As filed with the Securities and Exchange Commission on January 13, 1995.
Registration No. 033-56875
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CFX CORPORATION
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE
(State or other jurisdiction of incorporation or organization)
6711
(Primary Standard Industrial Classification Code No.)
02-0402421
(I.R.S. Employer Identification No.)
102 Main Street
Keene, New Hampshire 03431
(603) 352-2502
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PETER J. BAXTER
President and Chief Executive Officer
CFX Corporation
102 Main Street, Keene, New Hampshire 03431
(603) 352-2502
(Name, address, including zip code, and telephone number, including area code,
of agent of service)
Copies to:
Paul C. Remus, Esq. Peter W. Coogan, Esq.
Devine, Millimet & Branch Foley, Hoag, & Eliot
Professional Association One Post Office Square
111 Amherst Street, P.O. Box 719 Boston, Massachusetts 02109
Manchester, New Hampshire 03101
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 Maximum
Title of Each Class Maximum Aggregate
of Securities to Amount to be Offering Price Offering Amount of
be Registered Registered Per Share(1) Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value 713,111(2) $13.3329 $9,507,907.50 $3,278.59(3)
<F1> Estimated solely for the purpose of computing the registration fee.
<F2> Represents the maximum number of shares of Common Stock to be issued by
the Registrant in the proposed acquisition of Orange Savings Bank. This
Registration Statement also covers such indeterminable number of shares of
Common Stock as may be issued upon the conversion of the shares of Common
Stock by reason of adjustments of the conversion ratio in certain
contingencies. Since such Common Stock, if issued, will be issued for no
additional consideration, no registration fee is required.
<F3> The registration fee is calculated pursuant to Rule 457(f)(1) under the
Securities Act of 1933 based on the aggregate market value of the common stock
of Orange Savings Bank based on the average bid and asked prices of such stock
on the Nasdaq Small-Cap Market on January 6, 1995. Since the proposed maximum
aggregate offering price has not changed, no additional registration fee is
payable.
</TABLE>
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.
CFX CORPORATION
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
<C> <S> <S>
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; Information Incorpo-rated By Reference;
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 Financial Data
4. Terms of the Transaction The Merger; Description of CFX Capital Stock; Comparison of
Rights of CFX and Orange Stockholders
5. Pro Forma Financial Information Pro Forma Combined Financial Data
6. Material Contracts with the Company Being Acquired Not Applicable
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
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 Registrants Available Information; Information Incorpo-rated by Reference;
Information about CFX; Comparative Stock Prices and Dividends;
Selected Historical and Pro Forma Financial Data; Management's
Discussion and Analysis of Financial Condition and Results of
Operations of CFX; Index to Financial Statements
13. Incorporation of Certain Information by Reference Information Incorporated by Reference
14. Information with Respect to Registrants Other than S-3
or S-2 Registrants Not Applicable
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Available Information; Information Incorpo-rated By Reference;
Information about Orange; Comparative Stock Prices and
Dividends; Selected Historical and Pro Forma Financial Data;
Management's Discussion and Analysis of Financial Condition and
Results of Operations of Orange Savings Bank; Index to
Financial Statements
17. Information with Respect to Companies other than S-2
or S-3 Companies Not Applicable
18. Information if Proxies, Consents or Authorizations are
to be Solicited Meeting Information; The Merger; Information Incorporated
by Reference
19. Information if Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer Not Applicable
</TABLE>
Orange Savings Bank
30 East Main Street
Orange, Massachusetts 01364
January 17, 1995
Dear Holder of Orange Common Stock:
You are cordially invited to attend a Special Meeting of the
Stockholders (the "Special Meeting") of Orange Savings Bank, a Massachusetts-
chartered savings bank ("Orange"), to be held on Friday, February 24, 1995, at
12:00 noon at the Athol-Orange Lodge of Elks, Route 2A, Orange, Massachusetts.
At the Special Meeting, holders of the outstanding shares of common
stock, par value $.10 per share, of Orange ("Orange Common Stock") will be
asked to consider and vote upon a proposal to approve and adopt an Amended and
Restated Agreement and Plan of Merger, dated as of July 26, 1994 (the "Merger
Agreement"), by and between Orange and CFX Corporation, a New Hampshire
corporation ("CFX"), and each of the transactions contemplated thereby. Under
the terms of the Merger Agreement, CFX will form a Massachusetts trust company
subsidiary which will then be merged with and into Orange (the "Merger").
Following the Merger, Orange will be operated as a wholly-owned subsidiary of
CFX. 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 Orange Common
Stock, except for any dissenting shares and except for shares held by CFX or
its subsidiaries or by Orange or its subsidiaries (other than in both cases
shares held in a fiduciary capacity or as a result of debts previously
contracted), will be converted into the right to receive the number of shares
of CFX common stock, $1.00 par value ("CFX Common Stock"), determined by
multiplying .8750 by a fraction, the numerator of which is $17.1429 and the
denominator of which is the Average Closing Price, subject to adjustment as
described in the next paragraph (the "Exchange Ratio"). The "Average Closing
Price" is the average closing sale price per share of CFX Common Stock on the
American Stock Exchange (as reported by The Wall Street Journal or, if not
reported thereby, another authoritative source), for the ten American Stock
Exchange trading days ending on the business day before the date on which the
approval of the Massachusetts Commissioner of Banks required to consummate the
Merger is obtained.
Notwithstanding the foregoing paragraph, if the Average Closing Price is
equal to or greater than $20.00, the Exchange Ratio will be 0.7500; and if the
Average Closing Price is equal to or less than $15.2381, the Exchange Ratio
will be 0.9844; except that (a) if, before the effective time of the Merger,
an announcement is made with respect to a business combination involving the
acquisition of CFX or a substantial portion of its assets, the Exchange Ratio
shall not be less than 0.7875, and (b) if the Average Closing Price is equal
to or less than $13.3333, Orange shall have the right, waivable by it, to
terminate the Merger Agreement, unless CFX shall have elected, with the
approval of Orange, to adopt as the Exchange Ratio the "Adjusted Maximum
Exchange Ratio", which shall be determined by dividing $13.13 by the Average
Closing Price. In accordance with adjustment provisions contained in the
Merger Agreement, these ratios have been adjusted from those set forth in the
Merger Agreement to reflect a 5% common stock dividend declared by CFX on
December 12, 1994. After January 1, 1995, Orange shall have the right to
increase its regular quarterly cash dividend to an amount equal to the
quarterly dividend then being paid by CFX with respect to each share of CFX
Common Stock, multiplied by .8750. For the quarter ended September 30, 1994,
CFX paid a dividend of $.23 with respect to each share of CFX Common Stock.
Enclosed are a Notice of Special Meeting of Stockholders and a Proxy
Statement-Prospectus which describe the Merger, the background of the
transaction and the businesses of CFX and Orange. You are urged to read all
these materials carefully. The Board of Directors has fixed the close of
business on December 30, 1994 as the record date for the Special Meeting.
Accordingly, only stockholders 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 affirmative vote of the holders of two-thirds of
the shares of Orange Common Stock outstanding and entitled to vote is
necessary to approve and adopt the Merger Agreement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION APPROVING
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN
FAVOR OF APPROVING AND ADOPTING THE MERGER AGREEMENT. EDS Management
Consulting Services, Banking Group, formerly BEI Golembe, a division of EDS
("EDS"), Orange's financial advisor, has rendered a written opinion to the
Board of Directors of Orange that states, among other things, that, as of the
date of this Proxy Statement-Prospectus, the Exchange Ratio is fair to
Orange's stockholders from a financial point of view. The written opinion of
EDS, dated the date of this Proxy Statement-Prospectus, is reproduced in full
as Annex B to the accompanying Proxy Statement-Prospectus, and I urge you to
read the opinion carefully.
The affirmative vote of two-thirds (66 2/3%) of all of the outstanding
shares of Orange Common Stock is required to approve the Merger Agreement.
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 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, a letter of transmittal will be mailed to all
holders of record of shares of Orange 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 Orange by CFX and join with the
other members of the Board in recommending the Merger to you. We urge you to
vote in favor of approval and adoption of the Merger Agreement. If you should
have any questions about the Merger or need assistance in completing your
proxy please contact the undersigned or Dana C. Robinson, Treasurer, at Orange
at (508) 544-6915.
Very truly yours,
RICHARD F. ASTRELLA
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.
ORANGE SAVINGS BANK
30 East Main Street
Orange, Massachusetts 01364
(508) 544-6915
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On February 24, 1995
A Special Meeting of Stockholders (the "Special Meeting") of Orange
Savings Bank, a Massachusetts chartered savings bank ("Orange") will be held
on Friday, February 24, 1995, at 12:00 noon at the Athol-Orange Lodge of Elks,
Route 2A, Orange, Massachusetts, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger dated as of July 26, 1994
(the "Merger Agreement"), by and between Orange and CFX Corporation,
a New Hampshire corporation ("CFX"), and each of the transactions
contemplated thereby. Pursuant to the Merger Agreement, CFX Interim
Trust Company ("Interim Bank"), a Massachusetts chartered trust
company, will be organized as a wholly-owned subsidiary of CFX for
the purpose of facilitating the acquisition of Orange by CFX. Interim
Bank will be merged with and into Orange (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. A copy of the Merger Agreement is attached as
Annex A to the accompanying Proxy Statement-Prospectus.
2. To approve an adjournment of the Special Meeting if necessary 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 December 30,
1994 as the record date (the "Record Date") for determination of stockholders
entitled to notice of and to vote at the Special Meeting and any adjournments
or postponements thereof. Only holders of shares of Orange common stock, par
value $.10 per share ("Orange 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 foregoing
proposal at the time of the Special Meeting, the Special Meeting may be
adjourned in order to permit further solicitation of proxies by Orange.
A majority of the outstanding shares of Orange 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 Orange Common Stock issued,
outstanding and entitled to vote at the Special Meeting will be required to
approve the Merger Agreement.
Any stockholder 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 Orange Common Stock held of record by such
stockholder upon compliance with sections 85 to 98, inclusive, of chapter 156B
of the General Laws of Massachusetts, the full text of which is included as
Annex C to the accompanying Proxy Statement-Prospectus. This right is
explained more fully in the accompanying Proxy Statement-Prospectus in the
section headed "THE MERGER--Appraisal Rights of Dissenting Stockholders."
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
By Order of the Board of Directors,
ROGER W. MALLET, Clerk
Orange, Massachusetts
January 17, 1995
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.
ORANGE SAVINGS BANK CFX CORPORATION
30 East Main Street 102 Main Street
Orange, Massachusetts 01364 Keene, New Hampshire 03431
(508) 544-6915 (603) 352-2502
PROXY STATEMENT-PROSPECTUS
SPECIAL MEETING OF STOCKHOLDERS
ORANGE SAVINGS BANK
February 24, 1995
This Proxy Statement-Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Orange Savings Bank
("Orange") to be used at a Special Meeting of Stockholders to be held on
February 24, 1995 (the "Special Meeting"). The Board of Directors of Orange
has called the Special Meeting for the purpose of considering and voting upon
a proposal to approve and adopt an Amended and Restated Agreement and Plan of
Merger (the "Merger Agreement") dated as of July 26, 1994, by and between
Orange and CFX Corporation ("CFX"). Pursuant to the Merger Agreement, CFX will
organize a new wholly-owned subsidiary, CFX Interim Trust Company, a
Massachusetts chartered trust company ("Interim Bank"), which will be merged
with and into Orange (the "Merger"). As a result of the Merger, Orange will
become a wholly-owned subsidiary of CFX. At the Special Meeting, stockholders
may also be asked to approve a proposal to adjourn the Special Meeting if
necessary 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. The Merger Agreement is attached hereto as Annex A and is
incorporated herein by reference. This Proxy Statement-Prospectus and the form
of proxy are first being mailed to stockholders of Orange on or about January
17, 1995.
At the effective time of the Merger, each share of Orange common stock,
$.10 par value ("Orange Common Stock"), except for any dissenting shares and
except for shares held by CFX or its subsidiaries or by Orange or its
subsidiaries (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 a number of shares of CFX common stock, $1.00 par value ("CFX
Common Stock"), which shall be determined by application of an exchange ratio
linked to the average closing price of CFX Common Stock, subject to certain
adjustments. No fractional shares of CFX Common Stock will be issued, and cash
will be paid in lieu thereof. See "THE MERGER--Exchange Ratio and Other
Matters" and "DESCRIPTION OF CFX CAPITAL STOCK--CFX Common Stock". Following
the Merger, Orange will continue to be operated as a wholly-owned subsidiary
of CFX.
CFX 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 713,111 shares of
CFX Common Stock, representing shares to be issued in connection with the
Merger. This Proxy Statement-Prospectus also constitutes the Prospectus of CFX
filed as a part of such Registration Statement.
This Proxy Statement-Prospectus does not cover any resales of CFX Common
Stock received by stockholders of Orange 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 CFX has been supplied by CFX and all information with respect to
Orange has been supplied by Orange.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT-
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT-PROSPECTUS
IN ITS ENTIRETY.
THE SHARES OF CFX COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF CFX AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE
FUND OR ANY OTHER GOVERNMENT AGENCY.
THE SECURITIES OF CFX 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 CFX Common Stock hereunder shall, under any circumstances,
create any implication that there has not been any change in the affairs of
CFX or Orange since the date hereof.
The date of this Proxy Statement-Prospectus is January 17, 1995.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION 3
INFORMATION INCORPORATED BY REFERENCE 4
SUMMARY OF PROXY STATEMENT-PROSPECTUS 5
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA 13
MEETING INFORMATION 19
The Special Meeting 19
Record Date 19
Proxies; Voting and Revocation 19
Votes Required 20
Solicitation of Proxies 20
THE MERGER 20
General 20
Background of and Reasons for the Merger; Recommendation of the
Board of Directors 20
Opinion of Financial Advisor 23
Management and Operations after the Merger 26
Exchange Ratio and Other Matters 26
Exchange of Certificates; Fractional Shares 27
Effective Time 27
Conduct of Business Pending the Merger 28
Conditions to the Consummation of the Merger 30
No Solicitation 32
Regulatory Matters 32
Certain Federal Income Tax Consequences 33
Accounting Treatment 35
Termination of the Merger Agreement 35
Termination Fee 36
Waiver, Amendment and Extension of the Merger Agreement 36
Effect on Employee Benefits 36
Interests of Certain Persons in the Merger 37
Beneficial Ownership of Orange Common Stock 38
Appraisal Rights of Dissenting Stockholders 38
Resale of CFX Common Stock 39
PRO FORMA COMBINED FINANCIAL DATA 41
REGULATION 48
INFORMATION ABOUT CFX 51
Description of Business 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CFX 53
CERTAIN STATISTICAL AND OTHER INFORMATION ABOUT CFX 74
INFORMATION ABOUT ORANGE 81
Description of Business 81
Description of Properties 81
Legal Proceedings 82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ORANGE SAVINGS BANK 83
DESCRIPTION OF CFX CAPITAL STOCK 94
General 94
CFX Common Stock 94
Preferred Stock 95
Dividend Reinvestment and Stock Purchase Plan 96
COMPARISON OF RIGHTS OF CFX AND ORANGE STOCKHOLDERS 96
COMPARATIVE STOCK PRICES AND DIVIDENDS 104
EXPERTS 105
LEGAL OPINIONS 105
INDEPENDENT AUDITORS 105
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934 105
INDEX TO FINANCIAL STATEMENTS 106
ANNEXES
A. Amended and Restated Agreement and Plan of Merger A--1
B. Opinion of EDS Management Consulting Services, Banking Group to Orange
Board of Directors B--1
C. Chapter 156B, [SECTION][SECTION]85-98 of the Massachusetts Business
Corporation Law C--1
AVAILABLE INFORMATION
Each of CFX and Orange 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 and the Federal Deposit Insurance Corporation (the
"FDIC"), respectively. Proxy statements, reports and other information
concerning CFX 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 (Room 1400, 75 Park Place, New York,
New York 10007) 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. Proxy statements, reports and
other information concerning Orange can be inspected and copied at the FDIC's
office at 550 17th Street, N.W., Room F-640, Washington, DC 20429 (202/898-
8911). CFX Common Stock is listed on the American Stock Exchange. Reports,
proxy materials and other information concerning CFX also may be inspected at
the offices of the American Stock Exchange Inc. (the "Stock Exchange"), 86
Trinity Place, New York, New York 10006. Orange Common Stock is quoted on the
Nasdaq Small-Cap Market. Reports, proxy statements and other information
concerning Orange 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 CFX 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.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS THERETO, ARE AVAILABLE WITHOUT CHARGE TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT-
PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO THE FOLLOWING:
CFX Documents Orange Documents
Mark A. Gavin Dana C. Robinson
Chief Financial Officer Treasurer
CFX Corporation Orange Savings Bank
102 Main Street 30 East Main Street
Keene, New Hampshire 03431 Orange, Massachusetts 01364
(603) 352-2502 (508) 544-6915
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN FEBRUARY 16, 1995.
INFORMATION INCORPORATED BY REFERENCE
The following CFX documents are incorporated by reference herein:
(1) CFX's Annual Report on Form 10-K for the year ended December 31,
1993;
(2) CFX's Quarterly Reports on Form 10-Q for the quarters ended March
31, June 30, and September 30, 1994;
(3) CFX's Current Reports on Form 8-K dated April 25, July 26, and
December 19, 1994; and
(4) The description of the CFX Common Stock contained in a Registration
Statement filed by Cheshire Financial Corporation (now known as CFX)
on Form 8-A dated November 13, 1990, and any amendment or report
filed for the purpose of updating such description.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402 (a) (8) of
Regulation S-K.
The following Orange documents are incorporated by reference herein:
(1) Orange's Annual Report on Form F-2 for the year ended December 31,
1993;
(2) Orange's Quarterly Reports on Form F-4 for the quarters ended March
31, June 30, and September 30, 1994; and
(3) Orange's Current Reports on Form F-3 for the months ended December
31, 1993 and July 31, 1994.
Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402 (a) (8) of
Regulation S-K.
All documents filed with the Commission and the FDIC by CFX and Orange
pursuant to Sections 13, 14 or 15(d) of the Exchange Act subsequent to the
date of this Proxy Statement-Prospectus and prior to the Special Meeting are
incorporated herein by reference and such documents shall be deemed to be a
part hereof from the date of filing of such documents. Any statement contained
in this Proxy Statement-Prospectus or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement-Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement-Prospectus.
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 stockholder is urged to read the Proxy Statement-
Prospectus with care.
The Parties
CFX. CFX is a bank holding company headquartered in Keene, New Hampshire
with total assets of approximately $759.0 million as of September 30, 1994.
CFX's banking subsidiary is CFX Bank, headquartered in Keene, New Hampshire,
which is a full service bank offering a wide range of deposit and loan
programs to consumers and businesses. CFX Bank operates 19 full service
offices, seven loan production offices, and 47 automated teller and remote
service banking locations in New Hampshire. CFX Mortgage, Inc., CFX Bank's
mortgage banking subsidiary, services approximately $712.0 million in mortgage
loans for others. CFX's principal executive office is located at 102 Main
Street, Keene, New Hampshire 03431, and its telephone number is (603) 352-
2502.
Orange. Orange is a Massachusetts-chartered stock savings bank
conducting its banking business through its main office in Orange,
Massachusetts and its branch office in Athol, Massachusetts. Orange is engaged
principally in the business of attracting deposits from the general public and
investing those deposits in residential and commercial real estate loans,
business and consumer loans, and in various investment securities. At
September 30, 1994, Orange and its subsidiaries had total assets of
approximately $83.9 million, total deposits of $73.8 million and stockholders'
equity of $8.6 million, or $11.90 per share. Orange's principal executive
office is located at 30 East Main Street, Orange, Massachusetts 01364, and its
telephone number is (508) 544-6915.
Date, Time and Place of Special Meeting
The Special Meeting will be held at the Athol-Orange Lodge of Elks,
Route 2A, Orange, Massachusetts, at 12:00 noon on Friday, February 24, 1995.
Purposes of Special Meeting
The purposes for which the Special Meeting will be held are (i) to
consider and vote upon a proposal to adopt and approve the Merger Agreement
and the transactions contemplated thereby, (ii) to authorize adjournment of
the Special Meeting if necessary 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 and (iii) to conduct any other business
that may properly come before the Special Meeting, or any adjournments or
postponements thereof. See "MEETING INFORMATION--The Special Meeting".
Votes Required
The Board of Directors of Orange has fixed the close of business on
December 30, 1994 as the record date (the "Record Date") for the determination
of stockholders entitled to notice of and to vote at the Special Meeting. Only
the holders of record of the outstanding shares of Orange Common Stock on the
Record Date will be entitled to notice of, and to vote at, the Special Meeting
and any adjournments or postponements thereof. At the Record Date, 724,412
shares of Orange 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 Orange Common Stock outstanding and entitled to vote on the Record
Date is necessary to constitute a quorum at the Special Meeting. The
affirmative vote of the holders of two-thirds of the shares of Orange Common
Stock issued, outstanding and entitled to vote at the Special Meeting will be
required to approve the Merger Agreement. The approval of the Merger Agreement
by Orange's stockholders is a condition to the consummation of the Merger.
Of the 724,412 shares of Orange Common Stock outstanding and entitled to
vote, on the Record Date,
84,786 shares, or approximately 11.70%, were held by directors and executive
officers of Orange and their respective affiliates. The affirmative vote of
the holders of two-thirds of the shares of Orange Common Stock issued,
outstanding and entitled to vote at the Special Meeting will be required to
approve the Merger Agreement. Consequently, assuming, for illustration
purposes only, that all directors and officers of Orange and their respective
affiliates vote in favor of the Merger Agreement, the affirmative vote of
holders of approximately 398,156 additional shares of Orange Common Stock,
representing approximately 54.96% of the shares issued and outstanding on the
Record Date, will be required.
Approval of any proposal to adjourn the Special Meeting to permit the
further solicitation of proxies would require the affirmative vote of the
holders of a majority of the shares of Orange Common Stock present and voting
at the Special Meeting.
See "MEETING INFORMATION--Votes Required".
Terms of the Merger
In the Merger, each share of Orange Common Stock outstanding, except for
any dissenting shares and except for shares held by CFX or its subsidiaries or
by Orange or its subsidiaries (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 the number of shares of CFX Common Stock
determined by multiplying .8750 by a fraction, the numerator of which is
$17.1429 and the denominator of which is the Average Closing Price, subject to
adjustment as described in the next paragraph (the "Exchange Ratio"). The
"Average Closing Price" is the average closing sale price per share of CFX
Common Stock on the American Stock Exchange (as reported by The Wall Street
Journal or, if not reported thereby, another authoritative source), for the
ten American Stock Exchange trading days ending on the business day before the
date on which the approval of the Massachusetts Commissioner of Banks required
to consummate the Merger is obtained.
Notwithstanding the foregoing paragraph, if the Average Closing Price is
equal to or greater than $20.00, the Exchange Ratio will be 0.7500 (the
"Minimum Exchange Ratio"); and if the Average Closing Price is equal to or
less than $15.2381, the Exchange Ratio will be 0.9844 (the "Maximum Exchange
Ratio"); except that (a) if, before the effective time of the Merger, an
announcement is made with respect to a business combination involving the
acquisition of CFX or a substantial portion of its assets, the Exchange Ratio
shall not be less than 0.7875, and (b) if the Average Closing Price is equal
to or less than $13.3333, Orange shall have the right, waivable by it, to
terminate the Merger Agreement, unless CFX shall have elected, with the
approval of Orange, to adopt as the Exchange Ratio the "Adjusted Maximum
Exchange Ratio", which shall be determined by dividing $13.13 by the Average
Closing Price. In accordance with adjustment provisions contained in the
Merger Agreement, these ratios have been adjusted from those set forth in the
Merger Agreement to reflect a 5% common stock dividend declared by CFX on
December 12, 1994. After January 1, 1995, Orange shall have the right to
increase its regular quarterly cash dividend to an amount equal to the
quarterly dividend then being paid by CFX with respect to each share of CFX
Common Stock, multiplied by .8750. For the quarter ended September 30, 1994,
CFX paid a dividend of $.23 with respect to each share of CFX Common Stock.
The Exchange Ratio is the product of arms' length negotiations between
the respective managements of CFX and Orange. In negotiating the Exchange
Ratio, the management of Orange had the benefit of advice from its financial
advisor, the investment banking firm of EDS Management Consulting Services,
Banking Group (formerly BEI Golembe, a division of EDS) ("EDS"). See "THE
MERGER--Opinion of Financial Advisor".
No fractional shares of CFX Common Stock will be issued in the Merger.
In lieu thereof, each holder of Orange Common Stock who otherwise would have
been entitled to a fractional share of CFX Common Stock will receive cash in
an amount equal to such fraction multiplied by the closing sale price of CFX
Common Stock on the American Stock Exchange as reported by The Wall Street
Journal for the trading day 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 Articles of Merger, which shall be filed with the
Secretary of State of the Commonwealth of Massachusetts.
At the Effective Time, each stock option with respect to Orange Common
Stock granted by Orange under any of the 1987, 1988 or 1989 Orange Bank Stock
Option Plans (the "Orange Stock Option Plans"), which is outstanding at such
time, whether or not then exercisable, will be canceled in exchange for an
option under CFX's 1986 Stock Option Plan (the "CFX Stock Option Plan") to
purchase CFX Common Stock. The rights to CFX Common Stock to be received by
holders of Orange stock options upon consummation of the Merger will be the
same as the rights such optionees had under the Orange Stock Option Plans
immediately prior to the Effective Time, except that (a) the number of shares
of CFX Common Stock subject to such options and the exercise price of such
options will be adjusted to give effect to the Exchange Ratio, (b) the options
will remain exercisable regardless of whether the holder shall remain in the
employ of Orange or CFX after the Effective Time, and (c) the options will be
non-qualified stock options rather than incentive stock options.
The information set forth in the following table is provided for
illustration purposes only, and is based on certain assumptions, which are set
forth in the footnotes to the table.
<TABLE>
<CAPTION>
A B C D E F G H I
Average CFX Shares Aggregate CFX Shares CFX Shares Aggregate
Closing Received per Consideration Consideration Issuable to % CFX Owned Issuable to Consideration
Price CFX Exchange 100 Orange Per Orange (Excluding Orange by Orange Orange (Including
Stock(1) Ratio(2) Shares Share(3) Options)(4) Stockholders(5) Stockholders(6) Option Holders(7) Options)(8)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$13.3333 0.9844 98.44 $13.13 $ 9,511,530 713,111 15.48% 79,785 $ 9,904,869
14.2857 0.9844 98.44 14.06 10,185,233 713,111 15.48 79,785 10,653,948
15.2381 0.9844 98.44 15.00 10,866,180 713,111 15.48 79,785 11,411,081
16.1905 0.9265 92.65 15.00 10,866,180 671,168 14.70 75,092 11,411,081
17.1429 0.8750 87.50 15.00 10,866,180 633,861 14.00 70,918 11,411,081
18.0952 0.8289 82.89 15.00 10,866,180 600,465 13.36 67,182 11,411,081
19.0476 0.7875 78.75 15.00 10,866,180 570,474 12.78 63,826 11,411,081
20.0000 0.7500 75.00 15.00 10,866,180 543,309 12.24 60,787 11,411,081
20.9524 0.7500 75.00 15.71 11,380,513 543,309 12.24 60,787 11,982,958
21.9048 0.7500 75.00 16.43 11,902,089 543,309 12.24 60,787 12,562,890
<F1> The Average Closing Prices set forth in this column are for illustration
purposes only. Assuming that the Average Closing Price was calculated
using the closing sale price of CFX Common Stock for the ten business days
preceding January 6, 1995, the Average Closing Price would be $16.30.
<F2> In accordance with adjustment provisions contained in the Merger
Agreement, these ratios have been adjusted from those set forth in the
Merger Agreement to reflect a 5% common stock dividend declared by CFX on
December 12, 1994.
<F3> Assuming that the closing sale price of CFX Common Stock on the date of
consummation of the Merger is the same as the Average Closing Price, each
share of Orange Common Stock, as of the Effective Time, would be converted
into and exchangeable for a fraction of a share of CFX Common Stock having
the market value (on the date of consummation) set forth in this column.
<F4> The aggregate consideration (excluding options) was computed by
multiplying each dollar amount in Column D by 724,412 (the number of
shares of Orange Common Stock outstanding on January 6, 1995).
<F5> The number of shares of CFX Common Stock that will be issued to the
holders of Orange Common Stock following consummation of the Merger was
computed by multiplying each ratio in Column B by 724,412 (the number of
shares of Orange Common Stock outstanding on January 6, 1995).
<F6> The percentage of CFX Common Stock that will be owned by the current
holders of Orange Common Stock after consummation of the Merger was
computed by dividing each number set forth in Column F by the sum of
3,893,803 (the number of outstanding shares of CFX Common Stock on
January 6, 1995) and such number from Column F.
<F7> The number of options that will be issued under the CFX Stock Option Plan
following consummation of the Merger to the holders of currently
outstanding options under the Orange Stock Option Plans was computed by
multiplying each ratio in Column B by 81,049 (the number of options
outstanding under the Orange Stock Option Plans on January 6, 1995).
<F8> The aggregate consideration (including options) was computed by
multiplying Column D by 81,049 (the number of options outstanding under
the Orange Stock Option Plans on January 6, 1995), subtracting $670,834
(the aggregate exercise price of the currently outstanding options under
the Orange Stock Option Plans) and adding the corresponding dollar amount
from Column E to that number.
</TABLE>
See "THE MERGER--Opinion of Financial Advisor", "--Exchange Ratio and
Other Matters", "--Regulatory Matters" and "--Appraisal Rights of Dissenting
Stockholders".
Recommendation of the Board of Directors and Reasons for the Merger
THE BOARD OF DIRECTORS OF ORANGE HAS UNANIMOUSLY ADOPTED A RESOLUTION
APPROVING THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT BY ORANGE'S STOCKHOLDERS. Orange'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 Orange
and its stockholders and because the Orange Board believes in its business
judgment that the Exchange Ratio is fair and reasonable to the stockholders of
Orange. The terms of the Merger Agreement, including the Exchange Ratio, were
reached on the basis of arms' length negotiations between Orange and CFX. In
the course of reaching its decision to approve the Merger Agreement, the Board
of Directors of Orange 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 EDS, 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 "--Recommendation of the
Board of Directors and Reasons for the Merger".
Opinion of Financial Advisor
EDS has delivered to the Board of Directors of Orange 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 Orange's stockholders. The
full text of the opinion of EDS dated as of the date of this Proxy Statement-
Prospectus, which sets forth assumptions made, matters considered and limits
on the review undertaken by EDS, is attached hereto as Annex B. Stockholders
are urged to read this opinion in its entirety. EDS's opinion is directed only
to the Exchange Ratio and does not constitute a recommendation to any Orange
stockholder as to how such stockholder should vote at the Special Meeting.
See "THE MERGER--Background of the Merger", "--Opinion of Financial
Advisor" and Annex B 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 Orange's stockholders solicited hereby; the effectiveness of
the registration statement of which this Proxy Statement-Prospectus forms a
part; approval by certain federal and Massachusetts regulatory authorities;
receipt by Orange and CFX of an opinion of counsel or a ruling by the Internal
Revenue Service 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 CFX's independent accountants to the effect that the Merger
qualifies to be accounted for as a pooling-of-interests; the listing, subject
to notice of issuance, on the American Stock Exchange of the CFX Common Stock
to be issued in the Merger; the exercise of appraisal rights by the holders of
not more than 10% of Orange Common Stock; 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 may be abandoned at any time prior to the Effective
Time by the mutual consent of CFX and Orange. 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 either CFX or
Orange, acting individually, (a) if any governmental entity shall have issued
a final nonappealable order prohibiting the consummation of any of the
transactions contemplated by the Merger Agreement; (b) if the Effective Time
has not occurred by July 31, 1995, except that Orange may extend this date if
the approval of a governmental entity that is required for the consummation of
any of the transactions contemplated by the Merger Agreement has not been
obtained; (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 Orange's
stockholders required to approve the Merger Agreement is not obtained. Orange
may also terminate the Merger Agreement in the event the Average Closing Price
is equal to or less than $13.3333, unless CFX elects (with the approval of
Orange) to adopt the Adjusted Maximum Exchange Ratio as the Exchange Ratio. If
the Merger Agreement is terminated (other than as a result of a wilful breach
or gross negligence by Orange or CFX) each of Orange and CFX 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, up to $250,000. If Orange is required to pay a termination fee (see
"THE MERGER--Termination Fee"), the maximum expenses payable by Orange shall
not exceed $150,000.
See "THE MERGER--Termination of the Merger Agreement".
Termination Fee
Pursuant to the Merger Agreement, Orange is required to pay to CFX a
termination fee of $450,000 within 20 business days of the occurrence of one
of the following: the failure of Orange's stockholders to approve the
affiliation of CFX and Orange after the public announcement by a person or
group of persons other than CFX of a bona fide, credible offer or proposal to
acquire 45% or more of Orange's Common Stock, or to acquire, merge or
consolidate with Orange or to purchase all or substantially all of Orange's
assets; the acquisition by any person or group of persons other than CFX of
45% or more of Orange's Common Stock (or the acquisition by any person or
group of persons of the right to acquire 45% or more of Orange's Common
Stock), exclusive of shares of Orange's Common Stock sold directly or
indirectly to such person or group of persons by CFX; or the entry of Orange
into an agreement or other understanding with a person or group of persons
other than CFX for such person or group of persons to acquire, merge or
consolidate with Orange or to purchase all or substantially all of Orange's
assets or acquire 45% or more of the outstanding shares of Orange's Common
Stock.
See "THE MERGER--Termination Fee".
Amendment, Extension and Waiver
CFX and Orange 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 after Orange's stockholder approval, no amendment shall reduce the
amount or change the form of consideration to be delivered to each of Orange's
stockholders pursuant to the Merger Agreement without further approval of
Orange's stockholders.
See "THE MERGER--Waiver, Amendment and Extension 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 Bank Incorporation of the Commonwealth of Massachusetts
(the "Massachusetts BBI") and the Commissioner of Banks of the Commonwealth
of Massachusetts (the "Massachusetts Commissioner of Banks"). Assuming the
approval of the Federal Reserve Board and the FDIC, the Merger may not be
consummated for 30 days after the later of such approvals, during which time
the United States Department of Justice may challenge the Merger on antitrust
grounds. Applications seeking the appropriate approvals have been filed. 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 CFX and Orange either a ruling of the Internal Revenue Service or an
opinion of counsel reasonably acceptable to CFX and Orange, addressed to CFX
and the stockholders of Orange, 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 stockholders of Orange upon their
receipt of CFX Common Stock in exchange for their Orange Common Stock, except
in respect of cash received in lieu of fractional shares; (c) the tax basis of
the shares of CFX Common Stock received by the stockholders of Orange will be
the same as the tax basis of the Orange 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 CFX Common Stock in the hands of
the Orange stockholders will generally include the holding period of their
Orange Common Stock.
Stockholders 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, Orange, as the surviving bank in the
Merger with Interim Bank, will continue to operate as a separate banking
subsidiary of CFX. The directors and officers of Orange immediately prior to
the Effective Time shall remain the directors and officers of the surviving
bank, to hold office in accordance with the charter documents and by-laws of
the surviving bank until their respective successors are duly elected or
appointed and qualified. Following the Effective Time, CFX intends to elect
two additional directors to serve on the Board of the surviving bank. Pursuant
to the Merger Agreement, CFX has agreed that, except with respect to these two
additional directors (and one additional director whom CFX may elect), the
Board of Directors of Orange will be kept in place for at least three years,
subject to regulatory considerations, safe and sound banking practices, and
the fiduciary duties of CFX's directors. Prior to or at the Effective Time,
one of Orange's current directors (designated by the Orange Board of
Directors, subject to the reasonable approval of CFX) will be elected to the
Board of Directors of CFX.
See "THE MERGER--Management and Operations After the Merger".
Appraisal Rights of Dissenting Stockholders
Under Massachusetts law, holders of Orange Common Stock have the right
to dissent from the Merger and receive payment equal to the "fair value" of
their shares upon compliance with applicable provisions of Massachusetts law,
the full text of which provisions is included as Annex C to this Proxy
Statement-Prospectus.
See "THE MERGER--Appraisal Rights of Dissenting Stockholders".
Certain Differences in the Rights of Stockholders
The rights of stockholders of Orange are currently governed by the
Massachusetts General Laws, Orange's Amended and Restated Charter, and
Orange's by-laws. Upon consummation of the Merger, Orange's stockholders
automatically become stockholders of CFX, and their rights will be governed by
the New Hampshire Revised Statutes, the CFX Restated Articles of Incorporation
and CFX's by-laws.
See "COMPARISON OF RIGHTS OF CFX AND ORANGE STOCKHOLDERS".
COMPARATIVE STOCK PRICES AND DIVIDENDS
The shares of CFX Common Stock are listed and traded on the American
Stock Exchange. The shares of Orange Common Stock are quoted on the Nasdaq
Small-Cap Market. The table below sets forth the high and low sales prices for
CFX Common Stock and the bid and asked prices for Orange Common Stock as
reported on the American Stock Exchange and the Nasdaq Small-Cap Market,
respectively, and the cash dividends declared, for the periods indicated, as
well as certain pro forma data per share of Orange Common Stock, assuming
consummation of the Merger. The high and low sale prices and cash dividends
declared of CFX Common Stock have been restated to give retroactive effect to
the 5% common stock dividends declared on December 12, 1994 and December 13,
1993.
<TABLE>
<CAPTION>
Orange
CFX Pro Forma
CFX Orange Pro Forma Equivalent
Quarter Ended High Low Dividends Bid Asked Dividends Dividends(1) Dividends(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992
March 31, 1992 $11-5/8 $ 7-7/8 $.1361 $ 4-1/2 $ 6-1/2 $.04 $.1223 $.1125
June 30, 1992 11-1/4 8-1/8 .1361 4 6 .06 .1257 .1157
September 30, 1992 10-3/4 8-7/8 .1361 4-1/2 5-1/2 .04 .1222 .1125
December 31, 1992 12 8-3/4 .1361 5 6-1/2 .06 .1257 .1157
1993
March 31, 1993 14-1/8 11-3/4 .1361 5-1/2 7-1/2 .04 .1225 .1127
June 30, 1993 14-1/2 12-3/4 .1632 6 8 .04 .1457 .1340
September 30, 1993 16-1/4 14-1/8 .1632 6-3/4 8-1/2 .04 .1457 .1340
December 31, 1993 17-3/4 15-3/8 .1905 7-3/4 9-3/4 .08 .1753 .1613
1994
March 31, 1994 17-3/8 15-3/4 .20 7-1/2 9-1/2 .04 .1769 .1628
June 30, 1994 19-1/8 15-5/8 .20 7-3/4 9-3/4 .04 .1769 .1628
September 30, 1994 18-1/2 16-3/8 .2190 12-1/2 14 .04 .1932 .1778
<F1> CFX's pro forma cash dividends per share are determined by dividing the
aggregate pro forma cash dividends declared by the total pro forma common
shares of the combined entity assuming, for illustration purposes only,
that the Average Closing Price is $16.30, the average closing price of the
CFX Common Stock for the ten business days preceding January 6, 1995, with
a resulting Exchange Ratio of .9202. Orange pro forma equivalent dividends
per share represent CFX's pro forma cash dividends per share multiplied by
the assumed Exchange Ratio of .9202. See "THE MERGER--Exchange Ratio and
Other Matters".
On July 25, 1994, the business day immediately preceding the public
announcement of the proposed Merger, the high and low sales prices for CFX
Common Stock as reported by the American Stock Exchange were $18 and $173/8
per share, respectively, and the bid and asked prices for Orange Common Stock
as quoted on the Nasdaq Small-Cap Market were $81/2 and $10 per share. On
January 5, 1995, the high and low sales prices for CFX Common Stock as so
reported were $161/4 and $17 per share, and the bid and asked prices for Orange
Common Stock as so quoted were $121/2 and $133/4 per share.
See "COMPARATIVE STOCK PRICES AND DIVIDENDS".
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
COMPARATIVE PER SHARE DATA
The following table sets forth for CFX Common Stock and Orange Common
Stock certain historical, unaudited pro forma and unaudited pro forma
equivalent per share information for the nine months ended September 30, 1994
and for each of the three years in the period ended December 31, 1993. The
information herein should be read in conjunction with the pro forma combined
financial information, including the notes thereto, appearing elsewhere in
this Proxy Statement-Prospectus. See "PRO FORMA COMBINED FINANCIAL DATA."
</TABLE>
<TABLE>
<CAPTION>
Maximum Exchange Ratio Minimum Exchange Ratio
Nine Months Ended Nine Months Ended
September 30, Years Ended December 31, September 30, Years Ended December 31,
1994 1993 1992 1991 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (Loss) Per Common
Share before Cumulative
Effect of a Change in Accounting
Principle(1)
CFX $ .95 $ 1.24 $ .92 $ .08 $ .95 $ 1.24 $ .92 $ .08
Orange .68 1.55 (.72) (.35) .68 1.55 (.72) (.35)
CFX Pro Forma .91 1.30 .67 .01 .95 1.35 .70 .01
Orange Pro Forma Equivalent .90 1.28 .66 .01 .71 1.01 .52 .01
Dividends Declared Per
Common Share(2)
CFX $ .62 $ .65 $ .54 $ .64 $ .62 $ .65 $ .54 $ .64
Orange .12 .20 .20 .18 .12 .20 .20 .18
CFX Pro Forma .53 .58 .49 .56 .55 .60 .51 .59
Orange Pro Forma Equivalent .52 .57 .48 .55 .42 .45 .38 .44
Common Shareholders'
Equity Per Share at
Period End(3)
CFX $19.01 $18.79 $18.29 $17.86 $19.01 $18.79 $18.29 $17.86
Orange 11.91 11.35 9.99 10.86 11.91 11.35 9.99 10.86
CFX Pro Forma 17.93 17.65 17.01 16.79 18.63 18.33 17.67 17.44
Orange Pro Forma Equivalent 17.65 17.37 16.74 16.53 13.97 13.75 13.25 13.08
<F1> Pro forma income per share data is calculated using historical income
information for CFX and Orange divided by the average pro forma shares of
the combined entity. The average pro forma shares of the combined entity
have been calculated by combining CFX's historical average shares with
the historical average shares of Orange as adjusted by the Maximum
Exchange Ratio (.9844) or the Minimum Exchange Ratio (.7500). The actual
Exchange Ratio will be based on the Average Closing Price. There can be
no assurance as to whether the actual Exchange Ratio will be equal to
either of the assumed ratios used in this table or elsewhere in this
Proxy Statement-Prospectus. See "THE MERGER--Exchange Ratio and Other
Matters." The Orange pro forma equivalent income per share amounts are
computed by multiplying the CFX pro forma amounts by the above-assumed
Exchange Ratios.
<F2> CFX's pro forma cash dividends declared per share are determined by
dividing aggregate pro forma cash dividends declared by the total pro
forma common shares of the combined entity assuming the Maximum Exchange
Ratio or the Minimum Exchange Ratio. Orange pro forma equivalent
dividends per share represent CFX's pro forma cash dividends per share
multiplied by the assumed Maximum Exchange Ratio or by the assumed
Minimum Exchange Ratio. See "THE MERGER--Exchange Ratio and Other
Matters."
<F3> CFX's pro forma common shareholders' equity per share is based on the
historical common shareholders' equity of the combined entity divided by
the total pro forma common shares of the combined entity assuming the
Maximum Exchange Ratio or the Minimum Exchange Ratio. Orange pro forma
equivalent common shareholders' equity per share at period end represents
such amounts multiplied by the Maximum Exchange Ratio or the Minimum
Exchange Ratio. See "THE MERGER--Exchange Ratio and Other Matters."
</TABLE>
CFX CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical data
regarding CFX's operating results and financial position for and at the
periods indicated. Results of operations, per share data, and the allowance
for loan and lease losses and nonperforming assets ratios for, and as of the
end of, the five years ended December 31, 1993 are derived from and should be
read in conjuncton with CFX's audited consolidated financial statements and
the notes thereto. The audited consolidated financial statements as of
December 31, 1993 and 1992, and for each of the years in the three-year period
ended December 31, 1993, and report thereon, appear elsewhere in this Proxy
Statement-Prospectus. The same data as of and for the nine-month periods
ended September 30 are derived from unaudited consolidated financial
statements appearing elsewhere in this Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
At or for the Nine Months At or for the Years
Ended September 30, Ended December 31,
1994 1993 1993(1)(2) 1992 1991(3)(4) 1990(5) 1989
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Interest and dividend income $ 36,195 $ 34,546 $ 46,142 $ 52,411 $ 58,563 $ 58,374 $ 52,260
Interest expense 15,580 14,835 19,685 27,089 35,661 36,693 33,613
Net interest and dividend income 20,615 19,711 26,457 25,322 22,902 21,681 18,647
Provision for loan and lease losses 50 2,970 2,970 2,911 3,830 4,005 967
Net interest income after provision
for loan and lease losses 20,565 16,741 23,487 22,411 19,072 17,676 17,680
Other income (charges) 3,862 4,114 6,267 3,164 1,688 (1,125) 1,627
Other expense 18,254 15,845 23,492 19,777 19,922 15,303 12,575
Income before income taxes 6,173 5,010 6,262 5,798 838 1,248 6,732
Income tax expense (benefit), net of
cumulative effect of a change in
accounting principle 2,298 1,078 1,240 2,000 (1,323) 1,913 2,291
Net Income (Loss) 3,875 3,932 5,022 3,798 2,161 (665) 4,441
Preferred stock dividends 201 202 270 270 270 181 -
Net Income (Loss) Available
to Common Stock $ 3,674 $ 3,730 $ 4,752 $ 3,528 $ 1,891 $ (846) $ 4,441
Per Share Data:(6)
Earnings (loss) per common share $ .95 $ .97 $ 1.24 $ .92 $ .50 $ (.22) $ 1.11
Common shareholders' equity per share 19.01 18.77 18.77 18.29 17.86 17.90 18.45
Cash dividends per common share .62 .46 .65 .54 .64 .90 .90
Weighted average common shares
outstanding 3,856 3,821 3,826 3,805 3,795 3,905 3,987
Average Balance Sheet Data:
Total assets $769,837 $650,813 $665,985 $672,119 $633,359 $592,784 $531,298
Investment securities 177,974 126,329 131,430 144,455 104,917 79,745 69,295
Loans and leases, net of unearned income 506,565 478,432 484,074 478,665 485,730 466,841 432,336
Interest bearing deposits 508,790 532,869 530,334 546,872 508,526 461,196 400,507
Other borrowed funds 11,833 12,209 19,378 11,384 - - -
Advances from Federal Home Loan
Bank of Boston 94,828 360 7,821 12,113 24,504 27,002 31,964
Common shareholders' equity 73,038 70,568 71,327 68,162 67,965 72,634 74,918
Selected Financial Ratios:(7)
Net interest margin 4.09% 4.38% 4.33% 4.09% 3.93% 4.01% 3.75%
Return (loss) on average assets .64 .77 .75 .52 .30 (.14) .84
Return (loss) on average common
shareholders' equity 6.73 7.07 6.66 5.18 2.78 (1.16) 5.93
Average shareholders' equity to average assets 9.95 11.40 11.25 10.68 11.30 12.66 14.10
Core (leverage) capital ratio at period end 8.88 9.77 8.93 9.75 9.37 12.38 N/A
Tier 1 risk-based capital ratio at period end 14.86 15.73 13.20 14.97 14.98 14.65 N/A
Total risk-based capital ratio at period end 16.14 17.03 14.48 15.96 16.37 15.85 N/A
Period-end allowance for loan and lease losses
to period-end loans and leases, net of
unearned income 1.33 1.73 1.58 1.66 1.45 1.05 .63
Net charge-offs to average loans and leases,
net of unearned income .13 .75 .73 .48 .45 .44 .15
Period-end nonperforming assets to period-end
loans and leases (net of unearned income) and
foreclosed real estate 1.71 3.83 2.10 4.70 5.17 3.67 1.21
</TABLE>
CFX CORPORATION
Notes to Selected Historical Financial Data
(1) During 1993, CFX merged together its three banking subsidiaries,
Cheshire County Savings Bank, The Monadnock Bank and The Valley Bank. The
resulting consolidated bank, Cheshire County Savings Bank, changed its
name to CFX Bank on November 15, 1993.
(2) On September 1, 1993, CFX, through its subsidiary, Cheshire County
Savings Bank, acquired the remaining 52.4% of Colonial Mortgage, Inc.
("Colonial") (renamed CFX Mortgage, Inc.). Previously, CFX owned 47.6% of
Colonial and, as a result of the purchase, Colonial became a wholly-owned
subsidiary. The transaction was accounted for by the purchase method of
accounting.
(3) On September 7, 1991, CFX, through its subsidiary, The Valley Bank,
acquired certain assets and assumed all deposits
of The Family Bank and Trust. The Family Bank and Trust had been declared
insolvent by the New Hampshire Bank Commissioner and placed into Federal
Deposit Insurance Corporation receivership on September 6, 1991.
(4) Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", was adopted by CFX effective January 1, 1991. The
cumulative effect of the change in accounting principle on years prior to
1991 was to increase 1991 net income available to CFX Common Stock by
$1,603,000, or $.42 per share.
(5) On April 30, 1990 and June 22, 1990, CFX acquired all of the outstanding
capital stock of The Valley Bank and Village Savings Bank, respectively.
The transactions were accounted for by the purchase method of accounting.
(6) Per share data has been restated to give retroactive effect to the 5%
common stock dividends declared on December 12, 1994 and December 13,
1993.
(7) Interim financial percentages have been annualized, where appropriate.
ORANGE SAVINGS BANK
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical data
regarding Orange's operating results and financial position for and at the
periods indicated. Results of operations, per share data, and the allowance
for possible loan losses and nonperforming assets ratios for, and as of the
end of, the five years ended December 31, 1993 are derived from and should be
read in conjuncton with Orange's audited consolidated financial statements and
the notes thereto. The audited consolidated financial statements as of
December 31, 1993 and 1992, and for each of the years in the three-year period
ended December 31, 1993, and report thereon, appear elsewhere in this Proxy
Statement-Prospectus. The same data as of and for the nine-month periods
ended September 30 are derived from unaudited consolidated financial
statements appearing elsewhere in this Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
At or for the Nine Months At or for the
Ended September 30, Years Ended December 31,
1994 1993 1993(1) 1992(2)(3) 1991(4) 1990 1989
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Interest and dividend income $ 4,259 $ 4,461 $ 5,883 $ 6,401 $ 6,689 $ 7,223 $ 7,852
Interest expense 1,853 2,034 2,667 3,412 4,340 4,903 5,673
Net interest and dividend income 2,406 2,427 3,216 2,989 2,349 2,320 2,179
Provision for possible loan losses 12 68 90 242 135 75 35
Net interest income after provision
for possible loan losses 2,394 2,359 3,126 2,747 2,214 2,245 2,144
Other income (charges) 226 200 276 (778) (369) 74 208
Other expense 1,754 1,628 2,162 2,033 1,702 1,466 1,515
Income (loss) before income taxes 866 931 1,240 (64) 143 853 837
Income tax expense, net of
cumulative effect of a change in
accounting principle 345 372 91 415 398 406 201
Net Income (Loss) $ 521 $ 559 $ 1,149 $ (479) $ (255) $ 447 $ 636
Per Share Data:
Earnings (loss) per common share $ .68 $ .76 $ 1.55 $ (0.65) $ (0.35) $ 0.59 $ 0.81
Shareholders' equity per share 11.91 10.64 11.35 9.99 10.86 11.08 10.77
Cash dividends per common share .12 .12 .20 .20 .18 .16 .16
Weighted average common and common
equivalent outstanding shares 770 736 742 731 734 752 784
Average Balance Sheet Data:
Total assets $83,970 $84,820 $83,147 $81,137 $73,756 $73,877 $78,028
Investment securities 8,824 6,577 6,984 8,669 8,834 9,199 8,037
Loans, net of unearned income 70,387 71,832 71,889 67,249 60,792 61,018 67,251
Interest-bearing deposits 72,429 72,244 71,807 68,795 57,030 52,558 52,073
Other borrowed funds - - - - - - -
Advances from Federal Home Loan
Bank of Boston - - - 1,392 7,208 12,333 17,692
Common shareholders' equity 8,479 7,656 7,666 8,209 7,948 8,044 7,518
Selected Financial Ratios:(5)
Net interest margin 4.06% 4.14% 4.08% 3.93% 3.37% 3.30% 2.89%
Return (loss) on average assets .83 .88 1.39 (0.59) (0.35) 0.61 0.82
Return (loss) on average common
stockholders' equity 8.22 9.76 15.07 (5.84) (3.21) 5.56 8.46
Average shareholders' equity to average assets 10.10 9.03 9.22 10.12 10.78 10.89 9.64
Core (leverage) capital ratio at period end 10.15 9.11 10.02 8.63 10.20 11.40 N/A
Tier 1 risk-based capital ratio at period end 19.35 17.55 18.30 16.06 16.24 16.73 N/A
Total risk-based capital ratio at period end 20.65 18.80 19.00 17.17 17.03 17.26 N/A
Period-end allowance for possible loan losses
to period-end loans, net of
unearned income .82 .81 .84 .68 .59 .42 .31
Net charge-offs to average loans,
net of unearned income .06 .03 (.03) 0.19 .03 .03 .02
Period-end nonperforming assets to period-end
loans (net of unearned income) and
foreclosed real estate 1.08 1.90 2.74 2.94 4.11 2.61 1.10
</TABLE>
ORANGE SAVINGS BANK
Notes to Selected Historical Financial Data
(1) In the fourth quarter of 1993, Orange adjusted the valuation reserve on
gross deferred tax assets by $384,000 as a result of a significant
improvement in 1993 pre-tax earnings.
(2) In the fourth quarter of 1992, Orange wrote off $1,100,000 in the
remaining balances of its real estate limited partnership investment.
(3) Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" was adopted by Orange, effective January 1, 1992. The
cumulative effect of the change in accounting principle on years prior to
1992 was to increase 1992 net income by $50,000, or $.07 per share.
(4) In the second quarter of 1991, Orange wrote off $404,000 in a real estate
limited partnership investment.
(5) Interim financial percentages have been annualized, where appropriate.
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain unaudited pro forma combined
financial data for CFX 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 Maximum Exchange Ratio of
.9844 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 CFX and
Orange, including the notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus. See "PRO FORMA COMBINED FINANCIAL DATA."
<TABLE>
<CAPTION>
At or for the Nine Months At or for the
Ended September 30, Years Ended December 31,
1994 1993 1992 1991
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Results of Operations:
Interest and dividend income $ 40,454 $ 52,025 $ 58,812 $ 65,252
Interest expense 17,433 22,352 30,501 40,001
Net interest and dividend income 23,021 29,673 28,311 25,251
Provision for loan and lease losses 62 3,060 3,153 3,965
Net interest income after provision for loan and lease losses 22,959 26,613 25,158 21,286
Other income 4,088 6,543 2,386 1,319
Other expense 20,008 25,654 21,810 21,624
Income before income taxes and cumulative effect of a
change in accounting principle 7,039 7,502 5,734 981
Income tax expense 2,643 1,331 2,465 678
Net Income Before Cumulative Effect of a Change
In Accounting Principle 4,396 6,171 3,269 303
Preferred stock dividends 201 270 270 270
Net Income Available to Common Stock Before
Cumulative Effect of a Change In Accounting
Principle $ 4,195 $ 5,901 $ 2,999 $ 33
Per Share Data:(2)
Earnings per common share before cumulative effect of a
change in accounting principle $ .91 $ 1.30 $ .67 $ .01
Common shareholders' equity per share 17.93 17.65 17.01 16.79
Cash dividends per common share .53 .58 .49 .56
Weighted average common shares
outstanding 4,569 4,539 4,510 4,499
Average Balance Sheet Data:
Total assets $853,807 $749,132 $753,256 $707,115
Investment securities 186,798 138,414 153,124 113,751
Loans and leases, net of unearned income 576,952 555,963 545,914 546,522
Interest-bearing deposits 581,219 602,141 615,667 565,556
Other borrowed funds 11,833 19,378 11,384 -
Advances from Federal Home Loan
Bank of Boston 94,828 7,821 13,505 31,712
Common shareholders' equity 81,517 78,993 76,371 75,913
Selected Financial Ratios:(1)
Net interest margin 4.09% 4.30% 4.07% 3.87%
Return on average assets .66 .79 .40 -
Return on average common shareholders' equity 6.88 7.47 3.93 -
Average shareholders' equity to average assets 9.97 11.02 10.62 11.25
Core (leverage) capital ratio at period end 9.01 9.03 9.63 9.55
Tier 1 risk-based capital ratio at period end 15.30 13.62 15.15 15.14
Total risk-based capital ratio at period end 16.58 14.85 16.35 16.38
Period-end allowance for loan and lease losses
to period-end loans and leases, net of
unearned income 1.27 1.48 1.53 1.35
Net charge-offs to average loans and leases,
net of unearned income 0.12 0.63 0.45 0.40
Period-end nonperforming assets to period-end
loans and leases (net of unearned income) and
foreclosed real estate 1.64 2.18 4.48 5.05
<F1> Interim financial percentages have been annualized, where appropriate.
<F2> Per share data has been adjusted to reflect the declaration by CFX of 5%
common stock dividends on December 12, 1994 and December 13, 1993.
</TABLE>
MEETING INFORMATION
The Special Meeting
This Proxy Statement-Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Orange for use at the
Special Meeting. The Special Meeting will be held at the Athol-Orange Lodge of
Elks, Route 2A, Orange, Massachusetts, at 12:00 noon on Friday, February 24,
1995.
The Special 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) approving a proposal to adjourn the
Special Meeting if necessary 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 BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
Record Date
The Board of Directors has fixed the close of business on December 30,
1994 as the Record Date. Only the holders of record of the outstanding shares
of Orange Common Stock on the Record Date will be entitled to notice of, and
to vote at, the Special Meeting and any adjournments or postponements thereof.
At the Record Date, 724,412 shares of Orange 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 Orange Common Stock outstanding and entitled to
vote on the Record Date is necessary to constitute a quorum at the Special
Meeting.
Proxies; Voting and Revocation
Shares represented by a properly executed proxy received prior to the
vote at the Special Meeting and not revoked will be voted at the Special
Meeting as directed in the proxy. IF A PROXY IS SUBMITTED AND NO DIRECTIONS
ARE GIVEN, THE PROXY WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. Orange intends to count
shares of Orange Common Stock present in person at the Special Meeting but not
voting, and shares of Orange Common Stock for which it has received proxies
but with respect to which holders of shares have abstained on any matter, as
present at the Special Meeting for purposes of determining the presence or
absence of a quorum for the transaction of business. Since the affirmative
vote of the holders of two-thirds of the outstanding shares of Orange Common
Stock entitled to vote on the Merger is required to approve and adopt the
Merger Agreement and the transactions contemplated thereby, the failure to
vote or a vote to abstain will have the same effect as a negative vote. In
addition, under the rules of the National Association of Securities Dealers,
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
without specific instructions from such customers. Given that Massachusetts
law requires the affirmative vote of the holders of two-thirds of the
outstanding shares of Orange Common Stock entitled to vote on the Merger
Agreement in order to adopt the Merger Agreement, the failure of such
customers to provide specific instructions with respect to their shares of
Orange Common Stock to their broker will have the same effect as a negative
vote. Each share of Orange Common Stock is entitled to one vote on each matter
voted upon at the Special Meeting. The persons named as proxies by a
stockholder may propose and vote for one or more adjournments or postponements
of the Special Meeting to permit further solicitation of proxies in favor of
such proposal.
A stockholder of record may revoke a proxy by filing an instrument of
revocation with Roger Mallet, Clerk of Orange (30 East Main Street, Orange,
Massachusetts 01364), by filing a duly executed proxy bearing a later date, or
by appearing at the Special Meeting in person, notifying the Clerk, and voting
by ballot at the Special Meeting. Any stockholder of record attending the
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 stockholder at
the Special Meeting will not constitute revocation of a previously given
proxy.
Votes Required
The affirmative vote of the holders of two-thirds of the outstanding
shares of Orange Common Stock is necessary to approve and adopt the Merger
Agreement and the transactions contemplated thereby. At the Record Date,
directors and executive officers of Orange and their respective affiliates
thereof held approximately 84,786 shares, or approximately 11.70%, of the
outstanding Orange Common Stock. Consequently, assuming, for illustration
purposes only, that all of the directors and executive officers of Orange and
their respective affiliates vote in favor of the Merger Agreement, the
affirmative vote of holders of an additional 398,156 shares of Orange Common
Stock, representing approximately 54.96% of the shares issued and outstanding,
will be required to approve and adopt the Merger Agreement. The approval of
the Merger Agreement by Orange's stockholders is a condition to the
consummation of the Merger.
Approval of any proposal to adjourn the Special Meeting to permit the
further solicitation of proxies would require the affirmative vote of holders
of a majority of the shares of Orange Common Stock present and voting at the
Special Meeting.
Solicitation of Proxies
The cost of solicitation of proxies by Orange will be borne by Orange.
In addition to the solicitation of proxies by mail, the directors, officers
and employees of Orange may also solicit proxies personally or by the
telephone or telegraph. Orange 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. Orange will
reimburse those holders for their reasonable expenses. Orange has also
retained Kissel-Blake Inc., a proxy soliciting firm, to assist in the
solicitation of proxies at a fee of $3,000 plus reimbursement of certain out-
of-pocket 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 stockholders of Orange are urged to read the Merger Agreement in its
entirety.
The Merger Agreement has been unanimously approved by the Board of
Directors of Orange. The Board of Directors of Orange believes that the terms
of the Merger Agreement are fair and in the best interests of Orange and its
stockholders and recommends that the stockholders vote to approve and adopt
the Merger Agreement.
Background of and Reasons for the Merger; Recommendation of the Board of
Directors
During the Spring of 1994, the Orange Board of Directors was approached
by a New England financial institution with respect to a possible affiliation.
In response to this initial inquiry, the Board decided to explore the
opportunities for strategic alternatives, including the possible sale of
Orange to a larger financial institution.
In April, 1994, the Executive Committee (and later the full Board)
authorized management to engage EDS as its financial advisor to assist in
identifying and contacting potential prospects and to advise Orange on the
financial aspects of potential affiliations. During April and May of 1994, EDS
contacted several community banking institutions on a confidential basis about
a possible affiliation with Orange. The Board concluded that the larger
regional banks had expressed little interest in the Orange market or in
acquiring banks the size of Orange.
At a May 31, 1994 Board meeting, at which Orange's counsel, Foley, Hoag
& Eliot, was also present, EDS reported that three financial institutions,
including CFX, had expressed an interest in acquiring Orange, on a stock-for-
stock or a combination stock and cash basis. The Board discussed the fact that
one of the three institutions (other than CFX) was a relatively small
institution that did not have the depth of financial resources of CFX or the
other interested party. After considerable discussion, the Board authorized
EDS, working together with the Chairman and the President, to discuss further
with the potentially interested parties the depth of their interest in
acquiring Orange, as well as the financial ability of each acquiror to
effectuate a transaction if Orange should decide to go forward.
The officers of CFX made a detailed presentation to the Directors of
Orange at a June 22, 1994 Board meeting describing, among other things, CFX's
general plans for the future and its plans to grow Orange and use it as a
basis for expansion within Massachusetts if an acquisition were to take place.
One of the other interested acquirors made a presentation to the Orange
Directors at their June 28, 1994 Board meeting. EDS made a presentation to the
Board with respect to the third institution that had expressed an interest in
an affiliation with Orange.
After reviewing information that EDS had prepared providing summary data
on the three institutions that had expressed an interest in Orange with
respect to price, currency and structure, the Board voted at its June 28, 1994
meeting to allow CFX to perform due diligence and to authorize management to
begin negotiating an agreement of merger with CFX.
During the next three weeks, CFX and Orange, with the assistance of
counsel and EDS, negotiated the terms of a draft agreement of merger.
At the July 21, 1994 Board meeting, attorneys from Foley, Hoag & Eliot
distributed and reviewed in detail with the Directors the terms of the draft
Agreement and Plan of Merger. The Directors reviewed the limitations upon
their right to solicit or enter into a transaction with another party and,
among other things, the obligation to obtain the approval of Orange's
stockholders for the transaction, and the conditions to closing.
EDS reviewed the financial aspects of the contract, including in
particular the "collar" arrangement, which was designed to reduce the risk to
Orange stockholders of fluctuations in the market price of the CFX Common
Stock prior to the completion of the Merger.
At the July 26, 1994 Board meeting, the Directors voted to enter into a
transaction with CFX and to approve and adopt the Agreement and Plan of Merger
in substantially the form presented to the Board (the "Original Merger
Agreement"). On July 26, 1994, CFX and Orange executed the Original Merger
Agreement. On November 8, 1994, CFX and Orange executed the Merger Agreement,
which amends and restates the Original Merger Agreement to make certain
technical and other corrections to the Original Merger Agreement.
In the course of reaching its decision to approve the Merger Agreement,
the Board of Directors of Orange consulted with its legal advisors regarding
the legal terms of the Merger Agreement and the Board of Directors'
obligations in its consideration thereof; its financial advisors regarding the
financial terms and fairness, from a financial point of view to the
stockholders of Orange, of the Exchange Ratio in the proposed Merger; and the
management of Orange. Without assigning any relative or specific weights
thereto, the Board of Directors considered the factors outlined below, among
others, that it believed relevant to reaching its determination.
The terms of the Merger Agreement, including the Exchange Ratio, were
reached on the basis of arms' length negotiations between Orange and CFX. In
reaching the conclusion that the terms of the Merger Agreement are fair, the
Board of Directors considered, among other things, the market value, book
value, earnings per share, and dividends paid to holders of Orange Common
Stock. The Board considered that the Merger provides an opportunity for the
stockholders of Orange to receive consideration for their shares having a
value in excess of the book value of the Orange Common Stock and an increase
in dividends paid to Orange stockholders, and that the Exchange Ratio
represents a substantial premium over the prices at which the Orange Common
Stock has traded in the recent past and the price at which the Board
reasonably anticipated the stock would be traded in the future. At September
30, 1994, the book value per share of the Orange Common Stock was $11.90. On
July 25, 1994, the last trading day preceding the public announcement of the
proposed Merger, the bid and asked per share prices for Orange Common Stock
quoted on the Nasdaq Small-Cap Market were $8.50 and $10.00, respectively. See
"COMPARATIVE STOCK PRICES AND DIVIDENDS".
In reaching its conclusion, the Board of Directors took into
consideration and relied in part upon the advice of EDS, Orange's financial
advisor. At the July 26 Orange Board meeting, EDS indicated that, based upon
information known as of that date, EDS 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 Orange stockholders. 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 B to this Proxy Statement-Prospectus.
Orange's Board of Directors considered the analyses presented to it by EDS
relating to selected financial and stock market data concerning Orange and
CFX, certain financial analyses of the terms of the Merger, including a
discounted cash flow analysis and a comparison to the terms of other recent
acquisitions, which are described below under "THE MERGER--Opinion of
Financial Advisor."
The Board of Directors considered the strategic alternatives available
to Orange, including the possibility of remaining independent, seeking further
to solicit competing proposals, and accepting CFX's bid, before concluding for
the reasons discussed in this Section that the Merger represented an
opportunity to enhance stockholder value at this time and that the Exchange
Ratio was fair to the stockholders.
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 American Stock Exchange. Orange's Board of Directors
believes that the proposed affiliation with CFX could provide increased
liquidity for the stockholders of Orange and could lead to competitive
advantages through greater diversity in product offerings, cost-savings
through integration of operations, improved access to capital and funding, and
geographic expansion of operations.
The Board considered the high costs of remaining independent as a small
publicly-traded company in an increasingly complex competitive and regulatory
environment. It also considered the process that was used to solicit
indications of interest on the part of potential acquirors of Orange and
believes that it was appropriate.
The Board of Directors considered the historical growth in CFX's
earnings per share and book value. The Board of Directors also considered the
historical dividends paid on the Orange Common Stock and CFX Common Stock,
respectively, and the significant increase in dividends which would be likely
to result to Orange stockholders from the Merger. The Board of Directors also
considered the expectation that the Merger will be a tax-free transaction to
Orange stockholders, Orange and CFX, and accounted for under the "pooling of
interests" method of accounting.
The Board of Directors considered the fact that approval of the Merger
Agreement requires the affirmative vote of two-thirds of the shares of Orange
Common Stock outstanding and entitled to vote, consisting primarily of persons
other than the members of management, and that the Board of Directors'
decision to approve the Merger Agreement would allow the stockholders as a
group to decide whether or not to accept CFX's proposal to acquire Orange.
The Board of Directors considered the possible impact of the Merger on
Orange's employees, customers and community. Orange's Amended and Restated
Charter permits the Board of Directors to consider a variety of factors,
including, without limitation, the social and economic effects of a
transaction on depositors, borrowers and employees of Orange, and on the
communities in which Orange operates or serves. Massachusetts law permits the
Board of Directors to consider these factors, at least to the extent that
there are rationally related benefits accruing to stockholders. The Board of
Directors believes that the Merger, if consummated, will provide Orange with
expanded services, greater ability to grow and diversify, and access to the
resources of a strong financial parent.
In reviewing the provisions of the Merger Agreement relating to the
requirement that Orange pay to CFX a termination fee of $450,000 if, for
certain specified reasons, the Merger is not consummated, the Board of
Directors was aware that the existence of such provision would make it more
expensive for a third party to offer a price that was in excess of CFX's
proposal. The Board of Directors was aware that the provision might
significantly deter a potential competing acquiror from making an offer. The
Board of Directors was also aware that CFX required the provision as a
condition to entering into the Merger Agreement. See "THE MERGER--Termination
Fee". If the Orange stockholders do not approve and adopt the Merger Agreement
or the Merger is not consummated for any other reason, the Board of Directors
expects to continue to operate Orange as an ongoing business.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of Financial Advisor
EDS 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 stockholders of Orange in connection with the acquisition of
Orange by CFX 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 EDS's review, is attached hereto as Annex B. EDS's opinion is
directed only to the merger consideration, and does not constitute a
recommendation as to how any Orange stockholder 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. Stockholders are urged to read the opinion in its entirety.
The Board of Directors retained EDS in April of 1994 to render financial
advisory services to Orange with regard to the possible acquisition of Orange.
EDS had not previously acted as a consultant to Orange.
In arriving at its opinion, EDS reviewed and analyzed the following: (i)
the Merger Agreement, (ii) this Proxy Statement-Prospectus in substantially
the form to be sent to Orange stockholders, (iii) such publicly available
information concerning Orange and CFX that EDS believed to be relevant to its
inquiry, (iv) financial and operational information with respect to Orange and
CFX, furnished by Orange and CFX, respectively, (v) market valuation, price
performance and liquidity of Orange Common Stock and certain other banking
institutions, (vi) Orange'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. EDS also conducted discounted cash flow
analyses with respect to Orange as a stand-alone entity.
EDS also considered the results of its efforts (at the direction of
Orange) to solicit proposals from third parties with respect to an affiliation
with Orange and its review and analysis of the terms of such proposals. In
addition, EDS held discussions with the management of each of Orange and CFX
concerning each entity's business, operations, assets, financial condition and
prospects. EDS also undertook such other studies, analyses and investigations
as it deemed appropriate. Based on its review of CFX's most recent financial
statements, EDS determined that CFX's acquisition of Orange would have a
minimal impact on CFX's capital ratios.
Furthermore, EDS 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. EDS's opinions were necessarily based upon conditions as they
existed and should be evaluated on the date hereof and the information made
available to EDS through the date hereof.
Set forth below is a discussion of the discounted cash flow analyses
performed by EDS and an analysis of certain relevant aspects of recent
comparable transactions. The discussion below does not purport to be a
complete description of the analyses performed or the matters considered by
EDS in arriving at its opinion.
In order to analyze Orange's prospects as a stand-alone entity, EDS
performed discounted cash flow analyses with respect to Orange's projected
dividends and the projected value of its Common Stock in five and ten years.
EDS discounted projected dividends on Orange Common Stock over a five and ten
year horizon, using discount rates ranging from 10.4% to 15.6%, which EDS
determined reflect a reasonable expectation of return by Orange stockholders.
EDS derived two estimates for the projected value of Orange Common Stock
by applying median price/earnings and price/book transaction multiples against
Orange's five and ten year projected earnings and book value. It derived a
third estimate by discounting Orange's projected future income stream into
perpetuity. The first year's projections for this discounted cash flow
analysis were based on the projections of Orange management. Years 2-10
earnings were set at profitability levels ranging from 0.68% to 1.02% return
on assets, and growth was set at a range of 5.6% to 8.4%, to reflect
expectations for a central Massachusetts savings bank. This analysis and the
underlying assumptions produced a value for the Orange Common Stock in the
range of $11.70 to $16.67 per share. The value of the CFX Common Stock that
would be received by Orange stockholders if the Merger is consummated would be
within these ranges.
The results produced in the discounted cash flow analyses are not
indicative of actual or expected values of Orange Common Stock, either before
or after the Merger. EDS advised the Orange Board of Directors that although
the discounted cash flow analysis is a widely used valuation methodology, it
relies on numerous assumptions, including discount rates, terminal values,
earnings and asset growth, as well as dividend payout rates.
Using publicly available information, EDS examined five recent
comparable mergers and acquisitions involving New England financial
institutions. The median consideration for these transactions was 1.23 times
book value, 1.29 times tangible book value and 10.7 times trailing four
quarter earnings, with a 3.66% tangible book premium to core deposits.
Based on Orange's June 30, 1994 financials, to obtain the foregoing
multiples, a merger consideration ranging from $8.39 to $15.13 per share of
Orange Common Stock would be required. The value of the CFX Common Stock that
would be received by Orange stockholders if the Merger is consummated would be
within these ranges.
EDS also examined the premium over market value of certain recent
transactions involving New England financial institutions. EDS determined that
the market premium that would be received by Orange stockholders if the Merger
is consummated would be 66.7% (assuming that the value of the CFX Common Stock
received by Orange stockholders is $15.00 per share), whereas the median
market premium for the transactions examined by EDS was 40.4%, based in each
case on the market value of the stock of the company to be acquired one week
prior to the public announcement of the transaction.
In addition, EDS reviewed the reported price and trading activity for
the CFX Common Stock and the Orange Common Stock individually, in relation to
the movements of the Nasdaq Bank Stock Index, and relative to each other. EDS
also reviewed the historical and pro forma financial statements of CFX and
Orange.
EDS reviewed the foregoing analyses with the Orange Board of Directors
at various Board meetings. EDS also advised the Board that the multiples set
forth in the discussion of comparable transactions were at a five-year high
and appeared to reflect a favorable market for mergers and acquisitions of
financial institutions as compared to recent years.
On July 26, 1994, EDS advised the Orange Board that, on and as of that
date, based upon information known as of that date, EDS 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 Orange stockholders. EDS 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), EDS 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. EDS relied upon the managements of
Orange and CFX as to the reasonableness and achievability of the projections
(and the assumptions and bases therefor) provided to EDS, and assumed that
such projections reflected the best currently available estimates and
judgments of each entity's management and that such projections would be
realized in the amounts and in the time periods estimated by such management.
EDS also assumed, without independent verification, that the aggregate
allowance for loan losses for Orange and CFX was adequate to cover such
losses. EDS did not make or obtain any evaluations or appraisals of the
property of Orange or CFX nor did EDS examine any individual loan credit
files. EDS assumed that for purposes of its opinion the Merger will be
recorded as a pooling-of-interests under generally accepted accounting
principles. EDS was retained by Orange's Board of Directors to express an
opinion as to the fairness, from a financial point of view, to Orange's
stockholders of the financial consideration to be received in the Merger. EDS
did not address Orange's underlying business decision to proceed with the
Merger and did not make any recommendation to the Board of Directors or to the
stockholders of Orange with respect to any approval of the Merger.
The preparation of a fairness opinion by EDS 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, EDS 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, EDS 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, EDS made assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond Orange's or CFX's control. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive
of future results or value, which may be significantly more or less favorable
than as set forth therein. In addition, analyses relating 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, EDS's
opinion is only one of the many factors taken into consideration by the Orange
Board of Directors.
EDS is an internationally 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 Orange selected EDS because of its expertise, reputation and
familiarity with the financial institution industry in general. EDS is not
affiliated with either CFX or Orange.
As compensation for its services in connection with the Merger, Orange
has agreed to pay EDS a maximum fee of $15,000 based upon hourly professional
fees plus a contingent fee payable upon consummation of the Merger based on
the aggregate value of the transaction as determined by the closing price of
the CFX Common Stock on July 25, 1994. Based on an assumed per share
consideration of $15.00 per share, the fee amount based upon hourly
professional fees plus the contingent fee payable upon consummation of the
Merger would total approximately $110,000. In addition, Orange has agreed to
reimburse EDS for reasonable out-of-pocket expenses incurred in connection
with the Merger and to indemnify EDS against certain liabilities.
EDS has been engaged from time to time by CFX (both before and after the
presentation to the Orange Board of Directors on July 26, 1994) to provide
services to CFX unrelated to the Merger. The total consideration paid or to be
paid by CFX to EDS for these services is approximately $568,000, of which
approximately $435,000 represents compensation for management consulting
services associated with work flow, efficiency and revenue enhancement.
Management and Operations after the Merger
Upon consummation of the Merger, Orange, as the surviving bank in the
Merger with Interim Bank, will continue to operate as a separate banking
subsidiary of CFX. The directors and officers of Orange immediately prior to
the Effective Time will remain the directors and officers of the surviving
bank, to hold office in accordance with the charter documents and by-laws of
the surviving bank until their respective successors are duly elected or
appointed and qualified. Following the Effective Time, CFX intends to elect
Mark A. Gavin, Chief Financial Officer of CFX, and Christopher V. Bean, a
director of CFX, to serve on the Board of the surviving bank. Pursuant to the
Merger Agreement, CFX has agreed that, except with respect to Messrs. Gavin
and Bean (and one additional director whom CFX may elect), the Board of
Directors of Orange will be kept in place for at least three years, subject to
regulatory considerations, safe and sound banking practices, and the fiduciary
duties of CFX's directors. Prior to or at the Effective Time, one of Orange's
current directors (designated by the Orange Board of Directors, subject to the
reasonable approval of CFX) will be elected to the Board of Directors of CFX.
Following consummation of the Merger, CFX expects that Orange will offer a
broader array of products and services than is currently offered by Orange.
Exchange Ratio and Other Matters
In the Merger, each share of Orange Common Stock outstanding, except for
any dissenting shares and except for shares held by CFX or its subsidiaries or
Orange or its subsidiaries (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 the number of shares of CFX Common Stock
determined by multiplying .8750 by a fraction, the numerator of which is
$17.1429 and the denominator of which is the Average Closing Price, subject to
adjustment as described in the next paragraph (the "Exchange Ratio"). The
"Average Closing Price" is the average closing sale price per share of CFX
Common Stock on the American Stock Exchange (as reported by The Wall Street
Journal or, if not reported thereby, another authoritative source), for the
ten American Stock Exchange trading days ending on the business day before the
date on which the approval of the Massachusetts Commissioner of Banks required
to consummate the Merger is obtained.
Notwithstanding the foregoing paragraph, if the Average Closing Price is
equal to or greater than $20.00, the Exchange Ratio will be 0.7500 (the
"Minimum Exchange Ratio"); and if the Average Closing Price is equal to or
less than $15.2381, the Exchange Ratio will be 0.9844 (the "Maximum Exchange
Ratio"); except that (a) in the event that before the Effective Time an
announcement is made with respect to a business combination involving the
acquisition of CFX or a substantial portion of its assets, the Exchange Ratio
shall not be less than 0.7875, and (b) if the Average Closing Price is equal
to or less than $13.3333, Orange shall have the right, waivable by it, to
terminate the Merger Agreement, unless CFX shall have elected, with the
approval of Orange, to adopt as the Exchange Ratio the "Adjusted Maximum
Exchange Ratio", which shall be determined by dividing $13.13 by the Average
Closing Price. The Merger Agreement provides that on or after January 1, 1995
Orange shall have the right to increase its regular quarterly cash dividend to
an amount equal to the quarterly dividend then being paid by CFX with respect
to each share of CFX Common Stock, multiplied by .8750. For the quarter ended
September 30, 1994, CFX paid a dividend of $.23 with respect to each share of
CFX Common Stock.
In accordance with adjustment provisions of the Merger Agreement, the
foregoing ratios have been adjusted to reflect a 5% common stock dividend
declared by CFX on December 12, 1994. The Merger Agreement provides that, in
the event that CFX changes the number of shares of CFX Common Stock issued and
outstanding between July 26, 1994 and the Effective Time as a result of a
stock split, combination, stock dividend or other distribution in CFX Common
Stock or other convertible securities, the Exchange Ratio and, if applicable,
the Minimum Exchange Ratio, the Maximum Exchange Ratio and the Adjusted
Maximum Exchange Ratio, will be adjusted proportionately.
In addition, at the Effective Time all stock options with respect to
Orange Common Stock granted by Orange under the Orange Stock Option Plans
which are outstanding and unexercised immediately prior thereto, whether or
not then exercisable, will be converted into and will become stock options
under the CFX Stock Option Plan to purchase CFX Common Stock. The rights to
CFX Common Stock to be received by holders of Orange stock options upon
consummation of the Merger will be the same as the rights such optionees had
under the Orange Stock Option Plans immediately prior to the Effective Time,
except that (a) the number of shares of CFX Common Stock subject to such
options and the exercise price of such options will be adjusted to give effect
to the Exchange Ratio, and (b) the options will remain exercisable regardless
of whether the holder shall remain in the employ of Orange or CFX after the
Effective Time, and (c) the options shall be non-qualified stock options
rather than incentive stock options. The other terms of each new option,
including duration, shall be the same as the original option except that all
references in such option to Orange shall be deemed to be references to CFX.
The options to purchase CFX Common Stock and the shares of CFX Common Stock
issuable upon exercise of such options are registered pursuant to a separate
registration statement on a Form S-8 filed with the Commission on September
23, 1987, as amended, and are offered by a separate prospectus.
Shares of CFX capital stock (including CFX 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 Orange Common Stock into CFX 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 Orange
stockholders by Mellon Securities Trust Company (the "Exchange Agent"). The
transmittal forms will contain instructions with respect to the surrender of
certificates representing Orange Common Stock to be exchanged for certificates
representing CFX Common Stock.
ORANGE STOCK CERTIFICATES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT
UNTIL AN ORANGE STOCKHOLDER HAS RECEIVED A TRANSMITTAL FORM AND SHOULD NOT BE
RETURNED WITH THE ENCLOSED PROXY.
Until the certificates representing Orange 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 CFX 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
other purposes, however, each certificate which represents outstanding shares
of Orange Common Stock outstanding at the Effective Time of the Merger will be
deemed to evidence ownership of the shares of CFX Common Stock into which
those shares have been converted pursuant to the Merger.
No fractional shares of CFX Common Stock will be issued to any Orange
stockholder upon consummation of the Merger. For each fractional share that
would otherwise be issued, CFX will pay cash in an amount equal to such
fraction multiplied by the closing sale price of CFX Common Stock on the
American Stock Exchange as reported by The Wall Street Journal for the trading
day immediately preceding the date of the Effective Time.
Any shares of Orange 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 Stockholders" and
in Annex C to this Proxy Statement-Prospectus.
For a description of the differences between the rights of the holders
of Orange Common Stock and CFX Common Stock, see "COMPARISON OF RIGHTS OF CFX
AND ORANGE STOCKHOLDERS". For a description of the capital stock of CFX, see
"DESCRIPTION OF CFX CAPITAL STOCK".
Effective Time
The Effective Time will be as set forth in the Articles of Merger (the
"Articles of Merger") which shall be filed with the Secretary of State of the
Commonwealth of Massachusetts on the Closing Date. 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. Orange and CFX each anticipate that
the Merger will be consummated during the first quarter of 1995. 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 CFX, Orange has agreed to 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 to use reasonable
efforts to preserve intact its business organization and assets and maintain
its rights and franchises.
CFX and Orange have each agreed (except with the written consent of the
other) to take no action which would (i) materially adversely affect the
ability of CFX or Orange 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,
or (ii) materially adversely affect its ability to perform its covenants and
agreements under the Merger Agreement. Orange and CFX 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.
CFX has agreed (except with the written consent of Orange) to take no
action which would (i) disqualify the Merger as a "pooling of interests" for
accounting purposes or a tax free reorganization under Section 368 of the
Code, or (ii) result in the representations and warranties of CFX 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.
Orange has agreed to give CFX access to all of its properties and to
disclose and make available to CFX 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 (includ-
ing 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
CFX may have a reasonable interest.
In addition, except as contemplated by the Merger Agreement, Orange has
agreed that, without the consent of CFX, it and its subsidiaries will not,
among other things:
(a) Change or waive any provision of its Amended and Restated
Charter or By-laws;
(b) Change the number of shares of its authorized or issued
capital stock (except for the issuance of Orange Common Stock pursuant
to the exercise of outstanding stock options under the Orange Stock
Option Plans, as contemplated by the Merger Agreement);
(c) Issue or grant any option, warrant, call, commitment, sub-
scription, right to purchase or agreement of any character relating to
the authorized or issued capital stock of Orange or any of its
subsidiaries, or any securities convertible into shares of such stock;
(d) Classify any shares of its capital stock;
(e) Declare or pay any dividends except for Orange's regular $.04
per share quarterly dividend and its $.04 per share year-end special
dividend (with declaration, record and payment dates that are consistent
with past practice) and for dividends paid by an Orange subsidiary to
Orange, provided, however, that Orange's regular quarterly cash dividend
may be increased to the Increased Dividend (as defined below) per share
of Orange Common Stock beginning in the first quarter of 1995, and (ii)
that CFX and Orange agree (x) to consult with respect to the amount of
the last Orange quarterly dividend payable prior to the Effective Time
with the objective of assuring that the stockholders of Orange do not
receive a shortfall based on the record and payment dates of their last
dividend prior to the Merger and the record and payment dates of the
first dividend of CFX following the Merger and (y) that Orange may pay a
special dividend to holders of record of Orange Common Stock immediately
prior to the Effective Time consistent with the objective described in
clause (x) above. The quarterly "Increased Dividend" shall be determined
by multiplying the quarterly dividend then being paid by CFX with
respect to each share of CFX Common Stock by .8750;
(f) Except as contemplated by the Merger Agreement, 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 Orange 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 consistent with past
practice, 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, 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) Except as contemplated by the Merger Agreement, 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 provisions thereof as in effect on the date of the
Merger Agreement; or enter into any employment, severance or similar
agreements or arrangements with any directors or officers;
(k) Make application for the opening or closing of any, or open or
close any, branches or automated banking facility;
(l) 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;
(m) 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;
(n) 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;
(o) 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;
(p) Take any action that would result in the representations and
warranties of Orange 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; or
(q) 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, unless waived, 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 vote of the stockholders of Orange;
(b) None of the parties shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of the Merger;
(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) The shares of CFX Common Stock to be issued in the Merger
shall have been authorized for listing on the American Stock Exchange,
subject to official notice of issuance;
(f) Each of CFX and Orange shall have received either a ruling of
the Internal Revenue Service or an opinion of counsel reasonably
acceptable to CFX and Orange, addressed to CFX and the stockholders of
Orange, 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 CFX, Orange or
Interim Bank or the surviving bank by reason of the Merger;
(iii) The bases of the assets of Orange in the hands of the
surviving bank will be the same as the bases of such assets in the
hands of Orange immediately prior to the Merger;
(iv) The holding period of the assets of Orange in the hands
of the surviving bank will include the period during which such
assets were held by Orange prior to the Merger;
(v) No gain or loss will be recognized by the Orange
stockholders on the exchange of shares of Orange Common Stock
solely for shares of CFX's Common Stock; income gain or loss will
be recognized, however, to each such stockholder upon the receipt
of cash by such stockholders on the exchange. The determination of
whether the receipt of cash by Orange stockholders will have the
effect of the distribution of a dividend will be made by treating
the stockholder as having received solely shares of CFX Common
Stock in the reorganization exchange and then having received the
cash payment from CFX in a hypothetical redemption of that number
of shares of CFX Common Stock equal in value to such cash payment;
(vi) The basis of the shares of CFX Common Stock to be
received by Orange stock-holders will be the same as the basis of
the shares of Orange 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 CFX Common Stock
to be received by the stockholders of Orange will include the
period during which they held the shares of Orange Common Stock
surrendered, provided the shares of Orange Common Stock are held
as a capital asset on the date of the exchange.
(g) 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
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 (such representations and warranties to
be deemed to be true and correct in all material respects unless the
failure or failures of such representations and warranties to be so true
and correct represent, in the aggregate, a Material Adverse Effect,
taken as a whole);
(h) Each of Orange and CFX 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 Orange and CFX 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, taken
as a whole;
(j) Each of CFX and Orange shall have received an opinion of
counsel, dated the Closing Date, in substantially the form of Annexes A
and B, respectively, to the Merger Agreement;
(k) CFX shall have received a letter from Wolf & Company, PC,
addressed to CFX, to the effect that the Merger will qualify for
"pooling of interests" accounting treatment;
(l) The holders of not more than 10% of the Orange Common Stock
outstanding immediately prior to the Effective Time shall have given
notice of their intention to exercise dissenters' rights pursuant to the
General Laws of Massachusetts;
(m) CFX shall have received a letter from the independent
certified public accountants for Orange, 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(g) of the
Merger Agreement;
(n) CFX shall have received a letter from its investment advisor,
dated as of a date not later than ten (10) days after the execution of
the Merger Agreement, stating its opinion that the consideration to be
paid to Orange's stockholders pursuant to the Merger is fair to CFX and
its stockholders, from a financial point of view; and
(o) Orange 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 Orange's stockholders, stating its
opinion that the consideration to be paid to Orange's stockholders
pursuant to the Merger is fair to such stockholders, from a financial
point of view.
No Solicitation
Orange has agreed in the Merger Agreement that, except for actions
required for a director or officer to satisfy his fiduciary obligations upon
advice of counsel, neither Orange nor any of its directors, officers,
employees, representatives or agents or other persons controlled by Orange
shall 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 Orange by such third party or which is otherwise
inconsistent with the obligations arising under the Merger Agreement. Orange
has agreed to promptly communicate to CFX the terms of any proposal or offer
or any inquiry or request for information which it may receive in respect of
any such transaction.
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 CFX and Orange,
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 CFX and Orange in meeting the credit needs of the
entire community, including low and moderate income neighborhoods, served by
each of such institutions.
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.
Massachusetts Board of Bank Incorporation and Massachusetts Commissioner
of Banks. In addition, the Merger requires the approval of the Massachusetts
BBI and the Massachusetts Commissioner of Banks. Each such approval is based
upon the determination that such proposed acquisition does not unreasonably
affect competition among Massachusetts banking institutions and that it
promotes public convenience and advantage. In making such a determination,
each of the Massachusetts Commissioner of Banks and the Massachusetts BBI must
consider, among other things, a showing of net new benefits, including initial
capital investments, job creation plans, consumer and business services and
commitments to maintain and open branch offices within a bank's statutorily-
delineated local community.
Prior to approving the Merger, the Massachusetts BBI must receive notice
from the Massachusetts Housing Partnership Fund (the "MHPF") that arrangements
satisfactory to the MHPF have been made for the proposed acquiror to make 0.9%
of its assets located in Massachusetts available for call by MHPF for a period
of ten years for purposes of funding various affordable housing programs.
Massachusetts law provides that such funds shall bear interest at rates
approved by the Massachusetts Commissioner of Banks which shall be based upon
the cost (not to include lost opportunity costs) incurred in making funds
available to the MHPF. Pursuant to this requirement, Orange and CFX, as lender
and guarantor, respectively, are entering into a Loan Agreement with the MHPF
Board pursuant to which Orange agrees to make available for call by the MHPF
Board the amount of $760,095. In addition, prior to approving the Merger, the
Massachusetts Commissioner of Banks must receive notice from the Depositors
Insurance Fund that satisfactory arrangements have been made.
The approval of the Massachusetts BBI is also required to charter
Interim Bank, a wholly owned subsidiary of CFX to be formed as a Massachusetts
chartered trust company for the sole purpose of facilitating the acquisition
of Orange by CFX. Prior to issuing a Certificate of Public Convenience and
Advantage to Interim Bank, the Massachusetts BBI will consider how the public
convenience and advantage will be served by the establishment of the proposed
trust company. Prior to issuing a Certificate to Transact Business, the
Massachusetts BBI will require evidence of deposit insurance from the FDIC.
FDIC. The Merger also must be approved by the FDIC. In addition, as
described in the preceding section, the FDIC must provide the Massachusetts
BBI with evidence of deposit insurance for the deposits of Interim Bank. 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.
Applications seeking the necessary approvals have been filed. There can be no
assurance that the Merger will be approved by the Federal Reserve Board, the
Massachusetts BBI, the Massachusetts Commissioner of Banks, or the FDIC. If
such approvals are received, there can be no assurance as to the date of such
approvals or the absence of any litigation challenging such approvals. CFX and
Orange 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 Orange, the following
summary sets forth the anticipated material federal income tax consequences of
the Merger to Orange stockholders and to Orange. The treatment of each Orange
stockholder will depend in part upon such stockholder's particular situation.
Special tax consequences not described below may be applicable to particular
classes of taxpayers, including Orange stockholders who acquired Orange Common
Stock pursuant to the Orange Stock Option Plans. All stockholders 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 CFX and Orange to effect the Merger are conditioned
upon their receipt of either rulings from the Internal Revenue Service or
opinions of counsel, as set forth below. Foley, Hoag & Eliot, counsel to
Orange, will deliver to Orange, and Devine, Millimet & Branch, Professional
Association, counsel to CFX, will deliver to CFX, their opinions, dated as of
the Effective Time. The tax opinions 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 opinions.
The opinion letter to be delivered to Orange by Foley, Hoag & Eliot will
be based upon certain representations made to Foley, Hoag & Eliot by Orange,
CFX, Interim Bank and certain Orange stockholders and upon certain factual
assumptions. If any of the representations or assumptions were not correct,
then each holder of Orange Common Stock would recognize gain or loss with
respect to each share of Orange Common Stock surrendered equal to the
difference between (i) such stockholder's basis in the share and (ii) the fair
market value of the CFX Common Stock received in exchange for the share. In
such event, the stockholder's aggregate basis in the shares of CFX Common
Stock received in the exchange would equal the fair market value of such
shares, and the stockholder's holding period for such shares of CFX Common
Stock would not include the period during which the stockholder held the
Orange shares exchanged therefor.
While the accuracy of each representation made to Foley, Hoag & Eliot is
essential to the opinions set forth below, Orange stockholders should
particularly note that dispositions of CFX Common Stock received by Orange
stockholders in the Merger may cause the Merger to become retroactively
taxable to each Orange stockholder, even those who do not make such
dispositions. In particular, Orange stockholders must not, pursuant to a plan
or intent existing prior to the Effective Time, dispose of an amount of CFX
Common Stock to be received in the Merger (including, under certain
circumstances, pre-merger dispositions of Orange Common Stock) such that the
Orange stockholders do not retain a meaningful continuing equity ownership in
CFX. Generally, so long as the Orange stockholders have no plan or intention
to dispose of CFX 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 CFX that is equal in value, as of the Effective Time, to less
than 50 percent of the value of all of the formerly outstanding Orange Common
Stock as of the same time, this requirement will be satisfied.
The opinion letter delivered to Orange 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. Orange will be a "party to the reorganization" within the
meaning of Code section 368(b);
c. No gain or loss will be recognized by Orange 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
stockholders of Orange upon the receipt in the Merger of CFX Common
Stock in exchange for their shares of Orange Common Stock;
e. Cash received in lieu of a fractional share of CFX Common Stock
will be treated as full payment in exchange for the Orange Common Stock
for which it is exchanged, and will result in the recognition of gain or
loss, if any, measured by the difference between the portion of the
basis of the Orange Common Stock allocable to such shares and the cash
received therefor. If such shares are capital assets in the hands of the
Orange stockholder, such gain or loss will be a capital gain or loss;
f. The aggregate basis of the CFX Common Stock received by an
Orange stockholder in the Merger will be the same as the aggregate basis
of the Orange Common Stock surrendered in exchange therefor;
g. The holding period for each share of CFX Common Stock received
by each Orange stockholder in exchange for Orange Common Stock will
include the period for which such stockholder held such Orange Common
Stock, provided that the stockholder's Orange Common Stock is held as a
capital asset at the Effective Time; and
h. An Orange stockholder who does not vote in favor of the Merger,
who exercises dissenters' rights as to all such holder's shares of
Orange Common Stock and who is not deemed to be an owner of any shares
of Orange Common Stock held by others will recognize gain or loss
measured by the difference between the basis of such stockholder's
dissenting shares and the cash received in exchange therefor. Such gain
or loss will be capital, provided that the holder's dissenting shares
are held as a capital asset at the Effective Time.
The opinion to be rendered to CFX by Devine, Millimet & Branch,
Professional Association, will also be based on certain factual
representations, warranties and assumptions and will rely as to certain legal
matters on the foregoing opinion of Foley, Hoag and Eliot. Devine, Millimet
and Branch, Professional Association, will opine that for federal income tax
purposes:
(i) CFX and Interim Bank will each be a "party to the
reorganization" within the meaning of Code Section 368(b);
(ii) No gain or loss will be recognized by CFX, Interim Bank or
the surviving bank by reason of the Merger;
(iii) The bases of the assets of Orange in the hands of the
surviving bank will be the same as the bases of such assets in the hands
of Orange immediately prior to the Merger; and
(iv) The holding period of the assets of Orange in the hands of
the surviving bank will include the period during which such assets were
held by Orange prior to the Merger.
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 Orange Common Stock will be deemed
to have combined their existing voting common stock interest with that of
holders of CFX Common Stock by exchanging their shares for shares of CFX
Common Stock. Accordingly, the book value of the assets, liabilities and
stockholders' equity of Orange, as reported on its consolidated balance sheet,
will be carried over to the consolidated balance sheet of CFX and no goodwill
will be created. CFX will be able to include in its consolidated statement of
income the consolidated income of Orange 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 CFX as current charges
against income rather than adjustments to its balance sheet.
In order for the Merger to qualify for pooling-of-interests accounting
treatment, among other criteria, substantially all (90% or more) of the
outstanding Orange Common Stock must be exchanged for CFX Common Stock. It is
a condition to consummation of the Merger that CFX shall have received a
letter from Wolf & Company, PC, 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 "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 stockholder
approval) by mutual consent of CFX and Orange. 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 CFX or Orange,
acting individually, (a) if any governmental entity shall have issued a final
nonappealable order prohibiting the consummation of any of the transactions
contemplated by the Merger Agreement; (b) if the Effective Time has not
occurred by July 31, 1995, except that Orange may extend this date if the
approval of a governmental entity that is required for the consummation of any
of the transactions contemplated by the Merger Agreement has not been
obtained; (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 Orange's
stockholders required to approve the Merger Agreement is not obtained. Orange
may also terminate the Merger Agreement in the event the Average Closing Price
is equal to or less than $13.3333, unless CFX elects (with the approval of
Orange) to adopt the Adjusted Maximum Exchange Ratio as the Exchange Ratio. If
the Merger Agreement is terminated (other than as a result of a wilful breach
or gross negligence by Orange or CFX) each of Orange and CFX 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, up to $250,000. If Orange is required to pay a termination fee (see
"--Termination Fee"), the maximum expenses payable by Orange shall not exceed
$150,000.
Termination Fee
Pursuant to the Merger Agreement, Orange shall pay to CFX a termination
fee of $450,000 within 20 business days of the occurrence of one of the
following: the failure of Orange's stockholders to approve the affiliation of
CFX and Orange after the public announcement by a person or group of persons
other than CFX of a bona fide, credible offer or proposal to acquire 45% or
more of Orange's Common Stock, or to acquire, merge or consolidate with Orange
or to purchase all or substantially all of Orange's assets; the acquisition by
any person or group of persons other than CFX of 45% or more of Orange's
Common Stock (or the acquisition by any person or group of persons of the
right to acquire 45% or more of Orange's Common Stock), exclusive of shares of
Orange's Common Stock sold directly or indirectly to such person or group of
persons by CFX; or the entry of Orange into an agreement or other
understanding with a person or group of persons other than CFX for such person
or group of persons to acquire, merge or consolidate with Orange or to
purchase all or substantially all of Orange's assets or acquire 45% or more of
the outstanding shares of Orange's Common Stock.
Waiver, Amendment and Extension of the Merger Agreement
CFX and Orange 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 after Orange's stockholder approval, no amendment shall reduce the
amount or change the form of consideration to be delivered to each of Orange's
stockholders pursuant to the Merger Agreement without further approval of
Orange's stockholders.
Effect on Employee Benefits
Although the Merger Agreement does not require CFX to offer employment
to any employee of Orange or its subsidiaries, the Merger Agreement provides
that CFX will use its best efforts to retain all persons employed by Orange at
the Effective Time. The Merger Agreement also provides that, after the Merger,
CFX will provide Orange employees with employee benefits no less favorable
overall than those available to employees of CFX, subject to the terms and
conditions under which those employee benefits are made available to employees
of CFX (except that the terms providing or substituting pension benefits shall
be determined after consultation among the Savings Bank Employees Retirement
Association, Orange and CFX). For purposes of determining eligibility for
vesting of such employee benefits (but not for determining the amount of
benefits payable under defined benefit pension plans), service with Orange by
persons who were employees of Orange at the Effective Time shall be treated as
service with an "employer" to the same extent as if such persons had been
employees of CFX during the period such persons were employed by Orange.
In addition, CFX has agreed that, at the Effective Time, all options
held by optionees under the Orange Stock Option Plans which are outstanding at
the Effective Time will be converted into and become options under the CFX
Stock Option Plan on the same terms and conditions as the Orange Stock Option
Plans, except that (a) the number of shares of CFX Common Stock subject to
such options and the exercise price of such options will be adjusted to give
effect to the Exchange Ratio, (b) the options will remain exercisable
regardless of whether the holder shall remain in the employ of Orange or CFX
after the Effective Time, and (c) the options will be non-qualified stock
options rather than incentive stock options.
The Merger Agreement provides that, after the Effective Time, CFX shall
indemnify and hold harmless, as and to the fullest extent permitted by
applicable law, each person who was at the date of the Merger Agreement, or
has been at any time prior to the date of the Merger Agreement, or who becomes
prior to the Effective Time, a director, officer or employee of Orange or any
of its subsidiaries (the "Indemnified Parties") against any losses, claims,
damages, liabilities and fines, and amounts paid in connection with any
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), whether civil,
criminal or administrative, including, without limitation, any such claim,
action, suit, proceeding or investigation in which each such Indemnified Party
is, or is threatened to be, made a party based in whole or in part on, or
arising in whole or in part out of, or pertaining to the Merger Agreement or
any of the transactions contemplated thereby. In connection with any such
claim, action, suit, proceeding or investigation, CFX has agreed to pay
expenses (including without limitation reasonable attorney fees) in advance of
the final disposition of any such claim, suit, proceeding or investigation to
each Indemnified Party to the fullest extent permitted by applicable law upon
receipt of any undertaking required by applicable law and to use all
reasonable efforts to assist in the vigorous defense of any such matter.
CFX has also agreed that all rights to indemnification existing in favor
of the Indemnified Parties as provided in Orange's Amended and Restated
Charter and By-laws or similar governing documents of any Orange subsidiary,
as in effect on July 26, 1994, will survive the Merger and continue in full
force and effect for a period of not less than 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.
CFX has also agreed to maintain in effect for at least six years after
the Effective Time the policies for directors' and officers' liability
insurance currently maintained by Orange or to substitute policies having at
least the same coverage and containing terms and conditions no less favorable
to directors and officers of Orange than the present policies of Orange,
provided that CFX shall be required to maintain only such coverage as is
commercially available.
Interests of Certain Persons in the Merger
In connection with the Merger, CFX has agreed to provide certain
benefits to the employees of Orange and its subsidiaries. See "--Effect on
Employee Benefits".
CFX has also agreed to continue the rights to indemnification of
officers, directors and employees of Orange or its subsidiaries and to
continue in effect for a period of time the directors' and officers' liability
insurance currently maintained by Orange. See "--Effect on Employee Benefits".
As discussed in "--Effect on Employee Benefits", at the Effective Time,
all options held by optionees under the Orange Stock Option Plans which are
outstanding at the Effective Time will be converted into and become options
under the CFX Stock Option Plan. As of December 30, 1994, the Record Date, the
officers and directors as a group held options to purchase an aggregate of
42,660 shares of the Orange Common Stock. Assuming, for illustration purposes
only, that the Exchange Ratio is .9844 and that the number of shares of Orange
Common Stock issuable at the Effective Time upon the exercise of outstanding
options granted to officers and directors pursuant to the Orange Stock Option
Plans remains unchanged from the Record Date, options to acquire 42,660 shares
of Orange Common Stock would be converted into options to acquire 41,995
shares of CFX Common Stock, at various exercise prices, adjusted to give
effect to the Exchange Ratio.
The directors and officers of Orange immediately prior to the Effective
Time shall remain the directors and officers of the surviving bank, to hold
office in accordance with the charter documents and by-laws of the surviving
bank until their respective successors are duly elected or appointed and
qualified. Following the Effective Time, CFX intends to elect Mark A. Gavin,
Chief Financial Officer of CFX, and Christopher V. Bean, a director of CFX, to
serve on the Board of the surviving bank. Pursuant to the Merger Agreement,
CFX has agreed that, except with respect to Messrs. Gavin and Bean (and one
additional director whom CFX may elect), the Board of Directors of Orange will
be kept in place for at least three years, subject to regulatory
considerations, safe and sound banking practices, and the fiduciary duties of
CFX's directors. Prior to or at the Effective Time, one of Orange's current
directors (designated by the Orange Board of Directors, subject to the
reasonable approval of CFX) will be elected to the Board of Directors of CFX.
CFX has entered into an agreement with Richard F. Astrella, President
and Chief Executive Officer of Orange, which primarily provides protection to
Mr. Astrella in the event that his employment with Orange is terminated within
18 months of consummation of the Merger. In such event, Mr. Astrella would be
entitled to receive the base compensation set forth in the agreement and
certain benefits for the remainder of the 18-month period.
Beneficial Ownership of Orange Common Stock
The following table sets forth certain information as of December 1,
1994 regarding (i) holders of more than 5% of Orange's Common Stock, (ii) each
director of Orange and (iii) all directors and principal officers of Orange 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.
<TABLE>
<CAPTION>
Amount and Nature Percent
of Beneficial of
Name Ownership Class
<S> <C> <C>
Richard F. Astrella 43,933(1) 5.81
30 East Main Street
Orange, Massachusetts 01364
Paul A. Larocque 25,300 3.49
Paul R. Robichaud 20,047(2) 2.77
Elwyn C. Hayden 11,250(3) 1.55
Roger W. Mallet 5,625(3) .78
Robert G. Allen 1,125(3) .16
Andrea L. Shaughnessy 950 .13
Thomas S. Mann, III 500 .07
John B. Stevenson 450(3) .06
Arlan D. Willard 450(3) .06
All Directors and principal officers
as a group (14 persons) 127,446(4) 16.61
<F1> Mr. Astrella beneficially owns 12,829 shares jointly with his spouse and
31,104 shares obtainable pursuant to currently exercisable options.
<F2> Includes 14,549 shares held individually by Mr. Robichaud and 5,498
shares held individually by his spouse, as to which Mr. Robichaud disclaims
beneficial ownership.
<F3> Shares held jointly with spouse.
<F4> Includes 42,660 shares obtainable by exercise of currently exercisable
options.
</TABLE>
Appraisal Rights of Dissenting Stockholders
Pursuant to Massachusetts law, stockholders of record on the Record Date
have the right to dissent from the Merger and, if the Merger is consummated,
to receive compensation equal to the "fair value" of their shares of Orange's
stock. Any stockholders desiring to exercise such statutory appraisal rights
will have the rights and duties and must follow the procedures set forth in
sections 85 to 98, inclusive, of chapter 156B of the General Laws of
Massachusetts in order to perfect such rights. A brief summary of sections 85
to 98, inclusive, of chapter 156B of the General Laws of Massachusetts is set
forth below. The following summary does not purport to be a complete statement
of the procedures to be followed by stockholders desiring to exercise their
statutory appraisal rights and is qualified in its entirety by express
reference to those sections, the full text of which is included in Annex C
attached hereto. Stockholders are urged to read Annex C in its entirety since
failure to comply with the procedures set forth therein may result in the loss
of statutory appraisal rights.
To exercise appraisal rights under Massachusetts law, a stockholder must
(i) deliver to Orange, before the stockholder vote on the action giving rise
to such appraisal rights, a written objection to such action stating that such
stockholder intends to demand payment for his or her shares through the
exercise of his or her statutory appraisal rights, (ii) not vote in favor of
or consent to such action and (iii) within twenty days after the date of
mailing to such stockholder of a written notice that the action giving rise to
such rights has been consummated or become effective, make written demand upon
Orange for payment of his or her shares and an appraisal of the value thereof.
In order to satisfy the requirements described in clause (ii) above, a
stockholder must either vote in person or by proxy against the proposal or
proposals to which such stockholder objects or abstain from voting on such
proposals. The written objection described in clause (i) above may be sent to
Orange at 30 East Main Street, Orange, Massachusetts 01364, Attention: Mr.
Richard F. Astrella.
After a stockholder makes a written demand for payment of his or her
shares as provided above, such stockholder ceases to be entitled to notice of
stockholders' meetings, the right to vote and the right to receive dividends
and other distributions of Orange, except in certain limited circumstances.
Section 96 of chapter 156B of the General Laws of Massachusetts provides that,
after a written demand for payment is made by a dissenting stockholder, such
stockholder shall not be entitled to such rights unless (i) a bill to
determine the fair value of such stockholder's shares is not timely filed as
described below, (ii) a bill to determine the fair value of the shares is
dismissed with respect to such stockholder, or (iii) such stockholder, with
the approval of Orange, withdraws his or her objections and accepts Orange's
action.
Once a written demand for payment is made as described above, if the
dissenting stockholder and Orange reach agreement on the fair value of such
stockholder's shares, Orange will pay to such stockholder the fair value of
such shares within thirty days after the expiration of the period during which
the demand may be made. If, within such thirty-day period, the parties fail to
agree as to the fair value of such shares, Orange or the stockholder may have
the fair value of the stock of all dissenting stockholders determined by
judicial proceedings by filing a bill in equity in the Massachusetts Superior
Court for Franklin County within four months after the thirty-day period
expires. For the purposes of the Superior Court determination, the value of
the shares is to be determined as of the day preceding the date of the vote of
the stockholders approving the actions giving rise to the appraisal rights,
and shall be exclusive of any element of value arising from the expectation or
accomplishment of such actions.
Failure to satisfy all of the conditions described above and set forth
in sections 85 through 98, inclusive, of chapter 156B of the General Laws of
Massachusetts will preclude a stockholder's claim of statutory appraisal
rights under Massachusetts law. However, a stockholder who fails to perfect
his or her statutory appraisal rights will nevertheless remain a stockholder
of Orange entitled to all the rights and benefits appurtenant thereto.
Under section 98 of chapter 156B of the General Laws of Massachusetts,
the enforcement by a dissenting stockholder of such stockholder's right to
receive payment for his or her shares in the manner provided by sections 85
through 98, inclusive, of chapter 156B of the General Laws of Massachusetts is
stated to be the exclusive remedy of a stockholder objecting to the Merger,
except upon the grounds that consummation of the Merger would be or is illegal
or fraudulent as to that stockholder.
Resale of CFX Common Stock
The CFX Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any Orange
stockholder who may be deemed to be an affiliate (an "Affiliate") of Orange
for purposes of Rule 145 under the Securities Act. Affiliates are generally
defined as persons (generally executive officers and directors) who control,
are controlled by, or are under common control with (a) CFX or Orange at the
time of the Special Meeting or (b) CFX at or after the Effective Time.
Rules 144 and 145 promulgated by the Commission under the Securities Act
impose certain restrictions on the sale of CFX Common Stock received in the
Merger by Affiliates and certain of their family members and related
interests. Generally speaking, during the two years following the Effective
Time, Affiliates of Orange, provided they are not Affiliates of CFX, may
publicly resell the CFX Common Stock received by them in the Merger, subject
to certain limitations as to the amount of CFX 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 Orange who are not Affiliates of CFX may resell
their shares without such restrictions so long as there is adequate current
public information with respect to CFX as required by Rule 144. Persons who
become Affiliates of CFX prior to, at or after the Effective Time may publicly
resell the CFX 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 CFX Common Stock received in the
Merger under Rule 144 or 145 as summarized herein generally will be subject to
CFX's having satisfied its Exchange Act reporting requirements for specified
periods prior to the time of sale. Affiliates also would be permitted to
resell CFX 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 CFX Common
Stock received by persons who may be deemed to be Affiliates of CFX or Orange.
The Merger Agreement provides that each of CFX and Orange shall use all
reasonable efforts to cause each Affiliate of CFX or Orange to deliver prior
to the date of the Special Meeting an agreement providing that such Affiliate
will not sell, pledge, transfer or otherwise dispose of any CFX Common Stock
or Orange Common Stock held by such Affiliate or, in the case of Affiliates of
Orange, to be received in the Merger, except (i) in compliance with the
Securities Act or (ii) during the period commencing 30 days prior to the
consummation of the Merger and ending at the time of publication of financial
results covering at least 30 days of combined operations of CFX and Orange
after the Merger.
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 CFX and Orange are carried forward to the combined
company at their recorded amounts. See "THE MERGER--Accounting Treatment." The
following pro forma financial statements reflect the exchange of Orange Common
Stock for CFX Common Stock in connection with the Merger at the maximum
Exchange Ratio of .9844. Common share and per share data have been restated to
reflect a 5% common stock dividend declared by CFX on December 12, 1994. This
unaudited pro forma combined financial data should be read in conjunction with
the consolidated historical financial statements of Orange and CFX, including
the respective notes thereto, which are included in this Proxy Statement-
Prospectus. See "INDEX TO FINANCIAL STATEMENTS."
The pro forma combined financial data is not necessarily indicative of the
results of future operations of the combined entity or the actual results 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 Orange with CFX 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.
CFX CORPORATION--ORANGE SAVINGS BANK
PRO FORMA COMBINED CONDENSED BALANCE SHEET
September 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
CFX Orange Pro Forma CFX
(In thousands, except per share data) (Historical) (Historical) Adjustments Pro Forma
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 16,727 $ 6,032 $ 22,759
Interest bearing deposits with other banks 1,815 488 2,303
Federal Home Loan Bank of Boston stock 6,471 917 7,388
Trading securities 37,971 - 37,971
Securities available for sale 3,320 3,250 6,570
Securities held to maturity 117,601 2,016 119,617
Mortgage loans held for sale 15,478 - 15,478
Loans and leases, net 513,740 69,714 583,454
Premises and equipment 13,499 464 13,963
Mortgage servicing rights 4,336 - 4,336
Goodwill and deposit base intangibles 10,570 95 10,665
Foreclosed real estate 2,179 311 2,490
Other assets 15,324 662 15,986
$759,031 $83,949 $ 0 $842,980
Liabilities and Shareholders' Equity
Deposits $542,330 $73,845 $616,175
Advances from Federal Home Loan
Bank of Boston 88,937 - 88,937
Other borrowed funds 24,084 - 24,084
Due to broker 20,047 - 20,047
Other liabilities 6,596 1,485 8,081
Total Liabilities 681,994 75,330 0 757,324
Shareholders' Equity
Preferred stock(1) 193 - 193
Common stock(2)(3)(4) 4,257 72 641 4,970
Paid-in capital 59,865 2,974 (641) 62,198
Retained earnings 20,425 5,576 26,001
Net unrealized losses on securities available
for sale, after tax effects (505) (3) (508)
Cost of 577,265 shares of common stock
in treasury (7,198) - (7,198)
Total Shareholders' Equity 77,037 8,619 0 85,656
$759,031 $83,949 $ 0 $842,980
Number of common shares outstanding 3,864 724 4,577
Common shareholders' equity per share(5) $ 19.01 $ 11.91 $ 17.93
Core (leverage) capital ratio 8.88% 10.15% 9.01%
Tier 1 risk-based capital ratio 14.86 19.35 15.30
Total risk-based capital ratio 16.14 20.65 16.58
</TABLE>
CFX CORPORATION--ORANGE SAVINGS BANK
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Nine Months Ended September 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
CFX Orange CFX
(In thousands, except per share data) (Historical) (Historical) Pro Forma
<S> <C> <C> <C>
Interest income:
Interest on loans and leases $29,183 $3,935 $33,118
Interest and dividends on securities 6,562 232 6,794
Other interest income 450 92 542
Total Interest and Dividend Income 36,195 4,259 40,454
Interest expense:
Interest on deposi 12,320 1,853 14,173
Interest on borrowings 3,260 - 3,260
Total Interest Expense 15,580 1,853 17,433
Net Interest and Dividend Income 20,615 2,406 23,021
Provision for loan and lease losses 50 12 62
Net Interest and Dividend Income
After Provision for Loan
and Lease Losses 20,565 2,394 22,959
Other income 3,862 226 4,088
Other expense 18,254 1,754 20,008
Income Before Income Taxes 6,173 866 7,039
Income taxes 2,298 345 2,643
Net Income 3,875 521 4,396
Preferred stock dividends 201 - 201
Net Income Available to Common Stock $ 3,674 $ 521 $ 4,195
Weighted average common shares outstanding 3,856 770 4,569
Earnings per common share(6) $ .95 $ .68 $ .91
</TABLE>
CFX CORPORATION--ORANGE SAVINGS BANK
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Year Ended December 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
CFX Orange CFX
(In thousands, except per share data) (Historical) (Historical) Pro Forma
<S> <C> <C> <C>
Interest income:
Interest on loans and leases $39,496 $5,560 $45,056
Interest and dividends on securities 6,019 225 6,244
Other interest income 627 98 725
Total Interest and Dividend Income 46,142 5,883 52,025
Interest expense:
Interest on deposits 18,965 2,667 21,632
Interest on borrowings 720 - 720
Total Interest Expense 19,685 2,667 22,352
Net Interest and Dividend Income 26,457 3,216 29,673
Provision for loan and lease losses 2,970 90 3,060
Net Interest and Dividend Income
After Provision for Loan
and Lease Losses 23,487 3,126 26,613
Other income 6,267 276 6,543
Other expense 23,492 2,162 25,654
Income Before Income Taxes 6,262 1,240 7,502
Income taxes 1,240 91 1,331
Net Income 5,022 1,149 6,171
Preferred stock dividends 270 - 270
Net Income Available to Common Stock $ 4,752 $1,149 $ 5,901
Weighted average common shares outstanding 3,826 742 4,539
Earnings per common share(6) $ 1.24 $ 1.55 $ 1.30
</TABLE>
CFX CORPORATION--ORANGE SAVINGS BANK
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Year Ended December 31, 1992
(UNAUDITED)
<TABLE>
<CAPTION>
CFX Orange CFX
(In thousands, except per share data) (Historical) (Historical) Pro Forma
<S> <C> <C> <C>
Interest income:
Interest on loans and leases $43,989 $ 5,972 $49,961
Interest and dividends on securities 7,519 275 7,794
Other interest income 903 154 1,057
Total Interest and Dividend Income 52,411 6,401 58,812
Interest expense:
Interest on deposits 25,976 3,301 29,277
Interest on borrowings 1,113 111 1,224
Total Interest Expense 27,089 3,412 30,501
Net Interest and Dividend Income 25,322 2,989 28,311
Provision for loan and lease losses 2,911 242 3,153
Net Interest and Dividend Income
After Provision for Loan and
Lease Losses 22,411 2,747 25,158
Other income (loss) 3,164 (778) 2,386
Other expense 19,777 2,033 21,810
Income (Loss) Before Income Taxes and
Cumulative Effect of a Change in
Accounting Principle 5,798 (64) 5,734
Income taxes 2,000 465 2,465
Net Income (Loss) Before Cumulative
Effect of a Change in Accounting
Principle 3,798 (529) 3,269
Preferred stock dividends 270 - 270
Net Income (Loss) Available to
Common Stock Before Cumulative
Effect of a Change in Accounting Principle $ 3,528 $ (529) $ 2,999
Weighted average common shares outstanding 3,805 731 4,510
Earnings per common share before cumulative
effect of a change in accounting principle(6) $ .92 $ (.72) $ .67
</TABLE>
CFX CORPORATION--ORANGE SAVINGS BANK
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Year Ended December 31, 1991
(UNAUDITED)
<TABLE>
<CAPTION>
CFX Orange CFX
(In thousands, except per share data) (Historical) (Historical) Pro Forma
<S> <C> <C> <C>
Interest income:
Interest on loans and leases $51,123 $6,117 $57,240
Interest and dividends on securities 5,981 281 6,262
Other interest income 1,459 291 1,750
Total Interest and Dividend Income 58,563 6,689 65,252
Interest expense:
Interest on deposits 33,676 3,707 37,383
Interest on borrowings 1,985 633 2,618
Total Interest Expense 35,661 4,340 40,001
Net Interest and Dividend Income 22,902 2,349 25,251
Provision for loan and lease losses 3,830 135 3,965
Net Interest and Dividend Income
After Provision for Loan and
Lease Losses 19,072 2,214 21,286
Other income (loss) 1,688 (369) 1,319
Other expense 19,922 1,702 21,624
Income Before Income Taxes and
Cumulative Effect of a Change in
Accounting Principle 838 143 981
Income taxes 280 398 678
Net Income (Loss) Before Cumulative
Effect of a Change in Accounting
Principle 558 (255) 303
Preferred stock dividends 270 - 270
Net Income (Loss) Available to
Common Stock Before Cumulative
Effect of a Change in Accounting Principle $ 288 $ (255) $ 33
Weighted average common shares outstanding 3,795 734 4,499
Earnings per common share before cumulative effect
of a change in accounting principle(6) $ .08 $ (.35) $ .01
</TABLE>
CFX CORPORATION--ORANGE SAVINGS BANK
Notes to Pro Forma Combined Condensed Financial Statements
(1) Preferred Stock at September 30, 1994:
CFX, $1.00 par value, 4,000,000 authorized shares, of which 193,053 shares
of 7.5% Series A Cumulative Convertible Preferred Stock are issued and
outstanding.
Orange, $.10 par value, 200,000 authorized shares, none of which are
issued or outstanding.
(2) Common Stock at September 30, 1994:
CFX, $1.00 par value, 15,000,000 authorized shares, of which 4,441,152
shares have been issued and of which 3,863,887 shares are outstanding.
Orange, $.10 par value, 1,300,000 authorized shares, of which 724,412
shares are issued and outstanding.
(3) Subject to the approval of the shareholders of Orange and the regulatory
authorities and subject to the other conditions specified in the Merger
Agreement, a newly formed subsidiary of CFX will merge into Orange. The
pro forma financial statements reflect the exchange of Orange Common Stock
for CFX Common Stock in connection with the Merger at the Maximum Exchange
Ratio of .9844.
As required by generally accepted accounting principles, this transaction
has been reflected in the pro forma financial statements using the
pooling-of-interests method of accounting.
In combining the companies, a pro forma adjustment at September 30, 1994
was made to reflect the issuance of 713,111 shares of CFX Common Stock in
exchange for the outstanding shares of Orange Common Stock.
(4) The Merger Agreement provides that each holder of Orange Common Stock,
who would otherwise have been entitled to a fraction of a share of CFX
Common Stock, will be paid the cash value of such fraction. Such cash
payments have not been reflected in the pro forma information.
(5) Pro forma common shareholders' equity per share was computed by dividing
combined historical common shareholders' equity by the sum of the common
shares outstanding at period end, adjusted to give effect to the Merger,
assuming the Maximum Exchange Ratio.
(6) Pro forma weighted average common shares outstanding represent the
weighted average common shares outstanding of CFX for each of the
respective periods plus the pro forma issuance of 713,111 shares in 1993
and 704,451 shares in 1992 and 1991 of CFX Common Stock in exchange for
the outstanding shares of Orange Common Stock. The pro forma effect of
stock options outstanding after the Merger is not dilutive and therefore
not included in the calculation of earnings per share.
REGULATION
As a bank holding company, CFX is subject to regulation by the Federal
Reserve Board. CFX's bank subsidiary, CFX Bank, is a state-chartered bank; as
such, it is subject to regulation by bank regulators in New Hampshire. The
deposits of CFX Bank are insured by the FDIC, and therefore, CFX Bank is
subject to FDIC supervision and regulation. CFX is also subject to the
reporting and other requirements of the Exchange Act. CFX and CFX Bank's non-
bank subsidiaries are subject to limitations on the scope of their activities
and to continuing regulation, supervision and examination by the Federal
Reserve Board under the BHCA and related federal statutes. As a New Hampshire
corporation, CFX must comply with the general corporation law of New
Hampshire.
As a Massachusetts-chartered, FDIC-insured savings bank, Orange is subject
to regulation, examination and supervision by the FDIC and by the
Massachusetts Commissioner of Banks. As a state-chartered bank, Orange must
comply with Massachusetts banking statutes. Orange is also subject to the
reporting and other requirements of the Exchange Act.
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 CFX's own monitoring
activities, the credit quality of the assets held by CFX Bank is subject to
periodic review by the state and federal bank regulatory agencies noted above.
While CFX believes its present allowance for loan and lease losses is adequate
in light of prevailing economic conditions and the current regulatory
environment, there can be no assurance that CFX Bank will not be required to
make certain adjustments to its allowance for loan and lease losses and
charge-off policies in response to changing economic conditions or regulatory
examinations.
Neither CFX nor any of its subsidiaries has entered into formal written
agreements with state or federal regulators. CFX and its subsidiaries 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 power
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, any or all of CFX's subsidiary
banks 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 CFX's
subsidiary banks or (b) any assistance provided by the FDIC to any other of
CFX'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 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 result of these provisions could be a significant increase in
the assessment rate on deposits of BIF members during the balance of this 15-
year period. FDICIA also provides authority for special assessments against
insured deposits and for the development of a general risk-based assessment
system. FDIC has set assessment rates for BIF-insured institutions ranging
from 0.23% to 0.31%, based on a risk assessment of the institution. 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 September 30,
1994, both CFX Bank and Orange 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 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 CFX's opinion, these
limitations do not have a material effect on CFX.
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 CFX's
and Orange'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 CFX 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 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 1
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 September 30, 1994, CFX's and Orange'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, CFX 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 CFX 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 CFX can finance or otherwise transfer funds to
CFX or its nonbanking subsidiaries, whether in the form of loans, extensions
of credit, investments or asset purchases. Such transfers by any subsidiary
bank to CFX 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 specified amounts and
must be on terms and conditions consistent with safe and sound banking
practices. Under applicable banking statutes, at September 30, 1994, CFX's
bank subsidiary could have declared additional dividends of approximately
$3,113,000. Federal and state regulatory agencies also have the authority to
limit further the payment of dividends by CFX's banking subsidiaries based on
other factors, such as the maintenance of adequate capital for such subsidiary
bank.
INFORMATION ABOUT CFX
Description of Business
CFX (formerly Cheshire Financial Corporation) is a New Hampshire
corporation chartered in August 1986 for the purpose of becoming the bank
holding company parent of Cheshire County Savings Bank ("Cheshire"), a New
Hampshire state-chartered savings bank with its principal place of business in
Keene, New Hampshire. Cheshire was organized under the laws of New Hampshire in
1897.
CFX acquired 100% of the stock of Cheshire upon completion of its
conversion from a New Hampshire-chartered mutual savings bank in February 1987
(the "Conversion"). Upon completion of the Conversion, CFX's assets initially
consisted of 100% of the stock of Cheshire and approximately 70% of the net
proceeds of the sale of CFX's common stock in a subscription offering made in
connection with the Conversion.
CFX issued a total of 4,000,000 shares of its common stock in connection
with the Conversion. The net proceeds to CFX from the subscription offering
were $56,646,000. From the net proceeds, $16,994,000 was transferred to
Cheshire to purchase all of the capital stock issued by Cheshire in the
Conversion. The funds were added to Cheshire's working capital and continued
to be used for general business purposes.
Subsequent to the conversion, CFX acquired The Monadnock Bank
("Monadnock"), a New Hampshire trust company headquartered in Jaffrey, New
Hampshire on May 31, 1988. On April 30, 1990, CFX acquired all of the
outstanding capital stock of The Valley Bank ("Valley"), a state-chartered
commercial bank headquartered in Hillsborough, New Hampshire. On June 22, 1990,
CFX acquired all of the outstanding capital stock of Village Savings Bank
("Village"), a state-chartered guaranty savings bank headquartered in
Greenville, New Hampshire. On October 18, 1990, Village was merged into
Monadnock in order to eliminate an overlap of market areas between these two
banking affiliates. On September 6, 1991, Valley acquired certain assets and
assumed all deposits of Family Bank and Trust ("Family"), a state-chartered
trust company headquartered in Allenstown, New Hampshire which had been
declared insolvent by the New Hampshire Bank Commissioner and placed into
receivership with the Federal Deposit Insurance Corporation.
On July 12, 1993, CFX merged Monadnock into Cheshire to eliminate an
overlap of market areas between these two banking affiliates. On November 15,
1993, CFX merged Valley into Cheshire to create a single united bank with a
greater array of products and services to better serve central and southwestern
New Hampshire. The resulting entity was renamed CFX Bank. These mergers
resulted in greater controls and operating efficiencies through the
consolidation of administrative and operational functions.
On September 1, 1993, Cheshire acquired the remaining 52.4% of the
outstanding shares of Colonial Mortgage, Inc., a mortgage banking company
headquartered in Amherst, New Hampshire, for $5,187,000, including $80,000 in
acquisition costs. Cheshire had previously owned 47.6% of this corporation,
which is now known as CFX Mortgage, Inc. ("CFX Mortgage").
On December 9, 1993, CFX began operating a new subsidiary, CFX Funding
L.L.C., ("Funding") specializing in small-ticket lease financing and
securitization. Funding is owned 51% by CFX Financial Services, Inc., (a
wholly-owned subsidiary of CFX Bank), and owned 49% by Novel Leasing Limited.
The objective of Funding is to provide a lease financing and securitization
program specializing in small-ticket lease portfolios generated by a select
group of independent lessors located throughout the country. In order to
accumulate lease receivables for securitization, CFX Bank provides short-term
warehousing lines of credit to the leasing companies. The strategy is designed
to increase the availability of credit to a select group of lessors while
controlling the risks inherent in lease portfolios through credit
enhancements. The warehouse lines of credit are planned to be paid down every
90 to 180 days through securitization of various lease portfolios. The
operating results of Funding are not anticipated to materially affect,
positively or negatively, the operating results of CFX in 1994.
CFX's primary retail banking markets are Cheshire County, western
Hillsborough County and southern Merrimack County in New Hampshire. CFX
Mortgage has loan production offices in four locations throughout central and
southern New Hampshire attracting loan applications from throughout New
Hampshire, Maine, Vermont and northern Massachusetts.
CFX's principal business is to serve as a financial intermediary,
attracting deposits from, and making loans to, consumers and small-to-mid sized
businesses. CFX Bank uses customer deposits and loan payments to fund first
mortgage loans on residential real estate. In addition to originating mortgage
loans, CFX Bank also makes commercial, consumer and other term and installment
loans. Other traditional services available at CFX Bank include: a wide range
of deposit programs designed to attract both short-term and long-term deposits
from the general public, businesses and local government; safe deposit boxes;
travelers checks and money orders; a Mastercard credit card; and many other
similar services.
To further CFX Bank's goals of providing a broad range of retail services
and to generate additional fee income, CFX Bank has remote service units
located at various business locations in its service area. In addition, CFX
Bank is a subscriber to INVEST(TM) Financial Corporation which enables
customers to buy and sell securities and obtain investment advice at CFX Bank.
A full line of trust and investment management services are also available to
the customer, on premise, through an affiliation with a local trust company.
CFX Mortgage originates and purchases residential and construction
mortgage loans and sells these loans to CFX Bank and the secondary market,
while retaining the servicing of these loans. CFX Mortgage is an approved
seller and servicer of Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal National Mortgage Association ("FNMA"), Department of Housing and
Urban Development ("HUD"), Veteran's Administration ("VA"), and New Hampshire
Housing Financing Authority loans. CFX Mortgage also services loans owned by
private investors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CFX
Nine Months Ended September 30, 1994 and
Three Years Ended December 31, 1993
General
All information within this section should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere in this Proxy Statement-Prospectus and the tables appearing
throughout the discussion and analysis. All references in the discussion to
financial condition and to results of operations are to the consolidated
position and results of CFX Corporation and its subsidiaries, taken as a
whole.
CFX is a bank holding company incorporated under the laws of the State
of New Hampshire. CFX's wholly-owned subsidiary is CFX Bank, headquartered in
Keene, New Hampshire. CFX Bank is the new name of the unified bank resulting
from the 1993 merger of CFX's three wholly-owned subsidiary banks (Cheshire
County Savings Bank, The Monadnock Bank and The Valley Bank).
CFX Bank's direct subsidiaries, both of which are wholly-owned, are CFX
Capital Systems, Inc. ("CFX Capital") and CFX Financial Services, Inc. ("CFX
Financial"). CFX Capital's wholly-owned subsidiary is CFX Mortgage, Inc. ("CFX
Mortgage"), previously named Colonial Mortgage, Inc. ("Colonial"), which
engages in mortgage banking. Prior to September 1, 1993, CFX Capital owned
47.6% of Colonial, and as a result of the acquisition of the remaining 52.4%,
Colonial became a wholly-owned subsidiary of CFX. The transaction was
accounted for by the purchase method of accounting. CFX Financial owns 51% of
CFX Funding L.L.C., which engages in the facilitation of lease financing and
securitization. (See Note B of the Notes to the CFX Consolidated Financial
Statements for more detail on CFX's mergers and acquisitions.)
The operating results of CFX depend primarily on its net interest and
dividend income, which is the difference between (i) interest and dividend
income on earning assets, primarily loans, leases, trading and investment
securities, and (ii) interest expense on interest bearing liabilities, which
consist of deposits and borrowings. CFX's results of operations are also
affected by the provision for loan and lease losses, resulting from CFX's
assessment of the adequacy of the allowance for loan and lease losses; the
level of its other operating income, including gains and losses on the sale of
loans and securities, and loan and other fees; operating expenses; and income
tax expenses and benefits.
Financial Condition
Loans. The table below sets forth the composition of CFX's loan
portfolio at the dates indicated:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993 December 31, 1992
% of % of % of
(Dollars in thousands) Balances Portfolio Balances Portfolio Balances Portfolio
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Residential $341,062 65.50% $305,599 65.71% $328,984 68.90%
Construction 9,636 1.85 9,292 2.00 10,920 2.29
Commercial 78,406 15.06 76,955 16.55 56,027 11.73
Commercial, financial, and
agricultural 48,319 9.28 42,835 9.21 54,788 11.48
Warehouse lines of credit to
leasing companies 11,141 2.14 5,428 1.17 1,497 .31
Consumer and other 32,111 6.17 24,934 5.36 25,268 5.29
520,675 100.00% 465,043 100.00% 477,484 100.00%
Less: Allowance for loan and lease losses 6,935 7,357 7,909
Net loans $513,740 $457,686 $469,575
</TABLE>
To conform to the 1993 presentation, in the above 1992 table, home equity
loans were reclassified from consumer to residential real estate loans and
leases were reclassified from commercial to a separate category.
September 30, 1994 Compared to December 31, 1993. Total loans and leases
were $520,675,000, or 69% of total assets, at September 30, 1994, compared
with $465,043,000, or 63% of total assets, at December 31, 1993.
Total loans and leases have increased by $55,632,000 since December 31,
1993, primarily due to residential real estate loans generated by CFX
Mortgage. In addition, increased capacity in commercial lending and increased
focus on consumer finance activities has contributed to new growth for CFX.
Moreover, CFX's new lease financing and securitization company, CFX Funding,
has also increased CFX's lending volumes.
For the first nine months of 1994, CFX Funding facilitated one major
lease portfolio sale and several smaller portfolio sales to private investors.
Total lease receivables through September 1994 were approximately $10,981,000,
with outstanding loan balances of approximately $9,229,000. In October 1994,
CFX completed an additional lease portfolio sale to a private investor
totaling approximately $2,851,000 in lease receivables with approximately
$2,049,000 in outstanding loan balances. In addition, CFX anticipates the
facilitation of its first lease portfolio securitization in the first quarter
of 1995.
December 31, 1993 Compared to December 31, 1992. Total loans were
$465,043,000, or 63% of total assets, at December 31, 1993, compared with
$477,484,000, or 72% of total assets, at December 31, 1992. As part of an
overall restructuring of CFX's balance sheet during the fourth quarter of
1993, CFX sold $25,115,000 of performing adjustable rate mortgages and
$2,768,000 in nonperforming loans. In addition, CFX transferred $3,887,000 of
loans into foreclosed real estate and in-substance foreclosures and charged-
off $3,904,000 of loans during 1993. Notwithstanding the sale, the transfer,
and loans charged-off, total loans actually increased by $23,233,000 during
1993. Contributing to this increase in loans was the loan production generated
by CFX Mortgage since September 1, 1993 (the acquisition date), and an
increase in commercial real estate loan activity and in lease financing
activity.
Risk Elements. When management determines that significant doubt exists
as to the collectibility of principal or interest on a loan, the loan is
placed on nonaccrual status. In addition, loans past due 90 days or more as to
principal or interest are placed on nonaccrual status except those loans
which, in management's judgement, are fully secured and in the process of
collection (through legal action, or in appropriate circumstances through
collection efforts reasonably expected to result in repayment of the debt or
in its restoration to a current status in the near future). In the third
quarter of 1993, management changed its policy regarding nonaccrual loans,
such that all loans past due 90 days or more as to principal and interest are
placed on nonaccrual status. Interest accrued but not received on loans placed
on nonaccrual status is reversed and charged against current operations.
Interest on nonaccrual loans is recognized only when received. Loans are
restored to accrual status when the borrower has demonstrated the ability to
make future payments of principal and interest, as scheduled.
In addition to loans 90 days or more past due, and nonaccrual loans,
management classifies as nonperforming "potential problem loans" which are
current as to principal and interest payments under original or restructured
agreements, but are expected to have insufficient future cash flows to service
the loan in accordance with the original or restructured provisions.
The following table provides information with respect to CFX's nonperforming
loans and assets at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Loans 90 days or more past due, still accruing $ - $ - $ 3,443
Nonaccrual loans 6,769 6,472 6,104
Potential problem loans - - 1,535
Total nonperforming loans 6,769 6,472 11,082
Foreclosed real estate 1,076 1,868 7,006
In-substance foreclosures 1,443 1,869 5,230
Valuation allowance (340) (384) (307)
Total nonperforming assets $8,948 $9,825 $23,011
Nonperforming loans as a percent of total loans 1.30% 1.39% 2.32%
Nonperforming assets as a percent of total assets 1.18% 1.34% 3.48%
</TABLE>
The following table provides the composition of CFX's nonperforming
loans and assets at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1992
% of % of % of
(Dollars in thousands) Balances Portfolio Balances Portfolio Balances Portfolio
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Real estate:
Residential $1,982 29.3% $2,088 32.3% $ 4,387 39.5%
Construction - - - - 230 2.1
Commercial 3,940 58.2 3,737 57.7 3,676 33.2
Commercial, financial, and
agricultural 758 11.2 460 7.1 2,462 22.2
Consumer and other 89 1.3 187 2.9 327 3.0
6,769 100.0% 6,472 100.0% 11,082 100.0%
Foreclosed real estate and
in-substance foreclosures:
Residential 1,371 62.9% 2,471 73.7% 7,434 62.3%
Construction 349 16.0 352 10.5 623 5.2
Commercial 799 36.7 914 27.3 4,179 35.0
Valuation allowance (340) (15.6) (384) (11.5) (307) (2.5)
2,179 100.0% 3,353 100.0% 11,929 100.0%
Total nonperforming assets $8,948 $9,825 $23,011
</TABLE>
A total of $2,238,000 in commercial, financial, and agricultural loans
have been reclassified to commercial real estate loans for the December 31,
1993 period to conform to the September 30, 1994 period.
The following table provides a rollforward of CFX's foreclosed real estate
and in-substance foreclosures for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(In thousands) 1994 1993 1993 1992
<S> <C> <C> <C> <C>
Balance at beginning of period $3,353 $11,929 $11,929 $12,224
Additions 875 2,882 3,887 6,066
Deletions:
Write-downs - - - (914)
Provision for losses (192) (920) (673) (307)
Pay-offs/sales/other (1,857) (4,503) (11,790) (5,140)
(2,049) (5,423) (12,463) (6,361)
Balance at end of period $2,179 $ 9,388 $ 3,353 $11,929
</TABLE>
During the fourth quarter of 1993, CFX sold $6,600,000 in nonperforming
assets to a private investor. This bulk sale of nonperforming assets, along
with other efforts to reduce nonperforming assets, yielded a $13,186,000 (57%)
reduction in nonperforming assets during 1993.
Allowance for Loan and Lease Losses. The allowance for loan and lease
losses is maintained through charges to earnings. Loan and lease losses
recognized, and recoveries received, are charged or credited directly to the
allowance. CFX's management determines the level of the allowance for loan and
lease losses based upon a review of CFX's loan and lease portfolio. This
review identifies specific problem loans and leases requiring allocations of
the allowance and also estimates an allocation for potential loan and lease
losses based on current economic conditions and historical experience.
Changes in the allowance for loan and lease losses are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(Dollars in thousands) 1994 1993 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $7,357 $7,909 $7,909 $6,957 $5,122
Allowance of acquired subsidiaries - 13 13 - -
Allowance required through
regulatory-assisted transactions - - - 350 167
Provision for loan and lease losses 50 2,970 2,970 2,911 3,830
Loans charged-off (783) (2,949) (3,904) (2,523) (2,247)
Recoveries of loans previously
charged-off 311 259 369 214 85
Balance at end of period $6,935 $8,202 $7,357 $7,909 $6,957
Allowance for loan and lease losses
as a percent of total loans 1.33% 1.73% 1.58% 1.66% 1.45%
Allowance for loan and lease losses as a
percent of total nonperforming loans 102.45% 89.46% 113.67% 71.37% 52.77%
</TABLE>
Management considers the allowance for loan and lease losses to be
adequate in view of its evaluation of CFX's loan and lease portfolio, the
level of nonperforming loans and leases, current economic conditions and
historical experience with loan and lease losses.
Trading and Investment Securities. Effective December 31, 1993, CFX adopted
the provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." (See
Notes A and E of the Notes to the CFX Consolidated Financial Statements for
more information on the new accounting standard for investment securities.)
SFAS No. 115 establishes standards for all debt securities and for equity
securities that have readily determinable fair values. As required under SFAS
No. 115, prior year financial statements have not been restated.
SFAS No. 115 requires that investments in debt securities that
management has the positive intent and ability to hold to maturity be
classified as "held to maturity" and reflected at amortized cost. Investments
that are purchased and held principally for the purpose of selling them in the
near term are classified as "trading securities" and reflected on the balance
sheet at fair value, with unrealized gains and losses included in earnings.
Investments not classified as either of the above are classified as "available
for sale" and reflected on the balance sheet at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component
of shareholders' equity net of related income tax effects. The cumulative
effect of the change in accounting principle at December 31, 1993 is to
decrease shareholders' equity by $187,000. There was no effect on net income
for the year ended December 31, 1993 relating to the adoption of SFAS No. 115.
Prior to December 31, 1993, debt securities that management had the
intent and ability to hold until maturity were reflected at amortized cost.
Marketable equity securities held for trading were stated at the lower of
aggregate cost or fair value. Other marketable equity securities and
securities held for sale were stated at the lower of aggregate cost or fair
value. Net unrealized losses applicable to other marketable equity securities
were reflected as a charge to shareholders' equity while write-downs
applicable to securities held for sale were reflected in the statement of
income.
Trading securities and investment securities consist of the following at
the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Trading Securities $ 37,971 $ 61,999 $ 12,811
Investment Securities:
Securities available for sale, at fair value 3,320 21,695 -
Securities held to maturity, at amortized cost 117,601 96,044 -
Securities held for sale, at lower of cost or fair value - - 43,513
Securities held for investment (debt securities at
amortized cost; marketable equity securities
at lower of cost or fair value) - - 54,126
Total Investment Securities 120,921 117,739 97,639
Total Trading and Investment Securities $158,892 $179,738 $110,450
</TABLE>
As of September 1, 1994, approximately $16,575,000 of securities were
reclassified from securities available for sale to securities held to
maturity.
Included within the trading portfolio, as of September 30, 1994 and
December 31, 1993, was CFX's wholesale leverage program. CFX began this
program in October 1993, and authorized $100 million to be invested in the
program. The objective of this program was to enhance CFX's earnings and
return on equity (ROE) through leveraging the balance sheet. However, as a
result of significant loan growth experienced in 1994, and anticipated loan
growth over the next six to nine months, management decided to liquidate this
program. In addition, management does not anticipate using this program in the
foreseeable future. As of October 31, 1994, the wholesale leverage program was
completely liquidated.
This program involved the purchasing of federal agency mortgage-backed
securities, investment grade asset-backed securities, and investment grade
short-term commercial paper. The funding of these purchases was from short-
term repurchase agreements and Federal Home Loan Bank of Boston advances.
The intent of this program was to take advantage of market mispricing,
primarily based on option adjusted spread differentials. Fundamental to the
conduct of the activities was the minimization of credit risk and interest
rate risk. Credit risk was controlled by purchasing federal agency mortgage-
backed securities, investment grade asset-backed securities, and investment
grade short-term commercial paper. Interest rate risk was controlled through
the use of hedging instruments.
The leverage program activities, along with the related hedging
instruments, were considered trading, and therefore, all securities were
carried at fair value. As a result, both gain or loss on sales and adjustments
to fair value were recorded in the consolidated statements of income as a net
gain (loss) on trading activities.
To determine the success of these activities, CFX calculated a total
return consisting of interest income and fair value changes of the investments
and hedge instruments net of interest expense incurred in funding the
activities. Hedge instruments, primarily including futures and options
contracts and interest rate swap agreements, were used to produce a net asset
duration of six months or less. Settled positions were funded with borrowings
of similar duration to the net asset duration.
The following table illustrates the results of this program for the
periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
(Dollars in thousands) 1994 1993
<S> <C> <C>
Interest income $ 1,719 $ 332
Interest expense 1,149 176
Net interest income 570 156
Fair value change (587) (83)
Total return $ (17) $ 73
Average investment $63,956 $36,253
Percentage return on average investment (.04)% 0.60%
</TABLE>
Deposits. The following table shows the various components of average
deposits and the respective rates paid on such deposits for the periods
indicated:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(Dollars in thousands) 1994 1993 1992
Amount Rates Amount Rates Amount Rates
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
deposits $ 33,062 - $ 27,920 - $ 24,491 -
Regular savings deposits 114,947 2.61% 116,475 2.81% 110,078 3.98%
NOW & money market deposits 185,848 2.24 188,733 2.61 172,984 3.72
Time deposits 207,995 4.48 225,126 4.79 263,810 5.75
Total $541,852 3.04% $558,254 3.40% $571,363 4.55%
</TABLE>
September 30, 1994 Compared to December 31, 1993. During the first nine
months of 1994, CFX experienced a $16,402,000 decline in average deposits.
This decline was principally in time deposits as CFX continued to experience
the migration of individual depositors to alternative investment instruments
(stock/bond market, annuities, and mutual funds). The migration of depositors
to alternative investment instruments was the result of the low interest rate
environment and the growing spread between market rates and deposit rates.
However, the recent concern over the instability of alternative investment
instruments in a rising interest rate environment has allowed deposits to
stabilize.
The significant increase in loan demand and taxable securities for the
first nine months of 1994, along with the above deposit loss, caused CFX's
average wholesale funding (short-term borrowed funds and advances from the
Federal Home Loan Bank of Boston) to increase by $94,092,000. The resurgence
in loan growth will also cause CFX to begin raising deposit rates more
aggressively in future quarters.
December 31, 1993 Compared to December 31, 1992. The shift in deposit
mix from longer-term fixed rate time deposits to shorter-term variable rate
deposits (savings, NOW and money market accounts) indicates that CFX's deposit
customers became sensitive to the low interest rate environment and were
unwilling to commit long term. In addition, as a result of the low interest
rate environment in 1993, CFX experienced the migration of individual
depositors to alternative investment instruments (stock/bond market,
annuities, and mutual funds).
Shareholders' Equity. The following table summarizes shareholders'
equity at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except per share data) 1994 1993 1992
Amount Shares Amount Shares Amount Shares
<S> <C> <C> <C> <C> <C> <C>
Common shareholders' equity $73,465 3,864 $72,193 3,843 $69,710 3,813
Preferred shareholders' equity 3,572 213 3,591 214 3,598 214
Total shareholders' equity $77,037 4,077 $75,784 4,057 $73,308 4,027
Common shareholders' equity per share $ 19.01 $ 18.79 $ 18.28
Preferred shareholders' equity per share $ 16.77 $ 16.78 $ 16.81
Shareholders' equity per share,
assuming conversion of all preferred
shares to common $ 18.90 $ 18.68 $ 18.20
<F1>
Note: Shares and per share data have been restated to reflect CFX's 5% common
stock dividends declared on December 12, 1994, and December 13, 1993.
</TABLE>
September 30, 1994 Compared to December 31, 1993. Shareholders' equity
increased by $1,253,000 as of September 30, 1994 from $75,784,000 at December
31, 1993 to $77,037,000 at September 30, 1994. The increase was due to
$3,875,000 in net income, issuance of $109,000 in common stock under the
employee stock purchase plan, and issuance of $163,000 in common stock under
the stock option plan, offset by a $304,000 increase in net unrealized losses
on securities available for sale and $2,389,000 and $201,000 in common and
preferred cash dividends, respectively.
December 31, 1993 Compared to December 31, 1992. Shareholders' equity
increased by $2,476,000 during 1993 from $73,308,000 at December 31, 1992 to
$75,784,000 at December 31, 1993. The increase resulted from net income of
$5,022,000, from issuance of $271,000 in common stock under the stock option
plan, from issuance of $88,000 in common stock under the employee stock
purchase plan, and a $63,000 reduction in net unrealized losses on marketable
equity securities, and was partially offset by a $187,000 change in method of
accounting for investment securities (see Note A of Notes to the CFX
Consolidated Financial Statements for more detail on this accounting change),
the declaration of $2,500,000 in common cash dividends, and $270,000 in
preferred cash dividends.
Results of Operations
General. CFX's involvement in mergers and acquisitions from 1991 through
1993 has impacted CFX's financial statements for the past three years. All
references to merger and acquisition activity should be read in conjunction
with Note B of the Notes to the CFX Consolidated Financial Statements.
The following table sets forth comparisons of average interest earning
assets and interest bearing liabilities, and interest income and interest
expense expressed as a percentage of the related asset or liability. In order
to reflect the economic impact of CFX's investments in state and municipal
securities and to present data on a comparative basis, the income from yields
on these securities has been restated to a tax-equivalent basis (using a
38.62% and 38.84% tax rate for the nine months ended September 30, 1994 and
1993, respectively, a 38.79% tax rate for the year ended December 31, 1993,
and a 34% tax rate for the years ended December 31, 1992 and 1991). The tax-
equivalent adjustments are $337,000 and $118,000, for the nine months ended
September 30, 1994 and 1993, respectively, and $185,000, $156,000 and $293,000
for the years ended December 31, 1993, 1992, and 1991, respectively. These
adjustments, however, are for comparison purposes only and have no impact on
reported net income.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1994 1993
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
Assets
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans and leases (1) $506,565 $29,183 7.70% $478,432 $29,753 8.31%
Taxable securities (2) 149,549 6,026 5.39 104,166 4,115 5.28
Tax-exempt securities (3) 18,163 873 6.43 5,102 303 7.94
Federal funds sold and
other earning assets 10,262 450 5.86 17,061 493 3.86
Total interest earning assets 684,539 36,532 7.13 604,761 34,664 7.66
Noninterest earning assets 85,298 46,052
Total $769,837 $650,813
Liabilities & Shareholders' Equity
Interest bearing liabilities:
Savings deposits $300,795 5,347 2.38 $304,751 6,314 2.77
Time deposits 207,995 6,973 4.48 228,118 8,280 4.85
Advances from Federal Home
Loan Bank of Boston 94,828 3,008 4.24 360 11 4.09
Other borrowed funds 11,833 252 2.85 12,209 230 2.52
Total interest bearing liabilitie 615,451 15,580 3.38 545,438 14,835 3.64
Noninterest bearing liabilities:
Demand deposits 33,062 26,380
Other 44,704 4,831
Shareholders' equity 76,620 74,164
Total $769,837 $650,813
Net interest income $20,952 $19,829
Interest rate spread 3.75% 4.02%
Net interest margin 4.09% 4.38%
<F1> For the purpose of these computations, nonaccrual loans are included in loans.
<F2> Taxable securities include trading securities and investment securities.
<F3> Tax-exempt securities are included within investment securities.
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend
earning assets:
Loans and leases (1) $484,074 $39,496 8.16% $478,665 $43,989 9.19% $485,730 $51,123 10.52%
Taxable securities (2) 108,898 5,729 5.26 115,984 7,215 6.22 72,061 5,412 7.51
Tax-exempt securities (3) 6,630 475 7.16 6,474 460 7.11 8,478 861 10.16
Other 15,902 627 3.94 21,997 903 4.11 24,378 1,459 5.98
Total interest earning assets 615,504 46,327 7.53 623,120 52,567 8.44 590,647 58,855 9.96
Noninterest earning assets 50,481 48,999 42,712
Total $665,985 $672,119 $633,359
Liabilities & Shareholders' Equity
Interest bearing liabilities:
Savings deposits $305,208 8,191 2.68 $283,062 10,820 3.82 $199,770 10,970 5.49
Time deposits 225,126 10,774 4.79 263,810 15,156 5.75 308,756 22,706 7.35
Advances from Federal Home
Loan Bank of Boston 7,821 246 3.15 12,113 830 6.85 24,504 1,985 8.10
Borrowed funds 19,378 474 2.45 11,384 283 2.49 - - -
Total interest bearing liabilities 557,533 19,685 3.53 570,369 27,089 4.75 533,030 35,661 6.69
Noninterest bearing liabilities:
Demand deposits 27,920 24,491 23,701
Other 5,609 5,499 5,053
Shareholders' equity 74,923 71,760 71,575
Total $665,985 $672,119 $633,359
Net interest and
dividend income $26,642 $25,478 $23,194
Interest rate spread 4.00% 3.69% 3.27%
Net interest margin 4.33% 4.09% 3.93%
<F1> For the purpose of these computations, nonaccrual loans are included in loans.
<F2> Taxable securities include trading securities and investment securities.
<F3> Tax-exempt securities are included within investment securities.
</TABLE>
The following tables present changes in interest and dividend income,
interest expense, and net interest income which are attributable to changes in
the average amounts of interest earning assets and interest bearing
liabilities and/or changes in rates earned or paid thereon. The net changes
attributable to both volume and rate have been allocated proportionately.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1994 vs 1993
Increase (Decrease) Due to
(In thousands) Volume Rate Net
Interest and dividends earned on:
<S> <C> <C> <C>
Loans and leases $1,846 $(2,416) $ (570)
Investments 2,497 (16) 2,481
Other (315) 272 (43)
Total interest and dividend income 4,028 (2,160) 1,868
Interest paid on:
Savings & time deposits (776) (1,498) (2,274)
Other borrowed funds 2,985 34 3,019
Total interest expense 2,209 (1,464) 745
Change in net interest and dividend income $1,819 $ (696) $1,123
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1993 vs 1992 1992 vs 1991
Increase (Decrease) Due to Increase (Decrease) Due to
(In thousands) Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest and dividends earned on:
Loans and leases $492 $(4,985) $(4,493) $ (734) $ (6,400) $(7,134)
Investments (417) (1,054) (1,471) 2,801 (1,399) 1,402
Other (241) (35) (276) (132) (424) (556)
Total interest and dividend income (166) (6,074) (6,240) 1,935 (8,223) (6,288)
Interest paid on:
Savings & time deposits (767) (6,244) (7,011) 2,385 (10,085) (7,700)
Borrowed funds 155 (548) (393) (79) (793) (872)
Total interest expense (612) (6,792) (7,404) 2,306 (10,878) (8,572)
Change in net interest
and dividend income $446 $ 718 $ 1,164 $ (371) $ 2,655 $ 2,284
</TABLE>
Comparison Of Nine Months Ended September 30, 1994 and September 30,
1993.Net income for the nine months ended September 30, 1994 was $3,875,000,
compared with $3,932,000 for the corresponding period a year ago. Net income
available to common stock for the nine months ended September 30, 1994 was
$3,674,000, or $.95 per share, compared with $3,730,000, or $.97 per share,
for the corresponding period a year ago.
Income taxes for the prior year periods were reduced (and thus earnings
increased) through the recognition of several special tax adjustments in
connection with Statement of Financial Accounting Standards No. 109. Without
these tax adjustments, net income available to common stock would have been
$2,941,000, or $.77 per share, for the nine months ended September 30, 1993.
Excluding recognition of prior year special tax adjustments, earnings per
common share for the nine months ended September 30, 1994 increased by 23%
from the comparable period in 1993.
Net Interest Income. Taxable-equivalent net interest income was
$20,952,000 for the nine months ended September 30, 1994, compared to
$19,829,000 for the same period a year ago. The increase in net interest
income in the 1994 period was principally due to higher average interest
earning assets and lower nonaccrual loans carried on CFX's balance sheet,
offset by lower interest rate spreads in the 1994 period compared to the 1993
period.
The increase in average interest earning assets resulted from an
increase in taxable securities (see "--Financial Condition--Trading and
Investment Securities") and loans and leases (see "--Financial Condition--
Loans").
The interest rate spread and net interest margin in 1994 declined from
the 1993 levels principally as a result of CFX's wholesale leverage program
(trading securities and related borrowings) which earns a considerably lower
interest rate spread than CFX's retail banking activities. Excluding the
wholesale leverage trading securities and related borrowings, CFX's interest
rate spread and net interest margin for the nine months ended September 30,
1994 was 4.22%. The remaining decline in the interest rate spread and net
interest margin was due to increases in the interest cost of borrowed funds
and the relatively low interest rates (teaser rates) offered on newly
originated adjustable rate mortgage loans.
Rising short-term interest rates are having, and are anticipated over
the near term to continue to have, a favorable impact on CFX's interest rate
spread and net interest margin due to interest earning assets repricing more
rapidly than interest bearing liabilities. This expectation is based on the
fact that short-term interest rates have risen substantially during 1994 and
that CFX's portfolio of residential mortgages consists predominantly of
adjustable rate mortgages (most of which bear interest at rates based on one-
year Treasury securities with the balance at rates based on three and five-
year Treasury securities). However, there can be no assurance that this
favorable impact will continue. Moreover, if short-term interest rates move
significantly higher over the next twelve months, the 200 basis point annual
adjustment caps contained in CFX's adjustable rate mortgages, coupled with the
absence of similar limitations on the repricing of liabilities, could cause
CFX's interest rate spread and net interest margin to contract.
Provision for Loan and Lease Losses. The amount of provision for loan
and lease losses is determined by management through its regular review of the
Bank's loan and lease portfolio. This review includes an assessment of problem
loans and potential unknown losses based on current economic conditions, the
regulatory environment and historical experience.
The provision for loan and lease losses for the nine months ended
September 30, 1994, was $50,000, compared to $2,970,000 provided for the same
period a year ago. The lower provision for loan and lease losses in 1994 is
the result of asset quality significantly improving since September 30, 1993.
A combination of an improving economy, increased efforts to resolve problem
assets, and a $6.6 million bulk sale of nonperforming assets in the fourth
quarter of 1993 allowed CFX to significantly reduce nonperforming assets.
At September 30, 1994, nonperforming loans stood at $6,769,000, or 1.30% of
total loans and leases, compared to $9,168,000, or 1.93% of total loans and
leases, as of September 30, 1993. The allowance for loan and lease losses as a
percentage of nonperforming loans as of September 30, 1994 and 1993 amounted
to 102.45% and 89.46%, respectively. Net charge-offs for the nine months ended
September 30, 1994 amounted to $472,000, compared to $2,690,000 for the same
period a year ago.
Other Income. Other income for the nine months ended September 30, 1994
totaled $3,862,000 compared to $4,114,000, for the same period a year ago.
The net gains (losses) on trading securities between the 1994 and 1993
periods are summarized as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
(In thousands) 1994 1993
<S> <C> <C>
Wholesale leverage program $(587) $ -
Other trading activities 206 342
$(381) $342
</TABLE>
For a discussion of CFX's wholesale leverage program, see "--Financial
Condition--Trading and Investment Securities."
Income from investment securities transactions was significantly higher
during the 1993 period compared to the 1994 period as a result of
restructuring the securities portfolios during 1993 to better manage CFX's
interest rate risk exposure, particularly in a rising interest rate
environment.
The increases in loan servicing fees, net gains on sale of loans and
other income are from CFX Mortgage, which was acquired as of September 1,
1993. CFX Mortgage's operations are included in CFX's Consolidated Statements
of Income for the full nine months of 1994, compared to one month for the same
period a year ago.
In December 1994, CFX sold mortgage servicing rights with respect to
$58.9 million in principal amount of residential first mortgages. Such sale
resulted in a pre-tax gain of approximately $677,000.
Other Expense. Other expense for the nine months ended September 30,
1994 totaled $18,254,000, compared to $15,845,000 for the same period a year
ago. The increase in other expenses was primarily attributable to the
inclusion of CFX Mortgage's (acquired September 1, 1993) and CFX Funding's
(commenced operations December 7, 1993) operations for the full nine months of
1994. Also contributing to higher other expense in 1994 were increased salary
costs, higher medical costs, and increased costs associated with changing the
names of CFX and its subsidiaries. Offsetting these expenses for the nine
months ended September 30, 1994, was a reduction of $1,386,000 in costs
associated with the operation of foreclosed real estate. This decrease is the
result of a reduction in holdings of foreclosed real estate in 1994 compared
to 1993.
Income Taxes. Income taxes for the nine months ended September 30, 1994
were 37.23% of pretax income, compared to 21.52% of pretax income for the same
period a year earlier. The effective tax rate was lower during the 1993 period
because of the realization of several special tax adjustments in connection
with Statement of Financial Accounting Standards No. 109. The special tax
adjustments related to the recognition of a deferred tax asset for New
Hampshire Business Profits Taxes and the realization of previously
unrecognized deferred tax benefits applicable to capital loss transactions.
Comparison Of Years Ended December 31, 1993 And December 31, 1992. In 1993
CFX earned $4,752,000, or $1.24 per share, compared to earnings of $3,528,000,
or $.92 per share, for the prior year.
The factors contributing to the higher level of earnings in 1993 were
stronger core earnings (net interest and dividend income and other income,
excluding securities gains), a lower effective tax rate and securities gains.
Offsetting these positive factors were increased costs associated with the
operation and sale of foreclosed real estate, several non-recurring charges,
and higher operating costs due to the acquisition of CFX Mortgage as of
September 1, 1993.
Net Interest Income. Taxable-equivalent net interest income was $26,642,000
in 1993, up 4.6% from $25,478,000 in 1992. The $1,164,000 increase was due to
both CFX's interest rate spread growing from 3.69% in 1992 to 4.00% in 1993,
and the decrease in average interest bearing liabilities being greater than
the decrease in average interest earning assets during 1993.
Total average interest earning assets decreased by $7,616,000 in 1993
from $623,120,000 in 1992 to $615,504,000 in 1993. The decline in average
interest earning assets is reflected by a decline in taxable securities,
federal funds sold and other interest earning assets and is attributable
principally to the decline in deposit liabilities. The yield on interest
earning assets decreased by .91% to 7.53% for the year ended December 31,
1993, down from 8.44% in 1992.
Due primarily to a decline in time deposits during 1993, average
interest bearing liabilities decreased by $12,836,000 from $570,369,000 in
1992 to $557,533,000 in 1993. The average rate paid on interest bearing
liabilities decreased by 1.22% to 3.53% for the year ended December 31, 1993,
from 4.75% in 1992.
The net interest margin was 4.33% for 1993, compared to 4.09% for 1992. The
increase in net interest margin in 1993 is reflective of the significant
increase in interest rate spread, a higher volume of interest earning assets
net of interest bearing liabilities, and a significant decline in
nonperforming assets.
The increase in interest rate spread in 1993 was attributable to both a
more conservative deposit pricing strategy employed in 1993 and a steeper U.S.
treasury yield curve.
Provision for Loan and Lease Losses. The provision for loan and lease
losses is determined by management through its regular review of CFX's loan
and lease portfolio. This review includes an assessment of problem loans and
leases and potential unknown losses based on current economic conditions, the
regulatory environment and historical experience. The provision for loan and
lease losses was $2,970,000 in 1993, compared to $2,911,000 in 1992.
The following schedule presents, in summary, the quarterly trends in
nonperforming assets and charge-offs that correlate with the quarterly
provisions for loan and lease losses in 1993 and the last quarter of 1992:
<TABLE>
<CAPTION>
Dec. 31 Sept. 30 June 30 March 31 Dec. 31
(Dollars in thousands) 1993 1993 1993 1993 1992
<S> <C> <C> <C> <C> <C>
Nonperforming loans $6,472 $ 9,168 $13,297 $13,197 $11,082
Foreclosed real estate 3,353 9,388 10,383 11,117 11,929
Nonperforming assets $9,825 $18,556 $23,680 $24,314 $23,011
Net charge-offs $ 845 $ 1,324 $ 534 $ 832 $ 849
Provision for loan and lease losses $ - $ 750 $ 900 $ 1,320 $ 986
Allowance for loan and lease losses $7,357 $ 8,202 $ 8,630 $ 8,264 $ 7,909
Allowance for loan and lease losses as a percent of
nonperforming loans 113.67% 89.46% 64.90% 62.62% 71.37%
</TABLE>
An increase in nonperforming loans and higher net charge-offs in the
first quarter of 1993 warranted a higher provision for loan and lease losses.
As either nonperforming loans or charge-offs decreased in subsequent 1993
quarters, the provision for loan and lease losses declined. The significant
decline in nonperforming assets in the fourth quarter of 1993 was due to the
$6,600,000 bulk sale of nonperforming assets, and accordingly, no additional
loan and lease loss provision was deemed necessary in the fourth quarter.
Other Income. Other income increased by $3,103,000, from $3,164,000 in
1992 to $6,267,000 in 1993. This increase was primarily from additional
deposit account service charge income from both a larger base and increased
fees, gains on securities, loan servicing fees and gains on sale of loans
generated by CFX Mortgage from September 1, 1993 (acquisition date). Included
in the net gains on sale of loans was a gain of $879,000 recognized on the
$25,115,000 performing loan sale and a loss of $1,078,000 recognized on the
$2,768,000 nonperforming loan sale.
During 1993, in an effort to restructure CFX's securities portfolios in
preparation for the adoption of SFAS No. 115 as of December 31, 1993 (see Note
A of the Notes to the CFX Consolidated Financial Statements), CFX made several
transfers into its held for sale portfolio and then sold substantially all of
its held for sale securities; this activity generated net gains of $2,624,000.
Other Expense. Other expense increased by $3,715,000, from $19,777,000
in 1992 to $23,492,000 in 1993. The increase is primarily due to four months
(September 1, 1993 through December 31, 1993) of operating expenses, amounting
to $1,357,000, associated with CFX Mortgage; a $683,000 increase in the
operation of foreclosed real estate including the $1,395,000 loss on the bulk
sale of foreclosed real estate and in-substance foreclosures in the fourth
quarter (see Note J of the Notes to the CFX Consolidated Financial Statements
for the components of the operation of foreclosed real estate); $637,000 in
non-recurring charges associated with the write-down of a bank building
disposition; the performing and nonperforming asset disposition; changing the
discount rate on CFX's pension plan (from 8.25% to 7.00%); a severance
accrual; and the cost of changing the names of CFX's subsidiaries. The
remaining increase in other expense is principally due to increased salary
costs, higher medical costs and increased profit sharing in 1993.
Income Taxes. Income taxes for the year ended December 31, 1993 and 1992
were 19.8% and 34.5% of pretax income, respectively. The effective tax rate
was lower during 1993 because of the recognition of a $436,000 net deferred
tax asset for New Hampshire Business Profits Taxes and the reversal of a
$387,000 valuation allowance relating to capital loss carryforwards.
SFAS No. 109 (see Note A of the Notes to the CFX Consolidated Financial
Statements) 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. Prior to 1993,
CFX believed that some uncertainty existed with respect to future realization
of capital loss carryforwards. Therefore CFX had established a valuation
allowance relating to capital loss carryforwards of $387,000 as of December
31, 1992. The valuation allowance was reversed in 1993 as a result of the
recognition of $1,266,000 in capital gains and the implementation of tax
planning strategies that will continue to utilize the capital loss
carryforwards.
CFX's capital loss carryforwards and other temporary differences that
will result in capital loss (income) treatment when recognized for tax
purposes, along with the corresponding valuation allowance, are summarized as
follows:
<TABLE>
<CAPTION>
December 31
(In thousands) 1993 1992
Amount @ 39% Amount @ 34%
<S> <C> <C> <C> <C>
Tax capital loss carryforwards $1,522 $594 $2,466 $838
Other temporary differences that will result in capital loss (income):
Stock write downs 36 14 387 132
Net unrealized losses on marketable equity securities 24 9 122 41
Book over tax basis from investment in CFX Mortgage - - (697) (237)
1,582 617 2,278 774
Valuation allowance - - (1,139) (387)
$1,582 $617 $1,139 $387
</TABLE>
The capital loss carryforwards expire as of December 31, 1996.
The following schedule illustrates the anticipated future capital gains
over the next three years based on implementation of the present tax planning
strategies:
<TABLE>
<CAPTION>
(In thousands) Total 1994 1995 1996
<S> <C> <C> <C> <C>
U.S. Treasury based mutual funds $1,800 $600 $600 $600
Sale of appreciated securities 300 200 100 -
$2,100 $800 $700 $600
</TABLE>
Based upon the fact that CFX's capital gains plan significantly exceeds
CFX's capital loss carryforwards, no valuation allowance was required as of
December 31, 1993.
Prior to 1993, CFX was not obligated to pay New Hampshire Business
Profits Tax (NHBPT) because a significant portion of its income was derived
from state tax free sources and because a credit was allowed for New Hampshire
Franchise Tax paid. Therefore, prior to 1993, no deferred taxes were
recognized for NHBPT purposes.
During 1993, as a result of the Franchise Tax being repealed by the New
Hampshire State legislature and CFX's significant reduction in income derived
from state tax free sources, CFX began to pay NHBPT. This obligation to pay
allowed CFX to fully recognize deferred taxes for NHBPT in 1993.
Comparison Of Years Ended December 31, 1992 And December 31, 1991. In
1992 CFX earned $3,528,000, or $.92 per share, compared to earnings of
$1,891,000, or $.50 per share, for the prior year. Included in the prior year
earnings was a $1,603,000, or $.44 per share, adjustment from the adoption of
a new accounting standard for income taxes, Statement of Financial Accounting
Standards (SFAS) No. 109. The adjustment was in the form of a cumulative
effect change in accounting principle as of January 1, 1991. See Note A of the
Notes to the CFX Consolidated Financial Statements for more detail on this
accounting change.
The increase in earnings in 1992 is primarily attributable to record
high core earnings (net interest and dividend income and other income,
excluding trading and investment securities gains/losses), a decrease in the
provision for loan and lease losses and a decrease in expenses associated with
the operation of foreclosed real estate.
Net Interest Income. Taxable-equivalent net interest income was
$25,478,000 in 1992, up 9.8% from $23,194,000 in 1991. The $2,284,000 increase
was due to CFX's net interest rate spread growing from 3.27% in 1991 to 3.69%
in 1992. A portion of the increase in net interest spread was offset by a
decline in volume (the increase in average interest bearing liabilities was
greater than the increase in average interest bearing assets) during 1992.
Total average earning assets increased by $32,473,000 in 1992 from
$590,647,000 in 1991 to $623,120,000 in 1992. The growth in average earnings
assets in 1992 was mainly attributable to the 1991 acquisition of Family Bank
and Trust (Family). The yield on earning assets decreased by 1.52% to 8.44%
for the year ended December 31, 1992, down from 9.96% in 1991.
Due primarily to the Family acquisition, average interest bearing
liabilities increased by $37,339,000 in 1992 from $533,030,000 in 1991 to
$570,369,000 in 1992. The average rate paid on interest bearing liabilities
decreased by 1.94% to 4.75% for the year ended December 31, 1992, from 6.69%
in 1991.
The net interest margin was 4.09% for 1992, compared to 3.93% for 1991.
The increase in net interest margin in 1992 is reflective of the significant
increase in the interest rate spread in 1992.
Provision for Loan and Lease Losses. The amount of provision for loan
and lease losses is determined by management through its regular review of
CFX's loan and lease portfolio. This review includes an assessment of problem
loans and leases and potential unknown losses based on current economic
conditions, the regulatory environment and historical experience. The
provision for loan and lease losses decreased by $919,000 in 1992, from
$3,830,000 in 1991 to $2,911,000 in 1992.
The following schedule presents, in summary, the quarterly trends in
nonperforming assets and charge-offs that correlate with the quarterly
provisions for loan losses in 1992 and the last quarter of 1991:
<TABLE>
<CAPTION>
Dec. 31 Sept. 30 June 30 March 31 Dec. 31
(In thousands) 1992 1992 1992 1992 1991
<S> <C> <C> <C> <C> <C>
Nonperforming loans $11,082 $11,389 $11,553 $11,097 $13,184
Foreclosed real estate 11,929 13,170 14,645 12,862 12,224
Nonperforming assets $23,011 $24,559 $26,198 $23,959 $25,408
Net charge-offs $ 849 $ 281 $ 762 $ 417 $ 707
Provision for loan and lease losses $ 986 $ 515 $ 759 $ 651 $ 1,410
Allowance for loan and lease losses $ 7,909 $ 7,422 $ 7,188 $ 7,191 $ 6,957
Allowance for loan and lease losses as
a percent of nonperforming loans 71.37% 65.17% 62.22% 64.80% 52.77%
</TABLE>
As net charge-offs increased in the second and fourth quarters of 1992,
CFX increased its provision for loan and lease losses accordingly. The
increase in net charge-offs in these quarters was due to an increase in
residential mortgages moving into foreclosed real estate (including loans
transferred to in-substance foreclosure status).
Other Income. Other income increased by $1,476,000, from $1,688,000 in
1991 to $3,164,000 in 1992. This increase was primarily from additional service
charge income from both a larger base and increased fees, gains on investment
securities, a $291,000 gain from the sale of bank premises, and a $398,000
increase in the profits from CFX's investment in Colonial Mortgage, Inc.
Other Expense. Other expense decreased by $145,000, from $19,922,000 in
1991 to $19,777,000 in 1992. The decline in other expense is primarily
attributable to a $947,000 decline in the operation of foreclosed real estate.
See Note J of the Notes to the CFX Consolidated Financial Statements for the
components of the operation of foreclosed real estate. The increase in other
expense categories is due to higher salary and benefit costs in 1992 compared
to 1991 and the inclusion of Family's operations for the full 1992 year.
Income Taxes. Income taxes for the year ended December 31, 1992 and 1991
were 34.5% and 33.4% of pretax income, respectively.
SFAS No. 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.
Assessing the need for and amount of a valuation allowance for deferred
tax assets requires careful judgment and an evaluation of all available
evidence, both positive and negative. The valuation allowance is assessed
quarterly for the purpose of evaluating the realizability of deferred tax
assets. All of CFX's deferred tax assets, with the exception of capital loss
carryforwards, can be realized through carrybacks and the reversals of
existing taxable temporary differences. However, CFX's capital loss
carryforwards can only be realized through the generation of future capital
gains. After the implementation of tax planning strategies for the generation
of future capital gains, CFX believes that some uncertainty exists with
respect to future realization of capital loss carryforwards. Therefore, CFX
established a valuation allowance relating to capital loss carryforwards of
$387,000 and $532,000 as of December 31, 1992 and 1991, respectively.
CFX's capital loss carryforwards and other temporary differences that
will result in capital loss (income) treatment when recognized for tax
purposes, along with the corresponding valuation allowance, are summarized as
follows:
<TABLE>
<CAPTION>
December 31
(In thousands) 1992 1991
Amount @ 34% Amount @ 34%
<S> <C> <C> <C> <C>
Tax capital loss carryforwards $2,466 $838 $2,452 $ 834
Other temporary differences that will result in capital loss (income):
Stock writedowns 387 132 526 179
Net unrealized losses on marketable equity securities 122 41 451 153
Book over tax basis from investment in Colonial Mortgage, Inc. (697) (237) (299) (102)
2,278 774 3,130 1,064
Valuation allowance (1,139) (387) (1,565) (532)
$1,139 $387 $1,565 $ 532
</TABLE>
The majority of the aforementioned capital loss carryforwards were
primarily incurred in 1990 as a result of a substantial decline in the value
of New England bank stocks. With the exception of $7,003,000 in money market
preferred stocks, CFX had only $1,790,000 in marketable equity securities as
of December 31, 1992. The unrealized loss on the total $8,793,000 in
marketable equity securities as of December 31, 1992 was $93,000.
The amount of future capital gains that must be attained before each
capital loss expiration date as of December 31, 1992 is summarized as follows:
<TABLE>
<CAPTION>
December 31 (In thousands) Amount
<S> <C>
1995 $ 894
1996 1,558
1997 14
$2,466
</TABLE>
Capital Resources
Federal regulation requires CFX and CFX Bank to maintain minimum capital
standards. Tier 1 capital is composed primarily of common stock, retained
earnings and perpetual preferred stock in limited amounts less certain
intangibles. The minimum requirements include a 3% Tier 1 leverage capital
ratio for the most highly-rated institutions; all other institutions are
required to meet a minimum leverage ratio that is at least 1% to 2% above the
3% minimum. In addition, CFX and CFX Bank are required to satisfy certain
capital adequacy guidelines relating to the risk nature of an institution's
assets. These guidelines established by the Federal Reserve Board and the FDIC
are applicable to bank holding companies and state chartered non-member banks,
respectively. Under the "risk-based" capital rules, banks and bank holding
companies are required to have a level of Tier 1 capital equal to 4% of total
risk-weighted assets, as defined. Banks and bank holding companies are also
required to have total capital (composed of Tier 1 plus "supplemental" or
Tier 2 capital, the latter being composed primarily of allowances for loan and
lease losses, perpetual preferred stock in excess of the amount included in
Tier 1 capital, and certain "hybrid capital instruments" including mandatory
convertible debt) equal to 8% of total risk-weighted assets.
As of September 30, 1994, CFX's Tier 1 leverage capital ratio was 8.88%.
In addition, CFX's Tier 1 risk-based capital ratio and total risk-based
capital ratio were 14.86% and 16.14%, respectively.
As of December 31, 1993, CFX's Tier 1 leverage capital ratio was 8.93%.
In addition, CFX's Tier 1 risk-based capital ratio and total risk-based
capital ratio were 13.20% and 14.48%, respectively.
Asset/Liability Management
CFX's primary objective regarding asset/liability management is to
position CFX so that changes in interest rates do not have a materially
adverse impact upon forecasted net income and the net fair value of CFX. CFX's
primary strategy for accomplishing its asset/liability management objective is
achieved by matching the weighted average maturities of assets, liabilities,
and off-balance-sheet items (duration matching).
To measure the impact of interest rate changes, CFX utilizes a
comprehensive financial planning model that recalculates the fair value of CFX
assuming both instantaneous, permanent parallel shifts in the yield curve of
both up and down 100 and 200 basis points, or four separate calculations.
Larger increases or decreases in forecasted net income and the net market
value of CFX as a result of these interest rate changes represent greater
interest rate risk than do smaller increases or decreases in net fair value.
In connection with these recalculations, CFX makes assumptions regarding
probable changes in cash flows of its assets, liabilities, and off-balance-
sheet positions that would be expected in those various interest rate
environments. Accordingly, CFX adjusts the pro forma net income and net fair
values as it believes appropriate on the basis of historical experience and
prudent business judgment. CFX endeavors to maintain a position where it
experiences no material change in net fair value and no material fluctuation
in forecasted net income as a result of assumed 100 and 200 basis point
increases and decreases in interest rates. However, there can be no assurances
that CFX's projections in this regard will be achieved.
Management believes that the above method of measuring and managing
interest rate risk is consistent with the FDIC regulation regarding an
interest rate risk component of regulatory capital.
The following tables summarize the timing of CFX's anticipated
maturities or repricing of interest earning assets and interest bearing
liabilities as of September 30, 1994 and December 31, 1993. These tables have
been generated using certain assumptions which CFX believes fairly and
accurately represent repricing volumes in a dynamic interest rate environment.
Specifically, contractual maturities are used on all time deposits and
investments other than asset-backed securities. For asset-backed securities
and loans, contractual maturities, repricing and prepayment assumptions are
used. The prepayment assumptions are based on current experience and industry
statistics. The gap maturity categories for savings deposits (including NOW,
savings, and money market accounts) are based on management's philosophy of
repricing core deposits in reaction to changes in the interest rate
environment. Repricing frequencies will vary at different points in the
interest cycle and as supply and demand for credit change.
<TABLE>
<CAPTION>
(In thousands) 0-3 4-12 1-5 5-10 Over 10
September 30, 1994 Months Months Years Years Years Total
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits with other banks $ 1,720 $ - $ 95 $ - $ - $ 1,815
Federal Home Loan Bank of Boston stock - - - 6,471 - 6,471
Trading securities 37,971 - - - - 37,971
Investment securities 10,005 24,169 74,981 11,693 73 120,921
Loans 179,487 191,627 97,720 20,443 46,876 536,153
Total interest earning assets 229,183 215,796 172,796 38,607 46,949 703,331
Interest bearing liabilities:
Savings and time deposits 152,847 207,337 128,049 10,532 5,419 504,294
Advances from FHLB of Boston 88,736 - - 201 - 88,937
Short-term borrowed funds 24,084 - - - - 24,084
Total interest bearing liabilities 265,777 207,337 128,049 10,733 5,419 617,315
Off-balance sheet instruments 17,455 (42,455) 25,000 - - -
Periodic gap $(19,139) $(33,996) $ 69,747 $27,874 $41,530 $ 86,016
Cumulative gap $(19,139) $(53,135) $ 16,612 $44,486 $86,016 $ -
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 0-3 4-12 1-5 5-10 Over 10
December 31, 1993 Months Months Years Years Years Total
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits with other banks $ 10,385 $ - $ 95 $ - $ - $ 10,480
Federal Home Loan Bank of Boston stock - - - 3,590 - 3,590
Trading securities 3,772 10,151 31,179 9,903 6,994 61,999
Investment securities 10,834 17,330 63,210 20,116 6,249 117,739
Loans 157,287 209,339 118,552 1,895 2,126 489,199
Total interest earning assets 182,278 236,820 213,036 35,504 15,369 683,007
Interest bearing liabilities:
Savings and time deposits 160,936 151,067 206,038 950 - 518,991
Advances from FHLB of Boston 46,600 - - 201 - 46,801
Short-term borrowed funds 20,882 - - - - 20,882
Total rate sensitive liabilities 228,418 151,067 206,038 1,151 - 586,674
Off-balance sheet instruments 58,227 (35,151) (6,179) (9,903) (6,994) -
Periodic gap $ 12,087 $ 50,602 $ 819 $24,450 $ 8,375 $ 96,333
Cumulative gap $ 12,087 $ 62,689 $ 63,508 $87,958 $96,333 $ -
</TABLE>
The ability to assess interest rate risk using gap analysis is limited.
Gap analysis does not capture the impact of cash flow or balance sheet mix
changes over a forecasted future period and it does not measure the amount of
price change expected to occur in the various asset and liability categories.
Thus, management does not use gap analysis exclusively in its assessment of
interest risk. CFX's interest rate risk exposure is also measured by the
forecasted net income and discounted cash flow market value sensitivities
referred to above.
Liquidity
CFX maintains numerous sources of liquidity in the form of marketable
assets and borrowing capacity. Interest bearing deposits with other banks,
trading and available for sale securities, regular cash flows from loan and
securities portfolios and Federal Home Loan Bank of Boston borrowings are the
primary sources of asset liquidity. At September 30, 1994 and December 31,
1993, interest bearing deposits with other banks totaled $1,815,000 and
$10,480,000, respectively, and trading and available for sale securities
totaled $41,291,000 and $83,694,000, respectively.
Because CFX's subsidiary, CFX Bank, maintains a large residential
mortgage portfolio, a substantial capability exists to borrow funds from the
Federal Home Loan Bank of Boston. Additionally, investment portfolios are
predominantly made up of securities which can be readily borrowed against
through the repurchase agreement market. Relationships with deposit brokers
and correspondent banks are also maintained to facilitate possible borrowing
needs.
Impact of Inflation
The consolidated financial statements and related consolidated financial
data herein have been presented in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars, without considering changes
in the relative purchasing power of money over time due to inflation.
Inflation can affect CFX in a number of ways, including increased operating
costs and interest rate volatility. Management attempts to minimize the
effects of inflation by maintaining an approximate match between interest rate
sensitive assets and interest rate sensitive liabilities and, where practical,
by adjusting service fees to reflect changing costs.
Recent Accounting Developments
In May, 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", which
requires a change in accounting method for most financial institutions,
commencing with fiscal years beginning after December 15, 1994, with early
adoption permissible. In addition, in October 1994, FASB amended SFAS No. 114
through SFAS No. 118, to allow a creditor to use existing methods for
recognizing interest income on impaired loans. Under these new statements,
impaired loans would be measured using any of the following three methods on a
loan-by-loan basis.
* The present value of expected future cash flows (principal and interest
related to the loan) discounted at the loan's effective interest rate.
* The loan's obtainable market price.
* The fair value of the collateral if the loan is collateral dependent.
SFAS No. 114 and SFAS No. 118 are applicable to all creditors and to all
loans, uncollateralized as well as collateralized, except large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment (i.e., residential mortgage, credit card and consumer installment
loans), loans that are measured at fair value or at the lower of cost or fair
value (i.e., loans in a trading or held for sale portfolio), leases, and
convertible or nonconvertible debentures and bond and other debt securities.
Management does not expect that adopting the provisions of SFAS No. 114
and SFAS No. 118 will have a
material impact on CFX's financial statements.
CERTAIN STATISTICAL AND OTHER INFORMATION
Set forth below is certain statistical and other information relating to
CFX. This information should be used in conjunction with the information
contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations of CFX" and the consolidated
financial statements of CFX included herein, where similar information
pertaining to the nine months ended September 30, 1994 and 1993 is presented.
Investment Portfolio
The following table sets forth the book value of securities available
for sale and securities held to maturity by CFX at the dates indicated. The
book value of securities available for sale in 1993 is fair value. The book
value of securities held for sale in 1992 is the lower of cost or fair value.
The book value of debt securities held to maturity or held for investment is
amortized cost, while the book value of marketable equity securities held for
investment is the lower of cost or fair value.
<TABLE>
<CAPTION>
December 31,
1993 1992 1991
Available
for Sale Held for Sale Held for Sale
(In thousands)
<S> <C> <C> <C>
U. S. Treasury securities $ - $30,430 $ -
U. S. Treasury money market fund 675 13,083 -
Collateralized mortgage obligations (CMOs) 17,772 - -
Other marketable equity securities 3,248 - -
$21,695 $43,513 $ -
</TABLE>
<TABLE>
<CAPTION>
Held to Held for Held for
Maturity Investment Investment
<S> <C> <C> <C>
U.S. Treasury securities and obligations of other U.S. Government
agencies $ - $24,104 $ 45,117
U.S. Treasury money market fund - - 40,288
State and municipal 10,591 1,274 3,396
Corporate securities 7,992 12,679 15,497
Mortgage-backed securities 76,841 15,225 9,929
Asset-backed securities 620 - -
Marketable equity securities - 844 2,296
$96,044 $54,126 $116,523
</TABLE>
The following table sets forth an analysis of the maturity distributions
and the weighted average yields of all debt securities of CFX at December 31,
1993:
<TABLE>
<CAPTION>
Maturing
After One After Five
Within But Within But Within
One Year Five Years Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State and municipal (1) $290 4.28% $ 3,427 3.81% $6,798 4.41% $ 76 4.52%
Corporate securities (2) - - 7,859 6.90 133 6.00 - -
Mortgage-backed securities and
CMO's (3) - - 7,726 4.89 - - 86,887 6.71
Asset-backed securities (3) - - 620 4.85 - - - -
Total debt securities $290 4.28% $19,632 5.50% $6,931 4.44% $86,963 6.70%
<F1> Yields on tax-exempt investment securities are stated on a taxable-
equivalent basis (using a 38.95% tax rate).
<F2> Includes corporate and public utility obligations. The majority of these
obligations contain put and call provisions.
<F3> Included in table based on contractual maturities.
</TABLE>
Loan Portfolio
The following table shows CFX's loan distribution at the dates
indicated:
<TABLE>
<CAPTION>
December 31,
1993 1992 1991 1990 1989
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
Residential $305,599 $328,984 $320,615 $323,430 $286,740
Construction 9,292 10,920 16,010 21,455 27,695
Commercial 76,955 56,027 56,451 55,981 44,098
Commercial, financial, and agricultural 42,835 54,788 59,318 56,323 51,483
Leases 5,428 1,497 - - -
Consumer and other 24,934 25,268 26,506 29,555 29,557
Total loans and leases $465,043 $477,484 $478,900 $486,744 $439,573
</TABLE>
The following table shows the maturity of loans of CFX (excluding
residential mortgages of 1-4 family residences and consumer/other loans)
outstanding at December 31, 1993. Also provided are the amounts due after one
year, classified according to sensitivity to change in interest rates.
<TABLE>
<CAPTION>
Maturing
After One
Within But Within After Five
One Year Five Years Years Total
(In thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $5,396 $19,818 $17,621 $ 42,835
Real estate--construction 1,582 243 7,467 9,292
Real estate--commercial 3,007 10,751 63,197 76,955
Total $9,985 $30,812 $88,285 $129,082
Loans maturing after one year with:
Fixed interest rates $13,467 $19,116
Variable interest rates 17,345 69,169
Total $30,812 $88,285
</TABLE>
Nonaccrual, Past Due, Restructured, And Potential Problem Loans
The following table summarizes CFX's nonaccrual, past due, restructured
and potential problem loans:
<TABLE>
<CAPTION>
December 31,
1993 1992 1991 1990 1989
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:(1)
Real estate (2) $3,587 $ 3,893 $ 1,494 $1,682 $ -
Commercial, financial, and agricultural 2,698 2,002 1,768 1,019 1,535
Consumer and other 187 209 261 123 385
Total 6,472 6,104 3,523 2,824 1,920
Accruing loans past due 90 days or more:
Real estate (2) - 2,916 7,892 4,410 1,884
Commercial, financial, and agricultural - 409 777 818 204
Consumer and other - 118 29 723 154
Total - 3,443 8,698 5,951 2,242
Potential problem loans (3) - 1,535 963 337 -
Total nonperforming loans 6,472 11,082 13,184 9,112 4,162
Restructured loans 1,887 - - - -
Total nonperforming and restuctured loans $8,359 $11,082 $13,184 $9,112 $4,162
Percentage of total loans 1.8% 2.3% 2.8% 1.9% 0.9%
Percentage of total assets 1.1% 1.7% 2.0% 1.5% 0.8%
<F1> When management determines that significant doubt exists as to the
collectibility of principal or interest on a loan, the loan is placed on
nonaccrual status. In addition, loans past due 90 days or more as to principal
or interest are placed on nonaccrual status except those loans which, in
management's judgment, are fully secured and in the process of collection
(through legal action, or in appropriate circumstances through collection
efforts reasonably expected to result in repayment of the debt or in its
restoration to a current status in the near future). In the third quarter of
1993, management changed its policy regarding nonaccrual loans, such that all
loans past due 90 days or more as to principal and interest are placed on
nonaccrual status. Interest accrued but not received on loans placed on
nonaccrual status is reversed and charged against current operations. Interest
on nonaccrual loans is recognized only when received. Loans are restored to
accrual status when the borrower has demonstrated the ability to make future
payments of principal and interest, as scheduled.
<F2> Includes residential, construction and commercial real estate loans.
<F3> In addition to loans 90 days or more past due, and nonaccrual loans,
management classifies as nonperforming "potential problem loans" which are
current as to principal and interest payments under original or restructured
agreements, but are expected to have insufficient future cash flows to service
the loan in accordance with the original or restructured provisions.
</TABLE>
For the year ended December 31, 1993, approximately $173,000 of interest
income would have been recorded on loans accounted for on a nonaccrual basis
if such loans had been current in accordance with their original terms.
Approximately $483,000 of interest income was received on nonaccrual loans and
is included in interest income for the period.
At December 31, 1993, CFX had $7,419,000 in commercial and commercial
real estate loans for which payments were current and future cash flows
appeared to be sufficient to service the loan, but the borrowers were
experiencing financial difficulties. These loans, while not severe enough to
be classified as potential problem loans, are subject to ongoing management
attention and their classification is reviewed quarterly.
While CFX considers the allowance for loan and lease losses to be
adequate at December 31, 1993, it is uncertain to what extent an economic
recovery will materialize in the region. Therefore, given this uncertainty,
CFX can give no assurance that it will not experience an increase in
nonperforming assets in the future.
Summary Of Loan And Lease Loss Experience
This table summarizes CFX's loan and lease loss experience for the years
ended December 31, 1993, 1992, 1991, 1990 and 1989.
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan and lease losses, beginning
of year $7,909 $6,957 $5,122 $2,787 $2,454
Allowance of acquired subsidiaries 13 - - 393 -
Allowance acquired through regulatory-assisted
transactions - 350 167 - -
Loans charged-off:
Real estate (1) 1,810 1,499 1,174 1,227 285
Commercial, financial and agricultural 1,758 678 660 171 166
Consumer and other 336 346 413 715 274
Total loans charged-off 3,904 2,523 2,247 2,113 725
Recoveries on amounts previously charged-off:
Real estate (1) 209 84 35 - 12
Commercial, financial and agricultural 78 47 4 - 16
Consumer and other 82 83 46 50 63
Total recoveries 369 214 85 50 91
Net loans charged-off 3,535 2,309 2,162 2,063 634
Provision for loan and lease losses (2) 2,970 2,911 3,830 4,005 967
Allowance for loan and lease losses, end of year $7,357 $7,909 $6,957 $5,122 $2,787
Net loans charged-off to average loans outstanding 0.7% 0.5% 0.4% 0.4% 0.2%
<F1> Includes residential, construction and commercial real estate loans.
<F2> The amount charged to operations and the related balance in the allowance
for loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior
loan loss experience, and management's estimation of future potential losses.
</TABLE>
Allowance For Loan And Lease Loss Allocation
This table shows an allocation of CFX's allowance for loan and lease
losses as of December 31, 1993, 1992, 1991 and 1990. The allocation of the
allowance for loan and lease losses as of December 31, 1989 is not available.
<TABLE>
<CAPTION>
December 31,
1993 1992 1991 1990
Percent Percent Percent Percent
of Loans of Loans of Loans of Loans
in Each in Each in Each in Each
Category Category Category Categoy
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $2,963 84.26% $1,706 82.92% $1,602 82.08% $ 625 82.36%
Commercial, financial,
agricultural 2,035 9.21 2,679 11.47 1,612 12.39 1,725 11.57
Consumer and other 274 6.53 306 5.61 435 5.53 511 6.07
Unallocated 2,085 3,218 3,308 2,261
$7,357 100.00% $7,909 100.00% $6,957 100.00% $5,122 100.00%
</TABLE>
Deposits
The average daily amount of deposits and of rates paid on such deposits
is summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
Amount Rate Amount Rate Amount Rate
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 27,920 -% $ 24,491 -% $ 23,701 -%
Regular savings deposits 116,475 2.81 110,078 3.98 70,722 5.61
NOW & money market deposits 188,733 2.61 172,984 3.72 129,048 5.43
Time deposits 225,126 4.79 263,810 5.75 308,756 7.35
Total $558,254 3.40% $571,363 4.55% $532,227 6.62%
</TABLE>
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1993, are summarized as follows:
<TABLE>
<CAPTION>
Time Other
Certificates Time
of Deposits(1) Deposits Total
(In thousands)
<S> <C> <C> <C>
3 months or less $5,624 $ 7,019 $12,643
Over 3 through 6 months 1,357 2,738 4,095
Over 6 through 12 months 600 4,358 4,958
Over 12 months - 11,134 11,134
Total $7,581 $25,249 $32,830
<F1> Time deposits with a minimum required balance of $100,000.
</TABLE>
Return On Equity And Assets
The following table shows consolidated operating and capital ratios of
CFX for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Return on:
Average total assets 0.71% 0.52% 0.30%
Average total shareholders' equity 6.34 4.92 2.64
Average common shareholders' equity 6.66 5.18 2.78
Average total shareholders' equity to
average total assets ratio 11.25 10.68 11.30
Common dividend payout ratio (1) 52.42 58.70 124.00
<F1> The common dividend payout ratios have been restated to reflect 5%
common stock dividends declared by CFX on December 12, 1994 and December 13,
1993.
</TABLE>
INFORMATION ABOUT ORANGE
Description of Business
Orange has operated as a Massachusetts-chartered savings bank since 1871
and is located in Orange, Massachusetts. Orange has been insured by the FDIC
since February 1985. In February 1987, Orange completed its conversion from
mutual to stock form of organization. In September 1991, Orange purchased the
deposits of the Athol branch of Peoples Savings Bank of Worcester and opened
its first branch office. Orange has a wholly-owned subsidiary, Orange
Corporation.
Orange is engaged in the business of attracting deposits from the
general public, making residential and commercial real estate loans, business
and consumer loans and making investments in securities. Orange'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. Orange conducts its business in the north central
area of Massachusetts, which has an economic base comprised of industrial and
manufacturing companies, financial service institutions and agricultural
production. Orange's main office is located at 30 East Main Street, Orange,
Massachusetts. Orange also has a branch office located at 378 Main Street,
Athol, Massachusetts. At September 30, 1994, Orange had 26 full-time and 5
part-time employees.
Orange has historically been an active loan originator with fixed and
adjustable rate mortgage loans comprising approximately 89.7% of Orange's
total loan portfolio at September 30, 1994. The balance of Orange's loan
portfolio consists of home equity loans (7.1%) and consumer loans (3.2%). In
recent years, Orange has expanded its adjustable rate mortgage home lending,
and such loans accounted for 74.6% of the total loans at September 30, 1994.
Orange believes that the shorter terms and repricing intervals of its
adjustable rate mortgage loans are helpful in maintaining a profitable spread
between Orange's average loan yield and its cost of funds.
Orange is subject to extensive competition from other savings banks, as
well as 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 real estate loans is experienced principally from
mortgage companies, other savings banks, co-operative banks, credit unions and
commercial 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 interest rates, loan fee charges and quality of
service to the borrower. Orange's staff is actively involved in community
organizations and service groups which results in many successful business
relationships.
Deposits maintained with Orange are insured by the Bank Insurance Fund
of the FDIC up to FDIC limits (generally $100,000 per depositor) and by the
Depositors Insurance Fund for the portion of deposits in excess of the amounts
insured by the FDIC. As a Massachusetts-chartered savings bank, Orange is
subject to regulation, examination and supervision by the Massachusetts
Commissioner of Banks and the FDIC. Massachusetts legislation enacted in 1982
expanded the authority of savings banks so as to be substantially identical
with the powers of state-chartered commercial banks (known as trust companies)
which historically have had the broadest powers available to depository
institutions operating under Massachusetts law.
Description of Properties
Orange's main office has been located at 30 East Main Street, Orange,
Massachusetts since 1976. Orange has owned this building since 1976. The
building has office space of 7,370 square feet. The aggregate net book value
at December 31, 1993 of the land, building and equipment was $444,000. In
February 1990, Orange purchased the property adjacent to its main office for
possible future expansion.
Orange opened a branch office located at 378 Main Street, Athol,
Massachusetts in September 1991, following the purchase of deposits in the
branch from Peoples Savings Bank of Worcester. The branch occupies 4,580
square feet of first floor and basement space which is leased by Orange. The
lease agreement expires in August 1997 and contains an option to extend the
lease for an additional two years. In October 1994, Orange purchased property
in Athol for possible relocation of the branch office.
Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which Orange or its
subsidiary is a party or of which any of their property is the subject.
By letter dated December 27, 1994, the Columbians of Orange, Inc. and
the Knights of Columbus, Orange Council, Number 2135 (collectively, the
"Knights") have alleged that Orange orally agreed to make certain loans to the
Knights in the aggregate amount of not more than $610,000 and failed to
fulfill that oral commitment. The letter also alleged that in reliance on
representations by Orange, the Knights have expended certain sums of money and
suffered certain damages in the aggregate amount of $50,000. The letter
threatens litigation under the provisions of Massachusetts General Laws
Chapter 93A, pursuant to which a court has authority to award a prevailing
plaintiff double or treble damages. Orange denies that it has any obligation
to make these loans and if litigation is brought, intends to contest it
vigorously.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ORANGE SAVINGS BANK
Nine Months Ended September 30, 1994
Financial Condition
At September 30, 1994 Orange had total assets of $83.9 million, an
increase of $2.0 million from $81.9 million at December 31, 1993. The increase
in assets is primarily reflected in increases in cash and cash equivalents of
$1.9 million and total investments of $900,000, offset by a decrease in total
loans outstanding of $747,000. Other real estate owned (OREO) decreased during
the period by $146,000 and consists of properties acquired by foreclosure,
deed in lieu of foreclosure or substantively repossessed. The increase in
total assets has been primarily funded through an increase in total deposits
of approximately $1.5 million.
Stockholders' equity at September 30, 1994 was $8.6 million, an increase
of $396,000 during the nine month period. This increase is composed of net
income of $521,000 offset by a net decrease in the unrealized gain on
investment securities available-for-sale of $38,000 and cash dividends paid to
stockholders of $87,000.
During the nine month period ended September 30, 1994, the asset quality
of Orange's loan portfolio continued to improve. The aggregate amount of non-
accrual loans and other loans past due 90 days and still accruing totaled
$454,000 at September 30, 1994, a decrease of approximately $1.0 million from
$1.5 million as of December 31, 1993. Non-performing loans as a percent of
total assets at September 30, 1994 was 0.54% as compared to 1.79% at December
31, 1993. Substantially all of the non-accrual loans and loans overdue 90 days
or more and still accruing at September 30, 1994 were originally made as first
mortgage real estate loans on owner occupied properties. Management is not
aware of any other loans where there are serious doubts regarding compliance
with loan repayment terms.
The following table illustrates the excess (or deficiency) of interest-
bearing assets over interest-bearing liabilities at September 30, 1994.
<TABLE>
<CAPTION>
Time Interval from September 30, 1994
1--3 4--12 1--2 2--3 over 3
(Dollars in thousands) months months years years years Total
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans $ 15,679 $36,974 $ 3,021 $ 1,068 $12,972 $69,714
Investments 3,274 1,171 3,184 504 - 8,133
Total 18,953 38,145 6,205 1,572 12,972 77,847
Interest sensitive liabilities:
Transaction deposits 41,278 - - - - 41,278
Time deposits 4,020 20,161 3,427 2,805 - 30,413
Total 45,298 20,161 3,427 2,805 0 71,691
Actual excess (deficiency) $(26,345) $17,984 $ 2,778 $(1,233) $12,972 $ 6,156
Cumulative excess (deficiency)
of interest sensitive assets
over interest sensitive
liabilities ("GAP") $(26,345) $(8,361) $(5,583) $(6,816) $ 6,156
Cumulative GAP as % of
total assets (31.38%) (9.96%) (6.65%) (8.22%) 7.33%
</TABLE>
Results of Operations
Net interest and dividend income for the nine months ended September 30,
1994 was $2,394,000 as compared to $2,359,000 for the nine months ended
September 30, 1993, a difference of $35,000. Despite the recent increases in
interest rates, net interest and dividend income and Orange's net interest
margin remained relatively consistent due in large part to the significant
concentration of adjustable-rate loans in Orange's loan portfolio.
Net income for the nine months ended September 30, 1994 was $521,000 or
$0.68 per share, as compared to $559,000 or $0.76 per share in the comparable
period in 1993. This decrease of $38,000 reflects lower net interest and
dividend income as well as higher non-interest expenses during the current
period than was experienced during the 1993 period.
Total interest and dividend income for the nine months ended September
30, 1994 was $4.3 million, a decrease of $202,000 from $4.5 million in 1993.
The largest portion of this decrease was reflected in interest earned on loans
which declined $291,000 to $3.9 million from $4.2 million in 1993. The
decrease in loan income is primarily the result of repricing of Orange's
variable rate mortgage portfolio and to a lesser extent on the lower balances
of total loans. Smaller decreases of $17,000 and $2,000 were experienced in
dividends and interest received on certificates of deposit, respectively.
Offsetting these decreases were increases in interest on investments (U.S.
Treasury and Federal Agency bonds), which increased to $151,000 during the
current period from $61,000 in 1993, principally due to a higher volume of
investments. Interest on Federal funds sold also increased during the current
period to $70,000 from $52,000 as a result of both higher balances and higher
rates.
Total interest expense was $1.8 million for the nine months ended
September 30, 1994. This represents a decrease of $181,000 from $2.0 million
in 1993. This decrease is primarily due to the repricing of certificates of
deposit, as the rates on all other types of savings products remained
virtually unchanged during the comparable periods.
For the nine month period ended September 30, 1994, Orange added $12,000
to its provision for possible loan losses. This compares with a provision of
$68,000 during the same period in 1993. The lower provision directly reflects
the continuing improvement in the asset quality of Orange's loan portfolio.
This as well as other factors influenced the decision to reduce the amount of
the provision during the current period. However, Orange continues to monitor
the quality of its loan portfolio as there can be no assurance that the
current favorable trends in delinquency will continue or that declines in
collateral value will not necessitate future writedowns, increases in the
provision for possible loan losses or charge-offs.
Orange's non-interest income for the nine months ended September 30,
1994 was $226,000, an increase of $26,000 from $200,000 in the 1993 period.
Commissions, fees and other income increased by $33,000 during the current
period and included higher service charges on deposit accounts and insurance
commissions. This was offset in part by a decrease in gains on the sale of
mortgages of $13,000 which is reflective of the decreased activity in the
secondary market during the current period.
Non-interest expense for the nine months ended September 30, 1994 was
$1.8 million as compared to $1.6 million during the same period in 1993, an
increase of $126,000. Contributing to the increase in non-interest expense
was an increase in salaries and benefits of $72,000 and an increase in legal
fees of $69,000. The increase in salaries and employee benefits consists of
normal salary adjustments, related payroll taxes and higher board of directors
fees. The increase in legal fees during the period ended September 30, 1994 is
related to the pending acquisition of Orange by CFX. Legal costs associated
with this acquisition are expected to continue to adversely affect earnings.
EDP processing fees also increased during this period, primarily due to the
higher volume of transactions being processed through Orange's ATMs. These
increases were offset in part by a reduction in other expenses of $39,000,
primarily in advertising expenses and in reduced expenses associated with
foreclosures and OREO properties.
Income taxes for the nine months ended September 30, 1994 were $345,000,
a decrease of $27,000 from $372,000 in the 1993 period. The decrease is
directly proportional to lower pre-tax income in the 1994 period as compared
to 1993.
Liquidity and Capital Resources
Orange's principal sources of liquidity are loan amortization, loan
prepayments and increases in deposits. Orange is also a member of the Federal
Home Loan Bank of Boston and as such is generally entitled to borrow up to 30%
of its total assets. Cash from these sources is used to fund loan
originations, security investments and deposit maturities.
During the nine month period ended September 30, 1994, deposits have
increased approximately $1.5 million. This compares to deposit growth during
the same period in 1993 of $841,000. In light of the competition for deposit
funds among non-banking entities, Orange is pleased with the level of deposit
growth in the present low interest rate environment.
Orange's activity in the secondary mortgage market has declined
substantially in the 1994 period as compared to 1993 as rates have become less
attractive. For the nine month period in 1994, Orange has sold mortgages
totaling $1.9 million. This compares with sales during the 1993 period of $8.1
million. Orange continues to service all of the loans it sells to maintain a
strong local banking relationship with its customers.
Orange continues to exceed all minimum capital requirements currently in
effect under the guidelines of the FDIC. At September 30, 1994, Orange's Tier
1 and total risk-based capital ratios were 19.35% and 20.65%, respectively. In
addition, Orange's leverage capital ratio was 10.15%. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
ORANGE SAVINGS BANK, Three Years Ended December 31, 1993--Liquidity and
Capital Resources."
Recent Accounting Developments
In May, 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", which
requires a change in accounting method for most financial institutions,
commencing with fiscal years beginning after December 15, 1994, with early
adoption permissible. In addition, in October 1994, the FASB amended SFAS No.
114 through SFAS No. 118, to allow a creditor to use existing methods for
recognizing interest income on impaired loans. Under these statements,
impaired loans would be measured using any of the following three methods on a
loan-by-loan basis.
* The present value of expected future cash flows (principal and interest
related to the loan) discounted at the loan's effective interest rate.
* The loan's obtainable market price.
* The fair value of the collateral if the loan is collateral dependent.
SFAS No. 114 and SFAS No. 118 are applicable to all creditors and to all
loans, uncollateralized as well as collateralized, except large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment (i.e., residential mortgage, credit card and consumer installment
loans), loans that are measured at fair value or at the lower of cost or fair
value (i.e., loans in a trading or held for sale portfolio), leases, and
convertible or nonconvertible debentures and bond and other debt securities.
Management does not expect that adopting the provisions of SFAS No. 114
and SFAS No. 118 will have a material impact on Orange's financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ORANGE SAVINGS BANK
Three Years Ended December 31, 1993
Financial Condition
Total assets of Orange at December 31, 1993, were $81.9 million, an
increase of $733,000 from $81.2 million at December 31, 1992. The increase in
assets is primarily the result of Orange's 1993 earnings. During the year,
Orange made an effort to improve its liquidity through the investment in U.S.
Treasury and Federal agency securities which increased by $2.0 million. These
investments were offset in part by decreases in cash due from banks and other
real estate owned of $755,000 and $461,000 respectively. Orange's loan port-
folio declined slightly from year end 1992 primarily due to the increased
activity in the secondary market during 1993.
Liquidity and Capital Resources
Deposits are a traditional source of funds for Orange. During 1993,
deposits increased only $44,000, as deposit growth declined sharply from
previous years. Deposits increased $8.4 million in 1992. During 1993, many
institutions experienced significant declines in deposits, as depositors
sought higher returns on their money through non-banking instruments.
Management was pleased that in light of this trend, Orange was able to
maintain its deposit base at roughly the same level as year end 1992.
Loan activity in 1993 remained strong as borrowers continued to take
advantage of the low interest rate environment. Activity in the secondary
market increased as well during the year as borrowers took advantage of the
low rates. Loans sold in the secondary market during 1993 totaled
approximately $10.7 million as compared to 1992 when loan sales were
approximately $1.3 million. All loans sold continue to be serviced locally in
order to allow Orange to market other banking services to these customers. The
increased activity in the secondary market is the primary reason for the
slight decline in outstanding loans.
During 1993, Orange increased its investments in U.S. Treasury and
Federal Agency securities by $2.0 million. The purchase of these investments
has greatly enhanced Orange's liquidity position. At year end 1993, these
investments totaled $3.8 million, as compared to $1.5 million at year end
1992.
Orange remains a member of the Federal Home Loan Bank of Boston (FHLBB)
and as such is generally able to borrow up to 30% of its assets. These
borrowings can assist in funding mortgages on 1-4 family residential
properties. Orange presently has no borrowings outstanding and has no plans to
borrow in the near future.
Orange 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 Orange to maintain a minimum risk-based
capital ratio.
The guidelines define two categories of capital: Tier 1 or core capital
(primarily, common stock, retained earnings and a limited amount of perpetual
preferred stock, less goodwill) 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, 1993
and 1992, the minimum total and Tier 1 risk-based capital ratios required were
8% and 4%, respectively. Orange's total risk-based capital ratios at December
31, 1993 and 1992 were 19.00% and 17.17%, respectively, and its Tier 1 risk-
based capital ratios 18.30% and 16.06%, 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. Orange's Tier 1
leverage capital ratios were 10.02% and 8.63% at December 31, 1993 and 1992,
respectively.
Asset Quality
The aggregate amount of non-accrual loans and other loans past due 90
days and still accruing totaled $1.5 million or 2.07% of loans outstanding at
the end of 1993, compared to $1.2 million or 1.75% at the end of 1992 and $2.5
million or 4.02% at the end of 1991. At the same time, other real estate owned
decreased to $457,000 at year end 1993 from $918,000 at year end 1992. Non-
performing assets as a percent of total assets decreased to 1.69% at December
31, 1993 from 2.20% at December 31, 1992. Substantially all of the non-accrual
loans and loans overdue 90 days or more and still accruing at year end 1993
were originally made as first mortgage real estate loans on owner occupied
properties. Management is not aware of any other loans where there are serious
doubts regarding compliance with loan repayment terms.
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 well secured and in the process of collection and if
management deems it appropriate. Because of the continuing uncertain economic
conditions, there can be no assurance that non-performing loans will not
increase again or that declines in collateral value will not necessitate
additional write-downs, increases in the allowance for possible loan losses or
charge-offs in the future.
Asset/Liability Management
The primary objective of Orange's asset/liability program is to protect
Orange from the adverse impact of volatile rates. Orange attempts to match
variable rate assets with variable rate liabilities so that the changes in the
level of interest rates will have a limited impact on net income. As part of
this strategy, Orange has continued to emphasize the origination of interest
sensitive loans, comprised of mainly one-year adjustable rate mortgages and
equity lines of credit. These types of adjustable rate loans equalled 80.2% of
total loans in Orange's portfolio as of December 31, 1993.
Orange's GAP position as a whole has become generally negative over the
past few years. However, Orange remains comfortable with this negative GAP due
to the relatively high level of passbook savings accounts that are included in
the calculation.
The following table illustrates the excess (or deficiency) of interest-
bearing assets over interest-bearing liabilities at December 31, 1993.
<TABLE>
<CAPTION>
Time Interval from December 31, 1993
1--3 4--12 1--2 2--3 over 3
(Dollars in thousands) months months years years years Total
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans $12,382 $39,272 $ 3,373 $ 2,004 $14,045 $71,076
Investments 2,750 1,945 1,549 499 - 6,743
Total 15,132 41,217 4,922 2,503 14,045 77,819
Interest sensitive liabilities:
Transaction deposits 41,333 - - - - 41,333
Time deposits 7,483 13,432 6,318 2,129 - 29,362
Total 48,816 13,432 6,318 2,129 0 70,695
Actual excess (deficiency) $(33,684) $27,785 $(1,396) $ 374 $14,045 $ 7,124
Cumulative excess (deficiency)
of interest sensitive assets
over interest sensitive
liabilities ("GAP") $(33,684) $(5,899) $(7,295) $(6,921) $ 7,124
Cumulative GAP as % of
total assets (41.10%) (7.20%) (8.90%) (8.45%) 8.69%
</TABLE>
Average Balance Sheet Changes
Orange increased its weighted average interest rate spread and its net
yield on average earning assets in 1993 for the fourth consecutive year. The
weighted average interest rate spread increased to 3.75% from 3.57% and the
net yield on average earning assets to 4.08% from 3.93%.
The amount of average interest earning assets increased by $3.0 million
to $78.9 million in 1993 from $75.9 million in 1992. Total average loans
contributed to virtually all of the increase in average interest earning
assets and is indicative of the increased loan activity during the year which
resulted from the low interest rate environment. Average interest earning
assets increased from 1991 to 1992 for much the same reasons as outlined
above.
Net loans averaged $71.9 million in 1993, an increase of $4.6 million
from $67.2 million in 1992. The increase is reflective of the mortgage
activity generated as a result of the generally low interest rate environment
that prevailed throughout the year. At December 31, 1993 the loan portfolio
was comprised of real estate mortgages (primarily 1-4 family), 89.5%; home
equity loans, 7.2%; and consumer loans, 3.4%.
Average balances on all other categories of interest earning assets
declined during 1993. These decreases included investments of $161,000, FHLBB
stock of $26,000, certificates of deposit of $106,000 and federal funds sold
of $1.4 million. The average balance of investments in 1992 exceeded the year-
end balance by a significant amount, as investments declined during the year
from higher 1991 levels. The decrease in federal funds is representative of
the generally lower balances throughout the year as compared to 1992. As of
December 31, 1993, all of the debt securities in Orange's investment portfolio
had maturities of three years or less, with 53.2% maturing within one year.
Average deposits increased in 1993 to $71.8 million from $68.8 million
in 1992. This compares to an increase of $11.8 million from 1991 to 1992. The
increase in average deposits reflects the slowing of the growth rate of
deposits which Orange experienced during 1993 as customers looked towards
other types of investments, other than bank instruments, to yield a higher
return on their funds. Average borrowings during 1993 were zero, reflecting
the payoff of the last remaining borrowings in 1992.
The following table sets forth Orange's average balance sheets and an
analysis of the net interest income and net yields for the periods indicated.
Non-accrual loan balances have been included in the calculation of the average
interest earning assets, which reduces the calculated yield.
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
(Dollars in thousands)
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $71,889 $5,560 7.73% $67,249 $ 5,972 8.88% $60,792 $6,117 10.06%
Investments 3,282 138 4.20 3,443 185 5.37 3,391 173 5.10
Federal Home Loan Bank stock 1,124 87 7.74 1,150 90 7.83 1,150 108 9.39
Certificates of deposit 484 32 6.61 590 39 6.61 751 59 7.86
Federal funds sold 2,094 66 3.15 3,486 115 3.30 3,542 232 6.55
Total interest earning assets 78,873 5,883 7.46 75,918 6,401 8.43 69,626 6,689 9.61
Non-interest earning assets:
Allowance for loan loss (525) (383) (276)
Cash and due from banks 3,598 3,175 1,987
Fixed assets 427 463 435
Other assets 774 1,964 1,984
Total assets $83,147 $81,137 $73,756
Liabilities:
Deposits:
Now accounts $ 8,303 176 2.12 $ 7,824 273 3.49 $ 5,410 278 5.14
Regular savings 19,398 622 3.21 17,074 728 4.26 13,490 752 5.58
Money market fund 14,485 493 3.40 14,278 622 4.36 10,131 596 5.88
Time deposits 29,621 1,376 4.65 29,619 1,678 5.67 27,999 2,081 7.43
71,807 2,667 3.71 68,795 3,301 4.80 57,030 3,707 6.50
Borrowed funds - - 1,392 111 7.97 7,208 633 8.78
Total interest bearing
liabilities 71,807 2,667 3.71 70,187 3,412 4.86 64,238 4,340 6.76
Demand deposits 1,745 1,077 239
Other liabilities 1,929 1,664 1,331
Equity: 7,666 8,209 7,948
Total liabilities and equity $83,147 $81,137 $73,756
Net interest income $3,216 $2,989 $2,349
Weighted average interest rate spread 3.75% 3.57% 2.85%
Net yield on average earning assets 4.08% 3.93% 3.37%
</TABLE>
Rate/Volume Analysis
The following table shows the effects that changes in rates and changes
in the volume of interest earning assets and interest bearing liabilities have
upon the net interest income of Orange.
<TABLE>
<CAPTION>
1993 Compared to 1992 1992 Compared to 1991
Increase (Decrease) Increase (Decrease)
Variance Variance
due to (1) due to (1)
Total Total
(In thousands) Change Rate Volume Change Rate Volume
<S> <C> <C> <C> <C> <C> <C>
Income from interest earning assets:
Loans $(412) $(799) $387 $(145) $ (756) $611
Investment securities (47) (39) (8) 12 9 3
Federal Home Loan Bank stock (3) (1) (2) (18) (18) -
Certificates of deposit (7) - (7) (20) (8) (12)
Federal funds sold (49) (4) (45) (117) (114) (3)
Total interest income (518) (843) 325 (288) (887) 599
Expense on interest bearing liabilities:
Deposits (634) (762) 128 (406) (1,070) 664
Borrowed funds (111) (55) (56) (522) (35) (487)
Total interest expense (745) (817) (72) (928) (1,105) 177
Net interest income $ 227 $ (26) $253 $ 640 $ 218 $422
<F1> Rate-volume variances have been allocated proportionately to rate and
volume changes, respectively.
</TABLE>
Return on Equity and Assets
The following table shows consolidated operating and capital ratios of
Orange for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Return (loss) on average assets 1.39% (0.59)% (0.35)%
Return (loss) on average common shareholders' equity 15.07 (5.84) (3.21)
Average shareholders' equity to average assets 9.22 10.12 10.78
Dividend payout ratio 12.82 * *
<F1>
* Not meaningful.
</TABLE>
Results Of Operations--Comparison of Years Ended December 31, 1993 And
December 31, 1992
General. Orange's results of operations depend to a large extent on its
net interest and dividend income from earning assets and interest expense on
deposits and borrowings. Interest and dividend income from loans and
investments is primarily a function of the average balance of loans and
investments outstanding during each period and the average rate earned on
those assets. Orange's interest expense is a function of the average balances
of outstanding deposits and borrowings during the period and the interest
rates paid on such deposits and borrowings. Net income is also affected by the
level of other operating income items such as fees, service charges and
commissions, as well as gains and losses on investment securities and loans,
operating expenses and income taxes.
The results of operations for the year ended December 31, 1993 reflect a
net income of $1,149,000 or $1.55 per share. This compares to a net loss of
$479,000 or $0.65 per share for the year ended December 31, 1992. The results
for the current period reflect higher net interest and dividend income as well
as lower income taxes. The loss in 1992 was primarily related to the write-
down to zero of the limited partnership investments of Orange's subsidiary,
Orange Corporation, which totaled $1.1 million.
Net Interest and Dividend Income. Net interest and dividend income for
1993 increased $227,000 over 1992 and compares to an increase of $640,000 from
1991 to 1992. The increase in net interest and dividend income in both periods
is primarily related to the elimination of borrowings and the reduction in
interest rates paid on deposit accounts.
Interest on average earning assets decreased to $5.9 million in 1993
from $6.4 million in 1992 or $518,000. This represents a decline of 8%. The
decreased interest income is primarily due to lower rates earned on all types
of interest earning assets during the year, particularly loans as they
repriced throughout the year. The yield on average earning assets decreased in
1993 to 7.46% from 8.43% in 1992 or 0.97%.
Interest expense also decreased in 1993 by $745,000 to $2.7 million from
$3.4 million in 1992. The decrease in interest expense is the result of lower
interest rates being paid on all types of deposit accounts during 1993. In
addition, there were no borrowings outstanding during 1993, which reduced
interest expenses by $111,000.
As a result of these interest rate reductions and the elimination of
borrowed funds, the cost of interest bearing liabilities decreased to 3.71% in
1993 from 4.86% in 1992.
Provision for Possible Loan Losses. The allowance for loan losses is
established through a provision for loan losses charged to operations.
Assessing the adequacy of the allowance for loan losses involves substantial
uncertainties and is based upon management's evaluation of the amounts
required to meet estimated losses inherent in the loan portfolio after
weighing various factors. Among the factors management may consider are,
generally, the level of non-accruing loans, current economic conditions,
trends in delinquencies and charge-offs and collateral values of the
underlying security. Ultimate losses may vary significantly from current
estimates.
The provisions charged against operations in 1993 and 1992 were $90,000
and $242,000, respectively. Charge-offs were $18,000 and $129,000 in 1993 and
1992, respectively. Included in the charge-offs in 1992 was $87,000 of
specific reserves set aside for loans reclassified as insubstance foreclosure.
During 1993, Orange realized recoveries of previously charged-off amounts
totaling $40,000. For additional information regarding the provision for loan
losses and non-accrual loans see Note 4 of Orange's Notes to Consolidated
Financial Statements.
Non-interest Income and Non-interest Expense. Orange's non-interest
income is comprised of service charges on deposit accounts, service fees and
gains and losses on the sale or disposition of investments and loans. Non-
interest income increased by $1.1 million in 1993 when compared to 1992
results. The primary factor in this increase was the absence, in 1993, of
losses on limited partnership investments. These losses were the primary
reason for the negative non-interest income in 1992.
In 1993, Orange experienced a net loss on the sale or writedown of
investments totaling $21,000 which is primarily related to the writedown of an
equity security whose decline in value was determined to be other than
temporary. This compares to a net gain on the sale or writedown of securities
in 1992 of $91,000. In 1993, Orange realized gains of $27,000 on loans sold in
the secondary market as compared to a gain of $2,000 in 1992. These gains in
1993 are reflective of the increased volume of loans sold. Commissions, fees
and other income increased by $21,000 in 1993 to $270,000 from $249,000 in
1992. The largest part of this increase was from service charges on NOW and
demand deposit accounts.
Non-interest expense for the year 1993 was $2.2 million, an increase of
$129,000 over 1992. Employee salaries and benefits were $943,000 in 1993, an
increase of $82,000 from $861,000 in 1992. This increase is composed of higher
salaries totaling $51,000 and payroll taxes of $30,000. The salary increase
includes the cost of additional personnel as well as regular increases to
other employees. The increase in payroll taxes is due in part to the
additional staff as well as the absence of a refund due to overpayment of
taxes that was received in 1992. Building and equipment expenses increased to
$250,000 from $219,000 in 1992, primarily due to higher costs for maintenance
contracts and depreciation. EDP processing fees and legal fees increased by
$23,000 and $18,000, respectively, and consisted of normal costs associated
with doing business. Other expenses for 1993 were $661,000, a decrease of
$25,000 from 1992. Contributing to this decrease were lower Federal Reserve
charges and miscellaneous expenses.
Income Taxes. Income tax expense decreased by $374,000 in 1993 to
$91,000. The effective tax rate for 1993 was only 7.0%. The principal reason
for this low effective rate is a reduction in the valuation allowance on gross
deferred tax assets. This reduction is appropriate based in the significant
improvement in pre-tax earnings in 1993 as compared to the pre-tax loss in
1992.
Impact of Inflation. The financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services, since such prices are directly affected by inflation. In today's
interest rate environment adequate liquidity and the mix and maturity
structure of Orange's assets and liabilities are important to the maintenance
of acceptable performance levels.
Results Of Operations--Comparison Of Years Ended December 31, 1992 And
December 31, 1991
General. The results of operations for the year ended December 31, 1992
reflect a net loss of $479,000 or $0.65 per share. This compares to a net loss
of $255,000 or $0.35 per share for the same period in 1991. The losses in both
1992 and 1991 were primarily related to the write-down of investments in
limited partnerships by Orange's subsidiary, Orange Corporation.
Net Interest and Dividend Income. Net interest and dividend income for
1992 increased by $640,000 over 1991. The increase in net interest income is
directly related to the elimination of borrowings and the reduction of rates
paid on deposit accounts.
Interest income decreased in 1992 by $288,000 to $6.4 million from $6.7
million in 1991 or 4.31%. The decrease is primarily related to the lower
interest rates being earned on all types of interest earning assets as they
have repriced. The lower interest rates were partially offset by an increased
volume of loans outstanding during the period. The net yield on average
earning assets decreased to 8.43% in 1992 from 9.16% in 1992 or 0.73%.
Interest expense for 1992 also decreased to $3.4 million from $4.3
million in 1991 a total of $928,000. This decrease is the result of lower
interest rates being paid on all types of deposit accounts and lower
outstanding balances of borrowed funds.
As a result of these interest rate reductions the cost of average
interest bearing liabilities decreased to 4.86% from 6.76%, a change of 1.90%.
Provision for Possible Loan Losses. The provisions charged against
operations in 1992 and 1991 were $242,000 and $135,000, respectively. Charge-
offs were $129,000 and $16,000, respectively, in 1992 and 1991. The total
charge-offs in 1992 included $87,000 of specific reserves set aside for loans
reclassified as insubstance foreclosures.
Non-Interest Income and Expense. Orange's non-interest income is
composed of service charges on deposit accounts, service fees and gains or
losses on the sale or other disposition of investments and loans.
Non-interest income decreased in 1992 by $409,000 when compared to 1991. The
primary factor in this decline was the charge-off of $1.1 million on the
remaining investments in limited partnerships by Orange's subsidiary, Orange
Corporation. Included in this charge-off was a contingent liability for
amounts that may become due in the future totaling $332,000. These
charge-offs were in addition to the $404,000 charged-off in 1991 and bring
the book value of these investments to zero.
Non-interest expenses increased by $331,000 in 1992 to $2.0 million from
$1.7 million in 1991. Many of the increases in 1992 are directly related to
the first full year of operation of Orange's branch office in Athol, as
compared to four months of operations in 1991. Increases in non-interest
expense included salaries and benefits of $204,000 ($118,000 directly related
to the branch operation), building and equipment of $57,000, EDP processing
fees of $43,000 and other expenses of $47,000. Legal fees decreased in 1992 by
$20,000.
Income Taxes. Effective January 1, 1992, Orange adopted FASB Statement
No. 109 "Accounting for Income Taxes". This changed Orange's method of
accounting for income taxes from the deferred method to the asset liability
method. The cumulative effect of this change in accounting principle was
$50,000 or $0.07 per share.
Income tax expense for the year 1992 was $465,000, an increase of
$67,000 from $398,000 in 1991. The increase in income tax expense is generally
related to Orange's higher net interest income during the year. The losses on
the limited partnership investments had little effect on Orange's tax
liability in 1992 as the tax benefits had been largely realized in previous
periods. In contrast, in 1991, the limited partnership loss resulted in the
recapture of tax credits previously taken.
DESCRIPTION OF CFX CAPITAL STOCK
The following summary does not purport to be complete and is subject in
all respects to the applicable provisions of the New Hampshire Business
Corporation Act ("New Hampshire law") and the CFX Articles of Incorporation
(the "CFX Articles") and CFX's by-laws (the "CFX By-laws").
General
The CFX Articles currently authorize the issuance of 3,000,000 shares of
Preferred Stock, $1.00 par value ("Preferred Stock"), issuable in one or more
series from time to time by action of the Board of Directors, and 15,000,000
shares of CFX Common Stock.
At January 6, 1995, 4,471,068 shares of CFX Common Stock were issued, of
which 3,893,803 shares were outstanding and 577,265 shares were held in CFX's
treasury; and one series of Preferred Stock was established by the CFX Board
of Directors, of which 192,769 shares of Series A Preferred Stock (the
"Series A Preferred Stock") were issued and outstanding. The authorized but
unissued and unreserved shares and treasury-held shares of CFX Common Stock
are available for general corporate purposes including but not limited to,
possible issuance as stock dividends or stock splits, in future mergers or
acquisitions, under a cash dividend reinvestment and stock purchase plan, in a
future underwritten or other public offering, or under employee stock purchase
plans and stock option plans. The authorized but unissued shares of Preferred
Stock would similarly be available for issuance in future mergers or
acquisitions, in a future public offering or private placement or for other
general corporate purposes. Except as described above or as otherwise required
to approve the transaction in which the additional authorized shares of CFX
Common Stock or authorized shares of Preferred Stock would be issued, no
stockholder approval would be required for the issuance of these shares.
Accordingly, the Board of Directors of CFX, without stockholder approval, may
issue Preferred Stock with voting and conversion rights which would adversely
affect the voting power of the holders of CFX Common Stock.
CFX Common Stock
General. Holders of the CFX Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of any funds
legally available, and are entitled upon liquidation, after claims of
creditors and preferences of the Series A Preferred Stock, and any other
series of Preferred Stock at the time outstanding, to receive pro rata the net
assets of CFX. Dividends are paid on the CFX Common Stock only if all
dividends on the outstanding classes or series of Series A Preferred Stock for
the then-current period and all prior periods have been paid or provided for.
The Series A Preferred Stock has preference over the CFX Common Stock
with respect to the payment of dividends and the distribution of assets in
the event of liquidation or dissolution of CFX.
The holders of the CFX Common Stock are entitled to one vote for each
share held and are vested with all of the voting power except as the Board of
Directors has provided with respect to the Series A Preferred Stock or may
provide, in the future, with respect to any other series of Preferred Stock
which it may hereafter authorize. See "Preferred Stock" below. Shares of CFX
Common Stock are not redeemable and have no subscription, conversion or
preemptive rights.
The CFX Common Stock is listed on the American Stock Exchange. The
outstanding shares of CFX Common Stock are, and the shares to be issued to
Orange stockholders upon consummation of the Merger will be, validly issued,
fully paid and non-assessable and the holders thereof are not, and will not
be, subject to any liability as stockholders.
Restrictions on Ownership. The BHCA requires any "bank holding company",
as such term is defined therein, to obtain the approval of the Federal Reserve
Board prior to the acquisition of 5% or more of a class of voting stock of
CFX. Any person other than a bank holding company is required to obtain prior
approval of the Federal Reserve Board to acquire 10% or more of the CFX voting
stock under the Change in Bank Control Act (the "CBCA"). Any holder of 25% or
more of the CFX voting stock (or a holder of 5% or more if such holder
otherwise exercises a "controlling influence" over CFX) is subject to
regulation as a bank holding company under the BHCA.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
CFX Common Stock is Mellon Securities Transfer Services, Inc., New York.
Preferred Stock
The Board of Directors is authorized to issue Preferred Stock and to fix
and state voting powers, designation(s), preferences or other special rights
of such shares and the qualifications, limitations and restrictions thereof.
The Preferred Stock may rank prior to the CFX Common Stock as to dividend
rights, liquidation preferences, or both, and may have full or limited voting
rights. The Board of Directors, without stockholder approval, can issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the holders of the CFX Common Stock, and which could
result in or impede a change in control.
As of the date of this Proxy Statement-Prospectus, CFX has one series of
Preferred Stock outstanding, the Series A Preferred Stock, which was
designated in connection with the acquisition of The Valley Bank (now part of
CFX Bank) by CFX in 1989.
CFX Series A Preferred Stock. The Series A Preferred Stock will
automatically convert into CFX Common Stock on April 30, 1995 and, prior
thereto, is convertible into shares of CFX Common Stock by the holders of the
Series A Preferred Stock at the option of the holders at the conversion rate
described below. The holders of the Series A Preferred Stock are entitled to
receive cumulative cash dividends, when, as and if declared by the Board of
Directors of CFX out of the assets of CFX which are by law legally available
for the payment of dividends, from the date of issuance of the Series A
Preferred Stock, and in each case quarterly on the first day of January,
April, July and October of each year, unless such day is a non-business day,
in which event, on the next business day, at the fixed annual rate of $1.3875
per share. In addition, in the event of any voluntary or involuntary
dissolution, liquidation or winding up of the affairs of CFX, after payment or
provision for payment of any debts and other liabilities of CFX and of the
liquidation preference of any other shares of capital stock of CFX other than
CFX Common Stock or other shares of capital stock specifically identified as
not having preference over the Series A Preferred Stock, the holders of the
Series A Preferred Stock shall be entitled to a liquidation preference per
share in the amount of $18.50 out of the net assets of CFX and before any
distribution shall be made to holders of CFX Common Stock.
The holders of the Series A Preferred Stock have the right, voting as a
single class with the holders of the CFX Common Stock, to vote on all matters
presented for a shareholder vote.
Shares of Series A Preferred Stock were initially convertible into
shares of CFX Common Stock on a one-for-one basis. As a result of the 5%
common stock dividends declared on December 12, 1994 and December 13, 1993,
this conversion ratio has been adjusted in accordance with the adjustment
procedure described below to 1.1025 shares of CFX Common Stock for each share
of Series A Preferred Stock. Cash is paid in lieu of fractional shares at the
average trading price of shares of CFX Common Stock on the day of the
conversion.
The conversion ratio referred to above shall be adjusted from time to
time as follows:
(a) In the event that CFX:
(i) pays a stock dividend in shares of CFX Common Stock;
(ii) subdivides the outstanding shares of CFX Common Stock;
(iii) combines the outstanding shares of CFX Common Stock into a
smaller number of shares; or
(iv) issues by reclassification of shares of CFX Common Stock,
any shares of its capital stock;
the conversion privilege and conversion ratio in effect
immediately prior thereto shall be adjusted so that the holder of
each share of Series A Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
CFX Common Stock or other property which he would have owned or
have been entitled to receive after the happening of any of the
events described above, had such share been converted immediately
prior to the record date for such dividend or the effective date
of such other event, as the case may be.
(b) In the event that CFX:
(i) consolidates with one or more other corporations;
(ii) merges into another corporation;
(iii) sells, conveys, leases, exchanges or transfers all or
substantially all of the property or assets of CFX to
another corporation; or
(iv) reclassifies or changes the outstanding shares of Common
Stock;
the holder of each share of the Series A Preferred Stock then
outstanding shall have the right to convert such share into the
kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock into which such share might
have been converted immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance.
Dividend Reinvestment and Stock Purchase Plan
CFX has a Dividend Reinvestment and Stock Purchase Plan under which
holders of shares of CFX Common Stock may automatically reinvest their
dividends. Stockholders who elect to make dividend reinvestments under the
plan may make additional investments by making optional payments in any amount
up to an aggregate of $5,000, but not less than $25, per dividend cycle.
Participation in this plan is offered only by means of a separate prospectus
available upon request from CFX.
COMPARISON OF RIGHTS OF CFX AND ORANGE STOCKHOLDERS
General
CFX and Orange are incorporated under the laws of the State of New
Hampshire and the Commonwealth of Massachusetts, respectively. Stockholders of
Orange, whose rights as stockholders are currently governed by the
Massachusetts banking law ("Massachusetts law"), Orange's Amended and Restated
Charter, (the "Orange Charter"), and Orange's by-laws (the "Orange By-laws")
will, upon consummation of the Merger, automatically become stockholders of
CFX, and their rights will be governed by New Hampshire law, the CFX Articles
and CFX By-laws. Although it is impractical to note all of the differences,
the following is a summary of certain significant differences between the
rights of holders of CFX Common Stock and those of Orange Common Stock. The
following does not purport to be a complete description of the differences
between the rights of CFX and Orange stockholders. Such differences may be
determined in full by reference to New Hampshire law, Massachusetts law, the
CFX Articles and the CFX By-laws, and the Orange Charter and the Orange By-
laws.
Approval of Merger or Consolidation; Anti-Takeover Provisions
New Hampshire law 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.
Pursuant to New Hampshire law, unless the corporate charter provides
otherwise, no vote of the stockholders of a surviving corporation is required
to approve a merger if: (a) the agreement of merger does not amend, in any
respect, the corporation's charter; (b) each share of the corporation's stock
outstanding immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving corporation after the
effective date of the merger; and (c) either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible
into such stock are issued in the merger or the number of authorized, but
unissued shares or treasury stock of the surviving corporation's common stock
to be issued in the merger plus the number of shares of common stock into
which any other securities to be issued in the merger are initially
convertible does not exceed 20% of the surviving corporation's common stock
outstanding immediately prior to the effective date of the merger.
Massachusetts law requires that an agreement of merger or consolidation
be approved by the vote of two-thirds of the outstanding shares entitled to
vote of each class of stock of each constituent corporation (except as set
forth in the following paragraph), unless the corporation's articles of
organization provide for a lesser vote, but not less than a majority of the
shares outstanding and entitled to vote.
Pursuant to Massachusetts law, unless required by a corporation's
articles of organization, an agreement of merger need not be submitted to the
stockholders of a corporation surviving the merger, but may be approved by
vote of its directors if: (a) the agreement of merger does not change the
name, the amount of shares authorized of any class of stock or other
provisions of the articles of organization of such corporation; (b) the
authorized unissued shares or shares held in the treasury of such corporation
of any class of stock of such corporation to be issued or delivered pursuant
to the agreement of merger do not exceed 15% of the shares of such corporation
of the same class outstanding immediately prior to the effective date of the
merger; and (c) the issue by vote of the directors of any unissued stock to be
issued pursuant to the agreement of merger has been authorized in accordance
with applicable law.
The following discussion is a general summary of certain provisions of
the CFX Articles and CFX By-laws which may be deemed to have "anti-takeover"
effects, together with a description of comparable provisions of the Orange
Charter and Orange By-laws. These and other provisions affect stockholders'
rights and should be given careful attention. The following description of
certain of these provisions is necessarily general and reference should be
made in each case to the CFX Articles and CFX By-laws and the Orange Charter
and Orange By-laws, respectively. For information on how to obtain a copy of
these documents, see "AVAILABLE INFORMATION."
Business Combinations Involving CFX. The CFX Articles require the
approval by holders of at least 80% of the outstanding shares of CFX's voting
stock for any merger, consolidation, sale of substantially all the assets or
similar business combination, unless the consideration to be received by the
stockholders of CFX is of the same value and form as the highest consideration
paid by the acquiring entity in acquiring stock already owned by it (except to
the extent a stockholder elects a different form of consideration in exchange
for all or part of the shares which he or she owns).
Assuming the foregoing fair price provisions are complied with, approval
by holders of at least 75% of the outstanding shares of CFX's voting stock is
required to approve a business combination unless the transaction is approved
by at least two-thirds of the directors not affiliated with the acquiring
entity. In the event such director approval is obtained, the business
combination would require only the vote, if any, as required by New Hampshire
law. New Hampshire law generally requires the favorable vote of a majority of
the outstanding shares of stock to authorize a merger or sale of all or
substantially all of the assets not in the regular course of business, unless
the particular corporation's articles of incorporation provide for a greater
vote.
The CFX Articles allow the Board of Directors, in evaluating a business
combination or a tender or exchange offer, to consider, in addition to the
adequacy of the amount to be paid in connection with any such transaction,
certain specified factors and any other factors the Board deems relevant.
Among the factors the Board may consider are: the social and economic effects
of the transaction on CFX, its employees, depositors, loan and other
customers, creditors and other elements of the communities in which CFX
operates or is located; the business and financial condition and earnings
prospects of the acquiring party or parties; and the competence, experience,
and integrity of the acquiring party or parties and its or their management.
These provisions were included in the CFX Articles in an effort to
maintain the financial and business integrity of CFX. Banks and bank holding
companies occupy positions of special trust in the communities they serve.
They also provide opportunities for abuse by those who are not of sufficient
experience or competence or financial means to act professionally and
responsibly with respect to management of a financial institution. It is
intended that CFX be managed in the interest of the communities that it serves
and that it and its subsidiaries maintain their integrity as institutions.
CFX's Board of Directors believes that these increased vote and fair
price provisions with respect to business combinations will help increase the
likelihood that any such proposed transaction will be on terms fair to all of
the stockholders of CFX, particularly if the transaction is proposed by a
dominant stockholder who might be able to obtain approval by a simple majority
primarily on the basis of its own holdings, even if the transaction were not
in the best interests of or were opposed by a majority of the remaining
stockholders. On the other hand, the increased vote requirement may in effect
grant a minority of the stockholders a veto over a transaction favored by a
majority of the stockholders, even if it were also favored by all or a
majority of the Board of Directors of CFX.
Additional CFX Anti-Takeover Provisions. It should be noted that the
foregoing provisions are not the only provisions having an anti-takeover
effect. For example, the CFX Articles also provide that Preferred Stock may be
issued by the Board of Directors upon terms, including terms relating to
voting rights, determined by the Board. In the event that a hostile
acquisition of CFX were threatened, the Board of Directors could determine to
issue voting Preferred Stock in an effort to thwart a takeover attempt. If
voting Preferred Stock were issued for such a purpose, it could result in or
impede a change in control of CFX, especially if the shares were issued in a
private placement to a party or parties sympathetic to management and opposed
to any attempt to gain control of CFX. The issuance of Preferred Stock with
preferential voting rights could adversely affect the voting rights of the
holders of CFX Common Stock.
The CFX Articles provide that the number of directors of CFX shall not
be less than nine nor more than 21. The power to determine the number of
directors within these numerical limitations is vested in CFX's Board of
Directors. Vacancies on CFX's Board of Directors resulting from any cause,
including removal from office, but excluding vacancies resulting from an
increase in the number of directors, are filled by a majority vote of the
directors in office though less than a quorum, and directors so chosen serve
for the remainder of the full term of the class in which the vacancy occurred
rather than until the next annual meeting of the stockholders. Newly created
directorships resulting from any increase in the authorized number of
directors are to be filled by the Board of Directors for a term of office
continuing only until the next election of directors by stockholders. The
overall effect of such provisions may be to prevent a person or entity from
immediately acquiring control of CFX through an increase in the number of
CFX's directors and election of his or its nominees to fill the newly created
vacancies.
The CFX Articles also provide that any stockholder desiring to make a
nomination for the election of directors at a meeting of stockholders must
submit written notice to CFX no less than 30 nor more than 60 days in advance
of the meeting. Management believes that it is in the best interest of CFX and
its stockholders to provide sufficient time to enable management to disclose
information about a dissident slate of nominees for directors. This advance
notice requirement may also give management time to solicit its own proxies in
an attempt to defeat any dissident slate of nominees should management
determine that doing so is in the best interest of stockholders generally.
Generally, the vote of the holders of two-thirds of the outstanding
shares of CFX's stock entitled to vote is required to amend the CFX Articles
or CFX By-laws, provided the notice of such a meeting sets forth the text of
any proposed amendments. In addition, the vote of 80% of all voting shares is
required to amend the provisions in the CFX Articles dealing with business
combinations.
The cumulative effect of the provisions in the CFX Articles and the CFX
By-laws described above could discourage an acquisition of CFX, or stock
purchases looking toward an acquisition, and would, accordingly, under certain
circumstances, discourage transactions which might otherwise have a favorable
effect on the price of CFX Common Stock. In addition, these provisions might
also make it possible for incumbent officers and directors to retain their
position (at least until their terms expire) even though a majority of
stockholders desires a change.
Acquisitions of shares of CFX by a person or entity intending to acquire
control may be subject to the Change in Bank Control Act or the Bank Holding
Company Act, including the prior notice and approval requirements of those
Acts.
Business Combinations Involving Orange. The Orange Charter contains a
so-called "fair price" provision pursuant to which a business combination (as
defined therein) involving Orange and an Interested Shareholder (as defined
below), or which would increase the proportionate share of the outstanding
shares of any class or series of stock owned by any Interested Shareholder or
Affiliate (as defined therein) thereof, would require the affirmative vote of
the holders of at least two-thirds of the shares entitled to vote thereon. The
fair price provision of Orange's Charter provides that only a majority vote is
required if the business combination is approved by a majority of the
Disinterested Directors (as defined below), or if certain conditions relating
to minimum price and consideration for stock have been met. In the case of
common stock, a two-thirds stockholder vote is not required if the
consideration for the stock is at least equal to the higher of two items, one
of which is the "fair market value" per share of common stock. In the case of
stock other than common stock, a two-thirds stockholder vote is not required
if the consideration for the stock is at least equal to the highest of three
items, one of which is the fair market value per share of such class or
services of stock. "Fair market value" is defined as the higher of the fair
market value on the announcement date of the business combination or the fair
market value on the date on which the Interested Shareholder became an
Interested Shareholder. An "Interested Shareholder" is generally defined in
Orange's Charter as the beneficial owner of more than 10% of the combined
voting power of the then outstanding shares of voting stock. A "Disinterested
Director" is generally defined as any member of the Board who is unaffiliated
with and not a nominee of an Interested Shareholder and who was a member of
the Board prior to the time that the Interested Shareholder became an
Interested Shareholder. The Orange Charter does not specify the stockholder
vote required to approve a merger or similar transaction with a party other
than an Interested Shareholder, such as the acquisition of Orange by CFX.
Therefore, the two-thirds vote specified by Massachusetts law applies to this
transaction.
The Orange Charter permits its Board of Directors to consider a variety
of factors in evaluating a tender offer, merger or acquisition, including,
without limitation, the social and economic effects of a transaction on
depositors, borrowers and employees of Orange, and on the communities in which
Orange operates or serves. Massachusetts law permits the Board of Directors to
consider these factors, at least to the extent that there are rationally
related benefits accruing to stockholders.
Charter and By-law Amendments
To authorize an amendment to the CFX Articles, New Hampshire law
generally requires the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon. New Hampshire law also provides
for any class of stock to vote as a class on the proposed amendment if the
amendment would change the number or par value of the aggregate authorized
shares of a class, or alter or modify the powers, preferences or special
rights of the shares of such class or affect such class adversely.
New Hampshire law generally provides that the by-laws of a corporation
may be amended by the vote of a majority of the board of directors. The board
of directors' authority to adopt, amend or repeal the by-laws of a corporation
does not divest or limit the power of stockholders to adopt, amend or repeal
by-laws. Any amendment by the board of directors to the by-laws may be
subsequently changed by the affirmative vote of holders of a majority of the
shares entitled to vote thereon.
New Hampshire law authorizes corporations to provide for increased vote
requirements for charter and by-law amendments, and the CFX Articles provide
that the vote of the holders of two-thirds of the outstanding shares of CFX's
stock entitled to vote is required to amend the CFX Articles; the notice of a
meeting to amend the CFX Articles must set forth the text of the proposed
amendments. The CFX Articles further provide that any amendment, alteration,
change or repeal of provisions in the CFX Articles relating to business
combinations requires the affirmative vote of 80% or more of the outstanding
shares of capital stock entitled to vote generally in the election of
directors.
The CFX By-laws may be amended by the affirmative vote of a majority of
the entire CFX Board of Directors, subject to repeal, change or adoption of
any contravening or inconsistent provision by vote of the holders of at least
two-thirds of the shares entitled to vote on the merits at a meeting expressly
called for that purpose.
The Orange Charter provides that any amendment, addition, alteration,
change or repeal of the Orange Charter must be proposed by Orange's Board and
approved by the affirmative vote of a majority of the votes eligible to be
cast at a legal meeting of the stockholders. Any amendment to the provisions
in the Orange Charter relating to business combinations may be amended only by
the vote of the holders of two-thirds of the shares entitled to vote thereon,
unless the amendment is approved by a majority of the Disinterested Directors,
in which case the provision may be amended by the holders of a majority of the
shares entitled to vote thereon.
The Orange Charter provides that the Orange By-laws may be adopted,
amended, altered or repealed by the affirmative vote of at least two-thirds of
(a) Orange's directors at a duly constituted meeting of the Board of Directors
called expressly for such purpose; or (b) the total votes eligible to be cast
by stockholders at a duly constituted meeting of stockholders called expressly
for such purpose.
Special Meetings; Corporate Action Without a Meeting
Special Meetings. New Hampshire law and the CFX Articles permit a
special meeting of stockholders to be called by the president, board of
directors or by the holders of 10% or more of the shares entitled to vote at
such meeting, or such other officers or persons specified in the charter or
by-laws. For a further discussion of provisions relating to voting by
stockholders in the CFX Articles, see "--Approval of Merger or Consolidation;
Anti-takeover Provisions."
The Orange By-laws provide that special meetings of the stockholders for
any purpose or purposes may be called at any time only by the Chairman of the
Board, the President or a majority of the Directors then in office (provided
that if there is an Interested Shareholder, any such call by the Board of
Directors also requires the affirmative vote of a majority of the
Disinterested Directors then in office). The Orange Charter further provides
that special meetings of stockholders relating to changes in control of Orange
or amendments to the Orange Charter may be called only upon direction of a
majority of the Board of Directors.
Corporate Action Without a Meeting. New Hampshire law permits corporate
action to be taken without a shareholder meeting if the articles of
incorporation authorize such action and the shareholders consenting to such
action would be entitled to cast, at a meeting at which all stockholders
entitled to vote thereon were present, at least the minimum number of votes
which would be required to take such action. Prompt notice of the taking of
action without a meeting by less than unanimous written consent must be given
to all stockholders who have not consented in writing.
The Orange By-laws permit corporate action without a meeting of
stockholders only if the written consent of the holders of all of the shares
entitled to vote thereon is obtained.
Dividends
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."
CFX is a legal entity separate and distinct from its subsidiaries. The
only funds available to CFX for the payment of dividends are cash and cash
equivalents held at the holding company level, dividends paid by CFX Bank and
CFX's other subsidiaries, and borrowings. The ability of holders of debt and
equity securities of CFX, including Orange stockholders who will become
holders of CFX 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 CFX as a creditor may be recognized.
Under Massachusetts law, Massachusetts stock savings banks such as
Orange generally may pay dividends only out of net profits without impairing
their capital stock and statutory surplus accounts, and such dividend payments
are subject to a number of additional statutory limitations. The Board of
Directors of Orange may from time to time declare, and Orange may pay,
dividends on outstanding shares of its capital stock.
Preferred Stock
The CFX Articles provide that the holders of the Series A Preferred
Stock are entitled to vote together with the CFX Common Stock as one class on
all matters submitted to a vote of CFX stockholders. For a description of the
CFX Preferred Stock, See "DESCRIPTION OF CFX CAPITAL STOCK--Preferred Stock."
The Orange Charter authorizes the Board of Directors to issue
preferred stock in series and to fix the powers, designations, preferences and
other rights of the shares of each such series and the qualifications,
limitations, and restrictions of such shares. The issuance of such preferred
stock would be subject to approval by the Massachusetts Commissioner of Banks.
Liquidation
Pursuant to both New Hampshire and Massachusetts law, upon the winding
up, dissolution or liquidation of a corporation, the stockholders of such
corporation are entitled to share in any of the assets distributable to the
holders of the respective corporation's stock upon such liquidation,
dissolution or winding up in accordance with their respective rights and
interests.
The CFX Articles provide that the holders of the Series A Preferred
Stock are entitled to a preference, prior to any payment to the holders of CFX
Common Stock upon the liquidation, dissolution or winding up of the
corporation. See "DESCRIPTION OF CFX CAPITAL STOCK--Preferred Stock."
Appraisal Rights
Under New Hampshire law, appraisal rights are available only in
connection with (a) a statutory merger or consolidation (unless the
corporation is to be the surviving corporation and no vote of its stockholders
is required to approve the merger); (b) acquisitions which require shareholder
approval; and (c) sales or exchanges of all or substantially all of the
property and assets of a corporation in a transaction requiring stockholder
approval. In connection with the Merger, no stockholder vote by CFX
stockholders is required, and CFX stockholders will not be entitled to
appraisal rights.
Under Massachusetts law, stockholder appraisal rights are available with
respect to a corporation (i) which has voted to sell, lease or exchange all or
substantially all of its property and assets, or (ii) which has adopted any
amendment of its articles of organization which adversely affects the rights
of such stockholder, or (iii) which has voted to consolidate or merge with
another corporation. See "THE MERGER--Appraisal Rights of Dissenting
Stockholders."
Provisions Relating to Directors and Officers
Number of Directors. Under New Hampshire law a corporation must have a
board of directors consisting of at least one director. The CFX Articles
provide that the Board of Directors shall consist of between 9 and 21 members,
as determined from time to time by a vote of the Board of Directors. Pursuant
to such an adopted resolution, the number of directors that may serve is
currently fixed at 11.
Massachusetts law and the Orange Charter and the Orange By-laws require
a Board of Directors consisting of between seven and 25 persons, as may be
fixed from time to time by the Board of Directors. The Board of Directors of
Orange currently consists of 10 persons. Three-fourths of the directors of
Orange must be citizens of the Commonwealth of Massachusetts and reside
therein.
Classification. New Hampshire law permits classification of the board of
directors if the corporate charter so provides. The CFX Articles and the CFX
By-laws provide for classification of the board into three classes as nearly
equal in number as possible, with one class being elected annually. The
directors in each class will serve for terms of three years. Each director
serves until his or her successor is elected and qualified. The Orange By-laws
contain similar board classification provisions.
A classified Board of Directors could make it more difficult for
stockholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the Board of
Directors, even when the reason for a proposed removal is poor performance.
Since the terms of only one-third of the incumbent directors expire each year,
it requires at least two annual elections for the stockholders to change a
majority, whereas a majority of a non-classified board may be changed in one
year. In the absence of the provisions of the Articles of Incorporation
classifying the Board, all of the directors would be elected each year.
Staggered terms guarantee that in the ordinary course approximately two-
thirds of the directors, or more, at any one time have had at least one year's
experience as directors of CFX, and moderate the pace of changes in the Board
of Directors by extending the minimum time required to elect a majority of
directors from one to two years.
Cumulative Voting. New Hampshire law permits cumulative voting for the
election of directors, if the corporate charter provides for cumulative
voting. The CFX Articles do not permit cumulative voting in the election of
directors. Accordingly, the holders of a majority of the outstanding shares
entitled to vote for the election of directors can elect all of the directors
then being elected at any annual meeting of CFX's stockholders. The Orange
Charter also does not provide for cumulative voting.
Class Voting. Under New Hampshire law, a corporation's charter may
confer upon holders of any class or series of stock the right to elect one or
more directors to serve for such term and to have such voting powers as may be
specified therein. The terms of office and voting powers of directors elected
in the manner so provided in the charter may be either greater or less than
those of any other director or class of directors. Neither the CFX Articles
nor the Orange Charter contains such provisions.
Stockholder Nominations and Proposals. The holders of CFX Common Stock
may nominate individuals for election to the Board of Directors of CFX. The
procedure pursuant to which such nomination must occur is set forth in the CFX
By-laws. See "--Approval of Merger or Consolidation; Anti-takeover
Provisions."
The Orange By-laws set forth certain advance notice and information
requirements and time limitations on any director nomination by stockholders
or any new business which a stockholder wishes to propose for consideration at
an annual meeting of stockholders. Any such new business or nomination must be
stated in writing and filed with the Clerk of Orange, together with additional
information with respect to the supporters of the new business or the Director
nominee, as the case may be, at least 60 (but not more than 150) days before
the date of the meeting. The Board of Directors of Orange may reject any such
nomination or new business proposal not timely made or supported by
insufficient information, except that if at the time there is an Interested
Shareholder, any determination by the Board of Directors shall also require
the concurrence of a majority of the Disinterested Directors then in office.
Removal. Under New Hampshire Law, any director or the entire Board of
Directors of a corporation may be removed with or without cause, by the
holders of a majority of the shares then entitled to elect directors, unless a
greater vote is required by the articles of incorporation. For a discussion of
provisions regarding the removal of directors in the CFX Articles, see "--
Approval of Merger or Consolidation; Anti-Takeover Provisions."
Directors may be removed without cause only by a vote of 75% of the
outstanding shares of CFX's voting stock or for cause by the affirmative vote
of the holders of a majority of the outstanding shares entitled to vote.
"Cause" is defined to mean an adjudication by a court of competent
jurisdiction that the director to be removed (i) is liable for negligence or
misconduct in the performance of his duty, (ii) is guilty of a felony or (iii)
has acted in a manner which is in derogation of the director's duties. This
provision may, under certain circumstances, impede the removal of a director
of CFX.
The Orange By-laws provide that any Director may be removed from office,
with or without cause, by an affirmative vote of not less than two-thirds of
the total votes eligible to be cast by stockholders at a duly constituted
meeting of stockholders called expressly for such purpose. Written notice must
be sent to the Director whose removal will be considered at the meeting at
least 30 days prior to such meeting of stockholders.
Vacancies. For a discussion of provisions in the CFX Articles regarding
vacancies of directors, see ("-- Approval of Merger or Consolidation;
Anti-Takeover Provisions").
The Orange By-laws provide that any vacancy occurring on the Board of
Directors (including a vacancy created by enlargement of the Board) may be
filled by the affirmative vote of a majority of the Directors then in office
unless at the time there is an Interested Shareholder, in which case a
majority vote of the Disinterested Directors then in office is instead
required. The person so appointed would serve only until the next election of
Directors by the stockholders.
Derivative Suits
Under New Hampshire law, stockholders may bring suits on behalf of the
corporation to enforce the rights of a corporation, only if such person was a
stockholder 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 stockholder 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.
Liability of Officers and Directors
As permitted by New Hampshire law, the CFX Articles contain provisions
for limiting the liability of officers and directors. These provisions provide
that no person who serves the corporation as a director, an officer or both,
shall have any personal liability to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as such director, officer, or
both, except with respect to: (i) breaches of the duty or loyalty to the
corporation; (ii) acts or omissions which are not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) unlawful
distributions to shareholders; or (iv) transactions from which the involved
directors or officers derive an improper personal benefit.
Conflict of Interest Transactions
New Hampshire law provides that contracts or other transactions between
a corporation and one or more of its directors or officers or between a
corporation and any other corporation or other entity with respect to which
any of the corporation's directors or officers are directors, officers or
financially interested persons, are permitted if: (a) the material facts as
to the contract or transaction and the director's relationship or interest are
disclosed to the board of directors or committee and the board of directors or
committee authorizes the contract in good faith by the affirmative vote of a
majority of disinterested directors (even though less than a quorum); (b) the
material facts as to the contract or transaction and the director's
relationship or interest are disclosed to the stockholders entitled to vote
thereon and it is approved in good faith by vote of the stockholders, or (c)
the contract or transaction is fair and reasonable as to the corporation as of
the time it is approved by the board of directors, a committee, or the
stockholders. Neither the CFX Articles nor the CFX By-Laws contain additional
provisions governing transactions involving interested directors.
State Anti-Takeover Statutes
New Hampshire law does not contain provisions relating to business
combinations with interested stockholders where the acquiring company or the
target is a bank holding company.
The Massachusetts anti-takeover statute would generally prohibit Orange
from engaging in a broad range of transactions (defined as "business
combinations") with a holder of 5% or more of its voting stock (defined as an
"interested stockholder"). The statute provides that Orange may not engage in
those transactions within three years after the date the stockholder became an
"interested stockholder" unless (a) the Board of Directors approved the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder prior to that date, (b) upon consummation
of the transaction, the stockholder owns at least 90% of the voting power of
Orange, excluding shares owned by officers or employee directors and certain
employee stock plans, or (c) on or after the date of the stockholder's
investment, the business combination is approved by the Board of Directors and
at least two-thirds of the stockholders voting at a meeting, excluding shares
owned by the interested stockholder.
COMPARATIVE STOCK PRICES AND DIVIDENDS
The shares of CFX Common Stock are listed and traded on the American
Stock Exchange. The shares of Orange Common Stock are quoted on the Nasdaq
Small-Cap Market. The table below sets forth the high and low sales prices for
CFX Common Stock and the bid and asked prices for Orange Common Stock as
reported on the American Stock Exchange and the Nasdaq Small-Cap Market,
respectively, and the cash dividends declared, for the periods indicated, as
well as certain pro forma data per share of Orange Common Stock, assuming
consummation of the Merger. The high and low sale prices and cash dividends
declared of CFX Common Stock have been restated to give retroactive effect to
the 5% stock dividends declared on December 12, 1994 and December 13, 1993.
<TABLE>
<CAPTION>
Orange
CFX Pro Forma
CFX Orange Pro Forma Equivalent
Quarter Ended High Low Dividends Bid Asked Dividends Dividends(1) Dividends(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992
March 31, 1992 $11-5/8 $ 7-7/8 $.1361 $ 4-1/2 $ 6-1/2 $.04 $.1223 $.1125
June 30, 1992 11-1/4 8-1/8 .1361 4 6 .06 .1257 .1157
September 30, 1992 10-3/4 8-7/8 .1361 4-1/2 5-1/2 .04 .1222 .1125
December 31, 1992 12 8-3/4 .1361 5 6-1/2 .06 .1257 .1157
1993
March 31, 1993 14-1/8 11-3/4 .1361 5-1/2 7-1/2 .04 .1225 .1127
June 30, 1993 14-1/2 12-3/4 .1632 6 8 .04 .1457 .1340
September 30, 1993 16-1/4 14-1/8 .1632 6-3/4 8-1/2 .04 .1457 .1340
December 31, 1993 17-3/4 15-3/8 .1905 7-3/4 9-3/4 .08 .1753 .1613
1994
March 31, 1994 17-3/8 15-3/4 .20 7-1/2 9-1/2 .04 .1769 .1628
June 30, 1994 19-1/8 15-5/8 .20 7-3/4 9-3/4 .04 .1769 .1628
September 30, 1994 18-1/2 16-3/8 .2190 12-1/2 14 .04 .1932 .1778
<F1> CFX's pro forma cash dividends per share are determined by dividing the
aggregate pro forma cash dividends declared by the total pro forma common
shares of the combined entity assuming, for illustration purposes only, that
the Average Closing Price is $16.30, the average closing price of the CFX
Common Stock for the ten business days preceding January 6, 1995, with a
resulting Exchange Ratio of .9202. Orange pro forma equivalent dividends per
share represent CFX's pro forma cash dividends per share multiplied by the
assumed Exchange Ratio of .9202. See "THE MERGER--Exchange Ratio and Other
Matters".
</TABLE>
On July 25, 1994, the business day immediately preceding the public
announcement of the proposed Merger, the high and low sales prices for CFX
Common Stock as reported by the American Stock Exchange were $18 and $173/8
per share, respectively, and the bid and asked prices for Orange Common Stock
as quoted on the Nasdaq Small-Cap Market were $81/2 and $10 per share. On
January 5, 1995, the high and low sales prices for CFX Common Stock as so
reported were $161/4 and $17 per share, and the bid and asked prices for
Orange Common Stock as so quoted were $121/2 and $133/4 per share.
EXPERTS
The consolidated financial statements of CFX as of December 31, 1993,
and for the year then ended, included in this Proxy Statement-Prospectus have
been audited by Wolf & Company, P.C., independent certified public
accountants, and at December 31, 1992, and for each of the two years in the
period ended December 31, 1992, by Ernst & Young LLP, independent auditors, as
set forth in their respective reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
The consolidated financial statements of Orange for the three years
ended December 31, 1993 included herein have been included herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. KPMG Peat Marwick LLP served as independent auditors for Orange
through the year ended December 31, 1993. The report of KPMG Peat Marwick LLP
refers to a change in accounting for certain investments in debt and equity
securities.
LEGAL OPINIONS
The legality of the shares of CFX Common Stock to be issued to the
Orange stockholders pursuant to the Merger, certain tax consequences to CFX of
the Merger, and certain other legal matters in connection with the Merger,
will be passed upon by Devine, Millimet & Branch, Professional Association,
Manchester, New Hampshire.
Foley, Hoag & Eliot, Boston, Massachusetts, will render an opinion as to
certain tax consequences of the Merger to the stockholders of Orange and as to
certain other legal matters in connection with the Merger.
INDEPENDENT AUDITORS
Deloitte & Touche serves as independent auditors for Orange. A
representative of Deloitte & Touche will be present at the Orange Special
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.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Orange's
officers and directors, and persons who own more than 10% of a registered
class of Orange's equity securities, to file reports of ownership and changes
in ownership with the FDIC. Officers, directors and greater-than-10%
shareholders are required by FDIC regulations to furnish Orange with copies of
all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to Orange,
or written representations that no Forms F-8A were required, Orange believes
that during 1994 all Section 16(a) filing requirements applicable to its
officers, directors and greater-than-10% beneficial owners were complied with,
except that the Form F-8 required to be filed by Paul A. Larocque to report
the purchase of shares of Orange Common Stock on September 28, 1994 was not
filed on a timely basis.
INDEX TO FINANCIAL STATEMENTS
CFX Corporation
Page
Independent Auditors' Reports 107
Consolidated Balance Sheets 109
Consolidated Statements of Income 110
Consolidated Statements of Shareholders' Equity 111
Consolidated Statements of Cash Flows 112
Notes to Consolidated Financial Statements 113
A. Significant Accounting Policies 113
B. Mergers and Acquisitions 120
C. Restrictions on Cash and Due from Bank Accounts 121
D. Trading Securities 121
E. Investment Securities 121
F. Mortgage Loans Held for Sale 124
G. Loans and Leases 124
H. Allowance for Loan and Lease Losses 125
I. Premises and Equipment 126
J. Foreclosed Real Estate 126
K. Deposits 127
L. Short-Term Borrowed Funds 128
M. Advances from Federal Home Loan Bank of Boston 128
N. Due to Broker 129
O. Preferred Stock 129
P. Income Taxes 130
Q. Pension and 401(k) Plans 134
R. Stock Option Plan 135
S. Employee Stock Purchase Plan 136
T. Restrictions on Subsidiary Dividends, Loans and Advances 136
U. Loans to Related Parties 136
V. Financial Instruments 137
W. Financial Instruments with Off-Balance-Sheet Risk 139
X. Segment Information 141
Y. Subsequent Events 142
Z. CFX Corporation (Parent-Company-Only) Condensed
Financial Statements 143
AA. Quarterly Results of Operations (Unaudited) 145
Orange Savings Bank
Independent Auditors' Report 147
Consolidated Balance Sheets 148
Consolidated Statements of Operations 149
Consolidated Statements of Shareholders' Equity 150
Consolidated Statements of Cash Flows 151
Notes to Consolidated Financial Statements 152
1. Summary of Significant Accounting Policies 152
2. Certificates of Deposit 156
3. Investment Securities 156
4. Loans 157
5. Land, Buildings and Equipment 159
6. Deposits 159
7. Borrowed Funds 160
8. Income Taxes 161
9. Employee Benefits 163
10. Commitments and Contingencies 165
11. Shareholders' Equity 165
12. Acquisition 166
13. Quarterly Results 166
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of CFX Corporation
We have audited the accompanying consolidated balance sheet of CFX Corporation
(formerly Cheshire Financial Corporation) and subsidiaries as of December 31,
1993, and the related consolidated statements of income, shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CFX Corporation and subsidiaries at December 31, 1993, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Company
has elected to adopt Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1993.
WOLF & COMPANY, P.C.
Boston, Massachusetts
January 20, 1994, except for Note Y
as to which the date is December 12, 1994
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Cheshire Financial Corporation
We have audited the accompanying consolidated balance sheet of Cheshire
Financial Corporation and subsidiaries as of December 31, 1992, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1992. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial position
of Cheshire Financial Corporation and subsidiaries at December 31, 1992 and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1992, in conformity with
generally accepted accounting principles.
ERNST & YOUNG
Manchester, New Hampshire
January 19, 1993
CFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(unaudited)
<S> <C> <C> <C>
Assets
Cash and due from banks $ 16,727 $ 16,676 $ 22,432
Federal funds sold - - 1,550
Cash and Cash Equivalents 16,727 16,676 23,982
Interest bearing deposits with other banks 1,815 10,480 10,715
Federal Home Loan Bank of Boston stock 6,471 3,590 2,496
Trading securities 37,971 61,999 12,811
Securities available for sale 3,320 21,695 -
Securities held to maturity 117,601 96,044 -
Securities held for sale - - 43,513
Investment securities - - 54,126
Mortgage loans held for sale 15,478 24,156 -
Loans and leases 520,675 465,043 477,484
Less allowance for loan and lease losses 6,935 7,357 7,909
Net Loans and Leases 513,740 457,686 469,575
Premises and equipment 13,499 11,398 9,188
Mortgage servicing rights 4,336 4,557 -
Goodwill and deposit base intangibles 10,570 11,121 9,781
Foreclosed real estate 2,179 3,353 11,929
Other assets 15,324 12,366 13,033
$759,031 $735,121 $661,149
Liabilities and Shareholders' Equity
Deposits:
Interest bearing $504,294 $518,991 $544,210
Noninterest bearing 38,036 32,214 31,307
Total Deposits 542,330 551,205 575,517
Short-term borrowed funds 24,084 20,882 6,107
Advances from Federal Home Loan Bank of Boston 88,937 46,801 -
Due to broker 20,047 33,254 1,024
Other liabilities 6,596 7,195 5,193
Total Liabilities 681,994 659,337 587,841
Shareholders' Equity
Preferred stock, 7.5% Series A Cumulative Convertible, par value $1.00
per share--issued and outstanding 193,053 shares in 1994 (unaudited),
194,074 shares in 1993 and 194,482 shares in 1992 193 194 194
Common stock, par value $1.00 per share--authorized 15,000,000 shares,
issued 4,257,157 shares in 1994 (unaudited), 4,236,876 shares in 1993
and 4,035,623 shares in 1992 4,257 4,237 4,036
Paid-in capital 59,865 59,612 56,328
Retained earnings 20,425 19,140 20,025
Net unrealized losses on marketable equity securities, after tax effects - - (77)
Net unrealized losses on securities available for sale, after tax effects (505) (201) -
Cost of 577,265 shares of common stock in treasury (7,198) (7,198) (7,198)
Total Shareholders' Equity 77,037 75,784 73,308
$759,031 $735,121 $661,149
</TABLE>
See notes to consolidated financial statements.
CFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(In thousands, except per share data) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans $29,183 $29,753 $39,496 $43,989 $51,123
Interest on investment securities:
Taxable 4,171 3,966 5,261 6,914 5,149
Tax-exempt 536 185 290 304 568
4,707 4,151 5,551 7,218 5,717
Interest and dividends on trading securities 1,722 133 468 133 -
Dividends on marketable equity securities 133 16 - 168 264
Other 450 493 627 903 1,459
Total Interest and Dividend Income 36,195 34,546 46,142 52,411 58,563
Interest expense:
Interest on deposits 12,320 14,594 18,965 25,976 33,676
Interest on borrowings:
Short-term 3,252 234 711 283 -
Long-term 8 7 9 830 1,985
Total Interest Expense 15,580 14,835 19,685 27,089 35,661
Net Interest and Dividend Income 20,615 19,711 26,457 25,322 22,902
Provision for loan and lease losses 50 2,970 2,970 2,911 3,830
Net Interest and Dividend Income After Provision for Loan
and Lease Losses 20,565 16,741 23,487 22,411 19,072
Other income:
Service charges on deposit accounts 1,097 1,074 1,433 1,388 1,222
Loan servicing fees 1,263 118 323 - -
Net gains (losses) on trading securities (381) 342 316 (8) (93)
Net gains on investment securities 85 1,733 2,624 238 3
Net gains on sales of loans 440 108 371 - -
Other 1,358 739 1,200 1,546 556
3,862 4,114 6,267 3,164 1,688
Other expense:
Salaries and employee benefits 9,092 7,076 10,084 8,662 7,868
Occupancy expense 1,286 1,019 1,393 1,216 1,130
Equipment expense 1,290 1,029 1,439 1,421 1,360
Operation of foreclosed real estate 111 1,497 3,011 2,328 3,274
FDIC deposit insurance 920 1,008 1,341 1,296 1,090
Goodwill and deposit base intangible amortization 550 500 684 692 630
Other 5,005 3,716 5,540 4,162 4,570
18,254 15,845 23,492 19,777 19,922
Income Before Income Taxes and Cumulative Effect of a
Change in Accounting Principle 6,173 5,010 6,262 5,798 838
Income taxes 2,298 1,078 1,240 2,000 280
Net Income before Cumulative Effect of a Change in
Accounting Principle 3,875 3,932 5,022 3,798 558
Cumulative effect on years prior to 1991 of a change in accounting
for income taxes - - - - 1,603
Net Income 3,875 3,932 5,022 3,798 2,161
Preferred stock dividends 201 202 270 270 270
Net Income Available to Common Stock $ 3,674 $ 3,730 $ 4,752 $ 3,528 $ 1,891
Weighted average common shares outstanding 3,856 3,821 3,826 3,805 3,795
Common per share amounts:
Income before cumulative effect of a change in accounting principle
(net of preferred dividends) $.95 $.97 $1.24 $.92 $.08
Cumulative effect on years prior to 1991 of a change in accounting
for income taxes - - - - .42
Earnings per common share $.95 $.97 $1.24 $.92 $.50
</TABLE>
See notes to consolidated financial statements.
CFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Net
Unrealized Unrealized
Losses on Losses on
Marketable Securities
Preferred Common Paid-in Retained Equity Available Treasury
(In thousands, except per share data) Stock Stock Capital Earnings Securities for Sale Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $195 $4,017 $56,219 $19,085 $(849) $ - $(7,198) $71,469
Net income - - - 2,161 - - - 2,161
Common cash dividends declared-
$.67 per share - - - (2,409) - - - (2,409)
Preferred cash dividends declared-
$1.3875 per share - - - (270) - - - (270)
Issuance of common stock under
employee stock purchase plan - 8 48 - - - - 56
Decrease in net unrealized losses on
marketable equity securities - - - - 475 - - 475
Preferred stock converted to common
stock (1) 1 - - - - - -
Balance at December 31, 1991 194 4,026 56,267 18,567 (374) - (7,198) 71,482
Net income - - - 3,798 - - - 3,798
Common cash dividends declared-
$.57 per share - - - (2,070) - - - (2,070)
Preferred cash dividends declared-
$1.3875 per share - - - (270) - - - (270)
Issuance of common stock under
employee stock purchase plan - 10 61 - - - - 71
Decrease in net unrealized losses on
marketable equity securities - - - - 297 - - 297
Balance at December 31, 1992 194 4,036 56,328 20,025 (77) - (7,198) 73,308
Net income - - - 5,022 - - - 5,022
Common cash dividends declared-
$.69 per share - - - (2,500) - - - (2,500)
Preferred cash dividends declared-
$1.3875 per share - - - (270) - - - (270)
Issuance of common stock under
stock option plan - 20 251 - - - - 271
Issuance of common stock under
employee stock purchase plan - 7 81 - - - - 88
5% common stock dividend - 174 2,952 (3,137) - - - (11)
Decrease in net unrealized losses on
marketable equity securities - - - - 63 - - 63
Change in method of accounting for
investment securities - - - - 14 (201) - (187)
Balance at December 31, 1993 194 4,237 59,612 19,140 - (201) (7,198) 75,784
Net income (unaudited) - - - 3,875 - - - 3,875
Common cash dividends declared-
$.65 per share (unaudited) - - - (2,389) - - - (2,389)
Preferred cash dividends declared-
$1.040625 per share (unaudited) - - - (201) - - - (201)
Issuance of common stock under
stock option plan (unaudited) - 12 151 - - - - 163
Issuance of common stock under
employee stock purchase plan
(unaudited) - 7 102 - - - - 109
Increase in net unrealized losses on
securities available for sale (unaudited) - - - - - (304) - (304)
Preferred stock converted to
common stock (unaudited) (1) 1 - - - - - -
Balance at September 30, 1994 (unaudited) $193 $4,257 $59,865 $20,425 $ - $(505) $(7,198) $77,037
</TABLE>
See notes to consolidated financial statements.
CFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(In thousands) 1994 1993 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income $ 3,875 $ 3,932 $ 5,022 $ 3,798 $ 2,161
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,106 1,474 2,306 1,872 1,743
Provision for loan and lease losses 50 2,970 2,970 2,911 3,830
Provision for foreclosed real estate losses 192 920 673 307 -
Write-down of foreclosed real estate - - - 914 2,310
Loans originated and acquired for sale (105,882) (17,244) (76,804) - -
Principal balance of loans sold 114,120 12,024 64,708 - -
Net loss on sale of portfolio loans - - 199 - -
Net loss (gain) on sale of foreclosed real estate and
in-substance foreclosures (220) (203) 1,338 (348) (41)
Deferred income tax (benefit) 19 (542) (322) (401) (989)
Net decrease (increase) in trading securities 13,049 (3,049) (28,861) (12,554) 843
Net gains on investment securities (85) (1,733) (2,624) (238) (3)
Loss on disposal of equipment - - - - 158
Gain on sale of bank premises - - - (371) -
Gain deferred on sale/leaseback of bank premises - - - 79 -
Other (2,255) (5,441) 1,079 (2,120) (153)
Net Cash Provided (Used) by Operating Activities 24,969 (6,892) (30,316) (6,151) 9,859
Investing Activities
Purchase of certain assets and liabilities of The Family
Bank & Trust, including cash and cash equivalents acquired - - - - 31,493
Purchase of Colonial Mortgage, Inc., net of cash and cash
equivalents acquired - (4,831) (4,831) - -
Proceeds from sale and maturities of securities available for sale 22,478 - - - -
Purchases of securities available for sale (23,276) - - - -
Proceeds from maturities of securities held to maturity 15,861 - - - -
Purchases of securities held to maturity (22,172) - - - -
Purchases of investment securities - (65,392) (134,636) (73,874) (118,563)
Proceeds from the sale of investment securities - 3,610 17,064 66,181 65,773
Proceeds from the maturity of investment securities - 10,991 26,571 26,006 -
Proceeds from the sale and maturity of securities held for sale - 44,041 84,528 - -
Proceeds from the sale of, or payments on, foreclosed
real estate 801 1,734 7,282 1,630 806
Proceeds from the sale of portfolio loans - - 27,228 - -
Purchase of Federal Home Loan Bank of Boston stock (2,881) - (1,106) - -
Proceeds from the sale of Federal Home Loan Bank of
Boston stock - - 12 - 53
Net decrease (increase) in interest bearing deposits with
other banks 8,664 8,056 235 1,973 (118)
Net decrease (increase) in loans and leases (55,434) 708 (27,883) (1,377) 4,650
Proceeds from the sale of premises and equipment - - - 593 -
Purchases of premises and equipment (3,207) (2,655) (3,171) (1,346) (2,088)
Net Cash Provided (Used) by Investing Activities (59,166) (3,738) (8,707) 19,786 (17,994)
Financing Activities
Net increase (decrease) in noninterest bearing deposits and
savings accounts 3,771 (1,137) 1,192 77,018 51,346
Net decrease in time certificates of deposit (12,646) (19,660) (25,504) (65,439) (40,713)
Net increase in short-term borrowings 3,202 16,975 11,426 5,756 350
Net increase in short-term advances from the Federal
Home Loan Bank of Boston 42,136 2,305 46,600 - -
Proceeds of long-term advances from the Federal
Home Loan Bank of Boston - 201 201 - -
Repayment of long-term advances from the Federal Home
Loan Bank of Boston - - - (19,000) (7,000)
Common cash dividends paid (2,286) (1,662) (2,287) (2,069) (2,757)
Preferred cash dividends paid (201) (202) (270) (274) (261)
Proceeds from the issuance of common stock under employee
stock purchase plan 109 66 88 71 56
Proceeds from the issuance of common stock under stock
option plan 163 100 271 - -
Net Cash Provided (Used) by Financing Activities 34,248 (3,014) 31,717 (3,937) 1,021
Increase (Decrease) in Cash and Cash Equivalents 51 (13,644) (7,306) 9,698 (7,114)
Cash and cash equivalents at beginning of period 16,676 23,982 23,982 14,284 21,398
Cash and Cash Equivalents at End of Period $ 16,727 $ 10,338 $ 16,676 $ 23,982 $ 14,284
Supplementary information
Interest paid on deposit accounts $ 12,380 $ 14,756 $ 19,092 $ 26,368 $ 33,533
Interest paid on borrowed funds 3,142 219 609 1,223 2,075
Income taxes paid 1,190 2,285 2,527 1,905 2,108
Transfers from loans to foreclosed real estate 814 2,600 3,887 6,066 8,339
Net increase (decrease) in due to broker (13,207) 472 32,230 1,024 -
Net decrease (increase) in due from broker (699) 1,918 - - -
</TABLE>
See notes to consolidated financial statements.
CFX CORPORATION AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A--Significant Accounting Policies
The principal accounting policies of CFX Corporation (CFX) and its
wholly-owned subsidiaries, which provide banking services primarily in New
Hampshire, are as follows:
Principles of Presentation and Consolidation
The consolidated financial statements include the accounts of CFX
Corporation and its wholly-owned subsidiary, CFX Bank and CFX Bank's wholly-
owned subsidiaries, CFX Capital Systems, Inc. (CFX Capital) and CFX Financial
Services, Inc. (CFX Financial). Also included are the accounts of CFX
Capital's wholly-owned subsidiary, CFX Mortgage, Inc., which engages in
mortgage banking, and CFX Financial's 51% ownership of CFX Funding L.L.C.,
which engages in the facilitation of lease financing and securitization. Upon
consolidation, all significant intercompany accounts and transactions are
eliminated. (See Note B--Mergers and Acquisitions.)
The accompanying consolidated 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.
Interim Financial Information
The accompanying consolidated financial statements at September 30, 1994
and for the nine months ended September 30, 1994 and 1993 are unaudited and,
in the opinion of management, contain all adjustments, consisting of normal
recurring adjustments, which are necessary to fairly present the financial
position of CFX and Subsidiaries as of September 30, 1994 and the results of
operations, changes in stockholders' equity and changes in cash flows for the
periods ended September 30, 1994 and 1993. The results of operations for the
interim period ended September 30, 1994 are not necessarily indicative of the
results for the entire year.
Cash Flow Information
Cash equivalents include amounts due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
Accounting Policy Changes
Investment Securities: Effective December 31, 1993, CFX adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." (See Note
E--Investment Securities.) The Statement establishes standards for all debt
securities and for equity securities that have readily determinable fair
values. As required under SFAS No. 115, prior year financial statements have
not been restated.
SFAS No. 115 requires that investments in debt securities, that
management has the positive intent and ability to hold to maturity, be
classified as "held to maturity" and reflected at amortized cost. Investments
that are purchased and held principally for the purpose of selling them in the
near term are classified as "trading securities" and reflected on the balance
sheet at fair value, with unrealized gains and losses included in earnings.
Investments not classified as either of the above are classified as
"available for sale" and reflected on the balance sheet at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of share-holders' equity. The cumulative effect of the change in
accounting principle at December 31, 1993 was to decrease shareholders' equity
by $187,000 net of related income tax effects. There was no effect on net
income for the year ended December 31, 1993 relating to the adoption of SFAS
No. 115.
Prior to December 31, 1993, debt securities that management had the
intent and ability to hold until maturity were reflected at amortized cost.
Marketable equity securities and securities held for sale were stated at the
lower of aggregate cost or fair value. Net unrealized losses applicable to
marketable equity securities were reflected as a charge to shareholders'
equity, net of tax effects, while write-downs applicable to securities held
for sale were reflected in earnings.
For all periods presented, purchase premiums and discounts are amortized
to earnings by a method which approximates the interest method over the terms
of the investments. Declines in the value of investments that are deemed to be
other than temporary are reflected in earnings when identified. Gains and
losses on disposition of investments are computed by the specific
identification method.
Income Taxes: Effective January 1, 1991, CFX changed its method of
accounting for income taxes from the deferred to the liability method required
by SFAS No. 109, "Accounting for Income Taxes." (See Note P--Income Taxes.)
SFAS No. 109 establishes financial accounting and reporting standards
for the effects of income taxes that result from CFX's activities during the
current and preceding years. It requires an asset and liability approach for
financial accounting and reporting for income taxes. This Statement superseded
SFAS No. 96, "Accounting for Income Taxes," and amended or superseded several
other accounting pronouncements.
The cumulative effect of the change in accounting principle on years
prior to 1991 was to increase 1991 net income available to common stock by
$1,603,000, or $.42 per share. The effect of this accounting change on 1991
was to increase income before the cumulative effect of the change in
accounting principle by $508,000, or $.13 per share of common stock. In
addition, a $144,000 deferred tax benefit was established for net unrealized
losses on marketable equity securities (included in the shareholders' equity
section of the consolidated balance sheet) as of January 1, 1991.
The Statement also requires that deferred taxes be recorded for the tax
effects of differences between assigned values and the tax basis of assets
acquired and liabilities assumed in a business acquisition. Previously,
acquired assets and liabilities were recorded net of such tax effects. The new
method of accounting increased the values assigned to net tangible assets and
intangible assets in prior year acquisitions by $538,000 with a corresponding
increase in deferred income taxes payable.
For regulatory capital purposes, the recognition of deferred tax assets,
when realization of such is dependent on an institution's future taxable
income, is limited to the amount that can be realized within one year or 10%
of core capital, whichever is less.
Reclassifications and Restatements
Certain amounts have been reclassified in the 1992 and 1991 consolidated
financial statements to conform to the 1993 presentation.
Prior period common share and per share data have been restated to
reflect CFX's 5% common stock dividend declared on December 13, 1993. See Note
Y for a description of CFX's stock dividend declaration subsequent to 1993.
Trading Securities
Trading securities consist of marketable equity securities and debt
securities which CFX intends to trade in the future.Trading positions are
taken to benefit from short-term movements in market prices.Trading securities
are stated at fair value. Prior to the adoption of SFAS No. 115, marketable
equity securities held for trading were stated at the lower of aggregate cost
or fair value. Changes in fair value are reflected in trading gains and losses
within the consolidated statements of income. Gains and losses on trading
securities sold are computed by the specific identification method.
Financial Instruments
Interest Rate Exchange Agreements: Interest rate exchange agreements
(swaps) designated as hedges against future fluctuations in the interest rates
of specifically identified assets or liabilities are accounted for on the same
basis as the underlying asset or liability. Accordingly, interest rate swaps
designated as hedges against floating rate loan portfolios (carried at
historical cost) are reflected at cost. Interest rate swaps which hedge CFX's
trading securities portfolio (carried at fair value) are marked to fair value
through the consolidated statement of income.
Financial Futures Contracts: Interest rate futures contracts are entered
into by CFX as hedges against interest rate risk in its trading securities
portfolio. These instruments are marked to fair value with changes in value
recorded through the consolidated statement of income.
Financial Option Contracts: Option premiums paid or received, designated
as hedges against future fluctuations in the interest rates of specifically
identified assets or liabilities, are accounted for on the same basis as the
underlying asset or liability. Accordingly, option contracts designated as
hedges against mortgage loans held for sale are carried at the lower of cost
or estimated fair value in the aggregate. Option contracts which hedge CFX's
trading securities portfolio (carried at fair value) are marked to fair value
through the consolidated statement of income.
Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated fair value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by charges to the
consolidated statement of income.
Loans and Leases
Interest on loans and leases (loans) is accrued and credited to income
based upon the principal amount outstanding. When management determines that
significant doubt exists as to the collectibility of principal or interest on
a loan, the loan is placed on nonaccrual status. In addition, loans past due
90 days or more as to principal or interest are placed on nonaccrual status
except those loans which, in management's judgment, are fully secured and in
the process of collection (through legal action or, in appropriate
circumstances, through collection efforts reasonably expected to result in
repayment of the debt or in its restoration to a current status in the near
future). In the third quarter of 1993, management changed its policy regarding
nonaccrual loans, such that all loans past due 90 days or more as to principal
and interest are placed on nonaccrual status. Interest accrued but not
received on loans placed on nonaccrual status is reversed and charged against
current income. Interest on nonaccrual loans is recognized only when received.
Loans are restored to accrual status when the borrower has demonstrated the
ability to make future payments of principal and interest, as scheduled.
Loans considered to be uncollectible are charged against the allowance
for loan and lease losses. The allowance is increased by charges to current
income in amounts sufficient to maintain the adequacy of the allowance. The
adequacy is determined by management's evaluation of the extent of existing
risk in the loan portfolio and prevailing economic conditions.
Loan origination and commitment fees and certain direct origination
costs are deferred, and the net amount amortized as an adjustment of the
related loan's yield using the interest method. CFX is generally amortizing
these amounts over the contractual life of the related loans.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Expenditures for maintenance and repairs are charged to
income as incurred and the costs of major additions and improvements are
capitalized.
The provision for depreciation and amortization is computed on the
straight-line method based on the estimated useful lives of assets or the
terms of the leases, if shorter.
Mortgage Servicing Rights
The cost of mortgage servicing rights acquired is amortized in
proportion to, and over the period of, estimated net servicing revenues. When
participating interests in loans sold have an average contractual interest
rate, adjusted for normal servicing fees, that differs from the agreed yield
to the purchaser, gains or losses are recognized equal to the present value of
such differential over the estimated remaining life of such loans. The
resulting "excess servicing fees receivable" is amortized over the estimated
life using a method approximating the level-yield method.
The cost of loan servicing rights purchased, the excess servicing fees
receivable, and the amortization thereon, is periodically evaluated in
relation to estimated future net servicing revenues. CFX evaluates the
carrying value of the servicing portfolio by estimating the future net
servicing income of the portfolio based on management's best estimate of
remaining loan lives.
Intangible Assets
Deposit base intangibles, which represent the value attributable to the
capacity of deposit accounts of purchased bank subsidiaries to generate future
income, are included in other assets and are being amortized on a straight-
line basis over a period of five years. The excess of the cost of purchased
subsidiaries over the fair value of tangible and intangible net assets
acquired has been allocated to goodwill and is being amortized on a straight-
line basis over 25 years for bank subsidiaries and 15 years for the mortgage
banking subsidiary. (See Note B--Mergers and Acquisitions.)
The accumulated amortizations of deposit base intangibles and goodwill
were $1,392,000 and $2,427,000, respectively, as of September 30, 1994
(unaudited) and $957,000 and $2,312,000, respectively, as of December 31,
1993.
Foreclosed Real Estate
Foreclosed real estate consists of properties that CFX has formally
received title for partial or total satisfaction of loans. In-substance
foreclosures consist of properties that CFX has substantively repossessed
collateral for partial or total satisfaction of loans. CFX takes this action
when there is an indication that a borrower has little or no equity in the
collateral, repayment of the loan can only come from the operation or sale of
the collateral, and it is doubtful that the equity will be rebuilt in the
forseeable future. Loan losses arising from the write-down of properties to
fair value at the time CFX formally receives title or substantively
repossesses the collateral are charged against the allowance for loan and
lease losses.
On April 28, 1992, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) No. 92-3, "Accounting
for Foreclosed Assets." This SOP required application in annual financial
statements for periods ending on or after December 15, 1992, with earlier
application permitted. CFX adopted this SOP effective October 1, 1992.
SOP No. 92-3 requires that after foreclosure, foreclosed assets held for
sale, on an individual asset basis, be carried at the lower of (a) fair value
minus the cost to sell, or (b) cost. In addition, after in-substance
foreclosure, an in-substance foreclosed asset should be accounted for in a
manner similar to foreclosed assets held for sale.
If the fair value of the asset minus the estimated costs to sell the
asset is less than the cost of the asset, the deficiency is recognized as a
valuation allowance. Increases or decreases in the valuation allowance are
charged or credited to income. Prior to October 1, 1993, any subsequent write-
downs of the carrying value to fair value were charged to current period
income.
Operating expenses and gains and losses upon disposition are reflected
in current income.
Pension and 401-K Plans
CFX and its subsidiaries have a defined benefit pension plan which
covers substantially all full-time employees. The benefits are based on years
of service and the employee's compensation during the years immediately
preceding retirement. CFX's funding policy is to contribute annually the
maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future.
CFX maintains a Section 401(k) savings plan for employees of CFX and its
subsidiaries. Under the plan, CFX makes a matching contribution of one-third
of the amount contributed by each participating employee, up to 6% of the
employee's yearly salary. CFX's contributions are paid out of current or
retained earnings. The plan also allows for supplementary profit sharing
contributions by CFX, at its discretion, for the benefit of participating
employees.
Income Taxes
CFX and its subsidiaries file a consolidated income tax return. Under
the asset and liability method of SFAS No. 109, 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 their respective tax basis. 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. Under SFAS No. 109, 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.
Parent-Company-Only Condensed Financial Statements
In the parent-company-only condensed financial statements, CFX's
investment in consolidated subsidiaries is stated at cost plus equity in the
undistributed earnings of subsidiaries.
Earnings Per Share
Earnings per share are 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.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates would not be realized in immediate
settlement of the instruments. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of CFX.
The following methods and assumptions were used by CFX in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts of cash and short-term
instruments approximate fair values.
Interest Bearing Deposits with Other Banks: The carrying values of
interest bearing deposits with other banks approximate fair values.
Federal Home Loan Bank of Boston stock: The carrying value of Federal
Home Loan Bank of Boston stock approximates fair value.
Trading Securities: Fair values for trading portfolio securities
(including off-balance-sheet instruments), which also are the amounts
recognized in the consolidated balance sheet, are based on quoted market
prices.
Investment Securities: Fair values of investment securities are based on
quoted market prices, when available.
Loans and Leases (Loans): Fair values of variable-rate loans that
reprice frequently and have no significant change in credit risk, are based on
carrying values. Fair values for mortgage loans held for sale are based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values
for other loans are estimated using discounted cash flow analyses which use
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality.
Deposit Liabilities: Fair values disclosed for demand deposits (non-
interest bearing deposits, savings and certain types of money market accounts)
are, by definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). Fair values for fixed-rate certificates
of deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Short-Term Borrowings: The carrying amounts of borrowings under
repurchase agreements and other short-term borrowings approximate their fair
values.
Long-Term Borrowings: Fair values of CFX's long-term borrowings are
estimated using discounted cash flow analyses based on CFX's current
incremental borrowing rates for similar types of borrowing arrangements.
Accrued Interest: The carrying amount of accrued interest approximates
fair value.
Off-Balance-Sheet Instruments: Fair values for futures, options and
swaps are based on quoted market prices. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
Recent Accounting Pronouncements
In May, 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", which
requires a change in accounting method for most financial institutions,
commencing with fiscal years beginning after December 15, 1994, with early
adoption permissible.
SFAS No. 114 is applicable to all creditors and to all loans,
uncollateralized as well as collateralized, except large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment
(i.e.. residential mortgage, credit card and consumer installment loans),
loans that are measured at fair value or at the lower of cost or fair value
(i.e., loans in a trading or held for sale portfolio), leases, and convertible
or nonconvertible debentures and bond and other debt securities.
Management does not expect that adopting the provisions of SFAS No. 114
will have a material impact on CFX's financial statements.
Note B--Mergers and Acquisitions
During 1993, CFX merged together its three banking subsidiaries,
Cheshire County Savings Bank, The Monadnock Bank, and The Valley Bank. The
resulting consolidated bank, Cheshire County Savings Bank, changed its name to
CFX Bank on November 15, 1993.
On September 1, 1993, CFX, through its bank subsidiary, Cheshire County
Savings Bank, purchased the remaining 52.4% of Colonial Mortgage, Inc.
(Colonial), a mortgage banking company headquartered in Amherst, New
Hampshire, for $5,187,000, including $80,000 in acquisition costs. CFX
previously owned 47.6% and as a result of the purchase Colonial became a
wholly-owned subsidiary. The transaction was accounted for by the purchase
method of accounting, and, accordingly, the results of operations of Colonial
from September 1, 1993 to December 31, 1993 have been included in CFX's
consolidated statement of income. Prior to the acquisition on September 1,
1993, 47.6% of the results of operations of Colonial was included in CFX's
consolidated statements of income through the equity method of accounting.
Accordingly, at December 31, 1992, other assets included CFX Bank's equity
interest in Colonial of $847,000. In connection with the acquisition, the
excess ($2,023,000) of the purchase price over 52.4% of the fair value of the
net assets acquired has been allocated to goodwill and is being amortized over
15 years on a straight-line basis. The fair value of the assets (including
goodwill) and liabilities acquired amounted to $11,151,000 and $5,964,000,
respectively. On November 15, 1993, Colonial was renamed CFX Mortgage, Inc.
On September 7, 1991, CFX, through its bank subsidiary, The Valley Bank
(Valley), acquired certain assets and assumed all deposits of The Family Bank
and Trust (Family), a state-chartered trust company headquartered in
Allenstown, New Hampshire. Family was declared insolvent by the New Hampshire
Bank Commissioner and placed into Federal Deposit Insurance Corporation (FDIC)
receivership on September 6, 1991. Valley's acquisition included a $250,000
deposit base intangible for the $44,412,000 in deposits, and a $95,000
discount and a $167,000 allowance for loan and lease losses for the $6,302,000
in loans purchased. In addition, Valley received $38,000,000 in cash and
investments from the FDIC, representing the excess of deposits assumed over
the loans acquired.
The following summarized pro forma information (unaudited) presents the
results of CFX's operations assuming the purchase of Colonial Mortgage, Inc.
occurred on January 1, 1991:
<TABLE>
<CAPTION>
Years Ended
December 31,
(In thousands, except per share data) 1993 1992 1991
(unaudited)
<S> <C> <C> <C>
Total income $55,208 $59,640 $62,279
Net income 4,962 3,725 1,584
Preferred dividend 270 270 270
Net income available to common stock 4,692 3,455 1,314
Net income per common share 1.23 .90 .34
</TABLE>
The above pro forma information does not purport to be indicative of the
results that actually would have been obtained if the operations were combined
at January 1, 1991, and is not intended to be a projection of future results
or trends.
Note C--Restrictions on Cash and Due From Bank Accounts
The Federal Reserve Bank requires CFX Bank to maintain average reserve
balances. The average amount of these reserve balances for the nine months
ended September 30, 1994 (unaudited) and the year ended December 31, 1993 was
approximately $12,550,000 and $10,942,000, respectively.
Note D--Trading Securities
The following table reflects the fair value of trading securities:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
U.S. Government and federal agency obligations $ 115 $ 115 $ 2,992
Federal agency mortgage pass-through securities 21,669 61,097 1,962
Hedge instruments 208 669 -
Money market funds 273 118 -
Marketable equity securities 15,706 - 7,857
$37,971 $61,999 $12,811
</TABLE>
During the nine months ended September 30, 1994 and 1993 (unaudited) and
the year ended December 31, 1993, the change in net unrealized holding gain or
loss on trading securities included in the consolidated statement of income
amounted to a loss of $341,000, a gain of $259,000, and a gain of $126,000,
respectively.
Hedge instruments included above, along with certain off-balance-sheet
commitments, are designed to minimize potential fair value fluctuations in the
trading portfolio primarily derived from mortgage-backed securities. CFX's
current intent is to maintain an effective duration of six months or less in
its trading securities portfolio.
Note E--Investment Securities
Investment securities consist of the following at September 30, 1994 and
December 31, 1993 and 1992, and reflect the change in accounting principle as
disclosed in Note A--Significant Accounting Policies:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Securities available for sale, at fair value $ 3,320 $ 21,695 $ -
Securities held to maturity, at amortized cost 117,601 96,044 -
Securities held for sale, at lower of cost or fair value - - 43,513
Securities held for investment (debt securities at amortized cost;
marketable equity securities at lower of cost or fair value) - - 54,126
$120,921 $117,739 $97,639
</TABLE>
The amortized cost and estimated fair value of investment securities at
September 30, 1994, with gross unrealized gains and losses, follows:
<TABLE>
<CAPTION>
(In thousands) September 30, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Unaudited)
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Government money market fund $ 19 $ - $ - $ 19
Other marketable equity securities 3,369 - 68 3,301
Total securities available for sale $ 3,388 $ - $ 68 $ 3,320
Securities Held to Maturity:
Debt securities:
State and municipal $ 30,791 $ - $ 532 $ 30,259
Corporate 5,955 - 48 5,907
Asset-backed 277 - 1 276
Federal agency mortgage pass-through securities 81,343 - 5,084 76,259
Total securities held to maturity 118,366 $ - $5,665 $112,701
Unamortized net unrealized loss on securities
transferred from available for sale (765)
Total securities held to maturity $117,601
</TABLE>
At September 30, 1994 (unaudited), CFX has pledged debt securities with
an amortized cost of $47,094,000, and a fair value of $43,340,000 as
collateral to secure public funds, repurchase agreements (See Note L--Short-
Term Borrowed Funds) and for other purposes.
The amortized cost and estimated fair value of investment securities at
December 31, 1993, with gross unrealized gains and losses, follows:
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Available for Sale:
Collateralized mortgage obligations (CMO's) $18,082 $ 4 $314 $17,772
U.S. Government money market fund 675 - - 675
Other marketable equity securities 3,272 - 24 3,248
Total securities available for sale $22,029 $ 4 $338 $21,695
Securities Held to Maturity:
Debt securities:
State and municipal $10,591 $ 77 $ 52 $10,616
Corporate 7,992 242 8 8,226
Asset-backed 620 2 - 622
Federal agency mortgage pass-through securities 76,841 79 249 76,671
Total securities held to maturity $96,044 $400 $309 $96,135
</TABLE>
At December 31, 1993, CFX has pledged debt securities with an amortized
cost of $24,471,000, and a fair value of $24,350,000 as collateral to secure
public funds, repurchase agreements (See Note L--Short-Term Borrowed Funds)
and for other purposes.
The amortized cost and estimated fair value of debt securities by
contractual maturity at September 30, 1994 and December 31, 1993 are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
Held to Maturity Available for Sale Held to Maturity
Amortized Amortized Amortized
(In thousands) Cost Fair Value Cost Fair Value Cost Fair Value
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Within one year $ 17,722 $ 17,712 $ - $ - $ 290 $ 290
After one year through five years 19,228 18,657 - - 11,906 12,113
After five years through ten years 73 73 - - 6,931 6,985
After ten years through twenty years - - - - 76 76
37,023 36,442 - - 19,203 19,464
Pass-through securities and CMO's 81,343 76,259 18,082 17,772 76,841 76,671
$118,366 $112,701 $18,082 $17,772 $96,044 $96,135
</TABLE>
The amortized cost and estimated fair value of securities held for sale
and investment securities at December 31, 1992, with gross unrealized gains
and losses, follows:
<TABLE>
<CAPTION>
December 31, 1992
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Held for Sale:
U.S. Government obligations $30,430 $1,251 $ 15 $31,666
U.S. Government money market fund 13,083 - - 13,083
Total securities held for sale $43,513 $1,251 $ 15 $44,749
Investment Securities:
Debt securities:
U.S. Government and federal agency $24,104 $ 419 $ 55 $24,468
State and municipal 1,274 31 1 1,304
Corporate 12,679 146 226 12,599
Pass-through securities and CMO's 15,225 203 90 15,338
Total debt securities 53,282 799 372 53,709
Marketable equity securities 936 7 99 844
Total investment securities 54,218 $ 806 $471 $54,553
Valuation allowance for unrealized losses on marketable
equity securities (92)
$54,126
</TABLE>
Proceeds from the sale of securities available for sale during the nine
months ended September 30, 1994 (unaudited) were $20,246,000. Gross gains of
$85,000 and no gross losses were recognized on such sales. In addition,
securities available for sale with an amortized cost of $16,575,000 were
transferred to securities held to maturity at their value of $15,810,000
resulting in a net unrealized loss of $765,000 at the date of transfer.
Proceeds from the sale of debt securities during the years ended
December 31, 1993, 1992, and 1991 were $89,184,000, $32,741,000, and
$13,777,000, respectively. Gross gains of $3,212,000, $598,000, and $289,000,
were realized during the years ended December 31, 1993, 1992, and 1991,
respectively. Gross losses of $588,000, $57,000, and $129,000 were realized
during the years ended December 31, 1993, 1992, and 1991, respectively.
Note F--Mortgage Loans Held for Sale
CFX's mortgage banking subsidiary, CFX Mortgage, Inc. (formerly
Colonial) engages in originating, selling and servicing real estate loans,
primarily residential. As discussed in Note B--Mergers and Acquisitions,
Colonial became a wholly-owned subsidiary as of September 1, 1993. Mortgage
loans totaling $15,478,000 and $24,156,000 were held for sale by CFX Mortgage
as of September 30, 1994 (unaudited) and December 31, 1993, respectively.
At September 30, 1994 (unaudited) and December 31, 1993, the estimated
fair value of mortgage loans held for sale was $15,572,000 and $24,160,000,
respectively.
Note G--Loans and Leases
Loans and leases consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Real estate:
Residential $341,062 $305,599 $328,984
Construction 9,636 9,292 10,920
Commercial 78,406 76,955 56,027
Commercial, financial and agricultural 48,319 42,835 54,788
Leases 11,141 5,428 1,497
Consumer and other 32,111 24,934 25,268
$520,675 $465,043 $477,484
</TABLE>
At September 30, 1994 (unaudited) and December 31, 1993 and 1992, the
estimated fair value of total loans and leases was $512,363,000, $462,912,000
and $481,222,000, respectively.
Nonaccrual loans and restructured loans totaled $6,769,000 and
$2,499,000, respectively, at September 30, 1994 (unaudited), $6,472,000 and
$837,000, respectively, at December 31, 1993, and $6,104,000 and $963,000,
respectively, at December 31, 1992.
Interest income that would have been recorded under the original terms
of such nonaccrual and restructured loans and the interest income actually
recognized are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income that would have been recorded $549 $922 $656 $721 $481
Interest income recognized 348 538 483 372 263
Interest income foregone $201 $384 $173 $349 $218
</TABLE>
CFX is not committed to lend additional funds to borrowers whose loans
have been modified in connection with troubled debt restructurings.
The primary geographic concentration of credit risk for residential
mortgages, commercial business loans, commercial and mortgage construction
loans, and consumer loans originated by CFX Bank is the State of New
Hampshire. Substantially all of the total loan portfolio is concentrated
within the state. The remainder of the portfolio is distributed principally
throughout the other New England states.
Note H--Allowance for Loan and Lease Losses
Changes in the allowance for loan and lease losses are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $7,357 $7,909 $7,909 $6,957 $5,122
Allowance of acquired subsidiaries - 13 13 - -
Allowance acquired through regulatory-assisted
transactions - - - 350 167
Provision for loan and lease losses 50 2,970 2,970 2,911 3,830
Loans charged-off (783) (2,949) (3,904) (2,523) (2,247)
Recoveries of loans previously charged-off 311 259 369 214 85
Balance at end of period $6,935 $8,202 $7,357 $7,909 $6,957
</TABLE>
Note I--Premises and Equipment
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Land $ 2,032 $ 1,792 $ 1,275
Buildings and leasehold improvements 11,210 9,959 7,854
Furniture and equipment 7,486 6,485 4,991
20,728 18,236 14,120
Less accumulated depreciation and amortization (7,229) (6,838) (4,932)
$13,499 $11,398 $ 9,188
</TABLE>
Depreciation and amortization expense was $1,144,000, $886,000,
$1,244,000, $1,181,000, and $1,085,000 for the nine months ended September 30,
1994 and 1993 (unaudited), and the years ended December 31, 1993, 1992, and
1991, respectively.
Note J--Foreclosed Real Estate
Foreclosed real estate is presented net of a valuation allowance as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Foreclosed real estate $1,056 $1,868 $ 7,006
In-substance foreclosures 1,443 1,869 5,230
2,499 3,737 12,236
Less allowance for losses (320) (384) (307)
$2,179 $3,353 $11,929
</TABLE>
An analysis of the allowance for losses on foreclosed real estate and
in-substance foreclosures follows:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(In thousands) 1994 1993 1993 1992
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period $384 $307 $307 $ -
Provision for losses 192 920 673 307
Charge-offs, net of recoveries (256) (410) (596) -
Balance at end of period $320 $817 $384 $307
</TABLE>
The following table presents the components of the operation of
foreclosed real estate for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses, net of rental income $139 $ 780 $1,000 $1,455 $1,005
Write-downs to net realizable value - - - 914 2,310
Provision for losses 192 920 673 307 -
Net loss (gain) on sales of real estate (220) (203) 1,338 (348) (41)
$111 $1,497 $3,011 $2,328 $3,274
</TABLE>
Note K--Deposits
Total deposits consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Noninterest bearing $ 38,036 $ 32,214 $ 31,307
Savings:
Regular savings 115,066 111,155 112,622
NOW accounts 77,411 77,274 73,194
Money market accounts 107,655 113,754 116,082
Total savings 300,132 302,183 301,898
Time certificates of deposit 204,162 216,808 242,312
Total deposits $542,330 $551,205 $575,517
</TABLE>
Time deposits with a minimum balance of $100,000 at September 30, 1994
(unaudited), and December 31, 1993 and 1992 totaled approximately $24,865,000,
$32,830,000 and $37,439,000, respectively. A summary of term certificates, by
maturity, is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1992
Weighted Weighted Weighted
Average Average Average
(In thousands) Amount Rate Amount Rate Amount Rate
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Within one year $125,678 4.22% $143,048 4.22% $164,089 4.55%
After one year through three years 51,558 4.85 66,341 5.02 76,653 6.04
After three years through five years 26,926 5.53 7,419 4.90 1,570 5.81
$204,162 4.55% $216,808 4.49% $242,312 5.03%
</TABLE>
At September 30, 1994 (unaudited) and December 31, 1993 and 1992, the
estimated fair value of total deposits was $541,147,000, $555,700,000 and
$578,950,000, respectively.
Note L--Short-Term Borrowed Funds
The following summarizes short-term borrowed funds:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Securities sold under agreement to repurchase:
Retail $ 8,855 $ 6,238 $5,471
Wholesale--3.55% (fixed rate) due January 14, 1994 - 14,644 -
Wholesale--5.15% (fixed rate) due October 25, 1994 15,229 - -
Total securities sold under agreement to repurchase 24,084 20,882 5,471
Treasury tax and loan demand notes - - 636
Total short-term borrowed funds $24,084 $20,882 $6,107
</TABLE>
Retail securities sold under agreement to repurchase at September 30,
1994 (unaudited) were due to mature by October 14, 1994 at a weighted average
interest rate of 1.40%. At December 31, 1993, such agreements were due to
mature by January 17, 1994 at a weighted average interest rate of 2.02%.
Note M--Advances from Federal Home Loan Bank of Boston
Advances from the Federal Home Loan Bank of Boston (FHLBB) consist of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993
(Unaudited)
<S> <C> <C>
Short-Term:
3.480% (fixed rate) due January 24, 1994 $ - $10,000
3.540% (variable rate) due January 31, 1994 - 10,000
3.375% (fixed rate) due March 14, 1994 - 26,600
5.03% (fixed rate) due October 11, 1994 10,000 -
4.90% (fixed rate) due October 19, 1994 10,000 -
5.05% (fixed rate) due October 24, 1994 20,000 -
4.92% (fixed rate) due October 25, 1994 10,000 -
5.23% (fixed rate) due November 10, 1994 15,000 -
5.27% (fixed rate) due November 23, 1994 10,000 -
5.45% (fixed rate) due December 28, 1994 5,000 -
Line of Credit -5.0875% (variable rate) 8,736 -
88,736 46,600
Long-Term:
5.00% (fixed rate) due January 9, 2003 201 201
$88,937 $46,801
</TABLE>
There were no outstanding advances from the FHLBB as of December 31,
1992.
CFX Bank has an available line of credit with the FHLBB at an interest
rate that adjusts daily. Borrowings under the line are limited to 2% of CFX
Bank's total assets. All borrowings from the FHLBB are secured by a blanket
lien on certain qualified collateral, defined principally as 90% of the fair
value of U.S. Government and federal agency obligations and 75% of the
carrying value of first mortgage loans on owner-occupied residential property.
Note N--Due to Broker
CFX records the purchase and sale of trading and investment securities
as of the trade date. Purchase transactions that have not yet settled as of
period end are recorded as due to broker.
Due to broker amounts at September 30, 1994 and December 31, 1993 and
1992 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Trading securities $20,047 $20,327 $ -
Investment securities - 12,927 1,024
$20,047 $33,254 $1,024
</TABLE>
Note O--Preferred Stock
At September 30, 1994 (unaudited), December 31, 1993 and December 31,
1992, CFX had outstanding 193,053, 194,074 and 194,482 shares, respectively,
of 7.5% Series A Cumulative Convertible Preferred Stock. The preferred stock
was issued as of April 30, 1990 in connection with the acquisition of The
Valley Bank.
The preferred stock is convertible on a one-to-one basis (adjusted for
CFX's 5% common stock dividend declared on December 13, 1993; see Note Y for a
description of CFX's common stock dividend declaration subsequent to 1993) at
the option of the shareholder at any time until the mandatory conversion date,
April 30, 1995.
The shareholders of the preferred stock are entitled to receive
cumulative cash dividends and have the right, voting as a single class with
the shareholders of CFX's common stock, to vote on all matters presented for a
shareholder vote. Each shareholder of the preferred stock is entitled to one
vote for each share held.
Note P--Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Nine Months Years Ended
Ended September 30, December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current tax provision (benefit):
Federal $1,931 $1,586 $1,501 $2,401 $1,368
State 348 34 61 - (99)
Total current 2,279 1,620 1,562 2,401 1,269
Deferred tax provision (benefit):
Federal 5 10 479 (401) (989)
State 2 53 22 - -
Total deferred 7 63 501 (401) (989)
Effect of tax law change 12 (218) (436) - -
Effect of change in valuation reserve - (387) (387) - -
Provision for income taxes $2,298 $1,078 $1,240 $2,000 $ 280
</TABLE>
The components of the net deferred tax assets included in other assets
are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Federal $3,837 $3,822 $4,377
State 523 537 -
4,360 4,359 4,377
Valuation allowance for deferred tax assets - - (387)
Total deferred tax assets 4,360 4,359 3,990
Deferred tax liabilities:
Federal (1,860) (1,993) (983)
State (252) (290) -
Total deferred tax liabilities (2,112) (2,283) (983)
Net deferred tax assets $2,248 $2,076 $3,007
</TABLE>
A summary of the change in the net deferred tax assets is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,076 $3,007 $3,007 $2,667 $ 536
Cumulative effect of a change in accounting principle - - - - 1,603
Deferred tax benefit (provision) (19) 542 322 401 989
Change in accounting principle effect on prior year
purchase accounting adjustments - - - - (538)
Purchase accounting effects of Colonial Mortgage, Inc.
acquisition - (1,371) (1,371) - -
Tax effects of net unrealized losses on investment
securities reflected in shareholders' equity 191 15 118 (61) 77
Balance at end of period $2,248 $2,193 $2,076 $3,007 $2,667
</TABLE>
The tax effects of each type of income and expense item that give rise
to deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses $2,678 $2,866 $2,444
Capital loss carryforwards 571 594 838
Stock write-downs 14 14 132
Net unrealized losses on trading and investment securities 390 132 41
Foreclosed real estate write-downs 10 92 299
Deferred point income 92 214 150
Book reserves 428 385 355
Other 177 62 118
Subtotal 4,360 4,359 4,377
Valuation allowance for deferred tax assets - - (387)
Total deferred tax assets 4,360 4,359 3,990
Deferred tax liabilities:
Depreciation (566) (576) (607)
Mortgage servicing rights (1,062) (1,215) -
Cash to accrual recapture (124) (167) -
Deferred gains (184) (169) -
Book over tax basis from investment in Colonial Mortgage, Inc. - - (237)
Other (176) (156) (139)
Total deferred tax liabilities (2,112) (2,283) (983)
Net deferred tax assets $2,248 $2,076 $3,007
</TABLE>
SFAS No. 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. Prior to 1993,
CFX believed that some uncertainty existed with respect to future realization
of capital loss carryforwards. Therefore CFX had established a valuation
allowance relating to capital loss carryforwards of $387,000 as of December
31, 1992. The valuation allowance was reversed in 1993 as a result of the
recognition of $1,266,000 in capital gains in 1993 and the development of tax
planning strategies that will utilize the capital loss carryforwards.
A summary of capital loss carryforwards and other temporary differences
that will result in capital loss (income) treatment when recognized for tax
purposes, along with the corresponding valuation allowance, is summarized as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1992
(In thousands) Amount @39% Amount @ 39% Amount @ 34%
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Tax capital loss carryforwards $1,465 $571 $1,522 $594 $2,466 $838
Other temporary differences that will
result in capital loss (income):
Stock write-downs 36 14 36 14 387 132
Net unrealized losses on marketable
equity securities - - 24 9 122 41
Book over tax basis from investment
in Colonial Mortgage, Inc. - - - - (697) (237)
1,501 585 1,582 617 2,278 774
Valuation allowance - - - - (1,139) (387)
$1,501 $585 $1,582 $617 $1,139 $387
</TABLE>
The capital loss carryforwards expire as of December 31, 1996.
Prior to 1993, CFX was not obligated to pay New Hampshire Business
Profits Tax (NHBPT) as a result of significant income derived from state tax-
free sources and a credit allowed for New Hampshire Franchise Tax. Therefore,
prior to 1993 no deferred taxes had been recognized for NHBPT purposes.
During 1993, as a result of the Franchise Tax being repealed by the New
Hampshire State legislature and CFX's significant reduction in income derived
from tax-free sources, CFX began to pay NHBPT. As a result of becoming
obligated to pay NHBPT in 1993, CFX fully recognized deferred taxes for NHBPT
in 1993.
CFX Bank qualifies under provisions of the Internal Revenue Code to
deduct from taxable income, if any, a provision for loan and lease losses
based on a percentage of taxable income before such deduction (PTI method).
Under the Tax Reform Act of 1986, the loan loss deduction allowable is limited
to 8% of taxable income.
At December 31, 1993, retained earnings include a tax loan loss reserve
of approximately $5,700,000 for which no provision for income taxes has been
made. If, in the future, such amounts are used for any purpose other than to
absorb loan losses, or if CFX Bank ceases to qualify to utilize the PTI method
under the Internal Revenue Code, CFX Bank will incur a tax liability at the
current applicable income tax rates. CFX anticipates that it will continue to
meet the qualifying asset test and that the $5,700,000 of retained earnings
will not be used for any purpose that would result in the payment of income
taxes. The unrecognized deferred tax liability on the $5,700,000 as of
December 31, 1993 is $2,200,000.
The following is a reconciliation of the statutory federal income tax
rate, applied to pre-tax accounting income, with the income tax provisions in
the consolidated statements of income:
<TABLE>
<CAPTION>
Nine months ended September 30,
(Dollars in thousands) 1994 1993
Amount Percent Amount Percent
(Unaudited)
<S> <C> <C> <C> <C>
Income tax expense at the statutory rate $2,098 34% $1,703 34%
Increase (decrease) resulting from:
Dividends received deduction (32) (1) (20) -
Tax-exempt interest income (182) (3) (65) (1)
Goodwill and deposit base intangible
amortization 174 3 157 3
Reversal of book over tax basis from
investment in Colonial Mortgage, Inc. - - (214) (4)
State income taxes, net of federal
income tax benefit 243 4 (150) (3)
Other, net (3) - 39 1
Change in valuation allowance - - (372) (8)
Income tax expense $2,298 37% $1,078 22%
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
(Dollars in thousands) 1993 1992 1991
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at the statutory rate $2,129 34% $1,971 34% $285 34%
Increase (decrease) resulting from:
Dividends received deduction (29) - (35) (1) (60) (7)
Tax-exempt interest income (91) (2) (93) (2) (155) (19)
Goodwill and deposit base intangible
amortization 215 3 218 4 218 26
Reversal of book over tax basis from
investment in Colonial Mortgage, Inc. (273) (4) - - - -
State income taxes, net of federal
income tax benefit (381) (6) - - (65) (8)
Other, net 42 1 23 - 26 3
Change in valuation allowance (372) (6) (84) (1) 31 4
Income tax expense $1,240 20% $2,000 34% $280 33%
</TABLE>
CFX's defined benefit pension plan and 401(k) savings plan are
summarized in the following tables:
Pension Plan
The following table sets forth the plan's funded status and amounts
recognized in CFX's consolidated balance sheets:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1993 1992
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $2,631,000 in
1993 and $2,114,000 in 1992 $(2,689) $(2,164)
Projected benefit obligation for service rendered to date $(3,221) $(2,660)
Plan assets at fair value, primarily invested in bank money market accounts,
equities, and group annuity contracts 3,076 3,108
Plan assets in excess of (less than) projected benefit obligation (145) 448
Unrecognized net gain from past experience different from that assumed and
effects of changes in assumptions (656) (1,023)
Prior service cost not yet recognized in net periodic pension cost 136 147
Unrecognized net asset at end of year (10) (11)
Accrued pension cost included in other liabilities $ (675) $ (439)
</TABLE>
Net pension expense includes the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Service cost--benefits earned during the period $268 $196 $221
Interest cost on projected benefit obligation 221 208 200
Actual return on plan assets (136) (267) (251)
Net amortization and deferral (117) 12 44
Net pension expense $236 $149 $214
</TABLE>
Pension expense for the nine months ended September 30, 1994 and 1993
(unaudited) amounted to $245,000 and $95,000, respectively.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 7.00% and 5.50%, respectively, in 1993 and
8.25% and 5.50%, respectively, in 1992 and 1991. The expected long-term rate
of return on plan assets was 7.5% for the years ended December 31, 1993, 1992,
and 1991.
401(k) Plan
The following table sets forth CFX's 401(k) plan expense recognized:
<TABLE>
<CAPTION>
Nine Nonths Ended
September 30, Years Ended December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Matching contribution $ 88 $ 61 $ 82 $ 76 $ 70
Supplemental profit sharing contribution 236 312 328 106 101
$324 $373 $410 $182 $171
</TABLE>
Note R--Stock Option Plan
CFX has a stock option plan (the Option Plan) whereby options may be
granted to certain key employees and directors of CFX and its subsidiaries to
purchase shares of common stock of CFX at a price not less than fair value at
the date of grant.
Both incentive stock options and nonqualified stock options may be
granted pursuant to the Option Plan. A total of 248,000 shares of authorized
but unissued common stock of CFX has been reserved for issuance pursuant to
incentive stock options granted under the Option Plan and 193,000 shares of
authorized but unissued common stock have been reserved for issuance pursuant
to nonqualified stock options granted. The options are exercisable over a
period not to exceed ten years from the date of grant.
Changes in the status of options are summarized as follows:
<TABLE>
<CAPTION>
Incentive Stock Options Nonqualified Stock Options
(In thousands, except price September 30, December 31, September 30, December 31,
per share data) 1994 1993 1993 1992 1991 1994 1993 1993 1992 1991
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period 237 193 193 191 218 30 47 47 47 47
Granted - 61 61 9 - 63 - - - -
Exercised @ $ 8.39 - (3) (3) - - - - - - -
@ $12.87 (4) - - - - - - - - -
@ $13.04 (7) - (9) - - (1) (5) (12) - -
Cancelled (1) (6) (5) (7) (27) - (5) (5) - -
Outstanding at end of period 225 245 237 193 191 92 37 30 47 47
Exercisable at end of period 225 245 237 193 191 92 37 30 47 47
Price range of options $ 8.39 $ 8.39 $ 8.39 $ 8.39 $ 8.39 $13.04 $13.04 - - -
outstanding $15.88 $15.88 $15.88 $13.04 $13.04 $14.74 $12.84 $13.04 $13.04 $13.04
Average price of options
outstanding $13.30 $13.99 $13.30 $12.62 $12.77 $14.20 $13.04 $13.04 $13.04 $13.04
</TABLE>
As provided for in the 1986 Stock Option Plan, all option information
has been restated for CFX's 5% common stock dividend declared on December 13,
1993. See Note Y for a description of CFX's common stock dividend declaration
subsequent to 1993.
Note S--Employee Stock Purchase Plan
CFX has an employee stock purchase plan (the Stock Purchase Plan)
whereby employees of CFX and its subsidiaries with more than one-half year of
continuous service, except for certain employees with substantial stock
interests in CFX or with substantial rights to purchase common stock, may
purchase up to an aggregate of 110,000 shares of CFX's common stock.
Eligible employees have the right to purchase common stock by
authorizing payroll deductions of up to seven percent of their base salary.
The Stock Purchase Plan provides for twenty quarterly offerings of 5,513
shares each, at a purchase price which would not be less than the lesser of
(1) 90% of the fair value per share on the offering date or (2) 90% of the
fair value per share on the date of exercise. The Board of Directors of CFX
may change the option price for subsequent offerings by increasing the
percentage of fair value to a percentage not greater than 100% or decreasing
the percentage of fair value to a percentage not less than 85%.
Eligible employees purchased 7,624, 7,889, and 10,662 shares of common
stock at an exercise price of $14.30 (average), $11.15 (average), and $6.63
per share during the nine months ended September 30, 1994 (unaudited) and
during the years ended December 31, 1993 and 1992, respectively. As provided
for in the 1992 employee stock purchase plan, all information has been
restated for CFX's 5% common stock dividend declared on December 13, 1993. See
Note Y for a description of CFX's common stock dividend declaration subsequent
to 1993.
Note T--Restrictions on Subsidiary Dividends, Loans and Advances
Certain restrictions exist regarding the ability of CFX Bank to transfer
funds to CFX in the form of cash dividends, loans and advances. Applicable
rules prohibit the payment of a cash dividend by CFX Bank if the effect
thereof would cause the net worth of CFX Bank to be reduced below applicable
net worth requirements.
Federal banking regulators require that CFX (on a consolidated basis) and
CFX Bank meet certain Tier 1 leverage capital and risk-based capital ratio
requirements. Generally, all but the most financially sound institutions are
required to maintain a minimum Tier 1 leverage capital ratio of not less than
4% and a risk-based capital ratio of not less than 8.00%. CFX and CFX Bank
exceeded all minimum regulatory requirements at September 30, 1994 (unaudited)
and December 31, 1993 and 1992.
Under Federal Reserve regulations, CFX Bank is also limited as to the
amount it may loan to CFX, unless such loans are collateralized by specified
obligations. At September 30, 1994 (unaudited) and December 31, 1993, the
maximum amount available for transfer from CFX Bank to CFX in the form of
loans approximated 8.71% and 8.87%, respectively of consolidated net assets.
Note U--Loans to Related Parties
In the ordinary course of business, CFX Bank makes loans to CFX's and
CFX Bank's subsidiary affiliates, directors and officers and their associates
and affiliated companies (related parties) at substantially the same terms,
including interest rates and collateral, as those prevailing at the time of
origination for comparable transactions with other borrowers.
The amounts due from directors, officers and their associates were
$5,978,000, $8,534,000 and $12,624,000 at September 30, 1994 (unaudited) and
December 31, 1993 and 1992, respectively. During the nine months ended
September 30, 1994 (unaudited), new loans totaling $2,774,000 were made and
repayments received totaled $5,330,000. During the year ended December 31,
1993, new loans totaling $5,966,000 were made, repayments received totaled
$2,494,000, and reductions in related party loans totaled $7,562,000. The
reduction in related party loans in 1993 was due to a decrease in the number
of directors as a result of merging CFX's three bank affiliates and the
resignation of certain directors during 1993.
At December 31, 1992, loans to CFX Bank's unconsolidated subsidiary,
Colonial, totaled $3,944,000. These loans were secured by real estate loans
held for sale and a blanket security interest on all of Colonial's other
assets. Interest on loans to Colonial was based upon a major Boston bank's
prime rate plus one-half to one and one-half percent.
Note V--Financial Instruments
CFX uses certain financial instruments in managing the interest rate
risk included in the consolidated balance sheet.
Futures and options contracts are used explicitly for hedge purposes and
are not undertaken for speculation. CFX's intent and general practice is to
liquidate (offset) futures and options contract obligations before stated
exercise or delivery dates through established market transactions. CFX does
not generally intend to deliver or receive the securities underlying its
futures and options contracts, but may execute delivery or receipt if it is
financially prudent to do so.
The detail on the specific financial instruments used, follows:
Interest Rate Exchange Agreements
During 1993, CFX entered into agreements to exchange interest rate cash
flows with approved counterparties. Swap agreements outstanding at September
30, 1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
September 30, 1994 (unaudited)
(Dollars in thousands)
Notional Maturity Unrealized
Assets Hedged Interest Received Interest Paid Amount Date Loss
<S> <S> <S> <C> <C> <C>
Mortgage loans held
in portfolio Fixed-4.37% Variable-6 mo. LIBOR $25,000 11/23/96 $(936)
(Rate of 4.9375%)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
(Dollars in thousands)
Notional Maturity Unrealized
Assets Hedged Interest Received Interest Paid Amount Date Loss
<S> <S> <S> <C> <C> <C> <C>
Mortgage loans held in portfolio Fixed-4.37% Variable-6 mo. LIBOR $25,000 11/23/96 $(52)
Trading securities Variable-3 mo. LIBOR Fixed-4.55% 7,500 11/18/96 -
Trading securities Variable-3 mo. LIBOR Fixed-5.13% 9,500 11/18/98 -
Trading securities Variable-3 mo. LIBOR N/A 10,000 10/18/97 -
with cap (1)
$52,000 $(52)
<F1> To be received only if and by the amount such rate exceeds 4.5%.
</TABLE>
The effect of the $25 million swap agreement is to lengthen the
repricing period of certain variable-rate mortgage loans. The $7.5 and $9.5
million agreements effectively shorten the repricing period of certain fixed-
rate mortgage-backed securities held in the trading portfolio. The $10 million
agreement, known as an interest rate cap contract, is intended to protect
against declining fair values of trading securities should interest rates move
significantly higher.
Financial Futures Contracts
CFX uses financial futures contracts to hedge interest rate exposure
generally on certain mortgage-backed securities held in the trading portfolio.
At September 30, 1994 (unaudited), CFX held short futures positions in 5 year
Treasury contracts totaling $9 million extending through December 1994. The
cost of U.S. Treasury bills pledged as collateral for initial margin on open
futures contracts was $115,000 at September 30, 1994 (unaudited). At December
31, 1993, CFX held short futures positions in euro-dollar contracts totaling
$120 million extending through March of 1995. The cost of U.S. Treasury bills
pledged as collateral for initial margin on open futures contracts was
$114,000 at December 31, 1993.
Financial Option Contracts
CFX uses financial options to hedge interest rate exposure generally on
certain mortgage-backed securities held in the trading portfolio as well as
secondary mortgage market operations. At September 30, 1994 (unaudited), CFX
held put options (the option to sell securities at a stated price within a
specified term) on euro-dollar obligations totaling $300 million extending
through September of 1995 for the trading portfolio and on 30-year Treasuries
totaling $3 million extending through December 1994 for mortgage loans held
for sale. At December 31, 1993, CFX held put options on U.S. Treasury bonds
totaling $9 million extending through March of 1994 and on euro-dollar
obligations totaling $325 million extending through December of 1994. CFX also
held call options (the option to buy securities at a stated price within a
specified term) on U.S. Treasury bonds totaling $2 million extending through
March of 1994.
The following table provides a rollforward of the notional amounts on
each type of financial instrument used by CFX to manage interest rate risk for
the period indicated:
<TABLE>
<CAPTION>
Interest Financial Financial
Rate Futures Option
Exchange Contracts Contracts
(In thousands) Agreements (Short Position) (Long Position)
<S> <C> <C> <C>
Balance at December 31, 1993 $52,000 $(120,000) $336,000
Contracts:
New - 849,000 950,800
Terminated (27,000) (738,000) (960,800)
Expired - - (23,000)
Balance at September 30, 1994 (unaudited) $25,000 $ (9,000) $303,000
</TABLE>
As mortgage-backed securities are purchased for the trading portfolio,
CFX assesses the price volatility under varying interest rates. A hedge using
a combination of interest rate exchange agreements, financial futures
contracts and financial option contracts is constructed to closely resemble
the volatility of the underlying security. On an ongoing basis, CFX monitors
the effectiveness of the hedge position to ensure appropriate matching of
price volatility.
Derivative instruments are monitored regularly to assess market price
changes. On at least a monthly basis, rate change analyses are done in order
to assess potential market risk in changing interest rate environments. When
the price volatility of derivative instruments varies from the price
volatility of assets being hedged, positions are adjusted to maintain an
appropriate match.
CFX includes all off-balance sheet and derivative positions in its
analysis of interest rate risk. Increases and decreases of both 100 and 200
basis points are analyzed in order to determine expected changes in earnings
and market values. Volatility in these analyses is maintained within policy
guidelines.
Note W--Financial Instruments with Off-Balance-Sheet Risk
CFX is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, option contracts, standby
letters of credit, interest-rate caps and floors, interest-rate swaps, and
futures contracts. These instruments involve, to varying degrees, elements of
credit and interest-rate risk in excess of the amount recognized in the
consolidated balance sheet. The off-balance-sheet contract or notional amounts
of these instruments reflect the extent of CFX's involvement in particular
classes of financial instruments.
CFX's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
these specific instruments. CFX uses the same credit policies in making these
commitments and conditional obligations as it does for on-balance-sheet
instruments. For interest-rate cap, floor and swap transactions; futures
contracts; and options contracts, the contract or notional amounts do not
represent CFX's exposure to credit loss. Rather, the credit loss exposure
relates to the net fair value to be received if such contracts were to be
offset in the marketplace. CFX controls the credit risk of its interest-rate
swap agreements and futures and options contracts through credit approvals,
limits, and monitoring procedures.
Unless noted otherwise, CFX does not require collateral or other
security to support financial instruments with credit risk.
At September 30, 1994 and December 31, 1993 and 1992, the following
instruments were outstanding:
<TABLE>
<CAPTION>
Contract or Estimated
Notional Amount Fair Value(1)
September 30, December 31, September 30, December 31,
(In thousands) 1994 1993 1992 1994 1993 1992
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to grant loans $83,970 $ 29,283 $17,579 $(284) $(169) $ (58)
Unadvanced funds on lines of credit 42,801 36,822 38,896 (295) (245) (228)
Standby letters of credit 1,087 738 1,050 (11) (7) (19)
Financial instruments whose contract or notional
amounts exceed the amount of credit risk:
Outstanding forward delivery contracts 52,028 142,697 - - - -
Futures contracts (short position) 9,000 120,000 - 31 - -
Interest-rate swap agreements (including caps
and floors) 25,000 52,000 - (936) (52) -
Financial options contracts (long position) 303,000 336,000 - 208 - -
<F1> Excludes instruments in the trading portfolio which are carried at fair
value.
</TABLE>
A commitment to extend credit is an agreement to provide financing to a
customer contingent upon compliance with all conditions established in the
contract. A commitment generally has a fixed expiration date or other
termination clause and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements. CFX
evaluates each customer's credit worthiness on an individual basis. The amount
of collateral obtained, if deemed necessary upon extension of credit, is based
on management's evaluation of the counterparty. The collateral held varies but
may include cash, accounts receivable, inventory, property, plant and
equipment, income-producing commercial properties, and residential real
estate.
Standby letters of credit are conditional commitments issued by CFX to
guarantee the performance of a customer to a third party. These commitments
are primarily issued to support private borrowing arrangements on a short-term
basis. The credit risk involved in issuing secured letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
Forward delivery contracts are contracts for delayed delivery of
mortgage loans or mortgage backed securities in which the seller agrees to
make delivery at a specified future date of a specified instrument, at a
specified price or yield. Credit risk to CFX arises from the possible
inability of counterparties to meet the terms of their contracts. In the event
of nonacceptance by the counterparty, CFX would be subject to the credit risk
of the loans retained. These loans would have been originated in the ordinary
course of business complying with CFX's standard credit evaluation and
collateral requirements. Failure to fulfill delivery requirements for these
contracts may result in payment of fees to certain investors.
Futures contracts are contracts for delayed delivery of securities or
money-market instruments in which the seller agrees to make delivery at a
specified future date of a specified instrument, at a specified price or
yield. Risks arise from the possible inability of counterparties to meet the
terms of their contracts and from movements in securities values and interest
rates. CFX enters into a variety of interest-rate contracts including
interest-rate caps and floors, interest-rate options, and interest-rate swap
agreements, in its trading portfolio, in its mortgage banking activity, and in
managing CFX's overall interest-rate exposure. Interest-rate options are
contracts that allow the holder of the option to purchase or sell a financial
instrument at a specified price within a specified period of time. For most
futures and options transactions, CFX uses recognized and centralized
exchanges for execution. These exchanges act as the counterparty to all
transactions, thereby minimizing the credit risk of market participants.
Interest-rate swap transactions generally involve the exchange of fixed
and floating-rate interest-payment obligations without the exchange of the
underlying principal amounts. CFX typically becomes a principal in the
exchange of interest payments between the parties and, therefore, is exposed
to loss should one of the parties default. CFX minimizes this risk by
performing normal credit reviews on its swap counterparties.
Entering into interest-rate swap agreements involves not only the risk
of dealing with counterparties and their ability to meet the terms of the
contracts but also the interest-rate risk associated with an unmatched
position. Notional principal amounts often are used to express the volume of
these transactions, but the amounts potentially subject to credit risk are
much smaller.
Note X-- Segment Information
On September 1, 1993, CFX purchased the remaining 52.4% of Colonial. CFX
previously owned 47.6% and, as a result of the purchase, Colonial became a
wholly-owned subsidiary. On November 15, 1993, Colonial was renamed CFX
Mortgage, Inc. The transaction was accounted for by the purchase method of
accounting, and accordingly, the results of operations of CFX Mortgage for the
nine months ended September 30, 1994 (unaudited) and from September 1, 1993 to
December 31, 1993, have been included in CFX's consolidated statement of
income. (See Note B--Mergers and Acquisitions.)
The summarized data for CFX's mortgage banking operations is as follows:
<TABLE>
<CAPTION>
Nine Months Period from
ended September 1, 1993 to
(In thousands) September 30, 1994 December 31, 1993
(Unaudited)
<S> <C> <C>
Net interest and dividend income $ 649 $ 191
Loan servicing fees 1,727 323
Net gain on sale of loans 440 595
Other income 300 160
Total income 3,116 1,269
Depreciation expense 99 53
Other expense 2,786 1,304
Income (loss) before income tax expense (benefit) 231 (88)
Income tax expense (benefit) 121 (30)
Net income (loss) $ 110 $ (58)
Total assets $ 32,800 $ 36,000
Total loans serviced for others $712,000 $705,000
Additions to property, plant and equipment $ 226 $ 1,502
</TABLE>
Substantially all loans serviced for others were sold without recourse
provisions.
The following is an analysis of the changes in mortgage servicing rights
(acquired and excess servicing fees receivable):
<TABLE>
<CAPTION>
Period from
Nine Months ended September 1, 1993
(In thousands) September 30, 1994 to December 31, 1993
<S> <C> <C>
Balance at beginning of period $4,557 $1,473
Purchase accounting adjustment - 3,463
Adjusted balance 4,557 4,936
Additions 312 112
Amortizations (533) (491)
Balance at end of period $4,336 $4,557
</TABLE>
Note Y--Subsequent Event
On July 26, 1994, CFX signed a definitive agreement to acquire all of
the outstanding capital stock of Orange Savings Bank (Orange), a
Massachusetts-chartered savings bank, headquartered in Orange, Massachusetts.
The acquisition is anticipated to be accounted for as a pooling-of-interests.
Pursuant to the definitive agreement, each of Orange's 724,412
outstanding shares of common stock (except for any dissenting shares and
shares beneficially held by CFX or Orange) will be converted into and
exchangeable for the number of shares of CFX Common Stock determined by
multiplying .8750 by a fraction, the numerator of which is $17.1429 and the
denominator of which is the average closing sale price per share of CFX Common
Stock on the American Stock Exchange for the ten trading days ending on the
business day before the date on which the required approval of the
Massachusetts Commissioner of Banks is obtained. This exchange ratio is
subject to adjustment in the event that (i) such average closing price is
above $20.00 or below $15.2381, (ii) CFX is a party to certain business
combinations or (iii) CFX issues shares of stock in certain transactions,
including, without limitation, stock splits and stock dividends.
The proposed transaction is subject to regulatory approval and approval
of Orange's shareholders. The transaction has already been approved by the
Board of Directors of CFX and Orange. At September 30, 1994 (unaudited),
Orange had assets of $83,949,000, deposits of $73,845,000, and stockholders'
equity of $8,619,000.
On December 12, 1994, CFX declared a 5% common stock dividend to
shareholders of record on December 23, 1994. All prior period common share and
per share data have been restated to reflect this stock dividend. In addition,
this stock dividend results in adjustments in the terms relating to the number
of shares of CFX Common Stock to be issued in exchange for shares of Orange
Common Stock. The description in the second preceding paragraph reflects these
adjustments.
Note Z--CFX Corporation (Parent-Company-Only) Condensed Financial Statements
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(Unaudited)
<S> <C> <C> <C>
Assets
Cash and due from banks $ 101 $ 111 $ 11
Interest bearing deposits with bank subsidiaries 8,581 7,756 3,716
Trading securities - - 11
Securities available for sale 32 - -
Securities held to maturity 3,056 886 -
Investment securities - - 718
Investment in bank subsidiaries 66,422 66,338 68,254
Other assets 2,832 2,441 1,933
$81,024 $77,532 $74,643
Liabilities $ 3,987 $ 1,748 $ 1,335
Shareholders' Equity 77,037 75,784 73,308
$81,024 $77,532 $74,643
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Years Ended December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income $ 197 $ 94 $ 126 $ 231 $ 386
Dividends from subsidiaries 3,600 2,250 7,750 2,000 1,705
Trading securities gains (losses) - 9 9 1 (87)
Investment securities gains - - - - 1
3,797 2,353 7,885 2,232 2,005
General and administrative expenses 489 731 919 710 503
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries 3,308 1,622 6,966 1,522 1,502
Income tax benefit (172) (492) (597) (264) (40)
Income before equity in undistributed net income
(loss) of subsidiaries 3,480 2,114 7,563 1,786 1,542
Equity in undistributed net income (loss) of subsidiaries 395 1,818 (2,541) 2,012 425
Income Before Cumulative Effect of a
Change in Accounting Principle 3,875 3,932 5,022 3,798 1,967
Cumulative effect on years prior to 1991 of a change
in accounting for income taxes - - - - 194
Net Income $3,875 $3,932 $5,022 $3,798 $2,161
</TABLE>
Note Z--CFX Corporation (Parent-Company-Only) Condensed Financial Statements
(Continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Years Ended December 31,
(In thousands) 1994 1993 1993 1992 1991
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income $3,875 $3,932 $5,022 $3,798 $2,161
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred tax benefit (97) (282) (311) (83) (243)
Net decrease in trading securities - - 11 29 381
Equity in undistributed net (income) loss of subsidiaries (395) (1,818) 2,541 (2,012) (425)
Other 1,846 643 (15) 322 689
Net Cash Provided by Operating Activities 5,229 2,475 7,248 2,054 2,563
Investing Activities
Capital contribution to subsidiary - (750) (750) (750) (500)
Net decrease (increase) in interest bearing deposits (825) 1,057 (4,040) 390 (1,814)
Proceeds from sales and maturities of investment securities 803 1,337 2,695 4,638 6,034
Purchases of investment securities (3,002) (2,321) (2,855) (4,131) (3,322)
Net Cash Provided (Used) by Investing Activities (3,024) (677) (4,950) 147 398
Financing Activities
Common cash dividends paid (2,286) (1,662) (2,287) (2,069) (2,757)
Preferred cash dividends paid (201) (202) (270) (274) (261)
Proceeds from issuance of common stock under
stock option plan 163 100 271 - -
Proceeds from issuance of common stock under
employee stock purchase plan 109 66 88 70 57
Net Cash Used by Financing Activities (2,215) (1,698) (2,198) (2,273) (2,961)
Increase (Decrease) in Cash and Cash Equivalents (10) 100 100 (72) -
Cash and cash equivalents at beginning of period 111 11 11 83 83
Cash and Cash Equivalents at End of Period $ 101 $ 111 $ 111 $ 11 $ 83
</TABLE>
Note AA--Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for
the nine months ended September 30, 1994 and the years ended December 31, 1993
and 1992:
<TABLE>
<CAPTION>
Three Months Ended
March 31, June 30, Sept. 30,
(In thousands, except per share data)
<S> <C> <C> <C>
1994
Interest and dividend income $11,925 $11,845 $12,425
Interest expense 4,940 5,118 5,522
Net interest and dividend income 6,985 6,727 6,903
Provision for loan and lease losses 0 0 50
Trading securities gains (losses) (440) 49 11
Investment securities gains 327 187 11
Other income 1,076 1,267 1,375
Other expense 6,120 5,979 6,156
Income before income taxes 1,828 2,251 2,094
Income taxes 715 859 724
Net income 1,113 1,392 1,370
Preferred stock dividend 67 68 66
Net income available to common stock $ 1,046 $ 1,324 $ 1,304
Earnings per common share $ .28 $ .34 $ .33
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, June 30, Sept. 30,(1) Dec. 31,(1)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1993
Interest and dividend income $11,640 $11,690 $11,216 $11,596
Interest expense 5,150 4,907 4,778 4,850
Net interest and dividend income 6,490 6,783 6,438 6,746
Provision for loan and lease losses (2) 1,320 900 750 -
Trading securities gains (losses) 154 44 144 (26)
Investment securities gains 725 439 569 891
Other income 546 592 901 1,288
Other expense 5,235 5,082 5,528 7,647
Income before income taxes 1,360 1,876 1,774 1,252
Income taxes 469 384 225 162
Net income 891 1,492 1,549 1,090
Preferred stock dividend 67 68 67 68
Net income available to common stock $ 824 $ 1,424 $ 1,482 $ 1,022
Earnings per common share (3) $ .22 $ .37 $ .38 $ .27
</TABLE>
Note AA--Quarterly Results of Operations (Unaudited) (Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31, June 30, Sept. 30,(1) Dec. 31,(1)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1992
Interest and dividend income $13,612 $13,410 $12,868 $12,521
Interest expense 7,833 7,069 6,416 5,771
Net interest and dividend income 5,779 6,341 6,452 6,750
Provision for loan and lease losses 651 759 515 986
Trading securities gains (losses) (8) 7 94 (101)
Investment securities gains (losses) (4) 125 59 86 (32)
Other income 623 617 680 1,014
Other expense 4,725 4,879 5,266 4,907
Income before income taxes 1,143 1,386 1,531 1,738
Income taxes 442 447 504 607
Net income 701 939 1,027 1,131
Preferred stock dividend 68 67 67 68
Net income available to common stock $ 633 $ 872 $ 960 $ 1,063
Earnings per common share (3) $ .16 $ .23 $ .26 $ .28
<F1> Reflects the results of operations of CFX Mortgage, Inc. commencing
September 1, 1993 versus 47.6% of such results previously recognized on the
equity method.
<F2> No provision in the fourth quarter reflects the significant reduction of
nonperforming loans.
<F3> Common per share earnings have been restated to reflect the 5% common
stock dividend declared on December 13, 1993. See Note Y for CFX's common
stock dividend declaration subsequent to 1993.
<F4> Included in investment securities losses for the quarter ended December
31, 1992 is $351,000 related to the write-down of certain marketable equity
securities held at December 31, 1992.
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Orange Savings Bank:
We have audited the accompanying consolidated balance sheets of Orange
Savings Bank and subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Bank'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 Orange
Savings Bank and subsidiary at December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1, effective December 31, 1993 the Bank adopted
Financial Accounting Standards Board Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities."
KPMG Peat Marwick LLP
Boston, Massachusetts
February 4, 1994
ORANGE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1992
(unaudited)
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 3,107 $ 1,674 $ 2,429
Federal funds sold 2,925 2,502 2,277
Total cash and cash equivalents 6,032 4,176 4,706
Certificates of deposit (Note 2) 488 484 484
Investment securities available for sale, (amortized cost $3,262 at September 30,
1994, $579 at December 31, 1993 and a market value of $897 at December 31,
1992) (Notes 3 and 7) 3,250 614 872
Investment securities (market value of $1,971 at September 30, 1994, $3,758
and $1,487 at December 31, 1993 and 1992, respectively)(Notes 3 and 7) 2,016 3,757 1,487
Loans, net of allowance for possible loan losses of $576 at September 30, 1994,
$595 and $483 at December 31, 1993 and 1992, respectively (Notes 4 and 7) 69,714 70,461 70,541
Stock in Federal Home Loan Bank of Boston, at cost (Note 7) 917 917 1,150
Land, building and equipment, net (Note 5) 464 444 442
Accrued income receivable 307 247 257
Deferred tax asset (Note 8) 109 55 -
Other real estate owned 311 457 918
Other assets 341 337 359
Total assets $83,949 $81,949 $81,216
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 6) $73,845 $72,394 $72,350
Advance payments from mortgagors 694 540 588
Accrued interest payable 2 3 7
Accrued and deferred income taxes (Note 8) 226 147 519
Other liabilities 563 642 605
Total liabilities 75,330 73,726 74,069
Commitments and contingencies (Note 10) - - -
Shareholders' equity (Notes 8, 9 and 11)
Serial preferred stock, par value $0.10 per share; 200,000 shares authorized,
none issued or outstanding - - -
Common stock, par value $0.10 per share; authorized 1,300,000 shares;
724,412 at September 30, 1994 (unaudited), 724,412 and 715,633 shares
issued and outstanding at December 31, 1993 and 1992, respectively 72 72 71
Additional paid-in capital 2,974 2,974 2,940
Unrealized (loss) gain on investment securities available for sale, net (Note 3) (3) 35 -
Retained earnings 5,576 5,142 4,136
Total shareholders' equity 8,619 8,223 7,147
Total liabilities and shareholders' equity $83,949 $81,949 $81,216
</TABLE>
See accompanying notes to consolidated financial statements.
ORANGE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Periods Ended September 30, 1994 and 1993
Years ended December 31, 1993, 1992 and 1991
(In thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Years
Ended September 30, Ended December 31,
1994 1993 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 3,935 $ 4,226 $ 5,560 $ 5,972 $ 6,117
Federal funds sold 70 52 66 115 232
Certificates of deposit 22 24 32 39 59
Investments 151 61 94 128 111
Dividends 81 98 131 147 170
Total interest and dividend income 4,259 4,461 5,883 6,401 6,689
Interest expense:
Deposits 1,853 2,034 2,667 3,301 3,707
Borrowed funds - - - 111 633
Total interest expense 1,853 2,034 2,667 3,412 4,340
Net interest and dividend income 2,406 2,427 3,216 2,989 2,349
Provision for possible loan losses (Note 4) 12 68 90 242 135
Net interest and dividend income after provision for possible
loan losses 2,394 2,359 3,126 2,747 2,214
Non-interest income:
Net gain (loss) from sale or writedown of investments 1 (5) (21) 91 (180)
Net gain from sales of loans 4 17 27 2 1
Net loss on investment in limited partnership - - - (1,120) (404)
Commissions, fees and other income 221 188 270 249 214
Net non-interest income 226 200 276 (778) (369)
Net interest, dividend and other income 2,620 2,559 3,402 1,969 1,845
Non-interest, expense:
Salaries and employee benefits (Note 9) 770 698 943 861 657
Building and equipment expenses 192 193 250 219 162
EDP processing fees 211 186 251 228 185
Legal fees 113 44 57 39 59
Other expenses 468 507 661 686 639
Total non-interest expenses 1,754 1,628 2,162 2,033 1,702
Income (loss) before income taxes and cumulative effect
of a change in accounting principle 866 931 1,240 (64) 143
Income taxes (Note 8) 345 372 91 465 398
Net income (loss) before cumulative effect of a change in
accounting principle - - 1,149 (529) (255)
Cumulative effect to January 1, 1992 of a change in
accounting for income taxes (Note 8) - - - 50 -
Net income, (loss) $ 521 $ 559 $ 1,149 $ (479) $ (255)
Average common and common equivalent shares outstanding 769,703 736,005 742,446 731,286 734,318
Earnings (loss) per share before cumulative effect of change
in accounting principle $ 0.68 $ 0.76 $ 1.55 $ (0.72) $ (0.35)
Earnings per share from cumulative effect of change in
accounting principle - - - $ 0.07 -
Earnings (loss) per share $ 0.68 $ 0.76 $ 1.55 $ (0.65) $ (0.35)
Cash dividends declared $ 0.12 $ 0.12 $ 0.20 $ 0.20 $ 0.18
</TABLE>
See accompanying notes to consolidated financial statements.
ORANGE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1994
Years ended December 31, 1993, 1992 and 1991
(In thousands except per share data)
<TABLE>
<CAPTION>
Unrealized
Gain (loss) on
Additional Securites
Common Paid-in Retained Available
Stock Capital Earnings for Sale Total
<S> <C> <C> <C> <C> <C>
Balance December 31, 1990 $71 $2,940 $5,127 $(208) $7,930
Cash dividends declared, $0.18 per share - - (114) - (114)
Net loss - - (255) - (255)
Increase in net unrealized loss on marketable equity
securities - - - 208 208
Balance December 31, 1991 71 2,940 4,758 - 7,769
Cash dividends declared, $0.20 per share - - (143) - (143)
Net loss - - (479) - (479)
Balance December 31, 1992 71 2,940 4,136 - 7,147
Cash dividends declared, $0.20 per share - - (143) - (143)
Stock options exercised 1 34 - - 35
Unrealized gains on marketable securities available
for sale, net - - - 35 35
Net income - - 1,149 - 1,149
Balance December 31, 1993 72 2,974 5,142 35 8,223
Cash dividends declared on Common stock
$0.12 per share (unaudited) - - (87) - (87)
Change in unrealized gains on marketable securities
available for sale, net (unaudited) - - - (38) (38)
Net income for nine months ended September 30, 1994
(unaudited) - - 521 - 521
Balance September 30, 1994 (unaudited) $72 $2,974 $5,576 $ (3) $8,619
</TABLE>
See accompanying notes to consolidated financial statements.
ORANGE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1994 and 1993
Years ended December 31, 1993, 1992 and 1991
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
1994 1993 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ 521 $ 559 $1,149 $ (479) $ (255)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 71 69 92 80 58
Provision for possible loan losses 12 68 90 242 135
Net amortization of premiums and discounts 8 11 (9) 34 11
Amortization of deferred loan income 3 (3) 3 13 12
(Gain) loss on sale or writedown of investment securities (1) 5 21 (91) 180
Gain on sale of loans 5 17 27 2 1
Loss on investment in limited partnership - - - 1,120 404
Increase (decrease) in accrued income receivable (60) (46) 10 108 14
(Decrease) increase in other real estate owned 146 498 461 (818) (100)
Increase (decrease) in deferred tax assets (54) - (55) - -
(Increase) decrease in other assets (58) (30) 22 38 (13)
Decrease in accrued interest payable (1) (5) (4) (17) (48)
Increase (decrease) in accrued and deferred income taxes 79 (54) (372) 92 93
(Decrease) increase in other liabilities (25) 12 37 338 91
Net cash provided by operations 636 1,067 1,418 658 581
Investing activities:
Investment securities purchased (2,736) (3,070) (3,807) (3,493) (8,858)
Proceeds from sale of investment securities 56 382 388 3,855 5,654
Proceeds from maturity of investment securities 1,750 680 1,430 1,750 1,250
Certificates of deposit purchased (99) - - (195) (774)
Proceeds from matured certificates of deposit 95 - - 285 876
Net decrease (increase) in loans 723 (144) 49 (8,288) (2,701)
Proceeds from redemption of FHLB stock - - 233 - -
Purchase of land, buildings and equipment (87) (43) (94) (38) (114)
Investment in real estate partnerships - - - - (124)
Net cash used by investing activities (298) (2,195) (1,801) (6,124) (4,791)
Financing activities:
Net increase in deposits 1,451 841 44 8,345 4,053
Acquisition of deposits - - - - 8,358
Increase (decrease) in mortgage escrow accounts 154 148 (48) (7) 138
Proceeds from borrowings - - - - 6,000
Repayment of borrowings - - - (1,500) (13,500)
Proceeds from the issuance of common stock under
stock option plan - 4
Cash dividends paid (87) (86) (143) (143) (114)
Net cash provided (used) by financing activities 1,518 907 (147) 6,695 4,935
Increase (decrease) in cash and cash equivalents 1,856 (221) (530) 1,229 725
Cash and cash equivalents at beginning of year 4,176 4,706 4,706 3,477 2,752
Cash and cash equivalents at end of year $6,032 $4,485 $4,176 $ 4,706 $ 3,477
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $1,854 $2,039 $2,671 $ 3,429 $ 4,388
Income taxes $ 320 $ 430 $ 490 $ 396 $ 344
Non-cash transactions:
Real estate acquired through foreclosure or substantively
repossessed $ 311 $ 420 $ 375 $ 919 $ 112
Stock options exercised $ 35 - -
</TABLE>
See accompanying notes to consolidated financial statements.
ORANGE SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--Summary of Significant Accounting Policies
The financial statements have been prepared in conformity with generally
accepted accounting principles and to general practices within the banking
community.
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 revenues and expenses for
the period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change relate to
the determination of the allowance for loan losses, valuation of other real
estate owned and valuation allowance on deferred tax assets. In connection
with the determination of the allowance for loan losses and the valuation of
other real estate owned, management obtains independent appraisals for
significant properties.
A substantial portion of Orange's loans are secured by real estate in
the Orange, Massachusetts area which has generally been affected by the
depressed economic environment in the northeastern United States. Accordingly,
the ultimate collectibility of a substantial portion of Orange's loan
portfolio and the recovery of a substantial portion of the carrying amount of
other real estate owned are susceptible to changes in market conditions in
these markets.
Basis of presentation
The consolidated financial statements include the accounts of Orange and
its wholly-owned subsidiary. Intercompany accounts and transactions have been
eliminated in consolidation.
Certain amounts in the 1992 and 1991 financial statements have been
reclassified to conform to the 1993 presentation without effect on
shareholders' equity or net income. The accompanying consolidated financial
statements for the nine months ended September 30, 1994 are unaudited and, in
the opinion of management, contain all adjustments, consisting of normal
recurring adjustments, which are necessary to fairly present the financial
position of Orange Savings Bank and Subsidiary as of September 30, 1994 and
the results of operations, changes in stockholders' equity and changes in cash
flows for the periods ended September 30, 1994 and 1993. The results of
operations for the interim period ended September 30, 1994 are not necessarily
indicative of the results for the entire year.
Statement of cash flows
Cash and cash equivalents include cash, due from banks and federal funds
sold.
Certificates of deposit
Certificates of deposit are carried at cost, which approximates market
value. All certificates mature within two years.
Investment securities
Effective December 31, 1993, Orange adopted Financial Accounting
Standards Board ("FASB") Statement of Accounting Standard No. 115 "Accounting
for Certain Investments in Debt and Equity Securities". Under FASB No. 115,
debt securities that Orange has the positive intent to hold to maturity are
classified as held-to-maturity and reported at amortized cost; debt and equity
securities that are bought and held principally for the purpose of selling in
the near term are classified as trading and reported at fair value with
unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held-to-maturity or trading are classified
as available-for-sale and reported at fair value with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity, net of estimated income taxes. FASB No. 115 does not
apply to unsecuritized loans. However, after mortgage loans are converted to
mortgage backed securities, they are subject to its provisions. Upon adoption,
Orange classified its investment securities into two categories: held-to-
maturity and available-for-sale; Orange has no securities held for trading. As
a result of adoption, shareholders' equity was increased by approximately
$35,000, representing the net unrealized gain on equity securities available
for sale, less applicable income taxes.
In 1992 and prior periods, investment securities intended to be held-to-
maturity were carried at amortized cost and marketable equity securities were
carried at the lower of aggregate cost or market value.
Premiums and discounts on investment securities are amortized or
accreted into income using the straight-line basis, the result of which
approximates the level yield method. If a decline in value below the amortized
cost basis of an investment security is judged to be other than temporary, the
cost basis of the investment is written down to fair value as a new cost basis
and the amount of the write-down is included as a charge against earnings.
Gains and losses on the sale of investment securities are recognized at the
time of sale on a specific identification basis.
Loans
Loans on which the accrual of interest has been discontinued are
designated as non-accrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full and timely collection of
interest or principal, or when a loan becomes contractually past due 90 days
with respect to interest or principal. The accrual of some loans, however, may
continue even though they are more than 90 days past due if management deems
it appropriate, provided that the loans are well secured and in the process of
collection. When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current period
interest income. Interest accruals are resumed on such loans only when they
are brought fully current with respect to interest and principal and when, in
the judgment of management, the loans are estimated to be fully collectable as
to both principal and interest.
Loan origination fees, net of certain direct loan origination costs, are
considered adjustments of interest rate yield and amortized into interest
income over the loan term.
Loans held for sale
Loans held for sale are carried at the lower of aggregate cost or market
value.
Allowance for loan losses
The allowance for loan losses is established through a provision for
loan losses charged to operations and is maintained at a level considered
adequate by management. Assessing the adequacy of the allowance for loan
losses involves substantial uncertainties and is based upon management's
evaluation of the amounts required to meet estimated losses inherent in the
loan portfolio after weighing various factors. Among the factors management
may consider are, generally, the level of non-accruing loans, current economic
conditions, trends in delinquencies and charge-offs and collateral values of
the underlying security. In connection with the determination of the allowance
for loan losses, management obtains independent appraisals for significant
properties. Ultimate loan losses may vary significantly from current
estimates.
Management believes that the allowance for loan losses is adequate;
however, future adjustments to the allowance may become necessary if future
economic conditions differ substantially from the assumptions used in making
the evaluation. In addition, various regulatory agencies periodically review
Orange's allowance for loan losses. Such agencies may require Orange to
recognize additions to the allowance based on judgments different from those
of management.
Stock in The Federal Home Loan Bank of Boston
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, Orange will receive an amount equal to the par value of the stock.
The stock is carried at cost.
Land, building and equipment
Land is stated at cost. Buildings and equipment are stated at cost, less
allowances for depreciation computed on a straight-line method over the
estimated useful lives of the respective assets.
The cost of maintenance and repairs is charged to earnings when
incurred. Major expenditures for betterments are capitalized and depreciated.
Other real estate owned
Other real estate owned is comprised of properties acquired through
foreclosure proceedings, acceptance of a deed in lieu of foreclosure or
substantively repossessed. When there is an indication that a borrower no
longer has equity in property collateralizing a loan and it is doubtful that
the equity will be rebuilt in the foreseeable future or foreclosure
proceedings are imminent, the property is considered 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
market value less selling cost of the property constructively or actually
received. Losses arising from the acquisition of such properties or from the
write-downs to fair value of loans substantively repossessed are charged
against the allowance for loan losses. Cost relating to the development and
improvement of property are capitalized, whereas operating expenses and any
subsequent provisions to reduce the carrying value to fair value minus cost to
sell are charged to current period earnings. Gains and losses upon disposition
are reflected in earnings as realized.
Income taxes
Effective January 1, 1992, Orange adopted Financial Accounting Standards
Board (FASB) Statement No. 109 "Accounting for Income Taxes". Statement 109
changed Orange's method of accounting for income taxes from the deferred
method required under APB 11 to the asset and liability method. The cumulative
effect of this accounting change totaling $50,000 has been reported separately
in the 1992 consolidated statement of operations. Under the asset and
liability method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of
Orange's assets and liabilities at the legislated tax rates which are expected
to be in effect when the temporary differences reverse. Orange's tax assets
and liabilities are reviewed regularly and adjustments are recognized as
deferred income tax expense or benefit based on management's judgment
regarding its realizability.
Pursuant to the deferred method which was applied in 1991 and prior
years, deferred income taxes were recognized for income and expense items that
are reported in different years for financial reporting purposes and income
tax purposes using the tax rate applicable in the year of the calculation.
Under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.
Earnings per share
Earnings per share is computed by dividing earnings by the average
number of common stock and common stock equivalents outstanding during the
year. Common stock equivalents include stock options outstanding when
dilutive.
Recent Accounting Developments
In May, 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", which
requires a change in accounting method for most financial institutions,
commencing with fiscal years beginning after December 15, 1994, with early
adoption permissible.
SFAS No. 114 is applicable to all creditors and to all loans,
uncollateralized as well as collateralized, except large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment
(i.e., residential mortgage, credit card and consumer installment loans),
loans that are measured at fair value or at the lower of cost or fair value
(i.e., loans in a trading or held for sale portfolio), leases, and convertible
or nonconvertible debentures and bond and other debt securities.
Management does not expect that adopting the provisions of SFAS No. 114
will have a material impact on Orange's financial statements.
NOTE 2--Certificates of Deposit (dollars in thousands)
Certificates of deposit at September 30, 1994 and December 31, 1993 and
1992, are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1992
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Original maturities within:
6 to 12 months $294 6.22% $194 6.87% $ - -
one to two years 194 6.35% 290 6.18% 194 6.87%
two to three years - - - - 290 6.18%
$488 6.27% $484 6.46% $484 6.46%
</TABLE>
NOTE 3--Investment Securities
A summary of investment securities classified as available for sale and
held to maturity at September 30, 1994 and December 31, 1993 is as follows:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale
United States Treasury
and agency obligations $2,739 $ - $42 $2,697 $ - $ - $ - $ -
Marketable equity
securities 523 68 38 553 579 49 14 614
$3,262 $68 $80 $3,250 $ 579 $49 $14 $ 614
Held to Maturity
United States Treasury
and agency obligations $2,016 $ 0 $45 $1,971 $3,757 $ 4 $ 3 $3,758
</TABLE>
A summary of investment securities at December 31, 1992, prior to the
adoption of FASB 115 is as follows:
<TABLE>
<CAPTION>
December 31, 1992
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
United States Treasury and Agency Obligations $1,487 $ - $ - $1,487
Marketable equity securities 872 94 67 897
$2,359 $94 $67 $2,384
</TABLE>
A schedule of the maturity distribution of bonds and obligations at
September 30, 1994 and December 31, 1993 and 1992, is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1992
Weighted Weighted Weighted
Average Average Average
(Dollars in thousands) Amount Rate Amount Rate Amount Rate
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Within 1 year $1,251 4.25% $1,999 3.70% $ 981 3.40%
Over 1 year to 5 years 3,469 5.58 1,758 4.11 506 5.10
Over 5 years to 10 years - - - - - -
After 10 years - - - - - -
$4,720 5.53% $3,757 3.89% $1,487 3.97%
</TABLE>
Realized gains on the sales of equity securities were $1,000, $25,000,
$73,000 and $116,000 for the nine months ended September 30, 1994 and years
ended December 31, 1993, 1992 and 1991, respectively. Realized losses on the
sales of equity securities were $0, $7,000, $25,000, $131,000 for the nine
months ended September 30, 1994 and years ended December 31, 1993, 1992 and
1991, respectively. Write-downs for impairment amounted to $39,000 and
$165,000 in 1993 and 1991, respectively. There were no write-downs for the
nine months ended September 30, 1994 and the year ended December 31, 1992.
NOTE 4--Loans
The composition of the balances of loans is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(unaudited)
<S> <C> <C> <C>
Mortgage Loans:
Conventional--adjustable rate $52,041 $51,398 $48,755
Conventional--fixed rate 10,255 10,995 14,227
F.H.A. and V.A 522 608 715
Total principal balances 62,818 63,001 63,697
Less: Due to borrowers on uncompleted loans (203) (384) (250)
Deferred loan fees (25) (28) (31)
Total mortgage loans 62,590 62,589 63,416
Other loans:
Equity line of credit 5,001 5,086 5,727
Auto 1,232 853 473
Education 434 548 476
Home Improvement 159 145 105
Secured 472 489 442
Personal 363 327 292
Total principal balances 7,661 7,448 7,515
Add: Deferred loan costs 8 8 7
Total other loans 7,669 7,456 7,522
Add: Loans in process 31 1,011 86
Less: Allowance for loan losses (576) (595) (483)
$69,714 $70,461 $70,541
</TABLE>
Orange's lending activities are conducted principally in Orange,
Massachusetts and the surrounding area. Orange makes single family and multi-
family residential loans and a variety of consumer loans. In addition, Orange
makes loans for the construction of residential homes.
Most loans made by Orange are collateralized either by real estate or
personal property. The ability of the single family residential and consumer
borrower to honor repayment commitments is generally affected by the level of
overall economic activity within the borrowers' geographic areas, on real
estate values and on the general economy.
In the ordinary course of business, Orange makes loans to directors and
executive officers, including their immediate families and companies with whom
they are affiliated. Such loans of $60,000 or more in the aggregate, which are
substantially on the same terms as those existing at the time of origination
for comparable transactions with other borrowers, amounted to $389,000,
$207,000 and $287,000 at September 30, 1994 (unaudited) and December 31, 1993
and 1992, respectively.
Loans serviced for others were $14,259,000, $13,461,000 and $5,640,000
at September 30, 1994 (unaudited) and December 31, 1993 and 1992,
respectively.
At September 30, 1994 (unaudited) and December 31, 1993 and 1992, loans
overdue 90 days and still accruing were $44,000, $448,000 and $379,000,
respectively. In addition, Orange had non-accrual loans during the same
periods of $410,000, $1,015,000 and $852,000, respectively. Forgone interest
on non-accrual loans amounted to approximately $25,000, $45,000 and $76,000
for the nine months ended September 30, 1994 (unaudited) and years ended
December 31, 1993 and 1992, respectively.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
(In thousands) 1994 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period $595 $483 $ 370 $251
Provision charged to operations 12 90 242 135
Net realized losses charged to allowance (45) (18) (129) (16)
Charge-offs recovered 14 40 - -
Balance at end of period $576 $595 $ 483 $370
Allocated as follows:
Mortgage loans $541 $551 $ 442 $327
Consumer loans 35 44 41 43
$576 $595 $ 483 $370
</TABLE>
NOTE 5--Land, Buildings and Equipment
A summary of these assets is presented in the following tabulation:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(In thousands) 1994 1993 1992 Useful Lives
(unaudited)
<S> <C> <C> <C>
Land $ 47 $ 47 $ 47
Land improvements 27 27 27 10 years
Building and improvements 534 534 534 32-40 years
Furniture and equipment 931 840 743 1-5 years
1,539 1,448 1,351
Less: Accumulated depreciation 1,075 1,004 909
$ 464 $ 444 $ 442
</TABLE>
Orange leases its branch office under an operating lease which expires
in 1997. The lease contains an option to extend the lease for an additional
two years. The lease stipulates that Orange pay one third of the real estate
taxes, insurance and maintenance costs. The annual rental expense under the
lease is $18,000 per year.
NOTE 6--Deposits
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
1994 1993 1992
Weighted Weighted Weighted
Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts $ 8,412 1.88% $ 8,011 2.12% $ 8,221 3.49%
Savings accounts 18,977 2.97% 18,865 3.21% 17,703 4.26%
Money market deposit accounts 13,889 3.22% 14,457 3.40% 15,058 4.36%
Demand deposit accounts 2,154 - 1,699 - 1,877 -
Total non-certificate accounts 43,432 2.84% 43,032 3.12% 42,859 3.79%
Term deposit certificates 13,043 5.07% 12,938 5.05% 10,306 6.19%
Money market certificates 17,370 3.26% 16,424 4.40% 19,185 5.42%
Total certificate accounts 30,413 4.28% 29,362 4.65% 29,491 5.67%
Total deposits $73,845 3.41% $72,394 3.71% $72,350 4.80%
</TABLE>
A summary of certificate accounts by maturity at September 30, 1994 and
December 31, 1993 is as follows:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
In Denominations In Denominations
(Dollars in thousands) Under $100 Over $100 Total Under $100 Over $100 Total
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
3 months or less $ 3,589 $ 431 $ 4,020 $ 7,166 $ 366 $ 7,532
3-6 months 6,647 432 7,079 6,052 365 6,417
6-12 months 12,228 862 13,090 6,234 732 6,966
12 months or more 5,904 328 6,232 7,412 1,035 8,447
$28,368 $2,053 $30,421 $26,864 $2,498 $29,362
</TABLE>
Interest expense on deposits of $100,000 or more was $70,000, $110,000,
$131,000 and $107,000 for the nine months ended September 30, 1994 (unaudited)
and the years ended December 31, 1993, 1992 and 1991, respectively. Orange had
no brokered certificates of deposit at September 30, 1994 and December 31,
1993 or 1992.
NOTE 7--Borrowed Funds
Orange is a member of the Federal Home Loan Bank of Boston. As a member,
Orange is generally entitled to borrow up to 30% of its total assets.
Borrowings from the Federal Home Loan Bank of Boston are secured by a blanket
lien on residential first mortgage loans, investment securities and all stock
in the Federal Home Loan Bank of Boston equal in value to the amount of
borrowings outstanding.
Additional information regarding these borrowings is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
(Dollars in thousands) 1994 1993 1992
(unaudited)
<S> <C> <C> <C>
Average amount outstanding for the year - - $1,392
Weighted average interest rate thereon - - 7.97%
Maximum amount outstanding during the year - - $1,500
</TABLE>
NOTE 8--Income Taxes
Effective January 1, 1992, Orange adopted Statement of Accounting
Standards No. 109, "Accounting for Income Taxes" which changed the method
of accounting for income taxes from the deferred method to the asset and
liability method. The cumulative effect of this accounting change of $50,000
was determined as of January 1, 1992 and is reported separately in the
Consolidated Statement of Operations for the year ended December 31, 1992.
Prior period financial statements have not been restated.
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C>
Current tax expense (benefit)
Federal $295 $298 $ 133 $328 $196
State 104 137 134 144 126
Total current tax expense (benefit) 399 435 267 472 322
Deferred tax expense (benefit)
Federal (39) (43) 222 (7) 76
State (15) (20) (14) - -
Total deferred expense (benefit) (54) (63) 208 (7) 76
Change in valuation reserve - - (384) - -
Total income tax expense (benefit) $345 $372 $ 91 $465 $398
</TABLE>
The difference between total expected income tax expense (benefit)
computed by applying the statutory Federal income tax rate of 34% to income
(loss) before income taxes and cumulative effect of accounting change and the
reported income tax expense (benefit) for the periods indicated is analyzed as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1993 1992 1991
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax statutory rate 34% 34% 34% 34% 34%
State income taxes net of Federal benefit 8 8 6 95 58
Bad debt deduction - - - - 30
Loss on investment in real estate limited partnerships - - - 603 120
Capital loss for which no current benefit is available - - - 28 36
Change in valuation reserve - - (31) - -
Other (2) (2) (2) 22 -
Effective income tax rate 40% 40% 7% 782% 278%
The tax effects of temporary differences (the differences between the
financial statement carrying amounts 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>
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrued pension costs $ 103 $ 76 $ 55
Other 58 37 110
Allowance for loan loss 206 202 175
Premium on deposits 17 17 -
Security write-downs 90 89 79
State net operating loss 48 48 52
Capital loss carryforward 58 43 118
Gross deferred tax asset 580 512 589
Valuation reserve (195) (180) (564)
385 332 25
Deferred tax liabilities:
Banking premises and equipment 22 23 25
Real estate partnership losses 254 254 121
276 277 146
$109 $ 55 ($121)
</TABLE>
Based on Orange's historical and current pretax earnings, management
believes it is more likely than not that Orange will realize the net deferred
tax asset existing at December 31, 1993. Further, management believes the
existing net deductible temporary differences will reverse during periods in
which Orange generates net taxable income. At December 31, 1993, recoverable
income taxes, plus estimated taxes for 1994, exceeded the amount of the net
deferred tax asset. There can be no assurance, however, that Orange will
generate any earnings or any specific level of continuing earnings.
Orange's subsidiary, Orange Corporation, has state net operating loss
carryforwards of approximately $500,000 which expire within five years of
December 31, 1994.
At December 31, 1993, retained earnings include a tax loan loss reserve
of approximately $1,400,000 for which no provision for income taxes has been
made. If, in the future, such amounts are used for any purpose other than to
absorb loan losses, or if Orange ceases to qualify to utilize the PTI method
under the Internal Revenue Code, Orange will incur a tax liability at the
current applicable income tax rates. Orange anticipates that it will continue
to meet the qualifying assets test and that the $1,400,000 of retained
earnings will not be used for any purpose that would result in the payment of
income taxes. The unrecognized deferred tax liability on the $1,400,000 as of
December 31, 1993 is $575,000.
NOTE 9--Employee Benefits
Orange has a qualified defined benefit plan providing for pension
benefits through membership in the Savings Bank Employees Retirement
Association. All full-time employees who have reached age 21 and have
completed one year of service are automatically eligible to participate. All
participants become fully vested in the plan after three years or at age 62.
The following table sets forth the plan's funded status and amounts
recognized in Orange's consolidated financial statements, as of October 31,
1993 the most recent date for which such information is available:
<TABLE>
<CAPTION>
1993 1992
(In thousands)
<S> <C> <C>
Plan assets at fair value $ 568 $ 487
Actuarial present value of benefit obligations:
Vested benefits 407 344
Non-vested benefits 3 1
Accumulated benefit obligation 410 345
Effect of projected future salary increases 421 339
Projected benefit obligation for past service 831 684
Plan assets less than projected benefit obligations (263) (197)
Unrecognized liability being recognized over 26 years
commencing November 1, 1986 (63) (67)
Accrued pension cost $(200) $(130)
</TABLE>
Net pension expense for the years ended December 31 includes the
following components:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
Service costs earned during the year $ 64 $ 48 $ 33
Interests costs on projected benefit obligation 58 40 34
Actual return on plan assets (40) (36) (74)
Net amortization and deferral 2 12 46
Net periodic pension cost $ 84 $ 64 $ 39
</TABLE>
The weighted average discount rates used in determining the projected
benefit obligation were 7.00% in 1993, 7.00% in 1992 and 6.75% in 1991. The
expected long-term return on plan assets was 7.00% in 1993, 6.75% in 1992 and
7.75% in 1991. The rate of increase in future compensation levels used in
determining projected benefit obligations was 6%.
Stock Option Plans
Orange has adopted Stock Option Plans which provide for the granting of
options to purchase shares of Orange's common stock to eligible employees to
provide incentives and encourage their continued employment. The term of each
plan is ten years. Each stock option will terminate no later than ten years
from the date of grant. Orange has reserved 285,922 shares of common stock for
issuance pursuant to the plans. Options may be granted from time to time at a
purchase price per share of 100% of the fair market value per share of stock
on the date of the grant. At December 31, 1993, 81,049 shares were
exercisable under the plans. Transactions involving the Stock Option Plans are
as follows:
<TABLE>
<CAPTION>
Number Price Range
of Per
Shares Share
<S> <C> <C>
1987 Plan
Granted upon conversion 71,388 $ 4.44
Options exercised (17,762) 4.44
Options canceled (37,066)
Options outstanding from 1987 Plan at December 31, 1993 16,560 4.44
1988 Plan
Options granted 69,958 6.00
Options exercised (1,621) 6.00
Options canceled (36,822)
Options outstanding from 1988 Plan at December 31, 1993 31,515 6.00
1989 Plan
Options granted 37,005 12.38
Options exercised -
Options canceled (4,031)
Options outstanding from 1989 Plan at December 31, 1993 32,974 12.38
Total options outstanding
at December 31, 1993 81,049 $ 4.44 to $12.38
</TABLE>
NOTE 10--Commitments and Contingencies
Orange is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the needs of its customers. These
financial instruments include commitments to originate loans and fund
unadvanced amounts on lines of credit. The instruments involve, to various
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. Commitments to fund loans amounted to
$1,060,000 and $1,905,000 and unadvanced lines of credit were approximately
$4,807,000 and $4,946,000, respectively, at December 31, 1993 and 1992.
At September 30, 1994 (unaudited), Orange had firm commitments of
$278,500 to make loans which are not reflected on the consolidated balance
sheet. In addition, the unused portions of home equity loans outstanding
amounted to $4,469,000. There were no loans held for sale at September 30,
1994.
Orange's exposure to credit loss in the event of nonperformance by the
other party to financial instruments for loan commitments and unadvanced
equity lines is represented by the contractual amounts of those instruments.
Orange evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained is based on management's credit
evaluation of the borrower.
Orange is subject to certain litigation which is incurred in the
ordinary course of business. After consultation with counsel, management is of
the opinion that the aggregate liability, if any, resulting from such
litigation will not be material to Orange's consolidated financial position.
NOTE 11--Shareholders' Equity
Upon completion of its conversion to stock ownership in 1987, Orange was
required to establish a "Liquidation Account" in the amount equal to the
shareholders' equity of Orange at September 30, 1986 totalling $2,372,000 for
the benefit of eligible account holders who continue to maintain their
accounts with Orange after conversion. The "Liquidation Account" amounted to
approximately $617,000 (unaudited) at December 31, 1993 and will be reduced in
proportion to reduction in the balances of an eligible holder's interest in
his or her liquidation sub-account. Eligible account holders would be
entitled, in the event of a complete liquidation of Orange and only in such
event, to receive liquidating distributions of any assets remaining after
payment of all applicable taxes and creditors claims (including the claims of
all depositors to the withdrawal values of their deposit accounts), but before
any distributions are made to Orange's capital shareholders, equal to their
interests at that time in the Liquidation Account.
Orange may not declare or pay any cash dividend on its common stock if
the effect thereof would cause the net worth of Orange to be reduced below the
amount required to be maintained for the Liquidation Account.
Orange is required to comply with Federal regulatory requirements. These
require the most highly rated banks to maintain a core or Tier 1 (see
definition below) leverage capital ratio of at least 3% and other banks to
maintain a Tier 1 leverage capital ratio of 4% to 5%.
Risk-based capital guidelines also apply. The guidelines establish a
risk-adjusted ratio relating capital to different categories of balance sheet
assets and off-balance sheet obligations, which are assigned to one of four
risk-weighted categories. Two categories of capital are defined: Tier 1 or
core capital (primarily, common stock, retained earnings and a limited amount
of perpetual preferred stock, less goodwill) 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). Total
capital is the sum of Tier 1 and Tier 2 capital. The minimum total risk-based
capital ratio required was 8% at December 31, 1993 and 1992.
At September 30, 1994 (unaudited) and December 31, 1993, Orange's
capital ratios exceeded all regulatory capital requirements.
NOTE 12--Acquisition
In August 1991, Orange acquired the Athol branch of Peoples Savings Bank
of Worcester, purchasing $8.4 million of deposits and its operations. The
premium paid in connection with this acquisition amounted to $170,000. The
transaction was accounted for as a purchase. At September 30, 1994 (unaudited)
and December 31, 1993, the unamortized premium was $95,000 and $113,000,
respectively, and is included in other assets in the accompanying consolidated
balance sheets.
NOTE 13--Quarterly results
<TABLE>
<CAPTION>
1994 Quarters
(Dollars in thousands, except per share data) Third Second First
(unaudited)
<S> <C> <C> <C>
Interest income $1,469 $1,415 $1,375
Interest expense 626 618 609
Net interest income 843 797 766
Provision for possible loan losses 0 0 12
Other income 73 96 57
Other expense 619 565 574
Income before income taxes 297 328 237
Income taxes 119 131 95
Net income $ 178 $ 197 $ 142
Weighted average shares outstanding 769,703 742,474 741,699
Earnings per share $0.23 $0.27 $0.19
Cash dividend per share $0.04 $0.04 $0.04
</TABLE>
<TABLE>
<CAPTION>
1993 Quarters 1992 Quarters
(In thousands except per share data) Fourth Third Second First Fourth Third Second First
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $1,422 $1,460 $1,502 $1,499 $1,580 $1,630 $1,601 $1,590
Interest expense 633 658 670 706 772 852 875 913
Net interest income 789 802 832 793 808 778 726 677
Provision for possible loan losses (22) (23) (22) (23) (125) (69) (22) (26)
Other income 76 55 82 63 (760) 106 (219) 95
Other expenses (534) (549) (562) (517) (626) (468) (511) (428)
Income before income taxes 309 285 330 316 (703) 347 (26) 318
Effect of accounting change - - - - - - - 50
Income taxes (281) 114 132 126 95 148 105 117
Net income $ 590 $ 171 $ 198 $ 190 $ (798) $ 199 $ (131) $ 251
Weighted average shares outstanding 742,446 736,005 732,273 742,567 731,286 728,799 724,763 729,799
Earnings per share $ 0.79 $ 0.23 $ 0.27 $ 0.26 $(1.09) $ 0.27 $(0.18) $ 0.35
Cash dividend per share $ 0.08 $ 0.04 $ 0.04 $ 0.04 $ 0.06 $ 0.04 $ 0.06 $ 0.04
</TABLE>
In the fourth quarter of 1992, Orange wrote off the balance of its
limited partnership investments. In the fourth quarter of 1993, Orange
adjusted its tax valuation reserve.
Annex A
EXECUTION COPY
Amended and Restated
Agreement and Plan of Merger
between
CFX Corporation
and
Orange Savings Bank
July 26, 1994
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<C> <S> <C>
1.1 The Merger A-7
1.2 Effective Time A-7
1.3 Charter and By-laws A-7
1.4 Directors of Surviving Bank and Buyer A-7
1.5 Officers of Surviving Bank A-8
1.6 Additional Actions A-8
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Orange Common Stock A-8
2.2 Procedures for Exchange of Orange Common Stock for Merger Consideration A-9
(a) Buyer to Make Shares Available A-9
(b) Exchange of Certificates A-9
(c) Rights of Certificate Holders after the Effective Time A-9
(d) Fractional Shares A-10
(e) Surrender by Persons Other than Record Holders A-10
(f) Closing of Transfer Books A-10
(g) Return of Exchange Fund A-10
2.3 Buyer Sub Common Stock A-10
2.4 Dissenters' Rights A-10
2.5 Stock Options A-11
2.6 Effects of the Merger; Liquidation Account A-11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ORANGE
3.1 Corporate Organization A-12
3.2 Capitalization A-12
3.3 Authority A-13
3.4 No Violation A-13
3.5 Consents and Approvals A-13
3.6 Regulatory Approval A-13
3.7 Financial Statements A-14
3.8 Reports A-14
3.9 Absence of Certain Changes or Events A-14
3.10 Legal Proceedings A-15
3.11 Taxes and Tax Returns A-15
3.12 Properties A-15
3.13 Certain Contracts A-16
3.14 Certain Defaults A-16
3.15 Insurance A-16
3.16 Employee Benefit Plans A-16
3.17 Compliance with Applicable Law; Regulatory Examinations A-17
3.18 Broker's Fees A-17
3.19 Orange Information A-18
3.20 Environmental Issues A-18
3.21 Material Interest of Certain Persons A-18
3.22 Certain Transactions A-18
3.23 Regulatory Agreements A-18
3.24 Status as a Limited Partner A-18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Organization A-19
4.2 Capitalization A-19
4.3 Authority A-19
4.4 No Violation A-19
4.5 Consents and Approvals A-20
4.6 Regulatory Approval A-20
4.7 Financial Statements A-20
4.8 SEC Reports A-21
4.9 Absence of Certain Changes or Events A-21
4.10 Legal Proceedings A-21
4.11 Fairness Opinion A-21
4.12 Buyer Information A-21
4.13 Capital A-22
4.14 Regulatory Agreements A-22
ARTICLE V
COVENANTS OF ORANGE
5.1 Conduct of Business A-22
(a) Affirmative Covenants A-22
(b) Negative Covenants A-22
5.2 No Solicitation A-24
5.3 Current Information A-24
5.4 Access to Properties and Records A-24
5.5 Financial and Other Statements A-24
5.6 Approval of Orange's Stockholders A-24
5.7 Disclosure Supplements A-25
5.8 Failure to Fulfill Conditions A-25
5.9 Consents and Approvals of Third Parties A-25
5.10 All Reasonable Efforts A-25
ARTICLE VI
COVENANTS OF BUYER
6.1 Conduct of Business A-25
6.2 Consents and Approvals of Third Parties A-25
6.3 All Reasonable Efforts A-25
6.4 Failure to Fulfill Conditions A-25
6.5 Disclosure Supplements A-25
6.6 Financial and Other Statements A-26
6.7 Employee Benefits A-26
6.8 Deposit of Exchange Fund with Exchange Agent A-26
6.9 Directors and Officers Indemnification and Insurance A-26
6.10 Stock Exchange Listing A-27
6.11 Buyer Sub A-27
ARTICLE VII
REGULATORY AND OTHER MATTERS
7.1 Proxy Statement-Prospectus A-28
7.2 Regulatory Approvals A-28
7.3 Affiliates; Publication of Combined Financial Results A-28
ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions to Each Party's Obligations under this Agreement A-29
(a) Stockholder Approval A-29
(b) Injunctions A-29
(c) Regulatory Approvals A-29
(d) Effectiveness of Registration Statement A-29
(e) Stock Exchange Listing A-29
(f) Tax Rulings or Opinions A-29
8.2 Conditions to the Obligations of Buyer under this Agreement A-30
(a) Representations and Warranties A-30
(b) Agreements and Covenants A-30
(c) Permits, Authorizations, Etc. A-30
(d) Legal Opinion A-30
(e) Pooling of Interests A-30
(f) Dissenting Orange Shareholders A-30
(g) Accountants' Letter A-31
(h) Fairness Opinion A-31
8.3 Conditions to the Obligations of Orange under this Agreement A-31
(a) Representations and Warranties A-31
(b) Agreements and Covenants A-31
(c) Permits, Authorizations, Etc. A-32
(d) Legal Opinion A-32
(e) Fairness Opinion A-32
ARTICLE IX
THE CLOSING
9.1 Time and Place A-32
9.2 Deliveries at the Closing A-32
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination A-32
10.2 Effect of Termination A-33
10.3 Termination Fee A-33
10.4 Expenses A-34
10.5 Amendment, Extension and Waiver A-34
ARTICLE XI
CERTAIN DEFINITIONS
11.1 Certain Definitions A-34
ARTICLE XII
MISCELLANEOUS
12.1 Confidentiality A-35
12.2 Public Announcements A-35
12.3 Survival A-35
12.4 Notices A-36
12.5 Parties in Interest A-36
12.6 Complete Agreement A-36
12.7 Counterparts A-36
12.8 Severability A-36
12.9 Governing Law A-37
12.10 Headings A-37
</TABLE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Adjusted Maximum Exchange Ratio A-8
Affiliate A-34
Agreement A-7
Articles of Merger A-7
Average Closing Price A-8
Bank Regulator A-13
BBI A-13
Buyer A-7
Buyer Audited Financial Statements A-20
Buyer Common Shares A-19
Buyer Common Stock A-8
Buyer Financial Statements A-20
Buyer Interim Financial Statements A-20
Buyer Preferred Shares A-19
Buyer Reports A-21
Buyer Stock Option A-11
Buyer Stock Option Plan A-19
Buyer Sub A-7
Central Fund A-13
Certificate A-8
Closing A-7
Closing Date A-7
Code A-11
Dissenting Shares A-10
Effective Time A-7
Environmental Laws A-35
Environmental Permits A-35
ERISA Plans A-17
Exchange Act A-12
Exchange Fund A-9
Exchange Ratio A-8
Exhibit A A-30
Exhibit B A-32
Expenses A-33
FDIA A-17
FDIC A-13
Federal Reserve A-13
Hazardous Substances A-35
HSR Act A-13
Increased Dividend A-22
Indemnified Parties A-26
Investment Advisor A-17
Last Closing Price A-10
Massachusetts Commissioner A-8
Material Adverse Effect A-35
Maximum Exchange Ratio A-8
MBCL A-10
Merger A-7
Merger Consideration A-8
MHP A-13
Minimum Exchange Ratio A-8
Orange A-7
Orange Audited Financial Statements A-14
Orange Common Stock A-8
Orange Financial Statements A-14
Orange Interim Financial Statements A-14
Orange Option A-11
Orange Preferred Shares A-12
Orange Reports A-14
Orange Stock Option Plans A-11
Orange Sub A-18
Orange Subsidiaries A-12
Pension Plan A-17
Person A-35
Proxy Statement-Prospectus A-28
Record Holder A-9
Registration Statement A-28
Schedules A-12
SEC A-21
Secretary of State A-7
Securities Act A-11
Special Meeting A-24
Stock Exchange A-8
Subsidiaries A-35
Subsidiary A-35
Surviving Bank A-7
Termination Date A-32
Termination Fee A-33
Valuation Period A-8
Welfare Plan A-17
</TABLE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of July
26, 1994 (this "Agreement"), by and between CFX Corporation, a New Hampshire
corporation ("Buyer"), and Orange Savings Bank, a Massachusetts-chartered
savings bank in stock form ("Orange"). (Certain capitalized terms used herein
shall have the meanings defined in Section 11.1 hereof.)
WHEREAS, Buyer intends to cause to be organized a Massachusetts bank
that will be a wholly-owned direct or indirect 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 Orange have
approved the acquisition of Orange by Buyer pursuant to the merger of Buyer
Sub with Orange (the "Merger"); and
WHEREAS, Buyer and Orange executed an Agreement and Plan of Merger on
July 26, 1994; and
WHEREAS Buyer and Orange now wish to amend and restate their Agreement
and Plan of Merger to correct certain typographical and technical errors;
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 Massachusetts law, and Buyer Sub shall be merged
into Orange. Orange shall be the surviving bank of the Merger (the "Surviving
Bank"). At the Effective Time, the separate existence of Orange shall cease
and all of the rights, privileges, powers, franchises, properties, assets,
liabilities and obligations of Orange shall be vested in and assumed by
Surviving Bank.
1.2 Effective Time. The Merger shall be effected by the filing of
articles of merger (the "Articles of Merger") with the Secretary of State of
The Commonwealth of Massachusetts (the "Secretary of State") in accordance with
Massachusetts law to 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 Articles of Merger.
1.3 Charter and By-laws. The Charter and By-laws of Surviving Bank shall
be the Charter and By-laws of Orange 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 Orange
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 three additional directors to
serve on the Board of Surviving Bank. Buyer agrees that, except as provided in
the previous sentence, the Board of Directors of Orange will be kept in place
for at least three years subject to regulatory considerations, safe and sound
banking practices, and the fiduciary duties of Buyer's directors.
(b) Prior to or at the Effective Time one of Orange's current directors
(designated, subject to the reasonable approval of Buyer, by a vote of
Orange's Board of Directors prior to the Effective Time) shall be elected to
the Board of Directors of Buyer to serve in the class whose term expires in
1996. The Board of Directors of Buyer shall nominate such designee for
election, and support his or her election, at the next succeeding annual
meeting of shareholders of Buyer, to its Board of Directors to serve in the
class whose term expires in 1996.
1.5 Officers of Surviving Bank. The officers of Orange 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 Orange 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, Orange 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 Orange or otherwise to take
any and all such action.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Orange Common Stock. (a) At the Effective Time, each
share of the common stock, par value $.10 per share, of Orange (the "Orange
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 Orange Common Stock then owned by Orange, any Orange 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 the number of shares (the "Exchange
Ratio") of the common stock, par value $1.00 per share of Buyer ("Buyer Common
Stock") determined (to four decimal places) by multiplying .8333 by a
fraction, the numerator of which is $18.00 and the denominator of which is the
Average Closing Price (as defined below), provided, however, that (i) if the
Average Closing Price is equal to or greater than $21.00, the Exchange Ratio
shall be 0.7143 (the "Minimum Exchange Ratio"); and (ii) if the Average
Closing Price is equal to or less than $16.00, the Exchange Ratio shall be
0.9375 (the "Maximum Exchange Ratio"); provided, further, however, that if
the Average Closing Price is equal to or less than $14.00, Orange shall have
the right, waivable by it, to terminate this Agreement pursuant to Section
10.1(f) hereof, unless Buyer elects, with the approval of Orange, to adopt as
the Exchange Ratio the "Adjusted Maximum Exchange Ratio" which shall be
determined by dividing $13.13 by the Average Closing Price. For purposes of
this Agreement, the "Average Closing Price" shall mean the average closing
sale price per share of Buyer Common Stock on the American Stock Exchange (the
"Stock Exchange") (as reported by The Wall Street Journal or, if not reported
thereby, another authoritative source), for the ten Stock Exchange trading
days ending on the business day before the date on which the approval of the
Massachusetts Commissioner of Banks (the "Massachusetts Commissioner")
required to consummate the transactions contemplated hereby is obtained (the
"Valuation Period"). The consideration to be received for each share of Orange
Common Stock, to the extent adjusted as provided above, is referred to herein
as the "Merger Consideration."
(b) Notwithstanding the provisions of Section 2.1(a), in the event that
before the Effective Time an announcement is made with respect to a business
combination involving the acquisition of Buyer or a substantial portion of its
assets, the Exchange Ratio shall not be less than 0.7500.
(c) All of the Orange 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 Orange 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 Orange Common Stock represented by such Certificate have been converted
pursuant to this Section 2.1 and Section 2.2 hereof. Certificates previously
representing Orange 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 Certifi-
cates 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
(including, if applicable, the Minimum Exchange Ratio, the Maximum Exchange
Ratio, and the Adjusted Maximum Exchange Ratio) shall be appropriately
adjusted to reflect such split, combination, dividend or distribution. All
Orange Common Stock owned by Orange, any Orange 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 and no payments shall be made in consideration
therefor. All shares of Buyer Common Stock that are owned by Orange or any of
the Orange 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 Orange 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) to holders of options to purchase Orange Common
Stock (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 Orange Common Stock in accordance with this Agreement. The
Exchange Agent shall be such banking institution or corporate trust company
reasonably satisfactory to Buyer as Orange 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 Orange Common Stock at the
Effective Time, other than Orange, any Orange 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
Orange 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 Orange) 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 Orange 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
Orange Common Stock shall have no rights, after the Effective Time, with
respect to such Orange 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 Massachusetts law.
(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 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 Orange 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 closing sale
price of Buyer Common Stock on the Stock Exchange as reported by The Wall
Street Journal for the trading day 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 Orange of the Orange
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates representing such shares are pre-
sented 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. Notwithstanding anything in this Agreement to
the contrary and unless otherwise provided by applicable law, Orange Common
Stock which is issued and outstanding immediately prior to the Effective Time
and which are owned by stockholders who, pursuant to applicable law,
(a) deliver to Orange in the manner provided by law, before the taking of the
vote of Orange's stockholders on the Merger, a written objection to the Merger
and a written demand for the appraisal of their shares if the Merger is
effected and (b) whose shares are not voted in favor of the Merger, nor
consented thereto in writing (the "Dissenting Shares"), shall not be
converted into the right to receive, or be exchangeable for, the Merger
Consideration, but, instead, the holders thereof shall be entitled to payment
of the appraised value of such Dissenting Shares in accordance with the
provisions of Chapter 156B [SECTION] 86 et seq. of the Massachusetts Business
Corporation Law (the "MBCL"). If any such holder shall have failed to perfect
or shall have effectively withdrawn or lost such right of appraisal, the
Orange 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. Buyer shall have the right to participate in
any proceeding involving dissenters' rights.
2.5 Stock Options. (a) At the Effective Time, each holder of a then
outstanding stock option to purchase Orange Common Stock ("Orange Option")
pursuant to the 1987, 1988 or 1989 Orange Bank Stock Option Plan (the "Orange
Stock Option Plans") (it being understood that the aggregate number of shares
of Orange Common Stock subject to purchase pursuant to the exercise of such
Orange Options is not and shall not be more than 81,049) shall be entitled
(whether or not such Orange Option is then vested or exercisable) to receive
in cancellation of such Orange Option an option to acquire shares of Buyer
Common Stock on the terms set forth below (a "Buyer Stock Option").
(b) A Buyer Stock Option shall be a stock option to acquire shares of
Buyer Common Stock with the following terms: (i) the number of shares of Buyer
Common Stock which may be acquired pursuant to such Buyer Stock Option shall
be equal to the product of the number of shares of Orange Common Stock covered
by the Orange 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
Orange Common Stock of such Orange Option, divided by the Exchange Ratio,
provided that such exercise price shall be rounded up to the nearest cent;
(iii) the duration and other terms of such Orange Option shall be unchanged
except that all references to Orange shall be deemed references to Buyer, each
such Buyer Stock Option shall be exercisable for at least until the stated
expiration of the related Orange Option regardless of whether the holder
thereof shall remain in the employ of Surviving Bank or Buyer after the
Effective Time and each such Buyer Stock Option shall be a non-qualified
option; and (iv) Buyer shall assume such stock option as contemplated by
Section 424(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Subject to the foregoing, pursuant to Section 8 of each of the Orange Option
Plans, the Orange Stock Option Plans and all options or other rights to
acquire Orange Common Stock issued thereunder shall terminate at the Effective
Time.
(c) Buyer shall not issue or pay for any fractional share otherwise
issuable upon exercise of a Buyer Stock 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 Buyer Stock Options.
2.6 Effects of the Merger; Liquidation Account. At and after the
Effective Time, the Merger shall have the effects set forth in Chapter 156B,
Section 80 of the General Laws of The Commonwealth of Massachusetts, as
amended, and 12 USC [SECTION]215a(e). Without limiting the foregoing, for
purposes of granting a limited priority claim to the assets of the Surviving
Bank in the unlikely event (and only upon such event) of a complete liquidation
of the Surviving Bank to Persons who continue to maintain savings accounts with
the Surviving Bank after the Merger and who, immediately prior to the Merger
had a subaccount balance (as defined in [SECTION]33.05(12)(a)(2) of Title 209
of the Code of Massachusetts Regulations, 209 C.M.R. [SECTION]33.05(12)(a)(2))
with respect to the liquidation account of Orange, the Surviving Bank shall, at
the time of the Merger, establish a liquidation account in an amount equal to
the liquidation account of Orange immediately prior to the Merger. If the
balance in any savings account to which a subaccount balance relates at the
close of business on the last day of any fiscal year of the Surviving Bank
after the Merger is less than the balance in such savings account at the close
of business on the last day of any other fiscal year of the Surviving Bank
after the Merger, such subaccount balance shall be reduced in an amount
proportionate to the reduction in such savings account balance. No subaccount
balance shall be increased, notwithstanding any increase in the balance of the
related savings account. If such related savings account is closed, such
subaccount shall be reduced to zero upon such closing. In the event of a
complete liquidation of the Surviving Bank, and only in such event, the amount
distributable to each account holder will be determined in accordance with the
rules and regulations pertaining to conversions by cooperative banks and
savings banks from mutual to stock form of the Massachusetts Commissioner, set
forth at 209 C.M.R. Part 33.00, on the basis of such account holder's
subaccount balance with the Surviving Bank at the time of its liquidation. No
merger, consolidation, purchase of bulk assets with assumption of savings
accounts and other liabilities, or similar transaction, whether or not the
Surviving Bank is the surviving institution, will be deemed to be a complete
liquidation for this purpose, and, in any such transaction, the liquidation
account shall be assumed by the surviving institution.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ORANGE
Orange hereby represents and warrants to Buyer as follows:
3.1 Corporate Organization. (a) Orange is a savings bank in stock form
duly organized and validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and in good standing with the Massachusetts
Commissioner. The subsidiaries listed in Exhibit 9 of Orange's Annual Report
on Form F-2 for the year ended December 31, 1993 constitute all of Orange's
subsidiaries (the "Orange Subsidiaries"). Except as set forth in Schedule 3.1
of the Orange Disclosure Schedules (the "Schedules"), each of the Orange
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 Orange and the Orange 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, 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 does not or would not have a Material
Adverse Effect (as defined in Section 11.1) on Orange and the Orange
Subsidiaries, taken as a whole.
(b) Neither Orange nor any of the Orange 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, the Savings Bank Life
Insurance Company of Massachusetts, or as otherwise disclosed on Schedule 3.1
hereto and except, in the case of Orange, for the Orange Subsidiaries.
3.2 Capitalization. (a) The authorized capital stock of Orange consists
solely of 1,300,000 shares of Orange Common Stock and 200,000 shares of
preferred stock, $.10 par value ("Orange Preferred Shares"). There are 724,412
shares of Orange Common Stock issued and outstanding, no shares of Orange
Common Stock held in its treasury and no Orange Preferred Shares issued and
outstanding or held in its treasury. All issued and outstanding Orange Common
Stock has 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 Orange 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 Orange Subsidiaries are owned by Orange
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 81,049 shares of
Orange Common Stock pursuant to stock options outstanding as of the date
hereof under the Orange Stock Option Plans, neither Orange nor any of the
Orange 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 Orange, or shares of any of the Orange
Subsidiaries. The names of the optionees, the date of grant of each option to
purchase Orange 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 Orange Stock Option Plans 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 Orange is a party, nor does
Orange have knowledge of any such agreements or understandings to which Orange
is not a party with respect to the voting of any such shares or which restrict
the transfer of such shares. The Orange Common Stock is listed on NASDAQ small
cap market.
3.3 Authority. Orange 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 at
least two-thirds of Orange's Directors (as defined in Orange's Amended and
Restated Charter). The Board of Directors of Orange has directed that this
Agreement and the transactions contemplated hereby be submitted to Orange's
stockholders for approval at a meeting of such stockholders and has
recommended approval of this Agreement by Orange's stockholders. Except for
the adoption of this Agreement by such stockholders, no other corporate
proceedings on the part of Orange are necessary to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by Orange, constitutes a valid and binding obligation
of Orange, and is enforceable against Orange 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 by
Orange, nor the consummation by Orange of the transactions contemplated
hereby, nor the compliance by Orange with any of the terms or provisions
hereof, does or will
(a) violate any provision of the Charter or By-laws of Orange or any of
the Orange 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 Orange or any of the Orange Subsidiaries or any of
their respective properties, securities or assets, except for violations which
would not, individually or in the aggregate, have a Material Adverse Effect on
Orange and the Orange Subsidiaries, taken as a whole, or
(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 Orange or any
of the Orange 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 Orange
or any of the Orange Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except for
violations, conflicts, breaches or defaults which would not, individually or
in the aggregate, have a Material Adverse Effect on Orange and the Orange
Subsidiaries, taken as a whole.
3.5 Consents and Approvals. The execution, delivery and performance of
this Agreement by Orange 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 (as hereinafter defined), except (i) for applicable requirements, if
any, of the Exchange Act, state takeover laws, the pre-merger notification re-
quirements 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 Massachusetts
and New Hampshire law, (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 Massachusetts Commissioner, the Massachusetts Board of Bank Incorporation
(the "BBI"), the Massachusetts Housing Partnership Fund ("MHP") and the Mutual
Savings Central Fund, Inc. (the "Central Fund") (each of the foregoing, a
"Bank Regulator"), and (iii) where failure to obtain any such consent,
approval, authorization or permit, or to make any such filing or notification,
would not prevent or significantly delay consummation of the Merger or
otherwise prevent Orange from performing its obligations under this Agreement,
or would not have a Material Adverse Effect on Orange and the Orange
Subsidiaries, taken as a whole, or on Buyer.
3.6 Regulatory Approval. Orange 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 Orange
as of December 31, 1993 and 1992, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years
ended December 31, 1993, 1992 and 1991, certified by KPMG Peat Marwick, in the
form delivered to Buyer prior to execution and delivery of this Agreement (all
of the above being collectively referred to as the "Orange Audited Financial
Statements"), have been prepared in accordance with generally accepted
accounting principles 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 Orange at the dates, and
for the periods, stated therein.
(b) The consolidated balance sheets of Orange as of March 31, 1994 and
1993, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the three months ended March 31, 1994
and 1993 in the form delivered to Buyer prior to execution and delivery of
this Agreement (hereinafter referred to collectively as the "Orange 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 Orange 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 Orange 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 Orange Audited Financial Statements and the Orange Interim
Financial Statements are herein referred to together as the "Orange Financial
Statements."
3.8 Reports. Since January 1, 1991, Orange 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 bank regulatory
agencies (except where the failure to do so would not, individually or in the
aggregate, have a Material Adverse Effect on Orange and the Orange Subsid-
iaries, taken as a whole), with (i) the FDIC, including, but not limited to,
Forms F-2, F-3, F-4 and proxy statements, (ii) the Massachusetts Commissioner,
and (iii) any applicable state securities or banking authorities (all such
reports and statements are collectively referred to herein as the "Orange Re-
ports"). As of their respective dates, the Orange 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, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Orange and the Orange Subsidiaries, taken as a
whole, and no such report on Forms F-2, F-3, F-4 or any proxy statement
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.
3.9 Absence of Certain Changes or Events. Except as set forth on Schedule
3.9 hereto, since December 31, 1993, Orange and the Orange Subsidiaries have
conducted their business in the ordinary course consistent with past practice
and there has not been:
(a) any change or event which, individually or in the aggregate with
other changes and events, has had a Material Adverse Effect on Orange and the
Orange Subsidiaries, taken as a whole;
(b) except as permitted by Section 5.1(b) with respect to actions that
occur after the date hereof and as set forth in Schedule 3.9(b) hereto or 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 compensa-
tion payable or to become payable to any of the officers, directors or employ-
ees of Orange or any of the Orange Subsidiaries or any bonus payment or
arrangement made to or with any of them;
(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, is reasonably expected to have a
Material Adverse Effect on Orange and the Orange Subsidiaries, taken as a
whole);
(d) any change in any of the accounting methods or practices of Orange
or any of the Orange Subsidiaries other than changes required by applicable
law or by generally accepted accounting principles;
(e) any change in the credit policies or procedures of Orange or any
Orange Subsidiary, the effect of which was or is to make any such policy or
procedure less restrictive in any material respect; or
(f) any material election made by Orange or any Orange Subsidiary for
federal or state income tax purposes.
3.10 Legal Proceedings. (a) Except as set forth on Schedule 3.10 hereto
and except for matters which, individually or in the aggregate, would not have
a Material Adverse Effect on Orange and the Orange Subsidiaries, taken as a
whole, neither Orange nor any of the Orange Subsidiaries is a party to any,
and there are no pending or, to the best of Orange's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental investigations of any nature by or against Orange or any of the
Orange Subsidiaries; and neither Orange nor any of the Orange Subsidiaries is
a party to or subject to any order, judgment or decree.
(b) Schedule 3.10 lists, as of the date of this Agreement, all pending
litigation involving any claim against Orange or any Orange Subsidiary,
whether directly or by counterclaim, involving a "lender liability" cause of
action.
3.11 Taxes and Tax Returns. (a) Orange and the Orange Subsidiaries have
timely filed all federal, state, and local tax returns required by applicable
law to be filed except for filings which are filed pursuant to routine
extensions permitted by law or the failure to file which or the late filing of
which would not have a Material Adverse Effect on Orange and the Orange
Subsidiaries, taken as a whole. Such returns were accurate and complete in all
material respects except where the failure to be accurate or complete would
not have a Material Adverse Effect on Orange and the Orange Subsidiaries,
taken as a whole.
(b) Orange and the Orange Subsidiaries have paid or, where payment is
not required to have been made, have set up adequate reserves or accruals in
the Orange Financial Statements for the payment of all taxes required to be
paid in respect of the periods covered by such returns, including but not
limited to accruals or withholdings relating to any tax withholding, social
security or unemployment provisions of the applicable federal, state and local
laws except where the failure to do so would not have a Material Adverse
Effect on Orange and the Orange Subsidiaries, taken as a whole. As of the
respective dates of the Orange Financial Statements in which such reserves or
accruals are established, neither Orange nor any Orange Subsidiary had any
liability for any such taxes in excess of the amounts so paid or reserved or
accruals so established which was material to Orange and the Orange
Subsidiaries, taken as a whole. Except for taxes which are being contested in
good faith and for which adequate reserves or accruals are reflected in the
Orange Financial Statements, neither Orange nor any of the Orange Subsidiaries
is delinquent in the payment of any material tax, assessment or governmental
charge the failure to pay which would have a Material Adverse Effect on Orange
and the Orange Subsidiaries, taken as a whole, and none of them has requested
any extension of time within which to file any tax returns in respect of any
fiscal year which have not since been filed.
(c) As of the date hereof, no material deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or definitively) against Orange or any of the Orange Subsidiaries
which have not been settled and paid or adequately reserved against in the
Orange Financial Statements and no requests for waivers of the time to assess
any tax are pending. Orange and the Orange Subsidiaries file consolidated
federal income tax returns. Orange's consolidated federal income tax returns
have not been audited by the IRS since prior to 1988.
3.12 Properties. Except (i) as may be reflected in the Orange 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 Orange 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,
Orange and the Orange 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 Orange
included in the Orange 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.
3.13 Certain Contracts. As of the date of this Agreement, except as set
forth in Schedule 3.13 hereto and except for agreements, indentures,
arrangements and contracts which are exhibits to Orange's Annual Report on
Form F-2 for the year ended December 31, 1993, accurate copies of which have
been made available to Buyer, neither Orange nor any of the Orange Subsid-
iaries is a party to, is bound by, owns properties subject to, or receives
benefits under:
(a) any agreement, arrangement or other contract not made in the
ordinary course of business that (x) would be required to be filed as an
exhibit to a Form F-2 under the Exchange Act or (y) is or may reasonably be
expected to be material to the financial condition, business or results of
operations of Orange and the Orange Subsidiaries, taken as a whole,
(b) any agreement, indenture or other instrument relating to the
borrowing of money by Orange or any Orange Subsidiary or the guarantee by
Orange or any Orange Subsidiary of any such obligation (other than instruments
relating to transactions entered into in the ordinary course of the banking
business of Orange or in the ordinary course of business of any Orange
Subsidiary),
(c) any agreement, arrangement or commitment 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,
(d) any contract, agreement or understanding with a labor union, or
(e) any agreement (other than any agreement (x) with a banking customer
entered into by Orange in the ordinary course of business under which Orange
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 Orange or any Orange
Subsidiary.
3.14 Certain Defaults. Except as set forth in Schedule 3.14 hereto,
neither Orange nor any Orange Subsidiary, nor, to the knowledge of Orange, 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 Orange or any Orange Subsidiary
has borrowed funds or is otherwise the obligor, which default would have a
Material Adverse Effect on Orange and the Orange Subsidiaries, taken as a
whole.
3.15 Insurance. (a) The deposit accounts of Orange which are of an
insurable type are insured by the FDIC to the extent permitted by the FDIC and
by the Central Fund to the extent permitted by the Central Fund.
(b) Orange has made available to Buyer correct and complete copies of
all material policies of insurance of Orange and the Orange Subsidiaries
currently in effect. Neither Orange nor any of the Orange Subsidiaries has any
liability for unpaid premiums or premium adjustments not properly reflected on
Orange's financial statements included in Orange's Quarterly Report on Form F-
4 for the period ended March 31, 1994, except for any such liability that
would not have a Material Adverse Effect. Except as set forth on Schedule 3.15
hereto, neither Orange nor any Orange 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.
3.16 Employee Benefit Plans. (a) Except as described on Schedule 3.16
hereto, neither Orange nor any of the Orange Subsidiaries has any obligation,
contingent or otherwise, under any employment, consulting, retirement or
severance agreement which would require Orange or any Orange Subsidiary to
make payments exceeding $100,000 for any employee or former employee.
(b) Schedule 3.16 hereto sets forth a complete list of all ERISA Plans
(as defined below). Except as set forth in Schedule 3.16, neither Orange nor
any Orange Subsidiary maintains or contributes to any "multi-employer plan"
as that term is defined at Section 4001(a)(3) of ERISA, and neither Orange nor
any Orange Subsidiary has incurred any material liability under Section 4062,
4063 or 4201 of ERISA. To the knowledge of Orange, each pension plan, as
defined at Section 3(2) of ERISA, maintained by Orange or any Orange
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
3.16 hereto, to the knowledge of Orange, since January 1, 1991, (i) each
welfare plan, as defined at Section 3(1) of ERISA, maintained by Orange or an
Orange 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 Orange or any Orange 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 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 3.16 hereto sets forth a complete list of all material
employment, consulting, retirement and severance agreements with individuals
and all material incentive, bonus, fringe benefit and other employee benefit
arrangements of Orange and the Orange Subsidiaries, covering employees or
former employees of Orange and the Orange Subsidiaries.
(d) Orange 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.
3.17 Compliance with Applicable Law; Regulatory Examinations. (a) Orange
and each of the Orange 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 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 Orange or any of the Orange Subsidiaries,
except as set forth on Schedule 3.17 hereto and except for violations which,
either individually or in the aggregate, do not or would not have a Material
Adverse Effect on Orange and the Orange Subsidiaries taken as a whole, and
neither Orange or any of the Orange 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 Orange and the Orange Subsidiaries, no
regulatory agency has initiated any proceeding or, to the best knowledge of
Orange, investigation into the business or operations of Orange or any of the
Orange Subsidiaries since prior to December 31, 1990. Orange has not received
any objection from any regulatory agency to Orange's response to any
violation, criticism or exception with respect to any report or statement
relating to any examinations of Orange or any of the Orange Subsidiaries.
(c) Except as set forth on Schedule 3.17 hereto, neither Orange nor any
Orange 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 (the "FDIA"), any
regulations promulgated thereunder, or otherwise.
3.18 Broker's Fees. Neither Orange, any Orange 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, except that Orange has engaged,
and will pay a fee or commission (set forth on Schedule 3.18 hereto) to BEI
Golembe, a division of EDS (the "Investment Advisor").
3.19 Orange Information. The information relating to Orange and the
Orange Subsidiaries to be contained in the Proxy Statement-Prospectus (as
defined in Section 7.1) and any application to any Bank Regulator, or any
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, Orange 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 the
provisions of the Exchange Act and the rules and regulations thereunder.
3.20 Environmental Issues. Except as set forth on Schedule 3.20 hereto
and except where such violation, liability or noncompliance would not have a
Material Adverse Effect on Orange and the Orange Subsidiaries, taken as a
whole: (i) neither Orange nor any of the Orange Subsidiaries has violated
during the last five years or is in violation of any Environmental Law (as
defined in Section 11.1); (ii) none of the properties owned or leased by
Orange or any Orange Subsidiary (including, without limitation, soils and
surface and ground waters) are contaminated with any Hazardous Substance (as
defined in Section 11.1); (iii) neither Orange nor any of the Orange
Subsidiaries is liable for any off-site contamination; (iv) neither Orange nor
any of the Orange Subsidiaries is liable under any Environmental Law; and (v)
Orange and each of the Orange Subsidiaries is, and has during the last five
years been, in compliance with, all of their respective Environmental Permits
(as defined in Section 11.1). For purposes of the foregoing, all references to
"properties" include, without limitation, any owned real property or leased
real property.
3.21 Material Interests of Certain Persons. Except as set forth in the
proxy statement for Orange's 1994 Annual Meeting of Stockholders, to the
knowledge of Orange, no officer or director of Orange, or any "associate" (as
such term is defined in Rule 14a-1 under the Exchange Act) of any such officer
or director, has any material interest in any material contract or property
(real or personal), tangible or intangible, used in or pertaining to the
business of Orange or any of the Orange Subsidiaries that would be required to
be disclosed in a proxy statement to stockholders under Regulation 14A of the
Exchange Act.
3.22 Certain Transactions. Since December 31, 1993, neither Orange nor
any Orange Subsidiary has entered into any material transactions involving
interest rate and currency swaps, options and futures contracts, or any other
similar transactions, except in the ordinary course of business.
3.23 Regulatory Agreements. On the date hereof, neither Orange nor any
Orange 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 Massachusetts Commissioner or any other financial
services regulatory agency that relates to the conduct of the business of
Orange or any Orange Subsidiary, nor has Orange or any of the Orange
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.
3.24 Status as a Limited Partner. In connection with the investments in
Hampton Housing Associates Limited Partnership and Nashua Plaza Housing
Limited Partnership by Orange's subsidiary, Orange Corporation ("Orange Sub"),
(i) Orange Sub has acted solely as a limited partner, and has taken no action
which would cause Orange or Orange Sub to have the liability of a general
partner (including, without limitation, as a result of any action which might
be deemed to constitute control over the affairs of such partnerships), (ii)
all investments in such partnerships have been through Orange Sub and Orange
Sub has been operated as a separate corporate entity from Orange, (iii) Orange
has delivered copies of the applicable partnership agreements, and all related
subscription materials, as amended, to Buyer, (iv) Orange and Orange Sub are
not aware of any requirement for additional capital contributions to such
partnerships by Orange or Orange Sub except as set forth on Schedule 3.1
hereto and (v) there is no potential recapture of any tax credits relating to
such partnerships previously taken by Orange or Orange Sub.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Orange as follows:
4.1 Corporate Organization. Buyer is a corporation, duly organized,
validly existing and in good standing under the laws of New Hampshire. Buyer
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 does not or would not, either individually or in the
aggregate, have a Material Adverse Effect on Buyer and its subsidiaries, taken
as a whole. Buyer is registered as a bank holding company with the Federal
Reserve under the Bank Holding Company Act of 1956, as amended. Buyer has
previously made available to Orange for inspection true and complete copies as
amended to date of the Charter and By-laws of Buyer.
4.2 Capitalization. (a) The authorized capital stock of Buyer consists
solely of 15,000,000 shares of common stock ("Buyer Common Shares") and
3,000,000 shares of preferred stock ("Buyer Preferred Shares"). As of June 30,
1994, there were 3,675,705 Buyer Common Shares issued and outstanding, 577,265
Buyer Common Shares held in its treasury and 193,053 Series A Buyer Preferred
Shares issued and outstanding. All issued and outstanding Buyer Common Shares
have been duly authorized and validly issued and are fully paid, nonassess-
able, 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.
(b) Except for the options to acquire not more than 244,444 Buyer Common
Shares pursuant to stock options under the 1986 Cheshire Financial Corporation
Stock Option Plan (the "Buyer Stock Option Plan"), 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 repre-
senting 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 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 consum-mation of
the transactions contemplated hereby have been duly and validly approved by
the Board of Directors of Buyer. No 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 its subsidiaries or any of their
respective properties, securities or assets, except for violations which would
not, individually or in the aggregate, have a Material Adverse Effect on Buyer
and its subsidiaries, taken as a whole, 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, 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 Buyer or any of its 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 its subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except for
violations, conflicts, breaches or defaults which would not, individually or
in the aggregate, have a Material Adverse Effect on Buyer and its
subsidiaries, taken as a whole.
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
instrumentally, 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 Massachusetts and New Hampshire law, (ii) for consents and
approvals of or filings or registrations with the FDIC, the Massachusetts
Commissioner, the BBI, the MHP, or the Central Fund, and (iii) where failure
to obtain any such consent, approval, authorization or permit, or to make any
such filing or notification, would not prevent or significantly delay
consummation of the Merger or otherwise prevent Buyer from performing its
obligations under this Agreement, or would not have a Material Adverse Effect
on Buyer and its subsidiaries, taken as a whole.
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 December 31, 1993 and 1992, and the related consolidated statements of
operations, changes in stockholders' equity, cash flows and changes in
financial position for the years ended December 31, 1993, 1992 and 1991,
certified by Wolf & Company, PC, for 1993 and by Ernst & Young for 1992 and
1991, in the form delivered to Orange prior to execution and delivery of this
Agreement (all of the above being collectively referred to as the "Buyer
Audited Financial Statements"), have been prepared in accordance with
generally accepted accounting principles 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 June 30, 1994 and
1993, and the related consolidated statements of income for the six months
ended June 30, 1994 and 1993 in the form delivered to Orange 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 Buyer Audited Financial Statements and the Buyer Interim
Financial Statements are herein referred to together as the "Buyer Financial
Statements."
4.8 SEC Reports. Buyer has previously made available to Orange a true
and complete, in all material respects, copy of each (a) final registration
statement, prospectus, report, schedule and definitive proxy statement filed
since January 1, 1991 by Buyer with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act or the Exchange Act (the "Buyer
Reports") and (b) communication mailed by Buyer to its shareholders since
January 1, 1991, and, as of their respective dates, no such Buyer Reports
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date shall be deemed to
modify information as of an earlier date.
4.9 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.9 hereto, since December 31, 1993, there has not been:
(a) any change or event which, individually or in the aggregate with
other changes and events, has had a Material Adverse Effect on Buyer and its
subsidiaries, taken as a whole;
(b) 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, is reasonably expected to have a
Material Adverse Effect on Buyer and its subsidiaries, taken as a whole);
(c) any change in any of the accounting methods or practices of Buyer or
any of its subsidiaries other than changes required by applicable law or by
generally accepted accounting principles; or
(d) any incurrence by Buyer of any liability that has had, or to the
knowledge of Buyer, could reasonably be expected to have, a Material Adverse
Effect upon Buyer and its subsidiaries, taken as a whole.
4.10 Legal Proceedings. (a) Except as set forth on Schedule 4.10 hereto
and except for matters which, individually or in the aggregate, would not have
a Material Adverse Effect on Buyer and its subsidiaries, taken as a whole,
neither Buyer nor any of its subsidiaries is a party to any, and there are no
pending or, to the best of Buyer's knowledge, threatened, legal, adminis-
trative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature by or against Buyer or any of its subsidiaries;
and neither Buyer nor any of its subsidiaries is a party to or subject to any
order, judgment or decree.
(b) As of the date of this Agreement, there is no action, suit or
proceeding pending against, affecting or, to the knowledge of Buyer,
threatened against, Buyer or any Affiliate (as defined in Section 11.1) of
Buyer or any of their respective properties before any court or arbitrator or
any governmental body, agent or official which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated hereby or which, if adversely determined, would prevent the
consummation of the transactions contemplated by this Agreement or would
materially adversely affect Buyer's ability to consummate the transactions
contemplated hereby.
4.11 Fairness Opinion. Buyer has engaged, and will pay a fee or
commission, to HAS Associates 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. HAS Associates has
advised the Board of Directors of Buyer that it considers such consideration
to be fair.
4.12 Buyer Information. The information relating to Buyer 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 such
information not misleading. Notwithstanding the foregoing, Buyer makes and
will make no representation or warranty with respect to any information
supplied by Orange which is contained in any of the foregoing documents.
4.13 Capital. At June 30, 1994, (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 8.85%, 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.
4.14 Regulatory Agreements. 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.
ARTICLE V
COVENANTS OF ORANGE
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,
Orange will operate its business, and it will cause each of the Orange
Subsidiaries to operate its business, only in the usual, regular and ordinary
course of business; use reasonable efforts to preserve intact its business
organization and assets and maintain its rights and franchises; and to take no
action which would (i) materially adversely affect the ability of Buyer or
Orange 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.
(b) Negative Covenants. Orange agrees that from the date of this Agree-
ment to the Effective Time, except as otherwise specifically permitted or
required by this Agreement, or consented to by Buyer in writing, Orange will
not, and will cause each of the Orange Subsidiaries not to:
(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 Orange Common Stock pursuant to the
exercise of outstanding stock options under the Orange Stock Option
Plans, 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 Orange or any of the Orange
Subsidiaries, or any securities convertible into shares of such stock;
(4) split, combine or reclassify any shares of its capital stock;
(5) declare or pay any dividends except for Orange's regular $.04 per
share quarterly dividend and its $.04 per share year-end special dividend
(with declaration, record and payment dates that are consistent with past
practice) and for dividends paid by an Orange Subsidiary to Orange,
provided, however, that Orange's regular quarterly cash dividend may be
increased to the Increased Dividend (as defined below) per share of
Orange Common Stock beginning in the first quarter of 1995, and (ii) that
the parties agree (x) to consult with respect to the amount of the last
Orange quarterly dividend payable prior to the Effective Time with the
objective of assuring that the shareholders of Orange do not receive a
shortfall based on the record and payment dates of their last dividend
prior to the Merger and the record and payment dates of the first
dividend of Buyer following the Merger and (y) that Orange may pay a
special dividend to holders of record of Orange Common Stock immediately
prior to the Effective Time consistent with the objective described in
clause (x) above. The quarterly "Increased Dividend" shall be determined
by multiplying the quarterly dividend then being paid by Buyer with
respect to each share of Buyer Common Stock by .8333.
(6) except as contemplated by Section 2.5 hereof, 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 Orange and the Orange
Subsidiaries, taken as a whole, except in the ordinary course of business
consistent with past practice;
(8) except in the ordinary course of business consistent with past
practice, 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, 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;
(10) except as described on Schedule 5.1(b), 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 provisions thereof as in effect on the date of this Agreement; or
enter into any employment, severance or similar agreements or
arrangements with any directors or officers;
(11) make application for the opening or closing of any, or open or
close any, branches or automated banking facility;
(12) 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;
(13) 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;
(14) 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;
(15) 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;
(16) take any action that would result in the representations and
warranties of Orange 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; or
(17) agree to do any of the foregoing.
5.2 No Solicitation. Except for actions required for a director or
officer to satisfy his fiduciary obligations upon advice of counsel, neither
Orange nor any of its directors, officers, employees, representatives or
agents or other Persons controlled by Orange shall 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 Orange by such third
party or which is otherwise inconsistent with the obligations arising under
this Agreement. Orange 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.
5.3 Current Information. During the period from the date of this
Agreement to the Effective Time, Orange 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. Orange 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 Orange. Orange 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. Orange shall permit Buyer
reasonable access to its properties and those of the Orange 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 Orange shall not be required to take any
action that would provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights or business
interests or confidences of any customer or other person or would result in
the waiver by it of the privilege protecting communications between it and any
of its counsel.
5.5 Financial and Other Statements. (a) Promptly upon receipt thereof,
Orange will furnish to Buyer copies of each annual, interim or special audit
of the books of Orange and the Orange Subsidiaries made by its independent
accountants and copies of all internal control reports submitted to Orange by
such accountants in connection with each annual, interim or special audit of
the books of Orange and the Orange Subsidiaries made by such accountants.
(b) As soon as practicable, Orange will furnish to Buyer copies of all
such financial statements and reports as it shall send to its stockholders,
the FDIC, the Massachusetts Commissioner or any other regulatory authority,
except as legally prohibited thereby.
(c) Orange will advise Buyer promptly of Orange's receipt of any
examination report of any federal or state regulatory or examination authority
with respect to the condition or activities of Orange or any of the Orange
Subsidiaries. If requested by Buyer, Orange 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 Orange or any of the Orange Subsidiaries.
(d) With reasonable promptness, Orange 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 Orange's Stockholders. Orange 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 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 Orange will recommend to Orange'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 Orange's stockholders of this Agreement and the
transactions contemplated hereby, provided, however, that nothing contained
herein shall prohibit the Board of Directors of Orange from failing to make
such a recommendation or modifying or withdrawing its recommendation, if such
Board shall have concluded in good faith with the advice of counsel that such
action is required to prevent such Board from breaching its fiduciary duties
to the stockholders of Orange, and no such action shall constitute a breach of
this Agreement.
5.7 Disclosure Supplements. From time to time prior to the Effective
Time, Orange 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 Orange with the
covenants set forth in Section 5.1 hereof.
5.8 Failure to Fulfill Conditions. In the event that Orange 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. Orange 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.
5.10 All Reasonable Efforts. Subject to the terms and conditions herein
provided, Orange 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.
ARTICLE VI
COVENANTS OF BUYER
6.1 Conduct of Business. During the period from the date of this Agree-
ment to the Effective Time, except with the written consent of Orange, Buyer
will take no action which would (i) materially adversely affect the ability of
Buyer or Orange 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 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.
6.3 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.
6.4 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 Orange.
6.5 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.
6.6 Financial and Other Statements. Promptly upon receipt thereof, Buyer
will furnish to Orange copies of each annual, interim or special audit of the
books of Buyer and its subsidiaries made by its independent accountants. As
soon as practicable after the filing thereof, Buyer will furnish to Orange
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.
6.7 Employee Benefits. (a) While nothing in this Agreement shall give
any employee a right to continuing employment, Buyer will use its best efforts
to retain all employed by Orange at the Effective Time.
(b) After the Effective Time, Buyer shall provide for those Persons who
were employees of Orange 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 and provided that the terms providing or
substituting pension benefits shall be determined after consultation among the
Savings Bank Employees Retirement Association, Orange and Buyer, and provided
further, that for purposes of determining eligibility for vesting of such
employee benefits (but not for determining the amount of benefits payable
under defined benefit pension plans), service with Orange 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 Orange.
6.8 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.
6.9 Directors and Officers Indemnification and Insurance. (a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, administrative or criminal, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any Person who is now, or has been at any time prior to the date hereof, or
who becomes prior to the Effective Time, a director, officer or employee of
Orange or any Orange Subsidiary (the "Indemnified Parties") is, or is
threatened to be, made a party, based in whole or in part on, or arising in
whole or in part out of, or pertaining to, this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising
before or after the Effective Time, the parties hereto agree to cooperate and
use their reasonable efforts to defend against and respond to such claim,
action, suit, proceedings or investigation. It is understood and agreed that
from and after the Effective Time, Buyer shall indemnify and hold harmless, as
and to the fullest extent permitted by applicable law, each Indemnified Party
against any and all losses, claims, damages, liabilities and fines, and
amounts paid in settlement, in connection with any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time). In connection with any such claim,
action, suit, proceeding or investigation, (x) Buyer shall pay expenses
(including without limitation reasonable attorney fees) in advance of the
final disposition of any such claim, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by applicable law upon
receipt of any undertaking required by applicable law, and (y) Buyer shall use
all reasonable efforts to assist in the vigorous defense of any such matter;
provided, however, that (1) Buyer shall have the right to assume the defense
thereof and upon such assumption Buyer shall not be liable to any Indemnified
Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Buyer does not assume such defense or counsel for the
Indemnified Parties reasonably advises that there are issues which raise
conflicts of interest between Buyer and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Buyer, and Buyer shall pay the reasonable fees and expenses
of such counsel for the Indemnified Parties, (2) Buyer shall be obligated
pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties, (3) Buyer shall not be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld) and (4) Buyer shall have no obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law. Any Indemnified Party wishing to claim
indemnification under this Section shall, upon learning of any such claim,
action, suit, proceeding or investigation, notify Buyer thereof, provided that
the failure so to notify shall not affect the obligations of Buyer under this
Section except to the extent such failure materially prejudices it.
(b) All rights to indemnification and all limitations of liability
existing in favor of the Indemnified Parties as provided in Orange's Amended
and Restated Charter and By-laws, or similar governing documents of any Orange
Subsidiary, 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 indemnify, defend and hold
harmless the Indemnified Parties pursuant to the rights surviving pursuant to
the preceding sentence to the full extent permitted under applicable law.
(c) Buyer will, or will cause the Surviving Bank to, maintain in effect
for at least six years after the Effective Time present policies for
directors' and officers' liability insurance, or policies having at least the
same coverage and containing terms and conditions no less favorable to
directors and officers of Orange, than the present policies of Orange,
provided that Buyer shall be required to maintain only such coverage as is
commercially available.
(d) In the event Buyer or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Buyer
assume the obligations set forth in this Section.
(e) Buyer agrees that, to the extent permissible under applicable law,
for purposes of the limitation of liability and indemnification provisions of
Buyer's Certificate of Incorporation and/or By-laws, the directors and
officers of Orange prior to the Effective Time shall be deemed to be for all
such purposes former directors and officers of an Affiliate of Buyer.
(f) The provisions of this Section 6.9 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.
6.10 Stock Exchange Listing. Buyer shall cause the shares of Buyer
Common Stock to be issued in the Merger to be approved for listing on the
Stock Exchange, subject to official notice of issuance, prior to the Effective
Time.
6.11 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 Orange, 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 Orange 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 Massachusetts, 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 remedies of creditors generally and (ii) general
principles of equity, regardless of whether enforcement is sought in
proceedings in equity or at law.
ARTICLE VII
REGULATORY AND OTHER MATTERS
7.1 Proxy Statement-Prospectus. For the purposes (x) of registering
Buyer's Common Stock to be issued to holders of Orange'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 Orange shareholders'
meeting, Buyer and Orange 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 State-
ment"), 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 Orange to
the Orange shareholders, together with any and all amendments or supplements
thereto, being herein referred to as the "Proxy Statement-Prospectus").
Orange shall promptly prepare and file with the FDIC the Proxy State-
ment/Prospectus and 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 Orange shall use their best
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and Orange shall
thereafter promptly mail the Proxy Statement-Prospectus to its 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 Orange shall furnish all
information concerning Orange and the holders of Orange Common Stock as may be
reasonably requested in connection with any such action. Orange 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, Orange and Buyer shall
cooperate in the preparation of a supplement or amendment to the Proxy State-
ment-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 Orange.
7.2 Regulatory Approvals. Each of Orange and Buyer will cooperate with
the other and use all reasonable efforts to prepare all necessary
documentation, to 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. Orange 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 Orange or Buyer to any governmental body in connection with the
Merger and the other transactions contemplated by this Agreement. Orange and
Buyer shall have the right to review and approve in advance all characteriza-
tions of the information relating to Buyer or Orange, as the case may be, and
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, Orange and Buyer shall each furnish to the
other a final copy of each such filing made in connection with the transac-
tions contemplated by this Agreement with any governmental body.
7.3 Affiliates; Publication of Combined Financial Results. (a) Each of
Buyer and Orange 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 Orange
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 Orange Common Stock
held by such "affiliate", and, in the case of the "affiliates" of Orange, 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 Securi-
ties 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 publica-
tion of financial results covering at least 30 days of combined operations of
Buyer and Orange.
(b) Buyer shall use its best efforts to publish no later than thirty
(30) days after the end of the first month after the Effective Time in which
there are at least thirty (30) days of post-Merger combined operations (which
month may be the month in which the Effective Time occurs), combined sales and
net income figures as contemplated by and in accordance with the terms of SEC
Accounting Series Release No. 135.
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 vote of the stockholders of Orange.
(b) Injunctions. None of the parties hereto shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the Merger.
(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.
(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) Stock Exchange Listing. The shares of Buyer Common Stock to be
issued in the Merger shall have been authorized for listing on the Stock
Exchange, subject to official notice of issuance.
(f) Tax Rulings or Opinions. Each of Buyer and Orange shall have
received either a ruling of the Internal Revenue Service ("IRS") or an opinion
of counsel reasonably acceptable to Buyer and Orange, addressed to Buyer and
the shareholders of Orange, 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 Internal Revenue Code of 1986, as amended (the
"Code");
(2) No gain or loss will be recognized by Buyer, Orange or Buyer Sub
or Surviving Bank by reason of the Merger;
(3) The bases of the assets of Orange in the hands of the Surviving
Bank will be the same as the bases of such assets in the hands of Orange
immediately prior to the Merger;
(4) The holding period of the assets of Orange in the hands of the
Surviving Bank will include the period during which such assets were
held by Orange prior to the Merger;
(5) No gain or loss will be recognized by the Orange shareholders on
the exchange of shares of Orange Common Stock solely for shares of Buyers
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 Orange
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 on the shares of Buyers Common Stock to be received by
Orange shareholders will be the same as the basis of the shares of
Orange'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's Common Stock to be
received by the shareholders of Orange will include the period during
which they held the shares of Orange's Common Stock surrendered, provided
the shares of Orange'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 Orange 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; provided, however, that, for purposes hereof, such
representations and warranties shall be deemed to be true and correct in all
material respects unless the failure or failures of such representations and
warranties to be so true and correct represent, in the aggregate, a Material
Adverse Effect on Orange and the Orange Subsidiaries, taken as a whole. Orange
shall have delivered to Buyer a certificate of Orange to such effect signed by
the Chief Executive Officer and the Chief Operating Officer of Orange as of
the Effective Time.
(b) Agreements and Covenants. Orange shall have performed in all
material respects all obligations and complied in all material respects with
all agreements or covenants of Orange 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 Orange by the Chief Executive
Officer and Chief Operating Officer of Orange to such effect dated as of the
Effective Time.
(c) Permits, Authorizations, Etc. Orange and the Orange Subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required for the lawful consummation of the
Merger by Orange, the failure to obtain which would have a Material Adverse
Effect on Orange and the Orange Subsidiaries, taken as a whole.
(d) Legal Opinion. Buyer shall have received an opinion, dated the
Closing Date, from Foley, Hoag & Eliot, counsel to Orange, in substantially
the form of Exhibit A hereto. 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 Orange, Buyer, Affiliates of the foregoing, and others.
(e) Pooling of Interests. Buyer shall have received a letter from Wolf &
Company, PC, addressed to Buyer, to the effect that the Merger will qualify
for "pooling of interests" accounting treatment.
(f) Dissenting Orange Shareholders. The holders of not more than 10% of
the Orange Common Stock outstanding immediately prior to the Effective Time
shall have given notice of their intention to exercise dissenters' rights
pursuant to the MBCL.
(g) Accountants' Letter. Buyer shall have received a "comfort" letter
from the independent certified public accountants for Orange, dated (i) the
effective date of the Registration Statement and (ii) the Closing Date, in
each case substantially to the effect that:
(1) it is a firm of independent public accountants with respect to
Orange and its subsidiaries within the meaning of the Securities Act and
the rules and regulations of the SEC thereunder;
(2) in its opinion the audited consolidated financial statements of
Orange 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; and
(3) 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 Orange included in such Registration Statement and
of the latest available unaudited consolidated financial statements of
Orange, inquiries of officers responsible for financial and accounting
matters of Orange and its subsidiaries and a reading of the minutes of
meetings of shareholders and the Board of Directors of Orange and its
subsidiaries, nothing has come to its attention which causes it to
believe: (i) that the consolidated financial statements, if any, of
Orange 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 Orange
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.
(h) Fairness Opinion. Buyer shall have received a letter from its
investment advisor, dated as of a date not later than ten (10) days after the
execution of this Agreement, stating its opinion that the consideration to be
paid to Orange's stockholders pursuant to the Merger is fair to Buyer and its
stockholders, from a financial point of view.
Orange 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 Orange under this Agreement. The
obligations of Orange 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; provided, however, that, for purposes hereof, such
representations and warranties shall be deemed to be true and correct in all
material respects unless the failure or failures of such representations and
warranties to be so true and correct represent, in the aggregate, a Material
Adverse Effect on Buyer and its subsidiaries, taken as a whole. Buyer shall
have delivered to Orange 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) 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 Orange shall have re-
ceived 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.
(c) 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.
(d) Legal Opinion. Orange shall have received an opinion from Devine,
Millimet & Branch, Professional Association, counsel to Buyer, dated the
Closing Date, in substantially the form of Exhibit B hereto. 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, Orange, Affiliates
of the foregoing, and others.
(e) Fairness Opinion. Orange shall have received a letter from the
Investment Advisor, dated as of a date not more than five days prior to the
date the Proxy Statement-Prospectus contemplated by Section 7.1 is mailed to
Orange's stockholders, stating its opinion that the consideration to be paid
to Orange's stockholders pursuant to the Merger is fair to such stockholders,
from a financial point of view.
Buyer will furnish Orange 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 Orange 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 practi-
cable 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 Orange may mutually agree upon.
9.2 Deliveries at the Closing. At the Closing there shall be delivered
to Buyer and Orange 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 Orange:
(a) At any time by the mutual written agreement of Buyer and Orange;
(b) By either Orange 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 Orange (or by Orange to Buyer) of such breach;
(c) At the election of either Buyer or Orange, if the Closing shall not
have occurred on or before July 31, 1995 (the "Termination Date"), or such
later date as shall have been agreed to in writing by Buyer and Orange;
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,
and provided, further, that the Termination Date may be extended until Septem-
ber 30, 1995 by Orange by written notice to Buyer (given not later than July
25, 1995) if the Closing shall not have occurred because of failure to have
obtained approval from one or more regulatory authorities whose approval is
required in connection with this Agreement and the transactions contemplated
hereby under circumstances in which neither party has the right to terminate
this Agreement pursuant to Section 10.1(e) hereof;
(d) By either Orange or Buyer if the stockholders of Orange 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;
(e) By either Orange 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; or
(f) By Orange, if the Average Closing Price is equal to or less than
$14.00, by written notice to Buyer within two business days following the end
of the Valuation Period, provided, however, that Orange's right to terminate
this Agreement pursuant to this Section 10.1(f) shall be of no further force
if Buyer shall have elected (by written notice to Orange given not later than
three business days after the end of the Valuation Period) with the approval
of Orange to adopt as the Exchange Ratio the Adjusted Maximum Exchange Ratio.
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, 10.4, 11.1, 12.1, 12.6, 12.9, and 12.10 (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), 10.1(e) or 10.1(f) 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 $250,000, and provided, further, that in the
event Orange is required to pay a Termination Fee (as described in
Section 10.3 hereof), the maximum Expenses payable by Orange shall not
exceed $150,000.
(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 Orange, any
Orange Subsidiary, Buyer or any Buyer subsidiary, be personally liable
thereunder 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 Termination Fee. Orange shall pay to Buyer a termination fee of
$450,000 ("Termination Fee") within twenty (20) business days of the
occurrence of any of the following:
(a) the failure of Orange's shareholders to approve the affiliation of
Buyer and Orange in accordance with this Agreement at a meeting called for
such purpose after the public announcement by any person or group of persons
(other than Buyer) of a bona fide, credible offer or proposal to acquire 45.0%
or more of Orange's Common Stock, or to acquire, merge, or consolidate with
Orange or to purchase all or substantially all of Orange's assets (unless such
offer has been publicly withdrawn ten or more days prior to such meeting);
(b) the acquisition by any person or group of persons (other than Buyer)
of 45.0% or more of Orange's Common Stock (or the acquisition by any person or
group of persons of the right to acquire 45.0% or more of Orange's Common
Stock), exclusive of shares of Orange's Common Stock sold directly or
indirectly to such person or group of persons by Buyer; or
(c) the entry of Orange into an agreement or other understanding with a
person or group of persons (other than Buyer) for such person or group of
persons to acquire, merge or consolidate with Orange or to purchase all or
substantially all of Orange's assets or acquire 45.0% or more of the outstand-
ing shares of Orange's Common Stock. As used herein, "person" and "group of
persons" shall have the meanings conferred thereon by Section 13(d) of the
Securities Exchange Act of 1934, as amended.
(d) The Termination Fee payable in accordance with this Section 10.3
shall constitute liquidated damages and shall, except as otherwise provided in
Section 10.2(b) with respect to Expenses, be the sole monetary remedy of Buyer
for termination of this Agreement under the circumstances described in this
Section 10.3.
10.4 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
Buyer and Orange, provided, further, however, 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.
10.5 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 of Orange), 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 repre-
sentations and warranties contained herein or in any document delivered
pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained herein; provided, however, that after any approval of
this Agreement and the transactions contemplated hereby by the stockholders of
Orange, there may not be, without further approval of such stockholders, any
amendment of this Agreement which reduces the amount or changes the form of
consideration to be delivered to Orange's stockholders pursuant to this Agree-
ment. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Any agreement on the part of a
party hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, but such waiver or
failure to insist on strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
ARTICLE 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) "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.
(c) "Environmental Permits" means all permits, licenses and other
authorizations referred to under any Environmental Law.
(d) "Hazardous Substances" means (A) those substances defined in or
regulated under the Comprehensive Environmental Response, Compensation and
Liability Act, and its state counterparts, as each may be amended from time to
time, and all regulations thereunder, (B) petroleum and petroleum products
including crude oil and any fractions thereof, (C) natural gas, synthetic gas,
and any mixtures thereof, (D) radon, (E) any other contaminant, and (F) any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation.
(e) "Material Adverse Effect", when used with respect to any Person,
shall mean a material adverse effect on the financial condition, business, or
results of operations of such Person; provided, however, that the following
matters shall not constitute or contribute to a Material Adverse Effect: (i)
changes in the financial condition, business, or results of operations of a
person resulting directly or indirectly from (w) changes in interest rates,
(x) changes in general economic conditions, (y) changes in regulations or
legislation affecting Massachusetts banks, or (z) the public announcement of
the transactions contemplated hereby; or (ii) matters related to changes in
federal, state or local tax laws or changes in federal, state or local tax
status, characteristics, or attributes or the ability to use such attributes.
(f) "Person" shall mean any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or government or any
agency or political subdivision thereof.
(g) "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.
ARTICLE XII
MISCELLANEOUS
12.1 Confidentiality. Except as specifically set forth herein, Buyer and
Orange 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 Confi-
dentiality Agreement shall continue in accordance with its respective terms,
notwithstanding the termination of this Agreement.
12.2 Public Announcements. Orange 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 Orange 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:
CFX Corporation
102 Main Street
Keene, New Hampshire 03431
Attention: Peter J. Baxter, President
Copy to:
Paul C. Remus, Esq.
Paul G. Mattaini, Esq.
Devine, Millimet & Branch, Professional Association
111 Amherst Street
Manchester, New Hampshire 03105
If to Orange, to:
Orange Savings Bank
30 East Main Street
Orange, Massachusetts 01364
Attention: Richard F. Astrella, President
Copy to:
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
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 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.
12.7 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.
12.8 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.
12.9 Governing Law. This Agreement shall be governed by the laws of the
State of New Hampshire.
12.10 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.
* * * * *
IN WITNESS WHEREOF, Buyer and Orange have caused this Agreement to be
executed under seal by their duly authorized officers on November 3, 1994 but
as of the 26th day of July, 1994.
CFX CORPORATION
[SEAL] By: /s/ Peter J. Baxter
Its President
By: /s/ Mark A. Gavin
Its Chief Financial Officer
ORANGE SAVINGS BANK
[SEAL] By: /s/ Richard F. Astrella
Its President
By: /s/ Dana C. Robinson
Its Treasurer
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Opinion of Foley, Hoag & Eliot
Exhibit B Form of Opinion of Devine, Millimet & Branch, P.A.
Schedules to Representations and Warranties of Orange
The Exhibits listed above have been intentionally omitted. CFX will
furnish supplementally to the Securities and Exchange Commission upon request
a copy of any such omitted Exhibit or Schedule.
Annex B
January 17, 1995 EDS
Board of Directors
Orange Savings Bank
30 East Main Street
Orange, Massachusetts 01364
Directors:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of common stock of Orange Savings Bank ("Orange" or "the
Bank") of the merger consideration to be received by such holders pursuant to
the Amended and Restated Agreement and Plan of Merger ("Merger Agreement")
dated as of July 26, 1994, by and between CFX Corporation ("CFX") and Orange.
The merger consideration is subject to certain adjustments as provided in the
Merger Agreement.
EDS Management Consulting Services, Banking Group, as part of its financial
advisory business, is continually engaged in the valuation of banking
businesses and their securities in connection with mergers and acquisitions,
competitive biddings, and valuations for estate, corporate and other purposes.
In connection with this opinion, we have reviewed, among other things, the
Merger Agreement; Reports to Stockholders for the three fiscal years ended
December 31, 1993 for Orange and CFX and fiscal quarter ended September 30,
1994 for CFX; certain interim reports to directors of Orange and CFX; and
certain internal financial analyses and forecasts for Orange and CFX prepared
by their management. We also have held discussions with members of the senior
management and Directors of Orange and CFX regarding past and current business
operations, regulatory relationships, financial condition and future
prospects. In addition, we have reviewed the reported price and trading
activity for Orange and CFX common stock, compared certain financial and stock
market information for certain recent business combinations in the thrift and
commercial banking industries, and performed such other studies and analyses
as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of the opinion. We have also relied upon the management of the Bank
and CFX as to the reasonableness and achievability of the financial and
operating forecasts and the assumptions and bases therefore provided to us. In
that regard, the managements of the Bank and CFX affirmed, and we have
assumed, with your consent, that such forecasts, including without limitation
projections regarding under-performing and non-performing assets, net
chargeoffs and the adequacy of reserves reflect the best currently available
estimates and judgments of the management of the Bank and CFX. In addition, we
have not made an independent evaluation or appraisal of the assets and
liabilities of the Bank or any of its subsidiaries or CFX and we have not been
furnished with any such evaluation or appraisal.
Based upon, and subject to, the foregoing and such other matters as we
consider relevant, it is our opinion that as of the date hereof the merger
consideration (subject to adjustment as provided in the Merger Agreement) to
be received by the shareholders of Orange pursuant to the Merger Agreement is
fair from a financial point of view to such shareholders.
Very truly yours,
EDS Management Consulting Services, Banking Group
Reservoir Place
1601 Trapelo Road
Waltham, Massachusetts 02154
Management Consulting Services (617) 890-0977
BEI GOLEMBE Fax: (617) 890-8996
Annex C
Text of Chapter 156B, Sections 85 to 98 of the Massachusetts Business
Corporation Law
[SECTION] 85. Dissenting stockholder; right to demand payment for stock;
exception
A stockholder in any corporation organized under the laws of
Massachusetts which shall have duly voted to consolidate or merge with another
corporation or corporations under the provisions of sections seventy-eight or
seventy-nine who objects to such consolidation or merger may demand payment
for his stock from the resulting or surviving corporation and an appraisal in
accordance with the provisions of sections eighty-six to ninety-eight,
inclusive, and such stockholder and the resulting or surviving corporation
shall have the rights and duties and follow the procedure set forth in those
sections. This section shall not apply to the holders of any shares of stock
of a constituent corporation surviving a merger if, as permitted by subsection
(c) of section seventy-eight, the merger did not require for its approval a
vote of the stockholders of the surviving corporation.
[SECTION] 86. Selections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal
thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except
as otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before the taking of the
vote of the shareholders on such corporate action, written objection to the
proposed action stating that he intends to demand payment for his shares if
the action is taken and (2) his shares are not voted in favor of the proposed
action.
[SECTION] 87. Statement of rights of objecting stockholders in notice of
meeting; form
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice of
a statement of opinion by the management as to the existence or non-existence
of the right of the stockholders to demand payment for their stock on account
of the proposed corporate action. The notice may be in such form as the
directors or officers calling the meeting deem advisable, but the following
form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the corporation (or, in the case of a consolidation or merger, the name
of the resulting or surviving corporation shall be inserted), within twenty
days after the date of mailing to him of notice in writing that the corporate
action has become effective, payment for his shares and an appraisal of the
value thereof. Such corporation and any such stockholder shall in such cases
have the rights and duties and shall follow the procedure set forth in
sections 88 to 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts."
[SECTION] 88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified
mail, addressed to the stockholder at his last known address as it appears in
the records of the corporation.
[SECTION] 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three,
or section eighty-eight, any stockholder to whom the corporation was required
to give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
[SECTION] 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or
any such stockholder may within four months after the expiration of such
thirty-day period demand a determination of the value of the stock of all such
objecting stockholders by a bill in equity filed in the superior court in the
county where the corporation in which such objecting stockholder held stock
had or has its principal office in the commonwealth.
[SECTION] 91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof.
If the bill is filed by a stockholder, he shall bring the bill in his own
behalf and in behalf of all other stockholders who have demanded payment for
their shares and with whom the corporation has not reached agreement as to the
value thereof, and service of the bill shall be made upon the corporation by
subpoena with a copy of the bill annexed. The corporation shall file with its
answer a duly verified list of all such other stockholders, and such
stockholders shall thereupon be deemed to have been added as parties to the
bill. The corporation shall give notice in such form and returnable on such
date as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of such
stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-
nine shall be deemed to have consented to the provisions of this section
relating to notice, and the giving of notice by the corporation to any such
stockholder in compliance with the order of the court shall be a sufficient
service of process on him. Failure to give notice to any stockholder making
demand shall not invalidate the proceedings as to other stockholders to whom
notice was properly given, and the court may at any time before the entry of a
final decree make supplementary orders of notice.
[SECTION] 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation
of and payment for their shares, and shall order the corporation to make
payment of such value, together with interest, if any, as hereinafter
provided, to the stockholders entitled thereto upon the transfer by them to
the corporation of the certificates representing such stock if certificated
or, if uncertificated, upon receipt of an instruction transferring such stock
to the corporation. For this purpose, the value of the shares shall be
determined as of the day preceding the date of the vote approving the proposed
corporate action and shall be exclusive of any element of value arising from
the expectation or accomplishment of the proposed corporate action.
[SECTION] 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
[SECTION] 94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
[SECTION] 95. Costs; interest
The costs of the bill, including reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
[SECTION] 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder;
or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting
or surviving corporation, deliver to it a written withdrawal of his
objections to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
[SECTION] 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to
the provisions of this chapter shall have the status of treasury stock, or in
the case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
[SECTION] 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground
that such corporate action will be or is illegal or fraudulent as to him.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under New Hampshire law, a corporation has the power to indemnify any
director or officer or former director or officer of the corporation, or any
person who may have served, at its request, as a director of officer of
another corporation, against expenses actually and reasonably incurred by him
in connection with any threatened, pending or completed action, suit or
proceeding, civil, criminal, administrative or investigative, in which he is a
party or is threatened to be made a party by reason of being or having been
such director or officer, 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 registrant's By-Laws contain the following provision in connection
with indemnification of directors and officers.
Any person, or the heirs, executors, or administrators of any
such person, who has been made a party to any action, suit or proceeding
by reason of the fact that such party, or person whose legal
representative or successor such party is, was or is a director, officer
or employee of the Corporation or of any corporation, partnership, firm
or organization which that person serves or has served in any such
capacity at the request of the Corporation, may be indemnified and
reimbursed by the Corporation for expenses, including attorneys' fees,
and for such amount of any judgement, money decree, fine, penalty or
settlement for which that person may have become liable as the Board of
Directors may deem reasonable, but only to the extent actually incurred
by such person in connection with the defense or the reasonable
settlement of any such action, suit or proceeding, or any appeal
therein; provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter as to which such party, or the
person whose legal representative or successor such party is, is finally
adjudged in such action, suit or proceeding not to have acted in good
faith in the reasonable belief that the action or failure to act of the
person was in the best interests of the Corporation; and provided
further that no person shall be so indemnified or reimbursed in respect
of any such action, suit or proceeding which has been made the subject
of a compromise settlement except with the approval of a court of
competent jurisdiction or a majority of the Board of Directors,
exclusive of those Directors who are parties to the same or
substantially the same action, suit or proceeding. The foregoing right
of indemnification and reimbursement shall not be exclusive of other
rights of indemnification and reimbursement shall not be exclusive of
other rights to which such person, or the heirs, executors or
administrators of that person may be entitled as a matter of law.
Item 21. List of Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
2 Amended and Restated Agreement and Plan of Merger dated as of July
26, 1994 (filed as Annex A to the Proxy Statement-Prospectus which
constitutes a part of this Registration Statement).
*3 Articles of Incorporation and By-Laws of CFX Corporation, as
amended.
5 Opinion of Devine, Millimet & Branch, Professional Association, as
to the legality of the Common Stock being registered.
8.1 Form of opinion of Foley, Hoag & Eliot as to tax matters.
8.2 Form of opinion of Devine, Millimet & Branch, Professional
Association, as to tax matters.
**10.1 Cheshire Financial Corporation Retirement Plan.
**10.2 1992 Cheshire Financial Corporation Profit Sharing/Bonus Plan.
**10.3 Cheshire Financial Corporation 401(k) Plan.
***10.4 Cheshire Financial Corporation 1986 Stock Option Plan.
***10.5 Cheshire Financial Corporation 1992 Employee Stock Purchase
Plan.
****10.6 Employment Agreement dated as of January 1, 1991 between
Cheshire Financial Corporation and Peter J. Baxter, as amended.
****10.7 Change of Control Agreement dated June 5, 1991 between
Cheshire Financial Corporation and Laurence E. Babcock.
**10.8 Change of Control Agreement dated December 31, 1992 between
Cheshire Financial Corporation and John F. Foley.
****10.9 Change of Control Agreement dated June 5, 1991 between
Cheshire Financial Corporation and David S. Foote.
**10.10 Change of Control Agreement dated December 31, 1992 between
Cheshire Financial Corporation and Mark A. Gavin.
*****10.11 Change of Control Agreement dated August 4, 1993 between
Cheshire Financial Corporation and Daniel J. LaPlante.
*****10.12 Employment Agreement dated September 1, 1993 between
Cheshire Financial Corporation and Paul D. Spiess.
*10.13 Change of Control Agreement dated March 28, 1994 between
Cheshire Financial Corporation and Irene L. Soucy.
****10.14 Change of Control Agreement dated June 5, 1991 between CFX
Bank and William H. Dennison.
****10.15 Change of Control Agreement dated June 5, 1991 between CFX
Bank and Peter T. Whittemore.
****10.16 Change of Control Agreement dated June 5, 1991 between CFX
Bank and Wayne R. Gordon.
*****10.17 Employment Agreement dated September 1, 1993 between CFX
Mortgage, Inc. and Paul T. Pouliot.
***10.18 Lease dated May 1, 1983 by and between Santifotto, Inc. and
CFX Bank.
**10.19 Lease dated October 16, 1991 by and between Market Basket, Inc.
and CFX Bank.
*****10.20 Lease dated May 11, 1993 by and between Cheshire Oil
Company, Inc. and CFX Bank.
*****10.21 Lease dated January 24, 1993 between Thomas F. Moran and
Ruth M. Moran, husband and wife, and CFX Mortgage, Inc.
*****10.22 Lease dated April 14, 1993 by and between Arnold S. Katz and
Blair J. Finnegan, Trustees of Commerce Center Trust, and CFX
Mortgage, Inc.
*****10.23 Lease dated September 15, 1993 by and between Bedford Farms
Limited Partnership and CFX Mortgage, Inc.
*21 Subsidiaries of CFX Corporation.
*23.1 Consent of Wolf & Company, P.C.
*23.2 Consent of Ernst & Young LLP.
*23.3 Consent of KPMG Peat Marwick LLP.
*23.4 Consent of EDS Management Consulting Services, Banking Group.
23.5 Consent of Foley, Hoag & Eliot.
23.6 Consent of Devine, Millimet & Branch, Professional Association
filed as Exhibit 8.2.
*24 Power of Attorney contained on Page II-6 of this Registration
Statement.
99.1 Form of Proxy for Special Meeting of Stockholders of Orange
Savings Bank.
*99.2 Filings of Orange Savings Bank with the Federal Deposit Insurance
Corporation under the Securities Exchange Act of 1934, as amended.
*99.21 Orange's Annual Report on Form F-2 for the year
ended December 31, 1993, including Orange's Proxy
Statement for its 1994 Annual Meeting and Orange's
1994 Annual Report to Stockholders, which were
incorporated by reference into the Form F-2;
*99.22 Orange's Quarterly Reports on Form F-4 for the
quarters ended March 31, June 30 and September 30,
1994;
*99.23 Orange's Current Reports on Form F-3 for the months
ended December 31, 1993 and July 31, 1994.
99.3 Opinion of EDS Management Consulting Services, Banking Group
(filed as Annex B to the Proxy Statement-Prospectus which
constitutes a part of this Registration Statement).
<F1> * Previously filed with the Registration Statement.
<F2> ** Incorporated herein by reference to the Exhibits to the Annual Report on
Form 10-K of Cheshire Financial Corporation for the year ended
December 31, 1992.
<F3> *** Incorporated herein by reference to the Exhibits to the Registration
Statement on Form S-8 of Cheshire Financial Corporation No. 33-52598
effective in 1992.
<F4> **** Incorporated herein by reference to the Exhibits to the Annual Report on
Form 10-K of Cheshire Financial Corporation for the year ended
December 31, 1991.
<F5> ***** Incorporated herein by reference to the Exhibits to the Annual Reports
Statement on Form S-8 of Cheshire Financial Corporation for the year
ended December 31, 1993.
</TABLE>
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 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 and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Keene, State of New Hampshire on January 13, 1995.
CFX CORPORATION
By: /s/ PETER J. BAXTER
Peter J. Baxter, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ PETER J. BAXTER
Peter J. Baxter, President and Chief Executive Officer
/s/ MARK A. GAVIN
Mark A. Gavin, Chief Financial Officer
(Principal Financial Officer)
/s/ GREGG R. TEWKSBURY
Gregg R. Tewksbury, Corporate Controller
(Principal Accounting Officer)
Directors:
Peter J. Baxter
Richard B. Baybutt
Calvin L. Frink By: /s/ PETER J. BAXTER
Eugene E. Gaffey (Peter J. Baxter, as Attorney-in-Fact
Emerson H. O'Brien and as a Director)
L. William Slanetz
DEVINE, MILLIMET & BRANCH
PROFESSIONAL ASSOCIATION-ATTORNEYS AT LAW
Victory Park
111 Amherst Street
Box 719
Manchester, NH 03105
Tel: 603-669-1000
Fax: 603-669-8547
January 13, 1995
CFX Corporation
102 Main Street
Keene, NH 03431
Ladies and Gentlemen:
We have acted as counsel to CFX Corporation (the "Company") in
connection with the negotiation, execution and delivery of the Amended and
Restated Agreement and Plan of Merger dated as of July 26, 1994 (the "Merger
Agreement") pursuant to which the Company will acquire all of the outstanding
shares of common stock of Orange Savings Bank ("Orange") in exchange for the
issuance by the Company of up to 713,111 shares of the Company's common stock,
$1 par value (the "CFX Common Stock").
Prior to rendering this opinion, we have reviewed such certificates,
documents and records as we have deemed necessary for the purposes hereof,
including the following:
a. Copies of the Articles of Agreement and the Bylaws of the Company
as now in effect;
b. The Registration Statement relating to the CFX Common Stock to be
issued pursuant to the Merger Agreement (Form S-4, File No.
33-56875) and Amendment No. 1 thereto being filed with the
Securities and Exchange Commission contemporaneously herewith,
and exhibits to each of the foregoing; and
c. Resolutions adopted by the Board of Directors of the Company
authorizing the execution and delivery of the Merger Agreement
and the performance of the transactions contemplated therein,
including the issuance of the 713,111 shares of CFX Common Stock.
Based upon the foregoing and such other investigation as we have deemed
necessary, it is our opinion that when the CFX Common Stock shall have been
issued and delivered to the shareholders of Orange and the consideration
therefor shall have been received by the Company, all in accordance with the
provisions of the Merger Agreement, the CFX Common Stock will be validly
issued, fully paid and non-assessable.
We understand that this opinion is to be used in connection with the
Company's Registration Statement and hereby consent (i) to the filing with and
as a part of said Registration Statement of (a) this opinion and (b) the form
of our opinion as to certain tax consequences addressed to the Company and CFX
Interim Trust Company to be dated the date of the consummation of the merger
contemplated in the Merger Agreement and (ii) to the use of our name therein
and in the related Proxy Statement-Prospectus under the caption "Legal
Opinions".
Very truly yours,
DEVINE, MILLIMET & BRANCH
Professional Association
By:
Frederick J. Coolbroth
FOLEY, HOAG & ELIOT
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109-2170
TELEPHONE: (617)832-1000 IN WASHINGTON, D.C.
CABLE ADDRESS "FOLEY HOAG" 1615 L STREET, N.W.
FACSIMILE (617) 832-7000 SUITE 850
WASHINGTON, D.C. 20036
TELEX 940693 TELEPHONE (202) 775-0600
[Date of Closing]
ORANGE SAVINGS BANK
30 East Main Street
Orange, Massachusetts 01364
Re: Federal Income Tax Consequences of Proposed Merger of CFX Interim Trust
Company with and into Orange Savings Bank.
Ladies and Gentlemen:
We have acted as counsel to Orange Savings Bank, a Massachusetts-
chartered stock savings bank ("Orange"), in connection with the proposed
merger (the "Merger") of CFX Interim Trust Company, a Massachusetts-chartered
trust company ("CFX Sub") and wholly-owned subsidiary of CFX Corporation, a
New Hampshire corporation ("CFX"), with and into Orange in accordance with the
Amended and Restated Agreement and Plan of Merger dated as of July 26, 1994,
between CFX and Orange (the "Agreement"). Capitalized terms used but not
defined herein shall have the respective meanings ascribed to them in the
Agreement.
We have examined the law and such papers as deemed necessary to render
these opinions, including the Agreement, the Registration Statement and the
Proxy Statement-Prospectus. As to questions of fact material to our opinions
we have relied upon representations set forth in the Agreement, the Proxy
Statement-Prospectus and certain letters (the "Letters of Representation") of
even date addressed to us and attached to this letter, without undertaking to
verify the same by independent investigation.
The Merger will be consummated pursuant to the Agreement and the Proxy
Statement-Prospectus. The Agreement provides that each share of Orange Common
Stock (other than Dissenting Shares, if any, and other than Orange Common
Stock then owned by Orange, any Orange subsidiary, CFX, or any CFX subsidiary
(in each case other than in a fiduciary capacity or as a result of debts
previously contracted)) will be converted into shares of CFX Common Stock. (We
understand that no Orange Common Stock is owned by any Orange subsidiary, CFX,
or any CFX subsidiary.) As a result of the Merger, Orange, as the Surviving
Bank, will become a wholly-owned subsidiary of CFX.
The business reasons for the Merger are stated in the Proxy Statement-
Prospectus. We have assumed that these reasons will constitute a valid
business purpose, within the meaning of Treasury Regulation section 1.368-1(b)
and (c), for the Merger.
We express no opinion as to the federal income tax consequences other
than those described below, if any, or as to any state, local or foreign
income or other tax consequences, with respect to the Merger.
Based on the foregoing, we are of opinion, as of the date hereof and
under existing law, that for federal income tax purposes:
1. 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").
2. Orange will be a "party to a reorganization" within the meaning of
Code section 368(b)
3. No gain or loss will be recognized by Orange as a result of the
Merger.
4. Except to the extent of cash received in lieu of fractional shares,
as described below, no gain or loss will be recognized by the stockholders of
Orange upon the receipt in the Merger of CFX Common Stock in exchange for
their shares of Orange Common Stock.
5. Cash received in lieu of a fractional share of CFX Common Stock will
be treated as full payment in exchange for the Orange Common Stock for which
it is exchanged, and will result in the recognition of gain or loss, if any,
measured by the difference between the portion of the basis of the Orange
Common Stock allocable to such shares and the cash received therefor. If such
shares are capital assets in the hands of the Orange stockholder, such gain or
loss will be a capital gain or loss.
6. The aggregate basis of the CFX Common Stock received by an Orange
stockholder in the Merger will be the same as the aggregate basis of the
Orange Common Stock surrendered in exchange therefor.
7. The holding period for each share of CFX Common Stock received by
each Orange stockholder in exchange for Orange Common Stock will include the
period for which such stockholder held such Orange Common Stock, provided that
the stockholder's Orange Common Stock is held as a capital asset at the
Effective Time.
8. An Orange stockholder who does not vote in favor of the Merger, who
exercises dissenters' rights as to all such holder's shares of Orange Common
Stock and who is not deemed to be an owner of any shares of Orange Common
Stock held by others, will recognize gain or loss measured by the difference
between the basis of such stockholder's Dissenting Shares and the cash
received in exchange therefor. Such gain or loss will be capital, provided
that the holder's Dissenting Shares are held as a capital asset at the
Effective Time.
While the accuracy of each representation set forth in the Letters of
Representation is essential to these opinions, we call your particular
attention to the fact that dispositions of CFX Common Stock received by Orange
stockholders in the Merger may cause the Merger to become retroactively
taxable to each Orange stockholder, even those who do not make such
dispositions. In particular, Orange stockholders must not, pursuant to a plan
or intent existing prior to the Effective Time, dispose of an amount of CFX
Common Stock to be received in the Merger (including, under certain
circumstances, pre-merger dispositions of Orange Common Stock) such that the
Orange stockholders do not retain a meaningful continuing equity ownership in
CFX. Generally, so long as the Orange stockholders have no plan or intention
to dispose of CFX Common Stock to be received in the Merger that would result
in their retention, in the aggregate, of continuing interest through stock
ownership in CFX that is equal in value, as of the Effective Time, to less
than 50 percent of the value of all of the formerly outstanding Orange Common
Stock as of the same time, this requirement will be satisfied. If this
requirement were not satisfied, each Orange stockholder would recognize gain
or loss with respect to each share of Orange Common Stock surrendered equal to
the difference between (i) the stockholder's basis in the share and (ii) the
fair market value of the CFX Common Stock received in exchange therefor. In
such event, the stockholder's aggregate basis in the shares of CFX Common
Stock received in the exchange would equal the fair market value of such
shares, and the stockholder's holding period for such CFX Common Stock would
not include the period during which the stockholder held the Orange Common
Stock exchanged therefor.
We are furnishing this letter to you solely in connection with the
Merger. This letter is not to be used, circulated, quoted or otherwise
referred to for any other purpose without our prior written consent, except
that you are authorized to furnish a copy of this letter to Devine, Millimet &
Branch, who may rely on this letter for the sole purpose of rendering opinions
to CFX and CFX Sub.
Very truly yours,
FOLEY, HOAG & ELIOT
By: RICHARD SCHAUL-YODER
A partner
Attachments
CFX CORPORATION
102 Main Street, Box 429
Keene, New Hampshire 03431
[Closing Date]
FOLEY, HOAG & ELIOT
One Post Office Square
Boston, Massachusetts 02109
Devine, Millimet & Branch
Professional Association
111 Amherst Street
Manchester, New Hampshire 03101
Ladies and Gentlemen:
We hereby make the following representations to you and intend that you
will rely upon these representations in rendering your opinions on the federal
income tax consequences of the proposed merger (the "Merger") of CFX Interim
Trust Company, a Massachusetts-chartered trust company ("CFX Sub") to be
formed as a wholly-owned subsidiary of CFX Corporation, a New Hampshire
corporation ("CFX"), with and into Orange Savings Bank, a Massachusetts-
chartered stock savings bank ("Orange"), in accordance with the Amended and
Restated Agreement and Plan of Merger dated as of July 26, 1994 between CFX
and Orange (the "Agreement"). Capitalized terms used but not defined herein
shall have the respective meanings ascribed to them in the Agreement.
1. The fair market value of the CFX Common Stock and other consideration
received by each Orange shareholder will be approximately equal to the fair
market value of the Orange Common Stock surrendered in the Merger.
2. Prior to the Merger, CFX will be in control of CFX Sub within the
meaning of section 368(c) of the Internal Revenue Code of 1986, as amended
(the "Code").
3. In the Merger, CFX will exchange solely voting stock of CFX for
shares of Orange Common Stock representing control of Orange, as defined in
section 368(c) of the Code. For purposes of this representation, shares of
Orange Common Stock exchanged for cash or other property originating with CFX
will be treated as outstanding Orange Common Stock on the date of the Merger.
4. CFX has no plan or intention to cause Orange to issue additional
shares of its stock that would result in CFX losing control of Orange within
the meaning of section 368(c) of the Code.
5. Following the Merger, CFX will cause Orange to continue its historic
business or use a significant portion of its historic business assets in a
business.
6. CFX will pay its own expenses in connection with the Merger.
7. There is no intercorporate indebtedness existing between CFX and
Orange that was issued, acquired, or will be settled at a discount.
8. CFX has no plan or intention to reacquire any of its stock issued in
the Merger.
9. CFX has no plan or intention to liquidate Orange; to merge Orange
with or into another corporation; to sell or otherwise dispose of the stock of
Orange, except for transfers of stock to corporations controlled by CFX; or to
cause Orange to sell or otherwise dispose of any of its assets or any of the
assets acquired from CFX Sub, except for dispositions made in the ordinary
course of business or transfers of assets to a corporation controlled by
Orange.
10. CFX does not own, nor has it owned during the past five years, any
shares of the stock of Orange.
11. CFX is not an investment company as defined in sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code.
12. The payment of cash in lieu of fractional shares of CFX Common Stock
is solely for the purpose of avoiding the expense and inconvenience to CFX of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
Orange shareholders instead of issuing fractional shares of CFX Common Stock
will not exceed one percent of the total consideration that will be issued in
the Merger to the Orange shareholders in exchange for their shares of Orange
Common Stock. The fractional share interests of each Orange shareholder will
be aggregated, and no Orange shareholder will receive cash in an amount equal
to or greater than the value of one full share of CFX Common Stock.
Sincerely yours,
CFX CORPORATION
By:
Its Chief Executive Officer
By:
Its Chief Financial Officer
ORANGE SAVINGS BANK
30 East Main Street
Orange, Massachusetts 01364
[Closing Date]
FOLEY, HOAG & ELIOT
One Post Office Square
Boston, Massachusetts 02109
Devine, Millimet & Branch
Professional Association
111 Amherst Street
Manchester, New Hampshire 03101
Ladies and Gentlemen:
We hereby make the following representations to you and intend that you
will rely upon these representations in rendering your opinions on the federal
income tax consequences of the proposed merger (the "Merger") of CFX Interim
Trust Company, a Massachusetts-chartered trust company ("CFX Sub") to be
formed as a wholly-owned subsidiary of CFX Corporation, a New Hampshire
corporation ("CFX"), with and into Orange Savings Bank, a Massachusetts-
chartered stock savings bank ("Orange"), in accordance with the Amended and
Restated Agreement and Plan of Merger dated as of July 26, 1994, between CFX
and Orange (the "Agreement"). Capitalized terms used but not defined herein
shall have the respective meanings ascribed to them in the Agreement.
1. The fair market value of the CFX Common Stock and other consideration
received by each Orange shareholder will be approximately equal to the fair
market value of the Orange Common Stock surrendered in the Merger.
2. To the best of the knowledge of the management of Orange, there is no
plan or intention on the part of the shareholders of Orange to sell, exchange,
or otherwise dispose of a number of shares of CFX Common Stock received in the
Merger that would reduce the Orange shareholders' ownership of CFX Common
Stock to a number of shares having a value, as of the date of the Merger, of
less than 50 percent of the value of all of the formerly outstanding Orange
Common Stock as of the same date. For purposes of this representation, shares
of Orange Common Stock exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of CFX Common
Stock will be treated as outstanding Orange Common Stock on the date of the
Merger. Moreover, shares of Orange Common Stock otherwise sold, redeemed, or
disposed of prior or subsequent to the Merger will be considered in making
this representation.
3. Following the Merger, Orange will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair market
value of its gross assets and at least 90 percent of the fair market value of
CFX Sub's net assets and at least 70 percent of the fair market value of CFX
Sub's gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by Orange or CFX Sub to dissenters, amounts paid
by Orange or CFX Sub to shareholders who receive cash or other property,
amounts used by Orange or CFX Sub to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Orange will be included as assets of Orange or CFX Sub, respectively,
immediately prior to the Merger.
4. Orange has no plan or intention to issue additional shares of its
stock that would result in CFX's losing control of Orange within the meaning
of section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code").
5. Following the Merger, Orange will continue its historic business or
use a significant portion of its historic business assets in a business.
6. CFX, CFX Sub, Orange, and the shareholders of Orange will pay their
respective expenses, if any, incurred in connection with the Merger.
7. There is no intercorporate indebtedness existing between CFX and
Orange or between CFX Sub and Orange that was issued, acquired, or will be
settled at a discount.
8. In the Merger, shares of Orange Common Stock representing control of
Orange, as defined in section 368(c) of the Code, will be exchanged solely for
voting stock of CFX. For purposes of this representation, shares of Orange
Common Stock exchanged for cash or other property originating with CFX will be
treated as outstanding Orange Common Stock on the date of the Merger.
9. At the time of the Merger, Orange will not have outstanding any
warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire stock in Orange that, if exercised
or converted, would affect CFX's acquisition or retention of control of
Orange, as defined in section 368(c) of the Code.
10. CFX does not own, nor has it owned during the past five years, any
shares of the stock of Orange.
11. Orange is not an investment company as defined in sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code.
12. Orange is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
13. On the date of the Merger, the fair market value of the assets of
Orange will equal or exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
14. None of the compensation received by any shareholder-employees of
Orange will be separate consideration for, or allocable to, any of their
shares of Orange Common Stock. None of the shares of CFX Common Stock received
by any shareholder-employees of Orange will be separate consideration for, or
allocable to, any employment agreement. The compensation paid to any
shareholder-employees of Orange will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
Sincerely yours,
ORANGE SAVINGS BANK
By:
Its President
DEVINE, MILLIMET & BRANCH
PROFESSIONAL ASSOCIATION-ATTORNEYS AT LAW
Victory Park
111 Amherst Street
Box 719
Manchester, NH 03105
Tel: 603-669-1000
Fax: 603-669-8547
[Date of Closing]
CFX Corporation
102 Main Street
Keene, NH 03431
Re: Federal Income Tax Consequences of
Proposed Merger of CFX Interim Trust
Company with and into Orange Savings Bank.
Ladies and Gentlemen:
We have acted as counsel to CFX Corporation, a New Hampshire corporation
("CFX"), and CFX Interim Trust Company, a Massachusetts-chartered trust
company ("CFX Sub"), a wholly-owned subsidiary of CFX, in connection with the
proposed merger (the "Merger") of CFX Sub with and into Orange Savings Bank
("Orange") in accordance with the Amended and Restated Agreement and Plan of
Merger dated as of July 26, 1994 between CFX and Orange (the "Agreement").
Capitalized terms used but not defined herein shall have the respective
meanings ascribed to them in the Agreement.
We have examined the law and such documents as deemed necessary to
render these opinions, including the Agreement, the Registration Statement and
the Proxy Statement-Prospectus. As to questions of fact material to our
opinions, we have relied upon representations of CFX, CFX Sub, Orange and
certain Orange stockholders contained in letters (the "Letters of
Representation") of even date addressed to us and attached to this letter,
without undertaking to verify the same by independent investigation.
The Merger will be consummated pursuant to the Agreement. Under the
Agreement, each share of Orange Common Stock (other than Dissenting Shares, if
any, and other than Orange Common Stock then owned by Orange, any Orange
subsidiary, CFX, or any CFX subsidiary (in each case other than in a fiduciary
capacity or as a result of debts previously contracted)) will be converted
into shares of CFX Common Stock. Based upon the Letters of Representation, we
understand that no Orange Common Stock is owned by any Orange subsidiary, CFX,
or any CFX subsidiary. As a result of the Merger, Orange, as the surviving
bank (the "Surviving Bank"), will become a wholly-owned subsidiary of CFX.
The business reasons for the Merger are stated in the Proxy Statement-
Prospectus. We have assumed that these reasons will constitute a valid
business purpose within the meaning of Treasury Regulation section 1.368-1(b)
and (c), for the Merger.
We express no opinion as to the federal income tax consequences other
than those described below, if any, or as to any state, local or foreign
income or other tax consequences, with respect to the Merger.
Based on the foregoing, and in reliance on the opinion of Foley, Hoag &
Eliot rendered to Orange attached to this letter, we are of the opinion, as of
the date hereof and under existing law, that for federal income tax purposes:
1. CFX and CFX Sub will each be a "party to the reorganization" within
the meaning of Section 368(b) of the Internal Revenue Code of 1986 (the
"Code");
2. No gain or loss will be recognized by CFX, CFX Sub or the Surviving
Bank by reason of the Merger;
3. The bases of the assets of Orange in the hands of Orange as the
Surviving Bank will be the same as the bases of such assets in the hands of
Orange immediately prior to the Merger; and
4. The holding period of the assets of Orange in the hands of Orange as
the Surviving Bank will include the period during which such assets were held
by Orange prior to the Merger.
We express no opinion concerning the tax consequences of the Merger if,
in fact, there is, subsequent to the effective time of the Merger, a
disposition of stock by Orange stockholders which causes the transaction to
fail to meet the continuity of interest requirement as provided in Treasury
Regulation section 1.368-2(b)(2).
We are furnishing this letter to you solely in connection with the
Merger. This letter is not to be used, circulated, quoted or otherwise
referred to for any purpose without our prior written consent.
Very truly yours,
DEVINE, MILLIMET & BRANCH
PROFESSIONAL ASSOCIATION
By:
Duly Authorized
CFX CORPORATION
102 Main Street, Box 429
Keene, New Hampshire 03431
[Closing Date]
FOLEY, HOAG & ELIOT
One Post Office Square
Boston, Massachusetts 02109
Devine, Millimet & Branch
Professional Association
111 Amherst Street
Manchester, New Hampshire 03101
Ladies and Gentlemen:
We hereby make the following representations to you and intend that you
will rely upon these representations in rendering your opinions on the federal
income tax consequences of the proposed merger (the "Merger") of CFX Interim
Trust Company, a Massachusetts-chartered trust company ("CFX Sub") to be
formed as a wholly-owned subsidiary of CFX Corporation, a New Hampshire
corporation ("CFX"), with and into Orange Savings Bank, a Massachusetts-
chartered stock savings bank ("Orange"), in accordance with the Amended and
Restated Agreement and Plan of Merger dated as of July 26, 1994 between CFX
and Orange (the "Agreement"). Capitalized terms used but not defined herein
shall have the respective meanings ascribed to them in the Agreement.
1. The fair market value of the CFX Common Stock and other consideration
received by each Orange shareholder will be approximately equal to the fair
market value of the Orange Common Stock surrendered in the Merger.
2. Prior to the Merger, CFX will be in control of CFX Sub within the
meaning of section 368(c) of the Internal Revenue Code of 1986, as amended
(the "Code").
3. In the Merger, CFX will exchange solely voting stock of CFX for
shares of Orange Common Stock representing control of Orange, as defined in
section 368(c) of the Code. For purposes of this representation, shares of
Orange Common Stock exchanged for cash or other property originating with CFX
will be treated as outstanding Orange Common Stock on the date of the Merger.
4. CFX has no plan or intention to cause Orange to issue additional
shares of its stock that would result in CFX losing control of Orange within
the meaning of section 368(c) of the Code.
5. Following the Merger, CFX will cause Orange to continue its historic
business or use a significant portion of its historic business assets in a
business.
6. CFX will pay its own expenses in connection with the Merger.
7. There is no intercorporate indebtedness existing between CFX and
Orange that was issued, acquired, or will be settled at a discount.
8. CFX has no plan or intention to reacquire any of its stock issued in
the Merger.
9. CFX has no plan or intention to liquidate Orange; to merge Orange
with or into another corporation; to sell or otherwise dispose of the stock of
Orange, except for transfers of stock to corporations controlled by CFX; or to
cause Orange to sell or otherwise dispose of any of its assets or any of the
assets acquired from CFX Sub, except for dispositions made in the ordinary
course of business or transfers of assets to a corporation controlled by
Orange.
10. CFX does not own, nor has it owned during the past five years, any
shares of the stock of Orange.
11. CFX is not an investment company as defined in sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code.
12. The payment of cash in lieu of fractional shares of CFX Common Stock
is solely for the purpose of avoiding the expense and inconvenience to CFX of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
Orange shareholders instead of issuing fractional shares of CFX Common Stock
will not exceed one percent of the total consideration that will be issued in
the Merger to the Orange shareholders in exchange for their shares of Orange
Common Stock. The fractional share interests of each Orange shareholder will
be aggregated, and no Orange shareholder will receive cash in an amount equal
to or greater than the value of one full share of CFX Common Stock.
Sincerely yours,
CFX CORPORATION
By:
Its Chief Executive Officer
By:
Its Chief Financial Officer
ORANGE SAVINGS BANK
30 East Main Street
Orange, Massachusetts 01364
[Closing Date]
FOLEY, HOAG & ELIOT
One Post Office Square
Boston, Massachusetts 02109
Devine, Millimet & Branch
Professional Association
111 Amherst Street
Manchester, New Hampshire 03101
Ladies and Gentlemen:
We hereby make the following representations to you and intend that you
will rely upon these representations in rendering your opinions on the federal
income tax consequences of the proposed merger (the "Merger") of CFX Interim
Trust Company, a Massachusetts-chartered trust company ("CFX Sub") to be
formed as a wholly-owned subsidiary of CFX Corporation, a New Hampshire
corporation ("CFX"), with and into Orange Savings Bank, a Massachusetts-
chartered stock savings bank ("Orange"), in accordance with the Amended and
Restated Agreement and Plan of Merger dated as of July 26, 1994, between CFX
and Orange (the "Agreement"). Capitalized terms used but not defined herein
shall have the respective meanings ascribed to them in the Agreement.
1. The fair market value of the CFX Common Stock and other consideration
received by each Orange shareholder will be approximately equal to the fair
market value of the Orange Common Stock surrendered in the Merger.
2. To the best of the knowledge of the management of Orange, there is no
plan or intention on the part of the shareholders of Orange to sell, exchange,
or otherwise dispose of a number of shares of CFX Common Stock received in the
Merger that would reduce the Orange shareholders' ownership of CFX Common
Stock to a number of shares having a value, as of the date of the Merger, of
less than 50 percent of the value of all of the formerly outstanding Orange
Common Stock as of the same date. For purposes of this representation, shares
of Orange Common Stock exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of CFX Common
Stock will be treated as outstanding Orange Common Stock on the date of the
Merger. Moreover, shares of Orange Common Stock otherwise sold, redeemed, or
disposed of prior or subsequent to the Merger will be considered in making
this representation.
3. Following the Merger, Orange will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair market
value of its gross assets and at least 90 percent of the fair market value of
CFX Sub's net assets and at least 70 percent of the fair market value of CFX
Sub's gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by Orange or CFX Sub to dissenters, amounts paid
by Orange or CFX Sub to shareholders who receive cash or other property,
amounts used by Orange or CFX Sub to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Orange will be included as assets of Orange or CFX Sub, respectively,
immediately prior to the Merger.
4. Orange has no plan or intention to issue additional shares of its
stock that would result in CFX's losing control of Orange within the meaning
of section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code").
5. Following the Merger, Orange will continue its historic business or
use a significant portion of its historic business assets in a business.
6. CFX, CFX Sub, Orange, and the shareholders of Orange will pay their
respective expenses, if any, incurred in connection with the Merger.
7. There is no intercorporate indebtedness existing between CFX and
Orange or between CFX Sub and Orange that was issued, acquired, or will be
settled at a discount.
8. In the Merger, shares of Orange Common Stock representing control of
Orange, as defined in section 368(c) of the Code, will be exchanged solely for
voting stock of CFX. For purposes of this representation, shares of Orange
Common Stock exchanged for cash or other property originating with CFX will be
treated as outstanding Orange Common Stock on the date of the Merger.
9. At the time of the Merger, Orange will not have outstanding any
warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire stock in Orange that, if exercised
or converted, would affect CFX's acquisition or retention of control of
Orange, as defined in section 368(c) of the Code.
10. CFX does not own, nor has it owned during the past five years, any
shares of the stock of Orange.
11. Orange is not an investment company as defined in sections
368(a)(2)(F)(iii) and 368(a)(2)(F)(iv) of the Code.
12. Orange is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
13. On the date of the Merger, the fair market value of the assets of
Orange will equal or exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
14. None of the compensation received by any shareholder-employees of
Orange will be separate consideration for, or allocable to, any of their
shares of Orange Common Stock. None of the shares of CFX Common Stock received
by any shareholder-employees of Orange will be separate consideration for, or
allocable to, any employment agreement. The compensation paid to any
shareholder-employees of Orange will be for services actually rendered and
will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
Sincerely yours,
ORANGE SAVINGS BANK
By:
Its President
FOLEY, HOAG & ELIOT
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109-2170
TELEPHONE: (617)832-1000 IN WASHINGTON, D.C.
CABLE ADDRESS "FOLEY HOAG" 1615 L STREET, N.W.
FACSIMILE (617) 832-7000 SUITE 850
WASHINGTON, D.C. 20036
TELEX 940693 TELEPHONE (202) 775-0600
January 11, 1995
CFX Corporation
102 Main Street
Keene, New Hampshire 03431
RE: Consent
We hereby consent to the inclusion in this Registration Statement on
Form S-4 of CFX Corporation of the form of our opinion as to certain tax
matters addressed to Orange Savings Bank, to be dated the date of consummation
of the merger of CFX Interim Trust Company, a Massachusetts-chartered trust
company and wholly-owned subsidiary of CFX Corporation, with and into Orange
Savings Bank. We also consent to the use of our name under the headings
"Certain Federal Income Tax Consequences" and "Legal Opinions" in the Proxy
Statement-Prospectus that forms a part of this Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT
By: Richard Schaul-Yoder
A Partner
