As filed with the Securities and Exchange Commission
on March 27, 1996
Registration No. 33-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
NEW ENGLAND COMMUNITY BANCORP, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 0-14550 06-1116165
-------------- ---------- ----------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Classification Code Identification No.)
incorporation or Number)
organization)
NEW ENGLAND COMMUNITY BANCORP, INC.
OLD WINDSOR MALL
P.O. BOX 130
WINDSOR, CONNECTICUT 06095
TEL. (860) 688-5251
-------------------
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
OLD WINDSOR MALL
P.O. BOX 130
WINDSOR, CONNECTICUT 06095
--------------------------
(Address of principal place of business or intended principal
place of business)
DAVID A. LENTINI
OLD WINDSOR MALL
P.O. BOX 130
WINDSOR, CONNECTICUT 06095
TEL. (860) 688-5251
-------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies of all communications to:
J. J. CRANMORE
CRANMORE, FITZGERALD & MEANEY
49 WETHERSFIELD AVENUE
HARTFORD, CONNECTICUT 06114
TELEPHONE (860) 522-9100
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
----------
If any of the securities being registered on this Form are to be offered:
in connection with the Formation of a holding company and there is compliance
with General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed
Each Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Unit Price Fee (*)
- --------------------------------------------------------------------------------
Class A Common
Stock par value 549,300 N/A N/A $999.92
$.10 per share
* Estimated solely for the purpose of calculation of the registration fee.
Pursuant to Rule 457 (f)(1) under the Securities Act of 1933, the registration
fee is based on the market value of the 100,000 shares of the common stock of
Manchester State Bank to be exchanged in the Reorganization ($2,900,000), has
not been allocated among the Common Stock of the registrant to be issued in the
Reorganization and is not based on the market value of such securities. The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
2
NEW ENGLAND COMMUNITY BANCORP, INC.
Cross-Reference Sheet Between Items in Form S-4 and Prospectus
Pursuant to Item 501(b) of Regulation S-K
ITEM NO. FORM S-4 CAPTION HEADING IN PROSPECTUS
- -------- ---------------- ---------------------
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration Statement and Cover Page of Registration
Outside Front Page Statement; Cross Reference
Front Cover Page of Prospectus Sheet; Outside Front Cover
Page of Prospectus
Item 2. Inside Front and Outside Back Cover Inside Front Cover Page of
Pages of Prospectus Prospectus; Available
Information; Table of
Contents
Item 3. Risk Factors, Ratio of Earnings to Summary; Introduction; The
Fixed Charges and Other Information Reorganization Information
Regarding NECB; Information
Regarding MSB
Item 4. Terms of the Transaction Summary; The Reorganization;
Description of NECB's
Capital Stock; Comparison of
the Rights of Shareholders
Item 5. Pro Forma Financial Information Summary; Unaudited Pro Forma
Condensed Combined Financial
Information
Item 6. Material Contracts with the Company Summary
Acquired
Item 7. Additional Information Required for *
Reoffering by Persons and Parties
Deemed to be Underwriters
Item 8. Interests of Named Experts and Counsel *
Item 9. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Respect to S-3 *
Registrants
Item 11. Incorporation of Certain Information by *
Reference
Item 12. Information with Respect to S-2 or S-3 *
Registrants
Item 13. Incorporation of Certain Information by *
Reference
<PAGE>
3
Item 14. Information with Respect to Registrants Available Information;
Other than S-2 or S-3 Registrants Summary; The Reorganization;
Unaudited Pro Forma
Condensed Combined Financial
Information; Information
Regarding NECB
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
Item 15. Information with Respect to S-3 Companies *
Item 16. Information with Respect to S-2 or S-3 *
Companies
Item 17. Information with Respect to Companies Available Information;
Other than S-2 or S-3 Companies Summary; Information
Regarding MSB
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Consents or Summary; Introduction; The
Authorizations Are to be Solicited Reorganization
Item 19. Information if Proxies, Consent or *
Authorization Are Not to be Solicited
or in an Exchange Offer
- ----------
* Omitted because inapplicable or answer is in the negative.
<PAGE>
4
(LETTERHEAD OF MSB)
_________, 1996
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Manchester State Bank, ("MSB") to be held on ____________, 1996, at _____ _.m.,
at the _________________________________________, Connecticut.
The purpose of the meeting is to consider and vote upon the enclosed Plan
and Agreement of Reorganization dated December 19, 1995, (the "Reorganization
Agreement") pursuant to which New England Community Bancorp, Inc. ("NECB") the
bank holding company of New England Bank and Trust Company ("NEBT") and The
Equity Bank ("EQBK"), Connecticut chartered commercial banks, will acquire all
of the outstanding common stock of Manchester State Bank ("MSB"). Pursuant to
the Reorganization Agreement, as a shareholder of MSB, you will receive $35.20
payable in cash (the "Cash Portion") and 5.493 shares (together the "Per Share
Consideration") of NECB common stock (the "Reorganization Shares") in exchange
for each share of MSB common stock which you own, as described in the Proxy
Statement-Prospectus.
Consummation of the Reorganization is subject to certain conditions,
including the approval of the Reorganization Agreement by MSB shareholders and
the approval of the Reorganization by various regulatory agencies. Subject to
the foregoing conditions, the Reorganization is currently expected to close in
mid 1996.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED REORGANIZATION IS IN THE
BEST INTERESTS OF MSB AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED THE
REORGANIZATION AGREEMENT AND UNANIMOUSLY RECOMMENDS SHAREHOLDERS VOTE "FOR" THE
REORGANIZATION. The Board has also received the opinion of First Albany
Corporation to the effect that the Per Share Consideration to be paid by NECB in
the proposed reorganization is fair, from a financial point of view, to the
shareholders of MSB. Enclosed are a Notice of the Special Meeting and a Proxy
Statement-Prospectus containing information about NECB and the proposed
Reorganization. The affirmative vote of two-thirds of the outstanding shares of
MSB Common Stock is required to approve the Reorganization Agreement.
CONSEQUENTLY, A FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
PROPOSAL. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO READ
THIS MATERIAL CAREFULLY AND SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD.
The Reorganization is an important step for MSB and its shareholders. On
behalf of the Board of Directors, I urge you to vote "FOR" the proposal.
Very truly yours,
Nathan G. Agostinelli
President and Chief
Executive Officer
<PAGE>
5
MANCHESTER STATE BANK
1041 MAIN STREET
MANCHESTER, CT 06045-1400
(860)_________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on ____________, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Manchester State Bank ("MSB") will be held at _______.m., on
____________, 1996 at __________________________________________________,
Connecticut for the following purpose:
1. To consider and vote upon a proposal to adopt a Plan and Agreement of
Reorganization, dated as of December 19, 1995 (the "Reorganization
Agreement") by and among New England Community Bancorp, Inc. ("NECB"),
New England Bank and Trust Company, a wholly owned subsidiary of NECB
and Manchester State Bank ("MSB") which provides, among other things,
for NECB to acquire all of the outstanding common stock of MSB ( the
"MSB Common Stock") in exchange for $35.20 payable in cash and 5.493
shares of NECB Common Stock for each share of MSB Common Stock.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or adjournments thereof.
Only holders of common stock of MSB of record at the close of business on
_________, 1996 will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof.
ALL SHAREHOLDERS ARE URGED TO ATTEND THE MEETING IN PERSON.
By Order of the Board of Directors
Manchester, Connecticut Ronald Jacobs,
_________, 1996 Secretary
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. ANY PROXY
GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE
EXERCISE THEREOF.
_________, 1996
<PAGE>
6
PROXY STATEMENT
MANCHESTER
STATE BANK
SPECIAL MEETING TO BE HELD
ON _______________, 1996
PROSPECTUS
NEW ENGLAND COMMUNITY BANCORP, INC.
COMMON STOCK
(PAR VALUE $.10 PER SHARE)
This Proxy Statement-Prospectus is being furnished to the holders of common
stock, par value $10.00 per share (the "MSB Common Stock"), of Manchester State
Bank, a Connecticut chartered commercial bank, with its principal place of
business in Manchester, Connecticut ("MSB"), in connection with the solicitation
of proxies by the MSB Board of Directors for use at a Special Meeting of MSB's
shareholders to be held on ____________, 1996, at _______.m.,
_________________________, _________________, ____________, Connecticut and at
any adjournments or postponements thereof (the "MSB Meeting").
At the MSB Meeting, the shareholders of record of MSB Common Stock as of
the close of business on _______, 1996, will consider and vote upon a proposal
to approve the Plan and Agreement of Reorganization, dated as of December 19,
1995 (the "Reorganization Agreement"), by and among MSB, New England Community
Bancorp, Inc., a Delaware corporation ("NECB"), the bank holding company for New
England Bank and Trust Company ("NEBT"), a Connecticut chartered commercial bank
with its principal place of business in Windsor, Connecticut, and The Equity
Bank ("EQBK"), a Connecticut chartered commercial bank, with its principal place
of business in Wethersfield, Connecticut and NEBT which provides, among other
things, for the acquisition of all outstanding shares of MSB Common Stock by
NECB and the issuance of $35.20 payable in cash and 5.493 shares of NECB Common
Stock in exchange for each share of MSB Common Stock. For a description of the
Reorganization Agreement, which is included in its entirety as Appendix A to
this Proxy Statement-Prospectus, see "THE REORGANIZATION."
This Proxy Statement - Prospectus constitutes a prospectus of NECB in
respect of up to 549,300 Shares of NECB Common Stock.
The outstanding shares of NECB Common Stock are traded over the counter on
the Nasdaq National Market System under the symbol "NECB."
This Proxy Statement-Prospectus and the accompanying proxy cards are first
being mailed to shareholders of MSB on or about _________, 1996.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS _________, 1996.
<PAGE>
7
AVAILABLE INFORMATION
New England Community Bancorp, Inc. ("NECB") is subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission.") The
reports, proxy statements and other information filed by NECB with the
Commission can be inspected and copied at public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at 7 World Trade Center, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, material filed by NECB
can be inspected at the offices of the National Association of Securities
Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
Manchester State Bank ("MSB") is also subject to the information
requirements of the Exchange Act, and in accordance therewith files reports,
proxy statements, and other information with the Federal Deposit Insurance
Corporation (the "FDIC.") The reports, proxy statements and other information
filed by MSB with the FDIC can be inspected and copied at public reference
facilities maintained by the FDIC at its Public Files in the Registration and
Disclosure Section at Room F-643, 1776 F Street N.W., Washington D.C., 20006.
Copies of such material may be ordered from such Section by telephone request at
prescribed rates by calling (202) 898-8920. Inquires can further be directed to
Nathan G. Agostinelli, President of MSB, 1041 Main Street, Manchester,
Connecticut, telephone (860) 646-4004.
NECB has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereof, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of NECB Common Stock to be issued pursuant to the Reorganization
Agreement. This Proxy Statement-Prospectus does not contain all the information
set forth in the first paragraph in the Registration Statement and exhibits
thereto. Such additional information may be inspected and copied as set forth
above. Statements contained in this Proxy Statement-Prospectus or in any
document incorporated by reference in this Proxy Statement-Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
<PAGE>
8
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Proxy
Statement-Prospectus in connection with the Reorganization and offering covered
by this Proxy Statement-Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by NECB or
MSB. This Proxy Statement-Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the NECB Common Stock in any jurisdiction
where, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Proxy Statement-Prospectus nor any
issuance of securities made hereunder shall, under any circumstances, create an
implication that there has not been any change in the facts set forth in this
Proxy Statement-Prospectus or in the affairs of NECB or MSB since the date
hereof.
<PAGE>
9
TABLE OF CONTENTS PAGE
----------------- ----
AVAILABLE INFORMATION
SUMMARY
COMPARATIVE PER SHARE DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF NECB
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF MSB
INTRODUCTION
General
Parties To The Reorganization
THE MSB MEETING
MSB Meeting
Vote Required
Recommendation of the Board of Directors
THE REORGANIZATION
Background of the Reorganization
Reasons for the Reorganization
Opinions of Financial Advisors
Effect of the Reorganization
Shareholders' Agreements
Effective Time
Procedures for Exchange of Certificates
Conditions to Consummation of the Reorganization
Regulatory Approvals Required for the Reorganization
Conduct of Business Pending the Reorganization
Termination, Amendment and Waiver
Interest of Certain Persons in the Reorganization
Employee Matters
Fees and Expenses
Anticipated Accounting Treatment
Resales of NECB Common Stock received in the Reorganization
Trading Market for NECB Common Stock
Federal Income Tax Consequences
Appraisal Rights of Dissenting Shareholders
INFORMATION REGARDING NECB
Business-General Development of Business
Competition and General Business Conditions
Lending Activities
Loan Portfolio
Investment Securities
Deposits and Other Funding Services
Return on Equity and Assets
Asset/Liability Management
Certain Supervisory Matters
Employees
Legislation, Regulation and Supervision
<PAGE>
10
Properties
Legal Proceedings
Market For NECB's Common Stock and Related Stockholder
Matters
Changes In and Disagreements With Accountants On Accounting
And Financial Disclosure
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF NECB
MANAGEMENT OF NECB
Management
Executive Compensation
Security Ownership of Certain Beneficial
Owners and Management
CERTAIN RELATIONSHIPS AND RELATED MATTERS OF NECB
INFORMATIONREGARDING MSB
General - Description of Business
The Banking Industry
MSB's Market Area
Competition
Lending Activities
Loan Portfolio
Interest Rates
Nonperforming Loans
Securities Activities
Deposits
Return on Equity and Assets
Properties
Legal Proceedings
Market for MSB's Common Stock
and Related Stockholder Matters
Dividend Policy
Employees
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF MSB
MANAGEMENT OF MSB
Management
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management
<PAGE>
11
CERTAIN RELATIONSHIPS AND RELATED MATTERS OF MSB
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
DESCRIPTION OF NECB'S CAPITAL STOCK
Common Stock
Preferred Stock
Absence of Cumulative Voting
Procedures for Certain Business Combinations
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
Authorized Capital Stock
Issuance of Capital Stock
Voting Rights
Dividends and Other Distributions
Classification and Size of Board of Directors
Director Vacancies and Removal of Directors
Special Meetings of Shareholders
Shareholder Nominations and Proposals
Shareholder Action Without a Meeting
Amendment of Governing Instruments
Reorganizations, Consolidations and Sale
of Assets
Appraisal Rights
Dissolution
Limitation of Director Liability
Indemnification of Directors and Officers
LEGAL MATTERS
EXPERTS
OTHER MATTERS
INDEX TO FINANCIAL STATEMENTS
Appendix A - Reorganization Agreement
Appendix B - Opinion of First Albany Corporation, the Financial
Advisor to MSB
Appendix C - Opinion of HAS Associates, Inc., the Financial
Advisor to NECB
Appendix D - Connecticut Statutes Governing Appraisal Rights
Appendix E - Form of Shareholder's Agreement and Approval of
Banking Commissioner regarding same
<PAGE>
12
SUMMARY
The following summary of certain information contained elsewhere in the
Proxy Statement-Prospectus is not intended to be a complete description of all
material facts regarding NECB and MSB and the matters to be considered at the
meetings and is qualified in all respects by the information appearing elsewhere
in this Proxy Statement-Prospectus and the attachments, including the Agreement,
a copy of which is attached hereto as Appendix A, and the information
incorporated herein by reference. Shareholders are urged to read carefully all
such information.
PARTIES TO THE REORGANIZATION
NEW ENGLAND COMMUNITY BANCORP, INC. ("NECB") is the bank holding company
for NEW ENGLAND BANK AND TRUST COMPANY ("NEBT"), a Connecticut chartered
commercial bank located in Windsor, Connecticut and THE EQUITY BANK ("EQBK") a
Connecticut chartered commercial bank located in Wethersfield, Connecticut. NECB
is committed to providing through its banking subsidiaries commercial and
consumer banking products and services to its customers and the communities
which they serve. NECB's principal executive offices are located at Old Windsor
Mall, P.O. Box 130, Windsor, Connecticut 06095. Telephone: (860) 688-5251.
NECB has built its community banking network through both internal growth
and acquisition. NECB was founded in 1984 and became the bank holding company
for Windsor Bank & Trust Company in 1985. In 1986, NECB acquired NEBT. In 1988,
Windsor Bank and Trust Company was merged with and into NEBT. In 1995, NECB
acquired all of the outstanding common stock of EQBK and operates EQBK as a
separate bank subsidiary. EQBK was founded in 1987.
NECB operates NEBT and EQBK as community-oriented institutions dedicated to
providing personalized service. NEBT and EQBK believe that their maintenance of
professional, personalized service has resulted in their ability to obtain and
service many of the small to medium sized commercial credits in their market
areas. As part of NECB's internal growth strategy, NEBT and EQBK intend to
continue to provide personalized banking services by expanding current
commercial and consumer products to new and existing relationships, aggressively
seek new business at the expense of other banks, and, when economically
justified, by opening new branch locations in attractive contiguous markets.
NEBT's and EQBK's deposits are insured by the Federal Deposit Insurance
Corporation in accordance with the Federal Deposit Insurance Act.
<PAGE>
13
NECB provides a wide range of commercial and consumer banking services
through a branch network located in North Central Connecticut. NEBT's branch
offices are located in the towns of Canton, East Windsor, Ellington, Enfield,
Somers, Suffield, Windsor and Poquonock (Windsor). EQBK's office is located in
Wethersfield, Connecticut and serves the surrounding communities.
MANCHESTER STATE BANK, ("MSB") is a Connecticut chartered commercial bank
serving the Town of Manchester, Connecticut and surrounding communities. MSB's
deposits are insured by the Federal Deposit Insurance Corporation in accordance
with the Federal Deposit Insurance Act. MSB was founded in 1970. The main office
of MSB is located at 1041 Main Street, Manchester, Connecticut telephone (860)
646-4004. MSB's two other branch offices are also located in Manchester,
Connecticut. MSB's business consists primarily of attracting deposits from the
general public and small businesses and loaning or investing their deposits. MSB
originates loans collateralized by mortgages on commercial and residential
properties and engages in secured and unsecured consumer installment and
commercial lending. MSB's primary regulatory authorities are The Federal Deposit
Insurance Corporation ("FDIC") and the State of Connecticut Department of
Banking.
MSB offers a broad range of commercial and consumer banking services,
including loans and deposit accounts for small and medium-sized businesses,
professionals and consumers. MSB operates as a community bank and competes
effectively for banking business by stressing personal service, on site decision
making and by being flexible and responsive to the needs of its customers.
MSB MEETING
The MSB Shareholder Meeting (the "MSB Meeting") will be held at _______.m.,
on ____________, 1996 at ___________________, _________________, ____________,
Connecticut. The purpose of the MSB Meeting is to consider and vote upon the
Reorganization Agreement, dated December 19, 1995, pursuant to which all of the
MSB Common Stock will be exchanged for cash and common stock of NECB Common
Stock and MSB will merge with and into NEBT. Shareholders of MSB are entitled to
receive $35.20 payable in cash (the "Cash Portion") and 5.493 shares of NECB's
Common Stock (together the "Per Share Consideration") in exchange for each share
of MSB Common Stock owned by them. See "THE MSB MEETING."
<PAGE>
14
VOTE REQUIRED AND RECORD DATE
At their respective meetings on December 19, 1995, the Boards of Directors
of both MSB and NECB unanimously approved the Plan and Agreement of
Reorganization.
NECB. Shareholders of NECB are not required to vote for the Reorganization.
MSB. Only MSB Shareholders of record at the close of business on _______,
1996 (the "MSB Record Date") will be entitled to vote at the MSB Meeting. The
affirmative vote of the holders of two thirds of the shares outstanding on such
date is required to approve the Reorganization Agreement. As of the MSB Record
Date, there were 100,000 shares of MSB Common Stock outstanding and entitled to
be voted.
The directors and executive officers of MSB beneficially owned, as of March
15, 1996, 28,700 shares or 28.7% of the outstanding MSB Common Stock. All of the
executive officers and all of the directors of MSB who are shareholders have
agreed to vote for the Reorganization and have executed Shareholder Agreements
indicating that in exchange for the compensation set forth therein, they will
support the Reorganization and that following the Reorganization, they will not
engage in certain activities relating to NECB. See "THE REORGANIZATION -
Shareholders' Agreements."
REASONS FOR THE REORGANIZATION; RECOMMENDATION OF BOARDS OF DIRECTORS
The Board of Directors of MSB (the "MSB Board") has unanimously approved
the Reorganization Agreement and has determined that the Reorganization is fair
to and in the best interests of MSB and its shareholders. The MSB Board
therefore unanimously recommends that holders of MSB Common Stock vote "FOR" the
approval of the Reorganization Agreement. The MSB Board believes that the
Reorganization will provide an opportunity for MSB Shareholders to receive
consideration well in excess of the book value of their shares and an increase
in dividends over those previously paid to MSB Shareholders. In reaching its
decision to approve the Reorganization, the MSB Board consulted with its legal
and financial advisors regarding the terms of the proposed transaction. See "THE
REORGANIZATION - Reasons For the Reorganization, Opinions of Financial
Advisors"; "THE MSB MEETING - Recommendation of Board of Directors."
<PAGE>
15
OPINIONS OF FINANCIAL ADVISORS
HAS Associates, Inc. ("HAS") has served as financial advisor to NECB in
connection with the Reorganization, and has rendered an opinion to the NECB
Board that the Per Share Consideration is fair, from a financial point of view,
to NECB shareholders. First Albany Corporation ("First Albany") has served as
financial advisor to MSB in connection with the Reorganization, and has rendered
an opinion to the MSB Board that the Per Share Consideration is fair, from a
financial point of view, to MSB's shareholders. For additional information, see
"THE REORGANIZATION-Opinions of Financial Advisors." The opinion of HAS is
attached as Appendix C and the opinion of First Albany is attached as Appendix B
to this Proxy Statement-Prospectus. MSB shareholders are urged to read such
opinions in their entirety.
EFFECTIVE TIME
The Reorganization will become effective on the last day of the month in
which the filing of the Plan and Agreement of Reorganization, certified by the
Banking Commissioner, along with his approval of the Reorganization, is filed
with the Secretary of State of the State of Connecticut. The filing will be made
after the expiration of all applicable waiting periods in connection with
approvals of governmental authorities and all conditions to the consummation of
the Reorganization are satisfied or waived. (the "Effective Time.") If the
Effective Time does not occur by December 31, 1996, either MSB or NECB may
abandon the Reorganization and terminate the Reorganization Agreement. See "THE
REORGANIZATION-Conditions to Consummation of the Reorganization, Regulatory
Approvals Required for the Reorganization."
If the Reorganization is approved by the shareholders of MSB and MSB
receives the required state and federal regulatory approvals, subject to certain
conditions described herein, the Effective Time is expected to occur in
mid-1996.
SHAREHOLDERS' AGREEMENTS
Concurrently with the execution of the Reorganization Agreement, the
directors of MSB executed shareholders' agreements, (the "Shareholders'
Agreements") which contains provisions agreed to by NECB, MSB and each director
of MSB to support the Reorganization. See "THE REORGANIZATION-Shareholders'
Agreements." Pursuant to Connecticut law, such agreements may not be enforceable
<PAGE>
16
without the approval of the Banking Commissioner. Such approval was obtained on
December 13, 1995. See "THE REORGANIZATION-Shareholders' Agreements."
CONDITIONS, REGULATORY APPROVALS
Consummation of the Reorganization is subject to various conditions,
including receipt of the shareholder approvals solicited hereby, receipt of the
necessary regulatory approvals, and satisfaction of other customary closing
conditions.
The regulatory approvals and consents necessary to consummate the
Reorganization include the approval of the Federal Deposit Insurance Corporation
(the "FDIC") and the Commissioner of Banking of the State of Connecticut. See
"THE REORGANIZATION-Regulatory Approvals Required for the Reorganization."
FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES
NO SOLICITATION OF TRANSACTIONS
MSB has agreed in the Reorganization Agreement that MSB shall not solicit,
approve or recommend to its shareholders, or undertake or enter into with or
without shareholder approval, either as the surviving or disappearing or the
acquiring or acquired corporation, any other reorganization, consolidation,
assets acquisition, tender offer or other takeover transaction, or furnish or
cause to be furnished any information concerning its business, properties or
assets to any person or entity (other than NECB) interested in any such
transaction (except for directors and executive officers of MSB and such other
persons as may be required by law), and MSB will not authorize or permit any
officer, director, employee, investment banker or other representative, directly
or indirectly, to solicit, encourage or support any offer from any person or
entity (other than NECB) to acquire substantially all of the assets of MSB, to
acquire 10% or more of the outstanding stock of MSB, to enter into an agreement
to merge with MSB, or to take any other action that would have substantially the
same effect as the foregoing, without the written consent of NECB (any such
solicitation, approval, undertaking, authorization, permission or other action
referred to in this sentence being sometimes referred to as an "unauthorized
action"). If the Reorganization is not consummated in accordance with the terms
set forth in the Reorganization Agreement because of any action or omission by
MSB; MSB shall on demand pay to NECB the sum of (a) NECB's out-of-pocket
expenses, including without limitation, reasonable attorney, accountant and
investment banker fees and expenses, incurred by NECB in connection with the
Reorganization and the transaction provided for in the Reorganization Agreement,
plus (b) $500,000 as liquidated damages.
<PAGE>
17
BREACHES OF REPRESENTATIONS AND WARRANTIES
If either MSB or NECB fails to perform any material covenant or agreement
in the Reorganization Agreement, or if any representation or warranty by MSB or
NECB is determined to be materially untrue the party which fails to perform or
who makes the untrue representation or warranty (the "Breaching Party"), and if
at the time of the failure or untrue representation or warranty by the Breaching
Party, the other party is not a Breaching Party (the "Non-Breaching Party"), and
if the Agreement is thereafter terminated prior to the Effective Time, then the
Breaching Party shall on demand pay to the Non-Breaching Party the out-of-pocket
expenses incurred by the Non-Breaching Party in connection with the
Reorganization and the transactions provided for in the Reorganization
Agreement; provided, however, that the amount payable shall not exceed $250,000.
PROHIBITED TRANSACTIONS WITH THIRD PARTIES
In addition, in the event MSB does not take any unauthorized action, if MSB
shareholders do not approve the Reorganization, and so long as NECB does not
breach the Reorganization Agreement, should an agreement to acquire or merge
with MSB at $88.00 of value per share or more to the MSB shareholders be
executed on or before December 1, 1997 with an entity that makes an offer during
the term of the Reorganization Agreement, MSB shall pay to NECB upon execution
of such agreement the sum of all out-of-pocket expenses, incurred by NECB in
connection with the Reorganization and the transactions provided for in the
Reorganization Agreement; provided that if the transaction agreed to with such
other entity shall not close, NECB shall thereupon promptly repay such amount to
MSB.
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that the Reorganization will be treated as a "purchase"
for accounting and financial reporting requirements. The unauditited pro forma
condensed consolidated financial information contained in this Proxy
Statement-Prospectus has been prepared using the purchase method of accounting
to account for the Reorganization. See "Unaudited Pro Forma Condensed Combined
Financial Information."
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Reorganization will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
<PAGE>
18
amended (the "Code"). Consummation of the Reorganization is conditioned upon
receipt of an opinion of tax counsel stating that, on the basis of facts,
representations and assumptions set forth in such opinion, which are consistent
with the facts existing at the Effective Time, (i) the Reorganization will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code; (ii) no gain or loss will be recognized by NECB,
NEBT or MSB as a result of the Reorganization, and (iii) gain or loss if any
will be recognized by the shareholders of MSB who exchange their MSB Common
Stock for NECB Common Stock pursuant to the Reorganization only to the extent of
the Cash Portion of the Per Share Consideration received and any cash received
in lieu of a fractional share of NECB Common Stock. A summary of the opinion of
Reid and Reige, P.C. regarding these matters is set forth in this Proxy
Statement-Prospectus and the opinion is included as an exhibit to the
Registration Statement. See "THE REORGANIZATION-Federal Income Tax
Consequences."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Time, shareholders of MSB, except shareholders who perfect
dissenters' rights in accordance with Section 36a-181(a) of the Connecticut
General Statutes, automatically will become shareholders of NECB and their
rights as shareholders of NECB will be determined by the Delaware Corporation
Law and by NECB's Certificate of Incorporation and Bylaws. The rights of the
present shareholders of NECB differ from rights of the present shareholders of
MSB with respect to certain matters, including without limitation their right to
remove directors, call special meetings, amend its bylaws and certificate of
incorporation, nominate director candidates and propose new business at
shareholder meetings. For a summary of these differences, see "COMPARISON OF
RIGHTS OF SHAREHOLDERS."
DISSENTERS' RIGHTS
Dissenters' rights are available to shareholders of MSB who object to the
Reorganization. Under the Connecticut General Statutes, shareholders can obtain
payment of the value of their shares. In the event of a disagreement as to the
value of the MSB Common Stock, such value will be determined by three
disinterested persons, to be selected as follows: one by the dissenting
shareholder(s); one by MSB; and one to be chosen by the two thus selected.
Shareholders of MSB who wish to exercise dissenters' rights must fully comply
with applicable law, including the requirements of Section 36a-125(h) of the
Connecticut General Statutes. Dissenting shareholders must give MSB two written
notices: one, an objection, on or before the date of the Special Meeting, and
<PAGE>
19
the second, a written demand for payment, within ten days after the date on
which the vote on the Reorganization is taken which complies with the
requirements of C.G.S. Section 33-374, that MSB purchase all of his or her
shares at fair value. Accordingly, shareholders of MSB who wish to dissent are
urged to read carefully "Appraisal Rights of Dissenting Shareholders" and
Appendix D attached to this Proxy Statement-Prospectus, and to consult with
their own legal and tax advisors. See "THE REORGANIZATION-Appraisal Rights of
Dissenting Shareholders."
MARKETS AND MARKET PRICES
NECB Common Stock is quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market System. MSB Common
Stock is traded only on a limited basis and is not traded on any stock exchange
or quoted on any automated quotation system. The following table sets forth the
closing price per share of NECB Common Stock, the last reported sale price per
share of MSB Common Stock and the equivalent per share prices for MSB Common
Stock giving effect to the Reorganization on December 19, 1995, the last trading
day preceding public announcement of the signing of the Reorganization Agreement
and on March 15, 1996. The equivalent per share price of MSB Common Stock at
each specified date represents the closing price of a share of NECB Common Stock
on such date multiplied by 5.493, the Exchange Ratio provided for in the
Reorganization Agreement. See "THE REORGANIZATION-Effect of the Reorganization."
NECB MSB EQUIVALENT
COMMON COMMON PER SHARE
STOCK STOCK PRICE
------ ------ ----------
Market Value Per Share at:
December 19, 1995....... $10 1/4 $29 $56.30
March 15, 1996.......... $11 1/4 $29 $61.79
MSB shareholders are advised to obtain current market quotations for NECB
Common Stock and MSB Common Stock. No assurance can be given concerning the
market price of NECB Common Stock before or after the Effective Time of the
Reorganization (as defined below). The market price for NECB Common Stock will
fluctuate between the date of this Proxy Statement-Prospectus and the Effective
Time of the Reorganization. Because the Exchange Ratio is fixed, it will not be
affected by changes in the market value of NECB or MSB Common Stock. The
Reorganization Agreement may not be terminated by either party due to a decrease
in the market value of either NECB or MSB Common Stock.
<PAGE>
20
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share, pro forma
combined per share and pro forma equivalent per share information with respect
to NECB Common Stock and MSB Common Stock for the year ended December 31, 1995.
The pro forma combined per share information for the NECB Common Stock reflects
the pro forma effects of the Reorganization. The information set forth below
should be read in conjunction with the historical and financial information of
NECB and MSB appearing elsewhere in this Proxy Statement-Prospectus and in
conjunction with the Unaudited Pro Forma Condensed Combined Financial
Information on pages ___ to ___ of this Proxy Statement-Prospectus.
Comparative Per Share Data
Per Common Share
-------------------------------------------------
Historical Pro Forma
------------------ -----------------------------
Exchange Ratio 5.493 per
share of NECB to share of MSB
-----------------------------
Equivalent
NECB Per MSB
NECB MSB Combined Share (1)(2)
-------- ------- ---------- ----------
For the year ended December
31, 1995
Income from continuing
operations $0.91 $ 3.41 $ 0.85 $ 4.70
Cash dividends
declared $0.205 $ 0.50 $ 0.20 $ 1.10
Book value at end
of period $9.88 $65.34 $10.22 $56.14
(1) Equivalent per MSB share data is derived by applying the exchange
ratio of 5.493 to 1 Pro Forma NECB data.
(2) Equivalent per MSB share data does not account for the cash portion
received by MSB shareholders in the amount of $35.20 per share.
<PAGE>
21
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF NECB
The following table sets forth selected consolidated financial and other data of
NECB at the dates and for the periods indicated. The data at December 31, 1995,
1994, 1993, 1992 and 1991 and for the years then ended has been derived from the
audited Consolidated Financial Statements and related Notes of NECB included
elsewhere herein. The selected consolidated financial and other data set forth
below should be read in conjunction with, and are qualified in its entirety by,
the more detailed information, including the Consolidated Financial Statements
and related Notes, included elsewhere herein.
Years Ended December 31,
(000's omitted, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Interest income $ 16,300 $ 12,551 $ 13,185 $ 15,343 $ 17,835
Interest expense 5,736 3,974 4,962 6,497 10,480
-------- -------- -------- -------- --------
Net interest income 10,564 8,577 8,223 8,846 7,355
Provisions for loan loss 700 530 764 2,679 3,400
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 9,864 8,047 7,459 6,167 3,955
Non-interest income 1,692 1,616 2,115 2,350 1,822
Non-interest expense 8,591 7,895 9,337 7,272 6,493
-------- -------- -------- -------- --------
Income (loss) before income tax expense (benefit) and change in 2,965 1,768 237 1,245 (716)
accounting principle
Income tax expense (benefit) 985 665 56 872 (97)
-------- -------- -------- -------- --------
Income (loss) before effect of change in accounting principle 1,980 1,103 181 373 (619)
Cumulative effect of change in accounting principle 228
-------- -------- -------- -------- --------
Net income (loss) $ 1,980 $ 1,103 $ 409 $ 373 $ (619)
======== ======== ======== ======== ========
Per share data:
Net income (loss) $ 0.91 $ 0.82 $ 0.31 $ 0.29 $ (0.49)
Dividends declared 0.205 0.05
Book value (as of end of year) 9.88 8.88 9.99 9.47 9.31
Tangible book value (as of end of year) 9.75 8.88 9.99 9.47 9.31
Balance sheet data as of end of year:
Loans (1) $222,235 $132,624 $115,696 $135,322 $146,931
Allowance for possible loan losses 4,446 2,565 2,784 3,197 3,442
Investments 82,129 47,807 59,274 49,357 42,751
Assets 341,561 216,690 203,184 211,727 214,845
Deposits 307,161 196,872 188,466 196,178 201,856
Shareholders' equity 30,480 18,473 13,012 12,334 11,812
Nonperforming assets 5,453 3,548 4,224 8,905 12,672
Operating Ratios:
Return on average assets 0.91% 0.56% 0.20% 0.18% (0.29)%
Return on average equity 9.61% 8.34% 3.26% 3.08% (5.18)%
Interest rate spread (2) 4.31% 4.30% 4.20% 4.40% 3.10%
Net interest margin (2) 5.28% 4.80% 4.60% 4.80% 3.90%
Tangible equity / total assets 8.76% 8.53% 6.40% 5.83% 5.50%
Tier 1 risk-based capital ratio (minimum 4%) 12.25% 13.99% 10.30% 8.76% 8.25%
Total risk based capital ratio (minimum 8%) 13.49% 15.25% 11.66% 10.03% 9.52%
</TABLE>
(1) Does not include mortgages held for sale.
(2) Computed on a fully tax-equivalent basis.
<PAGE>
22
SELECTED FINANCIAL AND OTHER DATA OF MSB
The following table sets forth selected consolidated financial and other data of
MSB at the dates and for the periods indicated. The data at December 31, 1995,
1994, 1993 1992 and 1991 and for the year ended has been derived from the
audited Consolidated Financial Statements and related notes of MSB included
elsewhere herein. The selected financial and other data set forth below should
be read in conjunction with, and are qualified in its entirety by, the more
detailed information, including the Consolidated Financial Statements and
related Notes, included elsewhere herein.
Years Ended December 31,
(000's omitted, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Earnings:
<S> <C> <C> <C> <C> <C>
Interest income $7,356 $6,714 $7,790 $8,771 $10,321
Interest expense 2,733 2,398 3,120 4,086 5,854
--------- --------- --------- --------- --------
Net interest income 4,623 4,316 4,670 4,685 4,467
Provision for loan losses 475 700 1,814 2,188 1,954
--------- --------- --------- --------- --------
Net interest income after provision for loan losses 4,148 3,616 2,856 2,497 2,513
Non-interest income 399 487 478 546 546
Non-interest expense 3,824 3,712 3,257 2,913 2,979
--------- --------- --------- --------- --------
Income before income tax expense 723 391 77 130 80
Income tax expense 381 188 68 111 36
--------- --------- --------- --------- --------
Net income $ 342 $ 203 $ 9 $ 19 $ 44
========= ========= ========= ========= ========
Per share data:
Net income $ 3.42 $ 2.33 $ 0.09 $ 0.19 $ 0.44
Dividends declared $ 0.50
Book value (as of end of period) $65.34 $62.72 $60.40 $60.30 $ 60.12
Balance sheet data as of end of year:
Loans $71,501 $74,387 $83,540 $95,106 $100,898
Allowance for loan losses 1,435 1,460 2,313 2,813 2,668
Investments in securities 17,834 15,526 12,471 10,863 2,172
Assets 94,771 95,447 103,655 113,956 113,360
Deposits 87,134 88,781 97,616 105,484 106,622
Shareholders' equity 6,534 6,272 6,040 6,030 6,012
Nonperforming assets 2,644 4,900 8,279 9,238 8,157
Operating Ratios:
Return on average assets 0.36% 0.21% 0.01% 0.02% 0.08%
Return on average equity 5.23% 3.30% 0.15% 0.32% 1.46%
Interest rate spread (1) 4.99% 4.65% 5.03% 4.66% 4.35%
Net interest margin (1) 5.23% 5.03% 4.62% 4.48% 4.32%
Tangible equity / total assets 6.89% 6.57% 5.83% 5.29% 5.30%
Tier 1 risk-based capital ratio (minimum 4%) 9.91% 9.48% 7.88% 7.04% 7.88%
Total risk based capital ratio (minimum 8%) 11.72% 11.11% 9.13% 8.31% 9.16%
</TABLE>
(1) Computed on a fully tax-equivalent basis.
<PAGE>
23
PROXY STATEMENT-PROSPECTUS
INTRODUCTION
GENERAL
This Proxy Statement-Prospectus is being furnished to the holders of common
stock, par value $10.00 per share (the "MSB Common Stock"), of Manchester State
Bank ("MSB"), 1041 Main Street Manchester, Connecticut 06045-1440 in connection
with the solicitation of proxies by the Board of Directors of MSB (the "MSB
Board") for use at the Special Meeting of MSB shareholders to be held on
_________________, 1996, at _______.m., at _________________________,
_________________, ____________, Connecticut _____, and at any adjournments or
postponements thereof (the "MSB Meeting").
At the MSB Meeting, shareholders of record of MSB as of the close of
business on the MSB Record Date will consider and vote upon a proposal to
approve the Plan and Agreement of Reorganization, dated as of December 19, 1995
(the "Reorganization Agreement"). The Reorganization Agreement provides, among
other things, for the acquisition of all of the outstanding common stock of MSB
by NECB. Concurrent with the acquisition of the MSB Common Stock, MSB will merge
with and into NECB's subsidiary New England Bank and Trust Company ("NEBT").
NECB shall issue shares of its common stock (the "NECB Common Stock") in
exchange for the shares of MSB Common Stock so that when the Reorganization
becomes effective, nondissenting MSB shareholders will receive $35.20 payable in
cash (the "Cash Portion") and 5.493 shares of NECB Common Stock for each share
of MSB Common Stock owned by them (the "Reorganization Shares")(together the
"Per Share Consideration").
The Proxy Statement-Prospectus also constitutes a prospectus of NECB in
respect to the offering and issuance of the Reorganization Shares.
PARTIES TO THE REORGANIZATION
NECB is a multi-bank holding company incorporated under the laws of the
State of Delaware, with its principal offices at Old Windsor Mall, Windsor,
Connecticut, 06095, telephone (860) 688-5251. NECB conducts commercial banking
businesses through its subsidiaries New England Bank and Trust Company ("NEBT")
and The Equity Bank ("EQBK"), state-chartered commercial banks with deposits
insured by the Federal Deposit Insurance Corporation pursuant to the Federal
Deposit Insurance Act. NEBT operates seven (7) branches and has filed an
application with the FDIC to establish a branch in West Hartford, Connecticut.
EQBK's office is located at 1160 Silas Deane Highway, Wethersfield, Connecticut.
EQBK has no branches other than the main office.
<PAGE>
24
Through NEBT and EQBK, NECB offers a broad range of financial services to
both commercial and retail customers located throughout their service areas in
Connecticut. NECB's principal assets and sources of income are its investments
in its operating subsidiaries. There are federal and state limitations on the
extent to which bank subsidiaries may finance or otherwise supply funds to their
parents.
NECB focuses its marketing efforts toward individuals and
small-to-medium-sized businesses (including corporations, small businesses, and
professional firms), which are the predominant types of businesses in its market
area, located in north central, Connecticut. NECB's loan products include a
variety of commercial, consumer and real estate loans. NECB employs 129
full-time and 41 part-time employees.
MSB's business consists primarily of attracting deposits from the general
public and small businesses and loaning or investing these deposits. MSB
originates loans collateralized by mortgage liens on commercial and residential
properties and engages in making secured and unsecured consumer installment and
commercial loans. MSB employs 37 full-time employees and 9 part-time employees.
MSB offers a broad range of commercial and consumer banking services,
including loans and deposit accounts for small and medium-sized businesses,
professionals and consumers. MSB operates as a community bank and competes
effectively for banking business by stressing personal service, on-site
decision-making, flexibility and responsiveness to the needs of its customers.
Management believes strongly in its ability to serve the banking needs of
Manchester and the surrounding communities.
THE MSB MEETING
MSB MEETING
Each copy of this Proxy Statement-Prospectus mailed to holders of MSB
Common Stock is accompanied by a proxy card furnished in connection with the MSB
Board's solicitation of proxies for use at the MSB Meeting. The MSB Meeting is
scheduled to be held on ____________, 1996, at _______.m., at
_________________________, _________________, ___________, Connecticut _____.
Only holders of record of MSB Common Stock at the close of business on the MSB
Record Date are entitled to receive notice of and to vote at the MSB Meeting. At
the MSB meeting, shareholders will consider and vote upon the Reorganization
<PAGE>
25
Agreement pursuant to which NECB will acquire all of the outstanding MSB Common
Stock and such other matters as may properly be brought before the MSB Meeting.
On each matter to be considered at the MSB Meeting, shareholders will have one
vote for each share of MSB Common Stock held of record on the MSB Record Date.
HOLDERS OF MSB COMMON STOCK ARE REQUESTED TO PROMPTLY SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY CARD TO MSB IN THE ENCLOSED POSTAGE-PAID, ADDRESSED
ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE
MSB MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE REORGANIZATION
AGREEMENT.
Any holder of MSB Common Stock who has delivered a proxy may revoke it any
time before it is voted by giving notice of revocation in writing, or submitting
a signed proxy card bearing a later date to Manchester State Bank, 1041 Main
Street, Manchester, Connecticut 06045-1440, Attention: Nathan G. Agostinelli,
President, provided that such notice or proxy card is actually received by MSB
before the vote of shareholders or by casting a contrary vote at the MSB
Meeting. The shares of MSB Common Stock represented by properly executed proxies
received at or prior to the MSB Meeting and not subsequently revoked will be
voted as directed in such proxies. If instructions are not given, shares
represented by proxies received will be voted "FOR" approval of the
Reorganization Agreement and the exchange of shares. If any other matters are
properly presented at the MSB Meeting for consideration, the persons named in
the MSB proxy card enclosed herewith will have discretionary authority to vote
on such matters in accordance with their best judgment; provided, however, that
such discretionary authority will only be exercised to the extent permissible
under applicable federal and state securities, corporation and banking laws. As
of the date of this Proxy Statement-Prospectus, MSB is unaware of any other
matter to be presented at the MSB Meeting.
The costs of soliciting proxies from holders of MSB Common Stock will be
borne by MSB and is not expected to exceed $7,500. Such solicitation will be
made by mail but also may be made by telephone or in person by the directors,
officers, and employees of MSB (who will receive no additional compensation for
such efforts). In addition, MSB will make arrangements with brokerage firms and
other custodians, nominees and fiduciaries to send proxy materials to their
principals.
<PAGE>
26
MSB SHAREHOLDERS ARE REQUESTED NOT TO
FORWARD THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS
VOTE REQUIRED
The directors and executive officers of MSB and NECB beneficially owned, as
of March 15, 1996, in the aggregate 28,800 shares, or approximately 28.8% of the
outstanding shares of MSB Common Stock.
The Directors of MSB unanimously approved the Reorganization Agreement and
all of the executive officers and directors of MSB, who are shareholders,
representing 28,700 shares or 28.7% of the outstanding common stock of MSB have
agreed to vote FOR the Reorganization.
In the aggregate, the beneficial stock ownership of the officers and
directors of NECB and MSB represents 846,198 shares or approximately 27.4% of
the total number of NECB shares on a pro forma basis which are expected to be
outstanding following the consummation of the transaction.
Only holders of record of shares of MSB Common Stock on the MSB Record Date
will be entitled to vote at the MSB Meeting. The affirmative vote of two-thirds
of the shares of MSB Common Stock outstanding on such date is required in order
to approve the Reorganization Agreement. Therefore, a failure to return a
properly executed proxy card or to vote in person at the MSB Meeting will have
the same effect as a vote against the Reorganization Agreement. As of March 15,
1996, there were 100,000 shares of MSB Common Stock outstanding and entitled to
vote at the MSB Meeting, with each share being entitled to one vote. Votes
withheld and non-votes are not treated as having voted in favor of any proposal.
Consequently, a failure to vote will have the same effect as a vote against the
proposal.
The directors and executive officers of MSB beneficially owned, as of March
15, 1996, 28,700 shares or 28.7% of MSB's outstanding Common Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The MSB Board has unanimously approved the Reorganization Agreement and has
determined that the Reorganization is in the best interests of MSB and its
shareholders and unanimously recommends that shareholders vote "FOR" the
Reorganization. The MSB Board has also received the opinion of its financial
advisor, First Albany Corporation, to the effect that the Per Share
<PAGE>
27
Consideration to be received by MSB shareholders in the proposed Reorganization
is fair, from a financial point of view, to such shareholders. The MSB Board
therefore unanimously recommends that MSB shareholders vote "FOR" approval of
the Reorganization Agreement and the transactions contemplated thereby. For the
reasons described below, the MSB Board believes that the Reorganization will
provide significant value to MSB shareholders and also enable them to
participate in enhanced opportunities for growth in shareholder value.
THE REORGANIZATION
The following information, insofar as it relates to matters contained in
the Reorganization Agreement, is qualified in its entirety by the Reorganization
Agreement, which is incorporated herein by reference and attached hereto as
Appendix A. MSB shareholders are urged to read carefully the Reorganization
Agreement.
BACKGROUND OF THE REORGANIZATION
Over the past several years, MSB's management attention has been directed
principally towards the resolution of problem assets and compliance with
regulatory capital levels. The deterioration of the Connecticut economy during
the early 1990s adversely affected the financial condition and operating results
of MSB, causing the bank to incur increased levels of non performing assets and
subsequently increased loan loss reserve requirements. In December 1992, MSB
entered into an agreement with the FDIC and the Commissioner to cease and desist
from certain activities and to effect certain changes in the operation of the
bank to enhance its operating performance and capital levels (the "Order").
Following the imposition of the Order, the attention of MSB management and
the Board of Directors was directed primarily to addressing the issues raised
thereby. In addition, beginning in 1993 and increasingly thereafter, MSB
regularly considered matters of long term planning for the bank, including the
viability of small community banks in response to increased competition from
larger financial institutions. MSB believed itself capable of providing premium
service and attention to its customers, but increasing regulatory requirements
were driving the costs of delivery of such services to impractical levels. At
the same time, the ongoing consolidation in the banking industry was
significantly reducing the costs for large financial institutions to deliver the
same services.
<PAGE>
28
During 1994 and 1995, MSB management and the Board of Directors met on
several occasions with representatives of First Albany Corporation to discuss
strategic issues, including the possibility of a sale of the bank. In 1994,
independent of its discussions with First Albany, MSB entered into discussions
with another Connecticut based institution. However, the parties were unable to
reach a definitive agreement as to the terms of the merger, and subsequently MSB
terminated the negotiations.
In April 1995, First Albany made a presentation to the Board regarding the
current merger and acquisition market for banks. The Board and management gave
careful consideration to the various options and alternative possibilities for
the future of MSB, and resolved to retain First Albany to explore the
possibility of a sale of the bank.
First Albany was retained by MSB on May 5, 1995. In the ensuing months,
management and First Albany worked together to develop information materials for
prospective buyers or merger partners. Subsequently, with the approval of the
Board of MSB, First Albany contacted eleven financial institutions. In August
1995, one of the three parties which initially expressed significant interest in
MSB indicated that it was not interested in proceeding with discussions or due
diligence. MSB continued preliminary discussions and conducted preliminary due
diligence reviews with two parties through November 1995.
In December 1995, with the authorization of the Board of Directors MSB
negotiated with NECB involving a transaction whereby NECB would acquire MSB and
MSB would merge with and into NEBT. Following negotiations and due diligence, on
December 19, 1995, the Board of Directors of MSB met to review a proposed
Reorganization Agreement with its financial and legal advisors. At the
conclusion of this meeting, the MSB Board of Directors voted unanimously to
approve the transaction.
REASONS FOR THE REORGANIZATION
The terms of the Plan and Agreement of Reorganization, including the
consideration to be received by shareholders of MSB, were reached on the basis
of arms' length negotiations between MSB and NECB. In concluding that the terms
of the Reorganization are fair, the Board of Directors considered, among other
things, the market value, book value, earnings per share, and dividends paid to
shareholders of NECB Common Stock. The Board of Directors concluded that the
Reorganization provides an opportunity for the shareholders of MSB to receive
consideration well in excess of the book value of their shares and an increase
<PAGE>
29
in dividends over those previously paid to MSB shareholders. The Board of
Directors also considered the financial information provided by NECB regarding
NECB's historical financial performance, including results of operations,
financial condition, growth in earnings, dividend history and growth in book
value per share.
The Board of Directors of MSB considered the Reorganization relative to
other merger and acquisition transactions involving similar institutions. Among
other things, the Board considered the size of the selling institution, the
price to tangible book value, the price to earnings for the twelve months
preceding announcement of a transaction, the price to assets, the form of
consideration, and the primary market area of the target institution.
MSB also considered alternatives immediately available to MSB as well as
the long-term prospects for smaller financial institutions (such as MSB). Among
the strategic alternatives available to MSB, the Board of Directors considered
remaining independent or seeking other merger partners before determining to
proceed with the Reorganization.
Based on the strategic review of MSB's primary market area, the Board of
Directors determined that the increasingly competitive environment was
diminishing the economic opportunities available for smaller financial
institutions, and concluded that the positive impact of affiliation with a
larger institution which possessed substantially greater resources would have a
materially positive impact on the business of the bank and the delivery of
services to its existing and perspective customer base. Furthermore, the
management of MSB believes that merging with NECB will result in a significantly
enhanced liquidity for MSB shareholders, as well as enhanced earnings and book
value per share based on the number of shares and percentage of common stock
received by MSB shareholders in the Reorganization.
The Board of Directors of MSB also considered the fairness opinion of First
Albany which stated that the consideration to be received by the MSB
shareholders in the Reorganization was fair to such shareholders from a
financial point of view. First Albany's fairness opinion was presented to MSB
with an accompanying presentation on December 19, 1995. A copy of First Albany's
fairness opinion, dated as of the date hereof, is included as Appendix B. A
discussion of First Albany's fairness opinion is included below. See "Opinions
of Financial Advisor."
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30
In reviewing the provisions of the Reorganization Agreement relating to the
requirement that MSB pay to NECB a termination fee of $500,000 in the event the
merger is not consummated as a result of certain actions on the part of MSB, the
Board of Directors was aware that the existence of such provision would give a
competitive bidding advantage to NECB over a third party offering a price
significantly higher than that of the consideration in the Reorganization. MSB
was aware that the existence of such provision might significantly discourage a
potential competing acquirer from making an offer. The Board of Directors of MSB
was also aware that its acceptance of this provision was a condition of NECB s
entering into the Reorganization.
OPINIONS OF FINANCIAL ADVISORS
MSB. Pursuant to an engagement letter dated as of May 3, 1995, MSB retained
First Albany as its financial advisor in connection with the possible sale of
MSB. First Albany is an investment banking firm and as part of its investment
banking business engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and valuations for tax,
corporate and other purposes. MSB selected First Albany as its financial advisor
on the basis of its experience and expertise in transactions similar to the
Reorganization and its reputation in the banking and investment communities.
On December 19, 1995, First Albany delivered its written opinion to the MSB
Board to the effect that, as of December 19, 1995, the consideration to be
received by MSB shareholders was fair, from a financial point of view, to the
shareholders of MSB Common Stock. Such opinion was reconfirmed in writing as of
the date of this Proxy Statement-Prospectus.
THE FULL TEXT OF THE OPINION OF FIRST ALBANY DATED AS OF THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS ON THE REVIEW UNDERTAKEN BY FIRST ALBANY, IS ATTACHED HERETO AS APPENDIX
B. MSB SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. FIRST
ALBANY'S OPINION IS DIRECTED ONLY TO THE CONSIDERATION TO BE RECEIVED BY MSB
SHAREHOLDERS IN THE REORGANIZATION FROM A FINANCIAL POINT OF VIEW AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY MSB SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE MSB SPECIAL MEETING. THE SUMMARY SET FORTH IN THIS PROXY
STATEMENT-PROSPECTUS OF THE OPINION OF FIRST ALBANY IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
<PAGE>
31
In connection with its opinion, First Albany reviewed and analyzed, among
other things: (a) the Plan and Agreement of Reorganization; (b) certain publicly
available reports issued by MSB and NECB; (c) certain other publicly available
financial and other information concerning MSB and NECB and the trading markets
(or absence thereof) for the securities of MSB and NECB; (d) certain other
internal information, including projections, relating to MSB and NECB, prepared
by the managements of MSB and NECB and furnished to First Albany for purposes of
its analysis; and (e) certain publicly available information concerning certain
other banking and savings institutions, the trading markets for their
securities, and the nature and terms of certain other merger and acquisition
transactions which First Albany believed were relevant to its inquiry. First
Albany also met with certain officers and representatives of MSB and NECB to
discuss the foregoing as well as other matters First Albany believed were
relevant to its inquiry. First Albany also considered such financial and other
factors as it deemed appropriate under the circumstances and took into account
its assessment of general economic, market, and financial conditions, and its
experience in similar transactions, as well as its experience in securities
valuation and its knowledge of the banking industry generally. First Albany's
opinion is necessarily based on conditions as they existed and could be
evaluated on the respective dates thereof and on the information made available
to First Albany through the respective dates thereof.
In conducting its review and in arriving at its opinion, First Albany
relied upon and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available and did not attempt
independently to verify the same. First Albany relied upon the managements of
MSB and NECB as to the reasonableness and achievability of the projections (and
the assumptions and bases therefor) provided to First Albany, and assumed that
such projections reflected the best currently available estimates and judgments
of such managements and that such projections would be realized in the amounts
and in the time periods estimated by such managements. First Albany also
assumed, without independent verification, that the aggregate allowances for
loan losses for MSB and NECB were adequate to cover such losses. First Albany
did not make or obtain any evaluations or appraisals of the property of MSB or
NECB, nor did First Albany examine any individual loan credit files. First
Albany did not address MSB's underlying business decision to proceed with the
Reorganization and is not making any recommendation to the MSB common
shareholders with respect to any approval of the Reorganization.
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32
In connection with rendering its opinion to the MSB Board, First Albany
performed a variety of financial analyses which are summarized below. First
Albany believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and the processes underlying First Albany's opinions. The preparation
of the fairness opinion is a complex process involving subjective judgments and
is not necessarily susceptible to partial analyses or summary description. In
its analyses, First Albany also took into account its assessment of general
economic, market, and financial conditions and its experience in similar
transactions, as well as its experience in securities valuation and its
knowledge of the banking industry in general. With respect to the comparable
company analyses and bank merger transaction analysis summarized below, no
public company utilized in the comparisons is identical to MSB or NECB and such
analyses necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the acquisition or public trading values of the
companies concerned. Any estimates contained in First Albany's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which
companies or their securities actually may be sold. The fact that any specific
analysis has been referred to in the summary below is not meant to indicate that
such analysis was given greater weight than any other analysis.
The projections reviewed by First Albany were prepared by the managements
of MSB and NECB. Neither MSB nor NECB publicly discloses internal management
projections of the type provided to First Albany in connection with its review
of the Reorganization. Such projections were not prepared with a view towards
public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including without limitation factors
related to general economic and competitive conditions. Accordingly, actual
results could vary significantly from those set forth in such projections.
Furthermore, for purposes of its analysis in connection with preparing its
opinion, First Albany adjusted the balance sheet of MSB as of September 30, 1995
to reflect the impact of funding MSB's Founding Directors' Plan, as defined
below:
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33
The following is a brief summary of certain of the analyses performed by
First Albany in connection with its opinion dated December 19, 1995 and
reconfirmed as of the date of this Proxy Statement-Prospectus:
ANALYSIS OF SELECTED PUBLICLY TRADED CONNECTICUT DEPOSITORY INSTITUTIONS
In preparing the opinion, First Albany compared selected financial data and
financial ratios of MSB to the corresponding data and ratios of selected
depository institutions located in Connecticut whose stock is listed on a
nationally recognized exchange and whose total assets exceeded $100 million but
were less than $500 million (the "Comparable Group"). Financial data and
financial ratios compared included recent earnings, total assets, total
deposits, book value, tangible book value, asset quality ratios, and loan loss
reserve levels and ratios. The 13 Companies in the Comparable Group, included:
American Bank of Connecticut; Bancorp Connecticut, Inc.; BNH Bancshares, Inc.;
Branford Savings Bank; The Bank of Southington; Hometown Bancorporation, Inc;
MidConn Bank; The New Milford Bank & Trust; NewMil Bancorp, Inc.; Norwalk
Savings Society, Inc.; People's Savings Financial Corp. (New Britain); Tolland
Bank, and Village Bancorp. As of December 18, 1995, the multiples of the market
price of the common stock of the Comparable Group to such selected financial
data was: median price/trailing twelve months earnings, 14.6 times; mean
price/trailing twelve months earnings, 12.1 times; mean price/tangible book
value, 121.4%; median mean price/tangible book value, 101.5%. Based on the
closing price of NECB on December 19, 1995 ($10.25 per share), the consideration
to be received for the MSB Common Stock would reflect an implied price/trailing
twelve months earnings of 14.4 times and an implied price/tangible book value of
149.2%.
First Albany noted in this analysis that the ratios derived from MSB
financial data for tangible capital as a percentage of assets, nonperforming
assets as a percentage of total assets, and return on assets were less than the
mean and median for the Comparable Group; net interest margin exceeded the mean
and median for the Comparable Group; and efficiency ratio (defined as operating
expenses as a percentage of net interest income and other income) and return on
equity were approximately equal to the mean and median of the Comparable Group.
First Albany further noted that the total assets of MSB were $93.8 million, and
that the mean and median total assets for the Comparable Group were $296.5
million and $296.5 million, respectively.
<PAGE>
34
SELECTED TRANSACTIONS ANALYSIS
First Albany analyzed 23 selected New England bank and thrift acquisitions
(the "Acquisition Comparables"), each with aggregate consideration between $4
and $61 million, announced since January 1, 1994. In each such acquisition,
First Albany calculated the ratio of the offer value to the market value of the
acquired institution 30 days prior to announcement of the transaction, the
price/earnings multiple, the price/deposits, price/assets and the price/tangible
book value. This analysis produced the following results: (i) a range of ratios
of offer values to market values 30 days prior to announcement of the
transaction of 111.3% - 192.3%, with a median of 139.9% and a mean of 144.3%,
compared to the same ratio for the Reorganization of 261.4% (ii) a
price/earnings multiple range of 7.9 times - 22.9 times, with a median multiple
of 12.8 times and a mean of 13.5 times, compared to a transaction multiple for
the Reorganization of 14.4 times (note that in this analysis of the Acquisition
Comparables, First Albany did not include those institutions comprising the
Acquisition Comparables whose ratio of price / net income exceeded 30.0 times);
(iii) a price/deposit range of 7.6% - 25.9%, with a median of 14.7% and a mean
of 15.0%, compared to the same ratio for the Reorganization of 10.6%; and (iv) a
price/tangible book value multiple range of 113.3% - 224.5%, with a median of
161.8% and a mean of 161.8%, compared to a transaction multiple for the
Reorganization of 149.2%.
DISCOUNTED CASH FLOW ANALYSIS
Using a discounted earnings analysis, First Albany estimated the net
present value of holding MSB Common Stock through December 31, 1998 in
anticipation of a sale of MSB at that time (the "Net Present Value"). The Net
Present Value was determined by applying a range of multiples to forecasted 1998
earnings (12.0 times - 14.0 times) and forecasted book value per share at
December 31, 1998 (130% - 140%) and discounting the value back three years.
Earnings were projected assuming MSB performed in accordance with forecasted
results of operations and certain variations thereof; no dividends were assumed.
The range of discount rates (15.0% to 17.0%) was chosen to reflect different
assumptions regarding the required rate of return of holders or prospective
buyers of MSB Common Stock, resulting in a range of Net Present Values of $77.92
to $98.71 per share of MSB Common Stock compared to an implied transaction value
of MSB at $91.50 per share. This analysis was based upon MSB management's
projections of earnings and financial condition. Such projections were based
<PAGE>
35
upon many factors and assumptions, many of which are beyond MSB's control. This
analysis is not necessarily indicative of actual values or of actual future
results and does not purport to reflect the prices at which any securities may
trade at the present time or at any time in the future.
Pro Forma Merger Analysis
- -------------------------
First Albany prepared pro forma analyses of the financial impact of the
Reorganization upon shareholders of MSB Common Stock. Based on NECB s closing
price of $10.25 on December 19, 1995, holders of MSB Common Stock would receive
consideration comprised of approximately 38.5% cash and 0.615% common stock. In
order to compare the income per share and tangible book value per share of the
NECB shares received in the Reorganization on an equivalent basis to each share
of MSB Common Stock held prior to the Reorganization, First Albany multiplied
the projections for MSB earnings per share and tangible book value per share
provided by the management of MSB by 0.615 (the earnings per share and tangible
book value per share data presented on this basis are referred to below as
"Reorganization Adjusted.")
In performing this analysis, First Albany used 1995, 1996 and 1997 earnings
estimates for MSB and NECB prepared by their respective managements and based on
certain assumptions regarding potential expense reductions in the merged
company. First Albany compared the estimated 1995, 1996 and 1997 Reorganization
Adjusted earnings per share of Manchester on a stand alone basis to the pro
forma 1995, 1996 and 1997 earnings per share of the combined companies. Based on
such analyses, First Albany concluded that the pro forma earnings per share
exceeded the Reorganization Adjusted stand alone projections of earnings per
share by more than 10% annually, commencing in 1996. Additionally, the analysis
resulted in a pro forma tangible book value per share which was in excess of 15%
greater than MSB's Reorganization Adjusted tangible book value per share on a
stand alone basis.
Historical Stock Trading Analysis
- ---------------------------------
MSB's Common Stock is not traded on any national or regional exchange or
quoted on the National Association of Securities Dealers Automated Quotation
System. There is no active trading market for the Common Stock. Prior to the
announcement of the Reorganization, MSB was not aware of any trades in its
common stock in the last calendar year. The price of the last known trade was
$35.00 per share. The consideration offered by NECB is approximately 2.6 times
this amount.
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36
Pursuant to an engagement letter, MSB has agreed to pay First Albany a
total fee of approximately $165,000 for acting as financial advisor to MSB in
connection with the Reorganization, including rendering its opinion. $25,000 of
this fee was paid to First Albany upon execution of the engagement letter, and
$45,000 was paid to First Albany upon the rendering of its opinion. The balance
of this fee is payable to First Albany upon consummation of the Reorganization.
Whether or not the Reorganization is consummated, MSB has agreed to reimburse
First Albany for certain reasonable out-of-pocket expenses and also has agreed
to indemnify First Albany, its affiliates and each of its directors, officers,
agents and employees against certain liabilities, including liabilities under
federal securities laws, related to or arising out of its engagement.
In December 1994, First Albany acted as financial advisor and placement
agent to NECB in connection with its offering of 778,260 shares of common stock.
First Albany also acted as financial advisor and rendered a fairness opinion to
NECB in connection with its merger with EQBK which was announced in March 1995.
In each of these assignments First Albany received customary investment banking
fees from NECB. First Albany is not currently engaged by NECB as its financial
advisor in any capacity. Additionally, First Albany acts as a market maker in
the common stock of NECB. As of the date of the announcement of the
Reorganization, First Albany had a long position in the common stock of NECB.
NECB. NECB retained HAS Associates, Inc. ("HAS") of Nashua, New Hampshire to
provide NECB with an opinion on the proposed reorganization between MSB and
NEBT. HAS is a regional bank consulting firm which, as part of its business, is
engaged in the valuation of bank and bank holding companies' securities in
connection with mergers/acquisitions and for various other purposes.
On December 19, 1995, HAS delivered its written opinion to the NECB Board
of Directors to the effect that, as of December 19, 1995, the consideration
being offered in the Reorganization Agreement by and among NEBT and MSB was
fair, from a financial point of view, to the shareholders of NECB Common Stock.
This opinion was reconfirmed in writing as of the date of this Proxy
Statement-Prospectus.
The full text of the HAS opinion is attached as Appendix C to this Proxy
Statement-Prospectus and is incorporated herein by reference. The description of
the opinion set forth herein is qualified in its entirety by reference to
Appendix C.
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37
The HAS opinion does not constitute a recommendation to any MSB shareholder
as to how such shareholder should vote at the Special Meeting.
In connection with its opinion, HAS reviewed, analyzed and relied upon
material relating to the financial and operating conditions of MSB including,
among other things, the following: (i) the Reorganization Agreement; (ii) Annual
Reports to Stockholders and Annual Reports on Form F-2 for the three years ended
December 31, 1992, 1993, and 1994, of MSB; (iii) certain Quarterly Reports on
Form F-4, proxy solicitation material of MSB and certain other communications
from MSB to its shareholders; (iv) other financial information concerning the
business and operations of MSB furnished to HAS by MSB for purposes of its
analysis, including certain internal financial analyses and forecasts for MSB
prepared by the senior management of MSB; (v) corporate minutes of MSB for three
years; (vi) audit reports certified by the independent accountants of MSB for
three years; (vii) regulatory filings of MSB for three years; (viii) MSB polices
and procedures, certain loan files, its investment portfolio; and (ix) certain
publicly available information with respect to banking companies and the nature
and terms of certain other transactions HAS considered relevant to its inquiry.
In addition, HAS reviewed certain market information concerning MSB, analyzed
data concerning private and publicly owned banks in New England, reviewed stock
market data of other banks generally deemed comparable whose securities are
publicly traded, publicly available information concerning certain recent
business combinations, and such additional financial and other information as
HAS deemed necessary. Furthermore, HAS reviewed the public financial information
available concerning NECB. In addition, HAS reviewed certain internal reports
and documents of MSB including loan lists grouped by risk rating, past due and
non-accrual loan reports, internal loan watch list, loan relationship reports,
restructured loan reports, OREO and ISF reports, loan loss reserve analysis
reports, 1995 operating budget and forecast, securities portfolio-book value and
market value reports, and schedule of threatened or pending litigations. HAS
also held discussions with senior management of MSB concerning their past and
current operations, financial condition and prospects, as well as the results of
regulatory examinations.
In conducting its review and arriving at its opinion, HAS relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and HAS did not attempt to
verify such information independently or undertake an independent appraisal of
the assets and liabilities of MSB. HAS relied upon the accuracy and opinion of
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38
the audit reports prepared by the MSB's independent accountants. HAS assumes no
responsibility for the accuracy and completeness of the financial and other
information relied upon.
The preparation of a fairness opinion involves various methods and
determinations which vary from bank to bank and the use of different factors
depending upon location, size, method of operation, etc. The determination of
the opinion is a subjective process which uses qualitative judgements, but does
not rely solely upon one approach. The analyses should be considered as a whole
and, that considering any portion of such analyses and of the factors considered
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the process of developing a fairness
opinion.
The fairness opinion process made numerous assumptions concerning the
economy, banking industry performance, and general business conditions which may
or may not have an impact on NECB. Any estimates counted in these analyses are
not necessarily indicative of actual values or predictive of future result or
value, which may be significantly more or less favorable than is set forth
therein.
The following is a summary of certain of the analyses performed by HAS in
connection with it opinion dated December 19, 1995 and reconfirmed as of the
date of this Proxy Statement-Prospectus.
OVERALL FINANCIAL AND ENVIRONMENTAL ASSESSMENT
MSB's main office is located in downtown Manchester, Connecticut.
Additional branch banking offices are located at 1046 Tolland Turnpike and 185
Spencer Street, Manchester, Connecticut.
As of September 30, 1995, MSB had total assets of $93.8 million, total
shareholder equity of $6.7 million and year to date earnings of $484,000. During
the three year period prior to 1995 MSB had minimal earnings averaging 0.07%
ROAA which was the result of increased contributions to loan loss reserves and
writedowns on OREO. During 1995, earnings have improved and are approaching peer
group levels.
The New England and Connecticut economies have stabilized and are showing
some signs of economic growth with a slight recovery in real estate values.
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39
STOCK PRICE AND TRADING HISTORY
The common stock of MSB is not listed on the NASDAQ National Market System
or any other major stock exchange.
SELECTED GROUP ANALYSIS
Using publicly available information, HAS compared the financial
performance and stock market valuation of MSB and 11 selected banks (the
"Comparable Group") deemed relevant by HAS. Indications of financial performance
and stock market evaluations evaluated by HAS included profitability expressed
as a return on average assets of 0.65% for the Comparable Group and 0.66% for
MSB; return on equity of 7.8% for the Comparable Group and 9.8% for MSB; the
ratio of equity capital to average assets of 8.75% for the Comparable Group and
6.83% for MSB; the ratio of non-performing loans to equity plus loan loss
reserve of 36.4% for the Comparable Group and 45.9% for MSB; the net interest
margin of 5.03% for the Comparable Group and 5.43% for MSB; the loan to deposit
ratio of 75.2% for the Comparable Group and 87.3% for MSB; Non-interest income
as a percent of average assets of .69% for the Comparable Group and .48% for
MSB; Non-interest expense as a percent of average assets of 3.86% for the
Comparable Group and 3.48% for MSB.
The above ratios are based on the most recent publicly available financial
information for the Comparable Group. In this comparison, HAS concluded that MSB
compares favorably in return on average assets, return on equity, ratio of
equity capital to average assets, net interest market, loan to deposit ratio and
non-interest expense as a percent of average assets. HAS further concluded that
MSB compares less favorably in the ratio of non-performing loans to equity plus
loan loss reserves and non-interest income as a percent of average assets.
Because of the inherent differences between the operations of MSB and the
Comparable Group, HAS believed that a purely quantitative comparable analysis
would not be the sole criteria in developing our opinion in the context of the
proposed Reorganization. HAS believed that an appropriate use of the comparable
analysis in this instance would involve qualitative judgments concerning
differences between the financial and operating characteristics of MSB and the
selected companies which would affect the market value of MSB and the selected
companies. The qualitative judgments made by HAS in connection with its opinion
included HAS' views as to business conditions and prospects in various markets
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40
in which these selected companies operate, business mix, sources of revenue and
risk profile for these selected companies.
COMPARABLE TRANSACTION ANALYSIS
Using publicly available information, HAS reviewed certain terms and
financial characteristics of ten bank merger and acquisition transactions
completed in 1995 (the "1995 Comparable Transaction Group") and six pending bank
merger and acquisition transactions announced in 1995 but not yet concluded (the
"1995 Comparable Pending Group"), which HAS deemed to be comparable to the
Reorganization. The average values for the 1995 Comparable Transaction Group
price to trailing 12 month earnings ratio and price to book value ratio before
announcement were 13.44 times and 1.59 times, respectively. The average values
for the 1995 Comparable Pending Group for price to trailing 12 month earnings
ratio and price to book value ratio were 11.69 times and 1.85 times,
respectively. The price to trailing 12 month earnings ratio and price to book
value ratio for the Reorganization are 13.85 times and 1.30 times, respectively,
as of September 30, 1995. The price to trailing twelve month earnings ratio for
the Reorganization was greater than the 1995 Comparable Transaction Group and
the 1995 Comparable Pending Group average. The price to book value for the
Reorganization was less than both the 1995 Comparable Transaction Group and the
1995 Comparable Pending Group. Because the reasons for and circumstances
surrounding each of the transactions analyzed were so diverse and because of the
inherent differences between the operations of MSB and the selected companies,
HAS believed that a purely quantitative comparative transaction analysis would
not be the sole criteria in developing our opinion in the context of the
Reorganization. HAS believed that an appropriate use of a comparable transaction
analysis in this instance would involve qualitative judgments concerning
differences between the characteristics of these transactions and the
Reorganization which would affect the acquisition value of MSB. The qualitative
judgments made by HAS in connection with its opinion include HAS' views as to
the universe of potential buyers in each of these transactions, their potential
levels of interest in an acquisition of these companies and the ability of the
acquirors to implement cost savings at and business synergies with the acquired
companies and, in addition, HAS' views as to the business conditions and
prospects in the various markets in which these acquired companies operate and
business mix, sources of revenue, risk profile and prospects for these acquired
companies.
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41
The summary set forth above does not purport to be a complete description
of the presentations by HAS to NECB of the analyses performed by HAS. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. HAS believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses without considering all analyses, or selecting part or all of the above
summary without considering all factors and analyses, would create an incomplete
view of the process underlying the analyses set forth in HAS' presentations and
opinion. In addition, HAS may have given various analyses more or less weight
than other analyses and may have deemed various assumptions more or less
probable than other assumptions, so that the valuations resulting from any
particular analysis described above should not be taken to be HAS' view of the
actual value of MSB. The fact that any specific analysis has been referred to in
the summary above is not meant to indicate that such analysis was given greater
weight than any other analysis.
In performing its analyses, HAS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of NECB. The analyses performed by
HAS are not necessarily indicative of actual values of actual future results
which may be significantly different than those suggested by analyses. Such
analyses were prepared solely as part of HAS' analysis of the fairness of the
Per Share Merger Consideration and were provided to NECB's Board in connection
with the delivery of HAS' opinion. The analyses do not purport to be appraisals
or to reflect the prices at which a company actually might be sold or the
process at which any securities may trade at the present time or at any time in
the future. In addition, and described above, HAS' opinion, along with its
presentations to the NECB Board of Directors, is just one of many factors taken
into consideration by the NECB Board.
CONCLUSION
Based upon the above analyses, which represent a summary of our findings,
HAS found that it could at this time render the opinion which will be part of
the Proxy Statement-Prospectus provided to Shareholders of MSB.
In conducting its review, HAS relied upon the occurrence, fairness and
completeness of all information reviewed by it. HAS did not independently verify
any such information or undertake an independent appraisal of the assets and/or
liabilities of MSB. HAS also relied upon the accuracy of the audit reports
<PAGE>
42
provided by MSB's certified public accountants. HAS did not assume
responsibility for the accuracy and completeness of any financial or other
financial that it relied on.
EFFECT OF THE REORGANIZATION
The shares of the capital stock of NECB issued and outstanding immediately
prior to the Effective Time shall continue to be issued and outstanding from and
after the Effective Time, shall not be converted and shall not be changed by the
Reorganization.
In the Reorganization, each share of MSB Common Stock issued and
outstanding immediately prior to the Effective Time, with certain exceptions,
will automatically be converted into the right to receive $35.20 in cash and
5.493 shares of NECB Common Stock.
Shares of MSB Common Stock with respect to which dissenters' rights are
perfected in accordance with Connecticut Banking Law will not be converted into
the right to receive the Per Share Consideration.
On and after the Effective Time, the shares of MSB Common Stock shall cease
to exist. Holders of certificates for shares of MSB Common Stock shall cease to
have any rights as shareholders of MSB, and the holders of such shares shall
thereafter be entitled only to the shares of NECB Common Stock and the right to
receive the Per Share Consideration, subject to any rights of dissenting
shareholders. Until certificates for MSB Common Stock are presented to NECB,
each such certificate shall be deemed for all purposes to represent ownership of
the number of shares of NECB Common Stock and the right to receive cash into
which such shares of NECB Common Stock shall have been converted pursuant to the
Reorganization. Unless or until such outstanding certificates are surrendered,
no dividend or other distribution, if any, payable to holders of record of NECB
Common Stock will be paid to the holder of such outstanding certificate, but
upon surrender of such outstanding certificate there will be paid to the record
holder thereof the amount, without interest thereon, of dividends and other
distributions, if any, which were declared and became payable with respect to
the number of Shares of NECB Common Stock represented thereby.
In lieu of the issuance of fractional shares of NECB Common Stock, cash
adjustments without interest will be paid to the holders of NECB Common Stock
with respect to any fractional share that would otherwise be issuable. The price
<PAGE>
43
to be paid for any fractional share shall be determined by multiplying (i) the
closing price of NECB's Common stock as quoted on the NASDAQ Quotation System,
NASDAQ National Market System as reported by The Wall Street Journal for the
trading day immediately preceding the date of the Effective Time by (ii) the
fraction of a share of NECB Common Stock to which the holder would otherwise be
entitled to receive pursuant to the Reorganization Agreement. For purposes of
determining whether and in what amounts a particular holder of MSB Common Stock
would be entitled to receive such cash adjustments, shares of record held by one
holder and represented by two or more certificates will be aggregated.
For a discussion of the rights of dissenting shareholders, See "Appraisal
Rights of Dissenting Shareholders."
SHAREHOLDERS' AGREEMENTS
Concurrently with the execution of the Reorganization Agreement, the
directors of MSB executed shareholders' agreements (the "Shareholders'
Agreements") which contain provisions to support the Reorganization. More
specifically, MSB's directors have agreed to vote their MSB Common Stock "FOR"
approval of the Reorganization and have agreed to vote against approval of any
other agreement providing for any reorganization, consolidation, sale of assets
or other business combination of MSB and any other person, entity or bank. A
copy of a Shareholder's Agreement is set forth in Appendix E to this Proxy
Statement-Prospectus.
The directors also agreed that they will not, prior to the closing of the
transaction, transfer any of their MSB Common Stock except by will or operation
of law unless such transfer is agreed to in writing by NECB. Moreover, the
directors have agreed not to solicit, encourage or initiate any communication
with any other person or entity with respect to any proposal for a
reorganization, consolidation, sale of assets or other business combination
involving MSB or encourage any person, firm, corporation, group or other entity
to engage in such a transaction.
For a period of at least two (2) years after the Effective Time, each
director has agreed, consistent with his past practice, fiduciary duty and
prudent business judgment, to use his reasonable efforts to assist in the
development and growth of the business, prospects and operations of NEBT and has
agreed to provide to NEBT his personal and business banking business.
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44
Each director of MSB has agreed consistent with his past banking practice,
fiduciary duty and business judgment not to directly or indirectly encourage any
other person to provide business to any other banking business in Hartford or
Tolland County. Further, the directors have agreed that they will not serve as a
member of the governing board or on any committee, advisory committee or as an
organizer or incorporator of any bank or bank holding company which has 25% or
more of its deposits or assets in Hartford and Tolland County. In consideration
of these agreements and in exchange for a release of all claims which such
person may have against MSB pursuant to the Founding Directors Plan as defined
below which the Shareholders of MSB adopted in 1988, each of the designated
founding directors (except Nathan Agostinelli) of MSB will receive either a lump
sum payment of $27,500 or an annuity of $5,000 per annum for life as set forth
below:
Paul Aceto $27,500 Lump Sum
Andrew Ansaldi, Jr. 5,000 Annuity
Anthony Dzen 27,500 Lump Sum
Ronald Jacobs 5,000 Annuity
Nicholas LaPenta 27,500 Lump Sum
Roxie Leone 5,000 Annuity
Francis R. Murray 27,500* Lump Sum
William Oleksinski 27,500 Lump Sum
Samual D. Pierson 5,000 Annuity
Edward J. Tomkiel 27,500 Lump Sum
- ----------
* Mr. Murray is a Founding Director of MSB and retired from MSB's Board in
December, 1994. Mr. Murray serves as a consultant to MSB.
Pursuant to Connecticut law, such agreements may not be enforceable without
the approval of the Banking Commissioner. Such approval was obtained on December
13, 1995.
EFFECTIVE TIME
The Reorganization will become effective on the last day of the month in
which a copy of the Reorganization Agreement, certified by the Banking
Commissioner of the State of Connecticut along with his approval of the
Reorganization, is filed with the Secretary of State of the State of Connecticut
in accordance with applicable law (the "Effective Time.")
If the Reorganization is approved by the shareholders of MSB, subject to
the satisfaction or waiver of certain conditions described herein, the Effective
Time currently is expected to occur in mid 1996.
<PAGE>
45
PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, each holder of record of MSB Common
Stock will be provided with transmittal materials, together with instructions
for the exchange of such holder's certificates representing shares of MSB Common
Stock for the number of shares of NECB Common Stock together with a check in
exchange and in payment for their shares of MSB Common Stock.
HOLDERS OF MSB COMMON STOCK SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE THE TRANSMITTAL MATERIALS AND THE INSTRUCTIONS FROM NECB.
Upon transmittal of one or more certificates of MSB Common Stock, together
with transmittal materials duly executed and completed in accordance with the
instructions thereto (or upon completion of reasonable procedures pertaining to
lost certificates), NECB shall promptly cause to be issued to the persons
entitled thereto the Per Share Consideration to which such persons are entitled.
After the Effective Time, there will be no transfers on MSB's stock
transfer books of shares of MSB Common Stock issued and outstanding immediately
prior to the Effective Time. If certificates representing shares of MSB Common
Stock are presented to NECB after the Effective Time they will be cancelled and
exchanged for the number of shares of MSB and cash in lieu of fractional shares,
if any, and the Cash Portion deliverable in respect thereof in accordance with
the foregoing procedures.
Dissenters' rights will be satisfied in accordance with the procedures
described under "Connecticut Statutes Governing Appraisal Rights" which is set
forth in Appendix D to this Proxy Statement-Prospectus.
CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
The respective obligations of NECB and MSB to effect the Reorganization are
subject to the satisfaction of the following conditions at or prior to the
Effective Time: (i) the Reorganization Agreement and the transactions
contemplated thereby shall have been approved by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of MSB Common Stock
entitled to vote thereon; (ii) the shares of NECB Common Stock issuable to
holders of MSB Common Stock pursuant to the Reorganization shall have been
authorized for inclusion for quotation on the NASDAQ: National Market System,
<PAGE>
46
subject to official notice of issuance; (iii) the Reorganization Agreement and
the transactions contemplated thereby shall have been approved by the
appropriate governmental authorities, including the Federal Deposit Insurance
Corporation ("FDIC") and the Banking Commissioner (all such governmental
authorities being referred to as the ("Governmental Entities"), none of such
approvals shall contain any term or condition which would have a material
adverse effect on the business, operations, properties, assets or financial
condition of MSB or the Resulting Bank or otherwise materially impair the value
of MSB or the Resulting Bank, and any statutory waiting periods shall have
expired (See "Regulatory Approvals Required for the Reorganization"); (iv) the
Registration Statement on Form S-4 of which this Proxy Statement-Prospectus
forms a part shall have become effective under the Securities Act of 1933, as
amended (the "Securities Act") and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the Securities and Exchange
Commission (the "Commission"); and (v) no order, injunction or decree shall have
been issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") which prohibits the consummation of
the Reorganization, or any of the other transactions contemplated by the
Reorganization Agreement.
In addition, NECB's obligations under the Reorganization Agreement are
subject to the satisfaction, at or prior to the Effective Time, of the following
conditions:
(a) Each of the obligations of MSB required to be performed by it at
or prior to the Effective Time pursuant to the terms of the Reorganization
Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of MSB contained in the
Reorganization Agreement shall be true and correct in all material respects as
of the date of the Reorganization Agreement and as of the Effective Time as
though made at and as of the Effective Time, and NECB shall have received a
certificate to that effect signed by the President and by the Chief Financial
Officer of MSB.
(b) All actions required to be taken by, or on the part of, MSB to
authorize the execution, delivery and performance of the Reorganization
Agreement by MSB and the consummation of the transactions contemplated by the
Reorganization Agreement shall have been duly and validly taken by the MSB Board
and the MSB shareholders, and NECB shall have received certified copies of the
resolutions evidencing such authorization.
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47
(c) NECB shall have received certificates as of a day as close as
practicable to the date of the Effective Time from appropriate authorities as to
the good standing of, and of the payment of franchise taxes, if any, in
Connecticut by MSB.
(d) Any and all permits and approvals of governmental bodies and
material consents (including all consents of landlords and authorizations of
other third parties shall have been obtained by MSB and NECB which are required
with respect to and are necessary in connection with (i) the consummation of the
Reorganization and the other transactions contemplated by the Reorganization
Agreement, (ii) the ownership by NEBT of all of the properties and assets of
MSB, and (iii) the conduct by the Resulting Corporation of the business of MSB
as conducted by MSB at the Effective Time.
(e) MSB shall have caused to be delivered to NECB a letter from MSB's
independent public accountants with respect to MSB, and dated the date of the
Closing, and addressed to NECB and MSB, regarding certain accounting matters.
(f) MSB shall have caused to be delivered a letter from tax counsel,
in form and substance reasonably satisfactory to NECB.
(g) Holders of more than 85% of the outstanding shares of MSB shall
not have exercised their statutory appraisal or dissenters' rights.
(h) Neither NECB nor MSB shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which would impose
limitations on the ability of NEBT to exercise full rights of ownership of the
assets or business of MSB, and no action, suit, proceeding or investigation
shall be pending or threatened that is reasonably likely to result in any such
order, decree or injunction.
(i) Exceptions otherwise provided for in the Reorganization Agreement,
any agreement to which MSB is a party which takes effect upon, or which provides
a penalty or payment conditioned upon or related to, a change of control of MSB
shall have been duly terminated with no cost or expense to MSB, NEBT or NECB.
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48
(j) The real property leases to which MSB is a party shall have
remained in full force and effect as of the Effective Time and shall not be
terminated by reason of the consummation of the Reorganization.
(k) NECB shall have received, in form and substance reasonably
satisfactory to NECB, an opinion from HAS Associates, Inc. or such other
investment banker as may be selected by NECB, that the terms of the
Reorganization are fair to NECB from a financial point of view.
(l) NECB shall have received rulings from the Internal Revenue
Service, or an opinion of counsel for NECB, to the effect that, for federal
income tax purposes, (i) the transactions will qualify for treatment as a
tax-free reorganization under Section 368 of the Code and (ii) except to the
extent of cash consideration received, no gain or loss will be recognized by the
shareholders of NECB upon consummation of the Reorganization.
(m) No material breach or threatened breach of the Shareholders'
Agreements shall exist. (See the "Shareholders' Agreements.")
MSB's obligations under the Reorganization Agreement are subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(a) Each of the obligations of NECB required to be performed by it at
or prior to the Effective Time shall have been duly and validly performed and
complied with in all material respects and the representations and warranties of
NECB contained in the Reorganization Agreement shall be true and correct in all
respects as of the date of the Reorganization Agreement and as of the Effective
Time as though made at and as of the Effective Time, and MSB shall have received
a certificate to that effect signed by the President and Chief Financial Officer
of NECB.
(b) All actions required to be taken by or on behalf of NECB and NEBT
to authorize the execution, delivery and performance of the Reorganization
Agreement by NECB and NEBT and the consummation of the transactions contemplated
thereby shall have been duly and validly taken by the Boards of Directors of
NECB and NEBT and by NECB as sole shareholder of NEBT, and MSB shall have
received certified copies of the resolutions evidencing such authorization.
<PAGE>
49
(c) Any and all permits and approvals of governmental bodies and
material consents (including all consents of landlords) and authorizations of
other third parties shall have been obtained by MSB and NECB which are required
with respect to and are necessary in connection with (i) the consummation of the
Reorganization and the other transactions contemplated by the Reorganization
Agreement, (ii) the ownership by NEBT of all of the properties and assets of
MSB, and (iii) the conduct by NEBT of the business of MSB as conducted by MSB at
the Effective Time.
(d) MSB shall have received, in form and substance reasonably
satisfactory to MSB, an opinion from First Albany Corporation that the terms of
the Reorganization are fair to MSB and its shareholders from a financial point
of view.
(e) MSB shall have received rulings from the Internal Revenue Service,
or an opinion of counsel, to the effect that, for federal income tax purposes,
(i) the transactions will qualify for treatment as a tax-free reorganization
under Section 368 of the Code; and except to the extent of cash consideration
received, no gain or loss will be recognized by shareholders of MSB upon
consummation of the Reorganization.
(f) MSB shall have received an opinion, dated the date of the Closing,
from counsel to NECB, in form and substance reasonably satisfactory to MSB.
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Reorganization will be
obtained or whether all of the other conditions precedent to the Reorganization
will be satisfied or waived by the party permitted to do so. See "Regulatory
Approvals Required for the Reorganization". If the Reorganization is not
effected on or before December 31, 1996, the Reorganization Agreement may be
terminated by a vote of a majority of the Board of Directors of either NECB or
MSB, unless the failure to effect the Reorganization by such date is due to the
breach of the Reorganization Agreement by the party seeking to terminate the
Reorganization Agreement.
REGULATORY APPROVALS REQUIRED FOR THE REORGANIZATION
The Reorganization is subject to the prior approval of the Federal Deposit
Insurance Corporation (the "FDIC") under the Bank Merger Act, as amended (the
"BMA"), and an application for such approval has been filed with the FDIC. In
reviewing the BMA application, the FDIC must take into consideration, among
other factors, the financial and managerial resources and future prospects of
<PAGE>
50
the institutions and the convenience and needs of the communities to be served.
In addition, the BMA prohibits the FDIC from approving the Reorganization if it
would result in a monopoly or be in furtherance of any combination or conspiracy
to monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the FDIC finds that
the anticompetitive effects of the Reorganization are clearly outweighed by the
public interest and the probable effect on the transaction in meeting the
convenience and needs of the communities to be served. In addition, under the
FDIC, the Reorganization may not be consummated until the thirtieth day
following the date of FDIC approval of the Reorganization, during which time the
United States Department of Justice may challenge the Reorganization on
antitrust grounds. The commencement of an antitrust action during the waiting
period would stay the effectiveness of such approval unless a court specifically
orders.
Because the Reorganization is subject to the prior approval of the FDIC
under the BMA, NECB need not obtain the approval of the Federal Reserve Board to
effectuate the Reorganization.
The Reorganization also is subject to the approval of the Banking
Commissioner pursuant to Section 36a-125 of the Connecticut General Statutes and
an agreement of merger has been filed with the Banking Commissioner. Under
applicable Connecticut law, in considering the agreement of merger, the Banking
Commissioner is required to determine whether the terms of such agreement of
merger are reasonable and in accordance with law and sound public policy and
whether benefits to the public clearly outweigh possible adverse effects,
including, but not limited to, an undue concentration of resources and decreased
or unfair competition. The Banking Commissioner shall not approve the
Reorganization, however, unless the Banking Commissioner considers whether: (i)
the investment and lending policies of the constituent corporations, or the
proposed investment and lending policies of each subsidiary bank, are consistent
with safe and sound banking practices and will benefit the economy of the state;
(ii) the services or proposed services of each subsidiary bank are consistent
with safe and sound banking practices and will benefit the economy of the state;
(iii) the constituent corporations have sufficient capital to ensure, and agrees
to ensure, that each subsidiary bank will comply with applicable minimum capital
requirements; (iv) the parent corporation has sufficient managerial resources to
<PAGE>
51
operate each subsidiary bank in a safe and sound manner; and (v) the proposed
acquisition will not substantially lessen competition in the banking industry of
the state. The Banking Commissioner shall not approve the Reorganization unless
the Banking Commissioner finds, in accordance with applicable regulations, that
the subsidiary banks have a record of compliance with the requirements of the
Community Reinvestment Act of 1977, 12 U.S.C. ss.2901 et seq., as from time to
time amended, Section 36a-34 of the General Statutes of Connecticut, as amended,
inclusive, and applicable consumer protection laws; and the subsidiary bank will
provide adequate services to meet the banking needs of all community residents,
including low income residents and moderate income residents, in accordance with
a plan submitted by NECB, NEBT and MSB in such form and containing such
information as the Banking Commissioner may require. The Banking Commissioner
shall not approve the Reorganization if 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 the State of Connecticut or if the Banking
Commissioner determines that the effect of the Reorganization may be to
substantially lessen competition, or would tend to create a monopoly, or would
be in restraint of trade, unless the Banking Commissioner finds that the
anti-competitive effects of the Reorganization are clearly outweighed in the
public interest by the probable effect of the Reorganization in meeting the
convenience and needs of the community to be served. An application for such
approval has been filed with the Banking Commissioner.
Although there can be no assurances that all required regulatory approvals
will be received for the Reorganization, NECB and MSB believe that all required
regulatory approvals will be obtained.
NECB and MSB are not aware of any other regulatory approvals that would be
required for consummation of the Reorganization, except as described above.
Should any other approvals be required, it is presently contemplated that such
approvals would be sought. There can be no assurance that any other approvals,
if required, will be obtained.
The Reorganization will not be consummated unless all of the requisite
regulatory approvals for the transactions contemplated by the Reorganization
Agreement are obtained. See "Conditions to Consummation of the Reorganization"
above.
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52
CONDUCT OF BUSINESS PENDING THE REORGANIZATION
Pursuant to the Reorganization Agreement, MSB has agreed that until the
Effective Time, MSB will conduct its business only in the ordinary course and
consistent with prudent banking practice, will use all reasonable efforts to
preserve MSB's properties wherever located, and will comply in all material
respects with all laws applicable to MSB or the conduct of its business. MSB
will use all reasonable efforts to preserve its business organization intact, to
keep available the present services of its employees, and to preserve the
goodwill of its customers and others with whom business relationships exist. In
addition, MSB has agreed that, except as otherwise consented to or approved by a
duly authorized officer of NECB or as permitted or required by the
Reorganization Agreement, MSB will not:
(a) enter into or amend certain contracts designated in the Reorganization
Agreement;
(b) change any provision of its Certificate of Incorporation or Bylaws or
similar governing documents;
(c) change the number of issued shares of its capital stock, or issue or
grant any option, warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to its authorized or issued capital stock,
or any securities convertible into shares of such stock, or split, combine or
reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock or redeem or otherwise
acquire any shares of its capital stock;
(d) make unsecured loans in excess of $10,000 for any individual loan or in
excess of $25,000 in the aggregate to any one borrower, other than renewals in
the ordinary course of business and not involving any change in terms;
(e) make any loan or loans described as Undesirable or Prohibited as
designated in the Reorganization Agreement, make any secured loan or loans,
other than residential mortgage loans with a loan to value ratio in excess of
80%, in an aggregate amount to any one borrower (including members of his/her
immediate family or affiliates of such borrower) in excess of $250,000, except
for loans sold to investors and renewals in the ordinary course of business and
not involving any change in terms; make any junior mortgage loan in excess of
$100,000 behind first mortgages if the resulting loan to value ratio of the
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53
combined mortgages would exceed 70% or if prior mortgage loans are in excess of
$100,000 unless fully secured by readily marketable collateral or real estate
with a maximum loan to value ratio of 80%; or honor or extend any overdraft in
excess of $5,000 unless fully secured by readily marketable collateral;
(f) make any loans to any director or employee of MSB, or any member or
affiliate of their respective families;
(g) other than with respect to residential mortgage loans, renew or
otherwise reinstate any loan that has been in default for a period of 30 days or
more which, when added to any loans outstanding to the families or affiliates of
any maker or surety of the defaulted loans (whether or not such other loans are
in default) has a balance outstanding in excess of $20,000, except that MSB may
accept payments for the purpose of bringing loans current, so long as there is
no amendment or restructuring of the loans;
(h) offer rates on deposits that are set in deviation from past practice
and procedure employed by MSB or are materially higher than those of its
competitors in the local market, or offer loan pricing which is materially
different relative to its competitors in the local market;
(i) hire or retain any new employees, consultants or contractors, or
increase the compensation of current employees, consultants or contractors,
except that MSB may hire replacements for current employees who are not officers
or managers if such employees cease to be employees of MSB;
(j) make any capital expenditures in excess of $10,000;
(k) enter into any real property lease or any lease of personal property or
extend or modify any existing lease of real or personal property;
(1) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, other than in connection with foreclosures, settlements in
lieu of foreclosure or troubled loan or debt restructurings in the ordinary
course of business, which would be material to MSB;
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54
(m) take any action that is intended to or would result in any of its
representations and warranties set forth in the Reorganization Agreement being
or becoming untrue in any material respect, or in any of the conditions to the
Reorganization not being satisfied, or in a violation of any provision of the
Reorganization Agreement except, in every case, as may be required by applicable
law;
(n) change its methods of accounting in effect at December 31, 1994, except
as required by changes in GAAP or regulatory accounting principles which changes
are concurred in by MSB's independent auditors;
(o) take or cause to be taken any action which would disqualify the
Reorganization as a tax-free reorganization under Section 368 of the Code;
(p) take or cause to be taken any action which would, or may reasonably be
expected to, significantly delay or otherwise adversely affect the regulatory
approvals required to consummate the Reorganization;
(q) other than activities in the ordinary course of business consistent
with prior 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;
(r) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee, endorse
or otherwise as an accommodation become responsible for the obligations of any
other individual, corporation or other entity;
(s) file any application to open, relocate or terminate the operations of
any banking office;
(t) make any equity investment or commitment to make such an investment 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;
(u) purchase or sell loans in bulk;
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55
(v) foreclose upon or take deed or title to any commercial real estate
without first conducting Phase I environmental assessment of the property; and
shall not foreclose upon such commercial real estate if such environmental
assessment indicates the presence of hazardous material;
(w) terminate the employment of, or decrease in any material respect, the
duties, obligations, responsibilities, or position of any senior officer of MSB;
or
(x) agree to do any of the foregoing.
Pursuant to the Reorganization Agreement, MSB also has agreed to use its
reasonable best efforts in cooperation with NECB to confirm that all regulatory
agreements to which MSB is or becomes subject will be terminated and of no
further force and effect at or prior to the Effective Time.
Pursuant to the Reorganization Agreement, NECB has also agreed that until
the Effective Time, except as provided in the Reorganization Agreement or with
the prior consent of MSB, NECB and NEBT will carry on their respective
businesses in the ordinary course consistent with prudent banking practices and
will use all reasonable efforts to preserve intact their present business
organizations and relationships. The Reorganization Agreement also provides,
among other things, that neither NECB nor any of its subsidiaries will (i) take
any action that is intended or may reasonably be expected to result in any of
its representations and warranties set forth in the Reorganization Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Reorganization not being satisfied, or in a violation of any provision of
the Reorganization Agreement, except as may be required by applicable law; (ii)
change its methods of accounting in effect on December 31, 1994, subject to
certain exceptions; (iii) take or cause to be taken any action that would cause
the Reorganization to fail to qualify as a tax-free reorganization under Section
368 of the Code; (iv) take any action that would materially adversely affect or
materially delay the ability of NECB, NEBT or MSB to obtain the regulatory
approvals required to consummate the Reorganization; or (v) agree to do any of
the foregoing.
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56
TERMINATION, AMENDMENT AND WAIVER
WAIVER AND AMENDMENT
Prior to the Effective Time, any provision of the Reorganization Agreement
may be amended by an agreement in writing and approved by the NECB Board and the
MSB Board provided that after the approval by the shareholders, the
Reorganization Agreement may not be amended to change the Per Share
Consideration to be received by shareholders of MSB.
TERMINATION
The Reorganization Agreement may be terminated at any time prior to the
Effective Time, either before or after its approval by shareholders, as follows:
(i) by the mutual consent of NECB and MSB if the Board of Directors of each so
determines; (ii) by either NECB or MSB upon written notice to the other 90 days
after the date on which any request or application for a necessary regulatory
approval is denied or withdrawn at the request of the governmental entity which
must grant such approval, unless within such 90 day period a petition for
rehearing or an amended application has been filed with the applicable
governmental entity (or unless the failure to obtain the necessary regulatory
approval is due to the failure of the party seeking to terminate the
Reorganization Agreement to perform or observe its covenants and agreements set
forth in the Reorganization Agreement); (iii) by either NECB or MSB if its Board
of Directors so determines, if the Reorganization has not been consummated by
December 31, 1996, unless the failure to consummate the Reorganization is due to
a breach of the Reorganization Agreement by the party seeking to terminate the
Reorganization Agreement; (iv) by either NECB or MSB, if any approval of the
shareholders of either party required for consummation of the Reorganization
shall not have been obtained by reason of the failure to obtain the required
vote at a duly held meeting of shareholders and at any adjournment or
postponement thereof; (v) by either NECB or MSB (provided, that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in the Reorganization
Agreement on the part of the other party, which breach is not cured within 45
days following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the closing of the
Reorganization (the "Closing"); (vi) by either NECB or MSB (provided, that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
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57
a material breach of any of the covenants or agreements set forth in the
Reorganization 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 hereto; (vii) by NECB or MSB,
if it shall have determined that the Reorganization has become imprudent by
reason of the institution by any governmental agency of any litigation or
proceeding to restrain or prohibit the consummation of the Reorganization;
(viii) by NECB if at the time of such termination there shall have been a
material adverse change in MSB's financial condition from that set forth in
MSB's December 31, 1994 and financial statements unless such change shall have
resulted from conditions affecting the banking industry generally; (ix) by MSB
if at the time of such termination there shall have been a material adverse
change in NECB's financial condition from that set forth in NECB's financial
statements unless such change shall have resulted from conditions affecting the
banking industry generally; or (x) by NECB if, in order to obtain any required
permit, consent, approval or authorization of any governmental authority having
jurisdiction, NECB or the Resulting Bank will be required to agree to, or will
be subjected to, a limitation upon its activities following the Effective Time
which NECB or NEBT reasonably regards as materially adverse.
If either NECB or MSB terminates the Reorganization Agreement, neither NECB
nor MSB will have any further obligations under the Reorganization Agreement
except (i) for certain specified provisions of the Reorganization Agreement
relating to confidentiality and expenses and (ii) that no party will be relieved
or released from any liabilities or damages arising out of its willful breach of
any provisions of the Reorganization Agreement.
INTEREST OF CERTAIN PERSONS IN THE REORGANIZATION
Upon consummation of the Reorganization, Nathan G. Agostinelli and Andrew
Ansaldi will be appointed to the Board of Directors of NEBT.
Upon consummation of the Reorganization, NEBT and Nathan G. Agostinelli,
President and Chief Executive Officer of MSB, will enter into an employment
agreement (the "Employment Agreement.") Pursuant to the Employment Agreement,
Mr. Agostinelli
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will serve as an Executive Vice President of NEBT for a period of two years
after the Effective Time at an annual base salary of $125,000 with use of an
automobile. During the third year of the Employment Agreement, Mr. Agostinelli
will be retained as a consultant to NEBT with annual compensation of $25,000.
Mr. Agostinelli's employment contract provides that NEBT may terminate Mr.
Agostinelli's employment for the following reasons: for cause; for inability,
for a continuous period of at least ninety (90) days, to perform duties under
the Agreement due to mental or physical disability that is incapable of
reasonable accommodation under applicable law; in the event of the liquidation
or reorganization of NEBT under federal bankruptcy or any state insolvency or
bankruptcy law; or at any time without cause, provided NEBT shall be obligated
to pay to Mr. Agostinelli, an amount equal to his base salary and benefits as if
he continued throughout the term of the Employment Agreement.
The Employment Agreement also contains a non-compete clause which prohibits
Mr. Agostinelli from directly or indirectly engaging in activities similar or
reasonably related to those which Mr. Agostinelli has engaged in during the two
years immediately preceding the termination of all payments made to Mr.
Agostinelli pursuant to the Employment Agreement, similar or reasonably related
to those which have shall have rendered under the Employment Agreement to (i)
any person or entity which directly competes with (or proposes or plans to
directly compete with NEBT or its subsidiaries in any line of banking business
engaged in by NEBT or its subsidiaries); or (ii) any past, current or potential
customers of NEBT. The restrictions imposed by the non-compete clause only apply
within a twenty mile radius of any office maintained by NEBT or any subsidiary
thereof. Additionally, Mr. Agostinelli will agree that he will not entice,
induce or encourage any of NEBT's other employees to terminate their employment
with NEBT or violate any agreements relating to proprietary information of NEBT.
The Reorganization Agreement provides for deferred compensation to be paid to
Mr. Agostinelli through a rabbi or other trust which will provide Mr.
Agostinelli with a trust funded with $250,000 which funds will be disbursed over
a term of years following the termination of his employment with NEBT.
See "MANAGEMENT OF NECB" and "MANAGEMENT OF MSB" for additional information
regarding the respective managements of NECB and MSB.
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59
EMPLOYEE MATTERS
NECB will provide the employees of MSB who are offered employment with NECB
or NEBT, and who accept such employment, with benefits comparable to those
provided to its own employees in similar positions and with comparable terms of
service with NECB or NEBT, as reasonably determined by NECB and NEBT.
FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES
NO SOLICITATION OF TRANSACTIONS
MSB has agreed in the Reorganization Agreement that MSB shall not solicit,
approve or recommend to its shareholders, or undertake or enter into with or
without shareholder approval, either as the surviving or disappearing or the
acquiring or acquired corporation, any other reorganization, consolidation,
assets acquisition, tender offer or other takeover transaction, or furnish or
cause to be furnished any information concerning its business, properties or
assets to any person or entity (other than NECB) interested in any such
transaction (except for directors and executive officers of MSB and such other
persons as may be required by law), and MSB will not authorize or permit any
officer, director, employee, investment banker or other representative, directly
or indirectly, to solicit, encourage or support any offer from any person or
entity (other than NECB) to acquire substantially all of the assets of MSB, to
acquire 10% or more of the outstanding stock of MSB, to enter into an agreement
to merge with MSB, or to take any other action that would have substantially the
same effect as the foregoing, without the written consent of NECB (any such
solicitation, approval, undertaking, authorization, permission or other action
referred to in this sentence being sometimes referred to as an "unauthorized
action"). If the Reorganization is not consummated in accordance with the terms
set forth in the Reorganization Agreement because of any material or
unauthorized action or omission by MSB, MSB shall on demand pay to NECB the sum
of (a) out-of-pocket expenses, including without limitation, reasonable
attorney, accountant and investment banker fees and expenses, incurred by NECB
in connection with the Reorganization and the transaction provided for the
Reorganization Agreement, plus $500,000 as liquidated damages.
BREACHES OF REPRESENTATIONS AND WARRANTIES
If either MSB or NECB fails to perform any material covenant or agreement
in the Reorganization Agreement, or if any representation or warranty by MSB or
NECB is determined to be materially untrue (the party which fails to perform or
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60
who makes the untrue representation or warranty (the "Breaching Party"), and if
at the time of the failure or untrue representation or warranty by the Breaching
Party, and the other party is not a Breaching Party (the "Non-Breaching Party"),
and if the Agreement is thereafter terminated prior to the Effective Time, then
the Breaching Party shall on demand pay to the Non-Breaching Party the
out-of-pocket expenses incurred by the Non-Breaching Party in connection with
the Reorganization and the transactions provide for in the Reorganization
Agreement; provided, however, that the amount payable shall not exceed $250,000.
PROHIBITED TRANSACTIONS WITH THIRD PARTIES
In addition, in the event MSB does not take any unauthorized action, if MSB
shareholders do not approve the Reorganization, and so long as NECB does not
breach the Reorganization Agreement, should an agreement to acquire or merge
with MSB at $88.00 of value per share or more to the MSB shareholders be
executed on or before December 1, 1997 with an entity that makes an offer during
the term of the Reorganization Agreement, MSB shall pay to NECB upon execution
of such agreement the sum of all out-of-pocket expenses, incurred by NECB in
connection with the Reorganization and the transactions provided for in the
Reorganization Agreement; provided that if the transaction agreed to with such
other entity shall not close, NECB shall thereupon promptly repay such amount to
MSB.
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that the Reorganization will be treated as a "purchase"
for accounting and financial reporting requirements. The Unaudited Pro Forma
Condensed Combined Financial Information contained in this Proxy
Statement-Prospectus has been prepared using the purchase accounting method to
account for the Reorganization. See "Unaudited Pro Forma Condensed Combined
Financial Information".
RESALES OF NECB COMMON STOCK RECEIVED IN THE REORGANIZATION
The shares of NECB Common Stock to be issued in the Reorganization will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any MSB shareholder who may be
deemed to be an "affiliate" of MSB for purposes of Rule 145 under the Securities
Act. Affiliates may not sell their shares of NECB Common Stock acquired in
connection with the Reorganization except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
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61
Rule 145 or another applicable exemption from the registration requirements of
the Securities Act. This Proxy Statement-Prospectus does not cover any resales
of NECB Common Stock received by persons who may be deemed to be affiliates of
MSB. Persons who may be deemed to be affiliates of MSB generally include
individuals or entities that control, are controlled by or are under common
control with MSB, and may include certain officers and directors as well as
principal shareholders of MSB.
TRADING MARKET FOR NECB COMMON STOCK
NECB Common Stock is listed on the NASDAQ National Market System
(NASDAQ:NMS) NECB has agreed to cause the shares of NECB Common Stock to be
issued in the Reorganization to be approved for listing on the NASDAQ:NMS,
subject to official notice of issuance, prior to the Effective Time. The
obligations of the parties to consummate the Reorganization are subject to
approval for listing by the NASDAQ:NMS of such shares. See "Conditions to the
Reorganization."
FEDERAL INCOME TAX CONSEQUENCES
Neither NECB nor MSB has requested an advance ruling from the Internal
Revenue Service as to the tax consequences of the Reorganization.
NECB and MSB have received an opinion from Reid and Reige, P.C. regarding
the material federal income tax consequences of the Reorganization, including
certain consequences to shareholders of MSB who are citizens or residents of the
United States and who hold their shares as capital assets. The opinion is set
forth as an Exhibit to the Registration Statement. This summary does not discuss
every aspect of federal income taxation that may be relevant to a particular MSB
shareholder in light of his or her personal circumstances or to MSB shareholders
subject to special federal income tax treatment such as insurance companies,
dealers in securities, certain retirement plans, financial institutions, tax
exempt organizations or foreign persons. In addition, this summary does not
address any aspects of state, local, or foreign tax laws that may be relevant to
holders of MSB Common Stock.
The Reorganization will be treated as a reorganization within the meaning
of Section 368(a) of the Code and, accordingly, for federal income tax purposes:
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62
(1) no gain or loss will be recognized by NECB, NEBT or MSB as a result of the
Reorganization;
(2) gain, if any, will be recognized by the holders of MSB Common Stock upon
the receipt of NECB Common Stock and cash in exchange for their MSB Common
Stock pursuant to the Reorganization only to the extent of the Cash Portion
of the Per Share Consideration received and any cash received in lieu of a
fractional share of NECB Common Stock; loss will not be recognized by the
shareholders of MSB as a result of the Reorganization. MSB shareholders who
dissent should consult their own legal and tax advisors;
(3) the tax basis of the NECB Common Stock received by each holder of MSB
Common Stock will be the same as such holder's basis in his, her or its MSB
Common Stock surrendered in exchange therefor, reduced by the amount of
cash received by such holder for the MSB Common Stock so surrendered and
increased by the amount of dividend income and other gain recognized to
such shareholder; and
(4) the holding period for the shares of the NECB Common Stock received by each
holder of MSB Common Stock in the Reorganization will include the period
during which such holder held the MSB Common Stock which he, she or it
surrendered in exchange for NECB Common Stock, provided that such shares of
MSB Common Stock were held as capital assets at the Effective Time of the
Reorganization.
Gain recognized to a holder of MSB Common Stock in the Reorganization
should be long term capital gain if certain "reduction of ownership" tests are
met and such shares of MSB Common Stock have been held as a capital asset for
more than one year at the Effective Time of the Reorganization.
Holders' of MSB Common Stock who receive cash in lieu of fractional share
interests of NECB Common Stock will be treated as having received such fraction
of any share of NECB Common Stock and then as having received cash in redemption
of the fractional share interest, subject to the provisions of Section 302 of
the Internal Revenue Code and Rev. Ruling 66-365, 1966-2 C.B. 116.
The determination of whether cash received in the Reorganization by an MSB
shareholder has the effect of the distribution of a dividend will be made by
comparing the proportionate interest of such shareholder after the
Reorganization with the proportionate interest the shareholder would have had if
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63
the shareholder had received solely NECB Common Stock in the Reorganization.
This comparison is made as though NECB had issued in the Reorganization to such
shareholder solely NECB Common Stock, and in a hypothetical redemption under the
Rules of Section 302 of the Code considered with all hypothetical redemptions
from other MSB shareholders participating in the Reorganization, NECB had then
redeemed such portion of NECB Common Stock with a value, at the time of the
Reorganization, equal to the amount of cash the shareholder received. For this
purpose, the constructive ownership rules in Section 318 of the Internal Revenue
Code apply.
If the tests under Sections 302(b)(2) of the Code are met, the gain will be
characterized as short or long term loan gain depending upon the holding period
of the MSB Common Stock and whether the stock has been held as a capital asset.
The discussion set forth above is based on currently existing provisions of
the Code, existing U.S. Treasury regulations thereunder and current
administrative rulings and court decisions. All of the foregoing are subject to
change and any such change could affect the continuing validity of this
discussion.
HOLDERS OF MSB COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE REORGANIZATION, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER
TAX LAWS.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Connecticut law provides appraisal rights for dissenting shareholders of
MSB pursuant Sections 36a-125(h) and 33-374 of the Connecticut General Statutes.
(C.G.S.)
To exercise appraisal rights under Sections 36a-125(h) and 33-374, a MSB
shareholder must satisfy all of the following conditions:
(i) The MSB shareholder must file with MSB a written notice objecting to
the Reorganization on or before the date of the Special Meeting. An
objection must be in addition to and separate from any proxy or vote
against the Reorganization and must be submitted to Manchester State
Bank, 1041 Main Street, Manchester, Connecticut 06045, Attention:
Nathan G. Agostinelli, President and Chief Executive Officer;
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64
(ii) The MSB shareholder must not vote any of his or her shares in favor
of the Reorganization; and
(iii) The MSB shareholder must deliver to the Secretary of MSB, within 10
days after the date on which the vote on the Reorganization is
taken, a written demand, which complies with the requirements of
C.G.S. Section 33-374, that MSB purchase all of his or her shares at
fair value.
The demand must state the number and class of shares held by the
shareholder making the demand. No demand may be withdrawn by the shareholder
unless MSB consents thereto. Within 20 days after demanding the purchase of his
or her shares, each demanding shareholder must submit the certificate or
certificates representing his or her shares to MSB for notation thereon that
such demand has been made. Any subsequent transferee of shares so submitted
acquires by that transfer no rights in MSB other than those which the
transferring shareholder had after making a demand. If the certificates are not
submitted for notation as provided above, MSB may, at its option, terminate the
shareholder's appraisal rights unless a court of competent jurisdiction, for
good and sufficient cause shown, otherwise directs. Generally, any shareholders
making such demand shall thereafter be entitled only to the payment provided in
C.G.S. Section 33-374 and shall not be entitled to vote, to receive dividends or
to exercise any other rights of a shareholder in respect of his or her shares.
Within ten days after the later of (i) MSB's receipt of a shareholder's
demand, or (ii) the Effective Time, MSB is required to make a written offer to
each shareholder objecting under Section 125(h) to pay for the shares of such
shareholder a specified price which MSB considers to be their fair value as of
the day prior to the date notice of the proposed Reorganization was mailed. MSB
has not determined the amount of any such offer, nor when it would be made;
however, it is unlikely that it would be made prior to the Effective Time. If
MSB and the objecting MSB shareholder agree in writing as to the value of such
shares, MSB must pay that value to the shareholder concurrently with the
shareholder's surrender of his or her certificate or certificates duly endorsed
for transfer. At any time within 60 days after the date on which MSB is obliged
to make an offer for the objecting shareholder's shares, MSB or any shareholder
who has made a demand and has not accepted MSB's offer may file a petition in
the Superior Court for Hartford County, Connecticut, seeking a determination of
the fair value of the shares as of the day prior to the date notice of the
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65
proposed Reorganization was mailed. All objecting shareholders who have not
accepted MSB's offer will be made parties to the proceeding, whether residents
of Connecticut or not. The court may, if it so elects, appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of the fair value of the shares, and the court shall determine the fair
value of the shares and direct payment of that value, together with such
interest, if any, as the court allows, to the shareholders entitled thereto. The
costs and expenses of any proceeding shall be determined by the court and shall
be assessed against MSB, except that, if the court finds that the failure of any
or all of the shareholders to accept an offer was arbitrary, vexatious or not in
good faith, the court may apportion and assess against such shareholders all or
any part of the costs and expenses as the court may deem equitable. For this
purpose, expenses include reasonable compensation for the appraisers, but
exclude fees and expenses of counsel for or experts employed by any party unless
either the fair value of the shares as determined by the court materially
exceeds the amount of an offer, or no offer was made, by MSB, in which case the
court in its discretion may also award to shareholders reasonable compensation
for experts employed by the shareholders.
A shareholder's failure to vote on the Reorganization will not constitute a
waiver of his or her appraisal rights under C.G.S. Sections 36a-125(h) and
33-374. However, a vote in favor of the Reorganization will constitute a waiver
of this right, and a vote against the Reorganization, by itself, will not
satisfy the requirements with respect to written objection and written demand or
the other requirements of C.G.S. Sections 36a-125(h) and 33-374, summarized
above, necessary to perfect appraisal rights.
The receipt of cash pursuant to the exercise of appraisal rights will be a
taxable transaction for federal income tax purposes. Any MSB shareholder who
desires to exercise his or her appraisal rights should carefully review C.G.S.
Sections 36a-125(h) and 33-374 and is urged to consult his or her legal advisor
before electing or attempting to exercise such rights.
The foregoing summaries of the rights of dissenting shareholders under
Connecticut law is qualified in its entirety by reference to C.G.S. Section
36a-125(h), as amended, and 33-374, the text of each of which is set forth in
Appendix D attached hereto.
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66
A VOTE AGAINST THE REORGANIZATION WILL NOT SATISFY THE REQUIREMENTS THAT A
DISSENTING SHAREHOLDER DELIVER HIS OR HER WRITTEN OBJECTION TO THE
REORGANIZATION PRIOR TO OR ON THE DATE OF THE SPECIAL MEETING OR ANY OTHER
NOTICE REQUIREMENTS UNDER CONNECTICUT LAW WITH RESPECT TO APPRAISAL RIGHTS.
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67
INFORMATION REGARDING NECB
BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
New England Community Bancorp, Inc., which was formerly known as Olde
Windsor Bancorp, Inc., is the bank holding company for New England Bank and
Trust Company ("NEBT"), and The Equity Bank ("EQBK"), Connecticut chartered
commercial banks committed to offering quality banking products and services to
their customers and the communities which they serve on a prudent and profitable
basis. NECB has built its community banking network through both internal growth
and acquisition. NECB was incorporated in the State of Delaware in June, 1984.
In 1985, NECB acquired all of the capital stock and became the sole stockholder
of Windsor Bank and Trust Company ("Windsor Bank"), a Connecticut-chartered bank
and trust company. Subsequently, NECB acquired a second bank subsidiary, New
England Bank and Trust Company. In 1988, Windsor Bank was merged with and into
NEBT. In 1995, NECB acquired all of the outstanding common stock of EQBK. EQBK
was founded in 1987 and in 1995 EQBK became a separate bank subsidiary of NECB.
The strategy of NECB is to operate its subsidiaries as community-oriented
banking institutions dedicated to providing personalized service. NECB believes
that its maintenance of professional, personalized service has resulted in its
ability to obtain and service many of the small to medium sized desirable
commercial credits in its market area. As part of its growth strategy, NECB
intends to continue to provide personalized banking services whether expansion
occurs through internal growth, de novo expansion, reorganization or
acquisition.
NEBT's and EQBK's deposits are insured by the FDIC in accordance with the
Federal Deposit Insurance Act. NEBT and EQBK are members of the Federal Home
Loan Bank System ("FHLBS") through the Federal Home Loan Bank of Boston. The
FHLBS encourages and supports residential mortgage lending by allowing member
banks to borrow money long term at favored rates based on certain lending ratios
and the ownership of shares in the FHLBS.
NECB's subsidiaries provide services to a diverse range of customers and
neither institution relies on any one depositor for a significant percentage of
deposits made in their respective institutions. Management believes that the
business of each institution will continue to be broadly based and will not
depend on the business of one or a few customers, the loss of any or all of
which would materially and adversely affect its business.
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68
NECB operates banks which are community-oriented with a commitment to
customer service, sound community relations and professional excellence. The
target market of NEBT and EQBK consists of individual consumers and locally
based businesses. Emphasis is placed upon "relationship banking" as NECB's banks
strive to provide the majority (if not all) of their clients' borrowing and
deposit needs. NEBT's primary market area is located in north central
Connecticut. The primary market area of EQBK consists of the Towns of
Wethersfield and Rocky Hill. The area of Hartford south of Park Street forms the
secondary market of EQBK.
During the 1990's, the Connecticut banking industry has become more
concentrated with over 30 banks ceasing operations as a result of
reorganizations or failure. Increasingly, the industry consists of a few very
large, regional or super-regional institutions, and a number of smaller
community-based banks whose success depends upon providing customer focused,
responsive products and services.
The continued growth of super-regional institutions and the potential for
large out-of-area banking organizations to enter the local banking market may
create significant opportunities for efficiently operated, service-oriented,
community-based banking organizations. NECB is optimistic regarding the
opportunities available to prudent, well capitalized community-based banks to
serve successfully and profitably the banking needs of their constituents.
NECB believes that to be successful, community banks must be able to offer
their customers competitive products and services of their own initiation or
through strategic alliances and contractual relationships with third parties.
While offering desired products and services is important in attracting and
maintaining customer relationships, the delivery of such products in a
convenient, friendly, professional and responsive manner is essential to the
success of a community bank. NECB's Management team and staff continue to strive
to meet the needs of customers and the community with innovative products and
friendly, responsive service at convenient locations.
Management of NECB is continuously exploring potential opportunities to
expand prudently NECB's earning potential through expansion of NECB's base of
earning assets within its existing market area or in proximate geographic areas
through the establishment or acquisition of other banking operations.
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NECB's subsidiaries attract deposits through their branch network by
offering a variety of commercial and consumer deposit products including, but
not limited to, demand deposits, certificates of deposit and savings deposits.
These funds are then primarily invested in investment securities and loans to
borrowers within the NEBT's and EQBK's respective market area. A variety of loan
products are available to potential borrowers including secured and unsecured
loans, inventory financing, term loans, interim construction financing, mortgage
loans and home equity loans.
Fee income is generated through traditional deposit related services such
as checking account charges, overdraft fees, stop payment and returned item
fees. Seven of NEBT's ten automated teller machines ("ATMs"), which also
generate fee income, are located at NEBT's offices. Two ATMs are located within
the terminal areas at Bradley International Airport in Windsor Locks,
Connecticut and one is installed within a convenience store/gasoline station
within close proximity to the NEBT branch located in East Windsor. The ATMs at
branch locations are primarily for efficient utilization of branch personnel
resources and customer convenience, while machines located away from NEBT
premises are primarily utilized by non-customers and provide NEBT with greater
revenues than do the ATM's located at branch locations. The servicing of
mortgage loans sold to the Federal Home Loan Mortgage Corporation and the rental
of safe deposit boxes to customers also provides revenues.
COMPETITION AND GENERAL BUSINESS CONDITIONS
The banking business in Connecticut is quite competitive. NECB and its
subsidiaries compete with commercial banks, savings banks, savings and loan
associations, credit unions, finance companies, mutual funds, money market funds
and other institutions for various products and services. NECB and its
subsidiaries strive to remain competitive with these other financial
institutions and to improve the services offered to customers, by making
available to savers various depository products and certificates of deposit
having a wide range of maturities, amounts and interest rates (currently several
different rates, depending on the principal balance and term of the certificate
of deposit). In lending, NEBT is an approved Federal Home Loan Mortgage
Corporation ("FHLMC") lender, thereby allowing it to make mortgage loans, sell
such loans in the secondary market and retain the servicing rights to these
loans.
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While the banking business in Connecticut is very competitive, the past
several years have seen the focus of the industry shift from growth in market
share to improvement in asset quality and expense reduction. Connecticut-based
financial institutions have been adversely affected by the economic downturn and
devaluation of real estate. Many of the banks in Connecticut and the region have
spent much of the past three years strengthening their balance sheets in order
to either position themselves for future opportunities or, in some cases, simply
to survive. While the recession has created attractive opportunities for
expansion for well-capitalized institutions, many banks have not maintained a
capital cushion adequate enough to pursue these opportunities. Accordingly, the
total number of competitors within the market has been decreasing. However, NECB
may come into competition with new banks as a result of the erosion of the
previous barriers to inter-state banking.
Competition among financial institutions is based upon interest rates and
other credit and service charges, the quality of services rendered, the
convenience of banking facilities and in the case of loans to larger commercial
borrowers, relative lending limits. As in the past, NECB's future earnings will
be affected by changes in the prevailing interest rates, as well as other
financial market developments and regulatory controls beyond the control of
NECB's Management.
Connecticut has enacted legislation which liberalized banking powers and
has put thrift institutions on equal footing with other banks, thereby improving
their competitive position. In addition, in 1995, the Connecticut General
Assembly revised its Interstate Banking Act to permit acquisitions of and
mergers with Connecticut banks and bank holding companies with banks and bank
holding companies in other states. It is possible that such legislative
authority will increase the number or the size of financial institutions
competing with NEBT and EQBK for deposits and loans in its market place,
although it is impossible to predict the effect upon competition of such
legislation.
Recently adopted Federal legislation permits adequately capitalized bank
holding companies to venture across state lines to offer banking services
through bank subsidiaries to a wider geographic market. In light of this change
in the law, it will be possible for large super-regional organizations to enter
many new markets including the market served by NEBT and EQBK. Certain of these
competitors, by virtue of their size and resources, may enjoy certain
efficiencies and competitive advantages over NEBT and EQBK in the pricing,
delivery, and marketing of their products and services.
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LENDING ACTIVITIES
The lending policy of NECB's subsidiary banks is designed to correspond
with its mission of remaining a community-oriented bank. The loan policy sets
forth accountability for lending functions in addition to standardizing the
underwriting, credit and documentation procedures. The typical loan customer is
an individual or small business which has a deposit relationship. NECB, through
its subsidiary banks, strives to provide an appropriate mix in its loan
portfolios of commercial loans and loans to individual consumers.
SINGLE FAMILY MORTGAGE LOANS
The largest sector of consumer lending has traditionally been mortgage
loans secured by single family residential properties. This includes both first
and second mortgages. Second mortgages consist of equity lines of credit and
closed-end loans, such as home improvement and construction loans. Historically,
single family mortgage loans are considered to involve the least risk to a
lending institution. Applications for mortgage loans are received primarily
through the branch office network. NEBT and EQBK will lend up to 95% of the
value of the collateral. On loans in excess of 80% of the value of collateral,
borrowers are required to obtain mortgage insurance covering the portion over
80%. Interest rates charged for mortgage loans are primarily set according to
secondary market conditions, and terms generally follow the underwriting
requirements of the FHLMC in the granting of residential mortgage loans and
sells residential mortgage loans to the agency when market conditions permit.
The sale of fixed rate mortgage loans in the secondary market provides liquidity
to make additional loans, revenues for servicing the sold loans, and premiums
and discounts to par upon the sale of such loans. At December 31, 1995, NECB'S
combined portfolio of loans serviced for others was $64,909,000 compared to
$56,753,000 at December 31, 1994. NEBT and EQBK make a variety of adjustable
rate mortgage loans. However, one year adjustable rate mortgages are the primary
adjustable rate mortgage product. The rate is tied to the one year Treasury bill
rate and is generally priced competitively in the range of 2.75% above such rate
and is typically discounted by market conditions during the first year, for
competitive purposes.
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CONSUMER LOANS
NEBT and EQBK originate a variety of other consumer loans such as
short-term demand loans, automobile and boat loans and student loans. Consumer
loans are made both on an unsecured basis and a secured basis. Interest rates
charged on consumer loans are primarily determined by competitive loan rates
offered in its lending area. The primary risk in such loans is the borrower's
ability to repay. Such loans are typically made for small amounts, which
provides for risk diversification.
COMMERCIAL REAL ESTATE LOANS
The portfolio of commercial loans of NEBT and EQBK includes various
products. NEBT's target market with respect to commercial lending consists of
small businesses with annual sales up to eight million dollars. Commercial
mortgages are granted on owner occupied and investment properties up to 75% of
the lesser of the cost or appraised value of the property. Short-term business
loans are made on a demand basis to finance various cash needs of customers.
Construction and land development financing is available to qualified borrowers
for development of sub-divisions or single family residences.
COMMERCIAL BUSINESS LOANS
Financing for capital expenditures, such as equipment, is provided on an
amortizing basis for terms up to five years. NEBT and EQBK offer revolving
credit lines and commercial letters of credit primarily used for performance
bonding.
NECB's combined portfolio of commercial loans includes various products.
Generally, the target market of its subsidiary banks with respect to commercial
lending consists of small businesses with annual sales up to eight million
dollars. Short-term business loans are made on a demand basis to finance various
cash needs of customers. The risks associated with the borrower's ability to
repay are critical to such loans and are evaluated both prior to granting such
loans and throughout the duration and renewal of such credits.
LOAN PORTFOLIO
NECB's combined loan portfolio, net of unearned income, at December 31,
1995-1991 was comprised of the following categories based upon the nature of
collateral:
<PAGE>
73
(Dollar Amounts in Thousands)
December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Commercial, Financial $ 35,808 $ 27,033 $ 14,439 $ 19,490 $ 25,238
Real estate
Construction 12,942 1,883 830 3,929 4,640
Residential 80,863 50,382 51,433 59,609 64,736
Commercial 85,041 40,863 38,234 38,140 35,403
Installment 5,415 12,298 10,591 13,543 16,229
Other 2,166 166 169 611 685
-------- -------- -------- -------- --------
Total Loans $222,235 $132,625 $115,696 $135,322 $146,931
======== ======== ======== ======== ========
The largest concentration within the loan portfolio is with individuals
which include home mortgages and personal loans, and the policy for requiring
collateral for real estate construction and development loans is essentially the
same as that for other types of loans and is evaluated on an individual basis.
At December 31, 1995, substantially all of the loans included as "commercial and
financial" or "real estate construction" are due in one year or less.
The following table reflects the maturity and sensitivities for NECB's
combined loan portfolio at December 31, 1995.
(Dollar Amounts in Thousands)
After one
One year year through Due after Total
or less five years five years loans
======== ========== ========== =====
Commercial, Financial $ 26,630 $ 8,091 $ 87 $ 34,808
Real estate 0 0 0 0
Construction 12,942 0 0 12,942
Residential 40,825 18,387 10,822 70,034
Commercial 46,245 40,964 4,793 92,002
Installment 3,509 1,785 21 5,315
Other 1,776 360 0 2,136
-------- ------- ------- --------
Total performing loans $131,927 $69,587 $15,723 217,237
======== ======= ======= ========
Nonperforming loans 4,998
--------
Total loans $222,235
========
At December 31, 1995 loans maturing after one year included: $39,767 in
fixed rate loans and $40,932 in variable rate loans.
INVESTMENT SECURITIES
The primary objectives of NECB's investment policy are to provide a stable
source of interest income, to provide adequate liquidity necessary to meet short
and long-term changes in the mix of its assets, to provide a means to achieve
goals set forth in the interest rate risk policy and to provide a balance of
quality and diversification to its assets. The available for sale portion of
investment portfolio is expected to provide funds when demand for acceptable
loans increases and is expected to absorb funds when loan demand decreases.
<PAGE>
74
At December 31, 1995, NECB's investment portfolio was $82,129,000 or 24.0%
of total assets. Federal funds sold were $9,075,000 or 2.7% of total assets at
December 31, 1995. Recently, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for
Investment in Certain Debt and Equity Securities." SFAS 115 provides for the
categorization of investments into three groups and further provides for the
accounting and reporting treatment of each group. Investments may be classified
as held-to-maturity, available-for-sale, or trading. NECB does not purchase or
hold any investment securities for the purpose of trading such investments.
The table below presents the carrying amounts and fair values of investment
securities held by NECB at December 31, 1995 and 1994.
(Dollar Amounts in Thousands)
1995 1994
----------------------- ------------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
--------- ------- --------- -------
Held-to-maturity $ 7,066 $ 7,189 $11,742 $11,528
Available-for-sale 74,793 75,063 37,508 36,065
FHLB Stock 1,176 1,176 810 810
------- ------- ------- -------
$83,035 $83,428 $50,060 $48,403
======= ======= ======= =======
The following tables present the maturity distribution of investment
securities at December 31, 1995, and the weighted average yields of such
securities. The weighted average yields were calculated based on the cost and
effective yields to maturity of each security. The weighted average yields on
income from municipal obligations and equity securities were adjusted to a
tax-equivalent basis.
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
Held-to-maturity
One Over one Over five Over Weighted
year through through ten No average
or less five years ten years years Maturity Total yield
------- ---------- --------- ----- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other U.S. agencies
and corporations $ 1,500 $ 4,001 $ 0 $ 0 $ 5,501 6.4%
Obligations of states
and political
subdivisions 0 622 697 246 1,565 8.1%
------- ------- ------ ------ -------
Total $ 1,500 $ 4,623 $ 697 $ 246 $ 7,066
------- ------- ------ ------ -------
Weighted average
yield 5.90% 6.60% 7.60% 9.20% 7.10%
------- ------- ------ ------ -------
</TABLE>
<PAGE>
75
Available-for-sale (1)
<TABLE>
<CAPTION>
One Over one Over five Over Weighted
year through through ten No average
or less five years ten years years Maturity Total yield
------- ---------- --------- ----- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other U.S. agencies
and corporations $ 5,000 $29,035 $4,448 $ 0 $38,483 6.2%
Obligations of states
and political
subdivisions 251 0 0 0 251 10.9%
Mortgage backed
securities 0 4,735 313 6,208 11,256 7.4%
Corporate bonds 6,288 3,400 0 0 9,688 7.1%
Equities 0 0 0 0 15,115 15,115
------- ------- ------ ------ ------- -------
Total $11,539 $37,170 $4,761 $6,208 $15,115 $74,793
------- ------- ------ ------ ------- -------
Weighted average
yield 6.7% 6.0% 7.4% 7.4% 4.4% 6.9%
------- ------- ------ ------ ------- -------
Total Portfolio $13,039 $41,793 $5,458 $6,454 $15,115 $81,859
======= ======= ====== ====== ======= =======
Total weighted
average yield 6.7% 6.1% 7.5% 7.5% 4.4% 6.9%
======= ======= ====== ====== ======= =======
(1) Dollars shown at amortized cost amounts.
</TABLE>
DEPOSITS AND OTHER FUNDING SOURCES
Deposit liabilities have historically provided the primary source of
funding assets. It is anticipated that this means of funding will not change in
the immediate future. Deposits funded 90% of such assets at December 31, 1995
compared to 91% of such assets at December 31, 1994 and 93% of such assets at
December 31, 1993. Other borrowed funds, which funded .2% of assets at December
31, 1995 funded .4% of assets at December 31, 1994 and .4% of assets at December
31, 1993, consist of U.S. Treasury tax and loan deposits and, occasionally,
repurchase agreements. Funding capacity is also provided by amortization of loan
principal balances, sales of single family mortgage loans in the secondary
market and interest and dividend income received.
A variety of both retail and commercial deposit products is offered by NECB
through its subsidiaries that both fill the needs of its customer base and
provide funds of varying maturities, including fixed rate certificates of
deposit with original terms of up to four years, regular savings accounts, money
market accounts, NOW accounts, business checking, and demand deposits.
Management seeks to retain customers holding "core deposit" accounts such as
regular savings, NOW, money market and demand deposits. At year-end, interest
rates payable on time deposits were at levels consistent with market rates of
interest in NECB's geographic area.
Total deposits increased to $307,161,000 at December 31, 1995, compared to
$196,872,000 at December 31, 1994. The branch network and main office of NEBT
<PAGE>
76
and the main office of EQBK serve as the primary sources of deposit gathering.
NECB does not solicit deposits from beyond the communities in which its
subsidiaries or their branch offices are located.
The following table summarizes average deposits and interest rates of NECB
for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
1995 1994 1993
------------------- --------------------- --------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 39,395 $ 32,754 $ 27,834
Now and money market
account deposits 28,452 1.26% 27,593 1.55% 50,162 2.54%
Savings deposits 47,746 2.16% 56,819 2.02% 40,835 2.56%
Time deposits 80,615 5.35% 63,619 3.74% 67,289 3.89%
-------- -------- --------
Total deposits $196,208 $180,785 $186,120
======== ======== ========
</TABLE>
Fixed rate certificates of deposit in amounts of $100,000 or more at
December 31, 1995 are scheduled to mature as follows:
(Dollar Amounts in Thousands)
Three months or less $ 6,754
Over three, through six months 4,078
Over six, through twelve months 3,983
Over twelve months 4,407
-------
Total $19,222
=======
RETURN ON EQUITY AND ASSETS
The following table summarizes various operating ratios of NECB for each of
the five years through December 31, 1995:
YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Return on average total 0.91% 0.56% 0.20% 0.18% (0.29)%
assets (net income divided
by average total assets)
Return on average 9.61% 8.34% 3.26% 3.08% (5.18)%
shareholders' equity (net
income divided by average
shareholders' equity)
Tangible equity to assets (average 8.76% 8.53% 6.40% 5.83% 5.50%
shareholders' equity less goodwill
as a percent of average total
assets)
Dividend payout ratios 24.30% 9.43% 0% 0% 0%
<PAGE>
77
ASSET/LIABILITY MANAGEMENT
A principal objective of NECB is to reduce and manage the exposure of its
results of operations to changes in interest rates and to maintain an
approximate balance between the interest rate sensitivity of its assets and
liabilities within acceptable limits. While interest rate risk is a normal part
of the commercial banking activity, NECB desires to minimize its effect upon
operating results. Managing the rate sensitivity embedded in the balance sheet
can be accomplished in several ways. By managing the origination of new assets
and liabilities, or the rollover of the existing balance sheet assets,
incremental change towards the desired sensitivity position can be achieved.
Hedging activities, such as the use of interest rate caps, can be utilized to
create immediate change in the sensitivity position.
NECB monitors the relationship between interest earning assets and interest
bearing liabilities by examining the extent to which such assets and liabilities
are "interest rate sensitive" and by monitoring the interest rate sensitivity
"gap". An asset or liability is said to be interest rate sensitive within a
specific time period if it will mature or reprice within that time period. The
interest rate sensitivity gap is defined as the difference between the amount of
interest-bearing liabilities maturing or repricing and the amount of
interest-earning assets maturing or repricing for the same period of time.
During a period of falling interest rates, a positive gap would tend to
adversely affect net interest income, while a negative gap would tend to
increase net interest income. During a period of rising interest rates, a
positive gap would tend to increase net interest income, while a negative gap
would tend to adversely affect net interest income.
Asset and liability management functions are supervised by the Asset
Liability Committee ("ALCO"), which reports to the Board of Directors quarterly.
It is actively involved in the financial planning and budgeting process and
developing policies for monitoring and coordination sources, uses and pricing of
funds. The following table summarizes the repricing schedule for interest
earning assets and interest bearing liabilities and provides an analysis of
periodic and cumulative gap positions on a company-wide consolidated basis.
<PAGE>
78
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
As of December 31, 1995
Repriced Within
-----------------------------------------------------------
Under 3 4 to 12 1 to 5 Over 5
Months Months Years Years Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivilents $ 9,130 $ $ $ 14,495 $ 23,625
Securities 18,365 13,624 25,180 26,136 83,305
Loan portfolio 69,882 67,980 64,777 19,596 222,235
Loans held-for-sale 788 788
Other assets 3,000 8,608 11,608
-------- ------- ------- -------- --------
Total interest $101,165 $81,604 $89,957 $ 68,835 $341,561
-------- ------- ------- -------- --------
Deposits
Demand $ 4,199 $ $ 4,256 $ 51,490 $ 59,945
Savings 25,168 30,394 17,236 31,957 104,755
Time 42,993 60,089 39,379 142,461
-------- ------- ------- -------- --------
Total Deposits 72,360 90,483 60,871 83,447 307,161
Short-term borrowed funds 540 540
Other liabilities 1,221 2,159 3,380
Shareholder's equity 30,480 30,480
-------- ------- ------- -------- --------
Total liabilities and equity 72,900 90,483 62,092 116,086 341,561
Periodic gap 28,265 (8,879) 27,865 (47,251)
-------- ------- ------- --------
Cumulative gap $ 28,265 $19,386 $47,251 $ 0
======== ======= ======= ========
Cumulative gap as a percentage of
total earning assets 8.3% 5.7% 13.8% 0.0%
</TABLE>
The information presented in the interest sensitivity table is based upon a
combination of maturities, call provisions, repricing frequencies, prepayment
patterns and Management judgment. The distribution of variable rate assets and
liabilities is based upon the repricing interval of the instrument. Management
estimates that approximately 65% of savings products are sensitive to interest
rate changes based upon analysis of historic and industry data for these types
of accounts.
EMPLOYEES
At December 31, 1995, NECB, NEBT and EQBK employed an aggregate of 129
full-time and 41 part-time employees. Employees are not represented by a
collective bargaining unit and relationships with employees of NECB and NEBT are
considered to be good.
LEGISLATION, REGULATION AND SUPERVISION
GENERAL
Legislation adopted in recent years has substantially increased the scope
of regulations applicable to banks and bank holding companies.
Virtually every aspect of the business of banking is subject to regulation
with respect to such matters as the amount of reserves that must be established
against various deposits, the establishment of branches, Reorganizations,
<PAGE>
79
non-banking activities and other operations. Numerous laws and regulations also
set forth special restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
The descriptions of the statutory provisions and regulations applicable to
banks and bank holding companies set forth below do not purport to be a complete
description of such statutes and regulations and their effects on NECB, NEBT and
EQBK. Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
changes and the impact such changes might have on NECB, NEBT and EQBK are
difficult to determine.
FEDERAL RESERVE REGULATION
NECB is a bank holding company registered pursuant to the provisions of the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"), and
consequently is subject to regulation and examination by the Federal Reserve
Board (the "FRB"). Bank holding companies are required to file annually with the
FRB a report of their operations and they and their subsidiaries are subject to
examination by the Board of Governors of the Federal Reserve System.
The Holding Company Act also requires prior approval by the FRB before a
bank holding company (1) merges or consolidates with another bank holding
company, (2) acquires directly or indirectly ownership or control of voting
shares of a bank if after such acquisition it would own or control directly or
indirectly more than five percent of the voting stock of such bank, except where
50 percent or more is already owned, or (3) acquires substantially all of the
assets of any bank.
The Holding Company Act further provides that the FRB shall not approve any
acquisition, reorganization or consolidation which would result in a monopoly or
which 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.
Further, the FRB may not approve any other proposed acquisition, reorganization
or consolidation, the effect of which may be substantially to lessen competition
or to tend to create a monopoly in any section of the country, or which in any
other manner would be in restraint of trade, unless the anti-competitive effects
<PAGE>
80
of the proposed transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
community to be served.
Historically, the Holding Company Act prohibited a bank holding company
from controlling or acquiring in excess of 5% of the voting shares or
substantially all of the assets of a bank located outside of the state in which
the operations of such bank holding company's banking subsidiaries were
principally conducted, unless such acquisition was specifically authorized by
the laws of the state in which NEBT was located. The laws of Connecticut
currently authorize such acquisitions to a limited extent.
Under the Riegle-Neal Interstate Banking and Efficiency Act of 1994
substantially all state law barriers to the acquisition of banks by out-of-state
bank holding companies have been eliminated effective September 29, 1995. The
law will also permit interstate branching by banks effective as of June 1, 1997,
subject to the ability of states to opt-out completely or to set an earlier
effective date. NECB anticipates that the effect of the new law may be to
increase competition within the markets in which NECB operates, although NECB
cannot predict the effect to which competition will increase in such markets or
the timing of such increase.
A bank holding company is also prohibited, with limited exceptions, from
engaging directly or indirectly through its subsidiaries in activities unrelated
to banking, managing or controlling banks. One of the exceptions to this
prohibition permits ownership of the shares of a company engaged solely in
furnishing services to subsidiary banks; another exception permits ownership of
shares of a company the activities of which the FRB has determined, by
regulation or after due notice and opportunity for hearing, to be so closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto in each individual case.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or sale
of any property or services. Subsidiary banks of a bank holding company are
subject to certain restrictions imposed by the Federal Reserve Act on any
extension of credit to the bank holding company or any of its subsidiaries, or
investments in the stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower.
<PAGE>
81
NEBT and EQBK are also subject to FRB regulations regarding the maintenance
of reserves. Under such regulations, NEBT and EQBK must maintain reserves
against their transaction accounts and non-personal time deposits.
Under FRB regulations, a bank holding company is required to serve as a
source of financial and managerial strength to its subsidiary banks and may not
conduct its operations in an unsafe or unsound manner. In addition, it is the
FRB's policy that in serving as a source of strength to its subsidiary banks, a
bank holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding company's failure to meet its obligation to
serve as a source of strength to its subsidiary banks will generally be
considered by the FRB to be an unsafe and unsound banking practice or a
violation of the FRB regulations or both.
The FRB has established capital adequacy guidelines for bank holding
companies. See "MANAGEMENT'S DISCUSSION AND ANALYSIS".
CONNECTICUT REGULATION
As state-chartered banks and members of the FDIC, NEBT and EQBK are subject
to regulation both by the Connecticut Banking Commissioner and by the FDIC.
Applicable laws and the regulations impose restrictions and requirements in many
areas, including interest rates on selected instruments, capital requirements,
maintenance of reserves, establishment of new branch offices, making of loans
and investments, consumer protection, employment practices and other matters.
Any new regulations or amendments to existing regulations may materially affect
the services offered, expenses incurred and/or income generated by NEBT.
The Connecticut Banking Commissioner regulates NEBT's and EQBK's internal
organization as well as their deposit, lending and investment activities. The
approval of the Connecticut Banking Commissioner is required, among other
things, to open branch offices and to consummate merger transactions and other
business combinations. The Connecticut Banking Commissioner conducts periodic
examinations of NEBT and EQBK. The Connecticut banking statutes also restrict
the ability of NEBT and EQBK to declare cash dividends to their sole
stockholder, NECB.
<PAGE>
82
Subject to certain limited exceptions, loans made to any one obligor may
not exceed 15% of a bank's capital, surplus, undivided profits and loan
reserves.
Connecticut banks and bank holding companies, with the approval of the
Connecticut Banking Commissioner, are permitted to engage in stock acquisitions
of banks and bank holding companies in other states with reciprocal legislation.
Several interstate mergers involving large Connecticut banks with offices in
NEBT's service area and banks headquartered in other states have been completed
which have resulted in increased competition for NEBT and EQBK, respectively. In
addition, under Connecticut law, the beneficial ownership of more than 10% of
any class of voting securities of a bank or bank holding company may not be
acquired by any person or groups of persons acting in concert without the
approval of the Connecticut Banking Commissioner.
FDIC REGULATION
The FDIC insures NEBT's and EQBK's deposit accounts in an amount up to
$100,000 for each insured depositor. NEBT and EQBK, as Connecticut-chartered
FDIC-insured banks, are regulated by the FDIC in many of the areas also
regulated by the Connecticut Banking Commissioner. The FDIC also conducts its
own periodic examinations of NEBT and EQBK, and each institution is required to
submit financial and other reports to the FDIC on a quarterly and annual basis,
or as otherwise required by the FDIC.
FDIC insured banks, such as NEBT and EQBK pay premiums to the FDIC for the
insurance of deposits. The FDIC has determined that no premiums need be assessed
at this time.
Under FDIC regulations, FDIC-insured, state-chartered banks which are not
members of the Federal Reserve System must meet certain minimum capital
requirements, including a leverage capital ratio and a risk-based capital ratio.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS".
FDIC insurance of deposits may be terminated by the FDIC, after notice and
a hearing, upon a finding by the FDIC that the insured institution has engaged
in unsafe or unsound practices, or is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule, or
order of, or condition imposed by, the FDIC. A bank's failure to meet the
minimum capital and risk-based capital guidelines set forth above, would be
considered to be unsafe and unsound banking practices.
<PAGE>
83
The Community Reinvestment Act ("CRA") requires lenders to identify the
communities served by the institution's offices and to identify the types of
credit the institution is prepared to extend within such communities. The FDIC
conducts examinations of insured institutions' CRA compliance and rates such
institutions as "Outstanding", "Satisfactory", "Needs to Improve" and
"Substantial Noncompliance." As of their last CRA examinations, NEBT received a
rating of "Outstanding" and EQBK received a rating of "Satisfactory". Failure to
receive at least a "Satisfactory" rating may inhibit an institution from
undertaking certain activities, including acquisitions of other financial
institutions, which require regulatory approval based, in part, on CRA
compliance considerations.
PROPERTIES
NECB is the owner of an operations center in East Hartford Connecticut. The
operations center located at 20 Founders Plaza, East Hartford, Connecticut
consists of an 18,227 square foot office building which is adequate to meet the
foreseeable data processing needs of NECB. NECB is not the lessee of any
properties. The properties described below are properties owned or leased by
NEBT or EQBK.
NEBT's designated main office is located at Old Windsor Mall, Windsor,
Connecticut. In addition to the designated main office in Windsor, NEBT has
branches in Canton, Poquonock (Windsor), Enfield, Ellington, Somers, East
Windsor and Suffield.
During the year ended December 31, 1995, the aggregate rental expenses paid
by NECB for all its office properties was approximately $267,900. All properties
are considered to be in good condition and adequate for the purposes for which
they are used. The following table outlines all owned or leased property of
NECB, NEBT and EQBK but does not include other real estate owned.
<PAGE>
84
<TABLE>
<CAPTION>
Owned/ LEASE
LOCATION ADDRESS LEASED EXPIRATION
- -------- ------- ------ ----------
<S> <C> <C> <C>
Executive Offices Old Windsor Mall Owned
(New England Community 176 Broad Street
Bancorp, Inc. and Windsor, CT 06095
New England Bank)
/Operations/Main Office
NEBT Poquonock 2100 Poquonock Avenue *Bldg-Owned 1996
Branch (Windsor) Windsor, CT 06064 Land-Owned/Leased
NEBT Enfield Branch 9 Hazard Avenue Bldg-Owned 2011
Enfield, CT 06082 Land-Leased
NEBT Ellington Branch 70 West Road Owned
Ellington, CT 06029
NEBT Somers Branch 637 Main Street Owned
Somers, CT 06071
NEBT East Windsor Branch 2 North Road Leased 2002
East Windsor, CT 06088
NEBT Suffield Branch 275 Mountain Road Owned
Suffield, CT 06078
NEBT Canton Branch 250 Albany Turnpike, Leased 2000
Canton, CT 06109
NEBT West Hartford 55 South Main Street Leased
Branch** West Hartford, CT 06107
EQBK Main Office 1160 Silas Deane Highway Leased 2004
Wethersfield, CT 06109
</TABLE>
* The Poquonock Office occupies two parcels of land. One parcel that was
previously leased was purchased in 1991 and the other parcel continues to
be leased.
** In February 1996, NEBT filed an application with the Federal Deposit
Insurance Corporation and State of Connecticut Department of Banking to
locate a branch at 55 South Main Street, West Hartford, CT.
LEGAL PROCEEDINGS
There are no pending material adverse legal proceedings other than ordinary
routine litigation incidental to normal business to which NECB, NEBT or EQBK is
a party or to which any of their properties are subject except that, in
connection with the consummation of its acquisition of EQBK, certain
shareholders of EQBK gave notices of their intention to exercise their
dissenter's rights and receive cash rather than stock in NECB. The stock
appraisal process is ongoing but is not expected to have any material adverse
effect on EQBK and NECB on a consolidated basis.
<PAGE>
85
MARKET FOR NECB'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NECB's Common Stock has been quoted on the NASDAQ National Market System
since November 4, 1994. Advest, Inc., Tucker Anthony Incorporated and First
Albany are market makers in the NECB Common Stock.
As of March 15, 1996, there were 3,084,309 shares of NECB Common Stock
issued and outstanding which were held by approximately 2,400 shareholders of
record.
Through the third calendar quarter of 1994, the market price quoted in the
following table is based upon the high and low bid quotations during the period
shown. The prices represent quotations by dealers and do not include mark-ups,
mark-downs or commissions and do not necessarily represent actual transactions.
The pricing information has been provided by various brokers identified as
market makers in NECB's stock. Commencing with the fourth quarter of 1994, NECB
stock has been traded on the NASDAQ National Market System under the symbol
NECB. Information for the fourth quarter of 1994, for each quarter of 1995 and
1996, to date, was obtained from reports provided to NECB by the NASDAQ National
Market System.
QUARTER ENDED HIGH LOW
- ------------- ---- ---
March 15, 1996 $11 1/4 $9 3/4
December 31, 1995 10 1/4 9 1/4
September 30, 1995 10 7 3/4
June 30, 1995 8 1/2 7 3/4
March 31, 1995 8 1/2 7 1/2
December 31, 1994 9 1/4 7 1/2
September 30, 1994 8 3/8 8
June 30, 1994 8 7
March 31, 1994 6 4 1/2
On December 19, 1995, the day prior to the day the Reorganization was
announced to the public, the price ranged from a high of 10 1/4 to a low of 9
1/2. Such information was obtained from the NASDAQ National Market System.
DIVIDEND POLICY
All shares of the NECB Common Stock are entitled to participate equally in
such dividends as may be declared by NECB's Board of Directors. The holders of
NECB Common Stock will be entitled to receive dividends when, as and if declared
by the Board of Directors of NECB. Dividends may be declared and paid by NECB
<PAGE>
86
only out of funds legally available therefor. Under Delaware law, dividends may
generally be declared by the board of directors of a corporation and paid in
cash, property or in shares of such corporation, either out of such
corporation's surplus or, in case there is no surplus, out of its net profits
for the fiscal year in which the dividend is declared or the preceding fiscal
year, or both.
NECB's principal assets are its investments in NEBT and EQBK. As such,
NECB's ability to pay dividends to its shareholders is largely dependent on the
ability of NEBT and EQBK to pay dividends to NECB.
NEBT and EQBK may not declare a dividend on their capital stock except from
their net profits. "Net profits" is defined as the remainder of all earnings
from current operations. The total of all dividends declared by each respective
institution in any calendar year may not, unless specifically approved by the
Connecticut Banking Commissioner, exceed the total of each respective
institution's net profits of that year combined with each institutions retained
net profits of the preceding two years.
NECB believes that the payment of dividends is an important part of its
efforts to provide value to its shareholders. The payment of regular prudent
dividends, when justified by the condition and earnings of NEBT, EQBK and NECB,
while not assured, is a goal of NECB and its Board of Directors. To the extent
net proceeds are retained by NECB, earnings on such proceeds would be available
to pay dividends.
From 1990 until the fourth quarter of 1994, no dividends were declared or
paid by NECB. NECB began the payment of regular quarterly dividends in the
fourth quarter of 1994. Quarterly payments were $.05 per share until the fourth
quarter of 1995 when the quarterly payment was increased to $.055 per share. In
the first quarter of 1996, the dividend was increased to $.06 per share. It is
anticipated that subsequent to the Reorganization, NECB will continue to declare
and pay a quarterly dividend of $.06 per share unless a change is warranted by
the condition or profitability of the NECB.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING DISCLOSURE
During the two most recent fiscal years, NECB has had no changes in or
disagreements with its independent accountants on accounting and financial
disclosure matters.
<PAGE>
87
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF NECB
The following is Management's discussion of the financial condition and
results of operations on a consolidated basis for the three years ended December
31, 1995, of New England Community Bancorp, Inc. ("NECB"). The consolidated
financial statements of NECB include the accounts of NECB and its wholly-owned
subsidiaries, New England Bank & Trust Company ("NEBT") and The Equity Bank
("EQBK") which became a subsidiary of NECB on November 30, 1995. The transaction
was accounted for as a purchase and, as such, prior year comparative data was
not revised to include information about EQBK. The changes thus noted between
December 31, 1994 and December 31, 1995 reflect the addition of EQBK at November
30, 1995 as well as the continuing operations NECB and its subsidiaries. This
discussion should be read in conjunction with the consolidated financial
statements and the related notes of NECB presented elsewhere herein.
FINANCIAL CONDITION
1995 COMPARED TO 1994.
Loans outstanding at year end 1995 amounted to $222,235,000. During the
year, NECB added to outstanding loans by originating new loans which exceeded
repayments and payoffs by $6,694,000. Additionally, during 1995, NECB purchased
loans at a cost of $4,871,000 from another lender and transferred loans with the
carrying amount of $895,000 to mortgages held for sale. NECB generally sells
convertible adjustable rate mortgages (ARMs) from its loan portfolio when
borrowers convert ARMs to fixed status if the term remaining to maturity is
greater than ten (10) years. Convertible ARMs are residential mortgage loans
which have a variable rate at inception, but which subsequently permit the
borrower to convert to a fixed rate at designated times.
During 1995, NECB increased securities available-for-sale through
purchasing $31,575,000 of securities. During the year, maturities and sales of
securities available-for-sale amounted to $23,359,000. In contrast, the
securities held-to-maturity decreased, with purchases amounting to $3,742,000
and maturities amounting to $8,556,000. The shift to securities
available-for-sale allowed the Company to increase its commitment to
intermediate term loans while maintaining sufficient liquidity to meet the
continuing needs of its customers.
<PAGE>
88
During 1995, NECB experienced moderate growth in deposits. Interest bearing
deposits, including savings products and time deposits, increased $5,754,000
while non-interest bearing accounts, largely commercial checking accounts,
declined $2,861,000. The lowering of checking account balances, following a
substantial increase of $14,841,000 in the previous year, appears to reflect the
preferences of the Company's customers to use their excess funds to either
reduce existing loans or avoid added borrowing. Management encourages this
practice through its rapid responsiveness to borrowing requests, particularly
for established customers.
NECB's investment in premises and equipment amounted to $6,960,000 at
December 31, 1995, representing an increase of $1,353,000 from a year ago.
Throughout 1995, the Company continued the program it began in late 1993 to
improve the appearance and capability of NEBT's older branch banking offices.
The Enfield office was extensively remodeled and new furnishings were added. In
addition, the branch's parking area was leveled and expanded to increase the
number of parking spaces for customers banking at this office. NEBT also
installed a drive-up ATM at the Somers Office. A year earlier a similar machine,
installed at NEBT's Poquonock office, quickly became NEBT's most actively
used machine. NEBT opened a full service branch in Canton, Connecticut to serve
the Farmington Valley market area. Finally, in December 1995, NECB purchased an
18,000 square foot office building located within the Founders Plaza complex in
East Hartford, Connecticut. This centrally located facility will house NECB's
growing operations and data processing departments which provide for the
informational needs of NECB and its subsidiaries.
1994 COMPARED TO 1993.
In the year ended December 31, 1994, total loans increased $16,928,000.
This increase was primarily the result of increased demand for new credit. As
the financial health of NECB's subsidiary, NEBT, steadily improved, it was able
to respond to this demand. In response to this improvement, in April 1994, the
FDIC removed the formal supervisory Order it had imposed a year earlier. The
carrying amount of security investments (consisting of securities
available-for-sale, securities held-to-maturity and Federal Home Loan Bank
stock) decreased $11,467,000 as the proceeds from sales and maturities, less
purchases, were used to support a portion of the growth of loans. The decrease
<PAGE>
89
included a reduction of $1,889,000 in the carrying amount of securities
available-for-sale to reflect the fair value of those securities in conformity
with SFAS No. 115 "Accounting for Certain Debt and Equity Securities." This
unrealized loss was decreased by related deferred taxes to $1,109,000 which
changed the net unrealized holding gain of $266,000 on securities
available-for-sale at December 31, 1993 in the equity section of the balance
sheet to a net unrealized holding loss of $843,000 at December 31, 1994. At
December 31, 1994, the unrealized loss on securities available-for-sale was
$1,443,000 and the deferred taxes on such amount was $600,000.
During 1994, cash and cash equivalents were increased $8,453,000 to offset
the volatile nature of noninterest-bearing checking account liabilities which
increased $14,841,000. During 1994, interest bearing deposits decreased
$6,435,000, as NEBT selectively reduced interest rates offered relative to the
marketplace. During this period, shareholders' equity increased as the result of
several factors. NECB raised approximately $5,600,000 through an offering
completed in December 1994 and net income added an additional $1,000,000.
The increased investment in bank premises and equipment represents funds
used to repair and improve NEBT's branch offices and the purchase of equipment
and technology necessary to maintain high quality services.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
NECB reported net income for 1995 of $1,980,000 or $0.91 per share. This
represented an increase of $877,000 or 80% from net income for 1994 of
$1,103,000 or $0.82 per share. This improvement resulted primarily from the
$1,987,000 increase in net interest and dividend income. Net income for 1994
increased $694,000 or 170% greater than the $409,000 reported for 1993. Unlike
1995, this improvement was primarily the result of the $1,442,000 reduction in
noninterest expenses. Significant factors affecting NECB's operating performance
for the three years ended December 31, 1995, included the following:
<PAGE>
90
NET INTEREST AND DIVIDEND INCOME
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
The net interest and dividend income for 1995 and 1994 increased $1,987,000
and $354,000 respectively from the preceding year. The table below shows net
interest and dividend income for each of the three years through December 31,
1995, on a fully taxable equivalent basis.
<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income (financial statements) $16,300 $12,551 $13,185
Tax-equivalent adjustment 121 48 74
Interest expense (5,736) (3,974) (4,962)
------- ------- -------
Net interest and dividend income (taxable equivalent) $10,685 $ 8,625 $ 8,297
</TABLE>
Net interest and dividend income, on a fully taxable equivalent basis,
increased $2,060,000 in 1995 and $328,000 in 1994.
Several factors contributed to the increase in net interest and dividend
income during 1995. Average earning assets increased $23 million due to growth
in average loans outstanding. Despite declining during the later half of 1995,
interest rates during most of 1995 were generally higher than those prevailing
during 1994. The net interest margin improved to 5.28% in 1995, compared to
4.81% in the preceding year. The average rate on earning assets improved to
8.12% in 1995 compared to 7.03% in 1994. The average rate paid for interest
bearing liabilities also increased, to 3.65% in 1995, from 2.67% in 1994. Higher
rates offered to holders of time deposits attracted approximately $17 million in
new funds, while relatively low yielding savings deposits resulted in an $8
million outflow of such deposits. During periods of higher interest rates,
interest-free sources of funds such as demand deposits and equity increase in
value when the interest rates available for the employment of these funds are
higher.
Net interest and dividend income for 1994 increased $328,000 to $8,625,000
from $8,297,000 in 1993. During 1994, the two factors primarily responsible for
the increase in net interest and dividend income were the reduction in the
average rate paid for interest bearing liabilities and the growth in noninterest
bearing sources of funds.
<PAGE>
91
AVERAGE BALANCE SHEETS, NET INTEREST AND DIVIDEND INCOME AND INTEREST RATES
The table below presents NECB's average balance sheets (computed on a daily
basis), net interest and dividend income and interest rates for the years ended
December 31, 1995, 1994 and 1993. Average loans outstanding include nonaccruing
loans. Interest and dividend income is presented on a tax-equivalent basis which
reflects a federal tax rate of 34% for all periods presented.
<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 7,246 $ 407 5.62% $ 6,760 $ 279 4.13% $ 4,411 $ 127 2.88%
Investment securities 50,962 3,079 6.04% 52,892 2,813 5.32% 52,230 2,765 5.29%
Loans 144,138 12,935 8.97% 119,690 9,507 7.94% 125,400 10,367 8.27%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest earning assets 202,346 16,421 8.12% 179,342 12,599 7.03% 182,041 13,259 7.28%
Allowance for loan losses (2,543) (2,777) (3,087)
Cash & due from banks 9,466 9,542 10,601
Other assets 9,282 9,349 11,473
-------- -------- --------
Total Assets $218,551 $195,456 $201,028
======== ======== ========
LIABILITIES
Regular savings deposits $ 47,746 $ 1,033 2.16% $ 56,819 $ 1,149 2.02% $ 40,835 $ 1,045 2.56%
NOW accounts deposits 23,405 266 1.14% 23,197 307 1.32% 30,789 567 1.84%
Money market deposits 5,047 92 1.82% 4,396 120 2.73% 19,373 708 3.65%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total savings deposits 76,198 1,391 1.83% 84,412 1,576 1.87% 90,997 2,320 2.55%
Time deposits 80,615 4,312 5.35% 63,619 2,377 3.74% 67,289 2,617 3.89%
Borrowed funds 532 33 6.20% 589 21 3.57% 978 25 2.56%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing liab. 157,345 5,736 3.65% 148,620 3,974 2.67% 159,264 4,962 3.12%
Demand deposits 39,395 32,754 27,834
Other liabilities 1,206 854 1,389
-------- -------- --------
Total liabilities 197,946 182,228 188,487
Equity 20,605 13,228 12,541
-------- -------- --------
Total Liabilities & Equity $218,551 $195,456 $201,028
======== ======== ========
Net interest income $ 10,685 $ 8,625 $ 8,297
(tax equivalent Basis)
Less: FTE adjustment 121 48 74
-------- -------- --------
Net interest income (book) $ 10,564 $ 8,577 $ 8,223
======== ======== ========
Net interest spread 4.47% 4.35% 4.17%
Net yield on earning assets 5.28% 4.81% 4.56%
</TABLE>
<PAGE>
92
The fully taxable equivalent yield on earning assets was 8.12% in 1995 up
from 7.03% in 1994 and 7.28% in 1993. The cost of interest bearing liabilities
was 3.65% in 1995 as compared to 2.67% in 1994 and 3.12% in 1993. As a result
the net interest margin, on a fully taxable equivalent basis, was 5.28% in 1995
compared to 4.81% in 1994 and 4.56% in 1993.
RATE VOLUME ANALYSIS
The following table, which is presented on a tax-equivalent basis, reflects
the changes for the years ended December 31, 1995 and 1994 in net interest
income arising from changes in interest rates and from asset and liability
volume, including mix. The change in interest attributable to both rate and
volume has been allocated to the changes in the rate and the volume on a pro
rated basis.
<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994
--------------------- ---------------------
Change due to Change due to
change in: change in:
--------------------- ---------------------
Increase Increase
(Decrease Rate Volume (Decrease) Rate Volume
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income change
Federal funds sold $ 128 $ 107 $ 21 $ 152 $ 68 $ 84
Investment securities 266 372 (106) 48 13 35
Loans 3,428 1,332 2,096 (860) (398) (462)
------ ------ ------ ----- ----- -----
Total interest income change 3,822 1,811 2,011 (660) (317) (343)
------ ------ ------ ----- ----- -----
Interest expense change
Regular savings deposit (116) 76 (192) 104 (249) 353
NOW account deposits (41) (44) 3 (260) (139) (121)
Money market deposits (28) (44) 16 (588) (145) (443)
------ ------ ------ ----- ----- -----
Total savings deposits (185) (12) (173) (744) (533) (211)
Time deposits 1,935 1,195 740 (240) (101) (139)
Borrowed funds 12 14 (2) (4) 8 (12)
------ ------ ------ ----- ----- -----
Total interest expense change 1,762 1,197 565 (988) (626) (362)
------ ------ ------ ----- ----- -----
Net interest income change $2,060 $ 614 $1,446 $ 328 $ 309 $ 19
------ ------ ------ ----- ----- -----
</TABLE>
Of the $2,060,000 increase in the net interest income in 1995, $612,000
resulted from changes in interest rates earned or paid during 1995 and the
remaining $1,448,000 is attributed to changes in volume of average assets and
liabilities.
<PAGE>
93
NONINTEREST INCOME
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
Noninterest income consists of service charges, commissions and fee income,
net gains on the sales of investments and loans, and other income. Total
noninterest income was $1,692,000 in 1995. This was an increase of $76,000 or
4.7% from $1,616,000 in 1994. This followed a decrease in 1994 noninterest
income of $499,000 or 23.6% from $2,115,000 in 1993. The increase in 1995
resulted from changes in several categories of noninterest income. Gains from
the sales of investments and loans increased $21,000 and $148,000, respectively.
The increase in gains from the sale of loans occurred as demand for fixed rate
mortgages rose in response to declining interest rates. This increased demand
lead to increased production and subsequent sales of these fixed rate loans.
Fixed rate mortgage loans are typically sold, with servicing retained by the
Company's subsidiaries, after origination. Service charges, commissions and fees
declined $124,000 and all other income increased $31,000. The $499,000 decrease
in 1994 included decreases of $177,000 and $143,000, respectively from sales of
investments and loans. Also included was a $93,000 decrease in service charges
and an $86,000 decrease in all other noninterest income.
The decrease in 1995 of $124,000 in service charges, commissions and fees
included a $14,000 increase in loan servicing fees and a $138,000 reduction in
deposit fees. The increase in servicing fees reflected growth in the volume of
serviced loans. Deposit fees declined in 1995 as depositors took advantage of
other product opportunities or maintained the minimum account balances necessary
to avoid service charges.
NONINTEREST EXPENSE
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
Total noninterest expense was $8,591,000 in 1995, an increase of $696,000
or 8.8% from $7,895,000 in 1994. In 1994, total noninterest expense decreased
$1,442,000 or 15.4% from $9,337,000 1993. The $696,000 increase in noninterest
expense in 1995 resulted primarily from the $548,000 increase in salaries and
employee benefits. This was partially offset by the reduction of $276,000 in
fees paid to the FDIC for deposit insurance. All other expenses increased
$424,000. Management maintains control over noninterest expenses by assigning
specific managers authority for expense-incurring activities providing these
<PAGE>
94
managers with tools for planning and monitoring the performance of their duties.
In working with senior officers line managers are better able to anticipate and
minimize the expense of the goods and services needed to perform efficiently.
The decrease of $1,442,000 in 1994 resulted in large measure from the
continuing reduction in non-performing assets which had plagued NECB throughout
the preceding several years. The largest reduction, $1,331,000, related to
losses, writedowns and expenses of ownership of other real estate. Banks acquire
such real estate through foreclosures and other actions resulting from borrowers
failing to meet the terms of loans secured by such properties. Outside services,
principally legal fees related to foreclosures preceding decreased $397,000, and
the cost of FDIC fees and other insurance decreased $137,000. All other expenses
increased $423,000 during 1994, including occupancy and equipment expense,
$92,000; marketing, $169,000; and, the resumption of the payment of fees to
Directors, $81,000.
NONPERFORMING ASSETS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Nonperforming assets include nonaccrual loans and assets classified as
OREO. Generally, loans are placed in nonaccrual status when they are past due
greater than ninety (90) days or the repayment of interest or principal is
considered to be in doubt.
OREO consists of properties acquired through foreclosure proceedings. These
properties are recorded at the lower of the carrying value of the related loans
or the estimated fair market value less estimated selling costs. Charges to the
allowance for loan losses are the measure by which properties are reduced to
fair market value less estimated selling expenses upon reclassification as OREO.
Subsequent reductions are charged to operating income.
NECB's subsidiaries make provisions on a quarterly basis for possible loan
losses as determined by a continuing assessment of the adequacy of the allowance
for possible loan losses. NECB's subsidiaries perform ongoing reviews of loans
in accordance with an individual loan rating system to determine the required
allowance for possible loan losses at any given date. The review of loans is
performed to estimate potential exposure to losses. In the review process, the
subsidiaries assess factors including the borrowers' past and current financial
condition, repayment ability and liquidity, the nature of collateral and changes
in its value, current and anticipated economic conditions and other factors
deemed appropriate. These reviews are dependent upon estimates, appraisals and
<PAGE>
95
judgments which can change quickly because of changing economic conditions and
Management's perception as to how these factors affect the financial condition
of debtors. The loan rating process classifies loans according to the
subsidiaries' uniform classification system. The subsidiaries consider
performing loans rated as "substandard" and "doubtful" to be potential problem
loans. "Substandard" loans are characterized by well-defined weaknesses such as
deteriorating or inadequate collateral or impaired repayment ability. A loan is
considered "doubtful" when similar conditions exist but are more severe in
nature.
At December 31, 1995, NECB considered loans totaling approximately
$14,067,000 (which considers, for the first time, EQBK's loan portfolio) to be
potential problems compared to $7,699,000 at December 31, 1994. Included in
these totals were loans totaling $9,342,000 and $4,724,000 respectively, which
were not classified as non-performing loans because such loans are performing
according to their terms.
NECB's subsidiaries loan review processes are designed to identify certain
potential problem loans at an early stage, alleviate weaknesses in each
respective institution lending policies, oversee the individual loan rating
system and ensure compliance with NEBT's and EQBK's underwriting, documentation,
compliance and administrative policies. Certain potential problem loans mean
loans considered by Management as being in need of special attention because of
some deficiency related to the credit or documentation, but which are still
considered collectable and performing. Such attention is intended to act as
preventative measures and thereby avoid more serious problems in the future.
Accrued interest income is generally reversed against interest income when
loans are classified as nonaccrual, unless Management deems that the value of
collateral is sufficient to recover both principal and accrued interest. Real
estate held for sale consists of properties acquired through mortgage loan
foreclosure proceedings. Real estate owned is carried at the lower of the
carrying value of the related loan or the estimated fair market value of the
property less estimated selling costs.
NECB's nonperforming assets at December 31, 1995 through 1991 are presented
below. Had the nonaccrual loans performed in accordance with their original
terms, gross interest income for the year ended 1995 would have increased by
approximately $120,000 compared to an increase of approximately $194,000 for the
year ended 1994. As reflected below, NECB has made significant progress since
<PAGE>
96
reaching a high of $12,672,000 at December 31, 1991.
<TABLE>
<CAPTION>
(amounts in thousands) at
December 31, 1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $4,725 $2,975 $3,176 $3,144 $7,606
Other real estate owned 728 573 1,048 5,761 5,066
-----------------------------------------------------
Total nonperforming assets $5,453 $3,548 $4,224 $8,905 $12,672
=====================================================
Loans past due in excess of ninety days and
accruing interest $273 $16 $193 $4 $483
</TABLE>
Total nonperforming assets increased by $1,905,000, or 53.7%, to $5,453,000
at December 31, 1995 from $3,548,000 at December 31, 1994. In 1994, total
nonperforming assets decreased $676,000 or 16% from $4,224,000 at December 31,
1993. Loans past due in excess of ninety days and accruing interest amounted to
$273,000, this compared to balances of $16,000 and $193,000, respectively, at
December 31, 1994 and 1993. The increase in total nonperforming assets in the
year ended December 31, 1995 resulted from the inclusion, for the first time, of
$2,896,000 in nonaccrual loans and $497,000 in OREO held by The Equity Bank
(acquired on November 30, 1995) and decreases of $1,146,000 in nonaccrual loans
and $342,000 in OREO held by NEBT.
Total nonperforming assets represented 2.5% of total loans and other real
estate owned at December 31, 1995, as compared to 2.7% and 3.6% respectively, at
December 31, 1994 and 1993. Improvement in this ratio is the result of
reductions in nonperforming assets and the increase in total loans. The
allowance for loan losses increased to 2.0% of total loans at December 31, 1995
from 1.9% at December 31, 1994, and 2.4% at December 31, 1993 respectively. The
coverage afforded to nonperforming assets and loans past due ninety days and
still accruing was 77.6% compared to 71.9% and 63.0% for December 31, 1994 and
1993, respectively. Real estate acquired through foreclosure was $1,007,000 in
1993, $743,000 in 1994, and $796,000 in 1995. The allowance for possible loan
losses was equal to 94.1% of nonaccrual loans at December 31, 1995, as compared
to 86.2% and 87.7%, respectively, at December 31, 1994 and 1993.
<PAGE>
97
<TABLE>
<CAPTION>
(amounts in thousand)
December 31, 1995 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $4,725 $2,975 $3,176
Other real estate owned 728 573 1,048
------ ------ ------
Total nonperforming assets 5,453 3,548 4,224
Loans past due in excess of ninitey days and accruing interest 273 16 193
Ratio of nonperforming assets to total loans and OREO 2.5% 2.7% 3.6%
Ratio of nonperforming assets and loans past due in excess
of ninety days and accruing interest to total loans OREO 2.6% 2.7% 3.8%
Ratio of allowance loan losses to total loans 2.0% 1.9% 2.4%
Ratio of allowance for loan losses to nonperforming assets
and loans in excess of ninety days past due and accruing interests 77.6% 71.9% 63.0%
Ratio of nonperforming assets and loans in excess of ninety days out
past due and accruing interest to total shareholders' equity 18.8% 19.3% 34.0%
</TABLE>
The following table summarizes the activity in the allowance for possible
loan losses for the years ended December 31, 1991 through 1995. The allowance is
maintained at a level consistent with identified loss potential and the
perceived risk in the portfolio. It is not considered meaningful to allocate the
allowance according to geographic area as NECB's market area is homogenous and
limited in size.
<TABLE>
<CAPTION>
(amounts in thousands)
December 31, 1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans charged-off:
Commercial and financial $ 154 $ 92 $ 216 $ 539 $ 828
Real estate 750 892 930 2,348 744
Installment loans to individuals 74 17 80 121 761
-------- ------ ------ ------ ------
978 1,001 1,226 3,008 2,333
-------- ------ ------ ------ ------
Recoveries on loans charged-off:
Commercial and financial 150 51 17 4 15
Real estate 27 163 22 54 0
Installment loans to individuals 22 37 10 26 15
-------- ------ ------ ------ ------
199 251 49 84 30
-------- ------ ------ ------ ------
Net loans charged-off 779 750 1,177 2,924 2,303
Provision charged to operations 700 530 764 2,679 3,400
Balance, at beginning of year 2,564 2,784 3,197 3,442 2,345
Changes incident to merger 1,961
--------
Balance, at end of year $ 4,446 $2,564 $2,784 $3,197 $3,442
======== ====== ====== ====== ======
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.54% 0.63% 0.94% 2.02% 1.67%
Ratio of allowance for loan losses to
total loans 2.00% 1.93% 2.41% 2.36% 2.34%
</TABLE>
<PAGE>
98
NECB's subsidiaries continually assess the adequacy of their allowances for
loan losses in response to changing economic conditions, specific problem loans,
and the overall risk profile of their loan portfolios. Management allocates
specific reserves to individual problem loans based upon Management's analysis
of the potential for loss perceived to exist related to such loans. In addition
to the specific reserves for individual loans, a portion of the allowance is
maintained as a general reserve. The amount of the general reserve is determined
through Management's analysis of the potential for loss inherent in those loans
not considered problem loans. Among the factors considered by Management in this
analysis are the number and type of loans, nature and amount of collateral
pledged to secure such loans, and current economic conditions.
During the years ended 1991 and 1992, NEBT made substantial provisions to
the allowance in response to the recognition of problem loans and the potential
for loss perceived to be inherent in the portfolio as a result of economic
conditions and declines in real estate values. Thereafter, in 1993 and 1994 the
reduction in provisions reflects the stabilization of the economy, the improved
performance of the loan portfolio and recoveries of previously charged-off
loans.
The following table reflects the Allowance for Loan Losses as of December
31, 1995 with allocations categorized by loan type:
(amounts in thousands) Percentage of loans in each
Allocation of category to total loans
Allowance for Loan
Loans by type Losses
- --------------------------------------------------------------------------------
Commercial & Financial $ 541 16.1%
Real Estate:
Construction 254 5.8
Residential 1,090 36.4
Commercial 2,388 38.3
Installment 154 2.5
Other 19 0.9
------ ------
Total $4,446 100.0%
====== ======
LIQUIDITY
Management's objective is to ensure continuous ability to meet cash needs
as they arise. Such needs may occur from time to time as a result of
fluctuations in loan demand and the level of total deposits. Accordingly, NECB's
subsidiaries have liquidity
<PAGE>
99
policies which provide flexibility to meet cash needs. The liquidity objective
is achieved through the maintenance of readily marketable investment securities
as well as a balanced flow of asset maturities, prudent pricing on loan and
deposit products and the sale of mortgage loans in the secondary market.
The policy also provides Management with the ability to acquire and hold
debt instruments known collectively as structured notes. Structured notes, which
can differ as to particular terms, are used by Management to reduce the
potential effect changes in interest rates can have upon the operating results
of the Company. From time to time, Management invests in various types of
structured notes (such as dual index notes and interest rate step-up notes) as
part of its overall management of the risk of changes to interest rates.
In 1993, NECB adopted Statement of Financial Accounting Standards No. 115
("Accounting for Certain Debt and Equity Securities"). The statement, issued by
the Financial Accounting Standards Board (FASB), set forth guidance for
accounting for certain investments in debt and equity securities. Adoption of
Statement No. 115 resulted in several changes to the information provided in the
financial statements of NECB. The first change resulted from the separation of
investment security assets into those held-to-maturity and those
available-for-sale. The second change resulted from the change to the carrying
value of the group held available-for-sale to reflect the current market values
of the assets held. The amount of this "mark-to-market" value is then added to
or deducted from the equity portion of NECB's balance sheet after appropriate
reduction to reflect the value of the related deferred taxes. At December 31,
1995, the amount added to NECB's shareholders' equity was $158,000, while
$843,000 was deducted from shareholders' equity a year earlier.
During the year end of 1995 and during 1994, it did not become necessary
for NECB to increase its borrowed funds to meet its liquidity needs. NECB has
alternative sources of liquidity available including federal funds purchased and
repurchase agreements. Purchases of federal funds and borrowing on repurchase
agreements may be utilized to meet short-term borrowing needs. During 1994 NEBT
joined the Federal Home Loan Bank of Boston (FHLBB) to further enhance its
liquidity position. The FHLBB provides its member banks with credit by accepting
as collateral the member bank's mortgage assets. Through its membership, NEBT
has available a line of credit for $3,500,000 and also has the ability to pledge
up to $60,000,000 of its assets to meet its credit needs. EQBK has available a
line of credit for $2,100,000 and also has the ability to pledge up to
<PAGE>
100
$25,000,000 of its assets to meet its credit needs. NECB believes that its
policies will enable it to maintain adequate liquidity and to prudently commit
funds to loans or investments, depending upon underlying risk, demand and rate
of return.
As shown in the Consolidated Statements of Cash Flows, NECB experienced a
decrease of $4,091,000 in the amount of cash and cash equivalents at December
31, 1995 compared to December 31, 1994. This compares to the significant
increase of $8,453,000 in 1994, compared to December 31 1993. The increase in
1994 was largely due to the $5,571,000 received in December as proceeds from the
issuance of 778,260 shares of NECB's stock coupled with an increase throughout
the year in demand deposit account balances. Demand deposit accounts represent a
volatile source of funds which is subject to significant inflows and outflows of
both seasonal and cyclical nature.
CAPITAL
At December 31, 1995, total shareholders' equity was $30,480,000, an
increase of $12,007,000 compared to $18,473,000 at December 31, 1994. In
November 1995, in acquiring The Equity Bank, 1,004,000 shares of common stock
were issued by NECB at a value of $9,507,000 representing the inclusion of the
adjusted net assets of EQBK. Also increasing capital in 1995 was the retention
of $1,499,000 in earned income and the $1,001,000 change in the unrealized
holding gain (loss) on securities available for sale. During 1994, shareholders'
equity increased $5,461,000 to $18,473,000 at December 31, 1994, from
$13,012,000 at December 31, 1993. In December 1994, NECB completed an offering
which raised $5,571,000 in new capital funds. The offering resulted in the
issuance of 778,000 new shares of common stock. Also adding to capital was net
income of $1,103,000.
The various capital ratios of EQBK, NEBT and NECB are as follows as of December
31, 1995:
Minimum Level EQBK NEBT NECB
- -------------------------------------------------------------------------
Leverage 4% 8.22% 7.34% 11.89%
Tier 1 Risk-Based 4% 10.13% 10.42% 12.25%
Total Risk-Based 8% 11.38% 11.67% 13.49%
INCOME TAXES
Income tax expense for 1995 was $985,000 which is an effective income tax
rate of 33.2%. This compares to income tax expense of $665,000 in 1994 and
$56,000 in 1993.
<PAGE>
101
In February 1992, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("Accounting for Income Taxes"). The
effect of adoption of Statement No. 109 in 1993 upon 1993 results is set forth
in Note 11 to the Consolidated Financial Statements for the years ended December
31, 1995, 1994 and 1993.
RECENT ACCOUNTING DEVELOPMENTS
The adoption of Financial Accounting Standard No. 115 in December 1993
requires that NECB classify debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This security
classification may be modified after acquisition only under certain specified
conditions. In general, securities may be classified as held-to-maturity only if
NECB has the positive intent and ability to hold them to maturity. Trading
securities are defined as those bought and held principally for the purpose of
selling them in the near term. All other securities must be classified as
available-for-sale.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114
("Accounting by Creditors for Impairment of a Loan"). The Statement requires
that impaired loans be measured on a loan by loan basis by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent.
The Statement is applicable to all creditors and to all loans, except large
groups of smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases, and convertible or nonconvertible debentures and bonds and
other debt securities. The Statement applies to financial statements for fiscal
years beginning after December 15, 1994. Management has determined that the
financial statement impact of adopting the provisions of this statement is not
material.
In October of 1994, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 119 ("Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments"). This
Statement requires disclosures about derivative financial instruments-futures,
forward, swap, and option contracts, and other financial instruments with
similar characteristics. It also amends existing requirements of FASB Statement
No. 105, "Disclosure of Information about Financial Instruments with
<PAGE>
102
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and FASB Statement No. 107, ("Disclosures about Fair Value of Financial
Instruments"). This Statement, which was effective for 1995, did not have a
material impact upon NECB's 1995 financial statements.
In May of 1995, the FASB issued Statement of Financial Accounting Standards
No. 122 ("Accounting for Mortgage Servicing Rights"). This Statement requires
that a mortgage banking enterprise recognize as a separate asset rights to
service mortgage loans for others, however those servicing rights are acquired.
A mortgage banking enterprise that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans or sells or securities
those loans with servicing rights retained should allocate the total cost of the
mortgage loans to the mortgage servicing rights and to the loans (without the
mortgage servicing rights) based on their fair values if practicable to estimate
those fair values. If it is not practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans (without the mortgage servicing
rights), the entire cost of purchasing and originating the loans should be
allocated to the mortgage loans (without the mortgage servicing rights) and no
cost should be allocated to the mortgage servicing rights. This Statement is
effective for fiscal years beginning after December 15, 1995 and is not expected
to have a material impact on NECB as it does not have significant loan servicing
operations.
In October of 1995, the FASB issued Statement of Financial Accounting
Standard No. 123 ("Accounting for Stock-based Compensation"). This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans, including arrangements by which employees receive
options to purchase shares of NECB's stock. This statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation for those plans using the method of accounting
in Accounting Principles Board (APB) Opinion No. 25. Entities selecting to
remain with the accounting in Opinion No. 25 complete must make pro forma
disclosures of net income and, if presented earnings per share, as if the fair
value based method of accounting in SFAS No. 123 had been applied. The
accounting and disclosure requirements of SFAS No. 123 are effective for NECB in
1996 for all awards in 1996 and thereafter. Management believes that the
financial statement impact of adoption the provisions of this statement will not
be material.
<PAGE>
103
IMPACT OF INFLATION
The Consolidated Financial Statements and related notes thereto presented
elsewhere herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative value of money over time due to inflation. Unlike many industrial
companies, most of the assets and virtually all of the liabilities of NECB are
monetary in nature. As a result, interest rates have a more significant impact
on NECB's performance than the general level of inflation. Over short periods of
time, interest rates may not necessarily move in the same direction or in the
same magnitude as inflation.
<PAGE>
104
MANAGEMENT OF NECB
DIRECTORS AND EXECUTIVE OFFICERS
OF NECB
The following table sets forth the name and age of each Director and
Executive Officer, his/her principal occupation for the last five years and the
year in which he/she was first elected as a Director or appointed an Executive
Officer of NECB, NEBT or EQBK.
Positions Director or
and Principal Executive Officer
Age Occupation (1) of NECB since:
--- -------------- --------------
Tadeus J. Buczkowski (69) Loss Control 1986
Director (Retired)
Hartford Insurance
Group
John C. Carmon (48) President, Carmon 1985
Funeral Homes, Inc.
John A. Coccomo, Sr. (69) Secretary of NECB; 1985
Manager John A.
Coccomo Associates, LLC
(Real Estate,
Construction and
Land Development)
George A. Colli, Jr. (67) Assistant Secretary 1986
of NECB;
President, Colli-
Wagner (Real Estate)
Gary J. DeNino (41) President of IMSCO, 1995
Inc.a domestic market
representative of
international products
since 1982
Frank A. Falvo (53) Executive Vice 1995
President of NECB
since December, 1995
and President and Chief
Executive Officer of
EQBK since
its formation
<PAGE>
105
Positions Director or
and Principal Executive Officer
Age Occupation (1) of NECB since:
--- -------------- --------------
Dominic J. Ferraina (63) Chairman of the 1986
Boards of NECB and
NEBT; Attorney
Donat A. Fournier (47) Vice President, 1993
Senior Lending
Officer of NECB;
Executive Vice
President of NEBT(2)
Charles D. Gersten (72) Attorney and founding 1995
partner of Gersten &
Clifford
John R. Harvey (48) Certified Public 1995
Accountant and
Partner in Harvey
& Horowitz, P.C.
Anson C. Hall (58) Vice President, 1993
Chief Financial
Officer and
Treasurer of NECB and
Senior Vice President
of NEBT(3)
David A. Lentini (49) President and 1993
Chief Executive
Officer of NECB
and NEBT(4)
Angelina J. McGillivray (45) President, 1993
Coccomo Associates
Realtors, Inc.
Edward J. Szewczyk (66) President, 1985
Southwood
Pharmacy, Inc.
1. All the Directors and Executive Officers have been engaged in their
respective occupations for more than five years unless otherwise
indicated.
2. In June, 1993, the Board of Directors appointed Mr. Donat A. Fournier to
serve as Executive Vice President and Chief Lending Officer of NEBT. NEBT
entered into an employment agreement with Mr. Fournier in August of 1994,
for a period of two years. Prior to his appointment by the Board of
Directors, Mr. Fournier served as Chief Operations Officer, Senior
Executive Vice President and Corporate Secretary of Eastland Financial
<PAGE>
106
Corporation in Woonsocket, Rhode Island. Mr. Fournier does not serve as a
director of NECB.
3. In June, 1993, the Board of Directors appointed Mr. Anson C. Hall to
serve as Treasurer of NECB and as Senior Vice President and Chief
Financial Officer of NEBT. NEBT entered into an employment agreement with
Mr. Hall in August of 1994, for a period of two years. Between August
1992 and June 1993, Mr. Hall owned and operated a business, Bestway
Management, a management consulting firm serving small banks and
businesses. Prior to that time, Mr. Hall served as Senior Vice President,
Treasurer and Controller of Fleet Bank, N.A., Hartford, Connecticut until
1992. Mr. Hall does not serve as a director of NECB.
4. Mr. Lentini was appointed to serve as President and Chief Executive
Officer of NEBT and NECB in May, 1993. NEBT entered into an employment
agreement with Mr. Lentini in August of 1994, for a term of two years.
Prior to joining NEBT and NECB, Mr. Lentini served as President and Chief
Executive Officer of the Connecticut Bank of Commerce, Woodbridge,
Connecticut from September, 1992 through May, 1993. Mr. Lentini was
employed by the Bank of South Windsor as President and Chief Executive
Officer from December, 1987 until September, 1992.
<PAGE>
107
EXECUTIVE COMPENSATION
The following table provides certain information regarding the compensation
paid to the Executive Officers (the "Executive Officers") of NECB for services
rendered in capacities to NECB and NEBT during the fiscal years ended December
31, 1995, 1994 and 1993. All compensation, was paid by NEBT. No other current
executive officer of NECB received cash compensation in excess of $100,000.
<TABLE>
<CAPTION>
--------------------------
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------------------------
Restricted
Other Annual Stock Options/
Name and Principal Compensation Award(s) SARs LTIP All Other
Position Year Salary($) Bonus($) ($) ($) (#) PAYOUTS($) Compensation($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David A. Lentini 1995 $140,000(1) $13,500 15,000 $22,837(2)
President, Chief 1994 135,000(1) 20,000 17,647(4)
Executive Officer 1993 83,082(3) 6,055(5)
of NECB;
President, Chief
Executive Officer
of NEBT
Donat A. Fournier 1995 $ 95,000(6) $10,500 10,000 $17,138(7)
Vice President, 1994 93,484(6) 14,000 8,062
Senior Lending 1993 58,876(8) 357
Officer of NECB;
Executive Vice President
of NEBT
Frank A. Falvo 1995 $125,000(9) $12,325
Executive Vice
President of
NECB; President
and Chief Executive
Officer of EQBK
Barry R. Loucks 1993 $209,990(10) $12,085(11)
Former Chairman,
President, Chief
Executive Officer
of NECB;
Former Chairman
and Chief Executive
Officer of
NEBT
Raymond G. Halsted 1993 $105,721(12) $12,603(13)
Former Senior Vice
President of
NECB; Former
President of
NEBT
</TABLE>
1. NEBT entered into an employment agreement with Mr. Lentini in August of
1994 for a term of two (2) years with automatic renewal provisions. See
"Employment Agreements."
2. NEBT provides Mr. Lentini with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit
amounted to $2,116 in 1995. Pursuant to his Employment Agreement, NEBT
paid $6,100 which is the dollar value of disability insurance premiums
paid for the benefit of Mr. Lentini. Additionally, NEBT contributed
$9,000 to NEBT's Defined Contribution Pension Plan for the benefit of
Mr. Lentini.
3. Mr. Lentini joined NEBT in May, 1993.
4. NEBT provided Mr. Lentini with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit
amounted to $2,116 in 1994. Pursuant to his employment agreement, NEBT
paid $5,959 which is the dollar value of disability insurance premiums
paid for the benefit of Mr. Lentini. NEBT paid $870 which is the dollar
<PAGE>
108
value of group life insurance and $423 which is the dollar value of
insurance premiums paid by NEBT with respect to term life insurance for
the benefit of Mr. Lentini. Additionally, NEBT contributed $8,279 to
NEBT's Defined Contribution Pension Plan for the benefit of Mr. Lentini.
5. NEBT provided Mr. Lentini with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit
amounted to $1,261 in 1993. Pursuant to his Employment Agreement, NEBT
paid $4,362 to Mr. Lentini which represented the amount which NEBT would
have contributed to its Defined Contribution Pension Plan if he was
eligible to participate therein. Additionally, the aggregate amount set
forth in the above table includes $432, which is the dollar value of
insurance premiums paid by NEBT with respect to term life insurance for
the benefit of Mr. Lentini.
6. NEBT entered into an Employment Agreement with Mr. Fournier in August of
1994 for a term of two (2) years with automatic renewal provisions. See
"Employment Agreements."
7. NEBT provides Mr. Fournier with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit
amounted to $5,987 in 1995. Additionally, NEBT contributed $6,728 to
NEBT's Defined Contribution Pension Plan for the benefit of Mr.
Fournier.
8. Mr. Fournier joined NEBT in May, 1993.
9. EQBK entered into an employment agreement with Mr. Falvo for a term of
two (2) years. See "Employment Agreements."
10. In March 1993, Mr. Loucks resigned from his senior management positions
with NECB and NEBT. He entered into a severance agreement. Under the
agreement with Mr. Loucks, Mr. Loucks received a severance payment of
$139,000 which sum approximated his 1992 compensation. Mr. Loucks
received health, life and disability benefits under NEBT's benefit plans
for one year following his resignation.
11. Pursuant to the Severance Agreement between Mr. Loucks, respectively,
Mr. Loucks received the automobile which he utilized while employed by
NECB and NEBT. The total dollar value of this benefit was $11,338.
Additionally, the aggregate amount set forth in the above table includes
$747, which is the dollar value of insurance premiums paid by NEBT with
respect to term life insurance for the benefit of Mr. Loucks.
12. In March 1993, Mr. Halsted resigned from his senior management position
with NECB and NEBT. He entered into a severance agreement. Under the
agreement, Mr. Halsted received a severance payment of $66,000. Mr.
Halsted received health, life and disability benefits under NEBT's
benefit plans for 32 weeks following his resignation.
13. Pursuant to the Severance Agreement, Mr. Halsted received the automobile
which he utilized while employed by NECB and NEBT. The total dollar
value of the benefit was $11,933. The aggregate amount set forth in the
above table includes $670, the dollar value of insurance premiums paid
by NEBT with respect to term life insurance for the benefit of Mr.
Halsted.
<PAGE>
109
PENSION PLAN
A defined contribution pension plan covering all eligible employees of
NECB's subsidiary, NEBT, calls for an annual contribution of 6% of an employee's
annual compensation. Full-time employees of NEBT who are 21 years of age and
have completed six months of continuous service are eligible to participate in
the defined contribution pension plan. Employee's interest in the contributions
under the defined contribution pension plan vest on a schedule of three to seven
years with three years being 20% vested and seven years being 100% vested. The
total contributions made during 1995 amounted to $227,000
Effective January 1, 1991, EQBK adopted a 401 K plan (the "Plan") for
employees of EQBK. The Plan is intended to comply with the requirements of
Section 401(k) of the Internal Revenue Code and in all material respects with
the Employee Retirement Income Securities Act of 1974 (ERISA).
Employees become eligible to participate in the Plan after one year of
employment. Employees may elect to contribute up to 20% of their monthly
earnings to the Plan. EQBK will contribute to each employee's account 50% of the
amount of the employee's elective contribution up to a maximum of 6% of such
employee's earnings. EQBK has the option at the end of the Plan year (December
31) to make additional contributions to each employee's account of up to a
maximum of the amount of the employee's aggregate elective contribution. The
total contributions made during 1995 amounted to $20,900.
Participating employees become fully vested in EQBK's matching contribution
after completing six years of service. All contributions by employees are fully
vested when made. All amounts contributed are invested in a Flexible Investment
Annuity contract with Principal Mutual Life Insurance Company.
INSURANCE
In addition to the cash compensation paid to the Executive Officers of
NECB, NEBT and EQBK the Executive Officers receive group life, health,
hospitalization and medical reimbursement insurance coverage. However, these
plans do not discriminate in scope, terms, or operation, in favor of officers or
Directors of NECB, NEBT and EQBK and are available generally to all full-time
employees.
<PAGE>
110
OPTION/SAR GRANTS IN LAST FISCAL YEAR
With the exception of the individuals set forth in the table below, no
other executive officer of NECB was granted options to purchase shares of common
stock in 1995. All shares purchased upon the exercise of any option must be paid
in full at the time of purchase.
<TABLE>
<CAPTION>
Individual Grants
Number of Percent of
Securities Total Options/ Fair Market
Underlying SARs Granted Exercise of Value on
Option/SARs to Employees Base Price date of Date of Date of Expiration
Name1 Granted (#) In Fiscal Year (S/Sh) Grant Grant2 Exercise Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David Lentini 15,000 50% $7.75 $ 7.50 1/24/95 1/24/96 1/24/98
President and
Chief Executive
Officer, NECB
and NEBT
Donat A. Fournier 10,000 33.3% $7.75 $ 7.50 1/24/95 1/24/96 1/24/98
Executive Vice
President, Chief
Lending Officer,
NEBT
Anson C. Hall 5,000 16.6% $7.75 $ 7.50 1/24/95 1/24/96 1/24/98
Senior Vice
President and Chief
Financial Officer
of NEBT and
Treasurer of NECB
Executive Group 100%
</TABLE>
- ----------
1. Table does not include references to grant of stock options by the Board
of Directors to Messrs. Lentini, Fournier, Hall, Falvo and Veilleux
because such options were granted January 31, 1996 subject to
shareholder approval of the 1996 Incentive Non-Qualified Compensatory
Stock Option Plan at the May 21, 1996 Annual Meeting of Shareholders of
NECB. At that meeting, shareholders will vote on a proposal to approve
the Board's grant of options to purchase 40,000 shares of NECB Common
Stock to David A. Lentini, 30,000 shares of NECB Common Stock to Donat
A. Fournier, 30,000 shares of NECB Common Stock to Anson C. Hall, 30,000
shares of NECB Common Stock to Frank A. Falvo and 10,000 shares of NECB
Common Stock to Leo Veilleux. The stock options are exercisable in five
(5) equal annual installments commencing in 1997, at the price of $10.25
per share.
2. The grant of options by the Board of Directors was subject to and
received shareholder approval.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The table below sets forth information regarding stock options that were
exercised, if any, during the last fiscal year, and unexercised stock options
held by Executive Officers of NECB and NEBT:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Shares Acquired Value Realized Options/SARs Options/SARS
Name on Exercise(#) ($) at FY-end(#) at FY-end($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David A. Lentini -0- -0- 20,000(1) $105,000
-0- -0- 15,000(2) 37,500
Donat A. Fournier -0- -0- 14,000(1) $ 73,500
-0- -0- 10,000(2) 25,000
Anson C. Hall -0- -0- 5,000(2) $ 12,500
</TABLE>
- ----------
1. As of December 31, 1995, the market value of the NECB Common Stock was
approximately $10.25 per share. As the option exercise price for the
options previously granted to Messrs. Lentini and Fournier in 1993,
equals $5.00 which amount is less than $10.25 per share at December 31,
1995, the options were "In-the-Money" on December 31, 1995. Options are
"In-the-Money" if the fair market value of the underlying securities
exceeds the exercise price of the Option.
2. The option exercise price for the options granted to Messrs. Lentini,
Fournier and Hall in 1995 equals $7.75, which amount is less than $10.25
per share at December 31, 1995. Accordingly, the options were "In-the
Money" on December 31, 1995.
<PAGE>
111
DIRECTORS' FEES
During 1995, Directors received $100 for each NECB Board Meeting attended
and $75 for each NECB Committee meeting attended. Officers who are also
Directors received no additional compensation for their services as Directors.
EMPLOYMENT AGREEMENTS
NEBT entered into employment agreements with Messrs. Lentini, Fournier and
Hall in August, 1994. A description of the terms and conditions of the
employment agreements with those executive officers whose cash compensation
exceeds $100,000 are set forth below:
Mr. David A. Lentini's Employment Agreement provides for his employment as
President and Chief Executive Officer until July 30, 1997, unless the employment
agreement is extended by mutual agreement. In connection with his employment,
NEBT paid to Mr. Lentini an annual salary of $140,000 per year through December
31, 1995. Additionally, NEBT provides Mr. Lentini with the use of an automobile.
Pursuant to the employment agreement, Mr. Lentini is able to participate in
NEBT's standard health, accidental death. Additionally, NEBT has provided Mr.
Lentini with life insurance coverage on his life in an amount which is no less
than four times his annual base salary.
The employment agreement also provides that the Board of Directors of NEBT
may pay an incentive bonus to Mr. Lentini at their own option, and the amount of
such bonus is discretionary and will be determined by the Board of Directors.
The Board of Directors has indicated that it will consider noteworthy
contributions to the success of NECB and success in achieving or exceeding net
income objectives which the Board may from time to time establish or which may
be set forth in financial plans adopted by the Board of Directors.
Mr. Donat A. Fournier's Agreement provides for his employment by NEBT as
its Executive Vice President and Chief Lending Officer until July 30, 1997,
unless the employment agreement is extended by mutual agreement. In connection
<PAGE>
112
with his employment, NEBT paid to Mr. Fournier an annual salary of $95,000 per
year through December 31, 1995. Additionally, NEBT has agreed to supply Mr.
Fournier with the use of an automobile.
Pursuant to the employment agreement, Mr. Fournier is able to participate
in NEBT's standard health, accidental death.
The employment agreement also provides that the Board of Directors of NEBT
may pay an incentive bonus to Mr. Fournier at their own option, and the amount
of such bonus is discretionary and will be determined by the Board of Directors.
The Board of Directors has indicated that it will consider noteworthy
contributions to the success of NECB and success in achieving or exceeding net
income objectives which the Board may from time to time establish or which may
be set forth in financial plans adopted by the Board of Directors.
On September 1, 1989, Frank A. Falvo, President and Chief Executive Officer
of EQBK, signed an employment agreement approved by the Board of Directors which
became effective on March 15, 1990.
The employment agreement was written for a two (2) year term and
automatically renews each year unless written notice is given by either party.
If notice is given, then the agreement will terminate one (1) year later on the
anniversary of the commencement date next following the commencement date
anniversary with respect to which such notice was given. If Mr. Falvo dies
during the employment period, his estate receives all arrearage of salary and
expenses, six months' salary, and a pro rata share of any other accrued
benefits. If Mr. Falvo is terminated for cause, as defined in the employment
agreement, he will receive only his salary and other amounts which have been
earned but are unpaid on the date of termination.
<PAGE>
113
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table includes certain information as of March 15, 1996
regarding the principal shareholders ("Principal Shareholders") of NECB. With
the exception of the Principal Shareholders listed below, NECB is not aware of
any beneficial owner of five percent (5%) or more of NECB's Common Stock.
Name and Amount of
Address of Shares Beneficially Percentage
Beneficial Owners Owned (1) of Class
- ----------------- --------- --------
John A. Coccomo, Sr. 184,082 (2) 6.0%
130 West Street
Windsor, CT 06095
John Hancock Advisers, 165,000 (3) 5.3%
Inc.
101 Huntington Avenue
Boston, MA 02119
Angelina J. McGillivray 173,102 (4) 5.6%
195 Ethan Drive
Windsor, CT 06095
1. Percentages are based upon the 3,084,309 shares of NECB Common Stock
outstanding on March 15, 1996. The definition of a beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or
shares voting power or investment power with respect to such security.
2. Includes 42,012 shares (1.36%) owned by the John A. Coccomo, Sr.,
Foundation for the Blind, Inc., a charitable trust of which Mr. Coccomo
is a trustee, ownership of which shares has been disclaimed by Mr.
Coccomo.
3. Based on filings made pursuant to the Securities Exchange Act of 1934,
which indicate that John Hancock Advisers, Inc. has direct beneficial
ownership of 165,000 shares of Common Stock. Through their
parent-subsidiary relationship to John Hancock Advisers, Inc., John
Hancock Mutual Life Insurance Company, John Hancock Subsidiaries, Inc.
and the Berkeley Financial Group have indirect ownership of the same
shares. The shares are held by the John Hancock Bank & Thrift
Opportunity Fund, a closed-end diversified management company registered
under ss.8 of the Investment Company Act. John Hancock Advisers has the
sole power to vote or to direct the vote and sole power to dispose or to
direct the disposition of the 165,000 shares of the Common Stock under
an advisory agreement with the John Hancock Bank & Thrift Opportunity
Fund, dated July 24, 1994.
4. Includes 42,012 shares (1.36%) owned by the John A. Coccomo, Sr.,
Foundation for the Blind, Inc., a charitable trust of which Mrs.
McGillivray is a trustee, ownership of which shares has been disclaimed
by Mrs. McGillivray.
<PAGE>
114
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table includes certain information as of March 15, 1996
regarding the Directors and Executive Officers of NECB.
Shares of Common Stock
Beneficially Owned as
of March 15, 1996 (1)
----------------------
Name
- ----
Tadeus J. Buczkowski............................. 17,788 (0.6%) (2)
John C. Carmon................................... 18,240 (0.6%) (2)
John A. Coccomo, Sr.............................. 184,082 (6.0%) (3)(8)
George A. Colli, Jr.............................. 58,025 (1.9%) (4)
Gary J. DeNino................................... 38,712 (1.3%) (2)
Frank Falvo...................................... 13,034 (0.4%)
Dominic J. Ferraina.............................. 17,500 (0.6%) (2)(5)
Donat A. Fournier................................ 28,656 (0.9%) (5)(6)
Charles D. Gersten............................... 100,525 (3.3%) (2)
Anson C. Hall.................................... 6,486 (0.2%) (2)(9)
John R. Harvey................................... 13,786 (0.4%) (2)
David A. Lentini................................. 43,100 (1.4%) (2)(5)(7)
Angelina J. McGillivray.......................... 173,102 (5.6%) (8)
Edward J. Szewczyk............................... 12,242 (0.4%) (2)
-------
All Directors and Executive Officers
as a Group (14 persons) ....................... 688,549 (22.3%) (10)
=======
- ----------
1. Percentages are based upon the 3,084,309 shares of NECB Common Stock
outstanding on March 15, 1996. The definition of beneficial owner
includes any person who, directly or indirectly, through any contract or
agreement, understanding, relationship or otherwise has or shares voting
power or investment power with respect to such security.
2. Includes shares owned by, or as to which voting power is shared with,
spouse, children or controlled business.
3. Includes 42,012 shares of NECB Common Stock (1.36%) owned by the John A.
Coccomo, Sr., Foundation for the Blind, Inc., a charitable trust of
which Mr. Coccomo is a Trustee, ownership of which shares has been
disclaimed by Mr. Coccomo.
4. Does not include 35,280 shares of NECB Common Stock (1.14%) owned by Mr.
Colli's family members, ownership of which shares Mr. Colli has
disclaimed.
5. Includes 2,500 shares of NECB Common Stock (0.8%) in the NEBT defined
contribution pension plan over which Messrs. Lentini, Ferraina and
Fournier share voting power as Trustees. Such shares have been included
in the beneficial ownerships of each respective director, and in the
total beneficial ownership of Directors and Executive Officers as a
group.
6. Includes options to purchase 14,000 shares of NECB Common Stock at $5.00
per share and options to purchase 10,000 shares of NECB Common Stock at
$7.75 per share exercisable within 60 days.
7. Includes options to purchase 20,000 shares of NECB Common Stock at $5.00
per share and options to purchase 15,000 shares of NECB Common Stock at
$7.75 per share exercisable within 60 days.
8. Includes 42,012 shares of NECB Common Stock (1.36%) owned by the John A.
Coccomo, Sr., Foundation for the Blind, Inc., a charitable trust of
which Mrs. McGillivray is a Trustee, ownership of which shares has been
disclaimed by Mrs. McGillivray. Such shares have been included in total
beneficial ownership of Directors and Executive Officers as a group and
in the beneficial ownership of Director Coccomo, who also disclaims such
beneficial ownership.
9. Includes options to purchase 5,000 shares of NECB Common Stock at $7.75
per share exercisable within 60 days.
10. Includes all outstanding shares of NECB Common Stock and options owned
or controlled by Directors as of the Record Date. The shares owned by
the John A. Coccomo, Sr. Foundation for the Blind, Inc. and by the NEBT
defined contribution pension plan have been counted only once in
determining the total shares beneficially owned by all Directors of NECB
as a group.
CERTAIN RELATIONSHIPS AND RELATED MATTERS OF NECB
Some of the directors and executive officers of NECB, NEBT and EQBK and
companies or organizations with which they are associated, have had, and may
have in the future, banking transactions with NEBT and EQBK in the ordinary
course of NEBT's and EQBK's business. All such loans are currently performing in
accordance with their terms. Total loans to directors and executive officers of
NECB, NEBT and EQBK and associates of such executive officers and directors
outstanding during the past three years were as follows:
<PAGE>
115
DATE TOTAL INDEBTEDNESS OUTSTANDING
---- ------------------------------
December 31, 1995 $6,971,000
December 31, 1994 $3,337,000
December 31, 1993 $2,465,000
Federal banking laws and regulations limit the aggregate amount of
indebtedness which banks may extend to bank insiders. Pursuant to such laws and
regulations, NEBT and EQBK may extend credit to executive officers, Directors,
principal shareholders or any related interest of such persons, if the extension
of credit to such persons is in an amount that, when aggregated with the amount
of all outstanding extensions of credit to such individuals, does not exceed
NEBT's and EQBK's unimpaired capital and unimpaired surplus. As of December 31,
1995, 1994 and 1993 the aggregate amount of extensions of credit to insiders was
well below this limit.
NEBT and EQBK have had, and expect to have in the future, banking
transactions in the ordinary course of its business with Directors, executive
officers, principal shareholders and their associates, on the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others and, on terms that do not
involve more than the normal risk of collectibility or present other unfavorable
features.
During 1995, NEBT paid fees of $23,400 for certain legal services to
Dominic J. Ferraina, Chairman of the Boards of NECB and NEBT.
Charles D. Gersten, Trustee, a director of NECB and EQBK, is the lessor of
the property leased by EQBK at 1160 Silas Deane Highway, Wethersfield,
Connecticut. EQBK's lease, which commenced in 1989, provides that space in the
building will be leased for ten years with three five-year renewal options.
Beginning in 1994, until the end of the term of the lease, the rent is subject
to an annual increase equal to one-half of the prevailing cost of living rate
adjustment. Rent expense under this lease amounted to $183,600 during 1995. EQBK
considers the lease to have been written on terms comparable to the general
market at the time the lease was entered into and to have terms and conditions
as would have been negotiated with an outside party.
<PAGE>
116
INFORMATION REGARDING MSB
GENERAL
Manchester State Bank ("MSB") is a state chartered, FDIC insured bank
serving the town of Manchester, Connecticut and surrounding communities. MSB was
founded in 1970 and has grown to an asset size of $94 million at December 31,
1995.
THE BANKING INDUSTRY
Commercial banks are financial institutions which historically have
accepted deposits from the general public and have loaned these funds primarily
to businesses and individuals. In small banks, the commercial loans are normally
made to small businesses. Many of these loans are collateralized. Banks also
invest their funds in various short and long-term securities.
The deposits in MSB are insured by the FDIC in accordance with the Federal
Deposit Insurance Act. It is subject to regulation by various federal agencies,
as well as to state regulatory authorities. These regulations govern its lending
and investment powers, the types of accounts it is permitted to provide, the
terms of mortgage instruments originated and held by it, and other matters. MSB
is also a member of the Federal Home Loan Bank of Boston.
Commercial banks must compete for funds with other types of financial
institutions, including thrift institutions and credit unions, and with money
market mutual funds and various types of U.S. Treasury and corporate obligations
and other investments. These institutions are often not subject to the same
regulatory limitations or may offer services which commercial banks are not
currently authorized to offer.
MSB'S MARKET AREA
The primary market area of MSB consists of the towns of Manchester, Bolton,
Vernon, Andover, Coventry, Hebron and Tolland. Additionally, MSB's market area
also consists of certain delineated sections of Glastonbury, East Hartford and
South Windsor.
COMPETITION
The banking business in Connecticut generally is highly competitive and is
largely dominated by a relatively small number of major banks and financial
institutions, each of which operates many offices over a wide geographic area.
Many of these large financial institutions are located in and around MSB's
<PAGE>
117
market area. Larger institutions have the capacity to offer certain services
which may not be profitably offered by MSB and to spread costs and centralize
services to an extent not available to smaller institutions such as MSB. Also,
the larger institutions, by virtue of their greater capitalization, have
substantially higher lending limits than MSB.
Intense market demands, regulatory changes, increased competition from
non-banks, and general economic pressures have forced financial service
institutions to diversify their services and become more cost effective.
Commercial banks in particular have had to contend with a number of new
competitors, including thrift institutions with broader powers, entry by
"non-banks" into the market, increased reorganization activity, a greater number
of failures among banking institutions, and heightened customer awareness of
product and service differences among competitors.
In addition, and perhaps in response to the recent market changes,
significant changes have occurred in federal and state statutes and regulations,
including regulations reducing restrictions on interstate banking. The business
of banks also may be further affected by new legislation and by governmental and
regulatory actions and policies. Such actions and policies may, among other
things, impose maximum interest rates on various categories of deposits and
limit or influence interest rates or loans. Monetary and fiscal policies of the
United States Government and its instrumentalities, including the Board of
Governors of the Federal Reserve System, significantly influence the growth of
loans, investments and deposits. The present bank regulatory scheme is
undergoing significant change both as it affects the banking industry itself and
as it affects competition between banks and non-bank financial institutions.
Banks are now actively competing with non-bank financial institutions such as
mortgage brokers and insurance companies.
LENDING ACTIVITIES
At December 31, 1995, MSB's loan portfolio of $71,501,244 represented
approximately 75% of total assets and 82% of total deposits. Approximately 90%
of its loan portfolio consisted of loans collateralized by real estate, 9% of
its portfolio consisted of commercial loans and the remaining 1% of its loan
portfolio consisted of consumer installment, auto and other loans.
MSB's lending activities are heavily influenced by economic trends
affecting the availability of funds, the demand for loans, and general interest
rate levels. In originating loans, MSB must compete with other commercial banks,
savings and loan associations, savings banks, mortgage companies and other
<PAGE>
118
financial institutions, many of which have substantially greater resources than
MSB. The condition of the construction industry and the demand for housing
affects MSB's residential lending volume, and commercial activity affects MSB's
commercial lending volume.
MSB is well positioned in terms of capital and liquidity and looks forward
to extending credit opportunities to qualified borrowers as it perceives the
economy getting stronger and the demand for loans increasing.
LOAN PORTFOLIO
The following table sets forth selected data relating to the composition of
MSB's loan portfolio by type of loan as of December 31, 1991 through 1995.
<TABLE>
<CAPTION>
---------------------------------------------------
(Dollar Amounts in Thousands)
December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial loans collateralized
by real estate $30,115 $31,057 $34,413 $34,319 $34,840
Commercial loans 6,169 5,842 6,391 8,484 8,613
Residential real estate mortgage
loans 32,714 35,164 39,419 46,448 47,154
Real estate construction loans 1,587 1,520 2,316 3,435 3,237
Installment loans to individuals 916 804 1,002 2,420 7,054
------- ------- ------- ------- --------
Total Net Loans $71,501 $74,387 $83,541 $95,106 $100,898
======= ======= ======= ======= ========
</TABLE>
INTEREST RATES
Interest rates charged by MSB on its loans are primarily determined by
competitive loan rates in its market area, the availability of funds, the cost
of funds, and the demand for loans. The average yield on earning assets in 1995
was 8.21% as compared to 7.22% in 1994.
NON-PERFORMING LOANS
During 1995, MSB's net charged off loans were $500,060 or 0.69% of average
loans outstanding, as compared to $1,522,962, or 1.97% of average loans
outstanding during 1994.
<PAGE>
119
Loans classified as nonperforming (defined as those loans upon which
management does not anticipate collecting principal and interest in the normal
course of business or loans that are ninety days or more past due) aggregated
$1,864,800 at December 31, 1995. Nonperforming loans at December 31, 1994
amounted to $4,039,575.
SECURITIES ACTIVITIES
MSB has authority to make a wide range of investments deemed prudent by its
Board of Directors. Subject to various restrictions, it may own obligations of
the United States and any state, certain obligations of municipalities in
Connecticut, commercial paper, corporate bonds.
MSB's securities portfolio had an amortized cost of $3,559,284 and is
carried at a market value of $3,562,123 at December 31, 1995. Additionally, MSB
had $14,275,000 in Federal funds sold at December 31, 1995. At December 31,
1995, no securities were classified as available for sale.
DEPOSITS
It is MSB's policy to offer a variety of deposit accounts and rates within
bank regulatory constraints to meet its cash flow requirements. MSB's deposit
accounts include checking accounts, NOW and money market deposit accounts, and
certificates of deposit. MSB also offers tax deferred retirement savings
accounts and "jumbo" certificates of $100,000 or more. At December 31, 1995 MSB
had $6,445,200 in "jumbo" certificates.
The following table shows, by maturity, the dollar amount of "jumbo"
certificates outstanding at December 31, 1995:
(Dollar Amount in Thousands)
MATURITY AMOUNT
CDs greater than or equal to $100,000 maturing within:
Three months or less $4,676,509
Four through six months 723,401
Seven through twelve months 500,000
Beyond twelve months 545,290
----------
Total $6,445,200
==========
MSB's policy is not to accept brokered deposits. MSB offers all types of
certificates of deposit authorized by regulations.
<PAGE>
120
The following table summarizes the average amount and the average rate paid
in the listed deposit categories for the years ended December 31:
<TABLE>
<CAPTION>
-------------------------------------------------------------
(Dollar
Amounts in
Thousands)
-------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $16,179 $16,850 $ 14,845
NOW/Money Market 22,113 2.25% 24,341 2.25% 29,979 2.50%
Savings 12,871 2.25% 15,093 2.25% 16,692 2.50%
Time 35,679 5.39% 32,496 4.43% 39,248 4.36%
------- ------- --------
$86,842 $88,780 $100,764
======= ======= ========
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table summarizes various operating ratios of MSB for the
years ended December 31, 1995, 1994 and 1993.
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
------------------------------
Return on average total assets
(net income divided by average total 0.36% 0.21% 0.01%
assets)
Return on average shareholders' equity
(net income divided by average
shareholders' equity) 4.99% 4.65% 5.03%
Equity to assets (average shareholders'
equity as a percent of average total
assets)
6.91% 6.12% 6.18%
Dividend Payout Ratio 0.77% 0.00% 0.00%
PROPERTIES
MSB owns a premises known as 1041 Main Street, Manchester, Connecticut,
which MSB purchased in 1984, a portion of its parking lot, which MSB purchased
in 1977, the premises known as 23-25 Eldridge Street, Manchester, Connecticut,
which MSB purchased in 1983 and the premises known as 17 1/2 - 19 1/2 Eldridge
Street, Manchester, Connecticut, which was purchased in 1989.
<PAGE>
121
In addition, MSB has one branch located at 185 Spencer Street, Manchester,
Connecticut which MSB leases. The original lease was for Twenty (20) years and
has a period of Ten (10) years remaining, followed by two additional options of
five (5) years each. The present rental is Three Thousand Two Hundred Twenty
Eight and 02/100ths ($3,228.02) Dollars per month.
In 1987, MSB opened its second branch located at 1046 Tolland Turnpike,
Manchester, Connecticut, which MSB leases. The branch is located in a shopping
plaza on Tolland Turnpike. The original lease is for ten (10) years and has a
period of two (2) years remaining, with one five (5) year option. The present
rental is Four Thousand Four Hundred Sixty Two and 00/100ths ($4,462.00) Dollars
per month.
OTHER REAL ESTATE OWNED
At December 31, 1995, MSB owned 7 parcels of real estate which were
obtained through foreclosure proceedings. The carrying value of these properties
is $778,803 which represents the lower of cost or net realizable value of the
properties.
LEGAL PROCEEDINGS
There are no material legal proceedings, other than ordinary routine
litigation incidental to the business, to which MSB is a party or of which any
of its property is the subject.
MARKET FOR MSB'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
There is a limited trading market for the common stock of MSB. The stock is
not presently listed on the NASDAQ automated quotation system. The stock is
traded in the over-the-counter market. As of March 15, 1996, there were
approximately 800 holders of record of the common stock.
The following table, derived from information supplied from First Albany
Corporation, sets forth the quarterly high and low bid prices for MSB's common
stock. These quotations represent prices between dealers (without retail
markups, markdowns or commissions) and are not necessarily indicative of what
prices would have been in an active over-the-counter market for MSB's common
stock.
<PAGE>
122
QUARTER ENDED HIGH BID LOW BID
------------- -------- -------
March 15, 1996 $29 $29
December 31, 1995 29 29
September 30, 1995 29 29
June 30, 1995 29 28 1/2
March 31, 1995 28 1/2 28 1/2
December 31, 1994 25 25
September 30, 1994 30 30
June 30, 1994 30 30
March 31, 1994 30 30
DIVIDEND POLICY
MSB's stockholders are entitled to dividends, when and if declared by the
Board of Directors out of funds legally available therefore. Connecticut law
prohibits MSB from paying cash dividends except from its net profits, which are
defined as the remainder of all earnings from current operations plus actual
recoveries on loans and investments and other assets, after deducting from the
total thereof all current operating expenses, actual losses, and all federal and
state taxes. The total of all dividends declared by MSB in any calendar year
shall not, unless specifically approved by the Commissioner, exceed the total of
its net profits of that year combined with its retained net profits of the
preceding two years.
MSB's Board of Directors approved and paid a dividend of fifty cents ($.50)
per share paid to shareholders of record on November 30, 1995. MSB did not
declare a dividend in 1994 or 1993.
EMPLOYEES
As of December 31, 1995, MSB employed 9 part-time and 37 full-time
employees. Employees are not represented by a collective bargaining unit and
relationships with employees of MSB are considered to be good.
OTHER REGULATORY MATTERS
On December 29, 1992, MSB entered into a Stipulation and Consent to the
Issuance of an Order to Cease and Desist (the Order) with the FDIC, which was
concurred in by the Banking Commissioner of the State of Connecticut. On January
12, 1993, the FDIC issued an Order to Cease and Desist which became effective on
January 22, 1993. On October 19, 1995, as a result of MSB's improved condition,
compliance and performance, the FDIC and Connecticut Banking Commissioner
terminated the order against MSB. At that time, the Board of Directors adopted
certain resolutions which confirmed the Board's commitment to continue to
further improve MSB's condition.
<PAGE>
123
The Order required, among other things, MSB to: (1) review current
Management and staffing needs with a view to improving underwriting and credit
review procedures; (2) increase the loan loss reserve by a specified amount and
develop a policy for determining the adequacy of the loss reserve; (3) increase
to and thereafter maintain Tier I capital level at or above the 6.0% by December
31, 1994; (4) develop a plan to lessen MSB's risk position with respect to
borrowers with loans in excess of specified levels which were classified as
"substandard" or "doubtful" for regulatory purposes and charge-off certain loans
classified for regulatory purposes; (5) prohibit extensions of credit to
borrowers who have credits that have been charged-off or classified as "loss",
"doubtful", or "substandard" unless specifically approved by MSB's Board of
Directors; (6) revise and strengthen its loan grading system; (7) revise its
loan policy; (8) develop a profit plan; (9) revise MSB's funds management policy
to address concerns regarding liquidity and reliance upon volatile sources of
funds; (10) not pay dividends without prior FDIC approval; (11) correct any
remediable violations of applicable law or regulation, and any remediable
technical exceptions; and (12) correct certain routine and control deficiencies.
<PAGE>
124
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is Management's discussion of the financial condition and
results of operations on a consolidated basis for the three years ended December
31, 1995 of MSB. The consolidated financial statements of MSB include the
accounts of MSB and its wholly-owned subsidiary, MSB, Inc. This discussion
should be read in conjunction with the financial statements and the related
notes of MSB presented elsewhere herein.
RESULTS OF OPERATIONS
MSB reported net income for 1995 of $341,297 or $3.41 per share. This
represented an increase of $138,028 or 67.9% from net income for 1994 of
$203,269 or $2.03 per share. This improvement resulted primarily from the
continuing improvement in asset quality and the related reduction in cost in
owning and disposing of problem assets. At December 31, 1995, nonperforming
assets were $2,644,000. This represented 2.79% of total assets compared to 5.13%
a year earlier and 6.16% at the end of 1993. The Board of Directors declared a
dividend of $.50 per share, payable November 30, 1995 to shareholders of record
as of that date. This marked the first such action in more than four (4) years.
Significant factors affecting MSB's operating performance for the three years
ended December 31, 1995, included the following:
NET INTEREST INCOME
Net interest income is the difference between the interest income MSB earns
on loans, securities and other interest earning assets, and the interest cost of
deposits and other interest bearing liabilities necessary to fund these earning
assets. Net interest income is the primary component of MSB's earnings.
The net interest income for 1995 was $4,622,385, which represented an
increase of 306,372 from $4,316,013 earned in 1994.
(000's) 1995 1994 1993
- --------------------------------------------------------------------------
Interest Income $ 7,356 $ 6,714 $ 7,790
Interest Expense (2,734) (2,398) (3,120)
---------------------------------------------
Net Interest Income $ 4,622 $ 4,316 $ 4,670
=============================================
The net interest margin was 5.25% in 1995 compared to 4.65% the preceding
year. As the following table indicates this change in the net interest margin
was primarily responsible for the increase in net interest income. The average
<PAGE>
125
rate earned on earning assets increased 1.11% to 8.35% in 1995 compared to 1994.
This more than offset the increase in the average rate paid for interest bearing
liabilities to 3.87% for 1995 compared to 3.11% in 1994.
The table below presents MSB's average balance sheets (computed on a
monthly basis), net interest income and interest rates for the years ended
December 31, 1995, 1994 and 1993. Average loans outstanding include nonaccruing
loans.
AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
<TABLE>
<CAPTION>
1995 1994 1993
Average Average Average Average Average Average
(000's) Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal Funds Sold $10,646 $ 629 5.91% $ 2,322 $ 113 4.87% $ 6,480 $ 193 2.98%
Investment 4,647 283 6.09% 12,982 571 4.40% 5,413 194 3.58%
Securities
Loans 72,774 6,444 8.85% 77,416 6,030 7.79% 89,732 7,416 8.26%
----------------------------------------------------------------------------------------------
Total interest 88,067 7,356 8.35% 92,720 6,714 7.24% 101,625 7,803 7.68%
earning assets
Allowance for loan (1,580) (2,149) (2,714)
losses
Cash & due from 4,433 4,673 4,489
banks
Other Assets 3,298 4,209 5,128
------- ------- --------
Total Assets $94,218 $99,453 $108,528
======= ======= ========
Liabilities
Regular Savings 23,891 607 2.54% 31,139 748 2.40% 34,525 1,034 2.99%
NOW account deposits 11,002 202 1.84% 11,297 212 1.88% 12,451 246 1.98%
----------------------------------------------------------------------------------------------
Total Savings
deposits 34,893 809 2.32% 42,436 960 2.26% 46,976 1,280 2.72%
Time Deposits 35,795 1,922 5.37% 34,627 1,438 4.15% 39,297 1,677 4.27%
Borrowed funds 0 2 0 0 2,000 162 0.081
----------------------------------------------------------------------------------------------
Total interest
bearing liabilities 70,688 2,733 3.87% 77,063 2,398 3.11% 88,273 3,119 3.53%
Demand deposits 16,278 15,949 13,734
Other liabilities 664 408 499
------- ------- --------
Total Liabilities 87,630 93,420 102,506
Equity 6,588 6,033 6,022
------- ------- --------
Total Liabilities
& Equity $94,218 $99,453 $108,528
======= ======= ========
Net interest income $4,623 $4,316 $4,684
====== ====== ======
Interest rate spread 4.48% 4.13% 4.15%
==== ==== ====
Net yield on earning assets 5.25% 4.65% 4.61%
==== ==== ====
</TABLE>
<PAGE>
126
RATE VOLUME ANALYSIS
The following table reflects the changes for the years ended December 31,
1995, 1994 and 1993 in net interest income arising from changes in interest
rates and from asset and liability volume, including mix. The change in interest
attributable to both rate and volume has been allocated to the changes in the
rate and the volume on a prorated basis.
<TABLE>
<CAPTION>
1995 1994
Change due to Change due to
Increase Change in: Increase Change in:
(000"s) (Decrease) Rate Volume (Decrease) Rate Volume
- ---------------------------------------------------------------------------------------------
Interest income change
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 516 $ 68 $ 448 $ (80) $ 83 $(163)
Investment Securities (288) 149 (437) 377 75 302
Loans 414 800 (386) (1,386) (397) (989)
----------------------------------------------------------------------
Total interest
income change 642 1,017 (375) (1,089) (239) (850)
----------------------------------------------------------------------
Interest expense change
Regular Savings (141) 38 (179) (286) (195) (91)
NOW account deposits (10) (5) (5) (34) (12) (22)
----------------------------------------------------------------------
Total savings
deposits (151) 33 (184) (320) (207) (113)
Time Deposits 484 428 56 (239) (42) (197)
Borrowed funds 2 2 0 (162) (81) (81)
----------------------------------------------------------------------
Total interest
expense change 335 463 (128) (721) (330) (391)
----------------------------------------------------------------------
Net interest income
change $ 307 $ 554 $(247) $ (368) $ 91 $(459)
======================================================================
</TABLE>
NONINTEREST INCOME
Total noninterest income was $398,757 in 1995. This was a decrease of
$88,578 or 18.2% from $487,335 in 1994. This followed an increase in 1994
noninterest income of $9,363 or 2% from $477,972 in 1993. The decrease in 1995
was from decreases in all categories of noninterest income. Service Charges,
commissions and fees declined $31,591 and all other income declined $56,987. The
$9,363 increase in 1994 included a $3,891 increase in service charges and other
noninterest income rose $5,472 in 1994.
NONINTEREST EXPENSES
Total noninterest expense was $3,824,416 in 1995, an increase of $112,212
or 3% from $3,712,204 in 1994. In 1994 total noninterest expense increased
$455,305 or 13.98% from $3,256,899 in 1993. The $112,212 increase in noninterest
<PAGE>
127
expense in 1995 resulted in large measure to the funding of the Director's
retirement fund in the amount of $442,500. The largest reduction in 1995 was
$494,583 related to ownership and disposal of OREO properties. FDIC deposit
insurance expense decreased by $121,232 in 1995 due to the lowering the
assessment rates from the FDIC. Salaries and Benefits increased $375,552
including $14,303 for higher benefit costs and $361,249 for merit increases and
bonuses.
The increase of $455,305 in 1994 resulted primarily from three areas. The
cost of ownership and disposal of other real estate owned increased $241,157;
increases in salaries and benefits were $85,703 and an increase in all other
expenses of $97,022.
NONPERFORMING ASSETS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Nonperforming assets include nonaccrual loans and assets classified as
OREO. Loans are placed in nonaccrual status when they are past due greater than
90 days or the repayment of interest or principal is considered in doubt.
OREO consists of properties acquired through foreclosure proceedings. These
properties are recorded at the lower of the carrying value of the related or the
estimated fair value less estimated selling costs. Charges to the allowance for
loan losses are the measure by which properties are reduced to fair market value
less estimated selling expenses upon reclassification as OREO. Subsequent
reductions are charged to operating income.
The provision for possible loan losses in 1995 was $475,000. This was 32%
less than $700,000 provided in 1994 and 74% less than $1,814,000 in 1993. Loans
charged off in 1995 were $886,000 compared to $1,923,000 in 1994 and $2,608,000
in 1993. Recoveries of loans previously charged off were $386,000 in 1995,
$370,000 in 1994 and $295,000 in 1993.
MSB makes provisions on a monthly basis for possible loan losses as
determined by a continuing assessment of the adequacy of the allowance for
possible loan losses. MSB performs an ongoing review of loans in accordance with
an individual loan rating system to determine the required allowance for
possible loan losses at any given date. The review of loans is performed to
estimate potential exposure to losses. In the review process, MSB assesses
factors including the borrowers' past and current financial condition and
repayment ability, the nature of collateral and changes in its value, the
borrowers' liquidity, appraisals, current and anticipated economic conditions
and other factors deemed appropriate. These reviews are dependent upon
<PAGE>
128
estimates, appraisals and judgments which can change quickly because of changing
economic conditions and Management's perception as to these factors affect the
financial condition of debtors. The loan rating process classifies loans
according to the MSB's uniform classification system. MSB considers performing
loans rated as "substandard" and "doubtful" to be potential problem loans.
"Substandard" loans are characterized by well-defined weaknesses such as
deteriorating or inadequate collateral or impaired repayment ability. A loan is
considered "doubtful" when similar conditions exist but are more severe in
nature. At December 31, 1995, MSB considered loans totaling approximately
$2,846,000 to be potential problems compared to $4,632,000 December 31, 1994.
Included in these totals were loans totaling $981,000 and $592,000 respectively,
which were not classified as nonperforming loans because such loans are
performing according to their terms. MSB's loan review process is designed to
identify certain potential problem loans at an early stage, alleviate weaknesses
in MSB's lending policies, oversee the individual loan rating system and ensure
compliance with MSB's underwriting, documentation, compliance and administrative
policies. Certain problem loans mean loans considered by Management as being in
need of special attention because of some deficiency related to the credit or
documentation, but which are still considered collectable and performing. Such
attention is intended to act as preventative and thereby avoid more serious
problems in the future.
Loans are placed on a nonaccrual status when the payment of principal or
interest is considered by Management to be in doubt. Generally, loans past due
in excess of ninety days are classified as nonaccrual. Accrued interest income
is generally reversed against interest income when loans are classified as
nonaccrual, unless Management deems that the value of collateral is sufficient
to recover both principal and accrued interest. Management considers a loan
impaired when the collection of that loan is in doubt. Real Estate held for sale
consists of properties acquired through mortgage loan foreclosure proceedings.
Real estate owned is carried at the lower of the carrying value of the related
loan or the estimated fair market value of the property less estimated selling
costs.
MSB's nonperforming assets at December 31, 1995 through 1991 are presented
below. Had these nonaccrual loans performed in accordance with their original
terms, gross interest income for the year ended 1995 would have increased by
approximately $209,703 compared to an increase of approximately $261,840 for the
year ended 1994. No interest received on loans placed on a nonaccrual status and
considered an impaired loan was included in net income. Rather, any payment on
<PAGE>
129
an impaired loan was applied toward a reduction in the principal amount of such
impaired loan. As reflected below, MSB has made significant progress in reducing
the levels of nonaccrual and impaired loans.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
(000's)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,865 $ 4,040 $ 6,382 $ 7,048 $ 8,157
Other real estate owned 779 860 1,897 2,190 258
--------------------------------------------
Total nonperforming assets $ 2,644 $ 4,900 $ 8,279 $ 9,238 $ 8,415
Loans past due in excess of ninety days
and accruing interest $ 217 $ 0 $ 829 $ 404 $ 151
</TABLE>
Total nonperforming assets decreased by $2,256,000, or 46%, to $2,644,000
at December 31, 1995 from $4,900,000 at December 31, 1994. In 1994 , total
nonperforming assets decreased $3,379,000 or 41% from $8,279,000 at December 31,
1993. At December 31, 1995, loans past due in excess of ninety days and accruing
interest increased by $217,000 to $217,000 as compared to balances of $0 and
$829,000 respectively, at December 31, 1994 and 1993. The decrease in total
nonperforming assets in 1995 resulted from a decrease in OREO of $81,000, and a
decrease in nonaccrual loans of $2,175,000.
Total nonperforming assets represented 3.7% of total loans and other real
estate owned at December 31, 1995, as compared to 6.6% and 10% respectively, at
December 31, 1994 and 1993. Improvement in this ratio is the result of
reductions in nonperforming assets. While the allowance for loan losses
decreased to 2% of total loans at year end 1995 from 2% a year earlier, the
coverage afforded to nonperforming assets and loans past due ninety days was
50.2% at December 31, 1995, higher than 29.8% and 25.4% for December 31, 1994
and 1993, respectively. The reduction in OREO is due to the reduction in real
estate acquired through foreclosure and the sales of existing properties. The
allowance for possible loan losses provided coverage for 76.9% of nonaccrual
loans at December 31, 1995, as compared to 36.1% and 36.2%, respectively, at
December 31, 1994 and 1993.
December 31,
(000's) 1995 1994 1993
- -------------------------------------------------------------------------------
Nonaccrual loans $ 1,865 $ 4,040 $ 6,382
Other real estate owned 779 860 1,897
---------------------------
Total nonperforming assets 2,644 4,900 8,279
Loans past due in excess of
ninety days and accruing interest 217 0 829
Ratio of nonperforming assets
to total loans and OREO 3.7% 6.6% 10%
Ratio of nonperforming assets and loans
past due in excess of ninety days and
accruing interest to total loans and OREO 4% 6.6% 11%
Ratio of allowance loan losses to total loans 2% 2% 2.8%
Ratio of allowance for loan losses to
nonperforming assets and loans in excess of
ninety days past due and accruing interest 50.2% 29.8% 25.4%
Ratio of nonperforming assets and loans in excess
of ninety days past due and accruing interest
to total shareholders' equity 43.8% 78.5% 150.8%
<PAGE>
130
The following table summarizes the activity in the allowance for possible
loan losses for the years ended December 31, 1995 through 1991. The allowance is
maintained at a level consistent with identified loss potential and the
perceived risk in the portfolio. It is not considered meaningful to allocate the
allowance according to geographic area as MSB's market area is homogenous and
limited in size.
<TABLE>
<CAPTION>
December 31,
(000's) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------
Loans charged-off:
<S> <C> <C> <C> <C> <C>
Commercial and financial $ 424 $1,519 $1,706 $1,652 $ 751
Real Estate 448 308 399 236 52
Installment loans to individuals 14 96 504 327 563
-------------------------------------------------------
886 1,923 2,609 2,215 1,366
-------------------------------------------------------
Recoveries on loans charged-off
Commercial and commercial secured by
real estate 101 189 217 67 36
Real Estate 274 100 74 25 0
Installment loans to individuals 11 81 4 33 93
-------------------------------------------------------
386 370 295 125 129
-------------------------------------------------------
Net loans charged-off 500 1,553 2,314 2,090 1,237
Provision charged to operations 475 700 1,814 2,188 1,954
Balance, at beginning of period 1,460 2,313 2,813 2,715 1,998
-------------------------------------------------------
Balance, at end of period $1,435 $1,460 $2,313 $2,813 $2,715
=======================================================
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.69% 1.97% 2.59% 2.13% 1.25%
Ratio of allowance for loan losses
to total loans 0.66% 0.94% 2.17% 2.30% 1.94%
</TABLE>
MSB continually assesses the adequacy of its allowance for loan losses in
response to changing economic conditions, specific problem loans, and the
overall risk profile of MSB's loan portfolio. Management allocates specific
reserves to individual problem loans based upon Management's analysis of the
potential for loss perceived to exist related to such loans. In addition to the
specific reserves for individual loans, a portion of the allowance is maintained
as a general reserve. The amount of the general reserve is determined through
Management's analysis of the potential for loss inherent in those loans not
considered problem loans. Among the factors considered by Management in this
analysis are the number and type of loans, nature and amount of collateral
pledged to secure such loans, and current economic conditions.
<PAGE>
131
The following table reflects MSB's Allowance for Loan Losses as of December
31, 1995 with allocations categorized by loan type:
Analysis of Allowance for Loan Losses as of December 31, 1995
Allocation Of Percentage of Loans
Allowance For In Each Category To
Loan Losses Total Loans
- ----------------------------------------------------------------------------
Loans by type
Commercial and Financial 223,250 8.6%
Real Estate 242,250 90.2%
Installment and Other 9,500 1.2%
----------- ---------------------
475,000 100%
=========== =====================
LIQUIDITY
Liquidity represents the ability of MSB to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customers' credit needs. In management's
opinion, MSB maintains adequate liquidity in order to ensure the availability of
funds for these purposes. The principal sources of liquidity include cash, due
from MSB's, federal funds sold, and loan repayments.
MSB's liquidity ratio improved in 1995 to 23.35% from 20.06% in 1994.
There are no demands, events or commitments that would result in a
liquidity position change that would be material to MSB.
ASSET/LIABILITY MANAGMENT
A principal objective of MSB is to reduce and manage the exposure of its
results of operations to changes in interest rates and to maintain an
appropriate balance between the interest sensitivity of its assets and
liabilities within acceptable limits. While interest rate risk is a normal part
of the commercial banking activity, MSB desires to minimize its effect upon
operating results.
MSB monitors the relationship between interest earning assets and interest
bearing liabilities by examining the extent to which such assets and liabilities
are "interest rate sensitive" and by monitoring the interest rate sensitive
"gap". An asset or liability is said to be interest rate sensitive within a
<PAGE>
132
specific time period if it will mature or reprice within that time period. The
interest rate sensitivity gap is defined as the difference between the amount of
interest-bearing liabilities maturing or repricing and the amount of
interest-earning assets maturing or repricing for the same period of time.
During a period of falling interest rates, a positive gap would tend to
adversely affect net interest income, while a negative gap would tend to
increase net interest income. During a period of rising interest rates, a
positive gap would tend to increase net interest income, while a negative gap
would tend to adversely affect net interest income.
Asset and liability management functions are supervised by the Asset
Liability Committee ("ALCO"), which reports to the Board of Directors quarterly.
It is actively involved in the financial planning and budgeting process and
developing policies for monitoring and coordination sources, uses and pricing of
funds. The following table summarizes the repricing schedules for assets and
liabilities and provides an analysis of periodic and cumulative GAP positions.
<PAGE>
133
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
As of December 31, 1995
(Core deposits assigned repricing characteristics
based upon expected outflows)
--------------------------------------------------------------
Within Within Within Within
3 4 to 12 1 to 3 3 to 5 Over 5 Total
Months Months Years Years Years
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets (RSA)
Federal Funds Sold $ 14,275 $ $ $ $ $14,275
Interest Bearing Deposits 80 80
Investments 1,988 1,571 3,559
Loans 20,952 41,926 3,939 2,446 373 69,636
--------------------------------------------------------------
Total Rate Sensitive Assets 37,215 43,577 3,939 2,446 373 87,550
--------------------------------------------------------------
Rate Sensitive Liabilities (RSL)
NOW/Money Market 23,063 23,063
Savings 11,068 11,068
Time Deposits 11,137 15,769 5,537 3,035 35,478
Repo agreements 0 0
FHLB Advances 0 0
--------------------------------------------------------------
Total Rate Sensitive Liabilities 45,268 15,769 5,537 3,035 69,609
--------------------------------------------------------------
Excess (deficiency) of RSA over RSL $ (8,053) $ 27,808 $ (1,598) $ (589) $ 373
----------------------------------------------------
Cumulative Excess (deficiency) of RSA over RSL $ (8,053) $ 19,755 $ 18,157 $ 17,568 $ 17,941
====================================================
Percent of cumulative excess (deficiency)
of RSA over RSL to total assets (8.50)% 20.85% 19.16% 18.54% 18.93%
</TABLE>
MSB is liability sensitive for the three month period. A decrease in
interest rates over this period would result in an increase in MSB's earnings,
and an increase in interest rates would result in a decrease in earnings.
Between four and twelve months MSB becomes asset sensitive. By the twelfth
month, monthly net interest income would theoretically increase with a rise in
interest rates and fall with a decline in interest rates, offsetting the earlier
effect of the three month period.
The information presented in the interest sensitivity table is based upon a
combination of maturities, repricing frequencies, payment patterns and
Management judgment. The distribution of variable rate assets and liabilities is
based upon the repricing interval of the instrument. Management estimates that
approximately 70% of savings products are sensitive to interest rate changes
based upon analysis of historic and industry data for these types of accounts.
<PAGE>
134
CAPITAL
Total shareholders' equity was $6,534,000 at December 31, 1995, an increase
of $291,000 from $6,242,000 at December 31, 1994. On November 12, 1995, MSB's
Directors voted to pay a dividend to shareholders of record November 20, 1995 in
the amount of $.50 per share.
The various capital ratios of MSB are as follows at December 31, 1995:
MINIMUM MANCHESTER
REGULATORY STATE
CAPITAL LEVEL BANK
- --------------------------------------------------------------------------
Tier 1 leverage Capital ratio 4.00% 6.95%
Tier 1 risk-based capital ratio 4.00% 9.91%
Total risk-based capital ratio 8.00% 11.72%
<PAGE>
135
EFFECTS OF INFLATION
MSB acts to minimize the effect of inflation on future earnings through its
management of rate sensitive interest earning assets and interest bearing
liabilities.
<PAGE>
136
MANAGEMENT OF MSB
All of the Directors of MSB have been Directors of MSB since its formation,
except for Nathan G. Agostinelli, who was an original Director and Chairman of
the Board of Directors of MSB until he resigned in December of 1970, and he was
subsequently elected President and Director of MSB on February 3, 1975.
All of the Directors' terms will expire at the next Annual Meeting of
Shareholders of MSB or upon consummation of the Reorganization or when their
successors are duly qualified or appointed, whichever shall first occur. Upon
their election, their term will be one year.
DIRECTORS AND EXECUTIVE OFFICERS
OF MSB
The following table sets forth the name and age of each Director and
Executive Officer, his principal occupation for the last five years and the year
in which he was first elected as a Director or appointed an Executive Officer of
MSB.
Positions Director or
and Principal Executive Officer
Age Occupation (1) of MSB since:
--- -------------- -------------
Paul Aceto (69) Retired, formerly Courier 1970
for Purolator courier
Services
Nathan G. Agostinelli (64) President and Chief 1970 (2)
Executive Officer of MSB
Andrew Ansaldi, Jr. (58) Chairman of the Board 1970 (2)
of Directors of MSB
President, Andrew Ansaldi,
Company (Construction.)
Anthony Dzen (75) Retired, formerly President 1970
of Dzen Construction, Company
Ronald Jacobs (69) Secretary of MSB; Principal 1970
in the law firm of Jacobs,
Walker, Rice & Basche, P.C.
(Counsel for MSB)
Nicholas LaPenta (71) Real Estate Broker, LaPenta 1970
Real Estate
<PAGE>
137
Positions Director or
and Principal Executive Officer
Age Occupation (1) of MSB since:
--- -------------- -------------
Roxie Leone (74) Retired, former Co-owner of 1970
Town & Country Package Store
William Oleksinski (68) Retired, former Co-owner of 1970
Willie's Steak House (Restaurant)
Samual D. Pierson (70) President,A.B.A.-P.G.T., 1970
Inc.
Edward J. Tomkiel (64) Retired Town Clerk, Town of 1970
Manchester, Connecticut
William H. Fraser (40) Vice President & 1977 (3)
Chief Financial Officer
1. All the Directors and Executive Officers have been engaged in their
respective occupations for more than five years unless otherwise indicated.
2. Pursuant to the Reorganization Agreement, Mr. Agostinelli and Mr. Ansaldi
will become directors of NEBT and serve on the Board of Directors of NEBT
following the consummation of the Reorganization.
3. Mr. Fraser was appointed Chief Financial Officer of MSB in January 1, 1994.
Prior to that time Mr. Fraser served as assistant treasurer and a
supervisor or MSB. Mr. Fraser has served as a Vice President of MSB for the
past thirteen years. Mr. Fraser does not serve as a director of MSB.
Each executive officer is elected annually by the directors of MSB and
serves until his successor is duly chosen and qualified.
EXECUTIVE COMPENSATION
The following table provides certain information regarding the compensation
paid to Nathan G. Agostinelli President and Chief Executive Officer of MSB for
services rendered in capacities to MSB during the fiscal years ended December
31, 1995, 1994 and 1993. All compensation, was paid by MSB. No other current
executive officer of MSB received cash compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
Annual Compensation Awards Payout
- ------------------------------------------------------------------------------------------------------------------------------
Restricted
Other Annual Stock Options/
Name and Principal Compensation Award(s) SARs LTIP All Other
Position Year Salary($) Bonus($) ($) ($) (#) Payouts($) Compensation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nathan G. Agostinelli 1995 $126,733 $20,547 0 0 0 0 0
President and Chief 1994 $111,200 29,784 0 0 0 0 0
Executive Officer 1993 $111,129 0 0 0 0 0 0
</TABLE>
<PAGE>
138
COMPENSATION OF DIRECTORS
In 1995 members of the Board of Directors of MSB received a retainer of
$7,000 per year. Mr. Agostinelli did not receive any such payments.
FOUNDING DIRECTORS' PLAN
In 1988 MSB adopted a plan which would provide retirement benefits for the
President and the founding directors in the event that over fifty percent of the
outstanding stock of MSB is sold or transferred to a person, corporation or any
other entity, provided such new owners are acting in concert to gain control of
MSB (the "Founding Directors' Plan"). As a result of the Reorganization, and in
lieu of the provisions of the Founding Directors' Plan which was previously
approved by the shareholders of MSB, the President and the ten designated
founding directors of MSB, are entitled to certain benefits. At December 31,
1995 the aggregate present value of these benefits, of which a portion are
payable in a lump sum and a portion are in the form of annuities, is
approximately $568,789. This liability of $568,789 is reflected in other
liabilities on MSB's Statement of Condition set forth in MSB's audited condensed
financial statements enclosed elsewhere herein. The expense for the current year
of $415,000, representing the portion due in a lump sum, is included in other
operating expenses on the Statement of Income set forth in MSB's Audited
Condensed Financial Statements enclosed elsewhere herein. The related asset and
liability of $153,789, regarding the future annuity payments, are reflected in
other assets and other liabilities, respectively, on MSB's Statement of
Condition set forth in MSB's audited condensed financial statements enclosed
elsewhere herein.
There have also been various expenses associated with the reorganization of
approximately $105,606. These items are included in other expenses on the
statement of income for the year ended December 31, 1995.
The Founding Directors' Plan will only benefit the "Founding Directors" of
MSB including Mr. Agostinelli, and will not apply to any Directors who have
previously retired or to any Director or President who is subsequently elected.
Neither Mr. Agostinelli nor any Director will receive any payment under the
Founding Directors' Plan in the event that the individual is terminated as a
result of gross misconduct or criminal acts.
<PAGE>
139
AGREEMENT WITH MR. AGOSTINELLI
Mr. Agostinelli has entered into an agreement with MSB that provided that
in the event that fifty percent of the outstanding stock of MSB is purchased by
any persons or entities acting in concert to gain control of MSB, then either
Mr. Agostinelli will be retained by the buyer in a position comparable to his
present position (this need not be President) at a salary and with benefits
approximately equal to those he presently receives, or alternatively, the buyer
may terminate its relations with Mr. Agostinelli, in which case he shall receive
a sum equal to one half of his base salary at the time of termination for one
half of the period between the time of termination and time that Mr. Agostinelli
attains sixty-five years of age. This agreement shall not apply if Mr.
Agostinelli is terminated for cause.
STOCK OPTION PLAN
The Shareholders at the First Annual Meeting on September 10, 1970 approved
a Stock Option Plan (the "Stock Option Plan") for a maximum of 5,000 shares of
the corporation's common stock. No Stock Options were ever granted pursuant to
the Stock Option Plan. The Stock Option Plan was terminated by MSB's Board of
Directors on December 14, 1995.
INSURANCE
MSB's full-time officers and employees are provided with life, medical and
disability insurance. All full-time officers and employees make a 20%
contribution to their health insurance.
<PAGE>
140
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the MSB Record Date, all directors and executive officers of MSB as a
group (11 persons) owned beneficially, directly and indirectly, 28,700 shares of
MSB Common Stock which represents 28.7% of the outstanding shares.
The following table includes certain information as of March 15, 1996
regarding the principal shareholders ("Principal Shareholders") of MSB. With the
exception of the Principal Shareholders listed below, MSB is not aware of any
beneficial owner of five percent (5%) or more of MSB's Common Stock.
NAME AND ADDRESS OF AMOUNT OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS
- ---------------- --------------------- -----
Nathan G. Agostinelli 7,109 7.109%
P.O. Box 1754
Manchester, CT 06040
Andrew Ansaldi, Jr. 8,019 8.019%
Tunxis Trail
Box 508B RFD 4
Bolton, CT 06043
- ----------
1. Percentage are based upon the 100,000 shares of MSB Common Stock
outstanding on March 15, 1996. The definition of a beneficial owner of a
security includes, in addition to the person named, the spouse and minor
children of such person and any other relative of such person who has the
same home as such person.
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table includes certain information as of March 15, 1996
regarding the Directors and Executive Officers of MSB.
Shares of Common Stock
Beneficially Owned as
NAME OF MARCH 15, 1996 (1)
- ---- ----------------------
Paul Aceto......................................... 720 ( .72%)
Nathan Agostinelli................................. 7,109 (7.11%)
Andrew Ansaldi, Jr................................. 8,019 (8.02%)
Anthony Dzen....................................... 2,645 (2.64%)
Ronald Jacobs...................................... 2,480 (2.48%)
Nicholas LaPenta................................... 2,302 (2.30%)
Roxie Leone........................................ 2,508 (2.51%)
William Oleksinski................................. 811 ( .81%)
Samual D. Pierson.................................. 500 ( .50%)
Edward J. Tomkiel.................................. 1,536 (1.54%)
William H. Fraser.................................. 70 ( .07%)
------ -------
All Directors and Executive Officers
As a Group (11 persons).......................... 28,700 (28.7%)
- ----------
1. Percentage are based upon the 100,000 shares of MSB Common Stock
outstanding on March 15, 1996. The definition of a beneficial owner of a
security includes, in addition to the person named, the spouse and minor
children of such person and any other relative of such person who has the
same home as such person.
<PAGE>
141
CERTAIN RELATIONSHIPS AND RELATED MATTERS OF MSB
Some of the directors of MSB, as well as firms and companies with which
they are associated, are and have been customers of MSB. As a state bank, MSB is
authorized under Connecticut Banking Law and Regulations to make mortgage loans
to its executive officers on the premises occupied by them as residences and to
make educational loans to its executive officers for the education of their
children. Additionally, Connecticut law authorizes a state bank to extend credit
to an executive officer in an aggregate amount that does not exceed at any one
time the higher of $25,000 or 2.5% of MSB's capital and unimpaired surplus, but
in no event more than $100,000. Also, loans to an executive officer or director
may only be made if the approval of the Board of Directors of MSB has been
obtained. At the dates indicated, the aggregate outstanding balances of loans to
directors of MSB and their associates as are follows:
DATE TOTAL INDEBTEDNESS OUTSTANDING
---- ------------------------------
December 31, 1995 $2,481,824
December 31, 1994 $2,850,928
December 31, 1993 $2,715,998
The loans to directors are made on substantially the same terms, including
interest rates, as those of comparable transactions prevailing at the time and
do not involve more than the normal risk of collectibility or present other
unfavorable features. As of December 31, 1995, December 31, 1994, and December
31, 1993, all such loans were current in accordance with their terms. Moreover,
the aggregate extensions of credit to insiders at December 31, 1995, December
31, 1994 and 1993, respectively, did not exceed the total amount of MSB's
unimpaired capital and unimpaired surplus. In 1993, the FDIC noted an apparent
violation of Regulation "O" which addresses loans to executive officers of MSB,
specifically, loans to Chairman Ansaldi. It was MSB's position that Chairman
Ansaldi was not an executive officer of MSB and only acted in his capacity as a
Director. MSB has amended its by-laws to specifically provide that the position
of Chairman does not constitute an executive officer and requested a
clarification from the FDIC legal counsel, Boston Regional Office.
The law firm of Jacobs, Walker, Rice & Basche, P.C. of which Director
Ronald Jacobs is a principal, performs certain legal work for MSB. In 1995,
legal fees and expenses paid to Mr. Jacob's firm totalled $35,358.
<PAGE>
142
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
December 31, 1995 gives effect to the Reorganization of NECB and MSB assuming
the Reorganization had occurred as of December 31, 1995, and is based on an
Exchange Ratio of 5.493 shares of NECB Common Stock for 1 share of MSB Common
Stock. The following unaudited pro forma condensed combined statement of income
for the year ended December 31, 1995, gives effect to the Reorganization,
assuming the Reorganization occurred at the beginning of the period, based on an
Exchange Ratio of 5.493 shares of NECB Common Stock for 1 share of MSB Common
Stock. The pro forma information is based onhistorical financial statements,
giving effect to the Reorganization under the purchase method of accounting. The
pro forma financial information does not purport to represent what NECB's
financial position or results of operations would actually have been if the
Reorganization had in fact occurred on those dates or to project NECB's
financial position or results of operations for any future date or period.
<PAGE>
143
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(Unaudited)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
(000's omitted except per share data)
NECB MSB Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
============ ============ =========== =========
<S> <C> <C> <C> <C>
Cash & due from Banks $ 14,550 $ 3,854 $ $ 18,404
Federal Funds 9,075 14,275 23,350
Interest-bearing deposits 3,000 3,000
Investments:
Securities held-to- 7,066 2,983 3(a) 10,052
maturity
Securities available- 75,063 75,063
for-sale
FHLBB stock 1,176 576 1,752
Loans outstanding 222,235 71,501 (253)(b) 293,483
Less allowance for loan
losses (4,446) (1,435) (5,881)
--------- -------- ----- --------
Net loans 217,789 70,066 (253) 287,602
Mortgages held-for-sale 788 788
Accrued interest 2,538 463 3,001
receivable
Premises & Equipment 6,960 1,088 600(c) 8,648
OREO 728 779 1,507
Goodwill 402 3,013(d) 3,415
Other assets 2,426 687 3,113
--------- -------- ----- --------
Total Assets $ 341,561 $ 94,771 $ 3,363 $439,695
========= ======== ======= ========
Deposits
Noninterest-bearing $ 59,945 $ 17,525 $ $ 77,470
Interest-bearing 247,216 69,609 372(e) 317,197
--------- -------- ----- --------
Total Deposits 307,161 87,134 372 394,667
Borrowed Funds 540 - 540
Other Liabilities 3,380 1,103 3,520(f)
375(g) 8,378
--------- -------- ----- --------
Total Liabilities 311,081 88,237 4,267 403,585
--------- -------- ----- --------
Equity:
Common Stock 308 1,000 (945)(h) 363
Surplus 21,522 850 (3,520)(f)
(375)(g)
(22)(i)
8,642 (j) 27,097
Retained earnings 8,492 4,684 (4,684)(k) 8,492
Unrealized losses on
securities
available-for-
sale, net 158 158
--------- -------- ----- --------
Total Equity 30,480 6,534 (904) 36,110
--------- -------- ----- --------
Total Liabilities & Equity $ 341,561 $ 94,771 $ 3,363 $439,695
========= ======== ======= ========
Shares outstanding 3,084 100 449 3,633
Book value per share $ 9.88 $ 65.34 $ 9.94
Tangible bk val/per share $ 9.75 $ 65.34 $ 9.00
Tangible equity /assets 8.82% 6.89% 7.44%
</TABLE>
see "Notes To Unaudited Pro Forma Condensed Combined Financial Statements."
<PAGE>
144
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(unaudited)
Twelve months ended December 31, 1995
<TABLE>
<CAPTION>
(000's omitted except per share
data)
NECB MSB Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
============ ============ =========== =========
<S> <C> <C> <C> <C>
Interest Income $ 16,300 $ 7,355 $ 32(a) $ 23,687
Interest expense 5,736 2,733 (186)(b)
211(c) 8,494
-------- ------- ------ ---------
Net Interest Income 10,564 4,622 7 15,193
Provisions for loan losses 700 475 1,175
-------- ------- ------ --------
Net interest income after
provisions for loan losses 9,864 4,147 7 14,018
Noninterest income 1,692 399 2,091
Noninterest expense 8,591 3,824 201(d)
15(e) 12,631
-------- ------- ------ --------
Income before taxes 2,965 722 (209) 3,478
Income taxes 985 381 (84)(f) 1,282
-------- ------- ------ --------
Net Income $ 1,980 $ 341 $ (125) $ 2,196
======== ======= ====== ========
Average Shares outstanding 2,166 100 449(g) 2,715
Net Income per share $ 0.91 $ 3.41 $ 0.81
</TABLE>
see "Notes To Unaudited Pro Forma Condensed Combined Financial Statements."
<PAGE>
145
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
(a) Represents an increase to reflect fair value of MSB's investments
acquired, with a corresponding increase in Surplus (see Note i).
(b) Represents a decrease to reflect fair value of MSB's loans acquired,
with a corresponding decrease in Surplus (see Note i).
(c) Represents an increase to reflect fair value of MSB's real estate
owned with a corresponding increase in Surplus (see Note i).
(d) Represents the acquisition of 100,000 shares of MSB Common Stock
exchanged for 549,300 shares of NECB at an assumed Market Value of
$10.25 per share, plus payment of $35.20 cash for each such
outstanding share and $375,000 for fees and expenses related to the
transaction, for a total value of $9,525,000.
(000s omitted)
Total Purchase Price $9,525
Tangible Net Assets of MSB $6,534
Purchase Accounting Adjustments:
Loans ($253)
Deposits (372)
Investments 3
Real Estate owned 600 (22)
Tangible assets after purchase accounting
adjustments 6,512
-------
Excess of purchase price over value of tangible
net assets acquired $3,013
=======
(e) Represents increase to reflect the fair value of MSB's time deposits
with a corresponding decrease in Surplus (see Note f).
(f) Represents liability for cash payment of $35.20 per share for each
share of MBS Common Stock
(g) Represents liability for fees and expenses related to the transaction.
<PAGE>
146
(h) Elimination of 100,000 MSB Common shares with a Par Value of $10.00
per share and the issuance of 549,000 shares of NECB Common shares
with a Par Value of $0.10 per share.
(i) Adjustments to Surplus reflecting fair value of assets and
liabilities:
Increase in investments $ 3 (a)
Decrease in loans (253) (b)
Real estate owned 600 (c)
Increase in deposits (372) (e)
-----
Total ($22)
=====
(j) Represents additional paid in capital as shown:
Decrease in common stock $ 945 (h)
Elimination of retained earnings 4,684 (k)
Excess of purchase price paid 3,013 (d)
======
Total $8,642
======
(k) Represents the elimination of retained earnings.
<PAGE>
147
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED INCOME
STATEMENTS
(a) Represents accretion of $32 thousand related to the loan value
adjustment of $253 thousand, utilizing a weighted average expected
life of 8 years.
(b) Represents accretion of $186 thousand related to the discount on
acquired deposits of $372 thousand, utilizing a weighted average
contractual maturities of 2 years.
(c) Represents $211 thousand interest expense related to liability to pay
$35.20 cash per share for each outstanding share of MSB Common Stock.
at an assumed rate of 6%.
(d) Represents amortization of $201 thousand related to the excess of
purchase price over the value of identifiable tangible assets acquired
of $3,013 thousand, using a life of 15 years.
(e) Represents amortization of $15 thousand related to the adjustment of
$600 thousand for the fair value of acquired real estate utilizing and
expected life of 39 years.
(f) Represents the tax benefit related to deductabilty of certain expenses
related to the transaction.
(g) Represents the adjustment in the number of MSB shares exchanged for
NECB shares:
MSB shares outstanding 100,000
Ratio of NECB shares issued for each share of MSB 5.493
Shares of NECB issued 549,300
<PAGE>
148
DESCRIPTION OF NECB'S CAPITAL STOCK
COMMON STOCK
NECB is authorized to issue 10,000,000 shares of common stock par value
$.10 per share (the "NECB Common Stock"), of which 3,084,309 Shares were issued
and outstanding as of March 15, 1996. After giving effect to the issuance of
5.493 shares of NECB Common Stock in exchange for each of the MSB Common Stock,
there would be a total of 3,633,609 shares, then outstanding. Each share of NECB
Common Stock has the same relative rights and is identical in all respects to
each other share of the NECB Common Stock. Shares of NECB Common Stock are not
deposits and are not insured by the FDIC.
Holders of the NECB Common Stock are entitled to one vote per share on each
matter properly submitted to shareholders, including the election of directors.
Holders of the NECB Common Stock do not have the right to cumulate votes for the
election of director, and they have no preemptive rights with respect to any
shares that may be issued. All shares of the NECB Common Stock currently
outstanding and when issued in accordance with this Prospectus are or will be
fully paid and nonassessable. Holders of the NECB Common Stock are entitled to
receive dividends when and as declared by the Board of Directors out of funds
legally available for distribution.
In the event of any liquidation or dissolution of NECB, the holder of the
NECB Common Stock would be entitled to receive, after payment or provision for
payment of all debts and liabilities of NECB, after payment of the liquidation
preferences of all outstanding shares of preferred stock, all remaining assets
of NECB available for distribution, in cash or in kind.
The transfer agent and registrar for the NECB Common Stock is Chemical
Mellon Shareholder Services, 111 Founders Plaza, Suite 1110, East Hartford, CT
06108.
PREFERRED STOCK
Pursuant to NECB's Restated Certificate of Incorporation, the Board of
Directors may, without action of the shareholders of NECB, issue from time to
time shares of NECB's preferred stock in one or more series with distinctive
serial designations, preferences, limitations and other rights.
<PAGE>
149
The Board of Directors is authorized to determine, among other things, with
respect to each series which may be issued: (1) the dividend rate, conditions of
payment of dividends, and dividend preferences, if any; (ii) whether, and upon
what terms, such series would be redeemable and, if so, the redemption price and
terms and conditions of redemption; (iii) the preference, if any, to which such
series would be entitled in the event of voluntary or involuntary liquidation,
dissolution or winding up the NECB; (iv) whether or not a sinking fund would be
provided for the redemption of such series and, if so, the terms and conditions
thereof; (v) whether, and upon what terms, such series would be convertible into
or exchangeable for shares of any other class of capital stock or other series
of preferred stock; and (vi) whether, and to what extent, the holders of such
series would enjoy voting rights, if any, in addition to those prescribed by
law.
NECB has no present plans for the issuance of any shares of preferred
stock. Accordingly, it is not possible to state the actual effect of the
issuance of the preferred stock upon the rights of holders of the NECB Common
Stock, until the Board of Directors determines the specific rights of the
holders of a series of the preferred stock. However, such effect might include:
(a) restrictions on dividends on the NECB Common Stock if dividends on preferred
stock have not been paid; (b) dilution of the voting power of the NECB Common
Stock to the extent that the preferred stock has voting rights; (c) dilution of
the equity interest of the NECB Common Stock to the extent that the preferred
stock is converted into NECB Common Stock; or (d) reduction in the extent to
which the Common Stock is entitled to share in NECB's assets upon liquidation
until satisfaction of any liquidation preference granted the holders of the
preferred stock is satisfied. Issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of the outstanding voting stock. Accordingly, the issuance of preferred
stock may be used as an "anti-takeover" device without further action on the
part of the shareholders of NECB.
<PAGE>
150
ABSENCE OF CUMULATIVE VOTING
NECB's Restated Certificate of Incorporation does not provide for
cumulative voting in the election of Directors. Under the Delaware corporation
law, shareholders do not have cumulative voting rights unless such rights are
specifically provided for in the Restated Certificate of Incorporation.
Without cumulative voting, holders of a majority of the voting shares
present at an annual meeting will be able to elect all of the Directors to be
elected at that meeting, and no persons holding shares or proxies representing
less than a majority of the shares present will be able to elect any Director,
as they might if cumulative voting were applicable. The absence of cumulative
voting is intended to prevent any entity or group which has accumulated a
significant minority block of shares from obtaining representation on the Board
of Directors of NECB, unless and until such entity or group is able to persuade
enough of the remaining shareholders of NECB to vote for its representatives so
that it controls a majority of the votes.
PROCEDURES FOR CERTAIN BUSINESS COMBINATIONS
NECB's Restated Certificate of Incorporation provides that certain
combinations between NECB and a 5% or more shareholder or its affiliates
(collectively "Related Person") may not take place unless: (1) such combination
is approved by the holders of not less than 80% of the outstanding voting
shares, voting separately as a class, and (2) by the holders of a majority of
the outstanding voting shares that are not beneficially owned or controlled,
directly or indirectly, by the Related Person. If a business combination
satisfies certain fair price provisions and certain other requirements, then the
business combination must be approved by (i) the holders of not less than 67% of
the outstanding voting shares, and (ii) by the holders of a majority of the
outstanding voting shares that are not beneficially owned or controlled,
directly or indirectly, by the Related Person. Examples of certain other
requirements which will allow a lesser vote are as follows: the Related Person
has not received the benefit of any loans, advances, guarantees, pledges or
other financial tax credits provided by NECB; the Related Person has not made
any changes in NECB's business or capital structure; and prior to the
<PAGE>
151
consummation of the business combination, the Related Person has taken steps to
ensure that the Board of Directors includes representation by directors (who
were elected by shareholders prior to the time the Related Person acquired five
percent or more of the stock of NECB) proportionate to the ratio of voting
shares of NECB owned by shareholders who are not Related Persons, bears to all
voting shares of NECB outstanding at the time in question.
The types of business combinations with a Related Person covered by this
provision include: Reorganizations, consolidations, stock exchanges, a sale,
lease, exchange, mortgage, pledge or other transfer of assets other than in the
regular course of business. An amendment to this provision of the Restated
Certificate of Incorporation generally requires an 80% affirmative vote of the
outstanding stock of NECB and by the holders of a majority of the outstanding
voting shares that are not beneficially owned or controlled, directly or
indirectly, by the Related Person.
NECB believes these increased vote and fair price provisions for business
combinations will help increase the likelihood that any such proposed
transaction will be on terms fair to all of the shareholders of NECB,
particularly if the transaction is proposed by a dominant shareholder who might
be able to obtain approval by a simple majority primarily on the basis of its
own share holdings, even if the transaction were not in the best interest of or
were opposed by a majority of the remaining shareholders. On the other hand, the
increased vote requirement may in effect grant a minority of the shareholders a
veto over a transaction favored by a majority of the shareholders, even if it
were also favored by all or a majority of the Board of Directors of NECB.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
NECB is a Delaware corporation subject to the provisions of the Delaware
Corporation Law and MSB is a Connecticut Chartered Commercial Bank subject to
the provisions of the Banking Laws of Connecticut. Upon consummation of the
Reorganization, shareholders of MSB will become shareholders of NECB and their
rights as shareholders of NECB will be governed by the Restated Certificate of
Incorporation and Bylaws of NECB and the Delaware Corporation Law.
<PAGE>
152
Upon consummation of the Reorganization, shareholders of MSB will receive
5.493 shares of NECB Common Stock and $35.20 payable in cash for each share of
MSB Common Stock owned by them.
The following summary is not intended to be complete statement of the
differences affecting the rights of MSB's shareholders, but rather summarizes
the differences affecting the rights of such shareholders and certain important
similarities.
AUTHORIZED CAPITAL STOCK
MSB's Articles authorize the issuance of up to 100,000 shares of MSB's
Common Stock, of which 100,000 shares were outstanding as of March 15, 1996.
NECB's Certificate authorizes the issuance of up to 10,000,000 shares of
NECB Common Stock, of which 3,084,309 shares were outstanding as of the NECB
Record Date and up to 200,000 shares of NECB Preferred Stock, of which no shares
are issued and outstanding. The NECB Preferred Stock is issuable in series, each
series having such rights and preferences as NECB Board of Directors may fix and
determine by resolution.
ISSUANCE OF CAPITAL STOCK
Under the Delaware Corporation Law, NECB may issue rights or options for
the purchase of shares of capital stock of NECB, provided that such rights or
options may be issued to directors, officers or employees of NECB or its
subsidiaries and the issuance or plan pursuant to which they are issued need not
be approved by the holders of NECB Common Stock. However, the Bylaws of the
National Association of Securities Dealers, Inc. generally require corporations,
such as NECB, with securities which are quoted on the NASDAQ National Market
System to obtain shareholder approval for most stock compensation plans for
directors, officers and key employees of the corporation. Shareholder approval
of stock-related compensation plans may be sought in certain instances in order
to qualify such plans for favorable federal income tax and securities law
treatment under current laws and regulations. Neither the shareholders of NECB
nor the shareholders of MSB have preemptive rights.
<PAGE>
153
VOTING RIGHTS
Each share of MSB Common Stock and NECB Common Stock is entitled to one
vote per share on all matters properly presented at meetings of shareholders of
MSB and NECB, respectively. Neither MSB's Articles of Incorporation and Bylaws
nor NECB's Certificate and Bylaws permit shareholders to cumulate their votes in
an election of directors.
DIVIDENDS AND OTHER DISTRIBUTIONS
Under the Connecticut Banking Statutes, subject to any restrictions
contained in its articles of incorporation, a bank such as MSB may not declare a
dividend on its capital stock except from its net profits. "Net Profits" is
defined as the remainder of all earnings from current operations. The total of
all dividends declared by a bank in any calendar year may not, unless
specifically approved by the banking commissioner, exceed the total of its net
profits of that year combined with its retained net profits of the preceding two
years.
Under Delaware Corporation Law, NECB may, unless otherwise restricted by
its Certificate, pay dividends in cash, property or shares of capital stock out
of surplus or, if no surplus exists, out of net profits for the fiscal year in
which declared or out of net profits for the preceding fiscal year (provided
that such payment will not reduce capital below the amount of capital
represented by classes of stock having a preference upon distribution of
assets).
Under the Delaware Corporation Law, a corporation may repurchase or redeem
its shares only out of surplus and only if such purchase does not impair
capital. However, a corporation may redeem preferred stock out of capital if
such shares will be retired upon redemption and the stated capital of the
corporation is thereupon reduced in accordance with Delaware Law.
Under Connecticut Banking Law, MSB may, subject to the approval of the
Banking Commissioner, acquire and dispose of its common stock, provided no such
acquisition reduces MSB's capital below the minimum required for a capital stock
Connecticut Bank.
<PAGE>
154
Under Delaware law, shareholders are not liable for any improper dividends,
repurchase or issuance of options made by a corporation. Under Connecticut law,
a shareholder is, in certain circumstances, liable for knowingly receiving an
illegal distribution.
For a description of the regulatory capital requirements which are
applicable to MSB and NECB and regulatory limitations on the ability of NECB's
banking subsidiaries to pay dividends, see Management's Discussion and Analysis
of MSB and NECB, respectively.
SIZE OF BOARD OF DIRECTORS
MSB'S Bylaws provide that the number of Directors which shall constitute
the whole board shall be not less than seven (7) and no more than fifteen (15).
The number of directors is determined by stockholders at the Annual Meeting.
NECB's original Certificate provided that the size of NECB's Board would be
initially between nine and twenty directors but may be increased or decreased by
Board or shareholder action. NECB's Bylaws provide that the Board may not
consist of less than three members.
DIRECTOR VACANCIES AND REMOVAL OF DIRECTORS
Under MSB's Bylaws, vacant and newly created directorships resulting from
any increase in the authorized number of Directors may be filled by a majority
of the Directors then in office, through less than a quorum, or by a sole
remaining Director, and the Directors so chosen shall hold office until the next
annual election and until their successors are duly elected and qualified,
unless sooner displaced.
Under NECB's Bylaws, vacancies on the Board may be filled by the remaining
Directors then in office, though less than a quorum, and Directors chosen by the
Board to fill vacancies or newly created directorship hold office until the next
election of directors.
SPECIAL MEETINGS OF SHAREHOLDERS
MSB's Bylaws provide that a Special Meeting of stockholders may be called
by the Chairman of the Board of Directors or by the President and shall be
<PAGE>
155
called by the President or Secretary at the request in writing of a majority of
the Board of Directors, or at the request in writing of stockholders owning a
majority of MSB's issued and outstanding common stock.
NECB's Certificate contains a provision which provides that a special
meeting of shareholders may be called at any time but only by the Chairman of
the Board or the President of NECB or by the Board of Directors. Shareholders
are not authorized to call a special meeting.
SHAREHOLDER NOMINATIONS AND PROPOSALS
MSB's Articles and Bylaws do not contain provisions regarding shareholder
nominations and proposals. MSB is subject to the provisions of Part 335.211 of
the FDIC Rules and Regulations regarding proposals of security holders.
Nominations of persons for election to NECB's Board of Directors may be
made at a meeting of shareholders by or at the direction of the Board of
Directors or by any shareholder of NECB entitled to vote for the election of
Directors, who is present in person or by proxy at the meeting and who complies
with certain notice procedures set forth in NECB's Bylaws. Such nominations,
other than those made by or at the direction of the Board of Directors, must be
made pursuant to timely notice in writing to the Chairman of the Nominating
Committee, which may be sent in care of the Secretary of NECB.
SHAREHOLDER ACTION WITHOUT A MEETING
The Bylaws of MSB provide that any action to be taken or which may be taken
for or in connection with any corporate action, may be taken if a consent in
writing, setting forth the actions so taken, is given by the holders of all
outstanding shares entitled to vote.
The Bylaws of NECB provide that any action to be taken or which may be
taken at any annual or special meeting of shareholders may be taken if a consent
in writing, setting forth the actions so taken, is given by the holders of all
outstanding shares entitled to vote.
<PAGE>
156
AMENDMENT OF GOVERNING INSTRUMENTS
The Bylaws of MSB may be altered, amended or repealed by the affirmative
vote of a majority of all the votes eligible to be cast at a meeting of
stockholders held to consider such a matter.
The Bylaws of NECB may be amended by a majority vote of the full Board of
Directors of NECB or by a majority vote of the capital stock of NECB entitled to
vote thereon at any legal meeting.
No amendment of MSB's Articles generally may be made unless it is first
proposed by the Board of Directors of MSB, which shall recommend adoption of the
amendment by Shareholders and thereafter approved by holders of a majority of
the total votes eligible to be cast at a legal meeting.
No amendment to NECB's Certificate generally may be made unless it is first
proposed by the Board of Directors of NECB and thereafter approved by the
holders of at least a majority of outstanding shares entitled to vote thereon,
with the exception of certain sections thereof which may only be amended by the
holders of at least 75% of the shares of NECB entitled to vote generally in the
election of directors. The section in NECB's Certificate requiring such higher
vote of shareholder relates to procedures for certain business combinations. See
"Procedures for Certain Business Combinations".
REORGANIZATIONS, CONSOLIDATIONS AND SALE OF ASSETS
Connecticut Banking Law requires the approval of the majority of the Board
of Directors and the approval of an affirmative vote of the holders of at least
two-thirds of the issued and outstanding shares of each class of the capital
stock for Reorganizations, consolidations and share exchanges in which a bank is
a participating bank and for sales of all or substantially all of its property
and assets.
NECB's Certificate provides that certain combinations between NECB and a 5%
or more shareholder or its affiliates (collectively "Related Person") may not
take place unless: (1) such combination is approved by the holders or not less
than 80% of the outstanding voting shares, voting separately as a class, and (2)
<PAGE>
157
by the holders of the majority of the outstanding voting shares that are not
beneficially owned or controlled, directly or indirectly, by the Related Person.
If a business combination satisfies certain fair price provisions and certain
other requirements, then the business combination must be approved by (i) the
holders of not less than 67% of the outstanding voting shares, and (ii) by the
holders of a majority of the outstanding voting shares that are not beneficially
owned or controlled, directly or indirectly, by the Related Person. Examples of
certain other requirements which will allow a lesser vote are as follows: the
Related person has not received the benefit of any loans, advances, guarantees,
pledges or other financial tax credits provided by NECB; the Related Person has
not made any change in NECB's business or capital structure; and prior to the
consummation of the business combination, the Related Person has taken steps to
ensure that the Board of Directors includes representation by directors (who
were elected by shareholders prior to the time the Related Person acquired five
percent or more of the stock of NECB) proportionate to the ratio of voting
shares of NECB owned by shareholders who are not Related Persons, bears to all
voting shares of NECB outstanding at the time in question.
The types of business combinations with a Related Person covered by this
provision include: Reorganizations, consolidations, stock exchanges, a sale,
lease, exchange, mortgage, pledge or other transfer of assets other than in the
regular course of business. An amendment to this provision of the Certificate
generally requires an 80% affirmative vote of the outstanding stock of NECB and
by the holders of a majority of the outstanding voting shares that are not
beneficially owned or controlled, directly or indirectly, by the Related Person.
NECB believes these increased votes and fair price provisions for business
combinations will help increase the likelihood that any such proposed
transaction will be on terms fair to all of the shareholders of NECB,
particularly if the transaction is proposed by a dominant shareholder who might
be able to obtain approval by a simply majority primarily on the basis of its
own share holdings, even if the transaction were not in the best interest of or
were opposed by a majority of the remaining shareholders. On the other hand, the
increased vote requirement may in effect grant a minority of the shareholders a
veto over a transaction favored by a majority of the shareholders, even if it
<PAGE>
158
were also favored by all or a majority of the Board of Directors of NECB.
In the event that the fair price and procedure requirements were met or the
requisite approval of NECB Board were given with respect to a particular
business combination, the normal voting requirements of Delaware law would
apply. Under Delaware law the following corporate acts require the approval by a
majority of the outstanding stock of the corporation entitled to vote thereon:
(i) a reorganization or consolidation, (ii) an amendment to NECB's Certificate
or Bylaws, (iii) dissolution of NECB or (iv) the sale, lease or exchange of all
or substantially all of the property or assets of NECB. A sale of less than
substantially all of the assets of NECB, a reorganization of NECB with a company
in which it owns 90% or more of the outstanding capital stock or a
reclassification of NECB's securities not involving an amendment to NECB
Certificate would not require stockholder approval.
APPRAISAL RIGHTS
Connecticut Banking Law provides special appraisal rights for shareholders
of banks who dissent in a reorganization or consolidation.
Delaware Corporation Law provides appraisal rights for shareholders who
dissent in a reorganization or consolidation, subject to certain circumstances.
Where the right of appraisal is available to a shareholder objecting to such a
transaction, appraisal is his or her exclusive remedy as a holder of such shares
against such transactions.
DISSOLUTION
Under Connecticut Banking Law, voluntary dissolution of MSB may be
effectuated by the adoption of a resolution by the Board of Directors which is
adopted by at least a two-thirds vote of the shareholders.
Under Delaware Corporation Law, voluntary dissolution of NECB requires the
adoption of a resolution by a majority of the Board of Directors and by the
affirmative vote of a majority of the holders of the voting power of the
outstanding shares entitled to vote thereon.
<PAGE>
159
LIMITATION OF DIRECTOR LIABILITY
Under Connecticut Banking Law, banks are permitted to include in their
Articles, provisions limiting the personal liability of their directors. MSB's
Articles do not contain such a provision.
NECB's Certificate contains a provision which provides that to the fullest
extent permitted by law, no director of NECB shall have any personal liability
to NECB or its shareholders for monetary damages for breach of their fiduciary
duty as a director, provided that the provision will not eliminate or limit the
liability of a director in certain circumstances. Specifically, liability will
not be eliminated or limited (i) for any breach of the director's duty of
loyalty NECB or its shareholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or knowing violations of law; (iii) for
any unlawful payment of dividends, unlawful stock purchase or unlawful
redemption; or (iv) for any transaction from which the director derived an
improper personal benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
MSB's Bylaws provide that MSB shall indemnify a current or former
shareholder, director, officer, employee or agent of MSB or other person
required or permitted to be indemnified under the Banking Law of Connecticut.
Delaware law and NECB's Bylaws and Restated Certificate of Incorporation
authorize NECB to indemnify Officers, Directors and certain individuals
associated with NECB. In general, Article V of NECB's Bylaws and Article VII of
NECB's Restated Certificate of Incorporation authorize NECB to indemnify any
person who was or is a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of NECB) by reason of the fact that he is or was a director, officer,
trustee, employee or agent of NECB, or is or was serving at the request of NECB
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement actually and reasonably incurred by him in connection with such
<PAGE>
160
action, suit or proceeding, and any appeal therein, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of NECB, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of NECB, and, with respect to any criminal action
or proceeding, that he or she had reasonable cause to believe that his or her
conduct was unlawful.
LEGAL MATTERS
The legality of the NECB Common Stock offered hereby will be passed upon
for NECB by the law firm of Cranmore, FitzGerald & Meaney, 49 Wethersfield
Avenue, Hartford, Connecticut 06114. Certain legal matters will be passed upon
for MSB by the law firm of Jacobs, Walker, Rice & Basche, P.C., 146 Main Street,
P.O. Box 480, Manchester, CT 06045. Certain Taxation matters will be passed upon
by the law firm of Reid and Reige, P.C., One State Street, Hartford, CT 06103.
EXPERTS
The financial statements of NECB, as of December 31, 1995, 1994 and 1993
and for the years then ended included in this Proxy Statement-Prospectus, have
been so included in reliance on the report of Shatswell, MacLeod & Company,
P.C., independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Shatswell, MacLeod & Company, P.C. has been appointed to serve as auditors
for NECB and NEBT for the year ending December 31, 1996.
The financial statements of MSB, as of December 31, 1995, 1994 and 1993 and
for the years then ended included in this Proxy Statement-Prospectus, have been
audited by Bardaglio, Hart & Shuman, and has been so included in reliance upon
the report of such firm given upon its authority as experts in accounting and
auditing.
<PAGE>
161
OTHER MATTERS
As of the date of this Proxy Statement-Prospectus, the MSB Board does not
know of any other matters which may come before the Special Meeting. If any
matters other than those referred to in this Proxy Statement-Prospectus should
come before the meeting, it is the intention of each person named in the
enclosed form of proxy to vote each proxy with respect to such matters in
accordance with his or her best judgement.
<PAGE>
162
INDEX TO FINANCIAL STATEMENTS
NECB AND SUBSIDIARIES
Report of Independent Certified Public Accountants for the Years
Ended December 31, 1995 and 1994. F-1
Consolidated Balance Sheets at December 31, 1995, 1994 and 1993. F-2
Consolidated Statements of Income for the Years Ended December 31,
1995, 1994 and 1993. F-3
Consolidated Statements of Cash Flows for the Years Ended December
31, 1995, 1994 and 1993. F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993. F-5
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1995, 1994 and 1993. F-6
MANCHESTER STATE BANK
Independent Auditors' Report for the Years Ended December
31, 1995, 1994 and 1993. F-14
Consolidated Statements of Condition, December 31, 1995, 1994 and 1993. F-15
Consolidated Statements of Income for the Years Ended December
31, 1995, 1994 and 1993. F-16
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993. F-17
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993. F-18
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995, 1994 and 1993. F-19
<PAGE>
To the Board of Directors
New England Community Bancorp, Inc.
Windsor, Connecticut
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of New England
Community Bancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
England Community Bancorp, Inc. and Subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Notes 2 and 11 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," effective January 1, 1993.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" as of December 31, 1993.
/S/ SHATSWELL, MacLEOD & COMPANY, P.C
---------------------------------
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 25, 1996
F-1
<PAGE>
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(amounts in thousands; except per share data)
Years Ended December 31, 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C>
Cash and due from banks $14,495 $13,014
Interest-bearing demand deposits with other banks 55 1,000
Federal funds sold 9,075 13,702
----- ------
Cash and cash equivalents 23,625 27,716
Interest-bearing time deposits with other banks 3,000 99
Investment securities (Note 3)
Securities held-to-maturity (fair values of $7,189 and $11,528 at
December 31, 1995 and 1994, respectively) (Note 4) 7,066 11,742
Securities available-for-sale (at fair value) (Note 5) 75,063 36,065
Federal Home Loan Bank stock 1,176 810
Loans outstanding (Note 6) 222,235 132,624
Less: allowance for loan losses (Note 6) (4,446) (2,564)
------- -------
Net loans 217,789 130,060
Mortgages held-for-sale 788
Accrued interest receivable 2,538 1,502
Premises and equipment (Note 7) 6,960 5,607
Other real estate owned 728 573
Other assets 2,828 2,516
----- -----
TOTAL ASSETS $341,561 $216,690
======== ========
LIABILITIES:
Deposits
Noninterest bearing $59,945 $47,323
Interest bearing 247,216 149,549
------- -------
Total deposits (Note 8) 307,161 196,872
Short-term borrowings 540 800
Accrued interest payable 317 66
Other liabilities 3,063 479
----- ---
TOTAL LIABILITIES 311,081 198,217
------- -------
SHAREHOLDERS' EQUITY (Note 9):
Serial preferred stock, $.10 par value, 200,000 shares authorized;
no shares issued
Common stock, $.10 par value, December 31, 1995 authorized 10,000,000
shares, 3,084,309 outstanding; December 31, 1994
authorized 10,000,000 shares, outstanding 2,080,692 308 208
Additional paid-in capital 21,522 12,115
Retained earnings 8,492 6,993
Net unrealized holding gain (loss) on securities available-for-sale 158 (843)
--- -----
TOTAL SHAREHOLDERS' EQUITY 30,480 18,473
------ ------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $341,561 $216,690
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
(amounts in thousands; except per share data)
Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Interest and dividend income:
<S> <C> <C> <C>
Loans, including fees $12,935 $9,507 $10,367
Investment securities:
Taxable interest 2,721 2,668 2,537
Interest exempt from federal income taxes 49 32 61
Dividends 188 63 93
Federal funds sold and other interest 407 281 127
--- --- ---
Total interest and dividend income 16,300 12,551 13,185
------ ------ ------
Interest expense:
Deposits (Note 8) 5,703 3,953 4,937
Borrowed funds 33 21 25
-- -- --
Total interest expense 5,736 3,974 4,962
----- ----- -----
Net interest and dividend income 10,564 8,577 8,223
Provision for possible loan losses (Note 6) 700 530 764
--- --- ---
Net interest and dividend income after provision
for possible loan losses 9,864 8,047 7,459
----- ----- -----
Noninterest income:
Service charges, fees and commissions 1,385 1,509 1,676
Investment securities gains, net 21 177
Gain on sales of loans, net 193 45 188
Other 93 62 74
-- -- --
Total noninterest income 1,692 1,616 2,115
----- ----- -----
Noninterest expense:
Salaries and employee benefits (Note 10) 4,378 3,830 3,969
Occupancy 729 658 638
Furniture and equipment 686 682 610
Outside services 322 311 708
Postage and supplies 391 343 370
Insurance and assessments 363 639 776
Loan origination and collection 21 21 76
Losses, writedowns, expenses - other real estate owned 225 265 1,596
Other 1,476 1,146 594
----- ----- -----
Total noninterest expenses 8,591 7,895 9,337
----- ----- -----
Income before taxes and cumulative effect of change
in accounting principle 2,965 1,768 237
Income taxes (Note 11) 985 665 56
--- --- --
Income before cumulative effect of change in accounting
principle 1,980 1,103 181
Cumulative effect of change in accounting principle (Note 2) 228
------ ------ ---
NET INCOME $1,980 $1,103 $409
====== ====== ====
Income per share before cumulative effect of change in
accounting principle $0.91 $0.82 $0.14
Cumulative per share effect of change in method of
accounting principle (Note 2) 0.17
----
Net income per share $0.91 $0.82 $0.31
===== ===== =====
Weighted average shares of common stock 2,165,931 1,345,076 1,302,432
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(amounts in thousands)
Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C> <C>
Net income $1,980 $1,103 $409
Adjustment for noncash charges (credits):
Provision for depreciation and amortization 508 425 388
Losses from sale or disposal and provisions to reduce
the carrying value of other real estate owned, net 169 174 1,201
Investment securities gains, net (21) (177)
Accretion of discounts and amortization of premiums
on bonds, net 108 229 381
Provision for possible loan losses 700 530 764
Gain on sales of loans, net (45) (188)
(Increase) decrease in accrued interest receivable and other assets, net 832 (891) 364
(Increase) decrease in loans held for sale (788) 3,512 (3,512)
Change in method of accounting for income taxes (228)
Increase (decrease) in accrued interest payable and other liabilities, net 640 (465) (1,560)
------ ------ -------
Net cash provided by (used for) operating activities 4,128 4,572 (2,158)
------ ------ -------
Financing Activities:
Net increase (decrease) in noninterest-bearing accounts (2,861) 14,841 2,380
Net increase (decrease) in interest-bearing accounts 5,754 (6,435) (10,092)
Decrease in short-term borrowings, net (260) (138)
Issuance of common stock 5,571
Cash equivalents acquired in the merger of The Equity
Bank 7,790
Cash dividends paid (415)
------- ------- -------
Net cash provided by (used for) financing activities 10,008 13,977 (7,850)
------- ------- -------
Investing Activities:
Loans originated, net of principal collections (6,694) (24,666) 6,820
Loans purchased from other lenders (4,871)
Net increase in interest-bearing time deposits (2,802) (99)
Purchases of Federal Home Loan Bank stock (810)
Proceeds from sales of loans 6,063 10,665
Purchases of securities available-for-sale (31,575) (12,955)
Proceeds from sales of securities available-for-sale 4,535 7,301
Proceeds from maturities of securities available-for-sale 18,824 14,192
Purchases of securities held-to-maturity (3,742) (11,297)
Proceeds from maturities of securities held-to-maturity 8,556 12,099
Purchases of investment securities (34,346)
Proceeds from sales of securities 3,578
Proceeds from maturities of securities 23,634
Proceeds from sales of other real estate owned 969 1,131 2,100
Payments on other real estate owned 17 73
Purchases of premises and equipment, net (1,427) (929) (736)
Refund on purchase of computer software 5
Capitalization of expenditures on other real estate owned (148)
-------- -------- -------
Net cash provided by (used for) investing activities (18,227) (10,096) 11,788
-------- -------- -------
(Decrease) increase in cash and cash equivalents (4,091) 8,453 1,780
Cash and cash equivalents, beginning of year 27,716 19,263 17,483
------- ------ ------
Cash and cash equivalents, end of year $23,625 $27,716 $19,263
======== ======= =======
Schedule of noncash investing and financing activities:
Loans charged off, net of recoveries $779 $750 $1,177
Conversions of mortgage loans to mortgage backed securities 2,489
Real estate acquired through foreclosure 796 743 1,007
Real estate owned charged to valuation allowance 296
Securities classified in accordance with SFAS No. 115 as of
December 31, 1993:
Available-for-sale 46,704
Held-to-maturity 12,668
Loans originated to facilitate sales of other real estate owned 564 1,579
A summary of the merger of The Equity Bank is as follows:
Fair value of assets acquired, excluding cash and cash
equivalents 111,242
Cash and cash equivalents acquired, 7,790
-------
119,032
Liabilities assumed 109,525
-------
Value of Company common stock issued for the merger 9,507
Income tax paid (received) 797 344 (393)
Interest paid 5,678 3,974 5,037
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(amounts in thousands; except per share data)
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain (Loss)
Additional on Securities
Common Stock Paid-in Retained Available- Total
Shares Value Capital Earnings for-Sale Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,302 $130 $6,622 $5,582 $ $12,334
Net income 409 409
Net change in unrealized loss on
marketable equity securities 3 3
Net unrealized holding gain on securities
available-for-sale upon adoption
of SFAS No. 115 266 266
----- --- ----- ----- --- ---
Balance, December 31, 1993 1,302 130 6,622 5,994 266 13,012
Net income 1,103 1,103
Dividends declared ($0.05 per share) (104) (104)
Net change in unrealized holding gain on
securities available-for-sale (1,109) (1,109)
Common stock offering (Note 9) 778 78 5,493 5,571
--- -- ----- ----- ----- -----
Balance, December 31, 1994 2,080 208 12,115 6,993 (843) 18,473
Net income 1,980 1,980
Dividends declared ($0.205 per share) (481) (481)
Shares issued pursuant to the merger
of The Equity Bank (Note 9) 1,004 100 9,407 9,507
Net change in unrealized holding loss on
securities available-for-sale 1,001 1,001
----- ---- ------- ------ ----- -----
Balance, December 31, 1995 3,084 $308 $21,522 $8,492 $158 $30,480
===== ==== ======= ====== ==== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1 -- ORGANIZATION
New England Community Bancorp, Inc. (the "Company"), a Delaware
Corporation, is a multi-bank holding company. It operates two wholly owned
subsidiary banks chartered by the state of Connecticut. New England Bank & Trust
Company is headquartered in Windsor, Connecticut and provides commercial and
consumer banking services from its eight offices located in the towns of Canton,
East Windsor, Ellington, Enfield, Somers, Suffield and Windsor (2), Connecticut.
The Equity Bank, acquired in December 1995, provides commercial and consumer
banking services from its office in Wethersfield, Connecticut.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles and include its
accounts and those of its subsidiaries, after elimination of significant
inter-company balances and transactions.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
Investment Securities, In General
Investments in debt securities are adjusted for amortization of premiums
and accretion of discounts computed on the effective interest method. Gains or
losses on sales of investment securities are computed on a specific asset basis.
As of December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). The Statement establishes standards of
financial accounting and reporting for investments in equity securities that
have readily determinable fair values and all investments in debt securities.
SFAS No. 115 requires that the Company classify debt and equity securities into
one of three categories: held-to-maturity, available-for-sale, or trading. This
security classification may be modified after acquisition only under certain
specified conditions. In general, securities may be classified as
held-to-maturity only if the Company has the positive intent and ability to hold
them to maturity. Trading securities are defined as those bought and held
principally for the purpose of selling them in the near term. All other
securities must be classified as available-for-sale. In terms of how the Company
accounts for and reports these securities, refer to the table below:
Security Classification Accounting and Reporting Treatment
- --------------------------------------------------------------------------------
Held-to-maturity These securities are measured at amortized cost
on the balance sheet. Unrealized holding gains
and losses are not included in earnings or in a
separate component of capital. They are merely
disclosed in the notes to the financial
statements.
Available-for-sale These securities are carried at fair value on
the balance sheet. Unrealized holding gains and
losses are not included in earnings, but are
reported as a net amount (less expected tax) in
a separate component of capital until realized.
Trading Trading securities are carried at fair value on
the balance sheet. Unrealized holding gains and
losses for trading securities are included in
earnings. As the Company had no trading
securities as of December 31, 1993 there was no
impact to the Company's earnings upon the
adoption of the Statement.
Loans
Loans are stated at their principal amount outstanding and are net of
unearned income on discounted loans. Interest on nondiscounted loans is
recognized on the simple interest method based upon the principal amount
outstanding except for those loans in a nonaccrual status. Loans are placed in a
nonaccrual status when a loan is past due greater than ninety days or the
payment of principal or interest is considered to be in doubt. Payments received
on nonaccrual and impaired loans are first applied to the remaining principal
balance and are next applied to interest income.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as adjustments of the related
loan's yield. These amounts are being amortized over the contractual life of the
related loans. Upon sale of loans in the secondary market, the related deferred
fees or costs are recorded in income. Commitment fees based on a percentage of a
customer's unused line of credit and fees related to standby letters of credit
are recognized over the commitment period.
Allowance for Possible Loan Losses
The allowance for possible losses on loans is established through charges
against income and is maintained at a level considered adequate to provide for
probable loan losses based on management's evaluation of known and inherent
risks in the loan portfolio. When a loan or a portion of a loan is considered
uncollectible, it is charged-off against the allowance. Recoveries of loans
previously charged-off are credited to the allowance when received.
Management's evaluation of the allowance is based on a continuing review of
the loan portfolio which includes many factors, such as utilization of an
individual loan rating system to assess trends in asset quality; identification
and review of individual problem situations which may affect the borrower's
ability to repay; review of overall portfolio quality through analytical review
of current charge-offs, delinquency and nonperforming loan data; review of
regulatory authority examinations and evaluation of loans; an assessment of
current economic conditions; and changes in the size and character of the loan
portfolio. These reviews are dependent upon estimates, appraisals and judgments
which can change quickly because of changing economic conditions and
management's perception as to how these factors affect the financial condition
of debtors.
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", as amended by SFAS No. 118. The Statement requires that impaired loans be
measured on a loan by loan basis by either the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent.
The Statement is applicable to all loans, except large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment, loans
that are measured at fair value or at the lower of cost or fair value, lease,
convertible or non-convertible debentures and bonds and other debt securities.
The financial statement impact of adopting the provisions of this Statement
was not material.
F-6
<PAGE>
Mortgages Held-For-Sale
Mortgages held-for-sale are carried at the lower of aggregate cost or fair
value.
Other Real Estate Owned
Other real estate owned consists of properties acquired through mortgage
loan foreclosure proceedings. These properties are recorded at the lower of the
carrying value of the related loans or the estimated fair market value less
estimated selling costs. Charges to the allowance for loan losses are the
measure by which properties are reduced to fair market value less estimated
selling costs upon reclassification as other real estate owned. Subsequent
reductions in carrying value are charged to operating income.
Beginning in 1995, in accordance with Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", the
Company classifies loans as in-substance repossessed or foreclosed if the
Company receives physical possession of the debtor's assets regardless of
whether formal foreclosure proceedings take place.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the following
estimated useful lives: building, 30 years; furniture, fixtures and equipment,
3-10 years. Leasehold improvements are amortized over the shorter of the
estimated useful life or the life of the lease.
Income Taxes
The Company recognizes income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when the amounts related to such temporary differences are realized or settled.
The adoption of this method as of January 1, 1993 resulted in the recognition of
an additional deferred income tax asset of $227,800 which has been reported in
1993 income as the cumulative effect of an accounting change. As a matter of
practice, it is the Company's policy is to continually evaluate the
realizability of any deferred tax assets resulting from the use of the asset and
liability method.
Earnings Per Share
Earnings per share have been computed based on the weighted average number
of shares outstanding after giving retroactive effect to stock splits and stock
dividends. Shares issuable upon the exercise of stock option grants have not
been included in the per share computation because they would not have a
material effect on earnings per share.
Cash Flows
For the purpose of reporting cash flows, the Company has defined cash
equivalents as those amounts included in cash and due from banks, interest
bearing demand deposits and federal funds sold.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," (SFAS No. 107) requires disclosure of
estimated fair values of financial instruments. A financial instrument is
defined as cash, evidence of an ownership interest in an entity, or a contract
that conveys or imposes the contractual right or obligation to receive or
deliver cash or another financial instrument. Fair value is defined as the
amount at which a financial instrument can be exchanged in a current exchange
between willing parties, other than in a forced sale or liquidation, and is best
evidenced by a quoted market price, if one exists.
The Company has estimated fair value based on quoted market prices where
available. In cases where quoted market prices were not available, fair value is
based on estimates using the present value of expected future cash flows and
certain other techniques. These techniques are based on certain assumptions
which are subjective and judgmental in nature. Accordingly, the results may not
be substantiated by comparison with independent market prices and, in some
cases, cannot be realized in immediate settlement of the financial instrument.
Furthermore, SFAS No. 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly, the
fair values disclosed should not be interpreted as the aggregate current fair
market value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Financial Instrument Methods and Assumptions
- --------------------------------------------------------------------------------
Cash and cash equivalents The carrying amounts reported in the balance
sheet for cash and due from banks and federal
funds sold approximate fair value.
Investment securities The fair value of investment securities are
based on prices obtained through brokers and
independent pricing services.
Loans The fair value of loans was estimated for groups
of similar loans based on the type of loan,
interest rate characteristics and maturity. The
fair value of performing commercial, commercial
real estate, installment loans and residential
mortgage loans was estimated by discounting
expected future cash flows using interest rates
currently being offered for loans with similar
terms to borrowers of similar credit quality.
The fair value of nonaccruing loans was
estimated by determining expected future
principal cash flows, adjusted for credit risk.
Deposits The fair value of demand deposits, savings,
money market and NOW deposits and certificates
of deposits having variable interest rates
approximate their carrying value. The fair value
of certificates of deposits with fixed
maturities and interest rates was estimated by
discounting expected future cash flows utilizing
interest rates currently being offered on
deposits with similar characteristics and
maturities.
Short-term borrowings The carrying amounts reported for short-term
borrowings approximate fair value.
NOTE 3 -- INVESTMENT SECURITIES
There were no securities of issuers whose aggregate carrying amount
exceeded 10% of stockholders' equity at December 31, 1995.
Securities having an amortized cost basis of $5,020,000 and $2,694,000 at
December 31, 1995 and 1994, respectively were pledged to secure treasury, tax
and loan deposits and public deposits.
F-7
<PAGE>
NOTE 4 -- INVESTMENTS IN SECURITIES HELD-TO-MATURITY
Investments in securities held-to-maturity at December 31, 1995 are carried
at amortized cost on the balance sheet and are summarized as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
-------------------------------------------------------------------------------
Debt securities issued by...
<S> <C> <C> <C> <C>
...the U.S. Treasury and other U.S.
government agencies $5,501 $71 $12 $5,560
...states of the United States and
political subdivisions of the states 1,565 65 1 1,629
-------------------------------------------------------------------------------
$7,066 $136 $13 $7,189
================================================================================
</TABLE>
Information about the contractual maturities of investments in debt
securities classified as held-to-maturity at December 31, 1995 is summarized as
follows:
(amounts in thousands)
Amortized Cost
Basis Fair Value
--------------------------------------
Due within one year $1,500 $1,503
Due after one year through five years 4,622 4,691
Due after five years through ten years 697 726
Due after ten years 247 269
--------------------------------------
$7,066 $7,189
======================================
Investments in securities held-to-maturity at December 31, 1994 are carried
at amortized cost on the balance sheet and are summarized as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by...
...the U.S. Treasury and other U.S.
government agencies $10,886 $ $242 $10,644
...states of the United States and
political subdivisions of the states 856 28 884
---------------------------------------------------------------------------
$11,742 $28 $242 $11,528
===========================================================================
</TABLE>
NOTE 5 -- INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE
Investments in available-for-sale securities at December 31, 1995 are
carried at fair value on the balance sheet and are summarized as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $15,115 $93 $7 $15,201
Debt securities issued by...
...the U.S. Treasury and other U.S. government
agencies 38,483 275 203 38,555
...states of the United States and political subdivisions
of the states 251 251
Corporate debt securities 9,688 8 28 9,668
Mortgage-backed securities 11,256 159 27 11,388
-------------------------------------------------------------------
$74,793 $535 $265 $75,063
===================================================================
Information about the contractual maturities of investments in debt
securities classified as available-for-sale at December 31, 1995 is summarized
as follows:
</TABLE>
<TABLE>
<CAPTION>
(amounts in thousands) Amortized Cost Basis Fair Value
---------------------------------------------------
Debt securities other than mortgage-backed securities:
<S> <C> <C>
Due within one year $11,540 $11,534
Due after one year through five years 32,435 32,418
Due after five years through ten years 4,447 4,522
Mortgage-backed securities 11,256 11,388
------- -------
$59,678 $59,862
===================================================
</TABLE>
F-8
<PAGE>
During 1995, proceeds from sales of available-for-sale securities amounted
to $4,535,000. Gross realized gains and gross realized losses on those sales
amounted to $36,000 and $17,000, respectively. During 1994, proceeds from sales
of available-for-sale securities amounted to $7,301,000. Gross realized gains
and gross realized losses on those sales amounted to $63,000 and $63,000,
respectively. During 1993, proceeds from sales of securities amounted to
$3,578,000. Gross realized gains and gross realized losses on those sales
amounted to $181,000 and $4,000, respectively.
Investments in available-for-sale securities at December 31, 1994 are
carried at fair value on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $2,120 $18 $8 $2,130
Debt securities issued by the U.S. Treasury and other
U.S. government agencies 22,977 1 998 21,980
Debt securities issued by foreign governments 5 5
Corporate debt securities 3,361 85 3,276
Mortgage-backed securities 9,045 12 383 8,674
-------------------------------------------------------------------
$37,508 $31 $1,474 $36,065
===================================================================
</TABLE>
NOTE 6 -- LOANS
<TABLE>
<CAPTION>
(amounts in thousands)
Loans consisted of the following at December 31, 1995 1994
------------------------------------------
<S> <C> <C>
Commercial and financial; less unearned income of $266 and
$70 in 1995 and 1994, respectively $35,808 $27,033
Real estate construction 12,942 1,883
Real estate mortgage; less unearned income of $365 and
$268 in 1995 and 1994, respectively 165,904 91,245
Installment; less unearned income of $24 and
$38 in 1995 and 1994, respectively 5,415 12,298
Other 2,166 165
------------------------------------------
$222,235 $132,624
==========================================
</TABLE>
Most of the Company's business activity is with customers located within
the state. There are no concentrations of credit to borrowers that have similar
economic characteristics. The majority of the Company's loan portfolio is
comprised of loans collateralized by real estate located in the State of
Connecticut.
Nonaccrual Loans and Allowance for Possible Loan Losses
At December 31, 1995 and 1994 nonaccrual loans totaled $4,725,000 and
$2,975,000, respectively. Interest income related to nonaccrual loans not
reflected in the accompanying financial statements amounted to approximately
$120,000 in 1995, $194,000 in 1994 and approximately $193,000 in 1993.
Additionally, loans in excess of ninety days past their contractual due dates
and still accruing interest at December 31, 1995 and 1994 amounted to
approximately $273,000 and $16,000, respectively.
Changes in the allowance for possible loan losses for the years ended December
31 were as follows:
(amounts in thousands)
1995 1994 1993
---- ---- ----
Balance, beginning of year $2,564 $2,784 $3,197
Changes incident to merger, net 1,961
Provision charged to operations 700 530 764
Recoveries on loans previously charged-off 199 251 50
Loans charged-off (978) (1,001) (1,227)
----- ------- -------
Balance, end of year $4,446 $2,564 $2,784
====== ====== ======
Loans to Officers and Directors
Loans to officers, directors, principal shareholders and their associates
of the Company aggregated $6,971,000 at December 31, 1995 as compared to
$3,337,000 at December 31, 1994. The following table summarizes the related
party loan activity for the year ended December 31, 1995:
(amounts in thousands)
Balance, beginning of year $3,337
Changes incident to merger 2,908
Additions 3,361
Repayments/sales 2,635
-----
Balance, end of year $6,971
======
As of December 31, 1995, information about loans that meet the definition of an
impaired loan in Statement of Financial Accounting Standards No. 114 is as
follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Recorded Related
Investment
Allowance
In Impaired for Credit
Loans Losses
----- ------
<S> <C> <C>
Loans for which there is a related allowance for credit losses $2,267 $634
Loans for which there is no related allowance for credit losses 869
---
Totals $3,136 $634
====== ====
Average recorded investment in impaired loans during the year
ended December 31, 1995 $ 870
======
Related amount of interest income recognized during the time, in the
year ended December 31, 1995, that the loans were impaired
Total recognized $1
==
Amount recognized using a cash-basis method of accounting $0
==
</TABLE>
NOTE 7 -- PREMISES AND EQUIPMENT
Premises and equipment at December 31, comprised the following:
(amounts in thousands)
1995 1994
---- ----
Land $1,035 $1,035
Premises 5,877 4,906
F-9
<PAGE>
Furniture and equipment 3,042 2,537
Leasehold improvements 646 302
--- ---
10,600 8,780
Accumulated depreciation and amortization (3,640) (3,173)
------- -------
$6,960 $5,607
======= =======
Provisions for depreciation and amortization on premises and equipment were
$467,000, $397,000, and $372,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
Noncancelable Leases
The Company and its subsidiaries occupy certain premises and are provided
equipment under noncancelable leases that are accounted for as operating leases
and that have expiration dates through 2011. These leases are renewable for
either three or five-year terms at the Company's option. Certain of the leases
contain escalation clauses for additional rentals based upon increases in local
property taxes and inflationary measures. Rental expense under these leases
aggregated $197,000 in 1995, $188,000 in 1994 and $224,000 in 1993 and is
recorded in occupancy expenses.
The aggregate minimum rental commitments under all leases at December 31,
1995 are $2,399,000 as indicated below:
(amounts in thousands)
In Year... ...the minimum commitment is...
---------- -------------------------------
1996; $ 326
1997; 263
1998; 270
1999; 270
2000; 243
and subsequent years, 1,027
-----
Total $2,399
======
The Equity Bank leases its premises from one of its directors. The lease
expires in 2004, with two five year renewal options.
NOTE 8 -- DEPOSITS
As of December 31, 1995 and 1994, outstanding certificates of deposit of
$100,000 or more were $19,222,000 and $8,559,000, respectively. Interest expense
incurred on such deposits was $1,076,000, $278,000 and $469,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. NOW accounts totaled
$29,527,000 and $23,836,000 as of December 31, 1995 and 1994, respectively.
Interest expense incurred on NOW accounts was $266,000, $307,000 and $567,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 9 -- SHAREHOLDERS' EQUITY
Common Stock
The Company is authorized to issue 10,000,000 shares of common stock, $0.10
par value.
In 1994 an offering of shares of common stock of the Company resulted in
the sale of 778,260 shares. These shares were purchased at the fair market value
which was determined at the time to be $8.00. The offering resulted in
additional capital of $5,570,574 after deducting expenses associated with the
offering.
On November 30, 1995, the Company acquired The Equity Bank which resulted
in the issuance of 1,003,617 shares of its common stock in exchange for all of
the outstanding common shares (less 69,486 shares not exchanged by dissenting
shareholders).
Serial Preferred Stock
The Company is authorized to issue 200,000 shares of serial preferred stock
in one or more series and to fix the number of shares of each series and to
determine the rights and privileges of the shares of each series. At December
31, 1995, no such shares have been issued.
Common Stock Options
During 1993 the Board of Directors of the Company voted to grant stock
options to two executive officers to purchase 34,000 shares of common stock at
$5.00 per share expiring on September 1, 1996. The granting of these options was
approved by shareholders on April 12, 1994. In January 1995, the Board of
Directors of the Company voted to grant stock options to three executive
officers to purchase 30,000 shares of common stock at $7.75 per share after
January 24, 1996 and prior to January 24, 1998. The granting of these options
was approved by shareholders on May 16, 1995. The following table reflects this
activity:
Number of Options
-----------------
1995 1994 1993
------ ------ ------
Outstanding, beginning of year 34,000 34,000 0
Granted 30,000 34,000
------ ------ ------
Outstanding, end of year 64,000 34,000 34,000
====== ====== ======
Exercisable, end of year 34,000 34,000 34,000
====== ====== ======
Aggregate Option Price
----------------------
1995 1994 1993
-------- -------- --------
Outstanding, beginning of year $170,000 $170,000 $0
Granted 232,500 170,000
------- -------
Outstanding, end of year $402,500 $170,000 $170,000
======== ======== ========
NOTE 10 -- EMPLOYEE BENEFITS
The Company and its subsidiaries maintain defined contribution plans for
substantially all of its full-time employees. The contributions under the plans
were $227,000, $86,000 and $131,000, for the years ended December 31, 1995, 1994
and 1993, respectively.
F-10
<PAGE>
NOTE 11 -- INCOME TAXES
As discussed in Note 2, effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
The components of income tax provision are as follows:
(amounts in thousands)
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Current:
Federal $706 $112 (170)
State 270 45 8
--- -- -
976 157 (162)
--- --- -----
Deferred:
Federal 145 387 206
State 50 157 12
-- --- --
195 544 218
--- --- ---
Change in valuation allowance (186) (36)
----- ---- ---
Total income tax provision $985 $665 $56
==== ==== ===
The following reconciles the income tax provision from the statutory rate
to the amount reported in the consolidated statements of income:
(amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31, % of % of % of
1995 Income 1994 Income 1993 Income
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $1,008 34.0% $601 34.0% $81 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (19) (.6) (14) (.8) (21) (8.7)
Surtax exemption (11) (4.9)
Dividends received deduction (49) (1.7) (15) (.8) (22) (9.3)
Alternative minimum tax (12) (.7) 12 5.0
Unallowable expenses 21 .7 7 .4 4 1.9
Change in valuation allowance (187) (6.3) (36) (2.0)
State tax, net of federal tax benefit 211 7.1 134 7.5 13 5.6
--- --- --- --- -- ---
$985 33.2% $665 37.6% $56 23.6%
==== ===== ==== ===== === =====
</TABLE>
The major components of deferred income tax expense attributable to income
are as follows:
(amounts in thousands)
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Other real estate valuation $118 $131 $146
Contribution carryover 5 3 (7)
Fair value of loans available for sale (14) 14
Accrued expenses (104)
Other temporary differences 5 43
Alternative minimum tax credit (12) (48)
Operating loss carryover-state 4 (4)
Deferred loan fees 35 37 (60)
Provision for loan losses 97 380 174
Accelerated depreciation 9 12 3
Accrued interest nonperforming loans 30 (40)
-- ---- ----
$195 $544 $218
==== ==== ====
At December 31, the Company had gross deferred tax assets and gross
deferred tax liabilities as follows:
(amounts in thousands)
1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Accrued interest nonperforming loans $118 $80
Accrued expenses 103
Allowance for loan losses 876 475
Loan origination fees 242 219
Depreciation 95 98
Contribution carryover 33
Other real estate owned valuation 192 115
Net unrealized holding loss on available-for-sale securities 600
----- ---
Gross deferred tax asset 1,626 1,620
Valuation allowance (684) (871)
----- -----
942 749
Deferred tax liabilities: ----- -----
Other adjustments (22) (4)
Net unrealized holding gain on available-for-sale securities (112)
----- -----
Gross deferred tax liability (134) (4)
----- -----
Net deferred tax asset $808 $745
==== =====
At December 31, 1995, the Company had no operating loss carryovers for tax
purposes.
The deferred tax assets, liabilities and valuation allowance at December
31, 1994 have been adjusted to reflect the results of an examination of the
Company's federal income tax returns of prior years by the Internal Revenue
Service.
The net deferred tax asset at December 31, 1995 includes approximately
$783,000 from the merger with The Equity Bank as of November 30, 1995.
F-11
<PAGE>
NOTE 12 -- CONDENSED FINANCIAL INFORMATION OF NEW ENGLAND COMMUNITY BANCORP,
INC.
The condensed balance sheets of New England Community Bancorp, Inc. (parent
company only) as of December 31, 1995 and 1994 and statements of income and cash
flows for each of the three years in the period ended December 31, 1995 follow:
<TABLE>
<CAPTION>
(amounts in thousands) 1995 1994
---- ----
Balance Sheets
Assets:
<S> <C> <C>
Investment in bank subsidiaries, at equity in net assets $25,510 $12,959
Investments 4,919 5,500
Cash 58 122
Other assets 1,010
----- -------
$31,497 $18,581
======= =======
Other liabilities $1,017 $108
Shareholders' equity 30,480 18,473
------ ------
$31,497 $18,581
======= =======
</TABLE>
<TABLE>
<CAPTION>
Statements of Income
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Equity in undistributed net income of bank subsidiaries $2,027 $1,097 $409
Interest income 293 16
Income tax benefit (expense) 33 (4)
Other expense (373) (6)
----- --- ----
Net income $1,980 $1,103 $409
====== ====== ====
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Operating activities:
<S> <C> <C> <C>
Net income $1,980 $1,103 $409
Adjustments to reconcile net income
to net cash provided by (used for) operating activities:
Equity in undistributed net income of bank subsidiaries (2,027) (1,097) (409)
Net change in other liabilities 355
Net change in other assets (450)
(Decrease) increase in taxes payable (101) 4
----- - -----
Net cash provided by (used for) operating activities (243) 10
----- -- -----
Investing activities:
Purchases of investment securities (235) (5,500)
Sales of investment securities 850
--- ------- -----
Net cash provided by (used for) investing activities 615 (5,500)
--- ------- -----
Financing activities:
Net proceeds from issuance of common stock 5,571
Dividends paid (415)
Cash paid in lieu of fractional shares in the merger of
The Equity Bank (3)
Costs of registering and issuing shares for the merger
of The Equity Bank (18)
---- ----- -----
Net cash provided by (used for) financing activities (436) 5,571
---- ----- ----
Increase (decrease) in cash (64) 81
Cash, beginning of year 122 41 41
--- -- --
Cash, end of year $58 $122 $41
=== ==== ===
</TABLE>
NOTE 13 -- FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance-sheet risk
to satisfy the financing needs of its borrowers. These financial instruments
include commitments to extend credit and standby letters of credit and financial
guarantees. The Company does not anticipate any material losses as a result of
these transactions.
Commitments to extend credit are agreements to lend to a borrower as long
as there is not a violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitments do not necessarily
represent future cash requirements. The Company evaluates each borrower's
creditworthiness on a case-by-case basis using the same credit policies as for
on-balance-sheet financial instruments. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on Management's credit
evaluation of the counterpart. Collateral held varies but may include real
estate, accounts receivable, inventory, property, plant and equipment and
income-producing property.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Company's subsidiaries to guarantee the performance of
a borrower to a third party. The evaluations of creditworthiness, consideration
of need for collateral and credit risk involved in issuing letters of credit are
essentially the same as that involved in extending loans to borrowers.
Of the total standby letters of credit outstanding at December 31, 1995,
$361,000 are secured by deposit accounts held with the Company's subsidiaries.
The estimated fair values of the Company's financial instruments, all of
which are held or issued for purposes other than trading, were as follows at
December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
(amounts in thousands) Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $23,625 $23,625 $27,716 $27,716
Securities available-for-sale 75,063 75,063 36,065 36,065
Securities held-to-maturity 7,066 7,189 11,742 11,528
Federal Home Loan Bank stock 1,176 1,176 810 810
Loans 217,789 218,516 130,060 129,037
Accrued interest receivable 2,538 2,538 1,502 1,502
Interest-bearing time deposits with other banks 3,000 3,000 99 99
Mortgages held-for-sale 788 788 - -
F-12
<PAGE>
Financial liabilities:
Deposits 307,161 308,164 196,872 197,075
Short-term borrowings 540 540 800 800
</TABLE>
The carrying amounts of financial instruments in the above table are
included in the consolidated balance sheets under the individual captions.
Off-balance-sheet liabilities:
1995 1994
---- ----
Notional Notional
Amount Amount
------ ------
Commitments to extend credit $44,753 $20,511
Standby letters of credit and financial guaranties 1,715 754
There is no material difference between the notional amount and the
estimated fair value of loan commitments and unadvanced portions of loans. The
fair value of letters of credit approximates the notional value.
NOTE 14 -- MERGER
On November 30, 1995, the Company merged with The Equity Bank by issuing
1,003,617 shares of the Company's common stock in exchange for all of the
outstanding common shares (less 69,486 shares not exchanged by dissenting
shareholders) of The Equity Bank. The value of the Company's shares of common
stock issued to effect the merger and the direct costs of the merger was
$9,507,000.
The merger has been accounted for as a purchase, and the results of
operations for The Equity Bank since the date of the merger are included in the
consolidated financial statements. Goodwill reflected by purchase accounting
amounted to $402,000 and is being amortized over fourteen (14) years. The
estimated amount due to dissenting shareholders of The Equity Bank is $1,221,216
and is reflected in other liabilities in the consolidated balance sheet of the
Company as of December 31, 1995. The dissenting shareholders have exercised
their rights to submit the value of their shares to arbitration. The arbitration
award could result in a different liability.
The following summary, prepared on an unaudited pro forma basis, combines
the consolidated results of operations as if The Equity Bank had been merged as
of the beginning of the periods presented and includes purchase accounting
adjustments (amounts in thousands).
1995 1994
---- ----
Net interest income after provision for loan losses $14,612 $12,877
Noninterest income 1,990 2,002
----- -----
Total 16,602 14,879
Noninterest expense 11,682 11,346
------ ------
Income before income taxes 4,920 3,533
Income taxes 1,829 1,441
----- -----
Net Income $3,091 $2,092
====== ======
The pro forma results are not necessarily indicative of what actually would
have occurred if the merger had been in effect for the entire periods presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
NOTE 15 -- REGULATORY MATTERS
Agreement with Regulators
In July 1992, the Federal Deposit Insurance Corporation ("FDIC") conducted
a routine periodic examination of the New England Bank. To address certain
concerns of the FDIC resulting from the examination, on February 22, 1993 the
Bank agreed to consent to the FDIC's issuing to the Bank an order to cease and
desist (the "Order") which became effective on March 4, 1993. Management took
swift action to comply with all provisions of the Order--which was subsequently
removed by the FDIC on April 14, 1994.
Restrictions on Dividends
The Company's principal assets are its investments in its bank
subsidiaries. As such, the Company's ability to pay dividends to its
shareholders is largely dependent on the ability of the Banks to pay dividends
to the Company. The declaration of cash dividends is dependent on a number of
factors, including regulatory limitations, and the Banks' operating results and
financial conditions. The Stockholders of the Company will be entitled to
dividends only when, and if, declared by the Company's Board of Directors out of
funds legally available therefore. The declaration of future dividends will be
subject to favorable operating results, financial conditions, tax considerations
and other factors. The Federal Deposit Insurance Corporation regulations require
banks to maintain certain capital ratios as noted below which may otherwise
restrict the ability of the Banks to pay dividends to the Company.
Minimum Capital Requirements
Bank regulators have established Risk-Based and Leverage Capital
requirements that establish the minimum level of capital. Under the
requirements, a minimum level of capital will vary among banks based on safety
and soundness of operations. Along with the regulatory minimums, the table below
reflects actual Risk-Based and Leverage Capital ratios for the Company and its
subsidiaries at December 31, 1995:
Minimum Level The Equity New England New England
Bank Bank Community Bancorp
- --------------------------------------------------------------------------------
Leverage 4% 8.22% 7.34% 11.89%
Tier 1 Risk-Based 4% 10.13% 10.42% 12.25%
Total Risk-Based 8% 11.38% 11.67% 13.49%
Under Federal Reserve regulation, the Company's subsidiaries are limited as
to the amount they may lend or advance to the Company, unless such loans and
advances are collateralized by specific obligations. No advances were made to
the Company by either subsidiary at December 31, 1995 or 1994.
NOTE 16 -- BUSINESS COMBINATION AGREEMENT
In an agreement dated December 19, 1995, the Company and Manchester State
Bank agreed to consummate a business combination transaction in which Manchester
State Bank will merge with and into New England Bank & Trust Company. The
agreement is subject to the approval of regulators and the shareholders of
Manchester State Bank.
NOTE 17 -- RECLASSIFICATION
Certain amounts in the prior years have been reclassified to be consistent
with the current year's statement presentation.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors
Manchester State Bank
1041 Main Street
Manchester, Connecticut 06040
We have audited the accompanying consolidated statements of condition of
Manchester State Bank as of December 31, 1995, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Manchester State
Bank as of December 31, 1995, 1994 and 1993, and the results of its operations
and its cash flows for the each of years ended December 31, 1995, 1994 and 1993
in conformity with generally accepted accounting principles.
/s/ Bardaglio, Hart & Shuman
BARDAGLIO, HART & SHUMAN
Windsor Locks, Connecticut
January 12, 1996
F-14
<PAGE>
MANCHESTER STATE BANK
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 3,854,412 $ 3,766,675 $ 5,228,470
Federal funds sold 14,275,000 1,540,000 1,000,000
Securities to be held to maturity (Note 2) 2,982,984 13,410,020 10,894,880
Federal Home Loan Bank Stock 576,300 576,300 576,300
Loans, net (Notes 3 and 4) 70,066,260 72,927,045 81,227,161
Bank premises and equipment (Note 5) 1,088,105 1,204,231 1,212,908
Other real estate owned (Note 6) 778,803 860,336 1,896,959
Accrued income receivable 462,540 385,634 505,952
Deferred taxes (Note 8) 430,749 516,659 672,624
Other assets 255,702 189,946 439,956
------------ ------------ ------------
$ 94,770,855 $ 95,376,846 $103,655,210
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits $ 17,525,053 $ 16,849,164 $ 14,326,972
Now deposits 12,532,620 10,746,006 9,334,488
Savings and money market deposits 21,597,829 28,689,489 37,934,573
Time deposits (Note 7) 35,478,312 32,495,954 35,644,781
------------ ------------ ------------
87,133,814 88,780,613 97,240,814
Other liabilities 1,102,873 353,362 374,794
------------ ------------ ------------
88,236,687 89,133,975 97,615,608
------------ ------------ ------------
Stockholders' Equity:
Capital stock (Note 9) 1,000,000 1,000,000 1,000,000
Capital Surplus (Note 9) 850,000 850,000 850,000
Retained earnings (Note 9) 4,684,168 4,392,871 4,189,602
------------ ------------ ------------
6,534,168 6,242,871 6,039,602
------------ ------------ ------------
$ 94,770,855 $ 95,376,846 $103,655,210
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-15
<PAGE>
MANCHESTER STATE BANK
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $6,443,735 $6,030,491 $7,402,832
Interest on US Treasury securities 241,744 526,046 143,660
Interest on other securities 946 447 1,172
Dividends 40,159 44,427 49,693
Interest on federal funds sold 628,973 112,716 192,701
---------- ---------- ----------
7,355,557 6,714,127 7,790,058
---------- ---------- ----------
INTEREST EXPENSE
Interest on NOW deposits 202,225 211,747 245,935
Interest on savings and money market deposits 607,149 748,003 1,034,361
Interest on time deposits 1,921,933 1,438,208 1,677,414
Interest on federal funds purchased - - 45
Interest on other borrowed funds 1,865 156 161,841
---------- ---------- ----------
2,733,172 2,398,114 3,119,596
---------- ---------- ----------
NET INTEREST INCOME 4,622,385 4,316,013 4,670,462
PROVISION FOR CREDIT LOSSES (NOTE 4) 475,000 700,000 1,814,000
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 4,147,385 3,616,013 2,856,462
---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 264,701 285,158 325,582
Other charges, collections and fees 118,715 129,849 85,534
Other operating income 15,341 72,328 66,856
---------- ---------- ----------
398,757 487,335 477,972
---------- ---------- ----------
OTHER EXPENSES
Salaries and wages 1,567,123 1,205 874 1,136,971
Other employee benefits 193,746 179,443 162,643
Net occupancy expense (Note 11) 264,674 250,663 239,653
Furniture and equipment expense
(Note 5) 266,604 254,233 233,702
Computer service fees 208,271 213,019 197,809
FDIC assessment 159,449 280,681 296,009
Other real estate owned expenses 124,838 619,421 378,264
Other expenses 1,039,711 708,870 611,848
---------- ---------- ----------
3,824,416 3,712,204 3,256,899
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 721,726 391,144 77,535
---------- ---------- ----------
Provision for income taxes (Note 8) :
Current 294,519 31,910 (162,194)
Deferred 85,910 155,965 230,575
---------- ---------- ----------
380,429 187,875 68,381
---------- ---------- ----------
NET INCOME $ 341,297 $ 203,269 $ 9,154
========== ========== ==========
NET INCOME PER SHARE OF
COMMON STOCK $ 3.41 $ 2.03 $ .09
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-16
<PAGE>
MANCHESTER STATE BANK
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Total
Stock-
Common Capital Retained Holder's
Stock Surplus Earnings Equity
----- ------- -------- ------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $1,000,000 $850,000 $4,180,448 $6,030,448
Net income - - 9,154 9,154
---------- ---------- ---------- ----------
Balance at December 31, 1993 1,000,000 850,000 4,189,602 6,039,602
Net income - - 203,269 203,269
---------- ---------- ---------- ----------
Balance at December 31, 1994 1,000,000 850,000 4,392,871 6,242,871
Net income - - 341,297 341,297
Dividends - - (50,000) (50,000)
---------- ---------- ---------- ----------
Balance at December 31, 1995 $1,000,000 $ 850,000 $4,684,168 $6,534,168
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-17
<PAGE>
MANCHESTER STATE BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 341,297 $ 203,269 $ 9,154
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 153,209 137,637 122,659
Deferred income taxes 85,910 155,965 230,575
Excess (deficiency) of provision for credit losses
charged to income over net credit losses (25,059) (852,962) (499,651)
Realized (gain) loss on sale of
other real estate owned 7,851 48,728 144,267
(Increase) Decrease in accrued
income receivable (76,906) (35,412) 57,225
(Increase) Decrease in other assets (65,756) 250,010 (1,460)
Increase (Decrease) in other liabilities 749,511 (21,432) (66,663)
------- ------- --------
Net cash provided (used) by
operating activities 1,170,057 (114,197) (3,894)
---------- -------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Net(increase)decrease in federal funds sold (12,735,000) (540,000) 3,600,000
Proceeds from maturities of
securities held to maturity 19,258,256 33,514,159 10,135,521
Purchase of securities held to maturity ( 8,831,220) (35,873,569) (15,343,425)
Net (increase) decrease in loans 2,421,925 9,507,135 10,991,505
Purchases of premises and equipment (37,083) (128,960) (53,562)
Proceeds from sale of other real estate owned 537,601 633,838 723,173
------- ------- ----------
Net cash provided (used) by investing activities 614,479 7,112,603 10,053,212
---------- --------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) in demand,
NOW and savings deposits (4,629,157) (5,311,374) (2,043,757)
Net increase (decrease) in time deposits 2,982,358 (3,148,827) (6,199,209)
Net increase (decrease) in other borrowed funds - - (2,000,000)
Dividends paid (50,000) - -
---------- ---------- ----------
Net cash provided (used) by
financing activities (1,696,799) (8,460,201) (10,242,966)
---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 87,737 (1,461,795) (193,648)
CASH AND CASH EQUIVALENTS, BEGINNING 3,766,675 5,228,470 5,422,118
--------- --------- ---------
CASH AND CASH EQUIVALENTS, ENDING $3,854,412 $3,766,675 $ 5,228,470
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-18
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the bank is presented to
assist in understanding the bank's financial statements. The financial
statements and notes are representations of the bank's management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Business Activity
- -----------------
Manchester State Bank is in the commercial banking business predominately
servicing the local community's banking needs. The Bank has its main office and
two branch facilities all located in Manchester, Connecticut.
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Manchester State Bank (the bank)
include the accounts of the bank and its wholly owned subsidiary, MSB, Inc.,
which has owned, and is expected to own in the future, various parcels of real
estate acquired through foreclosure actions of the bank. Significant
intercompany transactions and amounts have been eliminated.
Investments in Securities
- -------------------------
The bank's investments in securities are classified into three categories and
are accounted for as follows:
Trading securities:
Government bonds held principally for resale in the term and
mortgage-backed securities held for sale in conjunction with the bank's
mortgage activities are classified as trading securities and recorded at
their fair values. Realized and unrealized gains and losses on trading
securities are included in other income. The bank did not own any
securities which were classified as trading securities at December 31,
1995, 1994 and 1993.
Securities to be held to maturity:
Bonds, notes and debentures for which the bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for the
amortization of premiums and accretion of discounts, which are recognized
in interest income using the effective interest method over the period to
maturity.
Securities available for sale:
Securities available for sale consist of bonds, notes, debentures, and
certain equity securities not classified as trading securities or as
securities to be held to maturity.
F-19
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Securities (Continued)
- -------------------------
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write downs
of the individual securities to their fair value. The related write downs, if
any, are included in earnings as realized losses.
Unrealized holding gains and losses, net of tax, on securities available for
sale are reported as a net amount in a separate component of stockholders'
equity until realized. Gains and losses on the sale of securities available for
sale are determined using the specific identification method.
Loans and Allowance for Credit Losses
- -----------------------------------------
Loans are stated at their principal amount outstanding and are net of the
allowance for credit losses and unearned income on discounted loans. Interest on
non-discounted loans is recognized on the simple interest method based upon the
principal amount outstanding, except for those loans in a nonaccrual status.
Loans are placed in a nonaccrual status when they are specifically determined to
be impaired or when principal or interest is delinquent for ninety days or more
except certain consumer loans and loans which, in management's judgment, are
fully secured and in the process of collection. Interest income on an impaired
loan is generally not recognized unless the likelihood of further loss is
remote. Interest payments received on such loans are applied as a reduction of
the loan principal balance. Interest income on other non-accrual loans is
recognized only to the extent of interest payments received.
The allowance for credit losses is established through charges against income
and is maintained at a level considered adequate to provide for potential loan
losses based on management's evaluation of known and inherent risks in the
various categories of loans. When a loan or a portion of a loan is considered
uncollectible, it is charged against the allowance for loan losses. Recoveries
of loans previously charged-off are credited to the allowance when collected.
Management makes regular evaluations of the loan portfolio to determine the
adequacy of the level of the allowance for loan losses. Management's continuing
evaluations include a review of many factors, including identification and
review of individual problem situations which may affect the borrower's ability
to repay; review of overall loan portfolio quality through analytical review of
current charge-offs, delinquency and nonperforming loan data; review of
regulatory authority examinations and evaluations of loans; assessment of
current economic conditions; and changes in the size and character of the loan
portfolio.
F-20
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the following
estimated useful lives: building and improvements, 15-40 years; furniture,
fixtures and equipment, 5-10 years. Major renovations, repairs and betterment's
are capitalized, and recurring repairs and maintenance are charged to income.
Gains or losses on dispositions of premises and equipment are included in income
as realized.
Other Real Estate Owned
- -----------------------
Other real estate owned consists of properties acquired through loan foreclosure
proceedings and those properties which meet the criteria for in-substance
foreclosures. These properties are recorded at the lower of the carrying value
of the related loans, including costs of the foreclosure, or the net realizable
value of the properties. The net realizable value is based on management's
evaluation of current independent appraisals of the fair market values of the
properties; anticipated selling costs of the properties; and consideration for
the period of time necessary to sell the properties.
If the net realizable value of the properties is less than the carrying value of
the related loan, management adjusts the book value of the related property by
charging-off an appropriate amount of the related loan against the allowance
for loan losses. Gains on the sale of other real estate owned are recognized
only when received. Holding costs and any subsequent provisions to reduce the
carrying value to revised net realized values are charged to operating expenses.
In-substance foreclosures are reflected in other real estate owned when the
borrower has minimal equity in the property; the bank expects repayment of the
loan to come only from the operation or sale of the property; and the borrower
has abandoned control of the property or is unlikely to rebuild equity or
otherwise meet the terms of the loan in the foreseeable future.
Income Taxes
- ------------
Provisions for income taxes are based on amounts reported in the consolidated
statement of income (after the exclusion of non-taxable income) and include
deferred taxes on temporary differences in the recognition of income and expense
for tax and financial statement purposes. Deferred tax assets and liabilities
are included in the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax asset and liabilities are
expected to be realized or settled as prescribed in SFAS No. 109, Accounting for
Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes.
F-21
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
- ------------------------
The Bank and its subsidiary file a consolidated federal income tax return. The
provision for federal taxes of the Bank and its subsidiary are recorded on the
basis of filing separate tax returns with adjustments as required by
consolidated federal income tax return regulations.
Net Income Per Share Of Common Stock
- ------------------------------------
Net income per share of common stock is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period,
after giving retroactive effect to stock dividends, if any.
Financial Instruments
- ---------------------
In the ordinary course of business the bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit and standby letters
of credit. Such financial instruments are recorded in the financial statements
when they are funded or related fees are incurred or received.
Fair Values Of Financial Instruments
- ------------------------------------
Cash and cash equivalents:
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Securities to be held to maturity and securities available for sale: For
investment securities (excluding restricted securities), fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities. The
carrying values of restricted securities approximate their fair values.
Loans:
For certain homogenous categories of loans, such as some residential mortgages,
credit card receivables, and other consumer loans, fair value is estimated using
the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
Deposit liabilities:
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
F-22
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
Fair Values Of Financial Instruments (Continued)
- ------------------------------------------------
Commitments to extend credit and standby letters of credit: The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties at
the reporting date.
Cash And Cash Equivalents
- -------------------------
For the purpose of presentation in the Consolidated Statements of Cash Flows,
cash and cash equivalents are defined as those amounts included in the balance
sheet caption, "Cash and due from banks".
Use Of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the bank's
allowance for losses on loans and foreclosed real estate. Such agencies may
require the bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near
term.
F-23
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 2 - INVESTMENT SECURITIES
Investment securities having an amortized cost of $1,970,845, $494,250 and
$988,070 and an approximate market value of $1,974,588, $496,189 and $991,181 at
December 31, 1995, 1994 and 1993 respectively were pledged to secure public
deposits and for other purposes as required by law.
The amortized cost and approximate fair value of investment securities at
December 31, 1995, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities To Be Held To Maturity
- ---------------------------------
December 31, 1995:
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,962,984 $ 5,089 - $ 2,968,073
Other debt securities 20,000 - $ 2,250 17,750
---------- ------- ------- -----------
$ 2,982,984 $ 5,089 $ 2,250 $ 2,985,823
=========== ======= ======= ===========
December 31, 1994:
U.S. Treasury securities $13,390,020 $ 5,384 $ 1,557 $13,393,847
Other debt securities 20,000 - 3,250 16,750
----------- ------- ------- -----------
$13,410,020 $ 5,384 $ 4,807 $13,410,597
=========== ======= ======= ===========
December 31, 1993:
U.S. Treasury securities $10,879,880 38,265 $ - $10,918,145
Other debt securities 15,000 - 3,250 11,750
----------- ------- ------- -----------
$10,894,880 $38,265 $ 3,250 $10,929,895
=========== ======== ======== ===========
</TABLE>
F-24
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 2 - INVESTMENT SECURITIES (Continued)
The scheduled maturities of securities to be held to maturity at December 31,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Due in one year
or less $2,967,984 $2,972,973 $13,390,020 $13,393,847 $10,879,880 $10,918,145
Due from one
to five years - - 5,000 4,188 - -
Due from five to
ten years 10,000 8,570 - - - -
Due after ten years 5,000 4,280 15,000 12,562 15,000 11,750
---------- ---------- ----------- ----------- ----------- -----------
$2,982,984 $2,985,823 $13,410,020 $13,410,597 $10,894,880 $10,929,895
========== ========== =========== =========== =========== ===========
</TABLE>
NOTE 3 - LOANS
Loans at December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
Commercial loans $ 6,169,114 $ 5,873,918 $ 6,459,809
Real estate construction 1,587,353 1,520,483 2,315,635
Commercial real estate 30,114,270 31,056,142 34,412,672
Residential real estate 32,763,419 35,164,590 39,419,335
Consumer 867,089 771,956 932,716
----------- ----------- -----------
71,501,245 74,387,089 83,540,167
Less, allowance for possible
credit losses 1,434,985 1,460,044 2,313,006
----------- ----------- -----------
$70,066,260 $72,927,045 $81,227,161
=========== =========== ===========
The above total loans, with only minor exceptions, are all at variable interest
rates. Commercial loans include overdrafts of $30,244, $32,114 and $69,127 at
December 31, 1995, 1994 and 1993 respectively.
F-25
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 3 - LOANS (Continued)
At December 31, 1995, 1994 and 1993, the Bank had loans amounting to
approximately $2,112,174, $4,358,841 and $2,226,406 respectively, that were
classified as impaired. The average balance of these loans amounted to
approximately $2,950,500, $3,292,600 and $1,840,400 for the years ended December
31, 1995, 1994 and 1993 respectively. At December 31, 1995, 1994 and 1993,
approximately $1,610,446 $4,358,841 and $2,226,406 respectively of the total
impaired loans had a related allowance for credit losses. The allowance for loan
losses related to impaired loans amounted to approximately $1,013,663,
$2,464,030 and $978,339 at December 31, 1995, 1994 and 1993 respectively. The
amount by which interest income would have increased if these loans were not
classified as impaired for the years ended December 31, 1995, 1994 and 1993 was
approximately $363,320, $473,596 and $197,690 respectively.
In addition, at December 31, 1995, 1994 and 1993, the Bank had other nonaccrual
loans of $801,467, $1,747,980 and $3,831,413 respectively, for which impairment
had not been recognized. If interest on these loans had been recognized at the
original interest rates, interest income would have increased by approximately
$137,810, $189,704 and $339,510 for the years ended December 31, 1995, 1994 and
1993 respectively.
Loans to officers, directors, principal security holders and their associates of
the bank aggregated $2,481,824, $2,805,928 and $2,715,998 at December 31, 1995,
1994 and 1993, respectively. The following summarizes the related party loan
activity for the years ended December 31, 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
Balance, at beginning of year $2,805,928 $2,715,998 $2,646,005
Additions 295,500 381,830 404,178
Repayments (619,604) (291,900) (334,185)
---------- ---------- ----------
Balance, at end of year $2,481,824 $2,805,928 $2,715,998
========== ========== ===========
NOTE 4 - ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Changes in the allowance for possible credit losses for the years ended
December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
Balance, at beginning of year $1,460,044 $2,313,006 $2,812,657
Provision charged to operations 475,000 700,000 1,814,000
Recoveries 385,792 369,643 294,868
Credits charged-off (885,851) (1,922,605) (2,608,519)
---------- ---------- ----------
Balance, at end of year $1,434,985 $1,460,044 $2,313,006
========== ========== ==========
F-26
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 5 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1995, 1994 and 1993 are as
follows:
1995 1994 1993
---- ---- ----
Premises $1,451,069 $1,449,118 $1,440,645
Leasehold improvements 90,245 90,245 90,245
Furniture and equipmen 1,363,091 1,353,396 1,236,282
---------- ---------- ----------
2,904,405 2,892,759 2,767,172
Less, accumulated
depreciation 1,816,300 1,688,528 1,554,264
---------- ---------- ---------
$1,088,105 $1,204,231 $1,212,908
========== ========== ==========
Depreciation and amortization on premises and equipment of $153,209 in 1995,
$137,637 in 1994 and $122,659 in 1993 are included in the operating expenses.
The bank leases its two branch office facilities under noncancelable leases that
are accounted for as operating leases. The annual rent expense of $93,676,
$89,370 and $84,796 for the years ended December 31, 1995, 1994 and 1993
respectively is recorded in occupancy expenses.
The lease for the Spencer Street, Manchester branch has a commencement date June
1, 1984 as per the amendment to the lease dated May 15, 1984. The term of the
lease is twenty years with options to renew for two additional five year
periods.
The lease for the Heartland Plaza, Manchester branch is dated June 17, 1987. The
term of the lease is ten years with one option to renew for an additional five
year period.
The annual minimum rental commitments for the above leases are summarized below:
Spencer Heartland
Street Plaza Total
------- --------- -------
1996 $38,736 $53,400 $92,136
1997-2000 $38,736 $ - $38,736
2001-2005 $42,610 $ - $42,610
NOTE 6 - OTHER REAL ESTATE OWNED
Other real estate owned consists of parcels of real estate acquired through
foreclosure or deemed to be in-substance foreclosures. At December 31, 1995
there were seven parcels with carrying values of $778,803 and approximate market
values of $979,000. At December 31, 1994, there were seven parcels of real
estate with carrying values of $860,336 and approximate market values of
$1,005,000. At December 31, 1993, there were fourteen parcels with carrying
values of $1,896,959 and approximate market values of $2,310,000.
F-27
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 7 - TIME DEPOSITS
The following is a maturity distribution of time certificates of deposit in
denominations of $100,000 or more at December 31, 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
3 months or less $4,676,508 $2,962,562 $3,708,370
Over 3 months through 6 months 723,402 1,185,892 1,115,400
Over 6 months through 12 months 500,000 1,392,133 1,588,627
Over 12 months 545,290 725,058 106,355
---------- ---------- ----------
$6,445,200 $6,265,645 $6,518,752
========== ========== ==========
Interest expense regarding these certificates of deposit amounted to $347,256,
$278,356 and $359,618 for the years ending December 31, 1995, 1994 and 1993
respectively.
NOTE 8 - INCOME TAXES
The components of the consolidated income tax provision for the years ended
December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
Current:
Federal $244,922 $ 28,662 $(165,911)
State 49,597 3,248 3,717
-------- -------- ---------
294,519 31,910 (162,194)
-------- -------- ---------
Deferred:
Federal 67,416 127,506 175,263
State 18,494 28,459 55,312
-------- -------- ---------
85,910 155,965 230,575
-------- -------- ---------
Total provision $187,875 $ 68,381 $ 111,181
======== ========= =========
Total provision $380,429 $187,875 $ 68,381
======== ======== =========
The following is a reconciliation between the U.S. Federal statutory rates and
the net effective rate computed for financial reporting purposes for the years
ended December 31, 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
U.S. Federal statutory tax rate 34.00% 34.00% 34.00%
Increase (Decrease) in rates due to:
State taxes, net 8.17 .19 3.16
Non-deductible items 10.54 13.84 37.60
Tax exempt income - - (2.42)
Current & future tax rate changes - - 15.85
Other items - - -
----- ------ -----
Effective tax rate 52.71% 48.03% 88.19%
===== ===== =====
F-28
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 8 - INCOME TAXES (Continued)
The components of the deferred income tax assets are as follows at December 31,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Deferred income tax liabilities
- -------------------------------
<S> <C> <C> <C>
Accretions on securities $ (6,904) $ (64,768) $ -
Depreciation (22,902) (37,987) (42,575)
-------- --------- ---------
Total deferred income tax liabilities (29,806) (102,755) (42,575)
-------- --------- ---------
Deferred income tax assets
- --------------------------
Deferred compensation 145,854 - -
Write down of other real estate owned 201,349 237,270 79,507
Loan losses 113,352 382,144 635,692
-------- --------- ---------
Total deferred income tax assets 460,555 619,414 715,199
-------- --------- ---------
Net deferred income tax asset $430,749 $516,659 $672,624
- ------------------------------ ======== ======== ========
</TABLE>
NOTE 9 - STOCKHOLDERS' EQUITY
Capital Stock
- -------------
The bank has 100,000 shares of $10 par value common stock authorized, issued and
outstanding at December 31, 1995, 1994 and 1993.
Common Stock Dividends
- ----------------------
The board of directors of the bank may, subject to statutory limitations,
declare quarterly, semiannual or annual dividends of so much of the net profits
of the bank as it may deem prudent. No dividend may be declared that would
impair the capital of the bank. A cash dividend of fifty cents per share
aggregating $50,000 was declared on November 16, 1995 to shareholders as of that
date and was paid on November 30,1995.
Capital Surplus And Retained Earnings
- -------------------------------------
Capital surplus includes voluntary transfers from retained earnings in the
aggregate amount of $850,000 at December 31, 1995, 1994 and 1993. In addition to
any other restrictions that may exist under Federal and State regulations with
regard to declaration of common stock dividends to shareholders, these funds are
not available for payments of dividends.
F-29
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 10 - STOCK OPTION PLAN
The bank has a stock option plan which provides for the granting of options to
certain employees of the bank, as determined by a Stock Option Committee, in the
aggregate amount of 5,000 shares of common stock. The option price may not be
less than the fair market value of common stock at the time the option is
granted and shall be exercisable during the period of the option but not
exceeding five years. There are no shares of stock available for this option
plan because all authorized shares have been issued. At December 31, 1995, 1994
and 1993, there were no options outstanding.
NOTE 11 - OCCUPANCY EXPENSES
The occupancy expenses as presented on the statements of income are $264,674,
$250,633, and $239,653 for the years ended December 31, 1995, 1994 and 1993
respectively. These amounts are net of rental income of $ 3,885, $ 7,200, and
$17,300 for the years ended December 31, 1995, 1994 and 1993 respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
The bank has entered into transactions with its directors, significant
stockholders, principal officers, and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other customers, and did
not, in the opinion of management, involve more than the normal credit risk or
present other unfavorable features. The aggregate amount of loans to such
related parties were $2,481,824, $2,805,928, and $2,715,998 at December 31,
1995, 1994 and 1993 respectively. The aggregate amount of deposits from such
related parties were $2,864,735, $4,545,343 and $3,705,044 at December 31, 1995,
1994 and 1993 respectively.
A detailed analysis of these loan transactions is provided in Note 3 - Loans of
these financial statements.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The bank's consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and liquidity risk.
These commitments are described in Note 15 - Financial Instruments.
The bank and its subsidiary are parties to litigation and claims arising in the
normal course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and claims
will not be material to the consolidated financial position.
F-30
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
NOTE 14 - CONCENTRATIONS OF CREDIT
All of the bank's loans, commitments, and commercial and standby letters of
credit have been granted to the customers in the bank's market area. Such
customers are usually depositors of the bank. Investments in state and municipal
securities, if any, also involve governmental entities within the bank's market
area. The concentration of credit by type of loan is set forth in Note 3 -
Loans. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of credit were
granted primarily to commercial borrowers. The bank, as a matter of policy, does
not extend credit to any single borrower or group of related borrowers in excess
of $973,000.
NOTE 15 - FINANCIAL INSTRUMENTS
The bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit and
interest rate caps and floors written. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statement of financial position. The contract amounts of those
instruments reflect the extent of the bank's involvement in particular classes
of financial instruments.
The bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Unless otherwise noted, the bank does not require collateral or other security
to support instruments with credit risk.
Commitments to Extend Credit:
At December 31, 1995, 1994 and 1993 the bank was exposed to credit risk on
commitments to extend credit and standby letters of credit as follows:
1995 1994 1993
---- ---- ----
Commitments to extend credit $3,423,806 $2,390,352 $1,891,743
Letters of credit 804,766 843,352 1,245,394
---------- ---------- ----------
$4,228,572 $3,233,704 $3,137,137
========== ========== ==========
F-31
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
NOTE 15 - FINANCIAL INSTRUMENTS (Continued)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
bank evaluates each customer's credit worthiness on a case by case basis. The
amount of collateral obtained, if it is deemed necessary by the bank upon the
extension of credit, is based on management's credit evaluation of the counter
party. Collateral held varies but may include accounts receivable; inventory;
property, plant and equipment; and income producing properties.
Standby letters of credit written are conditional commitments issued by the bank
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The bank holds various collateral
supporting those commitments for which collateral is deemed necessary.
The estimated fair values of the Bank's financial instruments at December 31,
1995 are as follows:
Carrying Fair
Amount Value
------ -----
Financial Assets:
Cash and short-term investments $18,129,412 $18,129,412
Investment securities $ 3,559,284 $ 3,562,123
Loans, net $70,066,260 $69,813,466
Financial Liabilities:
Deposits $87,133,874 $87,506,452
The preceding carrying amounts are included in the statement of financial
condition under the applicable captions. Other disclosures required by SFAS No.
107 may be found in Note 1 - Summary of Significant Accounting Policies under
the section entitled "Financial Instruments".
F-32
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
NOTE 16 - CASH FLOW INFORMATION
For the years ended December 31, 1995, 1994 and 1993, the bank paid, on a cash
basis, the following amounts for interest and income taxes.
1995 1994 1993
---- ---- ----
Interest $2,565,053 $2,401,484 $3,180,193
========== ========== ==========
Income taxes $ 215,185 $ 110,000 $ 172,500
========== ========== ==========
Cash received from income tax refunds was as follows:
Federal $ - $ 296,781 $ 190,382
========== ========== ==========
State income tax $ - $ 56,533 $ 83,012
========== ========== ==========
Supplemental Disclosures of Non-cash Investing Activities:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loans transferred to other real
estate owned $ 653,335 $ 761,920 $1,606,454
========== ========== ==========
In-substance foreclosures transferred
to (from) other real estate owned $ (231,415) $ (73,129) $ (910,983)
========== ========== ==========
Other real estate owned transferred
to losses $ 42,000 $ 481,000 $ 121,169
========== ========== ==========
</TABLE>
NOTE 17 - REGULATORY MATTERS
On December 29, 1992, the bank voluntarily agreed to enter into a Stipulation
and Consent to the Issuance of an Order with the Federal Deposit Insurance
Corporation (FDIC), which was concurred on by the Banking Commissioner of the
State of Connecticut. On January 12, 1993, the FDIC issued an Order which became
effective on January 22, 1993.
The Order required the Bank and its officers and directors to take certain
courses of action to improve various areas of the operation of the Bank. The
Bank complied with all aspects of this Order to the satisfaction of the
regulatory agencies. Accordingly, the Order was removed on October 19, 1995.
The Bank is required by the regulatory agencies to maintain minimum levels of
tier one leverage and tier one risk based capital. At December 31, 1995, the
minimum levels are 4.00% and 8.00% respectively. The Bank's actual tier one
leverage and tier one risk based capital levels at December 31, 1995 are 6.95%
and 11.72% respectively.
F-33
<PAGE>
MANCHESTER STATE BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(Continued)
NOTE 18 - CORPORATE REORGANIZATION
The Bank has entered into a Plan and Agreement of Reorganization (the "Plan")
with New England Community Bancorp, Inc., as of December 19, 1995. This "Plan"
has also been approved by the Banking Commissioner of the State of Connecticut.
It is currently anticipated that this reorganization will occur during the third
quarter of 1996.
Under the terms of the "Plan" Manchester State Bank will merge with and into the
New England Community Bancorp, Inc. The Shareholders of Manchester State Bank
will receive cash of $35.20 and 5.493 shares of New England Bank Community Bank
common stock for each share of Manchester State Bank presently held.
In accordance with the provisions of a retirement or deferred compensation plan
which was previously approved and in force, and as a result of the corporate
reorganization described above, the president and the ten founding directors of
the bank are entitled to certain benefits. At December 31, 1995 the aggregate
present value of these benefits, of which a portion are payable in a lump sum
and a portion are in the form of annuities, is approximately $568,789. This
liability of $568,789 is reflected in other liabilities on the statement of
condition as presented. The expense for the current year of $415,000,
representing the portion due in a lump sum, is included in other operating
expenses on the statement of income. The related asset and liability of
$153,789, regarding the future annuity payments, are reflected in other assets
and other liabilities, respectively, on the statement of condition as presented.
There have also been various expenses associated with the reorganization of
approximately $105,606. These items are included in other expenses on the
statement of income for the year ended December 31, 1995.
F-34
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
PLAN AND AGREEMENT OF REORGANIZATION
By and Among
New England Community Bancorp, Inc.
New England Bank & Trust Company
and
Manchester State Bank
Dated as of December 19, 1995
- --------------------------------------------------------------------------------
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
PLAN AND AGREEMENT OF REORGANIZATION, dated as of December 19, 1995, by
and among New England Community Bancorp, Inc., a Delaware corporation (the
"Company"), New England Bank & Trust Company, a Connecticut-chartered commercial
bank and a wholly-owned subsidiary of the Company (the "Bank"), and Manchester
State Bank, a Connecticut-chartered commercial bank ("Manchester State Bank").
WHEREAS, the Boards of Directors of the Company, the Bank and
Manchester State Bank have determined that it is in the best interests of their
respective institutions and shareholders to consummate the business combination
transaction provided for herein in which Manchester State Bank will, subject to
the terms and conditions set forth herein, merge with and into the Bank, with
the Bank being the surviving corporation in the Reorganization (the
"Reorganization"); and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Reorganization and also to prescribe
certain conditions to the Reorganization.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE REORGANIZATION
1.01 THE REORGANIZATION. In accordance with the provisions of this
Agreement and of the banking laws of Connecticut, including Section 36a-125 of
the Connecticut General Statutes ("C.G.S."), at the Effective Time as defined by
Section 1.02, Manchester State Bank shall be merged with and into the Bank, the
separate corporate existence of Manchester State Bank shall cease, and the Bank
shall continue its corporate existence as the resulting corporation in the
Reorganization (the "Resulting Corporation") as a Connecticut-chartered
commercial bank under the name "New England Bank & Trust Company" with all of
the powers provided to such banks under the laws of the State of Connecticut.
Also at the Effective Time, all the outstanding shares of common stock, $10.00
par value, of Manchester State Bank ("Manchester State Bank Common Stock")
(except for (i) shares held by Manchester State Bank as treasury shares, (ii)
shares owned by any direct or indirect subsidiary of Manchester State Bank,
(iii) shares held by the Company or the Bank other than in a fiduciary or trust
-2-
<PAGE>
capacity for the benefit of third parties, and (iv) shares as to which
dissenters' rights have been perfected) will be converted into the right to
receive consideration in cash and shares of the Class A common stock, $.10 par
value, of the Company ("Company Common Stock"), without interest, in the manner
specified in Section 1.04 and Article II hereof, and each outstanding share of
common stock, $5.00 par value, of the Bank ("Bank Common Stock") and Company
Common Stock, respectively, shall remain outstanding and continue to be one
fully paid and nonassessable share of Common Stock of the Resulting Corporation
and of the Company, respectively.
1.02 EFFECTIVE TIME. The Reorganization shall become effective on the
last day of the month in which the filing of a certified copy of this Agreement
by the Banking Commissioner of the State of Connecticut (the "Commissioner"),
along with his approval of the Reorganization, are filed with the Secretary of
State of the State of Connecticut (the "Secretary").
1.03 EFFECT OF THE REORGANIZATION. At and after the Effective Time and
by virtue of the Reorganization, the Resulting Corporation shall possess all the
rights, privileges, powers and franchises of Manchester State Bank and the
entire assets, business and franchises of Manchester State Bank shall be vested
in the Resulting Corporation without any deed or transfer, provided the parties
may execute such deeds or instruments of conveyance as may be convenient to
confirm the same. The Resulting Corporation shall assume and be liable for all
debts, accounts, undertakings, contractual obligations and liabilities of
Manchester State Bank and shall exercise and be subject to all the duties,
relations, obligations, and trusts of Manchester State Bank, whether as debtor,
depository, registrar, transfer agent, executor, administrator, trustee or
otherwise, and shall be liable to pay and discharge all such debts and
liabilities, to perform such duties and to administer all such trusts in the
same manner and to the same extent as if the Resulting Corporation had itself
incurred the obligation or liability or assumed the duty, relation or trust, and
all rights of creditors and all liens upon the property of Manchester State Bank
shall be preserved unimpaired and the Resulting Corporation shall be entitled to
receive, accept, collect, hold and enjoy any and all gifts, bequests, devises,
conveyances, trusts and appointments in favor of or in the name of Manchester
State Bank whether made or created to take effect prior to or after the
Reorganization and the same shall inure to and vest in the Resulting
Corporation. In addition to the foregoing, the Reorganization shall have such
other effects as may be provided under the laws of the State of Connecticut.
1.04 CONVERSION OF MANCHESTER STATE BANK COMMON STOCK.
(a) At the Effective Time, each share of the common stock, par
value $10.00 per share, of Manchester State Bank ("Manchester State Bank Common
Stock") issued and outstanding immediately prior to the Effective Time (except
for (i) shares held by Manchester State Bank as treasury shares, (ii) shares
owned by any direct or indirect subsidiary of Manchester State Bank, (iii)
-3-
<PAGE>
shares held by the Company, or the Bank other than in a fiduciary or trust
capacity for the benefit of third parties, and (iv) shares as to which
dissenters' rights have been perfected) shall, by virtue of this Agreement and
without any action on the part of the holder thereof, be converted into and
exchangeable for Reorganization consideration ("Per Share Reorganization
Consideration") consisting of $35.20 payable in cash (the "Cash Portion") and
5.493 shares of Company Common Stock.
(b) At the Effective Time, all of the shares of Manchester
State Bank Common Stock converted into cash and Company Common Stock pursuant to
Article I shall no longer be outstanding and shall automatically be cancelled
and shall cease to exist, and each certificate (each a "Certificate") previously
representing any such shares of Manchester State Bank Common Stock shall
thereafter represent the right to receive the Per Share Reorganization
Consideration into which the share of Manchester State Bank Common Stock
represented by such Certificate has been converted pursuant to this Section 1.04
and Section 2.02(d) hereof. Certificates previously representing shares of
Manchester State Bank Common Stock shall be exchanged for certificates
representing whole shares of Company Common Stock and cash in lieu of fractional
shares issued in consideration therefor upon the surrender of such Certificates
in accordance with Section 2.02 hereof, without any interest thereon. If prior
to the Effective Time the Company should split or combine its common stock, or
pay a stock dividend or other distribution in such common stock, then the
Exchange Ratio (including, if applicable, the Minimum Exchange Ratio, the
Maximum Exchange Ratio, and the Adjusted Maximum Exchange Ratio) shall be
appropriately adjusted to reflect such split, combination, dividend or
distribution.
(c) At the Effective Time, (i) all shares of Manchester State
Bank Common Stock that are owned by Manchester State Bank as treasury shares,
(ii) all shares of Manchester State Bank Common Stock that are owned directly or
indirectly by any subsidiary of Manchester State Bank, and (iii) shares of
Manchester State Bank Common Stock held by the Company or the Bank other than in
a fiduciary or trust capacity for the benefit of third parties shall be
cancelled and shall cease to exist and no stock of the Company or other
consideration shall be delivered in exchange therefor.
1.05 DISSENTERS' RIGHTS. Notwithstanding anything in this Agreement to
the contrary and unless otherwise provided by applicable law, shares of
Manchester State Bank Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are owned by shareholders who: (a)
pursuant to applicable law, deliver to Manchester State Bank, before the taking
of the vote of Manchester State Bank's shareholders on the Reorganization,
written demand for the appraisal of their shares, if the Reorganization is
effected; and (b) whose shares are not voted in favor of the Reorganization, nor
consented thereto in writing (the "Dissenting Shares"), shall not be converted
into Reorganization consideration as provided in Section 1.04, unless and until
-4-
<PAGE>
such holders shall have failed to perfect or shall have effectively withdrawn or
lost their right of appraisal and payment under applicable law. If any such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such right of appraisal, Manchester State Bank Common Stock of such holder shall
thereupon be deemed to have been converted into the right to receive and become
exchangeable for, at the Effective Time, Reorganization consideration determined
pursuant to Section 1.04 and Section 2.02(d) hereof.
1.06 OPTIONS. [RESERVED]
1.07 OTHER MATTERS. At and after the Effective Time: (i) the Resulting
Corporation's main office shall continue to be located in Windsor, Connecticut,
(ii) except as provided in Section 1.08 hereof, the Directors and officers of
the Bank who are holding office immediately prior to the Effective Time shall
continue to be the Resulting Corporation's Directors and officers, (iii) the
Certificate of Incorporation and Bylaws of the Bank existing immediately prior
to the Effective Time shall continue to be the Certificate of Incorporation and
Bylaws of the Resulting Corporation, (iv) the authorized capital stock of the
Resulting Corporation at the Effective Time shall consist of 350,000 shares of
common stock, $5.00 par value per share, and no shares of preferred stock, as
provided in the Certificate of Incorporation of the Bank, and (v) the minimum
and maximum number of Directors of the Resulting Corporation shall be as set
forth in the Certificate of Incorporation and Bylaws of the Resulting
Corporation.
1.08 DIRECTORS. At the Effective Time, the Company shall offer (i)
Nathan G. Agostinelli currently an officer and Director of Manchester State
Bank, to be elected as a Director of the Resulting Corporation and to serve as
an officer of the resulting Corporation pursuant to an agreement in the form of
SCHEDULE 6.07(c) , and (ii) Andrew Ansaldi, Jr. currently a Director of
Manchester State Bank, to be elected as a Director of the Resulting Corporation.
1.09 ACCOUNTHOLDER ACCOUNTS. Upon the Effective Time, subject to any
contractual provisions in effect between Manchester State Bank and its
accountholders, the Resulting Corporation shall provide to each accountholder of
Manchester State Bank, without charge, an account or accounts in the Resulting
Corporation which shall be equal in value to the withdrawal account or accounts
held by such accountholder in Manchester State Bank at such time. To the extent
practicable, but without requiring that the Resulting Corporation establish any
new types of accounts, or to change the terms of the types of accounts which the
Bank had established prior to the Effective Time, the accounts provided by the
Resulting Corporation to the accountholders of Manchester State Bank shall be
selected from among the types of accounts which were made available by the Bank
to its depositors prior to the Effective Time with a view toward ensuring that
the accounts provided by the Resulting Corporation to the accountholders of
Manchester State Bank shall be comparable to the withdrawal accounts which were
held by such accountholders in Manchester State Bank prior to the
Reorganization.
-5-
<PAGE>
1.10 TAX CONSEQUENCES. It is intended that the Reorganization shall
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute a tax-free "plan of reorganization" for the purposes of Section 368
of the Code.
1.11 CERTAIN AGREEMENTS. In order to protect the integrity of this
Agreement, as of the date of this Agreement (a) the Company and certain
shareholders of Manchester State Bank are entering into agreements (the
"Shareholder Agreements") whereby such shareholders agree to take or refrain
from certain actions and (b) Manchester State Bank agrees to reflect on its
financial statements for December 31, 1995 and the year then ending appropriate
adjustments to the satisfaction of its independent accountants and independent
accountants of the Company and the Bank to reflect the anticipated payment by
Manchester State Bank to each "Founding Director" eligible to participate in the
Manchester State Bank plan for compensating "Founding Directors" in the event of
a change in control.
ARTICLE II
EXCHANGE OF SHARES
2.01 THE COMPANY TO MAKE REORGANIZATION CONSIDERATION AVAILABLE. At or
prior to the Effective Time, the Company shall deposit, or shall cause to be
deposited, with a bank or trust company selected by the Company (the "Exchange
Agent"), for the benefit of the holders of Certificates, for exchange in
accordance with this Article II, certificates representing the shares of Company
Common Stock and cash sufficient to pay the Reorganization consideration
provided for in Sections 1.04 and 2.02(c) (the"Reorganization Consideration")
(such cash and certificates for shares of Company Common Stock, together with
any dividends or distributions with respect thereto, being hereinafter referred
to as the "Exchange Fund") to be issued and paid pursuant to Section 1.04 and
paid pursuant to Section 2.02(a) in exchange for outstanding shares of
Manchester State Bank Common Stock. The cash portion of the Exchange Fund shall
be invested by the Exchange Agent, as directed by the Company in writing, (i)
solely in U.S. Treasury obligations, or (ii) a mutual fund or similar investment
pool which invests its assets substantially in U.S. Treasury obligations, or
which invests its assets in repurchase agreements which are collateralized or
secured by U.S. Treasury obligations, and any net earnings with respect thereto
shall be paid to the Company as and when requested by the Company. If for any
reason (including losses) the Exchange Fund is inadequate to pay the amounts to
which holders of shares of Manchester State Bank Common Stock shall be entitled
under this Agreement, the Company shall be liable for the payment thereof.
-6-
<PAGE>
2.02 EXCHANGE OF SHARES.
(a) As soon as practicable after the Effective Time, and in no
event later than three business days thereafter, the Exchange Agent shall mail
to each holder of record of a Certificate or Certificates a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates in exchange for Reorganization Consideration into
which the shares of Manchester State Bank Common Stock represented by such
Certificate or Certificates shall have been converted pursuant to this
Agreement. Upon surrender of a Certificate for exchange and cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, the
holder of such Certificates shall be entitled to receive in exchange therefor
(x) a certificate representing that number of whole shares of Company Common
Stock to which such holder of Manchester State Bank Common Stock shall have
become entitled pursuant to the provisions of Article I hereof and (y) a check
representing (i) the amount of cash to which such holder of Manchester State
Bank Common Stock shall have become entitled pursuant to the provisions of
Article I hereof and (ii) the amount of cash in lieu of fractional shares, if
any, which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Article II, and the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or accrued
on any cash payable hereunder or on unpaid dividends and distributions, if any,
payable to holders of Certificates.
(b) At the Effective Time and until so surrendered and
exchanged, each such Certificate (other than Certificates representing
Dissenting Shares or shares held by Manchester State Bank, or any direct or
indirect subsidiary of Manchester State Bank) shall represent solely the right
to receive Reorganization Consideration as provided for in this Agreement. If
Reorganization Consideration (or any portion thereof) is to be delivered to any
person other than the person in whose name the certificate representing shares
of Manchester State Bank Common Stock surrendered in exchange therefor is
registered, it shall be a condition to such exchange that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the payment of
Reorganization Consideration to a person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
(c) After the Effective Time, there shall be no transfers on
the stock transfer books of Manchester State Bank of the shares of Manchester
State Bank Common Stock which were issued and outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates representing such
shares are presented for transfer to the Exchange Agent, they shall be cancelled
and exchanged for Reorganization Consideration as provided in this Article II.
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(d) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of Company Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Company Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder. In
lieu of the issuance of any such fractional share, each former shareholder of
Manchester State Bank who otherwise would be entitled to receive a fractional
share of Company Common Stock shall be entitled to receive an amount in cash
determined by multiplying (i) the closing price of Company Common Stock as
quoted on the National Association of Securities Dealers Automatic Quotation
System, NASDAQ National Market System as reported by THE WALL STREET JOURNAL for
the trading day immediately preceding the date of the Effective Time by (ii) the
fraction of a share of Company Common Stock to which such holder would otherwise
be entitled to receive pursuant to Section 1.04 hereof.
(e) Any portion of the Exchange Fund that remains unclaimed by
the shareholders of Manchester State Bank for 12 months after the Effective Time
shall be paid to the Company. Any shareholders of Manchester State Bank who have
not theretofore complied with this Article II shall thereafter look only to the
Company for payment of Reorganization Consideration deliverable in respect of
each share of Manchester State Bank Common Stock such shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon. Notwithstanding the foregoing, none of the Company, Manchester State
Bank, the Exchange Agent or any other person shall be liable to any former
holder of shares of Manchester State Bank Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) 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 Company, the posting by such person of a bond in such amount as the Company
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate, the Reorganization Consideration
deliverable in respect thereof pursuant to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MANCHESTER STATE BANK
Manchester State Bank hereby represents and warrants to the Bank and
the Company as follows:
3.01 CORPORATE ORGANIZATION.
(a) Manchester State Bank is a state bank and trust company
duly organized, validly existing and in good standing under the laws of the
State of Connecticut. Manchester State Bank has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted. Manchester State Bank has all necessary
federal, state and local banking authorization to own or lease its properties
and assets and to carry on its business as it is being conducted. The accounts
of depositors of Manchester State Bank are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation (the "FDIC") in accordance
with law and with the regulations of the FDIC and all premiums and assessments
required in connection therewith have been paid. The copies of Manchester State
Bank's Certificate of Incorporation and Bylaws, each certified by its Secretary
as of the date of this Agreement, which are being delivered to the Company
herewith, are complete and correct copies in effect as of the date of this
Agreement. Except as listed on the attached SCHEDULE 3.01(a), Manchester State
Bank does not have any wholly owned subsidiaries or capital stock or other
equity ownership interest in any corporation, partnership or other entity which
totals 5% or more of such entity's total equity.
(b) As used in this Agreement, the word "Subsidiary", when
used with respect to any party, means any corporation, partnership or other
organization, whether incorporated or unincorporated, which is consolidated with
such party for financial purposes. MSB, Inc. is the only subsidiary of
Manchester State Bank. MSB, Inc. is wholly owned by Manchester State Bank and is
duly organized, validly existing and in good standing under the laws of the
State of Connecticut and has all corporate power and authority required to own
or lease all of its properties and assets and to carry on its business as then
conducted. For purposes of this Agreement, all representations and warranties of
Manchester State Bank pertaining to its business, operations and financial
condition shall be deemed to include the business, operations and financial
condition of MSB, Inc. as a wholly-owned subsidiary of Manchester State Bank.
(c) Manchester State Bank's minute books contains complete and
accurate records of all meetings through December 14, 1995, and other corporate
actions of its shareholders and its Board of Directors (including committees of
its Board of Directors).
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3.02 CAPITALIZATION. The authorized capital stock of Manchester State
Bank consists solely of 100,000 shares of common stock, $10.00 par value
("Manchester State Bank Common Stock"). As of the date of this Agreement, there
were 100,000 shares of Manchester State Bank Common Stock issued and outstanding
and no shares held in Manchester State Bank's treasury or (except as described
below) reserved for issuance upon exercise of outstanding stock options. All
issued and outstanding shares of Manchester State Bank Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable.
Manchester State Bank does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Manchester State
Bank capital stock or any security representing the right to purchase or
otherwise receive any capital stock of Manchester State Bank. None of the shares
of capital stock of Manchester State Bank has been issued in violation of the
preemptive rights of any person. Except as provided for in this Agreement, there
are no agreements of record or of which Manchester State Bank is aware among any
of the Manchester State Bank shareholders relating to rights to own, vote or
dispose of Manchester State Bank Common Stock.
3.03 AUTHORITY; NO VIOLATION.
(a) Manchester State Bank has all necessary corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby including the proposal and settlement of
amounts to "Founding Directors" as set forth in the most recent proxy material
of Manchester State Bank and as founded in the Shareholder's Agreement referred
in Section 1.11 of this Agreement. The execution and delivery of this Agreement
by Manchester State Bank and the consummation by Manchester State Bank of the
transactions contemplated by this Agreement have been duly and validly approved
by the Board of Directors of Manchester State Bank and a certified copy of the
Board resolution reflecting such approval is attached hereto as SCHEDULE
3.03(a). The Board of Directors of Manchester State Bank has directed that this
Agreement and the transactions contemplated hereby be submitted to Manchester
State Bank's shareholders for consideration at a meeting of such shareholders
and, except for the adoption of this Agreement by the requisite vote of
Manchester State Bank's shareholders, no other corporate proceedings on the part
of Manchester State Bank are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Manchester State Bank and (assuming
adoption of the Agreement by the requisite vote of Manchester State Bank's
shareholders and the due authorization, execution and delivery by the Bank and
the Company, and also subject to the receipt of the requisite regulatory
approvals) constitutes a valid and binding obligation of Manchester State Bank,
enforceable against Manchester State Bank in accordance with its terms, except
as enforcement may be limited by general principles of equity, whether applied
in a court of law or a court of equity, and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
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(b) Neither the execution and delivery of this Agreement by
Manchester State Bank, nor the consummation by Manchester State Bank of the
transactions contemplated hereby, nor compliance by Manchester State Bank with
any of the terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Manchester State Bank or (ii) assuming
that the consents and approvals referred to in Section 3.04 hereof are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Manchester State Bank, or (y)
violate, result in a breach of any provision of, constitute a default under, or
result in the creation of any material lien, pledge, security interest, charge
or other encumbrance upon any of the properties or assets of Manchester State
Bank under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Manchester State Bank is a party, or by which
it or any of its properties or assets may be bound or affected.
3.04 CONSENTS AND APPROVALS. Except for consents, approvals, filings
or registrations which may be required of or with the Commissioner, the FDIC,
any other applicable governmental authorities and the shareholders of Manchester
State Bank, no consents or approvals of or filings or registrations with any
third party or any public body or authority are necessary in connection with (a)
the execution and delivery by Manchester State Bank of this Agreement or (b) the
consummation of the Reorganization and the other transactions contemplated
hereby, insofar as they relate to any actions required of Manchester State Bank.
3.05 FINANCIAL STATEMENTS. Manchester State Bank has previously
delivered to the Company accurate and complete copies of (a) the balance sheets
of Manchester State Bank as of December 31 of each of the five fiscal years 1990
through 1994, inclusive, and the related statements of operations, statements of
shareholders' equity, and statements of cash flows for the periods then ended,
in each case accompanied by the report of Manchester State Bank's independent
certified public accountants, (b) all management letters from such accountants
delivered to Manchester State Bank since January 1, 1990, and (c) the unaudited
balance sheet of Manchester State Bank as of September 30, 1995 and the related
unaudited statements of operations, statements of shareholders' equity, and
statements of cash flows for the nine month period then ended. Each of the
financial statements referenced above ("Financial Statements") has been prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with other periods, except as otherwise noted therein or in notes
thereto, and fairly presents in all material respects the financial condition or
income of Manchester State Bank as at the date thereof and for the period
covered thereby except, in the case of the interim statement, for normal year
end adjustments and year end accruals. Except as and to the extent reflected or
reserved in the balance sheets included in the Financial Statements or notes
thereto and except for liabilities involving the Shareholder's Agreements
referred to in Section 1.11 (which liability shall not exceed $600,000),
Manchester State Bank did not have, as of the dates of such balance sheets, any
material liabilities or obligations (absolute or contingent) of a nature
customarily reflected in balance sheets or notes thereto prepared in accordance
with generally accepted accounting principles ("GAAP"). The books and records of
Manchester State Bank have been, and are being, maintained in all material
respects in accordance with applicable legal and accounting requirements and
reflect only valid transactions.
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3.06 ABSENCE OF UNDISCLOSED LIABILITIES. Except for the transactions
contemplated by this Agreement including the liability provided for in Section
1.11 and the Shareholder's Agreements, pursuant thereto (which liability shall
not exceed $600,000), Manchester State Bank has not incurred any liability
(contingent or otherwise) that is material to Manchester State Bank or that,
when combined with all similar liabilities, would be material to Manchester
State Bank, except as disclosed in the notes to Manchester State Bank's December
31, 1994 balance sheet, and except for commitments and contingencies incurred in
the ordinary course of business.
3.07 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as set forth in SCHEDULE 3.07(a) or elsewhere in the
Schedules delivered by Manchester State Bank, since December 31, 1994,
there has not been:
(1) any material adverse change in the business, operations,
properties, assets or financial condition of Manchester State Bank and no
fact or condition exists which Manchester State Bank believes will cause
such a material adverse change in the future;
(2) any loss (for purposes of this subsection 3.07(a)(2), "loss" shall
not mean a loan loss), damage, destruction or other casualty materially and
adversely affecting any of the significant properties, assets or business
of Manchester State Bank (whether or not covered by insurance);
(3) any increase in the compensation payable by Manchester State Bank
to any of its employees whose total compensation after such increase was in
excess of $50,000 per annum, or to any of its Directors, officers, agents,
consultants, or any bonus, service award or other like benefit granted,
made or accrued to the credit of any such Director, officer, agent,
consultant or employee, or any welfare, pension, retirement, severance or
similar payment or arrangement made or agreed to by Manchester State Bank
for the benefit of any such Director, officer, agent, consultant or
employee;
(4) any change in any method of accounting or accounting practice of
Manchester State Bank;
(5) any rescheduling or having a moratorium on payments, or writing
off as uncollectible of any individual loan in excess of $10,000, or loans
in the aggregate in excess of $50,000, or any portion thereof; or
(6) any agreement or understanding, whether in writing or otherwise,
of Manchester State Bank to do any of the foregoing.
(b) Except as set forth in SCHEDULE 3.07(b), since December 31, 1994,
Manchester State Bank has not:
(1) issued or sold any promissory notes, stock, bonds or other
corporate securities of which it is the issuer;
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(2) discharged or satisfied any lien or encumbrance or paid or
satisfied any obligation or liabilities (whether absolute, accrued,
contingent or otherwise and whether due or to become due) in an amount
greater than $25,000, other than current liabilities shown on the December
31, 1994 balance sheet (the "1994 Balance Sheet") and current liabilities
incurred since December 31, 1994 in the ordinary course of business;
(3) declared, paid or set aside for payment any dividend or other
distribution (whether in cash, stock or property) in respect of its capital
stock;
(4) split, combined or reclassified any shares of its capital stock,
or redeemed, purchased or otherwise acquired any shares of its capital
stock or other securities;
(5) sold, assigned, or transferred any of its assets (real, personal
or mixed, tangible or intangible), cancelled any debts or claims or waived
any rights of substantial value, except, in each case, in the ordinary
course of business;
(6) sold, assigned, transferred or permitted to lapse any patents,
trademarks, trade names, copyrights or other similar assets, including
applications or licenses therefor;
(7) paid any amounts or incurred any liability to or in respect of, or
sold any properties or assets (real, personal or mixed, tangible or
intangible) to, or engaged in any transaction or entered into any agreement
or arrangement with, any corporation or business in which Manchester State
Bank or any of its officers or Directors, or any "affiliate" or "associate"
(as such terms are defined in the rules and regulations promulgated under
the Securities Act of 1933, as amended (the "Securities Act")) of any such
person, has any direct or indirect interest;
(8) entered into or amended any collective bargaining agreement or
suffered any material strike, work stoppage, slow down, or other labor
disturbance;
(9) amended its Certificate or Incorporation or Bylaws, or any
provision thereof, or proposed any such amendment;
(10) borrowed or agreed to borrow any funds or incurred, or become
subject to, any obligation or liability (absolute or contingent), except
for borrowings from the Federal Home Loan Bank of Boston or other
borrowings in the ordinary course of business;
(11) waived any rights of value which in the aggregate are material
considering the business of Manchester State Bank taken as a whole;
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(12) except in the ordinary course of business, made or permitted any
amendment or termination of any contract, agreement or license to which it
is a party if such amendment or termination would have a material adverse
effect on Manchester State Bank, or its business or operations taken as a
whole;
(13) made any material investment or commitment therefor in any
person, corporation, association, partnership, joint venture or other
entity;
(14) permitted the occurrence of any change or event within its
control which would render any of its representations and warranties
contained herein untrue in any material respect at and as of the Effective
Time;
(15) incurred any liability that has had, or to the knowledge of
Manchester State Bank, any liability that could reasonably be expected to
have, a material adverse effect on Manchester State Bank, or its business
or operations taken as a whole; or
(16) entered into any other transaction other than in the ordinary
course of business or in connection with the transactions contemplated by
this Agreement.
3.08 LOAN PORTFOLIO. Except as set forth in SCHEDULE 3.08, all
evidences of indebtedness reflected as assets of Manchester State Bank in
Manchester State Bank's Financial Statements are in all respects binding
obligations of the respective primary obligors named therein and no material
amount thereof is subject to any defenses known to Manchester State Bank which
may be asserted against Manchester State Bank. Except as set forth on SCHEDULE
3.08, Manchester State Bank has delivered to the Company a true and complete
list in all material respects and brief description of all real property in
which Manchester State Bank has an interest as creditor or mortgagee securing an
amount or amounts greater than $250,000 to one borrower, or a series of related
borrowers. Except as set forth in such list, (a) there are no outstanding loans
held by Manchester State Bank with an unpaid balance of $50,000 or more in which
a default has occurred and is continuing, and (b) Manchester State Bank has no
loans reflected as assets in such Financial Statements which have principal
balances in excess of $25,000, except for fully secured mortgage loans. For the
purposes hereof, "default" shall include but not be limited to a failure of an
obligor to make any payments with respect to any loans for 30 days or more past
the due date for such payment. SCHEDULE 3.08 sets forth all of the loans in the
original principal amount in excess of $100,000 of Manchester State Bank that as
of the date of this Agreement are classified by Manchester State Bank or any
bank regulatory examiner as "Special Mention," "Substandard," "Doubtful," "Loss"
or "Classified," together with the aggregate principal amount of and accrued and
unpaid interest on such loans by category. Except for normal examinations
conducted by (i) the FDIC, and (ii) the Commissioner, in the regular course of
the business of Manchester State Bank, and except for the Stipulation and
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Consent to the Issuance of an Order to Cease and Desist issued by the FDIC and
consented to by the Commissioner, which became effective January 22, 1993 and
which was terminated October 19, 1995 and the Resolutions adopted by the Board
of Directors of Manchester State Bank on December 14, 1995, no agency has
initiated any proceeding into the business or operations of Manchester State
Bank since December 31, 1990. The amount established by Manchester State Bank as
a reserve for loan losses on the date hereof is sufficient in all material
respects to cover losses in Manchester State Bank's loan portfolio as it now
exists.
3.09 INVESTMENTS.
(a) Except as set forth in SCHEDULE 3.09, Manchester State
Bank has no subsidiaries other than Manchester State Bank, Inc. and no equity
interest or other investment, direct or indirect, in any corporation,
partnership, joint venture or other entity other than interests that have been
pledged to Manchester State Bank as collateral for loans or obligations made by
Manchester State Bank in the ordinary course of its lending business. To the
extent any such interest has been foreclosed or otherwise thereafter become
owned by Manchester State Bank, no filing with any regulatory authority is
necessary.
(b) Except as disclosed in the notes to Manchester State
Bank's December 31, 1994 balance sheet and on SCHEDULE 3.09 and except for
pledges to secure public funds or for other purposes required by law, none of
the investments reflected under the heading "Investment Securities" in
Manchester State Bank's 1994 Balance Sheet which are owned by Manchester State
Bank at the Effective Time and none of the investments made by Manchester State
Bank since December 31, 1994 are subject to any investment or other restriction,
whether contractual or statutory, which materially impairs the ability of the
holder freely to dispose thereof in the open market at any time.
(c) SCHEDULE 3.09 sets forth the book and market value as of
September 30, 1995 of the investment securities, mortgage backed securities and
securities held for sale of Manchester State Bank.
3.10 TITLE TO PROPERTIES. Except as set forth in SCHEDULE 3.10,
Manchester State Bank has good, valid and marketable title to, (a) all its owned
real properties, and (b) all other properties and assets reflected in the 1994
Balance Sheet or acquired since December 31, 1994, other than any of such
properties or assets which have been sold or otherwise disposed of since
December 31, 1994 in the ordinary course of business and consistent with past
practice. Except as set forth in SCHEDULE 3.10, and except for Manchester State
Bank's loans which are described in Section 3.08 all of such properties and
assets are free and clear of title defects and obligations, mortgages, pledges,
liens, claims, charges, security interests or other encumbrances of any nature
whatsoever, including, without limitation, leases, options to purchase,
conditional sales contracts, collateral security arrangements and other title or
interest retention arrangements, and are not, in the case of owned real
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property, subject to any easements, building use restrictions, exceptions,
reservations or limitations of any nature whatsoever except those having no
material adverse effect upon the operations of Manchester State Bank or which
would involve no material expense to correct or remove. All personal property
material to the business, operations or financial condition of Manchester State
Bank, and all buildings, structures and fixtures used by Manchester State Bank
in the conduct of its business, are in good operating condition and have been
properly maintained. Except as set forth in SCHEDULE 3.10, Manchester State Bank
has not received any notification of any violation (which has not been cured) of
any building, zoning or other law, ordinance or regulation in respect of such
property or structures or Manchester State Bank's use thereof.
3.11 LEASES. Manchester State Bank owns no real property used in the
operation of its business, except as listed in SCHEDULE 3.11, and Manchester
State Bank has delivered to the Company an accurate and complete list of all
leases pursuant to which Manchester State Bank, as lessee, leases real or
personal property, including, without limitation, all leases of computer or
computer services and all arrangements for time-sharing or other data processing
services, describing for each lease Manchester State Bank's financial
obligations under such lease, its expiration date and renewal terms. Except as
set forth in SCHEDULE 3.11, (a) all such leases are valid and binding and are
enforceable in accordance with their terms, and (b) there exists on the part of
Manchester State Bank no event of default or event, occurrence, condition or act
which with the giving of notice, the lapse of time or the happening of any
further event or condition would become a default under any such lease.
3.12 TRADEMARKS; TRADE NAMES. To the best knowledge of Manchester State
Bank, set forth in SCHEDULE 3.12 is an accurate and complete list and brief
description of all trademarks (either registered or common law), trade names and
copyrights (and all applications and licenses therefor) owned by Manchester
State Bank or in which it has any interest. Manchester State Bank owns, or has
the right to use, all trademarks, trade names and copyrights used in or
necessary for the ordinary conduct of its existing business as heretofore
conducted, and the consummation of the transactions contemplated hereby will not
alter or impair any such rights. Except as set forth in SCHEDULE 3.12, no claims
are pending by any person for the use of any trademarks, trade names or
copyrights or challenging or questioning the validity or effectiveness of any
license or agreement relating to the same, nor, to the best knowledge of
Manchester State Bank, is there any valid basis for any such claim, challenge or
question, and use of such trademarks, trade names and copyrights by Manchester
State Bank does not infringe on the rights of any person.
3.13 LEGAL PROCEEDINGS. Except as set forth in the attached SCHEDULE
3.13, Manchester State Bank is not a party to any, and there are no, pending or,
to the best knowledge of Manchester State Bank's management, threatened legal,
administrative, arbitration or other proceedings, claims, actions, suits or
governmental investigations of any nature involving, affecting or relating to
Manchester State Bank other than such matters arising in the ordinary course of
Manchester State Bank's business which, individually and in the aggregate, are
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not material, or challenging the validity or propriety of the transactions
contemplated in this Agreement; and there is not known to Manchester State Bank
any reasonable basis for any such proceedings, claim, action or governmental
investigation. Manchester State Bank is not a party to any order, judgment or
decree which will, or might reasonably be expected to, affect its business,
operations, properties, assets, financial condition, prospects or results of
operations or its ability to acquire any property or conduct business in any,
area in which it presently does business.
3.14 COMPLIANCE WITH APPLICABLE LAWS. Manchester State Bank holds, and
has at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of its business under and
pursuant to all, and has complied in all materials respects with and is not in
default in any material respect under, any applicable law, statute, order, rule,
regulation, policy or guideline of any federal, state or local governmental
authority relating to it, and which may materially affect the business,
operations or financial condition of Manchester State Bank, and has not received
notice of violation of, and does not know of any violations of, any of the
above. To the best knowledge of Manchester State Bank, no suspension or
cancellation of any material license, franchise, permit or authorization is
threatened.
3.15 ABSENCE OF QUESTIONABLE PAYMENTS. Manchester State Bank has not,
nor has any Director, officer, agent, employee, consultant or other person
associated with, or acting on behalf of, Manchester State Bank, (a) used any
Manchester State Bank corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, or (b)
made any direct or indirect unlawful payments to government officials from any
Manchester State Bank corporate funds, or established or maintained any unlawful
or unrecorded accounts with funds received from Manchester State Bank. The
payment of funds by Manchester State Bank pursuant to the Plan to compensate
"Founding Directors" in the event of a change in control of Manchester State
Bank has been properly approved by all corporate action and the requisite vote
of Shareholders and will not violate applicable laws. Attached as SCHEDULE 3.15
is a list of eligible "Founding Directors" and each eligible Founding Director
has signed a Shareholder's Agreement pursuant to Section 1.11 of this Agreement.
3.16 TAXES. Manchester State Bank properly and accurately completed and
duly filed in correct form all federal, state and local information and tax
returns required to be filed by it (all such returns being accurate and complete
in all material respects) and has duly paid or made provisions for the payment
of all taxes and other charges which have been incurred or are due or claimed to
be due from it by federal, state or local taxing authorities (including, without
limitation, those due in respect of its properties, income, business, capital
stock, deposits, franchises, licenses, sales and payrolls). The amounts set up
as reserves for taxes on the 1994 Balance Sheet are, to the best of Manchester
State Bank's knowledge, sufficient in the aggregate for the payment of all
unpaid federal, state and local taxes (including any interest or penalties
thereon and including reserves for local real estate or other property taxes in
an amount which is at least as great as the amount of such taxes paid in any
prior year), whether or not disputed, accrued or applicable for the period ended
December 31, 1994 or for any year or period prior thereto, and for which
Manchester State Bank may be liable in its own right or as transferee of the
assets of, or successor to, any corporation, person, association, partnership,
joint venture or other entity. The federal and state income tax returns of
Manchester State Bank have never been examined by the Internal Revenue Service.
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To the best of Manchester State Bank's knowledge, there are no pending questions
relating to, or claims asserted for, taxes or assessments upon Manchester State
Bank nor has Manchester State Bank been requested to give any waivers extending
the statutory period of limitation applicable to any federal, state or local
income tax return for any period. Proper and accurate amounts have been withheld
by Manchester State Bank from its employees for all prior periods in compliance
with the tax withholding provisions of applicable federal, state and local laws;
federal, state and local returns, accurate and complete in all material
respects, have been filed by Manchester State Bank for all periods for which
returns were due with respect to income tax withholding, Social Security,
property, sales, retirement plan and unemployment taxes; and the amounts shown
on such returns to be due and payable have been paid in full or adequate
provision therefor has been included by Manchester State Bank in its financial
statements as of December 31, 1994.
3.17 EMPLOYEE BENEFIT AND OTHER PLANS. Except as set forth in SCHEDULE
3.17, Manchester State Bank neither maintains nor contributes to any "employee
pension benefit plan" or " employee welfare benefit plan," as such terms are
defined in Section 3 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). With respect to any such plan listed on SCHEDULE 3.17,
Manchester State Bank is in compliance with, and such plans comply with, ERISA.
In this connection, (i) no "reportable event" has occurred and is continuing
with respect to any such plans; (ii) the statements of assets and liabilities of
such plans as of the close of the most recent plan year for which financial
statements are available, and the statements of changes in fund balance and in
financial position, or the statements of changes in net assets available for
each plan's benefits, for the plan year then ended, fairly present the financial
condition of such plan for such plan year; (iii) except as disclosed in the
annual reports of the plans, no "prohibited transaction" (as defined in Section
406 of ERISA) resulting in material liability of Manchester State Bank has
occurred with respect to the plans; (iv) no breach of fiduciary responsibility
under Part 4 of Title I of ERISA resulting in material liability of Manchester
State Bank has occurred with respect to the plans; (v) all contributions
required to be made to the plans have been made; (vi) no waiver of the minimum
funding standards under ERISA or the Code is in effect or has been applied for
with respect to the plans; (vii) as of the latest valuation date, the present
value of the assets of Manchester State Bank's plans listed on the attached
SCHEDULE 3.17 which are subject to Title IV of ERISA (other than "Multiemployer
Plans," as defined in Section 3 of ERISA), exceeds the present value of all
vested accrued benefits under such plans, based upon actuarial assumptions
currently utilized for such plans; (viii) Manchester State Bank does not
currently maintain or contribute to a Multiemployer Plan; (ix) each of
Manchester State Bank's plans listed on the attached SCHEDULE 3.17 which is
intended to be a qualified plan within the meaning of Section 401(a) of the Code
has been determined by the Internal Revenue Service to be so qualified to the
extent required under current law, and Manchester State Bank is not aware of any
fact or circumstance which would adversely affect the qualified status of any
such plan; and (x) no liability under Title IV of ERISA has been incurred by
Manchester State Bank that has not been satisfied in full.
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3.18 CONTRACTS AND COMMITMENTS; NO DEFAULTS.
(a) Set forth in or attached to SCHEDULE 3.18 are true and
correct copies of the following documents or summary descriptions of the
following information relating to Manchester State Bank:
(1) subject to applicable law, any bank regulatory agency
reports or other communication relating to the examination of
Manchester State Bank which have been made available to Manchester
State Bank;
(2) the name of each bank with which Manchester State Bank has
an account or safekeeping or custodial arrangement or correspondent
relationship and the names of all persons who are authorized with
respect thereto;
(3) all mortgages, indentures, promissory notes, deeds of
trust, loan or credit agreements or similar instruments under which
Manchester State Bank is indebted in an amount greater than $100,000
for borrowed money or the price of purchased property, accompanied by
copies thereof including all amendments or modifications of any
thereof;
(4) any loans or other credit arrangements by Manchester State
Bank to, with or for the benefit of any holder of 5 % or more of
Manchester State Bank Common Stock, any of Manchester State Bank's
Directors or officers, or, to the best of Manchester State Bank's
knowledge, any members of the immediate families of any of such persons
or any corporation, firm or other entity in which any of such Directors
or officers has a financial interest; and
(5) any pending application, including any documents or
materials relating thereto, which has been filed by Manchester State
Bank with any bank regulatory authority in order to obtain the approval
of such bank regulatory authority for the establishment of a new branch
bank or for any other purpose.
(b) Except as set forth in SCHEDULE 3.18, Manchester State
Bank is not a party to or bound by, nor have any bids or proposals been made by
or to Manchester State Bank with respect to, any written or oral, express or, to
the best of Manchester State Bank's knowledge, implied:
(1) contract relating to the matters referred to in paragraph
(a) above;
(2) contract with or arrangement for Directors, officers,
employees, former employees, agents or consultants with respect to
salaries, bonuses, percentage compensation, pensions, deferred
compensation or retirement payments, or any profit sharing, stock
option, stock purchase or other employee benefit plan or arrangement;
(3) collective bargaining or union contract or agreement;
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(4) contract, commitment or arrangement for the borrowing of
money or for obtaining a line of credit (except for federal funds
purchases);
(5) contract or agreement for the future purchase by it of any
materials, equipment, services, or supplies, which continues for a
period of more than 12 months (including periods covered by any option
to renew by either party), or which provides for a price in excess of
the prevailing market price or is in excess of normal operating
requirements over its remaining term;
(6) contract containing covenants purporting to limit its
freedom to compete;
(7) contract or commitment for the acquisition, construction
or refurbishment of any owned real property, branch or significant
equipment;
(8) contract or commitment upon which its total business is
substantially dependent;
(9) contract or commitment to which present or former
Directors or officers of Manchester State Bank or any of their
"affiliates" or "associates" (as such terms are defined in the rules
and regulations promulgated under the Securities Act) are parties;
(10) agreement or arrangement for the sale of any of
Manchester State Bank stock, tangible assets, or rights or for the
grant of any preferential rights to purchase any of Manchester State
Bank stock, tangible assets, or rights or which requires the consent of
any third party to the transfer and assignment of any of Manchester
State Bank stock, significant tangible assets, or rights; or
(11) contract, agreement, arrangement or commitment not
elsewhere specifically disclosed pursuant to this Agreement, involving
the payment or receipt by Manchester State Bank of more than $50,000.
(c) Manchester State Bank has not committed a default with
respect to any material contract, agreement or commitment to which it is a
party, and Manchester State Bank has not received notice of any such default,
nor has Manchester State Bank knowledge of any facts or circumstances which
would reasonably indicate that Manchester State Bank will be or may be in such
default under any such contract, agreement, arrangement, commitment or other
instrument subsequent to the date hereof.
3.19 MANCHESTER STATE BANK REPORTS. Manchester State Bank has
previously delivered or will deliver to, or made or will make available for
inspection by, the Company an accurate and complete copy of each final offering
circular, registration statement, prospectus, report and definitive proxy
statement filed by Manchester State Bank with the FDIC, pursuant to the Exchange
Act since January 1, 1990, and each communication concerning the financial
condition of Manchester State Bank mailed by Manchester State Bank to its
shareholders or its depositors since January 1, 1990, and each annual report on
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Form F-2 for and since the year ended December 31, 1990, if any. The most
recently mailed offering circular, report, communication and proxy statement did
not contain, and no other such offering circular, report, proxy statement or
communication has contained, any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
3.20 ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.20:
(a) Manchester State Bank is in compliance, and has in the
last three years been in compliance, with all applicable laws, rules,
regulations, standards and requirements adopted or enforced by the United States
Environmental Protection Agency (the "EPA") and of state and local agencies with
jurisdiction over pollution or protection of the environment, except where such
noncompliance or violations could not reasonably be expected to have a material
adverse effect on Manchester State Bank taken as a whole; and
(b) There is no suit, claim, action or proceeding pending
before any court or governmental entity (and, to the best of Manchester State
Bank's knowledge, no basis exists for the assertion or commencement thereof) in
which Manchester State Bank has been named as a defendant (x) for alleged
noncompliance with any environmental law, rule or regulation or (y) relating to
the release into the environment of any Hazardous Material (as hereinafter
defined) or oil at or on a site presently or formerly owned, leased, or operated
by Manchester State Bank or to Manchester State Bank's knowledge, on a site with
respect to which Manchester State Bank has made a commercial real estate loan
and has a mortgage or security interest in, except where such noncompliance or
release would not have a material adverse effect on Manchester State Bank taken
as a whole. "Hazardous Material" means any pollutant, contaminant, or hazardous
substance under the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq., or any similar state law.
3.21 MANCHESTER STATE BANK INFORMATION. No representation or warranty
contained in this Agreement, and no Statement or information contained in any
certificate, list or other writing furnished to the Company by Manchester State
Bank pursuant to the provisions hereof, including without limitation for
inclusion in the S-4 (as defined in Section 6.01(a)) or any regulatory
application, filing or report, contains or will contain any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements herein or therein not misleading. No information material to the
Reorganization and which is necessary to make the representations and warranties
herein contained not misleading, has been withheld from, or has not been
delivered in writing to, the Company.
3.22 INSURANCE. Set forth in SCHEDULE 3.22 is an accurate and complete
list in all material respects, of all policies of insurance, including the
amounts thereof, owned by Manchester State Bank or in which Manchester State
Bank is named as the insured party. All such policies are valid, outstanding and
enforceable.
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3.23 POWERS OF ATTORNEY; GUARANTEES. Manchester State Bank does not
have any power of attorney outstanding, nor any obligation or liability, either
actual, accruing or contingent, as guarantor, surety, co-signer, endorser,
co-maker or indemnitor in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity, except
for letters of credit issued in the ordinary course of business which are listed
in SCHEDULE 3.23.
3.24 BROKER'S FEES. Neither Manchester State Bank nor any of its
officers, Directors or employees has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with the transactions contemplated herein, except as disclosed in SCHEDULE 3.24.
3.25 AGREEMENTS WITH REGULATORY AGENCIES. Except as set forth in
SCHEDULE 3.25, Manchester State Bank is not subject to any cease and desist or
other order issued by, or is a party to any written agreement, consent agreement
or memorandum of understanding (each a "Regulatory Agreement"), with any
regulatory agency or other governmental entity that restricts in any material
respect the conduct of its business or that relates to its capital adequacy, its
credit policies or its management, nor has Manchester State Bank been notified
by any regulatory agency or other governmental entity that it is considering
issuing or requesting any Regulatory Agreement.
3.26 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth in
SCHEDULE 3.26, no officer or Director of Manchester State Bank, 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 Manchester State Bank that would be required to be disclosed in
a proxy statement to shareholders under Regulation 14A of the Exchange Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and Bank hereby represent and warrant to Manchester State
Bank as follows:
4.01 CORPORATE ORGANIZATION.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary. The Company is duly registered as a bank holding
company under the Bank Holding Company Act (the "BHC Act"). The Certificate of
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Incorporation and Bylaws of the Company, copies of which have previously been
made available to Manchester State Bank, are true and complete copies of such
documents as in effect as of the date of this Agreement. Except for the Bank and
The Equity Bank, which is a Connecticut-chartered commercial bank duly
organized, validly existing and in good standing under the laws of the State of
Connecticut and which became a subsidiary of the Company November 30, 1995, the
Company does not have any wholly-owned subsidiaries or capital stock or other
equity ownership interest in any corporation, partnership or other entity which
totals 5% or more of such entity's total equity.
(b) The Bank is a Connecticut-chartered commercial bank duly
organized, validly existing and in good standing under the laws of the State of
Connecticut. The Bank has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted. The Bank has all necessary federal, state and local banking
authorization to own or lease its properties and assets and to carry on its
business as it is being conducted. The Bank is a Subsidiary of the Company. The
accounts of depositors of the Bank are insured by BIF of the FDIC in accordance
with law and with the regulations of the FDIC and all premiums and assessments
required in connection therewith have been paid. The copies of the Bank's
Certificate of Incorporation and Bylaws, each certified by its Secretary as of
the date of this Agreement, which are being delivered to Manchester State Bank
herewith, are complete and correct copies in effect as of the date of this
Agreement. Except as listed on the attached SCHEDULE 4.01(b), the Bank does not
have any wholly-owned subsidiaries or capital stock or other equity ownership
interest in any corporation, partnership or other entity which totals 5 % or
more of such entity's total equity.
4.02 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
10,200,000 shares, consisting of 10,000,000 shares of Company Class A Common
Stock, $.10 par value and 200,000 shares of preferred stock, $.10 par value
("Preferred Stock"). As of the date of this Agreement, there are approximately
3,084,309 shares of Company Common Stock issued and outstanding, no shares held
in the Company's treasury, and (except as described below in SCHEDULE 4.02) no
shares reserved for issuance upon exercise of outstanding stock options. At the
date of this Agreement, no shares of preferred stock are outstanding and no
shares of Company preferred stock have heretofore been issued or are
outstanding. All issued and outstanding shares of Company Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. Except
for 64,000 shares of Company Common Stock reserved for issuance upon exercise of
outstanding stock options that have been granted to certain of the Bank's and
the Company's Executive Officers. The Company does not have and is not bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of Company capital stock or any security representing the right to purchase or
otherwise receive any capital stock of the Company. None of the shares of
capital stock of the Company has been issued in violation of the preemptive
rights of any person.
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(b) The authorized capital stock of the Bank consists of
350,000 shares, shares of common stock, $5.00 par value ("Bank Common Stock").
As of the date of this Agreement, one share of Bank Common Stock issued and
outstanding, all of which are held by the Company, and no shares held in the
Bank's treasury or reserved for issuance. At the date of this Agreement, no
shares of preferred stock are outstanding or reserved for issuance and no shares
of Bank preferred stock have heretofore been issued or are outstanding. All
issued and outstanding shares of Bank Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable.
4.03 AUTHORITY; NO VIOLATION.
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company, a certified copy of the Board Resolution reflecting
such approval is attached hereto as SCHEDULE 4.03(a), and no other corporate
proceedings on the part of the Company are necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and (assuming due authorization, execution
and delivery by Manchester State Bank) constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) The Bank has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. Upon the due and valid approval of this Agreement by the Company as the
sole shareholder of the Bank, no other corporate proceedings on the part of the
Bank will be necessary to consummate the transactions contemplated thereby. This
Agreement has been duly and validly executed and delivered by the Bank and will
(assuming due authorization, execution and delivery by Manchester State Bank)
constitute a valid and binding obligation of the Bank, enforceable against the
Bank in accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(c) Neither the execution and delivery of this Agreement by
the Company or the Bank, nor the consummation by the Company or the Bank, as the
case may be, of the transactions contemplated hereby, nor compliance by the
Company or the Bank with any of the terms or provisions hereof, will (i) violate
any provision of the Certificate of Incorporation or Bylaws of the Company or
the Bank, as the case may be, or (ii) assuming that the consents and approvals
referred to in Section 4.04 are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
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applicable to the Company or any of its Subsidiaries, or (y) violate, result in
a breach of any provision of, constitute a default under, or result in the
creation of any material lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of the Company or
any of its Subsidiaries under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party, or by which they or any of their respective properties or assets may
be bound or affected.
4.04 CONSENTS AND APPROVALS. Except for (i) the filing of applications
and notices, as applicable, with the FDIC under the Bank Merger Act and with the
Board of Governors of the Federal Reserve System under the Bank Holding Company
Act and approval of such applications and notices, (ii) the filing of
applications with the Commissioner under Section 36a-125 and potentially 36a-180
of the Connecticut General Statutes and approvals of such applications, (iii)
the filing with the SEC of the Proxy Statement and the S-4, (iv) the filing of
this Agreement by the Commissioner, with his approval thereon, with the
Secretary, (v) such filings and approvals as are required to be made or obtained
under the securities or "Blue Sky" laws of various states in connection with the
issuance of the shares of Company Common Stock pursuant to this Agreement, (vi)
the approval of this Agreement by the Company as the sole shareholder of the
Bank, and (vii) the approval of this Agreement by the shareholders of the
Company (viii) such filings, authorizations or approvals as may be set forth in
SCHEDULE 4.04, no consents or approvals of or filings or registrations with any
governmental entity or with any third party are necessary in connection with the
execution and delivery by the Company and the Bank of this Agreement and the
consummation by the Company and the Bank of the Reorganization and the other
transactions contemplated hereby, except where the failure to obtain such
consents or approvals, or to make such filings or registrations, would not
prevent or delay the Reorganization or otherwise prevent the Company from
performing its obligations under this Agreement. The affirmative vote of the
holders of the outstanding shares of Company Common Stock is not required to
approve this Agreement or the transactions contemplated hereby.
4.05 FINANCIAL STATEMENTS. The Company has previously made available to
Manchester State Bank accurate and complete copies of (a) the consolidated
balance sheets of the Company and its Subsidiaries as of December 31 for the
fiscal years 1990 through 1994 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the fiscal years 1990
through 1994, inclusive, as reported in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 filed with the SEC under the
Exchange Act, and (b) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of September 30, 1995 and the related unaudited
consolidated statement of income, changes in shareholders' equity and cash flows
for the nine month periods then ended as reported in the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1995 filed with the SEC
under the Exchange Act. The December 31, 1994 consolidated balance sheet of the
Company (including the related notes, where applicable) fairly presents in all
material respects the consolidated financial position of the Company and its
Subsidiaries as of the date thereof, and the other financial statements referred
to in this Section 4.05 (including the related notes where applicable) fairly
present in all material respects the results of the consolidated operations and
changes in shareholders' equity and consolidated financial position of the
Company and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth and each of such statements (including the
related notes, where applicable) has been prepared in accordance with GAAP
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consistently applied during the periods involved, except as indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q. Without limiting the generality of the foregoing, the financial statements
as of, and for, the nine month period ending September 30, 1994, were prepared
on a basis consistent with the Company's audited financials for the year ended
December 31, 1994. The books and records of the Company and of its Subsidiaries
have been, and are being, maintained in all material respects in accordance with
applicable legal and accounting requirements and reflect only valid
transactions.
4.06 BROKER'S FEES. Neither the Company nor the Bank nor any Company
Subsidiary, nor any of their respective officers, Directors, or employees has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement except as disclosed in SCHEDULE 4.06.
4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except for the transactions contemplated by this Agreement
or as a result of the consummation of its Plan and Agreement of Reorganization
with The Equity Bank, which became effective November 30, 1995, the Company has
not incurred any liability (contingent or otherwise) that is material to Company
or that, when combined with all similar liabilities, would be material to
Company, except as disclosed in the notes to Company's December 31, 1994 balance
sheet, and except for commitments and contingencies incurred in the ordinary
course of business.
(b) Except as a result of the consumation of its Plan and
Agreement of Reorganization with The Equity Bank, which became effective
November 30, 1995, and except as may be set forth in SCHEDULE 4.07, since
December 31, 1994:
(i) there has not been any material adverse change in the
Company, its loan portfolio, and its Subsidiaries, their businesses or
operations taken as a whole, and no fact or condition exists which the
Company believes will cause such a material adverse change;
(ii) there has not been any occurrence by the Company of any
liability that has had, or to the knowledge of the Company, could
reasonably be expected to have, a material adverse effect on the
Company and its Subsidiaries taken as a whole;
(iii) there has not been any change in any of the accounting
methods or practices of the Company or any of its Subsidiaries other
than changes required by applicable law or generally accepted
accounting principles;
(iv) there has not been any agreement or understanding,
whether in writing or otherwise, of the Company of any of its
Subsidiaries to do any of the foregoing; and
(v) there has not been any loss, damage, destruction or other
casualty, materially and adversely affecting any of the significant
properties, assets or business of the Company of any of its
Subsidiaries.
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(c) For purposes of this Section 4.07, no transaction, event
or condition or series or combination of transactions, events or conditions
shall be materially adverse with respect to the Company or the Bank if the net
adverse effect thereof, on the capital of the Company and the Bank is not in
excess of $1,500,000.
4.08 LEGAL PROCEEDINGS. There are no pending or to the knowledge of
the Company, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental investigations of any nature against the Company
or any Subsidiary of the Company, as to which there is, in the judgment of the
Company, a reasonable likelihood of adverse determination and which if adversely
determined, would, individually or in the aggregate, (i) have a material adverse
effect on the Company and its Subsidiaries, or their business or operations
taken as a whole, or (ii) as of the date hereof, prevent or materially and
adversely affect the Company's ability to consummate the transactions
contemplated hereby. Set forth in SCHEDULE 4.08 hereto is a list of any pending
or to the knowledge of the Company, threatened, legal, administrative, arbitral
or other proceeding, claim, action or governmental investigation of any nature
against the Company or any Subsidiary of the Company which involves a claim of
$1,500,000 or more or a series of claims which in the aggregate equal $1,500,000
or more. Set forth in SCHEDULE 4.08 hereto is also a listing of any and all
class actions or shareholders' actions pending or, to the best knowledge of the
Company, threatened against the Company or any of its Subsidiaries, regardless
of the amount in controversy.
4.09 SEC REPORTS. The Company has previously made available to
Manchester State Bank a true and complete, in all material respects, copy of
each (a) final registration statement, prospectus, report, schedule and
definitive proxy statement filed since January 1, 1994 by the Company with the
SEC pursuant to the Securities Act or the Exchange Act (the"Company Reports")
and (b) communication mailed by the Company to its shareholders since January 1,
1994, and, as of their respective dates, no such Company Reports contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
4.10 COMPANY INFORMATION. No representation or warranty contained
in this Agreement, and no statement or information contained in any certificate,
list or other writing furnished to Manchester State Bank pursuant to the
provisions hereof, including without limitation for inclusion in the Proxy
Statement and the S-4 (as defined in Section 6.01(a)) or any regulatory
application, filing or report, contains or will contain any untrue statement of
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a material fact or omits to state a material fact necessary in order to make the
statements herein or therein not misleading. No information material to the
Reorganization and which is necessary to make the representations and warranties
herein contained not misleading, has been withheld from, or has not been
delivered in writing to, Manchester State Bank.
4.11 COMPLIANCE WITH APPLICABLE LAW. The Company and each of its
Subsidiaries holds, and have at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not in default under any, applicable law, statute, order, rule, regulation,
policy or guideline of any governmental entity relating to the Company or any of
its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default would not have a
material adverse effect on the Company, and neither the Company nor any of its
Subsidiaries has received notice of any material violation of, or knows of any
material violation of, any of the above.
4.12 AGREEMENTS WITH REGULATORY AGENCIES. Neither the Company nor
any of its Subsidiaries is subject to any cease and desist or other order issued
by, or is a party to any written agreement, consent agreement or memorandum of
understanding (each a "Company Regulatory Agreement"), with any regulatory
agency or other governmental entity that restricts in any material respect the
conduct of its business or that relates in any manner to its capital adequacy,
its credit policies or its management, nor has the Company or any of its
Subsidiaries been notified by any regulatory agency of other governmental entity
that it is considering issuing or requesting any Regulatory Agreement.
4.13 REGULATORY APPROVALS. The Company is not, as of the date
hereof, aware of any reason why the regulatory approvals required to be obtained
by it or any of its Subsidiaries to consummate the Reorganization would not be
satisfied within the time frame customary for transactions of the nature
contemplated thereby.
4.14 ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.14:
(a) The Company and the Bank are in compliance, and have in
the last three years been in compliance, with all applicable laws, rules,
regulations, standards and requirements adopted or enforced by the EPA and of
state and local agencies with jurisdiction over pollution or protection of the
environment, except where such noncompliance or violations could not reasonably
be expected to have a material adverse effect on the Company;
(b) There is no suit, claim, action or proceeding pending
before any court or governmental entity (and, to the best of the Company's
knowledge, no basis exists for the assertion or commencement thereof) in which
the Company or any of its Subsidiaries has been named as a defendant (x) for
alleged noncompliance with any environmental law, rule or regulation or (y)
relating to the release into the environment of any Hazardous Material (as
defined in Section 3.20(b)) or oil at or on a site presently or formerly owned,
leased, or operated by the Company or any of its Subsidiaries or to the
Company's knowledge, on a site with respect to which the Company or any of its
Subsidiaries has made a commercial real estate loan and has a mortgage or
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security interest in, except where such noncompliance or release would not have
a material adverse effect on the Company and its Subsidiaries taken as a whole.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.01 COVENANTS OF MANCHESTER STATE BANK. During the period from the
date of this Agreement to the Effective Time, Manchester State Bank will conduct
its business only in the ordinary course and consistent with prudent banking
practice, will use all reasonable efforts to preserve Manchester State Bank's
properties wherever located, and will comply in all material respects with all
laws applicable to Manchester State Bank to the conduct of its business, and to
the transactions contemplated by this Agreement. Manchester State Bank will use
all reasonable efforts to preserve its business organization intact, to keep
available the present services of its employees, and to preserve the goodwill of
its customers and others with whom business relationships exist. Manchester
State Bank will, from the date hereof until at least through the consummation of
the transactions contemplated by this Agreement, keep all insurance policies set
forth in SCHEDULE 3.22 in full force and effect. In addition, Manchester State
Bank agrees that from the date hereof to the consummation of the Reorganization,
and except as otherwise consented to or approved by a duly authorized officer of
the Company in writing, which consent shall not be unreasonably withheld, or as
permitted or required by this Agreement, Manchester State Bank will not:
(a) enter into or amend any contract of the nature required to
be set forth in SCHEDULE 3.18;
(b) change any provision of its Certificate of Incorporation
or Bylaws or similar governing documents;
(c) change the number of issued shares of its capital stock,
or issue or grant any option, warrant, call, commitment, subscription, right to
purchase or agreement of any character relating to its authorized or issued
capital stock, or any securities convertible into shares of such stock, or
split, combine or reclassify any shares of its capital stock, declare, set aside
or pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock or redeem or otherwise
acquire any shares of its capital stock;
(d) make unsecured loans in excess of $10,000 for any
individual loan or in excess of $25,000 in the aggregate to any borrower or
group of borrowers, other than renewals in the ordinary course of business and
not involving any change in terms;
(e) (i) make any loan or loans described as an "Undesirable"
or "Prohibited" Loan on SCHEDULE 5.01; (ii) make any secured loan or loans,
other than residential mortgage loans with a loan to value of in excess of 80%,
in an aggregate amount to any one borrower (including members of his/her
immediate family or affiliates of such borrower) in excess of $250,000, except
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for loans sold to investors and renewals in the ordinary course of business and
not involving any change in terms; (iii) make any junior mortgage loan in excess
of $100,000 behind first mortgages if the resulting loan to value ratio of the
combined mortgages would exceed 70% or if prior mortgage loans are in excess of
$250,000; (iv) make any commercial loan or loans in excess of $100,000 unless
fully secured by readily marketable collateral or real estate with a maximum
loan to value ratio of 80%; or (v) honor or extend any overdraft in excess of
$5,000 unless fully secured by readily marketable collateral.
(f) make any new loans to any Director or employee of
Manchester State Bank, or any member or affiliate of their respective families;
(g) other than with respect to residential mortgage loans,
renew or otherwise reinstate any loan that has been in default for a period of
30 days or more which, when added to any loans outstanding to the families or
affiliates of any maker or surety of the defaulted loans (whether or not such
other loans are in default) has a balance outstanding in excess of $20,000,
except that Manchester State Bank may accept payments for the purpose of
bringing loans current, so long as there is no amendment or restructuring of the
loans;
(h) offer rates on deposits that are set in deviation from
past practice and procedure employed by Manchester State Bank or are materially
higher than those of its competitors in the local market, or offer loan pricing
which is materially different relative to its competitors in the local market.
(i) hire or retain any new employees, consultants or
contractors, or increase the compensation of current employees, consultants or
contractors, except that Manchester State Bank may hire replacements for current
employees who are not officers or managers if such employees cease to be
employees of Manchester State Bank;
(j) make any capital expenditures in excess of $10,000;
(k) enter into any real property lease or any lease of
personal property or extend or modify any existing lease of real or personal
property;
(l) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, other than in connection in with foreclosures,
settlements in lieu of foreclosure or troubled loan or debt restructurings in
the ordinary course of business, which would be material to Manchester State
Bank;
(m) take any action that is intended or would result in any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions to the
Reorganization set forth in Article VII not being satisfied, or in a violation
of any provision of this Agreement except, in every case, as may be required by
applicable law;
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(n) change its methods of accounting in effect at December 31,
1994, except as required by changes in GAAP or regulatory accounting principles
as concurred to by Manchester State Bank's independent auditors;
(o) take or cause to be taken any action which would
disqualify the Reorganization as a tax-free reorganization under Section 368 of
the Code;
(p) take or cause to be taken any action which would, or may
reasonably be expected to, significantly delay or otherwise adversely affect the
regulatory approvals required to consummate the Reorganization;
(q) other than activities in the ordinary course of business
consistent with prior 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;
(r) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(s) file any application to open, relocate or terminate the
operations of any banking office;
(t) make any equity investment or commitment to make such an
investment 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;
(u) purchase or sell loans in bulk;
(v) foreclose upon or take deed or title to any commercial
real estate without first conducting a Phase I environmental assessment of the
property; and shall not foreclosure upon such commercial real estate if such
environmental assessment indicates the presence of hazardous material;
(w) terminate the employment of, or decrease in any material
respect, the duties, obligations, responsibilities, or position of any senior
officer of Manchester State Bank; or
(x) agree to do any of the foregoing.
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5.02 COVENANTS OF THE COMPANY. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated or permitted
by this Agreement or with the prior written consent of Manchester State Bank,
which should not be unreasonably withheld, the Company and its Subsidiaries
shall carry on their respective businesses in the ordinary course consistent
with past practice and use all reasonable efforts to preserve intact their
present business organizations and relationships. Without limiting the
generality of the foregoing and as otherwise contemplated by this Agreement or
consented to in writing by Manchester State Bank, which shall not be
unreasonably withheld, the Company shall not, and shall not permit any of its
Subsidiaries to:
(a) take any action that is intended or would result in any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions to the
Reorganization set forth in Article VII not being satisfied, or in a violation
of any provision of this Agreement, except, in every case, as may be required by
applicable law;
(b) change its methods of accounting in effect at December 31,
1994, except in accordance with changes in GAAP or regulatory accounting
principles as concurred to by the Company's independent certified public
accountants;
(c) take or cause to be taken any action which would
disqualify the Reorganization as a tax-free reorganization under Section 368 of
the Code;
(d) take or cause to be taken any action which would, or may
reasonably be expected to, significantly delay or otherwise adversely affect the
regulatory approvals required to consummate the Reorganization; or
(e) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 REGULATORY MATTERS.
(a) Following the review by the Company and Manchester State
Bank of all information and material provided to each in accordance with this
Agreement, Manchester State Bank shall promptly prepare and file with the FDIC a
proxy statement for the meeting of its shareholders called for the purpose of
approving this Agreement (the 'Proxy Statement") and the Company shall promptly
prepare and file with the SEC a registration statement on Form S-4 with respect
to the shares of Company Common Stock to be issued in the Reorganization (the
"S-4"), in which the Proxy Statement will be included as a prospectus. Each of
the Company and Manchester State Bank shall use their best efforts to have the
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S-4 declared effective under the Securities Act as promptly as practicable after
such filing, and Manchester State Bank shall thereafter promptly mail the Proxy
Statement to its shareholders. The Company shall also use its best efforts to
obtain all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement, and
Manchester State Bank shall furnish all information concerning Manchester State
Bank and the holders of Manchester State Bank Common Stock as may be reasonably
requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use
their best efforts to prepare and file promptly 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, approval of the Reorganization by the FDIC pursuant to the Bank
Merger Act, and approval of the Reorganization by the Commissioner of the
Connecticut General Statutes and approval by the Board of Governors of the
Federal Reserve System if it wishes to exercise jurisdiction. The parties hereto
agree that they will consult with each other with respect to the obtaining of
all permits, consents, approvals and authorizations of all third parties and
governmental entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein.
(c) The Company and Manchester State Bank shall, upon request,
furnish each other with all information concerning themselves, their respective
Subsidiaries, directors, officers and shareholders and such other matters as may
be reasonably necessary or advisable in connection with the Proxy Statement, the
S-4 or any other statement, filing, notice or application made by or on behalf
of the Company, Manchester State Bank or any of their respective Subsidiaries to
any governmental entity in connection with the Reorganization and the other
transactions contemplated hereby.
(d) The Company and Manchester State Bank shall promptly
furnish each other with copies of written communications received by the Company
or Manchester State Bank, as the case may be, or any of their respective
Subsidiaries from, or delivered by any of the foregoing to, any governmental
entity in respect of the transactions contemplated hereby.
6.02 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws
relating to the exchange of information and so as not to unreasonably interfere
with the ordinary proper conduct of its business, Manchester State Bank shall
afford to the officers, employees, accountants, counsel and other
representatives of the Company, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records relating to the ownership, operation, obligations and
liabilities of Manchester State Bank, including, but not limited to, its books
of account (including its general ledger), tax records, minute books of
Directors' and shareholders' meetings, Certificate of Incorporation, Bylaws,
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contracts and agreements, public filings with any regulatory authority,
examination reports of any regulatory authority, including preliminary and
partial reports received in connection with the regulatory examination currently
in progress (subject to applicable law), plans affecting its employees, and any
other business activities or prospects in which the Company may have a
reasonable interest. During such period, Manchester State Bank shall make
available to the Company (i) a copy of each report, schedule, 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 and (ii) all other
information concerning its business, properties and personnel as the Company may
reasonably request (other than information which Manchester State Bank is not
permitted to disclose under applicable law). As to information which Manchester
State Bank is not permitted by law to disclose, Manchester State Bank will, upon
request from the Company, use all reasonable efforts to obtain any consent,
approval or waiver that may be required for such disclosure.
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, the Company shall, and shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of Manchester State Bank, access, during normal business
hours during the period prior to the Effective Time, to such information
regarding the Company and its Subsidiaries as shall be reasonably necessary for
Manchester State Bank to fulfill its obligations pursuant to this Agreement to
prepare the Proxy Statement or which may be reasonably necessary for Manchester
State Bank to confirm that the representations and warranties of the Company
contained herein are true and correct and that the covenants of the Company
contained herein have been performed in all material respects, including, but
not limited to, any regulatory information, including FDIC examination reports
and any other reports from regulatory agencies concerning the Company,
information concerning the Company's liabilities, all financial reports and
statements, information concerning the Company's business plans, all external
audit reports concerning the Company or the Bank, and, during the thirty (30)
days following the date of execution of this Agreement and continuing until the
Effective Time, all information regarding (i) the Company's loan portfolio,
including its watch list, reserves, and non-performing loans, (ii) the Company's
investments and (iii) the federal, state and local tax returns and tax
obligations of the Company and its Subsidiaries. As to information which the
Company is not permitted by law to disclose, the Company will, upon request from
Manchester State Bank, use all reasonable efforts to obtain any consent,
approval or waiver that may be required for such disclosure.
(c) Neither the Company nor any of its Subsidiaries, nor
Manchester State Bank, shall be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of the customers of such party, jeopardize the attorney-client privilege
of the institution in possession or control of such information or contravene
any law, rule, regulation, order, judgment, decree, fiduciary duty or binding
agreement entered into prior to the date of this Agreement. The parties hereto
will make appropriate substitute disclosure arrangements under circumstances in
which the restrictions of the preceding sentence apply.
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(d) All information furnished pursuant to this Agreement shall
be held in confidence to the extent required by, and in accordance with, the
provisions of the confidentiality agreements, dated December 7, 1995, among the
Company, the Bank and Manchester State Bank (the "Confidentiality Agreements").
6.03 SHAREHOLDER APPROVALS.
(a) The Company and Manchester State Bank shall each take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders to be held as soon as is reasonably practicable after the date on
which the S-4 becomes effective for the purpose of voting upon the approval of
this Agreement. Manchester State Bank and the Company will, through its Board of
Directors, recommend to its shareholders approval of this Agreement and the
transactions contemplated hereby and such other matters as may be submitted to
its shareholders in connection with this Agreement.
(b) The Company, as sole shareholder of the Bank, shall take
all steps necessary to duly call, give notice of, convene and hold a meeting of
the shareholder(s) of the Bank (or take action by written consent) for the
purpose of voting upon the approval of this Agreement.
6.04 LEGAL CONDITIONS TO REORGANIZATION. Each of the Company and
Manchester State Bank shall, and the Company shall cause each of 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 Reorganization 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 Manchester
State Bank or the Company or any of the Company's Subsidiaries in connection
with the Reorganization and the other transactions contemplated by this
Agreement.
6.05 AFFILIATES. Manchester State Bank shall cause each Director,
executive officer and other person who is an "affiliate" (for purposes of Rule
145 under the Securities Act) of Manchester State Bank to deliver to the
Company, prior to the signing of this Agreement, a signed written agreement, in
the form of SCHEDULE 6.05 hereto, providing that such person will not sell,
pledge, transfer or otherwise dispose of any shares of Company Common Stock to
be received by such "affiliate" in the Reorganization except in compliance with
the applicable provisions of the Securities Act and the rules and regulations
thereunder, including without limitation, Rule 145.
6.06 STOCK LISTING. The Company shall cause the shares of Company
Common Stock to be issued in the Reorganization to be approved for inclusion for
quotation on the NASDAQ National Market System, subject to official notice of
issuance, prior to the Effective Time.
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6.07 EMPLOYEE MATTERS.
(a) From and after the Effective Time and subject to
applicable law, the Company shall provide the employees of Manchester State Bank
who are offered employment with the Company or any of its Subsidiaries, and who
accept such employment, with benefits comparable to those provided to its own
employees in similar positions and with comparable terms of service with the
Company or its Subsidiaries, as reasonably determined by the Company and its
Subsidiaries.
(b) There is no collective bargaining agreement applicable to
employees of the Company or the Bank.
(c) Nathan G. Agostinelli's employment and severance shall be
governed by the proposed employment agreement included as SCHEDULE 6.07(c).
6.08 FINANCIAL STATEMENTS.
(a) As soon as reasonably available, but in no event later
than 90 days after the end of the calendar year ending after the date of this
Agreement, the Company will deliver to Manchester State Bank and Manchester
State Bank will deliver to the Company their respective Annual Reports on Form
1O-K, or F-2, as appropriate, as filed with the SEC or the FDIC, as appropriate,
under the Exchange Act.
(b) As soon as reasonably available, but in no event later
than 45 days after the end of each fiscal quarter ending after the date of this
Agreement, the Company will deliver to Manchester State Bank and Manchester
State Bank will deliver to the Company their respective Quarterly Reports on
Form 1O-Q, or F-4, as appropriate, as filed with the SEC or the FDIC, as
appropriate, under the Exchange Act.
6.09 ADDITIONAL AGREEMENTS. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purpose of
this Agreement, or to vest the Resulting Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Reorganization, 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,
the Company.
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6.10 DISCLOSURE SUPPLEMENTS. From time to time prior to the
Effective Time, each party will promptly supplement or amend the Schedules
delivered in connection with the execution of this Agreement to reflect any
matter which, if existing, occurring or known at the date of this Agreement,
would have been required to be set forth or described in such Schedules or
which is necessary to correct any information in such Schedules which has been
rendered inaccurate thereby. No supplement or amendment to such Schedules shall
have any effect for the purposes of determining satisfaction of the conditions
set forth in Sections 7.02(a) or 7.03(a) hereof, as the case may be, or the
compliance by Manchester State Bank or the Company, as the case may be, with
the respective covenants set forth in Sections 5.01 and 5.02 hereof.
6.11 CURRENT INFORMATION.
(a) During the period from the date of this Agreement to the
Effective Time, Manchester State Bank will cause one or more of its designated
representatives to be available, upon the reasonable request of the Company, to
confer on a regular and frequent basis with representatives of the Company and
to report the general status of the ongoing operations of Manchester State Bank.
Manchester State Bank will promptly notify the Company of any significant change
in the normal course of business of Manchester State Bank or in the operation of
its properties, and of any governmental complaints, investigations or hearings
(or communications indicating that the same may be contemplated) or the
institution or the threat of any significant litigation involving Manchester
State Bank and will keep the Company reasonably informed of such events and
permit the Company access to all significant materials prepared in connection
therewith. With respect to the regulatory examination of Manchester State Bank
currently in progress, Manchester State Bank will keep the Company advised of
all reports, preliminary or otherwise, received from examiners, subject to
applicable disclosure laws, and will use all reasonable efforts to obtain any
consent, approval or waiver that may be required for such disclosure.
(b) The Company will promptly notify Manchester State Bank of
any material change in the normal course of business of the Company or any of
its Subsidiaries and of any governmental complaints, investigations or hearings,
or the institution or threat of significant litigation involving the Company or
any of its Subsidiaries, and will keep Manchester State Bank reasonably informed
of such events and permit Manchester State Bank access to all significant
materials for a reasonable period in connection therewith. With respect to the
regulatory examination of the Company currently in progress or just recently
ended, the Company will keep Manchester State Bank advised of all reports,
preliminary or otherwise, received from examiners, subject to applicable
disclosure laws, and will use all reasonable efforts to obtain any consent,
approval, or waiver that may be required for such disclosure.
6.12 ENVIRONMENTAL ASSESSMENT. Manchester State Bank agrees, to the
extent it is legally permitted, to allow the Company, its agents and
representatives, during the sixty days subsequent to execution of this Agreement
at the Company's expense, to conduct an environmental site assessment of any
real property owned (including assets held as other real estate owned) or leased
by Manchester State Bank, and agrees to cooperate in providing information and
other assistance to the Company, its agents and representatives in connection
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therewith, including, without limitation, providing access and entry onto such
real property for the purpose of making appropriate environmental and related
inspections, provided, however that Company agrees to enter into a
confidentiality agreement with the party(ies) conducting any environmental
testing that said party shall not disclose its findings to any third party
unless required by State or Federal law. Company agrees that it shall also be
bound by this restriction. An environmental site assessment may include sampling
and intrusive studies if the Company's representative deems them advisable in
light of the current standards. Manchester State Bank shall be entitled, as a
condition to its obligations hereunder, to notice within 60 days of signing this
Agreement of any material environmental problems identified by the Company and
to be indemnified to its reasonable satisfaction from and against any loss or
damage incurred from the conducting of any such site assessment (but not the
findings thereof). The Company shall contract for any site assessment desired by
it not later than 30 days after the later of the date hereof or, with respect to
property acquired after the date hereof, the date Manchester State Bank notified
the Company of such acquisition.
6.13 PUBLIC ANNOUNCEMENTS. Except to the extent required otherwise
by applicable state or federal securities laws or any applicable Connecticut or
federal banking laws, with respect to which Manchester State Bank and the
Company may act upon the advice of their respective legal counsel, neither
Manchester State Bank, nor the Company or any of its Subsidiaries, shall issue
any press release or otherwise make any public statement with respect to this
Agreement or any of the transactions contemplated hereby prior to the Effective
Time without obtaining the consent to or approval thereof from the other party,
which consent or approval shall not be unreasonably withheld.
ARTICLE VII
CONDITIONS PRECEDENT
7.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER THIS AGREEMENT.
The respective obligations of each party under this Agreement shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions, none of which may be waived:
(a) This Agreement and the transactions contemplated hereby
shall have been approved and adopted by the affirmative vote of the holders of
at least two-thirds of the outstanding shares of Manchester State Bank Common
Stock and if legally required, by the requisite shareholder vote of Bank Common
Stock and Company Common Stock.
(b) This Agreement and the transactions contemplated hereby
shall have been approved by the Commissioner, by the FDIC and by the Board of
Governors of the Federal Reserve System unless it waives jurisdiction, and by
any other regulatory authority having appropriate jurisdiction, none of such
approvals shall contain any term or condition which would (i) have a material
adverse effect on the business, operations, properties, assets or financial
condition of Manchester State Bank or Resulting Corporation, or (ii) otherwise
materially impair the value of Manchester State Bank or Resulting Corporation,
and all appropriate waiting periods shall have expired.
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(c) Neither the Company nor Manchester State Bank shall be
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which prevents or delays the consummation of the Reorganization.
(d) The shares of Company Common Stock which shall be issued
to the shareholders of Manchester State Bank upon consummation of the
Reorganization shall have been authorized for inclusion for quotation on the
NASDAQ National Market System, subject to official notice of issuance.
(e) The S-4 shall have become effective under the Securities
Act and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
7.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY UNDER THIS
AGREEMENT. The obligations of the Company under this Agreement shall be further
subject to the satisfaction, at or prior to the Effective Time, of the following
conditions, any one or more of which may be waived by the Company:
(a) Each of the obligations of Manchester State Bank required
to be performed by it at or prior to the Effective Time pursuant to the terms of
this Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of Manchester State Bank
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Time as though made at
and as of the Effective Time (except as otherwise contemplated by this
Agreement), and the Company shall have received a certificate to that effect
signed by the President and by the Chief Financial Officer of Manchester State
Bank.
(b) All action required to be taken by, or on the part of,
Manchester State Bank to authorize the execution, delivery and performance of
this Agreement by Manchester State Bank and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors of Manchester State Bank and Manchester State Bank shareholders and
the Company shall have received certified copies of the resolutions evidencing
such authorization.
(c) The Company shall have received certificates as of a day
as close as practicable to the date of the Effective Time from appropriate
authorities as to the good standing of, and of the payment of franchise taxes,
if any, in Connecticut by Manchester State Bank.
(d) Any and all permits and approvals of governmental bodies
and material consents (including all consents of landlords) and authorizations
of other third parties shall have been obtained by Manchester State Bank and the
Company which are required with respect to and are necessary in connection with
(i) the consummation of the Reorganization and the other transactions
contemplated hereby, (ii) the ownership by the Resulting Corporation of all of
the properties and assets of Manchester State Bank, or (iii) the conduct by the
Resulting Corporation of the business of Manchester State Bank as conducted by
Manchester State Bank at the Effective Time.
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(e) The Company shall have received an opinion, dated the date
of Closing, from counsel to Manchester State Bank, in form and substance
reasonably satisfactory to the Company, on the matters set forth on EXHIBIT
7.02(e) hereto.
(f) Manchester State Bank shall have caused to be delivered to
the Company a letter from Manchester State Bank's independent public accountants
with respect to Manchester State Bank, and dated the date of the Closing, and
addressed to the Company and Manchester State Bank, in form and substance
reasonably satisfactory to the Company to the effect that:
(1) they are independent public accountants with respect to
Manchester State Bank;
(2) in their opinion the audited financial statements of
Manchester State Bank examined by them comply as to form in all
material respects with the applicable published rules and regulations
of the FDIC with respect to proxy statements and of the SEC with
respect to registration statements; and
(3) at the request of Manchester State Bank they have carried
out procedures to a specified date not more than 10 business days prior
to the date of each such letter as follows: (i) read the unaudited
financial statements of Manchester State Bank for the period from the
date of the most recent audited financial statements ("Audit Date")
through the date of the most recent financial statements available in
the ordinary course of business; (ii) read the minutes of the meetings
of the Board of Directors of Manchester State Bank from the date of the
most recently audited financial statements to the date not more than 10
days prior to the date of each such letter, and (iii) consulted with
the Chief Financial Officer of Manchester State Bank as to whether
there has been an increase or decrease in total assets of $500,000 or
more, an increase in nonperforming loans of more than $500,000, an
increase in foreclosed real estate of more than $500,000, an increase
or decrease in total deposits of more than $500,000, and a decrease in
total shareholders' equity, each as compared to the audited financial
statements of Manchester State Bank as of the Audit Date and, based on
such procedures and except as disclosed in such letter, nothing has
come to their attention which would cause them to believe that said
financial statements and the financial statements referred to in (i)
above and the most recent unaudited financial statements are not
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements of Manchester State Bank at the Audit Date.
(g) Holders of more than 85% of the outstanding shares of
Manchester State Bank shall have not exercised their statutory appraisal or
dissenters' rights.
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(h) Neither the Company nor Manchester State Bank shall be
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which would impose limitations on the ability of the Resulting
Corporation to exercise full rights of ownership of the assets or business of
Manchester State Bank and no action, suit, proceeding or investigation shall be
pending or threatened which, in the opinion of counsel to the Company, is
reasonably likely to result in any such order, decree or injunction.
(i) Except as otherwise provided for in this Agreement, any
agreement to which Manchester State Bank is a party on the date hereof or
hereafter which takes effect upon, or which provides a payment or penalty
conditioned upon or related to, a change of control of Manchester State Bank,
shall have been duly terminated without cost or expense to Manchester State
Bank, the Resulting Corporation or the Company.
(j) The Company shall have received the results of any
environmental site assessment contracted for in accordance with Section 6.12
hereof, and based upon such environmental site assessment, not more than $25,000
shall be needed to be expended to correct any deficiency cited in such
assessment and, in the case of property used for Manchester State Bank bank
operations, it shall not be necessary to cease using the cited location for a
period in excess of 30 days in order to complete such corrections, provided,
that, as to any deficiency that can be corrected reasonably promptly and before
the Effective Time, Manchester State Bank shall have the option of correcting
such deficiency.
(k) The real property leases to which Manchester State Bank is
a party shall have remained in full force and effect as of the Effective Time
and shall not have been terminated by reason of the consummation of the
Reorganization.
(l) The Company shall have received, prior to the execution of
this Agreement and such opinion to be updated upon reasonable request by the
Company for inclusion in Registration/ Proxy Solicitation materials in form and
substance reasonably satisfactory to the Company, an opinion from HAS
Associates, Inc., or such other investment banker as may be selected by the
Company, that the terms of the Reorganization are fair to the Company from a
financial point of view.
(m) Rulings from the Internal Revenue Service, in form and
substance satisfactory to counsel for the Company and the Bank, or an opinion of
counsel for the Company and the Bank, shall have been received to the effect
that, for federal income tax purposes, (i) the transactions described in this
Agreement will qualify for treatment as a tax-free reorganization under Section
368 of the Code; (ii) except to the extent of cash consideration received, no
gain or loss will be recognized by the Company or the Bank upon the
Reorganization; (iii) no gain or loss will be recognized by the shareholders of
the Company upon consummation of the Reorganization; and (iv) such other matters
as the Company or the Bank deems appropriate and necessary.
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(n) Manchester State Bank and each "Founding Director" of
Manchester State Bank shall have executed and delivered to the Company, prior to
the execution of this Agreement, the Shareholder Agreements described in Section
1. 11, in form and substance reasonably satisfactory to the Company, and no
material breach or threatened breach of such Shareholder Agreements shall exist.
Manchester State Bank will furnish the Company with such
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 7.02 as the Company may
reasonably request.
7.03 CONDITIONS TO THE OBLIGATIONS OF MANCHESTER STATE BANK UNDER
THIS AGREEMENT. The obligations of Manchester State Bank under this Agreement
shall be further subject to the satisfaction, at or prior to the Effective Time,
of the following conditions, any one or more of which may be waived by
Manchester State Bank:
(a) Each of the obligations of the Company and the Bank
required to be performed by them at or prior to the Effective Time shall have
been duly performed and complied with and the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
respects as of the date of this Agreement and as of the Effective Time as though
made at and as of the Effective Time (except as otherwise contemplated by this
Agreement), and Manchester State Bank shall have received a certificate to that
effect signed by the President and Chief Financial Officer of the Company.
(b) All action required to be taken by, or on the part of, the
Company and the Bank to authorize the execution, delivery and performance of
this Agreement by the Company and the Bank and the consummation of the
transactions contemplated hereby shall have been duly and validly taken by the
Board of Directors of the Company and the Bank, and by the Company as sole
shareholder of the Bank, and Manchester State Bank shall have received certified
copies of the resolutions evidencing such authorization.
(c) The conditions in Section 7.02(d) shall have been
satisfied.
(d) Manchester State Bank shall have received from First
Albany, or such other investment banker as may be selected by Manchester State
Bank, prior to execution of this Agreement an opinion to be updated for
inclusion in Registration and Proxy Solicitation materials, in form and
substance reasonably satisfactory to Manchester State Bank, that the terms of
the Reorganization are fair to Manchester State Bank and its shareholders from a
financial point of view.
(e) Manchester State Bank shall have received an opinion,
dated the date of Closing, from counsel to the Company, in form and substance
reasonably satisfactory to Manchester State Bank, on the matters set forth on
EXHIBIT 7.03(e) hereof.
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(f) Rulings from the Internal Revenue Service, in form and
substance satisfactory to counsel for Manchester State Bank, or an opinion of
counsel for Manchester State Bank or the Company, shall have been received,
rendered on the basis of facts, representations, and assumptions set forth in
such opinions or in writing elsewhere and referred to therein, substantially to
the effect that for federal income tax purposes (i) the Reorganization
constitutes a reorganization within the meaning of Section 368(a) of the Code,
and (ii) accordingly no gain or loss will be recognized by shareholders of
Manchester State Bank with respect to Company Common Stock received solely in
exchange for Manchester State Bank Common Stock pursuant to this Agreement
(noting, however, that non-taxability does not extend to cash received as the
cash portion of the Reorganization Consideration, or in lieu of a fractional
share interest in Company Common Stock, or by dissenters, if any). In rendering
any such opinion, such counsel may require and, to the extent they deem
necessary or appropriate may rely upon, opinions of other counsel and upon
representations made in certificates of officers of Manchester State Bank, the
Company, affiliates of the foregoing, and others.
The Company will furnish Manchester State Bank with such
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 7.03 as Manchester State
Bank may reasonably request.
ARTICLE VIII
CLOSING
8.01 TIME AND PLACE. Subject to the satisfaction of the conditions of
Article VII hereof, the closing (the "Closing") of the transactions contemplated
hereby shall take place at the offices of Cranmore, FitzGerald & Meaney, 49
Wethersfield Avenue, Hartford, Connecticut at 10:00 A.M., on the third business
day after the date on which all of the conditions contained in Article VII, to
the extent not waived, are satisfied; or at such other place, at such other
time, or on such other date as the Company and Manchester State Bank may
mutually agree upon for the Closing to take place.
8.02 DELIVERIES AT THE CLOSING. At the Closing, there shall be
delivered to the Company and Manchester State Bank the opinions, certificates,
and other documents and instruments required to be delivered under Articles VI
and VII hereof.
ARTICLE IX
TERMINATION AND AMENDMENT
9.01 TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Reorganization by the shareholders of Manchester State Bank and the
Company:
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(a) by mutual consent of the Company and Manchester State Bank
in a written instrument, if the Board of Directors of each so determines by a
vote of a majority of the members of its entire Board;
(b) by either the Company or Manchester State Bank upon
written notice to the other party 90 days after the date on which any request or
application for a regulatory approval required to consummate the Reorganization
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 day period following such denial or withdrawal a petition for
rehearing or an amended application has been filed with the applicable
governmental entity; provided, however, that no party shall have the right to
terminate this Agreement pursuant to this Section 9.01(b) 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;
(c) by either the Company or Manchester State Bank if the
Reorganization shall not have been consummated on or before December 31, 1996,
unless the failure of the Closing to occur by such date shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
in any material respect the covenants and agreements of such party set forth
herein;
(d) by either the Company or Manchester State Bank (provided,
that the terminating party is not in material breach of any of its obligations
under this Agreement) if any approval of the shareholders of either party
required for the consummation of the Reorganization shall not have been obtained
by reason of the failure to obtain the required vote at a duly held meeting of
shareholders or at any adjournment or postponement thereof;
(e) by either the Company or Manchester State Bank (provided,
that the terminating party is not in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within 45
days following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Closing;
(f) by the Company or Manchester State Bank, if it shall have
determined that the Reorganization has become imprudent by reason of the
institution by any governmental agency of any litigation or proceeding to
restrain or prohibit the consummation of the Reorganization;
(g) by the Company if at the time of such termination there
shall have been a material adverse change in Manchester State Bank's financial
condition from that set forth in Manchester State Bank's financial statements
referred to in Section 3.05 unless such change shall have resulted from
conditions affecting the banking industry generally;
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(h) by Manchester State Bank if at the time of such
termination there shall have been a material adverse change in the Company's
financial condition unless such change shall have resulted from conditions
affecting the banking industry generally. For purposes of this Section 9.01(h),
(1) no bulk sale of non-performing assets by the Company or the Bank approved by
the Board of Directors of the Company or the Bank, and made in all material
respects in accordance with such approval after the date of this Agreement,
shall be counted except to the extent the net adverse effect thereof (after
considering any tax benefits) on the capital of the Company exceeds $1,500,000,
and (2) no other transaction, event or condition, or series or combination of
transactions, events or conditions shall be considered as resulting in a
material adverse change with respect to the Company if the net adverse effect
thereof, together with any net adverse effect counted under (1), on the capital
of the Company is not in excess of $1,500,000;
(i) by the Company if the results, preliminary or other, of
any regulatory examination of Manchester State Bank indicates (1) any action or
actions the net effect of which is likely to result in a reduction in Manchester
State Bank's capital of 5 % or more below levels disclosed to the Company prior
to execution of this Agreement, or (2) any other action that is likely to result
in a significant restriction on Manchester State Bank, its business or
operations, unless such reduction or restriction has been requested in writing
by the Company;
(j) by the Company if, in order to obtain any required permit,
consent, approval or authorization of any governmental authority having
jurisdiction, the Company or Resulting Corporation will be required to agree to,
or will be subjected to, a limitation upon its activities following the
Effective Time which the Company or the Bank reasonably regards as materially
adverse; or
9.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Manchester State Bank as provided in Section
9.01, this Agreement shall forthwith become void and have no further effect
except (i) Sections 6.02(d), 9.02, 10.01 and 10.02, shall survive any
termination of this Agreement, and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its breach of any representation,
warranty, or other provision of this Agreement.
9.03 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Reorganization by the shareholders
of Manchester State Bank; provided, however, that after any approval of the
transactions contemplated by this Agreement by Manchester State Bank's or the
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Company's shareholders, there may not be, without further approval of such
shareholders, any amendment of this Agreement which reduces the amount or
changes the form of the consideration to be delivered to such shareholders
hereunder in any material respect other than as contemplated by this Agreement.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
9.04 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein (other than Section
7.01). Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such extension or waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
ARTICLE X
MISCELLANEOUS
10.01 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall, except to the
extent and under the circumstances set forth in Section 10.02 below to the
contrary, be paid by the party incurring such costs and expenses.
10.02 FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES.
(a) Manchester State Bank and its Directors shall vote for the
Reorganization and recommend this Reorganization to the Shareholders of
Manchester State Bank and shall not solicit, approve or recommend to its
shareholders, or undertake or enter into with or without shareholder approval,
either as the surviving or disappearing or the acquiring or acquired
corporation, any other reorganization, consolidation, assets acquisition, tender
offer or other takeover transaction, or furnish or cause to be furnished any
information concerning its business, properties or assets to any person or
entity, other than the Company, interested in any such transaction (except for
Directors and executive officers of Manchester State Bank and such other persons
as may be required by law), and Manchester State Bank will not authorize or
permit any officer, Director, employee, investment banker or other
representative directly or indirectly to, solicit, encourage or support any
offer from any person or entity (other than the Company) to acquire
substantially all of the assets of Manchester State Bank, to acquire 10% or more
of the outstanding stock of Manchester State Bank, to enter into an agreement to
merge with Manchester State Bank, or to take any other action that would have
substantially the same effect as the foregoing, without the written consent of
the Company (any such solicitation, approval, undertaking, authorization,
permission or other action referred to in this sentence being sometimes referred
to as an "unauthorized action"). If the Reorganization is not consummated in
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accordance with the terms hereof because of any action or omission by Manchester
State Bank, as set forth above in this Section then Manchester State Bank shall
on demand pay to the Company the sum of (a) the out-of-pocket expenses,
including without limitation, reasonable attorney, accountant and investment
banker fees and expenses, incurred by the Company in connection with the
proposed Reorganization and the transactions provided for in this Agreement,
plus (b) $500,000, as liquidated damages.
(b) If either Manchester State Bank or the Company fails to
perform any material covenant or agreement in this Agreement, or if any
representation or warranty by Manchester State Bank or the Company is determined
to be materially untrue (the party which fails to perform or which makes the
untrue representation or warranty being referred to as a "Breaching Party"), and
if at the time of the failure or untrue representation or warranty by the
Breaching Party, the other party is not a Breaching Party (the "Non-Breaching
Party"), and if the Agreement is thereafter terminated prior to the Effective
Time, then the Breaching Party shall on demand pay to the Non-Breaching Party
the out-of-pocket expenses, including without limitation, reasonable attorney,
accountant and investment banker fees and expenses, incurred by the NonBreaching
Party in connection with the proposed Reorganization and the transactions
provided for in this Agreement; provided, however, that the amount payable under
this Section 10.02(b) shall not exceed $250,000.
(c) If Manchester State Bank does not take any unauthorized
action, if Manchester State Bank shareholders do not approve the Reorganization,
and if the Company does not breach this Agreement and if an agreement to acquire
or merge with Manchester State Bank at $88.00 of value per share or more to the
Manchester State Bank shareholders is executed on or before December 1, 1997
with an entity that makes an offer during the term of the Agreement, Manchester
State Bank shall pay to the Company upon execution of such agreement the sum of
all out-of-pocket expenses, including without limitation, reasonable attorney,
accountant and investment banker fees and expenses, incurred by the Company in
connection with the proposed Reorganization and the transactions provided for in
the Agreement; provided that if the transaction agreed to with such other entity
shall not close, the Company shall thereupon promptly repay such amount to
Manchester State Bank.
10.03 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of the Company and Manchester State Bank
contained in this Agreement or in any instrument or certificate delivered
pursuant hereto by the Company or Manchester State Bank shall expire on and be
terminated and extinguished at the Effective Time; provided, however, that after
the Effective Time, any such representation or warranty of the Company or
Manchester State Bank shall not be deemed to be terminated or extinguished so as
to deprive the Company of any defense at law or in equity which it would
otherwise have to any claim against it by any person, firm, corporation or other
legal entity, including, without limitation, any shareholder or former
shareholder of Manchester State Bank.
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10.04 NOTIFICATION OF CERTAIN MATTERS.
(a) Manchester State Bank shall give prompt notice to the
Company and the Company shall give prompt notice to Manchester State Bank, of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time, and (ii) any material failure of
Manchester State Bank or the Company, as the case may be, or of any officer,
Director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder,
provided, however, that no such notifications shall affect the representations
or warranties of the parties or the conditions to the obligations of the parties
hereunder,
(b) Manchester State Bank agrees to notify the Company by
telephone within 24 hours of receipt of any inquiry with respect to a proposed
Reorganization, consolidation, assets acquisition, tender offer or other
takeover transaction with another person or receipt of a request for information
from the FDIC, the Commissioner, or other governmental authority with respect to
a proposed acquisition of Manchester State Bank by another party. Manchester
State Bank will promptly communicate to the Company the terms of any such
proposal, discussion, negotiation, or inquiry, including the identity of the
party making such proposal or inquiry.
10.05 NOTICES. All notices or other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
prepaid certified first class mail (return receipt requested) or by recognized
overnight delivery service addressed as follows:
(a) If to the Company or the Bank, to:
New England Community Bancorp, Inc. and
New England Bank and Trust Company
P. O. Box 130
Old Windsor Mall
Windsor, CT 06095
Attention: David A. Lentini
President and Chief
Executive Officer
Copy to:
Cranmore, FitzGerald & Meaney
49 Wethersfield Avenue
Hartford, CT 06114
Attention: J. J. Cranmore
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(b) If to Manchester State Bank, to:
Manchester State Bank
1041 Main Street
Manchester, CT 06045-1440
Attention: Nathan G. Agostinelli
President and Treasurer
Copy to:
Jacobs, Walker, Rice & Basche, P.C.
146 Main Street
P.O. Box 480
Manchester, CT 06045
Attention: Ronald K. Jacobs
or such other address as shall be furnished in writing by either party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
10.06 DELIVERY OF SCHEDULES. [ RESERVED]
10.07 PARTIES IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
hereto without the prior written consent of the other party, and that nothing in
this Agreement is intended to confer, expressly or by implication, upon any
other person any rights or remedies under or by reason of this Agreement.
10.08 COMPLETE AGREEMENT. This Agreement, including the documents
and other writings referred to herein or delivered pursuant thereto, contains
the entire agreement and understanding of the parties with respect to its
subject matter, other than the Confidentiality Agreements. There are no
restrictions, agreements, premises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties, both written and oral,
with respect to its subject matter. If any provision or part of this Agreement
is deemed unenforceable, the enforceability of the other provisions and parts
shall not be affected.
10.09 COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
10.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
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10.11 HEADINGS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, Manchester State Bank, the Company and the Bank
have caused this Agreement to be executed by their duly authorized officers as
of the day and year first above written.
NEW ENGLAND COMMUNITY BANCORP, INC.
By /S/ DAVID A. LENTINI
--------------------
Its President
Attest:
/S/ JOHN COCCOMO
- ----------------
Secretary
NEW ENGLAND BANK & TRUST COMPANY
By /S/ DAVID A. LENTINI
--------------------
Its President
Attest:
/S/ JOHN COCCOMO
- -----------------
Secretary
MANCHESTER STATE BANK
By /S/ NATHAN G. AGOSTINELLI
-------------------------
Its President
Attest:
/S/ RONALD K. JACOBS
- --------------------
Secretary
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DIRECTORS OF NEW ENGLAND COMMUNITY BANCORP, INC.
We hereby confirm, as of this 19th day of December, 1995, our approval
of the foregoing Agreement and Plan of Reorganization by and between New England
Community Bancorp, Inc., New England Bank & Trust Company and Manchester State
Bank
/S/ TADEUS J. BUCZKOWSKI /S/ JOHN C. CARMON
- ------------------------ ------------------
/S/ JOHN A. COCCOMO, SR. /S/ GEORGE A. COLLI, JR.
- ------------------------ ------------------------
/S/ GARY J. DENINO /S/ FRANK A. FALVO
- ------------------ ------------------
/S/ DOMINIC J. FERRAINA /S/ CHARLES D. GERSTEN
- ----------------------- ----------------------
/S/ JOHN R. HARVEY /S/ DAVID A. LENTINI
- ------------------ --------------------
/S/ ANGELINA MCGILLIVRAY /S/ EDWARD J. SZEWCZYK
- ------------------------ ----------------------
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DIRECTORS OF NEW ENGLAND BANK & TRUST COMPANY
We hereby confirm, as of this 19th day of December, 1995, our approval
of the foregoing Agreement and Plan of Reorganization by and between New England
Community Bancorp, Inc., New England Bank & Trust Company and Manchester State
Bank
/S/ TADEUS J. BUCZKOWSKI /S/ JOHN C. CARMON
- ------------------------ ------------------
/S/ JOHN A. COCCOMO, SR /S/ GEORGE A. COLLI, JR.
- ----------------------- ------------------------
/S/ LESTER R. DADDARIO /S/ DOMINIC J. FERRAINA
- ---------------------- -----------------------
/S/ RUSSELL A. FERRIGNO, D.D.S /S/ HURLBURT R. FREW
- ------------------------------ --------------------
/S/ DAVID A. LENTINI /S/ ANGELINA J. MCGILLIVRAY
- -------------------- ---------------------------
/S/ JOHN J. NARKIEWICZ /S/ EDWARD J. SZEWCZYK
- ---------------------- ----------------------
/S/ PAUL H. WABREK
- ------------------
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DIRECTORS OF MANCHESTER STATE BANK
We hereby confirm, as of this 19th day of December, 1995, our approval
of the foregoing Agreement and Plan of Reorganization by and between New England
Community Bancorp, Inc., New England Bank & Trust Company and Manchester State
Bank
/S/ PAUL ACETO /S/ NATHAN G. AGOSTINELLI
- -------------- -------------------------
/S/ ANDREW ANSALDI, JR. /S/ ANTHONY DZEN
- ----------------------- ----------------
/S/ RONALD JACOBS /S/ NICHOLAS LAPENTA
- ----------------- --------------------
/S/ ROXIE LEONE /S/ WILLIAM OLEKSINSKI
- --------------- ----------------------
/S/ SAMUEL PIERSON /S/ ED TOMKIEL
- ------------------ --------------
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APPENDIX B
FIRST ALBANY
CORPORATON
53 STATE STREET, BOSTON, MASSACHUSETTS 02109-2811 o (617) 228-3000
December 19, 1995
Board of Directors
Manchester State Bank
1041 Main Street
P.O. Box 1440
Manchester, Connecticut 06045-1440
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Manchester State Bank (the "Bank") of the
consideration (the "Consideration") to be received by such holders as a result
of the transaction (the "Transaction") described in the Agreement and Plan of
Reorganization as of December 20, 1995 (the "Agreement"), by and between the
Bank and New England Community Bancorp, Inc. ("Bancorp") and its wholly owned
subsidiary, New England Bank and Trust ("NEBT").
First Albany Corporation, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for corporate, estate and other purposes. We regularly
publish research reports regarding the financial services industry and the
companies in the industry.
In connection with and in preparation for rendering this opinion, we have
reviewed, analyzed and relied upon certain information bearing upon the
financial and operating condition and regulatory status of the Bank, Bancorp and
NEBT, including: the Agreement; certain financial information of the Bank,
Bancorp and NEBT for the five years ended December 31, 1994; the historical
prices at which the common stock of the Bancorp has been transferred; and other
financial information concerning the business and operations of the Bank,
Bancorp and NEBT, including certain internal financial and operating analyses
and forecasts of the Bank and Bancorp prepared by their respective managements.
We have also met with members of the senior management of the Bank, Bancorp and
NEBT to discuss past and current business operations, results of regulatory
examinations, financial condition and future prospects of the Bank, Bancorp and
NEBT, as well as other matters believed to be relevant to our analysis. Further,
we considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant to our analysis.
In conducting our review of the Transaction, we have relied upon and assumed the
accuracy and completeness of all of the financial and other information provided
to us by the Bank, Bancorp, and NEBT or publicly available. We have not
independently verified this information or had such information verified. For
the purposes of rendering this opinion, except as set forth below, we have not
conducted a physical inspection of any of the properties or facilities of the
Bank, Bancorp or NEBT or analyzed any loan or asset documentation, nor have we
made or obtained any independent evaluation or appraisals of any such properties
or facilities or of any loans, investments or financial assets and liabilities.
Furthermore, we are not experts in the evaluation of allowances for loan losses,
and we have not made an independent evaluation of the adequacy of the allowances
for loan losses of either the Bank or Bancorp (or any of its subsidiaries,
including NEBT), nor have we reviewed the loan portfolios of either the Bank,
Bancorp or NEBT beyond what was required to conduct our due diligence review of
the Transaction.
First Albany has acted as financial advisor to the Bank in connection with the
Transaction and has received compensation for its services, a portion of which
is contingent upon the consummation of the Transaction. We will also receive a
fee for rendering this opinion, but such fee is not contingent upon the
consummation of the Transaction.
First Albany has, within the past year, rendered investment banking services to
Bancorp in connection with another merger. First Albany makes a market in
Bancorp common stock, and may from time to time have a long position in Bancorp
common stock for our own account and for the accounts of our customers. As of
the date of this opinion, we have a long position in the common stock of
Bancorp.
Based on our analysis of the foregoing, it is our opinion that the Consideration
to be received by the stockholders of the Bank in the Transaction is fair, from
a financial point of view, to such stockholders as of the above date.
Very truly yours,
/S/ FIRST ALBANY CORPORATION
FIRST ALBANY CORPORATION
<PAGE>
APPENDIX C
December 19, 1995
Board of Directors
New England Community Bancorp, Inc.
176 Broad Street, Olde Windsor Mall
Windsor, CT 06105
Members of the Board:
You have requested our opinion as to the fairness to the stockholders of
New England Community Bancorp, Inc., Windsor, Connecticut ("NECB"), from a
financial point of view, of the terms of the Agreement and Plan of Merger dated
December 19, 1995 ("the Agreement") which will ultimately provide for the merger
(the "Reorganization") of Manchester State Bank, Manchester, Connecticut
("Manchester") into New England Bank and Trust Company ("NEB&T"), a wholly-owned
subsidiary of NECB. Shareholders of Manchester will receive the Per Share Merger
Consideration upon consummation of the Merger. The Per Share Merger
Consideration will be $35.20 payable in cash and 5.493 shares of NECB Stock.
In connection with its opinion, HAS Associates, Inc. ("HAS") reviewed,
analyzed and relied upon material relating to the financial and operating
conditions of Manchester including, among other things, the following: (i) the
Agreement; (ii) Annual Reports to Stockholders and Annual Report on Form F-2 for
the three years ended December 31, 1992, 1993, and 1994, of Manchester; (iii)
certain Quarterly Reports on Form F-4, and proxy solicitation material of
Manchester and certain other communications from Manchester to its stockholders;
(iv) other financial information concerning the business and operations of
Manchester furnished to HAS by Manchester for purposes of its analysis,
including certain internal financial analyses and forecasts for Manchester
prepared by the senior management of Manchester; (v) corporate minutes of
Manchester for three years; (vi) audit reports certified by the independent
accountants of Manchester for three years; (vii) regulatory filings of
Manchester for three years; (viii) Manchester policies and procedures, certain
loan files, its investment portfolio; and (ix) certain publicly available
information with respect to banking companies and the nature and terms of
certain other transactions that HAS considered relevant to its inquiry. In
<PAGE>
addition, HAS reviewed certain market information concerning Manchester,
analyzed data concerning private and publicly owned banks in New England,
reviewed stock market data of other banks generally deemed comparable whose
securities are publicly traded, publicly available information concerning
certain recent business combinations, and such additional financial and other
information as HAS deemed necessary. Furthermore, HAS reviewed the public
financial information available concerning NECB. In addition, HAS reviewed
certain internal reports and documents of Manchester including loan lists
grouped by risk rating, past due and non-accrual loan reports, internal loan
watch list, loan relationship reports, restructured loan reports, OREO and ISF
reports, loan loss reserve analysis reports, 1995 operating budget and forecast,
securities portfolio-book value and market value reports, and schedule of
threatened or pending litigations. HAS also held discussions with senior
management of Manchester concerning their past and current operations, financial
condition and prospects, as well as the results of regulatory examinations.
In conducting its review and arriving at its opinion, HAS relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and HAS did not attempt to
verify such information independently or undertake an independent appraisal of
the assets and liabilities of Manchester. HAS relied upon the accuracy and
opinion of the audit reports prepared by the Manchester's independent
accountants. HAS assumes no responsibility for the accuracy and completeness of
the financial and other information relied upon.
We have acted as financial advisor to the Board of NECB in connection with
the Reorganization and will receive a fee for this service.
In reliance upon and subject to the foregoing, it is our opinion that, as
of December 19, 1995, the financial terms of the Agreement were, and as of the
date hereof, such terms are, fair, from a financial point of view, to the
current shareholders of NECB.
This letter is furnished to you in connection with the Reorganization and
we consent to its inclusion in the Registration Statement and proxy solicitation
material.
Sincerely,
/s/ HAS Associates, Inc.
HAS Associates, Inc.
<PAGE>
APPENDIX D
Connecticut Statutes Governing Appraisal Rights
SEC. 36a-125(h). Upon the effectiveness of the agreement of merger or
consolidation, the shareholders, if any, of the constituent banks, except to the
extent that they have received cash, property or other securities of the
resulting bank or shares or other securities of any other corporation in
exchange for or upon conversion of their shares, shall be shareholders of the
resulting bank. Unless such agreement otherwise provides, the resulting bank may
require each shareholder to surrender such shareholder's certificates of stock
in the constituent bank and in that event no shareholder, until such surrender
of that shareholder's certificates, shall be entitled to receive a certificate
of stock of the resulting bank or to vote thereon or to collect dividends
declared thereon, or to receive cash, property or other securities of the
resulting bank, or shares or other securities of any other corporation. Any
shareholder of any of such constituent banks who, on or before the date of such
meeting of shareholders of the constituent bank of which that shareholder holds
shares, gave written notice to the secretary of the constituent bank of
objection thereto may, provided none of that shareholder's shares shall have
been voted in favor of the merger or consolidation, require the constituent bank
to purchase that shareholder's shares at fair value by delivering to the
secretary of such constituent bank a demand to that effect in writing within ten
days after the date of such meeting. Any such demand shall comply with the
requirements of section 33-374 and, after the delivery of such demand, it shall
be deemed for all purposes to have been delivered pursuant to section 33-374,
and the effect of such demand and the rights and obligations of the objecting
shareholders and the bank shall be determined in accordance with section 33-374.
The stock of the resulting bank up to an amount of the combined stock of the
constituent banks shall be exempt from any franchise tax.
SEC. 33-374. PROCEDURE FOR OBJECTING SHAREHOLDER. (a) As used in this section,
the term (1) "corporation" includes, if the context so indicates, the successor,
surviving or new corporation which acquires the property of a predecessor
corporation upon a sale of assets for securities, merger or consolidation; (2)
"the date on which the exchange was effective" means the date on which the
corporation first actually consummated an exchange of shares or, if it reserved
the right to postpone the operation or effectiveness of all acceptances of its
offer of exchange, the date on which it declared the acceptance operative or
effective; (3) "sale of assets for securities" means a sale of assets entitling
objecting shareholders to be paid the value of shares pursuant to subsection (d)
of section 33-373; (4) "shares" of a shareholder means those shares owned by him
as to which he is entitled to be paid the value pursuant to the provisions of
section 33-373.
<PAGE>
(b) Any shareholder designated in section 33-373 as having the right to be
paid the value of shares as provided in this section may elect to exercise such
right by giving notice to the corporation, in writing, objecting to the proposed
corporate transaction giving rise to such right. (1) In the case of a
shareholder so designated in subsections (a), (c) and (d) of section 33-373 such
notice shall be delivered to the corporation prior to the meeting of
shareholders called for the purpose of voting on such transactions, or at such
meeting prior to voting on such transaction, or prior to the time taken by
consents as provided in section 33-330 shall become effective. If such
transaction is approved, any such shareholder so notifying the corporation,
provided none of his shares shall have been voted in favor thereof, may require
the corporation to purchase his shares at fair value by delivering to the
corporation a demand to that effect in writing, within ten days after the date
on which the vote was taken or action taken by consents as provided in section
33-330 became effective. (2) In the case of a shareholder so designated in
subsection (b) of section 33-373, such notice shall be delivered to the
corporation within fifteen days after the date of mailing the offer. If an
exchange is effected with any shareholder, any such shareholder so notifying the
corporation, provided none of his shares shall have been so exchanged, may
require the corporation to purchase his shares at fair value by delivering to
the corporation a demand to that effect in writing, within ten days after the
date on which the exchange was effective if the corporation shall give notice of
such date to such shareholder or within sixty days after delivering the written
notice to the corporation, whichever is the earlier. (3) A shareholder so
designated in subsection (e) of section 33-373 may require the corporation to
purchase his shares at fair value by delivering such notice to the corporation
within fifteen days after the date of mailing the distribution or any notice
thereof from the corporation, whichever is earlier, accompanied by a demand to
that effect in writing, provided such shareholder shall not have accepted such
distribution. (4) In the case of a shareholder so designated in subsection (c)
of section 33-373, where a merger has been effected as provided in section 33-
370, such notice shall be delivered to the corporation within fifteen days after
the date of mailing the plan of merger, and be accompanied by a demand in
writing that the corporation purchase his shares at fair value.
(c) Any demand to purchase shares under subsection (b) of this section
shall state the number and classes of shares of the shareholder making the
demand. Except as provided in subsection (i) of this section, any shareholder
making such demand shall thereafter be entitled only to payment as in this
section provided and shall not be entitled to vote, to receive dividends or to
exercise any other rights of a shareholder in respect of such shares. No such
demand may be withdrawn unless the corporation consents thereto. Any shareholder
<PAGE>
failing to make demand as provided in subsection (b) of this section shall be
bound by the corporate transaction involved in accordance with its terms.
(d) At any time after the receipt of a notice by a shareholder objecting
to the proposed corporate transaction giving rise to rights under this section,
but not later than ten days after receipt of a demand to purchase shares or ten
days after the corporate transaction is effective, whichever is later, the
corporation shall make a written offer, to each shareholder who makes demand as
provided in this section, to pay for his shares at a specified price deemed by
such corporation to be the fair value thereof as of the day prior to the date on
which notice of the proposed corporate transaction was mailed, exclusive of any
element of value arising from the expectation or accomplishment of such
corporate transaction.
(e) Within twenty days after demanding the purchase of his shares, each
shareholder so demanding shall submit the certificate or certificates
representing his shares to the corporation for notation thereon that such demand
has been made. His failure to do so shall, at the option of the corporation,
terminate his rights under this section unless a court of competent
jurisdiction, for good and sufficient cause shown, otherwise directs. If shares
represented by a certificate on which notation has been so made are transferred,
each new certificate issued therefor shall bear similar notation, together with
the name of the shareholder of such shares who made such demand, and a
transferee of such shares shall acquire by such transfer no rights in the
corporation other than those which such shareholder had after making such
demand.
(f) If the corporation and any shareholder making a demand to purchase
shares under subsection (b) of this section agree in writing as to the value of
the shares, the corporation shall pay such shareholder such value upon and
concurrently with the surrender to the corporation of the certificate or
certificates representing such shares duly endorsed for transfer. If the
corporation defaults in or refuses to make such payment, such shareholder may
file a petition in the superior court for the judicial district where the
principal office of the corporation is located, praying that judgment be entered
for such amount, and such shareholder shall be entitled to judgment for such
amount. If any such shareholder should be a party to a proceeding under
subsection (g) of this section, the court in such proceeding shall upon motion
of either the corporation or such shareholder dismiss the proceeding with
respect to such shareholder.
(g) At any time during the period of sixty days after the date the
corporation is obliged to make an offer under subsection (d) of this section,
the corporation, or any shareholder who has made a demand to purchase shares
<PAGE>
under subsection (b) of this section and who has not accepted the offer made by
the corporation and acting in the name of the corporation, may file a petition
in the superior court for the judicial district where its principal office is
located, or before any judge thereof, praying that the value of the shares of
such shareholders be found and determined. All shareholders making demand under
subsection (b) of this section who have not accepted the offer made by the
corporation, wherever residing, shall be made parties to the proceeding as an
action against their shares quasi in rem. A copy of the petition shall be served
on each such shareholder who is a resident of this state and shall be served by
registered or certified mail on each such shareholder who is a nonresident.
Service on nonresidents shall be made by publication as provided by law. The
jurisdiction of the court shall be plenary and exclusive. All shareholders who
are parties to the proceeding shall be entitled to judgment against the
corporation for the amount of the fair value of their shares as of the day prior
to the date on which notice of the proposed corporate transaction was mailed,
exclusive of any element of value arising from the expectation or accomplishment
of such corporate transaction. The court may, if it so elects, appoint one or
more persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers shall have such power and authority as
shall be specified in the order of their appointment or an amendment thereof.
The court shall by its judgment determine the fair value of the shares of the
shareholders entitled to payment therefor and shall direct the payment of such
value, together with interest, if any, as hereinafter provided, to the
shareholders entitled thereto. The judgment may include an allowance for
interest at such rate as the court may find to be fair and equitable in all the
circumstances, from the date notice of the proposed corporate transaction was
mailed to the date of payment. The costs and expenses of any such proceeding
shall be determined by the court and shall be assessed against the corporation,
but all or any part of such costs and expenses may be apportioned and assessed
as the court may deem equitable against any or all shareholders who are parties
to the proceeding to whom the corporation has made an offer to pay for the
shares if the court finds that the action of such shareholders in failing to
accept such offer was arbitrary or vexatious or not in good faith. Such expenses
shall include reasonable compensation for and reasonable expenses of the
appraisers, but shall exclude the fees and expenses of counsel for and experts
employed by any party; but if the fair value of the shares as determined
materially exceeds the amount which the corporation offered to pay therefor, or
if no offer was made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court may determine to be
reasonable compensation to any expert or experts employed by the shareholder in
the proceeding.
<PAGE>
(h) Any judgment entered under subsection (f) or (g) of this section shall
be enforceable as other decrees of the superior court may be enforced and shall
be payable only upon and concurrently with the surrender to the corporation of
the certificate or certificates representing the shares for which payment is
due, duly endorsed for transfer. Upon payment of any such judgment, the
shareholder shall cease to have any interest in such shares. The liability to
pay for shares or to pay damages imposed by this section on a corporation
extends to the successor corporation which acquires the assets of the
predecessor, whether by merger, consolidation or sale of assets for securities.
Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this section
provided, may be held and disposed of by such corporation as in the case of
other treasury shares, unless in the case of a merger or consolidation the plan
of merger or consolidation otherwise provides.
(i) If a demand to purchase shares under subsection (b) of this section is
withdrawn upon consent, or if the proposed corporate action is abandoned or
rescinded or the shareholders revoke the authority to effect such action, or if
no demand or petition for the determination of fair value by a court has been
made or filed within the time provided in this section, or if a court of
competent jurisdiction determines that such shareholder is not entitled to the
relief provided by this section, then the right of such shareholder to be paid
the fair value of his shares shall cease and his status as a shareholder shall
thereupon be restored.
<PAGE>
APPENDIX E
Shareholder's Agreement
(Section 1.11)
December 19, 1995
Boards of Directors
New England Community Bancorp, Inc. and
New England Bank & Trust Company
Board of Directors
Manchester State Bank
Gentlemen:
The undersigned beneficially owns and has sole voting power or shared
voting power with respect to the number of shares of common stock, $10.00 par
value per share (the "Shares"), of Manchester State Bank ("Manchester State
Bank") indicated on the signature page hereof.
Simultaneously with the execution of this letter agreement, New England
Community Bancorp, Inc., ("New England Community Bancorp, Inc.") and New England
Bank & Trust Company (the "Bank") (collectively the "Company") and Manchester
State Bank have entered into a Plan and Agreement of Reorganization (the
"Reorganization Agreement") dated as of the date hereof, providing for the
merger of Manchester State Bank into New England Bank & Trust Company, a
wholly-owned subsidiary of New England Community Bancorp, Inc. (the
"Reorganization"), pursuant to which New England Bank & Trust Company will be
the surviving corporation and all of the issued and outstanding Shares of
Manchester State Bank will be converted into the right to receive a
consideration on terms and conditions set forth in the Reorganization Agreement.
In consideration of the Company's entering into the Reorganization
Agreement and proceeding to use its best efforts to consummate the
Reorganization, and in consideration of the expenses incurred by the Company in
connection therewith, the undersigned agrees as follows:
1. The undersigned will vote the Shares, or cause the Shares to be
voted, for the approval of the Reorganization Agreement and the Reorganization,
and any other matters relating thereto presented for approval of the
shareholders of Manchester State Bank, and will vote the Shares, or cause the
Shares to be voted, against the approval of any other agreement providing for a
Reorganization, consolidation, sale of assets or other business combination of
Manchester State Bank with any person or entity other than the Company, or the
Bank.
2. The undersigned will not sell, assign, transfer or otherwise dispose
of, or permit to be sold, assigned, transfered or otherwise dispose of, any of
the Shares except (a) for transfers by will or by operation of law (in which
case this letter agreement shall bind the transferee) and (b) as the Company may
otherwise agree in writing.
<PAGE>
3. The undersigned will not:
(a) directly or indirectly solicit or encourage (including by way of
furnishing information), or initiate any communication with any
other person or entity with respect to, any proposal for a
Reorganization, consolidation, sale of assets or other business
combination involving Manchester State Bank or any Subsidiary (as
defined in the Reorganization Agreement) of Manchester State Bank or
for the acquisition of any capital stock of Manchester State Bank;
or
(b) encourage any person, firm, corporation, group or other entity
to engage in any of the actions covered by subparagraph (a) above.
4. If the Reorganization shall be consummated as provided in the
Reorganization Agreement, for a period of at least two (2) years after the
effective date of the Reorganization (the "Non-Compete Period"), the undersigned
shall, consistent with fiduciary duty, prudent business judgment and past
practices, use his reasonable best efforts to assist in the development and
growth of the business, prospects, and operations of the Company (as successor
to the business and operations of Manchester State Bank) ("Successor Entity") at
least at levels and in respects consistent with efforts and undertakings
heretofore made by the undersigned on behalf of Manchester State Bank and,
without limiting the generality of the foregoing, (a) the undersigned will,
consistent with fiduciary duty, prudent business judgment and past practices,
continue to provide his personal and business banking business to the Successor
Entity to substantially the same extent as heretofore provided to Manchester
State Bank, and encourage others to do so, (b) the undersigned will not,
consistent with fiduciary duty, prudent business judgment and past practices,
directly or indirectly, solicit business for, or encourage any person to provide
business to, any other banking or financial institution doing business in the
geographic area comprised of the Hartford and Tolland Counties, in the State of
Connecticut, (the "Area"), and (c) the undersigned will not serve as a member of
the governing board, or on any committee or advisory committee, or as an
organizer or incorporator of, any bank, bank holding company, or other financial
institution which competes with the Company or any of its Subsidiaries and
maintains its principal office in, or has 25% or more of its deposits or assets
in the Area.
5. The Company, the Bank, Manchester State Bank and the undersigned each
represents that it/he has the complete and unrestricted power and the
unqualified right to enter into and perform the terms of this letter agreement,
and that this letter agreement constitutes a valid and binding agreement with
respect to such party, enforceable in accordance with its terms.
6. Contingent upon the effectiveness of the Reorganization, the
undersigned hereby irrevocably and unconditionally releases and discharges
Manchester State Bank, and their respective successors and assigns, from any and
all claims, demands, agreements, promises, actions, causes of action, suits,
obligations, costs, expenses, damages, losses and liabilities, of whatever kind
or nature, at law or in equity or otherwise, whether known or unknown, which he
ever had, may have had, now has, or may have in the future, for or by reason of
any cause, thing, or matter whatsoever from the beginning of the world to the
Effective Time of the Reorganization, except only for any rights arising solely
under and by reason of the Reorganization Agreement.
<PAGE>
7. The undersigned acknowledges that irreparable damage would occur if
any of the provisions hereof were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, the undersigned agrees
that the Company shall be entitled to an injunction or injunctions to prevent
breaches or threatened breaches of the provisions hereof and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction in the United States or any state thereof, in addition to any other
remedy to which the Company may be entitled at law or equity. The undersigned
acknowledges and agrees that by breaching the provisions of this Agreement the
undersigned waives and forfeits any rights which he may have to any compensation
and remuneration pursuant to the Manchester State Bank plan to compensate
"Founding Directors" in the event of a change in control. The undersigned
acknowledges and agrees that upon breaching the provisions hereof, the
undersigned, will be personally liable to Manchester State Bank and the Company
for their fees and expenses in connection with the Reorganization Agreement.
8. This letter agreement shall apply to any and all shares of common
stock of Manchester State Bank acquired in any manner by the undersigned after
the date hereof and, for purposes of this letter agreement, any and all such
after-acquired shares shall be deemed included in the term "Shares" as used
herein.
9. This letter agreement is to be governed by the laws of the State of
Connecticut, 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.
10. This letter agreement will terminate upon any termination of the
Reorganization Agreement effected in accordance with the terms thereof.
11. The undersigned, in consideration of the sum of ________ (1) of the
United States of America, and other lawful consideration to be paid by
Manchester State Bank, has remised, released and forever discharged, and by
these presents does remise, release and forever discharge Manchester State Bank,
the Company and the Bank of and from all debts, obligations, reckonings,
promises, covenants, controversies, suits, actions, causes of actions, damages,
claims or demands, arising from Releasors' service as an officer, director,
employee or agent of Manchester State Bank, and hereby agrees to indemnify the
Resulting Corporation for any liability which may arise by reason of Manchester
State Bank's payment pursuant to such Plan for "Founding Directors."
Please confirm our agreement with you by signing a copy of this letter.
- --------
(1)It is further agreed that the consideration to be received by the undersigned
will be reduced to the extent necessary on a PRO RATA percentage basis along
with all of the other "Founding Directors" of Manchester State Bank if such
reduction is required by any regulatory agency acting with proper jurisdiction
or if in the opinion of the Internal Revenue Service or counsel to either
Manchester State Bank or the Company, such reductions are necessary to: enable
the qualification of the Reorganization as a tax-free "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code in order to obtain
the rulings or opinions provided pursuant to Sections 7.02(m) or 7.03(f) of the
Reorganization Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned releasor has signed and sealed this
instrument affixed this __ day of December, 1995.
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF OR ATTESTED BY
_________________________________ _________________ Number of
SHARES
_________________________________ _________
STATE OF CONNECTICUT )
) ss.
COUNTY OF )
Personally Appeared _______________, signer of the foregoing
Instrument, and acknowledged the same to her free act and deed before me.
_______________________________
Notary/Public Commissioner of
the Superior Court
My Commission Expires _________
Confirmed and Agreed:
New England Community Bancorp, Inc.
By ___________________________________
President
New England Bank & Trust Company
By ___________________________________
President
Manchester State Bank
By ___________________________________
<PAGE>
STATE OF CONNECTICUT
DEPARTMENT OF BANKING
260 CONSTITUTION PLAZA HARTFORD, CT 06103
John P. Burke
Commissioner
December 19, 1995
J. J. Cranmore, Esq.
Cranmore, FitzGerald & Meaney
49 Wethersfield Avenue
Hartford, CT 06114-1102
Dear Mr. Cranmore:
This is in reference to your letter dated December 18, 1995, requesting my
approval, pursuant to Section 36a-112(b) of the Connecticut General Statutes, of
the shareholder's agreement attached hereto and described below ("Shareholder's
Agreement").
The Shareholder's Agreement, dated December 19, 1995, is to be entered into
between New England Community Bancorp, Inc. ("NECB"), New England Bank & Trust
Company ("NEBTC"), Manchester State Bank ("MSB"), and each of the directors of
MSB, in connection with a proposed Plan and Agreement of Reorganization, dated
December 19, 1995, for the merger of MSB with and into NEBTC, a wholly-owned
subsidiary of NECB. Pursuant to the Shareholder's Agreement, the directors of
MSB will, among other things, agree to vote their shares of the common voting
stock of MSB for the approval of the proposed merger and against the approval of
any competing transaction.
Section 36a-112(b) provides that "[n]otwithstanding the provisions of
sections 33-337 to 33-339, inclusive, an irrevocable proxy, voting trust, voting
agreement or similar arrangement with respect to the shares of a capital stock
Connecticut bank is valid or enforceable only if approved by the commissioner."
Section 33-339(a) defines the term "voting agreement" as "an agreement among any
number of shareholders, or among any number of shareholders and the corporation,
to vote their shares as a group, or as groups, as determined by arbitration or
in any other manner provided for by the agreement". It is the position of this
department that although the Shareholder's Agreement is not a voting agreement
as so defined, it is a "similar arrangement" within the meaning of
<PAGE>
J. J, Cranmore, Esq.
Page 2
December 19, 1995
Section 36a-112(b) in that each director as shareholder has agreed to vote his
or her shares in a particular manner as specified in the Shareholder's
Agreement.
Finding that agreements such as these generally have a valid business
purpose, pursuant to Section 36a-112(b), I hereby approve the Shareholder's
Agreement.
Nothing contained in this approval, however, is intended to enable NECB and
NEBTC to claim that they have any rights to pursue remedies against MSB by
reason of the failure of one or more of the respective shareholders to vote
their shares in accordance with the Shareholder's Agreement. All remedies
exercised for any claimed breach of the Shareholder's Agreement only should be
as against the appropriate shareholder executing the same.
Very truly yours,
/s/ John P. Burke
John P. Burke
Banking Commissioner
JPB/ASD/td
Attachment
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law and NECB's Bylaws and Restated Certificate of Incorporation
authorize NECB to indemnify Officers, Directors and certain individuals
associated with NECB. In general, Article V of NECB's Bylaws and Article VII of
NECB's Restated Certificate of Incorporation authorize NECB to indemnify any
person who was or is a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of NECB) by reason of the fact that he is or was a director, officer,
trustee, employee or agent of NECB, or is or was serving at the request of NECB
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, and any appeal therein, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of NECB, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of NECB, and, with respect to any criminal action
or proceeding, that he or she had reasonable cause to believe that his or her
conduct was unlawful.
II-1
<PAGE>
ITEM 21. EXHIBIT AND FINANCIAL STATEMENTS SCHEDULES
The exhibit and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits
Exhibit No. Exhibit Location
- ----------- ------- --------
2.1 Plan and Agreement of Reorganization,
dated as of December 19, 1995, among
Manchester State Bank, New England
Community Bancorp, Inc. and New England
Bank and Trust Company included as
Appendix A hereto. (1)
3.1 Amended and Restated Certificate of
Incorporation of New England Community
Bancorp, Inc. (2)
3.2 Amended and Restated Bylaws of New
England Community Bancorp, Inc. (3)
4. Specimen Common Stock Certificate
of New England Community Bancorp, Inc. (4)
5. Opinion of Cranmore, FitzGerald &
Meaney regarding legality of securities
being registered. (E-1)
8. Opinion of Reid and Reige, P.C.
regarding certain federal income tax
consequences. (E-2)
10.1 Severance Agreement by and between
Barry R. Loucks and Olde Windsor Bancorp,
Inc. (now known as New England Community
Bancorp., Inc.) and New England Bank and
Trust Company dated March 22, 1993. (5)
10.2 Severance Agreement between Raymond
G. Halstead and Olde Windsor Bancorp, Inc.
(now known as New England Community Bancorp,
Inc.) and New England Bank and Trust Company
dated March 22, 1993. (6)
II-2
<PAGE>
10.3 Employment Agreement between New
England Bank and Trust Company and David
A. Lentini dated August 9, 1994. (7)
10.4 Employment Agreement by and between
New England Bank and Trust Company and
David A. Lentini dated August 31, 1993. (8)
10.5 Employment Agreement by and between
New England Bank and Trust Company and
Donat A. Fournier dated August 31, 1993. (9)
10.6 Employment Agreement by and between
New England Bank and Trust Company and
Donat A. Fournier dated August 9, 1994. (10)
10.7 Employment Agreement by and between
New England Bank and Trust Company and
Anson C. Hall dated August 25, 1994. (11)
10.8 Employment Agreement by and between
The Equity Bank and Frank A.
Falvo dated Septmber 1, 1989. (E-3)
10.9 Form of Employment Agreement by and
between New England Bank and Trust
Company and Nathan G. Agostinelli (E-4)
21. List of Subsidiaries of New England
Community Bancorp, Inc. (E-5)
23.1 Consent of Cranmore, FitzGerald &
Meaney (E-6)
23.2 Consent of Shatswell, MacLeod
& Company, P.C. (E-7)
23.3 Consent of Bardaglio, Hart & Shuman (E-8)
23.4 Consent of Jacobs, Walker, Rice & Basche, (E-9)
P.C.
23.5 Consent of First Albany
Corporation (E-10)
23.6 Consent of HAS Associates, Inc. (E-11)
II-3
<PAGE>
23.7 Consent of Reid and Reige, P.C. (E-12)
27 Financial Data Schedule (E-13)
99.1 Form of Proxy for the Special Meeting
of Shareholders of Manchester State
Bank (E-14)
- ----------------------------
(1) Exhibit is incorporated by reference to the Form 8-K
report filed by New England Community Bancorp, Inc.
with the SEC on January 11, 1996.
(2) Exhibit was filed on June 20, 1995 as Exhibit 3.1 to
New England Community Bancorp, Inc.'s Registration
Statement on Form S-4 (No. 33-93640) and is
incorporated herein by reference.
(3) Exhibit was filed as Exhibit 3.2 to New England
Community Bancorp, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1994, filed with the
SEC on March 31, 1995 and is incorporated herein by
reference.
(4) Exhibit was filed on June 20, 1995 as Exhibit 4 to
New England Community Bancorp, Inc.'s Registration
Statement on Form S-4 (No. 33-93640) and is
incorporated herein by reference.
(5) Exhibit was filed on September 2, 1994 as Exhibit
10.1 to Olde Windsor Bancorp, Inc.'s, now known as,
New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622) and is
incorporated herein by reference.
(6) Exhibit was filed on September 2, 1994 as Exhibit
10.2 to Olde Windsor Bancorp, Inc.'s, now known as,
New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622) and is
incorporated herein by reference.
(7) Exhibit was filed on September 2, 1994 as Exhibit
10.3 to Olde Windsor Bancorp, Inc.'s, now known as
New England Bancorp, Inc.'s, Registration Statement
on Form S-1 (No. 33-83622) and is incorporated herein
by reference.
II-4
<PAGE>
(8) Exhibit was filed on September 2, 1994 as Exhibit
10.4 to Olde Windsor Bancorp, Inc.'s, now known as
New England Community Bancorp, Inc.'s, Registration
Statement on Form S-1 (No. 33-83622) and is
incorporated herein by reference.
(9) Exhibit was filed on September 2, 1994 as Exhibit
10.5 to Olde Windsor Bancorp, Inc.'s, now known as
New England Community Bancorp, Inc.'s, Registration
Statement on Form S-1 (No. 33-83622) and are
incorporated herein by reference.
(10) Exhibit was filed on October 20, 1994 as Exhibit 10.6
to New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622), Amendment 1,
and is incorporated herein by reference.
(11) Exhibit was filed on October 20,1994 as Exhibit 10.7
to New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622), Amendment
Number 1, and is incorporated herein by reference.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (a) (1) (i) and (a) (1)
(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registrations statement.
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
(3) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called
for by the applicable registration form which respect to reofferings
by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(4) That every prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(5) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(6) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant
II-7
<PAGE>
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the questions
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Windsor, State of
Connecticut, on March 21, 1996.
NEW ENGLAND COMMUNITY BANCORP, INC.
(Registrant)
By /s/ David A. Lentini
-----------------------
David A. Lentini
Its President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ David A. Lentini /s/ Anson C. Hall
- ------------------------ ---------------------------
David A. Lentini Anson C. Hall
Director, President and Vice President, Chief
Chief Executive Officer Financial Officer, Principal
March 21, 1996 Financial Officer
March 21, 1996
/s/ Tadeus J. Buczkowski /s/ Charles D. Gersten
- ------------------------ ---------------------------
Tadeus J. Buczkowski Charles D. Gersten
Director Director
March 21, 1996 March 21, 1996
/s/ John C. Carmon /s/ Gary J. DeNino
- ------------------------ ---------------------------
John C. Carmon Gary J. DeNino
Director Director
March 21, 1996 March 21, 1996
/s/ John A. Coccomo, Sr. /s/ Angelina J. McGillivray
- ------------------------ ---------------------------
John A. Coccomo, Sr. Angelina J. McGillivray
Director Director
March 21, 1996 March 21, 1996
II-9
<PAGE>
/s/ George A. Colli, Jr. /s/ Frank A. Falvo
- ------------------------ ---------------------------
George A. Colli, Jr. Frank A. Falvo
Director Director
March 21, 1996 March 21, 1996
/s/ John R. Harvey /s/ Edward J. Szewczyk
- ------------------------ ---------------------------
John R. Harvey Edward J. Szewczyk
Director Director
March 21, 1996 March 21, 1996
/s/ Dominic J. Ferraina
- ------------------------
Dominic J. Ferraina
Director
March 21, 1996
II-10
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT ON FORM S-4
UNDER
THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
NEW ENGLAND COMMUNITY BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
================================================================================
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Location
- ----------- ------- --------
2.1 Plan and Agreement of Reorganization,
dated as of December 19, 1995, among
Manchester State Bank, New England
Community Bancorp, Inc. and New England
Bank and Trust Company included as
Appendix A hereto. (1)
3.1 Amended and Restated Certificate of
Incorporation of New England Community
Bancorp, Inc. (2)
3.2 Amended and Restated Bylaws of New
England Community Bancorp, Inc. (3)
4. Specimen Common Stock Certificate
of New England Community Bancorp, Inc. (4)
5. Opinion of Cranmore, FitzGerald &
Meaney regarding legality of securities
being registered. (E-1)
8. Opinion of Reid and Reige, P.C.
regarding certain federal income tax
consequences. (E-2)
10.1 Severance Agreement by and between
Barry R. Loucks and Olde Windsor Bancorp,
Inc. (now known as New England Community
Bancorp., Inc.) and New England Bank and
Trust Company dated March 22, 1993. (5)
10.2 Severance Agreement between Raymond
G. Halstead and Olde Windsor Bancorp, Inc.
(now known as New England Community Bancorp,
Inc.) and New England Bank and Trust Company
dated March 22, 1993. (6)
<PAGE>
10.3 Employment Agreement between New
England Bank and Trust Company and David
A. Lentini dated August 9, 1994. (7)
10.4 Employment Agreement by and between
New England Bank and Trust Company and
David A. Lentini dated August 31, 1993. (8)
10.5 Employment Agreement by and between
New England Bank and Trust Company and
Donat A. Fournier dated August 31, 1993. (9)
10.6 Employment Agreement by and between
New England Bank and Trust Company and
Donat A. Fournier dated August 9, 1994. (10)
10.7 Employment Agreement by and between
New England Bank and Trust Company and
Anson C. Hall dated August 25, 1994. (11)
10.8 Employment Agreement by and between
The Equity Bank and Frank A.
Falvo dated Septmber 1, 1989. (E-3)
10.9 Form of Employment Agreement by and
between New England Bank and Trust
Company and Nathan G. Agostinelli (E-4)
21. List of Subsidiaries of New England
Community Bancorp, Inc. (E-5)
23.1 Consent of Cranmore, FitzGerald &
Meaney (E-6)
23.2 Consent of Shatswell, MacLeod
& Company, P.C. (E-7)
23.3 Consent of Bardaglio, Hart & Shuman (E-8)
23.4 Consent of Jacobs, Walker, Rice & Basche, (E-9)
P.C.
23.5 Consent of First Albany
Corporation (E-10)
23.6 Consent of HAS Associates, Inc. (E-11)
<PAGE>
23.7 Consent of Reid and Reige, P.C. (E-12)
27 Financial Data Schedule (E-13)
99.1 Form of Proxy for the Special Meeting
of Shareholders of Manchester State
Bank (E-14)
- ---------------------------
(1) Exhibit is incorporated by reference to the Form 8-K
report filed by New England Community Bancorp, Inc.
with the SEC on January 11, 1996.
(2) Exhibit was filed on June 20, 1995 as Exhibit 3.1 to
New England Community Bancorp, Inc.'s Registration
Statement on Form S-4 (No. 33-93640) and is
incorporated herein by reference.
(3) Exhibit was filed as Exhibit 3.2 to New England
Community Bancorp, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1994, filed with the
SEC on March 31, 1995 and is incorporated herein by
reference.
(4) Exhibit was filed on June 20, 1995 as Exhibit 4 to
New England Community Bancorp, Inc.'s Registration
Statement on Form S-4 (No. 33-93640) and is
incorporated herein by reference.
(5) Exhibit was filed on September 2, 1994 as Exhibit
10.1 to Olde Windsor Bancorp, Inc.'s, now known as,
New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622) and is
incorporated herein by reference.
(6) Exhibit was filed on September 2, 1994 as Exhibit
10.2 to Olde Windsor Bancorp, Inc.'s, now known as,
New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622) and is
incorporated herein by reference.
(7) Exhibit was filed on September 2, 1994 as Exhibit
10.3 to Olde Windsor Bancorp, Inc.'s, now known as
New England Bancorp, Inc.'s, Registration Statement
on Form S-1 (No. 33-83622) and is incorporated herein
by reference.
<PAGE>
(8) Exhibit was filed on September 2, 1994 as Exhibit
10.4 to Olde Windsor Bancorp, Inc.'s, now known as
New England Community Bancorp, Inc.'s, Registration
Statement on Form S-1 (No. 33-83622) and is
incorporated herein by reference.
(9) Exhibit was filed on September 2, 1994 as Exhibit
10.5 to Olde Windsor Bancorp, Inc.'s, now known as
New England Community Bancorp, Inc.'s, Registration
Statement on Form S-1 (No. 33-83622) and are
incorporated herein by reference.
(10) Exhibit was filed on October 20, 1994 as Exhibit 10.6
to New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622), Amendment 1,
and is incorporated herein by reference.
(11) Exhibit was filed on October 20,1994 as Exhibit 10.7
to New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622), Amendment
Number 1, and is incorporated herein by reference.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
EXHIBIT 5
Opinion of Cranmore, FitzGerald & Meaney regarding
legality of securities being registered
March 27, 1996
The Board of Directors
New England Community Bancorp, Inc.
P.O. Box 130
Old Windsor Mall
Windsor, CT 06095
Re: New England Community Bancorp, Inc.
Registration Statement on Form S-4
File Number 33-93640
Ladies and Gentlemen:
We are counsel to New England Community Bancorp, Inc., a Delaware
Corporation with its principal office in Windsor, Connecticut ("NECB), and have
acted as such in connection with the proposed reorganization (the
"Reorganization") of NECB, New England Bank and Trust Company ("NEBT"), a wholly
owned subsidiary of NECB, and The Manchester State Bank ("MSB") pursuant to a
Plan and Agreement of Reorganization, dated December 19, 1995, which provides,
among other things, for MSB to merge into NEBT and for each share of the
outstanding common stock of MSB (the "MSB Common Stock") to be exchanged for
$35.20 payable in cash and 5.493 shares of NECB Common Stock.
During the course of our representation, and in rendering our opinion, we
have reviewed such documents as we have deemed necessary or advisable to render
the opinions stated herein, and in connection therewith, we have examined
originals or copies, authenticated to our satisfaction, of the following: (i)
the Certificate of Incorporation of NECB, as amended to date; (ii) the By-laws
of NECB, as amended to date; (iii) the Reorganization Agreement; (iv)
resolutions of the Board of Directors of NECB; (v) the Registration Statement of
even date on Form S-4 of NECB registering shares of common stock, par value $.10
per share (the "Common Stock"), of NECB to be issued in connection with the
<PAGE>
Securities and Exchange Commission
March 25, 1996
Page 2
Reorganization; and (vi) such other documents and instruments as we have deemed
necessary for purposes of this opinion. In our examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, the authenticity of the originals of such latter documents, the validity
of all applicable statutes and regulations, the legal authority and the capacity
of all persons executing documents and the proper indexing and accuracy of all
public records and documents. As to any facts material to this opinion which we
did not independently establish or verify, we have relied upon statements and
representations of officers and other representatives of NECB, New England Bank
and Trust Company, NECB and others. The opinions set forth herein are based on
the laws of the State of Connecticut and the corporate laws of the State of
Delaware as the same exist on the date hereof, and no opinion is expressed as to
the laws of any other jurisdiction.
Based upon the foregoing, we are of the opinion that upon consummation of
the Reorganization, the shares of Common Stock of NECB that will be issued to
the shareholders of NECB pursuant to the terms of the Reorganization will be
duly and validly authorized, legally issued, fully paid and non-assessable.
The opinions expressed herein are made as of the date hereof pursuant to
the requirements of Regulation S-K, Item 601, of the SEC in regard to the shares
being registered pursuant to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the captions "Legal
Matters" in the Registration Statement and Proxy Statement-Prospectus.
Sincerely,
/s/ Cranmore, FitzGerald & Meaney
CRANMORE, FITZGERALD & MEANEY
EXHIBIT 8
Opinion of Reid and Reige, P.C.
regarding certain federal income tax
consequences
<PAGE>
March 22, 1996
Board of Directors
Manchester State Bank
c/o Ronald Jacobs, Esq.
Jacobs, Walker, Rice & Basche, P.C.
146 Main Street
Manchester, CT 06040
RE: Tax Opinion on the Merger of Manchester
State Bank into New England Bank & Trust
Company.
Gentlemen:
This letter will set forth our legal opinion as to the federal and
Connecticut income tax consequences arising from the forward triangular merger
(the "Reorganization") described below:
I. FACTS; SCOPE AND BASIS FOR OPINION: In preparing this opinion, we have relied
upon: A Plan and Agreement of Reorganization among the corporations described
below, dated as of December 19, 1995 (the "Reorganization Agreement"); a letter
from Jacobs, Walker, Rice & Basche, P.C. dated December 14, 1995; and meetings
and/or telephone conferences with Ronald Jacobs, Esq., Michael Rice, Esq., David
Rizzo, CPA, Michael Burd (First Albany Corporation) and Neil Hendrickson (Coburn
and Merideth).
Our opinion is directed only to the corporations described below and the
MSB shareholders electing to participate in the Reorganization who are citizens
or residents of the United States. No opinion is expressed as to the tax
consequences to MSB shareholders exercising so-called "dissenter's rights" in
the Reorganization.
This opinion is not intended to address issues concerning foreign taxes,
local taxes, taxes of states other than Connecticut, or taxes other than
existing federal and Connecticut corporate and individual income taxes. Existing
tax laws and interpretations
<PAGE>
thereof are subject to change and any such change could affect the continuing
validity of this opinion.
In addition, not every aspect of income taxation is covered by this
opinion. By way of example and not of limitation, certain issues concerning the
effect of the Reorganization on the tax year of MSB, the effect of IRC ss.381
and the consolidated return statutes, issues related to qualified plans,
proposed changes to federal long term capital gains rates and alternative
minimum tax (which could be made retroactive), withholding requirements, and
certain Connecticut transfer taxes have not been addressed herein.
This opinion also does not discuss every aspect of taxation which may be
relevant to a particular shareholder of MSB in view of his, her or its
particular circumstances or to MSB shareholders subject to special income tax
treatment such as insurance companies, dealers in securities, certain retirement
plans, financial institutions, tax exempt organizations or foreign persons.
Accordingly, shareholders of MSB should consult their tax advisors as to the
particular tax consequences to them of the Reorganization, including the
applicability and effect of federal, state, local and foreign income and other
tax laws.
The facts, as we understand them, are as follows:
A. BACKGROUND.
1. MANCHESTER STATE BANK. Manchester State Bank ("MSB") is a Connecticut
chartered commercial bank duly organized, validly existing and in good standing
under the laws of the State of Connecticut. It has 100,000 shares of common
stock authorized, issued and outstanding, which is publicly traded on an
"over-the-counter" electronic bulletin board, as well as on "pink sheets"
(dealer quotation sheets) that are regularly circulated among broker-dealers.
There are no outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of MSB's stock or any security representing the right to purchase or otherwise
receive any capital stock of MSB.
MSB does not have net operating loss carry forwards for federal or state
purposes. It has "earnings and profits" for federal income tax purposes. MSB has
one wholly-owned subsidiary. None of MSB's stock is owned by its subsidiary. MSB
does not own any treasury stock.
2. NEW ENGLAND COMMUNITY BANCORP, INC. New England Community Bancorp,
Inc. ("NECB") is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. NECB is duly registered as a
bank holding company under the Bank Holding Company Act. The authorized capital
stock of NECB consists of 10,000,000 shares of Class A Common Stock, of which
3,084,292 shares are issued and outstanding, and 200,000 shares of Preferred
Stock, none of which is issued or outstanding. NECB has two wholly owned
<PAGE>
subsidiaries. One of these subsidiaries, New England Bank & Trust Company
("NEBT"), is involved in this transaction. Certain options have been issued to
executive officers of NECB and NEBT for 64,000 shares of NECB's Common Stock.
3. NEW ENGLAND BANK AND TRUST COMPANY. NEBT is a Connecticut-chartered
commercial bank duly organized, validly existing and in good standing under the
laws of the State of Connecticut. It has 350,000 shares of common stock
authorized, one of which is issued and outstanding and is held by NECB.
4. OTHER. No two parties to the Reorganization are investment companies as
defined in IRC ss.368(a)(2)(F)(iii) and (iv). MSB is not under the jurisdiction
of a court in a Title 11 or a receivership, foreclosure, or similar proceeding
in a Federal or State court or agency. Neither NECB nor NEBT owns any MSB stock
in any capacity.
B. DESCRIPTION OF THE REORGANIZATION TRANSACTION.
MSB, pursuant to a plan of reorganization (the "Plan of Reorganization")
validly adopted by MSB, NECB and NEBT, in a valid merger under federal and
applicable state laws, will merge into NEBT, and MSB's existence will terminate
in the merger and NEBT will be the surviving corporation. Except as otherwise
described herein, upon the Reorganization becoming effective, each outstanding
share of MSB's common stock (except for shares as to which dissenters' rights
have been perfected) shall be converted into the right to receive 5.493 shares
of NECB Common Stock and $35.20 in cash.
The NECB stock to be received in the Reorganization will be either first
transferred to NEBT as part of the Plan of Reorganization, or will be issued
directly from NECB to the MSB shareholders. No stock of NEBT will be issued in
the Reorganization. The fair market value of the consideration received by each
MSB shareholder in the Reorganization will be approximately equal to the fair
market value of the MSB stock surrendered in the exchange. There is a valid
non-tax business purpose for the Reorganization.
In the event that an MSB shareholder is entitled to a fractional share of
NECB stock in the Reorganization, such fractional share shall be paid in cash.
There are approximately 900 shareholders of MSB. Accordingly, the maximum amount
to be paid in cash for fractional shares of NECB stock will be LESS THAN the
product of: (i) 900; multiplied by (ii) the closing market price of the NECB
stock on the trading day immediately preceding the effective time of the
Reorganization. Such cash payment is not separately bargained for but is in lieu
of the fractional share interests to which the MSB shareholders are entitled.
<PAGE>
All cash consideration paid in exchange for MSB stock in the Reorganization
(including cash paid to dissenting MSB shareholders, payments of $35.20/share
under the exchange ratio, and payments for fractional shares of NECB stock) will
be paid by NECB from its own funds that exist prior to the Reorganization.
Under the Reorganization Agreement, NECB's obligations in the
Reorganization are contingent upon, among other things, the condition that
holders of more than 85% of the outstanding shares of MSB's stock SHALL NOT HAVE
EXERCISED their statutory appraisal or dissenter's rights (i.e., rights to elect
to take cash in exchange for their MSB stock in the Reorganization). When the
Reorganization becomes effective, NEBT will acquire all of the assets and
liabilities of MSB, including certain liabilities under retirement agreements
with the President of MSB and certain of its Directors.
The fair market value of the MSB assets transferred in the Reorganization
will equal at least 90% of the fair market value of MSB's net assets (i.e.,
assets less liabilities) and at least 70% of MSB's gross assets (i.e., assets
unreduced by liabilities) held by MSB immediately prior to the Reorganization.
For the purposes of these calculations, expenses of the Reorganization paid by
MSB (which will total approximately $280,000.00) and any amounts paid for
distributions on, or redemptions of, MSB stock will be considered as assets of
MSB held immediately prior to the Reorganization. The fair market value of the
MSB assets transferred to NEBT will equal or exceed the sum of the liabilities
assumed by NEBT plus the amount of liabilities to which the transferred assets
are subject.
There will be no redemptions of MSB stock and no distributions on the MSB
stock preceding the Reorganization, except for regular, normal dividends to be
paid by MSB. Immediately after the Reorganization, the NECB stock owned by the
former MSB shareholders will be less than 50% of all the issued and outstanding
NECB stock.
There is no plan or intention on the part of any of the MSB shareholders to
sell, exchange or otherwise dispose of an amount of NECB stock received in the
Reorganization that would, when combined with the MSB stock surrendered by
dissenters, exchanged for cash pursuant to the Reorganization Agreement, or
exchanged for cash in lieu of fractional shares of NECB stock, reduce the MSB
shareholders' ownership of NECB stock to a number of shares having a value, as
of the date of the Reorganization, of less than 50% of the value of all of the
formerly outstanding stock of MSB as of the same date. For this calculation,
shares of MSB exchanged for cash in the Reorganization, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of NECB stock
will be considered to be outstanding MSB stock on the date of the
Reorganization.
<PAGE>
There is no plan or intention on the part of NECB to: (i)reacquire any of
the NECB stock issued in the Reorganization; (ii)liquidate NEBT; (iii)merge NEBT
with and into another corporation; (iv)sell or otherwise dispose of its NEBT
stock; or (v)cause NEBT to sell or otherwise dispose of any of the assets of MSB
acquired in the Reorganization, except for dispositions made in the ordinary
course of business. Following the Reorganization, NEBT will continue the
historic business of MSB or use a significant portion of MSB's historic business
assets in a business.
At the effective time of the Reorganization, NECB will own 100% of the
stock of NEBT. NEBT will not issue additional shares of its stock that would
result in NECB owning less than 80% of all of the stock of NEBT. There is no
intercorporate indebtedness existing between MSB and either NECB or NEBT that
was issued, acquired, or that will be settled at a discount. The liabilities of
MSB assumed by NEBT and the liabilities to which the transferred assets of MSB
are subject were incurred by MSB in the ordinary course of its business.
NECB, NEBT, MSB and MSB's shareholders will pay their respective expenses,
if any, incurred in connection with the transaction.
In conjunction with the Reorganization, certain of MSB's directors and its
president will receive retirement payments at various times after the effective
date of the Reorganization. MSB will grant them the right to receive such
payments, which will be a liability of MSB assumed by NEBT in the
Reorganization.
III. ISSUES:
A. What are the federal and Connecticut income tax consequences of the
proposed Reorganization to:
1. MSB
2. MSB's shareholders
3. NECB
4. NEBT
IV. DISCUSSION:
Based upon the above facts, and provided that, at the effective date of
the Reorganization, the market price of the NECB stock has not decreased by an
amount which would cause the total cash consideration to be paid to all MSB
shareholders (including payments to shareholders exercising dissenter's rights,
payments of $35.20/share under the exchange ratio, and payments for fractional
<PAGE>
shares) to exceed fifty percent of the total consideration (NECB stock and/or
cash) to be paid, the transaction should qualify as a valid "forward triangular
merger" under IRC ss.368(a)(2)(D).
In our opinion, the obligation of MSB to make retirement payments to MSB's
president and certain of its directors should not be characterized as payments
for MSB's stock. Accordingly, in our opinion, the "continuity of interest"
requirement necessary to have a valid reorganization should be met since the MSB
shareholders will, as a result of the merger, own NECB stock with a value on the
effective date of the Reorganization at least equal to 50% of the value of the
formerly outstanding MSB stock as of the same date, subject to the above proviso
regarding the market price of NECB stock as of the effective date of the
Reorganization.
The following federal and Connecticut income tax consequences should result
from the Reorganization:
A. CONSEQUENCES TO MSB:
MSB, under the Plan of Reorganization and as a party to the Reorganization,
will not recognize (i.e., will not take into income for tax purposes) any gain
or loss on the transfer of its assets and liabilities to NEBT in the
Reorganization in exchange for the NECB stock and cash, followed by the
distribution of the NECB stock and cash to the MSB shareholders in exchange for
their MSB stock. IRC ss.ss.361 and 357; C.G.S ss.ss.12-213 and 12-214.
B. CONSEQUENCES TO MSB SHAREHOLDERS:
1. GAIN OR LOSS ON TRANSACTION: Since MSB is a party to the Reorganization,
the receipt of NECB stock and cash by the MSB shareholders in exchange for their
MSB stock will cause each shareholder to recognize (i.e., take into income for
tax purposes) gain (i.e., the excess, if any, of the total amount of
consideration received in the Reorganization over the adjusted basis of the MSB
stock) up to the amount of the cash received by such shareholder. No loss on the
exchange will be recognized. IRC ss.ss. 354 and 356, C.G.S. ss.12-701. If an MSB
shareholder has different blocks of MSB stock with different bases and/or
different holding periods, such shareholder's gain or loss must be calculated
separately for each block of stock. A loss on one block of stock is not
permitted to be used to offset recognized gains on other blocks. Rev. Rul.
68-23, 1968-1 C.B. 144.
The character of the gain (i.e., ordinary income, or short or long term
capital gain) recognized by an MSB shareholder on the exchange of such
shareholder's MSB stock in the Reorganization will depend on several factors. In
addition, the rules regarding the characterization of gain to a shareholder in a
merger are somewhat unsettled. In determining the character of the gain, the
United States Supreme Court has issued holdings which, when applied in this
<PAGE>
situation, will deem the MSB shareholders to have exchanged all of the MSB stock
for NECB stock, followed by a redemption of some of that stock by NECB for cash.
In turn, the character of the cash payment will depend upon meeting certain
"reduction of ownership" tests. The tests may vary depending upon an individual
shareholder's situation. See COMMISSIONER V. CLARK, 489 U.S. 726 (1989). The
test set forth in CLARK was adopted by the Internal Revenue Service in Rev. Rul.
93-61, 1993-2 C.B. 118.
However, in our opinion, to the extent that an MSB shareholder: (i)has held
the MSB stock surrendered in the Reorganization as a capital asset for more than
one year; (ii)does not own (either directly or through "attribution" from others
under IRC ss.318) at the effective date of the Reorganization or immediately
before or after such Reorganization, stock in NECB other than stock received
directly by such shareholder in the Reorganization; and (iii)has received cash
in the Reorganization at least equal to the value of an amount of NECB stock (as
of the effective date of the Reorganization) which would, if considered as the
proceeds of a "deemed redemption" under the test set forth in COMMISSIONER V.
CLARK, reduce that shareholder's percentage ownership in NECB by more than 20%
of what it would have been if that shareholder had received as consideration in
the Reorganization only NECB stock, determined by taking into account all
"deemed redemptions" of other MSB shareholders in the Reorganization; then any
gain recognized by such shareholder should be characterized as long term capital
gain. COMMISSIONER V. CLARK, supra. For these purposes, it is also assumed that
NECB will not redeem any of its stock at the effective date of the
Reorganization.
Since the characterization of any gain from a distribution of cash in the
Reorganization to the MSB shareholders depends in part upon the facts and
circumstances of each shareholder's situation, each MSB shareholder should
consult his, her or its tax advisor to determine whether any gain recognized on
the Reorganization will be taxed as ordinary income or short or long term
capital gains, since such a determination is beyond the scope of this opinion
letter.
However, regardless of whether the above criteria are met, any gain arising
from receipt of cash proceeds by MSB shareholders in the Reorganization in lieu
of fractional shares of NECB stock should be characterized as gain from the sale
of such stock, and thus will be long term capital gain if the shareholder held
the MSB stock given up in the exchange as a capital asset for more than one
year. If the MSB stock was held as a capital asset for one year or less, the
gain from the fractional share interest would be short term capital gain. Rev.
Rul. 66-365, 1966-2 C.B. 116.
<PAGE>
2. ADJUSTED BASIS AND HOLDING PERIOD OF NECB STOCK RECEIVED IN THE
REORGANIZATION:
The adjusted basis of the NECB stock received by an MSB shareholder in the
Reorganization will be the same as the adjusted basis of the MSB stock
exchanged, reduced by the amount of cash received by the shareholder, and
increased by the amount of dividend or capital gain income recognized by the
shareholder on the exchange. IRC ss.358.
If the MSB stock exchanged in the Reorganization was acquired by the MSB
shareholder at different times or for different prices, the adjusted basis of
the NECB stock received by the shareholder is determined by reference to an
average cost basis for the MSB stock surrendered. Rev. Rul. 55-355, 1955-1 C.B.
418. However, it has been held that the taxpayer may elect to "trace" the
substituted basis from the stock given up in the exchange if the stock received
can be specifically identified with the stock surrendered. LEONARD OSROW, 49
T.C. 333 (1968) (acq.); TAM 7946005.
Assuming that an MSB shareholder held the MSB stock as a capital asset,
then the NECB stock received in the Reorganization will generally "tack" the
holding period of the MSB stock surrendered in the Reorganization. IRC
ss.1223(1).
C. CONSEQUENCES TO NECB:
1. GAIN OR LOSS ON TRANSACTION: No gain or loss will be recognized by NECB
upon the acquisition by NEBT of substantially all of the assets of MSB (subject
to liabilities) in exchange for NECB common stock (including NECB treasury
stock) and cash and the assumption of MSB's liabilities. IRC ss.1032 and Reg.
ss.1.1032-2; C.G.S. ss.ss.12-213 and 12-214.
2. BASIS IN NEBT STOCK: NECB's adjusted basis in its NEBT stock will be:
(i)increased at the effective date of the Reorganization by MSB's adjusted basis
of its assets transferred in the Reorganization; and (ii)reduced by the
liabilities assumed or to which the assets transferred are subject (except for
certain types of liabilities), and by the amount of consideration not provided
by NECB (including any NECB stock held by NEBT). Unless the parties file
consolidated returns after the Reorganization, the amount of the reduction in
(ii) above cannot exceed the amount of the increase in (i) above. IRC ss.ss.358
and 362(b) and Prop Reg. ss.ss.1.358-6(c), 1.358-6 (d), and Reg. ss.1.1502-30.
No additional increase in basis is allowed for cash or other property
transferred by NECB in the Reorganization. Prop. Reg. ss.1.358-6(c)(4) Ex.1 (d).
<PAGE>
D. CONSEQUENCES TO NEBT:
1. GAIN OR LOSS ON TRANSACTION: NEBT will not recognize any gain or loss on
the acquisition by NEBT of substantially all the assets of MSB (subject to
liabilities) and the assumption of MSB's liabilities, in exchange for NECB
common stock and cash which has been transferred to NEBT by NECB in connection
with the Reorganization. However, NEBT will recognize gain or loss on any NECB
stock which it transfers in the Reorganization if the stock was not acquired by
it in connection with the Plan of Reorganization. IRC ss.1023, Reg. ss.1023-2,
C.G.S. ss.ss.12-213 and 12-214.
2. ADJUSTED BASIS AND HOLDING PERIOD IN MSB'S ASSETS:
The basis of the assets of MSB acquired by NEBT will be the same in the
hands of NEBT as the basis of such assets in the hands of MSB immediately prior
to the exchange. IRC ss.362(b). The holding period of the assets of MSB received
by NEBT will include the period for which such assets were held by MSB. IRC
ss.1223(2).
Very truly yours,
REID and RIEGE, P. C.
/s/ Michael L. Coyle
Michael L. Coyle
EXHIBIT 10.8
Employment Agreement by and between
the Equity Bank and Frank A. Falvo
dated September 1, 1989
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
Employment Agreement dated as of September 1, 1989 by and between The
Equity Bank ("Equity"), and Frank A. Falvo ("Employee").
In consideration of the covenants and agreements herein provided the
parties hereto agree as follows;
1. Term of Employment.
1.1 Equity hereby employs Employee, and Employee hereby accepts employment
with Equity, all in accordance with the terms and conditions hereof, for a term
commencing on March 15, 1990 (the "Commencement Date"), and continuing for a
period of two years (the "Employment Period"), unless extended or sooner
terminated as herein provided.
1.2 Prior to the end of the first year of the Employment Period, and prior
to each subsequent anniversary of the Commencement Date, either party may give
the other written notice of their intention not to renew or extend the
Employment Agreement. If no such notice is given, the Employment Period will be
extended for an additional year without further action and the dates contained
herein will be automatically adjusted accordingly. If such notice is given by
either party, this Employment Agreement shall terminate one year later, on the
anniversary of the Commencement Date next following the Commencement Date
anniversary with respect to which such notice was given.
<PAGE>
2. Duties.
2.1 During the Employment Period, Employee shall be employed by Equity as
the President and Chief Executive officer of Equity or in a similar capacity and
shall have such duties, responsibilities and powers as are customary and
appropriate for such officer. Employee shall report directly to the Board of
Directors of Equity.
2.2 During the Employment Period, Employee shall devote his entire business
time, energies, best efforts, attention and ability to the business of Equity,
shall faithfully and diligently perform the duties of his employment with
Equity, and shall do all reasonably in his power to promote, develop and extend
the business of Equity.
2.3 The Bank agrees that Employee's base of operations shall stay at 1160
Silas Deane Highway, Wethersfield, Connecticut, and Employee shall not be
required to operate from any other area more than sixty (60) miles from this
location without Employee's prior consent.
3. Compensation.
3.1 During the first year of the Employment Period, Equity agrees to pay
Employee as compensation for his services under this Agreement a salary at the
annual rate of $110,000. Equity further agrees that prior to the expiration of
any calendar year during the term of this Agreement, the Board of Directors of
Equity will review the Employee's performance and will consider increasing
<PAGE>
Employee's salary under this Agreement for the following year. Equity will
provide the Employee with an review of his performance each year and provide the
the opportunity to discuss such review in a full and frank manner with the
Board. This review shall be completed not less than thirty days prior to the end
of each year during the Employment Period. The Board will consider granting
bonuses and other benefits to Employee at such times during the Employment
Period as the Board may deem appropriate.
3.2 Upon submission of appropriate invoices or vouchers, Equity shall pay
or reimburse Employee for all reasonable expenses incurred by Employee in the
performance of his duties hereunder in furtherance of the business, and in
keeping with the policies, of Equity. The Employee shall be reimbursed by Equity
in the amount of $0.25 per mile, or any higher rate as is approved by the
Internal Revenue Service and is deductible as approved, upon the submission of
the appropriate vouchers, for mileage incurred by the Employee in furtherance of
the business.
3.3 Employee shall be entitled to participate in any fringe benefit plan
available to Equity employees as in effect from time to time, to the extent that
he may be eligible to do so under the applicable provisions of the plan.
3.4 Employee shall be entitled to four weeks vacation in each calendar year
of the Employment Period, such vacation to be taken at such time or times as he
<PAGE>
shall elect. Two consecutive weeks of vacation must be taken in each year. Such
vacation, if not used during the first year of the Employment Period, may be
accumulated by the Employee up to a total of six weeks. The Employee may not
take more than three weeks of vacation in any one quarter of any year during the
Employment Period.
3.5 Employee shall be entitled to receive full compensation hereunder
during any period of disability, subject to a limitation of six months and an
additional six months at fifty percent of full compensation of continued salary
and benefits with respect to any single disability. Any amounts paid to Employee
under any disability insurance policy paid for by Eguity will be deemed to be
paid to Employee by Equity for the purposes of this paragraph.
3.6 In addition to participation in any fringe benefit plan available to
Equity employees generally, Employee shall also be entitled to participate in
any incentive stock option plan of Equity, and in any fringe benefit plan for
senior management which may be adopted by Equity which provides benefits for
such senior management based upon the profitability or asset growth of Equity.
4. Termination by Death. If Employee dies during the Employment Period,
Equity's obligations under this Agreement shall terminate immediately and
<PAGE>
Employee's estate or legal representative shall be entitled to all arrearages of
salary and expenses an amount equal to six months' salary and a pro rata share
of other benefits accrued at such time.
5. Suspension and Termination Other Than by Death.
5.1 Equity's Board of Directors may terminate Employee's employment at any
time, but any termination by the Board of Directors other than termination for
cause shall not prejudice Employee's right to compensation or other benefits
under this Agreement. Termination for cause shall mean termination because of
willful misconduct or gross negligence in the performance of his duties pursuant
to the terms of this Agreement, or termination directed by the Banking
Commissioner, the Federal Deposit Insurance Corporation, or similar regulatory
authority. In the event the Employee is terminated without cause, he shall
receive as termination pay the greater of (i) one year's salary at the then
current rate of compensation or (ii) his then current salary for the remainder
of the Employment Period.
5.2 Employee shall have no right to receive compensation or other benefits
for any period after termination for cause.
5.3 If Employee is suspended or temporarily prohibited from participating
in the conduct of Equity's affairs by action of any regulatory authority having
jurisdiction over Equity, obligations under this Agreement shall be suspended as
<PAGE>
of the date of service of written notice of such suspension. If the charges
underlying such action are dismissed, Employee shall receive the compensation
withheld while Equity's obligations were suspended and reinstatement of any
other obligations which were suspended.
6. Business Materials, Covenant to Report. All written materials, records
and documents made by Employee or coming into his possession concerning the
business or affairs of Equity shall be the sole property of Equity and, upon the
termination of his employment with Equity or upon the request of Equity at any
time, Employee shall promptly deliver the same to Equity and shall retain no
copies thereof. Prior to any termination of employment hereunder, Employee
agrees to render to Equity such reports of the activities undertaken by Employee
or conducted under Employee's direction pursuant hereto during the Employment
Period as Equity may reasonably request.
7. Binding Effect; Benefits. This Agreement shall inure to the benefit of,
and shall be binding upon, the parties hereto and their respective successors,
assigns, heirs and legal representatives. Insofar as Employee is concerned, this
Agreement, being personal, cannot be assigned.
8. Notices. All notices and other communications which are required or
permitted hereunder shall be in writing and shall be sufficient if delivered or
mailed by registered or certified mail, postage prepaid, to the following
<PAGE>
addresses or such other address as any party hereto shall have specified by
notice in writing to the other party hereto;
If to Employee:
Frank A. Falvo
267 Goff Road
Wethersfield, Connecticut 06109
If to Equity:
The Equity Bank
1160 Silas Deane Highway
Wethersfield, Connecticut 06109
All such notices and communications shall be deemed to have been received on the
date of delivery thereof or the fifth business day after the mailing thereof,
whichever is earlier.
9. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto and supersedes all prior agreements and understandings, oral
or written, between the parties hereto with respect to the subject matter
hereof.
10. Amendments and Waivers. This Agreement may not be modified or amended
except by an instrument or instruments in writing signed by the party against
whom enforcement of any such modification or amendment is sought. The waiver by
any party hereto of a breach of any term or provision of this Agreement shall
not be construed as a waiver of any subsequent breach.
11. Section and Other Headings. The Section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to control or affect the meaning or construction of
any provision of this Agreement.
<PAGE>
12. Severability. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in part, by a court of
competent jurisdiction, this Agreement shall be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provision of this Agreement.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
THE EQUITY BANK
by:______________________________
Chairman of the Board of
Directors
______________________________
Frank A. Falvo
Employee
EXHIBIT 10.9
Form of Employment Agreement by and between
New England Bank and Trust Company
and Nathan G. Agostinelli
<PAGE>
EMPLOYEE AGREEMENT
To: Mr. Nathan Agostinelli As of , 1996
Manchester, CT 06040
The undersigned, New England Bank and Trust Company ("NEBT"), a Connecticut
chartered commercial bank located at 176 Broad Street, Olde Windsor Mall,
Windsor, Connecticut 06095, in consideration of the salary and benefits provided
you herein, and for other good and valuable consideration, the sufficiency and
receipt whereof are hereby acknowledged, hereby agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 You shall serve as Executive Vice President of NEBT and shall perform
the duties customarily associated with such capacity from time to time as NEBT
shall designate.
1.2 During the initial two-year period of this Agreement, you will, to the
best of your ability, devote your full business time and best efforts to the
performance of your duties hereunder and the business and affairs of NEBT. You
agree to perform such duties as may be assigned to or by the authority of NEBT's
President and CEO from time to time. After termination of the initial two-year
period, you shall thereafter be retained as Consultant to NEBT for the period of
time set forth in Section 2.1 below, with the position and responsibility set
forth in Section 1.3 below.
1.3 During the third year of this Agreement, you shall be retained as
Consultant to NEBT. Your duties are to be available from time to time by
telephone or in person, at the current principal place of business of Manchester
State Bank, being 1041 Main Street, Manchester, Connecticut, to assist
management, after prior notice, in solving problems or concerns, or in the
development of new customers for the general benefit and betterment of NEBT,
provided that in no event will you be required to work or be available for
consultation for more than twenty (20) hours in any particular month, and
provided further that the compensation for Consultant described in Exhibit A
hereto will be payable whether or not your are utilized for such maximum number
of hours in any particular month.
<PAGE>
NEBT has been informed that during this period of time you intend to spend
extended periods of time on vacation or away from the Manchester area, and
NEBT's requirements on you while you serve as a consultant. shall be made in
such a manner so as not to unreasonably interfere with your other plans and
activities, providing that telephone access may be required from time to time
during any extended periods of absence from Connecticut. Any restrictive
covenants and agreements contained in this Agreement shall commence upon the
effective date of the termination of your services under this Agreement.
1.4 You will duly, punctually and faithfully perform and observe any and
all rules and regulations which NEBT may now or shall hereafter establish
governing the conduct of its business.
2. TERM OF EMPLOYMENT; CHANGE IN CONTROL.
2.1 The term of this Agreement shall be for a period of three (3) years
("Term of Employment") from the date first above written, or upon all final
regulatory approvals of the acquisition of Manchester State Bank by New England
Community Bank Corp., in connection with the Acquisition Agreement by and
between New England Community Bank Corp., Manchester State Bank and NEBT of even
date herewith, whichever shall later occur (hereinafter the "Commencement
Date"), as follows:
(a) The initial two-year term shall be full-time employment, as described
in paragraph 1.2 ("full-time employment");
(b) The third year of this Agreement shall be for the purposes of
consulting, as set forth in paragraph 1.3 ("post- employment consulting");
(c) There shall be no automatic renewal for successive periods, unless
otherwise agreed to in writing by all of the parties hereto.
You may terminate your employment pursuant to this Agreement at any time
after giving NEBT three (3) months prior written notice. Your employment with
NEBT may be terminated at any time, as provided in Section 2.2. It is understood
by and between the parties that Employee has been a valuable employee of
Manchester State Bank, with considerable expertise and knowledge which is of
great value to NEBT, and that Employee is forbearing from entering into other
employment agreements with parties other than NEBT, in consideration of this
Agreement.
<PAGE>
2.2 NEBT shall have the right to terminate your employment:
(a) subject to the cure periods set forth herein, immediately at any time
for "cause" as defined herein; or
(b) inability for a continuous period of at least ninety (90) days to
perform duties under this Agreement due to mental or physical disability that is
incapable of reasonable accommodation under applicable law, including but not
limited to the Americans with Disabilities Act of 1990, as amended;
(c) in the event of the liquidation or reorganization of NEBT under the
federal Bankruptcy Act or any state insolvency or bankruptcy law; or
(d) at any time without cause, provided NEBT shall be obligated to pay to
you as severance pay in an amount equal to your "Base Salary" and benefits (as
set forth in Exhibit A hereto), as if you continued throughout the full term of
this Agreement. Such sums shall be reduced by applicable taxes and other
required withholdings. [It is understood and agreed that the severance amounts
will be paid to you in accordance with the standard NEBT payroll procedures and
that should you obtain employment from another source prior to the receipt of
the entire severance amount, the unpaid amount shall be reduced on a
dollar-for-dollar basis.]
2.3 For purposes of Section 2.2, the term "cause" shall mean only: (i) the
falseness or material inaccuracy of any of your warranties or representations
herein, if such falseness or material inaccuracy is capable of cure; (ii) your
willful failure or refusal to comply with explicit directives of the President
and CEO of NEBT or the President of NEBT or to render the services required
herein, which failure is not cured within thirty (30) days of your receipt of
notice thereof (iii) fraud or embezzlement involving assets of NEBT, its
customers, suppliers or affiliates or other misappropriation of NEBT's assets or
funds; (iv) your conviction of a criminal felony offense; (v) the neglect or
willful breach of your obligations under this Agreement or your duties as an
employee of NEBT, which failure is not cured within thirty (30) days of your
receipt of notice thereof.
2.4 If your employment is terminated due to your death, all obligations of
NEBT hereunder shall continue as if you had survived and adequately performed
all of your duties and obligations hereunder for a period of (a) six (6) months
following the date of termination by reason of death or (b) the end of your Term
of Employment under this Contract whichever is less. All payments shall be paid
to your estate or to the person or persons which you may designate under your
Last Will and Testament.
<PAGE>
3. COMPENSATION.
You shall receive the compensation and benefits set forth on Exhibit A
hereto ("Compensation"), for all services to be rendered by you hereunder and
for your execution of an agreement relating to proprietary information of even
date herewith attached hereto as Schedule C between you and NEBT (the
"Proprietary Information Agreement").
4. OTHER ACTIVITIES DURING EMPLOYMENT.
4.1 Except for any outside employments and directorships currently held by
you as listed on Exhibit B hereto, and except with the prior written consent of
a disinterested majority of NEBT's Board of Directors, you will not, during the
term of this Agreement, undertake or engage in any other employment, occupation
or business enterprise, other than one in which you are an inactive investor,
that would interfere with your obligation to NEBT.
4.2 You hereby agree that, except as disclosed on Exhibit B hereto, during
your employment hereunder, you will not, directly or indirectly, engage (a)
individually, (b) as an officer, (c) as a director, (d) as an employee, (e) as a
consultant, (f) as an advisor, (g) as an agent or (h) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest, in any firm, corporation, partnership, trust,
association, or other organization, other than NEBT, which is engaged in any
line of business engaged in by NEBT (hereinafter referred to as "Prohibited
Enterprise")or under demonstrable development by NEBT (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B
hereto, you hereby represent that you are not engaged in any of the foregoing
capacities (a) through (h) or in any Prohibited Enterprise.
5. FORMER EMPLOYERS.
You represent and warrant that your employment by NEBT will not conflict
with and will not be constrained by any prior or current employment, consulting
agreement or relationship whether oral or written.
6. PROPRIETARY INFORMATION.
You agree to execute, deliver and be bound by the provisions of the
Proprietary Information Agreement attached hereto as Exhibit C and incorporated
herein.
<PAGE>
7. POST-EMPLOYMENT ACTIVITIES.
7.1 For a period of one (1) year following the termination of all payments
made to you as set forth on Exhibit A hereto (the "Non-Compete Period"), absent
NEBT's prior written approval, you will not directly or indirectly engage in
activities similar or reasonably related to those in which you shall have
engaged hereunder during the two years immediately preceding termination of said
payments, nor render services similar or reasonably related to those which you
shall have rendered hereunder during such two years to (i) any person or entity
whether now existing or hereafter established which directly competes with (or
proposes or plans to directly compete with) NEBT or its subsidiaries ("Direct
Competitor") in any line of banking business engaged in by NEBT or its
subsidiaries; or (ii) any past, current or potential customer of NEBT. The
restrictions imposed by this Section 8.1 shall only apply within a twenty (20)
mile radius of any office maintained by NEBT or any subsidiary thereof. Nor
during the Non-Compete Period shall you entice, induce or encourage any of
NEBT's other employees to terminate their employment with NEBT or to engage in
any activity which, were it done by you, would violate any provision of the
Proprietary Information Agreement or this Section 8. As used in this Section
8.1, the term "any line of banking business engaged in by NEBT" shall be applied
as of the date of termination of your full-time employment term, or, if later,
as at the date of termination of any post-employment consulting arrangement.
7.2 No provision of this Agreement shall be construed to preclude you from
performing the same services which NEBT hereby retains you to perform for any
person or entity which is not a Direct Competitor of NEBT or its subsidiaries
upon the expiration or termination of your full-time employment (or any
post-employment consulting arrangement) so long as you do not thereby violate
any term of the Proprietary Information Agreement.
8. REMEDIES.
Your obligations under the Proprietary Information Agreement and the
provisions of Sections 7, 8, 9, 10 and 13 of this Agreement (as modified by
Section 11, if applicable) shall survive the expiration or termination of your
employment with NEBT. You acknowledge that a remedy at law for any breach or
threatened breach by you of the provisions of the Proprietary Information
Agreement or Sections 5 or 8 hereof would be inadequate and you therefore agree
that NEBT shall be entitled to such injunctive relief in case of any such
breach, but in no event shall payments or benefits by NEBT to you, as set forth
in Exhibit A cease, until all such payments have been made.
<PAGE>
9. ASSIGNMENT.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of NEBT by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of NEBT, neither this Agreement nor any rights or benefits hereunder
may be assigned by NEBT or by you, except by operation of law, or in the event
of death, as set forth in Section 2.4 hereof.
10. INTERPRETATION.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT in case any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, such provision shall be construed by
limiting and reducing it as determined by a court of competent jurisdiction, so
as to be enforceable to the extent compatible with applicable law.
11. NOTICES.
Any notice which NEBT is required to or may desire to give you shall be
given by personal delivery or registered or certified mail, return receipt
requested, addressed to you at your address of record with NEBT, or at such
other place as you may from time to time designate in writing, and shall be
deemed to be received upon the date of personal delivery or, if mailed, three
(3) days after mailing, postage prepaid. Any notice which you are required or
may desire to give to NEBT hereunder shall be given by personal delivery or by
registered or certified mail, return receipt requested, addressed to NEBT at its
principal office, or at such other office as NEBT may from time to time
designate in writing, and shall be deemed to be received upon the date of
personal delivery or, if mailed, three (3) days after mailing, postage prepaid.
12. WAIVERS.
If either party should waive any breach of any provision of this Agreement,
such party shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision of this Agreement.
<PAGE>
13. COMPLETE AGREEMENT; AMENDMENTS.
The foregoing including Exhibits A, B and C hereto, is the entire agreement
of the parties with respect to the subject matter hereof, superseding any
previous oral or written communications, representations, understandings, or
agreements with NEBT or any officer or representative thereof. Any amendment to
this Agreement or waiver by either party of any right hereunder shall be
effective only if evidenced by a written instrument executed by the parties
hereto and, in NEBT's case, upon authorization of NEBT's Board of Directors.
14. HEADINGS.
The headings of the Sections hereof are inserted for convenience only and
shall not be deemed to constitute a part hereof nor to affect the meaning of
this Agreement.
15. COUNTERPARTS.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
16. GOVERNING LAW.
This Agreement shall be governed by and construed under Connecticut law,
without regard to the conflict of laws principles thereof.
17. ADVICE OF COUNSEL.
You represent that you: (1)(i) have received independent advice from legal
counsel of your own choosing with respect to the advisability of entering into
this Agreement and with respect to providing the representations and warranties
contained in this Agreement, and (ii) have had a reasonable amount of time to
properly review this Agreement with such legal counsel; or (2) that you had the
opportunity to seek independent advice from legal counsel but for reasons of
your own decided not to seek such advice.
<PAGE>
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Proprietary Information Agreement, whereupon this
Agreement shall become binding in accordance with its terms. Please then return
this Agreement to NEBT. (You may retain for your records the accompanying
counterpart of this Agreement enclosed herewith).
Very truly yours,
NEW ENGLAND BANK AND TRUST COMPANY
By: _______________________________
David Lentini, President
Accepted and Agreed:
______________________
Nathan Agostinelli
<PAGE>
Exhibit A
EMPLOYMENT/CONSULTING TERM, COMPENSATION AND BENEFITS
OF NATHAN AGOSTINELLI
1. TERM.
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall commence on the date first written above, or upon all final
regulatory approval of the acquisition of Manchester State Bank, in connection
with the Acquisition Agreement, whichever shall later occur.
2. COMPENSATION.
(a) Base Salary. Your salary shall be One Hundred Twenty-five Thousand
($125,000) Dollars per year, paid in accordance with NEBT's payroll policies,
during your Full-Time Employment.
(b) Base Salary. Your salary shall be Twenty-five Thousand ($25,000)
Dollars per year, paid in accordance with NEBT's payroll policies, during your
Post-Employment Consulting term.
3. VACATION.
You shall be entitled to all legal and religious holidays, and four (4)
weeks paid vacation, in accordance with NEBT policy.
4. INSURANCE AND BENEFITS.
You shall be eligible for participation in any health or other group life
insurance plan which may be established by NEBT or which NEBT is required to
maintain by law, and commensurate with other executive management employees of
NEBT. Currently, NEBT's employees participate in a health and life insurance
program offered by NEBT.
5. AUTOMOBILE ALLOWANCE.
The Bank recognizes that Employee's need for an automobile for business
purposes and therefore shall provide the Employee with a 1996 Lincoln
Continental including all related maintenance, repairs, insurance, taxes, fuel
and other costs.
<PAGE>
At the end of your Full-Time Employment term, or in the event of prior
termination if your employment under Paragraph 2 hereof, NEBT shall purchase
said automobile on your behalf and distribute same to you as a bonus, fee and
clear of any lease, taxes or encumbrances.
6. SICK DAYS AND PERSONAL DAYS.
You shall be entitled to compensation for sick days and personal day in
accordance with NEBT policy.
7. EXPENSES.
NEBT shall reimburse you for all reasonable and ordinary business expenses
incurred by you in the scope of your employment hereunder.
<PAGE>
EXHIBIT B
OUTSIDE DIRECTORSHIPS
Employee is currently a member of the Board of Trustees of Manchester
Memorial Hospital.
Employee is currently a Director on the Board of Directors for Eastern
Connecticut Hospital Association.
Employee is currently a Director on the Manchester Visiting Nurses Board
of Directors.
<PAGE>
EXHIBIT C
PROPRIETARY INFORMATION AGREEMENT
To: New England Bank & Trust Company As of , 1996
176 Broad Street
Olde Windsor Mall
Windsor, Connecticut 06095
Attn: David A. Lentini, President and
Chief Executive Officer
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successor in business (collectively, NEBT), hereby
agrees as follows:
1. CONFIDENTIALITY. I agree to keep confidential, except as NEBT may
otherwise consent in writing, and except for NEBT's benefit, not to disclose or
make any use of at any time either during or for a period of one (1) year
subsequent to my employment, any confidential information, knowledge, data or
other information of NEBT relating to products, processes, know-how, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
banking business of NEBT or any or its affiliates, which I may produce, obtain,
or otherwise acquire exclusively during the course of my employment, excluding
that which, through no fault of my own, may become in the public domain or which
I may be required by law, subpoena or court order to disclose, and except as
herein provided.
2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree that
during my employment with NEBT, I will not engage in any other employment,
occupation, consulting or other activity relating to the business in which NEBT
is now or may hereafter become engaged, or which would otherwise conflict with
my obligations to NEBT. In the event my employment with NEBT terminates for any
reason whatsoever, I agree to promptly surrender and deliver to NEBT all
records, materials, equipment, drawings, documents and at which I may obtain or
produce exclusively during the course of my employment.
3. MODIFICATION. I AGREE THAT ANY SUBSEQUENT CHANGE OR CHANGES IN MY
EMPLOYMENT DUTIES, SALARY OR COMPENSATION OR, IF APPLICABLE, IN ANY EMPLOYMENT
AGREEMENT BETWEEN NEBT AND ME, SHALL NOT AFFECT THE VALIDITY OR SCOPE OF THIS
AGREEMENT.
4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and is for the benefit
of NEBT, its successors and assigns.
<PAGE>
5. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
6. WAIVERS. If either party should waive any breach of any provision of
this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
7. COMPLETE AGREEMENT, AMENDMENTS. I acknowledge receipt of this Agreement,
and agree that with respect to the subject matter thereof it is my entire
agreement with NEBT, superseding any previous oral or written communications,
representations, understandings, or agreements with NEBT or any offer or
representative thereof. Any amendment to this Agreement or waiver by either
party of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, and, in the case of NEBT, upon
written authorization of the NEBT's Board of Directors.
8. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
9. COUNTERPARTS. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.
10. GOVERNING LAW. This Agreement shall be governed and construed under
Connecticut law, without regard to the conflict of law principles thereof.
Very truly yours,
-----------------------
Nathan Agostinelli
Accepted and Agreed:
NEW ENGLAND BANK AND TRUST COMPANY
By: -----------------------------
David Lentini, President
EXHIBIT 21
List of Subsidiaries of New England Community Bancorp, Inc.
at December 31, 1995
<PAGE>
List of Subsidiaries of New England Community Bancorp, Inc.
at December 31, 1995:
Percent Owned
Incorporated In By New England
Subsidiary The State Of: Community Bancorp,Inc.
- ---------- ------------- ----------------------
New England Bank Connecticut 100%
and Trust
Company
The Equity Bank Connecticut 100%
EXHIBIT 23.1
Consent of Cranmore, FitzGerald & Meaney
<PAGE>
Consent of Cranmore, FitzGerald & Meaney
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the Registration Statement on Form S-4 of New England Community
Bancorp, Inc.
/s/ Cranmore, FitzGerald & Meaney
CRANMORE, FITZGERALD & MEANEY
March 25, 1996
EXHIBIT 23.2
Consent of Shatswell, MacLeod & Company, P.C.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
New England Community Bancorp, Inc.
Windsor, Connecticut
We hereby consent to the use of our report dated January 25, 1996 in the
Registration Statement (Form S-4) of New England Community Bancorp, Inc. and the
reference to us in the section of the Registration Statement designated
"Experts".
/s/ SHATSWELL, MacLEOD & COMPANY, P.C
-------------------------------------
SHATSWELL, MacLEOD & COMPANY, P.C.
W. Peabody, Massachusetts
March 25, 1996
EXHIBIT 23.3
Consent of Bardaglio, Hart & Shuman
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
New England Community Bancorp, Inc.
Windsor, Connecticut
We hereby consent to the use of our report dated January 12, 1996 in the
Registration Statement (Form S-4) of New England Community Bancorp, Inc. and the
reference to us in the section of the Registration Statement designated
"Experts".
Sincerely,
/s/ Bardaglio, Hart & Shuman
----------------------------
BARDAGLIO, HART & SHUMAN
Windsor Locks, Connecticut
March 25, 1996
EXHIBIT 23.4
Consent of Jacobs, Walker, Rice & Basche, P.C.
<PAGE>
March 25, 1996
CONSENT OF
JACOBS, WALKER, RICE & BASCHE, P.C.
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the Registration Statement on Form S-4 of New England Community
Bancorp, Inc.
Jacobs, Walker, Rice & Basche, P.C.
By: /s/ MICHAEL J. RICE, TREASURER
--------------------------------
Michael J. Rice, Treasurer
EXHIBIT 23.5
Consent of First Albany Corporation
<PAGE>
March 25, 1996
Board of Directors
New England Community Bancorp, Inc.
176 Broad Street
Windsor, CT 06095
Members of the Board:
First Albany Corporation hereby consents to the inclusion of its fairness
opinion dated December 19, 1995 (the "Opinion") in the Registration Statement of
New England Community Bancorp, Inc. dated March 27, 1996 (the "Registration
Statement"). In addition, First Albany Corporation also consents to the
inclusion of the related discussion of the Opinion in the Registration
Statement.
Sincerely,
/s/ First Albany Corporation
- ----------------------------
FIRST ALBANY CORPORATION
EXHIBIT 23.6
Consent of HAS Associates, Inc.
<PAGE>
March 25, 1996
Board of Directors
New England Community Bancorp, Inc.
176 Broad Street
Windsor, CT 06095
Members of the Board:
HAS Associates, Inc. hereby consents to the inclusion of its fairness opinion
dated December 19, 1995 (the "Opinion") in the Registration Statement of New
England Community Bancorp, Inc. dated March 27, 1996 (the "Registration
Statement"). In addition, HAS Associates, Inc. also consents to the inclusion of
the related discussion of the Opinion in the Registration Statement.
Sincerely,
/s/ Has Associates, Inc.
HAS ASSOCIATES, INC.
EXHIBIT 23.7
Consent of Reid and Reige, P.C.
<PAGE>
March 26, 1996
Consent of Reid and Riege, P.C
We hereby consent to the reference to this firm under the caption "Legal
Matters" and "Federal Income Tax Consequences" in the Registration Statement on
Form S-4.
/s/ Reid and Riege, P.C.
------------------------
REID AND RIEGE, P.C.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27
Financial Data Schedule
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<CASH> 14,495
<INT-BEARING-DEPOSITS> 247,216
<FED-FUNDS-SOLD> 9,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 74,793
<INVESTMENTS-MARKET> 75,063
<LOANS> 222,235
<ALLOWANCE> 4,446
<TOTAL-ASSETS> 341,561
<DEPOSITS> 307,161
<SHORT-TERM> 540
<LIABILITIES-OTHER> 3,063
<LONG-TERM> 0
0
0
<COMMON> 308
<OTHER-SE> 30,172
<TOTAL-LIABILITIES-AND-EQUITY> 341,561
<INTEREST-LOAN> 12,935
<INTEREST-INVEST> 2,958
<INTEREST-OTHER> 407
<INTEREST-TOTAL> 16,300
<INTEREST-DEPOSIT> 5,703
<INTEREST-EXPENSE> 5,736
<INTEREST-INCOME-NET> 10,564
<LOAN-LOSSES> 700
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 8,591
<INCOME-PRETAX> 2,965
<INCOME-PRE-EXTRAORDINARY> 985
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,980
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 8.12
<LOANS-NON> 4,725
<LOANS-PAST> 273
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 14,067
<ALLOWANCE-OPEN> 2,564
<CHARGE-OFFS> 978
<RECOVERIES> 199
<ALLOWANCE-CLOSE> 4,446
<ALLOWANCE-DOMESTIC> 4,446
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<PAGE>
</TABLE>
EXHIBIT 99.1
Form of Proxy for the Special Meeting of
Shareholders of Manchester State Bank
MANCHESTER STATE BANK
1041 MAIN STREET
MANCHESTER, CT 06045-1400
PROXY FOR SPECIAL ANNUAL MEETING OF SHAREHOLDERS
------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE BANK
KNOW ALL MEN BY THESE PRESENTS that the undersigned hereby constitutes
and appoints ______________, __________________, and
__________________, or any of them, with full power of substitution, as
attorney and proxies for the undersigned to appear and vote all of the
shares of stock of MANCHESTER STATE BANK standing on the books of the
Bank in the name of the undersigned at the Special Meeting of the
Shareholders of the Bank, to be held on _______________ at __________
.m. at _________________, ______________, _______________, Connecticut
and at any and all adjournments thereof. If the undersigned should
attend the Special Meeting in person, this proxy will not be binding.
A majority of the said attorneys and proxies as shall be present and
voting (or if one shall be present and voting, then that one) in person
or by substitutes at said meeting, or at any adjournments thereof,
shall have and may exercise all of the powers of such said attorneys
and proxies hereunder. The undersigned hereby instructs said attorneys
and proxies to vote as set forth thereafter:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NUMBER 1
1. Proposal to adopt a Plan and Agreement of Reorganization, dated as
of December 19, 1995 (the "Reorganization Agreement") by and among
New England Community Bancorp, Inc. ("NECB"), New England Bank and
Trust Company, a wholly owned subsidiary of NECB and Manchester
State Bank ("MSB") which provides, among other things, for NECB to
acquire all of the outstanding common stock of MSB ( the "MSB
Common Stock") in exchange for $35.20 payable in cash and 5.493
shares of NECB Common Stock for each share of MSB Common Stock.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. The Directors know of no other business to be transacted, but if
any matters do properly come before the meeting, there persons
named as proxies will vote upon them in accordance with their best
judgment.
Witnessed by hand, this ___ day of _______________, 1995
-------------------------------------
-------------------------------------
Signature
(when signing as attorney, executor,
administrator, trustee or guardian, please
add your title to such.)
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTIONS ARE GIVEN, THIS PROXY WILL BE
VOTED AS RECOMMENDED BY THE DIRECTORS.
