<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1995
REGISTRATION NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMMUNITY BANKSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW HAMPSHIRE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
6712
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NO.)
02-0394439
(I.R.S. EMPLOYER IDENTIFICATION NO.)
43 NORTH MAIN STREET
CONCORD, NEW HAMPSHIRE 03301
(603) 224-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DOUGLAS CRICHFIELD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COMMUNITY BANKSHARES, INC.
43 NORTH MAIN STREET
CONCORD, NEW HAMPSHIRE 03301
(603) 224-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
RICHARD A. SAMUELS, ESQ. PETER W. COOGAN, ESQ.
MCLANE, GRAF, RAULERSON & MIDDLETON FOLEY, HOAG, & ELIOT
PROFESSIONAL ASSOCIATION ONE POST OFFICE SQUARE
900 ELM STREET BOSTON, MASSACHUSETTS 02109
MANCHESTER, NEW HAMPSHIRE 03105
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par
value................. 711,236(1) (2) $9,942,735(3) $3,429
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Represents the maximum number of shares of Common Stock to be issued by
the Registrant in the proposed acquisition of Centerpoint Bank.
(2) Not applicable because the registration fee has been calculated upon the
basis of the market value of Centerpoint's Common Stock, in accordance
with Rule 457(f)(1) under the Securities Act of 1933.
(3) Represents (i) 662,849, which is the maximum number of shares of
Centerpoint Common Stock to be exchanged in the Merger (including
currently exercisable options), multiplied by (ii) $15.00, which is the
sales price of Centerpoint Common Stock on the Nasdaq Bulletin Board on
October 3, 1995, the most recent date on which Centerpoint's Common Stock
was traded.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMMUNITY BANKSHARES, INC.
Cross-Reference Sheet showing the location in the Proxy Statement-Prospectus
of information required by items of Form S-4:
<TABLE>
<CAPTION>
CAPTION OR LOCATION
REGISTRATION STATEMENT IN PROXY STATEMENT-
ITEM AND HEADING PROSPECTUS
---------------------- -------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Front Cover Page; Prospectus Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information......... Summary of Proxy Statement-Prospectus;
Selected Historical and Pro Forma Data;
Comparative Stock Prices and Dividends
4. Terms of the Transaction................ The Merger; Description of Community Capital
Stock; Comparison of Rights of Community and
Centerpoint Shareholders
5. Pro Forma Financial Information......... Unaudited Pro Forma Combined Financial Data
6. Material Contracts with the Company
Being Acquired........................ The Merger; Information about Centerpoint
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to Be Underwriters............. Not Applicable
8. Interests of Named Experts and Counsel.. The Merger--Opinions of Financial Advisors
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
10. Information with Respect to S-3
Registrants........................... Not Applicable
11. Incorporation of Certain Information by
Reference............................. Not Applicable
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants...........................
13. Incorporation of Certain Information by
Reference............................. Not Applicable
14. Information with Respect to Registrants
other than S-2 or S-3 Registrants..... Available Information; Information about
Community; Comparative Stock Prices and
Dividends; Principal Shareholders; Selected
Historical and Pro Forma Data; Unaudited Pro
Forma Combined Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of
Community; Community Consolidated Financial
Statements
15. Information with Respect to S-3
Companies............................. Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................. Not Applicable
17. Information with Respect to Companies
other than S-2 or S-3 Companies....... Information about Centerpoint; Comparative
Stock Prices and Dividends; Selected
Historical and Pro Forma Data; Unaudited Pro
Forma Combined Financial Data; The Merger;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Centerpoint; Centerpoint
Financial Statements
18. Information if Proxies, Consents or
Authorizations are to be Solicited.... Meeting Information; The Merger; Principal
Shareholders
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer............... Not Applicable
</TABLE>
<PAGE>
Community Bankshares, Inc.
43 North Main Street
Concord, New Hampshire 03301
[date]
Dear Holder of Community Bankshares Common Stock:
You are cordially invited to attend the Annual Meeting of the Shareholders
(the "Annual Meeting") of Community Bankshares, Inc., a New Hampshire
corporation ("Community"), to be held on [day], [date], at [time] at
[location].
At the Annual Meeting, holders of the outstanding shares of common stock,
par value $1.00 per share, of Community ("Community Common Stock") will be
asked to consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of August 29, 1995 (the "Merger Agreement"), by
and between Community and Centerpoint Bank, a New Hampshire-chartered trust
company ("Centerpoint"), and each of the transactions contemplated thereby.
Under the terms of the Merger Agreement, Community will form a New Hampshire-
chartered trust company subsidiary, which will be merged with and into
Centerpoint (the "Merger"). Following the Merger, Centerpoint will continue to
be operated as a wholly owned subsidiary of Community. A copy of the Merger
Agreement is attached to the accompanying Proxy Statement-Prospectus as Annex
A.
Upon consummation of the Merger, each outstanding share of the common stock
of Centerpoint, par value $1.00 per share ("Centerpoint Common Stock"), except
for any dissenting shares and except for shares held by Community or its
subsidiaries or by Centerpoint (other than in both cases shares held in a
fiduciary capacity or as a result of debts previously contracted), will be
converted into and exchangeable for 1.073 shares (the "Exchange Ratio") of
Community Common Stock.
Holders of Community Common Stock will also be asked to consider and vote
upon a proposal to amend Community's Restated Articles of Incorporation to
change certain shareholder voting requirements for the general purpose of
increasing Community's flexibility in connection with, and reducing the costs
involved in, a number of potential transactions, including securitization of
assets and acquisitions of other companies (such as the proposed Centerpoint
acquisition) (the "Charter Amendments").
Enclosed are a Notice of Annual Meeting of Shareholders and a Proxy
Statement-Prospectus, which describe the Merger, the background of the
transaction and the businesses of Community and Centerpoint. You are urged to
read all these materials carefully. The Board of Directors has fixed the close
of business on November 1, 1995 as the record date for the Annual Meeting.
Accordingly, only shareholders of record on that date will be entitled to
notice of, and to vote at, the Annual Meeting or any adjournments or
postponements thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION APPROVING THE
MERGER AGREEMENT AND THE CHARTER AMENDMENTS AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE IN FAVOR OF APPROVING AND ADOPTING THE MERGER AGREEMENT AND
THE CHARTER AMENDMENTS. McConnell, Budd & Downes, Inc. ("MB&D"), Community's
financial advisor, has rendered a written opinion to the Board of Directors of
Community that states, among other things, that, as of the date of this Proxy
Statement-Prospectus, the Exchange Ratio is fair to Community's shareholders
from a financial point of view. The written opinion of MB&D, dated the date of
this Proxy Statement-Prospectus, is reproduced in full in Annex C to the
accompanying Proxy Statement-Prospectus, and we urge you to read the opinion
carefully.
The affirmative vote of two-thirds of all of the outstanding shares of
Community Common Stock is required to approve the Merger Agreement. The
affirmative vote of the holders of outstanding shares of Community Common
Stock representing eighty percent of the votes entitled to be cast generally
in the election of directors is required to approve the Charter Amendments.
CONSEQUENTLY, THE FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A
<PAGE>
VOTE AGAINST THE MERGER AGREEMENT AND THE CHARTER AMENDMENTS. Accordingly, it
is essential that you take the time to consider and vote upon these
significant matters and that your shares be represented at the Annual Meeting,
regardless of whether you plan to attend.
At the Annual Meeting, holders of Community Common Stock will also be asked
to (i) amend Community's Articles of Incorporation to increase the authorized
shares of Community Common Stock from 3,000,000 to 4,500,000 shares, (ii)
elect a class of four directors to serve for a three-year term and until their
successors are elected and qualified, (iii) ratify the appointment of KPMG
Peat Marwick LLP as Community's auditors for the current fiscal year, and (iv)
approve an adjournment of the Annual Meeting for any reason, including to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the Annual Meeting to adopt the Merger
Agreement or approve the Charter Amendments. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF INCREASING THE
NUMBER OF AUTHORIZED SHARES OF COMMUNITY COMMON STOCK, IN FAVOR OF THE
ELECTION OF THE PROPOSED NOMINEES AS DIRECTORS, IN FAVOR OF THE RATIFICATION
OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS COMMUNITY'S AUDITORS FOR THE
CURRENT FISCAL YEAR AND IN FAVOR OF THE PROPOSAL TO ADJOURN THE ANNUAL MEETING
FOR ANY REASON, INCLUDING TO PERMIT FURTHER SOLICITATION OF PROXIES FOR THE
APPROVAL OF THE MERGER AGREEMENT OR THE CHARTER AMENDMENTS.
A form of proxy solicited by the Board of Directors is enclosed for your
convenience. YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. If you attend the Annual Meeting, you may vote in person if
you wish, even if you have previously returned your proxy card.
I strongly support the acquisition of Centerpoint by Community and join with
the other members of the Board in recommending the Merger to you. I urge you
to vote in favor of approval and adoption of the Merger Agreement and the
other matters to be considered at the Annual Meeting. If you should have any
questions about the Merger or such other matters, or need assistance in
completing your proxy, please contact either the undersigned or Richard E.
Kamp at Community at (603) 224-1100.
Very truly yours,
DOUGLAS CRICHFIELD
President
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
Centerpoint Bank
141 South River Road
Bedford, New Hampshire 03110-6740
[date]
Dear Holder of Centerpoint Bank Common Stock:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Centerpoint Bank, a New Hampshire-chartered trust
company ("Centerpoint"), to be held on [day], [date], at [time] at [location].
At the Special Meeting, holders of the outstanding shares of common stock,
par value $1.00 per share, of Centerpoint ("Centerpoint Common Stock") will be
asked to consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated as of August 29, 1995 (the "Merger Agreement"), by
and between Community Bankshares, Inc., a New Hampshire corporation
("Community"), and Centerpoint, a related Contract for Union, and each of the
transactions contemplated thereby. Under the terms of the Merger Agreement,
Community will form a New Hampshire-chartered trust company subsidiary, which
will be merged with and into Centerpoint (the "Merger"). Following the Merger,
Centerpoint will continue to be operated as a wholly owned subsidiary of
Community. A copy of the Merger Agreement and Contract for Union are attached
to the accompanying Proxy Statement-Prospectus as Annexes A and B,
respectively.
Upon consummation of the Merger, each outstanding share of Centerpoint
Common Stock, except for any dissenting shares and except for shares held by
Community or its subsidiaries or by Centerpoint (other than in both cases
shares held in a fiduciary capacity or as a result of debts previously
contracted), will be converted into and exchangeable for 1.073 shares (the
"Exchange Ratio") of the common stock, par value $1.00 per share, of Community
("Community Common Stock").
Enclosed are a Notice of Special Meeting of Shareholders and a Proxy
Statement-Prospectus, which describe the Merger, the background of the
transaction and the businesses of Community and Centerpoint. You are urged to
read all these materials carefully. The Board of Directors has fixed the close
of business on November 8, 1995 as the record date for the Special Meeting.
Accordingly, only shareholders of record on that date will be entitled to
notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION APPROVING THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF
APPROVING AND ADOPTING THE MERGER AGREEMENT AND CONTRACT FOR UNION. HAS
Associates, Inc. ("HAS"), Centerpoint's financial advisor, has rendered a
written opinion to the Board of Directors of Centerpoint that states, among
other things, that, as of the date of this Proxy Statement- Prospectus, the
Exchange Ratio is fair to Centerpoint's shareholders from a financial point of
view. The written opinion of HAS, dated the date of this Proxy Statement-
Prospectus, is reproduced in full in Annex C to the accompanying Proxy
Statement-Prospectus, and I urge you to read the opinion carefully.
The affirmative vote of two-thirds of all of the outstanding shares of
Centerpoint Common Stock is required to approve the Merger Agreement and
Contract for Union. Consequently, the failure to vote will have the same
effect as a vote against the proposal. Accordingly, it is essential that you
take the time to consider and to vote upon this significant matter and that
your shares be represented at the Special Meeting, regardless of whether you
plan to attend.
A form of proxy solicited by the Board of Directors is enclosed for your
convenience. YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE
<PAGE>
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
If you attend the Special Meeting, you may vote in person if you wish, even if
you have previously returned your proxy card.
Promptly after the Merger is consummated, a letter of transmittal will be
mailed to all holders of record of shares of Centerpoint Common Stock to use
in connection with surrendering their stock certificates. PLEASE DO NOT SEND
YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD OR TO THE EXCHANGE AGENT
UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL, WHICH WILL INCLUDE INSTRUCTIONS
AS TO THE PROCEDURE TO BE USED IN SENDING YOUR STOCK CERTIFICATES.
I strongly support the acquisition of Centerpoint by Community and join with
the other members of the Board in recommending the Merger to you. I urge you
to vote in favor of approval and adoption of the Merger. If you should have
any questions about the Merger or need assistance in completing your proxy
please contact the undersigned or Lucy Gobin at Centerpoint at (603) 668-1444.
Very truly yours,
PHILIP M. STONE
Chairman and President
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
COMMUNITY BANKSHARES, INC.
43 NORTH MAIN STREET
CONCORD, NEW HAMPSHIRE 03301
(603) 224-1100
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
The Annual Meeting of Shareholders (the "Annual Meeting") of Community
Bankshares, Inc., a New Hampshire corporation ("Community") will be held on
[day], [date], at [time] at [location], for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of August 29, 1995 (the "Merger
Agreement"), by and between Community and Centerpoint Bank, a New
Hampshire-chartered trust company ("Centerpoint"), and each of the
transactions contemplated thereby. Pursuant to the Merger Agreement,
Community Interim Trust Company ("Interim Bank"), a New Hampshire-chartered
trust company to be organized as a wholly owned subsidiary of Community for
the purpose of facilitating the acquisition of Centerpoint by Community,
will be merged with and into Centerpoint (the "Merger") upon the terms and
subject to the conditions set forth in the Merger Agreement, as are more
fully described in the enclosed Proxy Statement-Prospectus. Upon
consummation of the Merger, each outstanding share of the common stock, par
value $1.00 per share, of Centerpoint ("Centerpoint Common Stock"), except
for any dissenting shares and except for shares held by Community or its
subsidiaries or by Centerpoint (other than in both cases shares held in a
fiduciary capacity or as a result of debts previously contracted), will be
converted into and exchangeable for 1.073 shares (the "Exchange Ratio") of
the common stock, par value $1.00 per share, of Community ("Community
Common Stock"). A copy of the Merger Agreement is attached as Annex A to
the accompanying Proxy Statement-Prospectus.
2. To amend Community's Restated Articles of Incorporation, in the form
set forth as Annex D, to change certain shareholder voting requirements for
the general purpose of increasing Community's flexibility in connection
with, and reducing the costs involved in, a number of potential
transactions, including securitization of assets and acquisitions of other
companies (such as the proposed Centerpoint acquisition) (the "Charter
Amendments").
3. To amend Community's Articles of Incorporation to increase the
authorized Community Common Stock from 3,000,000 shares to 4,500,000
shares.
4. To elect a class of four directors to serve for a three-year term and
until their successors are elected and qualified.
5. To ratify the appointment of KPMG Peat Marwick LLP as Community's
auditors for the current fiscal year.
6. To approve an adjournment of the Annual Meeting for any reason,
including to permit further solicitation of proxies in the event that there
are not sufficient votes at the time of the Annual Meeting to adopt the
Merger Agreement or to approve the Charter Amendments.
7. To transact such other business as may properly be brought before the
Annual Meeting, or any adjournments or postponements thereof.
Any action may be taken on the foregoing proposals at the Annual Meeting on
the date specified above, or on any date or dates to which, by original or
later adjournment, the Annual Meeting may be adjourned, or to which the Annual
Meeting may be postponed.
The Board of Directors has fixed the close of business on November 1, 1995
as the record date (the "Record Date") for determination of shareholders
entitled to notice of and to vote at the Annual Meeting and any adjournments
or postponements thereof. Only holders of shares of Community Common Stock of
record at the close of business on the Record Date will be entitled to notice
of and to vote at the Annual Meeting and any adjournments or postponements
thereof.
<PAGE>
A majority of the outstanding shares of Community Common Stock entitled to
vote must be represented at the Annual Meeting, in person or by proxy, to
constitute a quorum for the transaction of business. The affirmative vote of
two-thirds of all of the outstanding shares of Community Common Stock is
required to approve the Merger Agreement. The affirmative vote of the holders
of outstanding shares of Community Common Stock representing eighty percent of
the votes entitled to be cast generally in the election of directors is
required to approve the Charter Amendments.
Any shareholder entitled to vote at the Annual Meeting shall have the right
to dissent from the Charter Amendments and to receive payment equal to the
"fair value" of the shares of Community Common Stock held of record by such
shareholder upon compliance with New Hampshire Revised Statutes Annotated 293-
A:13.01 et seq., the full text of which is included as Annex E to the
accompanying Proxy Statement-Prospectus. Shareholders do not have the right to
dissent from the Merger. This right is explained more fully in the
accompanying Proxy Statement-Prospectus in the section headed "APPRAISAL
RIGHTS OF DISSENTING SHAREHOLDERS."
In the event there are not sufficient votes to approve the Merger or the
Charter Amendments at the time of the Annual Meeting, the Annual Meeting may
be adjourned in order to permit further solicitation of proxies by Community.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT, FOR APPROVAL AND ADOPTION OF THE CHARTER
AMENDMENTS, FOR THE PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMUNITY COMMON STOCK, FOR THE ELECTION OF THE PROPOSED NOMINEES AS
DIRECTORS, FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP AS COMMUNITY'S
AUDITORS FOR THE CURRENT FISCAL YEAR AND FOR THE PROPOSAL TO ADJOURN THE
ANNUAL MEETING FOR ANY REASON, INCLUDING TO PERMIT FURTHER SOLICITATION OF
PROXIES FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE CHARTER AMENDMENTS.
By Order of the Board of Directors,
RICHARD E. KAMP, Secretary
Concord, New Hampshire
[date]
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
CENTERPOINT BANK
141 SOUTH RIVER ROAD
BEDFORD, NEW HAMPSHIRE 03110-6740
TELEPHONE: (603) 668-1444
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DATE]
A Special Meeting of Shareholders (the "Special Meeting") of Centerpoint
Bank, a New Hampshire-chartered trust company ("Centerpoint") will be held on
[day], [date], at [time] at [location], for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of August 29, 1995 (the "Merger
Agreement"), by and between Community Bankshares, Inc., a New Hampshire
corporation ("Community"), and Centerpoint, a related Contract for Union
and each of the transactions contemplated thereby. Pursuant to the Merger
Agreement, Community Interim Trust Company ("Interim Bank"), a New
Hampshire-chartered trust company to be organized as a wholly owned
subsidiary of Community for the purpose of facilitating the acquisition of
Centerpoint by Community, will be merged with and into Centerpoint (the
"Merger") upon the terms and subject to the conditions set forth in the
Merger Agreement, as are more fully described in the enclosed Proxy
Statement-Prospectus. Upon consummation of the Merger, each outstanding
share of the common stock, par value $1.00 per share, of Centerpoint
("Centerpoint Common Stock"), except for any dissenting shares and except
for shares held by Community or its subsidiaries or by Centerpoint (other
than in both cases shares held in a fiduciary capacity or as a result of
debts previously contracted), will be converted into and exchangeable for
1.073 shares (the "Exchange Ratio") of the common stock, par value $1.00
per share, of Community ("Community Common Stock"). A copy of the Merger
Agreement and Contract for Union are attached as Annexes A and B,
respectively, to the accompanying Proxy Statement-Prospectus.
2. To approve an adjournment of the Special Meeting for any reason,
including to permit further solicitation of proxies in the event that there
are not sufficient votes at the time of the Special Meeting to adopt the
Merger Agreement.
3. To transact such other business as may properly be brought before the
Special Meeting, or any adjournments or postponements thereof.
Any action may be taken on the foregoing proposals at the Special Meeting on
the date specified above, or on any date or dates to which, by original or
later adjournment, the Special Meeting may be adjourned, or to which the
Special Meeting may be postponed.
The Board of Directors has fixed the close of business on November 8, 1995
as the record date (the "Record Date") for determination of shareholders
entitled to notice of and to vote at the Special Meeting and any adjournments
or postponements thereof. Only holders of shares of Centerpoint Common Stock
of record at the close of business on the Record Date will be entitled to
notice of and to vote at the Special Meeting and any adjournments or
postponements thereof.
In the event there are not sufficient votes to approve the Merger at the
time of the Special Meeting, the Special Meeting may be adjourned in order to
permit further solicitations of proxies by Centerpoint.
A majority of the outstanding shares of Centerpoint Common Stock entitled to
vote must be represented at the Special Meeting, in person or by proxy, to
constitute a quorum for the transaction of business. The affirmative vote of
the holders of two-thirds of the shares of Centerpoint Common Stock issued,
outstanding and entitled to vote at the Special Meeting will be required to
approve the Merger Agreement and Contract for Union.
Any shareholder entitled to vote at the Special Meeting shall have the right
to dissent from the Merger Agreement and to receive payment equal to the "fair
value" of the shares of Centerpoint Common Stock held
<PAGE>
of record by such shareholder upon compliance with New Hampshire Revised
Statutes Annotated 293-A:13.01 et seq., the full text of which is included as
Annex E to the accompanying Proxy Statement-Prospectus. This right is
explained more fully in the accompanying Proxy Statement-Prospectus in the
section headed "APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS."
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND CONTRACT FOR UNION.
By Order of the Board of Directors,
Lucy T. Gobin, Clerk
Bedford, New Hampshire
[date]
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
JOINT PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS OF COMMUNITY BANKSHARES, INC.
AND
SPECIAL MEETING OF SHAREHOLDERS OF CENTERPOINT BANK
TO BE HELD ON [DATE]
---------------
COMMUNITY BANKSHARES, INC.
PROSPECTUS
This Proxy Statement-Prospectus serves as a joint proxy statement for the
annual meeting of shareholders of Community Bankshares, Inc. ("Community") to
be held on [date] (the "Community Annual Meeting" or the "Annual Meeting") and
the special meeting of shareholders of Centerpoint Bank ("Centerpoint") to be
held on [date] (the "Centerpoint Special Meeting" or the "Special Meeting"),
and is being used by the Boards of Directors of Community and Centerpoint to
solicit the proxies of their respective shareholders in connection therewith.
At the Community Annual Meeting, the Community shareholders will be asked
to: (i) consider and vote upon an Agreement and Plan of Merger dated as of
August 29, 1995 by and between Community and Centerpoint (the "Merger
Agreement"); (ii) consider and vote upon a proposal to amend Community's
Restated Articles of Incorporation; (iii) consider and vote upon a proposal to
increase the number of authorized shares of Community Common Stock; (iv) elect
four directors, each for a three-year term, to serve until their successors
are elected and qualified; (v) ratify the appointment of KPMG Peat Marwick LLP
as Community's auditors for the current fiscal year; and (vi) approve a
proposal to adjourn the Community Annual Meeting for any reason, including to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the Community Annual Meeting to approve the
Merger Agreement or the Charter Amendments.
At the Centerpoint Special Meeting, the Centerpoint shareholders will be
asked to: (i) consider and vote upon the Merger Agreement and related Contract
for Union; and (ii) approve a proposal to adjourn the Centerpoint Special
Meeting for any reason, including to permit further solicitation of proxies in
the event there are not sufficient votes at the time of the Centerpoint
Special Meeting to approve the Merger Agreement.
Pursuant to the Merger Agreement, Community Interim Trust Company ("Interim
Bank"), a New Hampshire-chartered trust company to be organized as a wholly
owned subsidiary of Community for the purposes of facilitating the acquisition
of Centerpoint by Community, will be merged with and into Centerpoint (the
"Merger"). At the effective time of the Merger, each outstanding share of the
common stock of Centerpoint, $1.00 par value ("Centerpoint Common Stock"),
except for any dissenting shares and except for shares held by Community or
its subsidiaries or by Centerpoint (other than in both cases shares held in a
fiduciary capacity or as a result of debts previously contracted), will be
converted into and exchangeable for 1.073 shares of the common stock, par
value $1.00 per share of Community ("Community Common Stock"). No fractional
shares of Community Common Stock will be issued and cash will be paid in lieu
thereof. See "THE MERGER--Exchange Ratio and Other Matters". Following the
Merger, Centerpoint will continue to be operated as a wholly owned subsidiary
of Community.
The Merger Agreement and Contract for Union are attached hereto as Annexes A
and B, respectively, and are incorporated herein by reference. This Proxy
Statement-Prospectus and the form of proxy are first being mailed to
shareholders of Community and Centerpoint on or about [date].
Community has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "Commission") covering a maximum of 711,236
shares of Community Common Stock, representing shares to be issued in
connection with the Merger. This Proxy Statement-Prospectus also constitutes
the prospectus of Community filed as a part of such Registration Statement.
This Proxy Statement-Prospectus does not cover any resales of Community
Common Stock received by shareholders of Centerpoint upon consummation of the
Merger, and no person is authorized to make use of this Proxy Statement-
Prospectus in connection with any such resale.
All information contained in this Proxy Statement-Prospectus with respect to
Community has been supplied by Community and all information with respect to
Centerpoint has been supplied by Centerpoint.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT-
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. SHAREHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT-PROSPECTUS
IN ITS ENTIRETY.
THE SHARES OF COMMUNITY COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF
COMMUNITY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
THE SECURITIES OF COMMUNITY OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE 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.
No person is authorized to give any information or to make any
representations other than those contained herein and, if given or made, such
information or representation must not be relied upon as having been
authorized. This document does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or
in which the person making such offer or solicitation is not qualified to do
so 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 distribution
of the shares of Community Common Stock hereunder shall, under any
circumstances, create any implication that there has not been any change in
the affairs of Community or Centerpoint since the date hereof.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS .
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TABLE OF CONTENTS
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Available Information...................................................... 4
Summary of Proxy Statement-Prospectus...................................... 5
The Parties............................................................... 5
Date, Time and Place of Meetings.......................................... 5
Purposes of Meetings...................................................... 5
Votes Required............................................................ 6
Terms of the Merger....................................................... 7
Recommendations of the Board of Directors and Reasons for Merger.......... 8
Opinions of Financial Advisors............................................ 9
Conditions to the Consummation of the Merger.............................. 9
Termination of the Merger Agreement....................................... 10
Amendment, Extension and Waiver........................................... 10
Regulatory Approvals...................................................... 10
Certain Federal Income Tax Consequences................................... 11
Accounting................................................................ 11
Management and Operations After the Merger................................ 11
Option Agreement.......................................................... 12
Appraisal Rights of Dissenting Shareholders............................... 12
Certain Differences in the Rights of Shareholders......................... 12
Selected Historical and Pro Forma Per Share Data.......................... 13
Market Prices............................................................. 14
Community Selected Historical Financial Data.............................. 15
Centerpoint Selected Historical Financial Data............................ 16
Selected Unaudited Pro Forma Combined Financial Data...................... 17
Meeting Information........................................................ 18
Shareholder Meetings...................................................... 18
Record Date............................................................... 18
Proxies; Voting and Revocation............................................ 19
Votes Required for Merger................................................. 20
Solicitation of Proxies................................................... 21
The Merger................................................................. 21
General................................................................... 21
Background of the Merger.................................................. 21
Reasons for the Merger; Recommendations of the Boards of Directors........ 23
Opinions of Financial Advisors............................................ 25
Management and Operations after the Merger................................ 30
Exchange Ratio and Other Matters.......................................... 31
Exchange of Certificates; Fractional Shares............................... 31
Effective Time............................................................ 32
Conduct of Business Pending the Merger.................................... 32
Conditions to the Consummation of the Merger.............................. 34
No Solicitation........................................................... 37
Regulatory Matters........................................................ 37
Certain Federal Income Tax Consequences................................... 38
Accounting Treatment...................................................... 39
Termination of the Merger Agreement....................................... 40
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Amendment, Extension and Waiver of the Merger Agreement.................. 40
Effect on Employee Benefits.............................................. 40
Interests of Certain Persons in the Merger............................... 41
Beneficial Ownership of Community Common Stock........................... 43
Beneficial Ownership of Centerpoint Common Stock......................... 43
Option Agreement......................................................... 43
Appraisal Rights of Dissenting Shareholders.............................. 45
Resale of Community Common Stock......................................... 48
Unaudited Pro Forma Combined Financial Data............................... 50
Amendments to Community Restated Articles of Incorporation................ 56
Increase in Community's Authorized Stock.................................. 57
Regulation................................................................ 59
Information About Community............................................... 63
General.................................................................. 63
Loan Portfolio........................................................... 64
Investment Activities.................................................... 69
Sources of Funds......................................................... 71
Asset/Liability Management............................................... 73
Competition.............................................................. 74
Personnel................................................................ 74
Properties............................................................... 74
Legal Proceedings........................................................ 74
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Community.................................................. 75
Highlights............................................................... 75
Rate/Volume Analysis..................................................... 75
Average Balance Sheets and Net Interest and Dividend Income.............. 76
Net Interest and Dividend Income......................................... 76
Yields Earned and Rates Paid............................................. 76
Average Balances......................................................... 77
Asset Quality............................................................ 77
Risk Characteristics of the Loan Portfolio............................... 78
Investment Securities.................................................... 79
Deposits................................................................. 79
Borrowed Funds........................................................... 80
Non-Interest Income...................................................... 80
Non-Interest Expense..................................................... 80
Income Taxes............................................................. 81
Liquidity and Capital Resources.......................................... 81
Recent Accounting Developments........................................... 82
Information About Centerpoint............................................. 83
Description of Business.................................................. 83
Description of Properties................................................ 83
Legal Proceedings........................................................ 84
Certain Contracts or Arrangements with Community......................... 84
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Centerpoint Bank--Six Months Ended June 30, 1995........... 84
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General.................................................................. 84
Highlights............................................................... 84
Average Balance Sheet.................................................... 85
Rate/Volume Analysis of Net Interest Income.............................. 86
Results of Operations--Six Months Ended June 30, 1995 as Compared to Six
Months Ended June 30, 1994.............................................. 86
Financial Condition...................................................... 88
Liquidity and Interest Rate Sensitivity Management....................... 89
Capital.................................................................. 90
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Centerpoint--Three Years Ended December 31, 1994........... 91
Highlights............................................................... 91
Average Balance Sheet.................................................... 91
Rate/Volume Analysis of Net Interest Income.............................. 92
Results of Operations--Year Ended December 31, 1994 as Compared to Year
Ended December 31, 1993................................................. 92
Results of Operations--Year Ended December 31, 1993 as Compared to Year
Ended December 31, 1992................................................. 94
Financial Condition...................................................... 95
Liquidity and Interest Rate Sensitivity Management....................... 96
Capital.................................................................. 97
Recent Accounting Developments........................................... 98
Certain Statistical and Other Information With Respect to Centerpoint..... 99
Investment Portfolio..................................................... 99
Loan Portfolio........................................................... 100
Nonaccrual, Past Due, Restructured and Potential Problem Loans........... 100
Summary of Loan Loss Experience.......................................... 101
Allowance for Loan Loss Allocation....................................... 102
Deposits................................................................. 102
Short-Term Borrowings.................................................... 103
Description of Community Capital Stock.................................... 104
General.................................................................. 104
Common Stock............................................................. 104
Preferred Stock.......................................................... 104
Charter and By-Law Provisions............................................ 105
Comparison of Rights of Community and Centerpoint Shareholders............ 106
Voting Requirements to Remove Directors Without Cause.................... 107
Business Combinations With Related Persons............................... 107
Merger and Consolidation................................................. 108
Amendments to Articles of Incorporation.................................. 108
Special Meetings of Shareholders......................................... 109
Actions Without a Meeting of Shareholders................................ 109
Qualification of Directors............................................... 109
Amendments to By-Laws.................................................... 109
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Financial Reports to Shareholders........................................ 109
Redemption of Shares..................................................... 109
Share Dividends.......................................................... 109
Distribution to Shareholders............................................. 110
Shareholders' List for Meeting........................................... 110
Voting Entitlement of Shares............................................. 110
Cumulative Voting........................................................ 110
Voting Trusts............................................................ 111
Voting Agreements........................................................ 111
Derivative Proceedings................................................... 111
By-Law Increasing Quorum or Voting Requirements for Directors............ 111
Inspection of Records by Shareholders.................................... 111
Community Annual Meeting--Other Matters................................... 112
Election of Community Directors.......................................... 112
Information Regarding Directors and Nominees............................. 113
Executive Officers....................................................... 114
Meetings and Committees of the Board of Directors of Community and of
Concord................................................................. 115
Executive Compensation.................................................... 116
Report of the Nominating and Compensation Committee with Respect to
Executive Compensation.................................................. 116
Summary Compensation Table............................................... 118
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Options Values.......................................................... 118
Pension Plan Table....................................................... 118
Employee Stock Ownership Plan............................................ 119
Severance Benefits Agreements............................................ 119
Transactions with Certain Related Persons................................. 120
Comparison of Five-Year Performance....................................... 120
Principal Shareholders.................................................... 122
Ratification of Community's Auditors...................................... 122
Compliance with Section 16(a) of the Exchange Act......................... 123
Comparative Stock Prices and Dividends.................................... 123
Experts................................................................... 124
Legal Opinions............................................................ 124
Independent Auditors...................................................... 124
Submission of Shareholder Proposals for Next Community Annual Meeting..... 124
Index to Financial Statements............................................. F-1
ANNEXES
A. Agreement and Plan of Merger.......................................... A-1
B. Contract for Union.................................................... B-1
C. Opinions of McConnell, Budd & Downes, Inc. and HAS Associates, Inc. to
the Community Board of Directors and the Centerpoint Board of
Directors, respectively................................................ C-1
D. Amendments to Community Restated Articles of Incorporation............. D-1
E. Sections 293-A:13.01 et seq. and 388:13 of the New Hampshire Revised
Statutes............................................................... E-1
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AVAILABLE INFORMATION
Community is subject to the informational 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
Commission. Proxy statements, reports and other information concerning
Community can be inspected and copied at the Commission's office at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's Regional Offices in New York (Seven World Trade Center, Suite
1300, New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661), and copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Community Common
Stock is traded on the Nasdaq National Market System. Reports, proxy
statements and other information concerning Community may also be inspected at
the offices of the National Association of Securities Dealers, Inc. ("NASD")
at 1735 K Street, N.W., Washington, D.C. 20006. This Proxy Statement-
Prospectus does not contain all the information set forth in the Registration
Statement and Annexes thereto which Community has filed with the Commission
under the Securities Act, which may be obtained from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the prescribed fees, and to which
reference is hereby made.
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SUMMARY OF PROXY STATEMENT-PROSPECTUS
The following is a brief summary, which is necessarily incomplete, of certain
information contained elsewhere in this Proxy Statement-Prospectus or in
documents incorporated herein by reference. Reference is made to, and this
Summary is qualified in its entirety by, the more detailed information
contained herein, the Annexes hereto and the documents incorporated by
reference herein. Each shareholder is urged to read the Proxy Statement-
Prospectus with care.
THE PARTIES
Community. Community is a bank holding company headquartered in Concord, New
Hampshire with total assets of approximately $425.7 million as of June 30,
1995. Community's banking subsidiary, Concord Savings Bank ("Concord"), is also
headquartered in Concord, New Hampshire. Concord is engaged principally in the
business of attracting deposits from the general public and investing those
deposits in residential and commercial real estate loans, in commercial and
consumer loans and in various investment securities. Concord operates six full
service banking offices in New Hampshire. Concord's consumer finance
subsidiary, Bancredit Corporation, originates indirect automobile and
recreational vehicle loans through dealers located throughout New Hampshire.
Community's principal executive office is located at 43 North Main Street,
Concord, New Hampshire 03301, and its telephone number is (603) 224-1100.
Centerpoint. Centerpoint is a trust company (commercial bank) chartered by
the State of New Hampshire and headquartered in Bedford, New Hampshire.
Centerpoint has branches in Manchester and Nashua, New Hampshire. As of June
30, 1995, it had assets of approximately $81.3 million. Centerpoint's business
is principally commercial banking, attracting deposits from and making loans to
small-to-medium sized businesses primarily in the geographic areas of its
offices. Centerpoint also takes retail deposits from the general public and
makes personal and consumer loans. Centerpoint's principal executive office is
located at 141 South River Road, Bedford, New Hampshire 03110, and its
telephone number is (603) 668-1444.
DATE, TIME AND PLACE OF MEETINGS
Community. The Community Annual Meeting will be held at [location] at [time]
on [day], [date].
Centerpoint. The Centerpoint Special Meeting will be held at [location] at
[time] on [day], [date].
PURPOSES OF MEETINGS
Community. The Community Annual Meeting will be held for the purposes of (i)
considering and voting upon a proposal to adopt and approve the Merger
Agreement and the transactions contemplated thereby; (ii) considering and
voting upon a proposal to amend to the Community Restated Articles of
Incorporation (the "Charter Amendments"); (iii) considering and voting upon a
proposal to increase the number of authorized shares of Community Common Stock;
(iv) electing four members of the Board of Directors, each for a three-year
term, to serve until their successors are elected and qualified; (v) ratifying
the appointment of KPMG Peat Marwick LLP as Community's auditors for the
current fiscal year; (vi) approving a proposal to adjourn the Annual Meeting
for any reason, including to permit further solicitation of proxies as to the
Merger Agreement and/or the Charter Amendments; and (vi) conducting any other
business that may properly come before the Annual Meeting, or any adjournments
or postponements thereof. See "MEETING INFORMATION--Shareholder Meetings," "THE
MERGER," "AMENDMENTS TO COMMUNITY RESTATED ARTICLES OF INCORPORATION,"
"INCREASE IN COMMUNITY'S AUTHORIZED COMMON STOCK" and "COMMUNITY ANNUAL
MEETING--OTHER MATTERS."
Centerpoint. The Centerpoint Special Meeting will be held for the purpose of
(i) considering and voting upon a proposal to adopt and approve the Merger
Agreement and Contract for Union and the transactions contemplated thereby;
(ii) approving a proposal to adjourn the Special Meeting for any reason,
including to
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permit further solicitation of proxies as to the Merger Agreement; and (iii)
conducting any other business that may properly come before the Special
Meeting, or any adjournments or postponements thereof. See "MEETING
INFORMATION--Shareholder Meetings" and "THE MERGER."
VOTES REQUIRED
Community. The Community Board of Directors has fixed the close of business
on November 1, 1995 as the record date (the "Community Record Date") for the
determination of shareholders entitled to notice of and to vote at the
Community Annual Meeting. Only the holders of record of the outstanding shares
of Community Common Stock on the Community Record Date will be entitled to
notice of, and to vote at, the Community Annual Meeting and any adjournments or
postponements thereof. At the Community Record Date, shares of Community
Common Stock were outstanding and entitled to vote. The presence, in person or
by proxy, of a majority of the aggregate number of shares of Community Common
Stock outstanding and entitled to vote on the Community Record Date is
necessary to constitute a quorum at the Community Annual Meeting. The
affirmative vote of (i) the holders of two-thirds of the outstanding shares of
Community Common Stock is required to approve and adopt the Merger Agreement;
(ii) the holders of outstanding shares of Community Common Stock representing
eighty percent of the votes entitled to be cast generally in the election of
directors is required to approve the Charter Amendments; (iii) a majority in
interest of the Community Common Stock present or represented and entitled to
vote and voting at the Community Annual Meeting is required to increase the
number of authorized shares of Community Common Stock, ratify the appointment
of KPMG Peat Marwick LLP as Community's auditors for the current fiscal year
and approve an adjournment of the Annual Meeting for any reason, including to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the Annual Meeting to adopt the Merger
Agreement or the Charter Amendments; and (iv) a plurality of the shares of
Community Common Stock voting at the Community Annual Meeting is required to
elect each of the nominees as directors. The approval of the Merger Agreement
by the Community shareholders is a condition to the consummation of the Merger.
Of the shares of Community Common Stock outstanding and entitled to vote
on the Community Record Date, shares, or approximately % were held by
directors and executive officers of Community and their respective affiliates.
The affirmative vote of the holders of two-thirds of the shares of Community
Common Stock issued, outstanding and entitled to vote at the Community Annual
Meeting will be required to approve the Merger Agreement. Consequently,
assuming, for illustration purposes only, that all directors and executive
officers of Community and their respective affiliates vote in favor of the
Merger Agreement, the affirmative vote of holders of approximately
additional shares of Community Common Stock, representing approximately % and
% of the shares issued and outstanding on the Community Record Date, will be
required to approve the Merger Agreement.
Centerpoint. The Centerpoint Board of Directors has fixed the close of
business on November 8, 1995 as the record date (the "Centerpoint Record Date")
for determination of shareholders entitled to notice of and to vote at the
Centerpoint Special Meeting. Only the holders of record of the outstanding
shares of Centerpoint Common Stock on the Centerpoint Record Date will be
entitled to notice of, and the vote at, the Centerpoint Special Meeting and any
adjournments or postponements thereof. At the Centerpoint Record Date, 590,349
shares of Centerpoint Common Stock were outstanding and entitled to vote. The
presence, in person or by proxy, of a majority of the aggregate number of
shares of Centerpoint Common Stock outstanding and entitled to vote at the
Centerpoint Special Meeting is necessary to constitute a quorum at the
Centerpoint Special Meeting. The affirmative vote of the holders of two-thirds
of the shares of Centerpoint Common Stock issued, outstanding and entitled to
vote at the Centerpoint Annual Meeting will be required to approve the Merger
Agreement and Contract for Union. The approval of the Merger Agreement by
Centerpoint's shareholders is a condition to the consummation of the Merger.
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Of the 590,349 shares of Centerpoint Common Stock outstanding and entitled to
vote on the Community Record Date, 256,216 shares, or approximately 43.4% were
held by directors and executive officers of Centerpoint and their respective
affiliates. The affirmative vote of the holders of two-thirds of the shares of
Centerpoint Common Stock issued, outstanding and entitled to vote at the
Centerpoint Special Meeting will be required to approve the Merger Agreement
and Contract for Union. The affirmative vote of holders of approximately
137,354 additional shares of Centerpoint Common Stock not held by directors,
executive officers and their affiliates, representing approximately 23.3% of
the shares issued and outstanding on the Centerpoint Record Date, will be
required to approve the Merger Agreement and Contract for Union if all
directors, executive officers and their affiliates vote in favor of the Merger.
Directors and officers of Centerpoint and their respective affiliates holding
an aggregate of 255,216 shares of the outstanding Centerpoint Common Stock have
entered into a Voting Agreement with Community to vote their shares in favor of
the Merger Agreement and to grant a proxy to Community to permit Community to
vote their shares in connection with the Merger Agreement. A copy of the form
of Voting Agreement is attached as Exhibit 7.4 to the Merger Agreement, which
is attached to this Proxy Statement-Prospectus as Annex A.
The affirmative vote of a majority of the shares of Centerpoint Common Stock
cast at the Centerpoint Special Meeting is required to approve an adjournment
of the Special Meeting, including an adjournment to permit further solicitation
of proxies in the event that there are not sufficient votes at the time of the
Special Meeting to adopt the Merger Agreement.
See "MEETING INFORMATION--Votes Required."
TERMS OF THE MERGER
In the Merger, each share of Centerpoint Common Stock outstanding, except for
any dissenting shares and except for shares held by Community or its
subsidiaries or by Centerpoint (other than in both cases shares held in a
fiduciary capacity or as a result of debts previously contracted), will be
converted into and exchangeable for 1.073 shares of Community Common Stock (the
"Exchange Ratio"). Pursuant to Community's Rights Agreement dated as of October
31, 1989, each share of Community Common Stock issued in the Merger will also
evidence one preferred stock purchase right. See "DESCRIPTION OF COMMUNITY
CAPITAL STOCK."
The Exchange Ratio is the product of arms' length negotiations between the
respective managements of Community and Centerpoint. In negotiating the
Exchange Ratio, the management of Community had the benefit of advice from its
financial advisor, the investment banking firm of McConnell, Budd & Downes,
Inc. ("MB&D"), and the management of Centerpoint had the benefit of advice from
its financial advisor, the investment banking firm of HAS Associates, Inc.
("HAS"). See "THE MERGER--Opinions of Financial Advisors."
No fractional shares of Community Common Stock will be issued in the Merger.
In lieu thereof, each holder of Centerpoint Common Stock who otherwise would
have been entitled to a fractional share of Community Common Stock will receive
cash in an amount equal to such fraction multiplied by the average closing sale
price of Community Common Stock on the Nasdaq National Market System as
reported by The Wall Street Journal for the five trading days immediately
preceding the date of the Effective Time.
The Merger will become effective on the date and time (the "Effective Time")
set forth in the Contract for Union to be filed with the Secretary of State of
New Hampshire.
At the Effective Time, each stock option with respect to Centerpoint Common
Stock granted by Centerpoint (the "Centerpoint Option") under Centerpoint's
1989 Stock Option Plan (the "Centerpoint Stock Option Plan"), which is
outstanding at such time, whether or not then exercisable, will be assumed by
Community. Each Centerpoint Option so assumed by Community shall continue to
have, and be subject to, the same terms and conditions set forth in the
Centerpoint Stock Option Plan immediately prior to the Effective Time, except
that
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(i) each Centerpoint Option shall be exercisable (when vested) for that number
of whole shares of Community Common Stock equal to the product of the number of
shares that may be purchased pursuant to the Centerpoint Option multiplied by
the Exchange Ratio, provided that any fractional share resulting from such
multiplication shall be rounded down to the nearest share; and (ii) the
exercise price per share of the Community Common Stock that may be purchased
pursuant to the Centerpoint Option shall be equal to the Centerpoint Option
exercise price per share divided by the Exchange Ratio, rounded up to the
nearest cent.
Assuming that at the Effective Time the number of shares of Centerpoint
Common Stock outstanding remains unchanged from [date], Community would issue
approximately 633,444 shares of Community Common Stock to acquire 590,349
shares of Centerpoint Common Stock. Assuming that at the Effective Time the
number of shares of Centerpoint Common Stock issuable at the Effective Time
upon the exercise of outstanding Centerpoint Options remains unchanged from
[date], options to acquire 77,500 shares of Centerpoint Common Stock would be
converted into options to acquire 83,156 shares of Community Common Stock, at
an exercise price of $9.32 per share. Under such circumstances, immediately
after the Effective Time, former Centerpoint shareholders would hold
approximately % of the outstanding shares of Community Common Stock (assuming
that shares of Community Common Stock were outstanding immediately after
the Effective Time, which amount includes shares of Community Common Stock
outstanding as of [date] and 633,444 shares of Community Common Stock issued to
Centerpoint shareholders in the Merger, but does not include existing options
to acquire Community Common Stock or the Centerpoint Options which will become
exercisable for the purchase of Community Common Stock upon the Effective
Time). Assuming that at the Effective Time the closing market price of
Community Common Stock of $ remains unchanged from [date], the Merger would
be valued at approximately $ million ($ million including the Centerpoint
Options which will become exercisable for the purchase of Community Common
Stock upon the Effective Time).
See "THE MERGER--Exchange Ratio and Other Matters," "--Exchange of
Certificates; Fractional Shares," "--Effective Time" and "--Appraisal Rights of
Dissenting Shareholders."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
Community. THE BOARD OF DIRECTORS OF COMMUNITY HAS UNANIMOUSLY ADOPTED A
RESOLUTION APPROVING THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT BY COMMUNITY'S SHAREHOLDERS. Community's
Board has adopted that resolution and makes that recommendation because it
believes that the terms of the Merger Agreement are fair and in the best
interests of Community and its shareholders and because the Community Board
believes in its business judgment that the Exchange Ratio is fair and
reasonable to the shareholders of Community. The terms of the Merger Agreement,
including the Exchange Ratio, were reached on the basis of arms' length
negotiations between Centerpoint and Community. In the course of reaching its
decision to approve the Merger Agreement, the Board of Directors of Community
consulted with Foley, Hoag & Eliot, its legal advisors, regarding the legal
terms of the Merger Agreement and the Board of Directors' obligations in its
consideration thereof and with MB&D, its financial advisor, regarding the
financial terms and fairness, from a financial point of view, of the Exchange
Ratio in the proposed Merger.
See "THE MERGER--Background of the Merger" and "--Reasons for the Merger;
Recommendations of the Boards of Directors."
Centerpoint. THE BOARD OF DIRECTORS OF CENTERPOINT HAS UNANIMOUSLY ADOPTED A
RESOLUTION APPROVING THE MERGER AGREEMENT AND CONTRACT FOR UNION AND
UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
CONTRACT FOR UNION BY CENTERPOINT'S SHAREHOLDERS. Centerpoint's Board has
adopted that resolution and makes that recommendation because it believes that
the terms of the Merger Agreement are fair
8
<PAGE>
and in the best interests of Centerpoint and its shareholders and because the
Centerpoint Board believes in its business judgment that the Exchange Ratio is
fair and reasonable to the shareholders of Centerpoint. The terms of the Merger
Agreement, including the Exchange Ratio, were reached on the basis of arms'
length negotiations between Centerpoint and Community. In the course of
reaching its decision to approve the Merger Agreement, the Board of Directors
of Centerpoint consulted with McLane, Graf, Raulerson and Middleton,
Professional Association, its legal advisors, regarding the legal terms of the
Merger Agreement and the Board of Directors' obligations in its consideration
thereof and with HAS, its financial advisor, regarding the financial terms and
fairness, from a financial point of view, of the Exchange Ratio in the proposed
Merger.
See "THE MERGER--Background of the Merger" and "--Reasons for the Merger;
Recommendations of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
Community. MB&D has delivered to the Board of Directors of Community its
written opinion, as of the date of this Proxy Statement-Prospectus, that the
Exchange Ratio is fair, from a financial point of view, to Community's
shareholders. The full text of the opinion of MB&D dated as of the date of this
Proxy Statement-Prospectus, which sets forth assumptions made, matters
considered and limits on the review undertaken by MB&D, is attached hereto in
Annex C. Shareholders are urged to read this opinion in its entirety. MB&D's
opinion is directed only to the Exchange Ratio and does not constitute a
recommendation to any Community shareholder as to how such shareholder should
vote at the Community Annual Meeting.
See "THE MERGER--Background of the Merger," "--Opinions of Financial
Advisors" and Annex C to this Proxy Statement-Prospectus.
Centerpoint. HAS has delivered to the Board of Directors of Centerpoint its
written opinion, as of the date of this Proxy Statement-Prospectus, that the
Exchange Ratio is fair, from a financial point of view, to Centerpoint's
shareholders. The full text of the opinion of HAS dated as of the date of this
Proxy Statement-Prospectus, which sets forth assumptions made, matters
considered and limits on the review undertaken by HAS, is attached hereto in
Annex C. Shareholders are urged to read this opinion in its entirety. HAS's
opinion is directed only to the Exchange Ratio and does not constitute a
recommendation to any Centerpoint shareholder as to how such shareholder should
vote at the Centerpoint Special Meeting.
See "THE MERGER--Background of the Merger," "--Opinions of Financial
Advisors" and Annex C to this Proxy Statement-Prospectus.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including the
approval of the shareholders of Centerpoint and Community solicited hereby; the
effectiveness of the registration statement of which this Proxy Statement-
Prospectus forms a part; approval by certain federal and New Hampshire
regulatory authorities; receipt by Centerpoint and Community of an opinion of
counsel as to the tax-free nature of the Merger for federal income tax purposes
(except for cash received in lieu of fractional shares); receipt of a letter
from Community's independent accountants to the effect that the Merger
qualifies to be accounted for as a pooling-of-interests; the exercise of
appraisal rights by the holders of not more than 8% of the outstanding
Centerpoint Common Stock; that there shall have been no material adverse change
in the business, operations, results of operations, properties, assets,
liabilities, securities, capitalization or condition of Centerpoint or its
subsidiaries or Community or its subsidiaries since the date of the most recent
audited financial statements available as of the date of the Merger Agreement
(which, in the case of Community, shall include a decline in the market price
of the Community Common Stock so that the average closing price of the
Community Common Stock for the fifteen trading days ending on the business day
before the last required regulatory approval is obtained is less than 75% of
9
<PAGE>
Community's book value per share as of the most recent quarter end); that
Centerpoint's non-performing assets shall not exceed 2% of its aggregate
balance of loans and non-performing assets as of the dates specified in the
Merger Agreement; that Centerpoint's net worth shall have increased by at least
$100,000 during each calendar quarter during the period specified in the Merger
Agreement; and other customary closing conditions. None of the foregoing
regulatory approvals has been obtained and there is no assurance that such
approvals will be obtained or as to the timing of such approvals.
See "THE MERGER--Conditions to the Consummation of the Merger" and "--
Regulatory Matters."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement provides that the Merger may be terminated at any time
prior to the Effective Time (whether before or after shareholder approval) by
mutual consent of Community and Centerpoint. Subject to certain limitations in
cases where the party seeking termination is in breach of the Merger Agreement,
the Merger Agreement may also be terminated by Community or Centerpoint, acting
individually, (a) if any regulatory authority shall have issued a final
nonappealable order that does not approve the Merger Agreement or the
transactions contemplated thereby; (b) if the Effective Time has not occurred
on or before August 29, 1996; (c) if there is a material breach by the other
party of any representation, warranty, covenant or agreement contained in the
Merger Agreement which is not timely cured; or (d) if the vote of the
shareholders of Community or Centerpoint required to approve the Merger
Agreement is not obtained. If the Merger Agreement is terminated (other than as
a result of a wilful breach or gross negligence by Community or Centerpoint),
each of Community and Centerpoint shall be responsible for its own costs and
expenses. If the Merger Agreement is terminated as a result of a breach of a
representation, warranty or covenant which is caused by the wilful conduct or
gross negligence of either party, the breaching party must reimburse the other
for all out-of-pocket costs and expenses incurred in connection with the Merger
Agreement, up to a maximum of $200,000.
See "THE MERGER--Termination of the Merger Agreement."
AMENDMENT, EXTENSION AND WAIVER
Community and Centerpoint may, to the extent legally allowable, (a) amend the
Merger Agreement; (b) extend the time for the performance of any of the
obligations or other acts required of the other party contained in the Merger
Agreement; (c) waive any inaccuracies in the representations and warranties of
the other party contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement; or (d) waive compliance by the other party of
any of its agreements or conditions contained in the Merger Agreement, except
that (i) after the Merger Agreement has been approved by the shareholders of
Centerpoint, no amendment shall reduce the amount or change the form of
consideration to be delivered to each of the Centerpoint shareholders pursuant
to the Merger Agreement without further approval of the Centerpoint
shareholders and (ii) after the Merger Agreement has been approved by the
shareholders of Community, no amendment shall increase the amount or change the
form of consideration to be delivered to each of the Centerpoint shareholders
pursuant to the Merger Agreement without further approval of the Community
shareholders.
See "THE MERGER--Amendment, Extension and Waiver of the Merger Agreement."
REGULATORY APPROVALS
Consummation of the transactions contemplated by the Merger Agreement is
subject to approval by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), the Federal Deposit Insurance Corporation
("FDIC"), the Board of Trust Company Incorporation of New Hampshire (the
"BTCI") and the Commissioner of Banks of New Hampshire (the "Commissioner of
Banks"). Assuming the approval of
10
<PAGE>
the Federal Reserve Board and the FDIC, the Merger may not be consummated for
30 days after the later of such approvals (or such shorter period as the
Federal Reserve Board or the FDIC may prescribe with the concurrence of the
Attorney General, but not less than 15 days), during which time the United
States Department of Justice may challenge the Merger on antitrust grounds.
[STATUS OF REGULATORY APPROVAL PROCESS.] The Merger will not proceed until all
regulatory approvals required to consummate the Merger have been obtained, such
approvals are in full force and effect and all statutory waiting periods in
respect thereof have expired. There can be no assurance that the Merger will be
approved by each of the required regulatory agencies. If such approvals are
received, there can be no assurance as to the date of such approvals, the terms
thereof, or the absence of any litigation challenging such approvals. See "THE
MERGER--Regulatory Matters."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned on there being delivered to each of
Community and Centerpoint an opinion of counsel reasonably acceptable to
Community and Centerpoint, addressed to Community and the shareholders of
Centerpoint, to the effect that, among other things, (a) the Merger will
constitute a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"); (b) no gain or loss
will be recognized by the shareholders of Centerpoint upon their receipt of
Community Common Stock in exchange for their Centerpoint Common Stock, except
in respect of cash received in lieu of fractional shares; (c) the tax basis of
the shares of Community Common Stock received by the shareholders of
Centerpoint will be the same as the tax basis of the Centerpoint Common Stock
surrendered in exchange therefor, decreased by the amount of cash received and
increased by the amount of any gain (and by the amount of any dividend income)
recognized on the exchange; and (d) the holding period of the Community Common
Stock in the hands of the Centerpoint shareholders will generally include the
holding period of their Centerpoint Common Stock.
Shareholders should consult their own tax advisors as to the tax consequences
of the Merger to them under Federal, state, local or any other applicable law.
See "THE MERGER--Certain Federal Income Tax Consequences."
ACCOUNTING
The Merger is intended to be accounted for as a pooling-of-interests, as more
fully described under "THE MERGER--Accounting Treatment."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, Centerpoint, as the surviving bank in the
Merger with Interim Bank, will continue to operate as a separate banking
subsidiary of Community. The directors and officers of Centerpoint immediately
prior to the Effective Time will remain the directors and officers of
Centerpoint after the Merger, to hold office in accordance with the charter
documents and by-laws of Centerpoint until their respective successors are duly
elected or appointed and qualified. Following the Effective Time, Community
intends to elect two additional directors to serve on the Board of Centerpoint.
At or immediately after the Effective Time, the Board of Directors of Community
will elect three of Centerpoint's current directors to serve on the Board of
Directors of Community, to be designated prior to the Effective Time as
follows, subject to the reasonable approval of Community's Board of Directors:
one of the nominees will be Philip M. Stone, the current President and CEO of
Centerpoint; the second nominee will be designated by Mr. Stone; and the third
nominee will be selected by Community from a list of potential nominees
provided by Centerpoint to Community. Neither the second nor the third nominee
has been selected. Prior to or at the Effective Time, the Board of Directors of
Concord Savings Bank, Community's banking subsidiary, will elect one of
Centerpoint's outside directors (designated by the Board of Directors of
Centerpoint prior to the Effective Time) to serve on the Board of Directors of
Concord Savings Bank.
See "THE MERGER--Management and Operations After the Merger."
11
<PAGE>
OPTION AGREEMENT
Concurrently with the execution of the Merger Agreement, Centerpoint and
Community entered into a Stock Option Agreement (the "Option Agreement")
pursuant to which Centerpoint granted an option (the "Option") to Community to
purchase up to 165,920 shares of Centerpoint Common Stock (19.9% of the then-
issued and outstanding Centerpoint Common Stock, including shares issuable
pursuant to the Centerpoint Stock Option Plan and the Option Agreement) under
certain conditions, at a price of $12.00 per share, subject to adjustment as
set forth in the Option Agreement. Community conditioned its willingness to
enter into the Merger Agreement on receipt of the Option. The Option is
exercisable, in whole or in part, only upon the occurrence of certain
triggering events. A copy of the Option Agreement is attached as Exhibit 1.7 to
the Merger Agreement, which is attached to this Proxy Statement-Prospectus as
Annex A.
The Option may act to deter competing offers from third parties to acquire
Centerpoint. If a triggering event occurs, the Option could be exercised,
thereby increasing the number of outstanding shares of Centerpoint's Common
Stock and making it more difficult and costly for a third party to obtain all
or a specified percentage of Centerpoint's Common Stock.
Centerpoint may be required, in certain circumstances, to repurchase the
Option and any shares of Centerpoint Common Stock that may have been purchased
by Community pursuant to the Option Agreement.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Under New Hampshire law, holders of Centerpoint Common Stock have the right
to dissent from the Merger and holders of Community Common Stock have the right
to dissent from the Charter Amendments and, in each case, receive payment equal
to the "fair value" of their shares upon compliance with applicable provisions
of New Hampshire law, the full text of which provisions is included as Annex E
to this Proxy Statement-Prospectus. Holders of Community Common Stock do not
have the right to dissent from the Merger.
See "THE MERGER--Appraisal Rights of Dissenting Shareholders."
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of shareholders of Centerpoint are currently governed by the
provisions of the New Hampshire Revised Statutes applicable to state-chartered
banks and Centerpoint's Articles of Agreement (the "Centerpoint Charter") and
By-laws. Upon consummation of the Merger, Centerpoint's shareholders will
automatically become shareholders of Community, and their rights will be
governed by the provisions of the New Hampshire Revised Statutes applicable to
business corporations and Community's Restated Articles of Incorporation and
By-laws.
See "COMPARISON OF RIGHTS OF COMMUNITY AND CENTERPOINT SHAREHOLDERS."
12
<PAGE>
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth for Community Common Stock and Centerpoint
Common Stock certain historical, unaudited pro forma and unaudited pro forma
equivalent per share information at the end of and for each of the years in the
three-year period ended June 30, 1995, giving effect to the Merger using the
pooling-of-interests method of accounting. The information is derived from the
historical consolidated financial statements of Community and the historical
financial statements of Centerpoint, recast to conform to the June 30 fiscal
year end used by Community, including the related notes thereto, and the pro
forma combined financial information giving effect to the Merger, including the
related notes thereto, appearing elsewhere herein. The information herein
should be read in conjunction with the historical and pro forma combined
financial information of Community and Centerpoint, including the notes
thereto, appearing elsewhere in this Proxy Statement-Prospectus. See "UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA."
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Earnings per common and common equivalent share(1):
Community............................................... $ 1.84 $ 1.73 $ 1.28
Centerpoint............................................. 1.51 0.90 0.40
Community combined pro forma............................ 1.72 1.51 1.10
Centerpoint equivalent pro forma........................ 1.85 1.62 1.18
Dividends declared per common share(2):
Community............................................... $ 0.51 $ 0.24 $ --
Centerpoint............................................. 0.175 -- --
Community combined pro forma............................ 0.42 0.18 --
Centerpoint equivalent pro forma........................ 0.45 0.19 --
Book value per share(3):
Community............................................... $16.94 $15.27 $13.93
Centerpoint............................................. 9.45 7.78 8.30
Community combined pro forma............................ 14.77 13.13 12.32
Centerpoint equivalent pro forma........................ 15.85 14.09 13.22
</TABLE>
- --------
(1) Community combined pro forma earnings per common and common equivalent
share are calculated by using aggregate historical income information for
Community and Centerpoint divided by the average pro forma shares
outstanding of the combined entity. The average pro forma shares of the
combined entity have been calculated by combining Community historical
average shares with the historical average shares of Centerpoint as
adjusted by the Exchange Ratio of 1.073. See "THE MERGER--Exchange Ratio
and Other Matters." The Centerpoint equivalent pro forma earnings per share
amounts are computed by multiplying the Community combined pro forma
amounts by the Exchange Ratio.
(2) Community combined pro forma dividends declared per common share are
determined by dividing aggregate pro forma dividends declared by the total
pro forma common shares of the combined entity based on the Exchange Ratio.
Centerpoint equivalent pro forma dividends declared per share represent
Community pro forma cash dividends per share multiplied by the Exchange
Ratio. See "THE MERGER--Exchange Ratio and Other Matters."
(3) Community combined pro forma book value per share is based on the aggregate
historical common stockholders' equity of Community and Centerpoint divided
by the total pro forma common shares of the combined entity based on the
Exchange Ratio of 1.073. Centerpoint equivalent pro forma book value per
share at period end represents Community pro forma amounts multiplied by
the Exchange Ratio. See "THE MERGER--Exchange Ratio and other Matters."
13
<PAGE>
MARKET PRICES
The shares of Community Common Stock are quoted on the Nasdaq National Market
System. The shares of Centerpoint Common Stock are quoted on the Nasdaq
Bulletin Board. The following table shows the market value per share for each
of Community and Centerpoint and the Centerpoint Equivalent for the dates set
forth below:
<TABLE>
<CAPTION>
CLOSING SALES PRICE
---------------------
COMMUNITY CENTERPOINT CENTERPOINT
COMMON COMMON EQUIVALENT
STOCK STOCK PER SHARE (1)
--------- ----------- -------------
<S> <C> <C> <C>
Market value per common share:
August 22, 1995 (2)....................... $16.00 $10.125 $17.17
August 29, 1995 (3)....................... 16.50 N/A 17.70
[recent date].............................
</TABLE>
- --------
(1) Equivalent market value per share of Centerpoint Common Stock represents
the closing sales price of Community Common Stock on August 29, 1995 (the
day immediately preceding the public announcement of the Merger) and
[recent date] multiplied by the Exchange Ratio of 1.073.
(2) Date of the most recent sale of Centerpoint Common Stock prior to the
public announcement of the Merger.
(3) The business day immediately preceding the public announcement of the
proposed Merger.
14
<PAGE>
COMMUNITY BANKSHARES, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical data
regarding Community's operating results and financial position for and at the
periods indicated. Such financial data should be read in conjunction with
Community's audited consolidated financial statements and the notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED JUNE 30,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend
income..................... $ 28,241 $ 23,218 $ 24,636 $ 26,671 $ 28,996
Interest expense............ 14,244 10,736 11,974 15,936 19,996
-------- -------- -------- -------- --------
Net interest and dividend
income..................... 13,997 12,482 12,662 10,735 9,000
Provision for possible loan
losses..................... 475 625 2,150 2,950 2,500
-------- -------- -------- -------- --------
Net interest and dividend
income after provision for
possible loan losses....... 13,522 11,857 10,512 7,785 6,500
Non-interest income......... 2,036 2,558 2,879 2,528 1,806
Non-interest expense........ 10,720 10,467 11,170 9,969 8,907
-------- -------- -------- -------- --------
Income before income tax.... 4,838 3,948 2,221 344 (601)
Income tax expense.......... 1,551 858 -- 85 (1,088)
-------- -------- -------- -------- --------
Net income................ $ 3,287 $ 3,090 $ 2,221 $ 259 $ 487
======== ======== ======== ======== ========
ENDING BALANCE SHEET DATA:
Assets...................... $425,714 $346,136 $320,567 $312,019 $293,674
Investment securities....... 115,965 100,515 64,958 74,693 44,765
Loans....................... 271,461 222,109 218,960 208,322 224,927
Allowance for possible loan
losses..................... 2,970 3,351 3,822 3,958 3,982
Real estate acquired by
foreclosure or
substantively repossessed.. 1,134 836 2,568 6,725 6,613
Deposits.................... 308,556 292,925 285,609 272,068 238,369
Borrowed funds.............. 82,768 23,507 4,810 8,529 29,584
Stockholders' equity........ 29,398 26,625 23,849 21,406 20,995
PER SHARE DATA AND OTHER
SELECTED RATIOS:
Earnings per common and
common equivalent share.... $ 1.84 $ 1.73 $ 1.28 $ 0.15 $ 0.29
Dividends declared per
share...................... 0.51 0.24 -- -- --
Dividend payout ratio....... 27.72% 13.87% -- % -- % -- %
Book value per share........ $ 16.94 $ 15.27 $ 13.93 $ 12.70 $ 12.48
Stockholders' equity to
assets at period end....... 6.91% 7.69% 7.43% 6.86% 7.15%
Average stockholders' equity
to average assets.......... 7.31 8.04 7.30 7.29 7.38
Return on average assets.... 0.87 0.94 0.71 0.09 0.17
Return on average equity.... 11.90 11.68 9.73 1.19 2.26
Net interest margin......... 3.89 4.02 4.27 3.83 3.29
</TABLE>
15
<PAGE>
CENTERPOINT BANK
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the five years ended
December 31, 1994, are derived from the financial statements of Centerpoint.
The financial data for the six month periods ended June 30, 1995 and 1994 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, that
Centerpoint considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the six months ended June 30, 1995 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1995. The
data should be read in conjunction with the financial statements, related
notes, and other financial information included in this Proxy Statement-
Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE YEARS
ENDED JUNE 30, ENDED DECEMBER 31,
---------------- -------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income........ $ 3,025 $ 2,123 $ 4,730 $ 3,433 $ 2,847 $ 2,322 $ 801
Interest expense....... 859 538 1,253 952 1,064 1,324 431
------- ------- ------- ------- ------- ------- -------
Net interest income.... 2,166 1,585 3,477 2,481 1,783 998 370
Provision for loan
losses................ 150 116 268 250 170 80 27
------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan losses........... 2,016 1,469 3,209 2,231 1,613 918 343
Other income........... 76 73 162 267 125 74 10
Other expense.......... 1,447 1,193 2,468 2,133 1,567 1,309 905
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
extraordinary item.... 645 349 903 365 171 (317) (552)
Income tax expense..... 225 39 125 -- 51 -- --
------- ------- ------- ------- ------- ------- -------
Income before
extraordinary item.... 420 310 778 365 120 (317) (552)
Extraordinary item..... -- -- -- -- 51 -- --
------- ------- ------- ------- ------- ------- -------
Net Income (Loss)...... 420 310 778 365 171 (317) (552)
Preferred stock
dividends............. -- 3 3 30 10 -- --
------- ------- ------- ------- ------- ------- -------
Net Income (Loss)
Available to Common
Stock................. $ 420 $ 307 $ 775 $ 335 $ 161 $ (317) $ (552)
======= ======= ======= ======= ======= ======= =======
ENDING BALANCE SHEET
DATA:
Assets................. $81,310 $61,119 $68,738 $60,233 $44,813 $38,515 $19,953
Securities............. 17,009 12,771 17,113 15,004 13,102 12,351 6,115
Loans and mortgage
loans held for
resale................ 50,715 39,910 43,116 35,125 26,033 16,866 5,615
Allowance for loan
losses................ 554 421 422 329 277 115 27
Deposits............... 64,628 53,464 60,845 51,822 38,461 29,666 15,562
Borrowed funds......... 10,253 2,479 2,125 3,062 1,662 5,769 863
Common shareholders'
equity................ 5,577 4,593 5,029 4,883 4,549 3,050 3,368
PER SHARE DATA AND OTHER
SELECTED RATIOS:
Earnings (loss) per
common share.......... $ 0.71 $ 0.52 $ 1.32 $ 0.59 $ 0.34 $ (0.72) $ (1.26)
Dividends declared per
share................. 0.075 -- 0.100 -- -- -- --
Dividend payout ratio.. 10.56% -- % 7.58% -- % -- % -- % -- %
Book value per share... $ 9.45 $ 7.78 $ 8.52 $ 8.77 $ 8.19 $ 6.96 $ 7.69
Shareholders' equity to
assets at period end.. 6.86% 7.51% 7.32% 8.11% 10.15% 7.92% 16.88%
Return on average
assets (1)............ 1.20 1.02 1.22 0.66 0.40 (1.08) (4.85)
Return on average
equity (1)............ 15.97 13.07 16.15 7.02 4.58 (10.14) (14.90)
Average equity/average
assets (1)............ 7.49 7.82 7.56 9.37 8.70 10.65 32.51
Net interest margin
(1)................... 6.57 5.66 5.95 5.42 4.91 3.34 3.87
</TABLE>
- --------
(1)Calculated on an annualized basis.
16
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain unaudited pro forma combined financial
data for Community after giving effect to the Merger, as if it had occurred as
of the beginning of each of the periods presented, after giving effect to
certain pro forma adjustments using the Exchange Ratio of 1.073 and as if the
Merger had been accounted for as a pooling of interests. See "THE MERGER--
Accounting Treatment." This information should be read in conjunction with the
historical consolidated financial statements of Community and Centerpoint,
including the notes thereto, appearing elsewhere in this Proxy Statement-
Prospectus. See "UNAUDITED PRO FORMA COMBINED FINANCIAL DATA."
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED JUNE 30,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income.. $ 33,873 $ 27,204 $ 27,696
Interest expense.............. 15,818 11,768 12,936
-------------- -------------- --------------
Net interest and dividend
income....................... 18,055 15,436 14,760
Provision for possible loan
losses....................... 777 925 2,351
-------------- -------------- --------------
Net interest and dividend
income after provision for
possible loan losses......... 17,278 14,511 12,409
Non-interest income........... 2,201 2,818 3,031
Non-interest expense.......... 13,442 12,811 12,980
-------------- -------------- --------------
Income before income tax...... 6,037 4,518 2,460
Income tax expense............ 1,862 897 --
-------------- -------------- --------------
Net income.................. 4,175 3,621 2,460
Dividends on preferred stock.. -- 18 25
-------------- -------------- --------------
Net income available to
common stock............... $ 4,175 $ 3,603 $ 2,435
============== ============== ==============
ENDING BALANCE SHEET DATA:
Assets........................ $507,024 $407,255 $375,436
Investment securities......... 132,974 113,512 74,483
Loans......................... 321,933 262,019 245,145
Allowance for possible loan
losses....................... 3,524 3,773 4,105
Real estate acquired by
foreclosure or substantively
repossessed.................. 1,134 836 2,568
Deposits...................... 373,184 346,389 332,180
Borrowed funds................ 93,021 25,986 7,998
Stockholders' equity.......... 34,975 31,218 28,027
PER SHARE DATA AND OTHER
SELECTED RATIOS:
Earnings per common and common
equivalent share............. $ 1.72 $ 1.51 $ 1.10
Dividends declared per share.. 0.42 0.18 --
Dividend payout ratio......... 24.42% 11.92% -- %
Book value per share.......... $ 14.77 $ 13.13 $ 12.10
Stockholders' equity to assets
at period end................ 6.90% 7.67% 7.47%
Average stockholders' equity
to average assets............ 7.33 8.07 7.59
Return on average assets...... 0.94 0.93 0.68
Return on average equity...... 12.77 11.53 8.97
Net interest margin........... 4.27 4.25 4.39
</TABLE>
17
<PAGE>
MEETING INFORMATION
SHAREHOLDER MEETINGS
Community. This Proxy Statement-Prospectus is being furnished in connection
with the solicitation of proxies by the Board of Directors of Community for
use at the Community Annual Meeting. The Community Annual Meeting will be held
at the [location], at [time] on [day and date].
The Community Annual Meeting will be held for the purpose of (i) considering
and voting upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby; (ii) considering and voting upon a proposal
to amend the Community Restated Articles of Incorporation (the "Charter
Amendments"); (iii) considering and voting upon a proposal to increase the
number of authorized shares of Community Common Stock; (iv) electing four
members of the Board of Directors, each for a three-year term, to serve until
their successors are elected and qualified; (v) ratifying the selection of
KPMG Peat Marwick LLP as Community's auditors for the current fiscal year;
(vi) approving a proposal to adjourn the Annual Meeting for any reason,
including to permit further solicitation of proxies as to the Merger Agreement
and the Charter Amendments; and (vi) conducting any other business that may
properly come before the Annual Meeting, or any adjournments or postponements
thereof. Any action may be taken on the foregoing proposals at the Annual
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Annual Meeting may be adjourned, or to
which the Annual Meeting may be postponed.
THE COMMUNITY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMMUNITY
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, FOR THE CHARTER AMENDMENTS AND FOR THE
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING.
Centerpoint. This Proxy Statement-Prospectus is being furnished in
connection with the solicitation of proxies by the Board of Directors of
Centerpoint for use at the Centerpoint Special Meeting. The Centerpoint
Special Meeting will be held at the [location], at [time] on [day and date].
The Centerpoint Special Meeting will be held for the purpose of (i)
considering and voting upon a proposal to approve and adopt the Merger
Agreement, the Contract for Union and the transactions contemplated thereby;
(ii) approving a proposal to adjourn the Special Meeting for any reason,
including to permit further solicitation of proxies as to the Merger
Agreement; and (iii) conducting any other business that may properly come
before the Special Meeting, or any adjournments or postponements thereof. Any
action may be taken on the foregoing proposals at the Special Meeting on the
date specified above, or on any date or dates to which, by original or later
adjournment, the Special Meeting may be adjourned, or to which the Special
Meeting may be postponed.
THE CENTERPOINT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
CENTERPOINT SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT, THE CONTRACT FOR UNION AND THE TRANSACTIONS CONTEMPLATED THEREBY.
RECORD DATE
Community. The Community Board of Directors has fixed the close of business
on November 1, 1995 as the Community Record Date. Only the holders of record
of the outstanding shares of Community Common Stock on the Community Record
Date will be entitled to notice of, and to vote at, the Community Annual
Meeting and any adjournments or postponements thereof. At the Community Record
Date, shares of Community Common Stock were outstanding and entitled to
vote.
Centerpoint. The Centerpoint Board of Directors has fixed the close of
business on November 8, 1995 as the Centerpoint Record Date. Only the holders
of record of the outstanding shares of Centerpoint Common Stock on the
Centerpoint Record Date will be entitled to notice of, and to vote at, the
Centerpoint Special Meeting and any adjournments or postponements thereof. At
the Centerpoint Record Date, 590,349 shares of Centerpoint Common Stock were
outstanding and entitled to vote.
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PROXIES; VOTING AND REVOCATION
Community. The presence, in person or by proxy, of a majority of the
aggregate number of shares of Community Common Stock outstanding and entitled
to vote on the Community Record Date is necessary to constitute a quorum at
the Community Annual Meeting. The affirmative vote of (i) the holders of two-
thirds of the outstanding shares of Community Common Stock entitled to vote on
the Merger is required to approve and adopt the Merger Agreement; (ii) the
holders of outstanding shares of Community Common Stock representing eighty
percent of the votes entitled to be cast generally in the election of
directors is required to approve the Charter Amendments; (iii) a majority in
interest of the Community Common Stock present or represented and entitled to
vote and voting at the Community Annual Meeting is required to approve the
proposal to increase the number of authorized shares of Community Common
Stock, to ratify the appointment of KPMG Peat Marwick LLP as Community's
auditors for the current fiscal year and to approve an adjournment of the
Community Annual Meeting; and (iv) a plurality of the shares of Common Stock
voting at the Community Annual Meeting is required to elect each of the
nominees as directors. Community intends to count votes withheld for any
nominee for election as director, broker non-votes and abstentions as present
at the meeting for purposes of determining a quorum. Abstentions will be
included in the number of shares present or represented and voting on each
matter and broker non-votes will not be included in the number of shares
present or represented and voting on each matter. With respect to the
proposals to adopt and approve the Merger Agreement and the Charter
Amendments, both an abstention and a non-vote will have the effect of a
negative vote. With respect to the proposals to adjourn the Community Annual
Meeting, increase the number of authorized shares of Community Common Stock
and ratify the appointment of KPMG Peat Marwick LLP, an abstention will have
the effect of a negative vote and a non-vote will have no effect. A non-vote
occurs when a nominee holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because, in respect of such
other proposal, the nominee does not have discretionary voting power and has
not received instructions from the beneficial owner. Specifically, under
applicable rules and regulations, brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers on the approval and
adoption of the Merger Agreement and the Charter Amendments without specific
instructions from such customers.
Shares represented by a properly executed proxy received prior to the vote
at the Community Annual Meeting and not revoked will be voted at the Community
Annual Meeting as directed in the proxy. IF A PROXY IS SUBMITTED AND NO
DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT, FOR THE CHARTER AMENDMENTS, FOR THE PROPOSAL TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMUNITY COMMON STOCK, FOR THE APPOINTMENT
OF KPMG PEAT MARWICK LLP AS COMMUNITY'S AUDITORS FOR THE CURRENT FISCAL YEAR,
FOR THE ELECTION OF THE NOMINEES AS DIRECTORS AND FOR THE PROPOSAL TO ADJOURN
THE MEETING.
A Community shareholder of record may revoke a proxy by filing an instrument
of revocation with Richard E. Kamp, Secretary of Community (43 North Main
Street, Concord, New Hampshire 03301), by filing a duly executed proxy bearing
a later date, or by appearing at the Community Annual Meeting in person,
notifying the Secretary, and voting by ballot at the Community Annual Meeting.
Any Community shareholder of record attending the Community Annual Meeting may
vote in person whether or not a proxy has been previously given, but the mere
presence (without notifying the Secretary) of a shareholder at the Community
Annual Meeting will not constitute revocation of a previously given proxy.
Centerpoint. The presence, in person or by proxy, of a majority of the
aggregate number of shares of Centerpoint Common Stock outstanding and
entitled to vote on the Centerpoint Record Date is necessary to constitute a
quorum at the Centerpoint Special Meeting. The affirmative vote of (i) the
holders of two-thirds of the outstanding shares of Centerpoint Common Stock
entitled to vote on the Merger is required to approve and adopt the Merger
Agreement and the Contract for Union; and (ii) a majority of the shares of
Centerpoint Common Stock cast at the Centerpoint Special Meeting is required
to approve an adjournment of the Centerpoint Special Meeting. Centerpoint
intends to count broker non-votes and abstentions as present at the meeting
for
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purposes of determining a quorum. Abstentions will be included in the number
of shares present or represented and voting on each matter and broker non-
votes will not be included in the number of shares present or represented and
voting on each matter. With respect to the proposal to adopt and approve the
Merger Agreement and the Contract for Union, both an abstention and a non-vote
will have the effect of a negative vote. With respect to the proposal to
adjourn the Centerpoint Annual Meeting, an abstention will have the effect of
a negative vote and a non-vote will have no effect. A non-vote occurs when a
nominee holding shares for a beneficial owner votes on one proposal, but does
not vote on another proposal because, in respect of such other proposal, the
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. Specifically, under applicable rules
and regulations, brokers who hold shares in street name for customers who are
the beneficial owners of such shares are prohibited from giving a proxy to
vote shares held for such customers on the approval and adoption of the Merger
Agreement and Contract for Union without specific instructions from such
customers.
Shares represented by a properly executed proxy received prior to the vote
at the Centerpoint Annual Meeting and not revoked will be voted at the
Centerpoint Annual Meeting as directed in the proxy. IF A PROXY IS SUBMITTED
AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND CONTRACT FOR UNION AND FOR THE PROPOSAL
TO ADJOURN THE MEETING.
A shareholder of record may revoke a proxy by filing an instrument of
revocation with Lucy T. Gobin, Clerk of Centerpoint (141 South River Road,
Bedford, New Hampshire 03110), by filing a duly executed proxy bearing a later
date, or by appearing at the Centerpoint Special Meeting in person, notifying
the Clerk, and voting by ballot at the Special Meeting. Any shareholder of
record attending the Centerpoint Special Meeting may vote in person whether or
not a proxy has been previously given, but the mere presence (without
notifying the Clerk) of a shareholder at the Special Meeting will not
constitute revocation of a previously given proxy.
VOTES REQUIRED FOR MERGER
Community. The affirmative vote of the holders of two-thirds of the
outstanding shares of Community Common Stock is necessary to approve and adopt
the Merger Agreement and the transactions contemplated thereby. At the Record
Date, shares of Community Common Stock were outstanding and entitled to
vote. Assuming that directors and executive officers of Community and their
respective affiliates holding an aggregate of shares, or approximately
%, of the outstanding Community Common Stock vote their shares in favor of
the Merger Agreement, the affirmative vote of holders of approximately
additional shares of Community Common Stock, representing approximately % of
the shares issued and outstanding on the Community Record Date, will be
required to approve the Merger Agreement. The approval of the Merger Agreement
by Community's shareholders is a condition to the consummation of the Merger.
Centerpoint. The affirmative vote of the holders of two-thirds of the
outstanding shares of Centerpoint Common Stock is necessary to approve and
adopt the Merger Agreement, Contract for Union and the transactions
contemplated thereby. At the Record Date, 590,349 shares of Centerpoint Common
Stock were outstanding and entitled to vote, of which directors and executive
officers of Centerpoint and their respective affiliates held an aggregate of
256,216 shares, or approximately 43.4%. The affirmative vote of holders of
approximately 137,354 additional shares of Centerpoint Common Stock not held
by directors, executive officers and their affiliates, representing
approximately 23.3% of the shares issued and outstanding on the Centerpoint
Record Date, will be required to approve the Merger Agreement and Contract for
Union if all directors, executive officers and their affiliates vote in favor
of the Merger. Directors and executive officers of Centerpoint and their
respective affiliates holding an aggregate of 255,216 shares of the
outstanding Centerpoint Common Stock have entered into a Voting Agreement with
Community to vote their shares in favor of the Merger Agreement and Contract
for Union and to grant a proxy to Community to permit Community to vote their
shares in connection with the Merger. The approval of the Merger Agreement by
Centerpoint's shareholders is a condition to the consummation of the Merger. A
copy of the form of Voting Agreement is attached as Exhibit 7.4 to the Merger
Agreement, which is attached to this Proxy Statement-Prospectus as Annex A.
Approval of any proposal to adjourn the Centerpoint Special Meeting for any
reason, including to permit the further solicitation of proxies, would require
the affirmative vote of holders of a majority of the votes cast at the Special
Meeting.
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SOLICITATION OF PROXIES
Community. The cost of solicitation of proxies by Community will be borne by
Community. In addition to the solicitation of proxies by mail, the directors,
officers and employees of Community may also solicit proxies personally or by
telephone or facsimile. Community will also request persons, firms and
corporations holding shares which are beneficially owned by others to send
proxy materials to and obtain proxies from such beneficial owners. Community
will reimburse those holders for their reasonable expenses. Community has also
retained D. F. King, Inc., a proxy soliciting firm, to assist in the
solicitation of proxies at a fee of approximately $4,500 plus reimbursement of
certain out-of-pocket expenses.
Centerpoint. The cost of solicitation of proxies by Centerpoint will be
borne by Centerpoint. In addition to the solicitation of proxies by mail, the
directors, officers and employees of Centerpoint may also solicit proxies
personally or by telephone or facsimile. Centerpoint will also request
persons, firms and corporations holding shares which are beneficially owned by
others to send proxy materials to and obtain proxies from such beneficial
owners. Centerpoint will reimburse those holders for their reasonable
expenses.
THE MERGER
GENERAL
This section of the Proxy Statement-Prospectus describes certain aspects of
the proposed Merger, including the principal provisions of the Merger
Agreement. The discussion of matters contained in the Merger Agreement is
qualified in its entirety by reference to the full text of the Merger
Agreement, which is attached to this Proxy Statement-Prospectus as Annex A.
All shareholders of Community and Centerpoint are urged to read the Merger
Agreement in its entirety.
The Merger Agreement has been unanimously approved by the Boards of
Directors of Community and Centerpoint. The Board of Directors of Community
believes that the terms of the Merger Agreement are fair and in the best
interests of Community and its shareholders and recommends that the Community
shareholders vote to approve and adopt the Merger Agreement. The Board of
Directors of Centerpoint believes that the terms of the Merger Agreement are
fair and in the best interests of Centerpoint and its shareholders and
recommends that the Centerpoint shareholders vote to approve and adopt the
Merger Agreement.
THE BOARD OF DIRECTORS OF EACH OF COMMUNITY AND CENTERPOINT UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER.
BACKGROUND OF THE MERGER
Centerpoint was organized in 1989 for the purpose of meeting a perceived
banking need in the Manchester, New Hampshire area. The Board of Directors and
executive management have attempted to establish a niche market, using a
focused marketing strategy, serving small business. The Board of Directors and
executive management did not plan to have the bank acquired as part of a
medium or long term strategy.
By 1994, Centerpoint had attained a strong capital position with profitable
operations and established a limited market for its Common Stock through a few
New Hampshire offices of national or regional brokerage firms. Centerpoint
paid its first dividend for the quarter ended December 31, 1994 and had its
Common Stock entered on the Nasdaq Bulletin Board in February 1995.
As part of its ongoing strategic planning process, Community engaged MB&D as
its financial advisor in March 1993 to, among other things, assist Community
in exploring and evaluating possible acquisitions.
In late March 1994, Community approached Centerpoint management and
expressed interest in an acquisition. At about the same time, another New
Hampshire bank holding company also expressed interest in
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acquiring Centerpoint. The Board of Directors of Centerpoint received
presentations by the two institutions and their investment advisors,
considered the advantages of the proposed affiliations, and determined that
the long-term best interests of the bank and its shareholders would be best
served by continuing to operate Centerpoint independently and expand the value
of the bank through growth of its "business-to-business" banking offices in
key New Hampshire metropolitan areas. In the proposed transaction with
Community, Centerpoint shareholders would have received cash and stock for
their shares; therefore such transaction would have been accounted for by the
purchase method of accounting. In the proposed transaction with the other
institution, Centerpoint shareholders would have received stock of the other
institution for their shares. A range of exchange ratios was proposed. The
value that would have been received by Centerpoint shareholders if either of
the foregoing transactions had been consummated (valued as of May 9, 1994)
would have been within a range from approximately $12.00 per share to $13.00
per share, significantly less than the value that is to be received by
Centerpoint shareholders in the Merger, based on the price of Community Common
Stock on August 29, 1995, the date the Merger Agreement was executed.
The Board of Directors of Centerpoint began a strategic planning initiative
in early 1995 in an attempt to explore long-term planning alternatives,
including expansion of the bank, branching, raising capital, acquisitions by
the bank, and affiliations with other banks. As a part of that strategic
planning effort, Centerpoint considered the acquisition of bank branches and
assets being offered in connection with the merger of two large banking
organizations. Centerpoint informally contacted the management of a few small
banks and discussed their general willingness to affiliate with Centerpoint.
None of those contacts resulted in an affiliation or merger proposal.
In May 1995, Community again inquired of Centerpoint as to Centerpoint's
interest in renewing consideration of an acquisition. The presidents of
Community and Centerpoint discussed possible affiliation in early June 1995,
and on June 20 the Executive Committee of the Centerpoint Board of Directors
authorized Centerpoint's president, Philip M. Stone, to continue such
discussions with one or more banks, consistent with Centerpoint's strategic
planning. Between June 21 and June 28, Community and Centerpoint
representatives held meetings to discuss possible affiliation. The discussions
included, among other things, the value of Centerpoint's commercial bank
franchise, Centerpoint's strategic positioning, and whether it could retain
its separate operations if the organizations were to affiliate.
On June 30, 1995, Community provided Centerpoint with a letter indicating
its interest in an acquisition in which Centerpoint would operate as a
separate subsidiary of Community, retain its Board and management, and
Community would add Centerpoint representation to its Board of Directors.
Community proposed a structure that would result in a tax-free exchange and a
range of exchange rates, subject to completion of due diligence.
At the July 11, 1995 meeting of the Executive Committee and the July 18,
1995 meeting of the Board of Directors, the Centerpoint Board reviewed the
June 30 Community letter and the background of the indication of interest. The
Centerpoint Board continued its work on its strategic planning, but also
determined that a special committee of the Board (Messrs. Stone, Hemming, and
deBettencourt) would meet with representatives of Community. Following the
July 18 meeting, further discussions between Community and Centerpoint
representatives were held, and on July 25, officers and directors of Community
made a presentation to the Centerpoint Board of Directors. The Centerpoint
Board of Directors unanimously authorized Centerpoint's management to proceed
with due diligence and the negotiation of the terms of a merger.
During the last week of July and the first week of August 1995, Community
conducted due diligence at Centerpoint and Centerpoint conducted due diligence
at Community.
On August 10, 1995, MB&D made a presentation to Community's Finance
Committee, analyzing the financial aspects of a proposed acquisition of
Centerpoint. On August 13, 1995, Community presented to Centerpoint a detailed
explanation of the proposed exchange ratio of 1.073:1 and the financial
analysis of such exchange.
On August 15, 1995, MB&D made a detailed presentation to the full Board of
Directors of Community. At that meeting, the Community Board authorized
management to negotiate the terms of a merger agreement.
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Also on August 15, 1995, the Centerpoint Board of Directors considered a
report from Mr. Stone on Centerpoint's due diligence and the proposed terms of
the affiliation, including the exchange ratio. The Board authorized management
to negotiate the terms of a merger agreement, based on its consideration of
factors that included the ability to remain a separate banking subsidiary of
Community and to continue to expand its successful operations; the similarity
of the corporate cultures of the two organizations; the opportunity to assist
in the growth of Community; increased liquidity for Centerpoint shareholders;
the fairness of the fixed exchange ratio, based on comparisons with other
comparable recent transactions; economies that could be achieved through
combined operations, including support services provided through Community;
and greater retail services and consumer products that would become available
to Centerpoint customers.
Between August 15 and August 29, a series of meetings were held between
Centerpoint and Community and their respective legal counsel to discuss the
terms of the Merger Agreement.
Centerpoint's Executive Committee met to discuss the terms of the Merger
Agreement prior to and during the weekend preceding the August 29 meeting of
the full Board of Directors, and reached the preliminary judgment that the
financial terms of the Merger are fair to the Centerpoint shareholders. The
Executive Committee authorized management to engage HAS to confirm that
judgment. On August 28, 1995, HAS reviewed at Centerpoint financial and other
information relating to Centerpoint and Community and the terms of the
proposed Merger.
At the August 29, 1995 meeting of the Centerpoint Board of Directors,
counsel from McLane, Graf, Raulerson & Middleton Professional Association
reviewed in detail with the directors the terms of the Merger Agreement (which
had been distributed to the directors in advance of the meeting) and the
actions related to the Merger, which had been negotiated since the August 15
Board meeting. The Board also heard a detailed presentation by HAS, regarding
the fairness to shareholders of the financial terms of the Merger. The Board
of Directors voted to approve the Merger Agreement and Contract for Union at
that meeting.
At the August 29, 1995 Community Board meeting, Foley, Hoag & Eliot reviewed
in detail with the directors the terms of the Merger Agreement, which had been
distributed to the directors in advance of the meeting. The Board also heard a
detailed presentation from MB&D regarding the fairness to shareholders of the
financial terms of the Merger. The Board of Directors voted to approve the
Merger Agreement at the August 29 meeting.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Centerpoint. In the course of reaching its decision to approve the Merger
Agreement, the Board of Directors of Centerpoint consulted with its legal
advisors regarding the legal terms of the Merger Agreement and the Board of
Directors' obligations in its consideration of the Merger; its financial
advisors regarding the financial terms and fairness, from a financial point of
view, to the shareholders of Centerpoint, of the Exchange Ratio in the
proposed Merger; and the management of Centerpoint. Without assigning any
relative or specific weights to any factor, the Board of Directors considered
the factors outlined below, among others, that it believed relevant to
reaching its determination.
The terms of the Merger Agreement, including the consideration to be paid to
Centerpoint shareholders, were reached on the basis of arms' length
negotiations between Centerpoint and Community. In reaching the conclusion
that the terms of the Merger Agreement are fair, the Centerpoint Board of
Directors considered, among other things, the market value, book value,
earnings per share, and dividends paid to holders of Centerpoint Common Stock.
The Board considered that the Merger provides an opportunity for the
shareholders of Centerpoint to receive consideration for their shares having a
value in excess of the book value of the Centerpoint Common Stock and an
increase in dividends paid to Centerpoint shareholders, and that the Exchange
Ratio represents a substantial premium over the prices of which the Board of
Directors were aware at which the Centerpoint Common Stock had traded in the
recent past and the price at which the Board reasonably anticipated the stock
would be traded in the future. The Board believed that the premium to book
value and premium to market value were more favorable than the premiums in
most other recent, comparable transactions. At June 30,
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1995, the book value per share of the Centerpoint Common Stock was $9.45. On
August 22, 1995, the date of the most recent sale of Centerpoint Common Stock
prior to the public announcement of the proposed Merger, the Centerpoint
Common Stock traded at $10.125. See "COMPARATIVE STOCK PRICES AND DIVIDENDS."
In reaching its conclusion, the Centerpoint Board of Directors took into
consideration and relied in part upon the advice of HAS, Centerpoint's
financial advisor, which confirmed the considered judgment of the Board as to
the financial aspects of the merger. At the August 29, 1995 Centerpoint Board
meeting, HAS indicated that, based upon information known as of that date, HAS
expected to be able to render an opinion as to the fairness from a financial
point of view of the consideration to be received by the Centerpoint
shareholders. That opinion was rendered in writing to the Board of Directors
as of the date of this Proxy Statement-Prospectus and is attached as Annex C
to this Proxy Statement-Prospectus. Centerpoint's Board of Directors
considered the analyses presented to it by HAS relating to selected financial
and stock market data concerning Centerpoint and Community and certain
financial analyses of the terms of the Merger, including comparison to the
terms of other recent acquisitions, which are described below under "THE
MERGER--Opinions of Financial Advisors."
The Centerpoint Board of Directors considered the strategic alternatives
available to Centerpoint, including the possibility of remaining independent,
seeking to solicit competing proposals, and accepting Community's bid, before
concluding, for the reasons discussed in this section, that the Merger
represented an opportunity to enhance shareholder value at this time and that
the Exchange Ratio was fair to the shareholders.
The Board of Directors considered the advantages of becoming part of a
larger financial institution that has considerably greater resources and whose
stock is traded on the Nasdaq National Market System. Centerpoint's Board of
Directors believed that the proposed affiliation with Community would provide
increased liquidity for the shareholders of Centerpoint and would lead to
competitive advantages through greater diversity in product offerings, cost-
savings through certain integration of operations, and improved access to
capital and funding, while allowing Centerpoint to retain its independence and
grow its franchise by continuing its focused marketing strategy.
The Board of Directors considered the historical growth in Community's
earnings per share and book value. The Board of Directors also considered the
historical dividends paid on the Centerpoint Common Stock and the Community
Common Stock and the significant increase in dividends that would be likely to
result to Centerpoint shareholders from the Merger. The Board of Directors
also considered the expectation that the Merger will be a tax-free transaction
to Centerpoint shareholders, Centerpoint and Community, and accounted for
under the "pooling of interests" method of accounting.
The Board of Directors considered the fact that the Merger can be approved
only if the holders of two-thirds of all of the outstanding shares of
Centerpoint Common Stock vote in favor of the Merger and that the Board of
Directors' decision to approve the Merger would allow the shareholders as a
group to decide whether or not to accept Community's proposal to acquire
Centerpoint.
The Board of Directors considered the possible impact of the Merger on
Centerpoint's employees, customers and community. The Board of Directors
considered a variety of other factors, including, without limitation, the
social and economic effects of a transaction on depositors, borrowers and
employees of Centerpoint, and on the communities in which Centerpoint operates
or serves. The Board of Directors believes that the Merger, if consummated,
will provide Centerpoint with expanded services, greater ability to grow and
diversify, and access to the resources of a strong financial parent.
Community. In the course of reaching its decision to approve the Merger
Agreement, the Board of Directors of Community consulted with its legal
advisors regarding the legal terms of the Merger Agreement and the Board of
Directors' obligations in its consideration of the Merger; its financial
advisors regarding the financial terms and fairness of the proposed Merger to
the Community shareholders; and the management of Community. The terms of the
Merger Agreement, including the Exchange Ratio, were reached on the basis of
arms' length negotiations between Centerpoint and Community.
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Without assigning any relative or specific weights to any factor, the
Community Board of Directors considered the factors outlined below, among
others, that it believed relevant to reaching its determination.
The Community Board considered that the proposed Merger with Centerpoint
will provide an opportunity for Community to establish a presence in
Manchester and Nashua, New Hampshire. Manchester and Nashua are the two
largest economic centers in New Hampshire and are located in Hillsborough
County, the most populous county in New Hampshire. The Board also considered
that the Merger will improve the value of the Community franchise as a result
of Centerpoint's access to the commercial banking markets that are the focus
of its operations.
The Board considered that the Merger will provide an opportunity for
Community to realize reasonable cost savings through the consolidation of
selected operational functions. Community and Centerpoint expect to reduce
their combined costs following the Merger by consolidating and integrating
various functional areas. Management of Community and Centerpoint have worked
together to identify specific areas in which they expect to realize cost
savings on a combined basis, including reductions in combined salary and
benefits expense due to elimination of duplicative functions and reductions in
data processing expense through the consolidation of the data processing
systems of the two organizations. Assuming that Community and Centerpoint
succeed in fully implementing their cost reduction plans, Community estimates
that the annual combined cost savings will be approximately $750,000 (without
regard to the effect of such cost savings on Community's tax liability).
The Community Board of Directors believes that this estimate is reasonable
and was prepared based on the best judgment of the managements of Community
and Centerpoint and on currently available estimates of the respective future
operational and expense requirements of Community and Centerpoint. This
estimate was necessarily based on economic, market and other conditions in
effect at, and the information available to the parties as of, the time such
estimate was made; therefore, the estimate is not necessarily indicative of
actual future results, which may be more or less favorable than this estimate.
In addition, the Board of Directors recognizes that these estimated cost
savings, if realized, may be offset in whole or in part by increased costs in
other areas, such as increased costs arising out of the possible future
expansion of the consolidated corporation, or increased costs that might
result if local economic conditions were to deteriorate.
The Board also considered that the Merger is expected to be a tax-free
transaction to Community (as well as to Centerpoint shareholders and
Centerpoint) and accounted for under the "pooling of interests" method of
accounting and that the acquisition of a commercial bank such as Centerpoint
will enable Community to better manage its balance sheet to maintain Concord's
"qualified thrift status" under the Internal Revenue Code.
In reaching its conclusion, the Community Board of Directors took into
consideration and relied in part upon the advice of MB&D, Community's
financial advisor. At the August 29, 1995 Community Board meeting, MB&D
indicated that, based upon information known as of that date, MB&D expected to
be able to render an opinion as to the fairness, from a financial point of
view, of the merger consideration to the Community shareholders. That opinion
was rendered in writing to the Board of Directors as of the date of this Proxy
Statement-Prospectus and is attached as a part of Annex C to this Proxy
Statement-Prospectus.
Community's Board of Directors considered the analyses presented to it by
MB&D relating to selected financial and stock market data concerning
Centerpoint and Community and certain financial analyses of the terms of the
Merger, including comparison to the terms of other recent acquisitions,
discounted cash flow analysis, analysis of the Exchange Ratio as a multiple of
Centerpoint's earnings, book value and market value, and specific acquisition
analysis, which are described below under "THE MERGER--Opinions of Financial
Advisors."
OPINIONS OF FINANCIAL ADVISORS
Centerpoint. HAS Associates, Inc. has rendered a written opinion, dated as
of the date of this Proxy Statement-Prospectus, that on and as of such date
the consideration to be received by the shareholders of
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Centerpoint in connection with the Merger is fair, from a financial point of
view. The full text of the opinion, which sets forth the assumptions made,
matters considered, and the limits of HAS's review, is attached hereto as a
part of Annex C. HAS's opinion is directed only to the Merger consideration,
and does not constitute a recommendation as to how any Centerpoint shareholder
should vote at the Special Meeting. The summary of the opinion set forth in
this Proxy Statement-Prospectus is qualified in its entirety by reference to
the full text of the opinion. Shareholders are urged to read the opinion in
its entirety.
The Board of Directors retained HAS in August 1995, shortly prior to the
Board of Directors' meeting at which the Merger was approved.
In arriving at its opinion, HAS reviewed and analyzed the following: (i) the
Merger Agreement, (ii) this Proxy Statement-Prospectus in substantially the
form to be sent to Centerpoint shareholders, (iii) such publicly available
information concerning Centerpoint and Community that HAS believed to be
relevant to its inquiry, (iv) financial and operational information with
respect to Centerpoint and Community furnished by Centerpoint and Community,
respectively, (v) market valuation, price performance and liquidity of
Centerpoint Common Stock and certain other banking institutions, (vi)
Centerpoint's historical financial results and its present financial condition
compared with certain other banking institutions, and (vii) the financial
terms of the Merger compared with the financial terms of certain other
comparable transactions.
Furthermore, HAS considered such financial and other factors as it deemed
appropriate under the circumstances and took into account its assessment of
general economic, market and financial conditions. It also relied on its
experience in similar transactions and in the valuation of the securities of
banking companies and its knowledge of depository institutions generally.
HAS's opinions were necessarily based upon conditions as they existed and
should be evaluated on the date hereof and the information made available to
HAS through the date hereof.
HAS presented to the Board of Directors a review and analysis of
Centerpoint's and Community's financial history, from 1992 through the most
recently available financial results, drawing particular attention to asset
quality and profitability, including returns on assets and equity capital and
net interest margin. HAS also presented a variety of benchmark statistics on
national and New England bank acquisition transactions that had been announced
for the six preceding calendar quarters, updated through August 23, 1995. HAS
presented and discussed a detailed financial summary of the proposed
transaction, comparing various terms of the transaction with corresponding
terms of other New England bank acquisitions announced since June 1994,
including discussion of comparative price/earnings and price/book ratios.
On August 29, 1995, based on its preliminary review, HAS confirmed the Board
of Directors' conclusion that the consideration to be received by Centerpoint
shareholders in the Merger appeared to be fair and advised the Centerpoint
Board of Directors that, on and as of that date, based upon information known
as of that date, HAS expected to be able to render an opinion as to the
fairness, from a financial point of view, of the consideration to be received
by the Centerpoint shareholders. HAS has rendered such a written opinion,
dated as of the date of this Proxy Statement-Prospectus.
In conducting its review and in arriving at its opinion (both written and
oral), HAS relied upon and assumed the accuracy and completeness of the
financial and other information that it reviewed, and did not attempt to
independently verify the information. HAS relied upon the management of
Centerpoint as to the reasonableness and achievability of the projections (and
the assumptions and bases therefor) provided to HAS, and assumed that such
projections reflected the best currently available estimates and judgment of
Centerpoint's management and that such projections would be realized in the
amounts and in the time periods estimated by such management. HAS also
assumed, without independent verification, that the aggregate allowance for
loan losses for Centerpoint and Community was adequate to cover such losses.
HAS did not make or obtain any evaluations or appraisals of the property of
Centerpoint or Community nor did HAS examine any individual loan credit files.
HAS assumed that for purposes of its opinion the Merger will be recorded as a
pooling-of-interests under generally accepted accounting principles. HAS did
not address Centerpoint's underlying business decision to proceed with the
Merger and did not make any recommendation to the Board of Directors or to the
shareholders of Centerpoint with respect to any approval of the Merger.
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The preparation of a fairness opinion by HAS involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances; therefore, such
an opinion is not readily susceptible to summary description. Furthermore, in
arriving at its fairness opinion, HAS did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, HAS believes that its analyses must be considered as a whole and
that considering any portions separately could create a misleading or
incomplete view of the process underlying its fairness opinion.
In its analyses, HAS made assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Centerpoint's or Community's control. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of
future results or values which may be significantly more or less favorable
than as set forth therein. In addition, analyses related to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold. In addition, as described above, HAS's
opinion is only one of the many factors taken into consideration by the
Centerpoint Board of Directors.
HAS is a well-recognized bank consulting company and, as part of its
activities, is regularly engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions. The Board of Directors
of Centerpoint selected HAS because of its expertise, reputation and
familiarity with the financial institution industry in general and
particularly the New Hampshire financial institution industry. HAS is not
affiliated with either Centerpoint or Community.
As compensation for its services, HAS will receive a fee of $10,000 plus
reimbursement of out-of-pocket expenses.
Community. MB&D has delivered to the Board of Directors of Community its
written opinion, as of the date of this Proxy Statement-Prospectus, that the
fixed ratio of 1.073 shares of Community Common Stock to be exchanged for each
outstanding share of Centerpoint Common Stock, is fair, from a financial point
of view, to Community's shareholders.
MB&D has acted as financial advisor to Community since March 1993 in
connection with Community's ongoing strategic planning process, including the
evaluation of hypothetical financial institution acquisitions; acquisitions of
branches of other financial institutions; the evaluation of hypothetical
mergers of equals; and a variety of general corporate finance issues.
MB&D advised Community during the negotiation process leading up to the
execution of the Merger Agreement and provided Community with various analyses
as to the range of financially feasible exchange ratios that might be employed
in a hypothetical transaction. Representatives of MB&D attended a number of
meetings of the Finance Committee (which acts as the mergers and acquisition
committee) of the Community Board of Directors and met with the full Board of
Directors on several occasions in connection with the preparation and analysis
of Community's strategy. The Exchange Ratio of 1.073 was arrived at in
consultation with MB&D.
MB&D was retained based on its qualifications and experience in the
financial analysis of financial institutions and its experience with merger
and acquisition transactions involving financial institutions. Members of the
Corporate Finance Department of MB&D have advised clients on more than 50
successfully completed mergers or acquisitions of financial institutions.
The full text of the opinion of MB&D, which sets forth assumptions made,
matters considered and limits on the review undertaken by MB&D, is attached
hereto as a part of Annex C. Community's shareholders are urged to read the
opinion in its entirety. MB&D's opinion is directed only to the fixed Exchange
Ratio and does not constitute a recommendation to any holder of Community
Common Stock as to how such holder should vote at the Community Annual
Meeting. The summary of the opinion of MB&D set forth in this Proxy Statement-
Prospectus was provided to Community by MB&D and is qualified in its entirety
by reference to the full text of the opinion itself.
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In arriving at its opinion, MB&D (i) reviewed the Merger Agreement and this
Proxy Statement-Prospectus in substantially the form to be sent to Community
shareholders; (ii) reviewed publicly available business and financial
information with respect to both Community and Centerpoint and certain
internal financial information and financial projections prepared by the
managements of Community and Centerpoint; (iii) held discussions with members
of the senior management of Community concerning the past and current results
of operations of Community, its current financial condition and management's
opinion of its future prospects; (iv) reviewed the historical reported price
and record of trading volume for Community Common Stock; (v) held discussions
with the senior management of Community concerning the current and past
results of operations of Centerpoint, its current financial condition and
management's opinion of its future prospects; (vi) considered the current
state of and future prospects for the economy of New Hampshire generally and
the relevant market areas for Community and Centerpoint in particular; (vii)
reviewed the specific acquisition analysis models employed by MB&D to evaluate
potential business combinations of banking companies; (viii) reviewed the
reported financial terms of certain recent business combinations in the
banking industry; and (ix) performed such other studies and analyses as MB&D
considered appropriate under the circumstances associated with this particular
transaction.
MB&D's opinion takes into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuation and its knowledge of the banking
industry generally. For purposes of reaching its opinion, MB&D has assumed and
relied upon the accuracy and completeness of the information provided to it by
Community, and does not assume any responsibility for the independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of either Community or Centerpoint. With
respect to the financial projections reviewed by MB&D in the course of
rendering its opinion, MB&D has assumed that such projections have been
reasonably prepared to reflect the best currently available estimates and
judgment of the management of each of Community and Centerpoint as to the most
likely future performance of their respective companies. Finally, MB&D has not
been furnished with any independent appraisals of the assets or liabilities of
either Community or Centerpoint.
The following is a summary of all material analyses employed by MB&D in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of all the matters considered by MB&D in
arriving at its opinion. The preparation of a fairness opinion is a
complicated process, involving a determination as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances. Therefore, such an opinion is not readily
susceptible to a summary description. In arriving at its fairness opinion,
MB&D did not attribute any particular weight to a specific analysis or factor
considered by it and made qualitative as well as quantitative judgments as to
the significance of each analysis and factor. Consequently, MB&D believes that
its analyses must be considered as a whole and feels that attributing undue
weight to any single analysis or factor considered could create a misleading
or incomplete view of the process leading to the formation of its opinion. In
its analyses, MB&D has made certain assumptions with respect to banking
industry performance, general business and economic conditions and other
factors, many of which are beyond the control of management of either
Community or Centerpoint. Any estimates which are referred to in MB&D's
analyses are not necessarily indicative of actual values or predictive of
future results or values, which may vary significantly from those set forth.
Analysis of the Anticipated Merger and the Fixed Exchange Ratio in Relation
to Centerpoint. The consideration of 1.073 shares of Community Common Stock,
valued at the last sale price of Community Common Stock on the day of the
announcement of the transaction ($16.50) represents the following multiples:
. Multiple of Earnings: (i) 13.41 times Centerpoint's reported earnings per
share for the calendar year ended December 31, 1994; (ii) 11.72 times
Centerpoint's recorded earnings per share for the last twelve months
prior to the announcement date; and (iii) 10.73 times Centerpoint's
estimated earnings per share for calendar year 1996.
. Multiple of Book Value: (i) 2.07 times Centerpoint's tangible book value
per share as of December 31, 1994; and (ii) 1.87 times Centerpoint's
tangible book value per share as of June 30, 1995.
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. Multiple of Market Value: The approximately $17.70 in market value of the
consideration per share of Centerpoint Common Stock represents a 75.8%
premium to the sales price of Centerpoint Common Stock reported on the
Nasdaq Bulletin Board as of the close of business on August 22, 1995.
Specific Acquisition Analysis. MB&D employs a proprietary analysis model to
examine hypothetical transactions involving banking and/or thrift companies.
The model uses forecast earnings data, selected current period balance sheet
data, current market and trading information and a number of assumptions as to
interest rates for borrowed funds, opportunity costs of funds, effective tax
rates and transaction structures (the alternative or combinative uses of
common equity, cash, debt or other securities, to fund a transaction). The
model distinguishes between purchase and pooling accounting treatments and
inquires into the likely economic feasibility of a given hypothetical
transaction, at a given price level or specified exchange rate and employing a
specified transaction structure. The model also permits an examination of pro
forma capital adequacy.
In this transaction, MB&D evaluated a fixed exchange ratio of 1.073 to 1 in
an all common stock, pooling accounting transaction. After consideration of
the potential for the realization of reasonable expense savings which are
expected by Community to result from the consolidation of selected operational
functions of Community and Centerpoint, little or no earnings dilution is
projected to result from the contemplated transaction. MB&D anticipates that
if the potential for cost savings is realized, the transaction will become
accretive to the future earnings per share of Community. Such accretion is
anticipated by Community to be further enhanced as identified product cross
selling opportunities and other revenue enhancement options are exploited.
With respect to book value per share, MB&D acknowledges that the transaction
will result in dilution to book value per share from the perspective of
Community shareholders. However, in the opinion of MB&D, such book value
dilution will be more than compensated for by the projected accretive impact
on earnings per share and by the franchise value improvement offered by access
to the commercial banking markets currently served by Centerpoint.
The pro forma capital ratios of Community following the transaction will not
change significantly, and will continue to fall comfortably within the range
of adequate capital ratios.
Discounted Cash Flow Analysis. MB&D also completed two discounted cash flow
analyses to permit the conceptual examination of the present discounted values
of future results employing selected assumptions and discount rates.
In the first discounted cash flow analysis, MB&D discussed with the
management of Community a projection of hypothetical earnings per share
results for Centerpoint for calendar years 1995, 1996, 1997 and 1998 of $1.60,
$1.65, $1.78, $1.92 respectively, and employed a hypothetical dividend pay-out
ratio assumption which depicted annual pay-outs of 25%. MB&D then assumed that
the control sale price/earnings ratios at the end of the study period would
approximate 15 times earnings. MB&D also assumed a sale of a share of common
stock in the market (transaction costs are ignored) and calculated the present
discounted value of the dividend flow plus final sale proceeds at a discount
rate of 12%. The result is a present value of $19.61, which can be compared
favorably to the nominal present value of the proposed exchange ratio of
approximately [$17.70].
In the second discounted cash flow analysis, MB&D employed an earnings
annuity concept in which it assumed that future earnings per share for
Centerpoint would be constant for a four year period at approximately $1.76
per share and that the dividend pay-out ratio would also remain constant at
$0.44 (a 25% pay-out ratio). MB&D employed a terminal control sale
price/earnings multiple of 15 times and a discount rate for all cash flows of
12%. Given a four year time horizon, this results in a present discounted
value of the resulting cash flows of $18.12, which also can be compared
favorably to the nominal present value of the proposed exchange ratio of
approximately [$17.70].
It is important to note that the discount factors employed embody both the
concept of the riskless time value of money and risk factors that reflect the
uncertainty of the forecast cash flows and terminal price/earnings multiples.
Use of higher discount rates would result in lower discounted present values
and vice versa.
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Analysis of Other Comparable Transactions. MB&D is reluctant to place
excessive emphasis on "comparables analysis" as a methodology due to what it
considers to be inherent limitations of the practice. It has observed that
such analysis as employed by some industry observers and financial advisors
frequently fails to adequately take into consideration such factors as
material differences in the underlying capitalization of the comparable
institutions which are being acquired; differences in the historic earnings
(or loss) patterns recorded by the compared institutions which can depict a
very different trend than might be implied by examining only recent financial
results; failure to exclude non-recurring profit or loss items from the last
twelve months' earnings streams of target companies which can distort apparent
earnings multiples; differences in the form or forms of consideration used to
complete the transaction; differences between the planned method of accounting
for the completed transaction; and such less accessible factors as the
relative population demographics of the acquired entities markets as compared
or contrasted to such factors for the markets in which comparables are doing
business. Comparables analysis also rarely seems to take into consideration
the degree of facilities overlap between the acquiror's market and that of the
target or the absence of such overlap and the resulting cost savings
differentials between two otherwise apparently comparable transactions. MB&D
consequently believes that comparables analysis has its limitations.
Nevertheless, in August 1995, MB&D reviewed 24 publicly announced
transactions in the financial institutions industry in which either a bank or
a thrift (or their respective holding companies) is engaged in the acquisition
of another financial institution. These transactions were announced between
January of 1994 and July of 1995. All of the examined transactions involved
entities doing business in the Northeast.
Within this universe the average (mean) multiple of tangible book value paid
by the acquiror was 1.64, the maximum multiple paid was 2.63 and the minimum
multiple was .96. These statistics can be compared to a multiple of 1.87,
which can be derived for the proposed acquisition of Centerpoint by Community.
With respect to trailing 12 months earnings multiples for this same data
sample, the average (mean) price/earnings multiple paid was 14.86 and the
maximum multiple (excluding the acquisition of very poor earners) was 20.66,
while the minimum multiple was 7.88. These statistics can be compared to the
multiple of 11.72 implied by the pending transaction based on the last twelve
months recorded earnings for Centerpoint.
Pursuant to a letter agreement with Community dated September 6, 1995, MB&D
will receive a fee of $60,000 for services rendered to Community in
conjunction with the proposed transaction. The fee represents compensation for
services rendered in connection with the analysis of the hypothetical
transaction, support of the negotiations and for the rendering of its
opinions. Community paid MB&D $20,000 following the execution of the Merger
Agreement and an additional $20,000 upon receipt of MB&D's final opinion
included in this Proxy Statement-Prospectus. MB&D will be paid an additional
$20,000 at the time of closing of the transaction.
In addition, Community has agreed to reimburse MB&D for its reasonable out-
of-pocket expenses incurred in connection with the transaction. Community also
has agreed to indemnify MB&D and its directors, officers and employees against
certain losses, claims, damages and liabilities relating to or arising out of
MB&D's engagement, including liabilities under the federal securities laws.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, Centerpoint, as the surviving bank in the
Merger with Interim Bank, will continue to operate as a separate banking
subsidiary of Community. The directors and officers of Centerpoint immediately
prior to the Effective Time will remain the directors and officers of
Centerpoint following the Merger, to hold office in accordance with the
charter documents and by-laws of Centerpoint until their respective successors
are duly elected or appointed and qualified. Following the Effective Time,
Community intends to elect two additional directors to serve on the Board of
Centerpoint. At or immediately after the Effective Time, the Board of
Directors of Community will elect three of Centerpoint's current directors to
serve on the Board of Directors of Community, to be designated prior to the
Effective Time as follows, subject to the reasonable approval of the Community
Board of Directors: one of the nominees will be Philip M. Stone, the current
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President and CEO of Centerpoint; the second nominee will be designated by Mr.
Stone; and the third nominee will be selected by Community from a list of
potential nominees provided by Centerpoint to Community. Neither the second
nor the third nominee has been selected. Prior to or at the Effective Time,
the Board of Directors of Concord Savings Bank, Community's banking
subsidiary, will elect one of Centerpoint's outside directors (designated by
the Board of Directors of Centerpoint prior to the Effective Time) to serve on
the Board of Directors of Concord Savings Bank. Following consummation of the
Merger, Community expects that Centerpoint will offer a broader array of
products and services than is currently offered by Centerpoint but that
Centerpoint will retain its focus as a commercial bank predominantly serving
small business.
EXCHANGE RATIO AND OTHER MATTERS
In the Merger, each share of Centerpoint Common Stock outstanding, except
for any dissenting shares and except for shares held by Community or its
subsidiaries or Centerpoint (other than in both cases shares held in a
fiduciary capacity or as a result of debts previously contracted), will be
converted into and exchangeable for 1.073 shares of Community Common Stock
(the "Exchange Ratio"). Pursuant to Community's Rights Agreement dated as of
October 31, 1989, each share of Community Common Stock issued in the Merger
will also evidence one preferred stock purchase right. See "DESCRIPTION OF
COMMUNITY CAPITAL STOCK."
In addition, at the Effective Time each stock option with respect to
Centerpoint Common Stock granted by Centerpoint (the "Centerpoint Options")
under the 1989 Stock Option Plan (the "Centerpoint Stock Option Plan") which
is outstanding and unexercised immediately prior thereto, whether or not then
exercisable, will be assumed by Community.
Each Centerpoint Option so assumed by Community shall continue to have, and
be subject to, the same terms and conditions set forth in the Centerpoint
Stock Option Plan immediately prior to the Effective Time, except that (1)
each Centerpoint Option shall be exercisable (when vested) for that number of
whole shares of Community Common Stock equal to the product of the number of
shares that may be purchased pursuant to the Centerpoint Option multiplied by
the Exchange Ratio, provided that any fractional share of Community Common
Stock resulting from such multiplication shall be rounded down to the nearest
share, and (2) the exercise price per share of Community Common Stock that may
be purchased pursuant to the Centerpoint Option shall be equal to the
Centerpoint Option exercise price per share divided by the Exchange Ratio,
rounded up to the nearest cent.
Shares of Community capital stock (including Community Common Stock) issued
and outstanding immediately prior to the Effective Time will remain issued and
outstanding immediately after the Merger.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of Centerpoint Common Stock into Community Common Stock will
occur automatically at the Effective Time of the Merger. Within three business
days after the Effective Time, transmittal forms will be furnished to
Centerpoint shareholders by The First National Bank of Boston (the "Exchange
Agent"). The transmittal forms will contain instructions with respect to the
surrender of certificates representing Centerpoint Common Stock to be
exchanged for certificates representing Community Common Stock.
CENTERPOINT STOCK CERTIFICATES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT
UNTIL A CENTERPOINT SHAREHOLDER HAS RECEIVED A TRANSMITTAL FORM AND SHOULD NOT
BE RETURNED WITH THE ENCLOSED PROXY.
Until the certificates representing Centerpoint Common Stock are surrendered
for exchange after the Effective Time of the Merger, holders of such
certificates will accrue but will not be paid dividends or other distributions
on the Community Common Stock into which their shares have been converted.
When such certificates are surrendered, any unpaid dividends or other
distributions will be paid, without interest. No interest will be paid or
accrued on the cash in lieu of fractional shares payable to holders of such
certificates. For all
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other purposes, however, each certificate which represents outstanding shares
of Centerpoint Common Stock outstanding at the Effective Time of the Merger
other than dissenting shares will be deemed, as of the Effective Time, to
evidence ownership of the shares of Community Common Stock into which those
shares have been converted pursuant to the Merger.
No fractional shares of Community Common Stock will be issued to any
Centerpoint shareholder upon consummation of the Merger. For each fractional
share that would otherwise be issued, Community will pay cash in an amount
equal to such fraction multiplied by the average closing sale price of
Community Common Stock on the Nasdaq National Market System as reported by The
Wall Street Journal for the five trading days immediately preceding the date
of the Effective Time.
Any shares of Centerpoint Common Stock with respect to which appraisal
rights have been properly perfected will be purchased in accordance with the
procedures described under "Appraisal Rights of Dissenting Shareholders" and
in Annex E to this Proxy Statement-Prospectus.
For a description of the differences between the rights of the holders of
Centerpoint Common Stock and Community Common Stock, see "COMPARISON OF RIGHTS
OF COMMUNITY AND CENTERPOINT SHAREHOLDERS." For a description of the capital
stock of Community, see "DESCRIPTION OF COMMUNITY CAPITAL STOCK."
EFFECTIVE TIME
The Effective Time will be the time on the Closing Date when the Merger
becomes effective, as set forth in the Contract for Union to be filed with the
Secretary of State of New Hampshire. The Closing Date will occur as soon as
practicable after the last required approval for the Merger has been obtained
and the last of all required waiting periods under such approvals has expired,
assuming the satisfaction of the conditions set forth in Article VIII of the
Merger Agreement. Centerpoint and Community each anticipate that the Merger
will be consummated in the first quarter of 1996. However, the consummation of
the Merger could be delayed as a result of delays in obtaining the necessary
governmental and regulatory approvals. There can be no assurances that such
approvals will be obtained or that the Merger will be completed at any time.
See "THE MERGER--Conditions to the Consummation of the Merger" and "--
Regulatory Matters."
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, prior to the Effective Time, and except
with the written consent of Community, Centerpoint has agreed to (1) operate
its business, and to cause each of its subsidiaries to operate its business,
only in the usual, regular and ordinary course of business and consistent with
prior and prudent business and banking practice, (2) use reasonable efforts to
preserve intact its business organization and assets and maintain its rights
and franchises, and (3) use its best efforts to (a) preserve its business and
that of its subsidiaries intact, (b) keep available to itself and to Community
the present services of the employees of Centerpoint and its subsidiaries and
(c) preserve for itself and to Community the goodwill of the customers of
Centerpoint and its subsidiaries and others with whom business relationships
exist.
Community has agreed (except with the written consent of Centerpoint) to
take no action which would (1) materially adversely affect the ability of
Community or Centerpoint to obtain any necessary approvals of governmental
authorities required for the transactions contemplated by the Merger Agreement
or materially increase the period of time necessary to obtain such approvals,
(2) materially adversely affect its ability to perform its covenants and
agreements under the Merger Agreement, (3) disqualify the Merger as a "pooling
of interests" for accounting purposes or a tax free reorganization under
Section 368 of the Code, or (4) result in the representations and warranties
of Community contained in the Merger Agreement not being true and correct on
the date of the Merger Agreement or at any future date on or prior to the
Closing Date.
Centerpoint and Community have also agreed, subject to the terms and
conditions of the Merger Agreement, to use all reasonable efforts to
consummate the Merger and to obtain as soon as practicable all consents and
approvals of any other persons necessary or desirable for the consummation of
the Merger Agreement.
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Community and Centerpoint have each agreed to give the other access to all
of its properties and to disclose and make available to the other all of its
books, papers and records relating to the assets, stock ownership, properties,
operations, obligations and liabilities, including, but not limited to, all
books of account (including the general ledger), tax records, minute books of
directors' and shareholders' meetings, organizational documents, by-laws,
material contracts and agreements, filings with any regulatory authority,
litigation files, plans affecting employees, and any other business activities
or prospects in which the other may have a reasonable interest.
In addition, except as contemplated by the Merger Agreement, Centerpoint has
agreed that, without the consent of Community, it and its subsidiaries will
not, among other things:
(a) Change or waive any provision of its Charter or By-laws;
(b) Change the number of shares of its authorized or issued capital stock
(except for the issuance of Centerpoint Common Stock pursuant to the
exercise of outstanding stock options under the Centerpoint Stock Option
Plan, as contemplated by the Merger Agreement);
(c) Issue or grant any option, warrant, call, commitment, subscription,
right to purchase or agreement of any character relating to the authorized
or issued capital stock of Centerpoint or any of its subsidiaries, or any
securities convertible into shares of such stock;
(d) Split, combine or reclassify any shares of its capital stock;
(e) Declare, set aside or pay any dividend or other distribution in
respect to the capital stock of Centerpoint except for a $.075 per share
semi-annual dividend (with declaration, record and payment dates that are
consistent with past practice) and for dividends paid by a Centerpoint
subsidiary to Centerpoint;
(f) Purchase, redeem, retire or otherwise acquire, or hypothecate, pledge
or otherwise encumber, any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock;
(g) Enter into, amend in any material respect or terminate any contract
or agreement (including without limitation any settlement agreement with
respect to litigation) that is or may reasonably be expected to have a
material adverse effect on Centerpoint and its subsidiaries, taken as a
whole, except in the ordinary course of business consistent with past
practice;
(h) Except in the ordinary course of business and consistent with past
practice with respect to amount, nature and terms and conditions, incur any
material liabilities or material obligations, whether directly or by way of
guaranty, including any obligation for borrowed money whether or not
evidenced by a note, repurchase agreement, bond, debenture or similar
instrument, or acquire any equity, debt, or other investment securities;
(i) Make any capital expenditures other than in the ordinary course of
business or as necessary to maintain existing assets in good repair;
(j) Agree to make any loan other than in accordance with Centerpoint's
loan and credit policies and Centerpoint's customary terms, conditions and
standards, and in accordance with applicable law and consistent with
prudent banking practices; agree to make any loan, commitment to extend
credit or advance which increases any currently outstanding obligation of
any borrower or creates or would create any new obligation of any new
borrower, which would result in aggregate obligations of such borrower to
Centerpoint, direct or indirect, primary or secondary, absolute or
contingent (including obligations if commitments are honored) in excess of
$400,000;
(k) Grant any increase in rates of compensation to its employees, except
merit increases in accordance with past practices and general increases to
employees as a class in accordance with past practice or as required by
law; grant any increase in rates of compensation to its directors; adopt or
amend in any material respect or terminate any employee benefit plan,
pension plan or incentive plan except as required by law, or permit the
vesting of any material amount of benefits under any such plan other than
pursuant to the
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provisions thereof as in effect on the date of the Merger Agreement; or
enter into any employment, bonus, severance or similar agreements or
arrangements with any directors or officers;
(l) Make application for the opening or closing of any, or open or close
any, branches or automated banking facility;
(m) 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
consistent with customary banking practices;
(n) Merge into, consolidate with, affiliate with, or be purchased or
acquired by, any other person, or permit any other to be merged,
consolidated or affiliated with it or be purchased or acquired by it, or,
except to realize upon collateral in the ordinary course of its business,
acquire a significant portion of the assets of any other person, or sell a
significant portion of its assets;
(o) Make any material change in its accounting methods or practices,
except changes as may be required by generally accepted accounting
principles or by regulatory requirements;
(p) Take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code;
(q) Take any action which would (i) materially adversely affect the
ability of Community or Centerpoint to obtain any necessary approvals of
governmental authorities required for the transactions contemplated hereby
or materially increase the period of time necessary to obtain such
approvals, or (ii) materially adversely affect its ability to perform its
covenants and agreements under the Merger Agreement;
(r) Take any action that would result in the representations and
warranties of Centerpoint contained in the Merger Agreement not being true
and correct on the date of the Merger Agreement or at any future date on or
prior to the Closing Date;
(s) Sell, assign, transfer, pledge or otherwise dispose of or encumber
any portfolio securities designated as "held to maturity" or any other
assets of Centerpoint or any of its subsidiaries except (i) sales of
federal funds, sales of loans in the secondary market, or sales of
securities designated as "held for sale" or "available for sale," made
without recourse in the ordinary course of business and consistent with
past practices, or (ii) sales of property owned through foreclosure or deed
in lieu of foreclosure, in accordance with applicable law and consistent
with prudent banking practices; or take any action which would have an
adverse effect on the value of any such asset;
(t) Accept any deposit from any new depositor (i) exceeding $500,000 from
any one depositor or group of related depositors, (ii) with a term in
excess of five years, (iii) with interest rates exceeding then-current
market rates, or (iv) placed by a broker or solicited from a depositor
outside of Centerpoint's market area;
(u) Foreclose upon or take a deed or title to any commercial real estate
without first conducting a Phase I environmental assessment of the
property, or foreclose upon or take a deed or title to any commercial real
estate if such environmental assessment indicates the presence of a
Hazardous Substance (as defined in the Merger Agreement) in amounts which,
if such foreclosure were to occur, might involve a cost of remediation in
excess of $2,000;
(v) Permit Centerpoint's regulatory leverage capital ratio to be less
than 6.5%; or
(w) Agree to do any of the foregoing.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to various
conditions, which include, in addition to other customary closing conditions,
the following:
(a) The Merger Agreement and the transactions contemplated thereby shall
have been approved in accordance with applicable law by the requisite votes
of the shareholders of Community and Centerpoint;
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(b) No order, decree or injunction of a court or agency of competent
jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger, or any of the other transactions
contemplated by the Merger Agreement, shall be in effect and no proceeding
initiated by a third party including, without limitation, any Governmental
Entity (as defined in the Merger Agreement), seeking an Injunction, shall
be pending; provided, however, that, with respect to any such pending
matter, counsel to the party seeking to postpone the closing of the
transactions contemplated by the Merger Agreement or terminate the Merger
Agreement has advised such party that such pending matter may reasonably be
expected to have a material adverse effect on the other party. No statute,
rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the Merger, or any of
the other transactions contemplated by the Merger Agreement;
(c) All necessary approvals, authorizations and consents of all
governmental bodies required to consummate the Merger and the other
transactions contemplated by the Merger Agreement shall have been obtained
and shall remain in full force and effect and all waiting periods relating
to such approvals, authorizations or consents shall have expired;
(d) The registration statement 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 Commission;
(e) Each of Community and Centerpoint shall have received an opinion of
counsel reasonably acceptable to Community and Centerpoint, addressed to
Community and the shareholders of Centerpoint, with respect to federal tax
laws or regulations, to the effect that:
(i) The merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code;
(ii) No gain or loss will be recognized by Community, Centerpoint or
Interim Bank or the surviving bank by reason of the Merger;
(iii) The bases of the assets of Centerpoint in the hands of the
surviving bank will be the same as the bases of such assets in the
hands of Centerpoint immediately prior to the Merger;
(iv) The holding period of the assets of Centerpoint in the hands of
the surviving bank will include the period during which such assets
were held by Centerpoint prior to the Merger;
(v) No gain or loss will be recognized by the Centerpoint
shareholders on the exchange of shares of Centerpoint Common Stock
solely for shares of Community's Common Stock; income gain or loss will
be recognized, however, to each such shareholder upon the receipt of
cash by such shareholders on the exchange. The determination of whether
the receipt of cash by Centerpoint shareholders will have the effect of
the distribution of a dividend will be made by treating the shareholder
as having received solely shares of Community Common Stock in the
reorganization exchange and then having received the cash payment from
Community in a hypothetical redemption of that number of shares of
Community Common Stock equal in value to such cash payment;
(vi) The basis of the shares of Community Common Stock to be received
by Centerpoint shareholders will be the same as the basis of the shares
of Centerpoint Common Stock surrendered in the reorganization exchange,
decreased by the amount of cash received and increased by the amount of
any gain (and by the amount of any dividend income) recognized on the
exchange; and
(vii) The holding period of the shares of Community Common Stock to
be received by the shareholders of Centerpoint will include the period
during which they held the shares of Centerpoint Common Stock
surrendered, provided the shares of Centerpoint Common Stock are held
as a capital asset on the date of the exchange.
(f) Each of the representations and warranties of each party to the
Merger Agreement which is qualified as to materiality shall be true and
correct and each such representation or warranty that is not so
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qualified shall be true and correct in all material respects, in each case
as of the date of the Merger Agreement, as applicable, and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Effective Time;
(g) There shall have occurred no material adverse change in the business,
operations, results of operations, properties, assets, liabilities,
securities, capitalization or condition (financial or otherwise) of
Centerpoint or its subsidiaries or Community or its subsidiaries since the
date of the consolidated financial statements contained in their respective
audited financial statements for the periods specified in the Merger
Agreement which, in the case of Community, shall include a decline in the
market price of the Community Common Stock so that the average closing
price of the Community Common Stock for the fifteen trading days ending on
the business day before the last required regulatory approval is obtained
is less than 75% of Community's book value per share as of the most recent
quarter end;
(h) Each of Centerpoint and Community shall have performed in all
material respects all obligations and complied in all material respects
with all agreements or covenants to be performed or complied with by it at
or prior to the Effective Time under the Merger Agreement;
(i) Each of Centerpoint and Community shall have obtained any and all
material permits, authorizations, consents, waivers, clearances or
approvals required for the lawful consummation of the Merger, the failure
of which to obtain would have a material adverse effect on Community and
its subsidiaries, taken as a whole;
(j) Each of Community and Centerpoint shall have received an opinion of
counsel, dated the Closing Date, in substantially the form of Exhibits
8.2(g) and 8.3(e), respectively, to the Merger Agreement; and
(k) Each of Community and Centerpoint shall have received a letter from
its investment advisor, dated as of a date not more than five days prior to
the date this Proxy Statement-Prospectus is mailed to Community's and
Centerpoint's shareholders, as to the fairness, from a financial point of
view, to their respective shareholders of the consideration paid to
Community's shareholders.
In addition, Community's obligation to effect the Merger is subject to the
following conditions:
(a) As of the last day of any fiscal quarter of Centerpoint following the
date of the Merger Agreement, or as of any date following satisfaction of
the condition set forth in Section 8.1(c) of the Merger Agreement and prior
to the Effective Time, the aggregate balance of Centerpoint's non-
performing assets (determined in accordance with regulatory requirements)
shall not exceed 2% of Centerpoint's aggregate balance of loans and non-
performing assets;
(b) As of the last day of any fiscal quarter of Centerpoint following the
date of the Merger Agreement, and as of any date following satisfaction of
the conditions set forth in Section 8.1(c) of the Merger Agreement and
prior to the Effective Time, the consolidated net worth of Centerpoint
("Centerpoint Net Worth") shall have increased by at least $100,000 during
each calendar quarter (beginning with the calendar quarter ended March 31,
1995) from its consolidated net worth as of December 31, 1994, such net
worth to be calculated in accordance with the provisions of the Merger
Agreement;
(c) Community shall have received a letter from KPMG Peat Marwick LLP,
addressed to Community, to the effect that the Merger will qualify for
"pooling of interests" accounting treatment;
(d) The holders of not more than 8% of the Centerpoint Common Stock
outstanding immediately prior to the Effective Time shall have given notice
of their intention to exercise dissenters' rights pursuant to the New
Hampshire Revised Statutes Annotated; and
(e) Community shall have received a letter from the independent certified
public accountants for Centerpoint, dated (i) the date that the
registration statement, of which this Proxy Statement-Prospectus forms a
part, shall have become effective and (ii) the Closing Date, in each case
setting forth the statements contained in Section 8.2(j) of the Merger
Agreement.
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NO SOLICITATION
Centerpoint has agreed in the Merger Agreement that neither Centerpoint nor
any of its directors, officers, employees, representatives or agents or other
persons controlled by Centerpoint shall, and Centerpoint shall use its best
efforts to cause its shareholders not to, directly or indirectly, negotiate,
authorize, recommend, propose, solicit or announce an intention to authorize,
recommend or propose, or enter into, any offer, agreement in principle,
agreement, understanding or commitment, written or oral, with or from any
third party, which relates to the acquisition of Centerpoint by such third
party or which is otherwise inconsistent with the obligations arising under
the Merger Agreement. Centerpoint has agreed to promptly communicate to
Community the terms of any proposal or offer or any inquiry or request for
information which it may receive in respect of any such transaction and the
identity of the party making such proposal or inquiry which it may receive
with respect to any such transaction.
CONTRACT FOR UNION
The Contract for Union between Interim Bank and Centerpoint, attached to
this Proxy Statement-Prospectus as Exhibit B, provides for the merger of
Interim Bank with and into Centerpoint in accordance with the relevant New
Hampshire banking statutes, Revised Statutes Annotated Chapter 388. The
Contract for Union provides that the Merger will be effective at the close of
business on the date on which the Commissioner of Bank's approval of the
Contract for Union is filed with the New Hampshire Secretary of State. The
Contract for Union also provides that all assets and liabilities of Interim
Bank become assets and liabilities of Centerpoint following the Merger.
REGULATORY MATTERS
Federal Reserve Board. The Merger is subject to approval by the Federal
Reserve Board, which considers competitive factors in determining whether to
approve an application. Additionally, in reviewing an application under the
applicable statutes, the Federal Reserve Board will consider the financial and
managerial resources of the institutions and their subsidiary banks and the
convenience and needs of the communities to be served. As part of, or in
addition to, consideration of the above factors, it is anticipated that the
Federal Reserve Board will consider the regulatory status of Community and
Centerpoint, current and projected economic conditions in the New England
region and the overall capital and safety and soundness standards established
by the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") and the regulations promulgated thereunder.
In addition, under the Community Reinvestment Act of 1977, as amended (the
"CRA"), the Federal Reserve Board must take into account the record of
performance of each of Community and Centerpoint in meeting the credit needs
of the entire community, including low and moderate income neighborhoods,
served by each of such institutions. Each of Concord Savings Bank and
Centerpoint Bank was rated "Outstanding" in its most recent FDIC CRA
examination.
The Merger may not be consummated until 30 days after Federal Reserve Board
approval (or such shorter period as the Federal Reserve Board may prescribe
with the concurrence of the Attorney General, but not less than 15 days),
during which time the Department of Justice may challenge the Merger on
antitrust grounds. The commencement of an antitrust action by the Department
of Justice would stay the effectiveness of Federal Reserve Board approval
unless a court specifically orders otherwise. In reviewing the Merger, the
Department of Justice could analyze the Merger's effect on competition
differently than the Federal Reserve Board, and thus it is possible that the
Department of Justice could reach a different conclusion than the Federal
Reserve Board regarding the Merger's competitive effects. Failure of the
Department of Justice to object to the Merger does not prevent the filing of
antitrust actions by private persons.
New Hampshire Board of Trust Company Incorporation. As a part of the Merger,
Community will form a New Hampshire-chartered trust company, which will merge
into Centerpoint. Community must obtain the approval of the BTCI to form
Interim Bank. In deciding whether to approve the formation of Interim Bank,
the BTCI must consider the adequacy of capital; earnings prospects; the
convenience and needs of the community; and the character and experience of
the organizers, directors, officers and employees.
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Commissioner of Banks of New Hampshire. The Merger must be approved by the
Commissioner of Banks. A petition for approval of the Merger will be filed
immediately following shareholder approval. In deciding whether to approve the
Merger, the Commissioner of Banks will consider whether the public convenience
and advantage and the interest of the merging banks and their shareholders and
depositors will be promoted without reducing any deposits credited to any
depositor or imposing any restriction on the withdrawal of funds. Following
the Commissioner of Bank's approval of the Merger, notice of the Merger must
be published (and mailed to out-of-state depositors) at least 30 days prior to
the Effective Date.
FDIC. The Merger also must be approved by the FDIC. The Merger may not be
consummated until 30 days after approval by the FDIC (or such shorter period
as the FDIC may prescribe with the concurrence of the Attorney General, but
not less than 15 days), during which time the Department of Justice may
challenge the Merger on antitrust grounds. The commencement of an antitrust
action by the Department of Justice would stay the effectiveness of FDIC
approval unless a court specifically orders otherwise.
The Merger will not proceed until all regulatory approvals required to
consummate the Merger have been obtained, such approvals are in full force and
effect and all statutory waiting periods in respect thereof have expired.
[STATUS OF REGULATORY APPROVALS.] There can be no assurance that the Merger
will be approved by the Federal Reserve Board, the BTCI, the Commissioner of
Banks, or the FDIC. If such approvals are received, there can be no assurance
as to the date of such approvals, the terms thereof or the absence of any
litigation challenging such approvals. Community and Centerpoint are not aware
of any other governmental approvals or actions that are required prior to the
parties' consummation of the Merger. It is currently contemplated that if any
such additional governmental approvals or actions are required, such approvals
or actions will be sought. There can be no assurance, however, that any such
additional approvals or actions will be obtained.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Foley, Hoag & Eliot, counsel to Community, the following
summary sets forth the anticipated material federal income tax consequences of
the Merger to Centerpoint shareholders and to Centerpoint and Community. The
tax treatment of each Centerpoint shareholder will depend in part upon such
shareholder's particular situation. Special tax consequences not described
below may be applicable to particular classes of taxpayers, including
Centerpoint shareholders who acquired Centerpoint Common Stock pursuant to the
Centerpoint Stock Option Plan. All shareholders should consult with their own
tax advisors as to the particular tax consequences of the Merger to them,
including the applicability and effect of any state, local and foreign tax
laws. This summary is based on the provisions of the Internal Revenue Code,
the Treasury Regulations promulgated thereunder and administrative and
judicial interpretations thereof, all as in effect as of the date hereof. Such
laws, regulations or interpretations may differ on the Effective Time, and
relevant facts also may differ.
The obligations of Community and Centerpoint to effect the Merger are
conditioned upon their receipt of an opinion of counsel, as set forth below.
Foley, Hoag & Eliot, counsel to Community, will deliver to Community and
Centerpoint its opinion letter, dated as of the Effective Time. The tax
opinion will not be binding on the Internal Revenue Service, and there can be
no assurance that the Internal Revenue Service will not contest the
conclusions expressed in the opinion letter.
The opinion letter to be delivered by Foley, Hoag & Eliot will be based upon
certain representations made to Foley, Hoag & Eliot by Centerpoint, Community,
Interim Bank and certain Centerpoint shareholders and upon certain factual
assumptions. If any of the representations or assumptions were not correct,
then each holder of Centerpoint Common Stock would recognize gain or loss with
respect to each share of Centerpoint Common Stock surrendered equal to the
difference between (i) such shareholder's basis in the share and (ii) the fair
market value of the Community Common Stock received in exchange for the share.
In such event, the shareholder's aggregate basis in the shares of Community
Common Stock received in the exchange would equal the fair market value of
such shares, and the shareholder's holding period for such shares of Community
Common Stock would not include the period during which the shareholder held
the Centerpoint shares exchanged therefor.
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While the accuracy of each representation made to Foley, Hoag & Eliot is
essential to the opinions set forth below, Centerpoint shareholders should
particularly note that dispositions of Community Common Stock received by
Centerpoint shareholders in the Merger may cause the Merger to become
retroactively taxable to each Centerpoint shareholder, even those who do not
make such dispositions. In particular, Centerpoint shareholders must not,
pursuant to a plan or intent existing prior to the Effective Time, dispose of
an amount of Community Common Stock to be received in the Merger (including,
under certain circumstances, pre-merger dispositions of Centerpoint Common
Stock) such that the Centerpoint shareholders do not retain a meaningful
continuing equity ownership in Community. Generally, so long as the
Centerpoint shareholders have no plan or intention to dispose of Community
Common Stock to be received in the Merger that would result in their
retention, in the aggregate, of a continuing interest through stock ownership
in Community that is equal in value, as of the Effective Time, to less than 50
percent of the value of all of the formerly outstanding Centerpoint Common
Stock as of the same time, this requirement will be satisfied.
The opinion letter delivered to Community and Centerpoint by Foley, Hoag &
Eliot will state that Foley, Hoag & Eliot is of opinion, as of the Effective
Time and under existing law, for United States federal income tax purposes, as
follows:
(a) The Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code;
(b) Centerpoint, Community and Interim Bank will each be a "party to the
reorganization" within the meaning of Code section 368(b);
(c) No gain or loss will be recognized by Centerpoint, Community, Interim
Bank or the surviving bank as a result of the Merger;
(d) Except to the extent of cash received in lieu of fractional shares,
as described below, no gain or loss will be recognized by the shareholders
of Centerpoint upon the receipt in the Merger of Community Common Stock in
exchange for their shares of Centerpoint Common Stock;
(e) Cash received in lieu of a fractional share of Community Common Stock
will be treated as if the fractional share had been distributed in exchange
for shares of Centerpoint Common Stock and then the fractional share had
been redeemed by Community. The cash will be treated as a distribution in
full payment in exchange for the fractional share interest, provided the
redemption is not essentially equivalent to a dividend, and will
accordingly result in the recognition of gain, if any, measured by the
difference between the portion of the basis of the shares of Centerpoint
Common Stock allocable to such fractional share and the cash received in
full payment therefor. If such shares of Centerpoint Common Stock are
capital assets in the hands of the Centerpoint shareholder, then such gain
will be capital gain.
(f) The aggregate basis of the Community Common Stock received by a
Centerpoint shareholder in the Merger will be the same as the aggregate
basis of the Centerpoint Common Stock surrendered in exchange therefor;
(g) The bases of the assets of Centerpoint in the hands of the surviving
bank will be the same as the bases of such assets in the hands of
Centerpoint immediately prior to the Merger;
(h) The holding period for each share of Community Common Stock received
by each Centerpoint shareholder in exchange for Centerpoint Common Stock
will include the period for which such shareholder held such Centerpoint
Common Stock, provided that the shareholder's Centerpoint Common Stock is
held as a capital asset at the Effective Time;
(i) The holding period of the assets of Centerpoint in the hands of the
surviving bank will include the period during which such assets were held
by Centerpoint prior to the Merger; and
(j) A Centerpoint shareholder who does not vote in favor of the Merger,
who exercises dissenters' rights as to all such holder's shares of
Centerpoint Common Stock and who is not deemed to be an owner of any shares
of Centerpoint Common Stock held by others will recognize gain or loss
measured by the difference between the basis of such shareholder's
dissenting shares and the cash received in exchange therefor. Such gain or
loss will be capital gain or loss, provided that the holder's dissenting
shares are held as a capital asset at the Effective Time.
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ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "pooling-of-
interests" transaction under generally accepted accounting principles. Under
such method of accounting, holders of Centerpoint Common Stock will be deemed
to have combined their existing voting common stock interest with that of
holders of Community Common Stock by exchanging their shares for shares of
Community Common Stock. Accordingly, the book value of the assets, liabilities
and shareholders' equity of Centerpoint, as reported on its consolidated
balance sheet, will be carried over to the consolidated balance sheet of
Community and no goodwill will be created. Community will be able to include
in its consolidated statement of income the consolidated income of Centerpoint
for the entire fiscal year in which the Merger occurs and for all periods
reported; however, certain expenses incurred to effect the Merger must be
treated by Community as current charges against income rather than adjustments
to its balance sheet. It is a condition to consummation of the Merger that
Community shall have received a letter from KPMG Peat Marwick LLP to the
effect that the Merger qualifies for pooling-of-interests accounting
treatment.
The pro forma financial information presented in this Proxy Statement-
Prospectus has been prepared using the pooling-of-interests method of
accounting to account for the Merger. See "UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement provides that the Merger may be terminated at any time
prior to the Effective Time (whether before or after shareholder approval) by
mutual consent of Community and Centerpoint. Subject to certain limitations in
cases where the party seeking termination is in breach of the Merger
Agreement, the Merger Agreement may also be terminated by Community or
Centerpoint, acting individually, (a) if any regulatory authority shall have
issued a final nonappealable order that does not approve the Merger Agreement
or the transactions contemplated thereby; (b) if the Effective Time has not
occurred on or before August 29, 1996; (c) if there is a material breach by
the other party of any representation, warranty, covenant or agreement
contained in the Merger Agreement which is not timely cured; or (d) if the
vote of the shareholders of Community or Centerpoint required to approve the
Merger Agreement is not obtained. If the Merger Agreement is terminated (other
than as a result of a wilful breach or gross negligence by Community or
Centerpoint), each of Community and Centerpoint shall be responsible for its
own costs and expenses. If the Merger Agreement is terminated as a result of a
breach of a representation, warranty or covenant which is caused by the wilful
conduct or gross negligence of either party, the breaching party must
reimburse the other for all out-of-pocket costs and expenses incurred in
connection with the Merger, up to a maximum of $200,000.
AMENDMENT, EXTENSION AND WAIVER OF THE MERGER AGREEMENT
Community and Centerpoint may, to the extent legally allowable, (a) amend
the Merger Agreement; (b) extend the time for the performance of any of the
obligations or other acts required of the other party contained in the Merger
Agreement; (c) waive any inaccuracies in the representations and warranties of
the other party contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement; or (d) waive compliance by the other party
of any of its agreements or conditions contained in the Merger Agreement,
except that (i) after the Merger Agreement has been approved by the
shareholders of Centerpoint, no amendment shall reduce the amount or change
the form of consideration to be delivered to each of the Centerpoint's
shareholders pursuant to the Merger Agreement without further approval of the
Centerpoint shareholders and (ii) after the Merger Agreement has been approved
by the shareholders of Community, no amendment shall increase the amount or
change the form of consideration to be delivered to each of the Centerpoint
shareholders pursuant to the Merger Agreement without further approval of the
Community shareholders.
EFFECT ON EMPLOYEE BENEFITS
The Merger Agreement provides that, after the Merger, Community will provide
Centerpoint employees who were employees of Centerpoint immediately prior to,
and remain employees after, the Merger with employee benefits no less
favorable overall than those available to employees of Community, subject to
the terms
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and conditions under which those employee benefits are made available to
employees of Community. For purposes of determining eligibility for vesting of
such employee benefits and for determining the amount of benefits payable
under defined benefit pension plans, service with Centerpoint by persons who
were employees of Centerpoint at the Effective Time shall be treated as
service with an "employer" to the same extent as if such persons had been
employees of Community during the period such persons were employed by
Centerpoint.
In addition, Community has agreed that, at the Effective Time, all options
held by optionees under the Centerpoint Stock Option Plan which are
outstanding at the Effective Time will be assumed by Community on the same
terms and conditions as the Centerpoint Stock Option Plan, except that the
number of shares of Community Common Stock subject to such options and the
exercise price of such options will be adjusted to give effect to the Exchange
Ratio.
Community has also agreed that all rights to indemnification existing in
favor of the directors and officers of Centerpoint as provided in
Centerpoint's Charter and By-laws, as in effect on August 29, 1995, will
survive the Merger and continue in full force and effect for a period of six
years from the Effective Time with respect to claims or liabilities arising
from facts or events existing or occurring prior to the Effective Time. All
rights to indemnification in respect of any claim asserted or made within such
period shall continue until the final disposition of such claim.
Community has also agreed to maintain in effect for three years after the
Effective Time, if available, the directors' and officers' liability insurance
policy currently maintained by Centerpoint or to substitute policies having at
least the same coverage containing terms and conditions which are not
materially less favorable than the present policies of Centerpoint. Community
will not, however, be required to expend more than $45,000 for such insurance.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger, Community has agreed to provide certain
benefits to the employees of Centerpoint. See "--Effect on Employee Benefits".
Community has also agreed to continue the rights to indemnification of
officers, directors and employees of Centerpoint and to continue in effect for
a period of time the directors' and officers' liability insurance currently
maintained by Centerpoint. See "--Effect on Employee Benefits."
As discussed in "--Effect on Employee Benefits," at the Effective Time, all
options held by optionees under the Centerpoint Stock Option Plan which are
outstanding at the Effective Time will be assumed by Community. As of , the
Centerpoint Record Date, the officers and directors of Centerpoint as a group
held options to purchase an aggregate of 77,500 shares of the Centerpoint
Common Stock. Based on the Exchange Ratio of 1.073 and assuming that the
number of shares of Centerpoint Common Stock issuable at the Effective Time
upon the exercise of outstanding options granted to officers and directors
pursuant to the Centerpoint Stock Option Plan remains unchanged from the
Record Date, options to acquire 77,500 shares of Centerpoint Common Stock
would be converted into options to acquire 83,156 shares of Community Common
Stock, at an exercise price per share of $9.32.
The directors and officers of Centerpoint immediately prior to the Effective
Time will remain the directors and officers of Centerpoint after the Merger,
to hold office in accordance with the charter documents and by-laws of
Centerpoint until their respective successors are duly elected or appointed
and qualified. Following the Effective Time, Community intends to elect up to
two additional directors to serve on the Board of the surviving bank. At or
immediately after the Effective Time, the Board of Directors of Community will
elect three of Centerpoint's current directors to serve on the Board of
Directors of Community, who will be designated prior to the Effective Time as
follows: one of the nominees will be Philip M. Stone, the current President
and CEO of Centerpoint; the second nominee will be designated by Mr. Stone;
and the third nominee will be selected by Community from a list of two or
three potential nominees provided by Centerpoint to Community. Neither the
second nor the third nominee has been selected. Prior to or at the Effective
Time, the Board of Directors of Concord Savings Bank, Community's banking
subsidiary, will elect one of Centerpoint's current outside
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directors (designated by Centerpoint prior to the Effective Time) to serve on
the Board of Directors of Concord Savings Bank.
In connection with the execution of the Merger Agreement and with the
approval of Community, Centerpoint has entered into employment agreements with
three of its senior officers: Philip M. Stone, President, Chief Executive
Officer and Chairman of the Board; Joseph B. Reilly, Senior Vice President;
and Lucy T. Gobin, Senior Vice President and Chief Financial Officer.
Mr. Stone's employment agreement provides that Centerpoint will employ Mr.
Stone as President until June 30, 1998 and as Chairman of the Board until
December 31, 1998 at an annual rate of compensation of not less than $100,000
through December 31, 1998 and will provide him with certain fringe benefits.
From July 1, 1998 through December 31, 1998, Mr. Stone will provide consulting
assistance to Centerpoint on less than a full time basis.
Centerpoint may terminate Mr. Stone's employment for cause by majority vote
of the Board of Directors. A termination is for cause if the termination is
for personal dishonesty relating to the affairs of Centerpoint, gross and
wilful failure to perform a substantial portion of duties and responsibilities
to Centerpoint, wilful violation of any material banking regulation, or wilful
violation of any criminal law (other than traffic violations or similar
offenses) or of any regulatory order. If Mr. Stone's employment is terminated
for cause, Centerpoint's obligation to make payments to Mr. Stone cease on the
effective date of his termination.
If (a) Mr. Stone terminates his employment in the event of (i) Centerpoint's
failure to compensate him as provided in the agreement, (ii) Centerpoint's
failure to continue him as Chairman of the Board, or (iii) material breach of
the agreement by Centerpoint or (b) Centerpoint terminates Mr. Stone's
employment without cause, Centerpoint is obligated to continue providing the
compensation and other benefits specified in the agreement through December
31, 1998.
Mr. Stone has agreed that he will not compete with Centerpoint in
Centerpoint's market area while employed by Centerpoint or during any period
during which Centerpoint provides compensation and other benefits to Mr.
Stone.
If the Merger Agreement is terminated and the Merger does not occur, Mr.
Stone's employment agreement will automatically terminate and any employment
agreement in effect prior to the date of this employment agreement will resume
effectiveness.
Mr. Reilly's employment agreement with Centerpoint is substantially similar
to Mr. Stone's with the differences noted below.
Centerpoint has agreed to employ Mr. Reilly as a senior officer, initially
with the title of Senior Vice President, for a period of two years commencing
on August 29, 1995, at an annual rate of compensation of not less than
$84,150, and to provide him with certain fringe benefits.
If Mr. Reilly terminates his employment in the event of Centerpoint's
failure to compensate him as provided in his agreement or material breach of
the agreement by Centerpoint, or Centerpoint terminates Mr. Reilly's
employment without cause (all of the foregoing, a "Termination Without
Cause"), Centerpoint is obligated to continue providing the compensation and
other benefits specified in the agreement until August 29, 1997.
Ms. Gobin's employment agreement with Centerpoint is substantially similar
to Mr. Reilly's agreement with the differences noted below.
Centerpoint has agreed to employ Ms. Gobin as a senior officer, initially
with the title of Senior Vice President, until September 30, 1997, at an
annual rate of compensation of not less than $65,000.
Ms. Gobin's agreement does not prohibit her from competing with Centerpoint
(as is often the case in employment agreements with chief financial officers)
while employed by Centerpoint or during any period during
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<PAGE>
which Centerpoint provides compensation and other benefits to her.
Consequently, if Ms. Gobin's employment is Terminated Without Cause, then
during the period commencing on the first anniversary of her termination of
employment (if such anniversary occurs prior to August 29, 1997) through
August 29, 1997, Centerpoint is entitled to set off against any cash
compensation to be provided Ms. Gobin pursuant to her employment agreement the
amount of any cash compensation received by her from other employment.
In addition, if Ms. Gobin's employment is Terminated Without Cause, prior to
October 1, 1996, she will receive a payment of $40,000; if her employment is
Terminated Without Cause on or after October 1, 1996 but before October 1,
1997, she will receive a payment of $20,000.
BENEFICIAL OWNERSHIP OF COMMUNITY COMMON STOCK
See "COMMUNITY ANNUAL MEETING--OTHER MATTERS."
BENEFICIAL OWNERSHIP OF CENTERPOINT COMMON STOCK
The following table sets forth certain information as of October 1, 1995
regarding holders of more than 5% of Centerpoint's Common Stock (all of whom
are directors of Centerpoint), each director of Centerpoint and all directors
and principal officers of Centerpoint as a group.
<TABLE>
<CAPTION>
EQUIVALENT SHARES
OF COMMUNITY
COMMON STOCK
ASSUMING
SHARES OWNED CONSUMMATION
BENEFICIALLY OF THE MERGER
--------------- -------------------
PERCENT NUMBER PERCENT
NAME AND ADDRESS OF OF OF
OF BENEFICIAL OWNER TOTAL CLASS SHARES CLASS
------------------- ------- ------- --------- ---------
<S> <C> <C> <C> <C>
Arthur R. Bethke............................ 89,496 15.16% 96,029 4.05%
Concord Oil Company
P.O. Box 368
Concord, Massachusetts 01742
Ronald H. Bogers(1)......................... 20,383 3.45 21,870 *
Donald E. Bossi(2).......................... 30,500 4.98 32,726 1.37
John J. Clarke, Jr. ........................ 7,499 1.27 8,046 *
John T. deBettencourt(3).................... 10,000 1.69 10,730 *
Walter W. Hemming........................... 35,833 6.07 38,448 1.62
Hemming Associates
Unit 11
74 Northeastern Boulevard
Nashua, New Hampshire 03062
P.D. Infantine(4)........................... 24,050 4.07 25,805 1.09
Donald J. Levasseur......................... 10,000 1.69 10,730 *
David B. Salzman............................ 28,636 4.85 30,726 1.30
Philip M. Stone(5).......................... 51,551 8.18 55,314 2.30
Centerpoint Bank
141 South River Road
Bedford, New Hampshire 03110
Vartkes Tamzarian(6)........................ 5,000 * 5,365 *
Ronald C. Thomashow......................... 2,117 * 2,271 *
Michael T. Whaley........................... 2,400 * 2,575 *
All Directors and Officers as a group
(15 persons)(7)............................ 328,716 49.59 352,712 14.45
</TABLE>
- --------
*Less than 1%.
(1) Includes 200 shares owned of record by Mr. Bogers' wife, 3,200 shares
owned of record by his mother, and 884 shares owned of record by each of
his two children.
(2) Includes 22,500 shares which Mr. Bossi has the right to acquire upon the
exercise of stock options.
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<PAGE>
(3) Includes 5,000 shares held by Mr. deBettencourt as the sole trustee of a
trust established for the benefit of certain of Mr. deBettencourt's
business associates.
(4) Includes 21,000 shares held by the estate of Mrs. Infantine's late
husband, of which Mrs. Infantine's son is executor, and 1,000 shares held
by Mrs. Infantine's son.
(5) Includes 40,000 shares which Mr. Stone has the right to acquire upon the
exercise of stock options and 300 shares which are owned of record by his
wife.
(6) Includes 300 shares which are owned of record by Mr. Tamzarian's wife.
(7) Includes 72,500 shares which officers and directors have the right to
acquire upon the exercise of stock options.
OPTION AGREEMENT
Concurrently with the execution of the Merger Agreement, Centerpoint and
Community entered into a Stock Option Agreement (the "Option Agreement")
pursuant to which Centerpoint has granted an option (the "Option") to
Community to purchase up to 165,920 shares of Centerpoint Common Stock (19.9%
of the then-issued and outstanding Centerpoint Common Stock, including shares
issuable pursuant to the Centerpoint Stock Option Plan and the Option
Agreement) under certain conditions, at a price of $12.00 per share, subject
to adjustment as set forth in the Option Agreement. Community conditioned its
willingness to enter into the Merger Agreement on receipt of the Option.
Community may exercise the Option, in whole or in part, at any time during
the term of the Option Agreement upon the occurrence and continuance of any of
the following events (hereinafter "Triggering Events"): (1) without having
received Community's prior written consent, Centerpoint shall have entered
into, or the Board of Directors shall have approved or recommended that
Centerpoint's shareholders approve or accept, an agreement with any person
(other than Community or any affiliate of Community) to (a) effect a merger,
consolidation or similar transaction involving Centerpoint, (b) sell, lease or
otherwise dispose of assets of Centerpoint (other than sales of loans or
securities classified as available for sale in the ordinary course of business
of Centerpoint) representing 15% or more of the consolidated assets of
Centerpoint or (c) issue, sell or otherwise dispose of securities representing
15% or more of the voting power of Centerpoint (any of the foregoing being
referred to as an "Acquisition Transaction"); (2) any person (other than
Community or any affiliate of Community) shall, after the date of the Merger
Agreement, have acquired beneficial ownership or the right to acquire
beneficial ownership of, or any group shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, 15% or
more of the then outstanding Common Stock of Centerpoint; (3) any person
(other than Community or any affiliate of Community) (a) publicly announces a
proposal, or publicly discloses an intention to make a proposal, to engage in
an Acquisition Transaction, (b) files an application under the Bank Holding
Company Act of 1956 for approval to engage in an Acquisition Transaction, or
(c) files a notice under the Change in Bank Control Act of 1978 or other
applicable law of intent to engage in an Acquisition Transaction; (4) the
Board shall have failed to recommend to its shareholders approval of the
Merger Agreement or shall have withdrawn or modified in a manner adverse to
Community the Board's recommendation with respect to the Merger Agreement; or
(5) the shareholders of Centerpoint shall not have approved the Merger
Agreement and the transactions contemplated thereby at the Centerpoint Special
Meeting or such Special Meeting shall not, due to actions or failure to act of
Centerpoint, have been held prior to a date which is 60 days ("End Date")
after effectiveness of the Registration Statement on Form S-4, provided that
the events described in this subsection 5 shall constitute a Triggering Event
only if, prior to the End Date, Centerpoint shall have agreed to provide to a
shareholder or a shareholder representative a copy of its list of Centerpoint
shareholders for use in connection with possible communications with other
Centerpoint shareholders.
Under the terms of the Option Agreement, at the request of Community,
Centerpoint is obligated to repurchase the Option (unless the Option has
expired or been terminated in accordance with its terms) and all shares of
Centerpoint Common Stock purchased by Community pursuant to the Option
Agreement with respect to which Community then has beneficial ownership at any
time commencing upon the occurrence of a
44
<PAGE>
"Repurchase Event" (as defined below) and ending upon the earlier to occur of
(1) nine months immediately thereafter or (2) termination of the Option, as
described below.
A Repurchase Event shall occur upon the occurrence of any of the following:
(1) Centerpoint shall have entered into an agreement with respect to, or
consummated, a merger, consolidation or sale of substantially all of its
assets; or (2) any person (other than Community or an affiliate of Community)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" shall have been formed which beneficially owns or
has the right to acquire beneficial ownership of, 51% or more of the then
outstanding Centerpoint Common Stock.
Except to the extent that Community shall have exercised its repurchase
rights, at the request of Centerpoint during the 30-day period commencing 12
months following the first occurrence of a Repurchase Event, Centerpoint may
repurchase from Community all (but not less than all) of the shares of
Centerpoint Common Stock acquired by Community pursuant to the Option
Agreement and with respect to which Community has beneficial ownership at the
time of such repurchase at the price specified in the Option Agreement.
The Option terminates upon the first to occur of the following: (1)
consummation of the Merger; (2) the first anniversary of a Triggering Event;
(3) the second anniversary of a termination of the Merger Agreement by reason
of a material breach or wilful violation by Centerpoint of its
representations, warranties or obligations under the Merger Agreement
(provided that a Triggering Event has not occurred prior thereto); (4)
termination of the Merger Agreement by Centerpoint by reason of a breach or
violation by Community of its representations, warranties or obligations under
the Merger Agreement or if the holders of Community Common Stock shall not
have approved the Merger Agreement and the transactions contemplated thereby
at the Community Annual Meeting; or (5) the second anniversary of termination
of the Merger Agreement for a reason other than as described in the foregoing
clauses (3) and (4) (provided that a Triggering Event has not occurred prior
thereto).
The Option may act to deter competing offers from third parties to acquire
Centerpoint. If a Triggering Event occurs, the Option could be exercised,
thereby increasing the number of outstanding shares of Centerpoint's Common
Stock and making it more difficult and costly for a third party to obtain all
or a specified percentage of Centerpoint's Common Stock.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Centerpoint. Any Centerpoint shareholder has the right to assert dissenters'
rights with respect to the Merger Agreement and to receive payment of the fair
value of his shares of Centerpoint Common Stock upon compliance with the
applicable provisions of New Hampshire Revised Statutes Annotated ("RSA")
388:13 and 293-A:13.01 through RSA 293-A:13.31, copies of which are set forth
as Annex E to this Proxy Statement-Prospectus. A shareholder may not dissent
as to less than all of the shares that he beneficially owns. Any Centerpoint
shareholder intending to enforce this right may not vote in favor of the
Merger Agreement and Contract for Union and must file a written notice of
intent to demand payment for his shares (an "Objection Notice") with
Centerpoint either before the Special Meeting or before the vote on the Merger
is taken at the Special Meeting. An Objection Notice must state that the
Centerpoint shareholder intends to demand payment for his shares of
Centerpoint Common Stock if the Merger is effected. By properly executing a
proxy card with no voting instructions indicated thereon, a Centerpoint
shareholder will vote in favor of the approval and adoption of the Merger
Agreement and, accordingly, will not be entitled to exercise dissenters'
rights in connection with the Merger. A vote against approval of the Merger
Agreement will not, by itself, constitute an Objection Notice satisfying the
requirements of RSA 293-A:13.21.
If the Merger Agreement is approved by Centerpoint shareholders at the
Special Meeting, within 10 days after the Special Meeting Centerpoint will
send to each Centerpoint shareholder who has satisfied the requirements of RSA
293-A:13.21 a notice of such approval (the "Dissenters' Notice"). Within the
time prescribed in the Dissenters' Notice, a shareholder electing to dissent
must make a demand for payment (the "Payment Demand"), certify whether he (or
the beneficial shareholder on whose behalf he is asserting
45
<PAGE>
dissenters' rights) acquired beneficial ownership of the shares of Centerpoint
Common Stock before the date of the first announcement to the news media or
the shareholders of the terms of the proposed Merger, and deposit his
certificates in accordance with the terms of the Dissenters' Notice. Upon
filing the Payment Demand and depositing the certificates, the Centerpoint
shareholder will retain all other rights of a Centerpoint shareholder until
these rights are canceled or modified by consummation of the Merger. Failure
to comply with these procedures will cause the Centerpoint shareholder who
desires to exercise his rights to lose his dissenters' rights to payment for
his shares. Consequently, any Centerpoint shareholder who desires to exercise
his rights to payment for his shares is urged to consult his legal advisor
before attempting to exercise such rights.
The Merger Agreement provides that a condition to Community's obligation to
effect the Merger is that the aggregate number of shares of Centerpoint Common
Stock owned by Centerpoint shareholders who have perfected and not abandoned
their dissenters' rights of appraisal under RSA 293-A:13.01 through RSA 293-
A:13.31 shall not constitute more than 8.0% of the shares of Centerpoint
Common Stock outstanding immediately prior to the Effective Time.
As soon as the Merger is consummated, or upon receipt of a Payment Demand,
Centerpoint shall, pursuant to RSA 293-A:13.25, pay to each dissenting
shareholder who has complied with the requirements of RSA 293-A:13.23, the
amount that Centerpoint estimates to be the fair value of the shares of
Centerpoint Common Stock, plus accrued interest.
If the Merger is not consummated within 60 days after the date set for
demanding payment and depositing certificates, Centerpoint shall return the
deposited certificates and release any transfer restrictions imposed on
uncertificated shares. If, after returning deposited certificates and
releasing transfer restrictions, the Merger is consummated, Centerpoint must
send a new Dissenters' Notice and repeat the payment demand procedure.
If the dissenting shareholder believes that the amount paid by Centerpoint
pursuant to RSA 293-A:13.25 is less than the fair value of his shares or that
the interest due is calculated incorrectly, or if Centerpoint fails to make
payment (or, if the Merger has not been consummated, Centerpoint does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares) within 60 days after the date set forth in the
Dissenters' Notice, then the dissenting shareholder may, within 30 days after
Centerpoint made or offered payment for the shares, notify Centerpoint in
writing of his own estimate of the fair value of such shares (including
interest due) and demand payment of such estimate (less any payment previously
received) or reject Centerpoint's offer with respect to after-acquired shares
and demand payment of the fair value of such shares and interest due. Failure
to notify Centerpoint in writing of any demand for additional payment within
30 days after Centerpoint made or offered payment for such shares will
constitute a waiver of the right to demand additional payment.
If Centerpoint and the dissenting shareholder cannot agree on a fair price
within 60 days after Centerpoint receives such a demand for additional
payment, RSA 293-A:13.30 provides that Centerpoint will institute judicial
proceedings in the New Hampshire Superior Court in the County of Hillsborough
(the "Court") to fix (i) the fair value of the shares immediately before
consummation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger, unless such exclusion would be inequitable, and
(ii) the accrued interest. The "fair value" of the Centerpoint Common Stock
could be more than, the same as, or less than the consideration to be received
in the Merger. If Centerpoint does not institute such proceedings within such
60 day period, Centerpoint shall pay each dissenting shareholder whose demand
remains unsettled the respective amount demanded by such shareholder.
The Court will assess the costs and expenses of such proceeding (including
reasonable compensation for and the expenses of the appraiser) against
Centerpoint, except that the Court may assess such costs and expenses as it
deems appropriate against any and all of the dissenting shareholders if it
finds that their demand for additional payment was arbitrary, vexatious or
otherwise not in good faith. The Court may award fees and expenses of counsel
and experts in amounts the Court finds equitable: (i) against Centerpoint if
the Court finds that Centerpoint did not comply substantially with the
relevant requirements of the RSA or (ii) against either
46
<PAGE>
Centerpoint or any dissenting shareholder, if the Court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith. If the Court finds that the services of counsel for any
dissenting shareholder were of substantial benefit to other dissenting
shareholders similarly situated, and that the fees for those services should
not be assessed against Centerpoint, the Court may award to such counsel
reasonable fees to be paid out of the amounts awarded to the dissenting
shareholders who were benefitted.
The foregoing summary of the applicable provisions of RSA 388:13 and RSA
293-A:13.01 through RSA 293-A:13.31 is not intended to be a complete statement
of such provisions, and is qualified in its entirety by reference to such
sections, which are attached hereto as Annex E.
For a discussion of certain tax consequences in connection with dissenting
shareholders, see "Certain Federal Income Tax Consequences" above.
Community. Any Community shareholder has the right to assert dissenters'
rights with respect to the Charter Amendments and to receive payment of the
fair value of his shares upon compliance with the applicable provisions of New
Hampshire Revised Statutes Annotated ("RSA") 293-A:13.01 through RSA 293-
A:13.31, copies of which are set forth as Annex E to this Proxy Statement-
Prospectus. Community shareholders do not have dissenters' rights with respect
to the Merger. A shareholder may not dissent as to less than all of the shares
that he beneficially owns. Any Community shareholder intending to enforce this
right may not vote in favor of the Charter Amendments and must file a written
notice of intent to demand payment for his shares (an "Objection Notice") with
Community either before the Annual Meeting or before the vote on the Charter
Amendments is taken at the Annual Meeting. An Objection Notice must state that
the Community shareholder intends to demand payment for his shares of
Community Common Stock if the Charter Amendments are effected. By properly
executing a proxy card with no voting instructions indicated thereon, a
Community shareholder will vote in favor of the approval and adoption of the
Charter Amendments and, accordingly, will not be entitled to exercise
dissenters' rights in connection with the Charter Amendments. A vote against
approval of the Charter Amendments will not, by itself, constitute an
Objection Notice satisfying the requirements of RSA 293-A:13.21.
If the Charter Amendments are approved by Community shareholders at the
Annual Meeting, within 10 days after the Annual Meeting Community will send to
each Community shareholder who has satisfied the requirements of RSA 293-
A:13.21 a notice of such approval (the "Dissenters' Notice"). Within the time
prescribed in the Dissenters' Notice, a shareholder electing to dissent must
make a demand for payment (the "Payment Demand"), certify whether he (or the
beneficial shareholder on whose behalf he is asserting dissenters' rights)
acquired beneficial ownership of the shares of Community Common Stock before
the date of the first announcement to the news media or the shareholders of
the terms of the proposed Charter Amendments, and deposit his certificates in
accordance with the terms of the Dissenters' Notice. Upon filing the Payment
Demand and depositing the certificates, the Community shareholder will retain
all other rights of a Community shareholder until these rights are canceled or
modified by the filing of the Charter Amendments with the New Hampshire
Secretary of State. Failure to comply with these procedures will cause the
Community shareholder who desires to exercise his rights to lose his
dissenters' rights to payment for his shares. Consequently, any Community
shareholder who desires to exercise his rights to payment for his shares is
urged to consult his legal advisor before attempting to exercise such rights.
As soon as the Charter Amendments take effect, or upon receipt of a Payment
Demand, Community shall, pursuant to RSA 293-A:13.25, pay to each dissenting
shareholder who has complied with the requirements of RSA 293-A:13.23, the
amount that Community estimates to be the fair value of the shares of
Community Common Stock, plus accrued interest.
If the Charter Amendments are not filed with the Secretary of State within
60 days after the date set for demanding payment and depositing certificates,
Community shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares. If, after returning deposited
certificates and releasing transfer restrictions, the Charter Amendments are
filed, Community must send a new Dissenters' Notice and repeat the payment
demand procedure.
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<PAGE>
If the dissenting shareholder believes that the amount paid by Community
pursuant to RSA 293-A:13.25 is less than the fair value of his shares or that
the interest due is calculated incorrectly, or if Community fails to make
payment (or, if the Charter Amendments are not filed, Community does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares) within 60 days after the date set forth in the
Dissenters' Notice, then the dissenting shareholder may, within 30 days after
Community made or offered payment for the shares, notify Community in writing
of his own estimate of the fair value of such shares (including interest due)
and demand payment of such estimate (less any payment previously received) or
reject Community's offer with respect to after-acquired shares and demand
payment of the fair value of such shares and interest due. Failure to notify
Community in writing of any demand for additional payment within 30 days after
Community made or offered payment for such shares will constitute a waiver of
the right to demand additional payment.
If Community and the dissenting shareholder cannot agree on a fair price
within 60 days after Community receives such a demand for additional payment,
RSA 293-A:13.30 provides that Community will institute judicial proceedings in
the New Hampshire Superior Court in the County of Merrimack (the "Court") to
fix (i) the fair value of the shares immediately before the Charter Amendments
were filed with the Secretary of State, excluding any appreciation or
depreciation in anticipation of the Charter Amendments, unless such exclusion
would be inequitable, and (ii) the accrued interest. If Community does not
institute such proceedings within such 60 day period, Community shall pay each
dissenting shareholder whose demand remains unsettled the respective amount
demanded by such shareholder.
The Court will assess the costs and expenses of such proceeding (including
reasonable compensation for and the expenses of the appraiser) against
Community, except that the Court may assess such costs and expenses as it
deems appropriate against any and all of the dissenting shareholders if it
finds that their demand for additional payment was arbitrary, vexatious or
otherwise not in good faith. The Court may award fees and expenses of counsel
and experts in amounts the Court finds equitable: (i) against Community if the
Court finds that Community did not comply substantially with the relevant
requirements of the RSA or (ii) against either Community or any dissenting
shareholder, if the Court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith. If
the Court finds that the services of counsel for any dissenting shareholder
were of substantial benefit to other dissenting shareholders similarly
situated, and that the fees for those services should not be assessed against
Community, the Court may award to such counsel reasonable fees to be paid out
of the amounts awarded to the dissenting shareholders who were benefitted.
The foregoing summary of the applicable provisions of RSA 293-A:13.01
through RSA 293-A:13.31 is not intended to be a complete statement of such
provisions, and is qualified in its entirety by reference to such sections,
which are attached hereto as Annex E.
A Community shareholder who does not vote in favor of the Charter
Amendments, who exercises dissenters' rights as to all such holder's shares of
Community Common Stock and who is not deemed to be an owner of any shares of
Community Common Stock held by others will recognize gain or loss measured by
the difference between the basis of such shareholder's dissenting shares and
the cash received in exchange therefor. Such gain or loss will be capital gain
or loss, provided that the holder's dissenting shares are held as a capital
asset at the effective time of the Charter Amendments.
RESALE OF COMMUNITY COMMON STOCK
The Community Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any
Centerpoint shareholder who may be deemed to be an affiliate (an "Affiliate")
of Centerpoint for purposes of Rule 145 under the Securities Act. Generally,
Affiliates of Centerpoint are defined as persons (generally executive officers
and directors) who control, are controlled by, or are under common control
with Centerpoint at the time of the Centerpoint Special Meeting.
Rules 144 and 145 promulgated by the Commission under the Securities Act
impose certain restrictions on the public sale of Community Common Stock
received in the Merger by Affiliates and certain of their family
48
<PAGE>
members and related interests. Generally speaking, during the two years
following the Effective Time, Affiliates of Centerpoint, provided they are not
Affiliates of Community, may publicly resell the Community Common Stock
received by them in the Merger, subject to certain limitations as to the
amount of Community Common Stock sold by them in any three-month period and as
to the manner of sale. After the two-year period, such Affiliates of
Centerpoint who are not Affiliates of Community may resell their shares
without such restrictions so long as there is adequate current public
information with respect to Community as required by Rule 144. Persons who
become Affiliates of Community prior to, at or after the Effective Time may
publicly resell the Community Common Stock received by them in the Merger
subject to similar limitations and subject to certain filing requirements
specified in Rule 144. The ability of Affiliates to resell shares of Community
Common Stock received in the Merger under Rule 144 or 145 as summarized herein
generally will be subject to Community's having satisfied its Exchange Act
reporting requirements for specified periods prior to the time of sale.
Affiliates also would be permitted to resell Community Common Stock received
in the Merger pursuant to an effective registration statement under the
Securities Act or another available exemption from the Securities Act
registration requirements.
This Proxy Statement-Prospectus does not cover any resales of Community
Common Stock received by persons who may be deemed to be Affiliates of
Centerpoint. Pursuant to the Merger Agreement, each Affiliate of Centerpoint
has entered into an Affiliate Agreement providing that such Affiliate will not
sell, pledge, transfer or otherwise dispose of any Centerpoint Common Stock
held by such Affiliate or to be received in the Merger, from the date such
Affiliate entered into such Agreement until the second day after publication
of financial results covering at least 30 days of combined operations of
Community and Centerpoint after the Merger. A copy of the form of Affiliate
Agreement entered into by each Affiliate of Centerpoint is attached as Exhibit
7.3 to the Merger Agreement, which is attached to this Proxy Statement-
Prospectus as Annex A.
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UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined condensed financial statements
have been prepared to reflect the Merger on a pooling-of-interests basis.
Under pooling-of-interests accounting treatment for the Merger, the recorded
assets and liabilities of Community and Centerpoint are carried forward to the
combined company at their recorded amounts. For purposes of the pro forma
presentation, Centerpoint's calendar year statements of operations have been
recast to conform to the June 30 fiscal year end used by Community. See "THE
MERGER--Accounting Treatment." The following pro forma financial statements
reflect the exchange of Centerpoint Common Stock for Community Common Stock in
connection with the Merger at the Exchange Ratio of 1.073. This unaudited pro
forma combined financial data should be read in conjunction with the
consolidated historical financial statements of Centerpoint and Community,
including the respective notes thereto, which are included in this Proxy
Statement-Prospectus. See the Community Consolidated Financial Statements and
the Centerpoint Financial Statements beginning at page F-1.
The unaudited pro forma information presented below does not include any
expected cost savings as a result of the Merger and does not reflect Merger
transaction costs. The estimated Merger transaction costs are approximately
$600,000. These costs represent legal, accounting, financial advisory,
printing, registration, severance and other expenses.
The unaudited pro forma combined financial data is not necessarily
indicative of the financial position and results of future operations of the
combined entity or the actual financial position and results of operations
that would have been achieved had the Merger been consummated at the dates
indicated. Moreover, the pro forma combined condensed balance sheet reflects
preliminary pro forma adjustments made to combine Centerpoint with Community
utilizing pooling-of-interests accounting treatment. The actual adjustments to
the surviving corporation's accounts will be made as of the Effective Time of
the Merger and may differ from those reflected in the pro forma financial
statements.
50
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COMMUNITY--CENTERPOINT
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
JUNE 30, 1995
<TABLE>
<CAPTION>
COMMUNITY CENTERPOINT PRO FORMA COMMUNITY
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks....... $ 8,227 $ 9,141 $ -- $ 17,368
Interest-bearing deposits in
other banks.................. 10,870 261 -- 11,131
Federal funds sold............ -- 2,850 -- 2,850
Securities available for
sale......................... 58,754 4,814 -- 63,568
Securities held to maturity... 53,408 11,989 -- 65,397
Federal Home Loan Bank stock.. 3,803 206 -- 4,009
Mortgage loans held for sale.. 4,392 243 -- 4,635
Loans, net.................... 268,491 49,918 -- 318,409
Premises and equipment........ 7,422 718 -- 8,140
Real estate acquired by
foreclosure or substantively
repossessed.................. 1,134 -- -- 1,134
Accrued interest receivable... 3,100 440 -- 3,540
Other assets.................. 6,113 730 -- 6,843
-------- ------- ----- --------
Total assets................ $425,714 $81,310 $ -- $507,024
======== ======= ===== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Deposits...................... $308,556 $64,628 $ -- $373,184
Borrowed funds................ 82,768 10,253 -- 93,021
Liability relating to ESOP.... 197 -- -- 197
Other liabilities............. 4,795 852 -- 5,647
-------- ------- ----- --------
Total liabilities........... 396,316 75,733 -- 472,049
-------- ------- ----- --------
STOCKHOLDERS' EQUITY(1,2):
Preferred stock............... -- -- -- --
Common stock.................. 1,747 590 43 2,380
Additional paid-in capital.... 17,146 4,663 (43) 21,766
Retained earnings............. 10,567 501 -- 11,068
Unrealized net gains (losses)
on investments available for
sale, net.................... 328 (177) -- 151
Unearned compensation expense-
ESOP......................... (197) -- -- (197)
Treasury stock--11,810
shares....................... (193) -- -- (193)
-------- ------- ----- --------
Total stockholders' equity.. 29,398 5,577 -- 34,975
-------- ------- ----- --------
Total liabilities and stock-
holders' equity............ $425,714 $81,310 $ -- $507,024
======== ======= ===== ========
Number of common shares out-
standing..................... 1,735 590 2,368
======== ======= ========
Common stockholders' equity
per share(3)................. $ 16.94 $ 9.45 $ 14.77
======== ======= ========
</TABLE>
51
<PAGE>
COMMUNITY--CENTERPOINT
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
COMMUNITY CENTERPOINT COMMUNITY
(HISTORICAL) (HISTORICAL) PRO FORMA
------------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans................ $ 21,599 $ 4,487 $ 26,086
Interest and dividends on securi-
ties............................ 6,576 988 7,564
Other interest income............ 66 157 223
------------ ----------- ------------
Total interest and dividend in-
come.......................... 28,241 5,632 33,873
------------ ----------- ------------
Interest expense:
Interest on deposits............... 11,488 1,416 12,904
Interest on borrowed funds......... 2,756 158 2,914
------------ ----------- ------------
Total interest expense......... 14,244 1,574 15,818
------------ ----------- ------------
Net interest and dividend income... 13,997 4,058 18,055
Provision for possible loan loss-
es................................ 475 302 777
------------ ----------- ------------
Net interest and dividend
income after provision for
possible loan losses.......... 13,522 3,756 17,278
Non-interest income................ 2,036 165 2,201
Non-interest expense............... 10,720 2,722 13,442
------------ ----------- ------------
Income before income tax........... 4,838 1,199 6,037
Income tax expense................. 1,551 311 1,862
------------ ----------- ------------
Net income..................... $ 3,287 $ 888 $ 4,175
============ =========== ============
Average number of common and common
equivalent shares outstanding(4).. 1,789 587 2,422
============ =========== ============
Earnings per common and common
equivalent share(5)............... $ 1.84 $ 1.51 $ 1.72
============ =========== ============
</TABLE>
52
<PAGE>
COMMUNITY--CENTERPOINT
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
COMMUNITY CENTERPOINT COMMUNITY
(HISTORICAL) (HISTORICAL) PRO FORMA
------------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans................ $ 18,337 $ 3,152 $ 21,489
Interest and dividends on securi-
ties............................ 4,747 689 5,436
Other interest income............ 134 145 279
------------ ----------- ------------
Total interest and dividend in-
come.......................... 23,218 3,986 27,204
------------ ----------- ------------
Interest expense:
Interest on deposits............. 10,295 967 11,262
Interest on borrowed funds....... 441 65 506
------------ ----------- ------------
Total interest expense......... 10,736 1,032 11,768
------------ ----------- ------------
Net interest and dividend income... 12,482 2,954 15,436
Provision for possible loan loss-
es................................ 625 300 925
------------ ----------- ------------
Net interest and dividend in-
come after provision for pos-
sible loan losses............. 11,857 2,654 14,511
Non-interest income................ 2,558 260 2,818
Non-interest expense............... 10,467 2,344 12,811
------------ ----------- ------------
Income before income tax........... 3,948 570 4,518
Income tax expense................. 858 39 897
------------ ----------- ------------
Net income..................... 3,090 531 3,621
Dividends on preferred stock....... -- 18 18
------------ ----------- ------------
Net income available to common
stock......................... $ 3,090 $ 513 $ 3,603
============ =========== ============
Average number of common and common
equivalent shares outstanding(4).. 1,786 573 2,391
============ =========== ============
Earnings per common and common
equivalent share(5)............... $ 1.73 $ 0.90 $ 1.51
============ =========== ============
</TABLE>
53
<PAGE>
COMMUNITY--CENTERPOINT
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
COMMUNITY CENTERPOINT COMMUNITY
(HISTORICAL) (HISTORICAL) PRO FORMA
------------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans................ $ 19,683 $ 2,274 $ 21,957
Interest and dividends on securi-
ties............................ 4,895 686 5,581
Other interest income............ 58 100 158
------------ ----------- ------------
Total interest and dividend in-
come.......................... 24,636 3,060 27,696
------------ ----------- ------------
Interest expense:
Interest on deposits............. 11,523 923 12,446
Interest on borrowed funds....... 451 39 490
------------ ----------- ------------
Total interest expense......... 11,974 962 12,936
------------ ----------- ------------
Net interest and dividend income... 12,662 2,098 14,760
Provision for possible loan loss-
es................................ 2,150 201 2,351
------------ ----------- ------------
Net interest and dividend in-
come after provision for pos-
sible loan losses............. 10,512 1,897 12,409
Non-interest income................ 2,879 152 3,031
Non-interest expense............... 11,170 1,810 12,980
------------ ----------- ------------
Income before income tax........... 2,221 239 2,460
Income tax expense(6).............. -- -- --
------------ ----------- ------------
Net income..................... 2,221 239 2,460
Dividends on preferred stock....... -- 25 25
------------ ----------- ------------
Net income available to common
stock......................... $ 2,221 $ 214 $ 2,435
============ =========== ============
Average number of common and common
equivalent shares outstanding(4).. 1,737 533 2,207
============ =========== ============
Earnings per common and common
equivalent share(5)............... $ 1.28 $ 0.40 $ 1.10
============ =========== ============
</TABLE>
54
<PAGE>
COMMUNITY--CENTERPOINT
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The pro forma adjustment to common stock at June 30, 1995, reflects the
issuance of 633,444 shares of Community Common Stock to effect the Merger
based on the Exchange Ratio of 1.073.
(2) The Merger Agreement provides that each holder of Centerpoint Common
Stock, who would otherwise have been entitled to a fraction of a share of
Community Common Stock, will be paid the cash value of such fraction. The
effect of such cash payments in lieu of fractional shares has not been
reflected in the pro forma data.
(3) Pro forma common stockholders' equity per share was computed by dividing
combined historical common stockholders' equity by the sum of the common
shares outstanding at period end, adjusted to give effect to the Merger,
taking into consideration the Exchange Ratio of 1.073.
(4) Pro forma average number of common and common equivalent shares
outstanding represents the weighted average common and common equivalent
shares outstanding of Community for each of the respective periods plus
the pro forma issuance of 633,444 shares in 1995, 604,520 in 1994 and
470,221 in 1993 of Community Common Stock in exchange for the outstanding
shares of Centerpoint Common Stock based on the Exchange Ratio of 1.073
multiplied by the number of shares of Centerpoint Common Stock outstanding
at the beginning of each period.
(5) Pro forma earnings per common and common equivalent shares is computed by
dividing pro forma net income by the pro forma average number of common
and common equivalent shares outstanding (see (4)).
(6) Income tax expense for Centerpoint for the year ended June 30, 1993 is
shown net of an extraordinary item related to the utilization of tax loss
carryforwards which amounted to $30,000.
55
<PAGE>
AMENDMENTS TO COMMUNITY RESTATED ARTICLES OF INCORPORATION
At the Community Annual Meeting, the Community shareholders will be asked to
approve certain amendments to Community's Restated Articles of Incorporation
(the "Charter Amendments"). At a meeting on October 3, 1995, Community's Board
of Directors voted to recommend the Charter Amendments to the shareholders.
The proposed Charter Amendments are attached to this Proxy Statement-
Prospectus as Annex D and the following description is qualified in its
entirety by reference to the full text.
Community's Board of Directors has proposed the Charter Amendments to change
certain shareholder voting requirements in order to increase Community's
flexibility in connection with, and to reduce the costs to Community of, a
number of potential transactions, including securitization of assets and
acquisitions of other companies (such as the proposed Centerpoint
acquisition).
Community's existing Restated Articles of Incorporation (the "Community
Articles of Incorporation") contain certain provisions which are intended to
protect Community's shareholders by giving the shareholders special voting
rights in the event of a hostile attempt to take over control of Community.
One of these provisions, contained in Section C of Article Ninth, contains
three flaws that the Board of Directors would like to resolve through the
proposed Charter Amendments.
First, the current Section C provides that the affirmative vote of not less
than two-thirds of Community's outstanding capital stock is required to
approve "any merger or combination of the corporation or any subsidiary of the
corporation with or into any other entity." (Emphasis added.) Many
acquisitions, like the Centerpoint acquisition, are structured for tax and
other reasons as a merger with an interim subsidiary formed by Community
solely for the purpose of consummating the acquisition. As a consequence,
Section C covers not only proposed acquisitions of Community, but also most
acquisitions by Community of other companies, no matter how insignificant. For
example, if Community were to have an opportunity to acquire by merger a small
one-branch bank to expand Concord Savings Bank's branch network, the current
Articles of Incorporation would require that Community obtain the prior
approval of two-thirds of its shareholders. This would be true even if
Community were proposing to pay cash for the acquisition and the acquisition
would therefore have no impact on the ownership or control of Community by its
shareholders. The cost and delay involved in soliciting the necessary proxies
could well make such an acquisition uneconomical. This provision of
Community's current Articles of Incorporation is the reason that the
Centerpoint acquisition requires the vote of two-thirds of Community's
shareholders.
The proposed Section C would continue to require a two-thirds vote of the
Community shareholders for a merger or combination of Community with or into
another entity, but only if such a merger or combination would result in the
Community shareholders owning less than 60% of the voting power of the
surviving entity in such a merger. Under the proposed Section C, Community's
Articles of Incorporation would no longer require a shareholder vote for a
merger involving a subsidiary of Community (as opposed to a merger of
Community itself). However, under the current rules of the National
Association of Securities Dealers, Community shareholders would continue to
have a voice in all significant transactions in which Community securities are
to be issued, even those involving only a Community subsidiary. Those rules
require the vote of a majority of Community's shareholders present and voting
at a meeting for any business combination involving Community or any
subsidiary if the number of shares of Community Common Stock to be issued in
connection therewith is equal to or in excess of 20% of the number of shares
of Community Common Stock outstanding before the issuance of such stock. Thus,
even if the Centerpoint acquisition had been undertaken after the Charter
Amendments were adopted, the Community shareholders would have had the
opportunity to vote on the acquisition by virtue of this NASD rule.
The second change proposed to Article Ninth, Section C, would fill in a gap
in the protection that Section C was intended to provide for Community
shareholders. The proposed Charter Amendments would include so-called plans of
share exchange in the list of types of transactions covered by the Section.
The super-majority vote requirement of the current Section C would not apply
if Community were to be acquired by means of a
56
<PAGE>
plan of share exchange, even though such a transaction would have virtually
the same effect as an acquisition by merger under New Hampshire law. Under the
current Articles of Incorporation, a hostile acquiror could acquire ownership
of 100% of the Community stock through a plan of share exchange with a mere
majority vote of the Community shareholders. The change proposed in the
Charter Amendments would ensure that a two-thirds vote of the Community
shareholders would be required to effectuate a plan of share exchange, unless
the Community shareholders would continue to own 60% or more of the voting
power of the entity that is to issue its securities in the plan of share
exchange.
Third, the proposed amendments would amend Article Ninth, Section C, to
increase the threshold under which a sale of Community's assets would trigger
the shareholder voting requirements of the provision. This change is proposed
in view of the fact that, since the current Articles of Incorporation were
drafted, it has become commonplace for financial institutions to originate and
sell to the secondary market significant dollar volume of notes and mortgages.
Under the current Articles of Incorporation, a two-thirds vote of Community's
shareholders is required for "a sale of assets of the corporation having
Material Value." The term "Material Value" is defined in the current Articles
of Incorporation to mean "a fair market value equal to ten percent or more of
the consolidated book value of the assets of the corporation . . ." Under this
provision, a securitization or sale of loans or a sale of investment
securities in the ordinary course of business could trigger the requirements
of Section C. The new Section C contained in the Charter Amendments would
continue to require a two-thirds vote of Community's shareholders for a sale
of assets, but only if Community proposed to sell all or substantially all of
its assets.
If the Community shareholders do not approve the Charter Amendments, then
the approval of two-thirds of the outstanding capital stock of Community will
continue to be required for (i) all mergers or combinations of Community or
any subsidiary with another entity, even if such a transaction would not have
any effect on the Community shareholders' ownership interest in the company,
and (ii) for sales of assets having a "Material Value", even if such a sale
simply involves the securitization or other sale of loans or investment
securities in the ordinary course of business. This could result in
Community's foregoing certain acquisitions or sales of assets in which it
might otherwise engage, or incurring substantially higher costs involved in
soliciting shareholder proxies for such transactions. In addition, if the
Community shareholders do not approve the Charter Amendments, then Community
could be acquired by means of a plan of share exchange with the approval of a
majority, rather than two thirds, of Community's shareholders.
Any shareholder entitled to vote at the Community Annual Meeting shall have
the right to dissent from the Charter Amendments and to receive payment equal
to the "fair value" of the shares of Community Common Stock held of record by
such shareholder upon compliance with New Hampshire Revised Statutes Annotated
293-A:13.01 et seq., the full text of which is included as Annex E to this
Proxy Statement-Prospectus. This right is explained more fully in this Proxy
Statement-Prospectus in the section headed "APPRAISAL RIGHTS OF DISSENTING
SHAREHOLDERS."
The affirmative vote of the holders of outstanding shares of Community
Common Stock representing eighty percent of the votes entitled to be cast
generally in the election of directors is required to approve the Charter
Amendments. Consequently, a shareholder's failure to vote will have the same
effect as a vote against the Charter Amendments. THE BOARD OF DIRECTORS OF
COMMUNITY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND COMMUNITY'S
RESTATED ARTICLES OF INCORPORATION.
INCREASE IN COMMUNITY'S AUTHORIZED COMMON STOCK
At the Community Annual Meeting, the Community shareholders will be asked to
approve a further amendment to the Community Articles of Incorporation to
increase the authorized common stock of Community from 3,000,000 to 4,500,000
(the "Proposed Increase"). At a meeting on October 3, 1995, Community's Board
of Directors voted to recommend the Proposed Increase to the Community
shareholders.
57
<PAGE>
Community's Board of Directors believes that the authorized number of shares
of Common Stock should be increased to provide sufficient shares for such
corporate purposes as may be determined by the Board of Directors to be
necessary or desirable, which may include, without limitation, raising capital
or acquiring property through the sale of stock, acquiring businesses through
mergers or the exchange of stock, attracting or retaining valuable employees
through stock options and employee stock purchase plans, and issuing stock in
connection with stock dividends, stock splits and dividend reinvestment plans.
Except for the shares to be issued in connection with the Centerpoint
transaction, and the shares reserved for issuance pursuant to Community's
stock option plans, Community at present has no commitments, agreements or
undertakings obligating Community to issue any such additional shares;
however, the Board of Directors considers the authorization of additional
shares of Common Stock advisable to ensure prompt availability of shares for
issuance should the occasion arise.
On November 1, 1995, Community had shares of Common Stock issued and
outstanding and shares reserved for issuance upon exercise of stock
options that have been or may be granted pursuant to the Community stock
option plans. Upon consummation of the acquisition of Centerpoint, an
additional 633,444 shares of Community Common Stock will be issued to the
Centerpoint shareholders in exchange for their Centerpoint Common Stock, and
83,156 shares of Community Common Stock will be reserved for issuance to
holders of options under the Centerpoint Stock Option Plan.
As a result, following the Centerpoint acquisition, if the Proposed Increase
is not approved at the Community Annual Meeting, Community will have the
authority to issue an additional shares of Common Stock (not including
shares issuable pursuant to the Community stock option plans and the
Centerpoint Stock Option Plan and assuming that the number of shares of
Community Common Stock issued and outstanding does not change from November 1,
1995, except for shares issued in connection with the Merger). If the Proposed
Increase is approved, the Board will have the authority to issue an additional
shares of Common Stock (not including shares issuable pursuant to the
Community stock option plans and the Centerpoint Stock Option Plan).
Under New Hampshire law, the Board of Directors generally may issue
authorized but unissued shares of Common Stock without shareholder approval.
The Board of Directors does not currently intend to seek shareholder approval
prior to any future issuance of additional shares of Common Stock, unless
shareholder action is required in a specific case by applicable law, the rules
of any exchange or market on which Community's securities may then be listed,
or the articles of incorporation or by-laws of Community then in effect.
Frequently, opportunities arise that require prompt action, and Community
believes that the delay necessitated for shareholder approval of an increase
in authorized shares could be to the detriment of Community and its
shareholders.
The additional shares of Community Common Stock authorized for issuance
pursuant to the Proposed Increase will have all of the rights and privileges
which the presently outstanding shares of Community Common Stock possess; the
increase in authorized shares would not affect the terms, or rights of the
holders, of existing shares of Community Common Stock. All outstanding shares
would continue to have one vote per share on all matters to be voted on by the
stockholders, including the election of directors.
If a quorum is present at the Community Annual Meeting, a majority in
interest of the Community Common Stock present or represented and entitled to
vote and voting at the Community Annual Meeting is required to approve the
Proposed Increase.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND
COMMUNITY'S RESTATED ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED
COMMON STOCK.
58
<PAGE>
REGULATION
As a bank holding company, Community is subject to regulation by the Federal
Reserve Board and, as a New Hampshire corporation, must comply with the
business corporation law of New Hampshire. Community is also subject to the
reporting and other requirements of the Exchange Act. Community's bank
subsidiary, Concord Savings Bank, is a New Hampshire-chartered bank; as such,
it is subject to regulation, examination and supervision by the FDIC and the
Commissioner of Banks and must comply with New Hampshire banking statutes.
As a New Hampshire-chartered commercial bank (known as a trust company) and
an FDIC-insured institution, Centerpoint is subject to regulation, examination
and supervision by the FDIC and by the Commissioner of Banks and must comply
with New Hampshire banking statutes.
Although the Northeast is gradually recovering from the severe recession of
the late 1980's and early 1990's, the banking environment continues to be
affected by a slow recovery of commercial real estate values and substantial
increases in regulatory requirements implemented as a result of the failure of
numerous banking and thrift institutions. In addition to Community's and
Centerpoint's own monitoring activities, the credit quality of the assets held
by Concord Savings Bank and Centerpoint are subject to periodic review by the
state and federal bank regulatory agencies noted above. While each of
Community and Centerpoint believes its present allowance for loan losses is
adequate in light of prevailing economic conditions and the current regulatory
environment, there can be no assurance that Concord Savings Bank and
Centerpoint will not be required to make certain adjustments to their
allowance for loan losses and charge-off policies in response to changing
economic conditions or regulatory examinations.
Neither Community (or any of its subsidiaries) nor Centerpoint has entered
into formal written agreements with state or federal regulators. Community and
its subsidiaries and Centerpoint continue to evaluate and refine oversight and
reporting systems and procedures to enhance the ability of such companies to
respond to current economic conditions.
In addition to extensive existing government regulation, Federal and state
statutes and regulations are subject to changes that may have significant
impact on the way in which banks may conduct business. The likelihood and
potential effects of any such changes cannot be predicted. Legislation enacted
in recent years has substantially increased the level of competition among
commercial banks, thrift institutions and nonbanking institutions, including
insurance companies, brokerage firms, mutual funds, investment banks and major
retailers. In addition, the enactment of banking legislation such as the
Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") and the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA") have affected
the banking industry by, among other things, broadening the regulatory powers
of the federal banking agencies in a number of areas and restricting the
powers of state-chartered banks. The following summary is qualified in its
entirety by the text of the relevant statutes and regulations.
As a result of the enactment of FIRREA, Community's subsidiary bank can be
held liable for any loss incurred by, or reasonably expected to be incurred by
the FDIC in connection with (a) the default of any other of Community's
subsidiary banks or (b) any assistance provided by the FDIC to any other of
Community's subsidiary banks in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur without regulatory assistance.
FDICIA provides for, among other things, increased funding for the Bank
Insurance Fund (the "BIF") of the FDIC and expanded regulation of depository
institutions and their affiliates, including parent holding companies. A
summary of certain provisions of FDICIA and its implementing regulations is
provided below.
Risk Based Deposit Insurance Assessments. A significant portion of the
additional funding to BIF is in the form of borrowings to be repaid by
insurance premiums assessed on BIF members. In addition, FDICIA provides
59
<PAGE>
for an increase in the ratio of the reserves to insured deposits of the BIF to
1.25% by the end of the 15-year period that began with the semi-annual
assessment period ending December 31, 1991, also to be financed by insurance
premiums. The FDIC has verified that the BIF reached its Congressionally-
required recapitalization level on May 31, 1995. As a result, banks are paying
lower deposit insurance premiums effective June 1, 1995, and many are
receiving refunds of premium overpayments as well. Moreover, premiums have
dropped to an average of 4.4 cents per every $100 in insured deposits, down
from the previous average of over 23 cents per $100 in insured deposits. Under
the new rule, most banks are paying the minimum 4 cents per $100 in insured
deposits, on a sliding scale, with a maximum of 23 cents per $100 for risky
institutions. Each financial institution is assigned to one of three capital
groups--"well capitalized", "adequately capitalized" or "undercapitalized"--
and further assigned to one of three subgroups within each capital group, on
the basis of supervisory evaluations by the institution's primary federal and,
if applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the applicable
insurance fund. For purposes of the risk-based assessment system, a well-
capitalized institution is one that has a total risk-based capital ratio of
10% or more, a Tier 1 risk-based capital of 6% or more, and a leverage ratio
of 5% or more. An adequately capitalized institution has a total risk-based
capital ratio of 8% or more, a Tier 1 risk-based capital ratio of 4% or more,
and a leverage ratio of 4% or more. An undercapitalized institution is one
that does not meet either of the foregoing definitions. The actual assessment
rate applicable to a particular institution, therefore, depends in part upon
the risk assessment classification so assigned to the institution by the FDIC.
Prompt Corrective Action. FDICIA also provides the federal banking agencies
with broad powers to take prompt corrective action to resolve problems of
insured depository institutions, depending upon a particular institution's
level of capital. FDICIA establishes five tiers of capital measurement for
regulatory purposes ranging from "well-capitalized" to "critically
undercapitalized." Under prompt corrective action regulations adopted by the
federal banking agencies, a depository institution is (a) "well-capitalized"
if it has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based
ratio of 6% or more, a leverage ratio of 5% or more and is not subject to any
written agreement, order or capital directive or prompt corrective action
directive issued by its primary regulator to meet and maintain a specific
capital measure; (b) "adequately capitalized" if it has a total risk-based
capital ratio of 8% or more, a Tier 1 risk-based capital ratio of 4% or more
and a leverage ratio of 4% or more (3% if the bank is rated composite I under
the CAMEL rating system in its most recent examination and is not experiencing
or anticipating significant growth) and does not qualify as"well-capitalized";
(c) "undercapitalized" if it has a total risk based capital ratio that is less
than 8%, a Tier 1 risk-based capital ratio that is less than 4% or a leverage
ratio that is less than 4% (3% if the bank is rated composite I under the
CAMEL rating system in its most recent examination and is not experiencing or
anticipating significant growth); (d)"significantly undercapitalized" if the
bank has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-
based capital ratio that is less than 3% or a leverage ratio that is less than
3%; and (e) "critically undercapitalized" if the depository institution has a
ratio of tangible equity to total assets that is equal to or less than 2% of
total assets, or otherwise fails to meet certain established critical capital
levels. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position under
certain circumstances. At June 30, 1995, both Concord Savings Bank and
Centerpoint were classified as "well-capitalized" under the prompt corrective
action regulations described above.
Any depository institution that is undercapitalized and which fails to meet
regulatory capital requirements specified in FDICIA must submit a capital
restoration plan guaranteed by the bank holding company controlling such
institution, and the regulatory agencies may place limits on the asset growth
and restrict activities of the institution (including transactions with
affiliates), require the institution to raise additional capital, dispose of
subsidiaries or assets or be acquired and, ultimately, require the appointment
of a receiver. The guarantee of a controlling bank holding company under
FDICIA of performance of a capital restoration plan is limited to the lower of
5% of an undercapitalized banking subsidiary's assets or the amount required
for the bank to be classified as adequately capitalized. Federal banking
agencies may not accept a capital restoration plan without determining, among
other things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. If a depository
institution fails to submit an acceptable plan within the time required
(generally 45 days after receiving notice that the institution is
undercapitalized, significantly
60
<PAGE>
undercapitalized or critically undercapitalized), it is treated as if it were
significantly undercapitalized. If the controlling bank holding company fails
to fulfill its guaranty obligations under FDICIA and files (or has filed
against it) a petition under the federal Bankruptcy Code, the applicable
regulatory agency would have a claim as a general creditor of the bank holding
company and, if the capital restoration plan were deemed to be a commitment to
maintain capital under the federal Bankruptcy Code, the claim would be
entitled to a priority in such bankruptcy proceeding over unsecured third
party creditors of the bank holding company.
In addition to the requirement of mandatory submission of a capital
restoration plan, under FDICIA, an undercapitalized institution may not pay
management fees to any person having control of the institution nor may an
institution, except under certain circumstances and with prior regulatory
approval, make any capital distribution if, after making such payment or
distribution, the institution would be undercapitalized. Further,
undercapitalized depository institutions are subject to restrictions on
borrowing from the Federal Reserve System.
Undercapitalized and significantly undercapitalized depository institutions
may be subject to a number of requirements and restrictions, including orders
to sell sufficient voting stock to become adequately capitalized, requirements
to reduce total assets and cessation of receipt of deposits from correspondent
banks. In addition, significantly undercapitalized depository institutions
also are prohibited from awarding bonuses or increasing compensation of senior
executive officers until approval of a capital restoration plan. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
Brokered Deposits and Pass-Through Deposit Insurance Limitation. Under
FDICIA, a depository institution that is not well-capitalized is generally
prohibited from accepting brokered deposits and offering interest rates on
deposits "significantly higher" than the prevailing rate in its market. A
depository institution that is adequately capitalized may accept brokered
deposits if it obtains the prior approval of the FDIC. Effective in November
1993, the FDIC modified the definitions of "well-capitalized" and "adequately
capitalized" to conform to the definitions described above for prompt
corrective action. In addition, "pass-through" insurance coverage may not be
available for certain employee benefit accounts. In each of Community's and
Centerpoint's opinion, these limitations do not have a material effect on
Community and Centerpoint, respectively.
Cross-Guarantee Liability. The Federal Deposit Insurance Act, as amended by
FIRREA, provides for so-called "cross-guarantee" liability of insured
depository institutions that are commonly controlled by the same holding
company. In general, if the FDIC incurs, or reasonably anticipates incurring,
a loss in connection with the failure of a bank (or in connection with the
FDIC's providing assistance to prevent such a failure), a commonly controlled
sister bank of the failed bank is liable for such loss. The FDIC may require
immediate payment of such cross-guarantee liability; consequently, if the
amount of the liability is greater than the net worth of the failed bank's
sister bank, the failure of one bank in a holding company structure may result
in the immediate failure of its sister bank.
Safety and Soundness Standards. The Federal Deposit Insurance Act, as
amended by FDICIA and as further amended by the Riegle Community Development
and Regulatory Improvement Act of 1994, directs each federal banking agency to
prescribe standards for insured depository institutions relating to asset
quality, earnings and stock valuation. The ultimate cumulative effect of these
standards cannot currently be forecast.
FDICIA also contains a variety of other provisions that may affect
Community's and Centerpoint's respective operations, including new reporting
requirements, regulatory standards for real estate lending, "truth in savings"
provisions, and the requirement that a depository institution give 90 days'
prior notice to customers and regulatory authorities before closing any
branch. Many of the provisions in FDICIA have recently been or will be
implemented through the adoption of regulations by the various federal banking
agencies and, therefore, the precise impact on Community cannot be assessed at
this time.
Capital Guidelines. The Federal Reserve Board and the FDIC have issued risk-
based capital guidelines for bank holding companies, state-chartered member
banks and state-chartered non-member banks. Under these
61
<PAGE>
guidelines, the minimum ratio of total capital to risk-adjusted assets
(including certain off-balance sheet items, such as standby letters of credit)
is 8%. At least half of the total capital is to be comprised of common equity,
retained earnings, minority interests in the equity accounts of consolidated
subsidiaries and a limited amount of perpetual preferred stock, less goodwill
("Tier 1 capital"). The remainder may consist of perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, other
preferred stock and a limited amount of loan loss reserves (supplementary
capital). In addition, the Federal Reserve Board and the FDIC have adopted a
leverage ratio (Tier l capital to total assets, net of goodwill) of 3% for
bank holding companies and banks that meet certain specified criteria,
including that they have the highest regulatory rating. The rule indicates
that the minimum leverage ratio should be 1% to 2% higher for holding
companies and banks undertaking major expansion programs or that do not have
the highest regulatory rating.
As of June 30, 1995, Community's and Centerpoint's capital ratios on a
historical basis exceeded all minimum regulatory capital requirements.
Under FIRREA and FDICIA, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including the
termination of deposit insurance by the FDIC and seizure of the institution.
Under the policies of the Federal Reserve Board, Community is expected to
act as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary bank in circumstances where it might not
do so absent such policy. In addition, any subordinated loans by Community to
any of its subsidiary banks would also be subordinate in right of payment to
deposits and obligations to general creditors of such subsidiary bank.
There are various statutory and regulatory limitations on the extent to
which banking subsidiaries of Community can finance or otherwise transfer
funds to Community or its nonbanking subsidiaries, whether in the form of
loans, extensions of credit, investments or asset purchases. Such transfers by
any subsidiary bank to Community or any nonbanking subsidiary are limited in
amount to 10% of the subsidiary bank's capital stock and surplus and the
aggregate of all transfers of all such nonbanking subsidiaries is limited to
20% of the subsidiary bank's capital stock and surplus. Furthermore, federal
regulations require that loans and extensions of credit from a bank to its
holding company or non-bank subsidiary of the holding company must be secured
in specific amounts and must be on terms and conditions consistent with safe
and sound banking practices. In addition, Concord is prohibited from paying
cash dividends to Community to the extent that any such payment would reduce
Concord's capital below required capital levels.
Interstate Banking Legislation. On September 29, 1994, President Clinton
signed into law the Interstate Banking and Branching Efficiency Act of 1994,
which facilitates the interstate expansion and consolidation of banking
organizations by permitting (i) beginning one year after enactment of the
legislation, bank holding companies that are adequately capitalized and
managed to acquire banks located in states outside their home states
regardless of whether such acquisitions are authorized under the law of the
host state, (ii) the interstate merger of banks after June 1, 1997, subject to
the right of individual states to "opt in" or "opt out" of this authority
prior to such date, (iii) banks to establish new branches on an interstate
basis provided that such action is specifically authorized by the law of the
host state, (iv) foreign banks to establish, with approval of the appropriate
regulators in the United States, branches outside their home states to the
same extent that national or state banks located in such state would be
authorized to do so and (v) beginning September 29, 1995, banks to receive
deposits, renew time deposits, close loans and receive payments on loans and
other obligations as agent for any bank or thrift affiliate, whether the
affiliate is located in the same or different state. New Hampshire banking law
has been amended to "opt in" to the interstate merger of banks and to permit
interstate branching by New Hampshire and out-of-state banks, effective June
1, 1997.
New Hampshire Banking Regulation. New Hampshire banks are authorized to
exercise all powers that may be exercised by the corresponding form of
federally-chartered banks, subject to appropriate rulemaking by the
Commissioner of Banks, and are authorized to exercise every power that may be
exercised by each other
62
<PAGE>
form of New Hampshire-chartered banks. The Commissioner of Banks has general
supervisory authority over New Hampshire-chartered banks and is generally
required to examine the condition and management of each bank at least once
every 18 months. Such examinations may be and normally are conducted jointly
with the FDIC. The Commissioner of Banks has authority to issue a cease and
desist order if he finds that a bank is engaging in unsafe or unsound
practices or violating any law, rule, regulation, or order. Bank holding
companies are not generally regulated under New Hampshire banking law, except
for limitations on bank acquisitions based on the number of bank subsidiaries
or the limitations on branching based on deposit concentrations, which
prohibit branching by any bank if the dollar volume of time, savings, and
demand deposits of a bank and its affiliates exceed 20% of the total of such
deposits held by all banks in New Hampshire.
INFORMATION ABOUT COMMUNITY
GENERAL
Community is a bank holding company organized in 1985 under New Hampshire
statutes to acquire Concord Savings Bank ("Concord") upon Concord's conversion
from a mutual savings bank to a guaranty stock savings bank (the
"Conversion"). The Conversion was effected on May 8, 1986. Community is
regulated by the Federal Reserve Board, and Concord by the Commissioner of
Banks and by the FDIC. Concord is also a member of the Federal Home Loan Bank
of Boston ("FHLB").
The principal business of Concord consists of originating residential
mortgage loans on property located primarily in New Hampshire, commercial
loans and consumer loans, and attracting deposits to fund these assets.
Concord also maintains a portion of its assets in investment securities, which
are primarily comprised of U.S. Government, federal agency, mortgage-backed
securities and other bonds and obligations. As of June 30, 1995, Community had
total assets of $425,714,000 with a loan portfolio of $271,461,000,
representing 63.8% of total assets.
Concord's operations are conducted through four branches in Concord, New
Hampshire and branches located in Weare and Tilton, New Hampshire, as well as
through its consumer finance subsidiary, Bancredit Corporation ("Bancredit"),
also located in Concord. Concord's principal market area encompasses Merrimack
County in central New Hampshire. Residential mortgage loans are originated in
much of the state, and Bancredit originates indirect automobile and
recreational vehicle loans through dealers located throughout the state.
Funds for Concord's lending and investment activities are provided primarily
from deposits, amortization and repayment of outstanding loans and mortgage-
backed securities, sales of mortgage loans into the secondary market and from
borrowings, principally from the FHLB.
Concord is primarily a provider of deposit and loan products to individuals,
households and small businesses located within its market area. At June 30,
1995, approximately 76% of Concord's loans were to individuals and 24% to
businesses.
63
<PAGE>
LOAN PORTFOLIO
At June 30, 1995, Concord's net loan portfolio amounted to $271,461,000
(before allowance for possible loan losses), representing 63.8% of
consolidated assets. The following table shows the composition of Concord's
portfolio by type of loan.
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential:
Conventional........... $ 67,048 24.8% $ 65,566 29.5% $ 73,773 33.7% $ 61,772 29.7% $ 83,987 37.3%
FHA and VA............. 595 0.2 814 0.4 857 0.4 837 0.4 1,080 0.5
Home equity............ 17,053 6.3 18,969 8.5 21,426 9.7 22,187 10.6 18,989 8.4
Construction........... 489 0.2 -- -- 1,312 0.6 1,227 0.6 5,553 2.5
Commercial............. 53,716 19.8 40,078 18.0 35,288 16.1 35,651 17.1 33,247 14.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total mortgage loans.... 138,901 51.3 125,427 56.4 132,656 60.5 121,674 58.4 142,856 63.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Other loans:
Installment:
Indirect automobile and
recreational vehicle.. 100,666 37.2 66,528 30.0 60,707 27.7 62,320 29.9 56,815 25.2
Mobile home............ 11,976 4.4 13,702 6.2 15,036 6.9 15,884 7.6 16,878 7.5
Other.................. 3,168 1.2 2,574 1.2 1,968 0.9 1,766 0.9 2,179 1.0
Other consumer......... 3,611 1.3 5,778 2.6 5,739 2.6 3,415 1.6 2,370 1.0
Commercial............. 12,409 4.6 8,060 3.6 2,989 1.4 3,406 1.6 4,208 1.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total other loans....... 131,830 48.7 96,642 43.6 86,439 39.5 86,791 41.6 82,450 36.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
270,731 100.0% 222,069 100.0% 219,095 100.0% 208,465 100.0% 225,306 100.0%
===== ===== ===== ===== =====
Deferred loan
origination (fees)
costs.................. 730 40 (135) (143) (379)
Unearned discount...... -- -- -- -- --
-------- -------- -------- -------- --------
$271,461 $222,109 $218,960 $208,322 $224,927
======== ======== ======== ======== ========
</TABLE>
For additional information on loans, see Note 3 of Notes to the Community
Consolidated Financial Statements.
Mortgage Loans. Concord's principal lending activities have historically
consisted of the origination of long-term loans collateralized by first or
second mortgage liens on residential and commercial real estate. Concord's
mortgage loans are generally collateralized by real estate located in New
Hampshire, although it is authorized to make loans on real estate located
outside of the state.
At June 30, 1995, approximately 61% of Concord's long-term mortgage loans
were collateralized by one-to-four family residential properties. The
remaining 39% were collateralized by commercial and industrial properties and
multi-family dwellings. At June 30, 1995, long-term fixed-rate mortgage loans
totaled $6,889,000, or 1.6% of total assets. Shorter-term fixed, balloon and
variable-rate mortgage loans at June 30, 1995 totaled $134,659,000, or 31.6%
of total assets.
Concord originates fixed-rate residential mortgages primarily for sale to
investors in the secondary mortgage market. Variable-rate mortgages may be
sold to investors or retained in Concord's loan portfolio. Concord continues
to service the majority of the loans that it sells into the secondary market
in order to maintain customer relationships and generate non-interest income
through mortgage servicing fees. At June 30, 1995, the residential loans
serviced for others amounted to $351,512,000, as compared to $160,994,000 at
June 30, 1994. The increase in residential loans serviced for others was
primarily the result of Community purchasing the rights to service
approximately $180,000,000 in mortgage loans secured by residential properties
located primarily in New Hampshire during the last quarter of fiscal 1995.
64
<PAGE>
Concord is a certified Small Business Administration ("SBA") lender. At June
30, 1995, SBA loans outstanding totaled $8,178,000, of which the majority were
secured by commercial real estate.
Occasionally, Concord participates with other lenders in commercial loans
collateralized by real estate. At June 30, 1995, Concord held $7,959,000 in
such loan participations.
Other Loans. Concord has been an active originator of consumer loans for
many years. The majority of Concord's consumer loans are fixed-rate loans
collateralized by automobiles and are written as installment sales contracts
for terms ranging from three to five years. Although it is not actively
originating mobile home loans at this time, Concord has in the past written
variable-rate mobile home loans. At June 30, 1995, the balance outstanding in
variable-rate mobile home loans was $11,976,000, compared to $13,702,000 at
June 30, 1994. Other consumer loans are collateralized by recreational
vehicles, boats, passbooks or bank certificates of deposit or are unsecured.
Indirect consumer loans are originated through Concord's wholly-owned
subsidiary, Bancredit. Bancredit acts as agent for Concord in the purchase of
indirect automobile and recreational vehicle loans for the portfolio of
Concord from dealers throughout the state of New Hampshire. With the addition
of experienced, high level personnel Concord has substantially increased its
number of active dealer relationships during fiscal 1995 resulting in
significant loan growth in indirect loans. Indirect loans at June 30, 1995
amounted to $101,744,000 as compared to $66,699,000 at June 30, 1994.
In order to continue serving the market for indirect automobile loans in New
Hampshire, generate fee income from servicing these types of loans and manage
Community's balance sheet, in the fourth quarter of fiscal 1995 Concord sold
$11,591,000 of automobile loans while retaining the right to service these
loans. At June 30, 1995, Concord had an agreement to sell up to an additional
$48,000,000 of new automobile loans on a best efforts basis. At June 30, 1995,
Concord serviced $11,536,000 of indirect automobile loans for others. Concord
did not service any of these types of loans for others during the fiscal year
ended June 30, 1994.
Concord offers home equity lines of credit, a revolving credit line secured
by a first or second mortgage lien on residential real estate generally
located within New Hampshire. At June 30, 1995, home equity lines of credit
totaled $31,968,000, with an outstanding balance of $17,070,000.
Commercial loans, other than those secured by real estate, amounted to
$12,414,000 at June 30, 1995 compared to $8,071,000 at June 30, 1994. The
increase in non-real estate commercial loans was primarily in loan products
designed for small businesses. Such products included SBA loans, Business
Manager (an accounts receivable financing vehicle), and Business Express
CreditLine.
65
<PAGE>
Contractual Loan Maturities. The following table sets forth the June 30,
1995 contractual loan maturities for Concord and amounts due after one year,
classified according to the sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
WITHIN FROM 1 TO AFTER
1 YEAR 5 YEARS 5 YEARS TOTAL
------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage loans:
Residential.............................. $ 402 $ 11,706 $ 72,463 $ 84,571
Construction............................. 249 224 -- 473
Commercial............................... 1,111 16,733 35,660 53,504
------- -------- -------- --------
Total mortgage loans................... 1,762 28,663 108,123 138,548
Other loans:
Installment and consumer................. 7,805 93,834 18,860 120,499
Commercial............................... 6,653 2,738 3,023 12,414
------- -------- -------- --------
Total other loans...................... 14,458 96,572 21,883 132,913
------- -------- -------- --------
Total loans, gross..................... $16,220 $125,235 $130,006 $271,461
======= ======== ======== ========
Loans maturing after one year with:
Fixed interest rates:
Construction............................. $ 39 $ -- $ 39
Commercial............................... 10,976 3,529 14,505
All other................................ 93,928 13,365 107,293
-------- -------- --------
Total.................................. 104,943 16,894 121,837
Variable interest rates:
Construction............................. 185 -- 185
Commercial............................... 8,495 35,154 43,649
All other................................ 11,612 77,958 89,570
-------- -------- --------
Total.................................. 20,292 113,112 133,404
-------- -------- --------
Total................................... $125,235 $130,006 $255,241
======== ======== ========
</TABLE>
Delinquent Loans and Real Estate Acquired by Foreclosure or Substantively
Repossessed. Loans are considered delinquent when any payment of principal
and/or interest is 30 days or more past due. Non-accrual loans are those on
which the accrual of interest is discontinued when collectibility of principal
or interest is uncertain or payments of principal or interest have become
contractually past due 90 days. Upon such discontinuance, all unpaid accrued
interest is reversed against the current period's earnings. A loan which has
principal or interest payments contractually past due 90 days may remain on
accrual status, however, if the value of the collateral securing the loan is
sufficient to cover principal and accrued interest, and the loan is in the
process of collection. Concord uses a formal procedure for notifying borrowers
of payments contractually past due and for the assessment of late charges.
Concord works with delinquent borrowers to seek a satisfactory repayment
schedule, but will undertake foreclosure or repossession proceedings as
appropriate to recover the amount owed. At June 30, 1995, real estate acquired
by foreclosure or substantively repossessed totaled $1,134,000. Such
properties are carried at the lower of cost or fair value minus costs to sell.
66
<PAGE>
The table below shows loans on non-accrual status, restructured loans, real
estate acquired by foreclosure or substantively repossessed and other
repossessed assets.
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans.................... $1,730 $ 730 $3,117 $ 3,681 $ 7,395
Restructured loans................... -- 174 162 2,084 577
------ ------ ------ ------- -------
Total non-performing loans......... 1,730 904 3,279 5,765 7,972
------ ------ ------ ------- -------
Real estate acquired by foreclosure
or substantively repossessed........ 1,134 836 2,568 6,725 6,613
Other assets acquired................ 368 242 258 420 1,132
------ ------ ------ ------- -------
Total assets acquired toward
satisfaction of debt or
substantively repossessed......... 1,502 1,078 2,826 7,145 7,745
------ ------ ------ ------- -------
Total non-performing assets.......... 3,232 1,982 6,105 12,910 15,717
Loans delinquent 90 days or more and
still accruing...................... -- -- 16 1 10
------ ------ ------ ------- -------
Total non-performing assets and
loans delinquent 90 days or more
and still accruing................ $3,232 $1,982 $6,121 $12,911 $15,727
====== ====== ====== ======= =======
Total non-performing assets as a
percent of total loans and assets
acquired toward satisfaction of
debt or substantively repossessed.. 1.18% 0.89% 2.75% 5.99% 6.76%
====== ====== ====== ======= =======
</TABLE>
Since June 30, 1990, Community has made progress toward resolving its non-
performing assets. Community made substantial reductions in non-performing
assets during fiscal 1994 resulting in a decline from $6,105,000 at June 30,
1993 to $1,982,000 at June 30, 1994, a decrease of 67.5%. At June 30, 1995,
non-performing assets had increased to $3,232,000. Of this net increase of
$1,250,000, $1,231,000 was related to two commercial loans, which were
originated prior to 1990 and which were previously performing, being placed on
non-accruing status by Concord during the third quarter of fiscal 1995. The
decrease in restructured loans during fiscal 1993 was primarily due to one
commercial credit that returned to a performing status after complying with
its restructured terms for more than a year.
Management is not aware of any potential problem loans, which have not
already been identified and disclosed above, which would have a material
effect on Community. In addition, there are no known loan concentrations in
excess of 10.00% of total loans.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF COMMUNITY--Asset Quality," "--Risk Characteristics of the
Loan Portfolio" and Notes 1, 3 and 6 of Notes to the Community Consolidated
Financial Statements.
Summary of Loan Loss Experience. Concord maintains an allowance for possible
losses on loans. The provision for possible loan losses is based on
management's assessment of the adequacy of the allowance for possible loan
losses after considering known and inherent risks in the loan portfolio,
existing and expected economic conditions, the level of non-performing loans,
past loan loss experience and loan growth.
67
<PAGE>
The following table analyzes movements in the allowance during the past five
years:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance of allowance at beginning
of period....................... $ 3,351 $ 3,822 $ 3,958 $ 3,982 $ 6,264
------- ------- ------- ------- -------
Provision for possible loan loss-
es.............................. 475 625 2,150 2,950 2,500
------- ------- ------- ------- -------
Recoveries of loans previously
charged-off:
Mortgage loans................. 273 417 261 152 212
Indirect consumer loans........ 75 61 59 43 52
Mobile home loans.............. 73 42 9 7 20
Commercial loans............... 27 69 21 136 11
Other loans.................... 18 23 28 21 43
------- ------- ------- ------- -------
466 612 378 359 338
------- ------- ------- ------- -------
4,292 5,059 6,486 7,291 9,102
------- ------- ------- ------- -------
Charge-offs:
Mortgage loans................. (522) (915) (1,900) (1,724) (3,970)
Indirect consumer loans........ (175) (185) (172) (356) (353)
Mobile home loans.............. (601) (558) (482) (924) (476)
Commercial loans............... -- (12) (53) (206) (243)
Other loans.................... (24) (38) (57) (123) (78)
------- ------- ------- ------- -------
(1,322) (1,708) (2,664) (3,333) (5,120)
------- ------- ------- ------- -------
Balance of allowance at end of
period.......................... $ 2,970 $ 3,351 $ 3,822 $ 3,958 $ 3,982
======= ======= ======= ======= =======
Allowance for possible loan
losses expressed as a percent of
total loans at end of year...... 1.09% 1.51% 1.75% 1.90% 1.77%
======= ======= ======= ======= =======
Loan charge-offs, net of
recoveries, during each year
expressed as a percentage of
average total loans during the
period.......................... 0.34% 0.48% 1.03% 1.38% 2.13%
======= ======= ======= ======= =======
</TABLE>
The provision for possible loan losses for the past five years has been less
than the actual level of net charge-offs each year. This was primarily due to
a portion of the losses being provided for in prior fiscal years as well as
the improvement in asset quality and lower net charge-offs experienced since
1990.
The following table sets forth the breakdown of the allowance for possible
loan losses by loan category and the percentage of loans in each category to
total loans at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance of allowance at
end of period
applicable to:
Mortgage loans......... $1,124 51.3% $1,074 56.4% $1,602 60.5% $1,697 58.4% $1,914 63.4%
Indirect consumer
loans................. 763 37.2 667 30.0 607 27.7 779 29.9 852 25.2
Mobile home loans...... 638 4.4 632 6.2 486 6.9 471 7.6 337 7.5
Commercial loans....... 150 4.6 103 3.6 33 1.4 105 1.6 197 1.9
Other loans............ 51 2.5 125 3.8 116 3.5 78 2.5 125 2.0
Unallocated............ 244 n/a 750 n/a 978 n/a 828 n/a 557 n/a
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$2,970 100.0% $3,351 100.0% $3,822 100.0% $3,958 100.0% $3,982 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
68
<PAGE>
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF COMMUNITY--Asset Quality" and "--Risk Characteristics of the
Loan Portfolio."
INVESTMENT ACTIVITIES
Concord maintains a portion of its assets in short-term interest-bearing
deposits in other banks and in investment securities, which consist primarily
of U.S. Government and Agency obligations and mortgage-backed securities of
which the majority are guaranteed by the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association ("FNMA").
Other investments include corporate bonds and obligations, municipal
investments, marketable equity securities and stock in the FHLB.
At June 30, 1995, investment securities classified as "available for sale"
amounted to $58,754,000 and investment securities classified as "held to
maturity" amounted to $53,408,000. Community did not have any securities
classified as "trading securities". At June 30, 1995, the unrealized net gains
on securities "available for sale", net of related taxes, was $328,000 and is
carried as a component of shareholders' equity.
The following tables set forth certain information as to investment
securities available for sale and held to maturity. Securities available for
sale are carried at fair value and securities held to maturity are carried at
amortized cost. In fiscal 1993, securities held for sale were carried at the
lower of aggregate amortized cost or fair value.
<TABLE>
<CAPTION>
HELD TO
AVAILABLE FOR SALE MATURITY
-------------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
JUNE 30, 1995:
Investment securities:
U.S. Government and Agency
obligations.......................... $ 31,814 $ 32,101 $32,930 $32,902
Other debt securities................. -- -- 3,944 3,998
Municipal investments................. 987 987 2,750 2,750
Marketable equity securities.......... 182 229 -- --
--------- --------- ------- -------
32,983 33,317 39,624 39,650
--------- --------- ------- -------
Mortgage-backed securities:
FHLMC................................. 4,815 4,734 10,657 10,552
FNMA.................................. 11,951 12,202 2,006 2,026
Other................................. 8,476 8,501 1,121 1,122
--------- --------- ------- -------
25,242 25,437 13,784 13,700
--------- --------- ------- -------
Total investment securities............. $ 58,225 $ 58,754 $53,408 $53,350
========= ========= ======= =======
JUNE 30, 1994:
Investment securities:
U.S. Government and Agency
obligations.......................... $ 36,135 $ 35,940 $16,931 $16,585
Other debt securities................. 1,000 1,000 977 968
Marketable equity securities.......... 127 155 -- --
--------- --------- ------- -------
37,262 37,095 17,908 17,553
--------- --------- ------- -------
Mortgage-backed securities:
FHLMC................................. 12,176 11,922 12,253 11,836
FNMA.................................. 14,116 14,103 2,448 2,365
Other................................. 1,698 1,675 1,251 1,243
--------- --------- ------- -------
27,990 27,700 15,952 15,444
--------- --------- ------- -------
Total investment securities............. $ 65,252 $ 64,795 $33,860 $32,997
========= ========= ======= =======
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
HELD TO
HELD FOR SALE MATURITY
----------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
JUNE 30, 1993:
Investment securities:
U.S. Government and Agency obligations.... $ -- $ -- $31,325 $32,615
Other debt securities..................... -- -- 499 495
Marketable equity securities.............. -- -- 211 247
------- ------- ------- -------
-- -- 32,035 33,357
------- ------- ------- -------
Mortgage-backed securities:
FHLMC..................................... 4,744 4,848 12,725 13,048
FNMA...................................... 1,878 1,987 7,812 8,096
Other..................................... -- -- 3,456 3,643
------- ------- ------- -------
6,622 6,835 23,993 24,787
------- ------- ------- -------
Total investment securities................. $ 6,622 $ 6,835 $56,028 $58,144
======= ======= ======= =======
</TABLE>
At June 30, 1995, Community owned mortgage-backed securities having a
carrying value of $39,221,000 and an unrealized net gain of $111,000.
Substantially all of Community's mortgage-backed securities are guaranteed by
FHLMC, FNMA or GNMA. Of the total mortgage-backed securities at June 30, 1995,
$21,374,000 bear a fixed interest rate and $17,847,000 bear either an
adjustable or variable interest rate. The market values of mortgage-backed
securities change with market and economic conditions. The most significant
factors affecting market value are prepayments of the underlying loans and
interest rates. As interest rates increase, prepayments generally decline,
causing an extension of the expected maturity and a decline in market value.
The converse is generally true when interest rates decrease. The market value
of fixed-rate mortgage-backed securities is generally more sensitive to market
interest rate changes than variable or adjustable rate mortgage-backed
securities. Mortgage-backed securities are expected to have shorter average
lives than their contractual maturities because borrowers may repay
obligations without prepayment penalties.
A breakdown of yields (based on amortized cost) and contractual maturities
for investment securities (excluding marketable equity securities) at June 30,
1995 is presented below.
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT AFTER TEN
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS YEARS TOTAL
----------------- ----------------- ----------------- ----------------- -----------------
CARRYING WEIGHTED CARRYING WEIGHTED CARRYING WEIGHTED CARRYING WEIGHTED CARRYING WEIGHTED
VALUE AVG YLD VALUE AVG YLD VALUE AVG YLD VALUE AVG YLD VALUE AVG YLD
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Government and
Agency obligations.... $ 1,987 4.17% $24,083 6.22% $6,031 7.49% $ -- -- % $32,101 6.33%
Municipal investments.. 987 5.38 -- -- -- -- -- -- 987 5.38
Mortgage-backed
securities............ -- -- 2,858 5.90 3,735 5.47 18,844 6.82 25,437 6.52
------- ------- ------ ------- -------
$ 2,974 4.57 $26,941 6.19 $9,766 6.72 $18,844 6.82 $58,525 6.40
======= ======= ====== ======= =======
Held to Maturity:
U.S. Government and
Agency obligations.... $ 6,970 5.90% $25,960 6.57% $ -- -- % $ -- -- % $32,930 6.43%
Other debt securities.. 996 6.28 2,948 6.97 -- -- -- -- 3,944 6.80
Municipal investments.. 2,750 5.12 -- -- -- -- -- -- 2,750 5.12
Mortgage-backed
securities............ -- -- 12,663 6.00 -- -- 1,121 7.12 13,784 6.09
------- ------- ------ ------- -------
$10,716 5.74 $41,571 6.42 $ -- -- $ 1,121 7.12 $53,408 6.30
======= ======= ====== ======= =======
</TABLE>
70
<PAGE>
Concord's investment portfolio is managed by Concord's officers in
accordance with the investment policy established by the Finance Committee of
Concord's Board of Directors and with the advice of professional investment
advisors. The objectives of Concord's investment policy are to provide
liquidity, diversification of assets and earnings. At June 30, 1995, Community
did not hold any security which exceeded 10% of Community's shareholders'
equity.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF COMMUNITY--Investment Securities" and Notes 1 and 2 of Notes
to the Community Consolidated Financial Statements.
SOURCES OF FUNDS
Deposits. The majority of Concord's deposits are derived from customers who
reside or work in Concord, New Hampshire, or surrounding communities in
Merrimack County. Concord receives a smaller volume of deposits from customers
residing in a number of communities across New Hampshire and from outside of
the state. By choice, Concord currently accepts no brokered deposits.
Because convenience is an important factor in attracting deposits, Concord
operates four branches located in the City of Concord, each with ample parking
and "drive-up" bays. Concord also operates branches located to the west of
Concord in Weare, New Hampshire and to the north of Concord in Tilton, New
Hampshire. Concord operates automatic teller machines at all of its locations
and at four off-site locations in Concord, Contoocook, Epsom, and Tilton, New
Hampshire. Concord is a member of an electronic funds transfer network that
allows customers to access cash from their accounts through ATMs located
throughout the State of New Hampshire and throughout the United States.
Concord's deposits are derived from savings accounts, NOW accounts, demand
deposit accounts, money market deposit accounts, club accounts, variable-rate
term certificates of deposit and fixed-rate term certificates of deposit
offering maturities of up to five years. The flow of deposits is influenced
significantly by general economic conditions, changes in money markets and
prevailing interest rates. Concord has maintained a competitive deposit
pricing structure within its market to achieve controlled growth and increase
its market share. Deposits have grown by a total of $81,650,000, or an average
of 7.2% per year, during the five years ended June 30, 1995. The cumulative
growth in deposits since June 30, 1990 has been primarily in savings deposits
with growth of $48,261,000. Growth in time certificates of deposit and non-
interest bearing deposits amounted to $21,087,000 and $12,302,000,
respectively, over the past five years.
The following table presents the distribution of Concord's average deposits
outstanding and the average interest rates paid on such deposits during the
years ended June 30, as indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits..... $ 13,581 -- % $ 10,112 -- % $ 6,705 -- %
-------- -------- --------
Savings deposits:
Savings, club and escrow ac-
counts......................... 91,423 2.97 97,262 2.92 87,082 3.33
Interest bearing NOW accounts... 21,668 1.91 19,429 1.98 15,921 2.39
Money market accounts........... 11,515 2.70 13,741 2.64 16,840 3.22
-------- -------- --------
Total savings deposits........ 124,606 2.76 130,432 2.75 119,843 3.19
Time certificates of deposit...... 162,066 4.97 146,364 4.58 150,461 5.12
-------- -------- --------
Total deposits................ $300,253 3.83 $286,908 3.59 $277,009 4.16
======== ======== ========
</TABLE>
The average interest rates paid on total deposits, excluding non-interest
bearing deposits, at June 30, 1995, 1994 and 1993, was 4.01%, 3.72% and 4.26%,
respectively.
71
<PAGE>
On June 30, 1995, Concord had $19,010,000 outstanding in time certificates
of deposit in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
PERIOD ENDING AMOUNT
- ------------- --------------
(IN THOUSANDS)
<S> <C>
Within 3 months................................................. $ 5,338
Over 3 through 6 months......................................... 2,516
Over 6 through 12 months........................................ 4,324
Over 12 months.................................................. 6,832
-------
Total......................................................... $19,010
=======
</TABLE>
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF COMMUNITY--Deposits" and Note 7 of Notes to the Community
Consolidated Financial Statements.
Borrowings. Concord may obtain advances from the FHLB upon pledging as
collateral the common stock of the FHLB that it owns and certain of its
investment securities and residential mortgage loans, provided certain
standards related to creditworthiness are met. Such advances are made under
several different credit programs, each of which has its own interest rate and
range of maturities. FHLB borrowings have been utilized for loan portfolio
growth, asset/liability management, liquidity and/or operational needs. At
June 30, 1995, Concord had outstanding advances and available unused lines of
credit with the FHLB of $76,050,000 and approximately $63,000,000,
respectively. Total borrowings from the FHLB increased during the fiscal year
ended June 30, 1995 by $52,978,000, which funded the major portion of
Concord's earning asset growth.
During fiscal 1995, Concord also used repurchase agreements as a source of
funds. Repurchase agreements outstanding at June 30, 1995 amounted to
$6,348,000 and carried maturities of three months or less. U.S. Government and
Agency securities with a book value of $6,949,000 and a fair value of
$6,916,000 were pledged as collateral and held by custodians to secure the
agreements at June 30, 1995.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Borrowed Funds" and Notes 8 and 9 of Notes to the Community
Consolidated Financial Statements.
72
<PAGE>
ASSET/LIABILITY MANAGEMENT
It is Community's policy to manage its assets and liabilities in a manner
that minimizes interest rate risk exposure while meeting the needs of
Concord's customers. The following provides insight into the sensitivity of
Community's earnings to changes in interest rates as of June 30, 1995.
<TABLE>
<CAPTION>
0-1 1-3 3-5 OVER 5
YEAR YEARS YEARS YEARS TOTAL
-------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets Subject to Interest Rate
Adjustment:
Interest-bearing deposits in
other banks................. $ 10,870 $ -- $ -- $ -- $ 10,870
Investment securities avail-
able for sale............... 3,202 13,961 10,122 6,032 33,317
Investment securities held to
maturity.................... 10,716 19,911 8,997 -- 39,624
Mortgage-backed securities
available for sale.......... 9,210 15,428 799 -- 25,437
Mortgage-backed securities
held to maturity............ 1,247 3,972 8,565 -- 13,784
Federal Home Loan Bank
stock....................... 3,803 -- -- -- 3,803
Mortgage loans held for
sale........................ 4,392 -- -- -- 4,392
Mortgage loans:
Home equity................ 16,733 314 -- -- 17,047
Residential................ 30,677 21,196 10,131 5,234 67,238
Commercial and construc-
tion...................... 28,404 19,192 4,048 1,065 52,709
Other loans:
Indirect automobile and
recreational vehicle...... 39,267 35,884 23,215 3,289 101,655
Mobile home................ 10,676 1,198 -- 65 11,939
Other consumer............. 4,771 1,258 584 156 6,769
Commercial................. 11,658 619 97 -- 12,374
-------- -------- ------- ------- --------
Total.................... $185,626 $132,933 $66,558 $15,841 $400,958
======== ======== ======= ======= ========
Liabilities Subject to Interest
Rate Adjustment:
Deposits:
Savings, escrow and club
accounts.................. $ 26,960 $ 54,696 $ -- $ -- $ 81,656
Interest-bearing NOW ac-
counts.................... 4,844 19,280 -- -- 24,124
Money market accounts...... 2,818 6,576 -- -- 9,394
Time certificates of depos-
it........................ 103,183 67,987 5,792 -- 176,962
Borrowed funds............... 80,849 1,369 75 475 82,768
-------- -------- ------- ------- --------
Total.................... $218,654 $149,908 $ 5,867 $ 475 $374,904
-------- -------- ------- ------- --------
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities......... $(33,028) $(16,975) $60,691 $15,366 $ 26,054
-------- -------- ------- ------- ========
Cumulative excess (deficien-
cy)........................... $(33,028) $(50,003) $10,688 $26,054
======== ======== ======= =======
Cumulative rate sensitive
assets as a percent of
cumulative rate sensitive
liabilities................... 84.89% 86.43% 102.85% 106.95%
======== ======== ======= =======
Cumulative excess (deficiency)
as a percent of total rate
sensitive assets.............. (8.24)% (12.47)% 2.67% 6.50%
======== ======== ======= =======
</TABLE>
The effect of interest rate changes on the assets and liabilities of a
financial institution such as Concord may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity "gap" is defined as the difference between interest-earning assets
and interest-bearing liabilities maturing or
73
<PAGE>
repricing within a given time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds interest rate sensitive assets.
During a period of falling interest rates, a positive gap would tend to
adversely affect net interest income, while a negative gap would tend to
result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income while a negative gap would tend to affect net interest income
adversely.
Management uses its judgment in classifying assets and liabilities into the
various interest sensitivity time periods, taking into consideration certain
assumptions based on Community's historical experience and other relevant
data. Non-accruing loans amounting to $1,730,000 have been excluded from this
analysis. The analysis takes into consideration next repricing dates on
variable-rate instruments. Amortization on some of Concord's loans and
mortgage-backed securities has been estimated, based on historical trends, and
included in shorter time periods even though the contractual maturity of such
loans and securities may be further out. While savings, NOW and MMDA accounts
allow for immediate withdrawal and interest rate adjustment, based on
Community's historical experience they are generally considered more stable
and are classified proportionately according to their established
sensitivities in the "0-1 Year" and "1-3 Year" categories.
Community had a negative gap of approximately 8% of total rate sensitive
assets at June 30, 1995 as compared to a positive gap of approximately 4% of
total rate sensitive assets at June 30, 1994 in the comparative "0-1 Year"
categories.
COMPETITION
Concord experiences substantial competition in attracting and retaining
deposit accounts and in making mortgage and other loans. Including Concord,
there are approximately 41 banking offices of federally-insured depository
institutions within Concord's principal market area of Merrimack County, which
does not include the non-bank financial service providers which also operate
in Concord's market area.
The primary factors in competing for deposit accounts are interest rates,
convenience of office locations, quality of service and banking hours. The
primary factors in competing for loans are interest rates, loan origination
fees and the quality and range of lending services offered. Competition for
origination of first mortgage loans comes primarily from other savings
institutions, mortgage banking firms, and commercial banks.
PERSONNEL
As of June 30, 1995, Community and its subsidiaries had a total of 139 full-
time and 36 part-time employees.
PROPERTIES
Concord's main office, which is owned by Concord, is located at 43 North
Main Street, Concord, New Hampshire, in the center of the downtown business
district. At present, Concord does not require all of the space available in
this building and has leased approximately one half of it to retail
businesses.
Concord owns two of its branch offices in Concord, each of which is located
in a modern, one-story building. The other Concord branch office is a leased
facility located on the Steeplegate Mall property and was opened during
September 1994. Concord's branch offices located in Weare and Tilton, New
Hampshire are also leased. Concord owns a three-story building in downtown
Concord of which two stories are currently serving as its operations center
and the other floor is leased to another local business.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against Community or any of
its subsidiaries.
74
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COMMUNITY
THREE YEARS ENDED JUNE 30, 1995
All information within this section should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of Community included
elsewhere in this Proxy Statement-Prospectus and the tables appearing
throughout this section and the section labeled "Information about Community".
HIGHLIGHTS
The market area in which Community operates has experienced slow economic
growth during the fiscal year ended June 30, 1995. The economy had previously
stabilized after reaching its low point in the early 1990s. The economic
strength of the market area in which Community operates continues to be
dependent on the relative strength of the regional and national economies.
Community earned net income of $3,287,000, or $1.84 per share, for the
fiscal year ended June 30, 1995. Earnings for the years ended June 30, 1994,
and 1993 were $3,090,000, or $1.73 per share, and $2,221,000, or $1.28 per
share, respectively.
Pretax earnings improved by 22.5% during fiscal 1995 over fiscal 1994
primarily from an increase in net interest income of $1,515,000. Pretax
earnings increased by 77.8% during fiscal 1994 over fiscal 1993 primarily due
to reductions in loan loss provision and expenses related to non-performing
assets.
Community achieved a 23.0% growth in total assets during fiscal 1995 with
total assets amounting to $425,714,000 at June 30, 1995 as compared to
$346,136,000 at June 30, 1994. Loans, primarily in indirect auto lending
through dealers, provided the majority of the asset growth for fiscal 1995.
At June 30, 1995, Community's equity to asset ratio was 6.91%, its tier 1
leverage ratio was 7.07% and its total risk-based capital ratio was 11.31%,
all of which exceeded published regulatory minimums. The capital ratios for
June 30, 1994 were 7.69%, 7.94% and 13.39%, respectively.
RATE/VOLUME ANALYSIS
The following table presents changes in interest and dividend income,
interest expense and net interest and dividend income which are attributable
to changes in the average amounts of interest-earning assets and interest-
bearing liabilities outstanding and/or to changes in rates earned or paid
thereon. The net changes attributable to both volume and rate have been
allocated proportionately:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
----------------------------------------------
1995 VS. 1994 1994 VS. 1993
---------------------- -----------------------
INCREASE (DECREASE) INCREASE (DECREASE)
---------------------- -----------------------
DUE TO DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Mortgage loans.............. $ (27) $1,051 $1,024 $ 153 $ (500) $ (347)
Other loans................. 2,373 (135) 2,238 232 (1,231) (999)
Investments................. 1,212 549 1,761 740 (812) (72)
------ ------ ------ ------ ------- -------
Total interest and dividend
income....................... 3,558 1,465 5,023 1,125 (2,543) (1,418)
------ ------ ------ ------ ------- -------
Interest expense:
Deposits.................... 376 817 1,193 271 (1,499) (1,228)
Borrowed funds.............. 2,216 99 2,315 58 (68) (10)
------ ------ ------ ------ ------- -------
Total interest expense........ 2,592 916 3,508 329 (1,567) (1,238)
------ ------ ------ ------ ------- -------
Net interest and dividend in-
come......................... $ 966 $ 549 $1,515 $ 796 $ (976) $ (180)
====== ====== ====== ====== ======= =======
</TABLE>
75
<PAGE>
AVERAGE BALANCE SHEETS AND NET INTEREST AND DIVIDEND INCOME
The following table sets forth certain information relating to Community's
average balance sheets, including interest-earning assets, interest-bearing
liabilities and net interest income on a fully tax-equivalent basis for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans......... $136,100 $11,666 8.57% $136,442 $10,642 7.80% $134,552 $10,989 8.17%
Other loans............ 118,231 9,933 8.40 90,011 7,695 8.55 87,620 8,694 9.92
-------- ------- ---- -------- ------- ---- -------- -------
Total loans(1)....... 254,331 21,599 8.49 226,453 18,337 8.10 222,172 19,683 8.86
Investment and mortgage-
backed securities(2)... 104,732 6,603 6.30 79,406 4,768 6.00 71,933 4,895 6.80
Interest-bearing
deposits in other
banks................. 1,395 66 4.73 5,246 134 2.55 2,212 58 2.62
-------- ------- -------- ------- -------- -------
Total interest-
earning assets...... 360,458 28,268 7.84 311,105 23,239 7.47 296,317 24,636 8.31
------- ------- -------
Non interest-earning
assets................. 20,211 21,444 20,448
Allowance for possible
loan losses............ (3,148) (3,642) (4,034)
-------- -------- --------
Total assets......... $377,521 $328,907 $312,731
======== ======== ========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposits:
Savings................ $124,606 $ 3,441 2.76% $130,432 $ 3,588 2.75% $119,843 $ 3,822 3.19%
Time certificates...... 162,066 8,047 4.97 146,364 6,707 4.58 150,461 7,701 5.12
-------- ------- -------- ------- -------- -------
Total deposits....... 286,672 11,488 4.01 276,796 10,295 3.72 270,304 11,523 4.26
Borrowed funds......... 47,009 2,756 5.86 8,955 441 4.92 7,865 451 5.73
-------- ------- -------- ------- -------- -------
Total interest-
bearing
liabilities......... 333,681 14,244 4.27 285,751 10,736 3.76 278,169 11,974 4.30
------- ------- -------
Non interest-bearing
demand deposits........ 13,581 10,112 6,705
Other liabilities....... 2,648 6,594 5,027
-------- -------- --------
Total liabilities.... 349,910 302,457 289,901
Stockholders' equity.... 27,611 26,450 22,830
Total liabilities and
stockholders'
equity.............. $377,521 $328,907 $312,731
======== ======== ========
Net interest
income/interest rate
spread(3).............. $14,024 3.57% $12,503 3.71% $12,662 4.01%
======= ======= =======
Net interest margin(4).. 3.89% 4.02% 4.27%
</TABLE>
- --------
(1) Includes nonaccrual loans.
(2) Investment and mortgage-backed securities are shown at average amortized
cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for interest-bearing liabilities.
(4) The net interest margin during the period equals net interest income
divided by average interest-earning assets for the period.
NET INTEREST AND DIVIDEND INCOME
Net interest and dividend income, which is the difference between income
from earning assets and what is paid for interest-bearing liabilities, is the
primary source of income for Community. Net interest income increased to
$13,997,000 in fiscal 1995 from $12,482,000 in fiscal 1994 mostly due to
Community's growth in earning assets during fiscal 1995. Net interest income
for fiscal 1993 was $12,662,000. The decline in net interest income from
fiscal 1993 to 1994 was primarily due to reduced market interest rates on
earning assets. Community's net interest margin for fiscal 1995, 1994 and 1993
was 3.89%, 4.02% and 4.27%, respectively, on a fully tax-equivalent basis.
YIELDS EARNED AND RATES PAID
Interest rate spread represents the difference between the weighted average
yield earned on loans and investments and the weighted average rate paid on
interest-bearing deposits and borrowed funds.
76
<PAGE>
The fully tax-equivalent yield on earning assets was 7.84% in fiscal 1995
compared to 7.47% in fiscal 1994 and 8.31% in fiscal 1993. The cost of average
interest-bearing liabilities in fiscal 1995, 1994 and 1993 was 4.27%, 3.76%
and 4.30%, respectively. The changes in these yields and costs reflect the
trends in market interest rates over the past three years as well as the shift
in the composition of deposits from higher rate time certificates to lower
costing savings accounts which occurred during fiscal years 1993 and 1994.
This shift subsequently reversed during fiscal year 1995.
AVERAGE BALANCES
During fiscal 1995, Community increased its average earning assets by
$49,353,000, or 15.9%, over fiscal 1994. Earning asset growth was mostly in
indirect auto loans through dealers. In order to fund this growth in average
earning assets Community utilized an increase in average borrowed funds of
$38,054,000 and growth in average interest-bearing deposits of $9,876,000 over
fiscal 1994. Community also experienced growth of $3,469,000, or 34.3%, in
average non-interest bearing demand deposits for fiscal 1995 over 1994.
During fiscal 1994, average earnings assets increased by $14,788,000 over
fiscal 1993 primarily in investment securities which were funded by increases
of $9,899,000 and $1,090,000, respectively, in average deposits and borrowed
funds.
ASSET QUALITY
Community's non-performing assets (which consist of non-performing loans and
assets acquired to satisfy debt, including loan collateral substantively
repossessed) amounted to $3,232,000 at the end of fiscal 1995 versus
$1,982,000 at June 30, 1994 and $6,105,000 at June 30, 1993.
At June 30, 1995, non-performing loans totaled $1,730,000. Non-performing
loans amounted to $904,000 and $3,279,000, respectively, at June 30, 1994 and
1993.
Non-Performing Asset Analysis. Non-performing assets consist of nonaccrual
loans, real estate acquired through foreclosure or substantively repossessed
and other assets acquired to satisfy debt.
Community's non-performing assets increased in fiscal 1995 by $1,250,000
from the end of fiscal 1994. At June 30, 1995, non-performing assets totaled
$3,232,000, or 0.8% of total assets, compared to $1,982,000, or 0.6% of total
assets, at June 30, 1994 and $6,105,000 or 1.9% of total assets, at June 30,
1993.
The increase in non-performing assets from June 30, 1994 to June 30, 1995
was the result of $5,290,000 in additions which were partially offset by
$2,742,000 in deletions from amortization, payoffs or sales of non-performing
assets and $1,298,000 in charge-offs.
Of the net increase of $1,250,000 in non-performing assets, $1,231,000 was
related to two commercial loans, which were originated prior to 1990 and which
were previously performing, being placed onto non-accruing status by Concord
during the third quarter of fiscal 1995.
Non-Performing Loan Summary.
<TABLE>
<CAPTION>
AT JUNE 30, 1995
---------------------------------------------------------------------
SHARE OF NON- SHARE OF PERCENT OF
TOTAL LOANS TOTAL LOANS PREFORMING NON-PREFORMING NON-PERFORMING/
OUTSTANDING OUTSTANDING LOANS LOANS TOTAL LOANS IN TYPE
----------- ----------- ---------- -------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential mortgage
loans.................. $ 67,501 24.8% $ 263 15.2% 0.4%
Commercial loans:
Construction.......... 473 0.2 -- -- --
Real estate........... 53,504 19.7 1,268 73.3 2.4
Other................. 12,414 4.6 40 2.3 0.3
Home equity............. 17,070 6.3 23 1.3 0.1
Mobil home loans........ 11,976 4.4 37 2.1 0.3
Indirect consumer
loans.................. 101,744 37.5 89 5.2 0.1
Other consumer loans.... 6,779 2.5 10 0.6 0.1
-------- ----- ------ -----
Total............... $271,461 100.0% $1,730 100.0% 0.6
======== ===== ====== =====
</TABLE>
77
<PAGE>
Management is not aware of any potential problem loans, which have not
already been identified and disclosed above, which would have a material
effect on Community. For further information on non-performing loans, see Note
3 of Notes to the Community Consolidated Financial Statements.
Assets Acquired to Satisfy Debt and Loans Substantively Repossessed. Assets
acquired to satisfy debt and loans substantively repossessed totaled
$1,502,000 at June 30, 1995 compared to $1,078,000 at June 30, 1994. Of the
total at June 30, 1995, $261,000 was in commercial real estate, $873,000 in
primary residential properties, $277,000 in mobile homes and $91,000 in
repossessed vehicles. For further information, see Note 6 of Notes to the
Community Consolidated Financial Statements.
Provision for Possible Loan Losses. The provision for possible loan losses
is based on management's assessment of the adequacy of the allowance for
possible loan losses after considering known and inherent risks in the loan
portfolio, existing and expected economic conditions, the level of non-
performing loans, charge-offs, past loan loss experience and loan growth.
During fiscal 1995, $475,000 was provided for possible loan losses versus
$625,000 in 1994 and $2,150,000 in 1993. During the fourth quarter of fiscal
1995, $150,000 was provided into the allowance for possible loan losses as
compared to $100,000, $100,000 and $125,000, respectively, during the first
three quarters of the fiscal year. The allowance for possible loan losses as a
percent of non-performing loans was 171.7% at June 30, 1995 as compared to
370.7% at June 30, 1994 and 116.6% at June 30, 1993. At June 30, 1995, the
allowance for possible loan losses stood at $2,970,000, or 1.1% of total
loans. At June 30, 1994 and 1993 the allowance for possible loan losses stood
at $3,351,000 and $3,822,000, respectively, and equaled 1.5% and 1.8% of total
loans. Improved asset quality and lower net charge-offs have enabled Community
to reduce its loan loss provisions. Net charge-offs for fiscal years 1995,
1994 and 1993 were $856,000, $1,096,000 and $2,286,000, respectively.
A summary of net charge-offs (recoveries) in fiscal years 1995, 1994 and
1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan Type:
Construction........................................ $ (11) $ (153) $ 179
Commercial real estate.............................. (108) 44 1,304
Commercial.......................................... (27) (57) 32
Residential mortgage................................ 262 530 103
Home equity......................................... 106 77 54
Mobile home......................................... 528 516 473
Indirect and other consumer......................... 106 139 141
----- ------ ------
$ 856 $1,096 $2,286
===== ====== ======
</TABLE>
While management believes that additions to, and the year-end balance of,
the allowance for possible loan losses are adequate, further provisions to the
allowance for possible loan losses may be necessary if the market in which
Community operates deteriorates.
RISK CHARACTERISTICS OF THE LOAN PORTFOLIO
The majority of the asset growth was in the loan portfolio. Total loans
increased by $49,352,000, or 22.2%, from $222,109,000 at June 30, 1994 to
$271,461,000 at June 30, 1995. With the consolidation that has been taking
place over the past few years in the New Hampshire banking industry, Community
has taken advantage of market opportunities to expand and develop new lending
relationships.
Concord, through its subsidiary Bancredit, has serviced a large number of
auto and recreational vehicle dealers throughout New Hampshire for more than
ten years and understands the challenges and risks associated with this
business. With the addition of experienced, high level personnel Concord has
substantially increased its
78
<PAGE>
number of active dealer relationships during fiscal 1995 resulting in
significant loan growth in indirect loans. At June 30, 1995, the balance of
indirect automobile and recreational vehicle loans through dealers was
$101,744,000, or 37.5% of total loans as compared to $66,699,000, or 30.0% of
total loans at June 30, 1994.
In order to continue serving the market for indirect automobile loans in New
Hampshire, generate fee income from servicing these types of loans and manage
Community's balance sheet, Concord has developed the ability to sell
automobile loans in fiscal 1995, while retaining the right to service these
loans. In fiscal 1995, Concord sold three separate pools of automobile loans
to two different buyers, totaling $11,591,000. As part of the sales agreement
relating to the sale of $9,777,000 of these loans, Concord is obligated to
assume a certain portion of credit losses should they occur and has accrued
$51,000 to absorb such possible losses. The remainder of these loans were sold
without credit enhancement. In addition, an agreement was reached to sell up
to an additional $48,000,000 of new loan production with credit enhancement on
a best efforts basis.
Community also used similar market opportunities in the commercial lending
area to grow commercial loans by $18,333,000 during fiscal 1995. Of Concord's
commercial loan portfolio, which represents 24.5% of total loans, $8,178,000,
or 12.3%, of commercial loans are loans enrolled with Small Business
Administration (SBA) programs. For further information on loans, see Note 7 of
Notes to the Community Consolidated Financial Statements.
Commercial and consumer (indirect auto and recreational vehicle) lending may
entail additional risks compared to residential mortgage lending. Commercial
loans may involve large loan balances to single or groups of related
borrowers. In addition, the payment experience on loans secured by income
producing properties is typically dependent on the successful operation of the
properties and thus may be subject to a greater extent to adverse conditions
in the local real estate market or in the economy in general. Money lent for
consumer loans may be expensive and time consuming to recover in the event of
default.
Concord continues to use the same loan underwriting criteria and loan review
process that has reduced non-performing assets to the lower levels that have
been maintained over the past few years. This, in addition to an experienced
collections department, has kept loan delinquencies and loan charge-offs at
low levels, particularly in the consumer loan portfolio. Concord's indirect
auto lending delinquency levels have been consistently below industry
standards over the past few years.
INVESTMENT SECURITIES
At June 30, 1995, Community's securities classified as available for sale
amounted to $58,754,000, or 52.4% of total investment securities with the
remaining securities of $53,408,000, or 47.6%, classified as held to maturity.
At June 30, 1994, securities available for sale and held to maturity amounted
to $64,795,000 and $33,860,000, respectively, which represented 65.7% and
34.3%, respectively, of total investment securities.
Concord, as a member, owned Federal Home Loan Bank stock of $3,803,000 at
June 30, 1995 compared to $1,860,000 at June 30, 1994.
Unrealized net gains on securities available for sale, net of applicable
taxes, amounted to $328,000 at June 30, 1995 compared to unrealized net losses
of $262,000 at June 30, 1994.
Also, during the last quarter of fiscal 1995, Concord securitized $5,551,000
of residential mortgage loans with Fannie Mae and transferred them from loans
to securities available for sale on the balance sheet.
DEPOSITS
Deposits provided funding for 76.6% of total earning assets at June 30, 1995
compared to 89.4% at June 30, 1994 and 94.5% at June 30, 1993. Average
deposits amounted to $300,253,000, $286,908,000 and $277,009,000 for the years
ended June 30, 1995, 1994 and 1993, respectively.
79
<PAGE>
The average cost of interest-bearing deposits increased to 4.01% during
fiscal 1995 as compared to 3.72% in 1994 and 4.26% in 1993. The decline during
fiscal 1993 and 1994 and subsequent increase in 1995 in the cost of deposits
was primarily the result of trends in open market interest rates. By choice,
Community currently accepts no brokered deposits. For further information, see
Note 7 of Notes to the Community Consolidated Financial Statements.
BORROWED FUNDS
Community, in order to fund its earning asset growth, increased borrowed
funds by $59,261,000 during fiscal 1995 and by $18,697,000 during fiscal 1994.
For further information, see Notes 8 and 9 of Notes to the Community
Consolidated Financial Statements.
NON-INTEREST INCOME
Total non-interest income amounted to $2,036,000 for fiscal 1995 compared to
$2,558,000 in fiscal 1994 and $2,879,000 in fiscal 1993.
Exclusive of loan and security gains, non-interest income has steadily
increased from $985,000 in fiscal 1993 to $1,058,000 in fiscal 1994 to
$1,387,000 in fiscal 1995. This represents a 40.8% increase in 1995 versus the
level earned in fiscal 1993. The increases have resulted primarily from steady
growth in deposit fee and loan servicing income. Growth in service chargeable
deposit accounts and increases in selected service fees, implemented during
fiscal 1994, are the reasons for the increases in deposit fee income.
Continued growth in mortgage loans serviced for others over the past three
years has resulted in a corresponding increase in fee income.
Community's recent purchase, during the last quarter of fiscal 1995, of
approximately $180,000,000 of residential mortgage servicing rights is
expected to provide further momentum to continued improvement in Community's
loan servicing income. Revenues from these rights will be earned commencing in
August of 1995, the first quarter of fiscal 1996. It is expected that
Community will be able to service these additional loans utilizing existing
capacity without significantly adding to staffing or equipment.
Loan sale gains decreased to $501,000 in fiscal 1995 compared to the higher
levels of $1,089,000 and $927,000 earned during fiscal 1994 and 1993,
respectively, due to reduced residential mortgage origination volume caused by
the decline in demand for refinancings as market rates have risen. Offsetting
a portion of this decline experienced in fiscal 1995 was the adoption of SFAS
No. 122 "Accounting for Mortgage Servicing Rights, an Amendment of FASB
Statement No. 65." This was effective July 1, 1994 and resulted in an increase
of $170,000 in gains on the sale of loans for fiscal 1995.
Also, Community's opportunities to realize security gains has diminished
over the past two years as market rates rose. Gains on the sale of securities
has declined from $967,000 in fiscal 1993 to $411,000 in fiscal 1994 to
$148,000 in fiscal 1995.
NON-INTEREST EXPENSE
Total non-interest expense increased by 2.4% to $10,720,000 in fiscal 1995
from $10,467,000 experienced during fiscal 1994 primarily due to major
investments made by Community to expand its business lines and product
distribution system. Total non-interest expense for fiscal 1994 represented a
decrease of 6.3% from $11,170,000 in fiscal 1993. This reduction was primarily
the result of lower expenses related to non-performing assets.
During the fiscal year ended June 30, 1995, Community experienced increases
in salaries and benefits and occupancy and equipment expenses primarily due to
expanding major business lines and product distribution system. During fiscal
1995, Concord opened a new full-service branch office at the Steeplegate Mall
located in Concord, New Hampshire, opened a remote automated teller machine in
Tilton, New Hampshire, expanded its indirect auto dealer financing programs
and established a municipal services department. Also impacting salaries
80
<PAGE>
and benefits during fiscal 1995 were additional benefits expense related to
pension and the establishment and funding of a 401K benefit plan.
Offsetting a portion of the increased non-interest expense was a reduction
in other non-interest expense during fiscal 1995 which was primarily due to
reduced legal and other expenses related to the resolution of problem loans.
INCOME TAXES
There was no income tax expense in 1993 as a result of the decrease in the
deferred income tax asset valuation reserve established on July 1, 1992. In
1994, and to a lesser extent in 1995, income tax expense was partially offset
by further decreases in the valuation reserve. At June 30, 1995, Community had
a net deferred tax asset of approximately $172,000, which includes a valuation
reserve of approximately $136,000 which primarily relates to certain state tax
temporary differences. The realization of the net deferred tax asset may be
based on utilization of carrybacks to prior taxable periods, anticipation of
future taxable income, and the utilization of tax planning strategies.
Management has determined that it is more likely than not that the net
deferred tax asset can be realized by carrybacks to federal taxable income in
the three-year carryback period and by expected future taxable income. For
further information on income taxes, see Note 11 of Notes to the Community
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of Community's ability to meet its cash needs at a
reasonable cost. Cash needs arise primarily as a result of funding lending
opportunities, the maturity of liabilities such as borrowings and the
withdrawal of deposits. Asset liquidity is achieved through the management of
earning asset maturities, loan amortization, deposit growth and access to
borrowed funds. Management believes that funding sources are adequate to meet
commitments and ongoing obligations.
Community's funding requirements are limited and are adequately satisfied by
dividends from Concord and by its interest-bearing cash deposit with Concord.
Dividends paid from Concord to Community are limited to the extent necessary
for Concord to comply with regulatory capital guidelines.
Concord is a member of the FHLB which makes substantial borrowings available
to its members. Borrowed funds at June 30, 1995 totaled $82,768,000 compared
to $23,507,000 at the end of fiscal 1994. At June 30, 1995, Concord had
approximately $63,000,000 available in unused borrowing capacity remaining at
the FHLB to meet future large deposit fluctuations or increased loan demands
should either occur.
Total cash and cash equivalents at June 30, 1995 were $19,097,000 versus
$8,012,000 at the end of fiscal 1994. This increase was in the interest-
bearing deposits in other banks which resulted primarily from the sale of
approximately $10,000,000 in automobile loans on June 30, 1995.
The investment portfolio at June 30, 1995 totaled $115,965,000 of which
$58,754,000 was designated as "available for sale" to enhance the liquidity
position, and $53,408,000 was designated as "held to maturity." Community has
not historically had, and does not anticipate having, a need to use the
remainder of the investment portfolio for liquidity purposes given its unused
borrowing capacity and other liquidity resources.
At June 30, 1995, Community had equity capital of $29,398,000, resulting in
an equity-to-assets ratio of 6.91%.
Community is regulated by the Federal Reserve Board which requires Community
to maintain a minimum risk-based capital ratio. At June 30, 1995 the minimum
risk-based capital ratio required was 8.00%. Community's risk-based capital
ratio at June 30, 1995 was 11.31% compared to 13.39% at June 30, 1994.
81
<PAGE>
To complement the risk-based guidelines, the Federal Reserve Board requires
a leverage ratio of 3% to 4% which represents the minimum capital to total
asset standard for bank holding companies. Federal banking agencies, including
the FDIC, require similar leverage ratios for banks. These leverage ratios are
expected to be used in tandem with the risk-based capital ratio. Community's
leverage ratio was 7.07% at June 30, 1995.
The following table summarizes Community's required and actual regulatory
capital ratios and amounts at June 30, 1995:
<TABLE>
<CAPTION>
REQUIRED ACTUAL
REGULATORY REGULATORY
CAPITAL CAPITAL
--------------------------- -------------
AMOUNT RATIO AMOUNT RATIO
--------------- ----------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Leverage............................. $12,268-$16,358 3.00%-4.00% $28,827 7.07%
Risk-based:
Tier 1............................. 11,244 4.00 28,827 10.25
Total risk-based................... 22,489 8.00 31,797 11.31
</TABLE>
The following table summarizes Concord's required and actual regulatory
capital ratios and amounts at June 30, 1995: (Dollars in Thousands)
<TABLE>
<CAPTION>
REQUIRED ACTUAL
REGULATORY REGULATORY
CAPITAL CAPITAL
--------------------------- -------------
AMOUNT RATIO AMOUNT RATIO
--------------- ----------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Leverage............................. $12,268-$16,358 3.00%-4.00% $27,149 6.64%
Risk-based:
Tier 1............................. 11,240 4.00 27,149 9.66
Total risk-based................... 22,480 8.00 30,119 10.72
</TABLE>
Management believes that the acquisition of Centerpoint will not have a
material impact on Community's liquidity or capital resources.
RECENT ACCOUNTING DEVELOPMENTS
On July 1, 1995, Community adopted SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosure." These statements
generally require all creditors to account for impaired loans, except those
loans accounted for at fair value or at the lower of cost or fair value, at
the present value of the expected future cash flows discounted at the loan's
effective interest rate or, alternatively, at the fair value of the loan's
collateral. In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be made only
when the lender is in possession of the collateral. These statements also
require troubled debt restructurings to be measured for impairment using the
pre-modification rate of interest as a discount rate. Adoption of these
statements had no material impact on Community's financial position or results
of operations.
82
<PAGE>
INFORMATION ABOUT CENTERPOINT
DESCRIPTION OF BUSINESS
Centerpoint was formed in 1989 as a New Hampshire-chartered guaranty savings
bank. Centerpoint is insured by the FDIC. In 1995, Centerpoint completed its
conversion from a state-chartered guaranty savings bank to a state-chartered
trust company. Since Centerpoint operates as a full service commercial bank,
the trust company designation more accurately describes Centerpoint's banking
activities.
Centerpoint is engaged in the business of attracting deposits from the
general public, making commercial and consumer loans and making investments in
securities. Centerpoint's earnings primarily depend on the spread between the
income it receives from its loan and investment securities portfolios and the
interest cost it pays for money in the form of deposits. Centerpoint conducts
its business from its main office located at 141 South River Road, Bedford,
New Hampshire, and its branch offices located at 900 Elm Street, Manchester,
New Hampshire and 402 Amherst Street, Nashua, New Hampshire. As of September
1, 1995 Centerpoint had 33 full-time and 4 part-time employees.
Centerpoint has a primary market focus of establishing total banking
relationships with small- to medium-sized businesses and professionals.
Services offered include a wide range of commercial credit and deposit
products. Centerpoint's primary geographic territory extends through the
greater Manchester and Nashua corridor. Approximately 75% of Centerpoint's
loan portfolio is comprised of commercial or commercial real estate loans made
to support borrowers' working capital, equipment, and/or building
requirements. This proportion of commercial loans, which is consistent with
Centerpoint's focus on commercial lending, is significantly higher than the
proportion of commercial loans that would be typical for a savings bank.
Centerpoint also offers a wide range of consumer loan products, including, but
not limited to, automobile loans and home equity loans. Centerpoint also
offers residential mortgage loans to homeowners, residential construction
loans (primarily to developers and secured by pre-sold residential units) and
land development loans secured primarily by land and improvements in approved
subdivisions. Centerpoint's loan portfolio is predominantly of a variable rate
nature.
Centerpoint's primary focus on commercial and commercial real estate lending
may expose it to greater risks than those presented by consumer and
residential mortgage lending. Centerpoint's loans typically involve larger
loan balances to single borrowers or groups of related borrowers than typical
loan balances on consumer and residential mortgage loans. In addition, payment
on commercial loans is typically dependent on the successful operation of the
borrowers' businesses or properties and, therefore, may be more influenced by
adverse changes or cycles in the economy.
Centerpoint is subject to extensive competition from other commercial banks
and from savings banks, as well as from cooperative banks and credit unions,
in both attracting and retaining deposits. Additionally, significant
competition for deposits comes from money market mutual funds and government
securities.
Competition for commercial loans is experienced principally from other
banks. Consumer loan competition is principally from commercial banks, finance
companies and credit unions.
The principal methods used by competing institutions to attract deposits
include the offering of a variety of services and premiums, convenience of
office location and offering of attractive interest rates. The primary factors
in competing for loans are quality of service to the borrower, interest rates,
and loan fee charges. Centerpoint's staff is actively involved in community
organizations and service groups, which results in customer relationships.
Deposits maintained with Centerpoint are insured by the Bank Insurance Fund
of the FDIC up to FDIC limits (generally $100,000 per depositor). As a New
Hampshire-chartered commercial bank (known as a trust company), Centerpoint is
subject to regulation, examination and supervision by the New Hampshire
Banking Department and the FDIC.
DESCRIPTION OF PROPERTIES
Centerpoint's main office has been located at 141 South River Road, Bedford,
New Hampshire since 1990. Centerpoint has leased this building for a term of
15 years beginning January 1, 1989.
83
<PAGE>
Centerpoint opened a branch office located at 900 Elm Street, Manchester,
New Hampshire in 1993. The Manchester branch occupies 1,570 square feet of the
first floor. The lease is for a term of 63 months, with renewal options.
Centerpoint opened a branch office located at 402 Amherst Street, Nashua,
New Hampshire in 1995. The Nashua branch occupies 2,000 square feet of the
space. The lease term is for 62 months, with renewal options.
Centerpoint's operations center has been located at 10 Commerce Park North,
Bedford, New Hampshire, since 1990. Centerpoint's operations center occupies
approximately 2,640 square feet of space. The lease term, as of March 1, 1993,
was 60 months, with a renewal option.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which Centerpoint is a party or of
which any of its property is the subject.
CERTAIN CONTRACTS OR ARRANGEMENTS WITH COMMUNITY
Over the past six months, Centerpoint has purchased approximately $2.0
million in automobile loans from Community. In addition, Community and
Centerpoint have entered into an arrangement pursuant to which Community acts
as Centerpoint's agent for purposes of underwriting residential mortgage loan
applications received by Centerpoint and selling such loans to the secondary
market on Centerpoint's behalf. Community and Centerpoint also participate
with one another from time to time in making commercial loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CENTERPOINT
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
GENERAL
The following is a discussion and analysis of Centerpoint's results of
operations and financial condition. In order to understand this section in
context, it should be read in conjunction with the Centerpoint Financial
Statements and Notes presented elsewhere in this Proxy Statement-Prospectus
and with the tables appearing throughout the discussion and analysis.
The operating results of Centerpoint depend primarily on its net interest
income, which is the difference between (i) interest income on earning assets,
primarily loans and securities, and (ii) interest expense on interest-bearing
liabilities, which consist of deposits and borrowings. Centerpoint's results
of operations are also affected by the provision for loan losses resulting
from Centerpoint's assessment of the adequacy of the allowance for loan
losses; the level of its other operating income, including gains and losses on
the sale of securities, and loan and other fees; operating expenses; and
income tax expenses or benefits.
HIGHLIGHTS
Centerpoint earned net income of $420,000, or $0.71 per share of common
stock, for the six months ended June 30, 1995 as compared to $310,000, or
$0.52 per share of common stock, in the comparable period in 1994.
At June 30, 1995, Centerpoint had total assets of $81,310,000, an increase
of $12,572,000, or 18.3%, from $68,738,000 at December 31, 1994. Loans,
primarily commercial and commercial real estate, represented the majority of
the asset growth for the 1995 six-month period.
At June 30, 1995, Centerpoint's equity to assets ratio was 6.86%, its Tier 1
leverage ratio was 7.84% and its total risk-based capital ratio was 11.42%,
all of which exceeded published regulatory minimums. The capital ratios for
December 31, 1994 were 7.32%, 7.80% and 12.30%, respectively.
84
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to Centerpoint's
average balance sheet, including interest-earning assets, interest-bearing
liabilities and net interest income for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1995 1994
------------------------- -------------------------
AVERAGE YIELD / AVERAGE YIELD /
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans(1)................. $45,663 $2,447 10.68% $37,497 $1,682 8.89%
Securities(2)............ 17,529 513 5.85 12,612 354 5.61
Federal funds sold....... 2,011 59 5.92 4,038 68 3.39
Interest-bearing depos-
its..................... 217 6 5.58 1,232 19 3.10
------- ------ ------- ------
Total interest-earning as-
sets...................... 65,420 3,025 9.22 55,379 2,123 7.62
------ ------
Non interest-earning as-
sets:
Cash and due from banks.. 4,511 4,272
Premises and equipment,
net..................... 708 662
Other assets............. 648 478
Less allowance for loan
losses.................... (485) (373)
------- -------
Total assets........... $70,802 $60,418
======= =======
LIABILITIES AND SHAREHOLD-
ERS' EQUITY:
Interest-bearing liabili-
ties:
Regular savings.......... $12,444 $ 160 2.59% $17,819 $ 223 2.52%
NOW accounts............. 7,486 60 1.62 6,945 55 1.59
Money market accounts.... 4,971 66 2.68 4,563 51 2.25
Time certificates of de-
posit................... 19,054 451 4.77 10,253 173 3.39
Borrowed funds........... 4,974 122 4.95 2,389 36 3.03
------- ------ ------- ------
Total interest-bearing lia-
bilities.................. 48,929 859 3.54 41,969 538 2.58
------ ------
Non interest-bearing lia-
bilities:
Demand deposits.......... 15,817 13,247
Other liabilities........ 751 478
------- -------
Total liabilities...... 65,497 55,694
Shareholders' equity....... 5,305 4,724
------- -------
Total liabilities and
shareholders' equity.. $70,802 $60,418
======= =======
Net interest
income/interest rate
spread(3)................. $2,166 5.68% $1,585 5.04%
====== ======
Net interest margin(4)..... 6.57% 5.66%
</TABLE>
- --------
(1) Includes non-accrual loans.
(2) Securities are shown at average amortized cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for total interest-bearing liabilities.
(4) Net interest margin equals net interest income for the period (annualized)
divided by average interest-earning assets.
85
<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following table presents changes in interest income, interest expense
and net interest income which are attributable to changes in the average
amounts of interest-earning assets and interest-bearing liabilities
outstanding and/or to changes in rates earned or paid thereon.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1995 VS. 1994
----------------------
INCREASE (DECREASE)
DUE TO (1)
----------------------
VOLUME RATE TOTAL
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans................................................ $390 $375 $765
Securities........................................... 143 16 159
Federal funds sold................................... (44) 35 (9)
Interest-bearing deposits............................ (22) 9 (13)
------ ------ ------
Total interest income.................................. 467 435 902
------ ------ ------
Interest expense:
Deposits............................................. 128 107 235
Borrowed funds....................................... 42 44 86
------ ------ ------
Total interest expense................................. 170 151 321
------ ------ ------
Net interest income.................................... $297 $284 $581
====== ====== ======
</TABLE>
- --------
(1) The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1995 AS COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1994.
Net Income. Centerpoint earned net income of $420,000, or $0.71 per share of
common stock, for the six months ended June 30, 1995 as compared to $310,000,
or $0.52 per share of common stock, in the comparable period in 1994. For the
six months ended June 30, 1995, Centerpoint recorded net interest income of
$2,166,000, resulting in a net interest margin on average earning assets of
6.57%, compared to $1,585,000 and 5.66%, respectively, for the six months
ended June 30, 1994. Average interest-earning assets for the six months ended
June 30, 1995 were $65,420,000 with an average yield of 9.22%, compared to
$55,379,000 and 7.62%, respectively, for the comparable period in 1994.
Average interest-bearing liabilities for the six months ended June 30, 1995
were $48,929,000 with an average cost of funds of 3.54%, compared to
$41,969,000 and 2.58%, respectively, for the comparable period in 1994.
Net Interest Income. For the six months ended June 30, 1995, interest and
fees on loans increased by $765,000, or 45.5%, over amounts for the comparable
period in 1994. Loan interest and fee income increased due to growth in the
average balance of loans outstanding combined with an increase in average
interest rates earned on such loans. The average balance of loans outstanding
increased by $8,166,000, or 21.8%, for the six months ended June 30, 1995 over
the comparable period in 1994, resulting in an increase of interest and fee
income on loans due to volume of $390,000. The average interest rates earned
on loans increased to 10.68% for the six months ended June 30, 1995 compared
to 8.89% for the six months ended June 30, 1994, resulting in an increase of
interest and fee income on loans due to rates of $375,000.
For the six months ended June 30, 1995, interest income on securities
increased by $159,000, or 44.9%, from amounts earned for the comparable period
in 1994. The increase in securities interest income was due to
86
<PAGE>
the combined effects of growth in the average balance of securities and an
increase in interest rates. The average balance of securities for the six
months ended June 30, 1995 increased by $4,917,000, or 39.0%, over the
comparable period in 1994. The average interest rates earned on securities
increased to 5.85% for the six months ended June 30, 1995 from 5.61% for the
six months ended June 30, 1994. Interest income on federal funds sold
decreased by $9,000, or 13.2%, for the six months ended June 30, 1995 from the
comparable period in 1994. The net decrease in interest income on federal
funds was the result of a decrease in volume, partially offset by an increase
in rates.
Interest expense on deposits increased by $235,000, or 46.8%, for the six
months ended June 30, 1995 as compared to the same period in 1994. The
increase was due to a combination of growth in the average balance of
interest-bearing deposits and increases in the interest rates paid on such
deposits. The average balance of interest-bearing deposits outstanding
increased by $4,375,000, or 11.1%, during the six months ended June 30, 1995
over the comparable period in 1994, resulting in an increase in interest
expense on interest-bearing deposits due to volume of $128,000. The average
rate paid on interest-bearing deposits increased to 3.38% for the six months
ended June 30, 1995 compared to 2.55% over the comparable period in 1994,
resulting in an increase in interest expense on interest-bearing deposits due
to rates of $107,000.
Interest expense on borrowed funds increased by $86,000, or 238.9%, during
the six months ended June 30, 1995 over the comparable period in 1994. The
increase was due to the combination of increases in both volume and interest
rates paid on borrowed funds. The average balance on borrowings outstanding
increased by $2,585,000, or 108.2%, during the six months ended June 30, 1995
over the comparable period in 1994, resulting in an increase of interest
expense on borrowings due to volume of $42,000. The average interest rates
paid on borrowings increased to 4.95% during the six months ended June 30,
1995 from 3.03% for the same period in 1994, resulting in an increase of
interest expense on borrowings due to rates of $44,000. The increase in
borrowings can be attributed to Centerpoint's implementation of a more
formalized cash management program, which expanded the services it provides to
its commercial customers through the use of repurchase agreements.
The above factors contributed to an overall increase of net interest income
of $581,000, or 36.7%, for the six months ended June 30, 1995 as compared to
the six months ended June 30, 1994.
Future net interest income levels will be dependent on Centerpoint's ability
to control levels of non-performing assets, earn sufficient returns on earning
assets by achieving a proper mix of loans and short- and long-term securities,
and maintain its proportion of non-interest-bearing deposits and transaction
accounts. Future net interest income levels will also be dependent on future
interest rate levels.
Provision for Loan Losses. In determining an appropriate provision for
possible loan losses for any period, management evaluates the adequacy of its
allowance for loan losses. Management's periodic evaluation of the adequacy of
the allowance is based on Centerpoint's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates
(including the amounts and timing of future cash flows expected to be received
on impaired loans) that may be susceptible to significant change.
Loan loss provisions for the six months ended June 30, 1995 were $150,000 as
compared to $116,000 for the six months ended June 30, 1994. Charge-offs were
$22,000 and $44,000 for the six months ended June 30, 1995 and the comparable
period ended June 30, 1994, respectively. The increase in the provision was a
result of loan growth. During the six months ended June 30, 1995, Centerpoint
realized recoveries of previously charged-off amounts totaling $4,000. At June
30, 1995, the allowance for loan losses was $554,000, or 1.1% of total loans,
compared to $422,000, or 1.0%, at December 31, 1994. See Notes 1 and 5 of
Notes to the Centerpoint Financial Statements.
Other Income and Expenses. Customer service fees increased slightly to
$76,000 for the six months ended June 30, 1995 as compared to $74,000 for the
comparable period in 1994. The small net increase, despite increases in total
deposit balances, results from decreases in fees on transaction accounts.
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<PAGE>
Other expenses increased by $254,000, or 21.3%, for the six months ended
June 30, 1995 as compared to the six months ended June 30, 1994. The increase
was primarily the result of increased staffing and occupancy expense incurred
as a result of branch expansion.
Income Taxes. Centerpoint's income tax expense for the six months ended June
30, 1995 was $225,000, or 34.9% of pretax earnings, as compared to $39,000, or
11.2%, for the comparable period in 1994. The 1994 effective tax rate differed
from the federal statutory rate of 34% primarily due to the partial
elimination of the remaining valuation allowance against deferred tax assets
as it became evident that it was more likely than not that all of the deferred
tax assets would be realized.
FINANCIAL CONDITION
Loans. The majority of the asset growth was in the loan portfolio. Total
loans were $50,509,000, or 62.1% of total assets at June 30, 1995, compared
with $41,875,000, or 60.9% of total assets at December 31, 1994. During the
1995 period, Centerpoint experienced significant loan growth in commercial
real estate and commercial loans. Commercial real estate loans increased by
$1,977,000, or 11.2%, and totaled $19,652,000 at June 30,1995, compared to
$17,675,000 at December 31, 1994. Approximately 90% of Centerpoint's
commercial real estate loans outstanding at June 30, 1995 have been made to
owner-occupied businesses. Even though these loans are collateralized by real
estate, the primary repayment source is cash flow generated by the related
business. Commercial loans increased by $3,548,000, or 23.0%, and totaled
$18,956,000 at June 30, 1995, compared to $15,408,000 at December 31, 1994.
Residential construction loans increased by $1,123,000, or 37.9%, and totaled
$4,089,000 at June 30, 1995, compared to $2,966,000 at December 31, 1994.
These increases can be attributed primarily to management's referral network
and providing additional services to businesses and professionals with whom
Centerpoint has existing relationships. Installment loans increased by
$1,632,000, or 54.6%, and totaled $4,623,000 at June 30, 1995, compared to
$2,991,000 at December 31, 1994. This increase can be attributed to the
purchase of auto loans from Community. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT,"
"CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO CENTERPOINT--Loan
Portfolio" and Note 4 of Notes to the Centerpoint Financial Statements.
Asset Quality. The aggregate amount of non-accrual loans, restructured
loans, and other loans past due 90 days and still accruing totaled $196,000 at
June 30, 1995 compared to $54,000 at year-end 1994. Centerpoint had no "other
real estate owned" as of June 30, 1995 or December 31, 1994. Non-performing
assets as a percent of total loans increased to 0.4% at June 30, 1995 from
0.1% at December 31, 1994. At June 30, 1995, Centerpoint had one commercial
loan in the amount of $145,000 for which payments were current, but the
borrower was experiencing financial difficulties. This loan was placed on non-
accrual in September 1995.
It is management's policy to discontinue the accrual of interest on a loan
when there is reasonable doubt as to its collectibility. The accrual of income
on some loans, however, may continue even though they are more than 90 days
past due if the loans are both well secured and in the process of collection
and if management deems it appropriate.
While Centerpoint considers the allowance for loan losses to be adequate at
June 30, 1995, it is not able to predict the future of the local economy.
Given this uncertainty, any declines in the local economy could result in
additional provisions for loan losses, additional charge-offs, changes in the
level of the allowance for loan losses, and increases in the level of non-
performing assets.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CENTERPOINT," "CERTAIN STATISTICAL AND OTHER INFORMATION WITH
RESPECT TO CENTERPOINT--Non-accrual, Past Due, Restructured, and Potential
Problem Loans," "--Summary of Loan Loss Experience" and "--Allowance for Loan
Loss Allocation" and Notes 1 and 5 of Notes to the Centerpoint Financial
Statements.
88
<PAGE>
Securities. Securities totaled $17,009,000 and $17,113,000 at June 30, 1995
and December 31, 1994, respectively. The portfolio is comprised primarily of
mortgage-backed and U.S. Treasury securities. The total securities portfolio
had an expected average life of less than four years at June 30, 1995.
At June 30, 1995, securities available for sale and held-to-maturity totaled
$4,814,000 and $11,989,000, respectively, which represented 28.3% and 70.5%,
respectively, of total securities. Centerpoint, as a member of the Federal
Home Loan Bank of Boston, owned Federal Home Loan Bank stock of $206,000 at
June 30, 1995 as compared to $180,000 at December 31, 1994. Unrealized net
losses on securities available for sale, net of applicable taxes, amounted to
$177,000 at June 30, 1995.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CENTERPOINT," "CERTAIN STATISTICAL AND OTHER INFORMATION WITH
RESPECT TO CENTERPOINT--Securities Portfolio" and Note 3 of Notes to the
Centerpoint Financial Statements.
Deposits. Interest-bearing deposit balances at June 30, 1995 totaled
$43,219,000 compared to $44,226,000 at year-end 1994, a decrease of
$1,007,000, or 2.3%. Regular savings balances totaled $11,019,000 at June 30,
1995 compared to $14,616,000 at December 31, 1994, a decrease of $3,597,000,
or 24.6%. This decline can be attributed primarily to three large commercial
customers moving their deposits from regular savings to Centerpoint's
repurchase agreement product. Management attributes the movement of funds from
core deposits to repurchase agreements to the combination of commercial
customers seeking both collateral for their deposits and/or higher rates of
return. Time certificates of deposit totaled $19,773,000 at June 30, 1995
compared to $17,189,000 at December 31, 1994, an increase of $2,584,000, or
15.0%. Demand deposits totaled $21,409,000 at June 30, 1995 compared to
$16,619,000 at December 31, 1994, an increase of $4,790,000, or 28.8%. These
increases can be attributed to Centerpoint's strategy of building full banking
relationships with its business customers. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT,"
"CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO CENTERPOINT--
Deposits" and Note 7 of Notes to the Centerpoint Financial Statements.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Centerpoint maintains numerous sources of liquidity in the form of
marketable assets and borrowing capacity. Sources of liquidity include
interest-bearing deposits with other banks, federal funds sold, available for
sale securities, and regular cash flows from loan and securities portfolios.
The investment portfolio is predominantly made up of securities which can be
readily utilized for the repurchase agreement market. Additionally, at June
30, 1995, Centerpoint had lines of credit with both the Federal Home Loan Bank
of Boston (FHLBB) and State Street Bank and Trust of $3,000,000 and $500,000,
respectively.
Centerpoint evaluates its sensitivity to changes in interest rates by
monitoring the timing of repricing of interest-sensitive assets compared to
interest-sensitive liabilities. This is commonly known as an interest rate
sensitivity analysis. The interest rate sensitivity gap is the difference
between rate sensitive assets and rate sensitive liabilities. A positive gap
exists when rate sensitive assets exceed rate sensitive liabilities and
indicates that a greater volume of assets than liabilities will be impacted by
changes in interest rates during the stated period. With a positive gap,
earnings will generally increase when rates rise and decrease when rates
decline within the period. Conversely, when rate sensitive liabilities exceed
rate sensitive assets, the gap is referred to as negative and indicates that a
greater volume of liabilities than assets will be impacted by changes in
interest rates during the period. With a negative gap, earnings will generally
decrease when rates rise and increase when rates decline within the period.
Centerpoint seeks to insulate itself from interest rate risk over the near
term. Toward that end, Centerpoint monitors the relative volume, maturity and
yields of interest-earning assets and interest-bearing liabilities over
various time horizons, with particular emphasis on the immediate one year time
horizon.
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<PAGE>
The following table illustrates the excess (or deficiency) of interest-
earning assets over interest-bearing liabilities at June 30, 1995. Due to
Centerpoint's positive gap, increases in interest rates would generally
enhance earnings and decreases in rates would generally inhibit earnings.
INTEREST RATE SENSITIVITY ANALYSIS AT JUNE 30, 1995
<TABLE>
<CAPTION>
SENSITIVITY PERIOD
-----------------------------------------------------
1 1-3 3-6 6 MONTHS- OVER 1
MONTH MONTHS MONTHS 1 YEAR YEAR TOTAL
------- ------- ------ --------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and mortgage
loans held for
resale(1)............. $17,239 $5,586 $7,247 $ 8,241 $12,188 $50,501
Securities and oth-
er(2)................. 3,502 1,144 225 2,983 12,552 20,406
------- ------- ------ ------- ------- -------
Total................ $20,741 $6,730 $7,472 $11,224 $24,740 $70,907
======= ======= ====== ======= ======= =======
Interest-bearing liabili-
ties:
Deposits............... $11,416 $5,079 $3,523 $ 4,769 $18,432 $43,219
Borrowings............. 9,536 19 -- 3 695 10,253
------- ------- ------ ------- ------- -------
Total................ $20,952 $5,098 $3,523 $ 4,772 $19,127 $53,472
======= ======= ====== ======= ======= =======
Period Sensitivity Gap... $ (211) $ 1,632 $3,949 $ 6,452 $ 5,613 $17,435
======= ======= ====== ======= ======= =======
Cumulative Sensitivity
Gap..................... $ (211) $ 1,421 $5,370 $11,822 $17,435 $17,435
======= ======= ====== ======= ======= =======
Cumulative excess
(deficiency) as a
percent of total rate
sensitive assets........ (0.30)% 2.00% 7.57% 16.67% 24.59%
======= ======= ====== ======= =======
</TABLE>
- --------
(1) Net of deferred loan fees. Non-accrual and overdraft loans are excluded
from loans and mortgage loans held for resale.
(2) Securities are reported gross of unrealized gains and losses.
CAPITAL
At June 30, 1995 and December 31, 1994, the FDIC required minimum total and
Tier 1 risk-based capital ratios required for "well-capitalized" banks were
10% and 6%, respectively. Centerpoint's total risk-based capital ratios at
June 30, 1995 and December 31, 1994 were 11.42% and 12.30%, respectively, and
its Tier 1 risk-based capital ratios were 10.41% and 11.40%, respectively.
To complement risk-based capital guidelines, the FDIC adopted a Tier 1
leverage capital ratio of 3% for the most highly rated banks and up to 5% for
other banks. The leverage ratios are used in tandem with the risk-based
capital requirements as the minimum capital standards for banks. Centerpoint's
Tier 1 leverage capital ratios were 7.84% and 7.80% at June 30, 1995 and
December 31, 1994, respectively.
During 1995, Centerpoint declared a common stock dividend of $0.075 per
share.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CENTERPOINT," "CERTAIN STATISTICAL AND OTHER INFORMATION WITH
RESPECT TO CENTERPOINT--Return on Shareholders' Equity and Assets" and Note 11
of Notes to the Centerpoint Financial Statements.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CENTERPOINT
THREE YEARS ENDED DECEMBER 31, 1994
HIGHLIGHTS
Centerpoint earned net income of $778,000, or $1.32 per share of common
stock, for the year ended December 31, 1994. Earnings for the years ended
December 31, 1993 and 1992 were $365,000, or $ 0.59 per share of common stock,
and $171,000, or $0.34 per share of common stock, respectively. The 1992
earnings per share of common stock of $0.34 includes a $0.11 extraordinary
credit for the reduction of income taxes from utilization of operating loss
carryforwards.
At December 31, 1994, Centerpoint had total assets of $68,738,000, an
increase of $8,505,000, or 14.1%, from $60,233,000 at December 31, 1993. Loans
(primarily commercial and commercial real estate) provided the majority of the
asset growth for the year ended December 31, 1994.
At December 31, 1994, Centerpoint's equity to assets ratio was 7.32%, its
Tier 1 leverage ratio was 7.80% and its total risk-based capital ratio was
12.30%, all of which exceeded published regulatory minimums. The comparable
capital ratios for December 31, 1993 were 8.11%, 7.30% and 12.40%,
respectively.
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to Centerpoint's
average balance sheet, including interest-earning assets, interest-bearing
liabilities and net interest income for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1993 1992
------------------------ ------------------------ ------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans(1)............... $39,448 $3,722 9.44% $30,585 $2,665 8.71% $21,822 $2,017 9.24%
Securities(2).......... 15,048 848 5.64 10,916 638 5.84 11,076 711 6.42
Federal funds sold..... 3,733 150 4.02 4,235 129 3.05 3,451 118 3.42
Interest-bearing
deposits.............. 221 10 4.52 45 1 2.22 -- 1 --
------- ------ ------- ------ ------- ------
Total interest-earning
assets................. 58,450 4,730 8.09 45,781 3,433 7.50 36,349 2,847 7.83
------ ------ ------
Non interest-earning
assets:
Cash and due from
banks................. 4,280 4,244 2,998
Premises and equipment,
net................... 633 624 606
Other assets........... 523 610 578
Less allowance for loan
losses................. (416) (324) (150)
------- ------- -------
Total assets........... $63,470 $50,935 $40,381
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing
liabilities:
Regular savings........ $17,157 $ 436 2.54% $14,030 $ 387 2.76% $10,035 $ 356 3.55%
NOW accounts........... 6,896 108 1.57 5,624 102 1.81 3,760 98 2.61
Money market accounts.. 4,754 116 2.44 3,701 95 2.57 3,035 96 3.16
Time certificates of
deposit............... 13,004 521 4.01 9,045 323 3.57 9,942 438 4.41
Borrowed funds......... 2,176 72 3.31 1,690 45 2.66 2,503 76 3.04
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities............ 43,987 1,253 2.85 34,090 952 2.79 29,275 1,064 3.63
------ ------ ------
Non interest-bearing
liabilities:
Demand deposits........ 14,104 11,806 7,517
Other liabilities...... 580 264 77
------- ------- -------
Total liabilities...... 58,671 46,160 36,869
Shareholders' equity.... 4,799 4,775 3,512
------- ------- -------
Total liabilities and
shareholders' equity.. $63,470 $50,935 $40,381
======= ======= =======
Net interest
income/interest rate
spread(3).............. $3,477 5.24% $2,481 4.71% $1,783 4.20%
====== ====== ======
Net interest margin(4).. 5.95% 5.42% 4.91%
</TABLE>
- --------
(1) Includes non-accrual loans.
(2) Securities are shown at average amortized cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for total interest-bearing liabilities.
(4) Net interest margin equals net interest income for the period (annualized)
divided by average interest-earning assets.
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<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following table presents changes in interest income, interest expense
and net interest income which are attributable to changes in the average
amounts of interest-earning assets and interest-bearing liabilities
outstanding and/or to changes in rates earned or paid thereon.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 VS. 1993 1993 VS. 1992
---------------------- ---------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO (1) DUE TO (1)
---------------------- ---------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ------- ------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans............................. $ 822 $ 235 $ 1,057 $ 769 $ (121) $ 648
Securities........................ 234 (24) 210 (10) (63) (73)
Federal funds sold................ (17) 38 21 25 (14) 11
Interest-bearing deposits......... 7 2 9 -- -- --
----- ----- ------- ----- ------ -----
Total interest income............... 1,046 251 1,297 784 (198) 586
Interest expense:
Deposits.......................... 283 (9) 274 143 (224) (81)
Borrowed funds.................... 15 12 27 (22) (9) (31)
----- ----- ------- ----- ------ -----
Total interest expense.............. 298 3 301 121 (233) (112)
----- ----- ------- ----- ------ -----
Net interest income................. $ 748 $ 248 $ 996 $ 663 $ 35 $ 698
===== ===== ======= ===== ====== =====
</TABLE>
- --------
(1) The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO YEAR ENDED
DECEMBER 31, 1993
Net Income. Centerpoint earned net income of $778,000, or $1.32 per share of
common stock, for the year ended December 31, 1994 as compared to $365,000, or
$0.59 per share of common stock, for the year ended December 31, 1993. For the
year ended December 31, 1994, Centerpoint recorded net interest income of
$3,477,000, resulting in a net interest margin on average earning assets of
5.95%, compared to $2,481,000 and 5.42%, respectively, for the year ended
December 31, 1993. Average interest-earning assets for the year ended December
31, 1994 were $58,450,000 with an average yield of 8.09%, compared to
$45,781,000 and 7.50%, respectively, for the year ended December 31, 1993.
Average interest-bearing liabilities for the year ended December 31, 1994 were
$43,987,000 with an average cost of funds of 2.85%, compared to $34,090,000
and 2.79%, respectively, for the year ended December 31, 1993.
Net Interest Income. During 1994, interest income and fees on loans
increased by $1,057,000, or 39.7%, over amounts earned in 1993. Loan interest
and fee income increased due to growth in the average balance of loans
outstanding combined with an increase in average interest rates earned on such
loans. The average balance of loans outstanding increased by $8,863,000, or
29.0%, in 1994 over 1993, resulting in an increase of interest and fee income
on loans due to volume of $822,000. The average interest rates earned on loans
increased from 8.71% in 1993 to 9.44% in 1994, resulting in an increase of
interest and fee income on loans due to rates of $235,000.
During 1994, interest income on securities increased by $210,000, or 32.9%,
from amounts earned in 1993. The increase in securities interest income was
due to the growth in the average balance of securities outstanding partially
offset by a slight decrease in rates. The 1994 average balance of securities
increased by $4,132,000, or 37.9%, from the 1993 average balance. The average
interest rates earned on securities decreased from 5.84% in 1993 to 5.64% in
1994. Interest income on federal funds sold increased by $21,000, or 16.3%, in
1994 over
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<PAGE>
1993. The increase in interest income on federal funds as a result of
increases in interest rates was $38,000. This increase was partially offset by
a decline in the average volume of federal funds.
Interest expense on deposits increased by $274,000, or 30.2%, in 1994 as
compared to 1993. The increase was due to growth in the average balance of
interest-bearing deposits of $9,411,000, or 29.1%, in 1994 from 1993. The
total average yield on interest-bearing deposits remained relatively constant
during 1994 and 1993 at 2.83% and 2.80%, respectively. Due to lower rates
paid, the cost of core deposits was 2.29% in 1994 as compared to 2.50% in
1993, while the cost of time certificates of deposit increased to 4.01% in
1994 as compared to 3.57% in 1993. Interest rates on deposits generally
remained low during the first several months of 1994 and gradually increased
later in the year.
Interest expense on borrowed funds increased by $27,000, or 60.0%, in 1994
over 1993. The increase was due to the combination of both increases in volume
and in interest rates paid on average borrowed funds. The average balance on
borrowings outstanding increased by $486,000, or 28.8%, in 1994 over 1993,
resulting in an increase of interest expense on borrowings due to volume of
$15,000. The increase in average interest rates paid on borrowings in 1994 was
3.31% compared to 2.66% in 1993, resulting in an increase of interest expense
on borrowings due to rates of $12,000.
The above factors contributed to an overall increase of net interest income
of $996,000, or 40.2%, for 1994 as compared to 1993.
Future net interest income levels will be dependent on Centerpoint's ability
to control levels of non-performing assets, earn sufficient returns on earning
assets by achieving a proper mix of loans and short- and long-term securities,
and maintain its proportion of non-interest-bearing deposits and transaction
accounts. Future net interest income levels will also be dependent on future
interest rate levels.
Provision For Loan Losses. In determining an appropriate provision for
possible loan losses for any period, management evaluates the adequacy of its
allowance for loan losses. Management's periodic evaluation of the adequacy of
the allowance is based on Centerpoint's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates
(including the amounts and timing of future cash flows expected to be received
on impaired loans) that may be susceptible to significant change. The
allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable loan losses.
Loan loss provisions during 1994 were $268,000 as compared to $250,000 for
1993. Charge-offs were $207,000 and $242,000 in 1994 and 1993, respectively.
The increase in the provision was primarily a result of growth in the loan
portfolio. See Notes 1 and 5 of Notes to the Centerpoint Financial Statements.
During 1994, Centerpoint realized recoveries of previously charged-off amounts
totaling $32,000. At year end 1994, the allowance for loan losses was
$422,000, or 1.0%, of total loans, compared to $329,000, or 1.0%, at year-end
1993. Centerpoint had no "other real estate owned" as of December 31, 1994 or
1993.
Other Income and Expenses. During the years ended December 31, 1994 and
1993, debt securities (for 1994, securities classified as available-for-sale)
with a fair value at the date of sale of $1,149,000 and $3,899,000,
respectively, were sold. The gross realized gains on such sales totaled $6,000
and $124,000, respectively, and the gross realized losses totaled $7,000 and
$0, respectively. These securities were sold in order to manage Centerpoint's
asset-liability and liquidity positions.
Customer service fees were $163,000 in 1994 as compared to $143,000 in 1993,
representing an increase of $20,000, or 14.0%. These fees were up largely as a
result of increases in transaction volumes resulting from balance sheet
growth.
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<PAGE>
Other expenses increased by $335,000, or 15.7%, in 1994 as compared to 1993.
The increase was primarily the result of the combined effects of higher
transaction volumes due to balance sheet growth and increased staffing and
other expenses incurred in preparation for the February 1995 opening of the
new Amherst Street branch office located in Nashua, New Hampshire.
Income Taxes. Centerpoint's income tax expense for 1994 was $125,000, or
13.8% of pretax earnings. The effective tax rate differed from the federal
statutory rate of 34% primarily due to the elimination of the remaining
valuation allowance against deferred tax assets as it became evident that it
was more likely than not that all of the deferred tax assets would be
realized. There was no provision for income taxes in 1993 due to the reduction
of a portion of the valuation allowance against deferred tax assets. See Note
8 of Notes to the Centerpoint Financial Statements.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1993 AS COMPARED TO YEAR ENDED
DECEMBER 31, 1992
Net Income. Centerpoint earned net income of $365,000, or $0.59 per share of
common stock, for the year ended December 31, 1993 as compared to $171,000, or
$0.34 per share of common stock, for the year ended December 31, 1992. For the
year ended December 31, 1993, Centerpoint recorded net interest income of
$2,481,000, resulting in a net interest margin on average earning assets of
5.42%, compared to $1,783,000 and 4.91%, respectively, for the year ended
December 31, 1992. Average interest-earning assets for the year ended
December 31, 1993 were $45,781,000 with an average yield of 7.50%, compared to
$36,349,000 and 7.83%, respectively, for the year ended December 31, 1992.
Average interest-bearing liabilities for the year ended December 31, 1993 were
$34,090,000 with an average cost of funds of 2.79%, compared to $29,275,000
and 3.63%, respectively, for the year ended December 31, 1992.
Net Interest Income. During 1993, interest and fees on loans increased by
$648,000, or 32.1%, over amounts earned in 1992. The increase in loan interest
and fee income was due to the growth in the average balance of loans
outstanding and was partially offset by the effect of declines in the average
interest rates earned on such loans. The average balance of loans outstanding
increased by $8,763,000, or 40.2%, in 1993 over 1992 resulting in an increase
of interest and fee income on loans due to volume of $769,000. The average
interest rates earned on loans decreased from 9.24% in 1992 to 8.71% in 1993,
resulting in a decline in interest and fee income on loans due to rates of
$121,000.
During 1993, interest income on securities decreased by $73,000, or 10.3%,
from amounts earned in 1992. The decrease was primarily due to lower average
interest rates of 5.84% earned on securities in 1993, down from 6.42% in 1992.
Interest expense on deposits decreased by $81,000, or 8.2%, in 1993 as
compared to 1992 due primarily to the general decline in interest rates. The
average balance of interest-bearing deposits increased by $5,628,000, or
21.0%, in 1993 in comparison to 1992, which resulted in increased interest
expense due to volume of $143,000. The total average cost of interest rates
paid on interest-bearing deposits decreased to 2.80% in 1993 as compared to
3.69% in 1992, which resulted in a decrease in interest expense due to rates
of $224,000.
Interest expense on borrowed funds decreased by $31,000, or 40.8%, in 1993
over 1992. The decrease was due to the combination of declines in both
interest rates paid and balances of average borrowed funds.
The above factors contributed to an overall increase in net interest income
of $698,000, or 39.2%, for 1993 as compared with 1992.
Provision for Loan Losses. The provision for loan losses during 1993 was
$250,000, compared to $170,000 during 1992. The increase in the provision was
a result of growth in the loan portfolio. Loans of $242,000 were charged to
the allowance for loan losses during 1993, and recoveries amounted to $44,000.
At year end 1993, the allowance for loan losses was $329,000, or 1.0% of total
loans, compared to $277,000, or 1.2%, at year end 1992. See Notes 1 and 5 of
Notes to the Centerpoint Financial Statements.
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<PAGE>
Other Income and Expenses. Gross gains from securities transactions in 1993
were $124,000 on sales of $3,899,000, as compared to gross gains in 1992 of
$8,000 on sales of $518,000. These securities were sold in order to manage
Centerpoint's asset-liability and liquidity positions.
Customer service fees were $143,000 in 1993 as compared to $117,000 in 1992.
The $26,000, or 22.2%, increase was primarily due to increases in transaction
volumes resulting from balance sheet growth.
Other expenses increased by $566,000, or 36.1%, in 1993 as compared to 1992.
The increase was primarily attributable to the combined effects of higher
transaction volumes due to balance sheet growth and increased staffing and
other expenses incurred in connection with the June 1993 opening of the Elm
Street branch office located in Manchester, New Hampshire.
Income Taxes. There was no provision for income taxes for 1993 due to the
reduction of a portion of the valuation allowance against deferred tax assets
as a result of a reduction in total deferred tax assets under FAS Statement
109 (adopted effective January 1, 1993). The provision for income taxes for
1992 was reduced to zero as a result of the utilization of operating loss
carryforwards for financial reporting purposes (reflected as an extraordinary
credit). See Note 8 of the Notes to the Centerpoint Financial Statements.
FINANCIAL CONDITION
Loans. The majority of the asset growth in 1994 was in the loan portfolio.
Total loans were $41,875,000, or 60.9% of total assets at December 31, 1994,
compared with $32,535,000, or 54.0% of total assets at December 31, 1993.
During 1994, Centerpoint experienced loan growth in commercial real estate and
commercial loans. Commercial real estate loans increased by $4,164,000, or
30.8%, and totaled $17,675,000 at December 31, 1994, compared to $13,511,000
at December 31, 1993. Approximately 90% of Centerpoint's commercial real
estate loans outstanding at December 31, 1994 have been made to owner-occupied
businesses. Even though these loans are collateralized by real estate, the
primary repayment source is cash flow generated by the related business.
Commercial loans increased by $1,959,000, or 14.6%, and totaled $15,408,000 at
December 31, 1994, compared to $13,449,000 at December 31, 1993. Additionally,
Centerpoint's consumer loan products (residential real estate, residential
construction, installment and home equity loans) increased by $3,217,000, or
57.7%, and totaled $8,792,000 at December 31, 1994, compared to $5,575,000 at
December 31, 1993. These increases can be attributed to management's referral
network and providing additional services to businesses and professionals with
whom Centerpoint has existing relationships. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT,"--
"CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO CENTERPOINT--Loan
Portfolio" and Note 4 of Notes to the Centerpoint Financial Statements.
Asset Quality. The aggregate amount of non-accrual loans, restructured
loans, and other loans past due 90 days and still accruing totaled $54,000 at
the end of 1994 compared to $127,000 at the end of 1993. Centerpoint had no
"other real estate owned" as of December 31, 1994, 1993 or 1992. Non-
performing assets as a percent of total loans decreased to 0.1% at December
31, 1994 from 0.4% at December 31, 1993.
It is management's policy to discontinue the accrual of interest on a loan
when there is reasonable doubt as to its collectibility. The accrual of some
loans, however, may continue even though they are more than 90 days past due
if the loans are both well secured and in the process of collection and if
management deems it appropriate.
While Centerpoint considers the allowance for loan losses to be adequate at
December 31, 1994, it is not able to predict the future direction of the local
economy. Given this uncertainty, any declines in the local economy could
result in additional provisions for loan losses, additional charge-offs,
changes in the level of the allowance for loan losses, and increases in the
level of non-performing assets.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CENTERPOINT," "CERTAIN STATISTICAL AND OTHER
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<PAGE>
INFORMATION WITH RESPECT TO CENTERPOINT--Non-accrual, Past Due, Restructured,
and Potential Problem Loans," "--Summary of Loan Loss Experience" and "--
Allowance for Loan Loss Allocation" and Notes 1 and 5 of Notes to the
Centerpoint Financial Statements.
Securities. Securities totaled $17,113,000 and $15,004,000 at December 31,
1994 and 1993, respectively. The portfolio is comprised primarily of mortgage-
backed and U.S. Treasury securities. The total securities portfolio had an
expected average life of less than four years at December 31, 1994.
Effective January 1, 1994, Centerpoint adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". In accordance with the
Statement, management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are classified as held-to-maturity when
Centerpoint has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are carried at amortized historical
cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses, net of taxes, on available-for-sale securities are reported as a
separate component of shareholders' equity. Centerpoint does not have a
trading account and has no derivative financial instruments.
Prior to January 1, 1994, Centerpoint's securities were held-for-investment
and carried at amortized cost.
At December 31, 1994, securities available for sale and held-to-maturity
totaled $4,753,000 and $12,180,000, respectively, which represented 27.8% and
71.2%, respectively, of total securities. Centerpoint, as a member of the
Federal Home Loan Bank of Boston, owned Federal Home Loan Bank stock of
$180,000 at December 31, 1994 compared to $134,000 at December 31, 1993.
Unrealized net losses on securities available for sale, net of applicable
taxes, amounted to $348,000 at December 31, 1994.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CENTERPOINT," "CERTAIN STATISTICAL AND OTHER INFORMATION WITH
RESPECT TO CENTERPOINT--Securities Portfolio" and Note 3 of Notes to the
Centerpoint Financial Statements.
Deposits. Interest-bearing deposit balances at December 31, 1994 totaled
$44,226,000 compared to $37,043,000 at year-end 1993, an increase of
$7,183,000, or 19.4%. Demand deposits increased by $1,780,000 in 1994 from the
1993 year-end balance of $14,839,000. This increase can be attributed to
management's strategy in building full banking relationships with its business
customers. Regular savings decreased by $2,444,000, or 14.3%, from the 1993
year-end balance of $17,060,000. This decline can be primarily attributed to a
large commercial customer deposit being transferred to a time certificate of
deposit. Time certificates of deposit increased by $8,510,000, or 98.1%, in
1994 from the 1993 year-end balance of $8,679,000. This increase can be
primarily attributed to a certificate of deposit promotion utilized to
generate funds for continued asset growth and, to a lesser extent, the
transfer in of funds from regular savings. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTERPOINT,"
"CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO CENTERPOINT--
Deposits" and Note 7 of Notes to the Centerpoint Financial Statements.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Liquidity management involves Centerpoint's ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw
funds or borrowers needing assurance that sufficient funds will be available
to meet their credit needs. Interest rate sensitivity management seeks to
avoid fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates.
Centerpoint's most important liquidity source is liability liquidity, the
ability to raise new funds and to renew maturing liabilities in a variety of
markets. The most important factor in assuring liability liquidity is
maintaining the confidence of Centerpoint depositors. Funds are primarily
generated locally and regionally and
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<PAGE>
Centerpoint has no brokered deposits. Other types of assets, such as federal
funds sold, repurchase agreements and maturing loans, are supplemental sources
of liquidity. In addition, at December 31, 1994, Centerpoint had lines of
credit with both the Federal Home Loan Bank of Boston and State Street Bank
and Trust for $3,000,000 and $500,000, respectively.
Centerpoint evaluates its sensitivity to changes in interest rates by
monitoring the timing of repricing of interest-sensitive assets compared to
interest-sensitive liabilities. This is commonly known as an interest rate
sensitivity analysis. The interest rate sensitivity gap is the difference
between rate sensitive assets and rate sensitive liabilities. A positive gap
exists when rate sensitive assets exceed rate sensitive liabilities and
indicates that a greater volume of assets than liabilities will be impacted by
changes in interest rates during the stated period. With a positive gap,
earnings will generally increase when rates rise and decrease when rates
decline within the period. Conversely, when rate sensitive liabilities exceed
rate sensitive assets, the gap is referred to as negative and indicates that a
greater volume of liabilities than assets will be impacted by changes in
interest rates during the period. With a negative gap, earnings will generally
decrease when rates rise and increase when rates decline within the period.
Centerpoint seeks to insulate itself from interest rate risk over the near
term. Toward that end, Centerpoint monitors the relative volume, maturity and
yields of interest-earning assets and interest-bearing liabilities over
various time horizons, with particular emphasis on the immediate one year time
horizon. As evidenced by the following interest sensitivity table, due to
Centerpoint's positive gap, increases in rates would generally enhance
earnings and decreases in rates would generally inhibit earnings.
INTEREST RATE SENSITIVITY ANALYSIS
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
SENSITIVITY PERIOD
----------------------------------------------------------
1 1-3 3-6 6 MONTHS- OVER 1
MONTH MONTHS MONTHS 1 YEAR YEAR TOTAL
-------- -------- ------- --------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and mortgage
loans held for
resale(1)............ $ 15,153 $ 4,916 $ 6,276 $7,204 $ 9,678 $43,227
Securities and oth-
er(2)................ 1,772 250 369 1,679 14,758 18,828
-------- -------- ------- ------ ------- -------
Total............... $ 16,925 $ 5,166 $ 6,645 $8,883 $24,436 $62,055
======== ======== ======= ====== ======= =======
Interest-bearing liabil-
ities:
Deposits.............. $ 31,617 $ 677 $ 1,522 $2,047 $ 8,363 $44,226
Borrowings(3)......... 1,077 10 15 24 700 1,826
-------- -------- ------- ------ ------- -------
Total............... $ 32,694 $ 687 $ 1,537 $2,071 $ 9,063 $46,052
======== ======== ======= ====== ======= =======
Period Sensitivity Gap.. $(15,769) $ 4,479 $ 5,108 $6,812 $15,373 $16,003
======== ======== ======= ====== ======= =======
Cumulative Sensitivity
Gap.................... $(15,769) $(11,290) $(6,182) $ 630 $16,003 $16,003
======== ======== ======= ====== ======= =======
Cumulative excess (defi-
ciency) as a percent of
total rate sensitive
assets................. (25.41)% (18.19)% (9.96)% 1.02% 25.79%
======== ======== ======= ====== =======
</TABLE>
- --------
(1) Net of deferred loan fees. Non-accrual and overdraft loans are excluded
from loans and mortgage loans held for resale.
(2) Securities are reported gross of unrealized gains and losses.
(3) Excludes treasury, tax and loan deposit accounts.
CAPITAL
Centerpoint is subject to regulation by the FDIC, which has adopted certain
risk-based capital guidelines. The guidelines, which establish a risk-adjusted
ratio relating capital to different categories of balance sheet assets and
off-balance sheet obligations, require Centerpoint to maintain a minimum risk-
based capital ratio.
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<PAGE>
The guidelines define two categories of capital: Tier 1 or core capital
(primarily, common shareholders' equity and a limited amount of perpetual
preferred stock, less intangible assets) and Tier 2 or supplementary capital
(primarily, a limited amount of loan loss reserves, perpetual preferred stock
in excess of the amounts included in Tier 1 capital and certain "hybrid
instruments," including mandatory convertible debt). Qualifying (or total)
capital is the sum of Tier 1 and Tier 2 capital. According to the guidelines,
Tier 1 capital must represent at least 50% of qualifying total capital. Risk-
based capital ratio guidelines assign both balance sheet assets and off-
balance sheet obligations to one of four risk categories. At December 31, 1994
and 1993, the minimum total and Tier 1 risk-based capital ratios required for
"well-capitalized" banks were 10% and 6%, respectively. Centerpoint's total
risk-based capital ratios at December 31, 1994 and 1993 were 12.30% and
12.40%, respectively, and its Tier 1 risk-based capital ratios 11.40% and
11.20%, respectively.
To complement risk-based guidelines, the FDIC adopted a Tier 1 leverage
capital ratio of 3% for the most highly rated banks and up to 5% for other
banks which would represent the minimum capital to total assets standard for
banks. The leverage ratios are used in tandem with the risk-based capital
requirements as the minimum capital standards for banks. Centerpoint's Tier 1
leverage capital ratios were 7.80% and 7.30% at December 31, 1994 and 1993,
respectively.
During 1994, Centerpoint declared and paid its first common stock dividend
of $0.10 per share.
In December 1993, Centerpoint's Series A Preferred Stock was called for
redemption or exchange at a price of $8.00 per share. On January 1, 1994,
preferred shares outstanding totaled 62,581. During 1994, 35,624 preferred
shares were redeemed and 26,957 preferred shares were exchanged for common
shares. Although the Centerpoint Series A Preferred Stock was not includable
as qualifying capital for purposes of the above capital ratios, upon the
exchange of the preferred shares for common shares, Centerpoint's qualifying
capital increased by $216,000.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CENTERPOINT," "CERTAIN STATISTICAL AND OTHER INFORMATION WITH
RESPECT TO CENTERPOINT--Return on Shareholders' Equity and Assets" and Note 11
of Notes to the Centerpoint Financial Statements.
RECENT ACCOUNTING DEVELOPMENTS
On January 1, 1995, Centerpoint adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosure." These
statements generally require all creditors to account for impaired loans,
except those loans accounted for at fair value or at the lower of cost or fair
value, at the present value of the expected future cash flows discounted at
the loan's effective interest rate or, alternatively, at the fair value of the
loan's collateral. In addition, criteria for classification of a loan as in-
substance foreclosure has been modified so that such classification need be
made only when the lender is in possession of the collateral. These statements
also require troubled debt restructurings to be measured for impairment using
the pre-modification rate of interest as a discount rate. Adoption of these
statements had no material impact on Centerpoint's financial position or
results of operations.
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<PAGE>
CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO CENTERPOINT
Set forth below is certain statistical and other information relating to
Centerpoint. This information should be used in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Centerpoint" and the Centerpoint Financial Statements.
INVESTMENT PORTFOLIO
The following table sets forth the carrying values of Centerpoint's
investment securities at the dates indicated:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO- INVESTMENT
SECURITIES MATURITY SECURITIES SECURITIES
--------------------- --------------------- ------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994 1993
-------- ------------ -------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government agencies.... $ 989 $ 955 $ 4,977 $ 4,954 $ 200
Corporate securities.... 1,211 1,126 -- -- 1,995
Collateralized mortgage
obligations............ 798 782 2,345 2,381 4,658
Mortgage-backed securi-
ties................... 1,706 1,783 4,667 4,845 5,926
Other securities........ 110 107 -- -- 2,091
------ ------ ------- ------- -------
Total investment
securities........... $4,814 $4,753 $11,989 $12,180 $14,870
====== ====== ======= ======= =======
</TABLE>
The following table sets forth the maturities of Centerpoint's investment
securities at December 31, 1994 and the weighted average yields of such
securities:
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS
------------ ------------------- ----------------- -------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ---------- -------- --------- ------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities
and obligations of U.S.
Government agencies.... $ -- -- % $ 955 4.97% $ -- -- % $ -- -- %
Corporate securities.... -- -- 681 5.23 445 5.95 -- --
Collateralized mortgage
obligations............ -- -- -- -- -- -- 782 5.89
Mortgage-backed securi-
ties................... -- -- 271 7.88 10 8.72 1,502 6.68
Other securities........ 107 5.62 -- -- -- -- -- --
----- ---------- --------- -------
Total................. $ 107 5.62 $ 1,907 5.48 $ 455 6.01 $ 2,284 6.41
===== ========== ========= =======
Held to Maturity:
U.S. Treasury securities
and obligations of U.S.
government agencies.... $ 984 6.03% $ 3,970 6.05% $ -- -- % $ -- -- %
Collateralized mortgage
obligations............ -- -- -- -- -- -- 2,381 5.97
Mortgage-backed securi-
ties................... -- -- -- -- 4,845 5.39 -- --
----- ---------- --------- -------
Total................. $ 984 6.03 $ 3,970 6.05 $ 4,845 5.39 $ 2,381 5.97
===== ========== ========= =======
</TABLE>
At June 30, 1995, all of Centerpoint's mortgage-backed securities ("MBSs")
and collateralized mortgage-backed securities ("CMOs") were guaranteed by
FHLMC, FNMA or GNMA. All of Centerpoint's MBSs and CMOs bear a fixed interest
rate. The market values of MBSs and CMOs change with market and economic
conditions. The most significant factors affecting market value are
prepayments of the underlying loans and interest rates. As interest rates
increase, prepayments generally decline, causing an extension of the expected
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<PAGE>
maturity and a decline in market value. The converse is generally true when
interest rates decrease. The market value of fixed-rate MBSs and CMOs are
generally more sensitive to market interest rate changes than variable or
adjustable rate MBSs and CMOs. MBSs and CMOs are expected to have shorter
average lives than their contractual maturities because borrowers may repay
obligations without prepayment penalties.
Centerpoint's investment portfolio is managed by Centerpoint in accordance
with the investment policy established by the Investment Committee of
Centerpoint's Board of Directors and with the advice of professional
investment advisors. The objectives of Centerpoint's investment policy are to
provide liquidity, diversification of assets and earnings.
LOAN PORTFOLIO
The following table shows the composition of Centerpoint's loan portfolio at
the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------ ------------------
% OF % OF % OF
BALANCES PORTFOLIO BALANCES PORTFOLIO BALANCES PORTFOLIO
-------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $18,956 37.52% $15,408 36.80% $13,449 41.34%
Real estate:
Commercial............ 19,652 38.91 17,675 42.21 13,511 41.53
Residential........... 1,735 3.44 1,356 3.24 566 1.74
Residential
construction......... 4,089 8.10 2,966 7.08 2,148 6.60
Installment............. 4,623 9.15 2,991 7.14 2,051 6.30
Home equity and other... 1,454 2.88 1,479 3.53 810 2.49
------- ------ ------- ------ ------- ------
Total loans......... $50,509 100.00% $41,875 100.00% $32,535 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
NON-ACCRUAL, PAST DUE, RESTRUCTURED, AND POTENTIAL PROBLEM LOANS
The following table summarizes Centerpoint's non-accrual, past due and
restructured loans for the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------
1995 1994 1993
-------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-performing loans:
Non-accrual loans(1)............................ $196 $ 54 $ 87
Accruing loans past due 90 days or more......... -- -- --
Restructured loans.............................. -- -- 40
---- ------ ------
Total non-performing loans........................ $196 $ 54 $ 127
==== ====== ======
Total non-performing loans as a percentage of
Centerpoint's total loan portfolio............... 0.39% 0.13% 0.39%
==== ====== ======
</TABLE>
- --------
(1) Generally, a loan is classified as non-accrual and the accrual of interest
on such loan is discontinued when the contractual payment of principal or
interest has become 90 days past due or management has serious doubts
about further collectibility of principal or interest, even though the
loan currently is performing. A loan may remain on accrual status if it is
in the process of collection and is either guaranteed or well secured.
When a loan is placed on non-accrual status, unpaid interest credited to
income in the current year is reversed and unpaid interest accrued in
prior years is charged against the allowance for loan losses. Interest
received on non-accrual loans generally is either applied against
principal or reported as interest income, according to management's
judgement as to the collectibility of principal. Generally, loans are
restored to accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a reasonable period
of time and the ultimate collectibility of the total contractual principal
and interest is no longer in doubt.
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<PAGE>
Information with respect to Centerpoint's non-accrual and restructured loans
for the dates indicated is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------
1995 1994 1993
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual and restructured loans:
Commercial........................................ $196 $ 54 $ 87
Residential....................................... -- -- 40
---- ------ ------
Total non-accrual and restructured loans............ $196 $ 54 $ 127
==== ====== ======
Interest income that would have been recorded under
original terms..................................... $ 11 $ 6 $ 6
Interest income recorded during the period.......... $ 1 $ 3 $ 5
</TABLE>
At June 30, 1995, Centerpoint had one $145,000 commercial loan for which
payments were current, but the borrower was experiencing financial
difficulties. This loan was placed on non-accrual status in September, 1995.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes Centerpoint's activity in the allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ --------------
1995 1994 1994 1993
-------- -------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance at beginning of
period................................ $ 422 $ 329 $ 329 $ 277
Charge-offs:
Commercial........................... 22 -- 120 159
Home equity.......................... -- 44 87 83
-------- -------- ------ ------
Total charge-offs.................. 22 44 207 242
-------- -------- ------ ------
Recoveries:
Commercial........................... 2 14 15 44
Installment.......................... 2 -- -- --
Home equity.......................... -- 6 17 --
-------- -------- ------ ------
Total recoveries................... 4 20 32 44
-------- -------- ------ ------
Net charge-offs........................ 18 24 175 198
-------- -------- ------ ------
Provision for loan losses.............. 150 116 268 250
-------- -------- ------ ------
Balance of allowance at end of period.. $ 554 $ 421 $ 422 $ 329
======== ======== ====== ======
Ratio of net charge-offs to average
loans outstanding..................... 0.04% 0.06% 0.44% 0.65%
======== ======== ====== ======
</TABLE>
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay (including the timing of
future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective as it requires
material estimates, including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to
significant change.
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<PAGE>
ALLOWANCE FOR LOAN LOSSES ALLOCATION
The following table sets forth the breakdown of the allowance for loan
losses by loan type and the percentage of loans in each type at the dates
indicated. The allocation of the allowance to each loan type is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any type.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------ -------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
PERCENT PERCENT PERCENT
OF LOAN OF LOAN OF LOAN
TYPE TO TYPE TO TYPE TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance ap-
plicable to:
Commercial............ $193 37.52% $128 36.80% $128 41.34%
Real estate:
Commercial........... 197 38.91 174 42.21 130 41.53
Residential.......... 28 3.44 18 3.24 11 1.74
Residential construc-
tion................ 40 8.10 25 7.08 21 6.60
Installment........... 46 9.15 31 7.14 31 6.30
Home equity........... 14 2.88 14 3.53 8 2.49
Unallocated........... 36 -- 32 -- -- --
---- ------ ---- ------ ---- ------
Total allowance for
loan losses........ $554 100.00% $422 100.00% $329 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
DEPOSITS
The average daily amount of deposits and average rates paid on such deposits
is summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------
1995 1994 1993
----------------- ------------ ------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------- ------- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits........... $ 15,817 --% $14,104 --% $11,806 --%
Regular savings........... 12,444 2.59 17,157 2.54 14,030 2.76
NOW accounts.............. 7,486 1.62 6,896 1.57 5,624 1.81
Money market accounts..... 4,971 2.68 4,754 2.44 3,701 2.57
Time certificates of de-
posit.................... 19,054 4.77 13,004 4.01 9,045 3.57
--------- ------- -------
Total................... $ 59,772 $55,915 $44,206
========= ======= =======
</TABLE>
The average interest rates paid on total deposits, excluding noninterest
bearing deposits, at June 30, 1995 and December 31, 1994 and 1993, were 3.38%,
2.83%, and 2.80%, respectively.
Maturities of time certificates of deposit of $100,000 or more outstanding
at December 31, 1994, are summarized as follows:
<TABLE>
<S> <C>
3 months or less.................................................. $1,653
Over 3 through 6 months........................................... 109
Over 6 through 12 months.......................................... 523
Over 12 months.................................................... 1,427
------
Total........................................................... $3,712
======
</TABLE>
102
<PAGE>
SHORT-TERM BORROWINGS
The following table outlines Centerpoint's short-term borrowings and the
weighted average interest rates for the indicated periods. Also provided are
the maximum amount of borrowings and the average amounts outstanding as well
as weighted average interest rates.
<TABLE>
<CAPTION>
SECURITIES
SOLD UNDER FEDERAL
AGREEMENT FUNDS
TO REPURCHASE PURCHASED
------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at June 30, 1995............................... $9,531 $ --
Weighted average interest rate at period end........... 4.68% --%
Maximum amount outstanding during the period........... $9,531 $500
Average amount outstanding during the period........... $3,988 $178
Weighted average interest rate during the period....... 4.59% 6.33%
Balance at December 31, 1994........................... $1,371 $ --
Weighted average interest rate at year end............. 3.38% --%
Maximum amount outstanding during the year............. $3,953 $ --
Average amount outstanding during the year............. $1,466 $ 8
Weighted average interest rate during the year......... 2.20% 3.59%
Balance at December 31, 1993........................... $2,353 $ --
Weighted average interest rate at year end............. 1.58% --%
Maximum amount outstanding during the year............. $4,366 $ --
Average amount outstanding during the year............. $1,353 $ --
Weighted average interest rate during the year......... 1.62% --%
</TABLE>
103
<PAGE>
DESCRIPTION OF COMMUNITY CAPITAL STOCK
GENERAL
Community is authorized to issue 3,000,000 shares of Common Stock, par value
$1.00 per share, and 1,000,000 shares of Serial Preferred Stock, par value
$1.00 per share. No shares of Serial Preferred Stock have been issued.
If the proposed amendment to the Community Articles of Incorporation to
increase the authorized Community Common Stock is approved by the Community
shareholders at the Community Annual Meeting, Community would be authorized to
issue 4,500,000 shares of Common Stock, par value $1.00 per share. See
"INCREASE IN COMMUNITY'S AUTHORIZED COMMON STOCK."
COMMON STOCK
Each holder of Community Common Stock is entitled to one vote per share for
all purposes and does not have the right to cumulate his votes in the election
of directors. Subject to preferences that may be applicable to any outstanding
Serial Preferred Stock, each holder of Community Common Stock is entitled to
receive such dividends as may be declared by the Board of Directors in its
discretion from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Community, each holder of Community
Common Stock will be entitled to share in the assets of Community pro rata in
accordance with his holdings, after payment of liabilities and the liquidation
preference of any outstanding Serial Preferred Stock. The Community Common
Stock has no preemptive rights. Except as otherwise determined by the Board of
Directors or by applicable law, all voting rights are vested exclusively in
the holders of the Community Common Stock.
PREFERRED STOCK
The Community Board of Directors is authorized to issue 1,000,000 shares of
Serial Preferred Stock in one or more series and to fix the voting powers,
designations, preferences or other rights of the shares of each such series
and the qualifications, limitations and restrictions thereon.
Pursuant to this authority, the Community Board has established a series of
50,000 shares of preferred stock designated as Series A Preferred Stock, par
value $1.00 per share ("Series A Stock"), for issuance pursuant to Community's
Rights Agreement dated as of October 31, 1989 (the "Rights Agreement").
Pursuant to the Rights Agreement, Community declared a dividend distribution
of one preferred stock purchase right ("Right") for each outstanding share of
Community Common Stock. The dividend was payable on November 15, 1989 to
shareholders of record on October 31, 1989. The Rights Agreement provides that
certificates of shares of Community Common Stock issued after the October 31,
1989 record date but before the distribution date or the expiration date under
the Rights Agreement (neither of which date has occurred as of the date of
this Proxy Statement-Prospectus) are deemed also to evidence the Rights.
Each Right entitles the registered holder to purchase from Community one
one-hundredth of one share (a "Unit") of Series A Stock, at a price of $40 per
Unit, subject to adjustment. The Rights only become exercisable upon the
earliest to occur of (i) ten days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person")
has acquired, or obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding Community Common Stock, or (ii) ten days following the
commencement of a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person of 25% or more of the
outstanding shares of Community Common Stock, or (iii) the declaration by the
Board of Directors that any person is an "Adverse Person," as defined in the
Rights Agreement (the earliest of such dates being called the "Distribution
Date"). As of the date of this Proxy Statement-Prospectus, the Rights had not
become exercisable and no shares of Series A Stock had been issued.
If Community is acquired in a merger or other business combination
transaction or more than 50% of its assets or earning power are sold, the
Rights entitle holders to acquire common stock of the Acquiring Person
104
<PAGE>
having a value twice the exercise price of the Rights. The Rights may be
redeemed in whole, but not in part, at a price of $.01 per Right at any time
prior to the Distribution Date. The Rights expire on October 30, 1999.
Dividend Rights. Subject to the rights of the holders of any shares of any
series of preferred stock (or any other stock) ranking prior and superior to
the Series A Stock with respect to dividends, the holders of shares of Series
A Stock are entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in
each year (each such date, a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Stock, in an amount per share, subject to
certain adjustments, equal to 100 times the aggregate per share amount of all
cash dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions, other than a dividend
payable in shares of Community Common Stock, of Community or a subdivision of
the outstanding shares of Community Common Stock (by reclassification or
otherwise), declared on the Community Common Stock since the immediately
preceding Quarterly Dividend Payment Date, or with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Stock.
Community is required to declare a dividend or distribution as described in
the foregoing paragraph immediately after it declares a dividend or
distribution on the Community Common Stock (other than a dividend payable in
shares of Community Common Stock).
Voting Rights. Subject to certain adjustments, each share of Series A Stock
entitles the holder thereof to 100 votes on all matters submitted to a vote of
the shareholders of Community.
Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or
winding up of Community, the holders of shares of Series A Stock are entitled
to receive an aggregate amount per share, subject to certain adjustments,
equal to 100 times the aggregate amount to be distributed per share to holders
of shares of Community Common Stock plus an amount equal to the sum of $100
per share plus any accrued and unpaid dividends.
CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Community Articles of Incorporation and By-Laws
may be deemed to have an "anti-takeover" effect. A discussion of these
provisions follows.
Classified Board of Directors. Pursuant to the Community Articles of
Incorporation and By-Laws, the Community Board is divided into three classes
with staggered terms, each class comprising approximately one-third of the
members of the Board. The classification of directors will have the effect of
making it more difficult for shareholders to change the composition of the
Board in a relatively short period of time. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in
a majority of the Board. This delay will provide the Board with additional
time to evaluate proposed takeover efforts and other extraordinary corporate
transactions, to consider appropriate alternatives to such proposals and to
act in what it believes to be the best interests of the shareholders. The
classification of directors could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
Community.
Business Combinations. The Community Articles of Incorporation provide that
the affirmative vote of the holders of outstanding shares of stock of
Community representing not less than eighty percent of the votes entitled to
be cast generally in the election of directors, all such shares voting
together as a single class for this purpose (which vote must include the
affirmative vote of holders other than related persons of outstanding shares
representing not less than two-thirds of the votes entitled to be cast
generally in the election of directors, all such shares voting together as a
single class for this purpose) is required for any business combination with
any related person unless the disinterested directors have approved the
business combination. In addition to the vote required by the preceding
sentence, the affirmative vote of the holders of outstanding shares of stock
of Community which represent not less than eighty percent of the votes
entitled to be cast generally in the election of directors, all
105
<PAGE>
such shares voting as a single class for this purpose, is required for the
approval of any merger, consolidation, exchange of shares or sale of
substantially all of the assets of Community with or to a related person if
the fair market value of the consideration to be received is less than a fair
price, defined as the highest per share price paid by the related person in
acquiring any of its holdings of shares of the Community Common Stock. See
"COMPARISON OF RIGHTS OF COMMUNITY AND CENTERPOINT SHAREHOLDERS--Business
Combinations with Related Persons" for definitions of the terms "business
combination," "related person" and "disinterested directors."
Merger or Consolidation. The Community Articles of Incorporation provide
that certain mergers or consolidations or sale of Community's assets having
material value (defined as fair market value equal to ten percent or more of
the consolidated book value of the assets of Community and its subsidiaries)
must be approved by the affirmative vote of not less than two-thirds of the
outstanding capital stock of Community. See "COMPARISON OF RIGHTS OF COMMUNITY
AND CENTERPOINT SHAREHOLDERS--Merger and Consolidation".
If the proposed Charter Amendments are approved by the shareholders of
Community at the Community Annual Meeting, (i) a two-thirds vote of the
Community shareholders would continue to be required for a merger or
combination of Community with or into another entity, but only if such a
merger or combination would result in the Community shareholders owning less
than 60% of the voting power of the surviving entity in such a merger; (ii)
the Community Articles of Incorporation would no longer require a shareholder
vote for a merger of a subsidiary of Community; (iii) a two-thirds vote of the
Community shareholders would be required to effectuate a plan of share
exchange, unless the Community shareholders would continue to own 60% or more
of the voting power of the entity that is to issue its securities in the plan
of share exchange; and (iv) with respect to a sale of Community's assets, a
two-thirds vote of the Community shareholders would be required only if
Community proposed to sell all or substantially all of its assets. See
"AMENDMENTS TO COMMUNITY'S RESTATED ARTICLES OF INCORPORATION."
Special Meetings. Community's By-Laws provide that a special meeting of the
Community shareholders may be called by the President or by order of the Board
of Directors, and must be called by the Secretary upon written application by
one or more shareholders who together hold at least ten percent in interest of
the capital stock entitled to vote at the meeting. Such written request must
state the purpose or purposes of the meeting and must be delivered to the
principal office of Community not less than sixty days before the date of the
meeting.
Removal of Directors. The affirmative vote of eighty percent of the
outstanding capital stock having power to vote in the election of directors is
required to remove a director without cause.
Amendment to Articles of Incorporation. An amendment to those provisions of
the Community Articles of Incorporation described above in "Business
Combinations" and "Merger or Consolidation" requires the affirmative vote of
the holders of outstanding shares of capital stock of Community representing
not less than eighty percent of the votes entitled to be cast generally in the
election of directors, all such shares voting together as a single class for
this purpose, which vote must include the affirmative vote of holders, other
than related persons, of outstanding shares of capital stock of Community
representing not less than two-thirds of the votes entitled to be cast
generally in the election of directors, all such shares voting together as a
single class for this purpose.
COMPARISON OF RIGHTS OF COMMUNITY AND CENTERPOINT SHAREHOLDERS
The rights of holders of Centerpoint Common Stock are currently governed by
the Centerpoint Articles of Agreement (the "Centerpoint Charter"), the
Centerpoint By-Laws, RSA 384 (General Provisions as to Savings Banks, Trust
Companies and Depositories) and RSA 392 (Incorporation and Management of Trust
Companies). These rights differ in certain respects from the rights that
shareholders of Centerpoint Common Stock would have as shareholders of
Community Common Stock. The rights of shareholders of Community Common Stock
are governed by the Community Articles of Incorporation, Community By-Laws and
RSA 293-A (Business
106
<PAGE>
Corporation Act). This summary contains a list of the material differences of
the rights of Community and Centerpoint shareholders, but is not intended to
be relied upon as an exhaustive list or a detailed description of the
provisions discussed and is qualified in its entirety by reference to the
Community Articles of Incorporation and By-Laws, the Centerpoint Charter and
By-Laws and RSA 293-A, 384 and 392.
VOTING REQUIREMENTS TO REMOVE DIRECTORS WITHOUT CAUSE
Community. The Community Articles of Incorporation permit removal of a
director with or without cause. The affirmative vote of eighty percent (80%)
of the outstanding shares of capital stock having power to vote in the
election of directors is required to remove a director without cause.
Centerpoint. The Centerpoint Charter provides that a director may be removed
from office with or without cause upon the affirmative vote therefor of the
holders of a majority of the outstanding shares of capital stock entitled to
vote on the election of directors.
BUSINESS COMBINATIONS WITH RELATED PERSONS
Community. The Community Articles of Incorporation provide that in addition
to any vote required by law or the Articles of Incorporation, the approval or
authorization of any business combination of the corporation with any related
party requires the affirmative vote of the holders of outstanding shares of
stock of Community representing not less than 80% of the votes entitled to be
cast generally in the election of directors, all such shares voting together
as a single class for this purpose (which vote must include the affirmative
vote of the holders other than related persons of outstanding shares
representing not less than two-thirds of the votes entitled to be cast
generally in the election of directors, all such shares voting together as a
single class for this purpose); provided, however, that this requirement is
not applicable if the disinterested directors have approved the business
combination. For these purposes, the term "business combination" generally
includes, without limitation, any (i) merger or consolidation of the
corporation with a related person; (ii) any sale, lease, exchange or transfer
of assets having a material value by the corporation to a related person or by
a related person to the corporation; (iii) the issuance of securities to a
related person; (iv) any transaction increasing the proportionate share of
voting power of any entity held by a related person; (v) the adoption of any
plan of liquidation or dissolution of the corporation proposed by a related
person; or (vi) any loan guarantee or other financial assistance or tax
credits provided by the corporation to a related person. Furthermore, the term
"related person" generally includes, without limitation, any individual,
corporation, partnership or other person or entity which beneficially owns
shares of capital stock of the corporation which in the aggregate represent
not less than 10% of the votes entitled to be cast generally in the election
of directors. The term "disinterested director" generally means a director who
was not elected with the vote of, is not representing, and is not an affiliate
or associate of, a related person.
In addition to any vote required pursuant to the above-referenced
provisions, the Community Articles of Incorporation further provide that the
affirmative vote of the holders of outstanding shares of stock of the
corporation which represent not less than 80% of the votes entitled to be cast
generally in the election of directors is required for the approval of any
merger, consolidation, exchange of shares or sale of substantially all of the
assets of the corporation with or to a related person if the cash or fair
market value of the property, securities or other consideration to be received
per share in such reorganization by holders of common stock of the corporation
other than related persons shall be less than fair price (defined to mean the
highest per share price paid by the related person in acquiring any of its
holdings of shares of the Community Common Stock).
Centerpoint. There is no analogous provision in the Centerpoint Charter. A
"business combination" such as the ones described above would generally
require the affirmative vote of a majority of the directors and, in some
cases, a majority of the shareholders present at a meeting. A merger or
consolidation would require the vote of two-thirds of the outstanding shares
eligible to vote. A merger, consolidation, issuance of capital stock and
dissolution would also require the approval of certain regulators.
107
<PAGE>
MERGER AND CONSOLIDATION
Community. New Hampshire statutory law applicable to Community requires that
an agreement of merger or consolidation be approved by the vote of a majority
of the outstanding shares of each class of stock of the corporation entitled
to vote, unless the corporation's articles of organization provide for a
greater vote. The Community Articles of Incorporation provide that the
approval or authorization of (i) any merger or consolidation of Community or
any subsidiary of Community with or into any other entity, other than a merger
or consolidation of one or more subsidiaries into Community and (ii) a sale of
assets of Community having a material value, requires the affirmative vote of
not less than two-thirds of the outstanding capital stock of Community. The
term "material value" means a fair market value equal to 10% or more of the
consolidated book value of the assets of Community and its subsidiaries as of
the end of the most recent fiscal year ended prior to the time that the
determination is made. For a description of the effect of the proposed Charter
Amendments on the shareholder vote required to approve certain mergers and
consolidations, see "DESCRIPTION OF COMMUNITY CAPITAL STOCK--Merger or
Consolidation."
Centerpoint. There is no analogous provision in the Centerpoint Charter.
However, with respect to a merger, statutory law applicable to Centerpoint
provides that a merger must be approved by the affirmative vote of two-thirds
of the shareholders entitled to vote and the Commissioner of Banks.
AMENDMENTS TO ARTICLES OF INCORPORATION
Community. The Community Articles of Incorporation provide that action of
the shareholders to amend, alter, change or repeal, or adopt any provision
inconsistent with those provisions described above in "Business Combinations"
and "Merger and Consolidation" requires the affirmative vote of the holders of
outstanding shares of capital stock of the corporation representing not less
than 80% of the votes entitled to be cast generally in the election of
directors, which vote must include the affirmative vote of holders other than
related persons of outstanding shares of capital stock of Community
representing not less than two-thirds of the votes entitled to be cast
generally in the election of directors.
Centerpoint. Any amendments to the Centerpoint Charter must be approved by
majority votes of the Board of Directors and shareholders and the BTCI.
SPECIAL MEETINGS OF SHAREHOLDERS
Community. The Community By-Laws provide that special meetings of
shareholders may be called by the President and the Board of Directors and
must be called by the Secretary upon written application by one or more
shareholders who together hold at least 10% in interest of capital stock
entitled to vote at the meeting.
Centerpoint. The Centerpoint By-Laws provide that a special meeting of
shareholders may be called at any time by the President, Chairman of the Board
of Directors and by holders of not less than 20% of all outstanding shares
entitled to vote at the proposed meeting or by the Board of Directors.
ACTIONS WITHOUT A MEETING OF SHAREHOLDERS
Community. Community shareholders may take any action without a meeting if
it is evidenced by one or more written consents signed by all shareholders
entitled to vote on the action.
Centerpoint. The Centerpoint By-Laws provide that except as otherwise
required by law, any action which may be taken at a meeting of the
shareholders may be taken without a meeting (and without notice), if a consent
or consents in writing, setting forth the action so taken, are signed by the
holders of record of all of the outstanding shares entitled to vote on such
matter. Relevant New Hampshire banking statutes neither permit nor prohibit
shareholder action by consent, and it is possible that such action, if
challenged, would be held invalid.
QUALIFICATION OF DIRECTORS
Community. The Community By-Laws provide that no director need be a
shareholder of Community.
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<PAGE>
Centerpoint. The Centerpoint By-Laws, consistent with New Hampshire law,
provide that each director shall at all times be a shareholder of Centerpoint,
owning in his own right or on a jointly held basis as husband and wife,
unencumbered shares of Centerpoint Common Stock having an aggregate fair
market value at the time of the acquisition of not less than $1,000.
AMENDMENTS TO BY-LAWS
Community. The Community By-Laws provide that the By-Laws may be amended at
any time by a majority of the full Board of Directors subject to repeal or
change by vote of the holders of two-thirds of the shares entitled to vote in
the election of directors at a meeting expressly called for that purpose.
Centerpoint. The Centerpoint By-Laws provide that the By-Laws may be
amended, altered or repealed, and new By-Laws may be adopted, by the vote of a
majority of shareholders entitled to vote thereon, or by the vote of a
majority of the Board of Directors of Centerpoint at any regular or special
meeting of shareholders or directors.
FINANCIAL REPORTS TO SHAREHOLDERS
Community. New Hampshire statutory law applicable to Community provides that
a corporation shall furnish its shareholders annual financial statements
including a balance sheet as of the end of the fiscal year, an income
statement for that year and a statement of changes in the shareholders equity
for the year. In addition, New Hampshire statutory law applicable to Community
provides that (i) if a corporation indemnifies or advances certain expenses to
a director in connection with a proceeding by or in the right of the
corporation, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders
meeting, and (ii) that if a corporation issues or authorizes the issuance of
shares or promissory notes for promises to render services in the future, the
corporation shall report in writing to the shareholders the number of shares
authorized or issued, and the consideration received by the corporation with
or before the next shareholders meeting.
Centerpoint. There is no analogous statutory law applicable to Centerpoint.
Furthermore, the Centerpoint By-Laws provide that the Board of Directors has
discretion to determine whether financial reports shall be sent to
shareholders, what such reports shall contain and whether they should be
audited by the report of an independent or Certified Public Accountant.
REDEMPTION OF SHARES
Community. New Hampshire law permits Community to acquire its shares from
its shareholders in any circumstance in which the repurchase would comply with
the law applicable to distributions, described below.
Centerpoint. New Hampshire statutory law applicable to Centerpoint provides
that Centerpoint can redeem its shares only in a very limited circumstance. A
trust company that has more than 500 SHAREHOLDERS may, with the express
written approval of the Commissioner of Banks, redeem shares from holders who
own 10 shares or less of such stock.
SHARE DIVIDENDS
Community. New Hampshire statutory law applicable to Community provides that
a corporation may issue a share dividend provided, however, that shares of one
class or series of stock may not be issued as a share dividend in respect of
shares of another class or series of stock unless authorized by the Articles
of Incorporation, a majority of the votes entitled to be cast by the class or
series to be issued approve the issue and there are no outstanding shares of
the class or series to be issued, and subject to limitations on distributions,
described below.
Centerpoint. There is no analogous statutory law applicable to Centerpoint.
109
<PAGE>
DISTRIBUTION TO SHAREHOLDERS
Community. Under New Hampshire law, the Board of Directors has the power to
declare and pay dividends in cash, property or securities of the corporation
unless (a) such corporation is, or would be thereby made, insolvent or (b) the
declaration and payment of such dividend would be contrary to any restrictions
contained in the charter. New Hampshire law further provides that no
distribution may be made (i) if the corporation is or would become unable to
pay its debts as they become due in the usual course of business or (ii)
unless the fair value of the net assets of the corporation remaining after the
distribution is at least equal to the aggregate preferential amount payable to
holders of stock with preferential rights in the event of involuntary
liquidation. For regulatory restrictions on the payment of dividends, see
"REGULATION."
Community is a legal entity separate and distinct from its subsidiaries. The
only funds available to Community for the payment of dividends are cash and
cash equivalents held at the holding company level, dividends paid by Concord
and Community's other subsidiaries, and borrowings. The ability of holders of
debt and equity securities of Community, including Centerpoint shareholders
who will become holders of Community Common Stock upon consummation of the
Merger, to benefit from the distribution of assets of a subsidiary upon the
liquidation or reorganization of such subsidiary is subordinate to prior
claims of creditors of the subsidiary (including depositors, in the case of
banking subsidiaries) except to the extent that a claim of Community as a
creditor may be recognized.
Centerpoint. Statutory law applicable to Centerpoint provides that it shall
not declare any dividend except 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 a period of 6 months, unless the same are well
secured and in process of collection.
SHAREHOLDERS' LIST FOR MEETING
Community. New Hampshire statutory law applicable to Community provides that
after fixing a record date for a shareholders' meeting, the corporation shall
prepare an alphabetical list of names of all of its shareholders who are
entitled to notice of a shareholders' meeting. The shareholders' list must be
made available for inspection by any shareholder beginning two business days
after notice of the meeting is given for which the list was prepared and
continuing through the date of the meeting.
Centerpoint. There is no analogous statutory law applicable to Centerpoint,
although New Hampshire courts have enforced a common law right of bank
shareholders to inspect a shareholder list in certain circumstances.
VOTING ENTITLEMENT OF SHARES
Community. New Hampshire statutory law applicable to Community provides that
absent special circumstances, the shares of a corporation are not entitled to
be voted if they are owned, directly or indirectly, by a second corporation
and the first corporation owns directly or indirectly a majority of the shares
entitled to vote for directors of the second corporation.
Centerpoint. There is no analogous limitation applicable to Centerpoint.
CUMULATIVE VOTING
Community. New Hampshire statutory law applicable to Community provides that
shareholders do not have a right to cumulate their votes for directors unless
the Articles of Incorporation so provide. The Community Articles of
Incorporation do not provide for cumulative voting.
Centerpoint. There is no analogous statutory law applicable to Centerpoint
nor do the Centerpoint By-Laws or Charter provide for cumulative voting.
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<PAGE>
VOTING TRUSTS
Community. New Hampshire statutory law applicable to Community provides that
one or more shareholders may create a voting trust, conferring on a trustee
the right to vote or otherwise act for them, by signing an agreement setting
out the provisions of the trust, which may include anything consistent with
its purpose and transferring their shares to the trustee. When a voting trust
agreement is signed, the trustee shall prepare a list of the names and
addresses of all owners with a beneficial interest in the trust together with
a number and class of shares each transferred to the trust and deliver copies
of the list and agreement to the corporation's principal office. Community is
not aware of the existence of any such voting trust.
Centerpoint. There is no law applicable to Centerpoint which either
prohibits or permits voting trusts.
VOTING AGREEMENTS
Community. New Hampshire statutory law applicable to Community provides that
two or more shareholders may provide for the manner in which they will vote
their shares by signing an agreement for that purpose and that a voting
agreement created under this section is specifically enforceable. Community is
not aware of the existence of any such voting agreements.
Centerpoint. There is no analogous statutory law applicable to Centerpoint
which either prohibits or permits voting agreements. Voting agreements have
been executed by all Directors and executive officers of Centerpoint in
connection with the proposed Merger. See "MEETING INFORMATION--Votes
Required."
DERIVATIVE PROCEEDINGS
Community. New Hampshire statutory law applicable to Community provides
detailed procedural mechanisms by which a shareholder can commence civil
actions on behalf of and in the name of the corporation. Under this law,
shareholders may bring suits on behalf of the corporation to enforce the
rights of a corporation, only if such person was a shareholder at the time of
the transaction which is the subject of the suit. Upon final judgment and a
finding that the commencement of a derivative action by a shareholder was
without reasonable cause or for an improper purpose, a court may require the
plaintiff(s) to pay to the parties named as defendant(s) the reasonable
expenses including legal fees incurred by them in defense of such action.
Centerpoint. There is no analogous statutory law for commencing derivative
proceedings relative to Centerpoint.
BY-LAW INCREASING QUORUM OR VOTING REQUIREMENTS FOR DIRECTORS
Community. New Hampshire statutory law applicable to Community provides that
a by-law that fixes a greater quorum or voting requirement for the Board of
Directors may be amended or repealed (i) if originally adopted by the
shareholders, only by the shareholders, and (ii) if originally adopted by the
Board of Directors, either by the shareholders or the Board of Directors.
Centerpoint. There is no analogous statutory law applicable to Centerpoint.
INSPECTION OF RECORDS BY SHAREHOLDERS
Community. New Hampshire statutory law applicable to Community provides that
a shareholder of a corporation is entitled to inspect and copy, during regular
business hours at the corporation's principal office, certain records of the
corporation if the shareholder gives the corporation written notice of his
demand at least five business days before the date on which he wishes to
inspect and copy.
Centerpoint. There is no analogous statutory law applicable to Centerpoint,
although courts have recognized a common law right to inspect certain bank
records.
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COMMUNITY ANNUAL MEETING--OTHER MATTERS
ELECTION OF COMMUNITY DIRECTORS
The Community Articles of Incorporation provide that the Board of Directors
shall be divided into three classes, each of which shall contain approximately
one-third of the whole number of the Board, to serve staggered terms, with
approximately one-third of the total number of directors elected each year to
serve a three-year term. The Community By-laws provide that the Board of
Directors shall consist of such number, not less than nine, of directors as
shall be fixed from time to time by the Board. The Board has fixed the number
of directors at twelve, the number currently serving.
It is intended that the persons named in the enclosed form of Proxy will
vote (unless authority to do so is withheld) for the election of the nominees
named below. If any nominee should decline or be unable to accept such
nomination or to serve as a director, an event which the Board does not now
expect, the Board of Directors reserves the right to nominate another person
or to reduce the number of directors to be elected. Election of each director
requires a plurality vote of the shares voting on the election, provided a
quorum is present. There is no cumulative voting for directors.
On September 19, 1995, the Community Board of Directors voted to change
Community's fiscal year end from June 30 to December 31. As a result, the
period from July 1, 1995 through December 31, 1995 will be a short year, and
the year ended December 31, 1996 will be Community's first full fiscal year on
a calendar basis. In connection with this change, Community's annual
shareholders' meetings will be held on the st in May instead of the
third Thursday in October. Rather than holding another annual shareholders'
meeting a few months after the Community Annual Meeting to be held on [date],
Community expects to wait until May 1997 to hold its first annual
shareholders' meeting under this new schedule. Community will, however, mail
to its shareholders in the spring of 1996 a copy of its annual report on Form
10-K that will be filed for the six-month period ending on December 31, 1995.
The change in fiscal year and the adjustment in Community's annual meeting
schedule will, in effect, extend each of the Community directors' and
nominees' terms of office for approximately six months beyond the original
three-year terms. New Hampshire law provides that directors continue to serve
beyond the expiration of their terms of office until their successors are duly
elected and qualified. Consequently, although the nominees for director are
being proposed for election for a three-year term (as provided in Community's
by-laws), it is expected that they will continue to serve for approximately
six months beyond the end of such three-year term until their successors are
elected at the annual shareholders' meeting next following the expiration of
such three-year term. Similarly, the directors currently serving in the other
two classes are expected to continue to serve beyond the expiration of their
respective three-year terms, until their successors are elected at the
respective annual shareholders' meetings next following the expiration of such
three-year terms.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR THE
ELECTION OF THE PROPOSED NOMINEES AS DIRECTORS TO SERVE FOR THE TERMS
INDICATED BELOW. THE ACCOMPANYING PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED IN THE PROXY, AND IF NO CHOICE IS SPECIFIED BY THE
SHAREHOLDER, IN FAVOR OF THIS PROPOSAL.
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INFORMATION REGARDING DIRECTORS AND NOMINEES
The following table sets forth the name and age (as of June 30, 1995) of the
current directors and nominees for director of Community and the period during
which each person has served on the Board of Directors of Community and
Concord.
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF OTHER
NAME AGE COMMUNITY SINCE CONCORD SINCE OFFICES HELD
---- --- --------------- ------------- ------------
<S> <C> <C> <C> <C>
NOMINEES FOR DIRECTORSHIPS--TERMS EXPIRING IN 1998*
Russell A. Holden........ 70 1986 1986 --
Lucia P. Kittredge....... 47 1986 1986 --
Seth A. Resnicoff........ 58 1986 1986 --
Katherine F. Tsouros..... 57 1985 1978 --
DIRECTORS WHOSE TERMS EXPIRE IN 1996*
William S. Fenollosa..... 55 1985 1980 --
Oliver R. Fifield........ 68 1985 1972 --
Thomas M. Hardiman....... 65 1985 1968 Chairman of the
Board
James R. Stewart......... 56 1985 1976 --
DIRECTORS WHOSE TERMS EXPIRE IN 1997*
John N. Buxton........... 48 1992 1992 --
Douglas Crichfield....... 52 1990 1990 President and Chief
Executive Officer
Robert A. Hill........... 47 1992 1992 --
Eleanor H. Stark......... 61 1985 1978 --
</TABLE>
- --------
* Although the directors' terms expire in the years indicated, due to the
change in fiscal year described above the directors are expected to
continue to serve for approximately six months beyond the expiration of
their current terms.
The principal occupation and business experience during at least the last
five years of each director and nominee is as follows:
Thomas M. Hardiman was a Consultant to Chubb Securities Corporation from
1987 through 1989, a Senior Vice President of Chubb Securities Corporation
from 1982 to 1987, and Vice President of Chubb Life Insurance Company from
1980 to 1981. He served as Vice President and Treasurer of United Life and
Accident Insurance Co., from 1965 to 1980. He is a Director of Concord
Electric Co., a subsidiary of UNITIL Corp.
John N. Buxton has been Vice Rector for Administration, St. Paul's School,
Concord, New Hampshire, from 1984 to the present, with responsibility for
operations and administrative functions. He is a member of trustee committees
on investments, risk management, pensions and benefits, and buildings and
grounds.
Douglas Crichfield has been a Director, President and Chief Executive
Officer of Community and Concord since 1990. Previously, he served as
Executive Vice President and Treasurer of Concord and Treasurer and Chief
Financial Officer of Community from 1988 to 1990. He was Vice President of
Corporate Finance at Bank of New England Corporation from 1986 to 1988, and
held various positions, including Senior Vice President, Treasurer and Trust
Officer, with Hancock Bank and Trust Co. from 1976 to 1986.
William S. Fenollosa has been President and owner of Granite State
Volkswagen, Inc., an automobile sales and service dealership in Concord, New
Hampshire, since 1967.
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<PAGE>
Oliver R. Fifield was President of Northeast Consolidated Services, Inc., a
corporation providing administrative office support to The New Hampshire and
Vermont Blue Cross-Blue Shield corporations, from 1981 until his retirement in
1985. Mr. Fifield was President of Northeast Equity Corp., a business
equipment leasing corporation owned by Blue Cross-Blue Shield, from 1983 to
1985.
Robert A. Hill has been President and Chief Operating Officer of Capitol
Plumbing and Heating Supply Co., Inc., a distributor of plumbing and heating
products, from 1985 to the present, with experience in management, sales, and
credit and collections over a 15 year period.
Russell A. Holden served as President of Granite State Electric Co. from
1973 to 1990. He was Vice President of New England Power Company from 1967 to
1990, Chairman and Director of New England Electric Transmission Corporation
from 1981 to 1991, and Chairman and Director of New England Hydro Transmission
Corporation from 1981 to 1991 (all subsidiaries of the New England Electric
System). He is a Director of Concord General Mutual Insurance Co., Green
Mountain Insurance Co. and Vermont Accident Insurance Co.
Lucia P. Kittredge has been a principal of Kapala-Kittredge Associates,
Inc., an environmental and land use planning firm, from 1989 to the present.
She was President of Matarazzo Design, Inc., a design firm of landscape
architects, architects and land planning, from 1984 to 1988, and Vice
President of the firm from 1981 to 1984.
Dr. Seth A. Resnicoff has been engaged in the private practice of surgery in
Concord, New Hampshire, since 1975. He is Chairman of the Board of Strategic
Healthcare, Concord, New Hampshire, a company providing management and
marketing services to independent physicians and surgeons, and a Trustee of
Derryfield School, Manchester, New Hampshire.
Eleanor H. Stark served as elected representative to the New Hampshire House
of Representatives from 1981 to 1985.
James R. Stewart has been President, Treasurer and a principal owner of
Capital Offset, Inc., a printing firm, since 1975.
Katherine F. Tsouros serves as an officer and active member of the Boards of
various non-profit organizations in the Concord, New Hampshire area.
Following the Merger, the Board of Directors intends to elect three of
Centerpoint's current directors to serve on the Board of Directors of
Community, one of whom will be Philip M. Stone, the current President and CEO
of Centerpoint. The other two nominees have not yet been selected. Mr. Stone
has been President, Chief Executive Officer and Chairman of the Board of
Centerpoint since its formation in 1989. Prior to that time, Mr. Stone served
for more than five years as the Executive Director of the New Hampshire
Pocketbank(TM) Automatic Teller Machine Network and, for more than 13 years,
as a consultant to the banking industry in the areas of strategic planning,
sales and marketing and general administration. Mr. Stone is 66 years old.
EXECUTIVE OFFICERS
The names and ages (as of June 30, 1995) of each of the executive officers
of Community, the position or office held by each such person, the period
during which he has served in such capacity and the principal occupation of
each such person during at least the last five years is set forth below.
Douglas Crichfield. See "Information Regarding Directors and Nominees."
Gerald R. Emery joined Concord in 1988 as Vice President, Finance. He was
elected Treasurer of Community and Concord in January 1990 and Senior Vice
President of Concord in May 1990. From 1986 until joining Concord, he was Vice
President, Finance with United Savers Bancorp, Inc. in Manchester, New
Hampshire. From 1982 until 1986, he held the same position with The Savers
Bank in Littleton, New Hampshire, a subsidiary of United Savers Bancorp, Inc.
Prior to 1982, Mr. Emery had 18 years experience in community banking with
commercial banks in both New Hampshire and Vermont. Mr. Emery is 49 years old.
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Paul M. Ferguson joined Concord in 1991 as Senior Vice President--Credit
Administration and was elected Executive Vice President of Concord in 1995. In
1995, Mr. Ferguson was elected Vice President--Credit Administration of
Community. From 1985 through 1991 he was a senior executive of First NH Bank,
N.A., most recently serving as its Senior Vice President, Corporate Services
and previously as Regional President, Southern Division and prior to that, as
Vice President Senior Regional Lending Officer. His prior experience included
two years as Vice President--Manager Commercial Service Division for Merchants
Bank, of Manchester, New Hampshire, and four years in commercial and consumer
lending for Indian Head National Bank, of Concord, New Hampshire. Mr. Ferguson
is 42 years old.
Richard E. Kamp was elected Vice President of Retail Services, Marketing and
Investor Relations of Concord in 1990, and Vice President, Communications of
Concord in 1995. Mr. Kamp was elected Vice President and Secretary of
Community in 1990. Mr. Kamp joined Concord in 1989 as Vice President,
Marketing and Investor Relations. Since April 1984 he had served in that same
capacity at First Federal Bank, which through merger became New Hampshire
Savings Bank-South, in Nashua, New Hampshire. From December 1978 to April
1984, Mr. Kamp served at First Agricultural Bank in Pittsfield, Massachusetts.
Mr. Kamp is 46 years old.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS OF COMMUNITY AND OF CONCORD
The Board of Directors of each of Community and Concord held 14 meetings
during the 1995 fiscal year ended June 30, 1995. Each incumbent director
attended at least 75% of the aggregate of the total number of meetings of the
Board and the total number of meetings of committees on which he or she
served. Non-employee directors of Community are entitled to a stipend of $500
per quarter, all or part of which they may elect to receive in the form of
options under Community's 1992 Stock Option Plan. The directors of Concord
(other than Douglas Crichfield) are paid a fee of $300 for each Board meeting
that they attend and $200 for each committee meeting that they attend.
Committee chairs receive $250 for each meeting that they attend. The directors
of Community are not paid separately for their attendance at Community
committee meetings. The Chairman of the Board of Concord was paid an annual
fee of $2,000 in fiscal 1995.
The Board of Directors of Community has an Audit Committee and a Nominating
Committee, which are identical in membership to, and meet jointly with, the
Audit Committee and Nominating and Compensation Committee, respectively, of
the Board of Directors of Concord.
The Audit Committee, which held 4 meetings in fiscal 1995, is composed of
directors, none of whom is an officer or employee of Community. Present
members of the Audit Committee are directors Buxton, Fenollosa, Hill and
Tsouros. This Committee meets with Community's independent accountants in
connection with the annual audit of Community's consolidated financial
statements to review their recommendations in connection with their audit, and
in its capacity as a Concord committee reviews the results of examinations of
Concord by the Federal Deposit Insurance Corporation and the Commissioner of
Banks.
The Nominating and Compensation Committee, which met 8 times in fiscal 1995,
is composed of directors Fifield, Hardiman, Holden, Resnicoff, Stark and
Stewart. This Committee meets as it deems necessary to make recommendations to
the Board of Directors with respect to nominations to Community's Board of
Directors. The current nominees were recommended to the Board by the
Committee. The Committee considers nominations from shareholders. The
Committee reviews executive officers' salaries and approves salary ranges and
other provisions of the salary administration program and benefits program,
grants options under Community's stock option plans, and makes recommendation
to the Board of Directors of Concord with respect to nominations to Concord's
Board of Directors.
The Board of Directors of Concord has various other committees, including an
Investment Committee, which is authorized to exercise most of the powers of
the Board of Directors between Board meetings. The Investment Committee, which
met 24 times in fiscal 1995, is currently composed of Messrs. Hardiman,
Crichfield, Fifield, Hill, Resnicoff and Stewart. The Chairman of the Board
and President are permanent members of the Investment Committee, while the
other four directors serve 6-month terms rotating at least one member
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every three months. This Committee meets twice monthly to review, among other
things, selected loans and investment transactions of Concord.
EXECUTIVE COMPENSATION
REPORT OF THE NOMINATING AND COMPENSATION COMMITTEE WITH RESPECT TO EXECUTIVE
COMPENSATION
Overall Policy. The Committee's charge is to develop an integrated and
balanced compensation program that will enable Community to attract and retain
capable senior managers. The Committee considers the base salary of executive
officers in relation to the median base salaries of comparable executives in
companies of similar size, geographic location and operation. Using an
independent consultant, the Committee establishes salary ranges for various
positions based primarily upon available data with respect to compensation
paid in banking companies from $250 to $500 million in asset size, looking
first to those located in New Hampshire and secondarily to other institutions
throughout New England.
Community has two incentive compensation plans designed to provide an annual
incentive to improve financial performance, under which annual incentive
awards are paid if Community achieves specified objectives. All personnel
employed at the beginning of the fiscal year are eligible to participate in
the General Profit Sharing Plan. The chief executive officer and eight others
from management are also eligible to participate in the Management Incentive
Plan. A variety of targets are set annually under each plan. In fiscal 1995,
the plans required payment of a common stock dividend, as well as achievement
of a specified level of return on assets and, under the Management Incentive
Plan, of return on equity. Depending on Community's level of performance,
incentive awards ranging from 2% to 7% of salary could be paid under the
General Profit Sharing Plan. Both Community's performance and the individual's
performance review are taken into account under the Management Incentive Plan,
under which the chief executive officer could receive a maximum award of 30%
and 8 other executive officers could receive a maximum award of 20-25% of
annual salary. The Board of Directors may provide these incentive awards in
the form of cash or stock, or in the case of the General Profit Sharing Plan,
a contribution to Community's 401(k) Plan. Based on fiscal 1995 financial
results, Community paid cash incentive awards of 2% under the General Profit
Sharing Plan and incentive awards ranging between 3% and 5 1/2% to executive
officers under the Management Incentive Plan.
Community uses stock options as part of the senior executives' compensation
package in order to align their interests with longer-term shareholder
interests. Options are also believed to be an important recruiting and
retention device. Although Community's stock option plans would permit grant
of options at an exercise price of 85% or more of the fair market value of the
Common Stock, it is the present policy and uniform practice of the Committee
to grant options only at fair market value of the Common Stock on the date of
grant of the option. The relative number of options granted to each individual
is determined by the Committee from time to time based in part upon the
individual's level of responsibility and in part upon evaluation of his or her
performance. It is the Committee's intention that the options granted afford a
possibility of substantial value over the life of the option relative to the
individual's base pay. The Committee considers past grants of options in
determining whether additional options should be granted to provide an
appropriate incentive, and in this connection, discounts the value of past
grants having exercise prices above the current market value of the Community
Common Stock. There were no stock options granted during fiscal 1995.
The Committee has approved other benefits from time to time to attract and
retain qualified personnel, including a Supplemental Retirement Agreement for
the chief executive officer and change of control agreements for certain
officers at the level of vice president and above.
Compensation of the Chief Executive Officer. The Chief Executive Officer's
performance is evaluated based upon Community's financial results, certain
non-financial results considered significant to Community, the impact of
industry and economic conditions upon Community, and the CEO's contribution to
Community's performance. All available data indicate that progress has been
made in more closely aligning the CEO's cash compensation with that of his
peers during fiscal 1995. Effective August 1, 1995, his base compensation was
increased from $153,000 to $160,000 to bring it to the median level.
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Community's performance continued to improve over the past fiscal year as
represented by the highest pre-tax earnings in Community's history. Core
earnings continued to improve despite significant investments in the expansion
of major business lines and the addition of a new branch office. Also
contributing were the expanded capacity to originate indirect vehicle and
small business commercial loans. The CEO's performance was such that the
Management Incentive Compensation Plan became effective, resulting in the
incentive award shown in the table below.
Oliver R. Fifield, Chair
Russell A. Holden, Co-Chair
Thomas M. Hardiman
Seth A. Resnicoff
Eleanor H. Stark
James R. Stewart
SUMMARY COMPENSATION TABLE
The following table provides information concerning the annual and long-term
compensation of the two executive officers whose total annual salary and bonus
exceeded $100,000 for the fiscal years ended June 30, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS(1) PAYOUTS
------------------------------- ------------------- -------
OTHER NUMBER ALL
ANNUAL RESTRICTED OF OTHER
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION(2) AWARD SARS PAYOUTS SATION
- ------------------ ---- -------- ------- --------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Douglas Crichfield..... 1995 $156,843 $19,443 -- -- -- -- $29,501(3)
President and Chief 1994 150,417 14,395 -- -- -- -- 17,245
Executive Officer 1993 121,630 1,215 -- -- 10,000 -- 13,000
Paul M. Ferguson....... 1995 118,721 7,043 -- -- -- -- 2,425(4)
Executive Vice 1994 104,622 8,561 -- -- -- -- --
President
1993 86,451 853 -- -- 5,000 -- --
</TABLE>
- --------
(1) Community has not granted any restricted stock awards or SARs.
(2) Omitted since amounts are below threshold required to be disclosed.
(3) Includes $26,112 accrued as an expense with respect to Mr. Crichfield's
supplemental retirement agreement and matching contributions of $3,389
made under Community's 401(k) plan.
(4) Represents matching contributions made under Community's 401(k) plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
VALUES
The following table shows options exercised during fiscal 1995 and the value
of unexercised options (whether or not vested) at June 30, 1995. Community has
not granted any SARs.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------- -------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas Crichfield...... 12,750 $134,625 18,819 2,500 $310,514 $41,250
Paul M. Ferguson........ 1,500 18,563 6,750 1,250 111,375 20,625
</TABLE>
- --------
(1) Based on June 30, 1995 market price of $16.50.
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PENSION PLAN TABLE
The following table shows the estimated annual benefits payable under
Concord's defined benefit retirement plan.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-----------------------------------------------
AVERAGE ANNUAL SALARY 5 10 15 20 25 30
- --------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000........................ $ 9,856 $19,712 $29,568 $39,424 $49,280 $59,136
125,000........................ 12,356 24,712 37,068 49,424 61,780 74,136
150,000........................ 14,856 29,712 44,568 59,424 74,280 89,136
</TABLE>
Benefits under the plan are based on the five highest years' base salary and
will be offset by benefits provided under the Employee Stock Ownership Plan
described below. Mr. Crichfield has six years, and Mr. Ferguson four years, of
credited service under the plan.
Concord and Mr. Crichfield are parties to an Executive Supplemental
Retirement Agreement ("Supplemental Agreement"), under which, if he works for
Concord until reaching age 65, Mr. Crichfield will be entitled to receive an
annual benefit payable for life equal to (a) 60% of the average of his three
highest annualized salaries paid during the 5-year period ending on
termination of employment, less (b) the benefit payable in life annuity form
under Concord's retirement plan discussed above and under Concord's Employee
Stock Ownership Plan discussed below. Mr. Crichfield accrues a retirement
benefit under the Supplemental Agreement at the rate of 3% per year commencing
at age 46, vesting at the rate of 10% per year commencing at age 49. The
Supplemental Agreement provides for faster accrual of benefits than the
retirement plan, and for benefits based upon the full amount of salary earned,
whereas under 1993 amendments to the Internal Revenue Code, salary in excess
of $150,000 can not be taken into account in computing benefits under the
retirement plan. In addition, the Supplemental Agreement provides for a death
benefit payable monthly for 15 years to his beneficiaries in an annual amount
equal to 40% of his salary at death.
EMPLOYEE STOCK OWNERSHIP PLAN
Concord has established an Employee Stock Ownership Plan (the "ESOP"), for
employees age 21 or older who have at least one year of credited service. The
ESOP is funded by Concord's contributions made in cash (which generally will
be invested in Community Common Stock) or Community Common Stock.
The ESOP has purchased shares of Community Common Stock with funds borrowed
from an unrelated third party lender. The loan, which Community guaranteed, is
being repaid with funds from Concord's contributions to the ESOP, forfeitures
and earnings on plan assets. Shares purchased with such loan proceeds are held
in a suspense account for allocation among members as the loan is paid. The
number of shares allocated to Mr. Crichfield's account as of December 31,
1994, December 31, 1993, and December 31, 1992 were 2,617 shares, 2,195
shares, and 1,819 shares, respectively. The number of shares allocated to Mr.
Ferguson's account as of such dates were 903 shares, 602 shares, and 350
shares, respectively.
Contributions to the ESOP and shares released from the suspense account are
allocated among members on the basis of compensation and years of service.
Benefits become 100% vested after five years of service. Forfeitures are
reallocated among remaining participating employees and may reduce any amount
Concord might otherwise have contributed to the ESOP. Benefits may be payable
upon retirement, early retirement, disability or separation from service.
Concord's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated. ESOP benefits offset benefits under the
retirement plan discussed above.
SEVERANCE BENEFITS AGREEMENTS
In April, 1989 Community and Concord entered into a severance benefits
agreement with Douglas Crichfield, then Executive Vice President and Treasurer
of Concord. Under the agreement, under certain circumstances, Mr. Crichfield
(1) will be paid an amount equal to three times his then annual base salary,
(2)
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will become fully vested in stock options previously granted to him and in any
supplemental retirement benefits, (3) will be entitled to receive retirement
benefits in an amount equal to any difference between the benefits that would
be payable to him under Concord's tax-qualified employee benefit plans if Mr.
Crichfield were fully vested thereunder and the benefits actually payable and
(4) will be reimbursed for executive outplacement fees up to $10,000, all
relocation expenses, all legal expenses incurred in enforcing the severance
benefits agreement, the cost of maintaining his group insurance coverage for
two years and taxes on such reimbursed amounts. Such payments will be made and
such rights will vest if Mr. Crichfield terminates his employment within two
years following a "Change of Control" (as defined below), either involuntarily
(other than for specified causes) or voluntarily with good reason, as defined.
Mr. Crichfield's annual base salary is presently $160,000. Similar agreements
have been entered into with the Executive Vice President, the Senior Vice
President, and 7 Vice Presidents of Concord, providing for severance benefits
equal to two years', two years', and one year's base salary, respectively, and
certain other benefits.
A Change of Control is generally defined in the agreements to include the
acquisition by any person other than Community of the beneficial ownership of
shares representing 25% or more of the total number of votes that may be cast
for election of Directors of Community or Concord, the merger or consolidation
of Community or Concord or Community or Concord selling a majority of its
assets or entering into any transaction in which another entity (other than an
insurer of Concord's deposit liabilities) assumes a majority of the deposit
liabilities of Concord.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
In the ordinary course of business, Concord makes loans to its and
Community's directors and officers and parties related to them. Such
transactions are on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and do not involve more than normal risk of collectibility or
present other unfavorable features. From time to time, Community purchases
automobile consumer finance contracts from an automobile dealership owned and
operated by William S. Fenollosa, a director of Community, subject to
Concord's credit approval, on terms comparable to those accorded other
dealers. Community purchased contracts amounting to $1,003,000 from the
dealership during the fiscal year ended June 30, 1995.
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COMPARISON OF FIVE-YEAR PERFORMANCE
The following graph compares the cumulative total return (stock appreciation
plus dividends) on Community's Common Stock for the past five fiscal years
with the cumulative total return of the companies listed in the Nasdaq
National Market System and the Keefe, Bruyette and Woods, Inc. New England
Banking Companies Index (the "KBW Index"), which is comprised of a peer group
of fifty-two New England banking companies.
[GRAPH APPEARS HERE]
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
- ----------------------------- FISCAL YEAR ENDING -------------------------------
COMPANY 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
COMMUNITY BANKSHARES NH 100 125.00 158.33 295.83 504.97 579.37
PEER GROUP 100 77.89 122.97 147.11 216.14 248.70
BROAD MARKET 100 96.22 101.52 124.62 136.66 160.27
</TABLE>
120
<PAGE>
In its proxy statement for the 1994 Annual Meeting of Shareholders,
Community used a peer group consisting of thirteen banking companies (the
"1994 Peer Group") in the comparison of five-year total returns. Community
decided to use a larger peer group--namely, the KBW Index--in this Proxy
Statement-Prospectus since five of the companies in the 1994 Peer Group have
been acquired by other companies. The graph set forth below compares the
cumulative total return on Community's Common Stock for the past five fiscal
years with the cumulative total return of the 1994 Peer Group.
[GRAPH APPEARS HERE]
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
- ----------------------------- FISCAL YEAR ENDING -------------------------------
COMPANY 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
COMMUNITY BANKSHARES NH 100 125.00 158.33 295.83 504.97 579.37
PEER GROUP 100 89.62 165.54 187.57 222.46 264.62
BROAD MARKET 100 94.22 101.52 124.62 136.66 160.27
</TABLE>
121
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of June 30, 1995
regarding (i) each person known by Community to own beneficially more than 5%
of Community's Common Stock; (ii) each director and each nominee for director
individually; and (iii) all directors and executive officers of Community as a
group. Except as otherwise noted in the footnotes to the table, the beneficial
owners have sole voting and investment power as to all shares beneficially
owned by them. All of the individuals named below (except Ingalls & Snyder)
are directors of Community. Messrs. Holden and Resnicoff and Ms. Kittredge and
Ms. Tsouros are nominees.
<TABLE>
<CAPTION>
EQUIVALENT SHARES OF
COMMUNITY COMMON STOCK
ASSUMING CONSUMMATION
OF THE MERGER
---------------------------
AMOUNT AND PERCENTAGE
NATURE OF PERCENTAGE OF
NAME BENEFICIAL OWNERSHIP(1) OF CLASS NUMBER OF SHARES CLASS
---- ----------------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Ingalls & Snyder
61 Broadway
New York, NY 10006..... 155,200(2) 8.9% 155,200 6.55%
John N. Buxton.......... 677(3) * 677 *
Douglas Crichfield...... 66,163(4) 3.8 66,163 2.77
Robert A. Hill.......... 750(5) * 750 *
Eleanor H. Stark........ 985(6) * 985 *
Russell A. Holden....... 2,270(3) * 2,270 *
Lucia Kittredge......... 4,722(6) * 4,722 *
Seth A. Resnicoff....... 11,482(3) * 11,482 *
Katherine F. Tsouros.... 2,574(6) * 2,574 *
William S. Fenollosa.... 1,894(3) * 1,894 *
Oliver R. Fifield....... 3,340(6) * 3,340 *
Thomas M. Hardiman...... 11,500 * 11,500 *
James R. Stewart........ 4,286(3) * 4,286 *
Directors and executive
officers as a group (15
persons)............... 145,138(7) 8.4 145,138 6.01
</TABLE>
- --------
*Less than one percent
(1) Includes shares owned beneficially by spouses, minor children and
relatives living in the named person's homes and trusts for their benefit;
the named persons disclaim any beneficial interest in shares so included.
(2) Ingalls & Snyder reports that it has sole voting power with respect to
40,000 shares and sole dispositive power as to 155,200 shares.
(3) Includes 276 shares obtainable upon exercise of stock options.
(4) Includes 18,819 shares obtainable upon exercise of stock options and 2,617
shares held in Concord's Employee Stock Ownership Plan.
(5) Includes 73 shares obtainable upon exercise of stock options.
(6) Includes 145 shares obtainable upon exercise of stock options.
(7) Includes 47,472 shares obtainable upon exercise of stock options and 6,982
shares allocable to executive officers under Concord Saving Bank's
Employee Stock Ownership Plan.
RATIFICATION OF COMMUNITY'S AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP as Community's
auditors for the current fiscal year. KPMG Peat Marwick LLP has audited the
financial statements of Community since fiscal 1985.
The affirmative vote of a majority of the shares of Community Common Stock
present and voting, in person or by proxy, at the Annual Meeting is necessary
to ratify the selection of KPMG Peat Marwick LLP as Community's auditors for
the current fiscal year. Should the selection of KPMG Peat Marwick LLP as
Community's auditors not be ratified by the shareholders, the Board will
reconsider the matter.
122
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
SELECTION OF KPMG PEAT MARWICK LLP AS AUDITORS OF COMMUNITY FOR THE CURRENT
FISCAL YEAR.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following directors and officers of Community were late in filing a Form
5 report for the year ended June 30, 1995 to report shares acquired under
Community's dividend reinvestment plan: directors John N. Buxton, Oliver R.
Fifield, Robert A. Hill, Lucia Kittredge, Eleanor Stark and Katherine Tsouros,
and Vice President Paul M. Ferguson and Vice President Richard E. Kamp.
President and CEO Douglas Crichfield and Vice President Richard E. Kamp were
late in filing a Form 5 for the year ended June 30, 1995 to report shares
allocated under Concord's ESOP. Director William Fenollosa was late in filing
a Form 5 for the year ended June 30, 1995 to report exercise of a stock option
under Community's 1992 Stock Option Plan, and director Oliver R. Fifield
amended his Form 5 report to reflect an open market purchase of 100 shares of
Common Stock, which should have been reported on a Form 4 Report for the month
of January 1995.
COMPARATIVE STOCK PRICES AND DIVIDENDS
The shares of Community Common Stock are quoted on the Nasdaq National
Market System. The shares of Centerpoint Common Stock have been quoted on the
Nasdaq Bulletin Board since February 1995 and before that were traded
sporadically, over the counter, at prices that were not reported. The table
below sets forth high and low sales prices for Community Common Stock and
Centerpoint Common Stock as quoted on the Nasdaq National Market System and
the Nasdaq Bulletin Board, respectively, and the cash dividends declared, for
the periods indicated, as well as certain pro forma data per share of
Centerpoint Common Stock, assuming consummation of the Merger:
<TABLE>
<CAPTION>
COMMUNITY CENTERPOINT
------------------------- ------------------------
QUARTER ENDED HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------------- ------- ------- --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1994
September 30, 1993.......... $12.750 $ 8.250 $ -- $ -- $ -- $--
December 31, 1993........... 14.500 11.000 0.05 -- -- --
March 31, 1994.............. 14.500 11.000 0.08 -- -- --
June 30, 1994............... 15.500 13.250 0.11 -- -- --
1995
September 30, 1994.......... 16.250 14.500 0.12 -- -- --
December 31, 1994........... 16.250 12.875 0.13 -- -- 0.10
March 31, 1995.............. 16.250 12.875 0.13 9.250 8.375 --
June 30, 1995............... 17.250 15.250 0.13 11.250 9.250 0.075
</TABLE>
On August 29, 1995, the business day immediately preceding the public
announcement of the proposed Merger, the high and low prices for Community
Common Stock as quoted on the Nasdaq National Market System were $16.75 and
$16.50 per share. On August 22, 1995, the date of the most recent sale of
Centerpoint Common Stock prior to the public announcement of the proposed
Merger, Centerpoint Common Stock was traded at $10.125 per share, as quoted on
the Nasdaq Bulletin Board. On , the high and low prices for Community Common
Stock and Centerpoint Common Stock as so quoted were $ and $ per share
and $ and $ per share, respectively.
The payment of dividends is subject to the discretion of Community's Board
of Directors and depends on a variety of factors, including Community's
operating results and financial condition, regulatory limitations, tax
considerations and other factors. Community engages in no business other than
acting as the holding company of its subsidiaries. The only funds available to
Community for the payment of dividends are cash and cash equivalents held at
the holding company level, dividends paid to Community by its subsidiaries,
and borrowings. At June 30, 1995, Community held $1,601,000 in cash and
interest-bearing deposits at the holding company level.
123
<PAGE>
EXPERTS
Community. The consolidated financial statements of Community as of June 30,
1995 and 1994 and for each of the years in the three year period ended June
30, 1995 have been included in this Proxy Statement-Prospectus in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
Centerpoint. The financial statements of Centerpoint at December 31, 1994
and 1993, and for each of the three years in the period ended December 31,
1994, included in the proxy statement of Centerpoint, which is referred to and
made a part of this Proxy Statement-Prospectus, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL OPINIONS
Community. The legality of the shares of Community Common Stock to be issued
to the Centerpoint shareholders pursuant to the Merger, certain tax
consequences to Community and the Centerpoint shareholders of the Merger, and
certain legal matters in connection with the Merger, will be passed upon by
Foley, Hoag & Eliot, Boston, Massachusetts.
Centerpoint. McLane, Graf, Raulerson & Middleton, Professional Association,
Manchester, New Hampshire, will render an opinion as to certain other legal
matters in connection with the Merger.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves as independent auditors for Community. A
representative of KPMG Peat Marwick LLP will be present at the Community
Annual Meeting, will be given the opportunity to make a statement if he or she
so desires and will be available to respond to appropriate questions.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR NEXT COMMUNITY ANNUAL MEETING
In order to be included in proxy materials for the Annual Meeting of
Shareholders expected to be held on May , 1997, qualifying shareholder
proposals must be received by Community at its principal executive offices no
later than . See "COMMUNITY ANNUAL MEETING--OTHER MATTERS--Election of
Community Directors."
124
<PAGE>
INDEX TO FINANCIAL STATEMENTS
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES:
<TABLE>
<S> <C>
Independent Auditor's Report.............................................. F-2
Consolidated Statements of Income......................................... F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Changes in Stockholders' Equity................ F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
CENTERPOINT BANK:
Report of Independent Auditors............................................ F-30
Balance Sheets............................................................ F-31
Statements of Operations.................................................. F-32
Statements of Shareholders' Equity........................................ F-33
Statements of Cash Flows.................................................. F-34
Notes to Financial Statements............................................. F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors Community Bankshares, Inc.:
We have audited the accompanying consolidated balance sheets of Community
Bankshares, Inc. and subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended June 30, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Community
Bankshares, Inc. and subsidiaries at June 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended June 30, 1995 in conformity with generally accepted
accounting principles.
As explained in Note 1 of Notes to Consolidated Financial Statements,
effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 122 "Accounting for Mortgage Servicing Rights, an Amendment to
FASB Statement No. 65."
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
July 21, 1995, except Note 17, as to which the date is August 30, 1995
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------
1995 1994 1993
------------- ------------- -------------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest and dividend income:
Loans (Note 3)..................... $ 21,599 $ 18,337 $ 19,683
Securities available for sale...... 3,823 4,171 --
Securities held for sale........... -- -- 761
Securities held to maturity........ 2,565 422 3,963
Dividends on Federal Home Loan Bank
stock............................. 188 154 171
Deposits in other banks............ 66 134 58
------------- ------------- -------------
Total interest and dividend
income.......................... 28,241 23,218 24,636
------------- ------------- -------------
Interest expense:
Deposits........................... 11,488 10,295 11,523
Borrowed funds..................... 2,756 441 451
------------- ------------- -------------
Total interest expense........... 14,244 10,736 11,974
------------- ------------- -------------
Net interest and dividend income..... 13,997 12,482 12,662
Provision for possible loan losses
(Note 4)............................ 475 625 2,150
------------- ------------- -------------
Net interest and dividend income
after provision for possible
loan losses..................... 13,522 11,857 10,512
------------- ------------- -------------
Non-interest income:
Deposit account fees............... 506 366 318
Gains on sales of investment
securities, net (Note 2).......... 148 411 967
Gains on sales of loans, net (Note
1)................................ 501 1,089 927
Mortgage servicing income.......... 522 476 341
Other.............................. 359 216 326
------------- ------------- -------------
Total non-interest income........ 2,036 2,558 2,879
------------- ------------- -------------
Non-interest expense:
Salaries and employee benefits
(Note 12)......................... 5,430 4,989 4,370
Occupancy and equipment............ 1,466 1,297 1,255
Foreclosed property (Note 6)....... 146 67 1,875
FDIC deposit insurance premiums.... 678 697 668
Marketing.......................... 301 315 229
Other.............................. 2,699 3,102 2,773
------------- ------------- -------------
Total non-interest expense....... 10,720 10,467 11,170
------------- ------------- -------------
Income before income taxes........... 4,838 3,948 2,221
Income tax expense (Note 11)......... 1,551 858 --
------------- ------------- -------------
Net income....................... $ 3,287 $ 3,090 $ 2,221
============= ============= =============
Earnings per common and common
equivalent share................ $ 1.84 $ 1.73 $ 1.28
Average number of common and
common equivalent shares
outstanding..................... 1,788,792 1,786,436 1,736,775
Dividends paid per share......... $ 0.51 $ 0.24 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
Assets
Cash and due from banks (Note 13)..................... $ 8,227 $ 7,503
Interest-bearing deposits in other banks.............. 10,870 509
---------- ----------
Total cash and cash equivalents................... 19,097 8,012
---------- ----------
Securities available for sale--amortized cost $58,225
in 1995 and $65,252 in 1994 (Notes 2, 8 and 9)....... 58,754 64,795
Securities held to maturity--fair value $53,350 in
1995 and $32,997 in 1994 (Notes 2, 8 and 9).......... 53,408 33,860
Federal Home Loan Bank stock (Notes 2 and 9).......... 3,803 1,860
Mortgage loans held for sale (Note 3)................. 4,392 4,942
Loans (Notes 3 and 9)................................. 271,461 222,109
Allowance for possible loan losses (Note 4)........... (2,970) (3,351)
---------- ----------
Net loans......................................... 268,491 218,758
---------- ----------
Premises and equipment (Note 5)....................... 7,422 7,150
Real estate acquired by foreclosure or substantively
repossessed (Note 6)................................. 1,134 836
Accrued interest receivable........................... 3,100 2,526
Other assets (Notes 6 and 11)......................... 6,113 3,397
---------- ----------
Total assets...................................... $ 425,714 $ 346,136
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Note 7):
Non-interest bearing demand........................ $ 16,420 $ 15,067
Savings............................................ 115,174 131,877
Time certificates.................................. 176,962 145,981
---------- ----------
Total deposits.................................... 308,556 292,925
Borrowed funds (Notes 8 and 9)...................... 82,768 23,507
Liability relating to ESOP (Note 12)................ 197 355
Accrued interest payable............................ 1,177 693
Other liabilities................................... 3,618 2,031
---------- ----------
Total liabilities................................. 396,316 319,511
---------- ----------
Commitments and contingencies (Notes 5, 12 and 13)
Stockholders' equity (Notes 10, 11 and 12):
Preferred stock, $1.00 par value per share;
1,000,000 shares authorized, none issued........... -- --
Common stock, $1.00 par value per share; 3,000,000
shares authorized; issued and outstanding 1,747,032
in 1995 and 1,743,532 in 1994...................... 1,747 1,744
Additional paid-in capital.......................... 17,146 17,343
Retained earnings................................... 10,567 8,155
---------- ----------
29,460 27,242
Unrealized net gains (losses) on securities
available for sale, net (Note 3)................... 328 (262)
Unearned compensation expense--ESOP................. (197) (355)
Treasury stock--11,810 shares at cost............... (193) --
---------- ----------
Total stockholders' equity........................ 29,398 26,625
---------- ----------
Total liabilities and stockholders' equity........ $ 425,714 $ 346,136
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1995, 1994, 1993
------------------------------------------------------------------------
UNREALIZED NET
GAINS (LOSSES) UNEARNED
ADDITIONAL ON SECURITIES COMPENSATION
COMMON PAID-IN RETAINED AVAILABLE FOR EXPENSE TREASURY
STOCK CAPITAL EARNINGS SALE, NET ESOP STOCK TOTAL
------ ---------- -------- -------------- ------------ -------- -------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30,
1992................... $1,705 $17,293 $ 3,252 $-- $(670) $(174) $21,406
Net income............. -- -- 2,221 -- -- -- 2,221
Amortization of
unearned
compensation--ESOP.... -- -- -- -- 157 -- 157
Issuance of common
stock through stock
option plans (Note
12)................... 3 (124) -- -- -- 174 53
Issuance of common
stock through employee
stock purchase plan
(Note 12)............. 4 8 -- -- -- -- 12
------ ------- ------- ---- ----- ----- -------
Balances at June 30,
1993................... 1,712 17,177 5,473 -- (513) -- 23,849
Net income............. -- -- 3,090 -- -- -- 3,090
Amortization of
unearned
compensation--ESOP.... -- -- -- -- 158 -- 158
Issuance of common
stock through stock
option plans (Note
12)................... 28 141 -- -- -- -- 169
Issuance of common
stock through employee
stock purchase plan
(Note 12)............. 4 25 -- -- -- -- 29
Cash dividends ($0.24
per share)............ -- -- (408) -- -- -- (408)
Change in unrealized
net gains (losses) on
securities available
for sale, net......... -- -- -- (262) -- -- (262)
------ ------- ------- ---- ----- ----- -------
Balances at June 30,
1994................... 1,744 17,343 8,155 (262) (355) -- 26,625
Net income............. -- -- 3,287 -- -- -- 3,287
Amortization of
unearned
compensation--ESOP.... -- -- -- -- 158 -- 158
Issuance of common
stock through stock
option plans (Note
12)................... 3 (193) -- -- -- 407 217
Issuance of common
stock through employee
stock purchase plan
(Note 12)............. -- (4) -- -- -- 27 23
Purchase of 42,500
shares of treasury
stock................. -- -- -- -- -- (627) (627)
Cash dividends ($0.51
per share)............ -- -- (875) -- -- -- (875)
Change in unrealized
net gains (losses) on
securities available
for sale, net......... -- -- -- 590 -- -- 590
------ ------- ------- ---- ----- ----- -------
Balances at June 30,
1995................... $1,747 $17,146 $10,567 $328 $(197) $(193) $29,398
====== ======= ======= ==== ===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1995 1994 1993
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 3,287 $ 3,090 $ 2,221
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for possible loan losses............. 475 625 2,150
Depreciation and amortization.................. 1,191 1,038 1,037
Gains on sales of investment securities, net... (148) (411) (967)
(Gain) loss on sales of premises and
equipment..................................... -- 26 (61)
Net (gains) losses on sales and loss provisions
on real estate acquired by foreclosure or
substantively repossessed..................... (51) (130) 1,323
Mortgage loans originated for sale............. (28,655) (112,813) (78,863)
Mortgage loans sold............................ 29,205 114,617 75,959
(Increase) decrease in other assets............ (3,205) 1,869 (2,390)
Increase (decrease) in other liabilities....... 2,152 (3,027) (3,560)
-------- --------- --------
Net cash provided by (used in) operating
activities................................... 4,251 4,884 (3,151)
-------- --------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities... -- -- 1,958
Proceeds from sales of securities available for
sale and held for sale........................ 20,925 11,407 17,854
Proceeds from maturities and principal payments
of securities held to maturity................ 5,538 1,922 5,999
Proceeds from maturities and principal payments
of securities available for sale and held for
sale.......................................... 12,657 35,939 1,165
Purchase of securities held to maturity........ (25,094) (24,807) (9,607)
Purchase of securities available for sale...... (20,904) (41,041) --
Net (increase) decrease in FHLB stock.......... (1,943) 448 --
Net increase in loans.......................... (57,012) (24,354) (21,732)
Capitalized expenses on real estate acquired by
foreclosure or substantively repossessed...... (232) (65) (101)
Proceeds from disposition of real estate
acquired by foreclosure or substantively
repossessed................................... 984 2,404 4,219
Proceeds from sales of premises and equipment.. -- 28 249
Additions to premises and equipment............ (1,023) (827) (1,792)
Cash paid for mortgage servicing rights........ (453) -- --
-------- --------- --------
Net cash used in investing activities......... (66,557) (38,946) (1,788)
-------- --------- --------
Cash flows from financing activities:
Net increase (decrease) in time certificates of
deposit....................................... 30,981 (3,588) (4,537)
Net increase (decrease) in demand, NOW, savings
and money market deposit accounts............. (15,350) 10,904 18,078
Proceeds from borrowings....................... 158,113 30,782 12,303
Repayments of borrowings....................... (98,852) (12,085) (16,022)
Repayments of liability relating to ESOP....... (158) (158) (157)
Proceeds from issuance of common stock......... 175 171 65
Purchase of treasury stock..................... (627) -- --
Dividends paid on common stock................. (891) (416) --
-------- --------- --------
Net cash provided by financing activities..... 73,391 25,610 9,730
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 11,085 (8,452) 4,791
Cash and cash equivalents at beginning of year.. 8,012 16,464 11,673
-------- --------- --------
Cash and cash equivalents at end of year........ $ 19,097 $ 8,012 $ 16,464
======== ========= ========
Supplemental cash flow information:
Cash paid for:
Income taxes, net.............................. $ 1,235 $ 1,186 $ 135
Interest....................................... 13,760 10,696 12,147
Supplemental schedule of non-cash activities:
Transfer of securities to available for sale... $ -- $ 56,028 $ --
Transfer of securities from available for sale
to held to maturity........................... -- 10,957 --
Mortgage loans securitized during the period... 5,551 19,625 6,827
Additions to real estate acquired by
foreclosure or substantively repossessed...... 999 477 1,994
Transfer of real estate acquired by foreclosure
to premises and equipment..................... -- -- 609
Change in net unrealized gains (losses) on
securities available for sale, net............ 590 (262) --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Community
Bankshares, Inc. and its wholly-owned subsidiaries ("the Company"), Concord
Savings Bank ("the Bank") and its wholly owned subsidiary, Bancredit
Corporation ("Bancredit"). Bancredit originates automobile, recreational
vehicle and boat loans through dealers throughout New Hampshire. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts in prior years have been reclassified to
conform with the current year's presentation.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and general practices
within the banking industry. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the dates of the balance sheets and revenues
and expenses for the periods. Actual results could differ from these
estimates.
Material estimates that are susceptible to change because of changing forces
in the real estate market relate to the determination of the allowance for
possible loan losses and valuation of real estate acquired by foreclosure or
substantively repossessed.
Investment and Mortgage-Backed Securities
Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and carried at amortized
cost. Investments that are purchased and held principally for the purpose of
selling them in the near term are classified as "trading" and carried at fair
value, with unrealized gains and losses included in earnings. Investments not
classified as either "held to maturity" or "trading" are classified as
"available for sale" and carried at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
stockholders' equity. When a debt security is transferred into the "held to
maturity" category from the "available for sale" category, the unrealized gain
or loss at the transfer date continues to be reported as a separate component
of stockholders' equity and is amortized over the remaining life of the
related security as a yield adjustment. If a decline in fair value below the
amortized cost basis of an investment is judged by management to be other than
temporary, the cost basis of the investment is written down to fair value and
the amount of the writedown is included in earnings.
Premiums and discounts on investment and mortgage-backed securities are
recognized in the statements of income using a method that approximates the
level-yield method over the lives of the securities. Gains and losses on
securities are recognized when realized with the cost basis of investments
sold determined on a specific identification basis.
Loans
Interest income on loans is recognized on the accrual method. Nonaccrual
loans are those on which the accrual of interest is discontinued when
collectibility of principal or interest is uncertain or payments of principal
or interest have become contractually past due 90 days. Upon such
discontinuance, all unpaid accrued interest is reversed against the current
period's earnings. A loan which has principal or interest payments
contractually past due 90 days may remain on accrual status, however, if value
of the collateral securing the loan is sufficient to cover principal and
accrued interest, and the loan is in the process of collection.
Interest received on nonaccrual loans is either applied against principal or
reported as income according to management's judgment as to the collectibility
of principal. Loan origination fees and certain direct origination costs are
capitalized and recognized in income as an adjustment of the yield on the
related loan.
F-7
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loan Sale Activity
Loans held for sale are carried at the lower of aggregate cost or market
value, based upon commitments from investors to purchase such loans and upon
prevailing market conditions. Deferred origination fees collected for such
loans, net of sale commitment fees paid, are included in the lower of cost or
market determination. Such fees are recognized as part of gains on sales of
loans when the loans are sold.
Gains and losses on loans sold with servicing rights retained are adjusted
to recognize the difference between the present value of future service fee
income and a normal service fee. The resulting excess loan servicing rights
are amortized as a reduction of service fee income using the level yield
method over the remaining lives of the loans adjusted by expected prepayments.
Actual loan prepayment experience is reviewed periodically and the carrying
value of excess loan servicing rights is reduced when actual prepayment
experience exceeds that originally estimated.
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing
Rights, an Amendment of FASB Statement No. 65." As a result of adoption, gains
on sales of loans increased by approximately $170,000 for the year ended June
30, 1995. This statement requires the Company to recognize as separate assets
rights to service mortgage loans for others, however those servicing rights
are acquired. When the Company acquires mortgage servicing rights either
through the purchase or origination of mortgage loans (originated mortgage
loan servicing rights) and sells or securitizes those loans with servicing
rights retained it allocates the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values. When the Company purchases
mortgage loan servicing rights (purchased mortgage loan servicing rights)
separately, the initial purchase cost is recognized as an asset.
Originated and purchased mortgage loan servicing rights are amortized as a
reduction of service fee income in proportion to, and over the period of,
estimated net servicing income by use of the level yield method.
On a quarterly basis, the Company assesses the carrying values of originated
and purchased mortgage servicing rights for impairment based on the fair value
of such rights. A valuation model that calculates the present value of future
cash flows is used to estimate such fair value. This valuation model
incorporates assumptions that market participants would use in estimating
future net servicing income including estimates of the cost of servicing
loans, discount rate, float value, ancillary income, prepayment speeds, and
default rates. Any impairment is recognized as a charge to earnings through a
valuation allowance.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level believed by
management to be adequate to meet reasonably foreseeable loan losses on the
basis of many factors including the risk characteristics of the portfolio,
underlying collateral, current and anticipated economic conditions that may
affect the borrower's ability to pay, specific problem loans, and trends in
loan delinquencies and charge-offs. Possible losses on loans are provided for
under the allowance method of accounting. The allowance is increased by
provisions charged to earnings and reduced by loan charge-offs, net of
recoveries. Loans are charged off in whole or in part when, in management's
opinion, collectibility is not probable.
While management uses available information to establish the allowance for
possible loan losses, future additions to the allowance may be necessary if
economic developments differ substantially from the assumptions used in making
the evaluation. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for
possible loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on judgments different from those of
management.
F-8
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 1, 1995, the Company adopted SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosure." These statements
generally require all creditors to account for impaired loans, except those
loans accounted for at fair value or at the lower of cost or fair value, at
the present value of the expected future cash flows discounted at the loan's
effective interest rate or, alternatively, at the fair value of the loan's
collateral. In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be made only
when the lender is in possession of the collateral. These statements also
require impairment of troubled debt restructurings to be measured using the
pre-modification rate of interest. Adoption of these statements had no
material impact on the Company's financial position or results of operations.
Premises and Equipment
Land is stated at cost. Bank buildings, improvements and equipment are
carried at cost less accumulated depreciation. Depreciation is computed over
the estimated useful lives of the respective assets on the straight-line
method for buildings and improvements and on the straight-line and double-
declining balance methods for equipment.
Real Estate Acquired by Foreclosure or Substantively Repossessed
Real estate acquired by foreclosure includes foreclosed properties where the
Bank has actually received title. When there is indication that a borrower no
longer has equity in property collateralizing a loan and it is doubtful that
equity will be rebuilt in the foreseeable future, the property is considered
to be repossessed in substance. Both in-substance foreclosures and real estate
formally acquired in settlement of loans are recorded at the lower of the
carrying value of the loan or the fair value of the property constructively or
actually received minus costs to sell. Losses arising from the acquisition of
such properties or from the writedowns to fair values of loans substantively
repossessed are charged against the allowance for possible loan losses.
Operating expenses and any subsequent provisions to reduce the carrying value
to net fair value are charged to current period earnings. Gains upon
disposition are reflected in earnings as realized. Realized losses are charged
to an allowance for losses on real estate acquired by foreclosure.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and the respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Earnings Per Share
Earnings per share is based on the weighted average number of common and
common stock equivalents outstanding during the period.
F-9
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of investment and mortgage-
backed securities were as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
--------------------------------------- ---------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1995:
Investment securities:
U.S. Government and
Agency obligations.... $31,814 $364 $ 77 $32,101 $32,930 $146 $174 $32,902
Other debt securities.. -- -- -- -- 3,944 54 -- 3,998
Municipal investments.. 987 -- -- 987 2,750 -- -- 2,750
Marketable equity
securities............ 182 87 40 229 -- -- -- --
------- ---- ---- ------- ------- ---- ---- -------
32,983 451 117 33,317 39,624 200 174 39,650
------- ---- ---- ------- ------- ---- ---- -------
Mortgage-backed securi-
ties:
FHLMC.................. 4,815 -- 81 4,734 10,657 18 123 10,552
FNMA................... 11,951 251 -- 12,202 2,006 20 -- 2,026
Other.................. 8,476 89 64 8,501 1,121 3 2 1,122
------- ---- ---- ------- ------- ---- ---- -------
25,242 340 145 25,437 13,784 41 125 13,700
------- ---- ---- ------- ------- ---- ---- -------
Total investment securi-
ties................... $58,225 $791 $262 $58,754 $53,408 $241 $299 $53,350
======= ==== ==== ======= ======= ==== ==== =======
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
--------------------------------------- ---------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1994:
Investment securities:
U.S. Government and
Agency obligations.... $36,135 $148 $343 $35,940 $16,931 $-- $346 $16,585
Other debt securities.. 1,000 -- -- 1,000 977 -- 9 968
Marketable equity
securities............ 127 72 44 155 -- -- -- --
------- ---- ---- ------- ------- ---- ---- -------
37,262 220 387 37,095 17,908 -- 355 17,553
------- ---- ---- ------- ------- ---- ---- -------
Mortgage-backed
securities:
FHLMC.................. 12,176 53 307 11,922 12,253 -- 417 11,836
FNMA................... 14,116 135 148 14,103 2,448 5 88 2,365
Other.................. 1,698 -- 23 1,675 1,251 -- 8 1,243
------- ---- ---- ------- ------- ---- ---- -------
27,990 188 478 27,700 15,952 5 513 15,444
------- ---- ---- ------- ------- ---- ---- -------
Total investment securi-
ties................... $65,252 $408 $865 $64,795 $33,860 $ 5 $868 $32,997
======= ==== ==== ======= ======= ==== ==== =======
</TABLE>
As a member of the Federal Home Loan Bank (FHLB) of Boston, the Bank is
required to invest in $100 par value stock of the FHLB of Boston in the amount
of 1% of its outstanding loans secured by residential housing, or 1% of 30% of
total assets, or 5% of its outstanding advances from the FHLB of Boston,
whichever
F-10
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
is higher. When such stock is redeemed, the Bank would receive from the FHLB
of Boston an amount equal to the par value of the stock. As of June 30, 1995,
the Bank was required to have an investment of at least $3,803,000.
An analysis of realized gains and losses on investment and mortgage-backed
securities and investments, available and held for sale, for the years ended
June 30 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
REALIZED REALIZED REALIZED REALIZED REALIZED REALIZED
GAINS LOSSES GAINS LOSSES GAINS LOSSES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Debt securities......... $-- $-- $-- $-- $ 85 $--
Marketable equity secu-
rities................. -- -- -- -- -- --
Mortgage-backed securi-
ties................... -- -- -- -- 45 --
Investments, available
and held for sale...... 171 23 411 -- 837 --
---- ---- ---- ---- ---- ----
$171 $ 23 $411 $-- $967 $--
==== ==== ==== ==== ==== ====
</TABLE>
Proceeds from sales of investment and mortgage-backed securities, including
investments held for sale, during fiscal 1995, 1994 and 1993 amounted to
$20,925,000, $11,407,000 and $19,812,000, respectively.
The following table sets forth the maturity distribution of investment
securities (excluding marketable equity securities) at June 30, 1995.
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
----------------- ----------------- ----------------- ----------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE COST VALUE
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
U.S. Government and
Agency obligations.... $ 2,001 $ 1,987 $23,818 $24,083 $5,995 $ 6,031 $ -- $ -- $31,814 $32,101
Municipal investments.. 987 987 -- -- -- -- -- -- 987 987
Mortgage-backed
securities............ -- -- 2,898 2,858 3,815 3,735 18,529 18,844 25,242 25,437
------- ------- ------- ------- ------ ------- ------- ------- ------- -------
Total investment
securities............. $ 2,988 $ 2,974 $26,716 $26,941 $9,810 $ 9,766 $18,529 $18,844 $58,043 $58,525
======= ======= ======= ======= ====== ======= ======= ======= ======= =======
Held to Maturity:
U.S. Government and
Agency obligations.... $ 6,970 $ 6,982 $25,960 $25,919 $ -- $ -- $ -- $ -- $32,930 $32,901
Other debt securities.. 996 998 2,948 3,001 -- -- -- -- 3,944 3,999
Municipal investments.. 2,750 2,750 -- -- -- -- -- -- 2,750 2,750
Mortgage-backed
securities............ -- -- 12,663 12,580 -- -- 1,121 1,120 13,784 13,700
------- ------- ------- ------- ------ ------- ------- ------- ------- -------
Total investment
securities............. $10,716 $10,730 $41,571 $41,500 $ -- $ -- $ 1,121 $ 1,120 $53,408 $53,350
======= ======= ======= ======= ====== ======= ======= ======= ======= =======
</TABLE>
Mortgage-backed securities are expected to have shorter average lives than
their contractual maturities because borrowers may repay obligations without
prepayment penalties. In a declining interest rate environment, prepayments on
mortgage-backed securities are likely to accelerate. In a rising rate
scenario, prepayments on mortgage-backed securities are likely to slow.
F-11
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LOANS
The Bank's lending activities are concentrated primarily in central and
southern New Hampshire. The Bank grants single family residential loans,
commercial real estate loans, commercial loans, indirect automobile and
recreational vehicle loans through dealers and a variety of other consumer
loans. In addition, the Bank grants loans for the construction of residential
homes and commercial real estate properties, and for the development of land.
The ability and willingness of residential mortgage and consumer loan
borrowers to honor their repayment commitments is generally dependent on the
level of overall economic activity within the borrower's geographic areas and
real estate values. The ability and willingness of commercial real estate,
construction loan and commercial borrowers to honor their repayment
commitments is generally dependent on the health of the real estate economic
sector in the borrower's geographic areas and the general economy.
<TABLE>
<CAPTION>
AT JUNE 30,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage loans:
Residential............................................ $ 67,643 $ 66,380
Home equity............................................ 17,053 18,969
Construction........................................... 489 --
Commercial............................................. 53,716 40,078
-------- --------
138,901 125,427
Deferred loan origination fees, net.................... (353) (142)
-------- --------
Mortgage loans, net.................................. 138,548 125,285
-------- --------
Other loans:
Indirect automobile and recreational vehicle........... 100,666 66,528
Mobile home............................................ 11,976 13,702
Other consumer......................................... 6,779 8,352
Commercial............................................. 12,409 8,060
-------- --------
131,830 96,642
Deferred loan origination costs........................ 1,083 182
-------- --------
Other loan........................................... 132,913 96,824
-------- --------
Total loans.......................................... $271,461 $222,109
======== ========
</TABLE>
In the ordinary course of business, the Bank has granted loans to executive
officers and directors, and their related interests, on substantially the same
terms, including interest and collateral, as those prevailing at the time for
comparable transactions with unrelated borrowers. The aggregate amount of
these loans at June 30, 1995 was $222,000. Activity in these loans during the
year ended June 30, 1995 included loan additions of $45,000 and loan
repayments of $13,000. The balance of these loans at June 30, 1994 was
$190,000.
The Company from time to time purchases automobile consumer finance
contracts from an automobile dealership owned and operated by one of its
Directors, subject to the Bank's credit approval, on terms comparable to those
accorded other dealers. The Company purchased contracts amounting to
$1,003,000 and $960,000, respectively, which were originated by this
dealership during the fiscal years ended June 30, 1995 and 1994.
Loans on nonaccrual at June 30, 1995 and 1994 totaled $1,730,000 and
$730,000, respectively. At June 30, 1995 and 1994, there were no loans that
were 90 days or more past due and still accruing. At June 30, 1995
F-12
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
there were no restructured loans classified as non-performing as compared to
$174,000 at June 30, 1994. The Bank has no additional funding commitments to
these borrowers. The reduction in interest income for the years ended June 30
associated with nonaccrual and restructured loans held at the end of such
years is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income in accordance with original terms.................. $148 $ 62 $ 258
Income recognized......................................... (70) (42) (199)
---- ---- -----
Foregone income........................................... $ 78 $ 20 $ 59
==== ==== =====
</TABLE>
At June 30, 1995 and 1994, the principal balance of residential mortgage
loans serviced by the Bank for others amounted to $351,512,000 and
$160,994,000, respectively. At June 30, 1995, the principal balance of
indirect automobile loans serviced by the Bank for others amounted to
$11,536,000. The Bank did not service any indirect automobile loans for others
during fiscal 1994.
Following is an analysis of activity concerning loan servicing rights during
the year ended June 30, 1995:
<TABLE>
<CAPTION>
ORIGINATED PURCHASED
EXCESS LOAN MORTGAGE LOAN MORTGAGE LOAN
SERVICING RIGHTS SERVICING RIGHTS SERVICING RIGHTS
---------------- ---------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of
period................. $-- $-- $ --
Originations and
acquisitions during the
period................. 138 187 2,257
Amortization charged to
service fee income..... (1) (8) --
---- ---- ------
Balance at end of peri-
od..................... 137 179 2,257
Valuation allowance..... -- (9) --
---- ---- ------
Carrying value at end of
period................. $137 $170 $2,257
==== ==== ======
</TABLE>
The June 30, 1995 carrying values of originated and purchased mortgage loan
servicing rights are reasonable approximations of their fair value at that
date.
The risk characteristics of the underlying loans used to measure impairment
of originated and purchased mortgage loan servicing rights include loan type,
interest rate, loan origination date, term to maturity, and geographic
location.
(4) ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year........................... $3,351 $3,822 $3,958
Provision for possible loan losses..................... 475 625 2,150
Recoveries on loans previously charged off............. 466 612 378
------ ------ ------
4,292 5,059 6,486
Less loans charged off................................. 1,322 1,708 2,664
------ ------ ------
Balance at end of year................................. $2,970 $3,351 $3,822
====== ====== ======
</TABLE>
F-13
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) PREMISES AND EQUIPMENT
The major categories of bank premises and equipment are as follows:
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------
ESTIMATED
USEFUL
LIFE IN
1995 1994 YEARS
----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land..................................... $ 1,014 $ 1,014
Buildings................................ 7,178 6,861 15 to 40
Construction in process.................. 303 196
Furniture and equipment.................. 3,626 3,395 3 to 20
Furniture and equipment under capital
leases.................................. 552 513 5
----------- -----------
12,673 11,979
Less accumulated depreciation............ 5,251 4,829
----------- -----------
$ 7,422 $ 7,150
=========== ===========
</TABLE>
Depreciation and amortization of Bank premises and equipment included in
operating expenses for the years ended June 30, 1995, 1994 and 1993 was
$751,000, $685,000 and $632,000, respectively.
The Bank is obligated under various non-cancellable operating leases as well
as the capital leases included above, some of which provide for periodic
adjustments. At June 30, 1995, minimum lease payments for capital and
operating leases were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
Payable in
1996...................................................... $ 78 $129
1997...................................................... 79 129
1998...................................................... 69 105
1999...................................................... 64 42
2000...................................................... 57 4
Later years............................................... 380 --
---- ----
Total minimum lease payments............................... 727 409
Less amount representing interest.......................... -- 48
---- ----
$727 $361
==== ====
</TABLE>
Total operating lease expense for the years ended June 30, 1995, 1994 and
1993 amounted to $71,000, $18,000 and $11,000, respectively.
(6) REAL ESTATE ACQUIRED BY FORECLOSURE OR SUBSTANTIVELY REPOSSESSED
<TABLE>
<CAPTION>
AT JUNE 30,
----------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Single family housing projects.............................. $ 14 $ 85
Retail and office........................................... 247 234
Non-retail commercial....................................... -- 28
Residential................................................. 873 489
-------- ------
$ 1,134 $ 836
======== ======
</TABLE>
F-14
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in the above are properties considered to be repossessed in
substance totaling $215,000 and $172,000 at June 30, 1995 and 1994,
respectively.
The above summary excludes $277,000 and $204,000 of repossessed mobile homes
and $91,000 and $38,000 of repossessed automobiles for the years ended June
30, 1995 and 1994, respectively, which are included in other assets in the
accompanying balance sheets.
An analysis of real estate acquired by foreclosure or substantively
repossessed for the years ended June 30 is as follows:
<TABLE>
<CAPTION>
1995 1994
------ -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year............................... $ 836 $ 2,568
Foreclosures and properties substantively repossessed.... 1,231 542
Sales proceeds........................................... (984) (2,404)
Gains on sales, net...................................... 27 130
Recoveries subsequent to foreclosure, net................ 24 --
------ -------
Balance at end of year..................................... $1,134 $ 836
====== =======
</TABLE>
An analysis of foreclosed property expense for the years ended June 30, is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Foreclosure and holding costs, net...................... $197 $ 197 $ 552
Recoveries and loss provisions during the year, net..... (24) -- 1,029
(Gains) losses on sales, net............................ (27) (130) 294
---- ----- ------
$146 $ 67 $1,875
==== ===== ======
</TABLE>
(7) DEPOSITS
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Non-interest bearing demand deposits...................... $ 16,420 $ 15,067
-------- --------
Savings deposits:
Savings, club and escrow accounts....................... 81,656 97,794
Interest-bearing NOW accounts........................... 24,124 20,675
Money market accounts................................... 9,394 13,408
-------- --------
Total savings deposits................................ 115,174 131,877
-------- --------
Time certificates of deposit............................ 176,962 145,981
-------- --------
Total deposits........................................ $308,556 $292,925
======== ========
</TABLE>
At June 30, 1995 and 1994, time certificate of deposit accounts with
balances of $100,000 or more amounted to $19,010,000 and $13,741,000,
respectively.
F-15
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The average annual interest rates on time certificates of deposit
outstanding at June 30, 1995 by periods to maturity are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
YEARS ENDED JUNE 30, AMOUNT RATE
-------------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996.............................................. $103,134 5.25%
1997.............................................. 41,134 5.88
1998.............................................. 26,853 6.06
1999 and beyond................................... 5,841 6.49
-------------
$176,962 5.56
=============
</TABLE>
At June 30, 1995 and 1994, time certificates of deposit issued at rates
which may be adjusted periodically during the term of the certificate amounted
to $33,098,000 and $40,806,000 respectively.
(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
<TABLE>
<CAPTION>
DAILY AVERAGE MAXIMUM
END OF YEAR DURING YEAR OUTSTANDING
------------ -------------- AT ANY
BALANCE RATE BALANCE RATE MONTH-END
------- ---- -------- ----- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
June 30, 1995...................... $6,348 5.82% $ 1,161 5.94% $6,348
</TABLE>
Repurchase agreements outstanding at June 30, 1995 carried maturity dates of
three months or less. U.S. Government and Agency securities with a book value
of $6,949,000 and a fair value of $6,916,000 were pledged as collateral and
held by custodians to secure the agreements at June 30, 1995. The Company had
no repurchase agreement activity during the fiscal years ended June 30, 1994
and 1993.
(9) OTHER BORROWED FUNDS
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Advances from the Federal Home Loan Bank of Bos-
ton............................................... $ 76,050 $ 23,072
Capitalized leases................................. 361 419
Note payable due in monthly installments including
interest at 7%.................................... 9 16
----------- -----------
$ 76,420 $ 23,507
=========== ===========
</TABLE>
At June 30, 1995, mortgage loans on residential property of approximately
$72,000,000, investment securities of $33,000,000 and all stock in the Federal
Home Loan Bank of Boston are pledged as collateral to secure the above
advances and a line of credit with the Federal Home Loan Bank of Boston of
$8,000,000. The average annual interest rates on advances from the Federal
Home Loan Bank of Boston outstanding at June 30, 1995 by periods to maturity
are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
YEARS ENDED JUNE 30, AMOUNT RATE
-------------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996............................................... $ 30,500 6.14%
1997............................................... 45,000 6.13
2000............................................... 75 8.13
2004............................................... 475 7.38
------------
$ 76,050 6.14
============
</TABLE>
F-16
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The daily average outstanding balance of other borrowed funds (with a
maximum month-end balance of $76,420,000, $23,072,000 and $12,999,000 during
the years ended June 30, 1995, 1994 and 1993, respectively) were $45,848,000,
$8,955,000 and $7,865,000 during the years ended June 30, 1995, 1994 and 1993
with a weighted average interest rate of 5.86%, 4.92% and 5.73%, respectively.
(10) STOCKHOLDERS' EQUITY
Federal regulations prohibit banking companies from paying dividends on
their stock if the effect would cause stockholders' equity to be reduced below
applicable regulatory capital requirements or if such declaration and payment
would otherwise violate regulatory requirements. At June 30, 1995, the Company
and the Bank were in compliance with all regulatory capital requirements.
On October 17, 1989, the Board of Directors adopted a Shareholder Rights
Plan and declared a dividend distribution of one Right for each outstanding
share of common stock. The distribution was payable on November 15, 1989 to
the stockholders of record on October 31, 1989. Such Rights only become
exercisable upon the earliest to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding Common Shares, or (ii) 10 days
following the commencement of a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person of
25% or more of such outstanding Common Shares, or (iii) the declaration by the
Board of Directors that any person is an "Adverse Person" (the earliest of
such dates being called the "Distribution Date"). Each Right entitles the
registered holder to purchase from the Company one one-hundredth of one share
(a "Unit") of Series A Preferred Stock, $1.00 par value, at a price of $40 per
Unit, subject to adjustment. If the Company is acquired in a merger or other
business combination transaction or more than 50% of its assets or earning
power are sold, the Rights entitle holders to acquire common stock of the
Acquiring Person having a value twice the exercise price of the Rights. The
Rights may be redeemed in whole, but not in part, at a price of $.01 per Right
at any time prior to the Distribution Date. The Rights will expire on October
30, 1999.
(11) INCOME TAXES
At June 30, 1995 and 1994, the Company's accrued Federal income tax payable
was $140,000 and $81,000, respectively.
During fiscal 1993, the Company was subject to an annual franchise tax
imposed by the State of New Hampshire at the rate of 1% of the total amount of
interest paid on its deposits each year. The Company was also subject to an
additional franchise tax in an amount equal to 1% of its outstanding capital
stock account. This additional franchise tax could be utilized as a credit
against the franchise tax imposed on interest paid on deposits. The Company
was also subject to a state business profits tax equal to 8% of taxable
income, net of permissible deductions under New Hampshire law for interest
earned on United States Government securities and a tax credit for franchise
taxes paid.
On July 1, 1993, the State of New Hampshire modified many of its corporate
income tax laws. These changes resulted in the Company being subject to a
state business profits tax equal to 7.5% for fiscal year 1994 and 7.0% for
years thereafter. In addition, the Company is no longer subject to an annual
franchise tax but instead is subject to a business enterprise tax. This tax is
imposed at the rate of 0.25% of the sum of the Company's interest expense,
compensation expense and dividends paid. This additional enterprise tax may be
utilized as a credit against the business profits tax. No provision for state
income taxes is reflected in the Company's consolidated statements of income
for the years ended June 30, 1995, 1994 and 1993 because the amount of annual
business enterprise tax or franchise tax exceeded the Company's liability
under the business profits tax law.
F-17
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The difference between the total expected income tax expense computed by
applying the federal income tax rate of 34% to income before income taxes and
the reported income tax expense is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" federal income tax expense at
statutory rate.................................. $ 1,645 $ 1,342 $ 755
Increase (decrease) resulting from:
State taxes (net of federal benefit, before
change in valuation reserve).................. 75 54 (12)
Dividend received deduction.................... (6) (21) (2)
Change in valuation reserve.................... (150) (510) (742)
Other.......................................... (13) (7) 1
------- ------- ------
$ 1,551 $ 858 $ --
======= ======= ======
<CAPTION>
YEARS ENDED JUNE 30,
------------------------
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal........................................ $ 1,424 $ 922 $ 441
State.......................................... -- -- --
------- ------- ------
1,424 922 441
------- ------- ------
Deferred tax expense (benefit):
Federal........................................ 162 365 319
State.......................................... 115 81 (18)
Change in valuation reserve.................... (150) (510) (742)
------- ------- ------
127 (64) (441)
------- ------- ------
$ 1,551 $ 858 $ --
======= ======= ======
</TABLE>
F-18
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences (the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases) that give rise to significant portions of the
deferred tax asset and deferred tax liability are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Allowance for possible loan losses....................... $ 922 $ 919
Deferred loan fees....................................... 156 67
Valuation allowance on repossessed assets................ 22 32
State net operating loss carryforward.................... 20 73
Unrealized loss on securities available for sale......... -- 161
Pension.................................................. 37 27
Other.................................................... 19 10
------- -------
Gross deferred tax asset................................... 1,176 1,289
Valuation reserve.......................................... (136) (286)
------- -------
1,040 1,003
------- -------
Deferred tax liability:
Valuation allowance on loans held for sale............... -- 38
Pension.................................................. 77 115
Depreciation............................................. 156 101
Deferred loan costs...................................... 425 78
Unrealized gain on securities available for sale......... 206 --
Other.................................................... 4 5
------- -------
868 337
------- -------
Deferred income tax asset, net............................. $ 172 $ 666
======= =======
</TABLE>
Retained earnings include approximately $3,720,000 of bad debt reserves for
Federal income tax purposes which may be subject to tax if not used to absorb
loan losses. Related deferred taxes on such reserves of approximately
$1,210,000 have not been provided because it is not expected that such
reserves will be utilized for other than loan losses.
The realization of the net deferred tax asset may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income and
the utilization of tax planning strategies. Management has determined that it
is more likely than not that the net deferred tax asset can be realized by
carrybacks to federal taxable income in the three-year carryback period and by
expected future taxable income. The valuation reserve primarily relates to
certain state tax temporary differences.
(12) EMPLOYEE BENEFITS
Stock Option Plans
In 1985, 1988 and 1992 the stockholders of the Company approved stock option
plans for the benefit of certain officers and other employees. Outside
directors may elect to receive options under the 1992 plan in lieu of a
portion of director fees. The total number of shares covered by the plans is
240,000. Employee options granted under the plans vest over four years at 25%
per year. Options are granted at not less than the fair market
F-19
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value of the shares at the date of the grant, and expire ten years from the
date of the grant. Activity in the plans during the years ended June 30 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF OPTION OF OPTION OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 130,505 $ 7.33 157,880 $6.92 146,130 $6.57
Granted................. 2,233 15.42 1,000 9.00 35,000 5.40
Cancelled............... (3,000) 11.38 (375) 2.83 (1,000) 2.25
Exercised............... (32,161) 4.71 (28,000) 5.09 (22,250) 2.34
------- ------- -------
Outstanding at end of
year................... 97,577 8.26 130,505 7.33 157,880 6.92
======= ======= =======
</TABLE>
Stock Purchase Plan
Under the Stock Purchase Plan approved by the Company's stockholders,
participating employees may purchase shares through accumulated payroll
deductions. During the years ended June 30, 1995, 1994 and 1993, 2,029, 3,412
and 4,207 shares were purchased at $11.375, $8.125 and $2.75 per share,
respectively. At June 30, 1995, 40,352 shares were available for issuance
under the Plan.
Employee Stock Ownership Plan
In May of 1986, the Company adopted an Employee Stock Ownership Plan
("ESOP"). The Plan is designed to provide retirement benefits for eligible
employees of the Bank. Because the Plan invests primarily in the stock of the
Company, it will also give eligible employees an opportunity to acquire an
ownership interest in the Company. Employees are eligible to participate in
the Plan after reaching age twenty-one, completing one year of service and
working at least one thousand hours of consecutive service during the previous
year. Contributions are allocated to eligible participants on the basis of
compensation and years of credited service.
During May 1986, the Company issued a total of 59,775 shares under the ESOP
at a total purchase price of $975,000. The purchase was made from the proceeds
of a $975,000 loan from an unrelated third party lender bearing interest at a
rate of 75% of floating prime. Repayment of the loan is secured by
contributions the Bank is obliged to make under a contribution agreement with
the ESOP. In 1988, the ESOP purchased 24,696 additional shares at an average
price of $11.80 per share which was funded by additional borrowings of
approximately $291,000 under the same loan agreement. In 1991, the ESOP
purchased 20,000 additional shares at an average price of $4.81 per share
funded by available cash in the ESOP. In 1995, 1994 and 1993, the Bank made
contributions to the ESOP totaling $167,000, $179,000 and $187,000,
respectively, to enable the ESOP to make principal and interest payments on
the loan. The amount contributed was charged to salary and employee benefit
expenses. The balance of the loan will be repaid over a period of
approximately one year with funds from the Bank's future contributions to the
ESOP and the earnings on the ESOP's assets.
Shares used as collateral to secure the loan are released and available for
allocation to eligible employees as the principal balance of the loan is
repaid. Dividends on released shares are credited to the participants' ESOP
accounts. Dividends on unreleased shares may be allocated to participants or
applied towards payment of the loan.
At June 30, 1995, the shares held by the ESOP amounted to 90,094 of which
75,691 were released and allocated to participants of the ESOP. Shares held in
suspense at June 30, 1995, to be released annually as the loan is paid down,
amounted to 14,403. Dividends on ESOP shares are charged to retained earnings
and all ESOP shares are considered outstanding in determining earnings per
share.
F-20
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pension Plan
The Bank provides a noncontributory pension plan for its employees. The
funded status of the plan as of June 30 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Vested benefits.................................... $1,663 $1,397 $1,290
Nonvested benefits................................. 46 39 88
------ ------ ------
Accumulated benefit obligation................... 1,709 1,436 1,378
Additional benefits related to future compensation
levels............................................ 602 564 766
------ ------ ------
Projected benefit obligation..................... 2,311 2,000 2,144
Plan assets at fair value invested primarily in
equity and fixed-income securities................ 3,390 3,117 3,178
------ ------ ------
Plan assets in excess of projected benefit obliga-
tion.............................................. 1,079 1,117 1,034
Unrecognized transition asset...................... (781) (850) (919)
Unrecognized experience (gain) loss................ (113) 29 191
------ ------ ------
Prepaid pension cost included in other assets.... $ 185 $ 296 $ 306
====== ====== ======
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in calculating the actuarial present value of the
projected benefit obligations shown above were 8.0% and 6.0%, respectively.
For all periods presented, the expected long-term rate of return on assets was
8.0%.
Net pension expense for the years ended June 30 includes the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned........................... $ 258 $ 211 $ 176
Interest cost on projected benefit obligation........... 155 129 167
Actual return on plan assets............................ (127) (25) (121)
Net amortization and deferral........................... (186) (305) (198)
----- ----- -----
Net pension expense................................... $ 100 $ 10 $ 24
===== ===== =====
</TABLE>
401(K) Savings Plan
On July 1, 1994, the Bank established a 401(k) Savings Plan covering all
employees who have reached the age of twenty-one, completed one year of
service and worked at least one thousand hours during the previous year.
Participants may contribute from 1% to 10% of their pre-tax compensation. The
Bank makes quarterly matching contributions equal to 33% of the participants'
contributions up to 6% of their pre-tax compensation. Employer matching
contributions vest at 25% per year. Expense under the Plan amounted to $53,000
during the fiscal year ended June 30, 1995.
Employee Agreements
The Bank has a supplemental retirement agreement for its chief executive
officer. This plan provides retirement benefits designed to supplement
benefits available through the Bank's retirement plan for employees. Total
expense for these benefits amounted to $26,000, $17,000 and $13,000 in 1995,
1994 and 1993, respectively.
F-21
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Bank has entered into employment agreements with its senior officers (10
individuals) which provide for a lump sum payment under certain circumstances
to the officer amounting to that officer's annual compensation for a period of
three years in the case of the chief executive officer, two years in the case
of the executive vice president and senior vice president (2 individuals) and
one year in the case of each other officer, after the officer's termination,
if such termination follows a "change of control" as defined in the
agreements.
Incentive Compensation Plans
The Company has two incentive compensation plans designed to provide an
annual incentive to improve financial performance, under which annual
incentive awards are paid if the Company achieves specified objectives. All
personnel employed at the beginning of the fiscal year are eligible to
participate in the General Profit Sharing Plan. Certain members of senior
management are eligible to participate in the Management Incentive Plan. The
Board of Directors may provide these incentive awards in the form of cash or
stock, or in the case of the General Profit Sharing Plan, a contribution to
the Company's 401(k) Plan. Based on financial results achieved during the past
three fiscal years, the Company paid total cash incentive awards, as defined
in the two plans, of $96,000, $111,000 and $29,000, respectively, for the
fiscal years ended June 30, 1995, 1994 and 1993.
(13) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND OTHER COMMITMENTS
AND CONTINGENCIES
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 unused lines of credit, unadvanced
portions of construction loans, commitments to originate loans, and standby
letters of credit. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
balance sheet. The 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 its financial instruments (for unused lines of credit, loan
commitments and standby letters of credit) is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The Bank evaluates each customer's credit worthiness 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.
Financial instruments with off-balance sheet risk at June 30, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Unused home equity lines of credit......................... $14,898 $18,008
Unused commercial lines of credit.......................... 4,016 3,023
Unadvanced portions of construction loans.................. 325 --
Commitments to originate residential mortgage loans........ 4,094 5,192
Commitments to originate commercial, construction and
commercial real estate loans.............................. 8,340 7,373
Standby letters of credit.................................. 416 72
Unused consumer overdraft protection credit................ 652 620
Commitments to sell residential mortgage loans............. 7,589 5,494
Best efforts commitment to sell automobile loans........... 48,000 --
Loans sold with credit enhancement......................... 9,777 --
</TABLE>
F-22
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Commitments to originate loans, unused lines of credit and unadvanced
portions of construction 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 some of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Commitments to sell residential mortgage loans for a fixed price are
generally entered into between the date lending commitments are issued to
borrowers and the date the loans are sold into the secondary market. Risks
arise from the possible inability of counter-parties to meet the terms of
commitments and movement in interest rates and related prices.
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.
In June of 1995, the Company sold $9,777,000 of automobile loans with credit
enhancement that obligates the Bank to assume a certain portion of credit
losses should they occur. The Bank has accrued $51,000 to absorb such possible
losses. The Bank has an agreement to sell up to an additional $48,000,000 of
new loan production to the same buyer on a best efforts basis.
The Bank is required to maintain a portion of its cash and due from banks as
a reserve balance under the Federal Reserve Act. Such reserve is calculated
based upon deposit levels and amounted to $1,000,000 at June 30, 1995.
The Company is involved in various legal proceedings in the normal course of
business, none of which is believed by management to be material to the
financial condition of the Company.
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimates of fair value of financial instruments are based on
information available at June 30, 1995 and June 30, 1994, and are not
indicative of the fair market value of those instruments at the date this
report is published. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's entire
holdings of a particular class of financial instruments. Because no market
exists for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. Significant assets and liabilities that are
not considered financial assets or liabilities include loans serviced for
others, premises and equipment and foreclosed real estate. In addition, the
tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in any of the estimates. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Bank in estimating
fair values of its financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
F-23
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SECURITIES AVAILABLE FOR SALE, SECURITIES HELD TO MATURITY, AND MORTGAGE
LOANS HELD FOR SALE: Fair values for these instruments are based on market
prices, where available. If quoted market prices are not available, fair
values are based on market prices of comparable instruments.
FHLB STOCK: The carrying amount reported in the balance sheet for Federal
Home Loan Bank ("FHLB") stock approximates fair value. If redeemed, the
Bank will receive an amount equal to the par value of the stock.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair value of other loans are estimated using discounted cash
flow analyses using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. The fair value of
nonaccrual loans was estimated using the estimated fair values of the
underlying collateral. The carrying amount of accrued interest approximates
fair value.
LOAN SERVICING RIGHTS: The carrying values of loan servicing rights are
reasonable approximations of their fair value at that date.
DEPOSITS AND OTHER BORROWED FUNDS: The fair values of non-interest
bearing demand and savings deposits are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for time certificates of deposit and borrowed funds are
estimated using a discounted cash flow technique that applies interest
rates currently being offered to a schedule of aggregated expected monthly
maturities on time deposits and other borrowed funds.
REPURCHASE AGREEMENTS: Due to the short term nature of repurchase
agreements, carrying value is a reasonable estimation of fair value.
LIABILITY RELATING TO ESOP: The carrying amount reported in the balance
sheet approximates the liability relating to the ESOP's fair value. The
liability reprices quarterly.
OFF-BALANCE SHEET INSTRUMENTS: The fair value of commitments to extend
credit was based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standing. The estimated fair value of the
commitments to sell residential mortgage loans was based on the cost to
terminate such commitments.
F-24
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
------------------ ------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents.......... $ 19,097 $ 19,097 $ 8,012 $ 8,012
Securities available for sale...... 58,754 58,754 64,795 64,795
Securities held to maturity........ 53,408 53,350 33,860 32,997
Federal Home Loan Bank stock....... 3,803 3,803 1,860 1,860
Mortgage loans held for sale....... 4,392 4,508 4,942 4,963
Loans, net......................... 268,491 267,180 218,758 220,434
Accrued interest receivable........ 3,100 3,100 2,526 2,526
Loan servicing rights.............. 2,564 2,564 -- --
FINANCIAL LIABILITIES:
Non-interest bearing demand
deposits.......................... $ 16,420 $ 16,420 $ 15,067 $ 15,067
Savings deposits................... 115,174 115,174 131,877 131,877
Time certificates of deposit....... 176,962 177,119 145,981 146,382
Repurchase agreements.............. 6,348 6,348 -- --
Other borrowed funds............... 76,420 76,449 23,507 23,385
Liability related to ESOP.......... 197 197 355 355
Accrued interest payable........... 1,177 1,177 693 693
Credit enhancement liability....... 51 51 -- --
OFF-BALANCE SHEET INSTRUMENTS:
Commitments to extend credit....... $ -- $ 94 $ -- $ 168
Commitments to sell loans.......... -- 1 -- 3
</TABLE>
F-25
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) CONDENSED PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements of Community Bankshares, Inc. (the "Parent
Company") as of June 30, 1995 and 1994 and for the years ended June 30, 1995,
1994 and 1993 follow:
COMMUNITY BANKSHARES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash................................................. $ 1,601 $ 2,048
Securities available for sale--amortized cost $80 in
1995 and $25 in 1994................................ 97 35
Investment in subsidiary, at equity.................. 27,841 24,860
Other assets......................................... 95 84
----------- -----------
Total assets..................................... $ 29,634 $ 27,027
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Liability relating to ESOP......................... $ 197 $ 355
Other liabilities.................................. 39 47
----------- -----------
Total liabilities................................ 236 402
Stockholders' equity:
Preferred stock, $1.00 par value per share;
1,000,000 shares authorized,
none issued....................................... -- --
Common stock, $1.00 par value per share; 3,000,000
shares authorized;
issued and outstanding, 1,747,032 shares in 1995
and 1,743,532 in 1994............................. 1,747 1,744
Additional paid-in capital......................... 17,146 17,343
Retained earnings.................................. 10,567 8,155
----------- -----------
29,460 27,242
Unrealized net gains (losses) on securities
available for sale, net........................... 328 (262)
Unearned compensation--ESOP........................ (197) (355)
Treasury stock--11,810 shares at cost.............. (193) --
----------- -----------
Total stockholders' equity....................... 29,398 26,625
----------- -----------
Total liabilities and stockholders' equity....... $ 29,634 $ 27,027
=========== ===========
</TABLE>
F-26
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
COMMUNITY BANKSHARES, INC.
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Interest and dividend income............................ $ 61 $ 54 $ 64
Dividends from subsidiary............................... 891 330 --
Management fees from subsidiary......................... 131 145 110
Equity in undistributed income of subsidiary............ 2,396 2,760 2,221
------ ------ ------
Total revenues........................................ 3,479 3,289 2,395
Operating expenses........................................ 192 199 174
------ ------ ------
Net income............................................ $3,287 $3,090 $2,221
====== ====== ======
</TABLE>
The Parent Company's statements of changes in stockholders' equity are
identical to the consolidated statements of changes in stockholders' equity
and therefore are not reprinted here.
COMMUNITY BANKSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operations:
Net income........................................ $ 3,287 $ 3,090 $ 2,221
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed income of subsidiary.... (2,396) (2,760) (2,221)
(Increase) decrease in other assets............. 68 (33) (4)
Increase (decrease) in other liabilities........ (8) 34 (17)
------- ------- -------
Net cash provided by (used in) operating ac-
tivities..................................... 951 331 (21)
------- ------- -------
Cash flows from investing activities:
Purchases of investment securities................ (55) -- (17)
------- ------- -------
Net cash used in investing activities......... (55) -- (17)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock............ 175 171 65
Purchase of treasury stock........................ (627) -- --
Dividends paid on common stock.................... (891) (416) --
------- ------- -------
Net cash provided by (used in) financing ac-
tivities..................................... (1,343) (245) 65
------- ------- -------
Net increase (decrease) in cash..................... (447) 86 27
Cash at beginning of year........................... 2,048 1,962 1,935
------- ------- -------
Cash at end of year................................. $ 1,601 $ 2,048 $ 1,962
======= ======= =======
</TABLE>
F-27
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------
SEPTEMBER DECEMBER MARCH JUNE
30 31 31 30
--------- -------- ------- -------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1995
Interest and dividend income.............. $ 6,304 $ 6,700 $ 7,357 $ 7,880
Interest expense.......................... 2,957 3,223 3,756 4,308
------- ------- ------- -------
Net interest and dividend income........ 3,347 3,477 3,601 3,572
Provision for possible loan losses........ 100 100 125 150
------- ------- ------- -------
Net interest and dividend income after
provision for possible loan losses..... 3,247 3,377 3,476 3,422
Non-interest income....................... 512 427 484 613
Non-interest expense...................... (2,583) (2,707) (2,689) (2,741)
------- ------- ------- -------
Income before income taxes.............. 1,176 1,097 1,271 1,294
Income taxes.............................. 379 349 407 416
------- ------- ------- -------
Net income.............................. $ 797 $ 748 $ 864 $ 878
======= ======= ======= =======
Earnings per common and common equivalent
share.................................... $ .45 $ .42 $ .48 $ .49
======= ======= ======= =======
FISCAL 1994
Interest and dividend income.............. $ 5,815 $ 5,765 $ 5,682 $ 5,956
Interest expense.......................... 2,748 2,672 2,612 2,704
------- ------- ------- -------
Net interest and dividend income........ 3,067 3,093 3,070 3,252
Provision for possible loan losses........ 400 75 75 75
------- ------- ------- -------
Net interest and dividend income after
provision for possible loan losses..... 2,667 3,018 2,995 3,177
Non-interest income....................... 848 584 622 504
Non-interest expense...................... (2,586) (2,594) (2,610) (2,677)
------- ------- ------- -------
Income before income taxes.............. 929 1,008 1,007 1,004
Income taxes.............................. 218 229 232 179
------- ------- ------- -------
Net income.............................. $ 711 $ 779 $ 775 $ 825
======= ======= ======= =======
Earnings per common and common equivalent
share.................................... $ .40 $ .44 $ .43 $ .46
======= ======= ======= =======
</TABLE>
Aggregate quarterly earnings per share may not equal earnings per share for
the full year due to rounding.
As indicated in Note 1, the Company adopted SFAS No. 122 effective July 1,
1994 with the effect of increasing gains on sale of loans by approximately
$170,000 for fiscal 1995. In so doing, the Company has herein revised the
previously reported quarterly operating results for the first three quarters
of fiscal 1995. As a result of such revisions, gains on sale of loans, net
income, and earnings per common and common equivalent share were increased as
follows:
<TABLE>
<CAPTION>
GAINS ON NET EARNINGS
FISCAL 1995 QUARTER ENDED SALE OF LOANS INCOME PER SHARE
------------------------- -------------- ------- ---------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
September 30, 1994........... $58 $39 $0.02
December 31, 1994............ 46 31 0.02
March 31, 1995............... 47 32 0.02
</TABLE>
F-28
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(17) SUBSEQUENT EVENT--ACQUISITION AGREEMENT
On August 29, 1995, the Company entered into a definitive merger agreement
to acquire Centerpoint Bank by exchanging 1.073 of the Company's common shares
for each Centerpoint common share outstanding. At that time, Centerpoint Bank
had 590,349 common shares outstanding. In addition, options outstanding under
Centerpoint's employee stock option plan will convert into options to purchase
common shares of the Company. The merger, anticipated to be accounted for as a
pooling-of-interests, is subject to stockholder and regulatory approval. At
June 30, 1995, Centerpoint had $81,000,000 (unaudited) in total assets,
$65,000,000 (unaudited) in total deposits and $6,000,000 (unaudited) in
stockholders' equity.
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Centerpoint Bank
We have audited the accompanying balance sheets of Centerpoint Bank as of
December 31, 1994 and 1993, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. 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 Centerpoint Bank at
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, in 1994 the Bank changed
its method of accounting for investments in debt securities. As discussed in
Note 8 to the financial statements, in 1993 the Bank changed its method of
accounting for income taxes.
/s/ Ernst & Young LLP
Manchester, New Hampshire
January 26, 1995
F-30
<PAGE>
CENTERPOINT BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 ----------------
1995 1994 1993
----------- ------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Assets
Cash and due from banks:
Interest-bearing deposits...................... $ 261 $ 252 $ 226
Noninterest-bearing deposits and cash.......... 9,141 6,066 3,657
------- ------- -------
9,402 6,318 3,883
Federal funds sold............................... 2,850 900 5,400
------- ------- -------
Cash and cash equivalents........................ 12,252 7,218 9,283
Federal Home Loan Bank stock..................... 206 180 134
Held-to-maturity securities...................... 11,989 12,180 --
Available-for-sale securities.................... 4,814 4,753 --
Investment securities............................ -- -- 14,870
Loans............................................ 50,509 41,875 32,535
Less: Deferred loan fees....................... (37) (34) (32)
Allowance for loan losses...................... (554) (422) (329)
------- ------- -------
Net loans........................................ 49,918 41,419 32,174
Mortgage loans held for resale................... 243 1,275 2,622
Premises and equipment (net)..................... 718 640 646
Accrued interest receivable...................... 440 404 218
Other assets..................................... 730 669 286
------- ------- -------
Total assets..................................... $81,310 $68,738 $60,233
======= ======= =======
Liabilities and shareholders' equity
Liabilities:
Deposits:
Interest-bearing............................. $43,219 $44,226 $37,043
Noninterest-bearing.......................... 21,409 16,619 14,839
------- ------- -------
Total deposits................................. 64,628 60,845 51,882
Securities sold under agreements to repur-
chase......................................... 9,531 1,371 2,353
Advances from Federal Home Loan Bank of Bos-
ton........................................... 698 700 600
Capital lease obligation....................... 24 54 109
Accrued interest payable and other liabili-
ties.......................................... 852 739 343
------- ------- -------
Total liabilities................................ 75,733 63,709 55,287
Shareholders' equity:
Preferred stock, Series A $8 Acquisition
Exchangeable, Cumulative, $1 par value:
Authorized shares--250,000 in 1993 ..........
Issued and outstanding shares--62,581 in
1993........................................ -- -- 63
Common stock, $1 par value:
Authorized shares--3,000,000.................
Issued and outstanding shares--590,349 in
1995 (unaudited), 590,349 in 1994 and
563,392 in 1993............................. 590 590 563
Additional paid-in capital..................... 4,663 4,663 4,912
Unrealized loss on available-for-sale securi-
ties.......................................... (177) (348) --
Retained-earnings (deficit).................... 501 124 (592)
------- ------- -------
Total shareholders' equity....................... 5,577 5,029 4,946
------- ------- -------
Total liabilities and shareholders' equity....... $81,310 $68,738 $60,233
======= ======= =======
</TABLE>
See accompanying notes.
F-31
<PAGE>
CENTERPOINT BANK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
----------------- ------------------------
1995 1994 1994 1993 1992
-------- -------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans....... $ 2,447 $ 1,682 $ 3,722 $ 2,665 $ 2,017
Interest on securities--taxable.. 513 354 848 638 711
Interest on Federal funds sold... 59 68 150 129 118
Interest on interest-bearing
deposits........................ 6 19 10 1 1
-------- -------- ------- ------- -------
Total interest income.............. 3,025 2,123 4,730 3,433 2,847
Interest expense:
Interest on deposits............. 737 502 1,181 907 988
Interest on borrowings........... 122 36 72 45 76
-------- -------- ------- ------- -------
Total interest expense............. 859 538 1,253 952 1,064
-------- -------- ------- ------- -------
Net interest income................ 2,166 1,585 3,477 2,481 1,783
Provision for loan losses.......... 150 116 268 250 170
-------- -------- ------- ------- -------
Net interest income after provision
for loan losses................... 2,016 1,469 3,209 2,231 1,613
Other income:
Customer service fees............ 76 74 163 143 117
Securities gains (losses)........ -- (1) (1) 124 8
-------- -------- ------- ------- -------
Total other income................. 76 73 162 267 125
-------- -------- ------- ------- -------
2,092 1,542 3,371 2,498 1,738
Other expenses:
Salaries and employee benefits... 705 596 1,224 1,021 713
Net occupancy and equipment...... 268 229 458 390 322
Other............................ 474 368 786 722 532
-------- -------- ------- ------- -------
Total other expenses............... 1,447 1,193 2,468 2,133 1,567
-------- -------- ------- ------- -------
Income before income taxes and
extraordinary credit.............. 645 349 903 365 171
Income taxes (Note 8).............. 225 39 125 -- 51
-------- -------- ------- ------- -------
Income before extraordinary
credit............................ 420 310 778 365 120
Extraordinary credit--reduction of
income taxes from utilization of
operating loss carryforward (Note
8)................................ -- -- -- -- 51
-------- -------- ------- ------- -------
Net income......................... 420 310 778 365 171
Dividends on preferred stock....... -- 3 3 30 10
-------- -------- ------- ------- -------
Net income available to common
stock............................. $ 420 $ 307 $ 775 $ 335 $ 161
======== ======== ======= ======= =======
Weighted average common shares
outstanding....................... 590 583 587 563 470
Per share amounts:
Income before extraordinary
credit (net of preferred
dividends)...................... $ .71 $ .52 $ 1.32 $ .59 $ .23
Extraordinary credit............. -- -- -- -- .11
-------- -------- ------- ------- -------
Net income per common share...... $ .71 $ .52 $ 1.32 $ .59 $ .34
======== ======== ======= ======= =======
</TABLE>
See accompanying notes.
F-32
<PAGE>
CENTERPOINT BANK
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- --------------
UNREALIZED
ADDITIONAL LOSS ON RETAINED-
PAID-IN AVAILABLE-FOR- EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL SALE SECURITIES (DEFICIT) TOTAL
-------- ------- ------- ------ ---------- --------------- --------- ------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1992................... 438,230 $438 $3,700 $(1,088) $3,050
Preferred stock
issued................ 62,581 $ 63 438 501
Common stock issued.... 125,162 125 774 899
Dividends on preferred
stock-- $.157 per
share................. (10) (10)
Net income............. 171 171
-------- ------ ------- ---- ------ ------- ------
Balances at December 31,
1992................... 62,581 63 563,392 563 4,912 (927) 4,611
Dividends on preferred
stock--
$.48 per share........ (30) (30)
Net income............. 365 365
-------- ------ ------- ---- ------ ------- ------
Balances at December 31,
1993................... 62,581 63 563,392 563 4,912 (592) 4,946
Adjustment to beginning
balance for change in
accounting method, net
of income taxes of $5
(Note 3).............. $ (11) (11)
Dividends on preferred
stock--
$.04 per share........ (3) (3)
Preferred stock
exchanged for common
stock................. (26,957) (27) 26,957 27
Redemption of preferred
stock................. (35,624) (36) (249) (285)
Dividends on common
stock--
$.10 per share........ (59) (59)
Net income............. 778 778
Change in unrealized
loss, net of income
taxes of $210......... (337) (337)
-------- ------ ------- ---- ------ ----- ------- ------
Balances at December 31,
1994................... 0 $ -0- 590,349 590 4,663 (348) 124 5,029
======== ======
Dividends on common
stock-- $.075 per
share (unaudited)..... (43) (43)
Net income for six
months ended June 30,
1995 (unaudited)...... 420 420
Change in unrealized
loss, net of income
taxes of $106
(unaudited)........... 171 171
------- ---- ------ ----- ------- ------
Balances at June 30,
1995 (unaudited)....... 590,349 $590 $4,663 $(177) $ 501 $5,577
======= ==== ====== ===== ======= ======
</TABLE>
See accompanying notes.
F-33
<PAGE>
CENTERPOINT BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
------------------ ---------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................... $ 420 $ 310 $ 778 $ 365 $ 171
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses.... 150 116 268 250 170
Depreciation and
amortization................ 114 125 244 222 195
Deferred income taxes........ 10 (56) (93) -- --
Amortization of investment
securities premiums and
accretion of discounts...... 1 45 42 78 74
Securities (gains) losses.... -- 1 1 (124) (8)
(Increase) decrease in
accrued interest
receivable.................. (36) (68) (186) 18 2
Increase (decrease) in
accrued interest payable.... 6 1 21 4 (10)
Other, net................... (81) 49 242 139 112
-------- -------- -------- -------- -------
Net cash provided by operating
activities................... 584 523 1,317 952 706
INVESTING ACTIVITIES
Purchases of held-to-maturity
securities................... -- -- (4,940) -- --
Proceeds from maturities and
principal repayments of held-
to-maturity securities....... 225 185 1,020 -- --
Purchases of available-for-
sale securities.............. (29) (4,323) (4,299) -- --
Proceeds from sales,
maturities and principal
repayments of available-for-
sale securities.............. 184 5,872 5,504 -- --
Purchases of investment
securities................... -- -- -- (9,710) (4,344)
Proceeds from sales,
maturities and principal
repayments of investment
securities................... -- -- -- 7,853 3,527
Net increase in loans......... (8,634) (6,236) (9,340) (10,030) (8,036)
(Increase) decrease in
mortgage loans held for
resale....................... 1,032 1,458 1,347 933 (998)
Purchases of premises and
equipment.................... (181) (65) (178) (249) (41)
Other......................... (15) (23) (175) (193) (6)
-------- -------- -------- -------- -------
Net cash used in investing
activities................... (7,418) (3,132) (11,061) (11,396) (9,898)
FINANCING ACTIVITIES
Net increase in deposit
accounts..................... 1,199 771 453 14,063 10,995
Net increase (decrease) in
certificates of deposit...... 2,584 811 8,510 (642) (2,200)
Net increase (decrease) in
short-term borrowings........ 8,160 (556) (982) 849 (4,064)
Advances from (payments to)
Federal Home Loan Bank of
Boston....................... (2) -- 100 600 --
Proceeds from issuance of
preferred stock.............. -- -- -- -- 501
Proceeds from issuance of
common stock................. -- -- -- -- 899
Redemption of preferred
stock........................ -- (285) (285) -- --
Dividends on preferred stock.. -- -- (3) (30) (10)
Dividends on common stock..... (43) -- (59) -- --
Other......................... (30) (27) (55) (49) (43)
-------- -------- -------- -------- -------
Net cash provided by financing
activities................... 11,868 714 7,679 14,791 6,078
-------- -------- -------- -------- -------
(Decrease) increase in cash
and cash equivalents......... 5,034 (1,895) (2,065) 4,347 (3,114)
Cash and cash equivalents at
beginning of period.......... 7,218 9,283 9,283 4,936 8,050
-------- -------- -------- -------- -------
Cash and cash equivalents at
end of period................ $ 12,252 $ 7,388 $ 7,218 $ 9,283 $ 4,936
======== ======== ======== ======== =======
</TABLE>
See accompanying notes.
F-34
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Business
At December 31, 1994 Centerpoint Bank ("Bank") was a state-chartered
guaranty savings bank incorporated under the laws of the State of New
Hampshire. The Bank provides a full range of banking services to individuals
and corporate customers located primarily in southern New Hampshire. The Bank
is subject to competition from other financial institutions. The Bank is also
subject to the regulations of certain state and federal agencies and undergoes
periodic examination by those regulatory authorities.
Principles of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and with general practices within the
banking industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and income and
expenses for the period. Actual results could differ significantly from these
estimates.
Unaudited Interim Financial Information
The accompanying financial statements at June 30, 1995 and for the six
months ended June 30, 1995 and 1994 are unaudited. In the opinion of
management, all adjustments, consisting of normal recurring adjustments, which
are considered necessary to fairly present the financial position of the Bank
as of June 30, 1995 and the results of operations, changes in shareholders'
equity and changes in cash flows for the periods ended June 30, 1995 and 1994
have been included. The results of operations for the interim period ended
June 30, 1995 are not necessarily indicative of the results for the entire
year ending December 31, 1995. In 1995, the Bank completed its conversion to a
state-chartered trust company.
Federal Home Loan Bank Stock
Stock in the Federal Home Loan Bank of Boston ("FHLBB") represents stock
purchased under the requirements of the FHLBB. As and when such stock is
redeemed, the Bank is entitled to receive an amount equal to the par value of
the stock. The stock is carried at cost.
Securities
Effective January 1, 1994 (see Note 3), management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt securities
are classified as held-to-maturity when the Bank has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost. Debt securities not classified as held-to-maturity
are classified as available-for-sale. Available-for-sale securities are stated
at fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. Transfers of debt securities into
the held-to-maturity category from the available-for-sale category are made at
fair value at the date of transfer. The unrealized holding gain or loss at the
date of transfer is retained in the separate component of shareholders' equity
and in the carrying value of the held-to-maturity securities. Such amounts are
amortized over the remaining life of the security.
Prior to January 1, 1994, the Bank classified securities as held-for-
investment and carried them at amortized cost.
The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities, over the estimated life of the security. Such amortization is
included in interest income on securities. Realized gains and losses, and
declines in value judged to be other-than-temporary are included in net
securities gains (losses). The cost of securities sold is based on the
specific identification method.
F-35
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Loans
Loans generally are stated at their outstanding unpaid principal balances,
net of any deferred fees or costs on originated loans. Interest income is
accrued on the unpaid principal balance. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an adjustment of the
yield (interest income) of the related loans.
Nonaccrual loans. Generally, a loan is classified as nonaccrual and the
accrual of interest on such loan is discontinued when the contractual payment
of principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan currently is performing. A loan may remain on accrual status if it is in
the process of collection and is either guaranteed or well secured. When a
loan is placed on nonaccrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported as interest income,
according to management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt.
Allowance for Loan Losses. The allowance for loan losses is established
through provisions for loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance for loan losses, and
subsequent recoveries, if any, are credited to the allowance.
Beginning in 1995, the Bank adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan." Under
the new standard, the June 30, 1995 allowance for loan losses related to loans
that are identified for evaluation in accordance with Statement 114 is based
on discounted cash flows using the loan's initial effective interest rate or
the fair value of the collateral for certain collateral dependent loans. Prior
to 1995, the allowance for loan losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay (including the timing of
future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective as it requires
material estimates, including the amounts and timing of future cash flows
expected to be received on impaired loans, that may be susceptible to
significant change.
Mortgage Loans Held for Resale
Mortgage loans held for resale are recorded at the lower of cost or market
value determined on an aggregate basis.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization is generally
computed by the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over their estimated useful lives
or the lives of the respective leases, whichever is less.
F-36
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, "Accounting for Income Taxes." The Bank adopted the provisions of the
new standard in its financial statements effective January 1, 1993.
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of Statement 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the difference originated.
Net Income Per Common Share
Net income per common share is based on the weighted average number of
common shares outstanding during the period. The dilutive effect of common
stock equivalents attributable to outstanding stock options is not material.
Cash Flow Information
For purposes of the statement of cash flows, the Bank considers cash and due
from banks and federal funds as cash and cash equivalents. Cash paid during
the six months ended June 30, 1995 and 1994 (unaudited) and the years ended
December 31, 1994, 1993 and 1992 for interest was $853,000, $537,000,
$1,232,000, $949,000 and $1,075,000, respectively. Cash paid during the six
months ended June 30, 1995 (unaudited) for income taxes was $293,000. No cash
was paid for income taxes prior to 1995.
2. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required to maintain average balances with the Federal Reserve
Bank. The average amount of those reserve balances for the six months ended
June 30, 1995 (unaudited) and the year ended December 31, 1994 was
approximately $639,000 and $569,000, respectively.
3. SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities." The
Bank adopted the provisions of the new standard for investments held as of or
acquired after January 1, 1994. In accordance with the Statement, prior period
financial statements have not been restated to reflect the change in
accounting principle. The opening balance of shareholders' equity was
decreased by $11,000 (net of $5,000 in deferred income taxes) to reflect the
net unrealized depreciation on securities classified as available-for-sale
previously carried at amortized cost.
F-37
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of held-to-maturity securities and available-for-
sale securities at June 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
JUNE 30, 1995
------------------------------------------
HELD-TO-MATURITY SECURITIES
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies...................... $ 4,977 $15 -- $ 4,992
Mortgage-backed securities..... 7,208 -- $228 6,980
------- --- ---- -------
$12,185 $15 $228 $11,972
======= === ==== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------
HELD-TO-MATURITY SECURITIES
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies...................... $ 4,954 $-- $ 85 $ 4,869
Mortgage-backed securities..... 7,445 -- 804 6,641
------- ---- ---- -------
$12,399 $-- $889 $11,510
======= ==== ==== =======
</TABLE>
During 1994, available-for-sale securities with an estimated fair value of
$5,156,058 were transferred to held-to-maturity securities. Amortized cost of
held-to-maturity securities does not reflect unrealized holding losses of
$218,910 ($195,862 at June 30, 1995 (unaudited)) that existed at the date of
the transfer.
<TABLE>
<CAPTION>
JUNE 30, 1995
------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies...................... $ 996 -- $ 7 $ 989
Corporate securities........... 1,256 -- 45 1,211
Mortgage-backed securities..... 2,542 $11 49 2,504
Other securities............... 110 -- -- 110
------ --- ---- ------
$4,904 $11 $101 $4,814
====== === ==== ======
</TABLE>
F-38
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies...................... $ 995 -- $ 40 $ 955
Corporate securities........... 1,257 -- 131 1,126
Mortgage-backed securities..... 2,738 $ 1 174 2,565
Other securities............... 107 -- -- 107
------ ---- ---- ------
$5,097 $ 1 $345 $4,753
====== ==== ==== ======
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies...................... $ 200 $ 1 -- $ 201
Corporate securities........... 1,995 -- -- 1,995
Mortgage-backed securities..... 10,584 -- $40 10,544
Other securities............... 2,091 -- -- 2,091
------- ---- --- -------
$14,870 $ 1 $40 $14,831
======= ==== === =======
</TABLE>
During the six months ended June 30, 1995 and 1994 (unaudited) and the years
ended December 31, 1994, 1993 and 1992, debt securities (for 1994 and 1995,
securities classified as available-for-sale) with a fair value at the date of
sale of $-0-, $1,148,591, $1,148,591, $3,899,063 and $518,475, respectively,
were sold. The gross realized gains on such sales totaled $-0-, $6,255,
$6,255, $123,847 and $7,668, respectively, and the gross realized losses
totaled $-0-, $7,170, $7,170, $-0- and $-0-, respectively. The net adjustment
to unrealized holding gains (losses) on available-for-sale securities included
as a separate component of shareholders' equity totaled $171,000 for the six
months ended June 30, 1995 (unaudited) and $(337,000) in 1994.
The amortized cost and estimated fair value of debt securities at June 30,
1995 and December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without prepayment
penalties.
F-39
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
-------------------- --------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
Due in one year or less........ $ 2,978 $ 2,982 $ 984 $ 976
Due after one year through five
years......................... 1,999 2,010 3,970 3,893
------- ------- ------- -------
4,977 4,992 4,954 4,869
Mortgaged-backed securities.... 7,208 6,980 7,445 6,641
------- ------- ------- -------
$12,185 $11,972 $12,399 $11,510
======= ======= ======= =======
Available-for-Sale Securities:
Due in one year or less........ $ 610 $ 607 $ 107 $ 107
Due after one year through five
years......................... 1,500 1,458 1,676 1,636
Due after five years through
ten years..................... 252 245 576 445
------- ------- ------- -------
2,362 2,310 2,359 2,188
Mortgage-backed securities..... 2,542 2,504 2,738 2,565
------- ------- ------- -------
$ 4,904 $ 4,814 $ 5,097 $ 4,753
======= ======= ======= =======
</TABLE>
At June 30, 1995 (unaudited) and December 31, 1994 and 1993, investment
securities with a book value of $13,953,000, $4,440,000 and $6,168,000,
respectively, were pledged as collateral to secure securities sold under
agreements to repurchase (which are short-term borrowings with maturities of
one day) and for other purposes.
4. LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 ---------------
1995 1994 1993
----------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Commercial...................................... $18,956 $15,408 $13,449
Real estate:
Commercial.................................... 19,652 17,675 13,511
Residential................................... 1,735 1,356 566
Residential construction...................... 4,089 2,966 2,148
Installment..................................... 4,623 2,991 2,051
Home equity and other........................... 1,454 1,479 810
------- ------- -------
$50,509 $41,875 $32,535
======= ======= =======
</TABLE>
F-40
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
------------------ -------------------------
1995 1994 1994 1993 1992
-------- -------- ------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of pe-
riod...................... $ 422 $ 329 $ 329 $ 277 $ 115
Provision for loan losses.. 150 116 268 250 170
Recoveries................. 4 20 32 44 --
Charge-offs................ (22) (44) (207) (242) (8)
-------- -------- ------- ------- -------
Balance at end of period... $ 554 $ 421 $ 422 $ 329 $ 277
======== ======== ======= ======= =======
</TABLE>
At June 30, 1995 (unaudited), the recorded investment in loans that are
considered to be impaired under Statement 114 was $196,000 (all of which were
on a nonaccrual basis), for which the related allowance for loan losses is
$68,500. The average recorded investment in impaired loans during the six
months ended June 30, 1995 (unaudited) was approximately $134,000. For the six
months ended June 30, 1995 (unaudited), the Company did not recognize any
interest income on those impaired loans.
At December 31, 1994, the Company had nonaccrual loans of $54,000. The Bank
recorded $3,000 of interest income on these loans during the year ended
December 31, 1994. Interest income in the amount of $6,000 would have been
recorded on these loans according to their original terms.
6. PREMISES AND EQUIPMENT
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 -------------
1995 1994 1993
----------- ------ ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements............................ $ 412 $ 363 $ 317
Furniture and equipment........................... 1,038 914 782
------ ------ ------
1,450 1,277 1,099
Less accumulated depreciation and amortization.... 732 637 453
------ ------ ------
$ 718 $ 640 $ 646
====== ====== ======
</TABLE>
F-41
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 ---------------
1995 1994 1993
----------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Demand.......................................... $21,409 $16,619 $14,839
Savings:
Regular savings............................... 11,019 14,616 17,060
NOW accounts.................................. 8,198 8,015 7,342
Money-market accounts......................... 4,229 4,406 3,962
Time certificates of deposit.................... 19,773 17,189 8,679
------- ------- -------
$64,628 $60,845 $51,882
======= ======= =======
</TABLE>
Time deposits with a minimum balance of $100,000 at June 30, 1995 (unaudited)
and December 31, 1994 and 1993 totaled approximately $4,505,000, $3,712,000 and
$1,404,000, respectively.
8. INCOME TAXES
Effective January 1, 1993, the Bank changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes." As permitted under the new
rules, prior years' financial statements have not been restated. There was no
cumulative effect on 1993 operations relating to the adoption of Statement No.
109 as of January 1, 1993 as a result of a valuation allowance applied against
deferred tax assets.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Bank's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 ------------
1995 1994 1993
----------- ----- ------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards............. -- -- $ 92
Unrealized loss on
available-for-sale
securities................ $109 $ 215 --
Allowance for loan
losses.................... 173 119 84
Accrued book expenses...... 151 140 75
Other--net................. 14 30 54
---- ----- ------
Total deferred tax as-
sets................... 447 504 305
Valuation allowance for
deferred tax assets....... -- -- (183)
---- ----- ------
Net deferred tax as-
sets................... 447 504 122
Deferred tax liabilities:
Accrued book income........ 192 160 78
Tax over book
depreciation.............. 18 -- 18
Other--net................. 45 36 26
---- ----- ------
Total deferred tax
liabilities............ 255 196 122
---- ----- ------
Net......................... $192 $ 308 $ --
==== ===== ======
</TABLE>
F-42
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Statement 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The Bank believed
that some uncertainty existed with respect to future realization and
established a valuation allowance of $308,721 as of January 1, 1993, the
effective date of adoption of Statement 109. The valuation allowance was
reduced by $125,484 during 1993 as a result of a reduction in total deferred
tax assets. The valuation allowance was fully eliminated during 1994 as it
became evident that it was more likely than not that all of the deferred tax
assets would be realized.
Significant components of the provision for income taxes are as follow:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED
----------------- DECEMBER 31
1995 1994 1994
-------- -------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal..................................... $ 210 $ 84 $200
State....................................... 5 11 18
-------- -------- ----
215 95 218
Deferred:
Federal..................................... 9 (46) (77)
State....................................... 1 (10) (16)
-------- -------- ----
10 (56) (93)
-------- -------- ----
$ 225 $ 39 $125
======== ======== ====
</TABLE>
A reconciliation of income taxes attributable to continuing operations
computed at the U.S. federal statutory rate to income tax expense is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30 DECEMBER 31
----------------- ----------------
1995 1994 1994 1993 1992
-------- -------- ---- ---- ----
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax at statutory rate... $ 219 $ 119 $307 $124 $58
Effect of:
Change in Statement 109 valuation
allowance........................... -- (80) (183) (125) --
Other................................ 6 -- 1 1 (7)
-------- -------- ---- ---- ---
$ 225 $ 39 $125 $ -- $51
======== ======== ==== ==== ===
</TABLE>
During 1993, the Bank utilized approximately $457,000 of tax net operating
loss carryforwards, representing a tax benefit of approximately $155,000, to
eliminate its provision for income taxes. During 1992, the Bank utilized
approximately $172,000 of net operating loss carryforwards to reduce its
provision for income taxes for financial reporting purposes (reflected as an
extraordinary credit).
At December 31, 1993, the Bank had net operating loss carryforwards
available to offset future taxable income of $272,000.
F-43
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON
Advances from the Federal Home Loan Bank of Boston ("FHLBB") consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 -----------
1995 1994 1993
----------- ----- -----
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
4.73%, due August 1996................................ $300 $ 300 $ 300
4.64%, due September 1996............................. 300 300 300
3.75%, $595 principal and interest payable monthly,
maturing September through December 2014............. 98 100 --
---- ----- -----
$698 $ 700 $ 600
==== ===== =====
</TABLE>
Advances received from the FHLBB are collateralized with FHLBB stock owned
by the Bank and with commercial loans. The Bank paid $15,869, $29,073 and
$7,476 in interest on advances from the FHLBB during the six months ended June
30, 1995 (unaudited) and the years ended December 31, 1994 and 1993,
respectively.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These financial instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance
sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual notional
amount of those instruments. The Bank generally requires collateral to support
such financial instruments in excess of the contractual notional amount of
those instruments and, therefore, is in a fully secured position. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
The Bank has outstanding loan commitments/lines of credit and standby
letters of credit aggregating $21,083,206 and $1,487,082, respectively, at
June 30, 1995 (unaudited), $17,395,496 and $826,000, respectively, at December
31, 1994, and $12,127,315 and $755,943, respectively, at December 31, 1993.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
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 counter-party. Collateral held varies
but may include certificates-of-deposit, accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Letters
of credit expire within one year of issuance. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Bank holds collateral supporting
those commitments for which collateral is deemed necessary.
F-44
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Bank originates commercial, real estate and consumer loans to customers
throughout New Hampshire. The Bank estimates that most of its loans are based
in New Hampshire, with less than 4% of total loans based out-of-state.
11. SHAREHOLDER'S EQUITY
Stock Issuance
In September 1992, the Bank sold 62,581 units ("Units") to the public at a
price of $24 per unit. Each Unit consisted of two shares of Common Stock and
one share of Series A $8.00 Acquisition Exchangeable, Cumulative Preferred
Stock. Accordingly, 62,581 shares of Preferred Stock and 125,162 shares of
Common Stock were issued. Net proceeds of the stock issuance were $1,399,682,
net of issuance costs of $102,262.
Preferred Stock
In December 1993, the board of directors of the Bank, in accordance with the
original terms of a Preferred Stock issuance in September 1992, voted to offer
to holders of shares of Preferred Stock the option to either redeem their
preferred shares at a per share price of $8.00 or exchange their preferred
shares at the rate of one share of the Bank's Common Stock for each share of
Preferred Stock. During 1994, 35,624 preferred shares were redeemed and 26,957
preferred shares were exchanged for Common Stock.
Stock Option Plan
The Centerpoint Bank 1989 Stock Option Plan provides for the granting of
options to key employees, officers and directors. The Plan has a term of 10
years, and a total of 120,000 shares of Common Stock are reserved for issuance
under the Plan.
It is intended that certain options granted under the Plan will qualify as
incentive stock options (an "ISO") under Section 422 of the Internal Revenue
Code, and other options granted thereunder will be nonstatutory stock options.
ISO's are eligible for favored tax treatment pursuant to the Code, while
nonstatutory stock options do not qualify for such favored tax treatment. The
Plan provides authority for the grant of stock appreciation rights in addition
to nonstatutory stock options, alternative stock appreciation rights in
conjunction with nonstatutory stock options or ISO's and the grant of stock
appreciation rights without related stock options. Stock appreciation rights
permit the holder of such rights to receive cash, Common Stock, or a
combination of cash and Common Stock having a fair market value equal in
amount to the increase in the fair market value of the Common Stock subject to
the right, measured from the date the right was granted to the date on which
the stock appreciation right is exercised.
The price at which stock options or stock appreciation rights may be
exercised under the Plan is determined by the stock option committee of the
Board of Directors, but in the case of ISO's may not be less than 100% of the
fair market value of the Common Stock on the date of grant. In the case of
nonstatutory stock options and stock appreciation rights unrelated to ISO's,
the exercise price may not be less than 100% of the fair market value of the
Common Stock on the date of grant. Each option granted under the Plan must be
exercised within a period fixed by the stock option committee; however, the
period may not exceed ten years from the date of grant and no stock option or
stock appreciation right may be exercised during the first six months of its
term.
F-45
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Changes in the status of stock options are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
----------------- -----------------------
1995 1994 1994 1993 1992
-------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of pe-
riod.......................... 77,500 70,000 70,000 70,000 77,500
Granted........................ -- -- 7,500 -- --
Cancelled...................... -- -- -- -- (7,500)
Exercised...................... -- -- -- -- --
-------- -------- ------- ------- -------
Outstanding at end of period... 77,500 70,000 77,500 70,000 70,000
======== ======== ======= ======= =======
Exercisable at end of period... 70,000 60,000 60,000 47,500 25,000
Price of options outstanding... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>
12. COMMITMENTS
The Bank has lease agreements for its main and branch offices, operations
center and certain equipment for terms ranging from three to fifteen years.
The main and branch offices and operations center leases are classified as
operating leases, while the equipment lease is classified as a capital lease.
Premises and equipment includes the following amounts for the equipment
lease that has been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 ------------
1995 1994 1993
----------- ----- -----
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Equipment.......................................... $ 256 $ 256 $ 256
Less accumulated amortization...................... (253) (235) (183)
----- ----- -----
$ 3 $ 21 $ 73
===== ===== =====
</TABLE>
Amortization of equipment under the capital lease, computed by the straight-
line method over the term of the lease, is included in depreciation and
amortization expense.
Future minimum payments, by year and in the aggregate, under the capital
lease and noncancelable operating leases with initial or remaining terms of
one year or more consist of the following at December 31, 1994:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1995....................................................... $ 57 $ 165
1996....................................................... -- 171
1997....................................................... -- 171
1998....................................................... -- 140
1999....................................................... -- 114
Thereafter................................................. -- 346
---- ------
Total minimum lease payments............................... 57 $1,107
======
Amount representing interest............................... 3
----
Present value of net minimum lease payments................ $ 54
====
</TABLE>
F-46
<PAGE>
CENTERPOINT BANK
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Rent expense for all operating leases was $75,000, $62,000, $139,000,
$115,000 and $98,000 during the six months ended June 30, 1995 and 1994
(unaudited) and the years ended December 31, 1994, 1993 and 1992,
respectively.
13. LOANS TO RELATED PARTIES
Certain directors of the Bank, including their immediate families and
companies in which they are principal owners, are loan customers of the Bank.
Such loans were made in the ordinary course of business at the Bank's normal
credit terms, including interest rates and collateral, and do not represent
more than a normal risk of collection. Such loans amounted to $308,982,
$287,593 and $411,436 at June 30, 1995 (unaudited) and December 31, 1994 and
1993, respectively. During the six months ended June 30, 1995 (unaudited),
$53,455 of new loans or advances were made and repayments totaled $32,066.
During 1994, $188,473 of new loans or advances were made and repayments
totaled $312,316.
F-47
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
COMMUNITY BANKSHARES, INC.
AND
CENTERPOINT BANK
AUGUST 29, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<C> <S> <C>
1.1 The Merger........................................................ A-1
1.2 Effective Time.................................................... A-1
1.3 Charter and By-laws............................................... A-1
1.4 Directors of Surviving Bank and Buyer............................. A-1
1.5 Officers of Surviving Bank........................................ A-2
1.6 Additional Actions................................................ A-2
1.7 Option to Purchase Seller Common Stock............................ A-2
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Seller Common Stock................................. A-2
Procedures for Exchange of Seller Common Stock for Merger
2.2 Consideration..................................................... A-3
(a) Buyer to Make Shares Available................................. A-3
(b) Exchange of Certificates....................................... A-3
(c) Rights of Certificate Holders after the Effective Time......... A-3
(d) Fractional Shares.............................................. A-3
(e) Surrender by Persons Other than Record Holders................. A-4
(f) Closing of Transfer Books...................................... A-4
(g) Return of Exchange Fund........................................ A-4
2.3 Buyer Sub Common Stock............................................ A-4
2.4 Dissenters' Rights................................................ A-4
2.5 Stock Options..................................................... A-5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Organization............................................ A-5
3.2 Capitalization.................................................... A-6
3.3 Authority......................................................... A-6
3.4 No Violation...................................................... A-7
3.5 Consents and Approvals............................................ A-7
3.6 Regulatory Approval............................................... A-7
3.7 Financial Statements.............................................. A-7
3.8 Reports........................................................... A-8
3.9 Undisclosed Liabilities........................................... A-8
3.10 Absence of Certain Changes or Events.............................. A-9
3.11 Legal Proceedings................................................. A-9
3.12 Taxes and Tax Returns............................................. A-10
3.13 Properties........................................................ A-11
3.14 Certain Contracts................................................. A-11
3.15 Certain Defaults.................................................. A-12
3.16 Insurance......................................................... A-12
3.17 Employee Benefit Plans............................................ A-12
3.18 Compliance with Applicable Law; Regulatory Examinations........... A-13
</TABLE>
A-i
<PAGE>
<TABLE>
<C> <S> <C>
3.19 Regulatory Agreements............................................... A-13
3.20 Broker's Fees....................................................... A-13
3.21 Fairness Opinion.................................................... A-13
3.22 Seller Information.................................................. A-13
3.23 Environmental Issues................................................ A-14
3.24 Investment Securities............................................... A-14
3.25 Derivative Transactions............................................. A-15
3.26 Intellectual Property............................................... A-15
3.27 Reserves for Possible Loan Losses................................... A-15
3.28 Loans............................................................... A-15
3.29 Transactions with Interested Persons................................ A-16
3.30 Capital............................................................. A-16
3.31 Disclosure.......................................................... A-16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Organization.............................................. A-17
4.2 Capitalization...................................................... A-17
4.3 Authority........................................................... A-18
4.4 No Violation........................................................ A-18
4.5 Consents and Approvals.............................................. A-18
4.6 Regulatory Approval................................................. A-18
4.7 Financial Statements................................................ A-18
4.8 Reports............................................................. A-18
4.9 Undisclosed Liabilities............................................. A-19
4.10 Absence of Certain Changes or Events................................ A-19
4.11 Legal Proceedings................................................... A-20
4.12 Taxes and Tax Returns............................................... A-20
4.13 Certain Contracts................................................... A-21
4.14 Certain Defaults.................................................... A-21
4.15 Compliance with Applicable Law; Regulatory Examinations............. A-21
4.16 Fairness Opinion.................................................... A-21
4.17 Buyer Information................................................... A-22
4.18 Environmental Issues................................................ A-22
4.19 Disclosure.......................................................... A-22
4.20 Capital............................................................. A-22
4.21 Regulatory Agreements............................................... A-22
ARTICLE V
COVENANTS OF SELLER
5.1 Conduct of Business................................................. A-23
(a) Affirmative Covenants............................................ A-23
(b) Negative Covenants............................................... A-23
5.2 No Solicitation..................................................... A-25
5.3 Current Information................................................. A-25
5.4 Access to Properties and Records.................................... A-25
5.5 Financial and Other Statements...................................... A-25
5.6 Approval of Seller's Stockholders................................... A-26
</TABLE>
A-ii
<PAGE>
<TABLE>
<C> <S> <C>
5.7 Disclosure Supplements.............................................. A-26
5.8 Failure to Fulfill Conditions....................................... A-26
5.9 Consents and Approvals of Third Parties............................. A-26
5.10 All Reasonable Efforts.............................................. A-26
ARTICLE VI
COVENANTS OF BUYER
6.1 Conduct of Business................................................. A-26
6.2 Current Information................................................. A-26
6.3 Access to Properties and Records.................................... A-27
6.4 Financial and Other Statements...................................... A-27
6.5 Consents and Approvals of Third Parties............................. A-27
6.6 All Reasonable Efforts.............................................. A-27
6.7 Failure to Fulfill Conditions....................................... A-27
6.8 Disclosure Supplements.............................................. A-27
6.9 Financial and Other Statements...................................... A-27
6.10 Employee Benefits................................................... A-28
6.11 Deposit of Exchange Fund with Exchange Agent........................ A-28
6.12 Directors and Officers Indemnification and Insurance................ A-28
6.13 Buyer Sub........................................................... A-28
6.14 Approval of Buyer's Stockholders.................................... A-29
ARTICLE VII
REGULATORY AND OTHER MATTERS
7.1 Proxy Statement-Prospectus.......................................... A-29
7.2 Regulatory Approvals................................................ A-29
7.3 Affiliates; Publication of Combined Financial Results............... A-30
7.4 Agreement to Vote in Favor of Merger................................ A-30
ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions to Each Party's Obligations under this Agreement......... A-30
(a) Stockholder Approval............................................. A-30
(b) Injunctions; Illegality.......................................... A-30
(c) Regulatory Approvals............................................. A-30
(d) Effectiveness of Registration Statement.......................... A-31
(e) Tax Rulings or Opinions.......................................... A-31
8.2 Conditions to the Obligations of Buyer under this Agreement......... A-31
(a) Representations and Warranties................................... A-31
(b) Material Adverse Change.......................................... A-31
(c) Non-Performing Assets............................................ A-32
(d) Minimum Increase in Net Worth.................................... A-32
(e) Agreements and Covenants......................................... A-32
(f) Permits, Authorizations, Etc..................................... A-32
(g) Legal Opinion.................................................... A-32
</TABLE>
A-iii
<PAGE>
<TABLE>
<C> <S> <C>
(h) Pooling of Interests............................................ A-32
(i) Dissenting Seller Shareholders.................................. A-42
(j) Accountants' Letter............................................. A-32
(k) Fairness Opinion................................................ A-33
8.3 Conditions to the Obligations of Seller under this Agreement...... A-33
(a) Representations and Warranties.................................. A-33
(b) Material Adverse Change......................................... A-33
(c) Agreements and Covenants........................................ A-34
(d) Permits, Authorizations, Etc.................................... A-34
(e) Legal Opinion................................................... A-34
(f) Fairness Opinion................................................ A-34
ARTICLE IX
THE CLOSING
9.1 Time and Place.................................................... A-34
9.2 Deliveries at the Closing......................................... A-34
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination....................................................... A-34
10.2 Effect of Termination............................................. A-35
10.3 Expenses.......................................................... A-35
10.4 Amendment, Extension and Waiver................................... A-35
ARTICLE XI
CERTAIN DEFINITIONS
11.1 Certain Definitions............................................... A-36
ARTICLE XII
MISCELLANEOUS
12.1 Confidentiality................................................... A-37
12.2 Public Announcements.............................................. A-37
12.3 Survival.......................................................... A-37
12.4 Notices........................................................... A-37
12.5 Parties in Interest............................................... A-38
12.6 Rights of Employment.............................................. A-38
12.7 Complete Agreement................................................ A-38
12.8 Counterparts...................................................... A-38
12.9 Severability...................................................... A-38
12.10 Governing Law..................................................... A-38
12.11 Headings.......................................................... A-39
EXHIBIT 1.7 STOCK OPTION AGREEMENT....................................... A-41
EXHIBIT 7.3 AFFILIATE AGREEMENT.......................................... A-49
EXHIBIT 7.4 VOTING AGREEMENT............................................. A-54
</TABLE>
A-iv
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Affiliate.................................................................. A-36
Agreement.................................................................. A-1
Average Closing Price...................................................... A-36
Bank Regulator............................................................. A-7
BTCI....................................................................... A-7
Buyer...................................................................... A-1
Buyer Audited Financial Statements......................................... A-19
Buyer Common Shares........................................................ A-17
Buyer Common Stock......................................................... A-2
Buyer Financial Statements................................................. A-19
Buyer Interim Financial Statements......................................... A-19
Buyer Preferred Shares..................................................... A-17
Buyer Reports.............................................................. A-19
Buyer Special Meeting...................................................... A-29
Buyer Stock Option Plans................................................... A-17
Buyer Sub.................................................................. A-1
Buyer's Book Value Per Share............................................... A-36
Call Reports............................................................... A-8
Certificate................................................................ A-2
Closing.................................................................... A-1
Closing Date............................................................... A-1
Closing Price.............................................................. A-36
Dissenting Shares.......................................................... A-4
Effective Time............................................................. A-1
Environment................................................................ A-36
Environmental Laws......................................................... A-36
EPA........................................................................ A-14
ERISA Plans................................................................ A-12
Exchange Act............................................................... A-6
Exchange Agent............................................................. A-3
Exchange Fund.............................................................. A-3
Exchange Ratio............................................................. A-2
Expenses................................................................... A-35
FDIC....................................................................... A-7
Federal Reserve............................................................ A-7
GAAP....................................................................... A-7
Governmental Entity........................................................ A-7
Hazardous Substances....................................................... A-36
HSR Act.................................................................... A-7
Injunction................................................................. A-30
Interested Person.......................................................... A-16
Last Closing Price......................................................... A-4
Leases..................................................................... A-11
Loan Property.............................................................. A-37
Loans...................................................................... A-15
MBD........................................................................ A-21
Merger..................................................................... A-1
Merger Consideration....................................................... A-2
Mortgage................................................................... A-15
New Hampshire Commissioner................................................. A-1
</TABLE>
A-v
<PAGE>
<TABLE>
<S> <C>
NHRSA...................................................................... A-4
Participation Facility..................................................... A-37
Pension Plan............................................................... A-12
Person..................................................................... A-37
Proxy Statement-Prospectus................................................. A-29
Record Holder.............................................................. A-3
Registration Statement..................................................... A-29
Schedules.................................................................. A-5
SEC........................................................................ A-19
Secretary of State......................................................... A-1
Securities Act............................................................. A-5
Seller..................................................................... A-1
Seller Audited Financial Statements........................................ A-7
Seller Common Stock........................................................ A-2
Seller Financial Statements................................................ A-8
Seller Interim Financial Statements........................................ A-8
Seller Net Worth........................................................... A-32
Seller Option.............................................................. A-5
Seller Preferred Shares.................................................... A-6
Seller Stock Option Plan................................................... A-5
Seller Subsidiaries........................................................ A-5
Special Meeting............................................................ A-26
Stock Exchange............................................................. A-37
Stock Option Agreement..................................................... A-2
Subsidiaries............................................................... A-37
Subsidiary................................................................. A-37
Surviving Bank............................................................. A-1
Termination Date........................................................... A-35
Trading Day................................................................ A-37
Welfare Plan............................................................... A-12
</TABLE>
A-vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of August 29, 1995 (this
"Agreement"), by and between COMMUNITY BANKSHARES, INC., a New Hampshire
corporation ("Buyer"), and CENTERPOINT BANK, a New Hampshire-chartered trust
company ("Seller"). (Certain capitalized terms used herein shall have the
meanings defined in Section 11.1 hereof.)
Whereas, Buyer intends to cause to be organized an interim bank that will be
a wholly-owned direct subsidiary of Buyer ("Buyer Sub") and thereafter to
cause Buyer Sub to become a party to this Agreement; and
Whereas, the respective Boards of Directors of Buyer and Seller have
approved the acquisition of Seller by Buyer pursuant to the merger of Buyer
Sub with Seller (the "Merger").
Now, Therefore, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
The Merger
1.1 THE MERGER. As promptly as practicable following the satisfaction or
waiver of the conditions to the parties' respective obligations hereunder, at
the Effective Time (as defined in Section 1.2 hereof), Buyer shall form the
Buyer Sub in accordance with New Hampshire law, and Buyer Sub shall be merged
with and into Seller. Seller shall be the surviving bank of the Merger (the
"Surviving Bank"). At the Effective Time, the separate existence of Seller
shall cease and all of the rights, privileges, powers, franchises, properties,
assets, liabilities and obligations of Seller shall be vested in and assumed
by Surviving Bank.
1.2 EFFECTIVE TIME. The Merger shall be effected by the filing of a Contract
for Union, certified by the New Hampshire Commissioner of Banks ("New
Hampshire Commissioner"), with the Secretary of State of New Hampshire (the
"Secretary of State") in accordance with New Hampshire law. The Merger shall
become effective on the day of the closing ("Closing Date") provided for in
Article IX hereof (the "Closing"). The term "Effective Time" shall mean the
time on the Closing Date when the Merger becomes effective, as set forth in
the Contract for Union.
1.3 CHARTER AND BY-LAWS. The Charter and By-laws of Surviving Bank shall be
the Charter and By-laws of Seller as in effect immediately prior to the
Effective Time, until thereafter amended as provided therein and by applicable
law.
1.4 DIRECTORS OF SURVIVING BANK AND BUYER. (a) The directors of Seller
immediately prior to the Effective Time shall be the initial directors of
Surviving Bank, each to hold office in accordance with the Charter and By-Laws
of Surviving Bank. Buyer intends to elect up to two additional directors to
serve on the Board of Surviving Bank.
(b) At or immediately after the Effective Time the Board of Directors of
Buyer shall elect three of Seller's current directors to serve on the Board of
Directors of Buyer. Such nominees shall be designated, prior to the Effective
Time, as follows: one of the nominees shall be the current President and CEO
of Seller; the second nominee shall be designated by said President and CEO;
and the third nominee shall be selected by Buyer from a list of two or three
potential nominees provided by Seller to Buyer. Said nominees shall be subject
to the reasonable approval of Buyer's Board of Directors.
(c) Prior to or at the Effective Time the Board of Directors of Buyer's
existing banking subsidiary shall elect one of Seller's current outside
directors (designated by the Board of Directors of Seller prior to the
Effective
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<PAGE>
Time) to serve on the Board of Directors of such bank. Said nominee shall be
subject to the reasonable approval of such subsidiary's Board of Directors.
1.5 OFFICERS OF SURVIVING BANK. The officers of Seller immediately prior to
the Effective Time shall be the initial officers of Surviving Bank, in each
case until their respective successors are duly elected or appointed and
qualified.
1.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time, Surviving
Bank shall consider or be advised that any further assignments or assurances
in law or any other acts are necessary or desirable (a) to vest, perfect or
confirm, of record or otherwise, in Surviving Bank, title to and possession of
any property or right of Seller acquired or to be acquired by reason of, or as
a result of, the Merger, or (b) otherwise to carry out the purposes of this
Agreement, Seller and its proper officers and directors shall be deemed to
have granted to Surviving Bank an irrevocable power of attorney to execute and
deliver all such proper deeds, assignments and assurances in law and to do all
acts necessary or proper to vest, perfect or confirm title to and possession
of such property or rights in Surviving Bank and otherwise to carry out the
purposes of this Agreement; and the proper officers and directors of Surviving
Bank are fully authorized in the name of Seller or otherwise to take any and
all such action.
1.7 OPTION TO PURCHASE SELLER COMMON STOCK. As part of the Merger and as a
condition to entering into this Agreement, Buyer and Seller have entered into
a Stock Option Agreement on the date hereof (the "Stock Option Agreement") in
the form attached hereto as Exhibit 1.7, giving Buyer the right to purchase
165,920 shares of Seller Common Stock, which shares would upon issuance equal
19.9% of the then-issued and outstanding Seller Common Stock (including shares
issuable pursuant to the Seller Stock Option Plan (as defined below).
ARTICLE II
Conversion of Shares
2.1 CONVERSION OF SELLER COMMON STOCK. (a) At the Effective Time, each share
of the common stock, par value $1.00 per share, of Seller (the "Seller Common
Stock") issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares (as such term is defined in Section 2.4 hereof) and
other than Seller Common Stock then owned by Seller, any Seller subsidiary,
Buyer, or any Buyer subsidiary (in each case other than in a fiduciary
capacity or as a result of debts previously contracted)) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for 1.073 shares (the "Exchange Ratio") of the
common stock, par value $1.00 per share of Buyer ("Buyer Common Stock"). The
consideration to be received for each share of Seller Common Stock is referred
to herein as the "Merger Consideration".
(b) All of the Seller Common Stock converted into Buyer Common Stock
pursuant to this Section 2.1 shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each certificate
(each a "Certificate") previously representing any such Seller Common Stock
shall thereafter represent the right to receive (i) the number of whole shares
of Buyer Common Stock and (ii) cash in lieu of fractional shares into which
the Seller Common Stock represented by such Certificate have been converted
pursuant to this Section 2.1 and Section 2.2 hereof. Certificates previously
representing Seller Common Stock shall be exchanged for certificates
representing whole shares of Buyer Common Stock and cash in lieu of fractional
shares issued in consideration therefor upon the surrender of such
Certificates in accordance with Section 2.2 hereof, without any interest
thereon. If prior to the Effective Time Buyer should split or combine its
common stock or other convertible securities, or pay a dividend or other
distribution in such common stock or other convertible securities, then the
Exchange Ratio shall be appropriately adjusted to reflect such split,
combination, dividend or distribution. All Seller Common Stock owned by
Seller, any Seller subsidiary, Buyer, or any Buyer subsidiary (in each case
other than in a fiduciary capacity or as a result of debts previously
contracted) shall, at the Effective Time, cease to exist, and the certificates
for such shares shall, as promptly as practicable thereafter, be cancelled
A-2
<PAGE>
and no payments shall be made in consideration therefor. All shares of Buyer
Common Stock that are owned by Seller or any of the Seller Subsidiaries (in
each case other than in a fiduciary capacity or as a result of debts
previously contracted) shall become treasury stock of Buyer.
2.2 PROCEDURES FOR EXCHANGE OF SELLER COMMON STOCK FOR MERGER CONSIDERATION.
(A) BUYER TO MAKE SHARES AVAILABLE. Buyer shall take all steps necessary on
and as of the Effective Time to deliver to the Exchange Agent (as hereinafter
defined), for the benefit of the holders of Certificates, for exchange in
accordance with this Section 2.2, certificates representing shares of Buyer
Common Stock and the cash in lieu of fractional shares to be paid pursuant to
Section 2.2(d) (such cash and certificates for shares of Buyer Common Stock,
together with any dividends or distributions with respect thereto being
hereinafter referred to as the "Exchange Fund") to be issued and paid in
exchange for outstanding Seller Common Stock in accordance with this
Agreement. The Exchange Agent shall be such banking institution or corporate
trust company reasonably satisfactory to Buyer as Seller shall appoint to act
as exchange agent hereunder. The Exchange Agent shall act as agent on behalf
of record holders (individually, a "Record Holder") of Seller Common Stock at
the Effective Time, other than Seller, any Seller Subsidiary, Buyer, or any
Buyer subsidiary (in each case other than in a fiduciary capacity or as a
result of debts previously contracted), or any Person holding Dissenting
Shares.
(B) EXCHANGE OF CERTIFICATES. Within three business days after the Effective
Time, Buyer shall take all steps necessary to cause the Exchange Agent to mail
to each Record Holder of a Certificate or Certificates, a form letter of
transmittal for return to the Exchange Agent and instructions for use in
effecting the surrender of the Certificates for certificates representing the
Buyer Common Stock and the cash in lieu of fractional shares into which the
Seller Common Stock represented by such Certificates shall have been converted
as a result of the Merger. The form letter (which shall be subject to the
reasonable approval of Seller) 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. 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 Certificate shall be entitled
to receive in exchange therefor (x) a certificate for the number of whole
shares of Buyer Common Stock to which such holder of Seller Common Stock shall
have become entitled pursuant to the provisions of this Article II and (y) a
check representing the amount of cash in lieu of the fractional shares, if
any, which such holder has the right to receive in respect of Certificates
surrendered pursuant to the provisions of this Article II, and the
Certificates so surrendered shall forthwith be cancelled. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed and, if required by Buyer, the posting by such person of a
bond in such amount as Buyer 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 Section 2.1
hereof.
(C) RIGHTS OF CERTIFICATE HOLDERS AFTER THE EFFECTIVE TIME. The holder of a
Certificate that prior to the Merger represented issued and outstanding Seller
Common Stock shall have no rights, after the Effective Time, with respect to
such Seller Common Stock except to surrender the Certificate in exchange for
the Merger Consideration as provided in this Agreement or to perfect the
rights of appraisal as a holder of Dissenting Shares that such holder may have
pursuant to the applicable provisions of New Hampshire law. No dividends or
distributions shall be payable with respect to any Certificate until such
Certificate shall have been exchanged for certificates representing shares of
Buyer Common Stock; at the time of such exchange, the holder of the
Certificate shall be entitled to receive the payment of all dividends, if any,
that have been declared and paid with respect to the shares of Buyer Common
Stock represented by such Certificate between the Closing Date and the date of
such exchange.
(D) FRACTIONAL SHARES. Notwithstanding anything to the contrary contained
herein, no certificates or scrip representing fractional shares of Buyer
Common Stock shall be issued upon the surrender for exchange of Certificates,
no dividend or distribution with respect to Buyer 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
A-3
<PAGE>
other rights of a stockholder of Buyer. In lieu of the issuance of any such
fractional share, Buyer shall pay to each former holder of Seller Common Stock
who otherwise would be entitled to receive a fractional share of Buyer Common
Stock, an amount in cash determined by multiplying (i) the average closing
sale price of Buyer Common Stock on the Stock Exchange as reported by The Wall
Street Journal for the five trading days immediately preceding the date of the
Effective Time (the "Last Closing Price") by (ii) the fraction of a share of
Buyer Common Stock which such holder would otherwise be entitled to receive
pursuant to Section 2.2(b) hereof. No interest will be paid on the cash which
the holders of such fractional shares shall be entitled to receive upon such
delivery.
(E) SURRENDER BY PERSONS OTHER THAN RECORD HOLDERS. If the Person
surrendering a Certificate and signing the accompanying letter of transmittal
is not the Record Holder thereof, then it shall be a condition of the payment
of the Merger Consideration that such Certificate is properly endorsed to such
Person or is accompanied by appropriate stock powers, in either case signed
exactly as the name of the Record Holder appears on such Certificate, and is
otherwise in proper form for transfer, or is accompanied by appropriate
evidence of the authority of the Person surrendering such Certificate and
signing the letter of transmittal to do so on behalf of the Record Holder and
that the person requesting such exchange shall pay to the Exchange Agent in
advance any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificate surrendered, or
required for any other reason, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(F) CLOSING OF TRANSFER BOOKS. From and after the Effective Time, there
shall be no transfers on the stock transfer books of Seller of the Seller
Common Stock which were 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 exchanged for the
Merger Consideration and cancelled as provided in this Article II.
(G) RETURN OF EXCHANGE FUND. At any time following the 12 month period after
the Effective Time, Buyer shall be entitled to require the Exchange Agent to
deliver to it any portions of the Exchange Fund which had been made available
to the Exchange Agent and not disbursed to holders of Certificates (including,
without limitation, all interest and other income received by the Exchange
Agent in respect of all funds made available to it), and thereafter such
holders shall be entitled to look to Buyer (subject to abandoned property,
escheat and other similar laws) only as general creditors thereof with respect
to any Merger Consideration that may be payable upon due surrender of the
Certificates held by them. Notwithstanding the foregoing, neither Buyer nor
the Exchange Agent shall be liable to any holder of a Certificate for any
Merger Consideration delivered in respect of such Certificate to a public
official pursuant to any abandoned property, escheat or other similar law.
2.3 BUYER SUB COMMON STOCK. Each share of common stock of Buyer Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into one (1) share of common stock of the Surviving Bank at the Effective Time
and shall be held by Buyer.
2.4 DISSENTERS' RIGHTS. (a) Notwithstanding anything in this Agreement to
the contrary and unless otherwise provided by applicable law, Seller Common
Stock which is issued and outstanding immediately prior to the Effective Time
and which is owned by stockholders who, pursuant to applicable law, have
properly perfected their right to dissent and demand payment within the
meaning of New Hampshire Revised Statutes Annotated (the "NHRSA") 293-A:13.01
et seq. (the "Dissenting Shares") shall not be converted into the right to
receive, or be exchangeable for, the Merger Consideration, unless and until
such stockholders shall have failed to perfect or shall have effectively
withdrawn or lost their right to dissent and demand payment under applicable
law. If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost such right to dissent, the Seller Common Stock of such
holder shall thereupon be deemed to have been converted into and be
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration pursuant to Section 2.1 hereof. Holders of Seller Common Stock
who become entitled pursuant to the provisions of the NHRSA to payment for
their shares of Seller Common Stock under the provisions thereof shall receive
payment from the Surviving Bank and such shares of Seller Common Stock shall
be cancelled.
A-4
<PAGE>
(b) Seller shall give Buyer (i) prompt notice of any demands for payment of
shares received by Seller, withdrawals of such demands, and any other
instruments served in connection with such demands pursuant to the NHRSA and
received by Seller and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for payment for shares under the NHRSA
consistent with the obligations of Seller thereunder. Seller shall not, except
with the prior written consent of Buyer, (x) make any payment with respect to
any demands for payment for shares, (y) offer to settle or settle any such
demands or (z) waive any failure to timely deliver a written demand for
payment for shares in accordance with the NHRSA.
2.5 STOCK OPTIONS. (a) At the Effective Time, each then outstanding stock
option to purchase Seller Common Stock ("Seller Option") pursuant to the
Seller's 1989 Stock Option Plan (the "Seller Stock Option Plan") (it being
understood that the aggregate number shares of Seller Common Stock subject to
purchase pursuant to the exercise of such Seller Options is not and shall not
be more than 77,500), whether vested or unvested, will be assumed by Buyer.
Each Seller Option so assumed by Buyer under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the Seller
Stock Option Plan immediately prior to the Effective Time, except that (i)
such Seller Option shall be exercisable (when vested) for that number of whole
shares of Buyer Common Stock equal to the product of the number of shares of
Seller Common Stock covered by the Seller Option multiplied by the Exchange
Ratio, provided that any fractional share of Buyer Common Stock resulting from
such multiplication shall be rounded down to the nearest share; and (ii) the
exercise price per share of Buyer Common Stock shall be equal to the exercise
price per share of Seller Common Stock of such Seller Option, divided by the
Exchange Ratio, provided that such exercise price shall be rounded up to the
nearest cent.
(b) After the Effective Time, Buyer shall issue to each holder of an
outstanding Seller Option a document evidencing the foregoing assumption of
such Seller Option by Buyer.
(c) It is the intention of the parties that the Seller Options assumed by
Buyer qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") to the extent that the Seller Options qualified as incentive stock
options immediately prior to the Effective Time.
(d) Buyer shall not issue or pay for any fractional share otherwise issuable
upon exercise of a Seller Option. Prior to the Effective Time, Buyer shall
reserve for issuance (and, if not previously registered pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), register) the
number of shares of Buyer Common Stock necessary to satisfy Buyer's
obligations with respect to the issuance of Buyer Common Stock pursuant to the
exercise of Seller Options.
(e) The provisions of this Section 2.5 are expressly intended to be for the
irrevocable benefit of, and shall be enforceable by, each holder of a Seller
Option and his or her heirs and representatives.
ARTICLE III
Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer as follows:
3.1 CORPORATE ORGANIZATION. (a) Seller is a trust company duly organized and
validly existing and in good standing under the laws of New Hampshire and in
good standing with the New Hampshire Commissioner. The deposit accounts of
Seller which are of an insurable type are insured by the Bank Insurance Fund
of the FDIC to the extent permitted by the FDIC. The subsidiaries listed in
Schedule 3.1 constitute all of Seller's subsidiaries (the "Seller
Subsidiaries"). Except as set forth in Schedule 3.1 of the Seller Disclosure
Schedules (the "Schedules"), each of the Seller Subsidiaries is a corporation,
in each case duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Each of Seller and the Seller
Subsidiaries has the power and authority to own or lease all of its properties
and assets and to conduct its
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business as it is now being conducted, and, except as set forth in Schedule
3.1, is duly licensed or qualified to do business and is in good standing 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, except where the failure to be so
licensed, qualified or in good standing would not have a material adverse
effect on Seller and the Seller Subsidiaries.
(b) Seller has previously made available to Buyer for inspection true and
complete copies as amended to date of the (i) Charter and By-laws of Seller
and each of the Seller Subsidiaries, and (ii) all records in the possession of
Seller of all meetings and other corporate action taken by the stockholders,
Board of Directors and committees thereof, of Seller and each of the Seller
Subsidiaries. The minute books of Seller and each of the Seller Subsidiaries
contain records, which are complete and accurate in all material respects, of
incorporators, shareholders, directors, committees and stockholders, as the
case may be, and all meetings and actions reflected therein have been duly and
validly held or taken.
(c) Neither Seller nor any of the Seller Subsidiaries owns, controls or
holds with the power to vote, directly or indirectly of record, beneficially
or otherwise, any capital stock or any equity or ownership interest in any
corporation, partnership, association, joint venture or other entity, other
than not more than five percent of any equity security registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and other
than shares of the Federal Home Loan Bank of Boston or as otherwise disclosed
on Schedule 3.1 hereto and except, in the case of Seller, for the Seller
Subsidiaries.
3.2 CAPITALIZATION. (a) The authorized capital stock of Seller consists
solely of 3,000,000 shares of Seller Common Stock and 250,000 shares of
preferred stock, $1.00 par value ("Seller Preferred Shares"). There are
590,349 shares of Seller Common Stock issued and outstanding, no shares of
Seller Common Stock held in its treasury and no Seller Preferred Shares issued
and outstanding or held in its treasury. All issued and outstanding shares of
Seller Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable, and free of preemptive rights, with no personal liability
attaching to the ownership thereof. All issued and outstanding shares of each
of the Seller Subsidiaries have been duly authorized and validly issued and
are fully paid, nonassessable, and free of preemptive rights, with no personal
liability attaching to the ownership thereof. All issued and outstanding
shares or interests of each of the Seller Subsidiaries are owned by Seller
free and clear of any security interest, pledge, lien, claim or other
encumbrance or restriction on transfer.
(b) Except for the options to acquire not more than 77,500 shares of Seller
Common Stock pursuant to stock options outstanding as of the date hereof under
the Seller Stock Option Plan, and except for the Seller Common Stock subject
to the Stock Option Agreement with Buyer, neither Seller nor any of the Seller
Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase or issuance of, or representing the right to purchase,
subscribe for or otherwise receive, any shares of its capital stock or any
securities convertible into or representing the right to receive, purchase or
subscribe for any such shares of Seller, or shares of any of the Seller
Subsidiaries. The names of the optionees, the date of grant of each option to
purchase Seller Common Stock, the number of shares subject to each such
option, the expiration date of each such option, and the price at which each
such option may be exercised under the Seller Stock Option Plan are set forth
on Schedule 3.2. Except as set forth on Schedule 3.2, there are no agreements
or understandings with respect to the voting of any such shares or which
restrict the transfer of such shares to which Seller is a party, nor does
Seller have knowledge of any such agreements or understandings to which Seller
is not a party with respect to the voting of any such shares or which restrict
the transfer of such shares. The Seller Common Stock is listed on the NASDAQ
Bulletin Board.
3.3 AUTHORITY. Seller has full corporate power and authority to execute and
deliver this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
approved by Seller's Board of Directors. The Board of Directors of Seller has
directed that this Agreement and the transactions contemplated hereby be
submitted to Seller's stockholders for approval at a meeting of such
stockholders and has
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recommended approval of this Agreement by Seller's stockholders. Except for
the adoption of this Agreement by such stockholders, no other corporate
proceedings on the part of Seller are necessary to consummate the transactions
contemplated by this Agreement or the Stock Option Agreement. Each of this
Agreement and the Stock Option Agreement has been duly and validly executed
and delivered by Seller, constitutes a valid and binding obligation of Seller,
and is enforceable against Seller in accordance with its terms, subject to (i)
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the rights and remedies of creditors generally and (ii) general principles of
equity, regardless of whether enforcement is sought in proceedings in equity
or at law.
3.4 NO VIOLATION. Neither the execution and delivery of this Agreement or
the Stock Option Agreement by Seller, nor the consummation by Seller of the
transactions contemplated hereby or thereby, nor the compliance by Seller with
any of the terms or provisions hereof or thereof, does or will
(a) violate any provision of the Charter or By-laws of Seller or any of
the Seller Subsidiaries,
(b) assuming that the consents and approvals referred to in Section 3.5
hereof are duly obtained, violate any statute, code, ordinance, permit,
authorization, registration, rule, regulation, judgment, order, writ,
decree or injunction applicable to Seller or any of the Seller
Subsidiaries, or any of their respective properties, securities or assets;
(c) assuming that the consents and approvals referred to in Section 3.5
hereof are duly obtained and except as set forth on Schedule 3.4 hereto,
violate, conflict with, result in a breach of any provisions of, constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, or a right of
termination or cancellation under, accelerate the performance required by,
or result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the respective properties or assets of Seller
or any of the Seller Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, debenture, mortgage, indenture, deed of
trust, license, lease, contract, agreement or other instrument or
obligation to which Seller or any of the Seller Subsidiaries is a party, or
by which they or any of their respective properties or assets may be bound
or affected.
3.5 CONSENTS AND APPROVALS. The execution, delivery and performance of this
Agreement or the Stock Option Agreement by Seller does not require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency or commission or other governmental or
regulatory authority or instrumentality (each a "Governmental Entity"),
domestic or foreign, including, without limitation, any bank regulator, except
(i) for applicable requirements, if any, of the Exchange Act, state takeover
laws, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), and filing and recordation of appropriate merger
documents as required by New Hampshire law, and (ii) for consents and
approvals of or filings or registrations with the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), the Federal Deposit Insurance
Corporation (the "FDIC"), the New Hampshire Commissioner, and the New
Hampshire Board of Trust Company Incorporation (the "BTCI") (each of the
foregoing, a "Bank Regulator").
3.6 REGULATORY APPROVAL. Seller is not aware of any reason why the
conditions set forth in Section 8.1(c) hereof would not be satisfied without
significant delay.
3.7 FINANCIAL STATEMENTS. (a) The consolidated balance sheets of Seller as
of December 31, 1994 and 1993, and the related consolidated statements of
operations, changes in stockholders' equity, cash flows and changes in
financial position for the years ended December 31, 1994, 1993 and 1992,
certified by Ernst & Young LLP, in the form delivered to Buyer prior to
execution and delivery of this Agreement (all of the above being collectively
referred to as the "Seller Audited Financial Statements"), have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis ("GAAP") (except as may be indicated in the footnotes thereto
and except as required or permitted by SFAS 109 and 115) and present fairly in
all material respects the consolidated financial position of and results of
operations of Seller at the dates, and for the periods, stated therein.
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(b) The consolidated balance sheets of Seller as of June 30, 1995 and 1994,
and the related consolidated statements of income, and changes in
stockholders' equity for the six months ended June 30, 1995 and 1994 in the
form delivered to Buyer prior to execution and delivery of this Agreement
(hereinafter referred to collectively as the "Seller Interim Financial
Statements") present fairly, and the financial statements referred to in
Section 5.5 hereof will present fairly, in all material respects the
consolidated financial position and results of operations of Seller for the
periods indicated thereon and have been, and the financial statements referred
to in Section 5.5 hereof will be, prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except for the
omission of notes to the Seller Interim Financial Statements and year-end
adjustments to interim results, which adjustments will not be material)
applied on a consistent basis (except as required or permitted by SFAS 109 and
115) with all prior periods and throughout the periods indicated.
(c) Seller has provided to Buyer true and complete copies of all quarterly
and annual Consolidated Reports of Condition and Income ("Call Reports") as
filed with the FDIC since December 31, 1992 through and including July 30,
1995. Such Call Reports were prepared in accordance with the FDIC's
instructions and fairly present the information purported to be shown therein.
Each Call Report filed with the FDIC with respect to any period subsequent to
June 30, 1995 will be prepared in accordance with the FDIC's instructions and
will fairly present the information purported to be shown therein.
(d) The books and records of Seller have been, and are being, maintained in
accordance with applicable legal and accounting requirements, reflect only
actual transactions and reflect all of its assets, liabilities and accruals
and all of its items of income and expense in accordance with generally
accepted accounting principles and auditing standards.
(e) The Seller Audited Financial Statements and the Seller Interim Financial
Statements are herein referred to together as the "Seller Financial
Statements."
3.8 REPORTS. Since January 1, 1991, Seller has filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with the FDIC, the New
Hampshire Commissioner, and any applicable state securities or banking
authorities. Seller has made available to Buyer true and complete copies of
(i) each final registration statement, prospectus or offering circular which
Seller has used in connection with the sale of its capital stock within the
past five years, (ii) each proxy statement distributed by Seller to its
stockholders within the past five years, and (iii) each other report filed
during the past five years by Seller or any of the Seller Subsidiaries with
the New Hampshire Commissioner, the FDIC or any other securities or bank
regulatory agency (collectively, the "Seller Reports"). Except as set forth in
Schedule 3.8, none of the Seller Reports referred to in (i) or (ii) above
contained as of its date any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that information as of a later date shall be
deemed to modify information as of an earlier date. None of the Seller Reports
is required to be amended or supplemented, other than any amendment or
supplement relating to the transactions contemplated hereby. As of their
respective dates, the Seller Reports complied in all material respects with
all the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed.
3.9 UNDISCLOSED LIABILITIES. Except to the extent reflected or disclosed in
the Seller Audited Financial Statements or in Schedule 3.9, neither Seller nor
any Seller Subsidiary had at the date of the most recent consolidated balance
sheet included in the Seller Audited Financial Statements, and neither Seller
nor any Seller Subsidiary presently has, any material undisclosed liabilities
or obligations of any kind, whether accrued, unaccrued, asserted or
unasserted, contingent or otherwise, and there is no existing situation or set
of circumstances which could reasonably be expected to result in such a
liability, except for liabilities which would not, either individually or in
the aggregate, have a material adverse effect on the business, operations, or
financial condition of Seller or any Seller Subsidiaries.
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3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
3.10 hereto, since December 31, 1994, there has not been:
(a) Any material adverse change in the business, operations, results of
operations, properties, assets, liabilities, securities, capitalization or
condition (financial or otherwise) of Seller or any Seller Subsidiaries,
and to the best of Seller's knowledge, no fact or condition exists which
will cause such a material adverse change in the future, including without
limitation any material loss of deposits or material decline in the value
of the assets held in the portfolios of Seller or any of the Seller
Subsidiaries;
(b) Any loss or damage (whether or not covered by insurance) which
individually or in the aggregate affects or impairs in a material respect
the ability of Seller or any Seller Subsidiaries to conduct their
businesses and operate their properties;
(c) except in the ordinary course of business consistent with past
practice with respect to actions that occurred prior to the date hereof,
any increase in the compensation payable or to become payable to any of the
non-officer employees of Seller or any of the Seller Subsidiaries or any
bonus payment or arrangement made to or with any of them;
(d) any increase in the compensation payable or to become payable to any
of the officers or directors of Seller or any of the Seller Subsidiaries or
any bonus payment or arrangement made to or with any of them;
(e) any employment contract, severance contract, bonus, pension,
retirement, incentive or similar arrangement or plan instituted, agreed to
or amended by Seller or any of the Seller Subsidiaries;
(f) Any agreement, contract or commitment entered into or agreed to be
entered into except for those in the ordinary course of business (none of
which, individually or in the aggregate, materially adversely affects the
business, operations, results of operations, properties, assets,
liabilities, securities, capitalization or condition (financial or
otherwise) of Seller or any Seller Subsidiaries);
(g) Any change in any of the accounting or tax methods or practices of
Seller or any of the Seller Subsidiaries (other than changes that are
required by applicable law or generally accepted accounting principles) or
any change in the value at which assets are carried on the consolidated or
unconsolidated balance sheets of Seller or any of the Seller Subsidiaries
(other than changes that are reflected in their respective profit and loss
statements);
(h) Any mortgage or pledge of any assets or properties of Seller or any
of the Seller Subsidiaries, or any indebtedness incurred by any of them,
other than pledges to secure Federal Home Loan Bank borrowings or
repurchase agreements made in the ordinary course of business; or
(i) Any notice or indication of the intention of any person or entity to
terminate any material agreement with Seller or any of the Seller
Subsidiaries or any notice or indication from any material depositor,
customer or supplier of Seller or any of the Seller Subsidiaries of any
intention to cease doing business with, materially change the price or
other terms on which business is transacted with or materially reduce the
business transacted with Seller or any of the Seller Subsidiaries.
Except as set forth on Schedule 3.10 hereto, since December 31, 1994, each
of Seller and the Seller Subsidiaries has conducted their respective
businesses only in the ordinary course and consistent with prior and prudent
banking and business practice.
3.11 LEGAL PROCEEDINGS. Except as set forth on Schedule 3.11 hereto:
(a) Neither Seller nor any of the Seller Subsidiaries is a party to any,
and there are no pending or, to the best of Seller's knowledge, threatened,
material legal, administrative, arbitral or other proceedings, claims,
actions or governmental investigations of any nature by or against Seller
or any of the Seller Subsidiaries, or challenging the validity or propriety
of the transactions contemplated by this Agreement or the Stock Option
Agreement, and there is no reasonable basis for any such proceeding, claim,
action or governmental investigation against Seller or any of the Seller
Subsidiaries.
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(b) Neither Seller nor any of the Seller Subsidiaries is a party to or
subject to any order, judgment or decree materially affecting its business,
operations, results of operations, properties, assets, liabilities,
securities, capitalization or condition (financial or otherwise) or its
ability to consummate the transactions contemplated hereby or by the Stock
Option Agreement.
(c) Since January 1, 1992, neither Seller nor any of the Seller
Subsidiaries has suffered any loss in excess of $1,000 in any one instance
caused by defalcation, embezzlement or other employee malfeasance or by
payments made or accepted in violation of any law or regulation, and to the
best knowledge of Seller, there are no facts, circumstances or conditions
which would indicate or suggest that any such loss may be impending.
(d) Schedule 3.11 lists, as of the date of this Agreement, all pending
litigation involving any claim against Seller or any Seller Subsidiary,
whether directly or by counterclaim, involving a "lender liability" cause
of action.
3.12 TAXES AND TAX RETURNS. (a) Except as set forth in Schedule 3.12, each
of Seller and the Seller Subsidiaries has (i) duly filed in correct form all
federal, state and local information returns and tax returns required to be
filed by it (all such returns being accurate and complete in all material
respects) and (ii) duly paid or made provisions for the payment of all taxes
and other governmental charges (other than taxes and charges which in the
aggregate are immaterial) that have been incurred or that 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). Seller and
the Seller Subsidiaries file consolidated federal income tax returns.
(b) The amounts set up as reserves on Seller's consolidated balance sheet
included in the Seller Audited Financial Statements for the payment of all
unpaid federal, state and local taxes (including any interest or penalties
thereon), whether or not disputed or accrued, through the fiscal year ended
December 31, 1994 or for any year or period ending prior thereto, and for
which Seller or any of the Seller Subsidiaries may be liable (in its own right
or as transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity), are adequate under
generally accepted accounting principles and auditing standards and are
sufficient to cover all such taxes of a material amount due. The federal
income tax returns of Seller and the Seller Subsidiaries have never been
audited by the Internal Revenue Service.
(c) The amounts set up as reserves on Seller's consolidated balance sheet
included in the Seller Interim Financial Statements for the payment of
federal, state and local taxes (including any interest or penalties thereon),
whether or not disputed or accrued, for the six months ended June 30, 1995,
are adequate under generally accepted accounting principles and auditing
standards and are sufficient to cover all taxes of a material amount expected
to be due for such six month period.
(d) Except as set forth in Schedule 3.12, Seller has received no notice of
any disputes pending, or claims asserted for, federal or state taxes or
assessments or local taxes or assessments upon Seller or any of the Seller
Subsidiaries, nor has Seller or any of the Seller Subsidiaries been requested
to give or given any currently effective waivers extending the statutory
period of limitation applicable to any federal or state income tax return for
any period.
(e) Neither Seller nor any of the Seller Subsidiaries has agreed to or is
required to make any adjustments under Section 481(a) of the Code. No consent
has been filed pursuant to Section 341(f) of the Code with respect to Seller
or any of the Seller Subsidiaries.
(f) Proper and accurate amounts have been withheld by Seller and the Seller
Subsidiaries from their employees, based on information furnished by those
employees, for all prior periods in compliance in all material respects with
the tax withholding provisions of applicable federal, state and local laws.
Federal, state and local returns which are accurate and complete in all
material respects have been filed by Seller and the Seller Subsidiaries for
all periods for which returns were due with respect to income tax withholding,
Social Security
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and unemployment taxes. The amounts shown on such returns to be due and
payable have been paid in full or adequate provision therefor has been
included by Seller and the Seller Subsidiaries in the consolidated financial
statements included in the Seller Audited Financial Statements.
3.13 PROPERTIES. (a) Except (i) as may be reflected in the Seller Financial
Statements, (ii) for any lien for current taxes not yet delinquent, (iii) for
pledges to secure deposits, (iv) for liens on real estate acquired by
foreclosure or substantively repossessed, and (v) for such other liens,
security interests, claims, charges, options or other encumbrances and
imperfections of title as do not materially adversely affect the value of
personal or real property reflected in the Seller Financial Statements or
acquired since the date of such statements and which do not materially
interfere with or impair the present and continued use of such property,
Seller and the Seller Subsidiaries have good title, free and clear of any
liens, claims, charges, options or other encumbrances, to all of the personal
and real property reflected in the consolidated balance sheets of Seller
included in the Seller Financial Statements and all personal and real property
acquired since such date, except such personal and real property as has been
disposed of in the ordinary course of business.
(b) Neither Seller nor any of the Seller Subsidiaries has received any
notice of violation of any applicable zoning or environmental regulation,
ordinance or other law, order, regulation or requirement relating to its
operations or its properties and there is no such violation of a material
nature. All buildings and structures used by Seller and any of the Seller
Subsidiaries conform in all material respects with all applicable ordinances,
codes and regulations.
(c) Schedule 3.13 contains a true and complete list and a brief description
(including carrying value) of all real properties, including properties
acquired by foreclosure or deed in lieu thereof, owned by Seller or any Seller
Subsidiary.
(d) Schedule 3.13 contains a true and complete list of all material leases
pursuant to which Seller or any of the Seller Subsidiaries leases any real or
personal property, either as lessee or as lessor (the "Leases"). Each of the
Leases is valid and binding on Seller and each such Seller Subsidiary, as the
case may be, and, to the best of Seller's knowledge, is valid and binding on
and enforceable against all other respective parties to such leases in
accordance with their respective terms. There are not under such leases any
existing breaches, defaults, events of default, or events which with notice
and/or lapse of time would constitute a breach, default or event of default,
nor has Seller or any of the Seller Subsidiaries received notice of, or made a
claim with respect to, any breach or default. Seller and each of the Seller
Subsidiaries enjoy quiet and peaceful possession of all such leased properties
occupied by them as lessee.
3.14 CERTAIN CONTRACTS. As of the date of this Agreement, except as set
forth in Schedule 3.14 hereto, neither Seller nor any of the Seller
Subsidiaries is a party to, is bound by, owns properties subject to, or
receives benefits under:
(a) any agreement, arrangement or understanding (whether written or oral)
(1) not made in the ordinary course of business that is or may
reasonably be expected to be material to the financial condition,
business or results of operations of Seller and the Seller
Subsidiaries, taken as a whole,
(2) relating to the borrowing of money by Seller or any Seller
Subsidiary or the guarantee by Seller or any Seller Subsidiary of any
such obligation (other than instruments relating to transactions
entered into in the ordinary course of the banking business of Seller
or in the ordinary course of business of any Seller Subsidiary),
(3) which cannot be terminated at will relating to the employment of
a consultant or the employment, election or retention of any present or
former director, officer or employee,
(4) with a labor union,
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(5) (other than any agreement (x) with a banking customer entered
into by Seller in the ordinary course of business under which Seller
provides banking services to such banking customer or (y) relating to
the sale of mortgage loans, including forward commitments) that
involves a payment or series of payments of more than $100,000 from or
to Seller or any Seller Subsidiary,
(6) pursuant to which the consummation of the transactions
contemplated by this Agreement or the Stock Option Agreement would
(either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) becoming
due from Seller or any of the Seller Subsidiaries to any officer,
director or employee thereof or to any other person or entity,
(7) which has an unexpired term as of the date of this Agreement of
one year or more (other than agreements that are cancelable by Seller
or the Seller Subsidiaries with no further obligation upon 30 days
notice or less),
(8) which limits the freedom of Seller or any of the Seller
Subsidiaries to compete in any line of business or with any person,
(9) pursuant to which Seller or any of the Seller Subsidiaries may be
required to sell assets to, to transfer funds to (other than in the
ordinary course of business), to make an investment in, or to guarantee
the debt of, any entity, or
(b) any power of attorney that remains outstanding.
3.15 CERTAIN DEFAULTS. Except as set forth in Schedule 3.15 hereto, neither
Seller nor any Seller Subsidiary, nor, to the knowledge of Seller, any other
party thereto, is in default in any material respect under any material lease,
contract, mortgage, promissory note, deed of trust, loan or other commitment
or arrangement pursuant to which Seller or any Seller Subsidiary has borrowed
funds or is otherwise the obligor.
3.16 INSURANCE. Seller has made available to Buyer correct and complete
copies of all material policies of insurance of Seller and the Seller
Subsidiaries currently in effect. Neither Seller nor any of the Seller
Subsidiaries has any liability for unpaid premiums or premium adjustments not
properly reflected on the Seller Interim Financial Statements. Except as set
forth on Schedule 3.16 hereto, neither Seller nor any Seller Subsidiary has
received any notice of termination of any such insurance coverage or material
increase in the premiums therefor or has any reason to believe that any such
insurance coverage will be terminated or the premiums therefor materially
increased.
3.17 EMPLOYEE BENEFIT PLANS. (a) Except as described on Schedule 3.17
hereto, neither Seller nor any of the Seller Subsidiaries has any obligation,
contingent or otherwise, under any employment, consulting, retirement or
severance agreement which would require Seller or any Seller Subsidiary to
make payments exceeding $100,000 for any employee or former employee.
(B) SCHEDULE 3.17 hereto sets forth a complete list of all ERISA Plans (as
defined below). Except as set forth in Schedule 3.17, neither Seller nor any
Seller Subsidiary maintains or contributes to any "multi-employer plan" as
that term is defined at Section 4001(a)(3) of ERISA, and neither Seller nor
any Seller Subsidiary has incurred any material liability under Section 4062,
4063 or 4201 of ERISA. To the knowledge of Seller, each pension plan, as
defined at Section 3(2) of ERISA, maintained by Seller or any Seller
Subsidiary (each, a "Pension Plan") which is intended to be qualified under
Section 401(a) of the Code is so qualified. Except as set forth in Schedule
3.17 hereto, to the knowledge of Seller, since January 1, 1991, (i) each
welfare plan, as defined at Section 3(1) of ERISA, maintained by Seller or a
Seller Subsidiary (each, a "Welfare Plan"), and each Pension Plan (the Pension
Plans and Welfare Plans being hereinafter referred to as "ERISA Plans"), has
been administered substantially in accordance with the terms of such plan and
the provisions of ERISA, (ii) nothing has been done or omitted to be done with
respect to any ERISA Plan that would result in any material liability on the
part of Seller or any Seller Subsidiary, including the loss of any material
tax deduction, under ERISA or the Code, (iii) no "reportable event" as defined
at Section 4043 of ERISA, other than any such event for which the thirty-day
notice period has been waived, has occurred with respect to any Pension Plan
subject to
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Title IV of ERISA, and (iv) except for continuation of health coverage to the
extent required under Section 4980B of the Code, there are no unfunded
obligations under any ERISA Plan providing benefits after termination of
employment.
(c) Schedule 3.17 hereto sets forth a complete list of all employment,
consulting, retirement and severance agreements with individuals and all
material incentive, bonus, fringe benefit and other employee benefit
arrangements of Seller and the Seller Subsidiaries, covering employees or
former employees of Seller and the Seller Subsidiaries.
(d) Seller has made available to Buyer copies of all ERISA Plans, copies of
all agreements and arrangements referred to in (c) above that have been
reduced to writing, and a written summary of the material terms of all such
agreements or arrangements that have not been reduced to writing.
3.18 COMPLIANCE WITH APPLICABLE LAW; REGULATORY EXAMINATIONS. (a) Seller and
each of the Seller Subsidiaries holds, and has at all times held, all
licenses, franchises, permits, approvals, consents, qualifications and
authorizations material for the lawful conduct of its business under and
pursuant to, and has complied with, and is not in material default under, any
applicable law, statute, order, rule, regulation, policy, ordinance, reporting
or filing requirement and/or guideline of any federal, state or local
governmental authority relating to Seller or any of the Seller Subsidiaries,
except as set forth on Schedule 3.18 hereto, and neither Seller or any of the
Seller Subsidiaries has knowledge of any violation of any of the above.
(b) Except for normal examinations conducted by a regulatory agency in the
regular course of the business of Seller and the Seller Subsidiaries, no
regulatory agency has initiated any proceeding or, to the best knowledge of
Seller, investigation into the business or operations of Seller or any of the
Seller Subsidiaries since prior to December 31, 1991. Seller has not received
any objection from any regulatory agency to Seller's response to any
violation, criticism or exception with respect to any report or statement
relating to any examinations of Seller or any of the Seller Subsidiaries.
(c) Except as set forth on Schedule 3.18 hereto, neither Seller nor any
Seller Subsidiary will be required to divest any assets currently held by it
or discontinue any activity currently conducted as a result of the Federal
Deposit Insurance Corporation Improvement Act of 1991, any regulations
promulgated thereunder, or otherwise.
3.19 REGULATORY AGREEMENTS. On the date hereof, neither Seller nor any
Seller Subsidiary is a party to any assistance agreement, supervisory
agreement, memorandum of understanding, consent order, cease and desist order,
or condition of any regulatory order or decree with or by the FDIC, the
Federal Reserve, the New Hampshire Commissioner or any other financial
services regulatory agency that relates to the conduct of the business of
Seller or any Seller Subsidiary, nor has Seller or any of the Seller
Subsidiaries been advised by any such regulatory agency or other governmental
entity that it is considering issuing or requesting any such agreement, order
or decree.
3.20 BROKER'S FEES. Neither Seller, any Seller Subsidiary, nor any of its
officers or directors has employed any broker, finder or investment advisor,
or incurred any liability for any broker's fees, commissions, finder's fees or
investment advisory fees in connection with any of the transactions
contemplated by this Agreement or the Stock Option Agreement.
3.21 FAIRNESS OPINION. Seller has engaged, and will pay a fee or commission,
to HAS Associates ("HAS") to render an opinion to Seller and its stockholders
as to the fairness to Seller and its stockholders, from a financial point of
view, of the Merger Consideration. HAS has advised the Board of Directors of
Seller that it considers such consideration to be fair and will provide a
written opinion as to fairness at or prior to the date on which the Proxy
Statement-Prospectus is mailed to stockholders.
3.22 SELLER INFORMATION. The information relating to Seller and the Seller
Subsidiaries to be contained in the Proxy Statement-Prospectus (as defined in
Section 7.1) and any application to any Bank Regulator, or any
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other statement or application filed with any other governmental body in
connection with the Merger and the other transactions contemplated by this
Agreement, will not contain as of the date of such Proxy Statement-Prospectus
and as of the date of the Special Meeting (defined in Section 5.6) any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, Seller makes and
will make no representation or warranty with respect to any information
supplied by Buyer which is contained in any of the foregoing documents. The
Proxy Statement-Prospectus (except for such portions thereof that relate only
to Buyer and its subsidiaries) will comply in all material respects with any
applicable provisions of the Exchange Act and the rules and regulations
thereunder.
3.23 ENVIRONMENTAL ISSUES. Except as set forth on Schedule 3.23 hereto:
(a) Each of Seller and, to Seller's knowledge, the Participation
Facilities and the Loan Properties (each as hereinafter defined) are, and
have been, in material compliance with all applicable environmental laws
and with all rules, regulations, standards and requirements of the United
States Environmental Protection Agency (the "EPA") and of state and local
agencies with jurisdiction over pollution or protection of the environment.
(b) There is no suit, claim, action or proceeding pending or, to the
knowledge of Seller threatened, before any Governmental Entity or other
forum in which Seller or, to Seller's knowledge, any Participation Facility
has been or, with respect to threatened proceedings, may be, named as a
defendant (i) for alleged noncompliance (including by any predecessor),
with any environmental law, rule, regulation, standard or requirement or
(ii) relating to the release into or presence in the Environment (as
hereinafter defined) of any Hazardous Substance (as hereinafter defined)
whether or not occurring at or on a site owned, leased or operated by
Seller or any Participation Facility.
(c) To Seller's knowledge, there is no suit, claim, action or proceeding
pending or threatened, before any Governmental Entity or other forum in
which any Loan Property has been or, with respect to threatened
proceedings, may be, named as a defendant (i) for alleged noncompliance
(including by any predecessor) with any environmental law, rule,
regulation, standard or requirement or (ii) relating to the release into or
presence in the Environment of any Hazardous Substance whether or not
occurring at or on a site owned, leased or operated by a Loan Property.
(d) Seller does not have knowledge of any facts or circumstances which
would provide a reasonable basis for any suit, claim, action or proceeding
as described in subsection (b) or (c) of this Section 3.23.
(e) During the period of Seller's ownership or operation of any of its
current properties or any previously owned or operated properties, there
has been no release or presence of Hazardous Substance in, on, under or
affecting such property (except for the presence of small quantities of
consumer products such as cleaning solvents and paints). To Seller's
knowledge, during the period of (i) Seller's participation in the
management of any Participation Facility, or (ii) Seller's holding of a
security interest in a Loan Property, there has been no release or presence
of Hazardous Substance in, on, under or affecting such Participation
Facility or Loan Property. To the knowledge of Seller, prior to the period
of (x) Seller's ownership or operation of any of its respective current
properties or any previously owned or operated properties, (y) Seller's
holding of a security interest in a Loan Property, there was no release or
presence of Hazardous Substance in, on, under or affecting any such
property, Participation Facility or Loan Property.
3.24 INVESTMENT SECURITIES. None of the investments reflected in the
consolidated balance sheet for the period ended December 31, 1994 contained in
the Seller Audited Financial Statements and none of the investments made by
Seller since December 31, 1994 is subject to any restriction (contractual,
statutory or otherwise) that would materially impair the ability of the entity
holding such investment freely to dispose of such investment at any time.
Seller has (a) properly reported as such any investment securities which are
required under GAAP to be classified as "available for sale" or as held in a
"trading account", and accounted for such securities at fair value, and (b)
accounted for any decline in the market value of its securities portfolio in
accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 115,
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including without limitation the recognition through Seller's consolidated
statement of income of any unrealized loss with respect to any individual
security as a realized loss in the accounting period in which a decline in the
market value of such security is determined to be "other than temporary."
3.25 DERIVATIVE TRANSACTIONS. Except as set forth on Schedule 3.25 neither
Seller nor any Seller Subsidiary has engaged in transactions in or involving
forwards, options, futures, options on futures, swaps, structured notes or
securities defined as "high risk" by the Federal Financial Institutions
Examination Council.
3.26 INTELLECTUAL PROPERTY. Each of Seller and the Seller Subsidiaries owns
or possesses valid and binding licenses and other rights to use all material
patents, copyrights, trade secrets, trade names, service-marks and trademarks
used in its businesses, each without payment, and neither Seller nor any
Seller Subsidiary has received any notice of conflict with respect thereto
that asserts the rights of others. Seller and the Seller Subsidiaries have
performed in all material respects all the obligations required to be
performed by them and are not in default in any material respect under any
contract, agreement, arrangement or commitment relating to any of the
foregoing.
3.27 RESERVES FOR POSSIBLE LOAN LOSSES. The reserves for possible loan
losses shown on consolidated financial statements included in the Seller
Audited Financial Statements, increased by provisions made and reduced by
charges taken after such date, are, in the reasonable judgment of Seller based
upon the status of its loan portfolio and general economic conditions as of
the date of this Agreement, adequate to provide for possible losses on loans
outstanding at and as of the date of this Agreement. Subject to such reserve
for possible loan losses, the aggregate principal amount of loans contained in
the loan portfolios of Seller and the Seller Subsidiaries at July 31, 1995,
increased by loans made and reduced by principal payments made after such
date, can reasonably be expected to be collected in the ordinary course of
Seller's operations. The reserves for possible loan losses to be shown on
Seller's consolidated balance sheet included in any Call Report filed with the
FDIC or any Report sent to Seller's stockholders with respect to any period
subsequent to the year ended December 31, 1994 are or will be adequate under
generally accepted accounting principles at and as of the date of each such
balance sheet.
3.28 LOANS. Except as set forth on Schedule 3.28 hereto,
(a) All loans reflected as assets in Seller's consolidated balance sheet
included in the Seller Audited Financial Statements or made or acquired by
Seller or any of the Seller Subsidiaries since December 31, 1994 ("Loans")
are binding obligations of the respective obligors named therein and no
material amount thereof is subject to any defenses which have been or, to
the best knowledge of Seller, may be asserted against Seller or any of the
Seller Subsidiaries. Seller has entered into no agreement which would
result in a waiver or negation of any rights or remedies available against
the borrower or guarantor, if any, on any such Loan.
(b) All of the real estate mortgage Loans reflected as assets on Seller's
consolidated balance sheet included in the Seller Audited Financial
Statements or made or acquired by Seller or any of the Seller Subsidiaries
since December 31, 1994, were validly and legally made, constitute valid
and binding agreements of the borrower enforceable in accordance with their
terms, are secured by properly perfected, valid liens having the priority
indicated by their terms on the properties described therein. All of such
mortgage Loans are saleable in the ordinary course of Seller's or any of
the Seller Subsidiaries' business (which, in the case of commercial
mortgage Loans, shall mean saleable to a knowledgeable purchaser
experienced in evaluating such types of obligations). Seller has not
entered into any agreement which will result in a future waiver or negation
of any material rights or remedies presently available against the borrower
or guarantor, if any, on any such Loan. Each mortgage securing a Loan (a
"Mortgage") has been and is evidenced by documentation of the types
customarily employed by Seller, which are consistent in all material
respects with federal and state banking practices and prudent banking
standards, and complete copies thereof have been maintained by Seller in
accordance with such standards and practices. Except with respect to
participation loans described on Schedule 3.28 hereto, Seller and the
Seller Subsidiaries own and hold the entire interest in all Mortgages free
and clear of all liens, claims, equities, options, security
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interests, charges, encumbrances or restrictions of any kind or nature, and
no person has any interest therein. With respect to any FHA Mortgage, VA
Mortgage, SBA-guaranteed Loan or other insured or guaranteed instrument,
the FHA insurance, VA guaranty, SBA guaranty and other insurance or
guarantees are in full force and effect and neither Seller nor any of the
Seller Subsidiaries has received any notice of any matter pending or
threatened which would adversely affect such insurance or guarantee and to
the best knowledge of Seller, there are no facts or circumstances which
would provide a basis for any such matter in the future.
(c) Except as disclosed on Schedule 3.28, all Loans were originated in
compliance with, and comply in all material respects with, all applicable
laws, rules and regulations, including, but not limited to applicable usury
statutes, the Truth in Lending Act, the Equal Credit Opportunity Act, the
Real Estate Settlement Procedures Act, and other applicable consumer
protection statutes and the regulations thereunder.
(d) Seller has furnished to Buyer a true, correct and complete copy of
its loan delinquency report as of July 31, 1995 which report includes all
Loans for which the payment of any installment of principal or interest has
not been made within 30 days after such installment was due.
(e) All Loans purchased or originated by Seller or any of the Seller
Subsidiaries and subsequently sold have been sold without recourse to
Seller or any of the Seller Subsidiaries and without any liability under
any yield maintenance or similar obligation.
(f) Schedule 3.28 hereto sets forth (x) all of the Loans presently held
by Seller that prior to the date of this Agreement have been classified
(whether by any bank examiner or internally) as "Other Loans Specially
Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss,"
"Classified," "Criticized," "Credit Risk Assets," "Concerned Loans," "Watch
List" or words of similar import, together with the principal amount of and
accrued and unpaid interest on each such Loan and the identity of the
borrower thereunder, and (y) by category of Loan (i.e., commercial,
consumer, etc.), all of the other Loans presently held by Seller that prior
to the date of this Agreement were classified as such, together with the
aggregate principal amount of and accrued and unpaid interest on such Loans
by category.
3.29 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in Schedule
3.29, neither Seller nor any of the Seller Subsidiaries has any outstanding
loan, deposit or other relationship or other transaction with any officer,
director or stockholder of Seller or any of the Seller Subsidiaries or any
affiliates of any such officer, Director or 5% stockholder (individually, an
"Interested Person"), other than deposit or loan transactions in the ordinary
course of business on terms substantially the same as those prevailing at the
time for comparable transactions with other, unaffiliated persons, and which
did not and do not involve any unusual risk (including of non-collectibility)
or other features unfavorable to Seller or any of the Seller Subsidiaries.
Schedule 3.29 contains a full description of all outstanding loans by Seller
or any of the Seller Subsidiaries to an Interested Person which, individually
or in the aggregate, have current outstanding balances of $50,000 or more
(including in the outstanding balance all amounts which Seller or any of the
Seller Subsidiaries is obligated to advance). All deposit relationships of
Seller or any of the Seller Subsidiaries with an Interested Person with
aggregate balances in excess of $50,000 are fully described on Schedule 3.29.
Except as set forth on Schedule 3.29, neither Seller nor any of the Seller
Subsidiaries has entered into any contractual or other business relationship
with any Interested Person.
3.30 CAPITAL. At June 30, 1995, (a) Seller's Tier 1 risk-based capital ratio
and total risk-based capital ratios were each in excess of applicable limits,
and (b) its leverage ratio was 7.84%, such ratios having been calculated in
accordance with the guidelines of the FDIC on a fully phased-in basis.
3.31 DISCLOSURE. All material facts relating to the business, operations,
results of operations, properties, securities, assets, liabilities and
condition (financial or otherwise) of Seller or the Seller Subsidiaries have
been disclosed to Buyer in this Agreement and the Schedules furnished hereto.
No representation or warranty contained in this Agreement or the Stock Option
Agreement, and no such statement contained in any Schedule, certificate, list
or letter furnished to Buyer pursuant to the provisions hereof or thereof,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein not
misleading.
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ARTICLE IV
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller as follows:
4.1 CORPORATE ORGANIZATION. (a) Buyer is a corporation, duly organized,
validly existing and in good standing under the laws of New Hampshire. The
subsidiaries listed on Schedule 4.1 constitute all of Buyer's subsidiaries
(the "Buyer Subsidiaries"). Each of the Buyer Subsidiaries is a bank or a
corporation, in each case duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. The deposit
accounts of Buyer's banking subsidiary which are of an insurable type are
insured by the Bank Insurance Fund of the FDIC to the extent permitted by the
FDIC. Each of Buyer and the Buyer Subsidiaries has the power and authority to
own or lease all of its properties and assets and to conduct its business as
it is now being conducted, and is duly licensed or qualified to do business
and is in good standing 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,
except where the failure to be so licensed, qualified or in good standing
would not have a material adverse effect on Buyer and the Buyer Subsidiaries.
Buyer is registered as a bank holding company with the Federal Reserve under
the Bank Holding Company Act of 1956, as amended.
(b) Buyer has previously made available to Seller for inspection true and
complete copies as amended to date of the (i) Charter and By-laws of Buyer and
each of the Buyer Subsidiaries, and (ii) all records in the possession of
Buyer of all meetings and other corporate action taken by the stockholders,
Board of Directors and committees thereof, of Buyer and each of the Buyer
Subsidiaries. The minute books of Buyer and each of the Buyer Subsidiaries
contain records, which are complete and accurate in all material respects, of
incorporators, shareholders, directors, committees and stockholders, as the
case may be, and all meetings and actions reflected therein have been duly and
validly held or taken within the past ten years.
(c) Neither Buyer nor any of the Buyer Subsidiaries owns, controls or holds
with the power to vote, directly or indirectly of record, beneficially or
otherwise, any capital stock or any equity or ownership interest in any
material corporation, partnership, association, joint venture or other entity,
other than not more than five percent of any equity security registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
other than shares of the Federal Home Loan Bank of Boston and except for
shares of stock of the Buyer Subsidiaries.
4.2 CAPITALIZATION. (a) The authorized capital stock of Buyer consists
solely of 3,000,000 shares of common stock, $1.00 par value ("Buyer Common
Shares") and 1,000,000 shares of preferred stock, $1.00 par value ("Buyer
Preferred Shares"). As of June 30, 1995, there were 1,735,222 Buyer Common
Shares issued and outstanding, 11,810 Buyer Common Shares held in its
treasury, and no Buyer Preferred Shares issued and outstanding. All issued and
outstanding Buyer Common Shares have been duly authorized and validly issued
and are fully paid, nonassessable, and free of preemptive rights, with no
personal liability attaching to the ownership thereof. The shares of Buyer
Common Stock to be issued pursuant to the Merger will be duly authorized and
validly issued and (at the Effective Time) will be fully paid, nonassessable,
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. All issued and outstanding shares or interests of each of
the Buyer Subsidiaries are owned by Buyer free and clear of any security
interest, pledge, lien, claim or other encumbrance or restriction on transfer.
(b) Except for the options to acquire not more than 97,577 Buyer Common
Shares pursuant to stock options under its 1985, 1988, and 1992 Stock Option
Plan (the "Buyer Stock Option Plans"), Buyer is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the transfer, purchase or issuance of, or representing
the right to purchase, subscribe for or otherwise receive, any shares of its
capital stock or any securities convertible into or representing the right to
receive, purchase or subscribe for any such shares of Buyer. There are no
agreements or understandings with respect to the voting of
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any such shares or which restrict the transfer of such shares to which Buyer
is a party, nor does Buyer have knowledge of any such agreements or
understandings to which Buyer is not a party with respect to the voting of any
such shares or which restrict the transfer of such shares. Buyer Common Shares
are listed on the Stock Exchange.
4.3 AUTHORITY. Buyer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by
Buyer's Board of Directors. The Board of Directors of Buyer has directed that
this Agreement and the transactions contemplated hereby be submitted to
Buyer's stockholders for approval at a meeting of such stockholders and has
recommended approval of this Agreement by Buyer's stockholders. Except for the
adoption of this Agreement by such stockholders, no other corporate
proceedings on the part of Buyer are necessary to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by Buyer, constitutes a valid and binding obligation of
Buyer, and is enforceable against Buyer in accordance with its terms, subject
to (i) bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the rights and remedies of creditors generally and (ii) general
principles of equity, regardless of whether enforcement is sought in
proceedings in equity or at law.
4.4 NO VIOLATION. Neither the execution and delivery of this Agreement by
Buyer, nor the consummation by Buyer of the transactions contemplated hereby,
nor the compliance by Buyer with any of the terms or provisions hereof, does
or will
(a) violate any provision of the Charter or By-laws of Buyer,
(b) assuming that the consents and approvals referred to in Section 4.5
hereof are duly obtained, violate any statute, code, ordinance, permit,
authorization, registration, rule, regulation, judgment, order, writ,
decree or injunction applicable to Buyer or any of the Buyer Subsidiaries
or any of their respective properties, securities or assets, or
(c) assuming that the consents and approvals referred to in Section 4.5
hereof are duly obtained and except as set forth on Schedule 4.4 hereto,
violate, conflict with, result in a breach of any provisions of, constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by,
or result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the respective properties or assets of Buyer
or any of the Buyer Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, debenture, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Buyer or any of the Buyer Subsidiaries is a party, or by which they or any
of their respective properties or assets may be bound or affected.
4.5 CONSENTS AND APPROVALS. The execution, delivery and performance of this
Agreement by Buyer does not require any consent, approval, authorization or
permit of, or filing with or notification to, any court, administrative agency
or commission or other governmental or regulatory authority or
instrumentality, domestic or foreign, including, without limitation, any bank
regulator, except (i) for applicable requirements, if any, of the Exchange Act
or the laws of certain states under which a "blue sky" filing or consent may
be required, state takeover laws, the pre-merger notification requirements of
the HSR Act, and filing and recordation of appropriate merger documents as
required by New Hampshire law, and (ii) for consents and approvals of or
filings or registrations with Bank Regulators.
4.6 REGULATORY APPROVAL. Buyer is not aware of any reason why the conditions
set forth in Section 8.1(c) hereof would not be satisfied without significant
delay.
4.7 FINANCIAL STATEMENTS. (a) The consolidated balance sheets of Buyer as of
June 30, 1994 and 1993, and the related consolidated statements of operations,
changes in stockholders' equity, cash flows and changes in financial position
for the years ended June 30, 1994, 1993 and 1992, certified by KPMG Peat
Marwick LLP, in the form delivered to Seller prior to execution and delivery
of this Agreement (all of the above being collectively
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referred to as the "Buyer Audited Financial Statements"), have been prepared
in accordance with GAAP applied on a consistent basis (except as may be
indicated in the footnotes thereto and except as required or permitted by SFAS
109 and 115) and present fairly in all material respects the consolidated
financial position of and results of operations of Buyer at the dates, and for
the periods, stated therein.
(b) The consolidated balance sheets of Buyer as of March 31, 1995 and 1994,
and the related consolidated statements of income for the nine months ended
March 31, 1995 and 1994 in the form delivered to Seller prior to execution and
delivery of this Agreement (hereinafter referred to collectively as the "Buyer
Interim Financial Statements") present fairly in all material respects the
consolidated financial position and results of operations of Buyer at the
dates and for the periods indicated thereon and are prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except for the omission of notes to the Buyer Interim Financial Statements
and year-end adjustments to interim results, which adjustments will not be
material) applied on a consistent basis (except as required or permitted by
SFAS 109 and 115) with all prior periods and throughout the periods indicated.
(c) The books and records of Buyer have been, and are being, maintained in
accordance with applicable legal and accounting requirements, reflect only
actual transactions and reflect all of its assets, liabilities and accruals
and all of its items of income and expense in accordance with generally
accepted accounting principles and auditing standards.
(d) The Buyer Audited Financial Statements and the Buyer Interim Financial
Statements are herein referred to together as the "Buyer Financial
Statements."
4.8 REPORTS. Since January 1, 1991, Buyer and the Buyer Subsidiaries have
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that were required to be filed with
(i) the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act or the Exchange Act, (ii) the New Hampshire Commissioner, (iii)
the FDIC, (iv) the Federal Reserve, and (v) any applicable state securities or
banking authorities (all such reports and statements are collectively referred
to herein as the (the "Buyer Reports"). Buyer has made available to Seller
true and complete copies of all Buyer Reports and all reports and
communications mailed by Buyer to its shareholders since January 1, 1993. As
of their respective dates, no such Buyer Report filed with the SEC 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, except that information as of a later date shall be deemed to
modify information as of an earlier date. As of their respective dates, the
Buyer Reports complied in all material respects with all the statutes, rules
and regulations enforced or promulgated by the regulatory authority with which
they were filed.
4.9 UNDISCLOSED LIABILITIES. Except to the extent reflected or disclosed in
the Buyer Audited Financial Statements or in Schedule 4.9, neither Buyer nor
any Buyer Subsidiary had at the date of the most recent consolidated balance
sheet included in the Buyer Audited Financial Statements, and neither Buyer
nor any Buyer Subsidiary presently has, any material undisclosed liabilities
or obligations of any kind, whether accrued, unaccrued, asserted or
unasserted, contingent or otherwise, and there is no existing situation or set
of circumstances which could reasonably be expected to result in such a
liability, except for liabilities which would not, either individually or in
the aggregate, have a material adverse effect on the business, operations, or
financial condition of Buyer or any Buyer Subsidiaries.
4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
4.10 hereto, since December 31, 1994, there has not been:
(a) Any material adverse change in the business, operations, results of
operations, properties, assets, liabilities, securities, capitalization or
condition (financial or otherwise) of Buyer or any Buyer Subsidiaries, and
to the best of Buyer's knowledge, no fact or condition exists which will
cause such a material adverse change in the future, including without
limitation any material loss of deposits or material decline in the value
of the assets held in the portfolios of Buyer or any of the Buyer
Subsidiaries;
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(b) Any loss or damage (whether or not covered by insurance) which
individually or in the aggregate affects or impairs in a material respect
the ability of Buyer or any Buyer Subsidiaries to conduct their businesses
and operate their properties;
(c) Any agreement, contract or commitment entered into or agreed to be
entered into except for those in the ordinary course of business (none of
which, individually or in the aggregate, materially adversely affects the
business, operations, results of operations, properties, assets,
liabilities, securities, capitalization or condition (financial or
otherwise) of Buyer or any Buyer Subsidiaries); or
(d) Any change in any of the accounting methods or practices of Buyer or
any of the Buyer Subsidiaries (other than changes that are required by
applicable law or generally accepted accounting principles) or any change
in the value at which assets are carried on the consolidated or
unconsolidated balance sheets of Buyer or any of the Buyer Subsidiaries
(other than changes that are reflected in their respective profit and loss
statements).
(e) Any notice or indication of the intention of any person or entity to
terminate any material agreement with Buyer or any of the Buyer
Subsidiaries or any notice or indication from any material depositor,
customer or supplier of Buyer or any of the Buyer Subsidiaries of any
intention to cease doing business with, materially change the price or
other terms on which business is transacted with or materially reduce the
business transacted with Buyer or any of the Buyer Subsidiaries.
4.11 LEGAL PROCEEDINGS. Except as set forth on Schedule 4.11 hereto:
(a) Neither Buyer nor any of the Buyer Subsidiaries is a party to any,
and there are no pending or, to the best of Buyer's knowledge, threatened,
material legal, administrative, arbitral or other proceedings, claims,
actions or governmental investigations of any nature by or against Buyer or
any of the Buyer Subsidiaries, or challenging the validity or propriety of
the transactions contemplated by this Agreement, and there is no reasonable
basis for any such proceeding, claim, action or governmental investigation
against Buyer or any of the Buyer Subsidiaries.
(b) Neither Buyer nor any of the Buyer Subsidiaries is a party to or
subject to any order, judgment or decree affecting its business,
operations, results of operations, properties, assets, liabilities,
securities, capitalization or condition (financial or otherwise) or its
ability to consummate the transactions contemplated hereby.
(c) Since January 1, 1992, neither Buyer nor any of the Buyer
Subsidiaries has suffered any loss in excess of $25,000 in any one instance
caused by defalcation, embezzlement or other employee malfeasance or by
payments made or accepted in violation of any law or regulation, and to the
best knowledge of Buyer, there are no facts, circumstances or conditions
which would indicate or suggest that any such loss may be impending.
4.12 TAXES AND TAX RETURNS. (a) Except as set forth in Schedule 4.12, each
of Buyer and the Buyer Subsidiaries has (i) duly filed in correct form all
federal, state and local information returns and tax returns required to be
filed by it (all such returns being accurate and complete in all material
respects) and (ii) duly paid or made provisions for the payment of all taxes
and other governmental charges (other than taxes and charges which in the
aggregate are immaterial) that have been incurred or that 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). Buyer and
the Buyer Subsidiaries file consolidated federal income tax returns.
(b) The amounts set up as reserves on Buyer's consolidated balance sheet
included in the Buyer Audited Financial Statements for the payment of all
unpaid federal, state and local taxes (including any interest or penalties
thereon), whether or not disputed or accrued, through the fiscal year ended
June 30, 1994 or for any year or period ending prior thereto, and for which
Buyer or any of the Buyer Subsidiaries may be liable (in its own right or as
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity), are adequate under
generally accepted accounting principles and auditing standards and
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are sufficient to cover all such taxes of a material amount due. The federal
income tax returns of Buyer and the Buyer Subsidiaries have been audited by
the Internal Revenue Service through June 30, 1991.
(c) Except as set forth in Schedule 4.12, Buyer has received no notice of
any disputes pending, or claims asserted for, federal or state taxes or
assessments or local taxes or assessments upon Buyer or any of the Buyer
Subsidiaries, nor has Buyer or any of the Buyer Subsidiaries been requested to
give or given any currently effective waivers extending the statutory period
of limitation applicable to any federal or state income tax return for any
period.
(d) Except as set forth in Schedule 4.12, neither Buyer nor any of the Buyer
Subsidiaries has agreed to or is required to make any adjustments under
Section 481(a) of the Code. No consent has been filed pursuant to Section
341(f) of the Code with respect to Buyer or any of the Buyer Subsidiaries.
(e) Proper and accurate amounts have been withheld by Buyer and the Buyer
Subsidiaries from their employees, based on information furnished by those
employees, for all prior periods in compliance in all material respects with
the tax withholding provisions of applicable federal, state and local laws.
Federal, state and local returns which are accurate and complete in all
material respects have been filed by Buyer and the Buyer Subsidiaries for all
periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes. The amounts shown on such returns to
be due and payable have been paid in full or adequate provision therefor has
been included by Buyer and the Buyer Subsidiaries in the consolidated
financial statements included in the Buyer Audited Financial Statements.
4.13 CERTAIN CONTRACTS. Buyer has filed with the SEC all material contracts
required to be filed pursuant to Item 601 of the SEC's Regulation S-K.
4.14 CERTAIN DEFAULTS. Neither Buyer nor any Buyer Subsidiary, nor, to the
knowledge of Buyer, any other party thereto, is in default in any material
respect under any material lease, contract, mortgage, promissory note, deed of
trust, loan or other commitment or arrangement pursuant to which Buyer or any
Buyer Subsidiary has borrowed funds or is otherwise the obligor.
4.15 COMPLIANCE WITH APPLICABLE LAW; REGULATORY EXAMINATIONS. (a) Buyer and
each of the Buyer Subsidiaries holds, and has at all times held, all licenses,
franchises, permits, approvals, consents, qualifications and authorizations
material for the lawful conduct of its business under and pursuant to, and has
complied with, and is not in material default under, any applicable law,
statute, order, rule, regulation, policy, ordinance, reporting or filing
requirement and/or guideline of any federal, state or local governmental
authority relating to Buyer or any of the Buyer Subsidiaries, and neither
Buyer or any of the Buyer Subsidiaries has knowledge of any material violation
of any of the above.
(b) Except for normal examinations conducted by a regulatory agency in the
regular course of the business of Buyer and the Buyer Subsidiaries, no
regulatory agency has initiated any proceeding or, to the best knowledge of
Buyer, investigation into the business or operations of Buyer or any of the
Buyer Subsidiaries since prior to December 31, 1991. Buyer has not received
any objection from any regulatory agency to Buyer's response to any violation,
criticism or exception with respect to any report or statement relating to any
examinations of Buyer or any of the Buyer Subsidiaries.
(c) Neither Buyer nor any Buyer Subsidiary will be required to divest any
assets currently held by it or discontinue any activity currently conducted as
a result of the Federal Deposit Insurance Corporation Improvement Act of 1991,
any regulations promulgated thereunder, or otherwise.
4.16 FAIRNESS OPINION. Buyer has engaged, and will pay a fee or commission,
to McConnell, Budd & Downes, Inc. ("MBD") to render an opinion to Buyer and
its stockholders as to the fairness to Buyer and its stockholders, from a
financial point of view, of the Merger Consideration. MBD has advised the
Board of Directors of Buyer that it considers such consideration to be fair
and will provide a written opinion as to fairness at or prior to the date on
which the Proxy Statement-Prospectus is mailed to stockholders.
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4.17 BUYER INFORMATION. The information relating to Buyer and the Buyer
Subsidiaries to be contained in the Proxy Statement-Prospectus (as
contemplated by Section 7.1) and any application to any Bank Regulator, or any
other statement or application filed with any governmental body in connection
with the Merger and the other transactions contemplated by this Agreement will
not contain as of the date of such Proxy Statement-Prospectus or filing any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, Buyer makes and will
make no representation or warranty with respect to any information supplied by
Seller which is contained in any of the foregoing documents. The Proxy
Statement-Prospectus (except for such portions thereof that relate only to
Seller and its subsidiaries) will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
4.18 ENVIRONMENTAL ISSUES. Except as set forth on Schedule 4.18,
(a) Buyer has no knowledge of any circumstance which might reasonably be
expected to result in any material liability arising out of violations of
Environmental Laws.
(b) With respect to properties owned, operated and leased by Buyer, Buyer
is, and has been, in material compliance with all applicable environmental
laws and with all rules, regulations, standards and requirements of the EPA
and of state and local agencies with jurisdiction over pollution or
protection of the environment.
(c) Buyer has received no notice of any suit, claim, action or proceeding
pending or threatened, before any Governmental Entity or other forum in
which Buyer, or any property owned, leased or operated by Buyer, has been
or, with respect to threatened proceedings, may be, named as a defendant
(i) for alleged noncompliance (including by any predecessor) with any
environmental law, rule, regulation, standard or requirement or (ii)
relating to the release into or presence in the Environment of any
Hazardous Substance whether or not occurring at or on a site owned, leased
or operated by Buyer.
4.19 DISCLOSURE. All material facts relating to the business, operations,
results of operations, properties, securities, assets, liabilities and
condition (financial or otherwise) of Buyer or the Buyer Subsidiaries have
been disclosed to Seller either in this Agreement and the Schedules furnished
hereto or are set forth in the Buyer Reports filed with the SEC. No
representation or warranty contained in this Agreement, and no such statement
contained in any Schedule, certificate, list or letter furnished to Seller
pursuant to the provisions hereof or thereof, contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make
the statements herein or therein not misleading.
4.20 CAPITAL. At June 30, 1995, (a) Buyer's Tier 1 risk-based capital ratio
and total risk-based capital ratios were each in excess of applicable limits,
and (b) its leverage ratio was 7.07%, such ratios having been calculated in
accordance with the guidelines of the Federal Reserve applicable to bank
holding companies on a fully phased-in basis.
4.21 REGULATORY AGREEMENTS. On the date hereof, neither Buyer nor any of its
subsidiaries is a party to any assistance agreement, supervisory agreement,
memorandum of understanding, consent order, cease and desist order, or
condition of any regulatory order or decree with or by the FDIC, the Federal
Reserve, the New Hampshire Bank Commissioner, or other financial services
regulatory agency that restricts Buyer's ability to perform its obligations
hereunder, nor has Buyer or any of its subsidiaries been advised by any such
regulatory agency or other governmental entity that it is considering issuing
or requesting any such agreement, order or decree.
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ARTICLE V
Covenants of Seller
5.1 CONDUCT OF BUSINESS.
(a) Affirmative Covenants. During the period from the date of this
Agreement to the Effective Time, except with the written consent of Buyer,
Seller will
(1) operate its business, and cause each of the Seller Subsidiaries
to operate its business, only in the usual, regular and ordinary course
of business and consistent with prior and prudent business and banking
practice;
(2) use reasonable efforts to preserve intact its business
organization and assets and maintain its rights and franchises; and
(3) use its best efforts to (x) preserve its business and that of the
Seller Subsidiaries intact, (y) keep available to itself and to Buyer
the present services of the employees of Seller and the Seller
Subsidiaries, and (z) preserve for itself and to Buyer the goodwill of
the customers of Seller and the Seller Subsidiaries and others with
whom business relationships exist.
(B) NEGATIVE COVENANTS. Seller agrees that, from the date of this
Agreement to the Effective Time, except as otherwise specifically permitted
or required by this Agreement, or described on Schedule 5.1(b), or
consented to by Buyer in writing, Seller will not, and will cause each of
the Seller Subsidiaries not to do any of the following (it being understood
that each of Paul Ferguson and Douglas Crichfield shall be authorized to
consent on behalf of Buyer, and Buyer's consent shall be deemed to have
been given if Buyer shall not have responded to Seller's written request
for such consent within two business days (not counting Saturdays, Sundays
or legal holidays) after receipt thereof):
(1) change or waive any provision of its Charter or By-laws;
(2) change the number of shares of its authorized or issued capital
stock (except for the issuance of Seller Common Stock pursuant to the
exercise of outstanding stock options under the Seller Stock Option
Plan, as contemplated by Section 3.2(b) hereof);
(3) issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating
to the authorized or issued capital stock of Seller or any of the
Seller Subsidiaries, or any securities convertible into shares of such
stock;
(4) split, combine or reclassify any shares of its capital stock;
(5) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of the capital stock of Seller except for a $.075 per share
semiannual dividend (with declaration, record and payment dates that
are consistent with past practice) and for dividends paid by a Seller
Subsidiary to Seller;
(6) purchase, redeem, retire or otherwise acquire, or hypothecate,
pledge or otherwise encumber, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any
shares of its capital stock;
(7) enter into, amend in any material respect or terminate any
contract or agreement (including without limitation any settlement
agreement with respect to litigation) that is or may reasonably be
expected to have a material adverse effect on Seller and the Seller
Subsidiaries, taken as a whole, except in the ordinary course of
business consistent with past practice;
(8) except in the ordinary course of business and consistent with
Seller's past practice with respect to amount, nature, and terms and
conditions, incur any material liabilities or material obligations,
whether directly or by way of guaranty, including any obligation for
borrowed money whether or not evidenced by a note, repurchase
agreement, bond, debenture or similar instrument, or acquire any
equity, debt, or other investment securities;
(9) make any capital expenditures other than in the ordinary course
of business or as necessary to maintain existing assets in good repair;
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(10) agree to make any loan other than in accordance with Seller's
loan and credit policies and Seller's customary terms, conditions and
standards, and in accordance with applicable law and consistent with
prudent banking practices; agree to make any loan, commitment to extend
credit or advance which increases any currently outstanding obligation
of any borrower or creates or would create any new obligation of any
new borrower, which would result in aggregate obligations of such
borrower to Seller, direct or indirect, primary or secondary, absolute
or contingent (including obligations if commitments are honored) in
excess of $400,000;
(11) grant any bonus or increase in rates of compensation to its
employees, except general increases to non-officer employees as a class
in accordance with past practice; grant any bonus or increase in rates
of compensation to its directors or officers; adopt or amend in any
material respect or terminate any employee benefit plan, pension plan
or incentive plan except as required by law, or permit the vesting of
any material amount of benefits under any such plan other than pursuant
to the provisions thereof as in effect on the date of this Agreement;
or enter into any employment, bonus, severance or similar agreements or
arrangements with any directors or officers;
(12) make application for the opening or closing of any, or open or
close any, branches or automated banking facility;
(13) 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 consistent with customary banking practices;
(14) merge into, consolidate with, affiliate with, or be purchased or
acquired by, any other Person, or permit any other to be merged,
consolidated or affiliated with it or be purchased or acquired by it,
or, except to realize upon collateral in the ordinary course of its
business, acquire a significant portion of the assets of any other
Person, or sell a significant portion of its assets;
(15) make any material change in its accounting or tax methods or
practices, except changes as may be required by generally accepted
accounting principles or by regulatory requirements;
(16) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax
free reorganization under Section 368 of the Code;
(17) take any action which would (i) materially adversely affect the
ability of Buyer or Seller to obtain any necessary approvals of
governmental authorities required for the transactions contemplated
hereby or materially increase the period of time necessary to obtain
such approvals, or (ii) materially adversely affect its ability to
perform its covenants and agreements under this Agreement;
(18) take any action that would result in the representations and
warranties of Seller contained in this Agreement not being true and
correct on the date of this Agreement or at any future date on or prior
to the Closing Date;
(19) sell, assign, transfer, pledge, or otherwise dispose of or
encumber any portfolio securities designated as "held to maturity" or
any other assets of Seller or any of the Seller Subsidiaries except (A)
sales of federal funds, sales of loans in the secondary market, or
sales of securities designated as "held for sale" or "available for
sale", made without recourse in the ordinary course of business and
consistent with past practices, or (B) sales of property owned through
foreclosure or deed in lieu of foreclosure, in accordance with
applicable law and consistent with prudent banking practices; or take
any action which would have an adverse effect on the value of any such
asset;
(20) accept any deposit from any new depositor (A) exceeding $500,000
from any one depositor or group of related depositors, or (B) with a
term in excess of five years, (C) with interest rates exceeding then-
current market rates, or (D) placed by a broker or solicited from a
depositor outside of Seller's market area;
(21) foreclose upon or take a deed or title to any commercial real
estate without first conducting a Phase I environmental assessment of
the property, or foreclose upon or take a deed or title to any
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commercial real estate if such environmental assessment indicates the
presence of Hazardous Substance in amounts which, if such foreclosure
were to occur, might involve a cost of remediation in excess of $2,000;
or
(22) permit Seller's regulatory leverage capital ratio to be less
than 6.5%; or
(23) agree to do any of the foregoing.
5.2 NO SOLICITATION. Neither Seller nor any of its directors, officers,
employees, representatives or agents or other Persons controlled by Seller
shall, and Seller shall use its best efforts to cause its stockholders not to,
directly or indirectly, negotiate, authorize, recommend, propose, solicit or
announce an intention to authorize, recommend or propose, or enter into, any
offer, agreement in principle, agreement, understanding or commitment, written
or oral, with or from any third party, which relates to the acquisition of
Seller by such third party or which is otherwise inconsistent with the
obligations arising under this Agreement. Seller will promptly communicate to
Buyer the terms of any proposal or offer or any inquiry or request for
information which it may receive in respect of any such transaction and the
identity of the party making such proposal or inquiry, which it may receive
with respect to any such transaction.
5.3 CURRENT INFORMATION. During the period from the date of this Agreement
to the Effective Time, Seller will cause one or more of its representatives to
confer with representatives of Buyer and report the general status of its
ongoing operations at such times as Buyer may reasonably request. Prior to the
Effective Time one or more representatives of Seller shall confer with
representatives of Buyer to review Buyer's financial statements and shall, if
requested by Seller, make such adjustments in connection with the Closing as
Buyer shall deem appropriate or desirable. Seller will promptly notify Buyer
of any material change in the normal course of its business or in the
operation of its properties and, to the extent permitted by applicable law, of
any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the
threat of material litigation involving Seller. Seller will also provide Buyer
such information with respect to such events as Buyer may reasonably request
from time to time.
5.4 ACCESS TO PROPERTIES AND RECORDS. Seller shall permit Buyer reasonable
access to its properties and those of the Seller Subsidiaries, and shall
disclose and make available to Buyer during normal business hours all of its
books, papers and records relating to the assets, stock ownership, properties,
operations, obligations and liabilities, including, but not limited to, all
books of account (including the general ledger), tax records, minute books of
directors' and stockholders' meetings, organizational documents, by-laws,
material contracts and agreements, filings with any regulatory authority,
litigation files, plans affecting employees, and any other business activities
or prospects in which Buyer may have a reasonable interest; provided, however,
that Seller shall not be required to take any action that would provide access
to or to disclose information where such access or disclosure would (i) be
legally prohibited, or (ii) violate or prejudice the rights or business
interests or confidences of any customer or other person or (iii) would result
in the waiver by Seller of the privilege protecting communications between it
and any of its counsel.
5.5 FINANCIAL AND OTHER STATEMENTS. (a) Promptly upon receipt thereof,
Seller will furnish to Buyer copies of each annual, interim or special audit
of the books of Seller and the Seller Subsidiaries made by its independent
accountants and copies of all internal control reports submitted to Seller by
such accountants in connection with each annual, interim or special audit of
the books of Seller and the Seller Subsidiaries made by such accountants.
(b) As soon as practicable, Seller will furnish to Buyer copies of all such
financial statements and reports as it shall send to its stockholders, the
FDIC, the New Hampshire Commissioner or any other regulatory authority, except
as legally prohibited thereby.
(c) Seller will advise Buyer promptly of Seller's receipt of any examination
report of any federal or state regulatory or examination authority with
respect to the condition or activities of Seller or any of the Seller
Subsidiaries. If requested by Buyer, Seller will use its best efforts to
obtain authority to make available to Buyer confidential examination reports
of federal or state regulatory or examination authorities with respect to the
condition or activities of Seller or any of the Seller Subsidiaries.
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(d) With reasonable promptness, Seller will furnish to Buyer such additional
financial data as Buyer may reasonably request, including without limitation,
detailed monthly financial statements and loan reports.
5.6 APPROVAL OF SELLER'S STOCKHOLDERS. Seller will take all reasonable steps
necessary to duly call, give notice of, solicit proxies for, convene and hold
a special meeting (the "Special Meeting") of its stockholders as soon as
practicable for the purpose of approving this Agreement and the transactions
contemplated hereby. The date of the Special Meeting shall occur as soon as
practicable following the effectiveness of the Registration Statement on Form
S-4 (as more fully described in Section 7.1) filed with the SEC. The Board of
Directors of Seller will recommend to Seller's stockholders the approval of
this Agreement and the transactions contemplated hereby and will use all
reasonable efforts to obtain, as promptly as practicable, the necessary
approvals by Seller's stockholders of this Agreement and the transactions
contemplated hereby.
5.7 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time,
Seller will promptly supplement or amend the Schedules delivered in connection
herewith pursuant to Article III with respect to any matter hereafter arising
which, if existing, occurring or known at the date of this Agreement, would
have been required to be set forth or described in 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 purpose of determining satisfaction of the conditions set
forth in Article VIII or the compliance by Seller with the covenants set forth
in Section 5.1 hereof.
5.8 FAILURE TO FULFILL CONDITIONS. In the event that Seller determines that
a condition to its obligation to complete the Merger cannot be fulfilled and
that it will not waive that condition, it will promptly notify Buyer.
5.9 CONSENTS AND APPROVALS OF THIRD PARTIES. Seller shall use all reasonable
efforts to obtain as soon as practicable all consents and approvals of any
other Persons necessary or desirable for the consummation of the transactions
contemplated by this Agreement and the Stock Option Agreement.
5.10 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Seller agrees to use all reasonable efforts to take, or cause to be
taken, all corporate or other 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
and the Stock Option Agreement.
ARTICLE VI
Covenants of Buyer
6.1 CONDUCT OF BUSINESS. During the period from the date of this Agreement
to the Effective Time, except with the written consent of Seller, Buyer will
take no action which would (i) materially adversely affect the ability of
Buyer or Seller to obtain any necessary approvals of governmental authorities
required for the transactions contemplated hereby or materially increase the
period of time necessary to obtain such approvals, or (ii) materially
adversely affect its ability to perform its covenants and agreements under
this Agreement, or (iii) disqualify the Merger as a "pooling of interests" for
accounting purposes or a tax free reorganization under Section 368 of the
Code, or (iv) result in the representations and warranties of Buyer contained
in this Agreement not being true and correct on the date of this Agreement or
at any future date on or prior to the Closing Date.
6.2 CURRENT INFORMATION. During the period from the date of this Agreement
to the Effective Time, Buyer will cause one or more of its representatives to
confer with representatives of Seller and report the general status of its
ongoing operations at such times as Seller may reasonably request. Buyer will
promptly notify Seller of any material change in the normal course of its
business or in the operation of its properties and, to the extent permitted by
applicable law, of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the
institution or the threat of material litigation involving Buyer. Buyer will
also provide Seller such information with respect to such events as Seller may
reasonably request from time to time.
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6.3 ACCESS TO PROPERTIES AND RECORDS. Buyer shall permit Seller reasonable
access during normal business hours to its properties and those of the Buyer
Subsidiaries, and shall disclose and make available to Seller the following
materials to the extent that Buyer has a reasonable interest in information
contained therein: its books, papers and records relating to the assets, stock
ownership, properties, operations, obligations and liabilities, including, but
not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and stockholders' meetings, organizational
documents, by-laws, material contracts and agreements, filings with any
regulatory authority, litigation files, plans affecting employees, and any
other business activities or prospects in which Seller may have a reasonable
interest; provided, however, that Buyer shall not be required to take any
action that would provide access to or to disclose information where such
access or disclosure would (i) be legally prohibited, or (ii) violate or
prejudice the rights or business interests or confidences of any customer or
other person or (iii) would result in the waiver by Buyer of the privilege
protecting communications between it and any of its counsel.
6.4 Financial and Other Statements. (a) Promptly upon receipt thereof, Buyer
will furnish to Seller copies of each annual, interim or special audit of the
books of Buyer and the Buyer Subsidiaries made by its independent accountants
and copies of all internal control reports submitted to Buyer by such
accountants in connection with each annual, interim or special audit of the
books of Buyer and the Buyer Subsidiaries made by such accountants.
(b) As soon as practicable, Buyer will furnish to Seller copies of all such
financial statements and reports as it shall send to its stockholders, the
FDIC, the New Hampshire Commissioner or any other regulatory authority, except
as legally prohibited thereby.
(c) Buyer will advise Seller promptly of Buyer's receipt of any examination
report of any federal or state regulatory or examination authority with
respect to the condition or activities of Buyer or any of the Buyer
Subsidiaries. If requested by Seller, Buyer will use its best efforts to
obtain authority to make available to Seller confidential examination reports
of federal or state regulatory or examination authorities with respect to the
condition or activities of Buyer or any of the Buyer Subsidiaries.
(d) With reasonable promptness, Buyer will furnish to Seller such additional
financial data as Seller may reasonably request.
6.5 CONSENTS AND APPROVALS OF THIRD PARTIES. Buyer shall use all reasonable
efforts to obtain as soon as practicable all consents and approvals of any
other Persons necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
6.6 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Buyer agrees to use all reasonable 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.
6.7 FAILURE TO FULFILL CONDITIONS. In the event that Buyer determines that a
condition to its obligation to complete the Merger cannot be fulfilled and
that it will not waive that condition, it will promptly notify Seller.
6.8 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time,
Buyer will promptly supplement or amend the Schedules delivered in connection
herewith pursuant to Article IV with respect to any matter hereafter arising
which, if existing, occurring or known at the date of this Agreement, would
have been required to be set forth or described in 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 purpose of determining satisfaction of the conditions set
forth in Article VIII or the compliance by Buyer with the covenants set forth
in Section 6.1 hereof.
6.9 Financial and Other Statements. Promptly upon receipt thereof, Buyer
will furnish to Seller copies of each annual, interim or special audit of the
books of Buyer and the Buyer Subsidiaries made by its independent
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accountants. As soon as practicable after the filing thereof, Buyer will
furnish to Seller copies of each Quarterly Report on Form 10-Q and each Annual
Report on Form 10-K or other periodic report which it files with the SEC under
the Exchange Act.
6.10 EMPLOYEE BENEFITS. After the Effective Time, Buyer shall provide for
those Persons who were employees of Seller immediately prior to the Effective
Time and who remain employees of Surviving Bank after the Effective Time,
employee benefits no less favorable overall than those available to employees
of Buyer, subject to the terms and conditions under which those employee
benefits are made available to employees of Buyer, provided that for purposes
of determining eligibility for vesting of such employee benefits and for
determining the amount of benefits payable under defined benefit pension
plans, service with Seller by Persons who were employees thereof at the
Effective Time shall be treated as service with an "employer" to the same
extent as if such Persons had been employees of Buyer during the period such
Persons were employed by Seller.
6.11 DEPOSIT OF EXCHANGE FUND WITH EXCHANGE AGENT. On the Closing Date,
immediately prior to the Effective Time, Buyer shall take such actions as may
be necessary to permit the Exchange Agent to issue the Buyer Common Stock to
be delivered in exchange for Certificates and shall deposit with the Exchange
Agent cash in an amount sufficient to satisfy all of Buyer's other obligations
with respect to deposit of the Exchange Fund.
6.12 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE. All rights to
indemnification and all limitations of liability existing in favor of the
directors and officers of Seller as provided in Seller's Charter and By-laws
as in effect as of the date hereof with respect to claims or liabilities
arising from facts or events existing or occurring prior to the Effective Time
shall survive the Merger and shall continue in full force and effect, without
any amendment thereto, for a period of six (6) years from the Effective Time;
provided, however, that all rights to indemnification in respect of any claim
asserted or made within such period shall continue until the final disposition
of such claim. Buyer shall maintain in effect for three years from the
Effective Time, if available, the current directors' and officers' liability
insurance policy maintained by Seller (provided, that Buyer may substitute
therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring prior to the Effective Time; provided, however, that in no event
shall Buyer be required to expend pursuant to this Section 6.12 more than an
aggregate amount of $45,000 for such insurance. The provisions of this Section
6.12 are expressly intended to be for the irrevocable benefit of, and shall be
enforceable by, each director, officer and employee covered hereby and his or
her heirs and representatives.
6.13 BUYER SUB. Prior to the Effective Time, Buyer will take any and all
necessary action to cause (i) Buyer Sub to be organized, (ii) Buyer Sub to
become a direct or indirect wholly-owned subsidiary of Buyer, (iii) the
directors and stockholder or stockholders of Buyer Sub to approve the
transactions contemplated by this Agreement, and (iv) Buyer Sub to execute one
or more counterparts of this Agreement and to deliver at least one such
counterpart so executed to Seller, whereupon Buyer Sub shall become a party to
and bound by this Agreement. On and as of the date Buyer Sub becomes a party
to this Agreement, Buyer and Buyer Sub will represent and warrant to Seller as
follows:
(a) Buyer Sub is a trust company in stock form, duly organized (or in
organization, as the case may be), validly existing and in good standing
under the laws of New Hampshire, all of the outstanding capital stock of
which is, or will be prior to the Effective Time, owned directly or
indirectly by Buyer free and clear of any lien, charge or other
encumbrance. Since the date of its incorporation, Buyer Sub has not engaged
in any activities other than in connection with or as contemplated by this
Agreement.
(b) Buyer Sub has, or will have prior to the Effective Time, the
corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder. The execution, delivery and performance of this
Agreement by Buyer Sub and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Buyer Sub. This
Agreement is a valid and binding obligation of Buyer Sub, enforceable in
accordance with its terms, subject to (i) bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the rights and
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remedies of creditors generally and (ii) general principles of equity,
regardless of whether enforcement is sought in proceedings in equity or at
law.
6.14 APPROVAL OF BUYER'S STOCKHOLDERS. Buyer will take all reasonable steps
necessary to duly call, give notice of, solicit proxies for, convene and hold
a special meeting (the "Buyer Special Meeting") of its stockholders as soon as
practicable for the purpose of approving this Agreement and the transactions
contemplated hereby. The date of the Special Meeting shall occur as soon as
practicable following the later of (a) clearance of the Proxy Statement-
Prospectus by the FDIC and (b) effectiveness of the Registration Statement on
Form S-4 (as more fully described in Section 7.1) filed with the SEC. The
Board of Directors of Buyer will recommend to Buyer's stockholders the
approval of this Agreement and the transactions contemplated hereby and will
use all reasonable efforts to obtain, as promptly as practicable, the
necessary approvals by Buyer's stockholders of this Agreement and the
transactions contemplated hereby.
ARTICLE VII
Regulatory and Other Matters
7.1 PROXY STATEMENT-PROSPECTUS. For the purposes (x) of registering Buyer
Common Stock to be issued to holders of Seller's Common Stock in connection
with the Merger with the SEC under the Securities Act and applicable state
securities laws and (y) of holding the Seller shareholders' meeting, Buyer and
Seller shall cooperate in the preparation of a registration statement (such
registration statement, together with all and any amendments and supplements
thereto, being herein referred to as the "Registration Statement"), including
a proxy statement/prospectus or statements satisfying all applicable
requirements of applicable state securities and banking laws, and of the
Securities Act and the Exchange Act, and the rules and regulations thereunder
(such proxy statement/prospectus in the form mailed by Seller to the Seller
shareholders, together with any and all amendments or supplements thereto,
being herein referred to as the "Proxy Statement-Prospectus"). Buyer shall
promptly prepare and file with the SEC the Registration Statement, in which
the Proxy Statement-Prospectus will be included as a prospectus. Each of Buyer
and Seller shall use their best efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and each of Seller and Buyer shall thereafter promptly mail the
Proxy Statement-Prospectus to its respective stockholders. Buyer 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 Seller shall furnish all information concerning Seller
and the holders of Seller Common Stock as may be reasonably requested in
connection with any such action. Seller and Buyer shall each promptly notify
the other if at any time it becomes aware that the Proxy Statement-Prospectus
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading. In such event, Seller and Buyer shall cooperate in the
preparation of a supplement or amendment to the Proxy Statement-Prospectus,
which corrects such misstatement or omission, and shall cause the same to be
filed with the FDIC and the SEC and distributed to stockholders of Seller.
7.2 REGULATORY APPROVALS. Each of Seller and Buyer will cooperate with the
other and use all reasonable efforts to prepare and execute all necessary
documentation (including, without limitation, a Contract for Union in a form
reasonably acceptable to Seller and Buyer), to promptly effect all necessary
filings and to obtain all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement and the Stock
Option Agreement. Seller and Buyer will furnish each other and each other's
counsel with all information concerning themselves, their subsidiaries,
directors, officers and stockholders and such other matters as may be
necessary or advisable in connection with the Proxy Statement-Prospectus and
any application, petition or any other statement or application made by or on
behalf of Seller or Buyer to any governmental body in connection with the
Merger and the other transactions contemplated by this Agreement. Seller and
Buyer shall have the right to review and approve in advance all
characterizations of the information relating to Buyer or Seller, as the case
may be, and
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any of their respective subsidiaries, which appear in any filing made in
connection with the transactions contemplated by this Agreement with any
governmental body. In addition, Seller and Buyer shall each furnish to the
other a final copy of each such filing made in connection with the
transactions contemplated by this Agreement with any governmental body.
7.3 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS. Each of Buyer and
Seller shall use all reasonable efforts to cause each director, executive
officer and other person who is an "affiliate" (for purposes of Rule 145 under
the Securities Act and for purposes of qualifying the Merger for "pooling-of-
interests" accounting treatment) of such party to deliver to the other party
hereto, as soon as practicable after the date of this Agreement, and prior to
the date of the shareholders meeting called by Seller to approve this
Agreement, a written agreement, in the form of Exhibit 7.3 hereto, providing
that such person will not sell, pledge, transfer or otherwise dispose of any
shares of Buyer Common Stock or Seller Common Stock held by such "affiliate",
and, in the case of the "affiliates" of Seller, the shares of Buyer Common
Stock to be received by such "affiliate" in the Merger: (1) otherwise than in
compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder or (2) during the period commencing 30 days prior
to the Merger and ending at the time of the publication of financial results
covering at least 30 days of combined operations of Buyer and Seller. Such
agreement shall also contain such representations as are necessary or
appropriate to support the tax-free nature of the Merger.
7.4 AGREEMENT TO VOTE IN FAVOR OF MERGER. Seller has caused each director
and certain of their related interests to grant to Buyer an irrevocable proxy
in the form attached hereto as Exhibit 7.4. Such proxy shall grant to Buyer
the authority (x) to call a special meeting of stockholders of Seller to
approve the Merger, this Agreement and the transactions contemplated hereby
and (y) to vote, in any manner that Buyer may determine in its sole and
absolute discretion to be in the best interest of Buyer, all of the shares of
Seller Common Stock as to which each such person has voting power at any
meeting of stockholders of Seller on matters in any way relating to the
Merger, the Merger Agreement, and the transactions contemplated thereby.
ARTICLE VIII
Closing Conditions
8.1 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) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved in accordance with applicable
law by the requisite votes of the stockholders of Seller and of Buyer.
(B) INJUNCTIONS; ILLEGALITY. No order, decree or injunction of a court or
agency of competent jurisdiction or other legal restraint or prohibition
(an "Injunction") preventing the consummation of the Merger, or any of the
other transactions contemplated by this Agreement, shall be in effect and
no proceeding initiated by a third party including, without limitation, any
Governmental Entity, seeking an Injunction, shall be pending; provided,
however, that, with respect to any such pending matter, counsel to the
party seeking to postpone the Closing of the transactions contemplated
hereby or terminate this Agreement has advised such party that such pending
matter may reasonably be expected to have a material adverse effect on the
other party. No statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger, or any of the other transactions contemplated
by this Agreement.
(C) REGULATORY APPROVALS. All necessary approvals, authorizations and
consents of all governmental bodies required to consummate the Merger and
the other transactions contemplated by this Agreement shall have been
obtained and shall remain in full force and effect and all waiting periods
relating to such approvals, authorizations or consents shall have expired.
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(D) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
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 SEC.
(E) TAX RULINGS OR OPINIONS. Each of Buyer and Seller shall have received
an opinion of counsel reasonably acceptable to Buyer and Seller, addressed
to Buyer and the shareholders of Seller, with respect to federal tax laws
or regulations, to the effect that:
(1) The merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Code;
(2) No gain or loss will be recognized by Buyer, Seller or Buyer Sub
or Surviving Bank by reason of the Merger;
(3) The bases of the assets of Seller in the hands of the Surviving
Bank will be the same as the bases of such assets in the hands of
Seller immediately prior to the Merger;
(4) The holding period of the assets of Seller in the hands of the
Surviving Bank will include the period during which such assets were
held by Seller prior to the Merger;
(5) No gain or loss will be recognized by the Seller shareholders on
the exchange of shares of Seller Common Stock solely for shares of
Buyer Common Stock; income gain or loss will be recognized, however, to
each such shareholder upon the receipt of cash by such shareholders on
the exchange. The determination of whether the receipt of cash by
Seller shareholders will have the effect of the distribution of a
dividend will be made by treating the shareholder as having received
solely shares of Buyer Common Stock in the reorganization exchange and
then having received the cash payment from Buyer in a hypothetical
redemption of that number of shares of Buyer Common Stock equal in
value to such cash payment.
(6) The basis of the shares of Buyer Common Stock to be received by
Seller shareholders will be the same as the basis of the shares of
Seller's Common Stock surrendered in the reorganization exchange,
decreased by the amount of cash received and increased by the amount of
any gain (and by the amount of any dividend income) recognized on the
exchange.
(7) The holding period of the shares of Buyer Common Stock to be
received by the shareholders of Seller will include the period during
which they held the shares of Seller's Common Stock surrendered,
provided the shares of Seller's Common Stock are held as a capital
asset on the date of the exchange.
8.2 CONDITIONS TO THE OBLIGATIONS OF BUYER UNDER THIS AGREEMENT. The
obligations of Buyer under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Seller in this Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is
not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement, as applicable, and (except to
the extent such representations and warranties speak as of an earlier date)
as of the Effective Time. Seller shall have delivered to Buyer a
certificate of Seller to such effect signed by the Chief Executive Officer
and the Chief Financial Officer of Seller as of the Effective Time.
(B) MATERIAL ADVERSE CHANGE. There shall have occurred no material
adverse change in the business, operations, results of operations,
properties, assets, liabilities, securities, capitalization or condition
(financial or otherwise) of Seller or any Seller Subsidiaries since the
date of the consolidated financial statements contained in the Seller
Audited Financial Statements. The fact that the conditions set forth in
Sections 8.2(c) and (d) hereof have been satisfied shall not preclude the
existence of any material adverse change that may otherwise exist for
purposes of this Section 8.2(b).
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(C) NON-PERFORMING ASSETS. As of the last day of any fiscal quarter of
Seller following the date hereof, or as of any date following satisfaction
of the condition set forth in Section 8.1(c) and prior to the Effective
Time, the aggregate balance of Seller's Non-Performing Assets (determined
in accordance with regulatory requirements) shall not exceed 2% of Seller's
aggregate balance of Loans and Non-Performing Assets. The term Non-
Performing Assets, as of any date, shall include (A) all Loans with respect
to which, as of the close of business on such date, any payment of interest
or principal that was due more than 90 days before such date has not been
made, (B) all Loans classified as "in substance foreclosure", (C) the
carrying value of all other real estate owned by Seller (other than bank
premises), (D) all Loans (other than Loans included pursuant to (A), (B) or
(C) above) which Seller has classified as non-accruing for any other
reason, and (E) all Loans that are the subject of troubled debt
restructurings, as defined in Statement of Financial Accounting Standards
15.
(D) MINIMUM INCREASE IN NET WORTH. As of the last day of any fiscal
quarter of Seller following the date hereof, and as of any date following
satisfaction of the conditions set forth in Section 8.1(c) and prior to the
Effective Time, the consolidated net worth of Seller ("Seller Net Worth")
shall have increased by at least $100,000 during each calendar quarter
(beginning with the calendar quarter ended March 31, 1995) from its
consolidated net worth as of December 31, 1994. All calculations of Seller
Net Worth shall be in accordance with GAAP, except that (1) the base Seller
Net Worth as of December 31, 1994, shall be based upon the consolidated net
worth set forth on the balance sheet contained in the 1994 Seller Audited
Financial Statements but shall be restated to eliminate the effects of any
adjustments to such consolidated net worth made to reflect the changes in
the value of securities pursuant FASB 115; (2) all determinations of Seller
Net Worth shall be calculated so as to eliminate the effects of any
adjustments made to such consolidated net worth in order to reflect the
changes in value of securities pursuant FASB 115; (3) the amounts of any
gains upon sales of securities or capital assets shall not be included in
determination of Seller Net Worth; and (4) the expenses reasonably incurred
by Seller in connection with the Merger shall not be deducted in making
such calculations.
(E) AGREEMENTS AND COVENANTS. Seller shall have performed in all material
respects all obligations and complied in all material respects with all
agreements or covenants of Seller to be performed or complied with by it at
or prior to the Effective Time under this Agreement and Buyer shall have
received a certificate signed on behalf of Seller by the Chief Executive
Officer and Chief Financial Officer of Seller to such effect dated as of
the Effective Time.
(F) PERMITS, AUTHORIZATIONS, ETC. Seller and the Seller Subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required for the lawful consummation of
the Merger by Seller.
(G) LEGAL OPINION. Buyer shall have received an opinion, dated the
Closing Date, from McLane, Graf, Raulerson & Middleton, PA, counsel to
Seller, acceptable in form and substance to Buyer and its counsel. In
rendering any such opinion, such counsel may require and, to the extent
they deem necessary or appropriate may rely upon, opinions of other counsel
and upon representations made in certificates of officers of Seller, Buyer,
Affiliates of the foregoing, and others.
(H) POOLING OF INTERESTS. Buyer shall have received a letter from KPMG
Peat Marwick LLP, addressed to Buyer, to the effect that the Merger will
qualify for "pooling of interests" accounting treatment.
(I) DISSENTING SELLER SHAREHOLDERS. The holders of not more than 8% of
the Seller Common Stock outstanding immediately prior to the Effective Time
shall have given notice of their intention to exercise dissenters' rights
pursuant to the NHRSA.
(J) ACCOUNTANTS' LETTER. Buyer shall have received a "comfort" letter
from the independent certified public accountants for Seller, dated (i) the
effective date of the Registration Statement and (ii) the Closing Date, in
each case stating:
(1) that it is a firm of independent public accountants with respect
to Seller and its subsidiaries within the meaning of the Securities Act
and the rules and regulations of the SEC thereunder;
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(2) that in its opinion the audited consolidated financial statements
of Seller and its subsidiaries examined by it and included in the
Registration Statement comply as to form in all material respects with
the applicable requirements of the Securities Act and the applicable
published rules and regulations of the SEC thereunder with respect to
registration statements on the form employed;
(3) that, on the basis of specified procedures (which do not
constitute an examination in accordance with generally accepted
auditing standards), consisting of a reading of the unaudited
consolidated financial statements, if any, of Seller included in such
Registration Statement and of the latest available unaudited
consolidated financial statements of Seller, inquiries of officers
responsible for financial and accounting matters of Seller and its
subsidiaries and a reading of the minutes of meetings of shareholders
and the Board of Directors of Seller and its subsidiaries, nothing has
come to its attention which causes it to believe: (i) that the
consolidated financial statements, if any, of Seller included in such
Registration Statement do not comply in all material respects with the
applicable accounting requirements of the Securities Act and the
published rules and regulations thereunder; and (ii) that any such
unaudited consolidated financial statements of Seller from which
unaudited quarterly financial information set forth in such
Registration Statement has been derived, are not fairly presented in
conformity with generally accepted accounting principles applied on a
basis consistent with that of the audited consolidated financial
statements; and
(4) Whether, from the date of the latest available unaudited
consolidated financial statements of Seller through the date of the
letter, there were any changes in financial statement amounts, such
financial statement amounts being those customarily appearing in
comfort letters.
(K) FAIRNESS OPINION. Buyer shall have received a letter from MBD, dated
as of a date not more than five (5) days prior to the date the Proxy
Statement-Prospectus contemplated by Section 7.1 is mailed to stockholders,
confirming its oral opinion, delivered prior to the date of this Agreement,
that the consideration to be paid to Seller's stockholders pursuant to the
Merger is fair to Buyer and its stockholders, from a financial point of
view.
Seller will furnish Buyer with such certificates of its officers or others
and such other documents to evidence fulfillment of the conditions set forth
in this Section 8.2 as Buyer may reasonably request.
8.3 CONDITIONS TO THE OBLIGATIONS OF SELLER UNDER THIS AGREEMENT. The
obligations of Seller under this Agreement shall be further subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Buyer in this Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is
not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement, as applicable, and (except to
the extent such representations and warranties speak as of an earlier date)
as of the Effective Time. Buyer shall have delivered to Seller a
certificate of Buyer to such effect signed by the Chief Executive Officer
and the Chief Financial Officer of Buyer as of the Effective Time.
(B) MATERIAL ADVERSE CHANGE. There shall have occurred no material
adverse change in the business, operations, results of operations,
properties, assets, liabilities, securities, capitalization or condition
(financial or otherwise) of Buyer and the Buyer Subsidiaries, taken as a
whole, since the date of the consolidated financial statements contained in
the Buyer Audited Financial Statements, including, without limiting the
generality of the foregoing, a decline in the market price of the Buyer's
Common Stock so that the Average Closing Price is less than 75% of Buyer's
Book Value Per Share. Any change in the stock price, results of operations,
capitalization, or financial condition of Buyer that results from (i) a
change in law affecting savings banks generally, such as a change in the
tax deduction for bad debt reserves applicable to savings banks, or (ii) a
purchase of deposits or retail branches in connection with the
Fleet/Shawmut merger, shall be deemed not to constitute or contribute to a
material adverse change.
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(C) AGREEMENTS AND COVENANTS. Buyer shall have performed in all material
respects all obligations and complied in all material respects with all
agreements or covenants of Buyer to be performed or complied with by it at
or prior to the Effective Time under this Agreement and Seller shall have
received a certificate signed on behalf of Buyer by the Chief Executive
Officer and Chief Financial Officer of Buyer to such effect dated as of the
Effective Time.
(D) PERMITS, AUTHORIZATIONS, ETC. Buyer and its subsidiaries shall have
obtained any and all material permits, authorizations, consents, waivers,
clearances or approvals required for the lawful consummation of the Merger
by Buyer, the failure to obtain which would have a material adverse effect
on Buyer and its subsidiaries, taken as a whole.
(E) LEGAL OPINION. Seller shall have received an opinion from Foley, Hoag
& Eliot, counsel to Buyer, dated the Closing Date, acceptable in form and
substance to Seller and its counsel. In rendering any such opinion, such
counsel may require and, to the extent they deem necessary or appropriate
may rely upon, opinions of other counsel and upon representations made in
certificates of officers of Buyer, Seller, Affiliates of the foregoing, and
others.
(F) FAIRNESS OPINION. Seller shall have received a letter from its
investment advisor, dated as of a date not more than five (5) days prior to
the date the Proxy Statement-Prospectus contemplated by Section 7.1 is
mailed to stockholders, confirming its oral opinion, delivered prior to the
date of this Agreement, that the consideration to be paid to Seller's
stockholders pursuant to the Merger is fair to such stockholders, from a
financial point of view.
Buyer will furnish Seller with such certificates of its officers or others
and such other documents to evidence fulfillment of the conditions set forth
in this Section 8.3 as Seller may reasonably request.
ARTICLE IX
The Closing
9.1 TIME AND PLACE. Subject to the provisions of Articles VIII and X hereof,
the Closing of the transactions contemplated hereby shall take place at the
offices of Foley, Hoag & Eliot, One Post Office Square, Boston, Massachusetts
at 10:00 a.m. on a date specified by Buyer at least three business days prior
to such date. The Closing Date shall be as soon as practicable after the last
required approval for the Merger has been obtained and the last of all
required waiting periods under such approvals have expired, or at such other
place, date or time as Buyer and Seller may mutually agree upon.
9.2 DELIVERIES AT THE CLOSING. At the Closing there shall be delivered to
Buyer and Seller the opinions, certificates, and other documents and
instruments required to be delivered under Article VIII hereof.
ARTICLE X
Termination, Amendment and Waiver
10.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of Seller:
(a) At any time by the mutual written agreement of Buyer and Seller;
(b) By either Seller or Buyer (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein), if there has been a material breach on the
part of the other party of any representation, warranty or agreement
contained herein which cannot be or has not been cured within 30 days after
written notice by the Buyer to Seller (or by Seller to Buyer) of such
breach;
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(c) At the election of either Buyer or Seller, if the Closing shall not
have occurred on or before the date that is one year after the execution of
this Agreement (the "Termination Date"), or such later date as shall have
been agreed to in writing by Buyer and Seller; provided, that no party may
terminate this Agreement pursuant to this Section 10.1(c) if the failure of
the Closing to have occurred on or before said date was due to such party's
breach of any of its obligations under this Agreement;
(d) By either Seller or Buyer if the stockholders of Seller or Buyer
shall have voted at the Special Meeting on the transactions contemplated by
this Agreement and such vote shall not have been sufficient to approve such
transactions; or
(e) By either Seller or Buyer if final action has been taken by a
regulatory authority whose approval is required in connection with this
Agreement and the transactions contemplated hereby, which final action (i)
has become unappealable and (ii) does not approve this Agreement or the
transactions contemplated hereby.
10.2 EFFECT OF TERMINATION. (a) In the event of termination of this
Agreement pursuant to any provision of Section 10.1, this Agreement shall
forthwith become void and have no further force, except that (i) the
provisions of Sections 10.3, 11.1, 12.1, 12.7, 12.10, and 12.11 (and of this
Section 10.2) shall survive such termination of this Agreement and remain in
full force and effect and (ii) notwithstanding anything to the contrary
contained in this Agreement, each party shall remain liable (in an action at
law or otherwise) for any liabilities or damages arising out of its gross
negligence or its wilful breach of any provision of this Agreement.
(b) If this Agreement is terminated, expenses of the parties hereto shall
be determined as follows:
(1) Any termination of this Agreement pursuant to Sections 10.1(a),
10.1(c), 10.1(d), or 10.1(e) hereof (other than as a result of a wilful
breach or gross negligence by a party hereto) shall be without cost or
expense on the part of any party to the other; and
(2) In the event of a termination of this Agreement pursuant to
Section 10.1(b) hereof as a result of a breach of a representation,
warranty or covenant which is caused by the wilful conduct or gross
negligence of a party, such party shall (while remaining liable for any
liabilities or damages arising out of such wilful breach or gross
negligence) be obligated to reimburse the other party for all out-of-
pocket costs and expenses, including, without limitation, reasonable
legal, accounting and investment banking fees and expenses, incurred by
such other party in connection with the entering into of this Agreement
and the carrying out of any and all acts contemplated hereunder
(collectively referred to as "Expenses"), provided that in no event
shall such amount exceed $200,000.
(c) The payment of Expenses is not an exclusive remedy, but is in
addition to any other rights or remedies available to the parties hereto at
law or in equity and notwithstanding anything to the contrary contained
herein, no party shall be relieved or released from any liabilities or
damages arising out of its gross negligence or wilful breach of any
provision of this Agreement.
(d) In no event shall any officer, agent or director of Seller, any
Seller Subsidiary, Buyer or any Buyer subsidiary, be personally liable
hereunder for any default by any party in any of its obligations hereunder
unless any such default was intentionally caused by such officer, agent or
director.
10.3 EXPENSES. Except as provided in Section 10.2(b) hereof, whether or not
the Merger is consummated, all Expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such costs and expenses, provided, however, that the Expenses of
printing and mailing the Proxy Statement-Prospectus shall be shared equally by
the parties, and provided, further, that nothing contained herein shall limit
either party's rights under Section 10.2 hereof, including but not limited to
the right to recover any liability or damages arising out of the other party's
gross negligence or wilful breach of this Agreement.
10.4 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at any time
prior to the Effective Time (whether before or after approval thereof by the
stockholders), the parties hereto may (a) amend this Agreement, (b) extend the
time for the performance of any of the obligations or other acts of any other
party hereto, (c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (d) waive
compliance with any of the agreements or conditions contained herein.
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This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto; provided, however, that (i) after any
approval of this Agreement and the transactions contemplated hereby by the
stockholders of Seller, there may not be, without further approval of such
stockholders, any amendment or waiver of this Agreement which decreases the
amount or changes the form of consideration to be delivered to Seller's
stockholders pursuant to this Agreement, and (ii) after any approval of this
Agreement and the transactions contemplated hereby by the stockholders of
Buyer, there may not be, without further approval of such stockholders, any
amendment or waiver of this Agreement which increases the amount or changes
the form of consideration to be delivered to Seller's stockholders pursuant to
this Agreement. Any agreement on the part of a party hereto to any extension
or waiver shall be valid only if set forth in an instrument in writing signed
on behalf of such party, but such waiver or failure to insist on strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE XI
Certain Definitions
11.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the following meanings (unless the context otherwise requires, both here
and throughout this Agreement, references to Articles and Sections refer to
Articles and Sections of this Agreement).
(a) "Affiliate" of a specified Person shall mean a Person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified Person, including, without
limitation, any partnership or joint venture in which a Person (either
alone, or through or together with any subsidiary) has, directly or
indirectly, an interest of 5% or more.
(b) "Average Closing Price" shall mean the average of the Closing Price
(defined below) per share of Buyer Common Stock on the Stock Exchange (as
reported by The Wall Street Journal or, if not reported thereby, another
authoritative source), for the fifteen Trading Days (defined below) ending
on the business day before the date on which the last regulatory approval
required to consummate the transactions contemplated hereby is obtained.
(c) "Buyer's Book Value Per Share" means the book value per share of
Buyer as of the most recent quarter end, determined in accordance with
GAAP, except that (1) all determinations of Buyer's Book Value Per Share
shall be calculated so as to eliminate the effects of any adjustments made
to such book value in order to reflect the changes in value of securities
pursuant FASB 115; and (2) the amounts of any gains upon sales of
securities or capital assets realized after the date of this Agreement
shall not be included in determination of Book Value Per Share; and (3) the
expenses reasonably incurred by Buyer in connection with the Merger shall
not be deducted in making such calculations.
(d) "Closing Price" shall mean the average of the bid and asked prices of
the Buyer's Common Stock at the close of a Trading Day.
(e) "Environment" shall mean any soil, surface waters, groundwaters,
stream sediments, surface or subsurface strata, and ambient air, and any
other environmental medium.
(f) "Environmental Laws" shall mean any federal, state or local law
relating to (A) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances, (B) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances, or (C) otherwise relating to
pollution of the environment.
(g) "Hazardous Substances" means (A) those substances defined in or
regulated under the Comprehensive Environmental Response, Compensation and
Liability Act, the Resource Conservation and Recovery Act of 1976, Chapter
147-A and 146-C, NHRSA or the Massachusetts Oil and Hazardous Material
Release Prevention and Response Act, M.G.L. c. 21E, or any other federal,
state, or local environmental law, regulation, or requirement, all as may
be amended from time to time, and all regulations
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thereunder, (B) petroleum and petroleum products including crude oil and
any fractions thereof, (C) natural gas, synthetic gas, and any mixtures
thereof, (D) radon, (E) any other contaminant, and (F) any substance with
respect to which a federal, state or local agency requires environmental
investigation, monitoring, reporting or remediation.
(h) "Loan Property" shall mean any property in which Seller holds a
security interest, and, where required by the context, said term means the
owner or operator of such property.
(i) "Participation Facility" shall mean any facility in which Seller
participates or has participated in the management and, where required by
the context, said term means the owner or operator of such property.
(j) "Person" shall mean any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or government or
any agency or political subdivision thereof.
(k) "Stock Exchange" shall mean NASDAQ National Market.
(l) "subsidiary" or "subsidiaries" of any Person shall mean an Affiliate
controlled by such Person, directly or indirectly, through one or more
intermediaries, except as otherwise defined herein.
(m) "Trading Day" shall mean each day that any trade of Buyer's Common
Stock is consummated on the Stock Exchange.
ARTICLE XII
Miscellaneous
12.1 CONFIDENTIALITY. Except as specifically set forth herein, Buyer and
Seller mutually agree to be bound by the terms of the Confidentiality
Agreement previously executed by the parties hereto, which Agreement is hereby
incorporated herein by reference. The parties hereto agree that such
Confidentiality Agreement shall continue in accordance with its respective
terms, notwithstanding the termination of this Agreement.
12.2 PUBLIC ANNOUNCEMENTS. Seller and Buyer shall cooperate with each other
in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby, except as may be otherwise required by law,
and neither Seller nor Buyer shall issue any joint news releases with respect
to this Agreement or any of the transactions contemplated hereby, unless such
news releases have been mutually agreed upon by the parties hereto.
12.3 SURVIVAL. Except for any agreement of the parties contained in this
Agreement which by its terms is intended to be performed after the Effective
Time, the respective representations, warranties and agreements of the parties
contained in this Agreement or in any Exhibit, Schedule, certificate, list,
letter or other instrument referred to in this Agreement, and which are
delivered or made pursuant to this Agreement (or in connection with any
transaction contemplated by this Agreement) shall not survive the Effective
Time but shall terminate as of the Effective Time.
12.4 NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered by receipted hand delivery or
mailed by prepaid registered or certified mail (return receipt requested) or
by cable, telegram, telex or telecopy addressed as follows:
If to Buyer to:
Community Bankshares, Inc.
43 North Main Street
Concord, New Hampshire 03302-0739
Attention: Douglas Crichfield, President
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Copy to:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
If to Seller, to:
Centerpoint Bank
141 South River Road
Bedford, New Hampshire 03110
Attention: Philip M. Stone, President
Copy to:
Richard A. Samuels, Esq.
McLane, Graf, Raulerson & Middleton, PA
900 Elm Street
Post Office Box 326
Manchester, New Hampshire 03105
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
12.5 PARTIES IN INTEREST. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party, and that (except as
otherwise expressly provided in this Agreement) nothing in this Agreement is
intended to confer upon any other Person any rights or remedies under or by
reason of this Agreement.
12.6 RIGHTS OF EMPLOYMENT. Nothing in this Agreement shall be deemed to
prohibit the resignation, removal or failure to re-elect any of the persons
referred to herein to any position referred to therein, including without
limitation, as a director or member of any committee of the Board of
Directors, after his initial election to such position. Nothing in this
Agreement shall be deemed to confer upon any person any rights of employment
with or any rights to hold any particular office with Buyer or Surviving Bank
or to limit the right of Buyer and Surviving Bank to terminate the employment
or office of any person.
12.7 COMPLETE AGREEMENT. This Agreement, including the Exhibits and
Schedules hereto and the documents and other writings referred to herein or
delivered pursuant hereto, contains the entire agreement and understanding of
the parties with respect to its subject matter. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the
parties other than those expressly set forth herein or therein. This Agreement
supersedes all prior agreements and understandings (other than the
Confidentiality Agreement referred to in Section 12.1 hereof) between the
parties, both written and oral, with respect to its subject matter.
12.8 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.
12.9 SEVERABILITY. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in
any respect, by any court of competent jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement and the parties shall use their reasonable efforts to substitute a
valid, legal and enforceable provision which, insofar as practical, implements
the purposes and intents of this Agreement.
12.10 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New Hampshire.
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12.11 HEADINGS. The Article and Section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
* * * * *
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IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
executed under seal by their duly authorized officers as of the day and year
first above written.
Community Bankshares
/s/ Douglas Crichfield
{SEAL} By: _________________________________
Its President
/s/ Richard E. Kamp
By: _________________________________
Its Secretary
Centerpoint Bank
/s/ Philip M. Stone
{SEAL} By: _________________________________
Its President
/s/ Lucy T. Gobin
By: _________________________________
Its Secretary
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EXHIBIT 1.7
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND MAY BE SUBJECT TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND RULES OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is entered into as of August
, 1995 by and between Community Bankshares, Inc., a New Hampshire bank
holding company ("Community") and Centerpoint Bank, a New Hampshire trust
company ("Centerpoint").
Whereas, Centerpoint and Community propose to enter into an Agreement and
Plan of Merger dated as of the date hereof (the "Merger Agreement";
capitalized terms not defined herein shall have the meanings set forth in the
Merger Agreement), providing for, among other things, the combination and
merger of a newly-formed bank subsidiary of Community and Centerpoint into a
single bank, which will be a subsidiary of Community; and
Whereas, as a condition and an inducement to Community's willingness to
enter into the Merger Agreement, Community has requested that Centerpoint
agree, and Centerpoint has agreed, to grant Community the Option (as defined
below);
Now, Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, Centerpoint and Community agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Centerpoint hereby grants to Community an irrevocable option (the "Option") to
acquire up to 165,920 shares (the "Option Shares") of common stock, par value
$1.00 per share, of Centerpoint ("Centerpoint Common Stock") at an acquisition
price of $12.00 per Option Share (the "Purchase Price"). The number of shares
of Centerpoint Common Stock that may be received upon the exercise of the
Option and the Purchase Price are subject to adjustment as herein set forth.
2. CERTAIN DEFINITIONS. (a) The holder or holders of this Option ("Holder")
may exercise the Option, in whole or in part, at any time and from time to
time following the occurrence of a Triggering Event (as defined below). Except
as otherwise provided in this Agreement, the right to exercise the Option
shall expire and be of no further force and effect upon the occurrence of a
Termination Event (as defined below).
(b) Each of the following shall constitute a "Termination Event":
(i) the Effective Time;
(ii) the first anniversary of a Triggering Event;
(iii) the second anniversary of a termination of the Merger Agreement by
reason of a material breach or wilful violation by Centerpoint of its
representations, warranties or obligations under the Merger Agreement,
provided, however, that such anniversary shall be a Termination Event only
if such anniversary occurs prior to the occurrence of a Triggering Event;
(iv) immediately (A) upon termination of the Merger Agreement by
Centerpoint by reason of a breach or violation by Community of its
representations, warranties or obligations under the Merger Agreement, or
(B) if the holders of Community Common Stock shall not have approved the
Merger Agreement and the transactions contemplated thereby at the Community
Special Meeting held for the purpose of voting on the Merger Agreement; or
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(v) the second anniversary of a termination of the Merger Agreement other
than as described in Section 2(b)(iii) or Section 2(b)(iv), provided,
however, that such anniversary shall be a Termination Event only if such
anniversary occurs prior to the occurrence of a Triggering Event.
(c) Notwithstanding any expiration or termination of the Option, Community
shall be entitled to acquire those Option Shares with respect to which it has
exercised the Option in accordance with the terms hereof prior to the
expiration or termination of the Option. Any purchase of shares upon exercise
of the Option shall be subject to compliance with requirements established by
the New Hampshire Board of Trust Company Incorporation and with all other
requirements of applicable law, including the Bank Holding Company Act of
1956, as amended (the "BHC Act").
(D) A "TRIGGERING EVENT" shall occur for purposes of this Agreement upon the
occurrence of any of the following:
(i) without having received Community's prior written consent,
Centerpoint shall have entered into, or the Board of Directors of
Centerpoint shall have approved or recommended that the shareholders of
Centerpoint approve or accept, an agreement with any person (other than
Community or any affiliate of Community) to (A) effect a merger,
consolidation or similar transaction involving Centerpoint, (B) sell, lease
or otherwise dispose of assets of Centerpoint (other than sales of loans or
securities classified as available for sale in the ordinary course of
business of Centerpoint) representing 15% or more of the consolidated
assets of Centerpoint, or (C) issue, sell or otherwise dispose of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities representing 15% or more of the voting power of
Centerpoint (any of the foregoing an "Acquisition Transaction");
(ii) any person (other than Community or any affiliate of Community)
shall, after the date hereof, have acquired beneficial ownership (as
defined in Rule 13(d)-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), or the right to acquire beneficial ownership
of, or any "group" (as such term is defined under the Exchange Act) shall
have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 15% or more of the then outstanding Centerpoint
Common Stock;
(iii) any person (other than Community or any affiliate of Community) (1)
publicly announces a proposal, or publicly discloses an intention to make a
proposal, to engage in an Acquisition Transaction, (2) files an application
under the BHC Act for approval to engage in an Acquisition Transaction, or
(3) files a notice under the Change in Bank Control Act of 1978 or other
applicable law of intent to engage in an Acquisition Transaction;
(iv) Centerpoint's Board of Directors shall have failed to recommend to
its shareholders approval of the Merger Agreement, or shall have withdrawn
or modified in a manner adverse to Community its recommendation with
respect to the Merger Agreement; or
(v) the holders of Centerpoint Common Stock shall not have approved the
Merger Agreement and the transactions contemplated thereby at the Special
Meeting held for the purpose of voting on the Merger Agreement or such
Special Meeting shall not, due to actions or failure to act of Centerpoint,
have been held prior to a date which is 60 days ("End Date") after
effectiveness of the Registration Statement on Form S-4, provided, however,
that the events described in this Section 2(d)(v) shall constitute a
Triggering Event only if, prior to the End Date, Centerpoint shall have
agreed to provide to a stockholder or a stockholder representative a copy
of its list of Centerpoint stockholders for use in connection with possible
communications with other Centerpoint stockholders.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act and includes any individual,
corporation, partnership, company, group or other entity. Terms defined herein
by reference to the Exchange Act shall be construed as if Centerpoint had
registered under the Exchange Act.
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3. EXERCISE OF OPTION. (a) In the event Community wishes to exercise the
Option, it shall send to Centerpoint a written notice (the date of such notice
being herein referred to as the "Notice Date") specifying (i) the total number
of Option Shares it intends to acquire pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 15 business
days from the Notice Date for the closing of such acquisition (the "Closing
Date").
(b) If the closing of the acquisition pursuant to the exercise of the Option
(the "Closing") cannot be consummated by reason of any judgment, decree or
order, the period of time that otherwise would run pursuant to Section 3(a)
shall run instead until the date on which such judgment, decree or order
becomes final and nonappealable. Without limiting the foregoing, if prior
notification to or approval of the Board of Governors of the Federal Reserve
System ("FRB") or an other regulatory authority is required in connection with
such purchase, Community shall promptly file the required notice or
application for approval and shall expeditiously process the same (and
Centerpoint shall cooperate with Community in the filing of any such notice or
application and the obtaining of any such approval), and the period of time
that otherwise would run pursuant to Section 3(a) shall run instead from the
date on which, as the case may be, (i) any required notification period has
expired or been terminated or (ii) such approval has been obtained, and in
either event, any requisite waiting period has passed.
4. PAYMENT AND DELIVERY OF CERTIFICATES. (a) On each Closing Date, Community
shall pay Centerpoint, in immediately available funds by wire transfer to a
bank account designated by Centerpoint, an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such Closing
Date.
(b) At each Closing, simultaneously with the delivery of the consideration
specified in Section 4(a), Centerpoint shall deliver to Community a
certificate or certificates representing the Option Shares to be acquired at
such Closing, which Option Shares shall be free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever (including any
preemptive rights of any stockholder).
5. REPRESENTATIONS AND WARRANTIES OF CENTERPOINT. Centerpoint hereby
represents and warrants to Community as follows:
(A) DUE AUTHORIZATION. Centerpoint has all necessary corporate power and
authority to execute and deliver this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate
action on the part of Centerpoint. This Agreement has been duly and validly
executed and delivered by Centerpoint.
(B) AUTHORIZED STOCK. Centerpoint has taken all necessary corporate and
other action to authorize and reserve and, subject to obtaining the
governmental and other approvals and consents referred to herein, to permit
it to issue, and, at all times from the date hereof until the obligation to
deliver Centerpoint Common Stock upon the exercise of the Option
terminates, will have reserved for issuance, upon exercise of the Option,
shares of Centerpoint Common Stock necessary for Community to exercise the
Option, and Centerpoint will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Centerpoint
Common Stock or other securities which may be issued pursuant to Section 7
upon exercise of the Option. The shares of Centerpoint Common Stock to be
issued upon due exercise of the Option, including all additional shares of
Centerpoint Common Stock or other securities which may be issuable pursuant
to Section 7, upon issuance pursuant hereto, shall be duly and validly
issued, fully paid and nonassessable, and shall be delivered free and clear
of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, including any preemptive rights of any stockholder of
Centerpoint.
(C) NO CONFLICTS. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not,
conflict with or violate any provision of the Charter or By-laws or
equivalent organizational document of Centerpoint or any Subsidiary or,
subject to obtaining any required approvals or consents, violate, conflict
with or result in any breach of any provisions of, constitute a default (or
an event which with notice or lapse of time or both would constitute a
default) under, result in
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the termination of, accelerate the performance required by, or result in
the creation of any lien, security interest, charge or other encumbrance
upon any of the respective properties or assets of Centerpoint or any
Subsidiary under any of the terms, conditions or provisions of any note,
bond, capital note, debenture, mortgage, indenture, deed of trust, license,
lease, agreement, obligation, instrument, permit, concession, franchise,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Centerpoint or any Subsidiary or their respective properties
or assets.
(D) ACCESS TO STOCKHOLDER LISTS. The list of Centerpoint's stockholders
has been protected as confidential and proprietary information by
Centerpoint, has not been copied or distributed within the Bank, and no
copies of such list have been made available to stockholders or other third
parties.
6. REPRESENTATIONS AND WARRANTIES OF COMMUNITY. Community hereby represents
and warrants to Centerpoint that:
(A) DUE AUTHORIZATION. Community has all necessary corporate power and
authority to execute and deliver this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate
action on the part of Community. This Agreement has been duly and validly
executed and delivered by Community.
(B) NO CONFLICTS. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not,
conflict with or violate any provision of the Charter or By-laws or
equivalent organizational document of Community or any subsidiary Community
or, subject to obtaining any required approvals or consents contemplated
hereby, violate, conflict with or result in any breach of any provisions
of, constitute a default (or event which with notice or lapse of time or
both would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any
lien, security interest, charge or other encumbrance upon any of the
respective properties or assets of Community or any of its subsidiaries
under any of the terms, conditions or provisions of any note, bond, capital
note, debenture, mortgage, indenture, deed of trust, license, lease,
agreement, obligation, instrument, permit, concession, franchise, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Community or any subsidiary of Community or their respective properties or
assets.
(C) PURCHASE NOT FOR DISTRIBUTION. Any Option Shares or other securities
acquired by Community upon exercise of the Option will not be taken with a
view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act of 1933.
7. ADJUSTMENT UPON SHARE ISSUANCES, CHANGES IN CAPITALIZATION, ETC. (a) In
the event of any change in Centerpoint Common Stock by reason of a stock
dividend, split-up, recapitalization, combination, exchange of shares or
similar transaction, the type and number of shares or securities to be
delivered by Centerpoint pursuant to the Option shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that Community shall receive upon exercise of the Option
the number and class of shares or other securities or property that Community
would have received if the Option had been exercised immediately prior to such
event, or the record date therefor, as applicable.
(b) In the event that Centerpoint shall enter into an agreement (i) to
consolidate with or merge into any person, other than Community or one of its
affiliates, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Community or
one of its affiliates, to merge into Centerpoint and shall be the continuing
or surviving corporation, but, in connection with such merger, the then
outstanding shares of Centerpoint Common Stock shall be changed into or
exchanged for stock or other securities of Centerpoint or any other person or
cash or any other property or the then outstanding shares of Centerpoint
Common Stock shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company or (iii) to
sell or otherwise transfer all or substantially all of its assets to any
person, other than Community or one of its affiliates, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that the Option shall, upon the consummation of any such transaction
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and upon the terms and conditions set forth in this Agreement, be converted
into, or exchanged for, an option to acquire the same type of consideration
received by the holders of Centerpoint Common Stock pursuant to such a
transaction. The provisions of this Agreement shall apply with appropriate
adjustments to any securities for which the Option becomes exercisable
pursuant to this Section 7.
(c) Notwithstanding any other provision of this Agreement, from and after
any reorganization or recapitalization affecting Centerpoint which is related
to an internal corporate reorganization and from and after the issuance of
additional or replacement equity securities by Centerpoint, the Option shall
remain exercisable for equity securities of Centerpoint representing 19.9% of
the voting power of all Centerpoint equity securities, calculated on a fully-
diluted basis. In connection with any such reorganization or recapitalization
affecting Centerpoint, the type and number of shares or securities to be
delivered by Centerpoint pursuant to the Option shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction, so that the Option shall remain exercisable for equity
securities of Centerpoint representing 19.9% of the voting power of all
Centerpoint equity securities, calculated on a fully-diluted basis.
8. REPURCHASE AT THE OPTION OF COMMUNITY.
(A) REPURCHASE EVENT. A "Repurchase Event" shall occur for purposes of this
Agreement upon the occurrence of any of the following:
(i) without having received Community's prior written consent,
Centerpoint shall have entered into an agreement with respect to, or
consummated, a merger, consolidation or sale of substantially all of its
assets; or
(ii) any person (other than Community or any affiliate of Community)
shall, after the date hereof, have acquired beneficial ownership (as
defined in Rule 13(d)-3 under the Exchange Act) or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, 51% or more of the then
outstanding Centerpoint Common Stock.
(B) SECTION 8 REPURCHASE CONSIDERATION. At the request of Community at any
time commencing upon the occurrence of a Repurchase Event and ending upon the
earlier to occur of (x) 9 months immediately thereafter or (y) a Termination
Event, Centerpoint (or any successor entity thereof) shall repurchase from
Community (1) the Option (unless the Option shall have expired or been
terminated in accordance with the terms hereof) and (2) all shares of
Centerpoint Common Stock purchased by Community pursuant hereto with respect
to which Community then has beneficial ownership. The date on which Community
exercises its rights under this Section 8 is referred to as the "Request
Date". Such repurchase shall be at an aggregate price (the "Section 8
Repurchase Consideration") equal to the sum of:
(i) the aggregate exercise price paid by Community for any shares of
Centerpoint Common Stock acquired pursuant to the Option with respect to
which Community then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined below)
for each share of Centerpoint Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Centerpoint Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase Price
(subject to adjustment pursuant to Section 7) paid (or, in the case of
Option Shares with respect to which the Option has been exercised but the
Closing Date has not occurred, payable) by Community for each share of
Centerpoint Common Stock with respect to which the Option has been
exercised and with respect to which Community then has beneficial
ownership, multiplied by the number of such shares.
(c) If Community exercises its rights under this Section 8, Centerpoint
shall, within 10 business days after the Request Date, pay the Section 8
Repurchase Consideration to Community in immediately available funds, and
Community shall surrender to Centerpoint the Option and the certificates
evidencing the shares of
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Centerpoint Common Stock purchased thereunder with respect to which Community
then has beneficial ownership; and Community shall warrant that it has sole
record and beneficial ownership of such shares and that the same are then free
and clear of all liens, claims, charges and encumbrances of any kind
whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the FRB or other Governmental Entity is
required in connection with the payment of all or any portion of the Section 8
Repurchase Consideration or is not then permissible under applicable law,
Centerpoint shall deliver from time to time that portion of the Section 8
Repurchase Consideration that it is not then so prohibited from paying and
shall promptly file the required notice or application for approval and shall
expeditiously process the same (and Community shall cooperate with Centerpoint
in the filing of any such notice or application and the obtaining of any such
approval), and the period of time that otherwise would run pursuant to the
preceding sentence for the payment of the portion of the Section 8 Repurchase
Consideration requiring such notification or approval shall run instead from
the date on which, as the case may be, (i) any required notification period
has expired or been terminated or (ii) such approval has been obtained and, in
either event, any requisite waiting period shall have passed. If the FRB or
any other Governmental Entity disapproves of any part of Centerpoint's
proposed repurchase pursuant to this Section 8, Centerpoint shall promptly
give notice of such fact to Community and redeliver to Community the Option
Shares it has acquired from Community pursuant hereto and is then prohibited
from repurchasing, and Community shall have the right to exercise the Option
as to the number of Option Shares for which the Option was exercisable at the
Request Date less the number of shares as to which payment has been made
pursuant to Section 8(b); provided that if the Option shall have expired prior
to the date of such notice or shall be scheduled to expire at any time before
the expiration of a period ending on the thirtieth business day after such
date, Community shall nonetheless have the right so to exercise the Option
until the expiration of such period of 30 business days. Notwithstanding
anything herein to the contrary, Centerpoint shall not be obligated to
repurchase the Option or any shares of Centerpoint Common Stock pursuant to
this Section 8 on more than one occasion.
(d) For purposes of this Agreement, the "Applicable Price" means the highest
of (i) the highest price per share at which a tender or exchange offer has
been made for shares of Centerpoint Common Stock after the date hereof and on
or prior to the Request Date, (ii) the price per share to be paid by any third
party for shares of Centerpoint Common Stock or the consideration per share to
be received by holders of Centerpoint Common Stock, in each case pursuant to
an agreement for a merger or other business combination transaction with
Centerpoint entered into on or prior to the Request Date or (iii) the highest
bid price per share as quoted on the principal trading market on which such
shares are traded as reported by a recognized source during the 60 business
days preceding the Request Date. If the consideration to be offered, paid or
received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in
good faith by an independent nationally recognized investment banking firm
selected by Community and reasonably acceptable to Centerpoint, which
determination shall be conclusive for all purposes of this Agreement.
9. REPURCHASE AT THE OPTION OF CENTERPOINT.
(a) Except to the extent that Community shall have previously exercised its
rights under Section 8, at the request of Centerpoint during the 30-day period
commencing 12 months following the first occurrence of a Repurchase Event,
Centerpoint may repurchase from Community, and Community shall sell to
Centerpoint, all (but not less than all) of the shares of Centerpoint Common
Stock acquired by Community pursuant hereto and with respect to which
Community has beneficial ownership at the time of such repurchase at a price
equal to the greater of (A) 110% of the Current Market Price (as defined
below) or (B) the sum of (1) the Purchase Price in respect of the shares so
acquired plus (2) Community's pre-tax per share carrying cost (as defined
below), multiplied in either case by the number of shares so acquired (the
"Section 9 Repurchase Consideration"); provided that Centerpoint's rights
under this Section 9 shall be suspended (with any such rights being extended
accordingly) during any period when the exercise of such rights would subject
Community to liability pursuant to Section 16(b) of the Exchange Act by reason
of Community's purchase of shares of Centerpoint Common Stock hereunder.
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<PAGE>
(b) If Centerpoint exercises its rights under this Section 9 and Community
does not sell the shares to a third party pursuant thereto, Centerpoint shall,
within 10 business days after the expiration of the 30-day period referred to
in paragraph (a) above or, if applicable, upon abandonment of the transaction
covered by the Offeror's Notice, pay the Section 9 Repurchase Consideration in
immediately available funds, and Community shall surrender to Centerpoint the
certificates evidencing the shares of Centerpoint Common Stock purchased
hereunder with respect to which Community then has beneficial ownership, and
Community shall warrant that it has sole record and beneficial ownership of
such shares and that the same are then free and clear of all liens, claims,
charges and encumbrances of any kind whatsoever.
(c) As used herein, (i) "Current Market Price" means the average closing
sales price per share of Centerpoint Common Stock quoted on the principal
trading market on which such shares are traded as reported by a recognized
source for the 10 business days preceding the date of Centerpoint's request
for repurchase pursuant to this Section 9 and (ii) "Community's pre-tax per
share carrying cost" shall be the amount equal to the interest on the
aggregate Purchase Price paid for the shares of Centerpoint Common Stock
purchased from the date of purchase to the date of repurchase at the rate of
interest announced by Bank of Boston as its prime or base lending or reference
rate during such period, less any dividends received on the shares so
purchased, divided by the number of shares so purchased.
10. DIVISION OF OPTION. This Agreement and the Option granted hereby are
exchangeable, without expense, at the option of Community upon partial
exercise of the Option or partial assignment of the Option, in both instances
as provided herein, upon presentation and surrender of this Agreement at the
principal office of Centerpoint, for other Agreements providing for Options of
different denominations entitling the holder thereof to acquire in the
aggregate the same number of shares of Centerpoint Common Stock which may be
acquired hereunder. The terms "Agreement" and "Option" as used herein include
any other Agreements and related Options for which this Agreement and the
Option granted hereby may be exchanged.
11. MISCELLANEOUS.
(A) EXPENSES. Except as otherwise provided in the Merger Agreement, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own counsel.
(B) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(C) ENTIRE AGREEMENT: No Third-Party Beneficial Severability. Except as
otherwise set forth in the Merger Agreement, this Agreement (including other
documents and instruments referred to herein or therein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof and (ii) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction or a regulatory agency to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
(D) GOVERNING LAW. This Agreement shall be governed by the internal laws of
New Hampshire without regard its conflicts of law principles.
(E) DESCRIPTIVE HEADINGS. The descriptive headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(F) NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered as provided in the Merger
Agreement.
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<PAGE>
(G) COUNTERPARTS. This Agreement and any amendments hereto may be executed,
including by facsimile, in two counterparts, each of which shall be considered
one and the same agreement and shall become effective when both counterparts
have been signed by each of the parties and delivered to the other party, it
being understood that both parties need not sign the same counterpart.
(H) ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that: (i) Community may assign this
Agreement to any subsidiary or affiliate, and (ii) after the occurrence of a
Repurchase Event Community may assign its rights under this Agreement to third
parties; provided, however, that until the date 30 days following the date on
which the Federal Reserve Board approves an application by Community under the
BHC Act to acquire the shares of Centerpoint Common Stock subject to the
Option, Community may not assign its rights under the Option except in a
manner approved by the Federal Reserve Board, and provided, further, that,
notwithstanding any such assignment, Community shall continue to be liable for
the performance of its obligations under this Agreement. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
(I) FURTHER ASSURANCES. In the event of any exercise of the Option by
Community, Centerpoint and Community shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.
(J) SPECIFIC PERFORMANCE. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief
and other equitable relief. Both parties further agree to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
In Witness Whereof, Centerpoint and Community have caused this Stock Option
Agreement to be executed as a sealed instrument by their respective officers
thereunto duly authorized, all as of the date first written above.
Attest: Centerpoint Bank
_________________________________
By: _________________________________
Name: Title:
Attest: Community Bankshares, Inc.
_________________________________
By: _________________________________
Name: Title:
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<PAGE>
EXHIBIT 7.3
AFFILIATE AGREEMENT
August , 1995
Community Bankshares, Inc.
43 North Main Street
Post Office Box 739
Concord, New Hampshire 03302-0739
Gentlemen:
Pursuant to the terms of the Agreement and Plan of Reorganization dated as
of August 29, 1995 (the "Merger Agreement"), among Community Bankshares, Inc.,
a New Hampshire corporation ("Parent"), a new "interim bank" to be created as
a wholly owned subsidiary of Parent ("Bank Sub"), and Centerpoint Bank, a New
Hampshire trust company ("Centerpoint"). Parent will acquire Centerpoint
through the merger of Bank Sub with Centerpoint (the "Merger"). Subject to the
terms and conditions of the Merger Agreement, at the Effective Time (as
defined in the Merger Agreement), outstanding shares of the common stock, par
value $1.00 per share, of Centerpoint (the "Centerpoint Common Stock") will be
converted into the right to receive shares of common stock, par value $1.00
per share, of Parent (the "Parent Common Stock") on the basis described in the
Merger Agreement.
The undersigned has been advised that as of the date hereof it may be deemed
to be an "affiliate" of Centerpoint, as the term "affiliate" is (i) defined
for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended, of
the and/or (ii) used in and for purposes of Accounting Series Releases 130 and
135, as amended, of the Commission, although nothing contained herein shall be
construed as an admission of such fact.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, stockholders of
Parent, Centerpoint, other stockholders of Centerpoint and their respective
counsel and accounting firms.
The undersigned represents and warrants to and agrees with Parent that:
1. The undersigned has full power to execute and deliver this Affiliate
Agreement and to make the representations and warranties herein and to
perform its obligations hereunder.
2. The undersigned has carefully read this Affiliate Agreement and the
Merger Agreement and discussed its requirements and other applicable
limitations upon its ability to sell, transfer or otherwise dispose of
Parent Common Stock to the extent the undersigned felt necessary, with its
counsel or counsel for Centerpoint.
3. The undersigned shall not make any sale, transfer, exchange, pledge or
other disposition of Parent Common Stock in violation of the Act or the
Rules and Regulations.
4. The undersigned has been advised that the issuance of shares of Parent
Common Stock to the undersigned in connection with the Merger has been or
will be registered with the Commission under the Act on a Registration
Statement on Form S-4. However, the undersigned has also been advised that,
since, at the time the Merger is to be submitted for a vote of the
stockholders of Centerpoint the undersigned may be deemed to be an
affiliate of Centerpoint and the distribution by the undersigned of any
Parent Common Stock will not have been registered under the Act, the
undersigned may not sell, transfer or otherwise dispose of Parent Common
Stock issued to the undersigned in the Merger unless (i) such sale,
transfer or other disposition has been registered under the Act, (ii) such
sale, transfer or other disposition is made in conformity with the
requirements of Rule 145 promulgated by the Commission under the Act, or
(iii) in the
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<PAGE>
opinion of counsel reasonably acceptable to Parent, such sale, transfer or
other disposition is otherwise exempt from registration under the Act.
5. Parent is under no obligation to register the sale, transfer or other
disposition of Parent Common Stock by the undersigned or on its behalf
under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available. Parent
agrees that it shall make available adequate current public information as
required by Rule 144(c) promulgated by the Commission under the Act.
6. Stop transfer instructions will be given to Parent's transfer agent
with respect to the Parent Common Stock and there will be placed on the
certificates for the Parent Common Stock issued to the undersigned, or any
substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act
of 1933 applies. The shares represented by this certificate may only
be transferred in accordance with the terms of an Affiliate
Agreement dated August 29, 1995, between the registered holder
hereof and Parent, a copy of which agreement is on file at the
principal offices of Parent."
7. The legend set forth in paragraph 6 above shall be removed by delivery
of substitute certificates without such legend if the undersigned shall
have delivered to Parent a copy of a letter from the staff of the
Commission, or an opinion of counsel in form and substance reasonably
satisfactory to Parent, to the effect that such legend is not required for
purposes of the Act.
8. The undersigned will not sell, exchange, transfer, pledge, dispose of
or grant any option, establish any "short" or put-equivalent position with
respect to or enter into any similar transaction intended to reduce his
risk relative to the shares of Parent Common Stock received by the
undersigned in connection with the Merger, except for de minimis sales with
the prior written consent of Parent, during the period beginning from the
date hereof, and ending on the second day after the day Parent publicly
announces financial results covering at least 30 days of combined
operations of the Parent and Centerpoint. Parent, at its discretion, may
cause stop transfer orders consistent with the foregoing to be placed with
its transfer agent with respect to the certificates for Parent Common
Stock.
9. (a) The undersigned currently is the beneficial owner of that number
of shares of Centerpoint Common Stock set forth in Appendix A hereto (the
"Centerpoint Securities") and, except as otherwise set forth in Appendix A,
(i) has held Centerpoint Securities at all times since January 1, 1995 and
(ii) did not acquire any of Centerpoint Securities in contemplation of the
Merger;
(b) Except as otherwise set forth in Appendix A hereto, the undersigned
has not engaged in a Sale (as defined below) of any shares of Centerpoint
Common Stock (including Centerpoint Securities) (i) at any time since
January 1, 1995 or (ii) in contemplation of the Merger;
(c) The undersigned has no plan or intention (a "Plan") to engage in a
sale, exchange, transfer, distribution (including a distribution by a
partnership to its partners or by a corporation to its stockholders),
redemption or reduction in any way of the undersigned's risk of ownership
by short sale or otherwise, or other disposition, directly or indirectly
(such actions being collectively referred to herein as a "Sale") of the
shares of Parent Common Stock to be received by the undersigned in the
Merger. For purposes of the preceding sentence, shares of Centerpoint
Common Stock (or the portion thereof) (i) with respect to which the
undersigned will receive consideration in the Merger other than Parent
Common Stock (including, without limitation, cash to be received in lieu of
fractional shares of Parent Common Stock) and/or (ii) with respect to which
a Sale (A) occurred after January 1, 1995 or otherwise in contemplation of
the Merger or (B) will occur prior to the Merger, shall be considered
shares of Centerpoint Common Stock exchanged for Parent Common Stock in the
Merger and then disposed of pursuant to a Plan;
(d) The undersigned has no Plan to exercise dissenters' rights in
connection with the Merger;
(e) The undersigned is not aware of, or participating in, any Plan on the
part of the stockholders of Centerpoint to engage in a Sale or Sales of the
Parent Common Stock to be received in the Merger such
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<PAGE>
that the aggregate fair market value, as of the Effective Date of the
Merger, of the shares subject to such Sales would exceed 50% of the
aggregate fair market value of all shares of outstanding Centerpoint Common
Stock immediately prior to the Merger. For purposes of the preceding
sentence, shares of Centerpoint Common Stock (or the portion thereof) (i)
with respect to which a Centerpoint stockholder receives consideration in
the Merger other than Parent Common Stock (including, without limitation,
cash received pursuant to the exercise of dissenters' rights or in lieu of
fractional shares of Parent Common Stock) or (ii) with respect to which a
Sale occurs prior to and in contemplation of the Merger, shall be
considered shares of outstanding Centerpoint Common Stock exchanged for
Parent Common Stock in the Merger and then disposed of pursuant to a Plan;
(f) Except to the extent written notification to the contrary is received
by Centerpoint from the undersigned prior to the Merger, the
representations contained herein shall be true and correct at all times
from the date hereof through the date on which the Merger occurs; and
(g) The undersigned has consulted with such legal and financial counsel
as the undersigned has deemed appropriate in connection with the execution
of this Agreement.
10. The undersigned understands that Centerpoint, Bank Sub, Parent and their
respective stockholders, as well as legal counsel to Centerpoint and Parent
(in connection with rendering their opinions that the Merger will be a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended) will be relying on (a) the truth and accuracy of the
representations contained herein and (b) the undersigned's performance of the
obligations set forth herein.
11. Except for Centerpoint Securities and options to purchase that number of
shares of Centerpoint Common Stock set forth in Appendix A hereto, the
undersigned does not beneficially own any shares of Centerpoint Common Stock
or any other equity securities of Centerpoint or any options, warrants or
other rights to acquire any equity securities of Centerpoint.
12. For the convenience of the parties hereto, this Affiliate Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
document.
13. This Affiliate Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns"
shall mean, where the context so permits, heirs, executors, administrators,
trustees and successor trustees, and personal and other representatives.
14. This Affiliate Agreement shall be governed by and construed, interpreted
and enforced in accordance with the laws of the State of New Hampshire.
15. If a court of competent jurisdiction determines that any provision of
this Affiliate Agreement is not enforceable or enforceable only if limited in
time and/or scope, this Affiliate Agreement shall continue in full force and
effect with such provision stricken or so limited.
* * * *
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<PAGE>
16. Counsel to and accountants for the parties to the Merger Agreement shall
be entitled to rely upon this Affiliate Agreement as needed.
Very truly yours
_____________________________________
(print name of stockholder above)
By: _________________________________
Title: ______________________________
Accepted this day of , 1995,
Community Bankshares, Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
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<PAGE>
APPENDIX A
Stockholder: ___________________________________________________________________
Entity: ________________________________________________________________________
(individual, corporation, partnership, other--please specify)
Total Number of shares of Centerpoint Common Stock owned on the date hereof: ___
Total Number of shares of Centerpoint Common Stock owned on January 1, 1995: ___
Total Number of shares of Centerpoint Common Stock disposed of in a Sale (i)
after January 1, 1995 or(ii) otherwise in contemplation of the Merger: _________
Total Number of shares of Centerpoint Common Stock acquired (i) after January
1, 1995 or (ii) otherwise in contemplation of the Merger: ______________________
Please specify the date and number of shares of Centerpoint Common Stock
acquired or disposed of in each transaction (i) after January 1, 1995 or (ii)
otherwise in contemplation of the Merger: ______________________________________
________________________________________________________________________________
Please describe any plan or intent to dispose of, in a Sale, shares of
Centerpoint Common Stock prior to the Merger or shares of Parent Common Stock
after the Merger (attach a separate sheet if necessary): _______________________
________________________________________________________________________________
________________________________________________________________________________
Total Number of options to purchase Centerpoint Common Stock owned on the date
hereof: ________________________________________________________________________
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<PAGE>
EXHIBIT 7.4
FORM OF VOTING AGREEMENT
August , 1995
Community Bankshares, Inc.
43 North Main Street
Post Office Box 739
Concord, New Hampshire 03302-0739
Gentlemen:
Each of the undersigned (a "Stockholder") beneficially owns and has sole
voting power with respect to all shares of the common stock, par value $1.00
per share, now owned or hereafter acquired, whether pursuant to the exercise
of stock options or otherwise (the "Shares"), of Centerpoint Bank (the
"Company").
Simultaneously with the execution of this letter agreement, Community
Bankshares, Inc. ("Parent") and the Company are entering into an Agreement and
Plan of Merger (the "Merger Agreement") providing, among other things, for the
merger of a subsidiary of Parent with the Company (the "Merger"). We
understand that Parent has undertaken and will continue to undertake
substantial expenses in connection with the negotiation and execution of the
Merger Agreement and the subsequent actions necessary to consummate the Merger
and the other transactions contemplated by the Merger Agreement.
In consideration of, and as a condition to, Parent's entering into the
Merger Agreement, and in consideration of the expenses incurred and to be
incurred by Parent in connection therewith, each Stockholder and Parent agree
as follows:
1. AGREEMENT TO VOTE IN FAVOR OF MERGER. Each Stockholder specifically
agrees that: (i) he will use all reasonable efforts to cause a special
meeting of stockholders of the Company (the "Special Meeting") to be held
as soon as is practicable to vote to approve the Merger, the Merger
Agreement and the transactions contemplated thereby, and (ii) at the
Special Meeting, he will vote all of his Shares in favor of the Merger, the
Merger Agreement and the transactions contemplated thereby.
2. IRREVOCABLE PROXY. Each Stockholder hereby revokes any proxy
heretofore granted with respect to any shares of capital stock of the
Company owned by such Stockholder. Each Stockholder hereby agrees to grant
to Parent an irrevocable proxy in the form of Exhibit A attached hereto
upon request of Parent. It is expressly understood and agreed that such
irrevocable proxy shall be coupled with an interest and that Parent shall
have no duty, liability and obligation whatsoever to the undersigned
arising out of the exercise by Parent of such irrevocable proxy unless
Parent acts in a manner inconsistent with the understandings set forth in
this Agreement and the Merger Agreement. Without limiting the generality of
the foregoing, each Stockholder expressly acknowledges and agrees that he
will not impede the exercise of Parent's rights under the Merger Agreement
and that Parent shall have the right, pursuant to the irrevocable proxy, to
vote (i) with respect to all matters relating to the Merger, the Merger
Agreement or the transactions contemplated thereby, and (ii) with respect
to any other matter that Parent deems to be inconsistent with the
consummation of the transactions contemplated by the Merger Agreement.
3. RESTRICTIONS ON SALE OR OTHER DISPOSITION OF SHARES. Each Stockholder
hereby agrees that from and after the date hereof and until the Effective
Time of the Merger (as defined in the Merger Agreement), each Stockholder
will not, directly or indirectly, without the prior written consent of
Parent, sell, assign, hypothecate, transfer, pledge, give, place in trust
or dispose of (including, without limitation, by granting of proxies (other
than proxies not inconsistent with this Agreement, such as proxies relating
to the routine election of directors), or relinquishment of voting rights,
with respect to) any of the Shares owned by each Stockholder, except for
the grant of the irrevocable proxy as provided for herein or any other
proxies granted to Parent.
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<PAGE>
4. NO SOLICITATION. Neither any Stockholder, nor any of his affiliates,
employees, representatives or agents or other persons controlled by him
shall, directly or indirectly, encourage or solicit or hold discussions or
negotiations with or assist or provide any information to, any person,
entity or group (other than Parent) concerning any merger, disposition of a
substantial portion of the Company's assets, acquisition of a substantial
portion of its capital stock or similar transactions involving the Company
or any of its subsidiaries or any branch or division of the Company. Each
Stockholder will immediately communicate to Parent the terms of any
proposal or offer or any inquiry or request for information which it may
receive in respect of any such transaction.
5. REPRESENTATIONS AND WARRANTIES. Each Stockholder represents and
warrants to Parent as follows:
(a) This Agreement has been duly executed and delivered by each
Stockholder and constitutes his legal and valid obligation enforceable
against him in accordance with its terms.
(b) He is the record owner of the number of Shares indicated opposite
such Stockholder's name below; he has plenary voting and dispositive
power with respect to such Shares; he owns no other shares of capital
stock of the Company; there are no proxies, voting trusts or other
agreements or understandings with respect to the voting of any of the
Shares other than this Agreement; and no Stockholder has entered into
(and no Stockholder will enter into) any agreement or arrangement in
any way inconsistent with this Agreement.
6. EQUITABLE REMEDIES. The parties hereto acknowledge that irreparable
damage would result if this Agreement is not specifically enforced and
that, therefore, the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a
court of competent jurisdiction, and appropriate injunctive relief may be
applied for and granted in connection therewith. Such remedies shall,
however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
7. NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered by receipted hand delivery
or mailed by prepaid registered or certified mail (return receipt
requested) or by cable, telegram, telex or telecopy addressed as follows:
If to Parent to:
Community Bankshares, Inc.
43 North Main Street
Post Office Box 739
Concord, New Hampshire 03302-0739
Attention: President
Copy to: Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
Telecopier No.: (617) 832-7000
If to a Stockholder to his address on the signature page hereof, with a
copy to:
Richard A. Samuels, Esq.
McLane, Graf, Raulerson & Middleton, PA
900 Elm Street
Post Office Box 326
Manchester, New Hampshire 03105
or such other address as shall be furnished in writing by any party, and
any such notice or communication shall be deemed to have been given as of
the date so mailed.
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<PAGE>
8. MISCELLANEOUS. This Agreement shall terminate on the later to occur of
(i) one year from the date hereof or (ii) in the event of a material breach
of the Merger Agreement by the Company, on the date the Stock Option
Agreement terminates. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement. This Agreement
shall be governed by and construed in accordance with the laws of New
Hampshire, without giving effect to conflicts of law principles. If any
provision hereof is deemed unenforceable, the enforceability of the other
provisions hereof shall not be affected.
9. SEVERAL OBLIGATION. Each of the Stockholders has signed this letter
agreement intending to be bound severally thereby and not to be bound as
joint obligors.
* * * *
Please confirm our agreement with you by signing a copy of this letter.
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF
NAME AND ADDRESS SHARES SIGNATURES
- ---------------- --------- ----------
<S> <C> <C>
Philip M. Stone 11,551 ______________________________
Barbara Stone 40,000 (Options) Philip M. Stone
Centerpoint Bank
141 South River Road ______________________________
Bedford, NH 03110 Barbara Stone
Mr. Arthur R. Bethke 89,496 ______________________________
President Arthur Bethke, individually
Concord Oil Company and as Trustee of Musterfield
147 Lowell Road Realty Trust
Concord, MA 01742
______________________________
Virginia A. Bethke, Trustee of
Virginia A. Bethke Revocable
Trust
Concord Oil Company
By: __________________________
President
Mr. Ronald H. Bogers 20,383
Joanne Bogers ______________________________
Dorothy Bogers Ronald H. Bogers, individually
4 Hamilton Way and as custodian for Kimberly
Bedford, New Hampshire 03110 and Kristen
______________________________
Joanne Bogers
______________________________
Dorothy Bogers
Donald E. Bossi 30,500 ______________________________
Donald E. Bossi, individually
and as beneficiary of Dean
Witter IRA
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF
NAME AND ADDRESS SHARES SIGNATURES
- ---------------- --------- ----------
<S> <C> <C>
Mr. John J. Clarke, Jr. 7,499 _________________________________
134 Camp Lee Road John J. Clarke, Jr.
Epping, New Hampshire
03042
John T. deBettencourt 10,000 _________________________________
Lighthouse Press John T. deBettencourt,
177 East Industrial Park individually and as Trustee of
Drive
Manchester, NH 03109 d'Argent Financial Trust
Lucy T. Gobin 7,500 (options) _________________________________
Lucy T. Gobin
Walter W. Hemming 35,833 _________________________________
Hemming Associates Walter W. Hemming
North Bridge Business
Center
74 Northeastern Boulevard,
Unit 11
Nashua, NH 03062
P.D. "Sue" Infantine 24,050 _________________________________
8111 Bay Colony Drive William Infantine, as Executor
Contesa #804 of the Estate of Richard
Naples, Florida 33963 Infantine
_________________________________
P.D. Infantine, as beneficiary of
First Albany Corp. IRA and as
Trustee of Infantine Family
Nominee Trust
_________________________________
William Infantine
Donald J. Levasseur 10,000 _________________________________
Helene Levasseur Donald J. Levasseur
Levassuer & Associates
81 Poor Street _________________________________
Manchester, New Hampshire Helene Levasseur
03102
Joseph B. Reilly 1,251 _________________________________
7,500 (options) Joseph B. Reilly, individually
and as beneficiary of AG
Edwards IRA
David B. Salzman 28,636 _________________________________
David B. Salzman
</TABLE>
A-57
<PAGE>
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF
NAME AND ADDRESS SHARES SIGNATURES
- ---------------- --------- ----------
<S> <C> <C>
Vartkes Tamzarian 5,000 _______________________________
President Vartkes Tamzarian, individually
Thelma Katz & Associates and as beneficiary of Invest
46 West Webster Street Financial Corp. IRA
Manchester, New Hampshire 03104
_______________________________
Berjouhi Tamzarian
Ronald C. Thomashow 2117 _______________________________
34 Church Road Ronald Thomashow, as
Bedford, New Hampshire 03110 beneficiary of Smith Barney-
Shearson IRA
Michael T. Whaley 2,400 _______________________________
Michael T. Whaley
</TABLE>
Agreed to and accepted this day of , 1995.
Community Bankshares, Inc.
By: _________________________________
Name: Title:
A-58
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned (the "Stockholder") hereby revokes any proxy heretofore
granted with respect to any shares of capital stock of Centerpoint Bank
("Centerpoint") owned by such Stockholder. The Stockholder hereby grants to
Community Bankshares, Inc. ("Parent") an irrevocable proxy:
(x) To call a special meeting of stockholders of Centerpoint to approve
the business combination (the "Merger") contemplated by that certain
Agreement and Plan of Merger dated as of August 29, 1995 (the "Merger
Agreement") by and between Parent and Centerpoint, the Merger Agreement or
the transactions contemplated thereby or any other business combination
involving Centerpoint, and
(y) To vote at any meeting of stockholders of Centerpoint, in any manner
that Parent may determine in its sole and absolute discretion to be in the
best interest of Parent, all of the shares of capital stock of Centerpoint
with respect to which the undersigned has voting power (the "Shares"): (i)
with respect to all matters relating to the Merger, the Merger Agreement or
the transactions contemplated thereby, and (ii) with respect to any other
matter that Parent deems to be inconsistent with the consummation of the
transactions contemplated by the Merger Agreement.
It is expressly understood and agreed that the foregoing irrevocable proxy
is coupled with an interest and that Parent shall have no duty, liability and
obligation whatsoever to the undersigned arising out of the exercise by Parent
of the irrevocable proxy granted hereby. Without limiting the generality of
the foregoing, the undersigned expressly acknowledges and agrees that (i) the
undersigned will not impede the exercise of Parent's rights under the Merger
Agreement, (ii) the irrevocable proxy granted hereunder secures, among other
things, the duty in clause (i), and (iii) the undersigned waives and
relinquishes any claim, right or action it might have, as a shareholder of
Centerpoint or otherwise, against Parent or any of its affiliates in
connection with any exercise of the irrevocable proxy granted hereunder.
This Proxy shall terminate on the later to occur of (i) August 29, 1996 or
(ii) in the event of a material breach of the Merger Agreement by Centerpoint,
on the date of termination of the Stock Option Agreement (as defined in the
Merger Agreement).
Witness:
_____________________________________ _____________________________________
A-59
<PAGE>
ANNEX B
[FORM OF CONTRACT FOR UNION]
CONTRACT FOR UNION
Contract for Union, dated as of , 199 , by and between Community
Interim Trust Company, a New Hampshire trust company ("CITC") and a wholly-
owned subsidiary of Community Bankshares, Inc., a New Hampshire corporation
("CBI"), and Centerpoint Bank, a New Hampshire trust company ("Centerpoint").
RECITALS
WHEREAS, CBI and Centerpoint are parties to an Agreement and Plan of Merger
dated as of August 29, 1995 (the "Merger Agreement"), which provides that CITC
and Centerpoint shall enter into this Contract for Union so that the merger of
CITC with Centerpoint (the "Merger") may take place as contemplated in the
Merger Agreement; and
WHEREAS, the respective Boards of Directors of CITC and Centerpoint have
adopted resolutions approving this Contract for Union and have directed that
it be duly submitted to the shareholders of each of CITC and Centerpoint in
accordance with the applicable laws of the State of New Hampshire; and
WHEREAS, the shareholders of each of CITC and Centerpoint have duly approved
the Merger Agreement and this Contract for Union; and
WHEREAS, each of CITC and Centerpoint have duly approved the Merger
Agreement and this Contract for Union; and
WHEREAS, CITC and Centerpoint desire that CITC be merged with and into
Centerpoint, on the terms and conditions hereinafter set forth and in
accordance with the applicable laws of the State of New Hampshire.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in the Merger Agreement and in this Contract for Union,
CITC and Centerpoint agree to merge on the terms and conditions as follows:
ARTICLE 1
The Merger
1.1. The Merger. At the Effective Time (as defined below), CITC shall be
merged with and into Centerpoint. Centerpoint shall continue its corporate
existence as the surviving bank (the "Surviving Bank") and the identity,
properties and assets of Centerpoint shall continue unaffected and unimpaired
by the Merger. The identity and separate existence of CITC shall cease, and
all of the rights, privileges, powers, franchises, properties and assets of
CITC shall be vested in Centerpoint.
1.2 Effective Time. When authorization of the Merger by the New Hampshire
Bank Commissioner is received pursuant to RSA 388:8 and 9, this Contract for
Union shall constitute a contract for union entered into pursuant to that
authorization and shall be submitted to the Bank Commissioner for his approval
pursuant to RSA 388:10. Following receipt of such approval (or a Superior
Court decree pursuant to RSA 388:5) and the receipt of other required
approvals, and following the Closing provided for by Section 9.1 of the Merger
Agreement, this Contract for Union, together with the Bank Commissioner's
certificate of authority pursuant to RSA 388:9 and approval pursuant to RSA
388:10 and any necessary approvals pursuant to RSA 388:14 (or the Superior
Court decree pursuant to RSA 388:5), shall be filed with the New Hampshire
Secretary of State. Subject to the terms and upon satisfaction of all
requirements of law and the conditions specified in this Contract for Union,
the Merger shall become effective immediately following the close of business
on the date on which such
<PAGE>
filing with the Secretary of State takes place (the "Effective Time"), which
will constitute an effective date of union as that term is used in RSA 388:10.
ARTICLE 2
Articles of Agreement; Bylaws
2.1 Charter. The Articles of Agreement (the "Charter") of Centerpoint, as in
effect immediately prior to the Effective Time, shall be the Charter of the
Surviving Bank from and after the Effective Time, except as the Charter may
thereafter be altered, amended or repealed.
2.2. Bylaws. The Bylaws of Centerpoint, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Bank from and after
the Effective Time, except as the Bylaws may thereafter be altered, amended or
repealed.
ARTICLE 3
Board of Directors and Officers
3.1. Directors. From and after the Effective Time of the Merger, the
directors of the Surviving Bank, who shall hold office until their successors
are elected and qualified according to the Bylaws of the Surviving Bank, shall
be the same as the directors of Centerpoint immediately prior to the Effective
Time of the Merger.
3.2. Officers. From and after the Effective Time of the Merger, the officers
of the Surviving Bank, who shall hold office until their successors are
elected and qualified according to the Bylaws of the Surviving Bank, shall be
the same as the officers of Centerpoint immediately prior to the Effective
Time of the Merger.
ARTICLE 4
Conversion and Exchange of Shares; Dissenters' Rights
4.1. Conversion and Exchange of Shares. The manner of converting and
exchanging the shares of CITC and shares and share options of Centerpoint
shall be as set forth in Article II of the Merger Agreement.
4.2. Dissenters' Rights. Shares of CITC or Centerpoint, which are issued
and outstanding immediately prior to the Effective Time and which are owned by
stockholders who assert and perfect dissenters' rights pursuant to and in
accordance with New Hampshire RSA 388:13 and RSA 293-A:13:01-13.31
("Dissenting Shares"), shall not be converted or exchangeable as provided in
Section 4.1 of this Contract for Union unless and until such holders shall
have failed to perfect or shall have effectively withdrawn or lost their right
to payment for such shares under such applicable laws. If any such holder
shall have failed to perfect or shall have effectively withdrawn or lost such
right, the shares of CITC or Centerpoint held by such shareholder shall
thereupon be deemed to have been converted and exchangeable, at the Effective
Time, as provided for in Section 4.1 hereof.
ARTICLE 5
Rights and Obligations; Further Assurances
At the Effective Time of the Merger, the separate existence of CITC shall
cease and the Surviving Bank shall possess all rights, franchises, and
interests of CITC in and to every type of property (real, personal and mixed)
and chose in action by virtue of such Merger without any deed or other
transfer, and the Surviving Bank, without any order or other action on the
part of any court or otherwise, shall hold and enjoy all rights of property,
B-2
<PAGE>
franchises and interests, of a public as well as of a private nature,
including appointments, designations and nominations and all other rights and
interests as trustee, executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver and committee of estates of
incompetents, and in every other fiduciary capacity, in the same manner and to
the same extent as such rights, franchises and interests were held or enjoyed
by CITC at the time the Merger became effective. The Surviving Bank shall be
liable for all liabilities of CITC, all deposits, debts, liabilities,
obligations and contracts of CITC matured or unmatured, whether accrued,
absolute, contingent or otherwise, and whether or not reflected or reserved
against on balance sheets, books of account, or records of CITC shall be those
of the Surviving Bank and shall not be released or impaired by the Merger, and
all rights of creditors and other obligees and all liens on property of CITC
shall be preserved unimpaired.
At the Effective Time, this Contract for Union shall be deemed to
constitute, insofar as any transfer document is necessary, an irrevocable
transfer and assignment by CITC to the Surviving Bank of all CITC's interests
in and to every type of property, including those described in the foregoing
paragraph. From time to time as and when requested by the Surviving Bank and
to the extent permitted by New Hampshire law, the officers and directors of
CITC last in office shall execute and deliver such deeds and other instruments
and shall take or cause to be taken such further or other actions as shall be
necessary in order to vest or perfect in or to confirm of record or otherwise
to the Surviving Bank title to, and possession of, all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of CITC, and otherwise to carry out the purposes of this Contract
for Union; provided, that the Surviving Bank shall, to the extent provided in
the Bylaws of the Surviving Bank and by New Hampshire law, indemnify any such
officer or director who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding by reason
of the fact that he executed or delivered such instrument or took such action
at the request of the Surviving Bank; further provided, without limiting the
foregoing, that CITC hereby irrevocably appoints the duly elected officers of
the Surviving Bank as CITC's attorneys-in-fact, each with full power and
authority in the place and stead of CITC and in the name of CITC to execute
and deliver such deeds and other instruments.
ARTICLE 6
Amendment
The parties hereto, by mutual action of their respective Boards of
Directors, may amend, modify or supplement this Contract for Union, whether
before or after approval thereof by the shareholders of the parties, the New
Hampshire Bank Commissioner or Superior Court; provided, however, that after
any approval of the Merger by the shareholders, there may not be, without
further approval of Centerpoint shareholders, any amendment of this Contract
for Union which reduces the amount or changes the form of consideration to be
delivered to Centerpoint shareholders. This Contract for Union may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
ARTICLE 7
Miscellaneous
7.1. Any party, by written instrument signed by any duly authorized officer,
may extend the time for the performance of any of the obligations or other
acts of any other party hereto, and may waive compliance with any of the
covenants or performance of any of the obligations of the other party
contained in this Contract for Union.
7.2. This Contract for Union shall be governed by and construed in
accordance with the laws of New Hampshire applicable to agreements made and
entirely to be performed within such State.
7.3. The headings of the several Articles 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 Contract for Union.
B-3
<PAGE>
7.4 This Contract for Union may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, CITC and Centerpoint have caused this Contract for Union
to be executed by their duly authorized officers as of the day and year first
above written.
Community Interim Trust Company
Attest:
_____________________________________ By: _________________________________
Douglas Crichfield, President
Centerpoint Bank
Attest:
_____________________________________
By: _________________________________
Philip M. Stone, President
[SEAL]
B-4
<PAGE>
ANNEX C
OPINIONS OF MCCONNELL, BUDD & DOWNES, INC. AND HAS ASSOCIATES, INC.
TO BE FILED BY AMENDMENT
C-1
<PAGE>
ANNEX D
COMMUNITY BANKSHARES, INC.
PROPOSED AMENDMENTS TO RESTATED ARTICLES OF INCORPORATION
CURRENT ARTICLE NINTH C TO COMMUNITY'S ARTICLES OF INCORPORATION:
C. In addition to any vote required by law or these Articles of
Incorporation, the approval or authorization of (a) any merger or
consolidation of the corporation or any subsidiary of the corporation with
or into any other entity, other than a merger or consolidation of one or
more subsidiaries into the corporation or a subsidiary, and (b) a sale of
assets of the corporation having Material Value, shall require the
affirmative vote of not less than two-thirds of the outstanding capital
stock of the corporation.
PROPOSED AMENDED ARTICLE NINTH C TO COMMUNITY'S ARTICLES OF INCORPORATION:
C. In addition to any vote required by law or these Articles of
Incorporation, the approval or authorization of (a) any merger, share
exchange, or consolidation of the corporation with or into any other
entity, and (b) a sale or disposition of all or substantially all of the
assets of the corporation shall require the affirmative vote of not less
than two thirds of the outstanding capital stock entitled to vote generally
in the election of directors of the corporation (the "Voting Securities").
The two-thirds vote requirement set forth in subsection (a) of the previous
sentence shall not apply to a merger, share exchange, or consolidation
which would result in the Voting Securities of the corporation outstanding
immediately prior to the transaction continuing to represent (either by
remaining outstanding or by being converted into or exchanged for voting
securities of the surviving entity) more than 60% of the Voting Securities
of the corporation or such surviving entity outstanding immediately after
such merger, share exchange, or consolidation. The term "surviving entity"
shall mean (i) the entity that continues to exist following a merger or a
consolidation or (ii), with respect to a share exchange, the entity that
issues its securities in exchange for the outstanding securities of another
entity.
D-1
<PAGE>
ANNEX E
DISSENTERS' RIGHTS
NEW HAMPSHIRE BUSINESS CORPORATION ACT
A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
293-A:13.01 DEFINITIONS. IN THIS SUBDIVISION:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RSA 293-A:13.02 and who exercises that right when
and in the manner required by RSA 293-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.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
293-A:13.02 RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(i) If shareholder approval is required for the merger by RSA 293-
A:11.03 or the articles of incorporation and the shareholder is
entitled to vote on the merger; or
(ii) If the corporation is a subsidiary that is merged with its
parent under RSA 293-A:11.04.
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale.
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares.
(ii) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(iv) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights.
E-1
<PAGE>
(v) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under RSA 293-A:6.04.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this subdivision shall not challenge the corporate action creating his
entitlement, unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
293-A:13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all
shares beneficially owned by 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.
B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
293-A:13.20 NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under RSA 293-
A:13.02 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this subdivision and be accompanied by a copy of this
subdivision.
(b) If corporate action creating dissenters' rights under RSA 293-A:13.02 is
taken without a vote of shareholders or by consent pursuant to RSA 293-A:7.04,
the corporation shall notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in RSA 293-A:13.22.
293-A:13.21 NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under RSA 293-
A:13.02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this subdivision.
293-A:13.22 DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under RSA 293-
A:13.02 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RSA 293-A:13.21.
E-2
<PAGE>
(b) The dissenters' notice shall be sent no later than 10 days after
corporate action was taken, and shall:
(1) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited.
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date.
(4) Set a date by which the corporation shall receive the payment demand,
which date shall not be fewer than 30 nor more than 60 days after the date
the notice is delivered.
(5) Be accompanied by a copy of this subdivision.
293-A:13.23 DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in RSA 293-A:13.22
shall demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth, in the dissenters' notice
pursuant to RSA 293-A:13.22(b)(3), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this subdivision.
293-A:13.24 SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under RSA 293-A:13.26.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
293-A:13.25 PAYMENT.
(a) Except as provided in RSA 293-A:13.27, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall
pay each dissenter who complied with RSA 293-A:13.23 the amount the
corporation estimates to be the fair value of his shares, plus accrued
interest.
(b) The payment shall be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under RSA 293-
A:13.28; and
(5) A copy of this subdivision.
293-A:13.26 FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
E-3
<PAGE>
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under RSA 293-A:13.22 and repeat the payment demand
procedure.
293-A:13.27 AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by RSA 293-A:13.25
from a dissenter, unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate
action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under RSA 293-
A:13.28.
293-A:13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate, less any payment under RSA 293-A:13.25, or reject the
corporation's offer under RSA 293-A:13.27 and demand payment of the fair value
of his shares and interest due, if:
(1) The dissenter believes that the amount paid under RSA 293-A:13.25 or
offered under RSA 293-A:13.27 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under RSA 293-A:13.25 within 60
days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a)
within 30 days after the corporation made or offered payment for his shares.
C. JUDICIAL APPRAISAL OF SHARES
293-A:13.30 COURT ACTION.
(a) If a demand for payment under RSA 293-A:13.28 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
E-4
<PAGE>
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decisions on the
question of their value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation; or,
(2) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under RSA 293-
A:13.27.
293-A:13.31 COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under RSA 293-A:13.30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court 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.
(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.
CONSOLIDATION OF BANKS
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 293-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.
E-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 293-A:8.51 of the New Hampshire Business Corporation Act provides
that a corporation may indemnify an individual made a party to a proceeding
because he is or was a director, against liability incurred in the proceeding
if: (1) he conducted himself in good faith; and (2) he reasonably believed (i)
in the case of conduct in his official capacity with the corporation, that his
conduct was in its best interests, and (ii) in all other cases, that his
conduct was at least not opposed to its best interests; and (3) in the case of
any criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. A corporation may not indemnify a director (1) in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable on the basis that personal benefit was improperly received by
him. Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding.
The registrant's By-Laws contain the following provision with respect to
indemnification of directors and officers.
(a) The corporation shall indemnify and reimburse any
individual person who was or is a party to any action, suit or
proceeding, whether civil, criminal or administrative, by reason
of the fact that such party, or the person whose legal
representative or successor such party is, was or is serving as
a Director, officer, employee or agent of the corporation, or at
its request, of another entity in which the corporation has an
interest, or was or is serving at the request of the corporation
as a fiduciary of any employee benefit plan of the corporation
or any subsidiary. Such indemnification and reimbursement shall
include all expenses (including attorney's fees), and such
amount of any judgment, money decree, fine, penalty of
settlement for which such person may have become liable as the
Board of Directors deems reasonable, actually incurred by such
person in connection with the defense or reasonable settlement
of any such action, suit or proceeding, or any appeal therein,
to the extent and under the circumstances permitted by the New
Hampshire Business Corporation Act. Such indemnification and
reimbursement (unless ordered by a court) shall be made as
authorized in a specific case upon a further determination that
indemnification of the Director, officer or employee is proper
in the circumstances because such person has met the applicable
standards of conduct set forth in the New Hampshire Business
Corporation Act.
(b) Such determination of reasonableness and propriety with
respect to persons other than Directors shall be made by the
Board of Directors by a majority vote, and with respect to the
Directors shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not
parties to such action, suit or proceeding or (ii) if such a
quorum is not obtainable, or even if obtainable, if a quorum of
disinterested Directors so directs, by independent legal counsel
in a written opinion, or (iii) by the shareholders.
(c) The foregoing right of indemnification shall not be
exclusive of other rights to which such person, or the legal
representatives or successors of such person may be entitled as
a matter of law, under the Articles of Incorporation, by
contract or otherwise.
(d) The corporation may purchase and maintain insurance on
behalf of any person who was or is a Director, officer or
employee of the corporation or was or is serving at the request
of the corporation as a fiduciary of any employee benefit plan
of the corporation or any subsidiary against any liability
asserted against, and incurred by, such person in any such
capacity, or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify
such person against such liability under the provisions of the
New Hampshire Business Corporation Act. The obligation to
indemnify and reimburse set forth hereinabove, if applicable,
shall be reduced by the amount of any such insurance proceeds
paid to such person, or the representatives or successors of
such person.
II-1
<PAGE>
The registrant's Articles of Incorporation contain the following provision
with respect to indemnification of directors and officers.
EIGHTH: In addition to the rights of indemnification provided
under RSA 293-A:5 as presently in effect and any greater rights
from time to time provided by law, by the by-laws of the
corporation or any agreement, vote of the shareholders or
disinterested directors, or otherwise, the corporation shall
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is
or was serving as a trustee or other fiduciary with respect to
any employee benefit plan (or its participants or beneficiaries)
of the corporation or any subsidiary of the corporation, against
expenses (including attorneys' fees), judgments, fines, excise
taxes assessed with respect to any employee benefit plan, and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, 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 reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his
conduct was unlawful. A trustee or other fiduciary who acted in
good faith and in a manner he reasonably believed to be in the
interests of the participants or beneficiaries of any employee
benefit plan of the corporation or any subsidiary shall be
deemed to have acted in a manner not opposed to the best
interests of the corporation.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2 Agreement and Plan of Merger dated as of August 29, 1995 (the
"Merger Agreement") (filed as Annex A to the Proxy Statement-
Prospectus which constitutes a part of this Registration
Statement).
3.1(a) Restated Articles of Incorporation of Community Bankshares, Inc.
(incorporated by reference to Exhibit 3.1B to Amendment No. 1 to
Community's Registration Statement on Form S-1, Registration No.
33-00125 (the "S-1 Registration Statement")).
3.1(b) Statement of Resolution establishing series of preferred stock
dated October 27, 1989 (incorporated by reference to Exhibit
3.1(a) to Annual Report on Form 10-K for the year ended June 30,
1991 (the "1991 10-K")).
*3.2 By-Laws of Community Bankshares, Inc.
4.1 Loan Agreement dated September 22, 1986 between the Savers Bank
and the Trustee of the Concord Savings Bank Employees Stock
Ownership Plan, with related Note and Pledge Agreement
(incorporated by reference to Exhibit 4 to Annual Report on Form
10-K for the year ended June 30, 1986).
4.2 Rights Agreement between Community Bankshares, Inc. and The First
National Bank of Boston dated as of October 31, 1989 (incorporated
by reference to Form 8-A filed June 30, 1989).
*4.3 Specimen of Community common stock certificate.
*5 Opinion of Foley, Hoag & Eliot as to the legality of the Community
Common Stock being registered.
*8 Opinion of Foley, Hoag & Eliot regarding tax matters.
</TABLE>
- --------
* To be filed by amendment.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.1 Stock Option Agreement by and between Community Bankshares, Inc.
and Centerpoint Bank, dated as of August 29, 1995 (incorporated by
reference to Community's Current Report on Form 8-K dated as of
August 29, 1995).
10.2 Form of Affiliate Agreement (filed as Exhibit 7.3 to the Merger
Agreement).
10.3 Form of Voting Agreement (filed as Exhibit 7.4 to the Merger
Agreement).
10.4 Concord Savings Bank 1985 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.2 to Amendment No. 3 to
the S-1 Registration Statement).
10.5 Amendment to the Concord Savings Bank 1985 Stock Option Plan
adopted August 18, 1987 (incorporated by reference to Exhibit
10.2(b) to Annual Report on Form 10-K for the year ended June 30,
1987).
10.6 Concord Savings Bank 1988 Stock Option Plan (incorporated by
reference to Exhibit A to Proxy Statement for Annual Meeting of
Stockholders held on October 20, 1988).
10.7 Executive Supplemental Retirement Agreement with Douglas
Crichfield (incorporated by reference to Exhibit 10.8 to the
Quarterly Report on Form 10-Q for the quarter ended September 30,
1988).
10.8 Severance Benefits Agreement with Douglas Crichfield dated August
1, 1988 (incorporated by reference to Exhibit 10.9 to the Annual
Report on Form 10-K for the year ended June 30, 1989 (the "1989
10-K").
10.9 Amendment to Severance Benefits Agreement with Douglas Crichfield
dated April 19, 1989 (incorporated by reference to Exhibit 10.9(a)
to the 1989 10-K).
10.10 Severance Benefits Agreement with Donna L. Bean (incorporated by
reference to Exhibit 10.10 to the 1989 10-K).
10.11 Severance Benefits Agreement with Gerald R. Emery (incorporated by
reference to Exhibit 10.7(a) to the Annual Report on Form 10-K
for the year ended June 30, 1993).
10.12 Severance Benefits Agreement with David E. Fuller (incorporated by
reference to Exhibit 10.12 to the 1989 10-K).
10.13 Severance Benefits Agreement with Robert F. Howe (incorporated by
reference to Exhibit 10.13 to the 1989 10-K).
10.14 Severance Benefits Agreement with Richard E. Kamp (incorporated by
reference to Exhibit 10.14 to the 1989 10-K).
10.15 Severance Benefits Agreement with Paul M. Ferguson (incorporated
by reference to Exhibit 10.11 to the 1991 10-K).
10.16 Severance Benefits Agreement with Charles E. Gorhan (incorporated
by reference to Exhibit 10.12 to the 1991 10-K).
10.17 Severance Benefits Agreement with Irving S. Felladore
(incorporated by reference to Exhibit 10.13 to the 1991 10-K).
10.18 Severance Benefits Agreement with Margaret A. Flint (incorporated
by reference to Exhibit 10.14 to the 1991 10-K).
10.19 Community Bankshares, Inc. 1992 Stock Option Plan (incorporated by
reference to Exhibit A to the Proxy Statement for the Annual
Meeting of Stockholders held on October 15, 1992).
21 Subsidiaries of Community Bankshares, Inc. (incorporated by
reference to Exhibit 22 to the Annual Report on Form 10-K for the
year ended June 30, 1986).
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP
*23.3 Consent of McConnell, Budd & Downes, Inc.
*23.4 Consent of HAS Associates, Inc.
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*23.5 Consent of Foley, Hoag & Eliot (filed as part of Exhibit 5 and
Exhibit 8).
23.6 Consent of McLane, Graf, Raulerson & Middleton Professional
Association.
24 Power of Attorney contained on Page II--- of this Registration
Statement.
*99.1 Form of Proxy for Annual Meeting of Shareholder of Community
Bankshares, Inc.
</TABLE>
- --------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
RULE 512(B)
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
RULE 512(E)
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
RULE 512(G)
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition of the
information called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
RULE 512(H)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being
II-4
<PAGE>
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
ADDITIONAL UNDERTAKINGS
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of an included in
the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Concord, State of New
Hampshire on October 16, 1995.
Community Bankshares, Inc.
By: /s/ Douglas Crichfield
---------------------------------
DOUGLAS CRICHFIELD
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Douglas Crichfield, Gerald R. Emery and Richard
E. Kamp, and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Douglas Crichfield President and Chief October 16, 1995
- ------------------------------------- Executive Officer
DOUGLAS CRICHFIELD and Director
(Principal
Executive Officer)
/s/ Gerald R. Emery Treasurer and Chief October 16, 1995
- ------------------------------------- Financial Officer
GERALD R. EMERY (Principal
Financial and
Accounting Officer)
/s/ John N. Buxton Director October 16, 1995
- -------------------------------------
JOHN N. BUXTON
/s/ William S. Fenollosa Director October 16, 1995
- -------------------------------------
WILLIAM S. FENOLLOSA
II-6
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Oliver R. Fifield Director October 16, 1995
- -------------------------------------
OLIVER R. FIFIELD
/s/ Thomas M. Hardiman Chairman and October 16, 1995
- ------------------------------------- Director
THOMAS M. HARDIMAN
Director
- -------------------------------------
ROBERT A. HILL
/s/ Russell A. Holden Director October 16, 1995
- -------------------------------------
RUSSELL A. HOLDEN
/s/ Lucia P. Kittredge Director October 16, 1995
- -------------------------------------
LUCIA P. KITTREDGE
/s/ Seth A. Resnicoff Director October 16, 1995
- -------------------------------------
SETH A. RESNICOFF
/s/ Eleanor H. Stark Director October 16, 1995
- -------------------------------------
ELEANOR H. STARK
/s/ James R. Stewart Director October 16, 1995
- -------------------------------------
JAMES R. STEWART
/s/ Katherine F. Tsouros Director October 16, 1995
- -------------------------------------
KATHERINE F. TSOUROS
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
2 Agreement and Plan of Merger dated as of August 29, 1995
(the "Merger Agreement") (filed as Annex A to the Proxy
Statement-Prospectus which constitutes a part of this
Registration Statement).
3.1(a) Restated Articles of Incorporation of Community Bankshares,
Inc. (incorporated by reference to Exhibit 3.1B to
Amendment No. 1 to Community's Registration Statement on
Form S-1, Registration No. 33-00125 (the "S-1 Registration
Statement")).
3.1(b) Statement of Resolution establishing series of preferred
stock dated October 27, 1989 (incorporated by reference to
Exhibit 3.1(a) to Annual Report on Form 10-K for the year
ended June 30, 1991 (the "1991 10-K")).
*3.2 By-Laws of Community Bankshares, Inc.
4.1 Loan Agreement dated September 22, 1986 between the Savers
Bank and the Trustee of the Concord Savings Bank Employees
Stock Ownership Plan, with related Note and Pledge
Agreement (incorporated by reference to Exhibit 4 to Annual
Report on Form 10-K for the year ended June 30, 1986).
4.2 Rights Agreement between Community Bankshares, Inc. and The
First National Bank of Boston dated as of October 31, 1989
(incorporated by reference to Form 8-A filed June 30,
1989).
*4.3 Specimen of Community common stock certificate.
*5 Opinion of Foley, Hoag & Eliot as to the legality of the
Community Common Stock being registered.
*8 Opinion of Foley, Hoag & Eliot regarding tax matters.
10.1 Stock Option Agreement by and between Community Bankshares,
Inc. and Centerpoint Bank, dated as of August 29, 1995
(incorporated by reference to Community's Current Report on
Form 8-K dated as of August 29, 1995).
10.2 Form of Affiliate Agreement (filed as Exhibit 7.3 to the
Merger Agreement).
10.3 Form of Voting Agreement (filed as Exhibit 7.4 to the
Merger Agreement).
10.4 Concord Savings Bank 1985 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.2 to Amendment No.
3 to the S-1 Registration Statement).
10.5 Amendment to the Concord Savings Bank 1985 Stock Option
Plan adopted August 18, 1987 (incorporated by reference to
Exhibit 10.2(b) to Annual Report on Form 10-K for the year
ended June 30, 1987).
10.6 Concord Savings Bank 1988 Stock Option Plan (incorporated
by reference to Exhibit A to Proxy Statement for Annual
Meeting of Stockholders held on October 20, 1988).
10.7 Executive Supplemental Retirement Agreement with Douglas
Crichfield (incorporated by reference to Exhibit 10.8 to
the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988).
10.8 Severance Benefits Agreement with Douglas Crichfield dated
August 1, 1988 (incorporated by reference to Exhibit 10.9
to the Annual Report on Form 10-K for the year ended June
30, 1989 (the "1989 10-K").
10.9 Amendment to Severance Benefits Agreement with Douglas
Crichfield dated April 19, 1989 (incorporated by reference
to Exhibit 10.9(a) to the 1989 10-K).
</TABLE>
- --------
* To be filed by amendment.
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
10.10 Severance Benefits Agreement with Donna L. Bean
(incorporated by reference to Exhibit 10.10 to the 1989 10-
K).
10.11 Severance Benefits Agreement with Gerald R. Emery
(incorporated by reference to Exhibit 10.7(a) to the Annual
Report on Form 10-K for the year ended June 30, 1993).
10.12 Severance Benefits Agreement with David E. Fuller
(incorporated by reference to Exhibit 10.12 to the 1989 10-
K).
10.13 Severance Benefits Agreement with Robert F. Howe
(incorporated by reference to Exhibit 10.13 to the 1989 10-
K).
10.14 Severance Benefits Agreement with Richard E. Kamp
(incorporated by reference to Exhibit 10.14 to the 1989 10-
K).
10.15 Severance Benefits Agreement with Paul M. Ferguson
(incorporated by reference to Exhibit 10.11 to the 1991 10-
K).
10.16 Severance Benefits Agreement with Charles E. Gorhan
(incorporated by reference to Exhibit 10.12 to the 1991 10-
K).
10.17 Severance Benefits Agreement with Irving S. Felladore
(incorporated by reference to Exhibit 10.13 to the 1991 10-
K).
10.18 Severance Benefits Agreement with Margaret A. Flint
(incorporated by reference to Exhibit 10.14 to the 1991 10-
K).
10.19 Community Bankshares, Inc. 1992 Stock Option Plan
(incorporated by reference to Exhibit A to the Proxy
Statement for the Annual Meeting of Stockholders held on
October 15, 1992).
21 Subsidiaries of Community Bankshares, Inc. (incorporated by
reference to Exhibit 22 to the Annual Report on Form 10-K
for the year ended June 30, 1986).
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP
*23.3 Consent of McConnell, Budd & Downes, Inc.
*23.4 Consent of HAS Associates, Inc.
*23.5 Consent of Foley, Hoag & Eliot (filed as part of Exhibit 5
and Exhibit 8).
23.6 Consent of McLane, Graf, Raulerson & Middleton Professional
Association.
24 Power of Attorney contained on Page II--- of this
Registration Statement.
*99.1 Form of Proxy for Annual Meeting of Shareholder of
Community Bankshares, Inc.
</TABLE>
- --------
* To be filed by amendment.
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors Community Bankshares, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Joint Proxy Statement-Prospectus. Our
report refers to the Company's adoption of Statement of Financial Accounting
Standards No. 122 effective July 1, 1994.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts October 12, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 26, 1995, with respect to the financial
statements of Centerpoint Bank included in the Joint Proxy Statement for
Community Bankshares, Inc. and Centerpoint Bank which is made a part of the
Registration Statement (Form S-4) and Prospectus of Community Bankshares, Inc.
for the registration of 711,236 shares of its common stock.
/s/ Ernst & Young LLP
Manchester, New Hampshire October 12, 1995
<PAGE>
EXHIBIT 23.6
CONSENT OF MCLANE, GRAF, RAULERSON & MIDDLETON PROFESSIONAL ASSOCIATION
We consent to the reference to our firm under the caption "Legal Opinion" in
the Joint Proxy Statement for Community Bankshares, Inc. and Centerpoint Bank
which is a part of this Registration Statement on Form S-4 and Prospectus of
Community Bankshares, Inc. for the registration of 711,236 shares of its
common stock.
McLane, Graf, Raulerson & Middleton
Professional Association
/s/ Richard A. Samuels
By: _________________________________
RICHARD A. SAMUELS
