Filed pursuant to Rule 424(b)(3)
File No.: 333-50213
OLDE PORT BANK & TRUST COMPANY
501 ISLINGTON STREET
PORTSMOUTH, NH 03801
(603) 436-8800
May 12, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Olde Port Bank & Trust Company ("Olde Port") at 4 p.m., Eastern Time on June
25, 1998 at the executive offices of Olde Port, 501 Islington Street,
Portsmouth, NH 03801 (the "Special Meeting"). This is a very important meeting
regarding your investment in Olde Port.
At the Special Meeting, Shareholders will be asked to approve the Plan
and Agreement of Merger dated February 10, 1998 (the "Merger Agreement") between
Olde Port and New England Community Bancorp, Inc. ("NECB"). If the Merger
Agreement is approved, a newly formed subsidiary bank of NECB will be merged
with and into Olde Port (the "Merger"), with Olde Port as the surviving bank,
and each outstanding share of Olde Port Common Stock (except as otherwise
provided in the Merger Agreement) will be converted into the right to receive
shares of common stock of NECB, and cash in lieu of fractional shares, having a
value of $200.00 as determined pursuant to the Merger Agreement.
The Board of Directors of Olde Port believes the Merger is in the best
interest of the Shareholders of Olde Port and unanimously recommends that you
vote in favor of the Merger Agreement and the Merger.
Enclosed is a Notice of Special Meeting of Shareholders, a Proxy
Statement-Prospectus containing a discussion of the Merger Agreement and the
Merger, and a Proxy Card. Please complete, sign and date the enclosed Proxy Card
and return it as soon as possible in the envelope provided.
It is very important that your shares be represented at the Special
Meeting. Failure to return a properly executed proxy card or to vote at the
Special Meeting will have the same effect as a vote against the Merger
Agreement. Accordingly, even if you plan to be present at the Special Meeting,
you are requested to complete, date, sign and return the proxy card in the
enclosed postage-paid envelope as soon as possible. If you decide to attend the
Special Meeting, you may vote your shares in person whether or not you have
previously submitted a proxy.
On behalf of the Board, thank you for your attention to this important
matter.
Very truly yours,
Michael E. Kenslea, President
and Chief Executive Officer
<PAGE>
OLDE PORT BANK & TRUST COMPANY
501 ISLINGTON STREET
PORTSMOUTH, NH 03801
(603) 436-8800
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held at 4 p.m. Eastern Time on June 25, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Olde Port Bank & Trust Company ("Olde Port") will be held
at the principal offices of Olde Port, 501 Islington Street, Portsmouth, New
Hampshire for the following purpose:
1. To consider and vote upon a proposal to approve and adopt a
Plan and Agreement of Merger, dated as of February 10, 1998
(the "Merger Agreement"), by and between New England Community
Bancorp, Inc. ("NECB") and Olde Port which provides, among
other things, for (i) the creation of a New Hampshire
chartered interim bank ("NECB Interim Bank"); (ii) the merger
of NECB Interim Bank with and into Olde Port (the "Merger");
and (iii) the conversion of each share of Olde Port Common
Stock into Merger consideration consisting of that number of
shares of NECB Common Stock and cash in lieu of fractional
shares equal to $200.00 in value subject to adjustment as
provided in the Merger Agreement.
2. To transact such other business as may properly come before
the Special Meeting or any adjournment or adjournments
thereof.
Pursuant to the Bylaws of Olde Port, the Board of Directors has fixed
the close of business on April 30, 1998 as the record date for determination of
shareholders entitled to notice of and to vote at the Special Meeting. Only
holders of Olde Port Common Stock on the record date will be entitled to notice
of, and to vote at, the Special Meeting or any adjournment or adjournments
thereof.
Holders of Olde Port Common Stock have the right to dissent from the
Merger and to obtain payment for their shares by complying with New Hampshire
Revised Statutes Annotated Section 388:13 and Sections 293-A:13.01 ET SEQ. of
the New Hampshire Business Corporation Act. A copy of Sections 388:13 and
293-A:13.01 ET SEQ. is attached as Appendix E to the accompanying Proxy
Statement-Prospectus.
By Order of the Board of Directors,
Portsmouth, New Hampshire
May 26, 1998
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.
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
PROSPECTUS
FOR 700,000 SHARES OF COMMON STOCK, PAR VALUE $.10 PER SHARE
OLDE PORT BANK & TRUST COMPANY
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 25, 1998
--------------------
This Proxy Statement-Prospectus is being furnished to the shareholders
of Olde Port Bank & Trust Company ("Olde Port"), in connection with the
solicitation of proxies by the Board of Directors for use at the Special Meeting
of Shareholders of Olde Port (the "Special Meeting") to be held at 4:00 p.m.
Eastern Time on June 25, 1998 at the principal offices of Olde Port, 501
Islington Street, Portsmouth, New Hampshire, and at any adjournments or
postponements thereof.
At the Special Meeting, the shareholders of Olde Port will consider and
vote upon a proposal to approve the Plan and Agreement of Merger, dated as of
February 10, 1998 (the "Merger Agreement"), by and between Olde Port, and New
England Community Bancorp, Inc., a Delaware corporation ("NECB" or the
"Company"), and the related Bank Merger Agreement (the Merger Agreement and the
Bank Merger Agreement are collectively referred to herein as the "Agreements").
The Agreements provide, among other things, for the acquisition of all
outstanding shares of common stock, par value $1.00 per share, of Olde Port (the
"Olde Port Common Stock") by NECB in a merger transaction whereby at the
Effective Time (as hereinafter defined) NECB Interim Bank, an interim bank to be
formed under New Hampshire law by NECB, will merge with and into Olde Port (the
"Merger") with Olde Port as the surviving bank (the "Resulting Bank"). At the
Effective Time, each share of Olde Port Common Stock issued and outstanding
immediately prior to the Effective Time (except for (i) shares held by Olde Port
as treasury shares, (ii) shares owned by any direct or indirect subsidiary of
Olde Port, (iii) shares held by the Company or any subsidiary of the Company
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) will,
without any action on the part of the holder thereof, be converted into and
exchangeable for Merger consideration ("Per Share Merger Consideration")
consisting of that number of shares of Company Common Stock, and cash in lieu of
fractional shares, equal to $200.00 in value. The final exchange ratio (the
"Exchange Ratio") will be determined (subject to adjustment to reflect any
subsequent stock dividend, stock split or other change in the shares of the
Company Common Stock prior to the Effective Time) by dividing $200.00 by the
average closing price of Company Common Stock supplied by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") and
reported in THE WALL STREET JOURNAL as of the end of the ten (10) consecutive
trading-day period ending on the date on which the last of the regulatory
approvals required for the consummation of the Merger occurs (the "Average
Closing Price").
<PAGE>
Olde Port may terminate the Merger Agreement if the Olde Port Board so
determines if the Average Closing Price of the NECB Common Stock is greater than
$30.00 per share. If Olde Port elects to terminate the Merger Agreement, it is
required to give prompt written notice to NECB. During the seven-day period
following receipt of the notice, NECB may increase the consideration to be
received by holders of Olde Port Common Stock by reducing the Average Closing
Price for purposes of the Exchange Ratio to equal $30.00. If NECB elects to
increase the Exchange Ratio, the Merger Agreement will not terminate. Also, NECB
may terminate the Merger Agreement if the NECB Board so determines if the
Average Closing Price of the NECB Common Stock is less than $20.00 per share. If
NECB elects to terminate the Merger Agreement, it is required to give prompt
written notice to Olde Port. During the seven-day period following receipt of
the notice, Olde Port may reduce the consideration to be received by holders of
Olde Port Common Stock by increasing the Average Closing Price for purposes of
the Exchange Ratio to equal $20.00. If Olde Port elects to reduce the Exchange
Ratio, the Merger Agreement will not terminate. For a description of the Merger
Agreement, which is included in its entirety as Appendix A to this Proxy
Statement-Prospectus, see "THE MERGER." It is expected that approximately 13.5%
of the then outstanding shares of NECB Common Stock will be issued in the
Merger.
Dissenters' Rights: Pursuant to New Hampshire Revised Statute Annotated
("NHRSA") Section 388:13, which Section incorporates Sections 293-A:13.01 ET.
SEQ. of the New Hampshire Business Corporation Act ("NHBCA"), holders of Olde
Port Common Stock who (i) file with NECB prior to the vote on the Merger at the
Special Meeting a written notice of intention to demand payment for their shares
if the Merger is effected and (ii) do not vote in favor of the Merger will be
entitled to be paid the fair value of their shares as agreed upon with NECB or
its successor, or, if the fair value remains unsettled, as determined by a New
Hampshire court, provided that the Merger is consummated and such shareholders
properly comply with certain statutory procedures. Fair value of dissenting
stock means the value immediately before the Effective Time, excluding any
change in value in anticipation of the Merger if such exclusion is not
inequitable (which amount may be more, less or the same as the Per Share Merger
Consideration). The written notice required to be delivered to NECB by a
dissenting shareholder is in addition to and separate from any proxy or vote
against the Merger. The further procedures which must be followed in connection
with the exercise of dissenters' rights by dissenting shareholders are described
under "THE MERGER AGREEMENT - Dissenters' Rights," and in NHRSA Sections 388:13
and 293-A 13:01 ET SEQ. of the NHBCA, copies of which are attached as APPENDIX E
to this Proxy Statement-Prospectus. Failure to take any step in connection with
the exercise of such rights may result in termination or waiver thereof.
This Proxy Statement-Prospectus also constitutes a prospectus of NECB
in respect of the shares of NECB Common Stock to be issued in the Merger. NECB
Common Stock is not insured by the Federal Deposit Insurance Corporation, the
Bank Insurance Fund or any other government agency, nor is such stock guaranteed
by any bank or bank holding company.
The outstanding shares of NECB Common Stock are traded over the counter
on the Nasdaq National Market System (the "Nasdaq NM") under the symbol "NECB."
ALL INFORMATION AND STATEMENTS CONTAINED HEREIN WITH RESPECT TO OLDE
PORT WERE SUPPLIED BY OLDE PORT. ALL INFORMATION AND STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE HEREIN WITH RESPECT TO NECB WERE SUPPLIED BY NECB.
This Proxy Statement-Prospectus and the accompanying proxy materials
are first being mailed to shareholders of Olde Port on or about May 26, 1998.
------------------
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.
THESE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL INVESTED. THE SHARES OF NECB COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
----------------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS MAY 12, 1998.
<PAGE>
AVAILABLE INFORMATION
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 Street, Suite 1400, Chicago,
Illinois 60661. The Commission also maintains a Web site that contains reports,
proxy statements and other information regarding registrants (such as NECB)
which file electronically with the Commission. The address of the site is http:
www.sec.gov. 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 Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
Olde Port has 209 shareholders. Therefore, it is not subject to the
information requirements of the Exchange Act. However, reports, proxy statements
and other information compiled by Olde Port may be inspected and copied at Olde
Port's offices at 501 Islington Street, Portsmouth, New Hampshire. Copies of
such information may be ordered by telephone request by calling (603) 436-8800.
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 Merger Agreement. As
permitted by the rules and regulations of the Commission, this Proxy
Statement-Prospectus does not contain all the information set forth in the
Registration Statement and exhibits thereto. Such additional information may be
inspected and copied as set forth above. For further information with respect to
NECB and the securities offered thereby, reference is made to the Registration
Statement, including the exhibits thereto. 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.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS OF NECB BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO: NEW ENGLAND COMMUNITY BANCORP,
INC., P.O. BOX 130, 176 BROAD STREET, WINDSOR, CONNECTICUT 06095, ATTENTION:
VIRGINIA B. SPRINGER (TELEPHONE NUMBER (860) 610-4602). IN ORDER TO ENSURE
TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 12, 1998.
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 Merger 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
Olde Port. 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 Olde Port since the date
hereof.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by NECB with the Commission (NECB File
No. 0-14550) under Section 12(g), 13(a), 13(c), 14 or 15(d) of the Exchange Act
are hereby incorporated by reference into this Proxy Statement-Prospectus:
NECB's Annual Report on Form 10-K for the year ended December 31, 1997;
NECB's Proxy Statement for its 1998 Annual Meeting of Shareholders;
NECB's Current Reports on Form 8-KA and Form 8-K filed with the
Commission on March 13, 1998, and March 19, 1998, respectively; and
Form 8-A filed by NECB to register its Common Stock pursuant to Section
12(g) of the Exchange Act.
All documents filed by NECB pursuant to Sections 12(g), 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
Special Meeting also shall be deemed to be incorporated by reference into this
Proxy Statement-Prospectus and shall be deemed a part hereof from the date of
filing of such documents.
Any statement contained herein, in any amendment or supplement hereto
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Proxy Statement-Prospectus to the extent that a statement
contained herein, in any amendment or supplement hereto or in any subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement, this Proxy Statement-Prospectus
or any supplement thereto.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
SUMMARY 1
Parties to the Merger ............................................................................. 1
The Special Meeting ............................................................................... 2
Vote Required and Record Date ..................................................................... 2
Reasons for the Merger; Recommendation of Board of Directors; Opinion of Financial Advisor ........ 2
NECB reasons for the Merger ....................................................................... 2
Effective Time .................................................................................... 2
Interests of Certain Persons in the Merger; Shareholders' Agreements .............................. 3
The Stock Option Agreement ........................................................................ 3
Conditions; Regulatory Approvals .................................................................. 3
Fees and Expenses Under Certain Circumstances ..................................................... 4
Anticipated Accounting Treatment .................................................................. 4
Federal Income Tax Consequences ................................................................... 4
Certain Differences in Shareholders' Rights ....................................................... 4
Dissenters' Rights ................................................................................ 4
Markets and Market Prices ......................................................................... 5
Capital Ratios .................................................................................... 6
COMPARATIVE PER SHARE DATA ............................................................................ 7
SELECTED CONSOLIDATED FINANCIAL DATA OF NECB .......................................................... 8
SELECTED FINANCIAL DATA OF OLDE PORT .................................................................. 9
THE SPECIAL MEETING ................................................................................... 10
General ........................................................................................... 10
Record Date; Vote Required ........................................................................ 10
Revocation of Proxies ............................................................................. 10
THE MERGER ............................................................................................ 11
Background of the Merger .......................................................................... 11
Recommendation of the Board of Olde Port and Olde Port Reasons for the Merger ..................... 11
Opinion of Olde Port's Financial Advisor .......................................................... 12
NECB Reasons for the Merger ....................................................................... 15
THE MERGER AGREEMENT .................................................................................. 16
General ........................................................................................... 16
Effective Time .................................................................................... 16
Effect of the Merger .............................................................................. 17
Shareholders' Agreements .......................................................................... 17
The Stock Option Agreement ........................................................................ 17
Procedures for Exchange of Certificates ........................................................... 18
Conditions to Consummation of the Merger .......................................................... 18
Regulatory Approvals Required for the Merger ...................................................... 20
Conduct of Business Pending the Merger ............................................................ 22
Amendment and Termination ......................................................................... 24
Employee Matters .................................................................................. 25
Interests of Certain Persons in the Merger ........................................................ 25
Fees and Expenses Under Certain Circumstances ..................................................... 25
Anticipated Accounting Treatment .................................................................. 26
Resales of NECB Common Stock Received in the Merger ............................................... 26
Trading Market for NECB Common Stock .............................................................. 26
Federal Income Tax Consequences ................................................................... 26
Dissenters' Rights ................................................................................ 28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INFORMATION REGARDING OLDE PORT ....................................................................... 30
Business .......................................................................................... 30
Properties ........................................................................................ 30
Legal Proceedings ................................................................................. 30
Director Compensation ............................................................................. 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF OLDE PORT ........................................ 31
OVERVIEW .......................................................................................... 31
INCOME STATEMENT ANALYSIS ......................................................................... 31
Net Interest Income ............................................................................... 31
Rate/Volume Analysis .............................................................................. 33
Noninterest Income ................................................................................ 34
Noninterest Expense ............................................................................... 34
Income Taxes ...................................................................................... 34
BALANCE SHEET ANALYSIS ............................................................................ 34
Loans ............................................................................................. 34
Nonperforming Assets .............................................................................. 35
Provision and Allowance for Loan Losses ........................................................... 36
Investments ....................................................................................... 37
Deposits .......................................................................................... 39
Short Term Borrowings ............................................................................. 39
Quantitative and Qualitative Disclosure About Market Risk ......................................... 39
Liquidity Risk .................................................................................... 41
Interest Rate Sensitivity ......................................................................... 42
Capital ........................................................................................... 43
Recent Accounting Pronouncements .................................................................. 43
The Year 2000 Problem ............................................................................. 44
1995 Comparison ................................................................................... 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
OLDE PORT ............................................................................................. 45
DIRECTOR COMPENSATION AND MANAGEMENT TRANSACTIONS ..................................................... 47
Director Compensation ............................................................................. 47
Employment Agreements ............................................................................. 47
Indebtedness of Management and Others ............................................................. 47
DESCRIPTION OF NECB'S CAPITAL STOCK ................................................................... 47
NECB Common Stock ................................................................................. 47
Preferred Stock ................................................................................... 48
Absence of Cumulative Voting ...................................................................... 48
Market for NECB Common Stock and Related Security Holder Matters .................................. 49
Market for the Olde Port Common Stock ............................................................. 49
COMPARISON OF THE RIGHTS OF SHAREHOLDERS .............................................................. 49
Authorized Capital Stock .......................................................................... 50
Issuance of Capital Stock ......................................................................... 50
Voting Rights ..................................................................................... 50
Dividends and Other Distributions ................................................................. 50
Size of Board of Directors ........................................................................ 51
Director Vacancies and Removal of Directors ....................................................... 51
Annual Meetings of Shareholders ................................................................... 51
Shareholder Action Without a Meeting .............................................................. 51
Amendment of Governing Instruments ................................................................ 52
Merger, Consolidation and Sale of Assets .......................................................... 52
Appraisal Rights .................................................................................. 52
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dissolution ....................................................................................... 52
Limitation of Director Liability .................................................................. 53
Indemnification of Directors and Officers ......................................................... 53
Delaware Antitakeover Statute ..................................................................... 53
LEGAL MATTERS ......................................................................................... 54
EXPERTS ............................................................................................... 54
OTHER MATTERS ......................................................................................... 54
INDEX TO FINANCIAL STATEMENTS ......................................................................... 55
Plan and Agreement of Merger .................................................................. Appendix A
Bank Merger Agreement ......................................................................... Appendix B
Stock Option Agreement ........................................................................ Appendix C
Fairness Opinion of HAS Associates, Inc. ...................................................... Appendix D
Dissenters' Rights ............................................................................ Appendix E
</TABLE>
iii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in the Proxy Statement-Prospectus and in the documents incorporated
herein by reference. Reference is made to, and this summary is qualified in all
respects by, the more detailed information appearing elsewhere in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated by
reference herein.
PARTIES TO THE MERGER
NECB. NECB, formerly known as Olde Windsor Bancorp, Inc., is a
multi-bank bank holding company registered under the Bank Holding Company Act of
1956, as amended. NECB was organized under the laws of Delaware in 1984 and
directly owns three banking subsidiaries, New England Bank & Trust Company
("NEBT"), The Equity Bank ("EQBK") and Community Bank ("CMBK") (together the
"Subsidiaries"), all Connecticut-chartered commercial banks. The deposits of the
Subsidiaries are insured by the Federal Deposit Insurance Corporation ("FDIC")
in accordance with the Federal Deposit Insurance Act.
Through the Subsidiaries, 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 East Windsor,
Ellington, Enfield, Manchester (2), Somers, Suffield, West Hartford and Windsor
(2). EQBK's office is located in Wethersfield, Connecticut and serves the
surrounding communities. CMBK has offices in Bristol and Plymouth, Connecticut.
NECB has built its community banking network through both internal
growth and acquisitions. In 1985, NECB was formed by the shareholders of Windsor
Bank and Trust Company ("Windsor Bank") a Connecticut-chartered bank and trust
company. NECB subsequently acquired all of the capital stock and became the sole
shareholder of Windsor Bank. In 1986, NECB acquired a second bank subsidiary,
NEBT. In 1988, the two subsidiaries were combined retaining the NEBT name. In
1995, NECB created a second banking subsidiary when it acquired all of the
outstanding common stock of EQBK, which was founded in 1987. In July, 1996 and
August, 1997, respectively, NECB acquired all of the outstanding common stock of
Manchester State Bank ("MSB") and First Bank of West Hartford ("FBWH"), both of
which were merged with and into NEBT. On December 31, 1997, NECB acquired CMBK.
The acquisitions of EQBK, MSB and CMBK were accounted for as purchases and, as
such, prior year comparative data included in this Proxy Statement-Prospectus
has not been revised to include information about any of these entities.
Conversely, the acquisition of FBWH was accounted for as a "pooling of
interests" and, therefore, all comparative prior periods have been restated as
if the acquisition of FBWH had been in effect for all periods presented.
In addition, on March 19, 1998, the Boards of Directors of NECB and
Bank of South Windsor ("BSW"), a Connecticut-chartered commercial bank located
in South Windsor, Connecticut, approved a definitive agreement (the "BSW
Agreement") whereby BSW will be acquired by NECB and merged with and into NEBT
with NEBT as the survivor. Under the BSW Agreement, BSW shareholders will
receive a fixed exchange rate of 1.3204 shares of NECB Common Stock for each
share of BSW Common Stock. Using NECB's closing price on March 18, 1998 of
$25.50 per share, the transaction would have a value of $33.67 per share to BSW
shareholders and an aggregate transaction value of approximately $32.8 million
and approximately 1,365,000 shares of NECB Common Stock would be issued. In the
event that the Average Closing Price (as defined in the BSW Agreement) of NECB
Common Stock is less than $23.48, the exchange ratio will, subject to certain
conditions, be adjusted to result in receipt by BSW shareholders of NECB Common
Stock having a value of $31.00 per share of BSW Common Stock.
NECB's principal executive offices are located at 176 Broad Street,
P.O. Box 130, Windsor, Connecticut 06095; telephone: (860) 610-3600.
OLDE PORT. Olde Port is a state chartered trust company incorporated
under the laws of the State of New Hampshire on March 11, 1986. It commenced
operation as a New Hampshire state chartered trust company on October 30, 1986.
Olde Port conducts a general banking business providing both personal and
commercial banking services. Olde Port is an insured bank under the Federal
Deposit Insurance Act. Like most state-chartered banks in New Hampshire, Olde
Port is not a member of the Federal Reserve System.
Olde Port conducts business from its office located at 501 Islington
Street, Portsmouth, New Hampshire,
03801; telephone: (603) 436-8800.
<PAGE>
THE SPECIAL MEETING
A Special Meeting will be held at 4 p.m. on June 25, 1998 at the
offices of Olde Port, 501 Islington Street, Portsmouth, New Hampshire. The
purpose of the Special Meeting is to consider and vote upon (i) a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, and (ii) such other matters as may properly be brought before the
Special Meeting.
VOTE REQUIRED AND RECORD DATE
Only Olde Port shareholders of record at the close of business on April
30, 1998 (the "Olde Port Record Date") will be entitled to vote at the Special
Meeting. Each shareholder is entitled to one vote for each share of Olde Port
Common Stock held. The affirmative vote of the holders of two-thirds of the
shares outstanding on such date is required to approve the Merger Agreement. As
of the Olde Port Record Date, there were 67,465 shares of Olde Port Common Stock
outstanding and entitled to be voted.
The directors and executive officers of Olde Port beneficially owned,
as of April 30, 1998, 20,722 shares (including 1,900 shares subject to
outstanding options) or 30.72% of the outstanding Olde Port Common Stock. All of
the executive officers and all of the directors of Olde Port who are
shareholders have agreed to vote for the Merger and have executed Shareholder
Agreements indicating that they intend to vote in favor of the Merger. See "THE
MERGER AGREEMENT-Shareholders' Agreements."
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS; OPINION OF
FINANCIAL ADVISOR
The Board of Directors of Olde Port (the "Olde Port Board") has
determined that the Merger is fair to and in the best interest of Olde Port and
its shareholders and has unanimously approved the Merger Agreement. THE OLDE
PORT BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT HOLDERS OF OLDE PORT COMMON
STOCK VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT. The Olde Port Board
believes that the Merger will provide an opportunity for Olde Port shareholders
to receive consideration well in excess of the book value of their shares. In
reaching its decision to approve the Merger, the Olde Port Board consulted with
its legal and financial advisors regarding the terms of the proposed
transaction. In reaching its decision, the Olde Port Board was advised by HAS
Associates, Inc. ("HAS Associates"), Olde Port's financial advisor, to the
effect that as of the date of its opinion and based upon and subject to the
matters stated therein, the consideration to be paid by NECB to Olde Port
shareholders in the Merger is fair, from a financial point of view, to the
holders of Olde Port Common Stock. HAS Associates' opinion, which was originally
issued in connection with Olde Port's execution of the Agreements and was
updated as of the date of this Proxy Statement-Prospectus, describes the
procedures followed, assumptions made, matters considered and limitations on
their review undertaken in connection with HAS Associates' rendering such
opinion. A copy of HAS Associates' opinion is attached to this Proxy
Statement-Prospectus as APPENDIX C. Olde Port shareholders are urged to read HAS
Associates' opinion and the discussion of the opinion set forth under "THE
MERGER-Opinion of Olde Port's Financial Advisor" in its entirety. See "THE
MERGER-Recommendation of Board of Olde Port and Olde Port Reasons for the
Merger."
NECB REASONS FOR THE MERGER
The Board of Directors of NECB (the "NECB Board") believes that the
Merger will further the objective of expanding NECB's business and earning
potential through acquisitions. The NECB board also believes that the Merger
will provide an opportunity for NECB to expand its market area through
geographic diversification into a market where NECB perceives attractive
opportunities.
EFFECTIVE TIME
The Merger shall become effective upon the filing with the Secretary of
State of the State of New Hampshire of the approval of the Merger by the Bank
Commissioner of the State of New Hampshire (the "Bank Commissioner") together
with a copy of the Merger Agreement. The date and time when the Merger shall
become effective is referred to herein as the "Effective Time". If the Effective
Time does not occur by December 31, 1998, either Olde Port or NECB may abandon
the Merger and terminate the Merger Agreement. See "THE MERGER
AGREEMENT-Conditions to Consummation of the Merger" and "-Regulatory Approvals
Required for the Merger."
<PAGE>
3
If the Merger is approved by the shareholders of Olde Port, and NECB
and Olde Port receive the required state and federal regulatory approvals,
subject to certain conditions described herein, the Effective Time is expected
to occur at the end of the second quarter or during the third quarter of 1998.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; SHAREHOLDERS' AGREEMENTS
Directors and executive officers of Olde Port have personal interests
which will be affected by the Merger, including the following: Directors and
executive officers collectively owned, as of April 30, 1998, 20,722 shares of
Olde Port Common Stock to be exchanged for NECB Common Stock in the Merger
(assuming a $200.00 Olde Port equivalent share price, these shares would have a
market value of approximately $4,144,000): included in these shares are stock
options held by Olde Port executive officers for a total of 1,900 shares at
exercise prices of $50.00 to $120.00 per share.
Under the terms of the Merger Agreement, at the Effective Time, NECB
will provide for the election of James A. Cotter, Jr., currently Chairman of the
Board of Olde Port, to the Board of Directors of NECB. With the exception of Mr.
Cotter, the existing members of the Board of Directors of Olde Port will serve
as directors of the Resulting Bank.
Concurrently with the execution of the Merger Agreement, the directors
and executive officers of Olde Port executed shareholders' agreements (the
"Shareholders' Agreements") which contain provisions agreed to by NECB, Olde
Port and each director and executive officer of Olde Port to vote in favor of
the Merger. See "THE MERGER AGREEMENT-Shareholders' Agreements."
THE STOCK OPTION AGREEMENT
In order to preserve the integrity of the Merger Agreement, NECB and
Olde Port also have entered into a Stock Option Agreement granting NECB the
right to purchase up to 13,425 shares of Olde Port Common Stock at $120.00 per
share (the "Option"). Among other provisions, the Stock Option Agreement
provides that NECB will not exercise the Option without the written consent of
Olde Port except: (a) subsequent to the fifth day preceding the scheduled
expiration date of a tender or exchange offer by any person or group of persons
to acquire securities of Olde Port or (b) upon the acquisition by any one person
or group of persons of, or of the right to acquire, 25% or more of any class or
series of voting securities of Olde Port, if in the case of (a) or (b), (1)
after giving effect to such offer or acquisition such person or group would own
or have the right to acquire 25% or more of any class or series of voting
securities of Olde Port, (2) documents have been filed with the FDIC in
connection therewith (or, if no such filing is required, similar evidence that
the offer is actually commencing) and (3) such person or group has received all
required regulatory approvals to own or control 25% or more of the class or
series of securities to which the offer relates, or (c) upon a willful breach of
the Merger Agreement by Olde Port which would permit NECB to terminate the
Merger Agreement, provided that within 12 months from the date of such breach
either an event described in clauses (a) or (b) above has occurred or any
agreement has been entered into between Olde Port and any third party, including
an agreement in principle, contemplating (a) any acquisition by such third party
of 25% or more of any class or series of voting securities of Olde Port or (b) a
merger or other business combination involving Olde Port or a subsidiary of Olde
Port or the acquisition of a substantial interest in, or a substantial portion
of the assets, business or operations of, Olde Port or any of its subsidiaries,
other than as contemplated by the Merger Agreement.
The Option, to the extent not previously exercised, terminates upon the
earliest of (a) seven months after an event described in the preceding
paragraph, (b) the Effective Time, or (c) the termination of the Merger
Agreement in accordance with its terms (other than if terminated by NECB by
reason of a breach or violation by Olde Port) prior to the occurrence of an
event described above. See "THE MERGER AGREEMENT-The Stock Option Agreement."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including
receipt of the shareholder approval solicited hereby, receipt of the necessary
regulatory approvals, and satisfaction of other customary closing conditions.
<PAGE>
4
The regulatory approvals and consents necessary to consummate the
Merger include the approval of the FDIC, the Board of Governors of the Federal
Reserve System (the "FRB") and the Bank Commissioner. See "THE MERGER
AGREEMENT-Regulatory Approvals Required for the Merger."
FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES
NO SOLICITATION OF TRANSACTIONS. Olde Port has agreed in the Merger
Agreement that Olde Port 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 merger, 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 Olde Port and such other persons as may be
required by law), and Olde Port 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 Olde Port, to
acquire 10% or more of the outstanding stock of Olde Port, to enter into an
agreement to merge with Olde Port, 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 Merger is not consummated in accordance with the
terms set forth in the Merger Agreement because of any such action or omission
by Olde Port, Olde Port shall on demand pay to NECB the sum of $1,000,000 as
liquidated damages. The above restrictions do not preclude the directors from
taking actions which they determine , in the exercise of their fiduciary duties,
are in the best interests of the shareholders of Olde Port; however, if they
take any Unauthorized Action, Olde Port will be responsible for the
aforementioned liquidated damages.
BREACHES OF REPRESENTATIONS AND WARRANTIES. If either Olde Port or NECB
fails to perform any material covenant or agreement in the Merger Agreement, or
if any representation or warranty by Olde Port or NECB is determined to be
materially untrue (the party which fails to perform or which makes the untrue
representation or warranty being 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 $1,000,000 as
liquidated damages.
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that the Merger will be treated as a "pooling of
interests" for accounting and financial reporting requirements. The unaudited
pro forma condensed consolidated financial information contained in this Proxy
Statement-Prospectus has been prepared using the pooling method of accounting to
account for the Merger. See the Unaudited Pro Forma Combined Financial
Information listed in "INDEX TO FINANCIAL STATEMENTS."
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Consummation of the Merger is conditioned upon receipt of
an opinion of tax counsel stating that gain or loss if any will be recognized by
the shareholders of Olde Port who exchange their Olde Port Common Stock for NECB
Common Stock pursuant to the Merger only to the extent of any cash received in
lieu of a fractional share of NECB Common Stock. See "THE MERGER
AGREEMENT-Federal Income Tax Consequences."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Time, shareholders of Olde Port, except shareholders
who perfect dissenters' rights in accordance with New Hampshire law,
automatically will become shareholders of NECB, and their rights as shareholders
of NECB will be determined by the Delaware General Corporation Law and by NECB's
Amended and Restated Certificate of Incorporation and Bylaws. The rights of the
present stockholders of NECB differ from rights
<PAGE>
5
of the present shareholders of Olde Port with respect to certain matters. For a
summary of these differences, see "COMPARISON OF THE RIGHTS OF SHAREHOLDERS."
DISSENTERS' RIGHTS
Dissenters' rights are available to shareholders of Olde Port who
object to the Merger. Pursuant to NHRSA Section 388:13, which Section
incorporates Sections 293-A:13.01 ET. SEQ. of the NHBCA, holders of Olde Port
Common Stock who (i) file with NECB prior to the vote on the Merger at the
Special Meeting a written notice of intention to demand payment for their shares
if the Merger is effected and (ii) do not vote in favor of the Merger will be
entitled to be paid the fair value of their shares as agreed upon with NECB or
its successor, or if the fair value remains unsettled, as determined by a New
Hampshire court, provided that the Merger is consummated and such shareholders
properly comply with certain statutory procedures. Fair value of dissenting
stock means the value immediately before the Effective Time, excluding any
change in value in anticipation of the Merger if such exclusion is not
inequitable (which amount may be more, less or the same as the Per Share Merger
Consideration). The written notice required to be delivered to NECB by a
dissenting shareholder is in addition to and separate from any proxy or vote
against the Merger. The further procedures which must be followed in connection
with the exercise of dissenters' rights by dissenting shareholders are described
under "THE MERGER AGREEMENT - Dissenters' Rights," and in NHRSA Section 388:13
and Sections 293-A 13:01 ET SEQ. of the NHBCA, copies of which are attached as
APPENDIX E to this Proxy Statement-Prospectus. Failure to take any step in
connection with the exercise of such rights may result in termination or waiver
thereof.
MARKETS AND MARKET PRICES
NECB Common Stock is quoted on the Nasdaq NM. As of December 31, 1997,
NECB had approximately 4,000 shareholders of record. Olde Port Common Stock is
not traded on any national or regional exchange and there is no established
public trading market for shares of Olde Port Common Stock. Olde Port Common
Stock is quoted by brokers who facilitate trades of the Olde Port Common Stock
from time to time, which occur infrequently. As of December 31, 1997, Olde Port
had 209 shareholders of record.
OLDE PORT
COMMON
NECB STOCK
COMMON PRO FORMA
STOCK EQUIVALENT(a)
------ ----------
Market Value Per Share at:
February 9, 1998 ........................ $24.75 $200.00
April 30, 1998 ......................... $24.75 $200.00
(a) Pro forma equivalent value per share of Olde Port Common Stock
represents the closing price of NECB Common Stock, as reported
in THE WALL STREET JOURNAL, on the last trading day preceding
the public announcement of the Merger and on April 30, 1998,
multiplied by 8.08, the Exchange Ratio computed as of those
respective dates.
Olde Port shareholders are advised to obtain current market quotations
for NECB Common Stock. No assurance can be given concerning the market price of
NECB Common Stock before or after the Effective Time (as defined above) of the
Merger. The market price for NECB Common Stock will fluctuate between the date
of this Proxy Statement-Prospectus and the Effective Time of the Merger. The
Exchange Ratio will be affected by changes in the market value of NECB Common
Stock. The Exchange Ratio may be increased by NECB if the Average Closing Price
(as defined herein) of NECB Common Stock is greater than $30.00 per share in
certain circumstances and the Olde Port Board gives written notice of its
intention to exercise its right of termination. The Exchange Ratio may be
decreased in certain circumstances if the Average Closing Price of NECB Common
Stock is less than
<PAGE>
6
$20.00 per share and the NECB Board gives written notice of its intention to
exercise its right of termination. See "THE MERGER AGREEMENT - Amendment and
Termination."
CAPITAL RATIOS
The regulatory capital ratios at December 31, 1997 of NECB (current and
pro forma) and Olde Port are summarized below:
<TABLE>
<CAPTION>
Minimum
Regulatory Historical Historical NECB
CAPITAL LEVEL NECB OLDE PORT PRO FORMA
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Tier 1 leverage capital ratio........................ 4.0% 9.1% 10.0% 9.1%
Tier 1 risk-based capital ratio...................... 4.0% 11.8% 13.9% 11.7%
Total risk-based capital ratio...................... 8.0% 12.6% 15.3% 13.0%
</TABLE>
For a detailed discussion of the capital of NECB and Olde Port,
respectively, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF NECB -Capital" in NECB's Annual Report on Form 10-K
for the year ended December 31, 1997, which is incorporated by reference into
this Proxy Statement-Prospectus, and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF OLDE PORT - Capital" which is
included herein.
<PAGE>
7
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share, pro forma
combined per share and equivalent pro forma per share information with respect
to NECB Common Stock and Olde Port Common Stock for the years ended December 31,
1997, 1996 and 1995. The pro forma combined per share information for the NECB
Common Stock reflects the pro forma effects of the Merger. The information set
forth below should be read in conjunction with the historical financial
information of NECB and Olde Port incorporated by reference and appearing
elsewhere in this Proxy Statement-Prospectus and in conjunction with the
Unaudited Pro Forma Combined Financial Information contained elsewhere in this
Proxy Statement-Prospectus.
At or for the Fiscal Period Ended:
1997 1996 1995
---- ---- ----
Net Income per Diluted Common Share:
NECB--Historical $ 0.90 $ 1.19 $ 1.18
Olde Port--Historical 9.55 8.61 9.29
Pro Forma Combined (a) (b) 0.92 1.17 1.17
Olde Port Equivalent Pro Forma (c) 7.43 9.45 9.45
Cash Dividends per Common Share:
NECB--Historical $ 0.33 $ 0.26 $ 0.19
Olde Port--Historical 0.30 0.25 0.20
Pro Forma Combined (a) (b) 0.33 0.26 0.19
Olde Port Equivalent Pro Forma (c) 2.67 2.10 1.54
Book Value per Common Share:
NECB--Historical $ 10.43 $ 10.65 $ 9.67
Olde Port--Historical 70.05 59.53 51.21
Pro Forma Combined (a) (b) 10.16 10.21 9.15
Olde Port Equivalent Pro Forma (c) 82.09 82.50 73.93
(a) The unaudited pro forma comparative per share data combines the
financial information of NECB (as restated to include FBWH) with the
financial information of Olde Port.
(b) The pro forma combined amounts shown reflect the proposed acquisition
of Olde Port using the "pooling of interests" method for each period
shown as if the Merger had occurred at the beginning of such period.
(c) Olde Port equivalent pro forma per share amounts are calculated by
multiplying the pro forma combined amounts by the Exchange Ratio as
computed as of February 9, 1998. The actual Exchange Ratio will depend
on the Average Closing Price of NECB Common Stock and may differ from
the number used in these calculation. See "THE MERGER
AGREEMENT--General."
<PAGE>
8
SELECTED CONSOLIDATED FINANCIAL DATA OF NECB
The following table sets forth selected consolidated financial data of
NECB at the dates and for the periods indicated. The data at December 31, 1997,
1996 and 1995, and for the years then ended have been derived from the audited
Consolidated Financial Statements and related Notes of NECB included in NECB's
Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated
by reference herein. The selected consolidated financial data set forth below
should be read in conjunction with, and are qualified in their entirety by, the
more detailed information, including the Consolidated Financial Statements and
related Notes, included in NECB's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated by reference herein.
<TABLE>
<CAPTION>
(Amounts in Thousands; except per share data)
Years Ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net interest income $ 25,452 $ 22,544 $ 14,395 $ 12,153 $ 11,651
Provision for loan losses 1,248 2,209 1,200 1,436 2,614
Noninterest income 4,079 3,416 2,343 2,356 3,062
Noninterest expense 20,531 15,964 11,872 11,095 12,619
Income tax expense (benefit) 3,117 2,299 (24) 468 72
Cumulative effect of change in
accounting principle, benefit 228
Net income (loss) 4,635 5,488 3,690 1,510 (364)
PER SHARE DATA:
Net income (loss) per share--basic $ 0.910 $ 1.190 $ 1.190 $ 0.740 $ (0.180)
Net income (loss) per share--diluted 0.900 1.190 1.180 0.740 (0.180)
Dividends declared 0.326 0.255 0.186 0.045 0.000
BALANCE SHEET DATA (AS OF END OF YEAR):
Loans, net $ 399,278 $ 329,544 $ 257,887 $ 175,458 $ 170,183
Allowance 9,257 6,660 5,875 4,137 4,413
Goodwill 5,238 4,464 402 0 0
Assets 606,170 516,754 418,868 290,474 281,601
Deposits 522,644 457,004 377,403 266,638 262,779
Shareholders' equity 53,823 49,220 37,148 21,826 16,460
Nonperforming assets 11,945 8,757 8,315 8,551 9,780
OPERATING RATIOS:
Return on average assets 0.91% 1.21% 1.26% 0.56% (0.13)%
Return on average equity 9.01 13.00 14.64 8.85 (2.20)
Net interest margin 5.43 5.40 5.39 4.92 4.57
Total equity to total assets 8.88 9.52 8.87 7.51 5.85
Tangible equity to total assets 8.02 8.66 8.77 7.51 5.85
</TABLE>
<PAGE>
9
SELECTED FINANCIAL DATA OF OLDE PORT
The following table sets forth financial data of Olde Port at the dates
and for the periods indicated. The data for December 31, 1997, 1996, and 1995
and for the years then ended have been derived from the Financial Statements and
related Notes of Olde Port included elsewhere herein. The selected financial
data set forth below should be read in conjunction with, and are qualified in
their entirety by, the more detailed Financial Statements and related Notes of
Olde Port included elsewhere herein.
<TABLE>
<CAPTION>
(Amounts in Thousands; except per share data)
Years Ended December 31, 1997 1996 1995 1994 1993
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net interest income $ 2,073 $ 1,882 $ 1,700 $ 1,338 $ 1,267
Provision (benefit) for loan losses 20 18 (15) 105 210
Noninterest income 266 272 270 220 272
Noninterest expense 1,369 1,246 1,304 1,048 1,127
Income tax expense (benefit) 307 319 67 (43) (212)
Net income 643 571 614 448 414
PER SHARE DATA:
Net income per share basic $ 9.60 $ 8.63 $ 9.29 $ 6.77 $
6.26
Net income per share diluted 9.55 8.61 9.29 6.77 6.26
Dividends declared 0.30 0.25 0.20 0.00 0.00
BALANCE SHEET DATA (AS OF END OF YEAR):
Loans, net $ 29,032 $ 23,602 $ 21,716 $ 18,857 $ 19,236
Allowance for loan losses 668 722 667 749 602
Assets 46,659 39,661 35,954 30,943 29,459
Deposits 39,399 35,256 32,268 27,238 27,055
Shareholders' equity 4,726 3,983 3,386 2,575 2,316
Nonperforming assets 240 269 148 207 911
OPERATING RATIOS:
Return on average assets 1.47% 1.52% 1.83% 1.51% 1.46%
Return on average equity 14.87 15.59 20.32 19.25 19.86
Net interest margin 5.20 5.43 5.43 4.93 5.08
Dividend payout ratio 3.12 2.90 2.16 N/A N/A
Average equity to average assets 9.86 9.78 9.02 7.85 7.36
</TABLE>
<PAGE>
10
THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus is being furnished to the holders of
Olde Port Common Stock, in connection with the solicitation of proxies by the
Olde Port Board for use at the Special Meeting of Olde Port shareholders to be
held on June 25, 1998, at 4 p.m., at the principal offices of Olde Port, 501
Islington Street, Portsmouth, New Hampshire and at any adjournments or
postponements thereof to consider and vote upon the following proposals: (i) the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby and (ii) such other business as may properly come before the Special
Meeting or any adjournment thereof.
The cost of soliciting proxies from holders of Olde Port Common Stock
will be borne by Olde Port and is not expected to exceed $1,000. Such
solicitation will be made by mail but also may be made by telephone or in person
by the directors, officers, and employees of Olde Port (who will receive no
additional compensation for such efforts). In addition, Olde Port will make
arrangements with brokerage firms and other custodians, nominees and fiduciaries
to send proxy materials to their principals.
RECORD DATE; VOTE REQUIRED
The Olde Port Board has fixed April 30, 1998 as the record date (the
"Record Date") for determining shareholders entitled to notice of and to vote at
the Special Meeting. Only holders of record of shares of Olde Port Common Stock
on the Olde Port Record Date will be entitled to notice of and to vote at the
Special Meeting. The affirmative vote of two-thirds of the holders of the shares
of Olde Port Common Stock outstanding on such date is required in order to
approve the Merger Agreement. A failure to return a properly executed proxy card
or to vote in person at the Special Meeting will have the same effect as a vote
against the Merger Agreement. As of April 30, 1998, there were 67,465 shares of
Olde Port Common Stock outstanding and entitled to vote at the Special Meeting,
with each share being entitled to one vote. Abstentions and broker non-votes are
not treated as having voted in favor of any proposal. Consequently, a failure to
vote either by not returning the enclosed proxy card or by checking the
"Abstain" box thereon will have the same effect as a vote against the proposal
to approve the Merger.
The directors of Olde Port unanimously approved the Merger Agreement
and all of the executive officers and directors of Olde Port who are
shareholders, representing 20,722 shares (including 1,900 shares subject to
outstanding options) or 30.72% of the outstanding common stock of Olde Port as
of April 30, 1998, have agreed to vote FOR the Merger.
REVOCATION OF PROXIES
Any holder of Olde Port Common Stock executing a proxy may revoke it at
any time before it is voted by filing with the Secretary of Olde Port, at the
address of Olde Port set forth on the Notice of Special Meeting of Shareholders,
written notice of such revocation; by executing a later dated proxy; or by
attending the Special Meeting and giving notice of such revocation in person.
Attendance at the Special Meeting will not, in and of itself, constitute
revocation of a proxy. Each proxy returned to Olde Port (and not revoked) will
be voted according to the instructions indicted thereon. If no instructions are
indicated, the proxy will be voted "FOR" approval of the Merger Agreement. If
any other matters are properly presented at the Special Meeting for
consideration, the persons named in the Olde Port 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, Olde Port is unaware of any other matter to be presented
at the Special Meeting.
<PAGE>
11
THE MERGER
BACKGROUND OF THE MERGER
As part of a strategic planning process conducted during the summer of
1997, the Board of Directors of Olde Port evaluated the future opportunities for
Olde Port as a single-office small community bank.
The Board of Directors and management of Olde Port reviewed the future
business opportunities in light of the required investments in branch
facilities, technology-based service delivery systems, new professional staff,
staff training and future compliance with mandated regulatory requirements.
As an alternative strategy, the Olde Port Board of Directors requested
HAS Associates, Inc. ("HAS Associates") to provide information related to the
market value of small community banks in New England. HAS Associates provided
information related to recent bank mergers and developed a range of values that
Olde Port might expect in a sale of Olde Port.
The Board of Directors of Olde Port discussed internally the merits of
continuing to operate as an independent bank versus the benefits of a sale of
Olde Port. It was concluded that the benefits of a sale or merger of Olde Port
were worth investigating further.
Olde Port entered into a contract with HAS Associates on November 7,
1997, the purpose of which was to identify potential merger partners, determine
the level of interest from identified merger partners, assist in negotiating the
terms and conditions of a merger and render a fairness opinion if a merger
agreement was executed.
HAS Associates, working with Olde Port's Merger and Acquisition
Committee, identified seven New England-based banking companies as potential
merger partners. HAS Associates contacted these companies, and each expressed
interest and signed a confidentiality agreement and received a bid package.
Expressions of interest were received from five of the seven companies.
HAS Associates and Olde Port's Merger and Acquisition Committee continued
discussions with the interested companies which resulted in two companies
performing due diligence activities at Olde Port.
In February 1998, with the authorization of the Board of Directors,
Olde Port negotiated with NECB concerning a transaction whereby NECB would
acquire Olde Port. Following negotiations, on February 10, 1998, the Board of
Directors of Olde Port met with Olde Port's financial and legal advisors to
review a proposed Plan and Agreement of Merger. At the conclusion of this
meeting, the Olde Port Board of Directors voted unanimously to approve the
transaction.
RECOMMENDATION OF THE BOARD OF OLDE PORT AND OLDE PORT REASONS FOR THE MERGER
The Olde Port Board of Directors has unanimously approved the Merger
Agreement and has determined that the Merger is fair to, and in the best
interests of, Olde Port and its shareholders. The Olde Port Board therefore
unanimously recommends that holders of Olde Port Common Stock vote to approve
and adopt the Merger Agreement. The Olde Port Board believes that the Merger
will enable holders of Olde Port Common Stock to realize increased value due to
the premium price, net income per share of Olde Port Stock and book value per
share of Olde Port Common Stock. The Olde Port Board also believes that the
Merger may enable Olde Port shareholders to participate in opportunities for
appreciation of NECB Common Stock. In reaching its decisions to approve the
Merger Agreement, the Olde Port Board consulted with its legal counsel, Devine,
Millimet & Branch, Professional Association, regarding the legal terms of the
Merger and the Olde Port Board's fiduciary obligations in its consideration of
the proposed Merger, its financial advisor, HAS Associates, regarding the
financial aspects and fairness of the proposed Merger Agreement (see "Opinion of
Financial Advisor" below), as well as with management of Olde Port and, without
assigning any relative or specific weight, considered the following material
factors, both from a short-term and long-term perspective.
<PAGE>
12
(i) The Olde Port Board's familiarity with, and review of, Olde
Port's business, financial condition, results of operations
and prospects, including, but not limited to, its potential
growth, development, productivity and profitability and the
business risks associated therewith;
(ii) The current and prospective environment in which Olde Port
operates, including national and local economic conditions,
the highly competitive environment for financial institutions
generally, the increased regulatory burden on financial
institutions, and the trend toward consolidation in the
financial services industry;
(iii) The potential appreciation in market and book value of Olde
Port Common Stock, on both the short- and long-term basis, as
a stand alone entity;
(iv) Information concerning the business, financial condition,
results of operations, asset quality and prospects of NECB,
including the long-term growth potential of NECB Common Stock,
the future growth prospects of NECB, combined with Olde Port,
following the proposed Merger and the potential synergies
expected from the Merger and the business risks associated
therewith;
(v) The potential for appreciation and growth for the market and
book value of NECB Common Stock, following the proposed
Merger;
(vi) The oral presentation and opinion of HAS Associates that the
terms of the Merger Agreement are fair to the holders of Olde
Port Common Stock from a financial point of view (see "Opinion
of Financial Advisor" below);
(vii) The difficulty of Olde Port surviving as an independent
institution, providing value to shareholders, and serving as a
source of credit to its community given the increasingly
complex bank regulatory environment and the existing
competitive bank environment;
(viii) The long- and short-term interests of Olde Port and its
shareholders, the interests of Olde Port's employees,
customer, creditors and suppliers, and the interests of Olde
Port's community that may be served to advantage by an
appropriate affiliation with a larger institution with a
stronger capital base, increased economies of scale, and with
a greater capacity to serve all of the banking needs of the
community; and
(ix) The compatibility with respect to businesses and management
philosophies of Olde Port and NECB and NECB's strong
commitment to the communities it serves.
ON THE BASIS OF THESE CONSIDERATIONS, THE MERGER AGREEMENT WAS
APPROVED, AND THE OLDE PORT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF OLDE PORT'S FINANCIAL ADVISOR
HAS Associates has provided advisory services to Olde Port since July
31, 1997, including, among other services, advice and assistance relating to the
evaluation and execution of mergers and acquisitions. Olde Port selected HAS
Associates as its advisor on the basis of HAS Associates' in-depth knowledge of
the bank and thrift industry; the qualifications, experience and reputation of
its personnel in the banking and investment communities; as well as its
experience in the valuation of bank and thrift institutions and their securities
in connection with mergers and acquisitions and other corporate transactions.
As part of the advisory services described above, the Board of
Directors of Olde Port requested HAS Associates' opinion as to the fairness,
from a financial point of view, of the terms of the Merger Agreement to the
holders of Olde Port Common Stock. Pursuant to the terms of the Merger
Agreement, each share of Olde Port Common Stock will be converted into the right
to receive shares of NECB Common Stock with a value of $200.00,
<PAGE>
13
subject to adjustment in certain circumstances as described in the Merger
Agreement. On February 10, 1998, HAS Associates delivered its oral opinion to
the Board of Directors of Olde Port that, as of such date, the consideration to
be received by the holders of Olde Port Common Stock was fair from a financial
point of view.
THE FULL TEXT OF HAS ASSOCIATES' FAIRNESS OPINION IS ATTACHED AS
APPENDIX D TO THIS PROXY STATEMENT-PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE DESCRIPTION OF THE FAIRNESS OPINION SET FORTH HEREIN IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO APPENDIX D. HOLDERS OF OLDE PORT COMMON STOCK
ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS OF
THE REVIEW UNDERTAKEN BY HAS ASSOCIATES IN CONNECTION THEREWITH. HAS ASSOCIATES'
OPINION IS DIRECTED SOLELY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF
THE TERMS OF THE MERGER AGREEMENT AND DOES NOT CONSTITUTE ANY RECOMMENDATION TO
THE BOARD OF DIRECTORS OF OLDE PORT OR TO THE HOLDERS OF OLDE PORT COMMON STOCK
WITH RESPECT TO ANY VOTE AT THE SPECIAL MEETING.
In connection with providing its opinion, HAS Associates examined and
relied upon, among other things, the Merger Agreement, annual reports to
shareholders, proxy statements and related audited financial statements for Olde
Port and NECB for the three fiscal years ended December 31, 1994, 1995, and
1996; unaudited and audited financial statements for Olde Port and NECB for the
fiscal year ended December 31, 1997; certain other financial information for
Olde Port and NECB, including pro forma financial statements and managements'
estimates relating to, among other things, earnings, asset quality and capital.
HAS Associates conducted discussions with executive management of both Olde Port
and NECB concerning historical financial performance and condition, market area
economic conditions, and future business prospects and financial forecasts. HAS
Associates reviewed market prices and trading activity for the common stock of
Olde Port and NECB. HAS Associates also reviewed comparable financial, operating
and market data for the banking industry and selected peer groups; compared the
terms of the Merger Agreement with other bank merger and acquisition
transactions; and considered such additional financial and other information it
deemed relevant.
In preparing its opinion, HAS Associates relied upon the accuracy,
completeness and fair presentation of all information supplied or otherwise made
available to it by, or on behalf of, Olde Port and NECB. HAS Associates did not
independently verify such information or undertake an independent evaluation or
appraisal of the assets or liabilities of Olde Port or NECB, nor was HAS
Associates furnished any such evaluations or appraisals. With respect to
forecasts of expected future financial performance, HAS Associates was advised
that they reflected the best currently available estimates and judgments of the
executive managements of Olde Port and NECB. HAS Associates' opinion was
necessarily based upon the information available to it and the market, economic
and other conditions as they existed, and could be calculated, as of the date of
its opinion.
In connection with providing its fairness opinion to the Board of
Directors of Olde Port, HAS Associates performed a variety of financial
analyses. The following is a summary of the material terms of all material
analyses performed by HAS Associates, but does not purport to be a complete
description of HAS Associates' analyses or presentations to the Olde Port Board
of Directors. The preparation of a fairness opinion is a complex process
involving subjective judgments and does not lend itself to partial analyses or
summary description. HAS Associates 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 HAS
Associates' opinion.
In performing its analyses, HAS Associates made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which may be more or less favorable than actual
results. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. No company or transaction utilized in HAS Associates' analyses
was identical to Olde Port or NECB or to the terms of the Merger Agreement.
Because such estimates are inherently subject to uncertainty, HAS Associates
assumes no responsibility for their accuracy.
<PAGE>
14
STOCK TRADING HISTORY
HAS Associates examined the history of trading prices for NECB Common
Stock for the period March 21, 1997 through April 2, 1998. During that time
period, NECB Common Stock appreciated from $13.64 to a high of $26.50. NECB
Common Stock traded at the low end of the range in the early part of the time
period. Stock appreciation began in September 1997 and has steadily increased
since that date.
Olde Port's Common Stock is not listed on a national exchange and
trading activity rarely takes place. Due to the illiquidity of its stock, no
reliable price could be determined. The book value per share was $70.05 at
December 31, 1997, but this is not a true measure of trading activity.
CONTRIBUTION ANALYSIS
HAS Associates prepared a contribution analysis showing the percentage
contributed by Olde Port to the combined company on a pro forma basis of assets,
deposits, and equity at December 31, 1997. Net income contributions were
considered for the year ended December 31, 1997. HAS Associates compared these
percentages to the Olde Port shareholders' pro forma ownership of NECB. This
analysis showed the Olde Port shareholders would contribute 7.15% of pro forma
consolidated assets, 7.54% of pro forma consolidated deposits, 8.78% of pro
forma consolidated equity and 12.08% of pro forma estimated net income for the
year ended December 31, 1997. Olde Port shareholders would receive 9.88% of the
pro forma ownership of the combined company based on an Exchange Ratio of 8.08
computed as of February 6, 1998.
COMPARABLE COMPANY ANALYSIS
HAS Associates compared the financial condition and financial operating
performance of Olde Port with a peer group of 43 community banks in New England
with assets less than $100 million. Olde Port reported a return on average
assets of 1.47% and a return on average equity of 14.87% for the year ended
December 31, 1997, and an equity to assets ratio of 10.13% at December 31, 1997.
Based on trailing twelve-month operating results for December 31, 1997, the peer
group reported an average return on average assets of 1.11%; an average return
on average equity of 9.73% and an average equity to assets ratio of 13.3% at
December 31, 1997. Olde Port reported better performance than the peer group,
with a lower equity to assets ratio.
HAS Associates also compared the financial and trading performance of
NECB with a peer group of 28 community banks in New England. At February 6,
1998, NECB's Common Stock price closed at $24.75, or 27 times trailing
twelve-months' earnings and 237% of reported December 31, 1997 book value per
share, compared to the peer group average for these same measures of 18.9 times
and 241% respectively. NECB's trading performance was above its peers on an
earnings multiple basis but below its peers as a percent of book value.
DISCOUNTED CASH FLOW ANALYSIS
HAS Associates reviewed a discounted cash flow analysis to permit the
conceptual examination of the present discounted values of potential future
results employing selected assumptions and discount rates.
The use of the discounted cash flow analysis assumes various discount
rates, earnings assumptions, terminal values, dividend payout ratios and growth
assumptions. The use of different assumptions can produce different results and
the Board of Olde Port was advised of these factors and cautioned that various
assumptions can result in different outcomes. To avoid confusion of values, the
Board was presented with a discounted cash flow approach which was based on
normal growth assumptions.
These assumptions were made based on the past history of Olde Port and
its consistency in earnings, dividend payout and conservative operating
procedures and growth. A dividend payout ratio of 3.2% over a five-year period
was used and long term earnings growth of 13% annually was assumed. A terminal
multiple of 15 times earnings was used as a control sale price/earnings ratio at
the end of a five-year period. Given the five-year time horizon and a discount
rate of 15%, these cash flows resulted in an implied valuation of $156.21.
<PAGE>
15
ANALYSIS OF SELECTED MERGER TRANSACTIONS
The process of evaluating the transaction also took into account other
comparable merger transactions. Although no true comparable transaction can be
found due to the differences of financial history, longevity of the entity,
external factors and differences in operation, it can be helpful as a point of
reference and provide the directors with an informational approach to assessing
the transaction.
The Olde Port directors were made aware of current market conditions as
they relate to various ratios on a national and regional level. National deals
for 1998 were examined while 30 deals in New England from 1997 to 1998 were
considered as the regional group. Finally, an analysis of eight New England
transactions was presented where the value of the transaction was less than $20
million.
The HAS Associates analysis examined the financial situation of each
group of deals, and various ratios that resulted from the merger transactions.
These included price to earnings ("P/E"), price to book ("P/B") and price to
deposits ("P/D"). At the national level, the P/E ratio was at a level of 25.3x
earnings, regionally at 18.8x earnings and the small New England group of eight
transactions less than $20 million in value was 17.2x earnings. These compare
favorably to the 21.6x P/E ratio in the Olde Port transaction. Price to book
ratios were 293.9% on average for the national group, 203.8% for the regional
group and 172.5% for the smaller New England group. These compare favorably to
the Olde Port transaction ratio of 301.0%. Finally, the P/D ratio was calculated
as 34.0% nationally, 24.1% regionally, and 20.0% for the small New England
deals. These also compared favorably to the Olde Port transaction at 33.2%.
IMPACT ANALYSIS
HAS Associates analyzed the changes in the amount of fully diluted
earnings per share and book value represented by the issuance of 8.08 shares of
NECB Common Stock for each share of Olde Port fully converted Common Stock. The
analysis considered, among other things, the impact on fully diluted earnings
per share and book value per share of NECB. The analysis was based upon reported
December 31, 1997 balance sheet data for Olde Port and NECB and earnings for
twelve months ended December 31, 1997 for Olde Port and NECB. These analyses
indicated that the Merger would be approximately 2.2% accretive to NECB's pro
forma fully diluted earnings per share and approximately 2.6% dilutive to NECB's
pro forma book value.
GENERAL
Pursuant to HAS Associates' advisory agreement with Olde Port, HAS
Associates will receive an advisory fee for its services in connection with the
Merger of $100,000. Olde Port has made interim payments to HAS Associates
totaling $40,000 which will be credited against the advisory fee. Olde Port has
also agreed to reimburse HAS Associates for its reasonable out-of-pocket
expenses incurred in connection with its engagement and to indemnify HAS
Associates and its affiliates and their respective directors, officers,
employees, agents and controlling persons against certain expenses and
liabilities.
In the ordinary course of its business, HAS Associates, has provided
financial advisory and consulting services to NECB since 1992. In recent years,
these services have included acting as financial advisor in connection with
certain acquisitions by NECB. HAS Associates did not provide any such services
to NECB in connection with the Merger Agreement and the Merger.
NECB REASONS FOR THE MERGER
The NECB Board believes that the Merger will further the objective of
expanding NECB's business and earning potential through acquisitions. The NECB
board also believes that the Merger will provide an opportunity for NECB to
expand its market area through geographic diversification into a market where
NECB perceives attractive opportunities.
<PAGE>
16
THE MERGER AGREEMENT
The following information, insofar as it relates to matters contained
in the Merger Agreement, is qualified in its entirety by the Merger Agreement,
which is incorporated herein by reference and attached hereto as APPENDIX A.
Olde Port shareholders are urged to read carefully the Merger Agreement.
GENERAL
In accordance with the provisions of the Merger Agreement and
applicable federal and New Hampshire law, at the Effective Time, NECB Interim
Bank will merge with and into Olde Port with Olde Port as the survivor under the
name "Olde Port Bank & Trust Company." Also at the Effective Time, all of the
outstanding shares of Olde Port Common Stock (except for shares held by Olde
Port as treasury shares, shares owned by any direct or indirect subsidiary of
Olde Port, shares held by NECB or its Subsidiaries other than in a fiduciary or
trust capacity for the benefit of third parties and shares as to which
dissenters' rights have been perfected) will be converted into and exchangeable
for Merger consideration ("Per Share Merger Consideration") consisting of that
number of shares of NECB Common Stock, and cash in lieu of fractional shares,
equal to $200.00 in value. The final exchange ratio (the "Exchange Ratio") will
be determined (subject to adjustment to reflect any subsequent stock dividend,
stock split or other change in the shares of the Company Common Stock prior to
the Effective Time) by dividing $200.00 by the average closing price of Company
Common Stock supplied by the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") and reported in THE WALL STREET JOURNAL
as of the end of the ten (10) consecutive trading-day period ending on the date
on which the last of the regulatory approvals required for the consummation of
the Merger occurs (the "Average Closing Price"), subject to adjustment as
provided in the Merger Agreement. Each certificate previously representing a
share of Olde Port Common Stock will represent the right to receive the Per
Share Merger Consideration into which the share of Olde Port Common Stock
represented by the certificate has been converted plus cash in lieu of any
fractional share.
Olde Port may terminate the Merger Agreement if the Olde Port Board so
determines if the Average Closing Price of the NECB Common Stock is greater than
$30.00 per share. If Olde Port elects to terminate the Merger Agreement, it is
required to give prompt written notice to NECB. During the seven-day period
following receipt of the notice, NECB may increase the consideration to be
received by holders of Olde Port Common Stock by reducing the Average Closing
Price for purposes of the Exchange Ratio to equal $30.00. If NECB elects to
increase the Exchange Ratio, the Merger Agreement will not terminate. Also, NECB
may terminate the Merger Agreement if the NECB Board so determines if the
Average Closing Price of the NECB Common Stock is less than $20.00 per share. If
NECB elects to terminate the Merger Agreement, it is required to give prompt
written notice to Olde Port. During the seven-day period following receipt of
the notice, Olde Port may reduce the consideration to be received by holders of
Olde Port Common Stock by increasing the Average Closing Price for purposes of
the Exchange Ratio to equal $20.00. If Olde Port elects to reduce the Exchange
Ratio, the Merger Agreement will not terminate. For a description of the Merger
Agreement, which is included in its entirety as Appendix A to this Proxy
Statement-Prospectus, see "THE MERGER." It is expected that approximately 13.5%
of the then outstanding shares of NECB Common Stock will be issued in the
Merger. (See also "Amendment and Termination")
Vested stock options under Olde Port's stock option plans will be
converted at the Effective Time into a number of shares of NECB Common Stock
equal to the aggregate option value for all of the optionee's stock options
divided by the Average Closing Price, as defined above. The option value for an
option is determined by subtracting the stated exercise price of the option from
$200.00.
At and after the Effective Time, Olde Port will be a wholly-owned
subsidiary of NECB.
EFFECTIVE TIME
The Merger will become effective upon the filing with the Secretary of
State of the State of New Hampshire of the approval of the Merger by the Bank
Commissioner of the State of New Hampshire together with a copy of the Merger
Agreement. The closing (the "Closing") of the Merger will take place on the
third business day
<PAGE>
17
after the mutual conditions to the obligations of NECB and Olde Port are
satisfied or on such other day as the parties may agree.
EFFECT OF THE MERGER
On and after the Effective Time, the shares of Olde Port Common Stock
shall cease to exist. Holders of certificates for shares of Olde Port Common
Stock shall cease to have any rights as shareholders of Olde Port, and the
holders of such shares shall thereafter have the right to receive the Per Share
Merger Consideration into which each share of Olde Port Common Stock represented
by such Certificate has been converted, subject to any rights of dissenting
shareholders. Until certificates for Olde Port 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 equal to the Per Share
Merger Consideration. The price to be paid for any fractional share shall be
determined by multiplying (i) the Average Closing Price (as defined below) of
the NECB Common Stock as quoted on the Nasdaq NM by (ii) the fraction of a share
of NECB Common Stock which the holder would otherwise be entitled to receive
pursuant to the Merger Agreement. The Average Closing Price of NECB Common Stock
means the average closing price of NECB Common Stock as quoted on Nasdaq NM and
reported in THE WALL STREET JOURNAL as of the end of the (10) consecutive
trading-day period ending on the date on which the last of the regulatory
approvals required for the consummation of the Merger occurs.
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.
Shares of Olde Port Common Stock with respect to which dissenters'
rights are perfected in accordance with New Hampshire law will not be converted
into the right to receive the Per Share Merger Consideration. In addition, all
shares of Olde Port Common Stock that are owned by Olde Port as Treasury Shares,
all shares of Olde Port Common Stock that are owned by any direct or indirect
subsidiary of Olde Port and all shares of Olde Port Common Stock held by NECB or
any subsidiary of NECB other than in a fiduciary or trust capacity for the
benefit of third parties will be canceled and cease to exist, and no stock of
NECB or other consideration will be delivered in exchange therefor.
SHAREHOLDERS' AGREEMENTS
Concurrently with the execution of the Merger Agreement, the directors
and executive officers of Olde Port who are shareholders executed shareholders'
agreements (the "Shareholders' Agreements") which contain provisions to support
the Merger. More specifically, such directors and executive officers have agreed
to vote their Olde Port Common Stock "FOR" approval of the merger and have
agreed to vote against approval of any other agreement providing for any Merger,
consolidation, sale of assets or other business combination of Olde Port and any
other person, entity or bank. Such directors and executive officers of Olde Port
also have agreed that they will not, prior to the closing of the transaction,
transfer any of their Olde Port Common Stock except by will or operation of law
unless such transfer is agreed to in writing by NECB.
THE STOCK OPTION AGREEMENT
In order to preserve the integrity of the Merger Agreement, NECB and
Olde Port also have entered into a Stock Option Agreement granting NECB the
right to purchase up to 13,425 shares of Olde Port Common Stock at $120.00 per
share (the "Option"). Among other provisions, the Stock Option Agreement
provides that NECB will not exercise the Option without the written consent of
Olde Port except: (a) subsequent to the fifth day preceding the scheduled
expiration date of a tender or exchange offer by any person or group of persons
to acquire securities of Olde Port or (b) upon the acquisition by any one person
or group of persons of, or of the right to acquire, 25% or more of any class or
series of voting securities of Olde Port, if in the case of (a) or (b), (1)
after giving effect to such offer or acquisition such person or group would own
or have the right to acquire 25% or more of any class or series
<PAGE>
18
of voting securities of Olde Port, (2) documents have been filed with the FDIC
in connection therewith (or, if no such filing is required, similar evidence
that the offer is actually commencing) and (3) such person or group has received
all required regulatory approvals to own or control 25% or more of the class or
series of securities to which the offer relates, or (c) upon a willful breach of
the Merger Agreement by Olde Port which would permit NECB to terminate the
Merger Agreement, provided that within 12 months from the date of such breach
either an event described in clauses (a) or (b) above has occurred or any
agreement has been entered into between Olde Port and any third party, including
an agreement in principle, contemplating (a) any acquisition by such third party
of 25% or more of any class or series of voting securities of Olde Port or (b) a
merger or other business combination involving Olde Port or a subsidiary of Olde
Port or the acquisition of a substantial interest in, or a substantial portion
of the assets, business or operations of, Olde Port or any of its subsidiaries,
other than as contemplated by the Merger Agreement.
The Option, to the extent not previously exercised, terminates upon the
earliest of (a) seven months after an event described in the preceding
paragraph, (b) the Effective Time, or (c) the termination of the Merger
Agreement in accordance with its terms (other than if terminated by NECB by
reason of a breach or violation by the Bank) prior to the occurrence of an event
described above.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, each holder of record of Olde Port
Common Stock will be provided with transmittal materials, together with
instructions for the exchange of such holder's certificates representing shares
of Olde Port Common Stock for the number of shares of NECB Common Stock together
with a check in payment for any fractional share.
HOLDERS OF OLDE PORT 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 Olde Port 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 Merger Consideration to which such
persons are entitled.
After the Effective Time, there will be no transfers on Olde Port's
stock transfer books of shares of Olde Port Common Stock issued and outstanding
immediately prior to the Effective Time. If certificates representing shares of
Olde Port Common Stock are presented to NECB after the Effective Time they will
be canceled and exchanged for the number of shares of NECB Common Stock and cash
in lieu of fractional shares, if any, in respect thereof in accordance with the
foregoing procedures.
Dissenters' rights will be satisfied in accordance with the procedures
described under "Dissenters' Rights" which are set forth in Appendix E to this
Proxy Statement-Prospectus.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of NECB and Olde Port to effect the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Time, which conditions may not be waived: (i) the Merger 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 Olde Port Common Stock entitled to vote thereon; (ii) the Merger Agreement
and the transactions contemplated thereby shall have been approved by the
appropriate governmental authorities, including the FDIC, the Board of Governors
of the Federal Reserve System unless it waives jurisdiction, and the Bank
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 Olde Port or the
Resulting Bank or otherwise materially impair the value of Olde Port or the
Resulting Bank, and any statutory waiting periods
<PAGE>
19
shall have expired (See "Regulatory Approvals Required for the Merger"); (iii)
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 Merger, or any of the other transactions
contemplated by the Merger Agreement; (iv) the shares of NECB Common Stock
issuable to holders of Olde Port Common Stock pursuant to the Merger shall have
been authorized for inclusion for quotation on the Nasdaq NM, subject to
official notice of issuance; (v) the Registration Statement on Form S-4 of which
this Proxy Statement-Prospectus forms a part shall have become effective under
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.
In addition, NECB's obligations under the Merger Agreement are 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 NECB:
(a) Each of the obligations of Olde Port required to be
performed by it at or prior to the Effective Time pursuant to the terms of the
Merger Agreement shall have been duly performed and complied with in all
material respects and the representations and warranties of Olde Port contained
in the Merger Agreement shall be true and correct in all material respects as of
the date of the Merger Agreement and as of the Effective Time as though made at
and as of the Effective Time (except as otherwise contemplated by the Merger
Agreement), and NECB shall have received a certificate to that effect signed by
the President and by the Chief Financial Officer of Olde Port.
(b) All actions required to be taken by, or on the part of,
Olde Port to authorize the execution, delivery and performance of the Merger
Agreement by Olde Port and the consummation of the transactions contemplated by
the Merger Agreement shall have been duly and validly taken by the Olde Port
Board and the Olde Port shareholders, and NECB shall have received certified
copies of the resolutions evidencing such authorization.
(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 legal existence of Olde Port as a New Hampshire trust
company, and of the payment of franchise taxes, if any, in New Hampshire by Olde
Port.
(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 Olde Port,
NECB and NECB Interim Bank which are required with respect to and are necessary
in connection with (i) the consummation of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) the ownership by the Resulting Bank
of all of the properties and assets of Olde Port, and (iii) the conduct by the
Resulting Bank of the business of Olde Port as conducted by Olde Port at the
Effective Time.
(e) NECB shall have received an opinion, dated the date of
Closing, from counsel to Olde Port regarding certain legal matters.
(f) Olde Port shall have caused to be delivered to NECB a
letter from Olde Port's independent public accountants with respect to Olde
Port, and dated the date of the Closing, and addressed to NECB and Olde Port,
regarding certain accounting matters.
(g) Neither NECB, NECB Interim Bank nor Olde Port 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 NECB to exercise
full rights of ownership of the assets or business of Olde Port, 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.
(h) Except as otherwise provided for in the Merger
Agreement, any agreement to which Olde Port is a party which takes effect upon,
or which provides a penalty or payment conditioned upon or related to, a change
of control of Olde Port shall have been duly terminated with no cost or expense
to Olde Port or NECB.
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20
Olde Port's obligations under the Merger Agreement are 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 Olde Port:
(a) Each of the obligations of NECB and NECB Interim Bank
required to be performed by it at or prior to the Effective Time shall have been
duly and validly performed and complied with and the representations and
warranties of NECB contained in the Merger Agreement shall be true and correct
in all respects as of the date of the Merger Agreement and as of the Effective
Time as though made at and as of the Effective Time, and Olde Port shall have
received a certificate to that effect signed by the President and Chief
Financial Officer of NECB.
(b) All action required to be taken by, or on the part of,
(i) NECB to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken by the Board of Directors of NECB and (ii) NECB Interim
Bank to authorize the execution, delivery and performance of the Bank Merger
Agreement and the consummation of the transactions contemplated thereby shall
have been duly and validly taken by NECB Interim Bank; and Olde Port shall have
received certified copies of the resolutions evidencing such authorizations.
(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 Olde Port,
NECB and NECB Interim Bank which are required with respect to and are necessary
in connection with (i) the consummation of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) the ownership by the Resulting Bank
of all of the properties and assets of Olde Port, and (iii) the conduct by the
Resulting Bank of the business of Olde Port as conducted by Olde Port at the
Effective Time.
(d) Olde Port shall have received from HAS Associates, or
such other investment banker as may be selected by Olde Port, both prior to
execution of this Agreement and immediately prior to the mailing to its
shareholders of the Proxy Statement, an opinion in form and substance reasonably
satisfactory to Olde Port that the terms of the Merger are fair to Olde Port and
its shareholders from a financial point of view.
(e) Olde Port 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 the payment of franchise taxes, if
any, by NECB.
(f) Olde Port shall have received an opinion, dated the
date of Closing, from counsel to NECB, regarding certain legal matters in form
and substance reasonably satisfactory to Olde Port.
(g) Olde Port shall have received an opinion of counsel for
Olde Port or NECB substantially to the effect that for federal income tax
purposes no gain or loss will be recognized by shareholders of Olde Port with
respect to NECB Common Stock received solely in exchange for Olde Port Common
Stock pursuant to the Merger Agreement (noting, however, that non-taxability
does not extend to cash received in lieu of a fractional share interest in NECB
Common Stock, or by dissenters, if any).
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Merger will be obtained or
whether all of the other conditions precedent to the Merger will be satisfied or
waived by the party permitted to do so. See "Regulatory Approvals Required for
the Merger." If the Merger is not effected on or before December 31, 1998, the
Merger Agreement may be terminated by a vote of a majority of the Board of
Directors of either NECB or Olde Port, unless the failure to effect the Merger
by such date is due to the breach of the Merger Agreement by the party seeking
to terminate the Merger Agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
The Merger is subject to the prior approval of 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
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21
of the institutions and the convenience and needs of the communities to be
served. In addition, the BMA prohibits the FDIC from approving the Merger 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 Merger 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 BMA, the
Merger may not be consummated until the fifteenth day following the date of FDIC
approval of the Merger, during which time the United States Department of
Justice may challenge the Merger 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 otherwise.
In addition, the Merger is subject to the prior approval of the FRB
under the Bank Holding Company Act of 1956, as amended (the "Holding Company
Act"). The Holding Company Act requires prior approval by the FRB before a bank
holding company 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 acquires substantially all of the assets
of any bank.
The Holding Company Act further provides that the FRB shall not approve
any acquisition, merger 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, merger 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
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.
The Merger also is subject to the approval of the Bank Commissioner
pursuant to Section 388:8 of the New Hampshire Revised Statutes Annotated and an
application for such approval has been filed with the Bank Commissioner. The New
Hampshire Board of Trust Company Incorporation (the "NHBTCI") must approve the
formation of NECB Interim Bank and the issuance to NECB of a Certificate of
Affiliation under New Hampshire law before the Merger may be consummated. The
NHBTCI will consider the issuance of such a certificate after receipt of the
application meeting specified requirements in consideration of the
recommendation of the Bank Commissioner. The factors considered by the NHBTCI in
issuing a Certificate of Affiliation include the record of performance of the
applicant in serving the credit needs of the communities in which it has
operated in the past, including low and moderate income neighborhoods, and the
plan of the applicant for providing new services in New Hampshire and for
serving the credit needs of the communities in which the New Hampshire bank with
which it proposes to affiliate is located, consistent with safe and sound
banking practices. Following any such approval, the Bank Commissioner is
required to monitor the applicant to determine if it is complying with its
program to bring net new funds to New Hampshire and its plan to provide new
services and to serve the credit needs of the appropriate communities in New
Hampshire.
Although neither Olde Port nor NECB is aware of any basis for
disapproving the Merger, there can be no assurance that all requisite approvals
will be obtained, that such approvals will be received on a timely basis or that
such approvals will not impose conditions or requirements which, individually or
in the aggregate, would (i) result in a material adverse effect on the financial
condition, results of operations, business or prospects of the Resulting Bank or
(ii) reduce the economic or business benefits of the transactions contemplated
by the Agreement.
NECB and Olde Port are not aware of any other regulatory approvals that
are required for consummation of the Merger, 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, would be obtained.
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22
The Merger will not be consummated unless all of the requisite
regulatory approvals for the transactions contemplated by the Merger Agreement
are obtained. See "Conditions to Consummation of the Merger" above.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Olde Port has agreed that until the
Effective Time, Olde Port will conduct its business only in the ordinary course
and consistent with prudent banking practice, will use all reasonable efforts to
preserve Olde Port's properties wherever located, and will comply in all
material respects with all laws applicable to Olde Port or the conduct of its
business. Olde Port 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, Olde Port has agreed that, except as otherwise
consented to or approved by a duly authorized officer of NECB or as permitted or
required by the Merger Agreement, Olde Port will not:
(a) enter into or amend certain contracts designated in the
Merger Agreement;
(b) change any provision of its Articles of Agreement 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 $100,000 for any
individual loan or in excess of $150,000 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 Merger 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 combined mortgages would exceed 75% or if prior mortgage loans are in
excess of $200,000; make any commercial loan or loans in excess of $150,000
unless fully secured by readily marketable collateral or real estate with a
maximum loan to value ratio of 75%; or 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, officer or employee
of Olde Port, 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 debtor or surety under the defaulted loans (whether or not
such other loans are in default) has a balance outstanding in excess of
$100,000, except that Olde Port 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 Olde Port 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;
<PAGE>
23
(i) hire or retain any new employees, consultants or
contractors, or increase the compensation or benefits of current employees,
consultants or contractors, except that Olde Port may hire replacements for
current employees who are not officers or managers if such employees cease to be
employees of Olde Port;
(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
Olde Port;
(m) take any action that is intended to or would result in
any of its representations and warranties set forth in the Merger Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Merger not being satisfied, or in a violation of any provision of the Merger
Agreement except, in every case, as may be required by applicable law;
(n) change its methods of accounting in effect at December
31, 1997, except as required by law or by changes in GAAP or regulatory
accounting principles which changes are concurred in by Olde Port's independent
auditors;
(o) 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 Merger, except as may be
required by applicable law;
(p) 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;
(q) 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;
(r) file any application to open, relocate or terminate the
operations of any banking office;
(s) 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;
(t) purchase or sell loans in bulk;
(u) 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 foreclose upon such commercial real estate if such
environmental assessment indicates the likely presence of hazardous material
without appropriate remediation being performed before acceptance of title;
(v) terminate the employment of, or decrease in any
material respect, the duties, obligations, responsibilities, or position of any
senior officer of Olde Port other than for just cause; or
(w) agree to do any of the foregoing.
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24
Pursuant to the Merger Agreement, NECB has agreed that until the
Effective Time, except as provided in the Merger Agreement or with the prior
consent of Olde Port, 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 Merger Agreement being or
becoming untrue in any material respect, or in any of the conditions to the
Merger not being satisfied, or in a violation of any provision of the Merger
Agreement, except as may be required by applicable law; (ii) take any action
that would materially adversely affect or materially delay or otherwise
adversely affect the regulatory approvals required to consummate the Merger; or
(iii) agree to do any of the foregoing.
AMENDMENT AND TERMINATION
AMENDMENT. Subject to compliance with applicable law, prior to the
Effective Time, the Merger Agreement may be amended by an agreement in writing
approved by the NECB Board and the Olde Port Board provided that after the
approval by the shareholders of Olde Port, the Merger Agreement may not be
amended to change the Per Share Merger Consideration to be received by
shareholders of Olde Port in any material respect other than as provided in the
Merger Agreement.
TERMINATION. The Merger Agreement may be terminated at any time prior
to the Effective Time, either before or after its approval by the shareholders
of Olde Port, as follows: (i) by the mutual consent of NECB and Olde Port if the
Board of Directors of each so determines by a vote of the majority of the
members of its entire Board; (ii) by either NECB or Olde Port upon written
notice to the other 90 days after the date on which any request or application
for a required regulatory approval required to consummate the Merger 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 Merger Agreement to perform or
observe its covenants and agreements set forth in the Merger Agreement); (iii)
by either NECB or Olde Port if the Merger has not been consummated by December
31, 1998, unless the failure to consummate the Merger is due to a breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement; (iv) by
either NECB or Olde Port, if any approval of the shareholders of either party
required for consummation of the Merger shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
shareholders or at any adjournment or postponement thereof; (v) by either NECB
or Olde Port (provided that the terminating party is not then in material breach
of the Merger Agreement), if there shall have been a material breach of any of
the representations or warranties set forth in the Merger Agreement on the part
of the other party, which breach is not cured within 30 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 Merger (the "Closing"); (vi) by NECB
or Olde Port by reason of the institution by any governmental agency of any
litigation or proceeding to restrain or prohibit the consummation of the Merger;
(vii) by NECB if at the time of such termination there shall have been a
reduction in Olde Port's capital of 10% or more below the levels disclosed to
NECB in the December 31, 1997 financial statements of Olde Port referred to in
the Merger Agreement, unless such change shall have resulted from conditions
affecting the banking industry generally; (ix) by NECB if the results of any
regulatory examination of Olde Port indicate (a) any action or actions the net
effect of which is likely to result in a reduction of the capital of Olde Port
of 10% or more below levels disclosed to NECB in the December 31, 1997 financial
statements of Olde Port referred to in the Merger Agreement or (b) any other
action that is likely to result in a significant restriction on Olde Port, its
business or operations; or (viii) 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 reasonably regards as materially adverse.
In addition, NECB may terminate the Merger Agreement if the Average
Closing Price, as previously defined, of the NECB Common Stock shall be less
than $20.00 per share. Notwithstanding the foregoing, if NECB elects to exercise
this termination, it must give prompt written notice to Olde Port. During the
seven-day period commencing with its receipt of such notice, Olde Port will have
the option of reducing the consideration to be received by the holders of Olde
Port Common Stock by increasing the Average Closing Price for purposes of the
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25
Exchange Ratio, as previously defined, to equal $20.00. If Olde Port makes this
election within the seven-day period, it must give prompt written notice to
NECB, whereupon no termination shall occur.
Olde Port also may terminate the Merger Agreement if the Average
Closing Price of the NECB Common Stock is greater than $30.00 per share. If Olde
Port elects to exercise this termination right, it must give prompt written
notice to NECB. During the seven-day period commencing with its receipt of such
notice, NECB has the option of increasing the consideration to be received by
the holders of Olde Port Common Stock by reducing the Average Closing Price for
purposes of the Exchange Ratio to equal $30.00. If NECB makes the election
described in the preceding sentence within the seven-day period, it must give
prompt written notice to Olde Port, whereupon no termination shall occur.
If either NECB or Olde Port terminates the Merger Agreement, neither
NECB nor Olde Port will have any further obligations under the Merger Agreement
except (i) for certain specified provisions of the Merger 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 Merger Agreement.
EMPLOYEE MATTERS
NECB will provide the employees of Olde Port who are offered employment
with NECB or Olde Port, 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 Olde Port, as reasonably determined by NECB and
Olde Port. The Merger Agreement does not obligate NECB Associates to retain
employees of Olde Port.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Directors and executive officers of Olde Port have the following
interests in the Merger: Olde Port directors and executive officers collectively
owned, as of April 30, 1998, 20,900 shares of Olde Port Common Stock (including
the 1,900 stock options referred to below) to be exchanged for NECB Common Stock
in the Merger (assuming a $200.00 Olde Port equivalent share price, these shares
will have a market value of approximately $1,144,000).
As of April 30, 1998, directors and executive officers of Olde Port
held Olde Port stock options for a total of 1,900 shares at exercise prices of
between $50.00 and $120.00 per share. All outstanding unexercised stock options
under Olde Port's stock option plan will be converted at the Effective Time into
a number of shares of NECB Common Stock equal to the aggregate option value for
all of the optionee's stock options divided by the Average Closing Price, as
previously defined. The option value for an option will be determined by
subtracting the stated exercise price of the option from $200.00.
Also, under the terms of the Merger Agreement, at the Effective Time,
NECB will provide for the election of James A. Cotter, Jr., currently Chairman
of the Board of Olde Port, to the Board of Directors of NECB. With the exception
of Mr. Cotter, the existing members of the Board of Directors of Olde Port will
serve as directors of the Resulting Bank.
FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES
NO SOLICITATION OF TRANSACTIONS. Olde Port has agreed in the Merger
Agreement that Olde Port 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 merger, 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 Olde Port and such other persons as may be
required by law), and Olde Port 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 Olde Port, to
acquire 10% or more of the outstanding stock of Olde Port, to enter into an
agreement to merge with Olde Port, or to take any other action that would have
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26
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 Merger is not consummated in accordance with the
terms set forth in the Merger Agreement because of any such Unauthorized Action
or omission by Olde Port, Olde Port shall on demand pay to NECB the sum of
$1,000,000 as liquidated damages. The above restrictions do not preclude the
directors from taking actions which they determine, in the exercise of their
fiduciary duties, are in the best interests of the shareholders of Olde Port;
however, if they take any Unauthorized Action, Olde Port will be responsible for
the aforementioned liquidated damages.
BREACHES OF REPRESENTATIONS AND WARRANTIES. If either Olde Port or NECB
fails to perform any material covenant or agreement in the Merger Agreement, or
if any representation or warranty by Olde Port or NECB is determined to be
materially untrue (the party which fails to perform or which makes the untrue
representation or warranty being 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 $1,000,000 as
liquidated damages.
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that the Merger will be treated as a "pooling of
interests" for accounting and financial reporting requirements. The Unaudited
Pro Forma Combined Financial Information contained in this Proxy
Statement-Prospectus has been prepared using the pooling accounting method to
account for the Merger. See "Unaudited Pro Forma Combined Financial
Information."
RESALES OF NECB COMMON STOCK RECEIVED IN THE MERGER
The shares of NECB Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any Olde Port shareholder who may be
deemed to be an "affiliate" of Olde Port for purposes of Rule 145 under the
Securities Act. Affiliates may not sell their shares of NECB Common Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with 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 Olde Port. Persons who may be deemed to be affiliates of Olde
Port generally include individuals or entities that control, are controlled by
or are under common control with Olde Port, and may include certain officers and
directors as well as principal shareholders of Olde Port.
TRADING MARKET FOR NECB COMMON STOCK
NECB Common Stock is listed on the Nasdaq NM. NECB has agreed to cause
the shares of NECB Common Stock to be issued in the Merger to be approved for
listing on the Nasdaq NM, subject to official notice of issuance, prior to the
Effective Time. The obligations of the parties to consummate the Merger are
subject to approval for listing by the Nasdaq NM of such shares. See "Conditions
to Consummation of the Merger."
FEDERAL INCOME TAX CONSEQUENCES
Neither NECB nor Olde Port has requested an advance ruling from the
Internal Revenue Service as to the tax consequences of the Merger.
Set forth below is a summary of the anticipated material federal income
tax consequences of the Merger to shareholders of Olde Port. The federal tax
laws are complex, and the tax consequences of the Merger may vary depending upon
each shareholder's individual circumstances or tax status. Accordingly, this
summary is not a complete description of all of the consequences of the Merger
and, in particular, may not address federal income tax considerations that may
affect the treatment of a shareholder which, at the Effective Time, already owns
shares of
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27
NECB Common Stock, is not a U.S. citizen, is a tax-exempt entity, is a
financial institution or an insurance company, is an individual who acquired
Olde Port Common Stock pursuant to an employee stock option or right or
otherwise as compensation, or who exercises some form of control over Olde Port.
In addition, no information is provided herein with respect to the tax
consequences of the Merger under applicable foreign, state or local laws. This
summary is based on laws, regulations, rulings and judicial decisions as in
effect on the date of this Proxy Statement-Prospectus, without consideration of
the particular facts or circumstances of any holder of Olde Port Common Stock.
No assurance can be given that, after any such change, this summary would not be
different.
BECAUSE OF THE COMPLEXITIES OF THE FEDERAL INCOME TAX LAWS AND BECAUSE
THE TAX CONSEQUENCES MAY VARY DEPENDING UPON A SHAREHOLDER'S INDIVIDUAL
CIRCUMSTANCES OR TAX STATUS, SHAREHOLDERS ARE STRONGLY ENCOURAGED TO CONSULT
WITH THEIR PERSONAL TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO THEM, INCLUDING THE TAX CONSEQUENCES OF APPLICABLE FEDERAL,
STATE, LOCAL, FOREIGN OR OTHER LAWS.
Olde Port has received an opinion from Devine, Millimet & Branch,
Professional Association, legal counsel to Olde Port ("Devine, Millimet"), as to
the material federal income tax consequences of the Merger. That opinion is
based on facts, representations and assumptions that were provided by Olde Port
and NECB and that are consistent with the state of facts that Olde Port and NECB
believe will be existing as of the Effective Time, including (but not limited
to) an assumption that, other than cash paid to dissenters and cash paid in lieu
of fractional shares, no cash will be paid to Olde Port's shareholders pursuant
to the Merger. Based on such facts, representations and assumptions, Devine,
Millimet has opined that, for federal income tax purposes: (i) the Merger, when
consummated in accordance with the Merger Agreement and certain related
agreements, will constitute or will be part of a reorganization within the
meaning of Section 368(a) of the Code; (ii) no gain or loss will be recognized
by a shareholder of Olde Port who exchanges all of the shareholder's Olde Port
Common Stock solely for NECB Common Stock pursuant to the Merger (except as
described below with respect to cash received in lieu of a fractional share
interest in NECB Common Stock); (iii) the aggregate adjusted tax basis of the
NECB Common Stock received by a shareholder who exchanges all of the
shareholder's Olde Port Common Stock solely for NECB Common Stock in the Merger
will be the same as the aggregate adjusted tax basis of the Olde Port Common
Stock surrendered in exchange therefor, reduced by any amount allocable to a
fractional share interest for which cash is received; and (iv) the holding
period for NECB Common Stock received in exchange for Olde Port Common Stock
will include the period during which the shareholder held the Olde Port Common
Stock surrendered in the exchange, provided that the Olde Port Common Stock was
held as a capital asset at the Effective Time.
For federal income tax purposes, cash received by a holder of Olde Port
Common Stock in lieu of a fractional share interest in NECB Common Stock will be
treated as received in exchange for such fractional share interest, and gain or
loss generally will be recognized for federal income tax purposes measured by
the difference between the amount of cash received and the portion of the basis
of the share of Olde Port Common Stock allocable to such fractional share
interest. Such gain or loss should be long-term capital gain or loss if the
shareholder's shares of Olde Port Common Stock are held as capital assets and
have been held for more than one year at the Effective Time. Generally, any
long-term capital gain resulting from the receipt of cash by a holder of Olde
Port Common Stock in lieu of a fractional share of NECB Common Stock will be
taxed at a maximum rate of 28% if, at the Effective Time, such share of Olde
Port Common Stock had been held for one year or longer but not more than 18
months, and at a rate of 20% if, at the Effective Time, such share had been held
for more than 18 months.
A holder of Olde Port Common Stock who exercises dissenters' rights
under applicable New Hampshire law and who receives a cash payment of the fair
value of the holder's shares of Olde Port Common Stock will be treated as having
received such payment in redemption of such shares. Such redemption will be
subject to the conditions and limitations of Section 302 of the Code, including
the attribution rules of Section 318 of the Code. In general, if the shares of
Olde Port Common Stock are held by the holder as a capital asset at the
Effective Time, a dissenting holder will recognize capital gain or loss measured
by the difference between the amount of cash received by such holder and the
basis for such shares. If, however, such holder owns, either actually or
constructively, any other Olde Port Common Stock or NECB Common Stock, the
payment made to such holder could be treated as dividend income. In general,
under the constructive ownership rules of the Code, a holder may be considered
to own stock that is owned, and in some cased constructively owned, by certain
related individuals or entities, as well as stock that such holder (or related
individuals or entities) has the right to acquire by exercising an
<PAGE>
28
option or converting a convertible security. Each shareholder of Olde Port
Common Stock who contemplates exercising dissenters' rights should consult his
or her own tax advisor as to the possibility that the payment will be treated as
dividend income.
Each holder of Olde Port Common Stock who receives stock or securities
and other property or money upon the Merger will be required to retain records
and file with such holder's Federal income tax return a statement setting forth
certain facts relating to the Merger, including (i) a statement of the cost or
other basis of Olde Port Common Stock transferred in the exchange, and (ii) a
statement in full of the amount of NECB Common Stock and other property or money
received from the exchange.
It is a condition precedent to the obligation of Olde Port to effect
the Merger that Olde Port receive an opinion from its counsel or from counsel
for NECB, dated as of the Effective Time, with respect to certain federal income
tax consequences of the Merger. See "THE MERGER AGREEMENT - Conditions to
Consummation of the Merger." Such opinion will be based upon facts existing at
the Effective Time, and in rendering such opinion, counsel will require and rely
upon facts, representations and assumptions that will be provided by Olde Port
and NECB.
DISSENTERS' RIGHTS
Pursuant to NHRSA Section 388:13, which incorporates Sections
293-A:13.01 ET SEQ. of the NHBCA, any holder of shares of Olde Port Common Stock
who objects to the Merger is entitled to dissent from the Merger and have the
fair value of such shares ("Dissenting Shares") as determined by Olde Port, or
if necessary, judicially determined, paid to him, by complying with the
provisions of Sections 293-A:13.01 ET SEQ. of the NHBCA. Failure to take any
steps set forth in Sections 293-A:13.01 ET SEQ. in connection with the exercise
of such rights may result in termination or waiver thereof.
The following is a summary of the statutory procedures required to be
followed by a holder of Dissenting Shares (a "Dissenting Shareholder") in order
to exercise his rights under the NHBCA. This summary is qualified in its
entirety by reference to NHRSA Section 388:13 and Sections 293-A:13.01 ET SEQ.
of the NHBCA, the text of which are attached as Appendix E to this Proxy
Statement-Prospectus.
If a shareholder elects to exercise dissenters' rights with respect to
the Merger, such shareholder must (i) file with Olde Port prior to the vote on
the Merger at the Special Meeting a written notice of intention to demand
payment for his shares if the Merger is effected and (ii) not vote in favor of
the Merger. The written notice required to be delivered to Olde Port by
Dissenting Shareholders is in addition to and separate from any proxy or vote
against the Merger. Neither voting against nor failure to vote for the Merger
will constitute the written notice required to be filed by a Dissenting
Shareholder. Failure to vote against the Merger, however, will not constitute a
waiver of rights under Sections 293-A:13.01 ET SEQ. of the NHBCA provided that a
written notice has been properly filed. A signed proxy that is returned but
which does not contain any instructions as to how it should be voted will be
voted in favor of approval of the Merger and will be deemed a waiver of
dissenters' rights. See "The Special Meeting - Revocation of Proxies."
A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if (i) he or she submits to Olde Port the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights and (ii) he or she does so
with respect to all shares of Olde Port Common Stock of which he or she is the
beneficial owner or over which he or she has the power to direct the vote. A
record holder of shares of Olde Port Common Stock may dissent on behalf of any
beneficial owner with respect to all but not less than all the shares of such
owner if the record holder notifies Olde Port in writing of the name and address
of each such person on whose behalf the record holder asserts dissenters'
rights. All notices of intention to demand payment should be addressed to:
Michael E. Kenslea, President and Chief Executive Officer. Olde Port Bank &
Trust Company, 501 Islington Street, Portsmouth, NH 03802.
If the Merger is approved, the Resulting Bank is obligated to give
written notice to each Dissenting Shareholder who filed a notice of intention to
demand payment and who did not vote in favor of approval of the
<PAGE>
29
Merger no later than 10 days after the approval of the Merger by the
shareholders of Olde Port. The notice must be accompanied by a copy of Sections
293-A:13.01 ET SEQ. and must (i) state where a demand for payment must be sent
and where and when certificates for Dissenting Stock must be deposited in order
to obtain payment, (ii) inform holders of uncertified shares to what extent
transfer of the shares will be restricted after the payment demand is received,
(iii) be accompanied by a form for demanding payment that includes the date of
the first announcement to the news media or to shareholders of the terms of the
proposed Merger and requires that the person asserting dissenters' rights
certify whether or not he or she acquired beneficial ownership of the shares
before that date, and (iv) set a date by which the Resulting Bank shall receive
the payment demand, which date shall not be less than 30 days, nor more than 60
days, after the date the notice is delivered.
A Dissenting Shareholder who fails to demand payment or to deposit
certificates for Dissenting Shares, as required, shall have no rights under
Section 293-A:13.01 ET SEQ. to receive payment for the Dissenting Shares.
Unless the Merger has been effected and the Resulting Bank has made the
payment required below within 60 days after the date for demanding payment and
depositing certificates for Dissenting Shares, the Resulting Bank shall return
any certificates for Dissenting Shares so deposited. If such Dissenting Shares
have been returned by the Resulting Bank, the Resulting Bank may at a later time
send a new notice conforming to the requirements herein described.
Upon consummation of the Merger, the obligations of Olde Port under
Sections 293-A:13.01 ET SEQ. will be assumed by the Resulting Bank.
As soon as the Merger has been consummated, or upon receipt of demand
for payment, if the Merger has already been consummated, the Resulting Bank
shall remit to each Dissenting Shareholder who has made proper demand and
deposited his or her certificates, the amount which the Resulting Bank deems to
be fair value of his Dissenting Shares, with accrued interest, if any,
accompanied by (i) Olde Port's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, (ii) an income
statement and a statement of changes in shareholders' equity for such fiscal
year, (iii) Olde Port's latest available interim financial statements, if any,
(iv) a statement of the Resulting Bank's estimate of the fair value of the
shares, (v) an explanation of how interest was calculated, and (vi) a statement
of the Dissenting Shareholder's right to demand supplemental payment pursuant to
Section 293-A:13, as well as a copy of Sections 293-A:13.01 ET SEQ. Fair value
of Dissenting Shares means the value immediately before the Effective Time,
excluding any change in value in anticipation of the Merger if such exclusion is
not inequitable (which amount may be more, less than or the same as the
consideration to be received by shareholders of Olde Port in connection with the
Merger).
If the Resulting Bank fails to remit such fair value to the Dissenting
Shareholder or if such Dissenting Shareholder believes that the amount so
remitted to be less than fair value (or that the interest, if any, is not
correct), such Dissenting Shareholder may send NECB his own estimate of fair
value (and interest, if any) and demand payment of the deficiency. If the
Dissenting Shareholder does not file the estimate within 30 days of remittance
by the Resulting Bank, such Dissenting Shareholder shall be entitled to no more
than the amount remitted.
Within 60 days after a demand for payment of the deficiency, if it
remains unsettled, the Resulting Bank shall file a petition with the Superior
Court of Rockingham County, New Hampshire (the "Court") requesting determination
of the fair value of the Dissenting Shares and accrued interest. All Dissenting
Shareholders whose demands have not been settled shall be parties to such action
and shall be served by copy of the petition. The Court shall determine the fair
value of the Dissenting Shares and each Dissenting Shareholder shall be entitled
to judgment for the amount, if any, by which the payment previously remitted by
the Resulting Bank is exceeded by the Court's determination of fair value. If
the Resulting Bank does not file a petition, each Dissenting Shareholder who has
made a demand and who had not settled his or her claim shall be entitled to
receive the amount demanded with interest and may sue to enforce his or her
claim in an appropriate court.
The Resulting Bank may elect to withhold remittances to any Dissenting
Shareholder who does not own his or her shares before February 10, 1998, the
date the Merger was announced. With respect to these shares, upon consummation
of the Merger, the Resulting Bank shall give its fair value estimate and explain
the basis thereof and
<PAGE>
30
offer to pay the amount to such Dissenting Shareholder in full satisfaction. If
the Dissenting Shareholder disagrees, he or she may within 30 days mail the
Resulting Bank his or her estimate and demand payment. If the Dissenting
Shareholder fails to mail such a response, he or she is entitled only to the
Resulting Bank's offer. If demand is made, further proceedings shall follow the
procedures for judicial appraisal of shares set forth above.
The cost of an appraisal proceeding, including cost and expenses of
appraisers appointed by the Court, shall be determined by the Court and assessed
against the Resulting Bank, except that the Court may assess any part of such
costs and expenses to all or some of the Dissenting Shareholders who are parties
and whose action the Court finds to be contrary, vexatious or not in good faith
in demanding payment under Sections 293-A:13.01 ET SEQ. or may be assessed
against the Resulting Bank if the Court finds the Resulting Bank failed to
comply substantially with the requirements of Sections 293-A:13.01 ET SEQ. or
may be assessed against any other party if such party acted arbitrarily,
vexatiously or not in good faith with respect to its Dissenters' Rights.
INFORMATION REGARDING OLDE PORT
BUSINESS
Olde Port is a state chartered trust company incorporated under the
laws of the State of New Hampshire on March 11, 1986. It commenced operation as
a New Hampshire state chartered trust company on October 30, 1986. Olde Port
does a general banking trust company business. Olde Port is an insured bank
under the Federal Deposit Insurance Act. Like most state-chartered banks in New
Hampshire, Olde Port is not a member of the Federal Reserve System.
The Portsmouth, New Hampshire area has a number of institutions which
offer varied and innovative financial products. The types of institutions range
from large regional banks to various institutions of smaller size. Competition
may be further increased by virtue of recent changes to state and federal
banking laws. State law generally confers substantially similar powers on banks
and thrifts. State and federal law currently allow out-of-state institutions to
acquire New Hampshire banks. Federal law will allow such institutions to merge
New Hampshire institutions. Olde Port cannot predict the long-range effect of
this legislation on operations at this time.
No material portion of Olde Port's deposits has been obtained from a
single person, nor is any material portion of Olde Port's loans concentrated in
one industry or group of related industries.
Olde Port conducts substantially the same business operations as are
typical for an independent New Hampshire commercial bank. Olde Port operates as
a hometown, or community-type bank, focusing on the banking needs of and
providing personal services to local customers. The range of services offered
includes business and personal checking accounts, interest-bearing "NOW"
accounts, savings accounts, certificates of deposit, money market accounts, IRA
accounts, an on-site automatic teller machine, safe deposit box facilities,
money orders, travelers' checks, the extension of long and short term, secured
and unsecured, business, student and personal loans, mortgages on commercial and
residential real estate, home equity lines of credit, direct deposit of payroll
and Social Security checks, Treasurer's checks, food stamps, welfare check
cashing, foreign transfers and remittances, night deposit bags, wire transfers,
investment transactions, Christmas Clubs, credit cards and savings bonds.
PROPERTIES
Olde Ports owns its main and only facility at 501 Islington Street,
Portsmouth, New Hampshire.
LEGAL PROCEEDINGS
There are no material adverse legal proceedings, other than ordinary
routine litigation incidental to normal business, to which Olde Port is a party
or to which its properties are subject.
DIRECTOR COMPENSATION
Each outside director of Olde Port, except the Chairman of the Board,
receives $200 for each Board meeting he or she attends and $100 for each
Committee meeting attended. The Chairman of the Board receives a fee of $600 per
month.
<PAGE>
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF OLDE PORT
OVERVIEW
Olde Port is a New Hampshire chartered trust company. Olde Port
conducts business from its main office in Portsmouth, New Hampshire. Olde Port's
primary focus is servicing the needs of small businesses, new businesses and the
professional community while offering a wide range of deposit products for the
general public.
Olde Port reported net income for 1997 of $642,720, or $9.60 per
share--basic, compared to $571,441, or $8.63 reported in 1996. Return on assets
("ROA") and return on equity ("ROE") were 1.47% and 14.87%, respectively, for
1997 compared to 1.52% and 15.59%, respectively, in 1996. The increase of
$71,279 was attributable primarily to increases in net interest and dividend
income of $191,309 and a decrease in applicable income taxes of $10,474 offset
by decreases in non-interest income totaling $6,589 and an increase in various
non-interest expenses of $121,915. On an earnings per share basis, 1997
increased by $0.97, or 11.2%, over the $8.63 earnings per share--basic for 1996.
Net interest income on a fully taxable-equivalent ("FTE") basis totaled
$2,123,000 for 1997 compared to $1,888,000 in 1996. The net interest margin for
1997 was 5.20% versus 5.43% in 1996. The increase in net interest income is
primarily due to growth in average earning assets.
The provision for possible loan losses was $20,000 compared to $18,000
in 1996. The change reflects the increase in loans outstanding as well as an
increase in net charge-offs.
Noninterest income decreased to $265,686 in 1997 from $272,275 in 1996,
while noninterest expense totaled $1,368,271 in 1997 compared to $1,246,356 in
1996. Olde Port's efficiency ratio--which measures how much it costs Olde Port
to produce each dollar of revenue--equaled 58.5% for 1997 compared to 57.8% for
1996.
Net loans increased 23% and amounted to $29,032,344 at December 31,
1997 compared to $23,602,151 a year earlier. Total deposits amounted to
$39,398,860 at December 31, 1997 compared to $35,256,051 at December 31, 1996,
an increase of more than 11%. Shareholders' equity increased by $742,798, or
18.65%, from $3,983,264 at December 31, 1996 to $4,726,062 at year-end 1997.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income, which is defined as the difference between
interest earned on earning assets and interest paid on deposits and borrowings,
represents the largest component of Olde Port's operating income. The principal
earning assets of Olde Port are its loan portfolio--which is primarily comprised
of loans to finance operations of businesses located within its market area,
mortgage loans to finance the purchase or improvement of properties used by
businesses and mortgage loans and personal loans to individuals. Representing
approximately one-quarter of Olde Port's earning assets, Olde Port's investment
portfolio also plays an important part in the management of Olde Port's balance
sheet. These funds are used to provide reserves and meet the liquidity needs of
Olde Port while providing a source of revenue. Excess reserves are available to
meet the borrowing needs of the communities it serves. For the following
discussion, interest income is presented on a FTE basis. FTE interest income
restates reported interest income on tax exempt loans and securities as if such
interest were taxed at the applicable State and Federal income tax rates for all
periods presented.
In 1997, net interest income increased $235,000, or 12% over 1996. The
increase in 1997 is largely due to growth in earning assets which increased a
substantial $6,057,000 or 17% compared to the 1996 average. This increase was
fueled by the strong growth in average loans outstanding which increased by
$4,440,000 or 19% from 1996. Interest-bearing liabilities also increased in 1997
averaging $32,886,000 compared to $28,435,000 a year earlier.
<PAGE>
32
The following table summarizes the components of Olde Port's net
interest income, net interest spread and net interest margin. Interest income is
included on a fully taxable equivalent basis which restates reported interest
income on tax-exempt securities as if such interest were taxed at the applicable
state and federal income tax rates for all periods presented.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
($000'S)
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
---------------------------- ---------------------------- -----------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (a) $27,750 $ 2,866 10.33% $23,310 $ 2,440 10.47% $21,086 $ 2,246 10.65%
Investment Securities (b) 10,931 709 6.49% 9,919 627 6.32% 9,195 545 5.93%
Interest Bearing Deposits 783 45 5.75% 574 34 5.92% 578 31 5.36%
Federal Funds Sold 1,357 73 5.38% 961 50 5.20% 443 25 5.64%
------- ------- ------- ------- ------- -------
Total Interest-Earning Assets 40,821 3,693 9.05% 34,764 3,151 9.06% 31,302 2,847 9.10%
------- ------- -------
Loan Loss Reserves (715) (695) (739)
Cash and Due from Banks
and Other Assets 3,716 3,392 2,940
------- ------- -------
Total Assets $43,822 $37,461 $33,503
======= ======= =======
NOW Accounts $ 4,232 $ 93 2.20% $3,760 $ 82 2.18% $ 3,747 $ 75 2.00%
Savings Accounts 4,305 142 3.30% 4,916 163 3.32% 5,325 168 3.15%
Money Market Accounts 2,866 107 3.73% 3,498 129 3.69% 2,035 76 3.73%
Time Deposits (c) 18,896 1,071 5.67% 16,079 879 5.47% 15,150 821 5.41%
Borrowed Funds 2,587 157 6.07% 182 10 5.49% 121 7 5.79%
------- ------- ------- ------- ------- -------
Total Interest-Bearing
Liabilities 32,886 1,570 4.78% 28,435 1,263 4.44% 26,378 1,147 4.35%
------- ------- -------
Demand Deposits 6,357 5,046 3,973
Other Liabilities 257 315 130
Shareholders' Equity 4,322 3,665 3,022
------- ------- -------
Total Liabilities and Equity $43,822 $37,461 $33,503
======= ======= =======
Net Interest Income $ 2,123 $ 1,888 $ 1,700
======= ======= =======
Net Interest Spread 4.27% 4.62% 4.75%
Net Interest Margin 5.20% 5.43% 5.43%
</TABLE>
(a) Nonaccruing loans are included in the daily average loan
amounts outstanding.
(b) On a fully taxable equivalent basis based on an effective tax
rate of approximately 32%. Interest income on investments and net interest
income includes a fully taxable equivalent adjustment of $55,000 in 1997 and
$6,000 in 1996.
(c) 1997 interest expense was not reduced by $5,209 for forfeited
interest on early CD withdrawals.
<PAGE>
33
The net interest margin measures the difference in yield on, and the
mix of, interest-earning assets and interest-bearing liabilities. Net interest
margin is affected by a number of factors including the volume, pricing and
maturity of earning assets and interest-bearing liabilities and interest rate
fluctuations. Changes in nonperforming assets, together with interest lost and
recovered on those assets also affect comparisons of net interest income.
The net interest margin for 1997 decreased 23 basis points to 5.20%
compared to 5.43% in 1996, primarily due to the combined effect of a reduction
in the average yield on loans and an increase in funding costs. In the
aggregate, rates paid on interest-bearing liabilities increased 34 basis points
and averaged 4.78% in 1997 compared to 4.44% in 1996. Reflecting an increasingly
competitive market, the average rate paid on time deposits specifically rose 20
basis points in 1997 to 5.67% from 5.47% in 1996. Through the increased use of
repurchase agreements (for its commercial customers) and the greater use of
Federal Home Loan Bank of Boston ("FHLBB") borrowings, Olde Port significantly
expanded its use of alternative funding sources in 1997. Short-term borrowings
increased markedly in 1997 and averaged $2,587,000, compared to $182,000 in
1996. In addition to providing a source of funds, repurchase agreements allow
Olde Port's commercial deposit customers to earn interest on excess cash
balances. The average cost of these borrowings rose 58 basis points from 1996
and equaled 6.07% compared to 5.49% a year earlier.
RATE/VOLUME ANALYSIS
Changes in net interest income between years is divided into two
components--the change resulting from the change in average balances of interest
earning assets and interest-bearing liabilities (or "volume") and the change in
the rates earned or paid on these balances. The change in interest income and
interest expense attributable to changes in both volume and rate, which cannot
be segregated, has been allocated proportionately to the absolute values of the
changes due to volume and rate. The following table is presented on a FTE basis.
The following table sets forth changes in Olde Port's interest income
and interest expense resulting from changes in rates and changes in volumes.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS ($000'S)
1997 1996
------------------------- -------------------------
Change Due To Change In: Change Due To Change In:
------------------------ ------------------------
Increase Increase
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ (38) $ 465 $ 427 $ (42) $ 236 $ 194
Investment Securities
Taxable 24 57 81 49 33 82
Interest Bearing Deposits (1) 12 11 3 0 3
Federal Funds Sold 2 21 23 (4) 29 25
----- ----- ----- ----- ----- -----
TOTAL INTEREST INCOME
CHANGE (13) 555 542 6 298 304
----- ----- ----- ----- ----- -----
Interest Expense:
NOW Accounts 1 10 11 7 0 7
Savings Accounts (1) (20) (21) 8 (13) (5)
Money Market Accounts 1 (23) (22) (2) 55 53
Time Deposits 37 155 192 8 50 58
Borrowed Funds 14 133 147 (1) 4 3
----- ----- ----- ----- ----- -----
TOTAL INTEREST EXPENSE
CHANGE 52 255 307 20 96 116
----- ----- ----- ----- ----- -----
Changes in Net Interest Income $ (65) $ 300 $ 235 $ (14) $ 202 $ 188
===== ===== ===== ===== ===== =====
</TABLE>
The change in interest due to both rate and volume has been allocated in
proportion to the relationship of the absolute dollar amounts of the change in
each.
<PAGE>
34
As is shown above, the majority of the increase in net interest income
in both 1997 and 1996 is attributable to changes in volume. In 1997, the net
effect of volume related changes served to increase net interest income by
$300,000 while the effect of changes on rates earned and paid served to reduce
net interest income by $65,000. In 1996, the effect of volume accounted for an
increase of $202,000 while rate related changes accounted for a decrease of
$14,000.
NONINTEREST INCOME
Totalother income decreased by $6,000 or 2.2% primarily due to a
decrease in overdraft charges on deposit accounts. Minor fluctuations were
experienced in other non-interest income accounts.
NONINTEREST EXPENSE
Total other expenses increased by $122,000 or 9.8% during 1997 as a
result of increases in all line items except occupancy expense, which decreased
by $7,000, and other expenses, which decreased by $75,000 (of which $52,000 was
from a decrease in consultant fees used during the conversion to an in-house
data processing system and $36,000 from data processing fees no longer paid to a
service bureau). Salaries and employee benefits increased during 1997 by $99,000
or 15.6% resulting from primarily three factors: 1) $44,000 for staff and
officer salaries increases; 2) $45,000 from an executive officer performance
bonus program and 3) $10,000 from increases in group health, 401(k)
participation and other employee benefits. Equipment expense increased by
$40,700 or 52.1% as a result of increased depreciation expense, licensing fees
and maintenance contracts on new data processing equipment and software
purchased during 1996. This increase was partially offset by the decrease in
data processing expense noted above in other expenses. Securities losses (net)
increased by $7,000 or 116.1% partially due to management's restructuring of the
security portfolio as well as premium losses on bonds called as interest rates
dropped. Advertising increased $10,000 or 21.4% as a result of management's
desire to promote Olde Port's visibility in the marketplace. Directors fees
increased $46,000 or 101.5% resulting primarily from an award of common stock
for services rendered during prior years for which they were not compensated.
For additional information see Note 15 of the Financial Statements.
INCOME TAXES
In 1997, Olde Port recognized income tax expense of $308,000, an
effective tax rate of 32.4%. This compares to income tax expense of $318,000 in
1996, an effective rate of 35.8%. The decrease in income taxes during 1997 is
primarily a result of management's decision to shift some taxable investments to
non-taxable.
BALANCE SHEET ANALYSIS
At December 31, 1997, Olde Port's assets totaled $46.7 million as
compared to $39.7 million at December 31, 1996. The $7.0 million or 17.6%
increase in total assets during 1997 was primarily attributable to an increase
in the loan portfolio and reflected Olde Port's strategy of growth during the
year. Cash, interest bearing deposits with other banks and Federal funds sold
amounted to, in aggregate, $4.3 million and $3.0 million at December 31, 1997
and 1996, respectively. The increase in such cash and cash equivalents during
1997 was due to management's decision to have liquid funds available for
continuing loan growth.
LOANS
Net loans totaled $29.0 million at December 31, 1997, compared to $23.6
million at December 31, 1996. The $5.4 million or 23.0% increase in net loans
was primarily due to a significant increase in new loan demand. At December 31,
1997, Olde Port's total loan portfolio consisted of $12.5 million or 42.0% of
commercial real estate loans, consisting of owner and non-owner occupied
property, $9.1 million or 30.4% of commercial loans, consisting of secured and
unsecured loans such as term and line of credit financing for commercial
purposes, $5.9 million or 19.9% of residential loans, consisting of single
family residential and home equity loans, $1.2 million or 4.0% of construction
and land development loans, both commercial and residential, and $1.1 million or
3.7% of consumer,
<PAGE>
35
consisting of secured and unsecured personal and automobile loans. The majority
of mortgage loans are secured by real estate located in New Hampshire and Maine.
The loan portfolio is monitored for both maturity distribution and
interest rate sensitivity. The maturity distribution provides a primary source
for liquidity to Olde Port. The following table shows both the maturity and
interest rate sensitivity of the loan portfolio at December 31,1997.
LOAN MATURITY AND SENSITIVITY ANALYSIS
DECEMBER 31, 1997
($000'S)
<TABLE>
<CAPTION>
Real Estate
-------------------------------------------
Construction
and Land
Commercial Development Residential Commercial Consumer Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due within one year $7,277 $1,147 $ 1,970 $ 7,189 $ 302 $17,885
Due after one year
through five years 1,741 34 3,586 3,884 808 10,053
Due after five years 50 0 353 1,425 0 1,828
------ ------ ------- ------- ------- -------
$9,068 $1,181 $ 5,909 $12,498 $ 1,110 $29,766
====== ====== ======= ======= ======= =======
Total Due after one year
Fixed Rate $1,610 $ 0 $ 2,066 $ 3,022 $ 808 $ 7,506
Variable Rate 181 34 1,873 2,286 0 4,374
$1,791 $ 34 $ 3,939 $ 5,308 $ 808 $11,880
====== ======= ======= ======= ======= =======
</TABLE>
A certain degree of credit risk is inherent in Olde Port's loan
portfolio. Credit risk is managed through Olde Port's credit function, which is
designed to insure adherence to a high level of credit standards. Olde Port's
credit function provides a system of checks and balances for Olde Port's
credit-related activities by establishing and monitoring all credit-related
policies and practices within Olde Port and insuring their uniform application.
These activities are designed to provide (i) for a thorough analysis of
applications for credit; (ii) continuous examinations of both outstanding and
delinquent loans; and, (iii) an appropriate level of loan diversification. Olde
Port endeavors to identify potential problem loans early, to take charge-offs
promptly--based upon realistic assessment of likely losses--and to maintain
adequate reserves for possible loan losses. In addition to being diversified by
borrower, Olde Port's portfolio is diversified by industry and product.
NONPERFORMING ASSETS
Nonperforming assets ("NPAs") are assets on which income recognition in
the form of principal and/or interest has either ceased or is limited, thereby
reducing Olde Port's earnings. Maintaining a low level of NPAs is important to
the ongoing success of Olde Port. Olde Port's comprehensive credit review and
approval process is critical to the ability to minimize NPAs on a long-term
basis. In addition to the negative impact on net interest income and credit
losses, NPAs also increase operating expenses due to the costs associated with
collection efforts.
NPAs include nonaccrual loans and other real estate owned ("OREO").
Generally, loans are placed in nonaccrual status when they are past due greater
than ninety 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 made to reduce the carrying amount of loans
to the fair market value of the properties less estimated selling expenses upon
reclassification as OREO. Subsequent
<PAGE>
36
reductions, if needed, are charged to operating income. In addition to NPAs, the
asset quality of Olde Port can be measured by the amount of the provision,
charge-offs and several credit quality ratios presented in the discussion
concerning Provision and Allowance for Loan Losses.
At December 31, 1997, $125,971 or 0.43% of Olde Port's total loan
portfolio consisted of non-performing loans consisting entirely of non-accrual
loans. Total non-performing loans decreased by $143,485 or 53% during 1997. At
December 31, 1997, Olde Port's other real estate owned amounted to $114,199, as
compared to zero at December 31, 1996. Olde Port's other real estate owned
consisted of a single commercial property located in Dover, New Hampshire which
was acquired by deed in lieu of foreclosure in 1997. The property is currently
under a lease/purchase option agreement.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Olde Port's allowance for loan losses represents amounts available for
future credit losses. Management continually assesses the adequacy of the
allowances for loan losses in response to current and anticipated economic
conditions, specific problem loans, historical net charge-offs and the overall
risk profile of their loan portfolios. management allocates specific allowances
to individual problem loans based upon its analysis of the potential for loss
perceived to exist related to such loans. In addition to the specific allowances
for individual loans, a portion of the allowance is maintained as a general
allowance. The amount of the general allowance 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. The allowance for
loan losses is not a precise amount but is derived from judgments based on the
above factors.
Olde Port established a provision for loan losses of $20,000 and
$18,000 during 1997 and 1996, respectively. The provision partially recognized
the increase in the loan portfolio and the increase in net charge-offs during
1997. At December 31, 1997 Olde Port's allowance for possible loan losses
amounted to $668,187 representing 2.25% of total loans and 530% of
non-performing loans. Although management believes that the balance in the
allowance for possible loan losses is adequate to absorb reasonably foreseeable
loan losses, there can be no assurance that future provisions for loan losses
will not be necessary based on the performance of the loan portfolio or future
lending activities. For additional information, see Note 4 of the Olde Port
Financial Statements.
<PAGE>
37
The following table summarizes the activity in the allowance for
possible loan losses for the years ended December 31, 1995 through 1997. 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 Olde Port's market area is
homogeneous and limited in size.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
BEGINNING BALANCE $721,977 $666,665 $749,173
-------- -------- --------
CHARGE-OFFS:
Commercial 110,093 5,613 24,891
Commercial Mortgage 33,485
Residential Mortgage 52,334
Installment 212 2,319
-------- -------- --------
Total Charge-Offs 143,790 5,613 79,544
-------- -------- --------
RECOVERIES:
Commercial 37,161 20,728 6,311
Commercial Mortgage 2,238
Residential Mortgage 32,839 1,557 115
Installment 20,640 3,372
-------- -------- --------
Total Recoveries 70,000 42,925 12,036
-------- -------- --------
NET CHARGE-OFFS 73,790 (37,312) 67,508
PROVISION (BENEFIT) CHARGED TO OPERATIONS 20,000 18,000 (15,000)
-------- -------- --------
BALANCE AT END OF YEAR $668,187 $721,977 $666,665
======== ======== ========
Ratio of net charge-offs during
the year to average loans
outstanding during the year .27% (.16%) .32%
</TABLE>
As noted, Olde Port performs ongoing reviews of loans to determine the
required allowance for possible loan losses at any given date. To facilitate
this process, an individual loan rating system is utilized. In the review
process, Olde Port assesses factors including the borrower's 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 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 Olde Port's uniform classification system. Olde Port 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.
INVESTMENTS
At December 31, 1997 Olde Port's investment portfolio consisted of U.
S. Government and agency securities, Government and agency mortgage-backed
securities, state and municipal debt securities, corporate debt securities and
Federal Home Loan Bank stock. As of December 31, 1997 and 1996 Olde Port's
investment securities and FHLB Stock amounted to $11.4 million and $11.2,
respectively. The lack of growth in the portfolio during 1997 reflected
management's decision to aggressively grow the loan portfolio and have liquid
funds available for that express purpose. At December 31, 1997 and 1996 Olde
Port's investment securities were classified as available-for-sale and
held-to-maturity in accordance with SFAS No. 115. The held-to-maturity
<PAGE>
38
classification amounted to $2.0 million and $3.6 million at December 31, 1997
and 1996, respectively. The available-for-sale classification amounted to $8.8
million and $7.4 million at December 31, 1997 and 1996, respectively, and in
accordance with SFAS No. 115 were recorded at fair market value with net
unrealized gains (losses) of $51,609 and ($2,543) as of such respective dates
reflected as a separate component of stockholders' equity. For additional
information, see Note 3 of the Olde Port Financial Statements.
The table below presents the contractual maturities of Olde Port's
investment securities at December 31, 1997 and the weighted average yields of
such securities. The weighted average yields were calculated based on the
carrying value and effective yields to maturity of each security and were
adjusted to a tax equivalent basis.
<TABLE>
<CAPTION>
Carrying Amount
- ----------------------------------------------------------------------------------------------------------------------------------
Less Than One Year One Through Five Years After Five Years Totals
---------------------- --------------------- ----------------------- -------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
----------- -------- ----------- -------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury and other U.S.
Government Securities $ 498,527 5.89% $ 2,493,691 6.18% $ 2,992,218 6.15%
Mortgage Backed Securities 250,654 5.64% 418,764 6.27% $ 1,381,837 7.14% 2,051,255 6.78%
State and Municipal Securities 1,941,671 6.48% 1,352,324 6.67% 3,293,995 6.56%
Corporate Debt Securities 352,674 6.27% 352,674 6.27%
----------- ----------- ----------- -----------
Subtotal 749,181 5.87% 5,206,800 6.31% 2,734,161 6.91% 8,690,142 6.46%
----------- ----------- ----------- -----------
SECURITIES HELD-TO-MATURITY:
U.S. Treasury and other U.S.
Government Securities 399,270 6.95% 1,001,145 6.53% 1,400,415 6.65%
Mortgage Backed Securities 450,479 4.48% 128,519 6.64% 578,998 4.95%
----------- ----------- ----------- -----------
Subtotal 399,270 6.95% 1,451,624 5.90% 128,519 6.64% 1,979,413 6.16%
----------- ----------- ----------- -----------
Total $ 1,148,451 6.25% $ 6,658,424 6.22% $ 2,862,680 6.90% $10,669,555 6.46%
=========== =========== =========== ===========
</TABLE>
<PAGE>
39
DEPOSITS
Deposits are the major source of Olde Port's funds for lending and
other investment purposes. Consumer and commercial deposits are attracted
principally from within Olde Port's primary market area through the offering of
a broad selection of deposit instruments, including demand deposits, regular
savings, NOW accounts, money market accounts and time deposit ranging in term
from 30 days to five years. Included among these deposits products are time
deposits with balances of $100,000 or more, which amounted to $4.6 million or
11.6% of Olde Port's total deposits at December 31, 1997. Deposit account terms
vary according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors.
At December 31, 1997 deposits totaled $39.4 million, compared to $35.3
million at December 31, 1996. The $4.1 million or 11.6% increase was primarily
due to an increase in demand and time deposits, which was partially offset by a
decrease in savings and money market account deposits.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
($000's) Average Average Average
Balance Rate Balance Rate Balance Rate
-------------------- ------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
DEMAND DEPOSITS $ 6,357 $ 5,046 $ 3,973
------- ------- --------
SAVINGS DEPOSITS 4,305 3.30% 4,916 3.32% 5,325 3.15%
NOW DEPOSITS 4,232 2.20% 3,760 2.18% 3,747 2.00%
MONEY MARKET DEPOSITS 2,866 3.73% 3,498 3.69% 2,035 3.73%
------- ------- --------
TOTAL SAVINGS DEPOSITS 11,403 2.99% 12,174 3.07% 11,107 2.87%
------- ------- --------
TIME DEPOSITS 18,896 5.67% 16,079 5.47% 15,150 5.41%
------- ------- --------
TOTAL DEPOSITS $36,656 4.66% $33,299 4.43% $ 30,230 4.34%
======= ======= ========
</TABLE>
SHORT TERM BORROWINGS
Olde Port may use Federal Home Loan Bank borrowings, the Federal
Reserve Bank discount window, repurchase agreements and/or Federal funds
purchased to supplement its supply of lendable funds, as well as other business
purposes. Federal funds purchased represent daily transactions which Olde Port
uses to manage its fund and liquidity position to comply with regulatory
requirements. Interest rates fluctuate daily reflecting existing market
conditions. Repurchase agreements consist of funds borrowed from customers on a
short term basis which are secured by investment securities. The Federal Reserve
discount window is also available to those banks that experience seasonal
fluctuations in their balance sheet. Interest rates, which are tied to the
average Federal funds rate for the prior week, change weekly . Borrowings from
the Federal Home Loan Bank can be arranged for a fixed time and rate or may be
amortizing or carry a variable rate. For more information, see Note 7 of the
Olde Port Financial Statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The main components of market risk for Olde Port are interest rate
risk, liquidity risk and credit risk. The discussions of interest rate risk and
liquidity risk follow while credit risk is discussed under Loans.
The asset/liability management process at Olde Port provides for a
structured process for ensuring that the risk to earnings from changes in
interest rates is prudently managed. The goal of the asset/liability management
process is to manage the balance sheet to provide a maximum level of earnings
while maintaining a high quality balance sheet and acceptable levels of
interest-rate and liquidity risk. Sensitivity of earnings to interest rate
changes occurs when yields on assets change differently from the interest costs
on liabilities. To mitigate this interest-rate
<PAGE>
40
risk, the structure of the balance sheet is managed so that movements of
interest rates on assets and liabilities are highly correlated and produce an
adequate level of earnings--even in periods of volatile interest rates.
Gap analysis provides a point-in-time "snapshot" of the maturity and
repricing characteristics of Olde Port's balance sheet. The report, which
follows, is prepared by allocating all assets and liabilities into time horizons
based upon either their contractual or anticipated maturity or repricing. For
floating rate instruments, the entire balance is placed at the next date on
which their rates could be reset and for fixed rate instruments the balances are
placed in time horizon according to their principal repayment schedule. In
addition to prepayment assumptions for mortgage-related instruments, management
also applies assumptions to noncontractual deposits--such as demand deposits and
savings accounts. The interest sensitivity gap is determined by subtracting the
amount of liabilities from the amount of assets that reprice in a particular
time interval. A liability sensitive position results when more liabilities than
assets reprice or mature within a given time period. Under this scenario, as
interest rates fall, increased net interest revenue will be generated.
Conversely, an asset sensitive position results when more assets than
liabilities reprice within a given period. In such an instance, net interest
revenue would benefit from an increasing interest rate environment. The impact
of creating a liability or asset sensitive position depends on the magnitude of
the actual change in interest rates relative to the behavior of borrowers and
depositors. As is shown in the table below, as of December 31, 1997, Olde Port
was 12.79% asset sensitive at the cumulative one year gap.
<PAGE>
41
<TABLE>
<CAPTION>
December 31, 1997 ($000's)
------------------------------------------------------------------------------------------
3 Months or 4 to 6 7 Months to Over 5
Less Months 1 Year 1 to 5 Years Years Total
---------- -------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS: $ 2,175 $ $ $ $ $ 2,175
Federal Funds Sold
Interest Bearing Due 594 594
from Banks
Investment Securities 500 149 655 6,736 3,238 11,278
Loans: 10,275 3,728 3,869 10,533 1,361 29,766
---------- -------- -------- --------- ----------- ---------
TOTAL EARNING ASSETS 12,950 3,877 5,118 17,269 4,599 43,813
Other Assets 2,846 2,846
---------- -------- -------- --------- ----------- ---------
TOTAL ASSETS $ 12,950 $ 3,877 $ 5,118 $ 17,269 7,445 $ 46,659
========== ======== ======== ========= =========== =========
Source of Funds:
Demand Deposits $ $ $ $ $ 8,453 $ 8,453
NOW and Savings Deposits 121 121 239 1,919 5,597 7,997
Money Market Deposits 69 69 138 1,103 1,380 2,759
Time Deposits 3,473 8,074 3,049 5,594 20,190
---------- -------- -------- --------- ----------- ---------
Total Deposits 3,663 8,264 3,426 8,616 15,430 39,399
Borrowed Funds 126 500 950 747 2,323
Other Liabilities 211 211
Shareholders' Equity 4,726 4,726
---------- -------- -------- --------- ----------- ---------
TOTAL LIABILITIES &
CAPITAL $ 3,789 $ 8,764 $ 3,426 $ 9,566 $ 21,114 $ 46,659
========== ======== ======== ========= =========== =========
========================================================================================================================
PERIODIC GAP $ 9,161 $ (4,887) $ 1,692 $ 7,703 $ (13,669)
GAP as % of total Assets 19.63 (10.47) 3.63 16.51 (29.30)
CUMULATIVE GAP $ 9,161 $ 4,274 $ 5,966 $ 13,669
GAP as % of Total Assets 19.63 9.16 12.79 29.30
</TABLE>
LIQUIDITY RISK
Management's objective for liquidity risk is to ensure the ability of
Olde Port to meet its cash flow obligations and to capitalize on business
opportunities on a timely and cost effective basis. These cash flow obligations
include the withdrawal of deposits on demand or at maturity, the repayment of
borrowings as they mature and the ability to fund existing and new loan
commitments. Accordingly, Olde Port has liquidity 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 and prudent pricing on loan and
<PAGE>
42
deposit products. Liquidity at Olde Port is measured and monitored daily,
enabling management to identify and respond to trends occurring in Olde Port's
balance sheet.
Olde Port's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. Olde Port's
primary sources of funds are deposits, short-term borrowings, amortization and
prepayments of outstanding loans, maturities of investment securities and other
short-term investments and also include the sale of loans and investment
securities. Although scheduled loan amortization, maturing investment securities
and short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by changing interest rates,
general economic conditions and competition. Liquidity management is both a
daily and long-term function of business management. Excess liquidity is
generally invested in short-term investments such as overnight Federal funds. On
a longer-term basis, Olde Port maintains a strategy of investing in various
loans and investment securities.
Olde Port uses its sources of funds primarily to meet its ongoing
commitments, to pay maturing time deposits, savings and checking withdrawals and
to fund loan commitments as well as maintain a portfolio of investment
securities. At December 31, 1997, Olde Port's total approved commitments to
originate loans amounted to $1.2 million. For additional information relating to
Olde Port's commitments, see Note 10 of the Olde Port Financial Statements.
Time deposits scheduled to mature in one year or less at December 31,
1997 totaled $14.6 million. Management believes that a significant portion of
maturing deposits will remain with Olde Port. Time deposits over $100,000
totaled $4.6 million and the following table shows maturities of time
certificates of deposit over $100,000 at December 31, 1997:
Three months or less $ 833,123
Four through six months 2,314,207
Seven through twelve months 415,054
Over one year 1,027,104
-----------
Total $ 4,589,488
===========
INTEREST RATE SENSITIVITY
As noted above, Olde Port is a member of the FHLBB making it eligible
for both short term lines of credit and long term borrowing facilities. The
FHLBB provides its member banks with credit by accepting as collateral the
member bank's mortgage assets. Olde Port 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. Olde Port 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 Statements of Cash Flows, Olde Port's cash and cash
equivalents at December 31, 1997 was $3,720,897 at December 31, 1997 compared to
$2,147,579 at December 31, 1996.
<PAGE>
43
CAPITAL
One of management's primary objectives is to maintain a strong capital
position to merit the confidence of customers, the investing public, regulators
and its shareholders. A strong capital position helps Olde Port withstand
unforeseen adverse developments and take advantage of profitable investment
opportunities when they arise.
Olde Port's stockholders' equity increased from $4.0 million at
December 31, 1996 to $4.7 million at December 31, 1997, an increase of $743,000
or 18.6%. The increase was attributable to net income recognized duringthe year
of $643,000 which was partially offset by $20,000 of dividends to shareholders.
In addition there were increases of $66,000 from awarding common stock to
Directors as retainers and for services rendered during prior years as well as
$54,000 from the net increase in unrealized holding gains on available-for-sale
securities. For additional information, see Note 15 of the Olde Port Financial
Statements.
As noted above, Olde Port endeavors to maintain an optimal amount of
capital upon which an attractive return to shareholders will be realized over
the short and long run while meeting all regulatory requirements for minimum
levels of capital.
The Federal Deposit Insurance Corporation ("FDIC") considers a bank's
capital adequacy to be a principal factor in evaluating a bank's condition. The
FDIC has statutory authority to restrict a bank's operations based upon its
level of capital and to take other actions, including revocation of deposit
insurance and/or closing the bank, if satisfactory capital levels are not
maintained. The FDIC has promulgated regulations and adopted a statement of
policy regarding the capital adequacy of state-chartered, non-member banks, such
as Olde Port.
The FDIC capital regulations establish a minimum of 3.0% Tier 1
leverage capital requirement for the most highly rated state-chartered,
non-member banks. Additional capital of at least 100 to 200 basis points in this
ratio is required for all other state-chartered, non-member banks, which
effectively increases the minimum Tier 1 leverage capital ratio for such other
banks to 4.0% or 5.0% or more. Under the FDIC's regulation, the highest-rated
banks are those that the FDIC determines are not anticipating or experiencing
significant growth and have well diversified risks, excellent asset quality,
high liquidity, good earnings and, in general, are considered strong banking
organizations rated "composite 1" under the Uniform Financial Institution Rating
System. FDIC guidelines also require state non-member banks to maintain a ratio
of total capital to risk-weighted assets of 8.0% and a ratio of Tier 1 capital
to total risk-weighted assets of 4.0%. Capital requirements higher than the
generally applicable minimum requirements may be established for a particular
bank if the FDIC determines that the bank's capital is or may become inadequate
in view of its particular circumstances. Individual minimum capital requirements
may be appropriate where a bank is receiving special supervisory attention, has
a high degree of exposure to interest rate risk or poses other safety or
soundness concerns.
As of December 31, 1997, Olde Port exceeded all regulatory capital
ratios and was categorized as "well capitalized." The various capital ratios of
Olde Port for December 31, 1997 and 1996 were:
1997 1996
---- ----
Tier 1 Leverage Capital Ratio 10.0% 10.0%
Tier 1 Risk-Based Capital Ratio 13.9% 14.4%
Total Risk-Based Capital Ratio 15.3% 15.9%
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," ("SFAS No. 130"). This statement establishes standards for reporting
and display of comprehensive income and its components (e.g., revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements.
<PAGE>
44
This statement does not require a specific format for the financial statement
but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of financial position. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Olde Port does not expect that upon adoption,
this statement will have a material effect on its consolidated financial
statements.
THE YEAR 2000 PROBLEM
Olde Port, like all institutions that utilize computer technology, is
facing challenges associated with the inability of many existing computer
systems to process time-sensitive data accurately beyond the year 1999 (referred
to as the "Year 2000 Problem"). The Year 2000 Problem is the result of computer
programs using two digits rather than four in date fields that define the year.
Any computer programs used by Olde Port that have time-sensitive software may
recognize a date field using "00" as the year 1900 rather than the year 2000. If
not modified or replaced, these programs could cause system failures or
miscalculations, which could adversely affect Olde Port's ability to process
customer transactions or provide customer service.
Olde Port has conducted a comprehensive review of its computer systems
to identify all systems that could be affected by the Year 2000 Problem and
developed a comprehensive project management process to modify or replace all
affected systems and test them for Year 2000 compliance. Olde Port relies upon
third-party providers for its computer software. Olde Port is monitoring the
activities of its providers to ensure that appropriate developmentand
implementation plans to address the Year 2000 Problem are in place. Olde Port
has taken steps to identify alternative vendors in the event that one or more of
these providers fail to become Year 2000 compliant. While Olde Port expects its
Year 2000 plan to be completed on a timely basis (to allow for adequate testing
in late 1998 and 1999), there can be no assurance that the systems of other
companies on which Olde Port's systems may rely also will be completed in a
timely fashion. In addition, Olde Port exchanges data with a number of other
entities, such as credit bureaus and governmental entities. The failure of these
entities to adequately address the Year 2000 Problem could adversely affect Olde
Port's ability to conduct its business.
Costs associated with modifying existing system applications have been
and will continue to be expensed as incurred. Olde Port does not expect
incremental costs associated with any modifications for Year 2000 compliance to
be material.
1995 COMPARISON
Olde Port reported net income for 1995 of $614,146 or $9.29 per share -
basic. The ROA and ROE for 1995 were 1.83% and 20.32%, respectively. The
performance ratios reflected the tax credits taken from prior year losses.
Net interest income on an FTE basis in 1995 amounted to $1,700,037. The
net interest margin in 1995 was a strong 5.43%. The yield on interest earning
assets in 1995 was 9.10% while the cost of interest-bearing liabilities was
4.35%.
The provision for loan losses amounted to a credit or benefit of
$15,000. Net charge-offs amounted to $67,508, an increase from net recoveries of
$42,023 during the prior year. Total NPAs amounted to $269,446.
Non-interest income totaled $269,621 while non-interest expense
amounted to $1,303,712. Salaries and employee benefits were impacted by a 401K
profit sharing contribution and a performance bonus package paid to executive
officers.
<PAGE>
45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF OLDE PORT
The following table shows, as of the most recent practicable date
(April 30, 1998), those persons known to Olde Port who own beneficially more
than five percent of Olde Port Common Stock.
NAME AND ADDRESS OF AMOUNT, NATURE OFPERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
---------------- -------------------- -----
James A. Cotter, Jr. 8,409 (1) 12.12%
31 Nobscot Road
Weston, MA 02193
Michael E. Kenslea 4,662 6.72%
P.O. Box 562
Ogunquit, ME 03907
Gordon Gund 5,637 8.13%
P.O. Box 449
Princeton, NJ 08942
1989 G. Zachery Gund 4,000 5.77%
S Trust
P.O. Box 449
Princeton, NJ 08942
1989 Grant Gund 4,000 5.77%
S Trust
P.O. Box 449
Princeton, NJ 08942
The following table shows, as of the most recent practicable date
(April 30, 1998), beneficial ownership of Olde Port Common Stock by directors
and executive officers of Olde Port.
<TABLE>
<CAPTION>
AMOUNT, NATURE OF PERCENT OF
NAME TITLE BENEFICIAL OWNERSHIP CLASS
---- ----- -------------------- -----
<S> <C> <C> <C> <C>
James A. Cotter, Jr. Chairman, Director 8,409(1) 12.12%
Michael E. Kenslea Director, President 4,662 6.72%
and Chief Executive
Officer
Daniel J. Donahue Director 1,793(1) 2.58%
Donald A. Moore Director 2,388(2) 3.44%
Joseph G. Sawtelle Director 1,028(1) 1.48%
- ------------------------------
</TABLE>
1 Includes shares owned by, pr as to which voting power is
shared with, spouse, children or affiliates
2 Includes shares held in trust of which Mr. and Mrs. Moore are
co-trustees
<PAGE>
46
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Susan A. Tober Director 774(1) 1.12%
Richard A. Willey Treasurer, Chief 1,088(1) 1.57%
Financial Officer
William D. Young Senior Vice President, 580(1) 0.84%
Senior Loan Officer
</TABLE>
As of April 30, 1998, all directors and principal officers of Olde Port
as a group (8 in total) have advised Olde Port that they are deemed to
beneficially own an aggregate of 20,722 shares of Olde Port Common Stock
(including options to purchase 1,900 shares of stock) representing approximately
30.72% of the total number of such shares issued and outstanding. Of that
aggregate, non-employee directors are deemed to beneficially own 14,392 shares,
and principal officers are deemed to beneficially own 6,330 shares (including
options to purchase 1,900 shares of stock). All shares listed (except for the
options) are Olde Port Common Stock and entitled to one vote. "Beneficial
ownership" includes shares over which a person has direct or indirect sole or
shared voting or investment (purchase and sale) power, and options and warrants
which are exercisable within 60 days.
<PAGE>
47
DIRECTOR COMPENSATION AND MANAGEMENT TRANSACTIONS
DIRECTOR COMPENSATION
Each outside director of Olde Port, except the Chairman of the Board,
receives $200 for each Board meeting he or she attends and $100 for each
Committee meeting attended. The Chairman of the Board receives a fee of $600 per
month.
EMPLOYMENT AGREEMENTS
Olde Port presently is not a party to any employment agreements.
INDEBTEDNESS OF MANAGEMENT AND OTHERS
Some of the directors and executive officers of Olde Port and companies
or organizations with which they are associated have had, and may have in the
future, banking transactions with Olde Port in the ordinary course of their
business. All such loans are currently performing in accordance with their
terms. Total loans to directors and executive officers of Olde Port and
associates of such executive officers and directors outstanding during the past
three years were as follows:
DECEMBER 31, TOTAL INDEBTEDNESS OUTSTANDING
1997 $1,791,554
1996 621,523
1995 1,905,005
Federal banking laws and regulations limit the aggregate amount of
indebtedness which banks may extend to bank insiders. Pursuant to such laws and
regulations, Olde Port 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
Olde Port's unimpaired capital and unimpaired surplus. As of December 31, 1997,
1996 and 1995, the aggregate amounts of extensions of credit to insiders were
well below this limit.
All such banking transactions are on the same terms, including interest
rates and collateral on loans, as those prevailing at the same time for
comparable transactions with other and, on terms that do not involve more than
the normal risk of collectibility or present other unfavorable features.
DESCRIPTION OF NECB'S CAPITAL STOCK
NECB COMMON STOCK
NECB is authorized to issue 20,000,000 shares of NECB Common Stock, of
which 5,171,626 shares were issued and outstanding as of March 31, 1998. 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 directors, 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.
<PAGE>
48
In the event of any liquidation or dissolution of NECB, the holders of
the NECB Common Stock would be entitled to receive, after payment or provision
for payment of all debts and liabilities of NECB, and 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 Registrar
and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572.
PREFERRED STOCK
Pursuant to NECB's Amended and Restated Certificate of Incorporation,
the Board of Directors may, without action of the shareholders of NECB, issue
from time to time up to 200,000 shares of NECB's Serial Preferred Stock ("NECB
Preferred Stock") in one or more series with distinctive serial designations,
preferences, limitations and other rights. No shares of NECB Preferred Stock are
issued and outstanding.
The Board of Directors is authorized to determine, among other things,
with respect to each series which may be issued: (i) the rate and manner of
payment of dividends, if any; (ii) the par value, if any; (iii) whether shares
may be redeemed and, if so, the redemption price and the terms and conditions of
redemption; (iv) the amount payable for shares in the event of liquidation,
dissolution or other winding up of the corporation; (v) sinking fund provisions,
if any, for the redemption or purchase of shares; (vi) the terms and conditions,
if any, on which shares may be converted or exchanged; (vii) voting rights, if
any, and (viii) any other rights and preferences of such shares, to the full
extent now or hereafter permitted by the laws of the State of Delaware.
NECB has no present plans for the issuance of any shares of NECB
Preferred Stock. Accordingly, it is not possible to state the actual effect of
the issuance of the NECB 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 NECB Preferred Stock. However, such effect might
include: (a) restrictions on dividends on the NECB Common Stock if dividends on
NECB Preferred Stock have not been paid; (b) dilution of the voting power of the
NECB Common Stock to the extent that the preferred stock NECB Preferred Stock
has voting rights; (c) dilution of the equity interest of the NECB Common Stock
to the extent that the NECB 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 any liquidation preference granted the
holders of the NECB Preferred Stock is satisfied. Issuance of NECB 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 NECB Preferred Stock may be used as an "anti-takeover" device
without further action on the part of the shareholders of NECB.
ABSENCE OF CUMULATIVE VOTING
NECB's Amended and Restated Certificate of Incorporation prohibits
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 Amended and 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
<PAGE>
49
voting prevents 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 stockholders of NECB to vote for its representatives so that it
controls a majority of the votes cast.
MARKET FOR NECB COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
As of March 31, 1998, there were 5,171,626 shares of NECB Common Stock
issued and outstanding which were held by approximately 4,000 shareholders of
record.
NECB s Common Stock is listed on the Nasdaq NM. The following
represents the high and low sale prices from each quarter since December 31,
1995 and per share dividends declared during such period:
<TABLE>
<CAPTION>
1998
High Low Dividends
------- ------- ---------
<S> <C> <C> <C>
1st Quarter............................ $26 7/8 $23 3/8 $0.09
2nd Quarter (through April 30, 1998)... $26 1/4 $24 1/8
1997
High* Low* Dividends
------- ------- ---------
1st Quarter........................... $18 3/8 $14 7/8 $0.07
2nd Quarter........................... 17 1/2 15 0.08
3rd Quarter........................... 24 3/4 16 7/8 0.08
4th Quarter........................... 25 3/4 20 15/16 0.09
1996
High* Low* Dividends
------- ------- ---------
1st Quarter.......................... $11 1/4 $ 9 3/4 $0.06
2nd Quarter.......................... 13 10 1/2 0.06
3rd Quarter.......................... 13 11 1/2 0.06
4th Quarter.......................... 15 3/8 12 5/8 0.07
</TABLE>
* Not adjusted for 10% stock dividend paid on January 16, 1998.
Dividends are generally declared within 45 days prior to the payable
date, to stockholders of record 10 to 15 days after the declaration date.
MARKET FOR THE OLDE PORT COMMON STOCK
Olde Port Common Stock is not traded on any national or regional
exchange and there is no established public trading market for shares of Olde
Port Common Stock. Olde Port Common Stock is quoted by brokers who facilitate
trades of the Olde Port Common Stock from time to time, which occur
infrequently.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
NECB is a Delaware corporation subject to the provisions of the
Delaware General Corporation Law. Olde Port is a New Hampshire-chartered trust
company subject to the provisions of the Banking Laws of New Hampshire ("New
Hampshire Banking Law"). Upon consummation of the Merger, shareholders of Olde
<PAGE>
50
Port will become stockholders of NECB and their rights as stockholders of NECB
will be governed by the Amended and Restated Certificate of Incorporation (the
"NECB Certificate") and Bylaws of NECB (the "NECB Bylaws") and the Delaware
General Corporation Law (the "DGCL").
The following summary is not intended to be a complete statement of the
differences affecting the rights of Olde Port's shareholders, but rather
summarizes all material differences affecting the rights of such shareholders
and certain important similarities.
AUTHORIZED CAPITAL STOCK
The NECB Certificate authorizes the issuance of up to 20,000,000 shares
of NECB Common Stock, of which 5,171,626 shares were outstanding as of March 31,
1998, 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 the NECB Board of Directors may fix
and determine by resolution. See "DESCRIPTION OF NECB'S CAPITAL STOCK -
Preferred Stock."
The Olde Port Articles of Agreement authorize the issuance of up to
300,000 shares of Olde Port Common Stock, of which 67,465 shares were issued and
outstanding as of April 30, 1998.
ISSUANCE OF CAPITAL STOCK
Under the DGCL, NECB may issue rights or options for the purchase of
shares of capital stock of NECB. 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 NM to obtain stockholder approval for most stock
compensation plans for directors, officers and key employees of the corporation.
Shareholder approval of stock-related compensation plans may also be sought in
certain instances in order to qualify such plans for favorable federal income
tax treatment under current laws and regulations. The shareholders of NECB do
not have preemptive rights.
Shares of authorized capital stock of Olde Port may be issued upon
authorization by Olde Port's Board of Directors at not less than the par value
thereof. The shareholders of Olde Port do not have preemptive rights.
VOTING RIGHTS
Each share of Olde Port Common Stock and NECB Common Stock is entitled
to one vote per share on all matters properly presented at meetings of
shareholders of Olde Port and NECB, respectively. Neither the Olde Port Articles
of Agreement and Olde Port's Bylaws nor the NECB Certificate and NECB Bylaws
permit shareholders to cumulate their votes in an election of directors.
DIVIDENDS AND OTHER DISTRIBUTIONS
Under the DGCL, NECB may, unless otherwise restricted by the NECB
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 DGCL, 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 Delaware law, stockholders are not liable for any improper
dividends, repurchase or issuance of options made by a corporation.
<PAGE>
51
Under the New Hampshire Banking Law, Olde Port may declare dividends
only from its earnings remaining after deducting all losses, all sums due for
expenses, and all overdue debts upon which no interest has been paid for six
months, unless the debts are well secured and in process of collection. Such
dividends must be voted upon the Board of Directors.
For a description of the regulatory capital requirements which are
applicable to Olde Port and NECB and regulatory limitations on the ability of
NECB's banking subsidiaries to pay dividends, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Olde Port"
contained herein and NECB's Annual Report on Form 10-K for the year ended
December 31, 1997, which is incorporated in this Proxy-Statement Prospectus by
reference.
SIZE OF BOARD OF DIRECTORS
The NECB Bylaws provide that the Board may not consist of less than
three members.
The Olde Port Articles of Agreement and Bylaws provide that the number
of directors is to be not less than five nor more than nine. Olde Port's Bylaws
state that the majority of directors must be residents and citizens of the State
of New Hampshire. The number of directors may be increased or decreased from
time to time by amendment of Olde Port's Bylaws, but no decrease shall have the
effect of shortening the term of any incumbent director.
DIRECTOR VACANCIES AND REMOVAL OF DIRECTORS
Under the NECB Bylaws, vacancies on the NECB 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 directorships hold office
until the next election of directors. Under the DGCL any director or the entire
Board may be removed, with or without cause, by the holders of a majority of the
outstanding stock entitled to vote. Under the NECB Bylaws, any director may be
removed if two-thirds of the whole NECB Board determines that the director in
question is or has engaged in activities the nature of which have or would bring
disrepute upon the corporation, at a meeting called for that purpose.
The Olde Port Bylaws provide that any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy serves for the unexpired term of his predecessor in
office. Neither the New Hampshire Banking law nor the Olde Port Articles of
Agreement or Bylaws contain any specific provisions on removal of directors.
ANNUAL MEETINGS OF SHAREHOLDERS
Nominations of persons for election to NECB's Board of Directors may be
made at an annual 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 the NECB 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. Each director
will hold office for the term for which he or she is elected and until his or
her successor is elected and qualified.
The Nominating Committee of the Board of Directors of Olde Port
presents a list of nominations to the Board of Directors no later than 30 days
prior to the mailing of the notice of the annual meeting to shareholders. Upon
<PAGE>
52
approval of the nominations, the Board includes the list with the notice of the
annual meeting that is sent to Olde Port shareholders. Additional nominations
may also be made by shareholders at the annual meeting.
SHAREHOLDER ACTION WITHOUT A MEETING
Under the DGCL, any action which may be taken by the NECB shareholders
at any annual or special meeting of shareholders may be taken without a meeting
or prior notice if a consent in writing, setting forth the action to be so
taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote were present and voted.
Neither the New Hampshire Banking Law nor the Olde Port Articles of
Agreement or Bylaws provide for shareholder action by consent.
AMENDMENT OF GOVERNING INSTRUMENTS
The NECB Bylaws 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 to the NECB 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.
Olde Port's Bylaws may be changed or amended by the vote of the
majority of the Board of Directors at any properly noticed regular or special
meeting of the Board. Olde Port's Articles of Agreements may be amended upon the
approval of Olde Port's shareholders and the NHBTCI.
MERGER, CONSOLIDATION AND SALE OF ASSETS
<PAGE>
53
Under Delaware law the following corporate acts require approval by the
Board of Directors and a majority of the outstanding stock of the corporation
entitled to vote thereon: (i) a merger or consolidation, (ii) dissolution of
NECB or (iii) 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 merger 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 shareholder
approval. Subject to the provisions of Section 203 of the DGCL described below
under "--Delaware Antitakover Statute," no vote of the shareholders of NECB
would be required if NECB were the surviving corporation of a merger and (i) the
merger agreement does not amend the NECB Certificate, (ii) each share of stock
of NECB outstanding immediately before the merger is to be an identical
outstanding or treasury share of NECB stock after the merger and (iii) the
number of shares of NECB Common Stock to be issued in the merger (or to be
issuable upon conversion of any convertible instruments to be issued in the
merger) will not exceed twenty percent of the shares of NECB Common Stock
outstanding immediately before the merger. If NECB fails this test under the
DGCL, the recommendation of the NECB Board and the approval of a majority of the
outstanding shares of NECB entitled to vote thereon are required to effect a
merger.
The New Hampshire Banking Law requires the approval of the bank
commissioner and the majority of the Board of Directors as well as 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 mergers,
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.
APPRAISAL RIGHTS
New Hampshire law provides dissenters' rights for shareholders of banks
such as Olde Port, who dissent in a merger or consolidation. See "THE
MERGER--Dissenters' Rights".
The DGCL provides appraisal rights for shareholders who dissent in a
merger 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.
<PAGE>
54
DISSOLUTION
Under the DGCL, voluntary dissolution of NECB requires the adoption of
a resolution by a majority of the Board of Directors and by the affirmative vote
of the holders of a majority of the voting power of the outstanding shares
entitled to vote thereon.
While New Hampshire banking laws provide for extensive regulation of
banks and procedures for the liquidation of insolvent banks, there are no
specific provisions relating to the voluntary dissolution of banks.
LIMITATION OF DIRECTOR LIABILITY
NECB's Certificate contains a provision which provides that to the full
extent permitted by law, no director of NECB shall have any personal liability
to NECB or its shareholders for monetary damages for breach of his 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 to 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.
Olde Port's Articles of Agreement contain a provision which provides
that to the fullest extent permitted by law, no director or officer of Olde Port
shall have any personal liability to Olde Port or its shareholders for monetary
damages for breach of his or her fiduciary duty as a director and/or officer of
Olde Port except as to liability (i) for any breach of such director's and/or
officer's duty of loyalty to Olde Port or its stockholders; (ii) for acts or
omissions not in good faith which involve intentional misconduct or knowing
violation of law; or (iii) for any transaction from which such director and/or
officer derived an improper personal benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL, the NECB Certificate and the NECB Bylaws authorize NECB to
indemnify officers, directors and certain individuals associated with NECB. In
general, Article V of the NECB Bylaws and Article VII of the NECB Certificate
require NECB, to the full extent permitted by Section 145 of the DGCL, 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, employee or agent of NECB, or is or was serving at the request of NECB
as a director, officer, 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.
The Olde Port Bylaws provide that Olde Port shall indemnify each of its
directors or officers against costs and reasonable expenses necessarily incurred
in connection with the defense of any action, suit or proceeding in which he is
made a party by reason of his being or having been such a director or officer
and in which there shall be a final judicial determination of freedom from
liability from negligence or misconduct in the performance of his duties or, in
the absence thereof, a determination of freedom from such negligence or
misconduct by the shareholders of Olde Port as evidenced by majority vote at a
shareholders' meeting. No person shall be so indemnified against such costs or
<PAGE>
55
expenses incurred in relation to any matter as to which he shall be finally
judged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of his duties.
DELAWARE ANTITAKEOVER STATUTE
Section 203 of the DGCL ("Section 203") prohibits a "business
combination" (as defined in Section 203, generally including mergers, sales and
leases of assets, issuances of securities and similar transactions) by a
corporation or a subsidiary with an "interested stockholder" (as defined in
Section 203, generally the beneficial owner of 15 percent or more of a
corporation's voting stock) within three years after the person or entity
becomes an interested stockholder, unless (i) prior to the person or entity
becoming an interested stockholder, the business combination or the transaction
pursuant to which such person or entity became an interested stockholder is
approved by the board of directors of the corporation, (ii) upon the
consummation of the transaction in which the person or entity became an
interested stockholder, the interested stockholder holds at least 85 percent of
the voting stock of the corporation (excluding for purposes of determining the
number of shares outstanding, shares held by persons who are both officers and
directors of NECB and shares held by certain employee benefit plans) or (iii)
after the person becomes an interested stockholder the business combination is
approved by the NECB Board and by the holders of at least two-thirds of the
outstanding voting stock of NECB, excluding shares held by the interested
stockholder.
LEGAL MATTERS
The legality of the NECB Common Stock to be issued in connection with
the Merger will be passed on by Day, Berry & Howard LLP, Hartford, Connecticut.
EXPERTS
The financial statements of NECB, as of December 31, 1997, 1996 and
1995 and for the years then ended included in NECB's Annual Report on Form 10-K
have been audited by Shatswell, MacLeod & Company, P.C., independent
accountants, as set forth in their report thereon dated January 29, 1998, except
for Note 2, as to which the date is February 10, 1998, included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance on such report of Shatswell, MacLeod & Company,
P.C., given on the authority of said firm as experts in auditing and accounting.
The financial statements of Olde Port, as of December 31, 1997, 1996
and 1995 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.
OTHER MATTERS
As of the date of this Proxy Statement-Prospectus, the Olde Port 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 judgment.
<PAGE>
56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Unaudited Pro Forma Combined Financial Information.....................................................F-1
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997.....................................F-2
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 1997...........................................................................F-3
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 1996...........................................................................F-4
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 1995...........................................................................F-5
Notes to Unaudited Pro Forma Combined Financial Statements.............................................F-6
OLDE PORT:
Independent Auditors' Report for the Years
Ended December 31, 1997, 1996 and 1995.................................................................F-7
Balance Sheets -- December 31, 1997 and 1996...........................................................F-8
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995.......................................................................F-9
Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995................................................................F-10
Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995...............................................................F-11 - F-12
Notes to Financial Statements for the Years Ended December 31, 1997, 1996 and 1995.............F-13 - F-25
</TABLE>
<PAGE>
F-1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheets combine the
historical consolidated balance sheets of NECB and Olde Port and give effect to
the Merger--which will be accounted for as a pooling of interests--as if the
Merger became effective on December 31, 1997. Under the pooling of interests
method of accounting, NECB's consolidated financial statements will be
retroactively adjusted after the Merger to combine the results of operations of
NECB and Olde Port for periods prior to the Effective Time. The pro forma
combined statements of income cover (i) the year ended December 31, 1997, (ii)
the year ended December 31, 1996 and (iii) the year ended December 31, 1995.
The information set forth below should be read in conjunction with the
historical consolidated statements of NECB and Olde port, including their
respective notes thereto, certain of which, with regard to NECB, are
incorporated by reference in this Proxy Statement-Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma financial information does not give effect to any
anticipated cost savings or merger-related expenses and restructuring charges in
connection with the Merger, nor does it take into account NECB's pending
acquisition of BSW. The pro forma financial data are not necessarily indicative
of the actual financial position that would have occurred had the Merger been
consummated on December 31, 1997 or that may be obtained in the future.
<PAGE>
F-2
Unaudited Pro Forma Combined Balance Sheet
as of December 31, 1997
<TABLE>
<CAPTION>
NECB Olde Port Proforma Pro Forma
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA) (Historical) (Historical) Adjustments Results
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Cash & due from banks $ 35,201 $ 1,546 $ $ 36,747
Interest bearing time deposits with banks 594 594
Federal funds sold 4,650 2,175 6,825
Investments
Securities held-to-maturity 11,336 1,979 13,315
Securities available-for-sale 120,448 8,768 129,216
FHLB stock 2,977 609 3,586
Loans held-for-sale 2,966 0 2,966
Loans outstanding 408,535 29,700 438,235
Allowance for loan losses (9,257) (668) (9,925)
--------------------------------------------------------
Net loans 399,278 29,032 428,310
Premises & equipment 11,064 1,228 12,292
OREO 2,870 114 2,984
Goodwill 5,238 0 5,238
Other assets 10,142 614 10,756
--------------------------------------------------------
Total Assets $606,170 $46,659 $ 0 $652,829
--------------------------------------------------------
Deposits
Noninterest-bearing $114,510 $ 8,452 $ $122,962
Interest-bearing 408,134 30,947 439,081
--------------------------------------------------------
Total Deposits 522,644 39,399 562,043
Short-term borrowings 14,036 126 14,162
Long-term debt 11,612 2,197 13,809
Other liabilities 4,055 211 400(a) 4,666
--------------------------------------------------------
Total Liabilities 552,347 41,933 400 594,680
--------------------------------------------------------
Equity
Common stock 516 67 (11)(b) 572
Additional-paid-in capital 51,064 2,789 67(c)
(56)(d) 53,864
Retained earnings 1,107 1,818 (400)(a) 2,525
Unrealized gain on securities available for
sale, net 1,136 52 1,188
--------------------------------------------------------
Total Equity 53,823 4,726 (400) 58,149
--------------------------------------------------------
Total Liabilities & Equity $606,170 $46,659 $ 0 $652,829
========================================================
Shares outstanding 5,161 67 493(e) 5,721
Book value/per share $ 10.43 $ 70.54 $ 10.16
See "Notes to Unaudited Pro Forma Combined Financial Statements"
</TABLE>
<PAGE>
F-3
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 1997
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA)
NECB Olde Port Pro Forma Pro Forma
(Historical) (Historical) Adjustments Results
----------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME: $30,909 $2,866 $ 0 $33,775
Loans, including fees 0
Securities:
Taxable interest 7,317 513 7,830
Interest exempt from federal income taxes 141 115 256
Dividends 214 26 240
Federal funds sold and other interest 400 118 518
-------------------------------------------------------
Total interest income 38,981 3,638 0 42,619
INTEREST EXPENSE:
Deposits 12,599 1,403 14,002
Borrowed funds 930 157 1,087
--------------------------------------------------------
Total interest expense 13,529 1,560 0 15,089
Net interest income 25,452 2,078 0 27,530
Provision for possible loan losses 1,248 20 1,268
--------------------------------------------------------
Net interest income after provision 24,204 2,058 0 26,262
for possible loan losses
NONINTEREST INCOME:
Service charges, fees and commissions 2,551 187 2,738
Investment securities gains (losses), net 315 (14) 301
Gain on the sales of loans, net 860 23 883
Other 353 51 404
--------------------------------------------------------
Total noninterest income 4,079 247 0 4,326
NONINTEREST EXPENSES:
Salaries and employee benefits 9,648 737 10,385
Occupancy 2,069 96 2,165
Furniture and equipment 1,404 122 1,526
Outside services 1,035 63 1,098
Postage and supplies 728 51 779
Insurance and assessments 187 23 210
Losses, writedowns, expenses - other real estate 387 9 396
owned
Amortization of goodwill 314 0 314
Acquisition expense 2,197 0 2,197
Other 2,562 254 2,816
--------------------------------------------------------
Total noninterest expenses 20,531 1,355 0 21,886
--------------------------------------------------------
Income before taxes 7,752 950 0 8,702
Income taxes 3,117 307 3,424
--------------------------------------------------------
Net Income $ 4,635 $ 643 $ 0 $ 5,278
========================================================
Net Income per share--Basic 0.91 9.60 0.93
Net Income per share--Diluted 0.90 9.55 0.92
Weighted average shares of Common Stock 5,105 67 493 5,665(f)
Effect of diluted stock options 5,175 67 493 5,735(f)
See "Notes to Unaudited Pro Forma Combined Financial Statements"
</TABLE>
<PAGE>
F-4
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 1996
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA)
NECB Olde Port Pro Forma Pro Forma
(Historical) (Historical) Adjustments Results
----------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $27,715 $2,441 $ 0 $30,156
Securities:
Taxable interest 6,360 599 6,959
Interest exempt from federal income taxes 120 15 135
Dividends 350 7 357
Federal funds sold and other interest 506 83 589
--------------------------------------------------------
Total interest income 35,051 3,145 0 38,196
INTEREST EXPENSE:
Deposits 12,245 1,253 13,498
Borrowed funds 262 10 272
--------------------------------------------------------
Total interest expense 12,507 1,263 0 13,770
Net interest income 22,544 1,882 0 24,426
Provision for possible loan losses 2,209 18 2,227
--------------------------------------------------------
Net interest income after provision 20,335 1,864 0 22,199
for possible loan losses
NONINTEREST INCOME:
Service charges, fees and commissions 1,959 81 2,040
Investment securities gains (losses), net 7 (6) 1
Gain on the sales of loans, net 1,076 1 1,077
Other 374 190 564
--------------------------------------------------------
Total noninterest income 3,416 266 0 3,682
NONINTEREST EXPENSES:
Salaries and employee benefits 8,320 637 8,957
Occupancy 1,836 103 1,939
Furniture and equipment 1,151 85 1,236
Outside services 1,152 118 1,270
Postage and supplies 759 46 805
Insurance and assessments 180 21 201
Losses, writedowns, expenses - other real estate 397 0 397
owned
Amortization of goodwill 155 0 155
Acquisition expense 0 0 0
Other 2,014 231 2,245
--------------------------------------------------------
Total noninterest expenses 15,964 1,241 0 17,205
--------------------------------------------------------
Income before taxes 7,787 889 0 8,676
Income taxes 2,299 318 2,617
--------------------------------------------------------
Net Income $ 5,488 $ 571 $ 0 $ 6,059
========================================================
Net Income per share--Basic 1.19 8.63 1.17
Net Income per share--Diluted 1.19 8.61 1.17
Weighted average shares of Common Stock 4,605 66 494 5,165(f)
Effect of diluted stock options 4,625 66 494 5,185(f)
See "Notes to Unaudited Pro Forma Combined Financial Statements"
</TABLE>
<PAGE>
F-5
<TABLE>
<CAPTION>
Unaudited Pro Forma Combined Statement of Income
Year Ended December 31, 1995
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA)
NECB Olde Port Pro Forma Pro Forma
(Historical) (Historical) Adjustments Results
---------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $17,360 $2,246 $19,606
Securities:
Taxable interest 3,797 542 4,339
Interest exempt from federal income taxes 49 0 49
Dividends 188 2 190
Federal funds sold and other interest 713 57 770
--------------------------------------------------------
Total interest income 22,107 2,847 0 24,954
INTEREST EXPENSE:
Deposits 7,663 1,140 8,803
Borrowed funds 49 7 56
--------------------------------------------------------
Total interest expense 7,712 1,147 0 8,859
Net interest income 14,395 1,700 16,095
Provision (benefit) for possible loan losses 1,200 (15) 1,185
--------------------------------------------------------
Net interest income after provision (benefit) 13,195 1,715 0 14,910
for possible loan losses
NONINTEREST INCOME:
Service charges, fees and commissions 1,611 186 1,797
Investment securities gains (losses), net 26 (40) (14)
Gain on the sales of loans, net 498 22 520
Other 208 62 270
--------------------------------------------------------
Total noninterest income 2,343 230 0 2,573
NONINTEREST EXPENSES:
Salaries and employee benefits 5,543 720 6,263
Occupancy 1,226 90 1,316
Furniture and equipment 861 55 916
Outside services 870 70 940
Postage and supplies 501 40 541
Insurance and assessments 630 50 680
Losses, writedowns, expenses - other real estate 505 0 505
owned
Amortization of goodwill 0 0 0
Acquisition expense 0 0 0
Other 1,736 239 1,975
--------------------------------------------------------
Total noninterest expenses 11,872 1,264 0 13,136
--------------------------------------------------------
Income before taxes (benefit) 3,666 681 0 4,347
Income taxes (benefit) (24) 67 43
--------------------------------------------------------
Net Income $ 3,690 $ 614 $ 0 $ 4,304
========================================================
Net Income per share--Basic 1.19 9.29 1.17
Net Income per share--Diluted 1.18 9.29 1.17
Weighted average shares of Common Stock 3,112 66 494 3,672(f)
Effect of diluted stock options 3,114 66 494 3,674(f)
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements"
<PAGE>
F-6
Notes to Unaudited Pro Forma Combined Financial Statements
(a) Estimated expenses related to offering of NECB shares.
(b) Difference in par value of Olde Port common stock and NECB common stock
issued.
(c) Increase to reflect elimination of par value of Olde Port shares.
(d) Decrease to reflect issuance of NECB common stock (par value $0.10 per
share).
(e) Pro forma number of common shares outstanding:
<TABLE>
<CAPTION>
<S> <C>
Olde Port common stock outstanding at December 31, 1997 67,465
Olde Port options to be converted 1,900
---------
Total Shares to be exchanged 69,365
Exchange ratio (1) 8.08
NECB common stock to be issued in the Merger 560,469
NECB common stock outstanding at December 31, 1997 5,160,626
---------
Total NECB common stock outstanding, pro forma 5,721,095
Difference between the sum of the number of outstanding shares of
NECB and Olde Port at December 31,1997 and the total NECB
common stock outstanding, pro forma 493,004
</TABLE>
(f) Calculation of pro forma weighted average number of common shares
outstanding for each respective period end:
Total shares to be issued in the Merger, plus NECB historical weighted
average shares of common stock outstanding.
- --------------------
1 Assuming an NECB stock price of $24.75 per share.
<PAGE>
F-7
SHATSWELL, MACLEOD & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
83 PINE STREET
WEST PEABODY, MASSACHUSETTS 01960-3635
TELEPHONE (978) 535-0206
FACSIMILE (978) 535-9908
The Board of Directors and Stockholders
Olde Port Bank and Trust Company
Portsmouth, New Hampshire
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Olde Port Bank and Trust
Company as of December 31, 1997 and 1996 and the related statements of income,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Bank'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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Olde Port Bank and Trust
Company as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Bank adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation,"
effective January 1, 1996.
S/S SHATSWELL, MACLEOD & COMPANY, P.C.
--------------------------------------
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 6, 1998, except for Note 17
as to which the date is February 10, 1998
<PAGE>
F-8
<TABLE>
<CAPTION>
OLDE PORT BANK AND TRUST COMPANY
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and due from banks $ 1,545,897 $ 1,897,579
Federal funds sold 2,175,000 250,000
------------ ------------
Cash and cash equivalents 3,720,897 2,147,579
Interest bearing time deposits with banks 594,000 892,000
Investments in available-for-sale securities (at fair value) 8,768,338 7,398,220
Investments in held-to-maturity securities (fair values of $1,979,626 as of
December 31, 1997 and $3,639,709 as of December 31, 1996) 1,979,413 3,649,821
Federal Home Loan Bank stock 608,600 107,900
Loans, net 29,032,344 23,602,151
Premises and equipment 1,227,800 1,334,866
Other real estate owned 114,199
Accrued interest receivable 337,684 302,552
Other assets 275,729 226,261
------------ ------------
Total assets $ 46,659,004 $ 39,661,350
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 8,452,431 $ 6,719,173
Savings and NOW deposits 10,755,962 11,920,511
Time deposits 20,190,467 16,616,367
------------ ------------
Total deposits 39,398,860 35,256,051
Federal Home Loan Bank advances 2,197,133
Securities sold under agreements to repurchase 125,746
Other liabilities 211,203 422,035
------------ ------------
Total liabilities 41,932,942 35,678,086
------------ ------------
Stockholders' equity:
Common stock, par value of $1.00 per share authorized 300,000 shares;
issued and outstanding 67,465 shares in 1997 and 66,915 shares in 1996 67,465 66,915
Paid-in capital 2,788,779 2,723,329
Retained earnings 1,818,209 1,195,563
Net unrealized holding gain (loss) on available-for-sale securities 51,609 (2,543)
------------ ------------
Total stockholders' equity 4,726,062 3,983,264
------------ ------------
Total liabilities and stockholders' equity $ 46,659,004 $ 39,661,350
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
F-9
OLDE PORT BANK AND TRUST COMPANY
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 2,865,579 $ 2,440,581 $ 2,246,479
Interest and dividends on securities:
Taxable 512,805 599,189 542,302
Tax-exempt 115,046 14,902
Dividends on Federal Home Loan Bank stock 25,723 6,717 2,364
Other interest 118,476 83,372 56,094
----------- ----------- -----------
Total interest and dividend income 3,637,629 3,144,761 2,847,239
----------- ----------- -----------
Interest expense:
Interest on deposits 1,407,817 1,253,252 1,139,734
Interest on FHLB advances 104,191
Interest on securities sold under agreements to repurchase 5,495
Interest on other borrowed funds 47,195 9,961 7,468
----------- ----------- -----------
Total interest expense 1,564,698 1,263,213 1,147,202
----------- ----------- -----------
Net interest and dividend income 2,072,931 1,881,548 1,700,037
Provision (benefit) for loan losses 20,000 18,000 (15,000)
----------- ----------- -----------
Net interest and dividend income after provision
(benefit) for loan losses 2,052,931 1,863,548 1,715,037
----------- ----------- -----------
Other income:
Service charges on deposit accounts 83,539 80,757 84,537
Other service charges and fees 103,022 109,489 101,575
Other income 79,125 82,103 83,509
----------- ----------- -----------
Total other income 265,686 272,349 269,621
----------- ----------- -----------
Other expense:
Salaries and employee benefits 736,813 637,427 719,721
Occupancy expense 96,155 102,875 89,666
Equipment expense 118,829 78,135 46,557
Securities losses, net 13,866 6,417 40,197
Advertising 57,951 47,740 47,704
Directors fees 90,300 44,805 50,507
Other expense 254,357 328,957 309,360
----------- ----------- -----------
Total other expense 1,368,271 1,246,356 1,303,712
----------- ----------- -----------
Income before income taxes 950,346 889,541 680,946
Income taxes 307,626 318,100 66,800
----------- ----------- -----------
Net income $ 642,720 $ 571,441 $ 614,146
=========== =========== ===========
Earnings per common share $ 9.60 $ 8.63 $ 9.29
=========== =========== ===========
Earnings per common share, assuming dilution $ 9.55 $ 8.61 $ 9.29
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
F-10
OLDE PORT BANK AND TRUST COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Net Unrealized
Holding Gain
(Loss) On
Common Paid-in Retained Available-For-
Stock Capital Earnings Sale Securities Total
--------- ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 66,115 $2,677,524 $ 39,854 $ (208,045) $2,575,448
Dividends declared (13,224) (13,224)
Net change in unrealized
holding loss on available-
for-sale securities 209,381 209,381
Net income 614,146 614,146
--------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 66,115 2,677,524 640,776 1,336 3,385,751
Issuance of stock to directors 800 45,805 46,605
Dividends declared (16,654) (16,654)
Net change in unrealized
holding gain on available-
for-sale securities (3,879) (3,879)
Net income 571,441 571,441
--------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 66,915 2,723,329 1,195,563 (2,543) 3,983,264
Issuance of stock to directors 550 65,450 66,000
Dividends declared (20,074) (20,074)
Net change in unrealized
holding loss on available-
for-sale securities 54,152 54,152
Net income 642,720 642,720
--------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 $ 67,465 $2,788,779 $1,818,209 $ 51,609 $4,726,062
========= ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
F-11
OLDE PORT BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 642,720 $ 571,441 $ 614,146
Adjustments to reconcile net income to net cash provided
by operating activities:
Issuance of stock to directors 66,000 46,605
Change in unearned income 9,630 (21,870) 10,790
Amortization, net of accretion of securities 48,490 42,967 22,554
Securities losses, net 13,866 6,417 40,197
Deferred gain on sale of loans 17,337
Depreciation and amortization 128,815 100,044 69,479
Provision (benefit) for loan losses 20,000 18,000 (15,000)
Deferred tax expense (benefit) (4,395) 33,265 142,904
Increase (decrease) in taxes payable (222,364) 251,444 (83,315)
(Increase) decrease in interest receivable (35,132) 3,871 (76,197)
Increase (decrease) in interest payable 15,473 (3,058) 10,238
Increase (decrease) in accrued expenses 30,102 (147,681) 167,355
Increase (decrease) in prepaid expenses (20,486) 3,624 4,895
Increase (decrease) in other liabilities (37,463) 17,563 13,737
(Increase) decrease in other assets (120) 75 (570)
----------- ----------- -----------
Net cash provided by operating activities 672,473 922,707 921,213
----------- ----------- -----------
Cash flows from investing activities:
Recoveries of previously charged off loans 70,000 42,925 12,036
Proceeds from principal paydowns and rents received on other
real estate owned 51,278
Net decrease (increase) in interest bearing time deposits
with other banks 298,000 (495,000) 396,000
Purchases of available-for-sale securities (4,562,353) (4,354,380) (3,770,452)
Proceeds from sales of available-for-sale securities 1,437,356 1,508,910 2,647,797
Proceeds from maturities of available-for-sale securities 1,793,201 390,428 1,631,738
Purchases of held-to-maturity securities (1,001,250) (443,379) (3,008,898)
Proceeds from maturities of held-to-maturity securities 2,653,030 1,517,654 1,664,685
Purchase of Federal Home Loan Bank stock (500,700) (15,000) (92,900)
Net increase in loans (5,713,724) (1,925,315) (2,866,558)
Capital expenditures (21,749) (340,564) (10,188)
----------- ----------- -----------
Net cash used in investing activities (5,548,189) (4,113,721) (3,345,462)
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
F-12
OLDE PORT BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(continued)
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts 568,709 2,235,418 1,480,255
Net increase in time deposits 3,574,100 752,607 3,549,745
Net increase in securities sold under agreements to repurchase 125,746
Advances from FHLB 3,750,000
Principal repayments of advances from FHLB (1,552,867)
Net decrease in other borrowed funds (1,050,000)
Dividends paid (16,654) (13,224)
----------- ----------- -----------
Net cash provided by financing activities 6,449,034 2,974,801 3,980,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,573,318 (216,213) 1,555,751
Cash and cash equivalents at beginning of year 2,147,579 2,363,792 808,041
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,720,897 $ 2,147,579 $ 2,363,792
=========== =========== ===========
Supplemental disclosures:
Interest paid $ 1,549,225 $ 1,266,197 $ 1,136,964
Income taxes paid 534,385 33,391 7,211
Loans transferred to other real estate owned 114,199
Transfer of held-to-maturity securities to available-for-sale
securities 792,152
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
F-13
OLDE PORT BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - NATURE OF OPERATIONS
Olde Port Bank and Trust Company (Bank) is a state chartered bank which was
incorporated in 1986 and is headquartered in Portsmouth, New Hampshire. The Bank
is engaged principally in the business of attracting deposits from the general
public and investing those deposits in commercial loans and commercial real
estate loans, residential loans, consumer loans and marketable securities.
NOTE 2 - ACCOUNTING POLICIES
The accounting and reporting policies of the Bank conform to generally accepted
accounting principles and predominant practices within the banking industry. The
financial statements of the Bank were prepared using the accrual basis of
accounting. The significant accounting policies of the Bank are summarized below
to assist the reader in better understanding the financial statements and other
data contained herein.
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.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, due from banks and federal funds sold.
SECURITIES:
Investments in debt securities are adjusted for amortization of
premiums and accretion of discounts computed on the straight-line
method which has substantially the same effect as using the interest
method. Gains or losses on sales of investment securities are computed
on a specific identification basis.
The Bank classifies 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 Bank 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.
-- Held-to-maturity securities are measured at
amortized cost in 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 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 securities are carried at fair value on the
balance sheet. Unrealized holding gains and losses
for trading securities are included in earnings.
<PAGE>
F-14
LOANS:
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at
their outstanding principal balances reduced by amounts due to
borrowers on unadvanced loans, any charge-offs, the allowance for loan
losses and any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.
Interest on loans is recognized on a simple interest basis.
Loan origination and commitment fees and certain direct origination
costs are deferred, and the net amount amortized as an adjustment of
the related loan's yield. The Bank is amortizing these amounts over the
contractual life of the related loans.
Cash receipts of interest income on impaired loans is credited to
principal to the extent necessary to eliminate doubt as to the
collectibility of the net carrying amount of the loan. Some or all of
the cash receipts of interest income on impaired loans is recognized as
interest income if the remaining net carrying amount of the loan is
deemed to be fully collectible. When recognition of interest income on
an impaired loan on a cash basis is appropriate, the amount of income
that is recognized is limited to that which would have been accrued on
the net carrying amount of the loan at the contractual interest rate.
Any cash interest payments received in excess of the limit and not
applied to reduce the net carrying amount of the loan are recorded as
recoveries of charge-offs until the charge-offs are fully recovered.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An allowance is available for losses which may be incurred in the
future on loans in the current portfolio. The allowance is increased by
provisions charged to current operations and is decreased by loan
losses, net of recoveries. The provision for loan losses is based on
management's evaluation of current and anticipated economic conditions,
changes in the character and size of the loan portfolio, and other
indicators. The balance in the allowance for possible loan losses is
considered adequate by management to absorb any reasonably foreseeable
loan losses.
The Bank considers a loan to be impaired when, based on current
information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the
loan agreement. The Bank measures impaired loans 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 Bank considers for impairment 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 Bank considers its
residential real estate loans and consumer loans that are not
individually significant to be large groups of smaller balance
homogeneous loans.
Factors considered by management in determining impairment include
payment status, net worth and collateral value. An insignificant
payment delay or an insignificant shortfall in payment does not in
itself result in the review of a loan for impairment. The Bank reviews
its loans for impairment on a loan-by-loan basis. The Bank does not
apply impairment to aggregations of loans that have risk
characteristics in common with other impaired loans. Interest on a loan
is not generally accrued when the loan becomes ninety or more days
overdue. The Bank may place a loan on nonaccrual status but not
classify it as impaired, if (i) it is probable that the Bank will
collect all amounts due in accordance with the contractual terms of the
loan or (ii) the loan is an individually insignificant residential
mortgage loan or consumer loan. Impaired loans are charged-off when
management believes that the collectibility of the loan's principal is
remote. Substantially all of the Bank's loans that have been identified
as impaired have been measured by the fair value of existing
collateral.
<PAGE>
F-15
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Cost and related allowances for
depreciation and amortization of premises and equipment, retired or
otherwise disposed of, are removed from the respective accounts with
any gain or loss included in income or expense. Depreciation and
amortization are calculated principally on the straight-line method
over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES:
Other real estate owned includes properties acquired through
foreclosure and properties classified as in-substance foreclosures in
accordance with Financial Accounting Standards Board Statement No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructuring."
These properties are carried at the lower of cost or estimated fair
value less costs to sell. Any write down from cost to estimated fair
value required at the time of foreclosure or classification as
in-substance foreclosure is charged to the allowance for possible loan
losses. Expenses incurred in connection with maintaining these assets,
subsequent write downs and gains or losses recognized upon sale are
included in other expense.
In accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," the Bank classifies
loans as in-substance repossessed or foreclosed if the Bank receives
physical possession of the debtor's assets regardless of whether formal
foreclosure proceedings take place.
INCOME TAXES:
The Bank 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 Bank'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.
STOCK BASED COMPENSATION:
Prior to 1996, the Bank recognized stock-based compensation using the
intrinsic value approach set forth in APB Opinion No. 25. As of January
1, 1996, the Bank had the option, under SFAS No. 123, of changing its
accounting method for stock-based compensation from the APB No. 25
method to the fair value method introduced in SFAS No. 123. The Bank
elected to continue using the APB No. 25 method. Entities electing to
continue to follow the provisions of APB No. 25 must make pro forma
disclosure of net income and earnings per share, as if the fair value
method of accounting defined in SFAS No. 123 had been applied. The Bank
has made the pro forma disclosures required by SFAS No. 123.
EARNINGS PER SHARE:
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share" is effective for periods ending after December 15,
1997. SFAS No. 128 simplifies the standards of computing earnings per
share (EPS) previously found in APB Opinion No. 15. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15.
<PAGE>
F-16
The Bank has computed and presented EPS for the year ended December 31,
1997 in accordance with SFAS No. 128. EPS as so computed does not
differ materially from EPS that would have resulted if APB Opinion No.
15 had been applied. In accordance with SFAS No. 128 all prior-period
EPS data presented has been restated. EPS so restated does not differ
materially from EPS previously presented.
NOTE 3 - SECURITIES
Debt securities have been classified in the balance sheets according to
management's intent. The carrying amount of securities and their approximate
fair values are as follows as of December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for sale securities:
December 31, 1997:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $2,992,218 $ 15,063 $ $3,007,281
Debt securities issued by states of the United States
and political subdivisions of the states 3,293,995 57,380 3,351,375
Corporate debt securities 352,674 1,666 354,340
Mortgage-backed securities 2,051,255 7,060 2,973 2,055,342
---------- ---------- ---------- ----------
$8,690,142 $ 81,169 $ 2,973 $8,768,338
========== ========== ========== ==========
December 31, 1996:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $3,465,266 $ 5,241 $ 6,842 $3,463,665
Debt securities issued by states of the United States
and political subdivisions of the states 1,698,151 10,644 2,326 1,706,469
Mortgage-backed securities 2,238,657 6,953 17,524 2,228,086
---------- ---------- ---------- ----------
$7,402,074 $ 22,838 $ 26,692 $7,398,220
========== ========== ========== ==========
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
---------- ---------- ---------- ----------
Held-to-maturity securities:
December 31, 1997:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $1,400,415 $ 4,818 $ $1,405,233
Mortgage-backed securities 578,998 4,605 574,393
---------- ---------- ---------- ----------
$1,979,413 $ 4,818 $ 4,605 $1,979,626
========== ========== ========== ==========
December 31, 1996:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $2,861,969 $ 9,702 $ 12,832 $2,858,839
Mortgage-backed securities 787,852 6,982 780,870
---------- ---------- ---------- ----------
$3,649,821 $ 9,702 $ 19,814 $3,639,709
========== ========== ========== ==========
</TABLE>
<PAGE>
F-17
The scheduled maturities of held-to-maturity securities and available-for-sale
securities were as follows as of December 31, 1997:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
securities: securities:
----------------------- -----------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt securities other than mortgage-backed securities:
Due within one year $ 399,270 $ 400,639 $ 498,527 $ 499,323
Due after one year through five years 1,001,145 1,004,594 4,788,036 4,834,228
Due after five years through ten years 1,352,324 1,379,445
Mortgage-backed securities 578,998 574,393 2,051,255 2,055,342
---------- ---------- ---------- ----------
$1,979,413 $1,979,626 $8,690,142 $8,768,338
========== ========== ========== ==========
</TABLE>
During 1997, proceeds from sales of available-for-sale securities amounted to
$1,437,356. Gross realized gains and gross realized losses on those sales
amounted to $333 and $3,558, respectively. During 1996, proceeds from sales of
available-for-sale securities amounted to $1,508,910. Gross realized gains and
gross realized losses on those sales amounted to $547 and $6,964, respectively.
During 1995, proceeds from sales of available-for-sale securities amounted to
$2,647,797. Gross realized gains and gross realized losses on those sales
amounted to $889 and $46,742, respectively.
In 1995, the Bank transferred at fair value certain debt securities classified
as held-to-maturity to securities classified as available-for-sale. The transfer
was a result of a reassessment of the appropriateness of the classification of
all securities held as of December 31, 1995. In accordance with a special report
of the Financial Accounting Standards Board regarding SFAS No. 115 this transfer
will not call into question the intent of the Bank to hold other debt securities
to maturity in the future.
Investment securities with a par value of $587,400 as of December 31, 1997 were
pledged to secure public deposits and for other purposes required or permitted
by law. There were no investment securities pledged as of December 31, 1996.
There were no securities of issuers whose aggregate carrying amount exceeded 10%
of stockholders' equity as of December 31, 1997.
NOTE 4 - LOANS
Loans consisted of the following as of December 31:
1997 1996
------------ ------------
Commercial, financial and agricultural $ 9,058,217 $ 5,719,297
Real estate - construction and land development 1,181,537 917,813
Real estate - residential 5,908,524 5,905,634
Real estate - commercial 12,497,702 10,707,272
Consumer 1,109,926 1,098,909
Other 10,258 13,869
------------ ------------
29,766,164 24,362,794
Allowance for possible loan losses (668,187) (721,977)
Deferred gain on sale of loans (17,337)
Unearned income (48,296) (38,666)
------------ ------------
Net loans $ 29,032,344 $ 23,602,151
============ ============
<PAGE>
F-18
Certain directors and executive officers of the Bank and companies in which they
have significant ownership interest were customers of the Bank during 1997.
Total loans to such persons and their companies amounted to $1,791,554 as of
December 31, 1997. During 1997, advances totaled $2,289,005 and payments
amounted to $1,118,974.
Changes in the allowance for possible loan losses were as follows for the years
ended December 31:
1997 1996 1995
--------- --------- ---------
Balance at beginning of period $ 721,977 $ 666,665 $ 749,173
Provision (benefit) for loan losses 20,000 18,000 (15,000)
Loans charged off (143,790) (5,613) (79,544)
Recoveries 70,000 42,925 12,036
--------- --------- ---------
Balance at end of period $ 668,187 $ 721,977 $ 666,665
========= ========= =========
Information about loans that meet the definition of an impaired loan in
Statement of Financial Accounting Standards No. 114 is as follows as of December
31:
<TABLE>
<CAPTION>
1997 1996
------------------------ -------------------------
Recorded Related Recorded Related
Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit
Loans Losses Loans Losses
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Loans for which there is a related allowance for credit losses $191,974 $57,696 $229,276 $73,291
Loans for which there is no related allowance for credit losses
-------- ------- -------- -------
Totals $191,974 $57,696 $229,276 $73,291
======== ======= ======== =======
Average recorded investment in impaired loans during the
year ended December 31 $268,497 $122,433
======== ========
Related amount of interest income recognized during the time,
for the year ended December 31, that the loans were impaired:
Total recognized $ 6,590 $ 18,347
======== ========
Amount recognized using a cash-basis method of
accounting $ 1,004 $ 0
======== ========
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
The following is a summary of premises and equipment as of December 31:
1997 1996
------------ ------------
<S> <C> <C>
Buildings $ 1,413,757 $ 1,411,482
Furniture and equipment 712,516 756,369
------------ ------------
2,126,273 2,167,851
Accumulated depreciation and amortization (898,473) (832,985)
------------ ------------
$ 1,227,800 $ 1,334,866
============ ============
</TABLE>
NOTE 6 - DEPOSITS
The aggregate amount of time deposit accounts (including CDs), each with a
minimum denomination of $100,000, was approximately $4,589,488 and $3,373,303 as
of December 31, 1997 and 1996, respectively.
<PAGE>
F-19
For time deposits as of December 31, 1997, the aggregate amount of maturities
for each of the following years ended December 31 are:
1998 $14,597,293
1999 5,075,978
2000 513,024
After 2000 4,172
-----------
$20,190,467
===========
NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Advances consist of funds borrowed from the Federal Home Loan Bank of Boston
(FHLB). The components of these borrowings are as follows as of December 31,
1997:
Amount Maturity Date Rate
----------- ----------------------- ----
$ 500,000 June 8, 1998 6.02%
700,000 June 3, 1999 6.42
250,000 October 30, 2002 6.30
747,133 May 1, 2004, amortizing 6.78
------------
$ 2,197,133
============
The combined aggregate amounts of maturities of FHLB advances is as follows as
of December 31, 1997:
1998 $ 595,987
1999 802,792
2000 109,972
2001 117,751
2002 376,316
Years thereafter 194,315
----------
$2,197,133
==========
Advances are secured by the Bank's stock in that institution, its residential
real estate mortgage portfolio and the remaining U.S. government and agencies
obligations not otherwise pledged.
NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The securities sold under agreements to repurchase as of December 31, 1997 and
1996 are securities sold on a short term basis by the Bank that have been
accounted for not as sales but as borrowings. The securities consisted of
securities issued by U.S. Government Corporations and agencies and mortgage
backed securities. The securities were held in the Bank's safekeeping account at
Federal Reserve under the control of the Bank and pledged to the purchasers of
the securities. The purchasers have agreed to sell to the Bank substantially
identical securities at the maturity of the agreements.
Information concerning securities sold under agreements to repurchase is
summarized as follows for the year ended December 31, 1997:
Average balance during the year $109,922
Average interest rate during the year 5.0%
Maximum month-end balance during the year $503,638
Securities underlying the agreements at year-end:
Amortized cost basis $603,845
Estimated fair value $603,636
<PAGE>
F-20
NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following components for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
Current:
<S> <C> <C> <C>
Federal $ 280,887 $ 248,459 $ 204,287
State 31,134 36,376 20,219
--------- --------- ---------
312,021 284,835 224,506
--------- --------- ---------
Deferred:
Federal (3,799) 34,041 140,323
State (596) (776) 2,581
--------- --------- ---------
(4,395) 33,265 142,904
--------- --------- ---------
Investment and alternative minimum tax credits (35,731)
Benefit of operating loss carryforwards (164,879)
--------- --------- ---------
(200,610)
--------- --------- ---------
Provision for income taxes before change in valuation allowance 307,626 318,100 166,800
Change in valuation allowance (100,000)
--------- --------- ---------
Total income taxes $ 307,626 $ 318,100 $ 66,800
========= ========= =========
</TABLE>
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows for the years ended
December 31:
1997 1996 1995
------ ------ ------
% of % of % of
Income Income Income
------ ------ ------
Federal income tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (4.1) (.5)
Investment credit carryover (.5) (10.6)
Surtax exemption (1.2)
Unallowable expenses .3 .2 .1
State tax, net of federal tax benefit 2.2 2.6 2.2
Change in valuation allowance (14.7)
---- ---- ----
32.4% 35.8% 9.8%
==== ==== ====
<PAGE>
F-21
The Bank had gross deferred tax assets and gross deferred tax liabilities as
follows as of December 31:
1997 1996
--------- ---------
Deferred tax assets:
Allowance for loan losses $ 152,791 $ 145,067
Loan origination fees 18,653 14,934
Interest on nonperforming loans 15,602 18,274
Depreciation 1,998
Deferred income 11,288 8,376
Unrealized loss on available-for-sale securities 1,311
--------- ---------
Gross deferred tax assets 198,334 189,960
--------- ---------
Deferred tax liabilities:
Depreciation (5,290)
Unrealized gain on available-for-sale securities (26,587)
--------- ---------
Gross deferred tax liabilities (31,877)
--------- ---------
Net deferred tax assets $ 166,457 $ 189,960
========= =========
Deferred tax assets as of December 31, 1997 have not been reduced by a valuation
allowance because management believes that it is more likely than not that the
full amount of deferred tax assets will be realized.
At December 31, 1997, the Bank had no operating loss and tax credit carryovers
for tax purposes.
NOTE 10 - FINANCIAL INSTRUMENTS
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to originate loans, standby letters of
credit and unadvanced funds on loans. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of those instruments reflect the extent of
involvement the Bank has 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 loan commitments and standby letters of
credit is represented by the contractual amounts of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
Commitments to originate loans are agreements to lend to a customer provided
there is no 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 commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral held varies, but may include
secured interests in mortgages, accounts receivable, inventory, property, plant
and equipment and income-producing properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance by 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. Of the total standby letters of
credit outstanding as of December 31, 1997, $34,478 is secured by passbook
savings accounts and certificates of deposit held by the Bank.
<PAGE>
F-22
Notional amounts of financial instrument liabilities with off-balance sheet
credit risk are as follows as of December 31:
1997 1996
---------- ----------
Commitments to originate loans $1,237,000 $1,308,600
Standby letters of credit 399,888 323,668
Unadvanced portions of home equity loans 191,645 205,739
Unadvanced portions of commercial lines of credit 2,973,711 2,419,966
Unadvanced portions of construction loans 333,038 357,890
Unadvanced portions of consumer loans 2,000
---------- ----------
$5,137,282 $4,615,863
========== ==========
There is no material difference between the notional amounts and the estimated
fair values of the off-balance sheet liabilities.
NOTE 11 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank'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 Bank's loan portfolio is comprised of loans
collateralized by real estate located in the state of New Hampshire.
NOTE 12 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier 1 capital to risk-weighted assets (as defined in the
regulations), and of Tier 1 capital to average assets (as defined). Management
believes, as of December 31, 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
--------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets) $5,094 15.27% $2,669 >8.0% $3,336 >10.0%
- -
Tier 1 Capital (to Risk Weighted Assets) 4,674 13.91 1,344 >4.0 2,017 >6.0
- -
Tier 1 Capital (to Average Assets) 4,674 10.00 1,869 >4.0 2,336 >5.0
- -
As of December 31, 1996:
Total Capital (to Risk Weighted Assets) 4,331 15.90 2,179 >8.0 2,724 >10.0
- -
Tier 1 Capital (to Risk Weighted Assets) 3,986 14.43 1,105 >4.0 1,657 >6.0
- -
Tier 1 Capital (to Average Assets) 3,986 10.08 1,581 >4.0 1,976 >5.0
- -
</TABLE>
NOTE 13 - STOCK COMPENSATION PLAN
Effective on December 12, 1995, the Board of Directors of the Bank approved a
fixed option, stock-based compensation plan, which is described below. The
stockholders of the Bank ratified the plan in 1996. The Bank applies APB Opinion
25 and related Interpretations in accounting for its plan. Accordingly, no
compensation cost has been recognized for its fixed stock option plan. Had
compensation cost for the Bank's stock-based compensation plan been determined
based on the fair value at the grant date for awards under the plan consistent
with the method of FASB Statement 123, the Bank's net income and earnings per
share for 1995 would not have changed and the Bank's net income and earnings per
share for 1997 and 1996 would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net income As reported $642,720 $571,441
Pro forma $641,174 $569,814
Basic earnings per share - as restated As reported $9.60 $8.63
Pro forma $9.58 $8.60
Diluted earnings per share- as restated As reported $9.55 $8.61
Pro forma $9.53 $8.58
</TABLE>
Under the 1995 Nonqualified Stock Option Plan, the Bank may grant options to its
employees for up to 4,000 shares of common stock. Under the plan, the exercise
price of each option is not less than 100% of the fair market value of the
Bank's stock on the date of grant and an option's maximum term is 10 years.
Options become exercisable in installments determined by the committee of the
Board of Directors administering the plan.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1995: dividend yield of .5 percent for
both years; expected volatility of 9 percent and 2.3 percent, respectively;
risk-free interest rate of 5.73 percent and 5.44 percent, respectively; and
expected lives of 6 and 7 years, respectively.
<PAGE>
F-24
A summary of the status of the Bank's fixed stock option plan as of December 31,
1997, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ -------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------- -------- ---------------- ------ ----------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 900 $ 50.00 900 $50.00 0
Granted 1,000 120.00 0 900 $50.00
Exercised 0 0 0
Forfeited 0 0 0
-------- --- ---
Outstanding at end of year 1,900 $ 86.84 900 $50.00 900 $50.00
======== === ===
Options exercisable at year-end 360 180 None
Weighted-average fair value of
options granted during
the year $31.68 N/A $13.94
</TABLE>
The options granted are exercisable in five equal annual installments beginning
one year from grant date. Options granted become immediately exercisable upon a
change in control.
The following table summarizes information about fixed stock options outstanding
as of December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ------------------------------------
Number Number
Outstanding Remaining Weighted-Average Exercisable Weighted-Average
As Of 12/31/97 Contractual Life Exercise Price As Of 12/31/97 Exercise Price
-------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
900 8 years $ 50.00 360 $50.00
1,000 10 years 120.00 0 0
----- ---
1,900 9 years 86.84 360 $50.00
===== ===
</TABLE>
NOTE 14 - EMPLOYEE BENEFITS
Employees who have completed one full year of service and attained age 21 are
eligible for membership in the 401(k) plan during the first quarter after the
completion of such service and age requirements.
The provisions of the 401(k) plan allow eligible employees to contribute up to
15% of their annual salary with a matching contribution by the Bank equal to 50%
of the participants' first 4% they contribute. The Bank's expense under this
plan for 1997, 1996 and 1995 was $7,581, $6,630 and $3,283, respectively.
The Bank has a profit sharing plan for all employees who have completed one year
of employment. The Bank's expense under this plan for 1997, 1996 and 1995 was
$22,854, $19,200 and $58,553, respectively.
NOTE 15 - ISSUANCE OF STOCK TO DIRECTORS
During 1996 the Bank gave 100 shares of its common stock to each of four current
Directors and one previous Director for prior service for which they had not
been previously paid. The Bank also gave the current Directors 50 shares each as
a retainer for services rendered in 1996.
During 1997 the Bank gave 50 shares of its common stock to each of four current
Directors for prior service for which they had not been previously paid. The
Bank also gave each of the seven current Directors 50 shares as a retainer for
services rendered in 1997.
The Bank recorded expense in 1997 and 1996 equal to the fair value of the stock
given to the Directors.
<PAGE>
F-25
NOTE 16 - EARNINGS PER SHARE (EPS)
Reconciliation of the numerators and the denominators of the basic and diluted
per share computations for net income are as follows:
<TABLE>
<CAPTION>
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------ ---------
<S> <C> <C> <C>
Year ended December 31, 1997
Basic EPS
Net income and income available to common stockholders $642,720 66,926 $9.60
=====
Effect of dilutive securities, options 353
-------- ------
Diluted EPS
Income available to common stockholders and assumed
conversions $642,720 67,279 $9.55
======== ====== =====
Year ended December 31, 1996 - As restated
Basic EPS
Net income and income available to common stockholders $571,441 66,242 $8.63
=====
Effect of dilutive securities, options 162
-------- ------
Diluted EPS
Income available to common stockholders and assumed
conversions $571,441 66,404 $8.61
======== ====== =====
Year ended December 31, 1995 - As restated
Basic EPS
Net income and income available to common stockholders $614,146 66,115 $9.29
=====
Effect of dilutive securities, options 5
-------- ------
Diluted EPS
Income available to common stockholders and assumed
conversions $614,146 66,120 $9.29
======== ====== =====
</TABLE>
NOTE 17 - AGREEMENT TO BE ACQUIRED
On February 10, 1998 Olde Port Bank & Trust Company (Olde Port) and New England
Community Bancorp, Inc. (NECB) signed a definitive agreement under which NECB
will acquire Olde Port. Pursuant to the agreement, shares of Olde Port will be
exchanged for shares of NECB common stock. The agreement is subject to the
approval of the shareholders of Olde Port and regulators.
<PAGE>
APPENDIX A
PLAN AND AGREEMENT OF MERGER
BY AND BETWEEN
NEW ENGLAND COMMUNITY BANCORP, INC.
AND
OLDE PORT BANK & TRUST
------------------------------
DATED AS OF FEBRUARY 10, 1998
------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I - THE MERGER ..................................................... 1
1.01. THE MERGER .................................................. 1
1.02. EFFECTIVE TIME .............................................. 1
1.03. EFFECTS OF THE MERGER ....................................... 1
1.04. CONVERSION OF OLDE PORT COMMON STOCK ........................ 1
1.05. DISSENTERS' RIGHTS .......................................... 2
1.06. CONVERTING STOCK OPTIONS .................................... 2
1.07. OTHER MATTERS ............................................... 3
1.08. CERTAIN AGREEMENTS .......................................... 3
ARTICLE II - EXCHANGE OF SHARES ............................................ 3
2.01. THE COMPANY TO MAKE MERGER CONSIDERATION AVAILABLE .......... 3
2.02. EXCHANGE OF SHARES .......................................... 3
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF OLDE PORT .................. 5
3.01. CORPORATE ORGANIZATION ...................................... 5
3.02. CAPITALIZATION .............................................. 5
3.03. AUTHORITY; NO VIOLATION ..................................... 5
3.04. CONSENTS AND APPROVALS ...................................... 6
3.05. FINANCIAL STATEMENTS ........................................ 6
3.06. ABSENCE OF UNDISCLOSED LIABILITIES .......................... 6
3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS ........................ 7
3.08. LOAN PORTFOLIO .............................................. 8
3.09. INVESTMENTS ................................................. 9
3.10. TITLE TO PROPERTIES ......................................... 9
3.11. LEASES ...................................................... 9
3.12. TRADEMARKS; TRADE NAMES ..................................... 10
3.13. LEGAL PROCEEDINGS ........................................... 10
3.14. COMPLIANCE WITH APPLICABLE LAWS ............................. 10
3.15. ABSENCE OF QUESTIONABLE PAYMENTS ............................ 10
3.16. TAXES ....................................................... 10
3.17. EMPLOYEE BENEFIT AND OTHER PLANS ............................ 11
3.18. CONTRACTS AND COMMITMENTS; NO DEFAULTS ...................... 11
3.19. OLDE PORT REPORTS ........................................... 13
3.20. ENVIRONMENTAL MATTERS ....................................... 13
3.21. OLDE PORT INFORMATION ....................................... 13
3.22. INSURANCE ................................................... 13
3.23. POWERS OF ATTORNEY; GUARANTEES .............................. 13
3.24. BROKER'S FEES ............................................... 13
3.25. AGREEMENTS WITH REGULATORY AGENCIES ......................... 13
3.26. MATERIAL INTERESTS OF CERTAIN PERSONS ....................... 14
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................. 14
4.01. CORPORATE ORGANIZATION ...................................... 14
4.02. CAPITALIZATION .............................................. 14
4.03. AUTHORITY; NO VIOLATION ..................................... 14
4.04. CONSENTS AND APPROVALS ...................................... 15
4.05. FINANCIAL STATEMENTS ........................................ 15
4.06. ABSENCE OF CERTAIN CHANGES OR EVENTS ........................ 15
4.07. LEGAL PROCEEDINGS ........................................... 16
4.08. SEC REPORTS ................................................. 16
i
<PAGE>
4.09. COMPANY INFORMATION ......................................... 16
4.10. COMPLIANCE WITH APPLICABLE LAW .............................. 16
4.11. REGULATORY APPROVALS ........................................ 17
ARTICLE V - COVENANTS RELATING TO CONDUCT OF BUSINESS ...................... 17
5.01. COVENANTS OF OLDE PORT ...................................... 17
5.02. COVENANTS OF THE COMPANY .................................... 19
ARTICLE VI - ADDITIONAL AGREEMENTS ......................................... 19
6.01. REGULATORY MATTERS .......................................... 19
6.02. ACCESS TO INFORMATION ....................................... 20
6.03. ORGANIZATION OF NECB INTERIM BANK AND EXECUTION OF
BANK MERGER AGREEMENT ..................................... 20
6.04. SHAREHOLDER APPROVAL ........................................ 20
6.05. LEGAL CONDITIONS TO MERGER .................................. 21
6.06. AFFILIATES .................................................. 21
6.07. STOCK LISTING ............................................... 21
6.08. FINANCIAL STATEMENTS ........................................ 21
6.09. FURTHER ASSURANCES; ADDITIONAL AGREEMENTS ................... 21
6.10. DISCLOSURE SUPPLEMENTS ...................................... 21
6.11. CURRENT INFORMATION ......................................... 21
6.12. ENVIRONMENTAL ASSESSMENT .................................... 22
6.13. PUBLIC ANNOUNCEMENTS ........................................ 22
ARTICLE VII - CONDITIONS PRECEDENT ......................................... 22
7.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS UNDER
THIS AGREEMENT ............................................ 22
7.02. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
UNDER THIS AGREEMENT ...................................... 23
7.03. CONDITIONS TO THE OBLIGATIONS OF OLDE PORT
UNDER THIS AGREEMENT ...................................... 24
ARTICLE VIII - CLOSING ..................................................... 25
8.01. TIME AND PLACE .............................................. 25
8.02. DELIVERIES AT THE CLOSING ................................... 25
ARTICLE IX - TERMINATION AND AMENDMENT ..................................... 25
9.01. TERMINATION ................................................. 25
9.02. EFFECT OF TERMINATION ....................................... 27
9.03. AMENDMENT ................................................... 27
9.04. EXTENSION; WAIVER ........................................... 27
ARTICLE X - MISCELLANEOUS .................................................. 27
10.01. EXPENSES .................................................... 27
10.02. FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES ............... 27
10.03. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES .............. 28
10.04. INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE ...... 28
10.05. NOTIFICATION OF CERTAIN MATTERS ............................. 28
10.06. NOTICES ..................................................... 29
10.07. PARTIES IN INTEREST ......................................... 29
10.08. GRANT OF STOCK OPTION. ...................................... 30
10.09. COMPLETE AGREEMENT .......................................... 30
10.10. COUNTERPARTS ................................................ 30
10.11. GOVERNING LAW ............................................... 30
10.12. HEADINGS .................................................... 30
ii
<PAGE>
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (this "Agreement"), dated as of February
10, 1998, by and between New England Community Bancorp, Inc., a Delaware
corporation (the "Company"), and Olde Port Bank & Trust, a New Hampshire
state-chartered bank and trust company ("Olde Port").
WHEREAS, the Boards of Directors of the Company and Olde Port 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 NECB Interim Bank, as defined in Section 1.01 of this Agreement,
will, subject to the terms and conditions set forth herein, merge with and into
Olde Port (the "Merger); and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.01. THE MERGER. In accordance with the provisions of this Agreement,
the provisions of the Bank Merger Agreement as defined in Section 1.03 of this
Agreement, and the provisions of applicable federal and state law, at the
Effective Time (as defined in Section 1.02 hereof), the Company shall acquire
all of the outstanding shares of common stock, par value $1.00 per share, of
Olde Port ("Olde Port Common Stock") (except for (i) shares held by Olde Port as
treasury shares, (ii) shares owned by any direct or indirect subsidiary of Olde
Port, (iii) shares held by the Company or its Subsidiaries other than in a
fiduciary or trust capacity for the benefit of third parties, and (iv)
Dissenting Shares, as defined in Section 1.05 hereof), in a transaction whereby
NECB Interim Bank, an interim New Hampshire bank to be organized by the Company
as a wholly-owned subsidiary pursuant to Section 384:58 of the New Hampshire
Revised Statutes Annotated (the "RSA") solely for the purpose of facilitating
the acquisition by the Company of Olde Port, shall, pursuant to RSA ss. 388:10,
merge with and into Olde Port (the "Merger"). Olde Port shall be the surviving
bank (herein sometimes called the "Surviving Bank") in the Merger and shall
continue its corporate existence as a New Hampshire trust company and a
wholly-owned subsidiary of the Company. Upon consummation of the Merger, the
separate corporate existence of NECB Interim Bank shall terminate. Each
outstanding share of stock of NECB Interim Bank immediately prior to the
Effective Time shall be converted into one share of stock of Surviving Bank at
the Effective Time and shall remain outstanding after the Effective Time.
Outstanding shares of Olde Port Common Stock immediately prior to the Effective
Time shall be converted into the right to receive consideration in 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.
The name of the Surviving Bank shall be "Olde Port Bank & Trust" at the
Effective Time.
1.02. EFFECTIVE TIME. The Merger shall become effective upon the filing
with the Secretary of State of the State of New Hampshire (the "Secretary") of
the approval of the Merger by the Bank Commissioner of the State of New
Hampshire (the "Commissioner") together with a copy of the Bank Merger Agreement
or at any subsequent time specified as the effective time pursuant to the Bank
Merger Agreement. The date and time when the Merger shall become effective is
referred to herein as the "Effective Time".
1.03. EFFECTS OF THE MERGER. At and after the Effective Time, the
Merger shall have the effects set forth in the Bank Merger Agreement between
NECB Interim Bank and Olde Port attached hereto as EXHIBIT A.
1.04. CONVERSION OF OLDE PORT COMMON STOCK.
(a) At the Effective Time, each share of Olde Port Common Stock
issued and outstanding immediately prior to the Effective Time (except
for (i) shares held by Olde Port as treasury shares, (ii) shares owned
by any direct or indirect subsidiary of Olde Port, (iii) shares held by
the Company or any subsidiary of the Company other than in a fiduciary
<PAGE>
A-2
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 Merger consideration
("Per Share Merger Consideration") consisting of that number of shares
of Company Common Stock, and cash in lieu of fractional shares, equal
to $200.00 in value, the final exchange ratio (the "Exchange Ratio") to
be determined (subject to adjustment to reflect any subsequent stock
dividend, stock split or other change in the shares of the Company
Common Stock prior to the Effective Time) by dividing $200.00 by the
average closing price of Company Common Stock supplied by the National
Association of Securities Dealers Automated Quotations System
("NASDAQ") and reported in THE WALL STREET JOURNAL as of the end of the
ten (10) consecutive trading-day period ending on the date on which the
last of the regulatory approvals required for the consummation of the
Merger occurs (the "Average Closing Price").
(b) At the Effective Time, all of the shares of Olde Port Common
Stock converted into Company Common Stock pursuant to this Article I
shall no longer be outstanding and shall automatically be canceled and
shall cease to exist, and each certificate (each a "Certificate")
previously representing any such shares of Olde Port Common Stock shall
thereafter represent the right to receive the Per Share Merger
Consideration into which the share of Olde Port 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 Olde Port 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.
(c) At the Effective Time, (i) all shares of Olde Port Common
Stock that are owned by Olde Port as treasury shares, (ii) all shares
of Olde Port Common Stock that are owned directly or indirectly by any
subsidiary of Olde Port, and (iii) shares of Olde Port Stock held by
the Company or any subsidiary of the Company other than in a fiduciary
or trust capacity for the benefit of third parties shall be canceled
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 RSA ss. 388:13, shares of Olde
Port Common Stock which are issued and outstanding immediatelY prior to the
Effective Time and which are owned by shareholders who: (a) pursuant to RSA ss.
388:13, deliver to Olde Port, before the taking of the vote of Olde Port's
shareholders on the Merger, written demand for the appraisal of their shares, if
the Merger is effected; and (b) whose shares are not voted in favor of the
Merger, nor consented thereto in writing (the "Dissenting Shares"), shall not be
converted into Merger Consideration as provided in Section 1.04, unless and
until such holders shall have failed to perfect or shall have effectively
withdrawn or lost their right of appraisal and payment under RSA ss. 388:13. If
any such holder shall have failed to perfect or shall have effectively withdrawn
or lost such right of appraisal, the Olde Port Common Stock of such holder shall
thereupon be exchangeable for, at the Effective Time, Merger Consideration
determined pursuant to Section 1.04 and Section 2.02 hereof.
1.06. CONVERTING STOCK OPTIONS. Stock Options (as defined in Section
3.02) which, as of the Effective Time, are outstanding and fully vested and
exercisable as to all of the shares of Olde Port Common Stock that are subject
to such option (including options that become exercisable as a result of the
transactions contemplated by this Agreement) (each, a "Vested Stock Option"),
shall be converted at the Effective Time into Company Common Stock in accordance
with the formula set forth below, to the extent permitted under the Olde Port
Stock Option Plan (as defined in Section 3.02) and the agreement pursuant to
which such Vested Stock Options were granted (each, an "Option Grant
Agreement"). Each Vested Stock Option to be so converted is referred to herein
as a "Converting Stock Option." If conversion of any Vested Stock Option would
not be permitted under the Olde Port Stock Option Plan or Option Grant Agreement
without the consent of the optionee affected thereby, Olde Port, in consultation
with the Company, shall use its reasonable best efforts to obtain the consent of
the necessary parties to amend the related Olde Port Stock Option Plan or Option
Grant Agreement, or both, as necessary to permit such conversion, and to cause
Vested Stock Options outstanding as the Effective Time to be Converting Stock
Options.
<PAGE>
A-3
(i) Each outstanding Converting Stock Option shall be valued by
subtracting the stated exercise price for each Converting Stock Option from
$200.00 (the "Option Value");
(ii) Each holder of Converting Stock Options shall receive at the
Effective Time, a number of shares of Company Common Stock equal to the
aggregate Option Value for all of such holder's Converting Stock Options,
divided by the Average Closing Price; and
(iii) Cash shall be paid in lieu of fractional shares, based upon
the Average Closing Price.
1.07. OTHER MATTERS. At and after the Effective Time, as provided in
the Bank Merger Agreement: (i) the Surviving Bank's main office shall be located
in Portsmouth, New Hampshire; (ii) the Directors and officers of Surviving Bank
shall be those individuals as selected by the Company; (iii) the Articles of
Agreement and Bylaws of NECB Interim Bank existing immediately prior to the
Effective Time shall be the Articles of Agreement and Bylaws of the Surviving
Bank; (iv) the capital stock of the Surviving Bank at the Effective Time shall
consist of one share of Common Stock, no par value; and (v) the minimum number
of Directors of the Surviving Bank shall be 3 and the maximum number of
Directors of the Surviving Bank shall be 10, as set forth in the Articles of
Agreement and Bylaws of the Surviving Bank defined in (iii) above. At the
Effective Time, the Company shall provide for the election of one Olde Port
Director to the Board of Directors of the Company.
1.08. CERTAIN AGREEMENTS. In order to protect the integrity of this
Agreement, as of the date of this Agreement, (i) the Company and Olde Port are
entering into a Stock Option Agreement, as described in Section 10.08 of this
Agreement, and (ii) the Company and certain shareholders of Olde Port are
entering into agreements (the "Shareholder Agreements") whereby such
shareholders agree to take or refrain from certain actions.
ARTICLE II
EXCHANGE OF SHARES
2.01. THE COMPANY TO MAKE MERGER 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, which may be
New England Bank & Trust 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 sufficient to pay
the Merger consideration provided for in Section 1.04 (the "Merger
Consideration") (such 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
2.02(a) in exchange for outstanding shares of Olde Port Common Stock.
2.02. EXCHANGE OF SHARES.
(a) As soon as practicable after the Effective Time, and in no
event later than ten 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
Merger Consideration into which the shares of Olde Port 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 Olde Port Common Stock shall have become entitled
pursuant to the provisions of Article I hereof and (y) a check
representing 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 canceled. 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.
<PAGE>
A-4
(b) At the Effective Time and until so surrendered and exchanged,
each such Certificate other than Certificates representing (i) all
shares of Olde Port Common Stock that are owned by Olde Port as
treasury shares, (ii) all shares of Olde Port Common Stock that are
owned directly or indirectly by any subsidiary of Olde Port, (iii)
shares of Olde Port Common Stock held by the Company or a subsidiary of
the Company other than in a fiduciary or trust capacity for the benefit
of third parties, and (iv) shares of Olde Port as to which dissenters'
rights have been perfected, shall represent solely the right to receive
Merger Consideration as provided for in this Agreement. If Merger
Consideration (or any portion thereof) is to be delivered to any person
other than the person in whose name the certificate representing shares
of Olde Port 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 Merger 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 Olde Port of the shares of Olde Port 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 canceled and exchanged for Merger Consideration as provided in
this Article II.
(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 Olde Port 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 Average Closing Price of Company Common Stock as
defined in Section 1.04 hereof 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 Olde Port for 12 months after the Effective Time
shall be paid to the Company. Any shareholders of Olde Port who have
not theretofore complied with this Article II shall thereafter look
only to the Company for payment of Merger Consideration deliverable in
respect of each share of Olde Port 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,
any subsidiary of the Company, Olde Port, the Exchange Agent or any
other person shall be liable to any former holder of shares of Olde
Port 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 Merger Consideration deliverable in respect
thereof pursuant to this Agreement.
<PAGE>
A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF OLDE PORT
Olde Port hereby represents and warrants to the Company as follows:
3.01. CORPORATE ORGANIZATION.
(a) Olde Port is a New Hampshire state-chartered trust company
duly organized, validly existing and in good standing under the laws of
the State of New Hampshire. Olde Port 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. Olde Port 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 Olde Port 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 Olde Port's Articles
of Agreement 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 3.0L(A), Olde Port
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. Each such
Subsidiary of Olde Port is wholly owned by Olde Port free and clear of
all liens, claims, encumbrances and restrictions on transfer and is
duly organized, validly existing and in good standing under the laws of
the State of its incorporation 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 Olde Port pertaining
to its business, operations and financial condition shall be deemed to
include the business, operations and financial condition of each
Subsidiary of Olde Port.
(c) Olde Port's minute books contains complete and accurate
records of all meetings through the date hereof, and other corporate
actions of its shareholders and its Board of Directors (including
committees of its Board of Directors).
3.02. CAPITALIZATION. The authorized capital stock of Olde Port
consists solely of 300,000 shares of common stock, par value $1.00 per share. As
of the date of this Agreement, there were 67,465 shares of Olde Port Common
Stock issued and outstanding, no shares held in Olde Port's treasury and 1,900
shares reserved for issuance upon exercise of outstanding stock options (the
"Stock Options") pursuant to the 1995 Nonqualified Stock Option Plan for Key
Employees (the "Olde Port Stock Option Plan"). No other shares of Olde Port
Common Stock are reserved for issuance. All issued and outstanding shares of
Olde Port Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. Except as provided in this Section 3.02 and in the
Stock Option Agreement, Olde Port 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 Olde Port
capital stock or any security representing the right to purchase or otherwise
receive any capital stock of Olde Port. None of the shares of capital stock of
Olde Port 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 Olde Port is aware among any of the Olde Port shareholders relating to
rights to own, vote or dispose of Olde Port Common Stock.
3.03. AUTHORITY; NO VIOLATION.
(a) Olde Port 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
Olde Port and the consummation by Olde Port of the transactions
contemplated by this Agreement have been duly and validly approved by
<PAGE>
A-6
the Board of Directors of Olde Port. The Board of Directors of Olde
Port has directed that this Agreement and the transactions contemplated
hereby be submitted to Olde Port's shareholders for consideration at a
meeting of such shareholders and, except for the adoption of this
Agreement by the requisite vote of Olde Port's shareholders, no other
corporate proceedings on the part of Olde Port are necessary to approve
this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Olde
Port and (assuming adoption of the Agreement by the requisite vote of
Olde Port's shareholders and the due authorization, execution and
delivery by the Company, and also subject to the receipt of the
requisite regulatory approvals) constitutes a valid and binding
obligation of Olde Port, enforceable against Olde Port 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) Neither the execution and delivery of this Agreement by Olde
Port, nor the consummation by Olde Port of the transactions
contemplated hereby, nor compliance by Olde Port with any of the terms
or provisions hereof, will (i) violate any provision of the Articles of
Agreement or Bylaws of Olde Port 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 Olde Port, 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 Olde Port under any of the terms and conditions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Olde Port 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 Federal
Deposit Insurance Corporation (the "FDIC"), the Board of Governors of the
Federal Reserve System (the "FRB"), any other applicable governmental
authorities and the shareholders of Olde Port, no consents, permits,
authorizations 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 Olde Port of this Agreement, (b) the consummation of
the Merger and the other transactions contemplated hereby or (c) the direct or
indirect ownership of Olde Port by the Company.
3.05. FINANCIAL STATEMENTS. Olde Port has previously delivered to the
Company accurate and complete copies of (a) the balance sheets of Olde Port as
of December 31 of each of the three fiscal years 1993 through 1996, 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 Olde Port's independent certified public
accountants, (b) the unaudited balance sheets of Olde Port as of December 31,
1997 and the related unaudited statement of operations, statement of
shareholders' equity, and statement of cash flows for the twelve-month period
then ended, and (c) all management letters from such accountants delivered to
Olde Port since January 1, 1993. Within 45 days of the date of this Agreement,
Olde Port will deliver to the Company the audited financial statements of Olde
Port as of and for the year ended December 31, 1997. Each of the financial
statements referenced above, including the notes thereto ("Financial
Statements"), has been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent with other periods, except as
otherwise noted therein or in notes thereto, and fairly presents or will fairly
present in all material respects the financial condition or income of Olde Port
as at the date thereof and for the period covered thereby. Except as and to the
extent reflected or reserved in the balance sheets included in the Financial
Statements or notes thereto, Olde Port 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 GAAP. The books and records of Olde Port have been, and are
being, maintained in all material respects in accordance with applicable legal
and accounting requirements and reflect only valid transactions.
3.06. ABSENCE OF UNDISCLOSED LIABILITIES. Except for the transactions
contemplated by this Agreement, Olde Port has not incurred any liability
(contingent or otherwise) that (a) is material to Olde Port or that (b) when
combined with all similar liabilities, would be material to Olde Port, except as
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A-7
disclosed in the notes to Olde Port's December 31, 1997 balance sheet, and
except, in the case of clause (b), 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 Olde Port, since December 31, 1997, there has
not been:
(1) any material adverse change in the business, operations,
properties, assets or financial condition of Olde Port and no
fact or condition exists which Olde Port believes will cause such
a material adverse change in the future,
(2) any loss (excluding loan losses), damage, destruction or
other casualty materially and adversely affecting any of the
significant properties, assets or business of Olde Port (whether
or not covered by insurance);
(3) any increase in the compensation payable by Olde Port 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 Olde Port for the benefit of any
such Director, officer, agent, consultant or employee;
(4) any change in any method of accounting or accounting practice
of Olde Port, other than changes required by applicable law or
generally accepted accounting principles;
(5) any rescheduling or 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 Olde Port to do any of the foregoing.
(b) Except as set forth in SCHEDULE 3.07(B) since December 31,
1997, Olde Port has not:
(1) issued or sold any promissory notes, stock, bonds or other
corporate securities of which it is the issuer;
(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, 1997 balance sheet and
current liabilities incurred since December 31, 1997 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), canceled any debts or
claims or waived any rights of substantial value, except, in each
case, in the ordinary course of business;
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A-8
(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 Olde Port 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 Articles of Agreement 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 otherwise in the ordinary course of business;
(11) waived any rights of value which in the aggregate are
material considering the business of Olde Port taken as a whole;
(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 amendments or terminations
would in the aggregate have a material adverse effect on Olde
Port, 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
Olde Port, any liability that could reasonably be expected to
have, a material adverse effect on Olde Port, 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 Olde Port in Olde Port'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 Olde Port which may be asserted against Olde Port. Except as
set forth on SCHEDULE 3.08, Olde Port has delivered to the Company a true and
complete list in all material respects and brief description of all real
property in which Olde Port has an interest as creditor or mortgagee securing an
amount or amounts greater than $250,000 to one borrower, or group of related
borrowers. Except as set forth in such list, (a) there are no outstanding loans
held by Olde Port with an unpaid balance of $50,000 or more in which a default
has occurred and is continuing and (b) Olde Port has no loans reflected as
assets in its Financial Statements which have principal balances in excess of
$100,000, 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 currently outstanding loans in
the original principal amount in excess of $100,000 of Olde Port that as of the
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A-9
date of this Agreement are classified by Olde Port or in any written bank
examination report as "Special Mention," "Substandard," "Doubtful," "Loss" or
"Classified," or by similar terms, 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 Olde Port, no agency has, to the best
knowledge of Olde Port, initiated any proceeding or investigation into the
business or operations of Olde Port since December 31, 1993. As of December 31,
1997, to the best knowledge of Olde Port, the amount established by Olde Port as
a reserve for loan losses was sufficient in all material respects to cover
anticipated losses in Olde Port's loan portfolio.
3.09. INVESTMENTS.
(a) Except as set forth in SCHEDULE 3.09, Olde Port has no
subsidiaries other than as listed on SCHEDULE 3.01(A) 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 Olde Port as collateral for loans or obligations
made by Olde Port in the ordinary course of its lending business. To
the extent any such interest has been foreclosed or otherwise
thereafter become owned by Olde Port, no filing with any regulatory
authority is necessary.
(b) Except as disclosed in the notes to Olde Port's December 31,
1997 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 Olde
Port's 1997 balance sheet which are owned by Olde Port at the Effective
Time and none of the investments made by Olde Port since December 31,
1997 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
December 31, 1997 of the investment securities, mortgage backed
securities and securities held for sale of Olde Port.
3.10. TITLE TO PROPERTIES. Except as set forth in SCHEDULE 3.10, Olde
Port has good, valid and marketable title to (a) all its owned real properties,
and (b) to the best knowledge of Olde Port, all other properties and assets
reflected in the 1997 balance sheet or acquired since December 31, 1997, other
than any of such properties or assets which have been sold or otherwise disposed
of since December 31, 1997 in the ordinary course of business and consistent
with past practice. Except as set forth in SCHEDULE 3.10, and except for Olde
Port's loans which are described in Section 3.08 all of such properties and
assets are, to the best knowledge of Olde Port, 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 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 Olde Port
or which would involve no material expense to correct or remove. All personal
property material to the business, operations or financial condition of Olde
Port, and all buildings, structures and fixtures used by Olde Port in the
conduct of its business, are, to the best knowledge of Olde Port, in good
operating condition and have been properly maintained. Except as set forth in
SCHEDULE 3.10, Olde Port 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 Olde Port's use thereof.
3.11. LEASES. Olde Port owns no real property used in the operation of
its business, except as listed in SCHEDULE 3.11, and Olde Port has delivered to
the Company an accurate and complete list of all leases pursuant to which Olde
Port, 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 Olde
Port'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 Olde Port, to the best knowledge of Olde Port, no event of
default or event, occurrence, condition or act which with the giving of notice,
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A-10
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 Olde Port, 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 Olde Port or in which it
has any interest. Olde Port 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 Olde Port, is there any valid basis
for any such claim, challenge or question, and use of such trademarks, trade
names and copyrights by Olde Port does not infringe on the rights of any person.
3.13. LEGAL PROCEEDINGS. Except as set forth in the attached SCHEDULE
3.13, Olde Port is not a party to any, and there are no pending or, to the best
knowledge of Olde Port's management, threatened legal, administrative,
arbitration or other proceedings, claims, actions, suits or governmental
investigations of any nature involving, affecting or relating to Olde Port other
than such matters arising in the ordinary course of Olde Port's business which,
individually and in the aggregate, are not material, or challenging the validity
or propriety of the transactions contemplated in this Agreement; and there is
not known to Olde Port any reasonable basis for any such proceedings, claim,
action or governmental investigation. Neither Olde Port nor any of its
subsidiaries, properties or assets is a party to or subject to any order,
judgment, decree or other governmental restriction which will, or might
reasonably be expected to, affect materially Olde Port's 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. Olde Port 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 Olde Port, 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 Olde Port, no suspension or cancellation of any material license, franchise,
permit or authorization is threatened.
3.15. ABSENCE OF QUESTIONABLE PAYMENTS. Olde Port has not, nor, to the
best knowledge of Olde Port, has any Director, officer, agent, employee,
consultant or other person associated with, or acting on behalf of, Olde Port,
(a) used any Olde Port 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
Olde Port corporate funds, or established or maintained any unlawful or
unrecorded accounts with funds received from Olde Port.
3.16. TAXES. Olde Port 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 1997 Balance Sheet are, to the best of Olde Port'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, 1997 or
for any year or period prior thereto, and for which Olde Port may be liable in
its own right or as transferee of the assets of, or successor to, any
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A-11
corporation, person, association, partnership, joint venture or other entity.
The federal and state income tax returns of Olde Port have never been examined
by the Internal Revenue Service.
To the best of Olde Port's knowledge, there are no pending questions
relating to, or claims asserted for, taxes or assessments upon Olde Port nor has
Olde Port 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 Olde Port 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 Olde
Port 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 Olde Port in
its financial statements as of December 31, 1997.
3.17. EMPLOYEE BENEFIT AND OTHER PLANS. Except as set forth in SCHEDULE
3.17, Olde Port 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, Olde Port 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 Olde Port 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 Olde Port 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 Olde Port'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) Olde Port does not currently maintain
or contribute to a Multiemployer Plan; (ix) each of Olde Port'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
Olde Port 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 Olde Port that has not been satisfied in full.
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 Olde Port:
(1) subject to applicable law, any bank regulatory agency
reports, formal or informal supervisory actions or other communication
relating to the examination of Olde Port which have been made available
to Olde Port;
(2) the name of each bank with which Olde Port 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 Olde Port
is indebted in an amount greater than $50,000 for borrowed money or the
price of purchased property, accompanied by copies thereof including
all amendments or modifications of any thereof;
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A-12
(4) any loans or other credit arrangements by Olde Port to, with
or for the benefit of any holder of 5% or more of Olde Port Common
Stock, any of Olde Port's Directors or executive officers, or, to the
best of Olde Port'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 stockholders, Directors or officers has a financial
interest; and
(5) any pending application, including any documents or materials
relating thereto, which has been filed by Olde Port 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, Olde Port is not a party to
or bound by, nor have any bids or proposals been made by or to Olde Port with
respect to, any written or oral, express or, to the best of Olde Port'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;
(4) contract, commitment or arrangement for the borrowing of
money or for obtaining a line of credit (except for federal funds
purchases and advances);
(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 Olde Port 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 other than as provided for in this
Agreement or the Stock Option Agreement, for the sale of any of Olde
Port's stock, tangible assets, or rights or for the grant of any
preferential rights to purchase any of Olde Port's stock, tangible
assets, or rights or which requires the consent of any third party to
the transfer and assignment of any of Olde Port's 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 Olde Port of more than $50,000 other than in the
ordinary course of business.
(c) Neither Olde Port nor any of its Subsidiaries has committed a
default with respect to any material contract, agreement or commitment to which
it is a party or received notice of any such default, and neither Olde Port nor
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any of its Subsidiaries has knowledge of any facts or circumstances which would
reasonably indicate that Olde Port or any of its Subsidiaries 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. OLDE PORT REPORTS. Olde Port has previously delivered to the
Company an accurate and complete copy of each final offering circular,
prospectus, report and definitive proxy statement filed by Olde Port with the
FDIC since January 1, 1993, and each communication concerning the financial
condition of Olde Port mailed by Olde Port to its shareholders or its depositors
since January 1, 1993. The most recently mailed offering circular, annual
report, quarterly report, communication and proxy statement did not contain, and
no other such offering circular, report, proxy statement or communication has
contained, to the best knowledge of Olde Port, 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) Olde Port 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 Olde Port
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 Olde Port's
knowledge, no basis exists for the assertion or commencement thereof)
in which Olde Port 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 Olde Port or to Olde Port's knowledge, on
a site with respect to which Olde Port 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 Olde Port 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. OLDE PORT INFORMATION. No representation or warranty contained in
this Agreement, and no statement or information contained in any certificate,
list, schedule or other writing furnished to the Company by Olde Port pursuant
to the provisions hereof, including without limitation for inclusion in the 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 Merger and which is necessary to make the representations and
warranties herein contained not misleading, has been withheld from 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 Olde Port. All such policies are, to the best
knowledge of Olde Port, valid, outstanding and enforceable.
3.23. POWERS OF ATTORNEY; GUARANTEES. Olde Port 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 Olde Port 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.
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3.25. AGREEMENTS WITH REGULATORY AGENCIES. Except as set forth in
SCHEDULE 3.25, Olde Port 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 Olde Port 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, to the best knowledge of Olde Port, no officer or Director of
Olde Port, or any "associate" (as such term is defined in Rule 14a-1 under the
Securities Exchange Act of 1934, as amended (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 Olde Port that would be required to be disclosed in a proxy
statement to shareholders under Form F-5 of the FDIC regulations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Olde Port as follows:
4.01. CORPORATE ORGANIZATION. 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 of 1956, as amended (the "BHC Act").
The Certificate of Incorporation and Bylaws of the Company, copies of which have
previously been made available to Olde Port, are true and complete copies of
such documents as in effect as of the date of this Agreement.
4.02. CAPITALIZATION. 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, $.l0 par value and 200,000 shares of preferred stock, $.10 par
value ("Preferred Stock"). As of the date of this Agreement, there are
approximately 5,161,000 shares of Company Common Stock issued and outstanding,
no shares held in the Company's treasury, and (except as described below or 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. None of the shares of capital stock of the Company has been
issued in violation of the preemptive rights of any person.
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. The Board of Directors of the
Company has directed that the Company organize NECB Interim Bank for
the purpose of facilitating the Merger as required pursuant to Section
6.03 of this Agreement. Upon the organization of NECB Interim Bank as a
wholly-owned subsidiary of the Company, the additional approval of the
Merger by the Company as sole shareholder of NECB Interim Bank shall be
required. Except as provided above, no other corporate proceedings on
the part of the Company are or will be 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 Olde Port and subject to the
receipt of all requisite regulatory approvals) 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
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A-15
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) Neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the transactions
contemplated hereby, nor compliance by the Company with any of the
terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of the Company or (ii) assuming
that the consents and approvals referred to in Section 4.04 hereof are
duly obtained, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction 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
FRB under the BHC Act and approval of such applications and notices, (ii) the
filing of applications with the Commissioner under Section 384:60-c of the RSA
and approval of such applications, (iii) the filing of the Bank Merger Agreement
with the approval of the Commissioner for the Merger with the Secretary of
State, (iv) the filing with the SEC and the declaration of effectiveness of the
S-4 (as defined in Section 6.01(a)), (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, and (vi) 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 of
this Agreement and the consummation by the Company of the Merger and the other
transactions contemplated hereby.
4.05. FINANCIAL STATEMENTS. The Company has previously made available
to Olde Port accurate and complete copies of (a) the audited consolidated
balance sheets of the Company and its Subsidiaries as of December 31 for the
fiscal years 1993 through 1996 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the fiscal years 1993
through 1996, inclusive, and (b) the unaudited consolidated balance sheet of the
Company and its Subsidiaries as of December 31, 1997 and the related unaudited
consolidated statement of income, changes in shareholders' equity and cash flows
for the twelve-month period then ended. Within 30 days of the date of this
Agreement, the Company will deliver to Olde Port the audited financial
statements of the Company as of and for the year ended December 31, 1997. The
December 31, 1997 consolidated balance sheet of the Company (including the
related notes, where applicable) will fairly present 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 or will
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 and will be prepared in
accordance with GAAP consistently applied during the periods involved, except as
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form l0-Q. 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. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except for the transactions contemplated by this Agreement,
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, 1997 balance sheet, and except for
commitments and contingencies incurred in the ordinary course of
business.
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(b) Except as may be set forth in SCHEDULE 4.06, since December
31, 1997:
(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.
(c) For purposes of this Section 4.06, no transaction, event or
condition or series or combination of transactions, events or
conditions shall be materially adverse with respect to the Company or
any of its Subsidiaries, if the net adverse effect thereof on the
capital of the Company and any of its Subsidiaries is not in excess of
$2,000,000.
4.07. LEGAL PROCEEDINGS. Except as set forth in the attached SCHEDULE
4.07, neither the Company nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best knowledge of the Company's management,
threatened legal, administrative, arbitration or other proceedings, claims,
actions, suits or governmental investigations of any nature challenging the
validity or propriety of the transactions contemplated in this Agreement; and
there is not known to the Company or any of its Subsidiaries any reasonable
basis for any such proceedings, claim, action or governmental investigation.
4.08. SEC REPORTS. The Company has previously made available to Olde
Port 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, 1996 by the Company with the SEC pursuant to
the Securities Act of 1933 or the Securities Exchange Act of 1934 (the "Company
Reports") and (b) communication mailed by the Company to its shareholders since
January 1, 1996, 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.
4.09. COMPANY INFORMATION. No representation or warranty contained in
this Agreement, and no statement or information contained in any certificate,
list, schedule or other writing furnished to Olde Port pursuant to the
provisions hereof, including without limitation for inclusion in the Proxy
Statement (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 Merger and which is
necessary to make the representations and warranties herein contained not
misleading has been withheld from Olde Port.
4.10. 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
<PAGE>
A-17
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.
4.11. 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 Merger would not be satisfied
within the time frame customary for transactions of the nature contemplated
thereby.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.01. COVENANTS OF OLDE PORT. During the period from the date of this
Agreement to the Effective Time, Olde Port will conduct its business only in the
ordinary course and consistent with prudent banking practice, will use all
reasonable efforts to preserve Olde Port's properties wherever located, and will
comply in all material respects with all laws applicable to Olde Port, to the
conduct of its business and to the transactions contemplated by this Agreement.
Olde Port 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.
Olde Port 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, Olde Port agrees
that from the date hereof to the consummation of the Merger, and except as
otherwise consented to or approved by a duly authorized officer of the Company
in writing or as permitted or required by this Agreement, Olde Port 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 Articles of Agreement 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 $100,000 for any individual
loan or in excess of $150,000 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 under the Company's Loan Policy, a copy of which will
be provided to Olde Port; (ii) make any secured loan or loans, other
than residential mortgage loans with a loan to value ratio 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 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 75% or if prior mortgage loans are in excess of
$200,000; (iv) make any commercial loan or loans in excess of $150,000
unless fully secured by readily marketable collateral or real estate
with a maximum loan to value ratio of 75%; 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, officer or employee of
Olde Port, any affiliate thereof, or any member or affiliate of their
respective families;
<PAGE>
A-18
(g) other than with respect to owner occupied 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 debtor or surety under
the defaulted loans (whether or not such other loans are in default)
has a balance outstanding in excess of $100,000, except that Olde Port
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 Olde Port 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 or benefits of current employees,
consultants or contractors, except that Olde Port may hire replacements
for current employees who are not officers or managers if such
employees cease to be employees of Olde Port;
(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 with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary
course of business, which would be material to Olde Port;
(m) take any action that is intended to 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 Merger set forth in Article VII hereof not being satisfied, or in a
violation of any provision of this Agreement except, in every case, as
may be required by applicable law or fiduciary duty;
(n) change its methods of accounting in effect at December 31,
1997, except as required by law or by changes in GAAP or regulatory
accounting principles as concurred to by Olde Port's independent
auditors;
(o) 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 Merger,
except, in every case, as may be required by applicable law or
fiduciary duty;
(p) 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;
(q) 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;
(r) file any application to open, relocate or terminate the
operations of any banking office;
(s) make any equity investment or any 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;
<PAGE>
A-19
(t) purchase or sell loans in bulk;
(u) 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 without appropriate remediation being performed
before acceptance of title;
(v) terminate the employment of, or decrease in any material
respect, the duties, obligations, responsibilities, or position of any
senior officer of Olde Port other than for just cause; or
(w) agree to do any of the foregoing.
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 Olde Port, the Company
shall not and shall not permit any of its Subsidiaries to:
(a) take any action that is intended to 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 Merger 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 or fiduciary duty;
(b) 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 Merger; or
(c) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. REGULATORY MATTERS.
(a) Following the review by the Company and Olde Port of all
information and material provided to each in accordance with this
Agreement, Olde Port shall promptly prepare a proxy statement for the
meeting of its shareholders called for the purpose of approving this
Agreement (the "Proxy Statement") and the Company, with Olde Port's
best efforts cooperation, 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 Merger (the "S-4"), in which
the Proxy Statement will be included as a prospectus. The Company shall
use its best efforts to have the S-4 declared effective under the
Securities Act as promptly as practicable after such filing, and Olde
Port 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 Olde Port shall furnish all information concerning Olde Port and
the holders of Olde Port 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 Merger by the FDIC, if required, approval
of the Merger by the Commissioner, and approval by the FRB. 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
<PAGE>
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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 Olde Port 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, Olde Port or any of
their respective Subsidiaries to any governmental entity in connection
with the Merger and the other transactions contemplated hereby.
(d) The Company and Olde Port shall promptly furnish each other
with copies of written communications received by the Company or Olde
Port, 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 conduct of Olde Port's business, Olde Port
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 Olde Port, including, but not
limited to, its books of account (including its general ledger), tax
records, minute books of Directors' and shareholders' meetings,
Articles of Agreement, Bylaws, contracts and agreements, public filings
with any regulatory authority, examination reports of any regulatory
authority, including preliminary and partial reports (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, Olde Port shall make available to the
Company (i) subject to applicable laws, 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 Olde Port is not permitted to
disclose under applicable law). As to information which Olde Port is
not permitted by law to disclose, Olde Port 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) Olde Port shall not be required to provide access to or to
disclose information where such access or disclosure would violate or
prejudice the rights of its customers, jeopardize the attorney-client
privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment,
decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(c) 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 November 5,
1997, between the Company and Olde Port (the "Confidentiality
Agreements").
6.03. ORGANIZATION OF NECB INTERIM BANK AND EXECUTION OF BANK MERGER
AGREEMENT. Promptly following the execution of this Agreement, the Company shall
apply to the Commissioner for approval to organize NECB Interim Bank pursuant to
Section 384:58 of the RSA. Upon the granting of such approval by the
Commissioner to NECB Interim Bank, Olde Port shall execute and the Company shall
cause NECB Interim Bank (in organization) to execute the Bank Merger Agreement
attached hereto as EXHIBIT A.
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6.04. SHAREHOLDER APPROVAL. Olde Port shall 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,
the Bank Merger Agreement, and the transactions contemplated hereby and thereby.
Olde Port will, through its Board of Directors, and subject to the fiduciary
duty of its members, recommend to its shareholders approval of this Agreement,
the Bank Merger Agreement, and the transactions contemplated hereby and thereby
and such other matters as may be submitted to its shareholders in connection
with this Agreement and the Bank Merger Agreement. Upon the organization of NECB
Interim Bank, the Company shall direct the organizers of NECB Interim Bank to
vote to approve this Agreement, the Bank Merger Agreement, and the transactions
contemplated hereby and thereby.
6.05. LEGAL CONDITIONS TO MERGER. Each of the Company and Olde Port
shall, and 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 Merger and, subject to the conditions set forth
in Article VII hereof, to consummate the transactions contemplated by this
Agreement and (b) to obtain (and to cooperate with the other party to obtain)
any consent, authorization, order or approval of, or any exemption by, any
governmental entity and any other third party which is required to be obtained
by Olde Port or the Company or any of their Subsidiaries in connection with the
Merger and the other transactions contemplated by this Agreement.
6.06. AFFILIATES. Olde Port shall cause each Director, executive
officer and other person who is an "affiliate" (for purposes of Rule 145 under
the Securities Act) of Olde Port to deliver to the Company, prior to the signing
of this Agreement, a signed written agreement, in the form of SCHEDULE 6.06
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 Merger except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder, including, without
limitation, Rule 145.
6.07. STOCK LISTING. The Company shall cause the shares of Company
Common Stock to be issued in the Merger to be approved for inclusion for
quotation on the NASDAQ National Market, subject to official notice of issuance,
prior to the Effective Time.
6.08. FINANCIAL STATEMENTS. As soon as reasonably available, but in no
event more than 30 days after the end of each fiscal quarter ending after the
date of this Agreement, Olde Port will deliver to the Company its quarterly
Report of Condition and Income as filed with the FDIC.
6.09. FURTHER ASSURANCES; ADDITIONAL AGREEMENTS. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use its
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper and advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purpose of this Agreement, the proper
officers and Directors of each party to this Agreement and their respective
Subsidiaries, subject to their respective fiduciary duties, shall take all such
necessary action as may be reasonably requested by and at the sole expense of
the Company.
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 Olde Port 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. During the period from the date of this
Agreement to the Effective Time: Olde Port 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
<PAGE>
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Company and to report the general status of the ongoing operations of Olde Port;
Olde Porte will provide to the Company copies of all materials provided or made
available by Olde Port to its directors for meetings of Olde Port's Board of
Directors; Olde Port will promptly notify the Company of any significant change
in the normal course of business of Olde Port 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 Olde Port and will keep
the Company reasonably informed of such events and permit the Company access to
all significant materials prepared in connection therewith, and, with respect to
any regulatory examination of Olde Port, Olde Port 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.
6.12. ENVIRONMENTAL ASSESSMENT. Olde Port 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 Olde Port, and
agrees to cooperate in providing information and other assistance to the
Company, its agents and representatives in connection 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 the Company agrees to enter into a confidentiality agreement with
the party(ies) conducting any environmental testing (with Olde Port as a third
party beneficiary) that said party shall not disclose its findings to any third
party unless required by state or federal law. The 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. Olde Port 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 Olde Port notified the Company
of such acquisition.
6.13. PUBLIC ANNOUNCEMENTS. Except to the extent required otherwise by
applicable state or federal securities or banking laws, with respect to which
Olde Port and the Company may act upon the advice of their respective legal
counsel, neither Olde Port 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, the Bank Merger Agreement, and the
transactions contemplated hereby and thereby shall have been approved
and adopted by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Olde Port Common Stock.
(b) This Agreement, the Bank Merger Agreement, and the
transactions contemplated hereby and thereby shall have been approved
by the Commissioner, the FDIC, if necessary, and the FRB, 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 Olde Port or the Company or (ii)
otherwise materially impair the value of Olde Port or the Company, and
all appropriate waiting periods shall have expired.
<PAGE>
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(c) Neither the Company, NECB Interim Bank, nor Olde Port 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
Merger.
(d) The shares of Company Common Stock which shall be issued to
the shareholders of Olde Port upon consummation of the Merger shall
have been authorized for inclusion for quotation on the NASDAQ National
Market, 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 Olde Port 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 Olde Port
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 Olde Port.
(b) All action required to be taken by, or on the part of, Olde
Port to authorize the execution, delivery and performance of this
Agreement and the Bank Merger Agreement and the consummation of the
transactions contemplated hereby and thereby shall have been duly and
validly taken by the Board of Directors of Olde Port and Olde Port
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, by Olde Port.
(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 Olde
Port, NECB Interim Bank, and the Company which are required with
respect to and are necessary in connection with (i) the consummation of
the Merger and the other transactions contemplated hereby and by the
Bank Merger Agreement, (ii) the ownership of Olde Port by the Company,
or (iii) the conduct by the Surviving Bank of the business of Olde Port
as conducted by Olde Port at the Effective Time.
(e) The Company shall have received an opinion, dated the date of
Closing, from counsel to Olde Port, in form and substance reasonably
satisfactory to the Company.
(f) Olde Port shall have caused to be delivered to the Company a
letter from Olde Port's independent public accountants with respect to
Olde Port, and dated the date of the Closing, and addressed to the
Company and Olde Port, in form and substance reasonably satisfactory to
the Company to the effect that:
(1) they are independent public accountants with respect to
Olde Port;
(2) in their opinion the audited financial statements of Olde
Port 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
<PAGE>
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(3) at the request of Olde Port they have carried out
procedures to a specified date not more than 5 business days prior
to the date of each such letter as follows: (i) read the unaudited
financial statements of Olde Port 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 Olde Port from the date of the most
recent audited financial statements to the date not more than 5
days prior to the date of each such letter, and (iii) consulted
with the Chief Financial Officer of Olde Port 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 Olde Port 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 Olde Port at the
Audit Date.
(g) Neither the Company, NECB Interim Bank, nor Olde Port 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 Company to exercise full rights of ownership of Olde Port or its
assets or business 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.
(h) Except as otherwise provided for in this Agreement or as
disclosed in any Schedule hereto, any agreement to which Olde Port 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 Olde Port, shall have been duly terminated without cost
or expense to Olde Port, or the Company.
(i) 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 $250,000 shall be needed to be expended to correct any
deficiency cited in such assessment and, in the case of property used
for Olde Port 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,
Olde Port shall have the option of correcting such deficiency.
Olde Port 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 OLDE PORT UNDER THIS AGREEMENT.
The obligations of Olde Port 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 Olde Port:
(a) Each of the obligations of the Company and NECB Interim 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 Olde Port 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, (i)
the Company to authorize the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby shall have been duly and validly taken by the Board of Directors
of the Company and (ii) NECB Interim Bank to authorize the execution,
<PAGE>
A-25
delivery and performance of the Bank Merger Agreement and the
consummation of the transactions contemplated thereby shall have been
duly and validly taken by NECB Interim Bank; and Olde Port shall have
received certified copies of the resolutions evidencing such
authorizations.
(c) The conditions in Section 7.02(d) shall have been satisfied.
(d) Olde Port shall have received from HAS Associates, or such
other investment banker as may be selected by Olde Port, both prior to
execution of this Agreement and immediately prior to the mailing to its
shareholders of the Proxy Statement an opinion in form and substance
reasonably satisfactory to Olde Port, that the terms of the Merger are
fair to Olde Port and its shareholders from a financial point of view.
(e) Olde Port 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 the payment of franchise
taxes, if any, by the Company.
(f) Olde Port shall have received an opinion, dated the date of
Closing, from counsel to the Company, in form and substance reasonably
satisfactory to Olde Port.
(g) Olde Port shall have received an opinion of counsel for Olde
Port or the Company substantially to the effect that for federal income
tax purposes no gain or loss will be recognized by shareholders of Olde
Port with respect to Company Common Stock received solely in exchange
for Olde Port Common Stock pursuant to this Agreement (noting, however,
that non-taxability does not extend to cash received in lieu of a
fractional share interest in Company Common Stock, or by dissenters, if
any).
The Company will furnish Olde Port 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 Olde Port 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 Day, Berry & Howard, CityPlace I,
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 hereof, 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 Olde Port 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 Olde Port 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 Merger by the shareholders of Olde Port:
(a) by mutual consent of the Company and Olde Port 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;
<PAGE>
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(b) by either the Company or Olde Port 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 Merger shall have
been denied or withdrawn at the request or recommendation of the
governmental entity which must grant such requisite regulatory
approval, unless within the 90-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 Olde Port if the Merger shall not
have been consummated on or before December 31, 1998, 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 Olde Port (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 Olde Port
required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of shareholders or at any adjournment or postponement
thereof;
(e) by either the Company or Olde Port (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 30 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 either the Company or Olde Port in the event of the
institution by any governmental agency of any litigation or proceeding
to restrain or prohibit the consummation of the Merger;
(g) by the Company if at the time of such termination there shall
have been a reduction in Olde Port's capital of 10% or more below the
levels disclosed to the Company in the December 31, 1997 financial
statements of Olde Port referred to in Section 3.05 unless such change
shall have resulted from conditions affecting the banking industry
generally;
(h) by the Company if the results, preliminary or other, of any
regulatory examination of Olde Port indicates (i) any action or actions
the net effect of which is likely to result in a reduction in Olde
Port's capital of 10% or more below levels disclosed to the Company in
the December 31, 1997 financial statements of Olde Port referred to in
Section 3.05, or (ii) any other action that is likely to result in a
significant restriction on Olde Port, its business or operations; or
(i) by the Company if, in order to obtain any required permit,
consent, approval or authorization of any governmental authority having
jurisdiction, the Company or the Surviving Bank will be required to
agree to, or will be subjected to, a limitation upon its activities
following the Effective Time which the Company reasonably regards as
materially adverse.
(j) by the Company if the Average Closing Price (as defined in
Section 1.04(a) hereof) of the Company Common Stock shall be less than
$20.00 per share. Notwithstanding the foregoing, if the Company elects
to exercise its termination right pursuant to this subsection (j), it
shall give prompt written notice to Olde Port. During the seven-day
period commencing with its receipt of such notice, Olde Port shall have
the option of reducing the consideration to be received by the holders
of Olde Port Common Stock hereunder by increasing the Average Closing
Price for purposes of the Exchange Ratio (as defined in Section 1.04(a)
<PAGE>
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hereof) to equal $20.00. If Olde Port makes the election contemplated
by the preceding sentence, within such seven-day period, it shall give
prompt written notice to the Company of such election, whereupon no
termination shall occur pursuant to this subsection (j) and this
Agreement shall remain in effect in accordance with its terms (except
as the Average Closing Price and the Exchange Ratio shall have been so
modified), and any references in this Agreement to "Average Closing
Price" and "Exchange Ratio" shall thereafter be deemed to refer to the
Average Closing Price and the Exchange Ratio as adjusted pursuant to
this subsection (j).
(k) by Olde Port if the Average Closing Price (as defined in
Section 1.04(a) hereof) of the Company Common Stock shall be greater
than $30.00 per share. Notwithstanding the foregoing, if Olde Port
elects to exercise its termination right pursuant to this subsection
(k), it shall give prompt written notice to the Company. During the
seven-day period commencing with its receipt of such notice, the
Company shall have the option of increasing the consideration to be
received by the holders of Olde Port Common Stock hereunder by reducing
the Average Closing Price for purposes of the Exchange Ratio (as
defined in Section 1.04(a) hereof) to equal $30.00. If the Company
makes the election contemplated by the preceding sentence, within such
seven-day period, it shall give prompt written notice to Olde Port of
such election, whereupon no termination shall occur pursuant to this
subsection (k) and this Agreement shall remain in effect in accordance
with its terms (except as the Average Closing Price and the Exchange
Ratio shall have been so modified), and any references in this
Agreement to "Average Closing Price" and "Exchange Ratio" shall
thereafter be deemed to refer to the Average Closing Price and the
Exchange Ratio as adjusted pursuant to this subsection (k).
9.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Olde Port as provided in Section 9.01, this
Agreement shall forthwith become void and have no further effect, except (i)
Sections 6.02(c), 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 Merger by the shareholders of Olde
Port; provided, however, that after any approval of the transactions
contemplated by this Agreement and the Bank Merger Agreement by Olde Port'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 Boards 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.
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(a) Olde Port and its Directors shall vote for the Merger and
recommend the Merger to the Shareholders of Olde Port 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 merger, 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 Olde Port and such
other persons as may be required by law), and Olde Port 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 Olde Port, to acquire 10% or
more of the outstanding stock of Olde Port, to enter into an agreement
to merge with Olde Port, 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 Merger
is not consummated in accordance with the terms hereof because of any
action or omission by Olde Port as set forth above in this Section,
then Olde Port shall on demand pay to the Company the sum of
$1,000,000, as liquidated damages. The above restrictions shall not
preclude the Directors from taking actions which they determine, in the
exercise of their fiduciary duties, are in the best interests of the
shareholders; however, if they take any Unauthorized Action, Olde Port
will be responsible for the aforementioned fees and liquidated damages.
(b) If either Olde Port or the Company fails to perform any
material covenant or agreement in this Agreement, or if any
representation or warranty by Olde Port 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 $1,000,000 as liquidated
damages.
10.03. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of the Company and Olde Port contained in this
Agreement or in any instrument or certificate delivered pursuant hereto by the
Company or Olde Port 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 Olde Port 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 Olde Port.
10.04. INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding
or investigation in which any person who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the
Effective Time, a director or officer or employee of Olde Port (the
"Indemnified Parties") is, or is threatened to be, made a party based
in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he or she is or was a director, officer
or employee of Olde Port or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond
thereto. It is understood and agreed that Olde Port shall indemnify and
hold harmless, and that after the Effective Time the Surviving Bank and
the Company shall indemnify and hold harmless, as and to the fullest
extent permitted by applicable law and by the provisions of their
respective Certificates of Incorporation and Bylaws, each such
Indemnified Party against any losses, claims, damages, liabilities,
costs, expenses (including reasonable attorney's fees and expenses),
judgments, fines and amounts paid in settlement in connection with any
such threatened or actual claim, action, suit, proceeding or
investigation.
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(b) In the event the Company or the Surviving Bank or any of
their successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or (ii) transfers or conveys
all or substantially all of its property and assets to any person,
then, and in each such case proper provision shall be made so that the
successors and assigns of the Company or the Surviving Bank, as the
case may be, assume the obligations set forth in this Section 10.04.
10.05. NOTIFICATION OF CERTAIN MATTERS.
(a) Olde Port shall give prompt notice to the Company and the
Company shall give prompt notice to Olde Port, 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 Olde Port 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) Olde Port agrees to notify the Company by telephone within 24
hours of receipt of any inquiry with respect to a proposed Merger,
consolidation, merger, assets acquisition, tender offer or other
takeover transaction with another person or receipt of a request for
information from the FDIC, the FRB, the Commissioner, or other
governmental authority with respect to a proposed acquisition of Olde
Port by another party. Olde Port 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.
10.06. 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, to:
New England Community Bancorp, Inc.
176 Broad Street
P.O. Box 130
Windsor, CT 06095-0130
Attention: David A. Lentini
Chairman, President and
Chief Executive Officer
Copy to:
Day, Berry & Howard
CityPlace I
Hartford, CT 06103-3499
Attention: Robert M. Taylor, III, Esq.
<PAGE>
A-30
(b) If to Olde Port, to:
Olde Port Bank & Trust
501 Islington Street
P.O. Box 569
Portsmouth, NH 03802-0569
Attention: Michael E. Kenslea
President and Chief Executive Officer
Copy to:
Devine, Millimet & Branch
111 Amherst Street
P.O. Box 719
Manchester, NH 03105
Attention: Paul C. Remus, Esq.
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.
10.07. 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. GRANT OF STOCK OPTION. As part of this transaction and as a
condition to their entry into this Agreement, the Company and Olde Port shall
enter into, on even date herewith, a Stock Option Agreement in the form of
EXHIBIT B hereto (the "Stock Option Agreement"), granting the Company the right
to purchase shares of Olde Port Common Stock at the price set forth therein, if
any of certain events set forth therein occur.
10.09. 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 Bank Merger Agreement, the Stock Option Agreement, the
Shareholder Agreements, and 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.
10.10. 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.
10.11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
10.12. 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.
<PAGE>
A-31
IN WITNESS WHEREOF, the Company and Olde Port 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
--------------------------------------------
David A. Lentini
Attest: Its Chairman, President and Chief Executive
Officer
/s/ Angelina J. McGillivray
- ---------------------------
Secretary
OLDE PORT BANK & TRUST
By /s/ MICHAEL E. KENSLEA
--------------------------------------------
Michael E. Kenslea
Attest: Its President and Chief Executive Officer
/s/ Richard A. Willey
- ---------------------------
Secretary
<PAGE>
APPENDIX B
BANK MERGER AGREEMENT
BANK MERGER AGREEMENT, dated as of ________ ___, 1998, by and between
NECB INTERIM BANK, an interim bank organized and existing under the laws of the
State of New Hampshire having been organized by NEW ENGLAND COMMUNITY BANCORP,
INC. (the "Company"), a Delaware corporation, and OLDE PORT BANK & TRUST ("Olde
Port") a New Hampshire state-chartered trust company organized and existing
under the laws of the State of New Hampshire.
WHEREAS, the Boards of Directors of the Company and Olde Port have
approved, and deem it advisable and in the best interests of their respective
shareholders to consummate, the business combination transaction set forth in
the Plan and Agreement of Merger dated as of February 10, 1998 (the "Merger
Agreement") by and between the Company and Olde Port, pursuant to which NECB
Interim Bank will merge with and into Olde Port (the "Merger") with Olde Port
being the surviving bank ("Surviving Bank") in the Merger and all outstanding
shares of common stock of Olde Port being converted into the Merger
Consideration, as defined in the Merger Agreement, in the Merger; and
WHEREAS, not less than two-thirds of each of the organizers of NECB
Interim Bank and the Board of Directors of Olde Port have approved, and deem it
advisable to consummate, the Merger provided for herein, in accordance with the
provisions of Chapter 388 of the New Hampshire Revised Statutes Annotated
("RSA").
NOW THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements and upon the terms and conditions
contained herein, the parties agree that at the Effective Time (as defined in
Section 1.2 hereof), NECB Interim Bank shall be merged with and into Olde Port
and Olde Port shall be the surviving entity in the Merger, and that the terms
and conditions of the Merger and the mode of carrying the Merger into effect
shall be as hereinafter set forth.
ARTICLE I
THE MERGER
1.1 THE MERGER. In accordance with the provisions of this Agreement and
of the banking laws of New Hampshire, at the Effective Time, NECB Interim Bank
shall be merged with and into Olde Port, the separate corporation existence of
NECB Interim Bank shall cease, and Olde Port shall continue its corporate
existence as the surviving bank in the Merger as a New Hampshire state-chartered
trust company under the name "Olde Port Bank & Trust" with all of the powers
provided to state-chartered trust companies under the laws of New Hampshire.
Also at the Effective Time, each outstanding share of NECB Interim Bank Common
Stock shall be converted into one share of Common Stock of Olde Port and each
issued and outstanding share of the Common Stock of Olde Port shall be converted
into Per Share Merger Consideration as defined in the Merger Agreement.
1.2 EFFECTIVE TIME. The Merger shall be effective at the time of the
filing of the approval of the Merger by the Bank Commissioner of the State of
New Hampshire (the "Commissioner") along with a copy of this Agreement, with the
Secretary of State of the State of New Hampshire (the "Secretary") or at any
subsequent time specified as the effective time pursuant to this Agreement (the
"Effective Time").
1.3 EFFECT OF MERGER. At and after the Effective Time and by virtue of
the Merger, the Surviving Bank shall operate as a state-chartered trust company
and shall, to the extent legally permissible, possess all the rights,
privileges, powers and franchises of Olde Port and the Merger shall have the
effects set forth in Section 388.10 of the RSA.
1.4 OTHER MATTERS. At the Effective Time: (i) the Surviving Bank's main
office shall be located in Portsmouth, New Hampshire, (ii) the Directors and
officers of the Surviving Bank shall be those individuals as selected by the
Company, (iii) the Articles of Agreement and Bylaws of NECB Interim Bank
existing immediately prior to the Effective Time shall be the Articles of
<PAGE>
B-2
Agreement and Bylaws of the Surviving Bank, (iv) unless and until changed in
accordance with the Articles of Agreement and Bylaws of the Surviving Bank, the
maximum number of Directors of the Surviving Bank shall be 10, and the minimum
number of Directors shall be 3, and (v) the amount of capital stock of the
Surviving Bank shall be one share of common stock, no par value, as provided in
the Articles of Agreement of the Surviving Bank.
1.5 PRIOR APPROVALS. The parties acknowledge that prior to the Merger
being effective requisite approvals must be received from or notices must be
given to certain federal and state regulatory authorities including, but not
limited to, (a) the Federal Deposit Insurance Corporation (the "FDIC"), (b) the
Board of Governors of the Federal Reserve System (the "FRB") (c) the
Commissioner and (d) any other regulatory authorities having jurisdiction.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF OLDE PORT
Olde Port hereby represents and warrants to NECB Interim Bank as
follows:
2.1 CORPORATE ORGANIZATION. Olde Port is a state-chartered trust
company duly organized, validly existing and in good standing under the laws of
the State of New Hampshire. Olde Port 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.
2.2 AUTHORITY; NO VIOLATION.
(a)Olde Port has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The Board of Directors of Olde Port has duly and validly approved and
adopted this Agreement and the transactions contemplated hereby, has authorized
the execution and delivery of this Agreement, and, upon approval of the
shareholders of Olde Port as required pursuant to RSA ss. 388.10, no other
corporate proceeding on the part of Olde Port is necessary to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Olde Port and constitutes a valid and binding obligation of
Olde Port enforceable in accordance with its terms.
(b)Neither the execution and delivery of this Agreement nor
the consummation by Olde Port of the transactions contemplated hereby, nor
compliance by Olde Port with any of the terms or provisions hereof, will (i)
violate any provision of the Articles of Agreement or Bylaws of Olde Port or,
subject to the requirements of Section 1.6 hereof, any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to Olde
Port or any of its properties or assets, or (ii) violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which, with
or without due notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance required by, or
result in the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Olde Port 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 Olde
Port is a party, or by which it or any of its properties or assets may be bound
or affected.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NECB INTERIM BANK
NECB Interim Bank represents and warrants to Olde Port as follows:
3.1 CORPORATE ORGANIZATION. NECB Interim Bank is an interim New
Hampshire bank organized pursuant to RSA ss. 384:58.
3.2 AUTHORITY; NO VIOLATION.
(a) NECB Interim Bank has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The organizers of NECB Interim Bank have duly and validly
<PAGE>
B-3
approved and adopted this Agreement and the transactions contemplated hereby,
and, no other corporate proceedings on the part of NECB Interim Bank are
necessary to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by NECB Interim Bank and
constitutes a valid and binding obligation of NECB Interim Bank enforceable in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement nor
the consummation by NECB Interim Bank of the transactions contemplated hereby,
nor compliance by NECB Interim Bank with any of the terms or provisions hereof,
will (i) violate any provision of the organizational documents of NECB Interim
Bank, or, subject to the requirements of Section 1.6 hereof, any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to NECB Interim Bank or any of its properties or assets, or (ii)
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with or without due notice or lapse of time would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets of
NECB Interim 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 NECB Interim Bank is a party, or by which it
or any of its properties or assets may be bound or affected.
ARTICLE IV
COVENANTS OF THE PARTIES
4.1 REGULATORY MATTERS.
(a) NECB Interim Bank and Olde Port each will cooperate with the
other and use their best efforts to obtain all permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement, including without
limitation, those required from the FDIC, the FRB, and the Commissioner.
(b)NECB Interim Bank and Olde Port will furnish each other with
all information concerning themselves, their subsidiaries, Directors, officers
and stockholders and such other matters as may be necessary or advisable in
connection with such applications to the FDIC, the FRB or the Commissioner, or
any other statement or application made by or on behalf of NECB Interim Bank or
Olde Port to any governmental body in connection with the Merger and the other
transactions contemplated by this Agreement.
4.2 FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
Directors of each party to this Agreement shall, subject to their respective
fiduciary duties, take all such necessary action.
ARTICLE V
CLOSING CONDITIONS
5.1 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) The Merger shall have been approved and adopted by the
organizers of NECB Interim Bank, and by the affirmative vote of the holders of
two-thirds of the outstanding shares of Olde Port.
(b) This Agreement, the Merger Agreement and the transactions
collectively contemplated hereby and thereby shall have been approved by the
Commissioner, the FDIC, the FRB, and by any other regulatory authority having
appropriate jurisdiction.
<PAGE>
B-4
(c) Neither NECB Interim Bank nor Olde Port 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 Merger.
5.2 CONDITIONS TO THE OBLIGATIONS OF NECB INTERIM BANK UNDER THIS
AGREEMENT. The obligations of NECB Interim 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 NECB Interim
Bank:
(a) Each of the obligations of Olde Port required to be performed
by it at or prior to the Closing pursuant to the terms of this Agreement and the
Merger Agreement shall have been duly performed and complied with, in all
material respects, and the representations and warranties of Olde Port contained
in this Agreement and the Merger 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.
(b)All action required to be taken by, or on the part of, Olde Port
to authorize the execution, delivery and performance of this Agreement by Olde
Port and the consummation of the transactions contemplated hereby shall have
been duly and validly taken by the Board of Directors of Olde Port.
(c) Any and all permits, consents, approvals and authorizations of
all third parties and governmental bodies shall have been obtained by Olde Port
and NECB Interim Bank which are required with respect to and are necessary in
connection with (i) the consummation of the Merger and the other transactions
contemplated hereby, (ii) the ownership by the Company of the Surviving Bank or
(iii) the conduct by the Surviving Bank of the business of Olde Port as
conducted by Olde Port at the Effective Time.
5.3 CONDITIONS TO THE OBLIGATIONS OF OLDE PORT UNDER THIS AGREEMENT.
The obligations of Olde Port 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 Olde Port:
(a) Each of the obligations of NECB Interim Bank required to be
performed by it at or prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with, in all material
respects, and the representations and warranties of NECB Interim 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.
(b)All action required to be taken by, or on the part of, NECB
Interim Bank to authorize the execution, delivery and performance of this
Agreement by NECB Interim Bank and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the organizers of
NECB Interim Bank.
ARTICLE VI
CLOSING
6.1 TIME AND PLACE. Subject to the satisfaction of the conditions of
Article V hereof, the closing (the "Closing") of the transactions contemplated
hereby shall take place at the offices of Day, Berry & Howard, CityPlace I,
Hartford, Connecticut at 10:00 A.M., on the third business day after the date on
which all of the conditions contained in Article V hereof, to the extent not
waived, are satisfied or at such other place, at such other time, or on such
other date as the parties may mutually agree upon for the Closing to take place.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by mutual written consent of Olde Port and NECB Interim Bank,
properly authorized by their respective Board of Directors or organizers;
<PAGE>
B-5
(b)by NECB Interim Bank or Olde Port, if the Effective Time shall
not have occurred on or prior to December 31, 1998; or
(c) by NECB Interim Bank or Olde Port, if it shall have determined
that the Merger 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 Merger.
This Agreement shall terminate automatically in the event of the
termination of the Merger Agreement in accordance with the provisions thereof.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void, and
there shall be no further liability on the part of Olde Port or NECB Interim
Bank.
7.3 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, this
Agreement may be amended by an instrument in writing signed on behalf of each of
the parties hereto.
ARTICLE VIII
MISCELLANEOUS
8.1 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.
8.2 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. 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.
8.3 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.
8.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Hampshire.
8.5 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.
<PAGE>
B-6
IN WITNESS WHEREOF, NECB Interim Bank and Olde Port have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
NECB INTERIM BANK
By
--------------------------
Attest:
- ------------------------
OLDE PORT BANK & TRUST
By
-------------------------
Attest:
- ------------------------
<PAGE>
APPENDIX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of February 10, 1998 between Olde Port
Bank & Trust, a New Hampshire state-chartered trust company (the "Bank"), and
New England Community Bancorp, Inc., a Delaware corporation ("NECB").
WHEREAS, NECB and the Bank have entered into a Plan and Agreement of
Merger as of the date hereof (the "Merger Agreement"), which provides, among
other things, for the exchange of shares of the Bank for shares of NECB and the
merger of NECB Interim Bank with and into the Bank (the "Merger"); and
WHEREAS, as a condition to NECB's entry into the Merger Agreement and
in consideration for such entry, the Bank has agreed to grant NECB the Option
(as hereinafter defined)
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. GRANT OF OPTION. The Bank hereby grants to NECB an unconditional,
irrevocable option (the "Option") to purchase up to 13,425 shares (the "Option
Shares") of the common stock, par value $1.00 per share (the "Common Shares"),
of the Bank at a price of $120 per share; provided, however, that the Option
will lapse if the Merger Agreement is terminated pursuant to Section 9.01 of the
Merger Agreement before the Option is exercisable and NECB delivers notice of
its intent to exercise this Option, as hereinafter provided.
2. EXERCISE OF OPTION. NECB will not exercise the Option without the
written consent of the Bank except: (a) subsequent to the fifth day preceding
the scheduled expiration date of a tender or exchange offer by any person or
group of persons to acquire 25% or more of any class or series of voting
securities of the Bank or (b) upon the acquisition by any one person or group of
persons of, or of the right to acquire, 25% or more of any class or series of
voting securities of the Bank, if in the case of (a) or (b), (1) after giving
effect to such offer or acquisition such person or group would own or have the
right to acquire 25% or more of any class or series of voting securities of the
Bank, (2) there have been filed documents with the Federal Deposit Insurance
Corporation ("FDIC") in connection therewith (or, if no such filing is required,
similar evidence that the offer is actually commencing) and (3) such person or
group has received all required regulatory approvals to own or control 25% or
more of the class or series of securities to which the offer relates, or (c)
upon a willful breach of the Merger Agreement by the Bank which would permit
NECB to terminate the Merger Agreement, provided that within 12 months from the
date of such breach either an event described in clauses (a) or (b) above shall
have occurred or any agreement shall have been entered into between the Bank and
any third party, including, without limitation, an agreement in principle,
contemplating (a) any acquisition by such third party of 25% or more of the
Common Shares or any other class or series of voting securities of the Bank or
(b) a merger or other business combination involving the Bank or a subsidiary of
the Bank or the acquisition of a substantial interest in, or a substantial
portion of the assets, business or operations of the Bank or any of its
subsidiaries, other than as contemplated by the Merger Agreement. As used in
this Section 2, "person" or "group of persons" shall have the meaning conferred
thereon pursuant to Section 13(d) of the Securities Exchange Act of 1934. The
Bank will not take any action which would have the effect of preventing or
disabling the Bank from delivering the Option Shares to NECB upon exercise of
the Option or otherwise performing its obligations under this Agreement. In the
event NECB wishes to exercise the Option, NECB shall send a written notice to
the Bank specifying the total number of Option Shares it wishes to purchase and
a place and date between one and ten business days inclusive from the date such
notice is given for the closing of such purchase (a "Closing"); provided,
however, that a Closing shall not occur prior to the receipt of all necessary
regulatory approvals.
The Bank will afford NECB the benefit of one demand registration
covering all or any part of the Option Shares with respect to any public
offering of the Bank Common Shares. Without the written consent of NECB, neither
the Bank nor any other holder of securities may include securities in such
registrations. In addition, NECB will be afforded the benefit of unlimited
"piggyback" registration rights with respect to the Option Shares (subject to
appropriate exceptions for registrations in connection with dividend
reinvestment, employee stock purchase, stock
<PAGE>
C-2
option or similar plans or a registration statement on Form S-4). The Bank will
notify NECB of any registration at least ten (10) days prior to the effective
date of any such registration and NECB will give notice at least three (3) days
prior to the effective date of any such registration that it desires "piggyback"
registration rights and state the number of shares to be included in such
registration. The costs of all such registrations (other than underwriting fees
and commissions) will be borne by the Bank.
3. PAYMENT AND DELIVERY OF CERTIFICATES. At any Closing hereunder NECB
will make payment to the Bank of the aggregate price for the Option Shares so
purchased by delivery of immediately available funds and the Bank will deliver
to NECB a stock certificate or certificates representing the number of Option
Shares so purchased, registered in the name of NECB or its designee in such
denominations as were specified by NECB in its notice of exercise.
4. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any
change in the number or kind of issued and outstanding Common Shares by reason
of stock dividends, stock splits, split-ups, mergers, recapitalizations,
combinations, conversions, exchanges of shares or other changes in the corporate
or capital structure of the Bank, the number and kind of Option Shares subject
to the Option and the purchase price per Option Share shall be appropriately
adjusted to restore NECB to its rights hereunder, including its right to
purchase shares representing approximately 19.9% of the capital stock of the
Bank entitled to vote generally for the election of directors of the Bank which
is issued and outstanding immediately prior to the exercise of the Option at an
aggregate purchase price of approximately $1,611,000.
5. FILINGS AND CONSENTS. NECB and the Bank will each use their best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement.
6. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement and that the
obligations of the parties hereto shall be specifically enforceable.
7. ENTIRE AGREEMENT. This Agreement and the Merger Agreement and the
other agreements referenced therein constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof.
8. ASSIGNMENT. At any time or from time to time after the Option is
exercisable without the written consent of the Bank, NECB may sell, assign or
otherwise transfer its rights and obligations hereunder, in whole or in part, to
any person or group of persons, subject only to compliance with applicable law.
In order to effectuate the foregoing, NECB (or any direct or indirect assignee
or transferee of NECB) shall be entitled to surrender this Stock Option
Agreement entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock as may be purchasable hereunder.
Notwithstanding the foregoing, NECB may not sell, assign or otherwise transfer
to any person or affiliated group of persons Common Shares and/or rights to
acquire Common Shares under this Stock Option Agreement which would account for
5% or more of the outstanding Common Shares (assuming that this Stock Option
Agreement is fully exercised).
9. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect; and,
except as otherwise provided herein to the contrary, the failure or invalidity
of any portion of the consideration for which this Option is being granted shall
not reduce the amount of, or render invalid or unenforceable, all or any portion
of this Option.
10. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram or telex, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
<PAGE>
C-3
If to NECB:
New England Community Bancorp, Inc.
176 Broad Street
P.O. Box 130
Windsor, CT 06095-0130
Attention: Mr. David A. Lentini
Chairman, President and Chief Executive Officer
with a copy to:
Day, Berry & Howard
CityPlace I
Hartford, CT 06103-3499
Attention: Robert M. Taylor, III, Esq.
If to the Bank:
Olde Port Bank & Trust
501 Islington Street
P.O. Box 569
Portsmouth, NH 03802-0569
Attention: Michael E. Kenslea
President and Chief Executive Officer
with a copy to:
Divine, Millimet & Branch
111 Amherst Street
P.O. Box 719
Manchester, NH 03105
Attention: Paul C. Remus, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
12. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
13. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person (other than an
assignee or transferee of NECB pursuant to Section 8 hereof) any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
<PAGE>
C-4
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
15. EXPENSES. Except as otherwise provided in Section 2 hereof, all
costs and expenses incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses.
16. TERMINATION. The Option granted hereby, to the extent not
previously exercised, shall terminate upon the earliest of (a) seven months
after an event described in Section 2, (b) the Effective Time (as such term is
defined in the Merger Agreement) of the Merger, (c) the termination of the
Merger Agreement in accordance with its terms (other than if terminated by NECB
by reason of a breach or violation by the Bank) prior to the occurrence of an
event described in Section 2. The foregoing notwithstanding, if a breach of the
Merger Agreement described in clause (c) of Section 2 shall have occurred, this
Option shall terminate to the extent not previously exercised on the date which
is 90 days following the first anniversary of the date of such breach.
<PAGE>
C-5
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
NEW ENGLAND COMMUNITY BANCORP, INC.
By: /s/ DAVID A. LENTINI
---------------------------------
David A. Lentini
Chairman, President and Chief Executive Officer
OLDE PORT BANK & TRUST
By: /s/ MICHAEL E. KENSLEA
--------------------------------
Michael E. Kenslea
President and Chief Executive Officer
<PAGE>
D-1
APPENDIX D
HAS ASSOCIATES, INC. 76 NORTHEASTERN BLVD., SUITE 34 P.O. BOX 84
NASHUA, NH 03062 BOSTON, MA 02171
(603) 880-4529 (617) 472-5086
FAX (603) 880-4351 FAX (617) 472-6903
[email protected] [email protected]
May 7, 1998
Board of Directors
Olde Port Bank & Trust
501 Islington Street
Portsmouth, NH 03801
Members of the Board:
You have requested our opinion as to the fairness to the stockholders
of Olde Port Bank & Trust, Portsmouth, New Hampshire ("Olde Port"), from a
financial point of view, of the terms of the Agreement and Plan of Merger dated
February 10, 1998 ("the Agreement") which will ultimately provide for the merger
(the "Merger") of Olde Port into New England Community Bancorp, Inc. ("NECB"), a
Delaware corporation in a transaction whereby each Olde Port shareholder will
receive $200.00 in value of NECB common stock. Shareholders of Olde Port who do
not exercise their right to dissent will receive the per share merger
consideration which will be payable in common stock of NECB. The exchange ratio
will be determined by dividing $200.00 by the average closing price of NECB
common stock supplied by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") and reported in the WALL STREET JOURNAL as
of the end of the ten (10) consecutive trading day period ending prior to the
last of the regulatory approvals required for the Merger.
In connection with its opinion, HAS Associates, Inc. ("HAS") reviewed,
analyzed and relied upon material relating to the financial and operating
conditions of NECB including, among other things, the following: (i) the
Agreement; (ii) Annual Reports to Stockholders for the three years ended
December 31, 1994, 1995, and 1996, of NECB; (iii) certain interim reports to
stockholders and Quarterly Reports of NECB and certain other communications from
NECB to its stockholders; (iv) other financial information concerning the
business and operations of NECB furnished to HAS by NECB for purposes of its
analysis, including certain internal financial analyses and forecasts for NECB
prepared by the senior management of NECB; (v) certain publicly available
information concerning the trading of, and the trading market for, the Common
Stock of NECB; (vi) corporate minutes of NECB for three years; (vii) audit
reports certified by the independent accountants of NECB for three years; (viii)
regulatory filings of NECB for three years; (ix) NECB policies and procedures,
certain loan files, its investment portfolio; and (x) 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
addition, HAS reviewed certain market information concerning NECB, 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 same type of financial
information available concerning Olde Port. In addition, HAS reviewed certain
internal reports and documents 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, audited financial statements (most recent three years),
regulatory reports (most recent three years), 1996 operating results, securities
portfolio-book value and market value reports, and schedule of threatened or
pending litigations. HAS also held discussions with senior management concerning
their past and current operations, financial condition and prospects, as well as
the results of regulatory examinations.
<PAGE>
D-2
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 NECB. HAS relied upon the accuracy and opinion of
the audit reports prepared by the Bank'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 Olde Port in
connection with the Merger and will receive a fee for this service.
In reliance upon and subject to the foregoing, it is our opinion that,
as of May 7, 1998, the per share merger consideration to be received by the
shareholders of Olde Port and 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 Olde Port.
This letter is furnished to you in connection with the Merger and we
consent to its inclusion in the Registration Statement and proxy solicitation
material.
Sincerely,
s/s HAS Associates, Inc.
HAS Associates, Inc.
<PAGE>
APPENDIX E
DISSENTERS' RIGHTS
New Hampshire RSA through 1997 legislative session
Section 388:13 Dissenting Stockholders.
I. Any stockholder of a bank shall have the right to dissent from, and
to obtain payment for his shares in the event of any merger, consolidation, or
other union of banks under the provisions of this chapter. Such right shall be
the same as the right provided for in RSA 293-A:13.01 through RSA 293-A:13.31
with respect to mergers and consolidations of business corporations and shall be
subject to the same limitations. Any stockholder of a bank electing to assert
the right provided for by this section shall do so in accordance with the
provisions of RSA 293-A:13.01 through RSA 291-A:13.31, which provisions shall be
binding upon the stockholder and upon the bank and shall in all respects govern
the perfection and enforcing of the right provided for by this section.
II. If a proposed merger, consolidation, or other union of banks under
the provisions of this chapter is submitted to a vote at a meeting of
stockholders, the notice of meeting shall notify all stockholders that they have
or may have a right to dissent and obtain payment for their shares by complying
with the terms of this section and of RSA 293-A:13.01 through RSA 293-A:13.31
and shall be accompanied by a copy of this section and RSA 293-A:13.01 through
RSA 293-A:13.31.
III. For purposes of this section, the term "stockholder" shall include
the holder of a special deposit in a guaranty savings bank.
Source. 1947, 123:11; RSA 388:13. 1983, 369:10; 1992, 255:7, eff. Jan.
1, 1993.
Section 293-A:13.01 Definitions.
In this subdivision:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation or other
entity by merger, share exchange, or conversion of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RSA 293-A:13.02 and who exercises that right when and in
the manner required by RSA 293-A:13.20 through 293-A:13.28.
(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
<PAGE>
E-2
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Source. 1992, 255:1, eff. Jan. 1, 1993. 1997, 120:3, eff. Aug. 8, 1997.
Section 293-A:13.02 Right to Dissent.
(a) A shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is party:
(i) If shareholder approval is required for the merger by RSA
293-A:11.03 or the articles of incorporation and the shareholder is
entitled to vote on the merger; or
(ii) If the corporation is a subsidiary that is merged with
its parent under RSA 293-A:11.04.
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares.
(ii) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares.
(iii) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities.
(iv) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights.
(v) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under RSA 293-A:6.04.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(6) Consummation of a plan of conversion to which the corporation is a
party converting to another entity.
(b) A shareholder entitled to dissent and obtain payment for his shares under
this subdivision shall not challenge the corporate action creating his
entitlement, unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
<PAGE>
E-3
Source. 1992, 255:1, eff. Jan. 1, 1993. 1997, 120:5, eff. Aug. 8, 1997.
Section 293-A:13.03 Dissent by Nominees and Beneficial Owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held on
his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.20 Notice of Dissenters' Rights.
(a) If proposed corporate action creating dissenters' rights under RSA
293-A:13.02 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this subdivision and be accompanied by a copy of this
subdivision.
(b) If corporate action creating dissenters' rights under RSA 293-A:13.02 is
taken without a vote of shareholders or by consent pursuant to RSA 293-A:7.04,
the corporation shall notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in RSA 293-A:13.22.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.21 Notice of Intent to Demand Payment.
(a) If proposed corporate action creating dissenters' rights under RSA
293-A:13.02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(2) Shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is not
entitled to payment for his shares under this subdivision.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.22 Dissenters' Notice.
(a) If proposed corporate action creating dissenters' rights under RSA
293-A:13.02 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RSA 293-A:13.21.
(b) The dissenters' notice shall be sent no later than 10 days after corporate
action was taken, and shall:
<PAGE>
E-4
(1) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited.
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date.
(4) Set a date by which the corporation shall receive the payment
demand, which date shall not be fewer than 30 nor more than 60 days after the
date the notice is delivered.
(5) Be accompanied by a copy of this subdivision.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.23 Duty to Demand Payment.
(a) A shareholder sent to a dissenters' notice described in RSA 293-A:13.22
shall demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth, in the dissenters' notice
pursuant to RSA 293-A:13.22(b)(3), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share certificates
where required, each by the date set in the dissenters' notice, is not entitled
to payment for his shares under this subdivision.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.24 Share Restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under RSA 293-A:13.26.
(b) The person for who dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.25 Payment.
(a) Except as provided in RSA 293-A:13.27, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with RSA 293-A:13.23 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year, and
the latest available interim financial statements, if any;
<PAGE>
E-5
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under RSA
293-A:13.28; and
(5) A copy of this subdivision.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.26 Failure to Take Action.
(a) If the corporation does not take the proposed action within 60 days after
the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under RSA 293-A:13.22 and repeat the payment demand
procedure.
Source. 1992, 255:1,, eff. Jan. 1, 1993.
Section 293-A:13.27 After-Acquired Shares.
(a) A corporation may elect to withhold payment required by RSA 293-A:13.25 from
a dissenter, unless he was the beneficial owner of the shares before the date
set forth in the dissenters' notice as the date of the first announcement to
news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection
(a), after taking the proposed corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was calculated, and a
statement of the dissenter's right to demand payment under RSA 293-A13.28.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.28 Procedure if Shareholder Dissatisfied With Payment or Offer
(a) A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate, less any payment under RSA 293-A:13.25, or reject the corporation's
offer under RSA 293-A:13.27 and demand payment of the fair value of his shares
and interest due, if:
(1) The dissenter believes that the amount paid under RSA 293-A:13.25
or offered under RSA 293-A:13.27 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under RSA 293-A:13.25 within
60 days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for demand
payment.
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(b) A dissenter waives his right to demand payment under this section unless he
notifies the corporation of his demand in writing under subsection (a) within 30
days after the corporation made or offered payment for his shares.
Source. 1992, 255:1, eff. Jan. 1, 1993.
Section 293-A:13.30 Court Action.
(a) If a demand for payment under RSA 293-A:13.28 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the superior court of the
county where a corporation's principal office, or, if none in this state, its
registered office, is located. If the corporation is a foreign corporation or
other entity without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or converted into or whose shares were acquired
by the foreign corporation or other entity was located.
(c) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding as in an action
against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decisions on the
question of their value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation; or,
(2) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under RSA
293-A:13.27.
Source. 1992, 255:1, eff. Jan. 1, 1993. 1997, 120:4, eff. Aug. 8, 1997.
Section 293-A:13.31 Court Costs and Counsel Fees.
(a) The court in an appraisal proceeding commenced under RSA 293-A:13.30 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under RSA 293-A:13.28.
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RSA 293-A:13.20 through RSA 293-A:13.28.
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this subdivision.
<PAGE>
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(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
Source. 1992, 255:1, eff. Jan. 1, 1993.
