereof and offer to pay the amount to such holders in full satisfaction. If
the dissenting stockholder disagrees, he may within 30 days mail the Company
his estimate and demand payment. If the dissenting stockholder fails to mail
such a response, he is entitled only to the Company's offer. If demand is
made, further proceedings shall follow the procedures for judicial appraisal
of shares set forth above.
Costs of an appraisal proceeding, including costs and expenses of
appraisers appointed by the Court, shall be determined by the Court and
assessed against the Company, except that the Court may assess any part of
such costs and expenses to all or some of the dissenting stockholders who are
parties and whose action the court finds to be arbitrary, vexatious, or not in
good faith in demanding payment under Sections 293-A:13.01 et seq. Fees and
expenses of counsel and experts for the respective parties may be assessed
against the Company if the Court finds it failed to comply substantially with
the requirements of Sections 293-A:13.01 et seq. or may be assessed against
any other party if such party acted arbitrarily, vexatiously, or not in good
faith with respect to its dissenters' rights.
ELECTION OF DIRECTORS
(Proposal Two)
General
In addition to being asked to approve the Acquisition Agreement, the
Company's stockholders will also be asked at the Annual Meeting to elect four
directors of the Company. The Company and BayBanks have targeted the third
quarter of 1995 for consummation of the Merger, and it will be necessary for
the Company to maintain its Board of Directors until the Effective Time. Upon
consummation of the Merger, the directors of the surviving corporation will be
those persons who were the directors of BBNH immediately before the Merger.
The Board of Directors of the Company consists presently of nine
persons. The membership of the Board had consisted of 10 persons but was
reduced to nine with the resignation of Arnold C. Soney, who has been
designated Director Emeritus. Directors are elected for staggered terms of
three years and until their successors are elected and qualified. The
directors are divided into three classes. The term of office of only one class
of directors expires in each year. Formerly, there was one class of four
directors (whose terms expire in 1995) and two classes of three directors
each. There will now be three classes of three directors each. Of the four
directors with expiring terms, three are nominees for three year terms and one
is to be nominated for a two-year term within the class which formerly
included Mr. Soney.
Unless otherwise specified on the proxy, it is the intention of the
persons named in the proxy to vote the shares represented by each properly
executed proxy for the election as directors of the four nominees listed
below. The persons receiving a plurality of the votes cast will be elected as
directors. Although it is anticipated that each nominee will be available to
serve as a director, should any nominee be unavailable to serve, proxies will
be voted by the proxy holders in their discretion for another person
designated by the Board of Directors.
Nominees and Continuing Directors
The following table sets forth certain information, some of which has
been obtained from the Company's records and some of which has been supplied
by the nominees and continuing directors, regarding the nominees for election
to the Board of Directors and the directors who will continue in office after
the Annual Meeting.
<TABLE>
<CAPTION>
Shares of the Company
Owned on the Record
Date (Percentage of
Positions with the Company Outstanding Stock
and Present Principal Director in Parenthesis
Name and Age Occupation or Employment Since(1) Where Over 1%)(2)
Nominees to serve for a term expiring in 1998
<S> <S> <C> <C>
Robert E. Benoit Director, Vice President, Treasurer and 1990 26,210(1.2%)(3)
Age 47 Chief Financial Officer; Director, Vice
President, Treasurer and Chief Financial
Officer of Cornerstone Bank
Edward D. Bureau Director and Secretary; 1969 17,115(4)
Age 64 Grinnell & Bureau, Attorneys
John J. Zito Director; Retired, Former Captain 1981 32,407(1.5%)(5)
Age 67 Delta Airlines, Inc.
Nominee to serve for a term expiring in 1997
Horace A. Holaday, Jr. Director; Retired, Former President of 1969 18,355(6)
Age 80 Holmes and Wheeler Oil and Heating, Inc.
Directors whose terms expire in 1997
Edward E. Gage, Jr. Director, President, Fortin Gage, Ltd. 1991 3,955(7)
Age 60
John M. Terravecchia Director, Chairman, President and Chief 1970 100,638(4.6%)(8)
Age 59 Executive Officer; Chairman and Chief
Executive Officer of Cornerstone Bank
Directors whose terms expire in 1996
Howard S. Dearth(9) Director; Retired, Former Real Estate 1973 54,468(2.5%)(10)
Age 81 Broker
Paul T. Phillips(9) Director; President, Phillips Refrigeration, 1975 15,374(11)
Age 81 Inc. (servicers of refrigeration equipment)
G. Robert Smith Director and Senior Vice 1977 53,898(2.4%)(12)
Age 55 President; President and Chief Operating
Officer of Cornerstone Bank
All directors and executive
officers of the Company
as a group (10 persons)(13) 323,920(14.7%)
<FN>
<F1> Each of the above-named directors is a member of the Board of Directors
of Cornerstone Bank (the "Bank"), the Company's principal subsidiary. Since
the Company was not active until 1983, references to the years directors have
served prior to 1983 relate to service on the Bank's Board.
<F2> Shares of the Company beneficially owned. A beneficial owner of security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares the power
to vote such security or the power to dispose of such security. Included are
shares owned by spouses and relatives living in the same home as to which
beneficial ownership may be disclaimed and shares which may be obtained within
60 days under the Company's Stock Option Plans or upon conversion of the
Company's convertible debentures.
<F3> Includes 21,010 shares subject to options.
<F4> Includes 14,200 shares owned with spouse and 60 shares owned by
children. Also, includes 2,855 shares subject to options.
<F5> Includes 2,200 shares owned by spouse and 1,455 shares subject to options.
<F6> Includes 15,500 shares owned with spouse and 2,855 shares subject to options.
<F7> Includes 1,100 shares owned with spouse and 2,855 shares subject to options.
<F8> Includes 24,250 shares owned by and with spouse and 29,000 shares
subject to options.
<F9> Messrs. Dearth and Phillips are brothers-in-law.
<F10> Includes 51,613 shares owned with spouse and 2,855 shares subject to options.
<F11> Includes 12,519 shares owned with spouse and 2,855 shares subject to options.
<F12> Includes 3,000 shares owned with spouse and 29,010 shares subject to options.
<F13> Includes 1,500 shares owned by an officer of the Bank with his spouse
and 94,740 shares subject to options.
</FN>
</TABLE>
The Company delegates certain of its duties to the Executive, Audit,
Compensation and Stock Option Committees of the Board of Directors. Neither
the Company nor the Bank has a standing Nominating Committee of the Board of
Directors. Nominations to the Boards are made by the full Boards of Directors.
The Audit Committee held five meetings in 1994. The Audit Committee members
were Messrs. Bureau, Gage and Holaday. The function of the Audit Committee is
to review reports by the internal auditor and independent public accountants
of the Company and its subsidiaries and to make recommendations to management,
based upon its review of these reports, for improved or changed operating
procedures that it considers desirable or necessary. The Compensation
Committee, which consists of Messers. Bureau, Phillips, Terravecchia and
Smith, met once during 1994.
The Board of Directors of the Company held 13 regular meetings in 1994.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED HEREIN.
Principal Holders of Voting Securities
The following table sets forth information with respect to persons known
by the Company as of June 16, 1995 to be the beneficial owners of more than
five percent of the outstanding Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address Beneficial Ownership(1) Stock Outstanding
<S> <C> <C>
BayBanks, Inc. 391,000(2) 16.3%
175 Federal Street
Boston Massachusetts 02110
<FN>
<F1> See Note (2) above under "Election of Director--Nominees and Continuing
Directors."
<F2> Under Commission rules, BayBanks is deemed for purposes of this table to
be the beneficial owner of 295,000 shares of Common Stock subject to the
Option. The Option may be exercised, and shares of Common Stock issued to
BayBanks, in the circumstances described above under "The Merger--Option
Agreement."
</FN>
</TABLE>
Executive Officers
Listed below is information concerning the executive officers of the
Company and the Bank.
<TABLE>
<CAPTION>
Name and Age Position with the Company Position with the Bank
<S> <S> <S>
John M. Terravecchia Director, Chairman, President and Director, Chairman and
Age 59 Chief Executive Officer Chief Executive Officer
Howard S. Dearth Director and First Vice President Director and First Vice President
Age 81
Edward D. Bureau Director and Secretary Director and Secretary
Age 64
G. Robert Smith Director, Senior Vice President Director, President and Chief
Age 55 and Assistant Secretary Operating Officer
Robert E. Benoit Director, Vice President, Treasurer Director, Vice President, Treasurer
Age 47 and Chief Financial Officer and Chief Financial Officer
Ronald E. Vincent Controller
Age 47
</TABLE>
Each of the foregoing directors and officers of the Company and the Bank
has been employed as set forth opposite his name above for at least the past
five years except Mr. Vincent. Mr. Vincent joined the Bank in July, 1992.
Prior to that time, he was Controller of Numerica Savings Bank, FSB in
Manchester, New Hampshire.
Executive Compensation and Other Information
Summary Compensation Table. Since the formation of the Company in 1983,
none of its officers has received any compensation directly from the Company.
Compensation of the officers of the Company is paid by the Bank. The following
table sets forth cash compensation for the Company's three senior executive
officers for services rendered in all capacities to the Company and its
subsidiaries during the last three fiscal years; no other executive officer of
the Company received annual total compensation exceeding $100,000 during such
period.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------
Securities
Underlying All Other
Name and Principal Position Year Salary($)(1) Bonus($)(2) Options(#) Compensation($)(3)
<S> <C> <C> <C> <C> <C>
John M. Terravecchia 1994 $121,038 $36,773 0 $20,754
President and Chief 1993 116,264 35,018 20,000 12,426
Executive Officer of the 1992 115,525 0 9,000 0
Company
G. Robert Smith 1994 91,214 27,467 0 20,400
Senior Vice President and 1993 85,874 26,150 20,000 9,202
Assistant Secretary 1992 86,281 0 9,010 0
Robert E. Benoit 1994 72,898 18,038 0 14,917
Vice President, Treasurer 1993 68,816 17,175 12,000 7,264
and Chief Financial Officer 1992 69,259 0 9,010 0
<FN>
<F1> The amounts listed as Salary for 1994 include base salary plus directors fees.
<F2> The amounts listed as the bonuses for 1993 were not approved and paid until May 1994.
<F3> The values listed in this column include contributions made by the Bank
with respect to such officers under the Bank's Profit Sharing Plan.
</FN>
</TABLE>
Employment Agreements. The Company and the Bank have entered into
certain Employment Agreements with Messrs. Terravecchia, Smith and Benoit. See
"The Merger--Interests of Certain Persons in the Merger."
Director Compensation. In 1994 and to the date hereof in 1995, each
outside director of the Company received $50 for each meeting of the Company's
Board attended. Each director of the Bank received $250 per meeting through
September, 1994, and $350 per meeting thereafter, for each meeting of the
Board attended and $75 for each committee meeting attended.
Profit Sharing Plan. The Company, through the Bank, maintains a
qualified, noncontributory profit-sharing plan (the "Profit Sharing Plan").
Under the Profit Sharing Plan, an employee becomes a participant upon
satisfaction of three requirements: (1) attainment of age 21, (2) completion
of at least 1,000 hours during the preceding year, and (3) employment by the
Bank at year end. The Bank determines its contribution to the Profit Sharing
Plan based upon the Bank's profits. Any money deposited into the Profit
Sharing Plan goes to an investment fund managed by the Profit Sharing Plan
trustees. The trustees are Robert E. Benoit, G. Robert Smith and John M.
Terravecchia, all directors and executive officers of the Bank.
The Bank's contributions are divided proportionately among the
participants based on each participant's compensation. A participant who
terminates his employment prior to completion of seven years of service loses
some of the Bank's contributions to his account. At least four years of
service is required to receive any benefits under the Profit Sharing Plan. In
general, an employee is eligible to receive retirement benefits as of his 65th
birthday. The amount of an individual's retirement benefit depends upon how
much has been contributed for him by the Bank and the investment experience of
the investment fund.
The Bank may terminate or amend the Profit Sharing Plan at any time,
provided that it may not deprive a participant of vested benefits. Under
federal law, the sum of employer contributions, forfeitures from others, and
employee contributions in any year may not exceed the lesser of 25% of an
employee's compensation or $30,000, and the maximum total compensation
considered under the Profit Sharing Plan will be $150,000. The latter amount
will be adjusted to reflect cost-of-living increases. There was a contribution
for the year ended December 31, 1994 of $244,000.
For a discussion of the effect of the Merger on the Profit Sharing Plan,
see "The Merger--Effect on Employee Benefits."
Stock Option Plans
1984 Stock Option Plan. On May 29,1984, the stockholders of the Company
ratified and approved the 1984 Stock Option Plan (the "1984 Option Plan")
adopted by the Board of Directors on April 26, 1984. The 1984 Option Plan was
amended on March 26, 1987 to make changes required by the Tax Reform Act of
1986. Under the 1984 Option Plan, 150,000 shares of authorized but unissued
common stock of the Company were initially reserved for issuance pursuant to
the 1984 Option Plan.
Full-time "key employees" (as defined in the 1984 Option Plan) of the
Company or any subsidiary thereof, meaning those full-time employees of the
Company or any subsidiary considered to be especially important to the future
of the Company, are eligible for selection to participate in the 1984 Option
Plan. Directors who are not also full-time key employees are not eligible to
receive options. All options granted under the 1984 Option Plan are intended
to qualify as incentive stock options ("ISOs") as defined in Section 422 of
the Code.
The 1984 Option Plan is administered by a Stock Option Committee of the
Company's Board of Directors consisting of not less than three members
appointed by the Board, none of whom is eligible to receive ISOs under the
1984 Option Plan ("1984 Option Plan Committee"). The 1984 Option Plan
Committee selects the key employees who are to be granted ISOs, fixes the
number of shares to be optioned to such employees and determines the terms and
conditions of each grant. Final authority with respect to the 1984 Option Plan
rests in the Company's full Board of Directors. The current members of the
1984 Option Committee are Howard S. Dearth, Paul T. Phillips and Horace A.
Holaday, Jr. The 1984 Option Committee held no meetings during 1994.
Under the 1984 Option Plan, no option may be granted after April 26,
1994, the 10th anniversary of the date of the Plan's adoption by the Board of
Directors. In addition, the 1984 Option Plan provides that no option shall be
exercisable after the expiration of five years from the date of grant. The
market value of stock covered by incentive stock options (determined as of the
date of grant) first exercisable under incentive stock options is limited to
$100,000 per calendar year. An optionee will not be deemed to receive taxable
income upon grant or exercise of an incentive stock option, and any gain
realized at the time of sale of shares acquired upon exercise of an incentive
stock option will constitute capital gain to the optionee, provided that
certain employment and holding period requirements are met. No deduction will
be allowed to the Company as a result of the grant or exercise of qualifying
incentive stock options.
The option price per share is to be determined by the 1984 Option Plan
Committee at the time any ISO is granted and is not to be less than the fair
market value of one share of common stock of the Company on the date the
option is granted. Fair market value is to be determined by reference to
transactions in Common Stock on the over-the-counter market. Payment for
shares purchased under the 1984 Option Plan may be made either in cash or by
exchanging shares of Common Stock with a fair market value equal to or less
than the total option price plus cash for the difference. In no event may an
option be granted under the 1984 Plan to any individual then owning stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary.
ISOs for 39,275 shares were granted on January 21, 1992 with an exercise
price of $1.00 per share. ISOs for 52,000 shares were granted on June 24, 1993
with an exercise price of $2.75 per share. Options granted in prior years have
expired.
For a discussion of the effect of the Merger on the 1984 Option Plan,
see "The Merger--Effect on Employee Benefits" and "--Interests of Certain
Persons in the Merger."
1987 Stock Option Plan. On May 26, 1987, the stockholders of the Company
ratified and approved the Cornerstone Financial Corporation 1987 Stock Option
Plan (the "1987 Option Plan") adopted by the Board of Directors on March 26,
1987. The 1987 Stock Option Plan is intended as a performance incentive for
the non-employee directors of the Company and its subsidiaries. A total 50,000
shares of unissued common stock of the Company were initially reserved for
issuance pursuant to nonqualified stock options granted under the 1987 Option
Plan.
The 1987 Option Plan is administered by the Company's second Stock
Option Committee consisting of members of the Company's Board of Directors who
are not eligible to receive options under the 1987 Option Plan ("1987 Option
Plan Committee"). The Committee recommends to the Board of Directors the
persons to whom options will be granted, the number of shares, the types of
options and other terms and conditions of the options. The 1987 Option Plan
does not specify criteria to be used in determining the number of options to
be issued and, thus, the number of options granted is in the discretion of the
1987 Option Committee, of which the current members are John M. Terravecchia,
G. Robert Smith and Robert E. Benoit. The 1987 Option Committee held no
meetings during 1994.
Under the 1987 Option Plan, nonqualified stock options may be granted to
non-employee directors. Directors must complete at least two years of service
prior to receiving any options under the 1987 Option Plan and the Stock Option
Committee may elect to establish a vesting schedule for the exercise of
options granted to any optionee. An optionee will be deemed to receive taxable
income at ordinary income rates upon exercise of a nonqualified stock option
in an amount equal to the difference between the exercise price and the fair
market value of the common stock on the date of exercise. Any gain realized at
the time of sale of shares acquired upon exercise of an option will constitute
capital gain to the optionee. The amount of such taxable income will be a
deductible expense to the Company.
All options granted under the 1987 Option Plan are required to have an
exercise price per share equal to at least the fair market value of the share
of common stock on the date the option is granted. No option granted is
exercisable (i) after the date on which the optionee ceases to perform
services for the Bank (except in the event of retirement due to age or
disability or in the event of death, in which case options may be exercisable
for up to three months and one year thereafter, respectively), or (ii) 5 years
after the option is granted. Payment for shares purchased pursuant to an
option may be made in cash or by check or, if the option agreement permits, by
delivery and assignment to the Company of shares of Common Stock having a fair
market value equal to the aggregate exercise price, or by any combination of
the foregoing.
Nonqualified options for 14,100 shares were granted on January 21, 1992
with an exercise price of $1.00 per share. Nonqualified options for 10,115
shares were granted on June 24, 1993 with an exercise price of $2.75 per
share. Options granted in prior years have expired.
For a discussion of the effect of the Merger on the 1987 Option Plan,
see "The Merger--Effect on Employee Benefits" and "--Interests of Certain
Persons in the Merger."
No options were granted during 1994 under the Company's Stock Option
Plans. The following table sets forth certain information with respect to
outstanding stock options held by Messrs. Terravecchia, Smith and Benoit as of
December 31, 1994.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options in-the-money Options
at Fiscal Year-End at Fiscal Year-End($)(1)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
<S> <C> <C>
John M. Terravecchia 29,000/0 $110,000/0
G. Robert Smith 29,010/0 110,050/0
Robert E. Benoit 21,010/0 84,050/0
<FN>
<F1> Based on the difference between the closing price of the Common Stock on
December 30, 1994, which was $6.00, and the option exercise price for each
respective option.
</FN>
</TABLE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors to file reports of ownership and changes in ownership with the
Commission. Officers and directors are required by regulations of the
Commission to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on review of the copies of such forms furnished to the
Company and written representations that no additional forms were required,
the Company believes that, during the year ended December 31, 1994, the
Company's officers and directors complied with all Section 16(a) filing
requirements applicable to them.
Transactions with Management
Some of the directors and executive officers of the Company and the Bank
are at present, as they have been in the past, customers of the Bank and have
entered into transactions with the Bank in the ordinary course of business. In
addition, some of those persons are at present, as they have been in the past,
also directors or officers of corporations and business trusts or are members
of partnerships which are customers of the Bank and which have entered into
transactions, including loans, with the Bank in the ordinary course of
business. Such loans are on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others and do not involve more than the normal risk of
collectibility or present other unfavorable features. The aggregate amount of
such loans was approximately $558,000 as of December 31, 1994. The Bank
expects to continue to have banking transactions in the ordinary course of its
business with the executive officers and directors of the Company and the
Bank, and their associates, on substantially the same terms, including
interest rates and collateral on loans, as those then prevailing for
comparable transactions with others.
INDEPENDENT PUBLIC ACCOUNTANTS
(Proposal Three)
The Board of Directors has selected Price Waterhouse LLP, independent
certified public accountants, as the auditors for the Company and the Bank for
the current fiscal year ending December 31, 1995. At the meeting, the
stockholders will vote upon a proposal to ratify the selection of the firm as
auditors. No determination has been made as to what action the Board of
Directors would take in the event stockholders holding a majority of the
common stock represented at the meeting fail to ratify the selection of Price
Waterhouse LLP as auditors.
The firm of Price Waterhouse LLP has served as independent public
accountants of the Company since the Company's initial public offering
completed in October 1985. It is expected that a representative of Price
Waterhouse LLP will be present at the meeting to respond to appropriate
questions relating to the 1994 audit or to the Company's financial statements.
The firm's representative will have the opportunity to make a statement if he
or she desires to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
SELECTION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS.
ADJOURNMENT OF ANNUAL MEETING TO PERMIT
FURTHER SOLICITATION OF PROXIES
(Proposal Four)
In the event that there are not sufficient votes to approve the proposal
to approve the Acquisition Agreement at the time of the Annual Meeting, such
proposal will not be able to be approved unless the Annual Meeting is
adjourned in order to permit further solicitation of proxies. A majority vote
of the shares represented at the Annual Meeting is required in order to
approve any such adjournment. The Board of Directors recommends that
stockholders vote their proxies in favor of such adjournment so that their
proxies may be used for such purpose in the event it should become necessary.
Properly executed proxies will be voted in favor of such adjournment unless
otherwise indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ALLOW
ADJOURNMENT OF THE MEETING TO PERMIT FURTHER SOLICITATION OF PROXIES.
ANNUAL REPORT; QUARTERLY REPORT ON FORM 10-Q
Copies of (i) the Company's combined Annual Report on Form 10-K
(including a list of the exhibits thereto) and Annual Report to Stockholders
for the fiscal year ended December 31, 1994 and amendment thereto on Form 10-
K/A (together, the "Annual Report") and (ii) the Company's Quarterly Report on
Form 10-Q and amendment thereto on Form 10-Q/A (together, the "Form 10-Q") for
the fiscal quarter ended March 31, 1995 (including a list of the exhibits
thereto) accompany this Proxy Statement. The Annual Report and the Form 10-Q
are not part of the proxy solicitation materials except to the extent
incorporated herein by reference. See "Incorporation by Reference" below.
Upon receipt of a written or oral request and the payment of a copying
charge of ten cents per page, the Company will furnish to any stockholder a
copy of the exhibits to the Annual Report on Form 10-K and the Form 10-Q. Such
requests should be directed to Edward D. Bureau, Secretary, Cornerstone
Financial Corporation, 15 East Broadway, Derry, New Hampshire 03038, telephone
number: (603) 432-9517. A copy will be sent by first class mail or other
equally prompt means within one business day of the receipt of such request.
INCORPORATION BY REFERENCE
Pursuant to the rules and regulations under the Exchange Act, the
following sections of the Annual Report which accompanies this Proxy Statement
are incorporated herein by reference thereto: (i) the consolidated financial
statements of the Company, including the related notes thereto and the audit
report thereon, set forth on pages 19-37 of the Annual Report, (ii)
"Management's Discussion and Analysis" set forth on pages 7-18 of the Annual
Report and (iii) the Annual Report on Form 10-K portion of the Annual Report
(excluding exhibits thereto) set forth on pages 38-58 and the Form 10-K/A
portion of the Annual Report. In addition, the Form 10-Q (excluding exhibits
thereto) is incorporated herein by reference.
STOCKHOLDER PROPOSALS
If the Merger has not been consummated prior to the Company's 1996
Annual Meeting of Stockholders, which is currently scheduled to be held in
May, 1996, any proposal intended to be presented by any stockholder for action
at the 1996 Annual Meeting of Stockholders of the Company must be received at
the executive offices of the Company, 15 East Broadway, Derry, New Hampshire
03038 not later than December 15, 1995 in order for the proposal to be
considered for inclusion in the proxy statement and proxy relating to the 1996
annual meeting.
OTHER MATTERS
Management knows of no other matters to be brought before the meeting.
However, should any other matter requiring a vote of the stockholders properly
come before the meeting, the persons named in the enclosed proxy intend to
vote the proxy in accordance with their best judgment, discretionary authority
to do so being included in the proxy.
By Order of the Chairman of the Board
and President
EDWARD D. BUREAU
Secretary
ANNEX A
---------------------------------------
AGREEMENT AND PLAN OF MERGER
among
CORNERSTONE FINANCIAL CORPORATION
and
BAYBANKS, INC. (a Massachusetts corporation)
and
BAYBANKS, INC. (a New Hampshire corporation)
Dated as of March 23, 1995
---------------------------------------
<TABLE>
TABLE OF CONTENTS
ARTICLE I
<S> <C>
THE MERGER A--5
SECTION 1.1 The Merger A--5
SECTION 1.2 Effective Time; Closing A--5
SECTION 1.3 Effect of the Merger A--6
SECTION 1.4 Articles of Incorporation A--6
SECTION 1.5 Directors and Officers of the Surviving Corporation A--6
ARTICLE II
CONVERSION OF SECURITIES A--6
SECTION 2.1 Conversion of Securities A--6
SECTION 2.2 Employee Stock Options A--6
SECTION 2.3 Dissenting Shares A--7
SECTION 2.4 Surrender of Shares; Stock Transfer Books A--7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY A--9
SECTION 3.1 Organization and Qualification; Subsidiaries A--9
SECTION 3.2 Articles of Incorporation; By-Laws; Corporate Records A--9
SECTION 3.3 Capitalization A--10
SECTION 3.4 Authority A--10
SECTION 3.5 No Conflict; Required Filings and Consents A--11
SECTION 3.6 Compliance A--11
SECTION 3.7 Reports and Financial Statements A--11
SECTION 3.8 Absence of Certain Changes or Events A--12
SECTION 3.9 Absence of Litigation A--13
SECTION 3.10 Employee Benefit Plans; Employee Relations A--13
SECTION 3.11 Real Property and Leases A--15
SECTION 3.12 Taxes A--16
SECTION 3.13 Environmental Matters A--16
SECTION 3.14 Brokers A--17
SECTION 3.15 Proxy Statement A--17
SECTION 3.16 Insurance A--17
SECTION 3.17 Loan Portfolio A--18
SECTION 3.18 Investment Securities A--18
SECTION 3.19 Derivative Transactions A--18
SECTION 3.20 Bank Regulatory Matters A--18
SECTION 3.21 Certain Contracts A--19
SECTION 3.22 Material Interests of Certain Persons A--19
SECTION 3.23 Assistance Agreements A--19
SECTION 3.24 Fairness Opinion A--19
SECTION 3.25 Intellectual Property A--19
SECTION 3.26 Undisclosed Liabilities A--20
SECTION 3.27 Administration of Fiduciary Accounts. A--20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT A--20
SECTION 4.1 Corporate Organization A--20
SECTION 4.2 Authority A--20
SECTION 4.3 No Conflict; Required Filings and Consents A--21
SECTION 4.4 Proxy Statement A--21
SECTION 4.5 Financial Statements A--21
SECTION 4.6 Brokers A--22
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER A--22
SECTION 5.1 Conduct of Business by the Company Pending the Merger A--22
SECTION 5.2 Parent Products and Services A--25
SECTION 5.3 Covenant of Parent A--25
ARTICLE VI
ADDITIONAL AGREEMENTS A--25
SECTION 6.1 Stockholders' Meeting A--25
SECTION 6.2 Proxy Statement A--26
SECTION 6.3 Regulatory Matters A--26
SECTION 6.4 Access to Information; Etc. A--27
SECTION 6.5 No Solicitation A--28
SECTION 6.6 Employee Benefits Matters A--28
SECTION 6.7 Bank Directors and Officers; Indemnification; Insurance A--29
SECTION 6.8 Financial and Other Statements A--30
SECTION 6.9 Further Action A--31
SECTION 6.10 Public Announcements A--31
SECTION 6.11 Additional Agreements A--31
SECTION 6.12 Update of Disclosure Schedules A--31
SECTION 6.13 Current Information A--32
SECTION 6.14 System Conversions A--32
SECTION 6.15 Redemption of Debentures A--33
SECTION 6.16 Affiliate Letter A--33
ARTICLE VII
CONDITIONS TO THE MERGER A--33
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger A--33
SECTION 7.2 Conditions to Obligations of Parent and Purchaser A--34
SECTION 7.3 Conditions to Obligations of the Company A--36
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER A--37
SECTION 8.1 Termination A--37
SECTION 8.2 Termination Fee A--38
SECTION 8.3 Effect of Termination A--38
SECTION 8.4 Fees and Expenses A--38
SECTION 8.5 Amendment A--39
SECTION 8.6 Waiver A--39
ARTICLE IX
GENERAL PROVISIONS A--39
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements A--39
SECTION 9.2 Notices A--39
SECTION 9.3 Certain Definitions A--40
SECTION 9.4 Severability A--41
SECTION 9.5 Entire Agreement A--41
SECTION 9.6 Parties in Interest A--41
SECTION 9.7 Specific Performance A--41
SECTION 9.8 Governing Law A--41
SECTION 9.9 Headings A--42
SECTION 9.10 Counterparts A--42
</TABLE>
AGREEMENT AND PLAN OF MERGER, dated as of March 23, 1995 (this
"Agreement"), by and among BayBanks, Inc., a Massachusetts corporation
("Parent"), BayBanks, Inc., a New Hampshire corporation that is a wholly-owned
subsidiary of Parent ("Purchaser"), and Cornerstone Financial Corporation, a
New Hampshire corporation (the "Company").
WHEREAS, the Boards of Directors of Parent and the Company have each
determined that it is in the best interests of their respective stockholders
for Parent to acquire the Company upon the terms and subject to the conditions
set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Parent and the Company have each approved the transactions contemplated by
this Agreement, including the merger of Purchaser with and into the Company in
accordance with the New Hampshire Business Corporation Act ("New Hampshire
Law") upon the terms and subject to the conditions set forth herein (the
"Merger");
WHEREAS, Parent and the Company have entered into a Stock Option
Agreement, dated as of the date hereof (the "Stock Option Agreement"),
providing for the granting by the Company to Parent of an option to purchase
from the Company up to 295,000 shares representing 14% of the outstanding
shares of common stock, without par value, of the Company ("Company Common
Stock") (shares of Company Common Stock being hereinafter collectively
referred to as "Shares") at $6.625 per Share subject to the conditions set
forth therein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in Article VII, and in accordance with New Hampshire Law, at the
Effective Time (as hereinafter defined), Purchaser shall be merged with and
into the Company under the charter of the Company and the name of the
Purchaser. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 1.2 Effective Time; Closing. As promptly as practicable after
the approvals of all Governmental Entities (as hereinafter defined) necessary
to consummate the Merger have been received, all applicable waiting periods in
connection with such approvals shall have expired and all of the conditions
set forth in Article VII shall have been satisfied or, if permissible, waived
by the party entitled to the benefit of the same, Purchaser and the Company
shall duly execute and file articles of merger (the "Articles of Merger") with
the Secretary of State of the State of New Hampshire in accordance with New
Hampshire Law. The Merger shall become effective at such time as the Articles
of Merger are filed with the New Hampshire Secretary of State or at such later
time as is specified in the Articles of Merger (the "Effective Time"). Prior
to such filing, a closing shall be held at the offices of Palmer & Dodge, One
Beacon Street, Boston, Massachusetts 02108, or such other place as the parties
shall agree, for the purpose of confirming the satisfaction or waiver, as the
case may be, of the conditions set forth in Article VII (the date of such
closing being the "Effective Date").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided herein and in the applicable provisions of New
Hampshire Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers
and franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of the Company and Purchaser shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
SECTION 1.4 Articles of Incorporation. Unless otherwise determined by
Parent prior to the Effective Time, at the Effective Time, the Articles of
Incorporation of the Company shall be amended as set forth in Annex I to this
Agreement, and, as so amended, shall be the Articles of Incorporation of the
Surviving Corporation until thereafter further amended as provided by law and
such Articles of Incorporation.
SECTION 1.5 Directors and Officers of the Surviving Corporation. The
directors of Purchaser immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation, and the officers of the Purchaser immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Purchaser, the Company or
the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to
Section 2.1(b) and any Dissenting Shares (as hereinafter defined)) shall
be cancelled and shall be converted automatically into the right to
receive an amount equal to $8.80 in cash (the "Merger Consideration")
payable, without interest, to the holder of such Share, upon surrender,
in the manner provided in Section 2.4, of the certificate that formerly
evidenced such Share.
(b) Each Share held in the treasury of the Company and each Share
owned by Purchaser, Parent or any direct or indirect wholly-owned
subsidiary of Parent or of the Company immediately prior to the
Effective Time shall be cancelled without any conversion thereof and no
payment or distribution shall be made with respect thereto.
(c) Each Share of Common Stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted automatically
into one validly issued, fully paid and nonassessable share of Common
Stock of the Surviving Corporation.
SECTION 2.2 Employee Stock Options. Commencing at least 15 days prior to
the Effective Time, each holder of a then outstanding stock option to purchase
Shares pursuant to the Company's 1984 Stock Option Plan and its 1987 Non-
Qualified Stock Option Plan (the "Company Option Plans") (it being understood
and agreed that the aggregate number of Shares subject to purchase under such
stock options is not and shall not at the Effective Time be more than 102,605
Shares and that no additional stock options shall be granted after the date of
this Agreement) shall be entitled to exercise such option (whether or not such
option would otherwise have been exercisable), and if such options are not so
exercised prior to the Effective Time, immediately prior to the Effective Time
each such holder shall be entitled to receive from the Company in cancellation
of such option a cash payment in an amount equal to the excess of the Merger
Consideration over the per share exercise price of such option, multiplied by
the number of Shares covered by such option. To give effect to the foregoing,
prior to the Effective Time, the Company shall obtain all necessary consents
of the holders of options to the cancellation effective prior to the Effective
Time, of such options and the cancellation of any right to acquire equity
securities of the Company from and after the Effective Time. Subject to the
foregoing, the Company Option Plans and all options issued thereunder shall
terminate at the Effective Time.
SECTION 2.3 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
Shares that are outstanding immediately prior to the Effective Time and that
are held by stockholders who shall have not voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
appraisal of such Shares in accordance with Sections 293-A:13.21 and 13.23 of
New Hampshire Law (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration.
Such stockholders shall be entitled to receive payment of the appraised value
of such Shares held by them in accordance with the provisions of Section 293-
A:13.25 of New Hampshire Law, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such Shares under such sections
shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 2.4, of the certificate or certificates that formerly
evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to New Hampshire Law and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under New Hampshire Law consistent with the
obligations of the Company under New Hampshire Law. The Company shall not,
except with the prior written consent of Parent, make any payment with respect
to any demands for appraisal or offer to settle or settle any such demands.
SECTION 2.4 Surrender of Shares; Stock Transfer Books.
(a) Prior to the Effective Time, Purchaser shall designate a domestic
bank or trust company with capital, surplus and undivided profits aggregating
in excess of $100 million (as shown on the most recent report of condition of
such bank or trust company filed with its principal federal bank regulatory
authority) to act as agent (the "Paying Agent") for the holders of Shares in
connection with the Merger to receive the funds to which holders of Shares
shall become entitled pursuant to Section 2.1(a). Immediately prior to the
Effective Time, Parent shall deposit, or cause to be deposited, with the
Paying Agent, for the benefit of the holders of Certificates (as hereinafter
defined), for exchange in accordance with this Article II, such amount of cash
as is sufficient to pay the aggregate Merger Consideration which holders of
Shares are entitled to receive pursuant to Section 2.1 and be paid pursuant to
this Section 2.4 in exchange for outstanding Shares. Such funds shall be
invested by the Paying Agent as directed by the Surviving Corporation,
provided that such investments shall be in obligations of or guaranteed by the
United States of America or of any agency thereof and backed by the full faith
and credit of the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Services, Inc. or Standard &
Poor's Corporation, respectively, or in deposit accounts, certificates of
deposit or banker's acceptances of, repurchase or reverse repurchase
agreements with, or Eurodollar time deposits purchased from, commercial banks
with capital, surplus and undivided profits aggregating in excess of $100
million (as shown on the most recent financial statements of such bank filed
with its principal bank regulatory authority).
(b) Promptly after the Effective Time (but in no event more than three
business days thereafter), Parent and the Surviving Corporation shall cause to
be mailed to each person who was, at the Effective Time, a holder of record of
Shares entitled to receive the Merger Consideration pursuant to Section 2.1(a)
a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates evidencing such
Shares (the "Certificates") shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates pursuant to such letter of transmittal. The
Company shall have the right to review and approve the letter of transmittal,
the instructions and any accompanying letter. Upon surrender to the Paying
Agent of a Certificate, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor
the Merger Consideration for each Share formerly evidenced by such
Certificate, and such Certificate shall then be cancelled. No interest shall
accrue or be paid on the Merger Consideration payable upon the surrender of
any Certificate for the benefit of the holder of such Certificate. If payment
of the Merger Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered on the stock transfer
books of the Company, it shall be a condition of payment that the Certificate
so surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable.
(c) At any time following the sixth month after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of Shares (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it), and thereafter such holders shall be entitled to look to
Parent and the Surviving Corporation (subject to abandoned property, escheat
and other similar laws) only as general creditors thereof with respect to any
Merger Consideration that may be payable upon due surrender of the
Certificates held by them. Notwithstanding the foregoing, neither the
Surviving Corporation nor the Paying Agent shall be liable to any holder of a
Share for any Merger Consideration delivered in respect of such Share to a
public official pursuant to any abandoned property, escheat or other similar
law.
(d) At the close of business on the Effective Date, the stock transfer
books of the Company shall be closed and thereafter there shall be no further
registration of transfers of Shares on the records of the Company. From and
after the Effective Time, the holders of Shares outstanding immediately prior
to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent or
the Surviving Corporation, upon the posting by such person of a bond in such
amount as Parent or the Surviving Corporation may reasonably direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate, the cash representing the Merger Consideration
deliverable in respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser as of
the date hereof and, unless otherwise stated herein, on and as of the
Effective Date that:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly existing and in
good standing under New Hampshire Law and a bank holding company registered
with the Board of Governors of the Federal Reserve System (the "FRB") under
the Bank Holding Company Act of 1956, as amended (the "BHCA"). The deposit
accounts of Cornerstone Bank, a New Hampshire chartered trust company and a
wholly-owned subsidiary of the Company (the "Bank") are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC") to
the fullest extent permitted by law, and all premiums and assessments required
in connection therewith have been paid by the Bank. The Bank is a New
Hampshire chartered trust company duly organized, validly existing and in good
standing under the laws of the State of New Hampshire. Each Subsidiary (as
defined in Section 9.3(g) below), other than the Bank, is a corporation or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization. Each of the
Company and each Subsidiary has the requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and
to carry on its business as it is now being conducted, except where the
failure to be so organized, existing or in good standing or to have such
power, authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below). Each of the
Company and each Subsidiary is duly qualified or licensed as a foreign
corporation (in the case of those subsidiaries that are corporations) to do
business and is in good standing in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except where the failure to
be so qualified or licensed and be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect.
(b) When used in connection with the Company or any Subsidiary, the term
"Material Adverse Effect" means any change or effect that is or would be,
materially adverse to the business, properties, assets, liabilities,
prospects, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole, other than any such change or effect
attributable to or resulting from changes in regulations or legislation
affecting New Hampshire banks generally or changes in federal, state or local
tax laws.
(c) A true and complete list of all the Subsidiaries, together with the
jurisdiction of incorporation or organization of each Subsidiary and the
percentage of the outstanding capital stock or other ownership interest of
each Subsidiary owned directly or indirectly by the Company, is set forth in
Section 3.1 of the Disclosure Schedule previously delivered by the Company to
Parent (the "Disclosure Schedule"). Except for the Bank and Birchwood
Development Corporation, the Company does not directly own five percent or
more of the capital stock or other equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity and, except as disclosed in Section 3.1 of the
Disclosure Schedule, the Company does not indirectly own any such interest.
SECTION 3.2 Articles of Incorporation; By-Laws; Corporate Records. The
Company has heretofore made available to Parent a complete and correct copy of
the Articles of Incorporation and the By-Laws or equivalent organizational
documents, each as amended to date, of the Company and each Subsidiary. Such
Articles of Incorporation, By-Laws and equivalent organizational documents are
in full force and effect and no proceeding for the amendment thereof has been
commenced. Neither the Company nor any Subsidiary is in violation of any
provision of its Articles of Incorporation or equivalent organizational
documents or in violation of its By-Laws. The minute books of the Company and
each Subsidiary contain true and correct records in all material respects of
all meetings of their respective stockholders and boards of directors.
SECTION 3.3 Capitalization.
(a) The authorized capital stock of the Company consists of 8,000,000
Shares. As of the date hereof, (a) 2,107,017 Shares are issued and
outstanding, all of which are validly issued, fully paid and nonassessable,
(b) 146,502 Shares are held in the treasury of the Company, (c) no Shares are
held by the Subsidiaries, (d) 102,605 Shares are reserved for future issuance
upon the exercise of outstanding options granted pursuant to the Company
Option Plans, (e) 15,196 Shares are reserved for future issuance upon
conversion of the Company's 8.75% Convertible Subordinated Debentures due July
1, 1997 (the "8.75% Debentures"), (f) 214,935 Shares are reserved for future
issuance upon conversion of the Company's 7% Convertible Subordinated
Debentures due January 1, 1999 (the "7% Debentures") and (g) 295,000 Shares
are reserved for future issuance pursuant to the Stock Option Agreement.
Except as set forth in this Section 3.3, and except for the Stock Option
Agreement, there are no subscriptions, options, warrants, calls or other
rights, agreements, arrangements or commitments of any character relating to
the issued or unissued capital stock of the Company or any Subsidiary,
including without limitation any commitments to make payments with respect to
capital stock or the value thereof, or obligating the Company or any
Subsidiary to issue or sell any Shares of capital stock of, or other equity
interests in, the Company or any Subsidiary. All Shares subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
3.3(a) of the Disclosure Schedule, there are no outstanding contractual
obligations of the Company or any Subsidiary to repurchase, redeem or
otherwise acquire any Shares or any capital stock of any Subsidiary or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary. Each outstanding Share of
capital stock of each Subsidiary is duly authorized, validly issued, fully
paid, and nonassessable. The Company owns, directly or indirectly through a
Subsidiary, all of the issued and outstanding shares of capital stock of the
Bank and of each of the other Subsidiaries (or, in the case of Subsidiaries
that are not corporations, all of the outstanding partnership interests or
beneficial interests, as the case may be), free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company's or such other Subsidiary's voting
rights, charges and other encumbrances of any nature whatsoever.
(b) The Company has $155,000 of 8.75% Debentures outstanding, which are
convertible into an aggregate of 15,196 Shares at a conversion price of $10.20
per Share, and $3,353,000 of 7% Debentures outstanding, which are convertible
into an aggregate of 214,935 Shares at a conversion price of $15.60 per Share.
The Company has paid in full or accrued all amounts now or heretofore due
under each of the 8.75% Debentures and the 7% Debentures, and has satisfied in
full or provided for all of its liabilities and obligations thereunder that
are presently or heretofore were required to be satisfied or provided for, and
is not in default under any of the 8.75% Debentures or the 7% Debentures or
either of the respective Indentures between the Company and Amoskeag Bank, as
Trustee, with respect to the 8.75% Debentures and the 7% Debentures (each, an
"Indenture"), nor does any condition exist that with notice or lapse of time
or both would constitute a default under any of such Debentures or Indentures.
SECTION 3.4 Authority. The Company has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by this Agreement
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated by
this Agreement (other than, with respect to the Merger, the approval and
adoption of this Agreement by the holders of the then outstanding Shares, and
the filing and recordation of appropriate merger documents as required by New
Hampshire Law). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Purchaser, constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
SECTION 3.5 No Conflict; Required Filings and Consents.
(a) Except as set forth in Section 3.5 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by the Company does not,
and the consummation by the Company and its Subsidiaries of the transactions
contemplated by this Agreement will not, (i) conflict with or violate the
Articles of Incorporation or By-Laws or equivalent organizational documents of
the Company or the Bank, (ii) assuming that the consents and approvals
referred to in Section 3.5(b) are duly obtained, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) require a consent under or result in
any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the
Company or any Subsidiary pursuant to, the 7% Debentures, the 8.75%
Debentures, or any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any property or asset of the Company or any Subsidiary is bound
or affected.
(b) The execution, delivery and performance of this Agreement by the
Company does not require any consent, approval, authorization or permit of, or
filing with or notification to, any court, administrative agency or commission
or other governmental or regulatory authority or instrumentally, domestic or
foreign, including, without limitation, any Bank Regulator (as hereinafter
defined) (each a "Governmental Entity"), except (i) for applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and filing and recordation of appropriate merger documents as
required by New Hampshire Law, and (ii) for consents and approvals of or
filings, registrations or negotiations with the FRB, the New Hampshire Board
of Trust Company Incorporation ("NHBTI"), and the Massachusetts Board of Bank
Incorporation (the "MBBI"), and those required to satisfy Section 6.3(b)
hereof.
SECTION 3.6 Compliance. Except as set forth in Section 3.6 of the
Disclosure Schedule, neither the Company nor any Subsidiary is in conflict
with, or in default or violation of, (a) any law, rule, regulation, order,
judgment or decree applicable to the Company or any Subsidiary or by which any
property or asset of the Company or any Subsidiary is bound or affected or (b)
the 7% Debentures, the 8.75% Debentures or any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Subsidiary is a party or
by which the Company or any Subsidiary or any property or asset of the Company
or any Subsidiary is bound or affected.
SECTION 3.7 Reports and Financial Statements.
(a) The Company has filed, and made available to Parent, all forms,
reports and documents required to be filed by it with the SEC since January 1,
1990, and has heretofore delivered to Parent, in the form filed with the SEC,
(i) its Annual Reports on Form 10-K for the fiscal years ended December 31,
1991, December 31, 1992 and December 31, 1993, respectively, (ii) its
Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, and
September 30, 1994 and (iii) reports provided to stockholders, and all proxy
statements relating to the Company's meetings of stockholders (whether annual
or special) held, since January 1, 1991, and (iv) all other forms, reports and
registration statements (other than Quarterly Reports on Form 10-Q not
referred to in clause (ii) above) filed by the Company with the SEC since
January 1, 1991 (the forms, reports and other documents referred to in clauses
(i), (ii), (iii) and (iv) above being referred to herein, collectively, as the
"SEC Reports"). The Company also has provided to Parent copies of the audited
consolidated balance sheet of the Company and its Subsidiaries dated December
31, 1994, and the audited consolidated income statement of the Company and its
Subsidiaries for the year ended December 31, 1994 and notes to such financial
statements (the "1994 Financial Statements"). As of their respective dates,
the SEC Reports (A) complied in all material respects as to form and substance
with the requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations thereunder and (B) did not at the time
they were filed 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 made therein, in the light of the circumstances under
which they were made, not misleading. No Subsidiary is required to file any
form, report or other document with the SEC.
(b) The Company and each of the Subsidiaries has filed, and, except as
prohibited by law, made available to Parent all forms, reports and documents
required to be filed by each of them with all appropriate federal or state
governmental or regulatory authorities charged with the supervision of banks
or bank holding companies or engaged in the insurance of bank deposits ("Bank
Regulators") since January 1, 1991 (the "Bank Reports"). Such reports as of
their respective date of filing complied in all material respects with the
requirements of all laws, rules and regulations enforced or promulgated by
such Bank Regulators.
(c) Each of the consolidated financial statements of the Company and its
Subsidiaries, including, in each case, the notes thereto, contained in the SEC
Reports or in the 1994 Financial Statements was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated ("GAAP") (except as may be indicated in the
notes thereto) and each fairly presented the consolidated financial position,
results of operations and changes in financial position of the Company and its
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to have a Material Adverse Effect.
(d) Except as and to the extent set forth on the consolidated balance
sheet of the Company and its Subsidiaries as at December 31, 1994, including
the notes thereto (the "1994 Balance Sheet"), neither the Company nor any
subsidiary has any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected on
a balance sheet, or in the notes thereto, prepared in accordance with GAAP,
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1994, or which would
not, individually or in the aggregate, have a Material Adverse Effect.
(e) The Company has made available to Parent complete and correct copies
of all amendments and modifications that have not been filed by the Company
with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1993, except as set forth in Section 3.8 of the Disclosure Schedule, as
contemplated by Section 5.1 of this Agreement or as disclosed in any SEC
Report filed since December 31, 1993 and prior to the date of this Agreement,
the Company and the Bank have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since December 31,
1993, there has not been (a) any change in the results of operations or
financial condition of the Company or any Subsidiary having, individually or
in the aggregate, a Material Adverse Effect, (b) any damage, destruction or
loss with respect to any property or asset of the Company or any Subsidiary
having, individually or in the aggregate, a Material Adverse Effect, (c) any
change by the Company or any Subsidiary in its accounting methods, principles
or practices, other than changes required by applicable law or GAAP or
regulatory accounting as concurred in by the Company's independent
accountants, (d) any revaluation by the Company or any Subsidiary of any
asset, including, without limitation, any writing down of the value of assets
or writing off of notes or accounts receivable, other than in the ordinary
course of business consistent with past practice and which has not had a
Material Adverse Effect, (e) any entry by the Company or any Subsidiary into
any contract or commitment of more than $50,000 or with a term of more than
one year, (f) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any Subsidiary
or any redemption, purchase or other acquisition of, or payment with respect
to, any of its securities, (g) any increase in or establishment of any bonus,
insurance, severance (including severance after a change in control), deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of any stock options, stock appreciation
rights, performance awards, or restricted stock awards), stock purchase, life
insurance or split dollar life insurance, retiree medical or life insurance,
or other employee benefit plan, or any other increase in the compensation
payable or to become payable to any officers or key employees of the Company
or any Subsidiary, except, with respect to cash compensation, in the ordinary
course of business consistent with past practice, (h) any material election
made by the Company or any Subsidiary for federal or state income tax
purposes, or (i) any change in the credit policies or procedures of the
Company or any Subsidiary, the effect of which was or is to make any such
policy or procedure less restrictive in any material respect.
SECTION 3.9 Absence of Litigation. Except as set forth in Section 3.9 of
the Disclosure Schedule, there is no claim, action, suit, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary, or any property or asset of the Company or any
Subsidiary, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign. Such pending or threatened
claims, actions, suits, proceedings or investigations are not expected
individually, or in the aggregate, to have a Material Adverse Effect. Neither
the Company nor any Subsidiary nor any property or asset of the Company or any
Subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award.
SECTION 3.10 Employee Benefit Plans; Employee Relations.
(a) Plans. Section 3.10(a) of the Disclosure Schedule sets forth a list
of every Employee Program (as hereinafter defined) that has been maintained by
the Company or any Affiliate (as hereinafter defined) at any time during the
three-year period ending on the Effective Date.
(b) Qualification Under the Code. Each Employee Program which has ever
been maintained by the Company or any Affiliate (as hereinafter defined) and
which has at any time been intended to qualify under Section 401(a) or 501(c)
of the Internal Revenue Code of 1986, as amended (the "Code") has received a
favorable determination or approval letter from the Internal Revenue Service
("IRS") regarding its qualification under such section and has, in fact, been
continuously qualified under the applicable section of the Code since the
effective date of such Employee Program. No event or omission has occurred
which would cause any such Employee Program to lose its qualification under
the applicable Code section.
(c) Compliance with Laws. The Company and each Affiliate are in
compliance in all material respects with all applicable statutes, orders,
governmental rules or regulations, including without limitation ERISA and the
Code with respect to all Employee Programs. Without limiting the generality of
the foregoing, with respect to any Employee Program ever maintained by the
Company, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Code, or breach of any duty under ERISA or
other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan) which could result, directly
or indirectly, in any taxes, penalties or other liability to the Company,
Parent, Purchaser or the Surviving Corporation. All group health plans of the
Company have been operated in compliance with the health care continuation
coverage requirements of Sections 601 through 608 of ERISA and Section 4980B
of the Code. No litigation, arbitration, or governmental administrative
proceeding (or investigation) or other proceeding (other than those relating
to routine claims for benefits) is pending or threatened with respect to any
such Employee Program. The Company does not know, and has no reason to know of
any failure of any party to comply with any laws applicable to the Employee
Programs that have been maintained by the Company.
(d) Funding Status, Etc. Neither the Company nor any Affiliate maintains
or contributes to any plan subject to Title IV of ERISA. There is no unpaid
contribution due with respect to any Employee Program as required under the
minimum funding standards of Section 412 of the Code. All contributions
required to be made under the terms of any Employee Program (or any insurance
or other contract or funding arrangement maintained in connection with any
Employee Program) have been timely made. The present value of the benefits
accrued under the Company's Deferred Compensation Plan as determined using
reasonable actuarial assumptions do not exceed the fair market value of the
assets held under the related Trust Agreement.
(e) Retiree Benefits. Neither the Company nor any Affiliate has ever
provided health care or any other non-pension benefits to any employees after
their employment is terminated (other than as required by Section 4980B of the
Code or part 6 of subtitle B of title I of ERISA) or has ever promised to
provide such post-termination benefits.
(f) Multiemployer Plans. Neither the Company nor any Affiliate has ever
maintained or contributed to any "multiemployer plan" as that term is defined
in Section 4001(a)(3) of ERISA, and neither the Company nor any Affiliate has
incurred any liability under Sections 4062, 4063 or 4201 of ERISA.
(g) Documents Delivered. With respect to each Employee Program
maintained by the Company within three years preceding the Effective Date,
complete and correct copies of the following documents (if applicable to such
Employee Program) have previously been delivered to the Parent: (i) all
documents embodying or governing such Employee Program, and any funding medium
for the Employee Program (including, without limitation , trust agreements) as
they may have been amended to the date hereof; (ii) the most recent IRS
determination or approval letter with respect to such Employee Program under
Code Section 401 or 501(c)(9), and any applications for determination or
approval subsequently filed with the IRS; (iii) the three most recently filed
IRS Forms 5500, with all applicable schedules and accountants' opinions
attached thereto; (iv) the summary plan description for such Employee Program
(or other descriptions of such Employee Program provided to employees) and all
modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; (vi) any
documents evidencing any loan to an Employee Program that is a leveraged
employee stock ownership plan; (vii) the three most recent actuarial
valuations for any plan subject to Title IV of ERISA; and (viii) all other
materials reasonably necessary for the Surviving Corporation and Purchaser to
perform any of its responsibilities with respect to any Employee Program which
will remain in effect subsequent to the Closing (including, without
limitation, health care continuation requirements).
(h) Definitions. For the purposes of this Section:
(i) "Employee Program" means (i) all employee benefit plans within
the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA
Section 3(4)), plans to which more than one unaffiliated employer
contributes and employee benefit plans (such as foreign or excess
benefit plans) which are not subject to ERISA; and (B) all stock or cash
option plans, restricted stock plans, stock purchase plans, bonus or
incentive award plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation
plans, health, disability, life insurance and all other employee benefit
plans, agreements, and arrangements not described in (i) above. In the
case of an Employee Program funded through an organization described in
Code Section 501(c)(9), each reference to such Employee Program shall
include a reference to such organization.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by
agreement or under applicable law) to contribute to or provide benefits
under such Employee Program, or if such Employee Program provides
benefits to or otherwise covers employees of such entity (or their
spouses, dependents or beneficiaries).
(iii) An entity is an "Affiliate" of the Company if it would have
ever been considered a single employer with Company under ERISA Section
4001(b) or part of the same "controlled group" as Company for purposes
of ERISA Section 302(d)(8)(C).
(i) Employee Relations. The Company and its Subsidiaries have an
aggregate of approximately 111 employees and generally enjoy good employer-
employee relationships. Neither the Company nor any Subsidiary is a party to
any collective bargaining or other labor union or guild contract. There is no
pending or, to the knowledge of the Company, threatened, labor dispute, strike
or work stoppage against the Company or any of the Subsidiaries. Neither the
Company nor any Subsidiary, nor, to the knowledge of the Company, their
respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of the
Company or any Subsidiary, and there is no pending or, to the knowledge of the
Company, threatened, charge or complaint against the Company or any Subsidiary
by the National Labor Relations Board or any comparable state agency. The
Company and its Subsidiaries are not delinquent in payments to any of its
employees or consultants for any wages, salaries, commissions, bonuses or
other direct compensation for any services performed by them to the date
hereof or amounts required to be reimbursed to such employees. Except as
disclosed in Section 3.10(i) of the Disclosure Schedule, upon termination of
the employment of any said employees, neither the Company and its Subsidiaries
nor the Purchaser will by reason of anything done prior to the Effective Date
be liable to any of said employees or consultants for severance pay or any
other payments (other than accrued salary, vacation or sick pay in accordance
with the Company's normal policies). Section 3.10(i) of the Disclosure
Schedule contains a list of all employees and consultants of the Company and
its Subsidiaries who, individually, have received or are scheduled to receive
compensation from the Company or its Subsidiaries for the current fiscal year
in excess of $50,000, including the current job title and aggregate annual
compensation of each such individual.
SECTION 3.11 Real Property and Leases.
(a) The Company and the Subsidiaries have sufficient title to all their
real properties to conduct their respective businesses as currently conducted
or as currently contemplated to be conducted.
(b) Each parcel of real property owned or leased by the Company or any
Subsidiary (i) is owned or leased free and clear of all mortgages, pledges,
liens, security interests, conditional and installment sale agreements,
encumbrances, charges or other claims of third parties of any kind
(collectively, "Liens"), other than (A) Liens for current taxes and
assessments not yet past due or which are being contested in good faith, (B)
inchoate mechanics' and materialmen's Liens for construction in progress, (C)
workmen's, repairmen's, warehousemen's and carriers' Liens arising in the
ordinary course of business of the Company or such Subsidiary consistent with
past practice, and (D) all matters of record, none of which Liens interfere
materially with the use and enjoyment of the respective property by the
Company or such Subsidiary (collectively, "Permitted Liens"), and (ii) neither
is subject to any governmental decree or order to be sold nor is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the knowledge of the
Company, has any such condemnation, expropriation or taking been proposed.
(c) Except as set forth in Section 3.11(c) of the Disclosure Schedule,
all leases of real property leased for the use or benefit of the Company or
any Subsidiary to which the Company or any Subsidiary is a party, and all
amendments and modifications thereto are in full force and effect, and there
exists no default under any such lease by the Company or any Subsidiary, nor,
to the knowledge of the Company, any event which with notice or lapse of time
or both would constitute a default thereunder by the Company or any
Subsidiary.
SECTION 3.12 Taxes. The Company and its Subsidiaries have filed all
federal, state, local and foreign tax returns and reports required to be filed
by them and have paid, discharged or made provision for (as reflected in the
financial statements of the Company) all taxes shown as due thereon and have
paid all applicable ad valorem taxes as are due, other than (a) such payments
as are being contested in good faith by appropriate proceedings and have not
been finally determined and (b) except where the failure to make such filings
or pay, discharge or make provision for such taxes would not, individually or
in the aggregate, have a Material Adverse Effect. The Company and its
Subsidiaries have withheld proper and accurate amounts from their employees,
customers, depositors, shareholders and others from whom they are required to
withhold taxes in compliance with all applicable federal, state, local and
foreign laws and have paid all such withheld amounts to the appropriate taxing
authority in a timely manner. The Company and its Subsidiaries have filed in a
timely manner all required reports to federal, state, local or foreign taxing
authorities of interest and dividends paid, of interest received and of all
other payments made or received. The income tax returns of the Company and its
Subsidiaries have been audited by the IRS for all years through and including
1991, and the deficiencies (if any) asserted as a result of such audits have
been satisfied. Except as set forth in Section 3.12(a) of the Disclosure
Schedule, neither the IRS nor any other taxing authority, domestic or foreign,
is now asserting or, to the knowledge of the Company, threatening to assert
against the Company or any Subsidiary any deficiency or claim for additional
taxes or interest thereon or penalties in connection therewith or in
connection with tax reporting or tax withholding obligations. Except as set
forth in Section 3.12(b) of the Disclosure Schedule, neither the Company nor
any Subsidiary has granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of, any federal,
state, county, municipal or foreign income tax.
SECTION 3.13 Environmental Matters.
(a) For purposes of this Agreement, the following terms shall have the
following meanings: (i) "Hazardous Substances" means (A) those substances
defined in or regulated under the Comprehensive Environmental Response,
Compensation and Liability Act, and its state counterparts, as each may be
amended from time to time, and all regulations thereunder, (B) petroleum and
petroleum products including crude oil and any fractions thereof, (C) natural
gas, synthetic gas, and any mixtures thereof, (D) radon, (E) any other
contaminant, and (F) any substance with respect to which a federal, state or
local agency requires environmental investigation, monitoring, reporting or
remediation, (ii) "Environmental Laws" means any federal, state or local law
or regulation relating to (A) releases or threatened releases of Hazardous
Substances or materials containing Hazardous Substances, (B) the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous
Substances or materials containing Hazardous Substances, or (C) otherwise
relating to pollution of the environment and (iii) "Environmental Permits"
means all permits, licenses and other authorizations referred to under any
Environmental Law.
(b) Except as described in Section 3.13(a) of the Disclosure Schedule,
to the knowledge of the Company: (i) neither the Company nor any of the
Subsidiaries has violated during the last five years or is in violation of any
Environmental Law; (ii) none of the properties owned or leased by the Company
or any Subsidiary or that constitutes collateral for any loan by a Subsidiary
(including, without limitation, soils and surface and ground waters) are
contaminated with any Hazardous Substance; (iii) neither the Company nor any
of the Subsidiaries is liable for any off-site contamination; (iv) neither the
Company nor any of the Subsidiaries is liable under any Environmental Law; (v)
the Company and each of its Subsidiaries is, and has during the last five
years been, in compliance with, all of their respective Environmental Permits;
and (vi) none of the properties owned or leased by the Company or any of the
Subsidiaries or that constitutes collateral for any loan by a Subsidiary are
the subject of any enforcement or legal action concerning any Environmental
Law. No such violation, contamination, liability, lack of compliance,
enforcement action or legal action has had or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. For
purposes of the foregoing, all references to "properties" include, without
limitation, any owned real property, leased real property, and any real
property subject to pending or contemplated foreclosure proceedings by the
Company or any Subsidiary.
(c) Except as described in Section 3.13(b) of the Disclosure Schedule,
to the knowledge of the Company, the Company and each of its Subsidiaries has
complied with all environmental laws concerning the notification of any
governmental authorities concerning any environmental issues, and neither the
Company nor any of its Subsidiaries has received any communication from any
governmental authority either requesting additional information or action or
denying any request for exemption under any applicable environmental law.
SECTION 3.14 Brokers. No broker, finder or investment banker, other than
Chatham Capital Management, Inc. ("Chatham") and Alex Sheshunoff & Co.
("Sheshunoff"), is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The fees payable
to Chatham and Sheshunoff in connection with the transactions contemplated by
this Agreement are as set forth in Section 3.14 of the Disclosure Schedule.
SECTION 3.15 Proxy Statement. The information supplied by the Company
and its Subsidiaries for inclusion in the proxy statement to be sent to the
stockholders of the Company in connection with the Stockholders' Meeting (the
"Proxy Statement") will not, on the date the Proxy Statement (or any amendment
or supplement thereto) is first mailed to stockholders of the Company, or at
the time of the Stockholders' Meeting (as defined below), contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein not false or misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading. Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any information to be supplied by Parent or
Purchaser or any of their representatives which is contained in any of the
foregoing documents. The Proxy Statement shall comply in all material respects
as to form with the requirements of the Exchange Act and the rules and
regulations thereunder.
SECTION 3.16 Insurance. Section 3.16 of the Disclosure Schedule sets
forth a list of all policies or binders of fire, liability, product liability,
workmen's compensation, vehicular, directors and officers and other insurance
held by or on behalf of the Company or any of its Subsidiaries as of the date
hereof. Such policies and binders are in full force and effect, all premiums
with respect thereto are currently paid, are reasonably believed to be
adequate for the businesses engaged in by the Company and its Subsidiaries and
are in conformity with the requirements of all contracts to which the Company
or any of its Subsidiaries is a party and to the best knowledge of the
Company, are valid and enforceable in accordance with their terms. Neither the
Company nor any Subsidiary is in default with respect to any provision
contained in any such policy or binder nor has the Company or any Subsidiary
to its knowledge failed to give any notice or present any claim under any such
policy or binder in due and timely fashion. There are no outstanding unpaid
claims under any such policy or binder. Neither the Company nor any Subsidiary
has received notice of cancellation or non-renewal of any such policy or
binder.
SECTION 3.17 Loan Portfolio. Except as set forth in Section 3.17 of the
Disclosure Schedule, as of the date hereof, neither the Company nor any
Subsidiary is a party to any written or oral (a) loan agreement, note or
borrowing arrangement (including, without limitation, leases and credit
enhancements) (collectively, "Loans") the unpaid principal balance of which
exceeds $100,000 and as to which the obligor is, as of the date of this
Agreement, over 90 days delinquent in payment of principal or interest, or (b)
Loan with any director, executive officer or, to the knowledge of the Company,
five percent stockholder of the Company or any Subsidiary. Section 3.17 of the
Disclosure Schedule sets forth as of the date hereof, (i) all of the Loans in
original principal amount in excess of $100,000 of the Company or any
Subsidiary that as of the date of this Agreement are classified by the Bank as
"Other Loans Specially Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Restructured", "Watch list"
or words of similar import, together with the principal amount of and accrued
and unpaid interest on each such Loan and the identity of the obligor
thereunder, and (ii) by category of Loan (i.e., commercial, consumer, etc.),
all of the other Loans of the Company and the Subsidiaries that as of the date
of this Agreement are classified as such, together with the aggregate
principal amount of such Loans by category. The Company shall promptly inform
Parent in writing of any Loan the original principal balance of which exceeds
$100,000 that becomes classified in the manner described in this Section 3.17,
or any Loan the classification of which is materially and adversely changed at
any time after the date of this Agreement.
SECTION 3.18 Investment Securities. Section 3.18(a) of the Disclosure
Schedule sets forth the book and market value as of February 28, 1995 of the
investment securities, mortgage backed securities and securities held for sale
by the Company and each Subsidiary. Section 3.18(b) of the Disclosure Schedule
sets forth the names of all the joint ventures in which the Company or any
Subsidiary has an investment (whether or not such joint ventures remain
active). Except for pledges to secure public and trust deposits, borrowings,
repurchase agreements and reverse repurchase agreements entered into in arms'-
length transactions pursuant to normal commercial terms and conditions and
other pledges required by law, none of the investments reflected in the
consolidated balance sheet of the Company included in the 1994 Financial
Statements, and none of the material investments made by the Company or any of
its Subsidiaries since December 31, 1994, 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
within a reasonable time.
SECTION 3.19 Derivative Transactions. Except for collateralized mortgage
obligations, shown in the 1994 Financial Statements, neither the Company nor
any of the Subsidiaries has engaged in transactions in or involving structured
notes, forwards, futures, options on futures, swaps or other derivative
instruments.
SECTION 3.20 Bank Regulatory Matters. Except as otherwise set forth in
Section 3.20 of the Disclosure Schedule, neither the Company nor any of the
Subsidiaries is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, any Bank Regulator which restricts
materially the conduct of its business, or in any manner relates to its
capital adequacy, its credit policies or its management, nor has the Company
been informed by any Bank Regulator that it is contemplating issuing or
requesting any such order, directive, agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter or similar submission.
Except as disclosed in the SEC Reports, no Bank Regulator has initiated any
proceeding with respect to the business or operations of the Company or any
Subsidiary since December 31, 1991. Except as otherwise set forth in Section
3.20 of the Disclosure Schedule, there is no material unresolved violation,
criticism, or exception by any Bank Regulator relating to any examination of
Company or any of its Subsidiaries. Except as set forth in Section 3.20 of the
Disclosure Schedule, the Company has furnished to Parent copies of each
examination report of any federal or state regulatory or examination authority
with respect to the condition or activities of the Company or any of its
Subsidiaries that has been issued since December 31, 1991.
SECTION 3.21 Certain Contracts.
(a) Except as set forth in Section 3.21 of the Disclosure Schedule, none
of the Company or any of the Subsidiaries is a party to or bound by any
contract, arrangement, commitment or understanding (i) with respect to the
employment, election, retention in office or severance of any current or
former directors, officers, employees or consultants or with respect to the
payment of deferred compensation or other payments to any former director,
officer, employee or consultant, (ii) which, upon the consummation of the
transactions contemplated by this Agreement will result in any payment
becoming due from the Company or any of the Subsidiaries to any director,
officer or employee thereof, (iii) which is a material contract (as defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed in whole or in
part after the date of this Agreement that has not been filed or incorporated
by reference in the SEC Reports, (iv) which is a consulting or other agreement
(including agreements entered into in the ordinary course and data processing,
software programming and licensing contracts) not terminable on 60 days or
less notice and involving the payment of more than $50,000 per annum or (v)
which materially restricts the conduct of any line of business by the Company
or any of the Subsidiaries. Each contract, arrangement, commitment or
understanding of the type described in this Section 3.21(a), whether or not
set forth in Section 3.21 of the Disclosure Schedule, is referred to herein as
a "Company Contract".
(b) The Company and each of the Subsidiaries have performed all
obligations required to be performed by them under each Company Contract and,
to the knowledge of the Company, no event or condition exists which
constitutes or, after notice or lapse of time or both, would constitute, a
default on the part of the Company or any of the Subsidiaries under any such
Company Contract.
(c) Except as set forth in Section 3.21 of the Disclosure Schedule, to
the knowledge of the Company, each Company Contract is binding upon each other
party thereto in accordance with its terms and no other party to any Company
Contract is in default thereunder, nor does any condition exist that with
notice or lapse of time or both would constitute a default of any party
thereunder.
SECTION 3.22 Material Interests of Certain Persons. No officer or
director of the Company, 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 Company
or any of the Subsidiaries that would be required to be disclosed in a proxy
statement to stockholders under Regulation 14A of the Exchange Act.
SECTION 3.23 Assistance Agreements. None of the Company or any of the
Subsidiaries is a party to any agreement or arrangement entered into in
connection with the consummation of a federally-assisted acquisition of a
depository institution pursuant to which the Company or any of the
Subsidiaries is entitled to receive financial assistance or indemnification
from any governmental agency.
SECTION 3.24 Fairness Opinion. The Company has received an opinion,
dated as of the date hereof, from Sheshunoff to the effect that the Merger
Consideration is fair to the stockholders of the Company from a financial
point of view.
SECTION 3.25 Intellectual Property. The Company and each of its
Subsidiaries owns or possesses valid and binding licenses and other rights to
use without payment all material patents, copyrights, trade secrets, trade
names, service marks and trademarks used in its businesses and neither the
Company nor any of its Subsidiaries has received any notice of conflict with
respect thereto that asserts the right of others. The Company and each of its
Subsidiaries have in all material respects performed all the obligations
required to be performed by them and are not in default in any material
respect under any contract, agreement, arrangement or commitment relating to
any of the foregoing, except where such nonperformance or default would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.26 Undisclosed Liabilities. Except (a) as set forth in Section
3.26 of the Disclosure Schedule and (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheets of the
Company included in the 1994 Financial Statements, neither the Company nor any
of its Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due) that, either alone or when combined with all similar liabilities,
is, or could reasonably be expected to have, a Material Adverse Effect on the
Company or the Surviving Corporation.
SECTION 3.27 Administration of Fiduciary Accounts. Each of the Company
and the Bank has properly administered in all material respects all accounts
for which it acts as a fiduciary, including but not limited to accounts for
which it serves as a trustee, agent, custodian, personal representative,
guardian, conservator or investment advisor, in accordance with the terms of
the governing documents and applicable state and federal law and regulation
and common law. Neither the Company nor the Bank nor any of their respective
directors, officers or employees has committed any breach of trust with
respect to any such fiduciary account which has had or could reasonably be
expected to have a Material Adverse Effect, and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company, as of the date
hereof and, unless otherwise stated herein, as of the Effective Date, that:
SECTION 4.1 Corporate Organization.
(a) Parent is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts ("Massachusetts
Law") and a bank holding company registered with the FRB under the BHCA.
Parent has the requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the business, financial condition or results of
operations of Parent and its subsidiaries taken as a whole.
(b) Purchaser is a corporation duly organized, validly existing and in
good standing under New Hampshire Law and all of its outstanding Capital Stock
is owned by Parent. Purchaser has the requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and
to carry on its business as it is now being conducted, except where the
failure to have such power would not, individually or in the aggregate have a
material adverse effect on the business, financial condition or results of
operations of Parent and its subsidiaries taken as a whole.
SECTION 4.2 Authority. Parent and Purchaser have all necessary corporate
power and authority to execute and deliver this Agreement, to perform their
obligations hereunder and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Parent or Purchaser are necessary to authorize this Agreement or to consummate
the transactions contemplated by this Agreement (other than, with respect to
the Merger, the filing and recordation of appropriate merger documents as
required by New Hampshire Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of Parent and Purchaser, enforceable against
Parent and Purchaser in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and Consents.
(a) The execution, delivery and performance of this Agreement by Parent
and Purchaser does not (i) conflict with or violate the Articles of
Organization or By-Laws or equivalent organizational documents of Parent or
Purchaser, (ii) assuming that the consents and approvals referred to in
Section 3.5(b) are duly obtained, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or Purchaser or by
which any property or asset of Parent or Purchaser is bound or affected, or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of Parent or Purchaser pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or Purchaser is a party or by which Parent or
Purchaser or any property or asset of Parent or Purchaser is bound or
affected, except, in the case of clauses (ii) or (iii) above, for any such
conflicts, violations, breaches, defaults or other occurrences which would not
prevent or significantly delay consummation of the Merger or otherwise prevent
Parent or Purchaser from performing the obligations contemplated under this
Agreement to be performed by them.
(b) The execution, delivery and performance of this Agreement by Parent
and Purchaser does not require any consent, approval, authorization or permit
of, or filing with or notification to any Governmental Entity except for (i)
those referred to in clauses (i) and (ii) of Section 3.5(b) and (ii) any
consent, approval, authorization, permit of, or filing with, or notification
to, any Governmental Entity where failure to obtain any such consent,
approval, authorization or permit, or to make any such filing or notification,
would not prevent or significantly delay consummation of the Merger, or
otherwise prevent Parent or Purchaser from performing the obligations
contemplated under this Agreement to be performed by each of them.
SECTION 4.4 Proxy Statement. The information supplied by Parent or
Purchaser for inclusion in the Proxy Statement will not, on the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company, or at the time of the Stockholders' Meeting,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Stockholders' Meeting which shall have
become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company, any of its Subsidiaries or any of their
representatives which is contained in any of the foregoing documents.
SECTION 4.5 Financial Statements. Parent has previously made available
to the Company copies of the consolidated balance sheets of Parent and its
subsidiaries as of the fiscal years of Parent ending December 31, 1993 and
December 31, 1994, and the related consolidated statements of income, changes
in shareholders' equity and cash flows for the fiscal years ending on December
31 of each of 1992 through 1994, inclusive. Such financial statements were
prepared in accordance with GAAP (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position,
results of operations and changes in financial position of Parent and its
consolidated subsidiaries as at the respective dates thereof and for the
respective periods indicated therein.
SECTION 4.6 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Purchaser.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business by the Company Pending the Merger.
(a) The Company covenants and agrees that, between the date of this
Agreement and the Effective Time, unless Parent shall otherwise agree in
writing, the businesses of the Company and the Subsidiaries shall be conducted
only in, and the Company and the Subsidiaries shall not take any action except
in, the ordinary course of business and in a manner consistent with past
practice and generally to conduct their business in substantially the same way
as conducted during 1994, and without limiting the foregoing, to continue to
operate in the same geographic markets serving the same market segments and
without significant increase in the rate of growth of the Company's loan
portfolio; and the Company shall use all commercially reasonable efforts to
preserve substantially intact the business organization of the Company and the
Subsidiaries, to keep available the services of the current officers,
employees and consultants of the Company and the Subsidiaries and to preserve
the current relationships of the Company and the Subsidiaries with customers,
suppliers and other persons with which the Company or any Subsidiary has
business relations.
(b) By way of amplification and not limitation of clause (a) above,
except as contemplated by this Agreement, Section 5.1 of the Disclosure
Schedule and the Stock Option Agreement, the Company shall not, nor shall it
permit any Subsidiary, between the date of this Agreement and the Effective
Time, directly or indirectly to do, or publicly announce an intention to do,
any of the following without the prior written consent of Parent:
(i) amend or otherwise change its Certificate or Articles of
Incorporation or By-Laws or equivalent organizational documents;
(ii) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance
of, any shares of capital stock of any class of the Company or any
Subsidiary, any stock appreciation rights, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares
of such capital stock, or any other ownership interest, of the Company
or any Subsidiary (except for the issuance of a maximum of 102,605
shares issuable pursuant to stock options outstanding under the Company
Option Plans on the date hereof, a maximum of 230,131 shares issuable
upon conversion of the 7% Debentures or the 8.75% Debentures, and shares
issuable pursuant to the Stock Option Agreement);
(iii) with respect to the Company, declare, set aside, make or pay
any dividend or other distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock;
(iv) split, combine or reclassify any shares of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock;
(v) repurchase, redeem or otherwise acquire any shares of the
capital stock of the Company or any Subsidiary, or any securities
convertible into or exercisable for any shares of the capital stock of
the Company or any Subsidiary;
(vi) enter into any new line of business;
(vii) merge or consolidate with, or purchase an equity interest in
or a portion of the assets of, or acquire by any other manner, any
business or any corporation, partnership, other business organization or
any division thereof, or sell or purchase any material amount of assets
other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary
course of business consistent with past practice;
(viii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any individual,
corporation or other entity, other than short-term borrowings with a
maturity of less than 90 days in the ordinary course of business
consistent with past practice;
(ix) (A) enter into or amend any lease of real property or (B)
enter into or amend any other contract or agreement other than in the
ordinary course of business consistent with past practice and, in any
event, regardless of whether consistent with past practice, undertake or
enter into any contract or other commitment involving an aggregate
payment by or to the Company, the Bank or any other Subsidiary under any
such contract or commitment of more than $50,000 or having a term of one
year or more from the time of execution or any amendment involving an
aggregate increase in payments by the Company or any Subsidiary of more
than $50,000;
(x) authorize any single capital expenditure which is in excess of
$50,000 or capital expenditures which are, in the aggregate, in excess
of $250,000 for the Company and the Subsidiaries taken as a whole,
except for contractual commitments entered into prior to the date of
this Agreement as heretofore disclosed in writing to Parent;
(xi) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any
Subsidiary who are not officers of the Company or any Subsidiary, or
grant any severance (including severance in connection with a change in
control) or termination pay to, or (except as provided in Section
7.2(k)) enter into or amend any employment or severance agreement with
any director, officer or other employee of the Company or any
Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation,
employment, termination, severance, life insurance or split dollar life
insurance, retiree medical or life insurance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director,
officer or employee, or make any contribution to fund existing non-
qualified deferred compensation obligations of the Company or any
Subsidiary, or accrue or make any contribution with respect to any plan
year under the existing profit sharing plan in an amount or at a rate in
excess of the rate at which such contributions were accrued on the
September 30, 1994 financial statements of the Company and its
Subsidiaries;
(xii) take any action with respect to accounting policies or
procedures in effect at December 31, 1994, other than in the ordinary
course of business or required by changes to GAAP or regulatory
accounting principles as concurred in by the Company's independent
auditors;
(xiii) file any application to relocate or terminate the
operations of any banking office of it or any of the Subsidiaries or
relocate or terminate any such operations;
(xiv) make any equity investment or commitment to make such an
investment in equity securities or in real estate or in any real estate
development project, other than in connection with foreclosures,
settlements in lieu of foreclosure or troubled loan or debt
restructurings in the ordinary course of business consistent with past
practice;
(xv) sell any securities in its securities portfolios, except in
the ordinary course of business, acquire any securities for the
Company's or its Subsidiaries' securities portfolios with a final
maturity of more than two years, or engage in any transaction in or
involving structured notes, forwards, futures, options on futures, swaps
or other derivative instruments;
(xvi) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or
otherwise dispose of, or agree to sell, lease, encumber, assign or
otherwise dispose of, any of its material assets, properties or other
rights or agreements;
(xvii) take any action that is intended or reasonably can be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material respect
as of any time to and including Effective Time, or any of the conditions
to the Merger or the other transactions contemplated by this Agreement
set forth in Article VII not being satisfied in any material respect, or
in any material violation of any provision of this Agreement or the
Stock Option Agreement, except, in every case, as may be required by
applicable law, but only after reasonable consultation with Parent;
(xviii) foreclose upon or take a deed or title to any commercial
real estate without first conducting a Phase I environmental assessment
of the property or foreclose upon any commercial real estate if such
environmental assessment indicates the presence of Hazardous Material in
amounts which, if such foreclosure were to occur, would result in a
Material Adverse Effect; or
(xix) agree to do any of the foregoing or permit any of the
foregoing to occur.
(c) The Company covenants and agrees that, between the date of this
Agreement and the Effective Date, unless Parent shall otherwise agree in
writing, the Company shall:
(i) take any and all actions necessary or desirable for the Bank
to qualify with respect to any real property identified in Section
5.1(c) of the Disclosure Schedule, for the secured party exemption under
RSA 146-C and the safe harbor requirements of RSA 146-A and 147-B and
obtain letters from the New Hampshire Department of Justice confirming
that the Bank so qualifies;
(ii) obtain a report from an environmental consulting firm,
mutually agreeable to the Company and Parent, that, with respect to any
real property identified in Section 5.1(c) of the Disclosure Schedule,
describes the environmental response actions necessary to perform all
work identified in any letter from the New Hampshire Department of
Environmental Services identified in said Section 5.1(c), including
performing all work identified in the Remedial Action Plan referred to
therein, that contains, based on said consulting firm's best judgment, a
schedule for and an estimate of the total cost of, completing all such
actions; and
(iii) take any and all actions necessary or desirable to qualify
any real property identified in Section 5.1(c) of the Disclosure
Schedule for reimbursement from the New Hampshire Oil Discharge and
Clean-up Fund and obtain a letter from the New Hampshire Department of
Environmental Serv-ices confirming that such property so qualifies.
SECTION 5.2 Parent Products and Services. From and after the date
hereof, Parent and the Company shall consult with each other on products and
services not currently offered by the Company which Parent would expect to
make available to customers of the Bank, and the Company shall consider
offering such products and services to Bank's customers prior to the Effective
Date, on terms and conditions mutually acceptable to Parent and the Company;
provided, however, that nothing herein shall obligate the Company or the Bank
to offer any such products or services.
SECTION 5.3 Covenant of Parent. During the period from the date of this
Agreement and continuing until the Effective Time, the Parent shall not, and
shall not permit any of its subsidiaries to, take any action or publicly
announce an intention to take any action that is intended or which reasonably
can be expected to result in any of its representations and warranties set
forth in this Agreement being untrue in any material respect as of any time to
and including the Effective Time, or in any of the conditions to the Merger or
other transactions contemplated in this Agreement as set forth in Article VII
not being satisfied in any material respect, or in a material violation of any
provision of this Agreement, or the Stock Option Agreement, except, in every
case, as may be required by applicable law.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders' Meeting. In order to consummate the Merger,
the Company, acting through its Board of Directors (the "Company Board"),
shall, in accordance with applicable law and the Company's Articles of
Incorporation and By-Laws, (a) duly call, give notice of, convene and hold an
annual or special meeting of its stockholders as soon as reasonably
practicable for the purpose of considering and approving this Agreement and
the transactions contemplated hereby (the "Stockholders' Meeting") and (b) (i)
include in the Proxy Statement the recommendation of the Board that the
stockholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby and (ii) use all reasonable efforts to obtain
such approval and adoption; provided that nonperformance of the obligations of
this clause (b) required by the fiduciary duties of the Company Board under
applicable law as determined by such Board with the advice of the Company's
independent counsel shall not constitute a breach of this Agreement. The
Parent and the Company shall coordinate and cooperate with respect to the
foregoing matters.
SECTION 6.2 Proxy Statement. As soon as practicable after the date
hereof, the Company shall file the Proxy Statement with the SEC under the
Exchange Act and shall use all reasonable efforts to have the Proxy Statement
cleared by the SEC. Parent, Purchaser and the Company shall cooperate with
each other in the preparation of the Proxy Statement, and the Company shall
notify Parent promptly of the receipt of any comments of the SEC with respect
to the Proxy Statement and of any requests by the SEC for any amendment or
supplement thereto or for additional information and shall provide to Parent
promptly copies of all correspondence between the Company or any
representative of the Company and the SEC. The Company shall give Parent and
its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give Parent and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. Each of the Company, Parent and
Purchaser agrees to use all reasonable efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of Shares entitled to vote at
the Stockholders' Meeting at the earliest practicable time.
SECTION 6.3 Regulatory Matters.
(a) The parties hereto shall cooperate with each other and use their
best efforts to promptly prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and Governmental Entities which are necessary or advisable
to consummate the transactions contemplated by this Agreement (including
without limitation the Merger). Parent and the Company shall have the right to
review in advance, and to the extent practicable, each will consult the other
on, in each case subject to applicable laws relating to the exchange of
information, all the information relating to either of them, as the case may
be, and any of their respective subsidiaries, which appear in any filing made
with, or written materials submitted to, any third party or any Governmental
Entity in connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto shall act
reasonably and as promptly as practicable. The parties hereto agree that they
will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the Merger, and other
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of all of the
transactions contemplated herein.
(b) If so requested by Parent and in cooperation with Parent and at
Parent's expense, the Company and the Bank and their respective directors and
officers shall promptly take all necessary corporate and other action, prepare
and file all necessary documentation, effect all necessary applications and
filings and obtain as promptly as practicable all permits, consents, approvals
and authorizations of all third parties and Governmental Entities that are
necessary (i) to change the name of the Bank, (ii) to amend the charter and
bylaws of the Bank, (iii) to convert the Bank into a national banking
association or federal savings association and/or (iv) to merge the Bank into
a bank or savings association controlled by Parent, so that such name change,
amendments, conversion or merger transaction may be consummated in conjunction
with the consummation of the Merger, whether effective as of the Effective
Time or immediately before or after the Effective Time. The Company and the
Bank shall not be required by the preceding sentence to take any action that
would make consummation of any such name change, amendment, conversion or
merger transaction irreversible other than in conjunction with consummation of
the Merger.
(c) Parent and the Company shall, upon request, furnish each other with
all information concerning themselves, their subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with any statement, filing, notice or application made
by or on behalf of Parent, the Company or any of their respective subsidiaries
to any Governmental Entity in connection with the Merger, or the transactions
contemplated by this Agreement.
(d) Parent and the Company shall promptly furnish each other with copies
of written communications received by Parent or the Company, as the case may
be, or any of their respective subsidiaries, affiliates or associates (as such
terms are defined in Rule 12b-2 under the Exchange Act as in effect on the
date of this Agreement) from, or delivered by any of the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby.
SECTION 6.4 Access to Information; Etc.
(a) Upon reasonable notice and subject to applicable laws relating to
the disclosure or exchange of information, the Company shall, and shall cause
each of the Subsidiaries to, afford to the officers, employees, accountants,
counsel and other representatives of Parent, reasonable access, during normal
business hours during the period prior to the Effective Time, to all its
officers, employees, agents, properties, books, contracts, commitments and
records and, during such period, the Company shall, and shall cause the
Subsidiaries to, make available to Parent (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws or federal or
state banking laws (other than reports or documents which the Company is not
permitted to disclose under applicable law), (ii) copies of all periodic
reports to senior management, including, without limitation, reports on non-
performing loans and other asset quality matters and all materials furnished
to the Company Board relating to asset quality generally, and (iii) all other
information concerning the business, properties, assets and personnel of the
Company as Parent may reasonably request, including but not limited to
environmental reports. Neither the Company nor any of the Subsidiaries shall
be required to provide access to or to disclose information where such access
or disclosure would violate or prejudice the rights of the Company's
customers, jeopardize the attorney-client privilege of the institution in
possession or control of such information or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of this Agreement (the existence of which
agreement has heretofore been disclosed in writing to Parent) or, in the event
of any litigation or threatened litigation between the Company and Parent over
the terms of this Agreement, where access to information will be adverse to
the interests of the Company. To the extent reasonably practicable, the
parties hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply.
Parent will hold all such information in confidence to the extent required by,
and in accordance with, the provisions of the confidentiality agreement dated
September 2, 1994, between Parent and the Company (the "Confidentiality
Agreement").
(b) Parent may, at its sole option, undertake an environmental site
assessment at any of the properties owned or leased by the Company or any of
its Subsidiaries. The site assessments, if any, shall be completed prior to
the Closing. Throughout the period of time for this site assessment, Parent
and its designated employees, agents, and consultants shall have a reasonable
right of access to the properties during mutually agreed-upon hours to perform
said site assessment. The site assessment may include, in the sole discretion
of the Parent, engineering or geological tests, physical inspections,
intrusive testing, document reviews, interviews, or other evaluation as deemed
necessary by the Parent to determine the presence, nature and extent of any
Hazardous Substances on the properties, provided that the Parent shall restore
the properties to their condition as it existed before any such action was
performed. For purposes of the foregoing, all references to "properties"
include, without limitation, any owned real property or leased real property.
(c) No investigation by any of the parties or their respective
representatives shall affect the representations and warranties of the other
set forth herein or any condition to the obligations of the parties hereto.
(d) All information furnished by Parent to the Company or its
representatives pursuant hereto shall be treated as the sole property of
Parent and, if the Merger shall not occur, the Company and its representatives
shall return to Parent all of such written information and all documents,
notes, summaries or other materials containing, reflecting or referring to, or
derived from, such information. The Company shall, and shall use its best
efforts to cause its representatives to, keep confidential all such
information, and shall not directly or indirectly use such information for any
competitive or other commercial purpose. The obligation to keep such
information confidential shall continue for two years from the date the
proposed Merger is abandoned and shall not apply to (i) any information which
(x) was legally in the Company's possession prior to the disclosure thereof by
Parent; (y) was then generally known to the public; or (z) was disclosed to
the Company by a third party not bound by an obligation of confidentiality or
(ii) disclosures made as required by law. It is further agreed that, if in the
absence of a protective order or the receipt of a waiver hereunder the Company
is nonetheless, in the written opinion of its outside counsel, compelled to
disclose information concerning Parent to any tribunal or governmental body or
agency or else stand liable for contempt or suffer other censure or penalty,
the Company may disclose such information to such tribunal or governmental
body or agency without liability hereunder.
SECTION 6.5 No Solicitation. Neither the Company nor any Subsidiary
shall, directly or indirectly, through any officer, director, agent or
otherwise, initiate contact with, solicit or encourage the submission of any
proposal or offer from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) any material portion of
the assets of, or any equity interest in, the Company or any Subsidiary or any
business combination with the Company or any Subsidiary or, except to the
extent determined by the Company Board, with the advice of its independent
counsel, to be required by its fiduciary obligations under applicable law (in
which case such actions shall not constitute a breach of this Agreement),
participate in any discussions or negotiations regarding, or furnish to any
other person any information with respect to, or otherwise cooperate in any
way with, or assist or participate in, facilitate, any effort or attempt by
any other person to do or seek any of the foregoing. Nothing contained in this
Section 6.5 shall prohibit the Company or the Company Board from taking and
disclosing to the Company's stockholders a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act or making such other disclosure to the Company's stockholders
which, in the judgment of the Company Board, may be required under applicable
law. The Company immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. The Company shall notify Parent promptly
if any such proposal or offer, or any inquiry or contact with any person with
respect thereto, is made and shall, in any such notice to Parent, indicate in
reasonable detail the identity of the person making such proposal, offer,
inquiry or contact and the terms and conditions of such proposal, offer,
inquiry or contact. The Company agrees not to release any third party from, or
waive any provision of, any confidentiality or standstill agreement to which
the Company is a party.
SECTION 6.6 Employee Benefits Matters.
(a) Insurance Coverages. For the period from the Effective Date through
December 31, 1995, the Surviving Corporation and/or its subsidiaries will
continue to provide the same or similar insurance coverages (medical, dental,
life, accidental death and dismemberment, short-term disability, and long-term
disability) to those of their employees who were employees of the Company
and/or its Subsidiaries on the Effective Date as those covering employees of
the Company and its Subsidiaries on the date of this Agreement, except for
increases in employee premiums reflecting any increases charged by insurance
carriers and any changes required by applicable law or by the insurance
carriers. Effective as of January 1, 1996 or at any time thereafter, the
foregoing insurance coverages provided by the Surviving Corporation and/or its
subsidiaries may at the option of Parent be discontinued, in which case those
employees of the Surviving Corporation and/or its subsidiaries who had been
employees of the Company and its Subsidiaries will become eligible for the
same insurance coverages generally available to the majority of the other
employees of Parent and its subsidiaries in the same region as the Surviving
Corporation and its subsidiaries, subject to the applicable terms and
conditions of the benefit plans and/or insurance contracts providing such
coverages.
(b) Personnel Policies. Except as otherwise provided in this Agreement,
all personnel policies and procedures of the Company and/or its Subsidiaries
will be discontinued as of the Effective Date and employees of the Company and
its Subsidiaries will become covered as of the Effective Date under the human
resources policies and procedures of Parent. For all purposes of applying the
human resources policies and procedures of Parent, the employees of Company
and its Subsidiaries will be treated as new employees as of the Effective
Date.
(c) Cornerstone Bank Severance Pay Plan. The Company's Severance Pay
Plan will be continued in effect for a period of twelve months following the
Effective Date.
(d) Profit Sharing and Similar Plans.
(i) Parent will cause the Surviving Corporation and/or its
subsidiaries to maintain the Company's profit sharing plan in effect
through December 31, 1995. Thereafter Parent will either (A) cause the
Surviving Corporation and/or its subsidiaries to maintain Company's
profit sharing plan, or (B) permit employees of the Surviving
Corporation and its subsidiaries to participate in one or more savings,
profit-sharing, employee stock ownership and/or retirement plans
maintained by another subsidiary of Parent (to be designated by Parent)
in accordance with the terms of such plan(s) as in effect from time to
time once the employees have satisfied the eligibility requirements of
such plan(s), or (C) permit employees of the Surviving Corporation and
its subsidiaries to participate in Parent's Savings, Profit Sharing and
Stock Ownership Plan ("Savings Plan") in accordance with its terms as in
effect from time to time once they have satisfied the eligibility
requirement under such plan. If such employees are permitted to
participate in Parent's Savings Plan or a plan or plans of another
subsidiary of Parent, they will receive credit for service with the
Company and its Subsidiaries for purposes of eligibility and vesting,
but not accrual of benefits, under such plans.
(ii) For any plan year in which the Surviving Corporation and/or
its subsidiaries are maintaining the Company's profit sharing plan, the
percentage of compensation that is contributed on behalf of participants
in such profit sharing plan will not exceed the percentage of
compensation that Parent contributes on behalf of its own employees for
such year under Parent's Savings Plan.
(e) Other Employee Benefit Plans. Except as specified herein, any other
employee benefit plans of the Company and/or its Subsidiaries will be
discontinued as of the Effective Date, and the Surviving Corporation and/or
its subsidiaries will thereafter have no obligation of any kind under such
discontinued plans.
(f) No Third-Party Beneficiaries. This Section 6.6 reflects the
agreements of the parties but does not create any rights or obligations except
as among the parties to this Agreement, and it is specifically agreed that no
present or future employee of the Company, the Surviving Corporation, or the
subsidiaries of either will be treated as a third-party beneficiary of the
provisions of this Section 6.6. Nothing in this Section 6.6 or elsewhere in
this Agreement will preclude Parent or the Surviving Corporation or any of the
subsidiaries of either, after the Effective Time, from terminating the
employment of any person who was an employee of the Company or any of its
Subsidiaries, or preclude Parent or the Surviving Corporation, or any of the
subsidiaries of either, from amending or terminating in its discretion any
employee benefit plan maintained by such party.
SECTION 6.7 Bank Directors and Officers; Indemnification; Insurance.
(a) Parent will invite at least three of the current directors of the
Bank, which number shall include John M. Terravecchia, and such additional
number as it may determine in its discretion after consultation with the Board
of Directors of the Bank, to continue to serve as directors at least until the
annual meeting of the Bank following the Effective Date, subject to any
changes as a result of any transaction involving a reorganization or merger of
the Bank. John M. Terravecchia will be invited to serve as Vice Chairman and
Chief Executive Officer of the Bank during the term of his Amended and
Restated Employment Agreement with the Company and the Bank, subject to any
changes as a result of any transaction involving a reorganization or merger of
the Bank.
(b) The Articles of Incorporation and By-laws of the Surviving
Corporation and the Bank shall not contain provisions that are less favorable
with respect to indemnification than are set forth in the current By-laws of
the Company and the Bank, respectively; provided, however, that neither the
Surviving Corporation nor the Bank shall be required to indemnify any person
seeking indemnification in connection with (i) a proceeding (or part thereof)
that was initiated by such person, unless the initiation thereof was approved
or ratified by the Board of Directors of the Corporation or Bank, as the case
may be, or (ii) a proceeding (or part thereof) by or in the right of the
Surviving Corporation or Bank, as the case may be.
(c) Parent acknowledges, and the Surviving Corporation shall honor, the
right of the present and former directors and officers of the Company to be
indemnified by the Surviving Corporation after the Effective Time against
losses, claims, damages or liabilities arising out of actions or omissions
occurring at or prior to the Effective Time to the extent provided in the
Company's By-laws as in effect as of the date of this Agreement (to the extent
consistent with applicable law); provided, however, that the Surviving
Corporation shall not be required to indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) that was
initiated by such person, unless the initiation thereof was approved or
ratified by the Board of Directors of the Corporation, nor any proceeding or
part thereof by or in the right of the Surviving Corporation.
(d) Parent and the Surviving Corporation shall use their best efforts to
maintain in effect for a period of one year from the Effective Time, if
available, the current directors' and officers' liability insurance policies
maintained by the Company (provided that Parent and the Surviving Corporation
may substitute therefor policies of at least the same coverage, if available,
containing terms and conditions which are not materially less favorable) with
respect to matters occurring prior to the Effective Time; provided, however,
that in no event shall Parent and the Surviving Corporation be required to
expend pursuant to this Section 6.7(d) more in the aggregate than an amount
equal to the lesser of 200% of current annual premiums paid by the Company for
such insurance or $50,000.
(e) In the event Parent, the Surviving Corporation or any of their
respective 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 all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume the obligations
set forth in subsections (b)-(d) of this Section 6.7, which obligations are
expressly intended to be for the irrevocable benefit of, and shall be
enforceable by, each director, officer and employee covered hereby.
SECTION 6.8 Financial and Other Statements. Notwithstanding anything to
the contrary in, and without limitation of its obligations under, Section 6.4,
during the term of this Agreement, the Company shall provide to Parent the
following documents and information:
(a) As soon as reasonably available, but in no event more than 45
days after the end of each fiscal quarter ending after the date of this
Agreement, the Company will deliver to Parent its Quarterly Report on
Form 10-Q as filed under the Exchange Act and the Bank's Quarterly Call
Report as filed with the FDIC. As soon as reasonably available, but in
no event more than 90 days after December 31, 1994 and the end of each
fiscal year ending after the date of this Agreement, the Company will
deliver to Parent its Annual Report on Form 10-K, as filed under the
Exchange Act. The Company will also deliver to Parent, contemporaneously
with its being filed with the SEC, a copy of each Current Report on Form
8-K.
(b) Promptly upon receipt thereof, the Company will furnish to
Parent copies of all internal control reports submitted to the Company
or the Subsidiaries by independent accountants in connection with each
annual, interim or special audit of the books of the Company or the
Subsidiaries made by such accountants.
(c) As soon as practicable, the Company will furnish to Parent
copies of all such financial statements and reports as it or any
Subsidiary shall send to its stockholders, the SEC or any other
regulatory authority, to the extent any such reports furnished to any
such regulatory authority are not confidential and except as legally
prohibited thereby.
(d) Promptly upon receipt thereof, the Company will furnish to
Parent copies of each examination report of any federal or state
regulatory or examination authority with respect to the condition or
activities of the Company or any of the Subsidiaries, except to the
extent prohibited by law. With respect to any examination report the
disclosure of which is prohibited by law, the Company will use its
reasonable efforts to obtain authority to deliver to Parent copies of
such examination report; provided, however, that the Company cannot
provide any assurance that any such authority can be obtained.
(e) With reasonable promptness, the Company will furnish to Parent
such additional financial data as Parent may reasonably request. In each
case where the Company would be obligated to furnish information or
materials to Parent hereunder except for a legal prohibition, the
Company shall promptly inform Parent of the existence and nature of such
information or materials and the basis for such legal prohibition.
SECTION 6.9 Further Action. Each of Parent and the Company shall, and
shall cause its subsidiaries to, use its best efforts (a) to take, or cause to
be taken, all actions necessary, proper or advisable to comply promptly with
all legal requirements which may be imposed on such party or its subsidiaries
with respect to the Merger and, subject to the conditions set forth in Article
VII hereof, to consummate the transactions contemplated by this Agreement and
(b) to obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity and any other third party which is required to be obtained by the
Company or Parent or any of their respective subsidiaries in connection with
the Merger and any of the transactions contemplated by this Agreement.
SECTION 6.10 Public Announcements. Company shall consult with Parent
before issuing any press release or otherwise making any public statements
with respect to this Agreement or any transaction contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or any
requirement of any agreement with any automated interdealer quotation system.
SECTION 6.11 Additional Agreements. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, or to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities and franchises
of any of the parties to the Merger, the proper officers and directors of each
party to this Agreement and their respective subsidiaries shall take all such
necessary action as may be reasonably requested by, and at the sole expense
of, Parent.
SECTION 6.12 Update of Disclosure Schedules. From time to time prior to
the Effective Time, the Company will promptly supplement or amend the
Disclosure Schedules to reflect any matter which, if existing, occurring or
known at the date of this Agreement, would have been required to be set forth
or described in the Disclosure Schedules or which is necessary to correct any
information in the Disclosure Schedules which has been rendered inaccurate
thereby as of such later time. No supplement or amendment to the Disclosure
Schedules shall limit the right of Parent and Purchaser to rely on the
representations and warranties as of the date of this Agreement or have any
effect for the purpose of determining satisfaction of the conditions set forth
in Sections 7.2(a) or 7.2(b) hereof, as the case may be, or the compliance by
the Company with the covenants set forth in Article V hereof.
SECTION 6.13 Current Information.
(a) During the period from the date of this Agreement to the Effective
Time, the Company will cause one or more of its designated representatives (i)
to confer on a regular and frequent basis (not less than monthly) with
representatives of Parent to report on the general status of the ongoing
operations of the Company and the Subsidiaries and (ii) to cooperate and
communicate fully with respect to the manner in which the business of the Bank
will be operated after the Effective Time, the type, mix and pricing of
products and services, personnel matters, branch alignment, the granting of
credit, and problem loan management, reserve adequacy and accounting. In order
to facilitate the foregoing, the Company and Parent shall promptly establish a
liaison committee (the "Committee") which will be chaired by representatives
of Parent and the Company and which will meet on a regular basis to discuss
these matters and may establish sub-committees from time-to-time to pursue
various issues. During the period from the date of this Agreement to the
Effective Time, the Company shall provide Parent with timely and sufficient
information to review new extensions of credit, renewals, and restructurings
and information detailing overall asset quality and risk.
(b) The Company will promptly notify Parent of any material change in
the normal course of business or in the operation of the properties of the
Company or any of the Subsidiaries and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of significant litigation
involving the Company or any of the Subsidiaries, and will keep Parent
reasonably informed of such events. Parent will promptly notify the Company of
any material change in the normal course of business or in the operation of
the properties of Parent or any of its subsidiaries or the institution or the
threat of significant litigation or administrative proceedings involving
Parent or any of its subsidiaries that could materially delay or prevent
consummation of the transaction, and will keep the Company fully informed of
such events.
(c) To the extent not covered by paragraphs (a) and (b) above, the
Company shall give prompt notice to Parent, and Parent shall give prompt
notice to the Company, of (i) the occurrence, or non occurrence, of any event
the occurrence, or non-occurrence, of which would be reasonably likely to
cause any representation or warranty contained in this Agreement to be or to
become untrue or inaccurate in any material respect as of any time before the
Effective Time and (ii) any failure of the Company, Parent or Purchaser, as
the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement;
provided, however, that the delivery of any notice pursuant to this paragraph
(c) shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 6.14 System Conversions. From and after the date hereof, Parent
and the Company shall meet on a regular basis to discuss and plan for the
conversion of the Company's data processing and related electronic information
systems to those used by Parent and its subsidiaries, which planning shall
include, but not be limited to, discussion of the possible termination by the
Company of third-party service provider arrangements effective at the
Effective Time or at a date thereafter, non-renewal of personal property
leases and software licenses used by the Company in connection with its
systems operations and outsourcing, as appropriate, of proprietary or self-
provided system services, it being understood that the Company shall not be
obligated to take any such action and, unless the Company otherwise agrees, no
conversion shall in fact take place prior to the Effective Time. In the event
that, at the request of Parent, the Company determines to take, and so takes,
any action relative to third parties to facilitate the conversion that results
in the imposition of any termination fees or charges, Parent shall indemnify
the Company on terms reasonably satisfactory to the Company for any such fees
and expenses, and the costs of reversing the conversion process, if for any
reason the Effective Time does not occur in accordance with the terms of this
Agreement.
SECTION 6.15 Redemption of Debentures. The Company shall, upon the
written request of Parent and under such conditions as are set forth in a
certain letter from Parent to the Company of even date herewith, take all such
actions, including without limitation adopting appropriate resolutions of the
Company Board and sending timely notice of redemption to each holder of 8.75%
Debentures and each holder of 7% Debentures, in order to permit the Surviving
Corporation to redeem 100% of the principal amount of the 8.75% Debentures and
the 7% Debentures outstanding as of the Effective Time, such redemption to
occur at or after the Effective Time, as determined by Parent, all in
conformity with the respective Indentures. The Company shall send the notices
of redemption (which may, at the option of Parent, provide that the redemption
shall take place only if and when the Merger is effective) to the holders at
such time as Parent determines, but shall not be required to send such notices
until all necessary approvals of Governmental Entities referred to in Section
7.1(b) have been obtained.
SECTION 6.16 Affiliate Letter. The Company shall use its best efforts to
cause each director, executive officer and other person who is an "affiliate"
(for purposes of Rule 145 under the Securities Act of 1933, as amended) of the
Company to deliver to Parent, as soon as practicable after the date of this
Agreement, and prior to the date of the Stockholders' Meeting, a written
agreement in substantially the form of Annex II hereto.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the
affirmative vote of the stockholders of the Company to the extent
required by New Hampshire Law and the Articles of Incorporation of the
Company;
(b) Regulatory Approvals. All necessary approvals, authorizations
and consents of all Governmental Entities, including, without limitation
the FRB, the NHBTI, and the MBBI and those required to satisfy Section
6.3(b) hereof, required to consummate the Merger and the other
transactions contemplated hereby shall have been obtained and remain in
full force and effect, and all waiting periods relating to such
approvals, authorizations and consents shall have expired or been
terminated; provided, however, that no approval, authorization or
consent referred to in this Section 7.1(b) shall be deemed to have been
received if it shall include any condition or requirement that, in the
reasonable opinion of Parent, would so materially and adversely affect
the economic or business benefit to Parent of the transactions
contemplated by this Agreement as to render inadvisable the consummation
of the Merger.
(c) No Orders, Injunctions or Restraints: Illegality. No federal
or state governmental authority or other agency or commission or federal
or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary
or permanent) which is then in effect and has the effect of making the
Merger illegal or otherwise restricting, preventing or prohibiting
consummation of the transactions contemplated by this Agreement,
including the Merger.
SECTION 7.2 Conditions to Obligations of Parent and Purchaser. The
obligations of Parent and Purchaser to effect the Merger are also subject to
the following conditions, each of which is an independent condition and shall
not be affected by any other condition:
(a) Representations and Warranties. Each of the representations
and warranties of the Company in this Agreement which is qualified as to
materiality shall be true and correct and each such representation or
warranty that is not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as
of the Effective Time; provided, however, that, for purposes hereof,
such representations and warranties shall be deemed to be true and
correct in all material respects unless the failure or failures of such
representations and warranties to be so true and correct represent, in
the aggregate, a Material Adverse Effect. The Company shall have
delivered to Parent a certificate of the Company to such effect signed
by the Chief Executive Officer and the Chief Financial Officer of the
Company as of the Effective Date.
(b) Agreements and Covenants. The Company shall have performed in
all material respects all obligations and complied in all material
respects with all agreements or covenants of the Company to be performed
or complied with by it at or prior to the Effective Date under this
Agreement; all of the conditions to the obligations of Parent and
Purchaser to effect the Merger shall have been satisfied; there shall
not exist any default or any condition that, with notice and/or the
passage of time, would constitute a default under this Agreement on the
part of the Company; and Parent shall have received a certificate signed
on behalf of the Company by the Chief Executive Officer and Chief
Financial Officer of the Company to such effect dated as of the
Effective Date.
(c) Consents Under Agreements.
(i) The consent, approval or waiver of each person (other
than regulatory approvals contemplated in Section 7.1(b)) whose
consent or approval shall be required in order to permit the
succession by the Surviving Corporation pursuant to the Merger to
any obligation, right or interest of the Company or any Subsidiary
of the Company under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument shall
have been obtained, except where the failure to obtain such
consent, approval or waiver (A) would not have a Material Adverse
Effect and (B) would not materially adversely affect the business
or economic benefits to Parent of consummation of any of the
transactions contemplated in this Agreement.
(ii) In addition to paragraph (i) of this subsection, the
consent, approval or waiver of each person (other than regulatory
approvals) whose consent or approval shall be required under any
loan or credit agreement, note, mortgage, indenture, lease,
license or other agreement or instrument in order to permit the
operation by the Bank, following any of the transactions
contemplated by Section 6.3(b), of any and all of its branches and
business as operated on the date of this Agreement shall have been
obtained.
(d) Federal Tax Opinion. Parent shall have received an opinion of
its counsel, Palmer & Dodge, or a ruling from the Internal Revenue
Service substantially to the effect that on the basis of the facts and
representations set forth in this Agreement and assuming that the Merger
is consummated in accordance with the terms of this Agreement, no gain
or loss shall be recognized by and no federal income tax liability shall
result to Parent, Purchaser, the Company or any of its Subsidiaries by
reason of the Merger.
(e) Legal Opinion. Parent shall have received the opinion of
Devine, Millimet & Branch, counsel to the Company, dated the Effective
Date, in a form that is customary for transactions of this type. As to
any matter in such opinion which involves matters of fact, such counsel
may rely upon certificates of officers and directors of the Company and
its Subsidiaries and of public officials and opinions of local counsel,
reasonably acceptable to Parent.
(f) Accountant's Letter. The Company shall have caused to be
delivered to Parent a letter from the Company's independent public
accountants dated the Effective Date and addressed to Parent and the
Company with respect to the Company's consolidated financial position
and results of operation, which letter shall be based upon SAS 72 and
certain agreed upon procedures to be specified by Parent, which
procedures shall be consistent with applicable professional standards
for letters delivered by independent accountants in connection with
comparable transactions.
(g) Dissenting Shares. Immediately prior to the Effective Time not
more than 200,000 Shares of Company Common Stock shall be Dissenting
Shares.
(h) Total Stockholders' Equity. As of the Effective Date the total
stockholders' equity shown on the consolidated financial statements of
the Company and its Subsidiaries prepared in accordance with GAAP shall
not be less than $8,921,000 and neither the Company nor the Bank shall
have a Tier 1 leverage ratio of less than 6.00%.
(i) Asset Quality. As of the Effective Date the total of
consolidated nonperforming assets (including nonaccrual loans and
leases, restructured accruing loans and leases, other real estate owned,
in-substance foreclosures whether or not classified as other real estate
owned, and loans considered to be impaired under FAS 114) and loans and
leases 90 days or more past due shown on the consolidated financial
statements of the Company and its Subsidiaries prepared in accordance
with GAAP shall not exceed $5,500,000.
(j) Subsidiary Directors. Parent shall have received the
resignations of such of the directors of the Company's Subsidiaries,
including the Bank, as Parent shall have requested.
(k) Employment Agreements. The employment agreements between the
Company and/or the Bank and each of the officers of the Company and/or
the Bank designated by Parent as of the date hereof shall have
terminated and be of no further effect as of the Effective Time and
shall be replaced by agreements in the respective forms executed by
Parent and such officers on or before the date of this Agreement.
(l) Corporate Actions. Any name change, charter or bylaw
amendment, charter conversion or merger of the Bank requested by Parent
shall have been authorized by all corporate action necessary to permit
such name change, amendment, conversion or merger to be consummated in
conjunction with the consummation of the Merger.
(m) Company's Stock Options and Other Rights. All options,
warrants and other rights to purchase equity securities of the Company,
whether pursuant to the Company Option Plans or otherwise, shall have
been exercised in full or terminated before the Effective Time, in each
case following the receipt of all necessary consents and waivers, and no
such options, warrants or other rights shall be outstanding.
(n) No Material Adverse Change. Since the date of this Agreement,
there shall have been no material adverse change in the financial
condition, business, assets or operations of the Company or the Bank,
nor shall any event have occurred that so far as can reasonably be
foreseen on the Effective Date appears reasonably likely to have a
Material Adverse Effect.
(o) Environmental Matters. The Company shall have received and
provided to Parent each of the following:
(i) the letters from the New Hampshire Department of Justice
described in Section 5.1(c)(i) hereof;
(ii) the report described in Section 5.1(c)(ii) hereof,
which report shall contain an estimate of the total cost of
completing all actions described therein of $250,000 or less,
after deducting all reimbursements from the New Hampshire Oil
Discharge and Clean-up Fund; and
(iii) the letter described in Section 5.1(c)(iii) hereof.
SECTION 7.3 Conditions to Obligations of the Company. The obligations of
the Company to effect the Merger are also subject to the following conditions,
each of which is an independent condition and shall not be affected by any
other condition:
(a) Representations and Warranties. Each of the representations
and warranties of Parent and Purchaser in this Agreement which is
qualified as to materiality shall be true and correct and each such
representation or warranty that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Effective Date; provided, however, that, for
purposes hereof, such representations and warranties shall be deemed to
be true and correct in all material respects unless the failure or
failures of such representations and warranties to be so true and
correct represent, in the aggregate, a material adverse effect on the
business, financial condition or results of Parent and its subsidiaries
taken as a whole. Parent and Purchaser shall each have delivered to the
Company a certificate of such party to such effect signed by the Chief
Financial Officer of Parent dated as of the Effective Date.
(b) Agreements and Covenants. Parent and Purchaser shall have
performed in all material respects all obligations and complied in all
material respects with all of the respective agreements or covenants to
be performed or complied with by such party under this Agreement; all of
the conditions to the obligations of the Company to effect the Merger
shall have been satisfied; there shall not exist any default or any
condition that, with notice and/or the passage of time, would constitute
a default under this Agreement on the part of Parent or Purchaser; and
the Company shall have received a certificate signed by the Chief
Financial Officer of the Parent to such effect dated as of the Effective
Date.
(c) Consents Under Agreements. The consent, approval or waiver of
each person (other than regulatory approvals contemplated in Section
7.1(b)) whose consent or approval shall be required in order to permit
the succession by the Surviving Corporation pursuant to the Merger, to
any obligation, right or interest of the Company under any loan or
credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument shall have been obtained, except where the
failure to obtain such consent, approval or waiver would not have a
Material Adverse Effect.
(d) Legal Opinion. The Company shall have received the opinion of
Palmer & Dodge, counsel to Parent, dated the Effective Date, in a form
that is customary for transactions of this type. As to any matter in
such opinion which involves matters of fact or matters relating to laws
other than Massachusetts or Federal laws, such counsel may rely upon the
certificates of officers and directors of Parent and of public officials
and opinions of local counsel, reasonably acceptable to the Company.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the Merger
and the other transactions contemplated in this Agreement may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval
and adoption of this Agreement and the transactions contemplated in this
Agreement by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company;
(b) by either Parent and Purchaser or the Company if the Effective
Time shall not have occurred on or before February 28, 1996; provided,
however, that the right to terminate this Agreement under this Section
8.1(b) shall not be available to any party whose failure to fulfill any
material obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before
such date;
(c) by either Parent and Purchaser or the Company (i) ninety days
after the date on which any request or application for a regulatory
approval required to consummate the Merger shall have been denied or
withdrawn at the request or recommendation of the Governmental Entity
which must grant such requisite regulatory approval, unless within the
ninety day period following such denial or withdrawal a petition for
rehearing, a request for reconsideration or an amended application has
been filed with such Governmental Entity; provided, however, that no
party shall have the right to terminate this Agreement pursuant to this
Section 8.1(c) if such denial or request or recommendation for
withdrawal shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements of
such party set forth herein or (ii) if any court of competent
jurisdiction or other governmental authority shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable;
(d) by either Parent and Purchaser or the Company if there shall
have been a material breach of any of the representations or warranties
set forth in this Agreement on the part of the other party, which breach
by its nature cannot be cured in time to permit the Effective Time to
occur no later than February 28, 1996;
(e) by either Parent and Purchaser or the Company if there shall
have been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of the other party, which breach
shall not have been cured within forty-five days following receipt by
the breaching party of written notice of such breach from the other
party hereto; or
(f) by any of Parent or Purchaser or the Company (provided, that
if the terminating party is the Company, the Company shall not be in
material breach of any of its obligations under Section 6.1) if any
approval of the stockholders of the Company required for the
consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment or postponement thereof.
SECTION 8.2 Termination Fee. In order to induce Parent to enter into
this Agreement and to reimburse Parent for incurring the costs and expenses
related to entering into this Agreement and consummating the transactions
contemplated by this Agreement, the Company will make a cash payment to Parent
of $500,000 (the "Expense Fee") if and only if:
(a) (i) Parent, Purchaser or the Company has terminated this
Agreement pursuant to Section 8.1(f) or (ii) Parent has terminated this
Agreement pursuant to Sections 8.1(d) or 8.1(e), and
(b) (i) within twelve (12) months before or after any such
termination, (A) the Company shall have entered into an agreement to
engage in an Acquisition Transaction with any person other than Parent
or any subsidiary or affiliate of Parent or (B) the Board of Directors
of the Company shall have approved an Acquisition Transaction or
recommended that shareholders of the Company approve or accept any
Acquisition Transaction with any person other than Parent or any
subsidiary or affiliate of Parent, or (ii) in the case of a termination
pursuant to Section 8.1(f), at the time of such termination it shall
have been publicly announced that any person (other than Parent or any
subsidiary or affiliate of Parent) shall have (x) made, or disclosed an
intention to make, a proposal to engage in an Acquisition Transaction or
(y) filed an application or notice in draft or final form, under the BHC
Act or the Change in Bank Control Act of 1978, for approval to engage in
an Acquisition Transaction.
Any payment required by the previous sentence will be payable by the
Company to Parent (by wire transfer of immediately available funds to an
account designated by Parent) within five business days after demand by
Parent. In the event of a termination under circumstances that would trigger a
payment under this Section 8.2, the standstill provisions contained in the
Confidentiality Agreement shall terminate.
For purposes of this Agreement, "Acquisition Transaction" shall mean (i)
a merger, consolidation or other similar transaction with the Company or any
of its Subsidiaries, (ii) any sale, lease or other disposition of 15% or more
of the consolidated assets of the Company and its Subsidiaries, taken as a
whole, in a single transaction or series of transactions, or (iii) any
issuance, sale, transfer, exchange or other disposition of (including by way
of merger, consolidation, share exchange, acceptance of a tender or exchange
offer or any similar transaction) securities representing 15% or more of the
voting power of the Company or any Subsidiary.
SECTION 8.3 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, this Agreement shall forthwith become
void, and there shall be no liability on the part of any party hereto, except
(i) as set forth in Section 9.1 and (ii) nothing herein shall relieve any
party from liability for any breach hereof. In no event shall any officer,
director or agent of Parent, Purchaser, the Company or any of their respective
subsidiaries be personally liable for any default by any party in its
obligations hereunder unless any such default was intentionally caused by such
officer, director or agent.
SECTION 8.4 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement, and the transactions contemplated hereby and
thereby shall be paid by the party incurring such expenses, whether or not any
of the transactions contemplated by this Agreement are consummated.
SECTION 8.5 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval and adoption of this Agreement and the transactions contemplated
hereby by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
Share shall be converted upon consummation of the Merger. This Agreement may
not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 8.6 Waiver. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any obligation or other
act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein; provided, however, that after the approval and adoption of
this Agreement and the approval of the transactions contemplated hereby by the
stockholders of the Company there may not be, without further approval of such
stockholders, any extension or waiver of this Agreement or any portion thereof
which would reduce the amount or change the form of the consideration into
which each Share shall be converted upon consummation of the Merger and
delivered to the Company's stockholders hereunder other than as contemplated
by this Agreement. Any such extension or waiver shall be valid if set forth in
an instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Articles I and II and Sections 6.7 and 6.11 shall survive the
Effective Time indefinitely and those set forth in the last sentence of
Section 6.4(a), Section 6.4(d) and in Sections 8.2, 8.3 and Article IX hereof
shall survive termination indefinitely.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.2):
if to Parent or Purchaser:
BayBanks, Inc.
175 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 556-6328
Attention: Michael W. Vasily
Executive Vice President
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Facsimile: (617) 227-4420
Attention: Jerry V. Klima, Esquire
if to the Company:
Cornerstone Financial Corporation
15 East Broadway
Derry, New Hampshire 03038
Facsimile: (603) 437-4336
Attention: John Terravecchia
Chairman, President and Chief
Executive Officer
with a copy to:
Devine, Millimet & Branch, P.A.
111 Amherst Street
Manchester, NH 03101
Facsimile: (603) 669-8547
Attention: Paul C. Remus, Esquire
SECTION 9.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who directly
or indirectly through one or more intermediaries controls, is controlled
by, or is under common control with, such specified person, including,
without limitation, any partnership or joint venture in which the
Company (either alone, or through or together with any subsidiary) has,
directly or indirectly, an interest of 5% or more;
(b) "beneficial owner" with respect to any Shares means a person
who shall be deemed to be the beneficial owner of such Shares (i) which
such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 promulgated under the Exchange Act) beneficially
owns, directly or indirectly, (ii) which such person or any of its
affiliates or associates has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or subject only
to the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding or (iii) which
are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or associates or person
with whom such person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any Shares;
(c) "business day" means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case
of determining a date when any payment is due, any day on which banks
are not required or authorized to close in the City of Boston;
(d) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership
of voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "knowledge" as used herein in the context of the Company shall
mean knowledge of the Company and of the Bank;
(f) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government; and
(g) "Subsidiary" means any corporation, partnership or other
organization, whether incorporated or unincorporated, which is
consolidated with the Company for financial purposes, or of which the
Company holds, directly or indirectly, 25% or more of the shares or
equity interest, or which the Company controls, directly or indirectly,
through one or more intermediaries.
SECTION 9.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated by this Agreement is not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement be consummated as originally
contemplated to the fullest extent possible.
SECTION 9.5 Entire Agreement. This Agreement (including the Disclosure
Schedule) and the Stock Option Agreement constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and undertakings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof except for the
Confidentiality Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than subsections (b)-(e) of Section 6.7 (which
are intended to be for the benefit of the persons covered thereby and may be
enforced by such persons).
SECTION 9.7 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity.
SECTION 9.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
applicable to contracts executed in and to be performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any state or federal court sitting in the City of
Boston, and each party hereto hereby consents and agrees to submit to the
jurisdiction of such courts for such purpose.
SECTION 9.9 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 9.10 Counterparts. This Agreement may be executed (including by
facsimile) in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as a sealed instrument as of the date first written
above by their respective officers thereunto duly authorized.
Attest: BAYBANKS, INC., a Massachusetts corporation
(Parent)
/s/ JERRY V. KLIMA By: /s/ MICHAEL W. VASILY
Assistant Clerk Name: Michael W. Vasily
Title: Executive Vice President
Attest: BAYBANKS, INC., a New Hampshire corporation
(Purchaser)
/s/ WILLIAM W. ABENDROTH By: /s/ JOAN E. TONRA
Assistant Secretary Name: Joan E. Tonra
Title: Treasurer
Attest: CORNERSTONE FINANCIAL CORPORATION
/s/ EDWARD D. BUREAU By: /s/ JOHN TERRAVECCHIA
Secretary Name: John Terravecchia
Title: Chairman, President and
Chief Executive Officer
ANNEX I
AMENDMENTS TO
ARTICLES OF INCORPORATION
of
CORNERSTONE FINANCIAL CORPORATION
The Articles of Incorporation of Cornerstone Financial Corporation are
amended in their entirety to be as follows and all previous provisions are
revoked upon the Effective Time of the Agreement and Plan of Merger:
FIRST: The name of the corporation is changed to BayBanks, Inc.
SECOND: The corporation shall have authority to issue 8,000,000
shares of common stock, no par value.
All of such shares shall have unlimited voting rights and shall carry
the right to participate on a pro rata basis in any distribution of net assets
upon dissolution of the corporation.
The Board of Directors shall have the right to determine any further
preferences, limitations, and relative rights of any class of shares before
the issuance of any shares of that class, or any series within a class before
the issuance of any shares of that series.
THIRD: The capital stock will be sold or offered for sale within
the meaning of RSA 421-B (New Hampshire Securities Act).
FOURTH: To the fullest extent now or hereafter permitted by law,
any action that may be taken at a shareholders' meeting may be taken
without a meeting without prior notice and without a vote if the action
is taken in the form of one or more written consents by all of the
number of shareholders having not less than the minimum number of votes
that would be necessary to take the action at a meeting at which all
shares entitled to vote on the action were present and voted.
FIFTH: Shareholders may adopt or amend bylaw provisions fixing
greater quorum and voting requirements for shareholders or voting groups
of shareholders than are required by New Hampshire RSA Chapter 293-A.
ANNEX II
March 23, 1995
BayBanks, Inc.
175 Federal Street
Boston, Massachusetts 02110
Gentlemen:
Each of the undersigned (a "Stockholder") beneficially owns and has sole
voting power with respect to the number of shares of the common stock, without
par value (the "Shares"), of Cornerstone Financial Corporation (the "Company")
indicated opposite such Stockholder's name below.
Simultaneously with the execution of this letter agreement, BayBanks,
Inc. ("Parent") and the Company are entering into an Agreement and Plan of
Merger (the "Merger Agreement") providing, among other things, for the merger
of a subsidiary of Parent with the Company (the "Merger"). We understand that
Parent has undertaken and will continue to undertake substantial expenses in
connection with the negotiation and execution of the Merger Agreement and the
subsequent actions necessary to consummate the Merger and the other
transactions contemplated by the Merger Agreement.
In consideration of, and as a condition to, Parent's entering into the
Merger Agreement, and in consideration of the expenses incurred and to be
incurred by Parent in connection therewith, each Stockholder and Parent agree
as follows:
1. Each Stockholder shall vote or cause to be voted for the
approval of the Merger Agreement and the Merger, and shall vote or cause
to be voted against the approval of any other agreement providing for a
merger, consolidation, sale of assets or other business combination of
the Company or any of its subsidiaries with any person or entity other
than Parent and its subsidiaries, all of the Shares that such
Stockholder shall be entitled to so vote, whether such Shares are held
by such Stockholder on the date of this letter agreement or are
subsequently acquired whether pursuant to the exercise of stock options
or otherwise.
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 such Stockholder on the
date of this letter agreement or are subsequently acquired, whether
pursuant to the exercise of stock options or otherwise, except (a) for
transfers by will or by operation of law (in which case this letter
agreement shall bind the transferee), (b) for transfers to any other
Stockholders, (c) for transfers by gift to family members who agree to
be bound by this letter agreement, and (d) as Parent may otherwise
agree.
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 Stockholder and regulatory
approval of Parent's acquisition of the Shares pursuant to the Merger
and thereafter to consummate the Merger.
4. Each of the Stockholders severally 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
of the Stockholders further severally represents that this letter
agreement constitutes a valid and binding agreement with respect to such
party, enforceable against such party in accordance with its terms. Each
of the Stockholders severally represents that such Stockholder owns the
number of Shares indicated opposite such Stockholder's name below, free
and clear of any liens, claims, charges or other encumbrances and
restrictions of any kind whatsoever ("Liens"), and has sole and
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 (i) the consummation of the Merger and (ii) the termination of the
Merger Agreement in accordance with Article VIII thereof.
6. Each of the Stockholders has signed this letter agreement
intending to be bound severally thereby and not to be bound as joint
obligors.
7. This letter agreement is to be governed by the laws of the
Commonwealth of Massachusetts, without giving effect to the principles
of conflicts of laws thereof. If any provision hereof is deemed
unenforceable, the enforceability of the other provisions hereof shall
not be affected.
Please confirm our agreement with you by signing a copy of this letter.
Very truly yours,
Director or Number of
Executive Officer Shares Signatures
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AGREED TO AND ACCEPTED
THIS _____ DAY OF MARCH, 1995
BAYBANKS, INC.
By: _________________________________
Name: Michael W. Vasily
Title: Executive Vice President
ANNEX B
STOCK OPTION AGREEMENT, dated as of March 23, 1995 (this "Agreement"),
by and between Cornerstone Financial Corporation, a New Hampshire corporation
(the "Company"), and BayBanks, Inc., a Massachusetts corporation ("Parent").
WHEREAS, the Company and Parent propose to enter into an Agreement and
Plan of Merger dated as of the date hereof (the "Merger Agreement") providing
for, among other things, the merger of a wholly owned subsidiary of Parent
with and into the Company with the Company as the surviving corporation; and
WHEREAS, as a condition and an inducement to Parent's willingness to
enter into the Merger Agreement, Parent has requested that the Company agree,
and the Company has agreed, to grant Parent the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, the Company and Parent agree as follows:
1. Grant of Option.
(a) Subject to the terms and conditions set forth herein, the
Company hereby grants to Parent an irrevocable option (the "Option") to
acquire up to 295,000 shares (the "Option Shares") of common stock,
without par value, of the Company ("Company Common Stock") at an
acquisition price of $6.625 per Option Share (the "Purchase Price");
provided, however, that the number of shares of Company Common Stock
that may be received upon the exercise of the Option and the Purchase
Price are subject to adjustment as herein set forth and in no event
shall the number of shares of Company Common Stock for which this Option
is exercisable exceed 14% of the issued and outstanding shares of
Company Common Stock (without giving effect to any shares of Company
Common Stock subject to or issued pursuant to the Option), less the
number of shares previously issued pursuant to exercise of the Option.
(b) In the event that any additional shares of Company 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 6(a) of this Agreement),
including, without limitation, pursuant to Company stock option plans or
as a result of the exercise of conversion rights, the number of shares
of Company Common Stock subject to the Option shall be increased so
that, after such issuance, such number equals 14% of the number of
shares of Company Common Stock then issued and outstanding without
giving effect to any shares subject to or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement
shall be deemed to authorize Company or Parent to breach any provision
of the Merger Agreement.
2. Exercise of Option.
(a) Parent may exercise the Option, in whole or in part, at any
time and from time to time following the occurrence of an Exercise Event
(as defined below); provided that, except as otherwise provided in this
Section 2(a), the right to exercise the Option pursuant to this Section
2 shall expire and be of no further force and effect upon the occurrence
of any of the following (a "Termination Event"): (i) the Effective Time,
(ii) 12 months following the first occurrence of an Exercise Event, or
(iii) termination of the Merger Agreement prior to the occurrence of an
Exercise Event (other than a termination of the Merger Agreement by
Parent pursuant to Section 8.1(e) thereof which termination is due to a
breach of Section 6.1 or Section 6.5 thereof) or (iv) 12 months after
the termination of the Merger Agreement by Parent pursuant to Section
8.1(e) thereof which termination is due to a breach of Section 6.1 or
Section 6.5 thereof (provided, however, that if within 12 months after a
termination of the Merger Agreement under the circumstances described in
this clause (iv) an Exercise Event shall occur, then, notwithstanding
anything to the contrary contained herein, this Option shall terminate
12 months after the first occurrence of such Exercise Event); and
provided further that any purchase of shares upon exercise of the Option
shall be subject to compliance with applicable law, including, without
limitation, the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Notwithstanding the expiration of the Option, Parent shall be
entitled to acquire those Option Shares with respect to which it has
exercised the Option in accordance with the terms hereof prior to the
expiration of the Option.
(b) An "Exercise Event" shall occur for purposes of this Agreement
upon the occurrence of any of the following:
(i) any person (other than Parent or any affiliate of
Parent) shall have commenced (as such term is defined in Rule
14d-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), or shall have filed a registration statement
under the Securities Act of 1933, as amended (the "Securities
Act") with respect to, a tender offer or exchange offer to
purchase any shares of Company Common Stock such that, upon
consummation of such offer, such person would own or control 15%
or more of the then outstanding Company Common Stock;
(ii) without having received Parent's prior written consent
the Company or any Subsidiary, shall have entered into or proposed
or announced an agreement, or intention to enter into an
agreement, or the Board of Directors of the Company shall have
approved or recommended that the shareholders of the Company
approve or accept, an agreement with any person (other than Parent
or any affiliate of Parent) to (x) effect a merger, consolidation
or similar transaction involving the Company or any Subsidiary,
(y) sell, lease or otherwise dispose of assets of the Company or
any Subsidiary representing 15% or more of the consolidated assets
of the Company and the Subsidiaries in a single transaction or
series of transactions, or (z) issue, sell, transfer, exchange or
otherwise dispose of (including by way of merger, consolidation,
share exchange, acceptance of a tender or exchange offer or any
similar transaction) securities representing 15% or more of the
voting power of the Company or any Subsidiary (any of the
foregoing is an "Acquisition Transaction");
(iii) any person (other than Parent or any affiliate of
Parent) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 under the Exchange Act) or the right to
acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership
of, 15% or more of the then outstanding Company Common Stock; or
(iv) the holders of Company Common Stock shall not have
approved the Merger Agreement at the Stockholders' Meeting held
for the purpose of voting on the Merger Agreement, or such meeting
shall not have been held or shall have been cancelled prior to
termination of the Merger Agreement, in each case after it shall
have been publicly announced that any person (other than Parent or
any affiliate of Parent) shall have (x) made, or disclosed an
intention to make, a proposal to engage in an Acquisition
Transaction or (y) filed an application or notice in draft or
final form, under the BHC Act or the Change in Bank Control Act of
1978, for approval to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event Parent wishes to exercise the Option, it shall
send to the Company a written notice (the date of such notice being
herein referred to as the "Notice Date") specifying (i) the total number
of Option Shares it intends to acquire pursuant to such exercise and
(ii) a place and date not earlier than three business days nor later
than 15 business days from the Notice Date for the closing of such
acquisition (the "Closing Date"); provided that, if the closing of the
acquisition pursuant to the exercise of the Option (the "Closing")
cannot be consummated by reason of any applicable judgment, decree or
order, the period of time that otherwise would run pursuant to this
sentence shall run instead until the date on which such judgment, decree
or order becomes final and nonappealable; and provided further, without
limiting the foregoing, that if prior notification to or approval of the
FRB or another regulatory authority is required in connection with such
purchase, Parent shall promptly file the required notice or application
for approval and shall expeditiously process the same (and the Company
shall cooperate with Parent 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, (i) any required
notification period has expired or been terminated or (ii) such approval
has been obtained, and in either event, any requisite waiting period has
passed.
(d) Notwithstanding Section 2(c), in no event shall any Closing
Date be more than 12 months after the related Notice Date, and if the
Closing Date shall not have occurred within 12 months after the related
Notice Date due to the failure to obtain any such required approval, the
exercise of the Option effected on the Notice Date shall be deemed to
have expired.
3. Payment and Delivery of Certificates.
(a) On each Closing Date, Parent shall pay the Company, in
immediately available funds by wire transfer to a bank account
designated by the Company, an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such
Closing Date.
(b) At each Closing, simultaneously with the delivery of the
consideration specified in Section 3(a), the Company shall deliver to
Parent a certificate or certificates representing the Option Shares to
be acquired at such Closing, which Option Shares shall be free and clear
of all liens, claims, charges and encumbrances of any kind whatsoever
(including any preemptive rights of any stockholder).
(c) Certificates evidencing the shares delivered at each Closing
pursuant to Section 3(b) shall be endorsed with the restrictive legend
set forth below in its entirety:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN
CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY."
It is understood and agreed that this legend shall be removed by
delivery of substitute certificate(s) without such legend if Parent shall have
delivered to the Company a copy of a letter from the staff of the Securities
and Exchange Commission, or an opinion of counsel (from counsel reasonably
acceptable to the Company) in form and substance reasonably satisfactory to
the Company and its counsel, to the effect that such legend is not required
for purposes of the Securities Act.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent as follows:
(a) Due Authorization. The Company has all necessary corporate
power and authority to execute and deliver this Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. This Agreement
has been duly and validly executed and delivered by the Company.
(b) Authorized Stock. The Company has taken all necessary
corporate and other action to authorize and reserve and, subject to
obtaining the governmental and other approvals and consents referred to
herein, to permit it to issue, and, at all times from the date hereof
until the obligation to deliver Company Common Stock upon the exercise
of the Option terminates, will have reserved for issuance, upon exercise
of the Option, shares of Company Common Stock necessary for Parent to
exercise the Option, and the Company will take all necessary corporate
action to authorize and reserve for issuance all additional shares of
Company Common Stock or other securities which may be issued pursuant to
Section 6 upon exercise of the Option. The shares of Company Common
Stock to be issued upon due exercise of the Option, including all
additional shares of Company Common Stock or other securities which may
be issuable pursuant to Section 6, upon issuance pursuant hereto, shall
be duly and validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all liens, claims, charges and encumbrances
of any kind or nature whatsoever, including any preemptive rights of any
stockholder of the Company.
(c) No Conflicts. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will
not, conflict with or violate any provision of the Articles of
Incorporation or By-laws or equivalent organizational document of the
Company or any Subsidiary or, subject to obtaining any required
approvals or consents, violate, conflict with or result in any 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
the creation of any lien, security interest, charge or other encumbrance
upon any of the respective properties or assets of the Company or any
Subsidiary under any of the terms, conditions or provisions of any note,
bond, capital note, debenture, mortgage, indenture, deed of trust,
license, lease, agreement, obligation, instrument, permit, concession,
franchise, judgment, order, decree, statue, law, ordinance, rule or
regulation applicable to the Company or any Subsidiary or their
respective properties or assets except as would not, individually or in
the aggregate, have a Material Adverse Effect.
5. Representations and Warranties of Parent. Parent hereby represents
and warrants to the Company that:
(a) Due Authorization. Parent has all necessary corporate power
and authority to execute and deliver this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Parent. This Agreement has
been duly and validly executed and delivered by Parent.
(b) No Conflicts. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will
not, conflict with or violate any provision of the Articles of
Organization or By-laws or equivalent organizational document of Parent
or any subsidiary of Parent or, subject to obtaining any required
approvals or consents, violate, conflict with or result in any breach of
any provisions of, constitute a default (or 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 the
creation of any lien, security interest, charge or other encumbrance
upon any of the respective properties or assets of Parent or any of its
subsidiaries under any of the terms, conditions or provisions of any
note, bond, capital note, debenture, mortgage, indenture, deed of trust,
license, lease, agreement, obligation, instrument, permit, concession,
franchise, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or any subsidiary of Parent or their
respective properties or assets except as would not have a material
adverse effect on the business, financial condition or results of
operations of Parent and its subsidiaries taken as a whole.
(c) Purchase Not for Distribution. Any Option Shares or other
securities acquired by Parent upon exercise of the Option will not be
taken with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered
or exempt from registration under the Securities Act.
6. Adjustment upon Share Issuances, Changes in Capitalization, Etc.
(a) In the event of any change in Company Common Stock by reason
of a stock dividend, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or
securities to be delivered by the Company pursuant to the Option shall
be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction, so that Parent shall receive upon
exercise of the Option the number and class of shares or other
securities or property that Parent would have received if the Option had
been exercised immediately prior to such event, or the record date
therefor, as applicable.
(b) In the event that the Company shall enter into an agreement
(i) to consolidate with or merge into any person, other than Parent or
one of its affiliates, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person,
other than Parent or one of its affiliates, to merge into the Company
and shall be the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Company Common Stock
shall be changed into or exchanged for stock or other securities of the
Company or any other person or cash or any other property or the then
outstanding shares of Company 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 Parent or one
of its affiliates, 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 in this Agreement, be converted into, or exchanged
for, an option to acquire the same consideration received by the holders
of Company Common Stock pursuant to such a transaction. The provisions
of this Agreement, including Sections 1, 2, 6 and 8, shall apply with
appropriate adjustments to any securities for which the Option becomes
exercisable pursuant to this Section 6.
7. Repurchase at the Option of Parent.
(a) At the request of Parent at any time commencing upon the
occurrence of the Exercise Event specified in Section 2(b)(ii) or (iii)
(a "Repurchase Event") and ending upon the earlier to occur of (x) 12
months immediately thereafter or (y) a Termination Event, the Company
(or any successor entity thereof shall repurchase from Parent (I) the
Option (unless the Option shall have expired or been terminated in
accordance with the terms hereof) and (II) all shares of Company Common
Stock purchased by Parent pursuant hereto with respect to which Parent
then has beneficial ownership. The date on which Parent exercises its
rights under this Section 7 is referred to as the "Request Date". Such
repurchase shall be at an aggregate price (the "Section 7 Repurchase
Consideration") equal to the sum of:
(i) the aggregate exercise price paid by Parent for any
shares of Company Common Stock acquired pursuant to the Option
with respect to which Parent then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as
defined below) for each share of Company Common Stock over (y) the
Purchase Price (subject to adjustment pursuant to Section 6),
multiplied by the number of shares of Company Common Stock with
respect to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 6) paid
(or, in the case of Option Shares with respect to which the Option
has been exercised but the Closing Date has not occurred, payable)
by Parent for each share of Company Common Stock with respect to
which the Option has been exercised and with respect to which
Parent then has beneficial ownership, multiplied by the number of
such shares.
(b) If Parent exercises its rights under this Section 7, the
Company shall, within 10 business days after the Request Date, pay the
Section 7 Repurchase Consideration to Parent in immediately available
funds, and Parent shall surrender to the Company the Option and the
certificates evidencing the shares of Company Common Stock purchased
thereunder with respect to which Parent then has beneficial ownership;
and Parent shall warrant that it has sole record and beneficial
ownership of such shares and that the same are then free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to
or approval of the FRB or other Governmental Entity is required in
connection with the payment of all or any portion of the Section 7
Repurchase Consideration or is not then permissible under Section
293-A:6.40 of the New Hampshire Law, the Company shall deliver from
time to time that portion of the Section 7 Repurchase Consideration that
it is not then so prohibited from paying and shall promptly file the
required notice or application for approval and shall expeditiously
process the same (and Parent shall cooperate with the Company 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
the preceding sentence for the payment of the portion of the Section 7
Repurchase Consideration requiring such notification or approval shall
run instead from the date on which, as the case may be, (i) any required
notification period has expired or been terminated or (ii) such approval
has been obtained and, in either event, any requisite waiting period
shall have passed. If the FRB or any other Governmental Entity
disapproves of any part of the Company's proposed repurchase pursuant to
this Section 7, the Company shall promptly give notice of such fact to
Parent and redeliver to Parent the Option Shares it has acquired from
Parent pursuant hereto and is then prohibited from repurchasing, and
Parent shall have the right to exercise the Option as to the number of
Option Shares for which the Option was exercisable at the Request Date
less the number of shares as to which payment has been made pursuant to
Section 7(a); provided that if the Option shall have expired prior to
the date of such notice or shall be scheduled to expire at any time
before the expiration of a period ending on the thirtieth business day
after such date, Parent shall nonetheless have the right so to exercise
the Option or exercise its rights under Section 8 until the expiration
of such period of 30 business days.
(c) For purposes of this Agreement, the "Applicable Price" means
the highest of (i) the highest price per share at which a tender or
exchange offer has been made for shares of Company Common Stock after
the date hereof and on or prior to the Request Date, (ii) the price per
share to be paid by any third party for shares of Company Common Stock
or the consideration per share to be received by holders of Company
Common Stock, in each case pursuant to an agreement for a merger or
other business combination transaction with the Company entered into on
or prior to the Request Date or (iii) the highest bid price per share as
quoted on the Nasdaq Stock Market (or, if the shares of Company Common
Stock are not quoted thereon, on the principal trading market on which
such shares are traded as reported by a recognized source) during the 60
business days preceding the Request Date. If the consideration to be
offered, paid or received pursuant to either of the foregoing clauses
(i) or (ii) shall be other than in cash, the value of such consideration
shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Parent and reasonably
acceptable to the Company, which determination shall be conclusive for
all purposes of this Agreement.
8. Registration Rights. The Company shall, if requested by Parent at any
time and from time to time within two years of the first Closing Date, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of Company Common Stock or
other securities that have been acquired by or are issuable to Parent upon
exercise of the Option by Parent, including a "shelf " registration statement
under Rule 415 under the Securities Act or any successor provision, and the
Company shall use all reasonable efforts to qualify such shares or other
securities under any applicable state securities laws. Parent agrees to use
all reasonable efforts to cause, and to cause any underwriters of any sale or
other disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that
upon consummation thereof no purchaser or transferee shall own beneficially 3%
or more of the then outstanding voting power of the Company. The Company shall
use all reasonable efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties which are
required therefor and to keep such registration statement effective for such
period not in excess of 120 days from the day such registration statement
first becomes effective as may be reasonably necessary to effect such sale or
other disposition. The obligations of the Company hereunder to file a
registration statement and to maintain its effectiveness may be suspended for
one or more periods of time not exceeding 90 days in the aggregate for all
such periods if the Board of Directors of the Company shall have determined
that the filing of such registration statement or the maintenance of its
effectiveness would require disclosure of nonpublic information that would
materially and adversely affect the Company. Any registration statement
prepared and filed under this Section 8, and any sale covered thereby, shall
be at the Company's expense except for underwriting discounts or commissions,
brokers' fees and the fees and disbursements of Parent's counsel related
thereto. Parent shall provide all information reasonably requested by the
Company for inclusion in any registration statement to be filed hereunder. If,
during the time periods referred to in the first sentence of this Section 8,
the Company effects a registration under the Securities Act of Company Common
Stock for its own account or for any other stockholders of the Company (other
than on Form S-4 or Form S-8, or any successor form), it shall allow Parent
the right to participate in such registration, and such participation shall
not affect the obligation of the Company to effect two registrations for
Parent under this Section 8; provided that, if the managing underwriters of
such offering advise the Company in writing that in their opinion the number
of shares of Company Common Stock requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the price, timing or distribution of the Company Common
Stock being sold, the Company shall include in such registration first, the
shares intended to be included therein by the Company, and second, the number
of shares requested to be included therein by Parent which, in the opinion of
such managing underwriters, can be sold in such offering without adversely
affecting the price, timing or distribution of the Company Common Stock being
sold. In connection with any registration pursuant to this Section 8, the
Company and Parent shall provide each other and any underwriter of the
offering with customary representations, warranties, covenants,
indemnification and contribution in connection with such registration. In the
event of an Acquisition Transaction, proper provision shall be made in the
definitive acquisition agreement executed in connection therewith to provide
that the acquiring party or successor party thereto shall be bound by the
provisions of this Section 8 as if such party was a signatory hereto.
9. First Refusal. At any time after the first occurrence of an Exercise
Event and prior to the later of (a) the expiration of 24 months immediately
following the first purchase of shares of Company Common Stock pursuant to the
Option and (b) the termination of the Option pursuant to Section 2(a), if
Parent shall desire to sell, assign, transfer or otherwise dispose of all or
any of the shares of Company Common Stock or other securities acquired by it
pursuant to the Option, it shall give the Company 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
Parent to the Company, which may be accepted within 20 business days of the
receipt of such Offeror's Notice, on the same terms and conditions and at the
same price at which Parent is proposing to transfer such shares or other
securities to such transferee. The purchase of any such shares or other
securities by the Company shall be settled within 10 business days of the date
of the acceptance of the offer and the purchase price shall be paid to Parent
in immediately available funds; provided that, if prior notification to or
approval of the FRB or any other regulatory authority is required in
connection with such purchase, the Company shall promptly file the required
notice or application for approval and shall expeditiously process the same
(and Parent shall cooperate with the Company 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) any 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 Company to purchase all the shares or other
securities covered by an Offeror's Notice or if the FRB or any other
regulatory authority disapproves the Company's proposed purchase of such
shares or other securities, Parent may, within 60 days from 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 or other securities to the proposed transferee at no less than
the price specified and on terms no more favorable than those set forth in the
Offeror's Notice. The requirements of this Section 9 shall not apply to (w)
any disposition as a result of which the proposed transferee would own
beneficially not more than 3% of the outstanding voting power of the Company,
(x) any disposition of Company Common Stock or other securities by a person to
whom Parent has assigned its rights under the Option with the consent of the
Company, (y) any sale by means of a public offering registered under the
Securities Act in which steps are taken to reasonably assure that no purchaser
will acquire securities representing more than 3% of the outstanding voting
power of the Company or (z) any transfer to a wholly-owned subsidiary of
Parent which agrees in writing to be bound by the terms hereof.
10. Division of Option. This Agreement and the Option granted hereby are
exchangeable, without expense, at the option of Parent upon partial exercise
of the Option or partial assignment of the Option, in both instances as
provided herein, upon presentation and surrender of this Agreement at the
principal office of the Company, for other Agreements providing for Options of
different denominations entitling the holder thereof to acquire in the
aggregate the same number of shares of Company Common Stock which may be
acquired hereunder. The terms "Agreement" and "Option" as used herein include
any other Agreements and related Options for which this Agreement and the
Option granted hereby may be exchanged.
11. Miscellaneous.
(a) Expenses. Except as otherwise provided in the Merger
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 counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability.
Except as otherwise set forth in the Merger Agreement, this Agreement
(including other documents and instruments referred to herein or
therein) (i) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and (ii) is not
intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction or a regulatory agency to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of 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 Parent is not
permitted to acquire, or the Company is not permitted to repurchase
pursuant to Section 7 or Section 9 either or the full number of shares
of Company Common Stock provided under the Option, or the Option, it is
the express intention of the Company to allow Parent to acquire or to
require the Company to repurchase such number of shares and such part of
the Option as may be permissible, without any amendment or modification
hereof.
(d) Governing Law. This Agreement shall be governed by the
internal laws of the Commonwealth of Massachusetts without regard to its
conflicts of law principles.
(e) Descriptive Headings. The descriptive headings contained
herein are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered by receipted hand
delivery or mailed by prepaid registered or certified mail (return
receipt requested) or by overnight courier, cable telegram, telex or
facsimile addressed as follows (or at such other address for a party as
shall be specified by like notice):
if to Parent:
BayBanks, Inc.
175 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 556-6328
Attention: Michael W.Vasily
Executive Vice President
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Facsimile: (617) 227-4420
Attention: Jerry V. Klima, Esquire
if to the Company:
Cornerstone Financial Corporation
15 East Broadway
Derry, New Hampshire 03038
Facsimile: (603) 437-4336
Attention: John Terravecchia
Chairman, President and
Chief Executive Officer
with a copy to:
Devine, Millimet & Branch, P.A.
111 Amherst Street
Manchester, New Hampshire 03101
Attention: Paul C. Remus, Esquire
Facsimile: (603) 669-8547
(g) Counterparts. This Agreement and any amendments hereto may be
executed including by facsimile, in two counterparts, each of which
shall be considered one and the same agreement and shall become
effective when both counterparts have been signed by each of the parties
and delivered to the other party, it being understood that both parties
need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned
by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party, except that: (i)
Parent may assign this Agreement to any subsidiary or affiliate,
provided that, notwithstanding any such assignment, Parent shall
continue to be liable for the performance of its obligations under this
Agreement; and (ii) Parent may assign its rights under Section 8 of this
Agreement in connection with the sale of Company Common Stock to any
purchaser thereof. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option
by Parent, the Company and Parent shall execute and deliver all other
documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided
for by such exercise.
(j) Specific Performance. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree
to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
(k) Certain Definitions. Capitalized terms not defined herein
shall have the meanings set forth in the Merger Agreement.
IN WITNESS WHEREOF, the Company and Parent have caused this Stock Option
Agreement to be executed as a sealed instrument by their respective officers
thereunto duly authorized, all as of the date first written above.
Attest: CORNERSTONE FINANCIAL CORPORATION
/s/ EDWARD D. BUREAU By: /s/ JOHN TERRAVECCHIA
Secretary Name: John Terravecchia
Title: Chairman, President and
Chief Executive Officer
Attest: BAYBANKS, INC.
/s/ JERRY V. KLIMA By: /s/ MICHAEL W. VASILY
Assistant Clerk Name: Michael W.Vasily
Title: Executive Vice President
ANNEX C
ALEX SHESHUNOFF & CO. INVESTMENT BANKING
March 23, 1995
Board of Directors
Cornerstone Financial Corporation
PO Box 326
Derry, New Hampshire 03038
Members of the Board:
You have requested our opinion, as to the fairness, from a financial point of
view to the common shareholders of Cornerstone Financial Corporation, Derry,
New Hampshire, of the terms of the proposed acquisition of Cornerstone
Financial Corporation by BayBanks, Inc., Boston, Massachusetts. Pursuant to
the terms of the Plan and Agreement of Merger, each share issued and
outstanding immediately prior to the Effective Time shall be cancelled and
shall be converted automatically into the right to receive an amount equal to
$8.80 in cash payable, without interest, to the holder of such Share, upon
surrender.
As part of its banking analysis business, Alex Sheshunoff & Co. Investment
Banking is continually engaged in the valuation of bank, bank holding company
and thrifts securities in connection with mergers and acquisitions nationwide.
Prior to being retained for this assignment, Alex Sheshunoff & Co. Investment
Banking has not provided professional services and products to Cornerstone
Financial Corporation and BayBanks, Inc.
In connection with this assignment, we reviewed (i) the preliminary draft of
the Plan and Agreement of Merger between Cornerstone Financial Corporation and
BayBanks, Inc.; (ii) the most recent external auditor's reports to the Board
of Directors of Cornerstone Financial Corporation; (iii) the September 30,
1994 Report of Condition and Income for Cornerstone Financial Corporation's
subsidiary bank, the audited December 31, 1993 Balance Sheet and Income
Statement for Cornerstone Financial Corporation and the audited December 31,
1994 Balance Sheet and Income Statement for Cornerstone Financial Corporation;
(iv) the Rate Sensitivity Analysis reports for Cornerstone Financial
Corporation; (v) Cornerstone Financial Corporation's listing of marketable
securities showing rate, maturity and market value as compared to book value;
(vi) Cornerstone Financial Corporation's internal loan classification list;
(vii) a listing of other real estate owned for Cornerstone Financial
Corporation; (viii) the budget and long range operating plan of Cornerstone
Financial Corporation; (ix) a listing of unfunded letters of credit and any
other off-balance sheet risks for Cornerstone Financial Corporation; (x) the
Minutes of the Board of Directors of Cornerstone Financial Corporation; (xi)
the most recent Board report for Cornerstone Financial Corporation; (xii) the
listing and description of significant real properties for Cornerstone
Financial Corporation; (xiii) material leases on real and personal property;
(xiv) the directors and officers liability and blanket bond insurance policies
for Cornerstone Financial Corporation; and (xv) market conditions and current
trading levels of outstanding equity securities of Cornerstone Financial
Corporation.
We have also had discussions with the management of Cornerstone Financial
Corporation regarding their respective financial results and have analyzed the
most current financial data available on Cornerstone Financial Corporation. We
also considered such other information, financial studies, analyses and
investigations, and economic and market criteria which we deemed relevant. We
have met with the management of Cornerstone Financial Corporation to discuss
the foregoing information with them.
We have considered certain financial data of Cornerstone Financial
Corporation, and have compared that data with similar data for other banks and
bank holding companies which have recently merged or been acquired;
furthermore, we have considered the financial terms of these business
combinations involving said banks and bank holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of
Cornerstone Financial Corporation.
In reaching our opinion we took into consideration the financial benefits of
the proposed transaction to all Cornerstone Financial Corporation
shareholders. Based on all factors that we deem relevant and assuming the
accuracy and completeness of the information and data provided to us by
Cornerstone Financial Corporation, it is our opinion as of March 23, 1995,
that the proposed transaction is fair and equitable to all Cornerstone
Financial Corporation shareholders from a financial point of view.
We hereby consent to the reference to our firm in the proxy statement related
to the merger transaction and to the inclusion of our opinion as an exhibit to
the proxy statement related to the merger transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
By WADE SCHUESSLER
Wade Schuessler
Vice President
Nineteenth Floor
98 San Jacinto Boulevard
Austin, Texas 78701
Fax 512-472-8953
Telephone 512-479-8200
ANNEX D
NEW HAMPSHIRE BUSINESS CORPORATION ACT
Dissenters' Rights
A. Right to Dissent and Obtain Payment for Shares
293-A:13.01 DEFINITIONS.--In this subdivision:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under RSA 293-A:13:02 and who exercises that right
when and in the manner required by RSA 293-A13:20 through 293-A:13.28.
(3) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion
would be inequitable.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans or, if
none, at a rate that is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares
are registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee certificate
on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
293-A:13.02 RIGHT TO DISSENT.--(a) A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is
a party:
(i) If shareholder approval is required for the merger by
RSA 293-A:11.03 or the articles of incorporation and the
shareholder is entitled to vote on the merger; or
(ii) If the corporation is a subsidiary that is merged with
its parent under RSA 293-A:11.04.
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired,
if the shareholder is entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the usual and
regular course of business, if the shareholder is entitled to vote on
the sale or exchange, including a sale in dissolution, but not including
a sale pursuant to court order or a sale for cash pursuant to a plan by
which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale.
(4) An amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because
it:
(i) Alters or abolishes a preferential right of the shares.
(ii) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for
the redemption or repurchase, of the shares.
(iii) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities.
(iv) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights.
(v) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to
be acquired for cash under RSA 293-A:6.04.
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this subdivision shall not challenge the corporate action creating his
entitlement, unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
293-A:13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by only one person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
B. Procedure for Exercise of Dissenters; Rights
293-A:13.20 NOTICE OF DISSENTERS' RIGHTS.--(a) If proposed corporate
action creating dissenters' rights under RSA 293-A:13.02 is submitted to a
vote at a shareholders' meeting, the meeting notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
subdivision and be accompanied by a copy of this subdivision.
(b) If corporate action creating dissenters' rights under RSA 293-
A:13.02 is taken without a vote of shareholders or by consent pursuant to RSA
293-A:7.04, the corporation shall notify in writing all shareholders entitled
to assert dissenters' rights that the action was taken and send them the
dissenters' notice described in RSA 293-A:13.22.
293-A:13.21 NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed
corporate action creating dissenters' rights under RSA 293-A:13.02 is
submitted to a vote at a shareholders meeting, a shareholder who wishes to
assert dissenters' rights:
(1) Shall deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) Shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for his shares under this subdivision.
293-A:13.22 DISSENTERS' NOTICE.--(a) If proposed corporate action
creating dissenters' rights under RSA 293-A:13.02 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of RSA 293-A:13.21.
(b) The dissenters' notice shall be sent no later than 10 days after
corporate action was taken, and shall:
(1) State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited.
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received.
(3) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of
the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before that date.
(4) Set a date by which the corporation shall receive the payment
demand, which date shall not be fewer than 30 nor more than 60 days
after the date the notice is delivered.
(5) Be accompanied by a copy of this subdivision.
293-A:13.23 DUTY TO DEMAND PAYMENT.--(a) A shareholder who sent a
dissenters' notice described in RSA 293-A:13.22 shall demand payment, certify
whether he acquired beneficial ownership of the shares before the date
required to be set forth, in the dissenters' notice pursuant to RSA 293-
A:13.22 (b)(3), and deposit his certificates in accordance with the terms of
the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this subdivision.
293-A:13.24 SHARE RESTRICTIONS.--(a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment
is received until the proposed corporate action is taken or the restrictions
released under RSA 293-A:13.26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate
action.
293-A:13.25 PAYMENT.--(a) Except as provided in RSA 293-A:13.27, as
soon as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with RSA 293-
A:13.23 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(b) The payment shall be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value
of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
RSA 293-A:13.28; and
(5) A copy of this subdivision.
293-A:13.26 FAILURE TO TAKE ACTION.--(a) If the corporation does not
take the proposed action within 60 days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under RSA 293-A:13.22 and repeat the payment demand
procedure.
293-A:13.27 AFTER-ACQUIRED SHARES.--(a) A corporation may elect to
withhold payment required by RSA 293-A:13.25 from a dissenter, unless he was
the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under RSA 293-
A:13.28.
293-A:13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.--(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate, less any payment under RSA 293-A:13.25, or
reject the corporation's offer under RSA 293-A:13.27 and demand payment of the
fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under RSA 293-
A:13.25 or offered under RSA 293-A:13.27 is less than the fair value of
his shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under RSA 293-A:13.25
within 60 days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the
date set for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection
(a) within 30 days after the corporation made or offered payment for his
shares.
C. Judicial Appraisal of Shares
293-A:13.30 COURT ACTION.--(a) If a demand for payment under RSA 293-
A:13.28 remains unsettled, the corporation shall commence a proceeding within
60 days after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court
of the county where a corporation's principal office, or, if none in this
state, its registered office, is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in
an action against their shares and all parties shall be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decisions on the
question of their value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment:
(1) For the amount, if any, by which the court finds the fair
value of his shares, plus interest, exceeds the amount paid by the
corporation; or,
(2) For the fair value, plus accrued interest, of his after-
acquired shares for which the corporation elected to withhold payment
under RSA 293-A:13.27.
293-A:13.31 COURT COSTS AND COUNSEL FEES.--(a) The court in an
appraisal proceeding commenced under RSA 293-A:13.30 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court find equitable, to the extent the court
finds the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RSA 293-A:13.28.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially comply with the
requirements of RSA 293:13.20 through RSA 293-A:13.28.
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this subdivision.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
PROXY PROXY
This Proxy is solicited by the Board of Directors of
CORNERSTONE FINANCIAL CORPORATION
Proxy for the 1995 Annual Meeting of Stockholders
The undersigned hereby appoints Howard S. Dearth and John M.
Terravecchia, and either of them, proxies of the undersigned, with full power
of substitution, to vote all of the shares of common stock of Cornerstone
Financial Corporation (the "Company") that the undersigned is entitled to
vote, at the annual meeting of stockholders of the Company to be held on
August 3, 1995, and at any adjournments thereof, with all the powers that the
undersigned would possess if personally present.
This proxy will be voted as directed herein. IF NO DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED FOR PROPOSALS ONE, THREE AND FOUR AND FOR THE
NOMINEES LISTED IN PROPOSAL TWO. The undersigned hereby revokes any proxies
heretofore given by the undersigned to vote at the Annual Meeting or any
adjournments thereof.
1. Proposal to approve and adopt the Agreement and Plan of Merger,
dated as of March 23, 1995, among the Company, BayBanks, Inc., a
Massachusetts corporation ("BayBanks"), and BayBanks, Inc., a New
Hampshire corporation ("BBNH"), a wholly-owned subsidiary of BayBanks
(the "Acquisition Agreement"), pursuant to which (i) BBNH will merge
with and into the Company (the "Merger") and (ii) each share of Common
Stock of the Company outstanding immediately prior to consummation of
the Merger, other than shares held by any stockholder who demands and
receives payment of the fair value of his shares pursuant to
the applicable provisions of the New Hampshire Business Corporation Act
and certain shares held by BayBanks, will be converted into and
represent the right to receive $8.80.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to elect four Directors.
For three-year terms: For a two-year term:
Robert E. Benoit Horace A. Holaday, Jr.
Edward D. Bureau
John J. Zito
[ ] FOR [ ] WITHHOLD [ ] FOR ALL
EXCEPT
Authority to vote for any nominee may be withheld by marking the "For
All Except" box and striking a line through the nominee's name in the list
above.
3. Proposal to ratify the appointment of Price Waterhouse LLP as the
Company's independent accountants for the fiscal year ending
December 31, 1995.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve adjournments of the Annual Meeting to other times
and/or places for the purpose of soliciting additional proxies in the
event that there are not sufficient votes at the time of the Annual
Meeting or any adjournment thereof to approve the Acquisition Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting or any adjournments thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting called for August 3, 1995 and the Proxy Statement for the Annual
Meeting.
Please mark, sign, date and promptly return this Proxy using the
enclosed envelope.
Date: , 1995
Signature
Signature
Please sign exactly as your name(s)
appear(s) on this proxy. In the case
of a joint account, both owners should
sign. When signing in a representative
capacity, please give title.
