<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CFX CORPORATION
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
NEW HAMPSHIRE 6712 02-0402421
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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)
MARK A. GAVIN
CHIEF FINANCIAL 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 for service)
--------------------------
COPIES TO:
STEVEN KAPLAN, Esq. PETER W. COOGAN, Esq.
Arnold & Porter Foley, Hoag & Eliot
555 12th Street, N.W. One Post Office Square
Washington, DC 20008 Boston, Massachusetts 02109
(202) 942-5998 (617) 832-1116
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
--------------------------
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 MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, ($0.66 2/3 Par
Value)........................... 3,200,000 $12.97(1) $41,516,625(1) $14,316.08(2)
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee. Computed
in accordance with Rule 457(f)(1) on the basis of the average of high and
low prices of Common Stock of The Safety Fund Corporation on The Nasdaq
Stock Market on April 24, 1996.
(2) $7,680.58 was previously paid in connection with the filing of proxy
materials with the Commission by The Safety Fund Corporation on February 16,
1996 pursuant to Rule 14(a)-6(i) under the Securities Exchange Act of 1934,
as amended. $6,635.50 is paid herewith.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CFX CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-4 HEADING IN PROXY STATEMENT
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Introduction
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Table of Contents; Available Information; Documents
Incorporated by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Introduction; The Companies; Summary
4. Terms of the Transaction............................. Introduction; Summary; Proposal I -- Proposed Merger
5. Pro Forma Financial Information...................... Summary; Pro Forma Consolidated Financial Information
(Unaudited)
6. Material Contacts with the Company Being Acquired.... Proposal I -- Proposed Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... Not Applicable
8. Interests of Named Experts and Counsel............... Legal Opinions
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
10. Information with Respect to S-3
Registrants......................................... Introduction; Available Information; Documents
Incorporated by Reference; The Companies
11. Incorporation of Certain Information by Reference.... Available Information; Documents Incorporated by
Reference
12. Information with Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
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; Documents Incorporated by
Reference; The Companies; Summary; Accompanying
Annual Report to Safety Fund Shareholders
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 HEADING IN PROXY STATEMENT
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
17. Information with Respect to Companies Other Than S-3
or S-2 Companies.................................... Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. Introduction; Summary; Meeting Information; Proposal
I -- Proposed Merger
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer..... Not Applicable
</TABLE>
<PAGE>
May 1, 1996
Dear Shareholder:
We are pleased to enclose your Notice of Annual Meeting and Proxy Statement
for the Annual Meeting of Shareholders of The Safety Fund Corporation ("Safety
Fund") to be held on June 7, 1996, at 10:00 a.m., Eastern Daylight Time, at the
offices of Safety Fund, located at 470 Main Street, Fitchburg, Massachusetts
01420.
At the meeting you will be asked to consider and vote on a proposed merger
of Safety Fund with a wholly owned subsidiary of CFX Corporation ("CFX"), a
corporation organized under the laws of the State of New Hampshire and a
registered bank holding company (the "Merger"). Immediately thereafter, Safety
Fund will be merged with and into CFX, with CFX as the surviving corporation.
Safety Fund National Bank will become a subsidiary of CFX.
In the Merger, you will receive a certain number of shares of common stock
of CFX for each share of common stock of Safety Fund held by you ("Exchange
Ratio") and cash in lieu of any fractional share of CFX common stock which you
otherwise would be entitled to receive. The Exchange Ratio depends on two
principal factors. The first factor is whether or not the Merger is accounted
for under applicable accounting rules as a pooling-of-interests transaction. The
second factor is the average closing price of CFX common stock on the American
Stock Exchange for the ten consecutive trading days preceding the last
regulatory approval required for consummation of the Merger ("CFX Trading
Price").
If the Merger is accounted for as a pooling-of-interests (or is not so
accounted for because of certain actions on the part of CFX), the Exchange Ratio
will be between 1.6292 and 1.8063, except in certain unusual circumstances. If
the Merger cannot be accounted for as a pooling-of-interests, the Exchange Ratio
will be between 1.2 and 1.6, except in certain unusual circumstances. In either
case, the Exchange Ratio decreases as the CFX Trading Price (and the value of
the CFX shares to be received by Safety Fund's shareholders) increases.
CFX common stock is listed and traded on the American Stock Exchange under
the symbol "CFX". The closing price of CFX common stock in composite trading on
April 24, 1996 was $14.63 per share, as reported in The Wall Street Journal.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER AND
RECOMMENDS A VOTE "FOR" THE MERGER. The Board reached this decision after
careful consideration of a number of factors. The enclosed Proxy Statement
contains more detailed information concerning the Board's decision and the
proposed transaction (including the method for determining the Exchange Ratio).
We urge you to consider it carefully.
Approval of the Merger requires the affirmative vote of the holders of at
least a majority of the shares of Safety Fund's common stock outstanding and
entitled to vote thereon. Accordingly, proxies marked "Abstain" or shares that
are not voted will have the same effect as votes against the Merger. We urge you
to take the time to consider this important matter and vote now.
In addition, at the Annual Meeting you will be asked to elect three
directors to serve for the terms for which they are nominated or until the
proposed Merger is consummated. You will also be asked to ratify the appointment
of the auditors of Safety Fund for 1996.
In order to make sure that your vote is represented, indicate your vote on
the enclosed proxy form, date and sign it, and return it in the enclosed
envelope. If you attend the meeting in person, you may revoke your proxy at the
meeting and vote in person. You should not send in certificates for your shares
of Safety Fund common stock at this time.
On behalf of the Board of Directors of Safety Fund, I thank you for your
support and urge you to vote for approval of the Merger.
Sincerely,
Christopher W. Bramley
PRESIDENT AND CHIEF EXECUTIVE OFFICER
May 1, 1996
<PAGE>
THE SAFETY FUND CORPORATION
470 MAIN STREET
FITCHBURG, MASSACHUSETTS 01420
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 1996
------------------------
To The Shareholders of
The Safety Fund Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of The Safety
Fund Corporation ("Safety Fund") will be held at the offices of Safety Fund,
located at 470 Main Street, Fitchburg, Massachusetts 01420, on June 7, 1996 at
10:00 a.m. Eastern Daylight Time, for the following purposes:
1. To consider and vote upon the approval of an Agreement and Plan of
Merger, as amended ("Agreement"), between Safety Fund and CFX Corporation
("CFX"), a bank holding company organized under New Hampshire law, a copy
of which is included as Appendix A to the accompanying Proxy Statement
and incorporated by reference herein, pursuant to which: (i) a wholly
owned subsidiary of CFX will be merged with and into Safety Fund
("Merger") followed immediately by the merger of Safety Fund with and
into CFX; and (ii) each outstanding share of common stock of Safety Fund,
par value $5.00 per share, would be converted into a number of shares of
the common stock of CFX, par value $0.66 2/3 per share, determined in
accordance with the terms of the Agreement, and cash in lieu of any
fractional share;
2. To elect three directors to serve for terms expiring in 1999, or until
the proposed Merger is consummated;
3. To ratify the appointment of KPMG Peat Marwick LLP as the independent
auditors of Safety Fund for 1996; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 24, 1996 are
entitled to notice of and to vote at such meeting or any adjournment thereof.
Any shareholder entitled to vote at the Annual Meeting on the Merger shall
have the right to dissent from the Agreement and to receive payment equal to the
"fair value" of the shares of Safety Fund common stock held of record by such
shareholder 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
Appendix D to the accompanying Proxy Statement. This right is explained more
fully in the accompanying Proxy Statement in the section headed "PROPOSAL I --
PROPOSED MERGER -- Rights of Dissenting Shareholders."
By Order of the Board of Directors
Sincerely,
John E. Howard
CLERK
Fitchburg, Massachusetts
May 1, 1996
IMPORTANT
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL
MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS SOON AS
POSSIBLE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE TO
APPROVE THE AGREEMENT, FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED
HEREIN AND FOR THE RATIFICATION OF THE APPOINTMENT OF SAFETY FUND'S AUDITORS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION............................................................................................... 1
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE................................................. 3
THE COMPANIES.............................................................................................. 4
SUMMARY.................................................................................................... 7
MEETING INFORMATION........................................................................................ 23
Date, Place and Time..................................................................................... 23
Record Date; Voting Rights............................................................................... 23
Voting and Revocation of Proxies......................................................................... 23
Solicitation of Proxies.................................................................................. 24
PROPOSAL I -- PROPOSED MERGER.............................................................................. 24
Background of the Merger................................................................................. 25
Reasons for the Merger; Recommendation of the Board of Directors......................................... 29
Terms of the Merger...................................................................................... 30
Opinion of the Financial Advisor......................................................................... 32
Surrender of Certificates................................................................................ 36
Representations and Warranties; Conditions to the Merger; Waiver......................................... 37
Regulatory and Other Approvals........................................................................... 37
Business Pending the Merger.............................................................................. 38
Effective Time of the Merger; Termination................................................................ 39
Management and Operations After the Merger............................................................... 39
Effect on Employees and Benefit Plans.................................................................... 40
Rights of Dissenting Shareholders........................................................................ 41
Certain Differences in the Rights of Shareholders........................................................ 42
Certain Federal Income Tax Consequences.................................................................. 47
Resale of CFX Common Stock............................................................................... 48
Accounting Treatment..................................................................................... 49
Stock Option Agreement................................................................................... 50
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)................................................... 52
CERTAIN REGULATORY CONSIDERATIONS.......................................................................... 63
PROPOSAL II -- ELECTION OF DIRECTORS....................................................................... 66
General.................................................................................................. 66
Information Regarding Directors and Nominees............................................................. 67
Compensation of Directors................................................................................ 68
Meetings and Committees of the Board..................................................................... 68
Compensation of Executive Officers....................................................................... 69
Certain Relationships and Related Transactions........................................................... 71
Compliance with Section 16(a) of the Exchange Act........................................................ 71
Principal Shareholders................................................................................... 72
PROPOSAL III -- RATIFICATION OF INDEPENDENT AUDITORS....................................................... 73
EXPERTS.................................................................................................... 74
LEGAL OPINIONS............................................................................................. 74
SHAREHOLDER PROPOSALS...................................................................................... 74
APPENDIX A -- AGREEMENT AND PLAN OF MERGER, AS AMENDED
APPENDIX B -- STOCK OPTION AGREEMENT
APPENDIX C -- OPINION OF MCCONNELL, BUDD & DOWNES, INC.
APPENDIX D -- CHAPTER 156B, SECTIONS 85-98 OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
</TABLE>
<PAGE>
THE SAFETY FUND CORPORATION
------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 7, 1996
------------------------
INTRODUCTION
This Proxy Statement is being furnished to shareholders of The Safety Fund
Corporation ("Safety Fund") in connection with the solicitation of proxies by
the Board of Directors of Safety Fund for use at the Annual Meeting of
Shareholders, and any adjournment thereof, to be held at the time and place set
forth in the accompanying notice ("Annual Meeting"). It is anticipated that the
mailing of this Proxy Statement and the enclosed proxy card will commence on or
about May 1, 1996.
At the Annual Meeting, shareholders of Safety Fund will be asked to approve
an Agreement and Plan of Merger, dated as of January 5, 1996, as subsequently
amended ("Agreement"), providing for the merger ("Merger") of a wholly owned
subsidiary of CFX Corporation ("CFX") with and into Safety Fund, with Safety
Fund as the surviving corporation ("Surviving Corporation"), followed
immediately by the merger of Safety Fund into CFX. CFX is a New Hampshire
corporation and a registered bank holding company. The Agreement is attached to
this Proxy Statement as Appendix A.
At the Effective Time (as defined below), each share of common stock, par
value $5.00 per share, of Safety Fund ("Safety Fund Common Stock") issued and
outstanding immediately prior to the Effective Time (each such share to include
an attached right issued pursuant to the Shareholder Rights Plan (as defined
below)) other than Dissenting Shares (as defined in the Agreement) and except as
otherwise provided in the Agreement, will be converted into an amount of common
stock, par value $0.66 2/3 per share, of CFX ("CFX Common Stock") equal to one
share multiplied by the appropriate Exchange Ratio (as defined below) and cash
in lieu of any fractional share of CFX Common Stock.
The number of shares of CFX Common Stock to be received for each share of
Safety Fund Common Stock ("Exchange Ratio") depends on two principal factors.
The first factor is whether (as the parties expect) the Merger may be accounted
for under the pooling-of-interests method of accounting. Thus, the Exchange
Ratio depends on whether CFX, after consulting with its independent auditors,
determines by the close of business on the business day preceding the Effective
Time that the Merger qualifies for the pooling-of-interests method of
accounting, or does not so qualify as a result of actions by CFX in breach of
the Agreement ("Pooling Determination"). The second factor is the average
closing price of CFX Common Stock on the American Stock Exchange ("AMEX") for
the ten consecutive trading days preceding the last regulatory approval required
for consummation of the Merger ("CFX Trading Price"). At any given price level
of CFX Common Stock, the number of shares of CFX Common Stock to be received for
each share of Safety Fund Common Stock will be less under a purchase accounting
than under a pooling-of-interests accounting. The exercise of dissenters' rights
by holders of ten percent or more of Safety Fund Common Stock would preclude
pooling treatment. For a more complete description of the Agreement and the
differences in accounting treatment, see "PROPOSED MERGER -- Terms of the
Merger" and "-- Accounting Treatment."
The following tables show the Exchange Ratio at various CFX Trading Prices
if a Pooling Determination is made or is not made, together with the Per Safety
Fund Share Value in each case. The Per Safety Fund Share Value is calculated by
multiplying the CFX Trading Price by the applicable Exchange Ratio, and
represents the value of a share of CFX Common Stock that would be received in
the Merger for each share of Safety Fund Common Stock based on the CFX Trading
Price. The CFX
1
<PAGE>
Trading Price is based on the CFX trading price on AMEX for the ten trading days
prior to receipt of the last regulatory approval necessary for consummation of
the Merger and thus could be determined several weeks prior to the Effective
Time. The market price of CFX Common Stock at the Effective Time could differ
from the CFX Trading Price used to determine the Exchange Ratio, and the actual
value of the shares issued in the Merger therefore could differ from the Per
Safety Fund Share Value.
POOLING DETERMINATION
<TABLE>
<CAPTION>
PER SAFETY FUND
CFX TRADING PRICE EXCHANGE RATIO SHARE VALUE
- ------------------ --------------- ------------------
<S> <C> <C>
$18.66 or more 1.629 $30.38 or more
$17.88 - $18.65 1.629 - 1.700 $30.38
$13.21 - $17.87 1.700 $22.46 - $30.38
$12.43 - $13.20 1.700 - 1.806 $22.46
$11.66 - $12.42 1.806 $21.06 - $22.46
Below $11.66 (1) (1)
</TABLE>
- ------------------------
(1) If a Pooling Determination is made, Safety Fund by action of its Board of
Directors may, but need not, seek to terminate the Agreement if the CFX
Trading Price is below $11.66. If Safety Fund does not seek to terminate the
Agreement, the Exchange Ratio would be 1.806 and the Per Safety Fund Share
Value would be less than $21.06. If Safety Fund seeks to terminate the
Agreement, CFX may adjust the Exchange Ratio to the amount determined by
dividing $21.06 by the CFX Trading Price (resulting in a Per Safety Fund
Share Value of $21.06) and the Merger would be consummated on that basis.
Alternatively, CFX could do nothing in response, in which case the Agreement
would terminate.
NO POOLING DETERMINATION
<TABLE>
<CAPTION>
PER SAFETY FUND
CFX TRADING PRICE EXCHANGE RATIO SHARE VALUE
- ------------------ --------------- ------------------
<S> <C> <C>
$20.84 or more 1.200 $25.00 or more
$16.45 - $20.83 1.200 - 1.520 $25.00
$13.16 - $16.44 1.520 $20.00 - $25.00
$12.50 - $13.15 1.520 - 1.600 $20.00
Below $12.50 (1) (1)
</TABLE>
- ------------------------
(1) If a Pooling Determination is not made, Safety Fund by action of its Board
of Directors may, but need not, seek to terminate the Agreement if the CFX
Trading Price is below $12.50. If Safety Fund does not seek to terminate the
Agreement, the Exchange Ratio would be 1.600 and the Per Safety Fund Share
Value would be less than $20.00. If Safety Fund seeks to terminate the
Agreement, CFX may adjust the Exchange Ratio to the amount determined by
dividing $20.00 by the CFX Trading Price or make an additional cash payment
(in either case resulting in a Per Safety Fund Share Value of $20.00) and
the Merger would be consummated on that basis. Alternatively, CFX could do
nothing in response, in which case the Agreement would terminate.
For a more complete description of the Agreement and the terms of the
Merger, see the graphs depicting the pricing mechanism in "SUMMARY -- Proposed
Merger" and the narrative description in "PROPOSAL I -- PROPOSED MERGER -- Terms
of the Merger."
THE SHARES OF CFX COMMON STOCK OFFERED HEREBY ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION ("FDIC") AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR GUARANTEED BY, ANY BANK SUBSIDIARY OF CFX.
THE CFX COMMON STOCK THAT WOULD BE ISSUED IN THE MERGER HAS NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
2
<PAGE>
STATE SECURITIES AUTHORITY NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
At the Annual Meeting, action will also be taken to elect three directors of
Safety Fund to serve for the terms specified or until the Merger is consummated
and to ratify the appointment of the auditors of Safety Fund. See "PROPOSAL II
- -- ELECTION OF DIRECTORS" and "PROPOSAL III -- RATIFICATION OF INDEPENDENT
AUDITORS."
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Proxy
Statement, in any jurisdiction, to any person to whom it is unlawful to make
such offer or solicitation of an offer in such jurisdiction. Neither the
delivery of this Proxy Statement nor any distribution of securities made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of CFX or Safety Fund since the date of this Proxy
Statement.
The date of this Proxy Statement, of which the section entitled "PROPOSAL I
- -- PROPOSED MERGER" and sections related thereto constitute a prospectus of CFX
for up to 3,200,000 shares of CFX Common Stock issuable in connection with the
Merger, is May 1, 1996.
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE
CFX and Safety Fund are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, CFX and Safety Fund file reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). Such
reports, proxy statements and other information filed by CFX and Safety Fund can
be inspected and copied at the Commission's public reference room located at 450
Fifth Street, N.W., Washington, D.C. 20549, and the Commission's regional
offices located at: 7 World Trade Center (13th floor), New York, New York 10006
and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained at prescribed rates by
writing to the Commission, Public Reference Section, Washington, D.C. 20549.
Reports, proxy statements and other information filed by CFX can also be
inspected at the offices of the AMEX, American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006, on which exchange CFX Common Stock is listed.
Reports, proxy statements and other information filed by Safety Fund can also be
inspected at the offices of The Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, DC 20006, on which Safety Fund Common Stock is traded.
CFX has filed with the Commission a registration statement under the
Securities Act of 1933, as amended ("Securities Act"), relating to the shares of
CFX Common Stock that may be issued in connection with the Merger ("Registration
Statement"). This Proxy Statement does not contain all of the information set
forth in the Registration Statement and exhibits thereto. Statements contained
in this Proxy Statement or in any document incorporated by reference in this
Proxy Statement as to the contents of any documents referred to herein or
therein are not necessarily complete, and in each instance reference is made to
the copy of such other documents filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and the exhibits thereto may be inspected
and copied, upon payment of prescribed fees, at the public reference facilities
maintained by the Commission at the addresses set forth above.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO CFX (OTHER THAN
CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR
ORAL REQUEST TO MARK A. GAVIN, CHIEF FINANCIAL
3
<PAGE>
OFFICER, CFX CORPORATION, 102 MAIN STREET, KEENE, NEW HAMPSHIRE 03431. TELEPHONE
REQUESTS MAY BE DIRECTED TO (603) 352-2502. DOCUMENTS RELATING TO SAFETY FUND
(OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE
UPON WRITTEN OR ORAL REQUEST TO MARTIN F. CONNORS, JR., TREASURER, THE SAFETY
FUND CORPORATION, 470 MAIN STREET, FITCHBURG, MASSACHUSETTS 01420. TELEPHONE
REQUESTS MAY BE DIRECTED TO (508) 343-6406. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 27, 1996. ALL DOCUMENTS WILL
BE SENT BY FIRST CLASS MAIL WITHIN ONE BUSINESS DAY OF RECEIPT OF A REQUEST.
The following documents filed by CFX with the Commission are incorporated
herein by reference: (i) Annual Report on Form 10-K for the year ended December
31, 1995; (ii) Current Report on Form 8-K dated as of January 5, 1996; (iii)
Current Report on Form 8-K dated as of February 9, 1996; (iv) the description of
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 (v) a Current Report on Form 8-K dated as of April 11, 1996, containing
financial statements of Milford (as defined below).
The following documents filed by Safety Fund with the Commission are
incorporated herein by reference: (i) Annual Report on Form 10-KSB for the year
ended December 31, 1995; (ii) Current Report on Form 8-K dated as of January 5,
1996; (iii) a Registration Statement on Form 8-A filed with the Commission on
January 12, 1996; and (iv) the description of Safety Fund Common Stock set forth
in the Registration Statement on Form 8-A filed with the Commission on May 3,
1995 pursuant to Section 12 of the Exchange Act.
All documents filed by CFX pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act subsequent to the date hereof until the date of the Annual
Meeting shall be deemed to be incorporated herein by reference and to be a part
hereof from the date of such filing. Any statement contained 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 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 such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
THE COMPANIES
CFX. CFX is a New Hampshire corporation registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"). As of December 31, 1995, CFX had total
consolidated assets of $901 million and total shareholders' equity of $90
million. CFX's two banking subsidiaries are CFX Bank, headquartered in Keene,
New Hampshire, and Orange Savings Bank, headquartered in Orange, Massachusetts
("Orange Savings"). CFX Mortgage, Inc., CFX Bank's mortgage banking subsidiary,
services approximately $672 million in mortgage loans for others. Through its
two subsidiary banks, CFX operates 23 full service offices, two loan production
offices and 50 automated teller and remote service banking locations in New
Hampshire and north central Massachusetts.
On February 9, 1996, CFX entered into a definitive agreement with Milford
Co-operative Bank ("Milford"), of Milford, New Hampshire, pursuant to which
Milford will be merged into CFX Bank ("Milford Acquisition"). As of December 31,
1995, Milford reported assets of $157 million and shareholders' equity of $16
million. Milford operates six banking offices in Hillsborough County, New
Hampshire. Under its agreement with Milford, which is subject to shareholder and
regulatory approvals, CFX would issue up to 1,782,000 shares of CFX Common Stock
in the aggregate for the approximately 660,000 outstanding shares of Milford
common stock. CFX expects the transaction to close in the second half of 1996.
Historical financial information regarding Milford is included in documents
4
<PAGE>
incorporated herein by reference. See "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE." Pro forma financial information giving effect to the
Merger and the proposed Milford Acquisition is included elsewhere herein. See
"SUMMARY -- Comparative Per Share Data" and "PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)."
From time to time, CFX investigates and holds discussions and negotiations
in connection with possible transactions with other banks and financial service
entities. At the date hereof, CFX has not entered into any agreements or
understandings with respect to any significant transactions of the type referred
to above except for the transactions described herein. If required under
applicable law, any such transactions would be subject to regulatory approval
and the approval of shareholders.
The principal executive offices of CFX are located at 102 Main Street,
Keene, New Hampshire 03431. Its telephone number is (603) 352-2502. For
additional information concerning the business of CFX and its financial
condition, reference should be made to the CFX documents incorporated herein by
reference and contained in the 1995 CFX Annual Report to Shareholders that
accompanies this Proxy Statement. See "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE."
SAFETY FUND. The Safety Fund Corporation is a Massachusetts corporation
registered as a bank holding company under the BHCA. As of December 31, 1995,
Safety Fund had total consolidated assets of $287 million and total
shareholders' equity of $21 million. Safety Fund's banking subsidiary, Safety
Fund National Bank ("SFNB"), has twelve full service offices located throughout
Worcester County, Massachusetts and operates a trust division with $349 million
in assets under management and custodial arrangements as of December 31, 1995.
The principal executive offices of Safety Fund are located at 470 Main
Street, Fitchburg, Massachusetts 01420. Its telephone number is (508) 343-6406.
For additional information concerning the business of Safety Fund and its
financial condition, see the 1995 Safety Fund Annual Report to Shareholders that
accompanies this Proxy Statement and "AVAILABLE INFORMATION; DOCUMENTS
INCORPORATED BY REFERENCE."
5
<PAGE>
[MAP SHOWING LOCATIONS OF BRANCH OFFICES
OF CFX CORPORATION, THE SAFETY FUND
CORPORATION AND MILFORD CO-OPERATIVE BANK]
6
<PAGE>
SUMMARY
This summary is necessarily general and abbreviated and has been prepared to
assist shareholders in their review of this Proxy Statement. This summary is not
intended to be a complete explanation of the matters covered in this Proxy
Statement and is qualified in all respects by reference to the more detailed
information contained elsewhere in this Proxy Statement, the Appendices hereto
and the documents incorporated herein by reference. Shareholders are urged to
read this Proxy Statement and the Appendices hereto in their entirety.
THE MEETING
The Annual Meeting of Shareholders of Safety Fund will be held on June 7,
1996, at 10:00 a.m. Eastern Daylight Time, at the offices of Safety Fund,
located at 470 Main Street, Fitchburg, Massachusetts 01420. Only holders of
record of Safety Fund Common Stock at the close of business on April 24, 1996
will be entitled to notice of and to vote at such Annual Meeting ("Record
Date"). At such date, 1,660,665 shares of Safety Fund Common Stock were
outstanding and entitled to vote. For additional information with respect to the
Annual Meeting and the voting rights of shareholders, see "MEETING INFORMATION."
THE PROPOSED MERGER
At the Effective Time, a wholly owned subsidiary of CFX formed for the
purpose of effectuating the Merger will be merged with and into Safety Fund,
with Safety Fund as the surviving corporation. Immediately thereafter, Safety
Fund will be merged with and into CFX, whereupon the separate existence of
Safety Fund will cease. CFX, as the surviving entity in these transactions, will
continue unaffected and unimpaired by such transactions. Upon consummation of
the Merger, SFNB will become a wholly-owned subsidiary of CFX.
At the Effective Time, each share of Safety Fund Common Stock issued and
outstanding immediately prior to the Effective Time (each such share to include
an attached right issued pursuant to the shareholder rights agreement adopted by
Safety Fund on the date of the Agreement ("Shareholder Rights Plan")), other
than Dissenting Shares and except as otherwise provided in the Agreement, will
be converted into an amount of CFX Common Stock equal to one share multiplied by
the appropriate Exchange Ratio and cash in lieu of any fractional share of CFX
Common Stock.
The Exchange Ratio depends on two principal factors. The first factor is
whether a Pooling Determination is made and the second factor is the CFX Trading
Price. Although the parties expect that the transaction will be accounted for as
a pooling-of-interests, the Agreement provides for alternative Exchange Ratios
if a Pooling Determination is not made in order that the Merger may be
consummated as a purchase transaction if necessary. See "PROPOSAL I -- PROPOSED
MERGER -- Background of the Merger;" and "-- Accounting Treatment." The Exchange
Ratio will be 1.7 if a Pooling Determination is made and the CFX Trading Price
is between $13.21 and $17.87. The Exchange Ratio will be 1.52 if a Pooling
Determination is not made and the CFX Trading Price is between $13.16 and
$16.44. The parties have agreed to other Exchange Ratios (based on whether there
is a Pooling Determination and on the CFX Trading Price) under which, over the
entire range of Exchange Ratios, as the CFX Trading Price increases, the
Exchange Ratio decreases and the Per
7
<PAGE>
Safety Fund Share Value increases. The Agreement provides means of determining
the Exchange Ratio at other CFX Trading Prices. This pricing mechanism is
depicted in tabular form in "INTRODUCTION" and in the following graphs:
[GRAPH DEPICTING PRICING MECHANISM IN POOLING TRANSACTION]
[GRAPH DEPICTING PRICING MECHANISM IN PURCHASE TRANSACTION]
8
<PAGE>
If the CFX Trading Price is less than $11.65 and a Pooling Determination is
made or the CFX Trading Price is less than $12.50 and a Pooling Determination is
not made, Safety Fund by action of its Board of Directors may, but need not,
seek to terminate the Agreement by giving written notice to CFX prior to the
third day preceding the Closing Date (as defined below). Within two business
days thereafter, CFX may elect to increase the Exchange Ratio (or pay additional
cash where a Pooling Determination has not been made) pursuant to the terms of
the Agreement. If CFX makes any such election, the Agreement will not terminate
and the Merger may be consummated at the increased Exchange Ratio or payment
elected by CFX. See "PROPOSAL I -- PROPOSED MERGER -- Effective Time of the
Merger; Termination."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Subsequent to the Merger, those persons serving as directors of CFX
immediately prior to the Effective Time will continue to serve as directors of
CFX, together with four current directors of Safety Fund, Christopher W.
Bramley, P. Kevin Condron, William E. Aubuchon, III and David R. Grenon. In
addition, nine of those persons currently serving as directors of SFNB will be
selected by CFX, after consultation with Safety Fund, to continue to serve as
directors of SFNB for at least three years from the Effective Time, subject to
certain considerations, and CFX initially will elect up to three additional CFX
representatives as directors of SFNB. SFNB will continue its operations as a
subsidiary of CFX for at least three years from the Effective Time, subject to
certain considerations. See "PROPOSAL I -- PROPOSED MERGER -- Management and
Operations After the Merger" and "PROPOSAL II -- ELECTION OF DIRECTORS --
Information Regarding Directors and Nominees."
EFFECT ON EMPLOYEES AND BENEFIT PLANS
The Agreement provides for the assumption by CFX of employment contracts
that Safety Fund (and/or SFNB) currently has with Christopher Bramley, James
Garvey and Stephen R. Shirley, executive officers of Safety Fund and/or SFNB.
Pursuant to those employment contracts, the officers would be entitled to
receive severance benefits if a "terminating event" (as defined in the
contracts) occurs within one year (with respect to Messrs. Shirley and Garvey)
or three years (with respect to Mr. Bramley) following a "change in control" (as
defined in the contracts). The Merger constitutes a change in control under the
contracts. The severance benefits payable to Messrs. Shirley and Garvey would be
equal to one year's annual base salary (currently $110,000 and $99,000,
respectively), payable over a twelve month period and offset by 50 percent of
any wages earned from other employment. The severance benefit payable to Mr.
Bramley would be equal to $400,000, payable in one lump sum, or, at Mr.
Bramley's option, continuation of his salary (currently $211,600) and certain
employee benefits for the remainder of his contract (which was amended with
CFX's consent on January 5, 1996 to have a rolling two-year rather than one-year
term). The Agreement also contains provisions relating to, among other things,
employee benefits, including the continuation of Safety Fund's employee
severance plan (which is comparable to a similar plan provided by CFX to its
employees), indemnification of directors and officers and maintenance of
directors' and officers' liability insurance after the Merger. See "PROPOSAL I
- -- PROPOSED MERGER -- Effect on Employees and Benefit Plans" and "PROPOSAL II --
ELECTION OF DIRECTORS -- Executive Compensation and Other Information."
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of Safety Fund has unanimously adopted a resolution
approving the Agreement and unanimously recommends approval and adoption of the
Agreement by Safety Fund's shareholders. The Safety Fund Board believes in its
business judgment that the terms of the Agreement are fair and in the best
interests of Safety Fund and its shareholders and that the Exchange Ratio is
fair and reasonable to the shareholders of Safety Fund. The terms of the
Agreement, including the Exchange Ratio, were reached on the basis of arms'
length negotiations between Safety Fund and CFX. In the course of reaching its
decision to approve the Agreement, the Board of Directors of Safety Fund
consulted with Foley, Hoag & Eliot, its legal advisors, regarding the legal
terms of the Agreement and the Board of Directors' obligations in its
consideration thereof, and with McConnell,
9
<PAGE>
Budd, & Downes, Inc. ("MB&D"), its financial advisor, regarding the financial
terms and fairness, from a financial point of view, of the Exchange Ratio in the
proposed Merger. See "PROPOSAL I -- PROPOSED MERGER -- Reasons for the Merger;
Recommendation of the Board of Directors" and "-- Opinion of the Financial
Advisor."
OPINION OF THE FINANCIAL ADVISOR
MB&D, financial advisor to Safety Fund, has delivered to the Board of
Directors of Safety Fund its written opinion, as of the date of this Proxy
Statement, that the Exchange Ratio is fair, from a financial point of view, to
Safety Fund's shareholders. The full text of the opinion of MB&D dated as of the
date of this Proxy Statement, which sets forth assumptions made, matters
considered and limits on the review undertaken by MB&D, is attached hereto as
Appendix C. Shareholders are urged to read this opinion in its entirety. MB&D's
opinion is directed only to the Exchange Ratio and does not constitute a
recommendation to any shareholder of Safety Fund as to how such shareholder
should vote at the Annual Meeting. See "PROPOSAL I -- PROPOSED MERGER -- Opinion
of the Financial Advisor."
VOTE REQUIRED
Safety Fund believes and has been advised by its counsel that, pursuant to
its Articles of Organization (and consistent with Massachusetts corporation
law), the Merger must be approved by the affirmative vote of the holders of at
least a majority of the shares of Safety Fund Common Stock outstanding and
entitled to vote thereon. One of Safety Fund's shareholders, David G. Massad,
has informed Safety Fund through his counsel that he believes the Merger must be
approved by at least two-thirds of such shares. For information about the course
of prior communications between Safety Fund and Mr. Massad, see "PROPOSAL I --
PROPOSED MERGER -- Background of the Merger." Safety Fund has engaged the
services of a proxy solicitor and will attempt to obtain the votes of as many of
its shareholders as is reasonably practicable. However, Safety Fund and CFX
intend to proceed with the consummation of the Merger if the proposal receives
the approval of at least a majority of the shares of stock outstanding and
entitled to vote thereon, assuming the other conditions to the closing are met
or waived.
The nominees for director who receive the highest number of votes cast at
the Annual Meeting will be elected to serve on the Board. The appointment of the
independent auditors of Safety Fund must be ratified by the affirmative vote of
the holders of a majority of the outstanding shares of stock entitled to vote
thereon, present and voting, assuming a quorum is present.
Directors and officers of Safety Fund and affiliates of such persons had
sole or shared voting power with respect to 196,234 shares of Safety Fund Common
Stock, representing 11.82 percent of Safety Fund Common Stock outstanding as of
February 16, 1996. As of that date, the Trust Department of SFNB held an
aggregate of 9,499 shares of Safety Fund Common Stock over which it exercises
shared voting authority, in a fiduciary capacity for the benefit of other
persons. The Trust Department of SFNB will vote such shares in accordance with
the terms of the governing trust document, applicable law and SFNB's fiduciary
policies.
CFX has entered into agreements ("Voting Agreements") with each member of
the Board of Directors of Safety Fund, whereby each such person has agreed to
vote all shares of Safety Fund Common Stock that he or she is entitled to vote
in favor of the Agreement, not including shares held by such director in a
fiduciary capacity. See "MEETING INFORMATION -- Voting and Revocation of
Proxies."
DISSENTERS' RIGHTS
Under Massachusetts law, holders of Safety Fund 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 is attached as Appendix D to this Proxy Statement. See
"PROPOSAL I -- PROPOSED MERGER -- Rights of Dissenting Shareholders."
10
<PAGE>
CONDITIONS; TERMINATION
Consummation of the Merger is subject to satisfaction of a number of
conditions, including approval of the Agreement by the shareholders of Safety
Fund and CFX, and the receipt of all regulatory approvals required or mutually
deemed necessary in connection with the Merger. The approval of the Merger by
CFX shareholders will be solicited at the Annual Meeting of Shareholders of CFX
scheduled to be held on May 31, 1996.
Substantially all of the conditions to consummation of the Merger may be
waived at any time in a writing signed by both parties, and the Agreement may be
amended at any time, by written agreement of the parties, except that any such
waiver or amendment executed after approval of the Agreement by Safety Fund's
shareholders which reduces the amount or form of consideration to be delivered
to such shareholders pursuant to the Agreement requires further approval of such
shareholders. See "PROPOSAL I -- PROPOSED MERGER -- Representations and
Warranties; Conditions to the Merger; Waiver."
In addition, the Agreement may be terminated by either CFX or Safety Fund,
either before or after shareholder approval, under certain circumstances. Safety
Fund may also terminate the Agreement if the CFX Trading Price is below a
certain price and CFX does not elect to increase the Exchange Ratio (or, under
certain circumstances, make an additional cash payment in lieu thereof) to a
designated Per Safety Fund Share Value. See "PROPOSAL I -- PROPOSED MERGER --
Effective Time of the Merger; Termination."
STOCK OPTION AGREEMENT
In connection with execution of the Agreement, Safety Fund and CFX executed
a Stock Option Agreement ("Stock Option Agreement") pursuant to which Safety
Fund granted CFX an option ("Option") to purchase up to 332,000 authorized but
unissued shares of Safety Fund Common Stock (constituting approximately 16.7
percent of the shares of Safety Fund Common Stock that would be outstanding
following the exercise of the Option) at a price of $20 per share, such number
of shares and exercise price being subject to adjustment under certain
circumstances. The Option is exercisable only upon the occurrence and
continuation of certain events that could jeopardize consummation of the Merger
pursuant to the terms of the Agreement, one of which has occurred. See "PROPOSAL
I -- PROPOSED MERGER -- Stock Option Agreement" and the text of the Stock Option
Agreement, attached hereto as Appendix B.
REGULATORY AND OTHER APPROVALS
CFX has filed an application with the Board of Governors of the Federal
Reserve System ("Federal Reserve") for prior approval of the Merger under the
BHCA, and with the Massachusetts Board of Bank Incorporation ("MBBI") for
approval of the Merger. The BHCA provides that the Merger may not be consummated
until applicable periods have lapsed after Federal Reserve approval is received.
An agreement will also be negotiated between CFX and the Massachusetts Housing
Partnership Fund ("MHP Fund") for participation by CFX in the Fund. See
"PROPOSAL I -- PROPOSED MERGER -- Regulatory and Other Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material federal income tax
consequences of the Merger to shareholders of Safety Fund. A more extensive
summary is set forth under the heading "PROPOSAL I -- PROPOSED MERGER -- Certain
Federal Income Tax Consequences." Each of Safety Fund's shareholders should read
in full the detailed description of the material federal income tax consequences
under that heading. Moreover, because of the complexities of the federal income
tax laws and because the tax consequences may vary depending upon a
shareholder's individual circumstances or tax status, shareholders are strongly
encouraged to consult with their personal tax advisors with respect to the
specific tax consequences of the Merger to them, including the tax consequences
of applicable federal, state, local, foreign or other laws.
11
<PAGE>
CFX has received an opinion from Arnold & Porter concerning certain federal
income tax consequences of the Merger. CFX and Safety Fund have provided Arnold
& Porter with the facts, representations and assumptions on which Arnold &
Porter relied in rendering its opinion, which information is consistent with the
state of facts that CFX and Safety Fund believe will be existing as of the
Effective Time, including (but not limited to) an assumption that other than
cash paid to dissenters and cash paid in lieu of fractional shares, no cash will
be paid to Safety Fund's shareholders pursuant to the Merger. With respect to
the possibility of an additional cash payment if no Pooling Determination is
made, see "PROPOSAL I -- PROPOSED MERGER -- Certain Federal Income Tax
Consequences." Based on such facts, representations and assumptions, Arnold &
Porter has opined that, among other things, the Merger, when consummated in
accordance with the Agreement and certain related agreements, either will
constitute or will be part of a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Additional federal income tax consequences of the Merger, including the
federal income tax consequences of exercising dissenters' rights and receiving
cash in lieu of a fractional share interest in CFX Common Stock, are discussed
under the heading "PROPOSAL I -- PROPOSED MERGER -- Certain Federal Income Tax
Consequences."
ACCOUNTING TREATMENT
The parties to the Agreement expect the Merger to be accounted for as a
pooling-of-interests under generally accepted accounting principles. Not later
than the second business day preceding the Effective Time, CFX shall consult
with its independent auditors to determine whether the Merger qualifies for such
treatment or will be required to be accounted for under the purchase method of
accounting. The ability to account for the Merger as a pooling-of-interests is
not a condition to the Merger but may affect the Exchange Ratio. The Agreement
provides for alternative Exchange Ratio calculations so that the Merger still
may be consummated in the event that the Merger cannot be accounted for as a
pooling-of-interests. See "PROPOSAL I -- PROPOSED MERGER -- Terms of the
Merger," "-- Effective Time of the Merger; Termination" and "-- Accounting
Treatment."
EFFECTIVE TIME OF THE MERGER
CFX and Safety Fund each anticipate that the Effective Time will occur and
the Merger will be consummated in the second half of 1996. However, consummation
of the Merger could be delayed and there can be no assurances as to if or when
the Merger will be consummated. See "PROPOSAL I -- PROPOSED MERGER -- Effective
Time of the Merger; Termination."
SURRENDER OF CERTIFICATES
Within three business days after the Effective Time, notice will be mailed
to holders of Safety Fund Common Stock regarding the manner in which their
certificates representing shares of such Safety Fund Common Stock will be
exchanged for certificates representing shares of CFX Common Stock and cash in
lieu of fractional shares. Shareholders should not send in their certificates
until they receive further instructions. See "PROPOSAL I -- PROPOSED MERGER --
Surrender of Certificates."
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
Upon completion of the Merger, shareholders of Safety Fund will
automatically become shareholders of CFX and their rights as such will be
governed by CFX's Articles of Incorporation and Bylaws and by New Hampshire law.
The rights of shareholders of Safety Fund currently are governed by Safety
Fund's Articles of Organization, as amended, and Bylaws and by Massachusetts
law. The rights of shareholders of CFX are different in certain respects from
the rights of shareholders of Safety Fund. See "PROPOSAL I -- PROPOSED MERGER --
Certain Differences in the Rights of Shareholders."
MARKETS AND MARKET PRICES
CFX Common Stock is listed and traded on the AMEX under the symbol "CFX." As
of December 12, 1995, Safety Fund Common Stock is listed and traded on the
Nasdaq Stock Market under the
12
<PAGE>
symbol "SFCO." Prior to that date, Safety Fund Common Stock was traded over the
counter. The following table shows the market value per share for each of CFX
and Safety Fund and the Safety Fund Equivalent at the dates set forth below
assuming that a Pooling Determination had or had not been made at the dates set
forth below:
Market value per common share:
<TABLE>
<CAPTION>
CLOSING SALES PRICE
------------------------
SAFETY FUND SAFETY FUND SAFETY FUND
CFX COMMON COMMON EQUIVALENT EQUIVALENT
STOCK STOCK PER SHARE (1) PER SHARE (2)
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
January 4, 1996 (3).......................................... $ 15.38 $ 23.25 $ 26.15 $ 23.38
April 23, 1996 (4)........................................... $ 14.38 $ 24.00 $ 24.45 $ 21.86
</TABLE>
- ------------------------
(1) Assuming that a Pooling Determination had been made, the equivalent market
value per share of Safety Fund Common Stock represents the closing sales
price of CFX Common Stock on the dates reported multiplied by an Exchange
Ratio of 1.7. The Exchange Ratio would differ if the CFX Trading Price were
above $17.87 or below $13.21. See "PROPOSAL I -- PROPOSED MERGER -- Terms of
the Merger."
(2) Assuming that a Pooling Determination had not been made, the equivalent
market value per share of Safety Fund Common Stock represents the closing
sales price of CFX Common Stock on the dates reported multiplied by an
Exchange Ratio of 1.52. The Exchange Ratio would differ if the CFX Trading
Price were above $16.44 or below $13.16. See "PROPOSAL I -- PROPOSED MERGER
-- Terms of the Merger."
(3) The business day immediately preceding the public announcement of the
Merger. In the case of Safety Fund, no trades occurred on January 4, 1996
and data is presented as of January 3, 1996, the date on which the most
recent sale of Safety Fund Common Stock occurred prior to the public
announcement of the Merger.
(4) The business day immediately preceding the Record Date.
13
<PAGE>
The table below sets forth high and low sales prices for CFX Common Stock as
quoted on the AMEX and sets forth for Safety Fund Common Stock: (i) high and low
sales prices as quoted on the Nasdaq Stock Market for the first quarter of 1996;
(ii) high and low sales prices as reported by Bloomberg Financial Markets for
the four quarters of 1995; and (iii) high and low bid quotations in the over the
counter market based on transactions known to Safety Fund management for the
four quarters of 1994, in all cases as adjusted for stock splits and stock
dividends. The prices reported below for Safety Fund Common Stock for each of
the four quarters of 1995 and 1994 are approximate and reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. The table below also sets forth the cash
dividends declared for the periods indicated, as adjusted for stock splits and
stock dividends:
<TABLE>
<CAPTION>
CFX SAFETY FUND
------------------------------- ---------------------------------
QUARTER ENDED HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1996
June 30, 1996 (through April 25)............. $ 15.00 $ 14.00 $ -- $ 25.00 $ 22.50 $ --
March 31, 1996............................... 15.88 14.00 0.1800 25.00 22.00 0.00
1995
December 31, 1995 (1)........................ 17.50 14.13 0.3429 26.00 15.67 0.00
September 30, 1995........................... 17.13 14.25 0.1524 15.67 13.33 0.00
June 30, 1995................................ 16.13 11.63 0.1524 14.83 13.33 0.00
March 31, 1995............................... 12.13 10.13 0.1475 14.00 10.33 0.00
1994
December 31, 1994............................ 11.00 10.00 0.1292 10.33 9.33 0.00
September 30, 1994........................... 11.75 10.38 0.1249 10.67 9.33 0.00
June 30, 1994................................ 12.13 9.88 0.1143 12.00 11.33 0.00
March 31, 1994............................... 11.00 10.00 0.1143 13.33 16.00 0.00
</TABLE>
- ------------------------
(1) Safety Fund was listed on the Nasdaq Stock Market on December 12, 1995. The
high and low sales prices reported by Nasdaq for the period from December
12, 1995 through December 31, 1995 were $26.00 and $18.50, respectively.
No assurance can be given as to what the CFX Trading Price will be when and
if the Merger is consummated. Shareholders of Safety Fund are advised to obtain
current market quotations for CFX Common Stock.
The amount of future dividends paid by CFX will be determined in light of
CFX's results of operations, financial condition, regulatory constraints and
other factors deemed relevant by CFX's Board of Directors. In order to comply
with technical financial accounting rules related to the payment of special
dividends preceding a business combination, the CFX Board has determined to omit
CFX's regular cash dividend for the second quarter of 1996. Omission of the
second quarter dividend in an amount equal to the special dividend paid by CFX
in January 1996 is necessary to permit CFX to account for the Merger as a
pooling transaction. See "PROPOSAL I -- PROPOSED MERGER -- Accounting
Treatment." CFX expects to resume normal dividends during the third quarter of
1996. The ability to maintain dividends in the future also could be affected by
the level of core earnings, economic conditions, credit quality, regulatory
policies, capital needs, growth objectives, the ability of bank and nonbank
subsidiaries to upstream dividends to CFX and other relevant factors. CFX
engages in no business other than acting as the holding company for 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 to
CFX by its subsidiaries and borrowings. See "CERTAIN REGULATORY CONSIDERATIONS
- -- Restrictions on Payment of Dividends."
COMPARATIVE PER SHARE DATA
The following tables set forth at the dates and for the periods indicated
(i) historical consolidated per share data for CFX Common Stock and Safety Fund
Common Stock, (ii) pro forma combined per
14
<PAGE>
share data for CFX Common Stock (with Safety Fund only), (iii) pro forma
combined per share data for CFX Common Stock (with Safety Fund and Milford) and
(iv) equivalent per share data for Safety Fund Common Stock reflecting
consummation of the Merger only and consummation of the Merger and the Milford
Acquisition. The first table presents pro forma information at an Exchange Ratio
of 1.7 assuming that the Pooling Determination is made. The second table
presents pro forma information at an Exchange Ratio of 1.52 assuming the Pooling
Determination is not made. The CFX pro forma data (with Safety Fund only)
represents the effect of the Merger on a share of CFX Common Stock. The Safety
Fund equivalent pro forma data represents the CFX pro forma data (with Safety
Fund only) multiplied by 1.7 and 1.52, respectively, and thereby reflects the
effect of the Merger on a share of Safety Fund Common Stock.
The CFX pro forma combined data (with Safety Fund and Milford) is presented
assuming the Milford Acquisition is accounted for as a pooling-of-interests
transaction at an exchange ratio of 2.6446 shares of CFX Common Stock for each
share of Milford common stock. The actual exchange ratios in the Milford
Acquisition will depend on the market price of CFX Common Stock during the ten
trading days preceding the last regulatory approval required for the Milford
Acquisition. The CFX pro forma combined (with Safety Fund and Milford) data
represents the effect of the Merger and the Milford Acquisition on a share of
CFX Common Stock. The Safety Fund equivalent pro forma data (assuming the Merger
and Milford Acquisition) represents the CFX pro forma combined data (with Safety
Fund and Milford) multiplied by the applicable Exchange Ratio (1.7 for the
pooling-of-interests table and 1.52 for the purchase table) and thereby reflects
the effect of the two mergers on a share of Safety Fund Common Stock. Earnings
per share data is based on net earnings before cumulative effects of changes in
accounting principles for all companies.
The information is derived from the historical financial statements of CFX
and Milford, including the related notes thereto, incorporated by reference in
this Proxy Statement, and the historical financial statements of Safety Fund,
including the related notes thereto, appearing elsewhere herein, and the pro
forma combined financial information giving effect to the Merger and the Milford
Acquisition, appearing elsewhere herein, and should be read in conjunction with
such information. The pro forma data is presented for comparative purposes only
and is not necessarily indicative of the combined financial position or results
of operations that would have been realized had the Merger and Milford
Acquisition been consummated during the periods or as of the dates for which the
pro forma data is presented or which will be attained in the future. See
"AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE," "PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)" and the 1995 Safety Fund Annual
Report to Shareholders that accompanies this Proxy Statement. Furthermore, there
can be no assurance that the CFX Trading Price will be such that the Exchange
Ratio would be 1.7 for a pooling-of-interests transaction or 1.52 for a purchase
transaction or that the exchange ratio would be 2.6446 for the Milford
Acquisition. See "PROPOSED MERGER -- Terms of the Merger."
15
<PAGE>
POOLING-OF-INTERESTS ACCOUNTING
<TABLE>
<CAPTION>
CFX SAFETY FUND CFX SAFETY FUND
PRO FORMA EQUIVALENT PRO FORMA EQUIVALENT PRO
HISTORICAL COMBINED WITH PRO FORMA COMBINED WITH FORMA CFX/
---------------------- SAFETY FUND CFX/SAFETY SAFETY FUND AND SAFETY/FUND/
CFX SAFETY FUND ONLY (1) FUND (2) MILFORD (3) MILFORD (4)
--------- ----------- ------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss) Per Common
Share (5)
Year Ended
1995..................... $ 1.04 $ 1.12 $ .94 $ 1.60 $ .93 $ 1.58
1994..................... $ .81 $ .10 $ .59 $ 1.00 $ .61 $ 1.04
1993..................... $ .85 $ (1.82) $ .31 $ .53 $ .34 $ .58
Dividends Declared Per Share
(6)
Year Ended
1995..................... $ .80 $ -- $ .80 $ 1.36 $ .80 $ 1.36
1994..................... $ .48 $ -- $ .48 $ .82 $ .48 $ .82
1993..................... $ .38 $ .13 $ .38 $ .65 $ .38 $ .65
Book Value Per Share
End of 1995................ $ 11.98 $ 12.88 $ 10.78 $ 18.33 $ 10.52 $ 17.88
</TABLE>
- ------------------------
(1) The pro forma per share data gives effect to the Merger but does not reflect
anticipated expenses and nonrecurring charges which may result from the
Merger. The pro forma information presented does not reflect anticipated
merger and integration costs, nor does it reflect potential savings or
revenue enhancements which may result from the Merger. CFX pro forma
dividends per share represent CFX historical dividends per share.
(2) The equivalent pro forma per share data for Safety Fund represents the pro
forma data for CFX (CFX and Safety Fund only) multiplied by an Exchange
Ratio of 1.7.
(3) The pro forma per share data gives effect to the Merger and the Milford
Acquisition but does not reflect anticipated expenses and nonrecurring
charges which may result from the Merger and the Milford Acquisition. The
pro forma information presented does not reflect anticipated merger and
integration costs, nor does it reflect potential savings or revenue
enhancements which may result from the Merger and Milford Acquisition. See
"PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)." CFX pro forma
dividends per share represent CFX historical dividends per share.
(4) The equivalent pro forma per share data for Safety Fund represents the pro
forma data for CFX (CFX, Safety Fund and Milford) multiplied by an Exchange
Ratio of 1.7.
(5) Before cumulative effect of a change in accounting principle.
(6) The amount of future dividends payable by CFX will depend upon the earnings
and financial condition of CFX and other factors described under "-- Markets
and Market Prices."
16
<PAGE>
PURCHASE ACCOUNTING
<TABLE>
<CAPTION>
CFX SAFETY FUND CFX SAFETY FUND
PRO FORMA EQUIVALENT PRO FORMA EQUIVALENT PRO
HISTORICAL COMBINED WITH PRO FORMA COMBINED WITH FORMA CFX/
---------------------- SAFETY FUND CFX/SAFETY SAFETY FUND AND SAFETY/FUND/
CFX SAFETY FUND ONLY (1) FUND (2) MILFORD (3) MILFORD (4)
--------- ----------- ------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Earnings Per Common Share
Year Ended 1995............ $ 1.04 $ 1.12 $ .83 $ 1.26 $ .83 $ 1.26
Dividends Declared Per Share
(5)
Year Ended 1995............ $ .80 $ -- $ .80 $ 1.22 $ .80 $ 1.22
Book Value Per Share
End of 1995................ $ 11.98 $ 12.88 $ 12.87 $ 19.56 $ 12.30 $ 18.70
</TABLE>
- ------------------------
(1) The pro forma per share data gives effect to the Merger but does not reflect
anticipated expenses and nonrecurring charges which may result from the
Merger. The pro forma information presented does not reflect anticipated
merger and integration costs, nor does it reflect potential savings or
revenue enhancements which may result from the Merger. CFX pro forma
dividends per share represent CFX historical dividends per share.
(2) The equivalent pro forma per share data for Safety Fund represents the pro
forma data for CFX (CFX and Safety Fund only) multiplied by an Exchange
Ratio of 1.52.
(3) The pro forma per share data gives effect to the Merger and the Milford
Acquisition but does not reflect anticipated expenses and nonrecurring
charges which may result from the Merger and the Milford Acquisition. The
pro forma information presented does not reflect anticipated merger and
integration costs, nor does it reflect potential savings or revenue
enhancements which may result from the Merger and Milford Acquisition. See
"PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)." CFX pro forma
dividends per share represent CFX historical dividends per share.
(4) The equivalent pro forma per share data for Safety Fund represents the pro
forma data for CFX (CFX, Safety Fund and Milford) multiplied by an Exchange
Ratio of 1.52.
(5) The amount of future dividends payable by CFX will depend upon the earnings
and financial condition of CFX and other factors described under "-- Markets
and Market Prices."
17
<PAGE>
CFX CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data, excluding average balance
and net interest margin data, for the five years ended December 31, 1995 is
derived from the audited consolidated financial statements of CFX. The data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information incorporated by reference and
contained in the CFX Annual Report to Shareholders that accompanies this Proxy
Statement. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE" and
"PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)."
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31, (1)
-----------------------------------------------------------
1995 1994 1993 (2) 1992 1991 (3)(4)
---------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income...................... $ 64,575 $ 55,443 $ 52,025 $ 58,812 $ 65,252
Interest expense.................................. 31,694 24,139 22,352 30,501 40,001
---------- ---------- ---------- ---------- -----------
Net interest and dividend income.................. 32,881 31,304 29,673 28,311 25,251
Provision for loan and lease losses............... 1,624 437 3,060 3,153 3,965
---------- ---------- ---------- ---------- -----------
Net interest and dividend income after provision
for loan and lease losses........................ 31,257 30,867 26,613 25,158 21,286
Other income...................................... 9,421 6,516 6,543 2,386 1,319
Other expense..................................... 28,397 27,929 25,654 21,810 21,624
---------- ---------- ---------- ---------- -----------
Income before income tax and cumulative effect of
change in accounting principle................... 12,281 9,454 7,502 5,734 981
Income taxes...................................... 4,335 3,548 1,331 2,465 678
---------- ---------- ---------- ---------- -----------
Net income before cumulative effect of change in
accounting principle............................. 7,946 5,906 6,171 3,269 303
Cumulative effect of change in accounting
principle........................................ -- -- -- 50 1,603
---------- ---------- ---------- ---------- -----------
Net income........................................ 7,946 5,906 6,171 3,319 1,906
Preferred stock dividends......................... 89 268 270 270 270
---------- ---------- ---------- ---------- -----------
Net income available to common stock.............. $ 7,857 $ 5,638 $ 5,901 $ 3,049 $ 1,636
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
ENDING BALANCE SHEET DATA:
Assets............................................ $ 900,549 $ 839,204 $ 817,070 $ 742,365 $ 736,095
Investments....................................... 125,491 130,393 199,580 127,654 138,158
Net loans and leases.............................. 691,283 632,849 535,376 540,116 534,724
Allowance for loan and lease losses............... 7,689 7,558 7,952 8,392 7,327
Foreclosed real estate............................ 1,129 1,985 3,810 12,847 12,324
Deposits.......................................... 665,723 625,429 623,599 648,455 628,538
Advances from Federal Home Loan Bank of Boston.... 100,814 92,201 46,801 -- 20,500
Other borrowed funds.............................. 31,735 27,316 20,882 6,107 350
Shareholders' equity.............................. 89,954 86,573 84,007 80,455 79,251
PER SHARE DATA AND OTHER SELECTED RATIOS:
Earnings per common and common equivalent share... $ 1.04 $ 0.81 $ 0.85 $ 0.44 $ 0.24
Dividends declared per share...................... $ 0.80 $ 0.48 $ 0.38 $ 0.32 $ 0.37
Dividend payout ratio............................. 76.92% 59.26% 44.71% 72.73% 154.17%
Book value per share.............................. $ 11.98 $ 11.77 $ 11.53 $ 11.09 $ 10.95
Shareholders' equity to assets at period end...... 9.99% 10.32% 10.28% 10.84% 10.77%
Average total shareholders' equity to average
total assets..................................... 10.20% 10.00% 11.02% 11.00% 11.00%
Return on average assets.......................... 0.90% 0.66% 0.79% 0.40% 0.23%
Return on average common shareholders' equity..... 8.90% 6.89% 7.47% 3.99% 2.15%
Net interest margin............................... 4.14% 4.13% 4.30% 4.07% 3.87%
</TABLE>
18
<PAGE>
CFX CORPORATION
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) Prior period financial data has been restated to reflect the
pooling-of-interests with Orange Savings Bank, CFX's 3 for 2 stock split
declared on June 13, 1995 to shareholders of record on June 23, 1995 and
CFX's 5% stock dividend declared on December 12, 1995 to shareholders of
record on December 22, 1995.
(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 $.23 per
share.
19
<PAGE>
THE SAFETY FUND CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data, excluding average balance
and net interest margin data, for the five years ended December 31, 1995 is
derived from the audited consolidated financial statements of Safety Fund. The
data should be read in conjunction with the consolidated financial statements,
related notes and other financial information incorporated by reference and
contained in the Safety Fund Annual Report to Shareholders that accompanies this
Proxy Statement. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY
REFERENCE" and "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)."
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 (1) 1992 1991
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income........................ $ 21,457 $ 17,264 $ 18,060 $ 20,787 $ 23,605
Interest expense.................................... 7,641 5,228 5,765 7,919 11,557
------------ ------------ ------------ ------------ ------------
Net interest and dividend income.................... 13,816 12,036 12,295 12,868 12,048
Provision for loan losses........................... 1,300 2,200 8,283 2,855 5,039
------------ ------------ ------------ ------------ ------------
Net interest and dividend income after provision for
loan losses........................................ 12,516 9,836 4,012 10,013 7,009
Other income........................................ 4,059 3,823 4,264 4,021 5,208
Other expense....................................... 14,016 13,424 12,614 12,646 11,198
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle........... 2,559 235 (4,338) 1,388 1,019
Income taxes........................................ 706 77 (1,410) 341 237
------------ ------------ ------------ ------------ ------------
Net income (loss) before cumulative effect of change
in accounting principle............................ 1,853 158 (2,928) 1,047 782
Cumulative effect of change in accounting
principle.......................................... -- -- (180) -- --
------------ ------------ ------------ ------------ ------------
Net income (loss)................................... $ 1,853 $ 158 $ (3,108) $ 1,047 $ 782
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
ENDING BALANCE SHEET DATA:
Assets.............................................. $ 287,483 $ 271,061 $ 252,091 $ 260,725 $ 270,022
Investments......................................... 106,162 103,437 83,234 76,615 75,836
Net loans........................................... 153,084 135,041 138,977 151,386 164,225
Allowance for loan losses........................... 7,350 6,417 7,739 3,669 3,466
Foreclosed real estate.............................. 50 533 300 6,968 5,801
Deposits............................................ 252,788 235,475 219,796 227,223 226,790
Advances from Federal Home Loan Bank of Boston...... -- -- -- -- --
Other borrowed funds................................ 11,120 15,637 7,444 10,286 18,324
Stockholders' equity................................ 21,387 16,653 19,674 21,526 20,472
PER SHARE DATA AND OTHER SELECTED RATIOS: (2)
Earnings (loss) per common and common equivalent
share.............................................. $ 1.12 $ 0.10 $ (1.93) $ 0.66 $ 0.49
Dividends declared per share........................ -- -- $ 0.13 $ 0.13 $ 0.56
Dividend payout ratio............................... -- -- -- 19.70% 114.29%
Book value per share................................ $ 12.88 $ 10.05 $ 12.26 $ 13.41 $ 12.91
Shareholders' equity to assets at period end........ 7.44% 6.14% 7.80% 8.26% 7.58%
Average shareholders' equity to average assets...... 6.98% 7.22% 8.74% 8.07% 8.18%
Return (loss) on average assets..................... 0.66% 0.06% (1.21)% 0.39% 0.30%
Return (loss) on average equity..................... 9.72% 0.90% (13.84)% 4.89% 3.69%
Net interest margin................................. 5.38% 5.33% 5.42% 5.41% 5.17%
</TABLE>
- --------------------------
(1) Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," was adopted by Safety Fund effective January 1, 1993. The cumulative
effect of the change in accounting principle on years prior to 1993 was to
increase the 1993 net loss by $180,000 or $.11 per share.
(2) Prior period common per share data has been restated to reflect Safety
Fund's 3 for 2 stock split declared in November 1995.
20
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set 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: (i) using an Exchange Ratio of 1.7 as if the
Merger had been accounted for as a pooling-of-interests; and (ii) using an
Exchange Ratio of 1.52 as if the Merger had been accounted for as a purchase.
See "PROPOSAL I -- PROPOSED MERGER -- Accounting Treatment." This information
should be read in conjunction with the historical financial statements of CFX
and Safety Fund, related notes and other financial information incorporated by
reference herein or included elsewhere in this Proxy Statement. The pro forma
consolidated financial statements may not be indicative of the financial
position or results that actually would have occurred had the Merger been
consummated on the dates indicated, or which will be attained in the future. The
CFX Trading Price is based on the CFX trading price on AMEX for the ten trading
days prior to receipt of the last regulatory approval necessary for consummation
of the Merger and thus could be determined several weeks prior to the Effective
Time. The market price of CFX Common Stock at the Effective Time could therefore
differ from the CFX Trading Price used to determine the Exchange Ratio. See
"AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE," "PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)," the 1995 Safety Fund Annual
Report to Shareholders that accompanies this Proxy Statement and the 1995 CFX
Annual Report to Shareholders that accompanies this Proxy Statement.
Furthermore, there can be no assurance that the CFX Trading Price will be such
that the Exchange Ratio would be 1.7 for a pooling-of-interests transaction or
1.52 for a purchase transaction or that the exchange ratio would be 2.6446 for
the Milford Acquisition. See "PROPOSED MERGER -- Terms of the Merger."
21
<PAGE>
CFX CORPORATION -- THE SAFETY FUND CORPORATION
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
POOLING-OF-INTERESTS PURCHASE
------------------------------------------------- ---------------
1995 1994 1993 1995
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income............... $ 86,032 $ 72,707 $ 70,085 $ 85,757
Interest expense........................... 39,335 29,376 28,117 39,007
--------------- --------------- --------------- ---------------
Net interest and dividend income........... 46,697 43,340 41,968 46,750
Provision for loan and lease losses........ 2,924 2,637 11,343 2,924
--------------- --------------- --------------- ---------------
Net interest and dividend income after
provision for loan and lease losses....... 43,773 40,703 30,625 43,826
Other income............................... 13,480 10,339 10,807 13,480
Other expense.............................. 42,413 41,353 38,268 43,628
--------------- --------------- --------------- ---------------
Income before income taxes................. 14,840 9,689 3,164 13,678
Income taxes............................... 5,041 3,625 (79) 5,273
--------------- --------------- --------------- ---------------
Net income before cumulative effect of
change in accounting principle............ 9,799 6,064 3,243 8,405
Preferred stock dividends.................. 89 268 270 89
--------------- --------------- --------------- ---------------
Net income available to common stock before
cumulative effect of change in accounting
principle................................. $ 9,710 $ 5,796 $ 2,973 $ 8,316
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
ENDING BALANCE SHEET DATA:
Assets..................................... $ 1,188,032 $ 1,110,032 $ 1,069,161 $ 1,206,878
Investments................................ 231,653 233,830 282,814 231,188
Net loans and losses....................... 844,367 767,890 667,124 845,175
Allowance for loan and lease losses........ 15,039 13,975 15,691 15,039
Foreclosed real estate..................... 1,179 2,518 4,110 1,179
Deposits................................... 918,511 860,904 843,395 919,003
Advances from Federal Home Loan Bank of
Boston.................................... 100,814 92,201 46,801 100,814
Other borrowed funds....................... 42,855 42,953 28,326 42,855
Shareholders' equity....................... 111,341 103,226 103,681 129,180
PER SHARE DATA AND OTHER SELECTED RATIOS:
Earnings per common and common equivalent
share before cumulative effect of change
in accounting principle................... $ 0.94 $ 0.59 $ 0.31 $ 0.83
Dividends declared per share............... $ 0.58 $ 0.34 $ 0.29 $ 0.60
Dividend payout ratio...................... 61.70% 57.62% 93.55% 72.29%
Book value per share....................... $ 10.78 $ 10.46 $ 10.69 $ 12.87
Shareholders' equity to assets at period
end....................................... 9.37% 9.30% 9.70% 10.70%
Average shareholders' equity to average
assets.................................... 9.42% 9.37% 10.44% 10.81%
Return on average assets................... 0.84% 0.52% 0.30% 0.71%
Return on average equity................... 8.90% 5.59% 2.83% 6.55%
Net interest margin........................ 4.38% 4.35% 4.56% 4.41%
</TABLE>
22
<PAGE>
MEETING INFORMATION
DATE, PLACE AND TIME
The Annual Meeting of Shareholders of Safety Fund will be held at the
offices of Safety Fund, located at 470 Main Street, Fitchburg, Massachusetts
01420, on June 7, 1996, at 10:00 a.m. Eastern Daylight Time.
RECORD DATE; VOTING RIGHTS
The close of business on April 24, 1996 has been fixed as the record date
for the determination of shareholders of Safety Fund entitled to receive notice
of and to vote at the Annual Meeting. The holders of each of the 1,660,665
shares of Safety Fund Common Stock outstanding on the Record Date will be
entitled to one vote for each share held of record upon each matter properly
submitted at the Annual Meeting. At such date, there were approximately 380
shareholders of record. Under Safety Fund's Articles of Organization, the
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of Safety Fund Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting.
Safety Fund believes and has been advised by its counsel that, pursuant to
its Articles of Organization (and consistent with Massachusetts corporation
law), the Merger must be approved by the affirmative vote of the holders of at
least a majority of the shares of Safety Fund Common Stock outstanding and
entitled to vote thereon. One of Safety Fund's shareholders, David G. Massad,
has informed Safety Fund through his counsel that he believes the Merger must be
approved by at least two-thirds of such shares. For information about the course
of prior communications between Safety Fund and Mr. Massad, see "-- Background
of the Merger." Safety Fund has engaged the services of a proxy solicitor and
will attempt to obtain the votes of as many of its shareholders as is reasonably
practicable. However, Safety Fund and CFX intend to proceed with the
consummation of the Merger if the proposal receives the approval of at least a
majority of the shares of stock outstanding and entitled to vote thereon,
assuming the other conditions to the closing are met or waived.
The nominees for director who receive the highest number of votes cast at
the Annual Meeting will be elected to serve on the Board. The appointment of the
auditors of Safety Fund must be ratified by the affirmative vote of the holders
of a majority of the shares of stock entitled to vote thereon, present and
voting, assuming a quorum is present.
VOTING AND REVOCATION OF PROXIES
Shares of Safety Fund Common Stock represented by a proxy properly signed
and returned will be voted at the Annual Meeting in accordance with the
instructions thereon. If a proxy is signed and returned without indicating any
voting instructions, the shares of Safety Fund Common Stock represented by such
proxy will be voted FOR approval of the Agreement, FOR election of the nominees
named herein as directors, FOR ratification of the appointment of Safety Fund's
independent auditors and, on other matters presented for a vote, in accordance
with the judgment of the persons acting under the proxy.
The presence of a shareholder at the Annual Meeting will not automatically
revoke such shareholder's proxy. However, shareholders may revoke a proxy at any
time prior to its exercise by filing with the Clerk of Safety Fund a written
notice of revocation, by delivering to Safety Fund a duly executed proxy bearing
a later date or by attending the Annual Meeting and voting in person. Written
notices of revoked proxies may be directed to: John E. Howard, Clerk, The Safety
Fund Corporation, 470 Main Street, Fitchburg, MA 01420.
Safety Fund intends to count the shares of Safety Fund Common Stock present
in person at the Annual Meeting but not voting, and shares of Safety Fund 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 Annual Meeting for
purposes of determining the presence or absence of a quorum for the transaction
of business. However, such nonvoting shares and abstentions will not be counted
as votes cast for purposes of determining whether the Agreement has been
approved and therefore will have the same
23
<PAGE>
effect as votes against the Agreement. In addition, under the rules of the New
York Stock Exchange, 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 in favor of the approval of the Agreement
without specific instructions from such customers. Accordingly, the failure of
such customers to provide instructions with respect to their shares of Safety
Fund Common Stock to their broker will have the effect of such shares not being
voted and therefore will have the same effect as votes against the Agreement.
Such instances, if any, are referred to as broker non-votes.
The Board of Directors of Safety Fund is not aware of any other business to
be acted upon at the Annual Meeting other than as described herein. It is not
anticipated that other matters will be brought before the Annual Meeting. If,
however, other matters are duly brought before the Annual Meeting, or any
adjournment thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. The persons named as
proxies by a shareholder may propose and vote for one or more adjournments or
postponements of the Annual Meeting to permit another solicitation of proxies in
favor of the Agreement. No proxy which is voted against the proposal to approve
the Merger will be voted in favor of any such adjournment or postponement.
In connection with the Merger, each member of the Board of Directors of
Safety Fund has entered into a Voting Agreement to vote all of the shares of
Safety Fund Common Stock he is entitled to vote with respect thereto at the
Annual Meeting in favor of the Agreement, not including shares which such
director holds in a fiduciary capacity. The number of shares of Safety Fund
Common Stock which such directors are entitled to vote as of February 16, 1996
is 190,181, (11.45% of Safety Fund Common Stock outstanding as of February 16,
1996). Additionally, each such person has agreed not to transfer or otherwise
dispose of his or her shares of Safety Fund Common Stock or to pledge or
otherwise encumber any additional shares of Safety Fund Common Stock prior to
shareholder approval of the Agreement or termination of the Agreement pursuant
to the terms thereof. Each such person has also agreed in his capacity as a
shareholder not to take any action that would substantially impair the prospects
of completing the Merger pursuant to the Agreement. Assuming that directors and
executive officers of Safety Fund and their respective affiliates, holding an
aggregate of 196,234 shares of outstanding Safety Fund Common Stock (11.82%) as
of February 16, 1996, vote their shares in favor of the Agreement, the
affirmative vote of holders of approximately 634,099 additional shares of Safety
Fund Common Stock (38.18%) will be required in order for the Agreement to obtain
approval by a majority of the outstanding shares of Safety Fund Common Stock.
See "-- Record Date; Voting Rights."
SOLICITATION OF PROXIES
In addition to solicitation by mail, proxies may be solicited personally or
by telephone, and directors, officers and employees of Safety Fund may solicit
proxies from the shareholders of Safety Fund without additional compensation to
them and at nominal cost. Safety Fund has retained Morrow & Co. to assist in the
solicitation of proxies. Safety Fund will pay Morrow & Co. a fee of $4,000 for
its services, plus reimbursement for its out-of-pocket costs. Brokerage houses,
nominees, fiduciaries and other custodians have been requested to forward proxy
materials to beneficial owners of Safety Fund Common Stock and, upon request,
will be reimbursed by Safety Fund for the expenses incurred by them. Safety Fund
will bear the expenses in connection with the solicitation of proxies, except
that CFX and Safety Fund will share the expenses associated with the printing
and mailing of this Proxy Statement and all filings with the Commission in
connection therewith.
PROPOSAL I -- PROPOSED MERGER
This section of the Proxy Statement describes material aspects of the
Merger. The following description does not purport to be complete and is
qualified in its entirety by reference to the Agreement, which is attached as
Appendix A to this Proxy Statement and is incorporated herein by reference. All
shareholders are urged to read the Agreement carefully and in its entirety.
24
<PAGE>
BACKGROUND OF THE MERGER
The Merger proposal is the culmination of a long process by Safety Fund and
its Board of Directors to maximize shareholder value. Beginning in the Fall of
1993, the Board of Directors made significant changes in top management and
began formulating a new financial plan. In February 1994, Christopher W.
Bramley, a bank executive with experience as a senior executive in the Shawmut
Bank organization, was hired to lead Safety Fund. During the ensuing year, Mr.
Bramley hired a team of executives who replaced many members of Safety Fund's
former management. Management and the Board took a number of steps designed to
redirect Safety Fund and put it on stronger financial footing in the long run.
Although the steps taken by the Board and management in 1993 and 1994 resulted
in a net loss of $3.1 million in 1993 and net income of only $158,048 in 1994,
the Board believed that these steps were a necessary prelude to its goal of
rebuilding long-term shareholder value.
By the beginning of 1995, the Board of Directors felt that Safety Fund's
financial condition had stabilized and that Safety Fund was poised to begin
taking more affirmative steps to enhance shareholder value. In March 1995, the
Board voted to register Safety Fund Common Stock under the Exchange Act in order
to obtain the protections of the federal proxy and tender offer rules. The Board
also adopted certain amendments to Safety Fund's by-laws which could have the
effect of discouraging an acquisition of Safety Fund or stock purchases in
furtherance of an acquisition. These actions followed Safety Fund's receipt, in
January 1995, of a Schedule 13D filing indicating that one of Safety Fund's
shareholders, David G. Massad, had acquired approximately 6.7% of Safety Fund
Common Stock. Mr. Massad's Schedule 13D indicated that he might explore with the
management of Safety Fund the possibility of a business combination or other
transaction between Safety Fund and Commerce Bank of Worcester, Massachusetts
("Commerce"). Commerce is a commercial bank with $179.2 million in assets as of
September 30, 1995 that is more than 90% owned by Mr. Massad.
In order to better understand Mr. Massad's interest and intent with respect
to a Safety Fund/ Commerce combination, Safety Fund representatives met with Mr.
Massad on April 14, 1995, and met again with an associate of Mr. Massad on May
11, 1995. Although Mr. Massad did not submit a written proposal for such a
combination, the Safety Fund representatives understood Mr. Massad's proposal to
be a business combination in which (i) Safety Fund would acquire Commerce in a
book value for book value exchange, (ii) Mr. Massad would be Chairman of the
Board and Mr. Bramley would be President and (iii) a majority of the board of
directors of the ongoing entity would continue to be Safety Fund directors. Such
a transaction would have had the potential of Mr. Massad's owning over 35% of
the combined entity. At the first of those meetings, Mr. Massad also expressed
his opposition to, and said that he intended to campaign publicly against,
certain amendments to Safety Fund's Articles of Organization which the Board had
proposed for shareholder approval at the 1995 annual meeting (the proposed
amendments would have conformed Safety Fund's Articles of Organization to the
1995 amendments to Safety Fund's by-laws and were set forth and described in a
proxy statement distributed to Safety Fund's shareholders in connection with the
1995 Annual Meeting). Subsequently, the Board determined that a contest over the
proposed amendments would not be in the best interests of the Corporation and
decided not to pursue the proposed amendments.
In light of the discussions with Mr. Massad, at a meeting on May 22, 1995,
the SFNB Board of Directors recommended that the Directors' Advisory Committee
be re-established to review any proposals that might be received. The Committee,
consisting of Messrs. Condron, Grenon, Heywood, Kelly, Montuori, Seder and
Yates, and Mr. Bramley serving EX OFFICIO, met immediately following the full
Board meeting. The Committee discussed, among other things, the business
combination that had been suggested by Mr. Massad. The Committee concluded that
Safety Fund should seek the advice of outside advisors to guide the directors in
determining the actions which would be in the best interests of the
shareholders.
25
<PAGE>
On May 30, 1995, the Directors' Advisory Committee met to discuss further
the discussions with Mr. Massad as well as various other strategic alternatives
available to Safety Fund, including remaining independent and combining with
another financial institution. At the meeting were Fredric Schluter, a financial
advisor whom Safety Fund was considering engaging, and a representative of
Foley, Hoag & Eliot, Safety Fund's legal counsel. The Committee discussed
various financial and legal considerations implicated by the strategic
alternatives. It was the sense of the meeting that, in order best to maximize
shareholder value, Safety Fund should concentrate on continuing its rebuilding
efforts before any further consideration could reasonably be given to sale to or
merger with a third party. In July 1995, the Company engaged Mr. Schluter's
firm, MB&D, to serve as Safety Fund's financial advisor.
The Directors' Advisory Committee met again prior to the full Board of
Directors' meeting on June 26, 1995 and further discussed, with counsel present,
the discussions with Mr. Massad. At the full Board meeting, the Committee
reported to the Board on its discussions and conclusions. After a full
discussion, the Board confirmed the Committee's conclusion that the terms Mr.
Massad and his representatives had outlined for a possible combination with
Commerce were not attractive enough to pursue. Among the factors considered were
the fact that, although the transaction would result in asset growth for Safety
Fund, the Safety Fund shareholders would not receive any premium for their
shares. Instead, they would simply continue to own the stock of a merged entity
with a relatively illiquid market for its common stock that would (after the
merger) be dominated by a single controlling shareholder. In coming to its
conclusion, the Board noted that certain shareholders with whom they had
consulted had expressed no interest in such a transaction.
Throughout the summer and fall of 1995, the Board and the Directors'
Advisory Committee continued to focus on various steps consistent with its
decision to remain independent and to rebuild shareholder value. The Directors
focused on efforts to improve Safety Fund's financial condition and earnings,
including the development of a new business plan. In addition, the Board and the
Committee began to take steps to improve the liquidity of Safety Fund Common
Stock and to improve the information available to shareholders. These steps
included listing Safety Fund Common Stock on the Nasdaq Stock Market, declaring
a stock split, authorizing the repurchase of up to $400,000 in Safety Fund
Common Stock and holding a series of informational meetings for shareholders.
The Board also adopted an employee severance plan. Although Safety Fund's
energies during this time were focused on efforts to enhance shareholder value
as an independent company, the Board continued to investigate whether a business
combination with another financial institution might be in the best interests of
the shareholders.
During this time, Safety Fund became aware (through a new Schedule 13D
filing in August) that Mr. Massad had acquired additional shares of Safety Fund
Common Stock, bringing his aggregate holdings to 9.9% of Safety Fund Common
Stock. Mr. Massad's filing indicated that he remained interested in exploring
the possibility of a combination of Commerce Bank and Safety Fund. In light of
this filing, representatives of the Directors' Advisory Committee met with Mr.
Massad on September 1, 1995 with the goal of learning more about Mr. Massad's
ideas and plans for a possible combination with Commerce.
From that meeting, the Safety Fund representatives understood that Mr.
Massad believed that a combined bank would be stronger due to its larger size,
but that Mr. Massad had not prepared any specific business plans or pro forma
financial information which could demonstrate that a Commerce/ Safety Fund
combination would benefit the Safety Fund shareholders. They further understood
that Mr. Massad planned to seek regulatory approval to purchase additional
shares of Safety Fund Common Stock. The Directors' Advisory Committee heard a
report about the September 1 meeting with Mr. Massad at the next Committee
meeting held on September 11, 1995. It was the sense of the meeting that Mr.
Massad had not added anything to his proposal that would cause them to change
their view that the proposed combination between Safety Fund and Commerce Bank
would not be in the best interests of the Safety Fund shareholders.
26
<PAGE>
At a meeting on September 26, 1995, the SFNB Board of Directors concluded
that Mr. Bramley should enter into preliminary discussions with other
institutions that might be interested in combining with Safety Fund on terms
attractive to the shareholders. At its next meeting held on October 23, 1995,
the Safety Fund Board confirmed the direction to management to initiate
exploratory discussions with selected potential strategic partners in order to
assess more clearly the options available to Safety Fund and the possible value
that might be realized for the shareholders.
Following the Board's direction, Mr. Bramley held meetings with a number of
financial institutions to assess potential interest, including a meeting with
CFX on October 3, 1995. Mr. Bramley with the assistance of MB&D identified three
financial institutions (one of which was CFX, which had independently approached
Safety Fund in early 1995) as the most attractive potential partners. These
three institutions were selected by applying two criteria: the institutions'
apparently strong strategic need to establish a foothold in Safety Fund's
market, and their apparent financial capacity to maximize value for all of
Safety Fund's constituencies. Based upon preliminary inquiries, it was
determined that two of the three institutions were interested in considering a
merger with Safety Fund.
At a meeting held on November 8, 1995, the Board of Directors again met with
Safety Fund's legal counsel and financial advisor, who made presentations to the
Board outlining the various factors to be considered by the directors in
evaluating certain strategic alternatives, including remaining an independent
entity, combining with one or more business partners, or auctioning Safety Fund,
and the advantages and drawbacks of each course. After the presentations and
lengthy discussions, including questions to the Safety Fund advisors, the Board
of Directors voted that it intended to remain independent in order to implement
the business plan and other initiatives the Board had undertaken to improve
shareholder value during the summer of 1995 and to fulfill Safety Fund's mission
statement, including the mission of being the premier, independent local bank in
central Massachusetts. However, the Board felt that it was prudent to retain the
flexibility to continue to pursue potential strategic partners.
In late November 1995, Safety Fund learned that Mr. Massad had filed a
regulatory application for approval to purchase up to 51% of Safety Fund Common
Stock. Mr. Massad's filing indicated (among other things) that he intended to
consider using any and all legal means to purchase additional shares (up to 51%)
of Safety Fund Common Stock, including open market transactions, privately
negotiated transactions and one or more tender offers.
The Directors' Advisory Committee met on December 4, 1995 with Safety Fund's
legal counsel and its financial advisor to discuss Safety Fund's options in
light of Mr. Massad's regulatory filing and to hear presentations from the two
financial institutions which had been identified as attractive and interested
candidates for a strategic combination. The Committee discussed Mr. Massad's
regulatory filing, and felt that the interests of the shareholders as a whole
would not be served by a single shareholder acquiring a controlling interest
(but not all) of Safety Fund Common Stock. The Committee concluded that it would
be desirable to schedule another meeting with Mr. Massad to discuss his
regulatory filing and to determine whether he had any interest in making an
offer to purchase Safety Fund as a whole.
At the December 4 meeting, the Committee also received a presentation by its
financial advisor about the two financial institutions that had been invited to
make presentations to the Committee. Following that presentation,
representatives of the two financial institutions made successive presentations
to the Committee. The purpose of these presentations was to enable the Committee
to learn about the history, financial performance and banking philosophy and
strategies of these two companies, and to determine whether or not Safety Fund
should move to the next step in pursuing a possible merger with either of them.
After hearing those presentations, the Committee determined that written
nonbinding expressions of interest should be solicited from both institutions.
On December 13, 1995, representatives of the Directors' Advisory Committee
(including a representative of MB&D) met with Mr. Massad and an associate as
requested by the Committee. At that meeting, the Safety Fund representatives
told Mr. Massad that they thought it would be inappropriate
27
<PAGE>
from the perspective of Safety Fund's other shareholders for a single
shareholder to own 51% of Safety Fund Common Stock (as Mr. Massad had proposed
through his regulatory filing). The Safety Fund representatives understood Mr.
Massad's position to be that he did not plan to make a proposal to purchase 100%
of Safety Fund Common Stock, and in fact he did not make such a proposal.
The full Board of Directors met again on December 18, 1995. At that meeting,
the Committee reported to the Board on the meetings the Committee had held with
the two financial institutions and with Mr. Massad. Both financial institutions
had submitted nonbinding expressions of interest to acquire Safety Fund. A
representative of MB&D made a presentation to the Board about the two
expressions of interest, both of which were stock-for-stock merger proposals.
For a number of reasons, the CFX proposal was more attractive than the other
proposal, including the apparently greater strategic fit and the higher value of
the consideration offered by CFX, based on the market prices of the two
offerors' stock at that time.
It was important to the Board that the transaction have two alternative
accounting structures (and that the closing of the transaction not be contingent
upon the availability of the pooling method of accounting), because facts beyond
Safety Fund's control could dictate which accounting method must be applied. In
particular, if Safety Fund shareholders holding more than ten percent of the
Safety Fund Common Stock exercise their dissenters' rights, the Merger is
required to be accounted for with purchase accounting under generally accepted
accounting principles. At the time the Merger Agreement was being negotiated,
Mr. Massad owned 9.9 percent of the Safety Fund Common Stock and had applied for
regulatory approval to purchase up to 51 percent of such stock (which approval
was received on January 19, 1996). The Board authorized management to pursue
negotiations with CFX, but to make it clear that the transaction must include
both purchase accounting and pooling-of-interests accounting alternatives. The
Board also directed management to maintain contact with the other interested
party. MB&D promptly informed the other party that Safety Fund was commencing
negotiations with another (unnamed) party, that Safety Fund felt it necessary
for any bidder to offer a purchase accounting alternative and that Safety Fund
would still consider expressions of interest from the other party.
On December 21, 1995, Safety Fund and CFX and their legal and financial
advisors met to commence negotiations with respect to the definitive Agreement.
During Christmas week, each of Safety Fund and CFX conducted due diligence with
respect to the other's financial condition and other relevant matters, and their
counsel continued to refine the terms of the Agreement. On January 1, 1996,
Safety Fund representatives met with Safety Fund's legal and financial advisors
to discuss the status of the due diligence and the Agreement. On January 2, the
parties and their advisors met again to continue to negotiate the proposed
Agreement.
The Board of Directors held a special meeting on January 3, 1996 to discuss
the due diligence results and the negotiation process and to review copies of
the draft Agreement, Stock Option Agreement and related documents with Safety
Fund's legal and financial advisors. At that meeting, counsel reviewed in detail
with the directors the terms of the Agreement and the Stock Option Agreement.
The Board also heard a detailed presentation by MB&D regarding the financial
terms of the Merger, and held a detailed discussion of the exchange ratio
formula and the alternative pooling and purchase accounting structures. After
several hours of discussion, the Board authorized management and the Committee
to move forward with the CFX transaction, subject to the Board's approval of the
final Agreement at a subsequent meeting.
The Board of Directors met again on January 5, 1996. At that meeting, the
Board reviewed with counsel those changes that had been negotiated to the
Agreement since the January 3 meeting, and discussed the Stock Option Agreement
in detail. At that meeting, a representative of MB&D advised the Board orally
that, in the opinion of MB&D, and based on facts known to MB&D at that date, the
Exchange Ratio was fair, from a financial point of view, to the Safety Fund
shareholders as of that date. He also stated that, absent significant change in
the two companies' financial condition or in the market for their stock, MB&D
anticipated that it would be prepared to issue a similar written opinion
28
<PAGE>
as of the date of the proxy statement to shareholders. The Board of Directors
voted to approve the Agreement and the Stock Option Agreement at that meeting
and also voted to adopt the Shareholder Rights Plan previously considered.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Safety Fund Board's decision to approve and adopt the Agreement reflects
its belief that the terms of the Agreement will provide significant value to all
Safety Fund shareholders and will also enable them to participate in the
opportunities for growth that the Safety Fund Board believes the Merger makes
possible. In the course of reaching its decision to approve the Agreement, the
Board of Directors of Safety Fund consulted with Safety Fund management as well
as with Safety Fund's legal and financial advisors. 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 Agreement, including the Exchange Ratio, were reached on
the basis of arms' length negotiations between Safety Fund and CFX. In reaching
the conclusion that the terms of the Agreement are fair, the Board of Directors
considered, among other things, the market value, book value, earnings per share
and dividends of Safety Fund Common Stock. The Board considered that the Merger
provides an opportunity for the shareholders of Safety Fund to receive an
increase in dividends and to receive consideration for their shares having a
value in excess of the book value of the Safety Fund Common Stock and, based on
the estimated value of the Merger consideration, at a premium over the prices at
which Safety Fund Common Stock has generally traded in the recent past.
The Board of Directors relied upon the advice of MB&D, Safety Fund's
financial advisor. At the January 5, 1996 Safety Fund Board meeting, MB&D orally
rendered its opinion that, based upon information known as of that date, the
merger consideration is fair, from a financial point of view, to the Safety Fund
shareholders. That opinion was rendered in writing as of the date of this Proxy
Statement. A copy of the written opinion, dated the date of this Proxy
Statement, rendered by MB&D to the Board of Directors is attached as Appendix C
to this Proxy Statement. Safety Fund's Board of Directors considered the
analyses presented to it by MB&D relating to selected financial and stock market
data concerning Safety Fund 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 "-- Opinion
of Financial Advisor."
The Board of Directors considered the strategic alternatives available to
Safety Fund, including the possibility of remaining independent, seeking further
to solicit competing proposals from other potential bidders, and accepting CFX's
bid, before concluding for the reasons discussed in this section that the Merger
represented the best available alternative to enhance shareholder value at this
time.
In assessing the alternatives for remaining independent, the Safety Fund
Board considered the long-range prospects and risks of Safety Fund's business
and its financial condition, results of operations and capital levels. In
assessing the long-range prospects and risks of Safety Fund's business, the
Safety Fund Board considered: (i) the risk that the assumptions underlying
Safety Fund's business plan, such as assumptions about the future interest rate
environment, might not be realized; (ii) the risks associated with attempting to
achieve and sustain significant loan growth; and (iii) the fact that the banking
market in Worcester County is becoming increasingly competitive, particularly in
light of the pending entrance into the market of two out-of-state banks.
The Board of Directors also considered the possibility that, if it were to
remain independent, a significant portion of Safety Fund Common Stock could
become concentrated in the hands of a single shareholder who had sought
regulatory approval to acquire up to 51% of Safety Fund Common Stock. The Board
felt that such a concentration could make it more difficult for the Board to act
in a manner that it believes to be in the best interests of the shareholders as
a whole.
The Board also considered the process that was used to solicit indications
of interest on the part of potential acquirors of Safety Fund and believes that
it was appropriate.
29
<PAGE>
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 AMEX. Safety Fund's Board of Directors believes that the
proposed affiliation with CFX could provide increased liquidity for the
shareholders of Safety Fund. The Board also believes that such an affiliation
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 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 Safety Fund Common Stock and CFX Common Stock, respectively,
and the significant increase in dividends which Safety Fund shareholders would
be likely to enjoy as a result of the Merger. The Board of Directors also
considered the expectation that the Merger will be a tax-free reorganization.
The Board of Directors considered a variety of factors, including, without
limitation, the social and economic effects of a transaction on depositors,
borrowers and employees of Safety Fund, and on the communities in which Safety
Fund operates or serves. Massachusetts law permits the Safety Fund Board to
consider these factors at least to the extent there are rationally related
benefits accruing to shareholders. The Board of Directors believes that the
Merger, if consummated, will provide expanded services, greater ability to grow
and diversify, and access to the resources of a strong financial parent. If the
Safety Fund shareholders do not approve and adopt the Agreement or the Agreement
is not consummated for any other reason, the Board of Directors expects to
continue to operate Safety Fund as an ongoing business.
Based on the foregoing, the Safety Fund Board concluded that the proposed
Merger would be in the best interests of Safety Fund's shareholders, customers
and communities served. Accordingly, the Safety Fund Board unanimously voted to
recommend that the Safety Fund shareholders vote "FOR" the approval and adoption
of the Agreement.
TERMS OF THE MERGER
In accordance with the terms of the Agreement, a wholly owned subsidiary of
CFX organized for the purpose will be merged with and into Safety Fund, with
Safety Fund as the surviving corporation. Immediately thereafter, Safety Fund
will be merged with and into CFX, whereupon the separate existence of Safety
Fund will cease. CFX, as the surviving entity in these transactions, will
continue unaffected and unimpaired by such transactions.
At the Effective Time, each share of Safety Fund Common Stock issued and
outstanding immediately prior to the Effective Time, other than Dissenting
Shares and except as otherwise provided in the Agreement, will be converted into
an amount of CFX Common Stock equal to one share multiplied by the appropriate
Exchange Ratio and cash in lieu of any fractional share of CFX Common Stock.
The Exchange Ratio depends on two principal factors. The first factor is
whether a Pooling Determination has been made. The second factor is the CFX
Trading Price. See "INTRODUCTION." At any given price level of CFX Common Stock,
the number of shares of CFX Common Stock to be received for each share of Safety
Fund Common Stock (and thus the per share value to be received by Safety Fund
shareholders) will be less under a purchase accounting than under a
pooling-of-interests accounting. See the graphs depicting the pricing mechanism
in "SUMMARY -- The Proposed Merger." The exercise of dissenters' rights by
holders of ten percent or more of Safety Fund Common Stock would preclude
pooling treatment.
The following tables show the Exchange Ratio at various CFX Trading Prices
if a Pooling Determination is made or is not made, together with the Per Safety
Fund Share Value in each case. As used herein, the Per Safety Fund Share Value
is calculated by multiplying the CFX Trading Price by the applicable Exchange
Ratio, and represents the value of a share of CFX Common Stock that would be
received in the Merger for each share of Safety Fund Common Stock based on the
CFX Trading Price. The CFX Trading Price is based on the CFX trading price on
AMEX for the ten trading days prior to receipt of the last regulatory approval
necessary for consummation of the Merger and thus
30
<PAGE>
could be determined several weeks prior to the Effective Time. The market price
of CFX Common Stock at the Effective Time could differ from the CFX Trading
Price used to determine the Exchange Ratio, and the actual value of the shares
issued in the Merger therefore could differ from the Per Safety Fund Share
Value.
POOLING DETERMINATION
<TABLE>
<CAPTION>
PER SAFETY FUND
CFX TRADING PRICE EXCHANGE RATIO SHARE VALUE
- ------------------ --------------- ------------------
<S> <C> <C>
$18.66 or more 1.629 $30.38 or more
$17.88 - $18.65 1.629 - 1.700 $30.38
$13.21 - $17.87 1.700 $22.46 - $30.38
$12.43 - $13.20 1.700 - 1.806 $22.46
$11.66 - $12.42 1.806 $21.06 - $22.46
Below $11.66 (1) (1)
</TABLE>
- ------------------------
(1) If a Pooling Determination is made, Safety Fund by action of its Board of
Directors may, but need not, seek to terminate the Agreement if the CFX
Trading Price is below $11.66. If Safety Fund does not seek to terminate the
Agreement, the Exchange Ratio would be 1.806 and the Per Safety Fund Share
Value would be less than $21.06. If Safety Fund seeks to terminate the
Agreement, CFX may adjust the Exchange Ratio to the amount determined by
dividing $21.06 by the CFX Trading Price (resulting in a Per Safety Fund
Share Value of $21.06) and the Merger would be consummated on that basis.
Alternatively, CFX could do nothing in response, in which case the Agreement
would terminate.
NO POOLING DETERMINATION
<TABLE>
<CAPTION>
PER SAFETY FUND
CFX TRADING PRICE EXCHANGE RATIO SHARE VALUE
- ------------------ --------------- ------------------
<S> <C> <C>
$20.84 or more 1.200 $25.00 or more
$16.45 - $20.83 1.200 - 1.520 $25.00
$13.16 - $16.44 1.520 $20.00 - $25.00
$12.50 - $13.15 1.520 - 1.600 $20.00
Below $12.50 (1) (1)
</TABLE>
- ------------------------
(1) If a Pooling Determination is not made, Safety Fund by action of its Board
of Directors may, but need not, seek to terminate the Agreement if the CFX
Trading Price is below $12.50. If Safety Fund does not seek to terminate the
Agreement, the Exchange Ratio would be 1.600 and the Per Safety Fund Share
Value would be less than $20.00. If Safety Fund seeks to terminate the
Agreement, CFX may adjust the Exchange Ratio to the amount determined by
dividing $20.00 by the CFX Trading Price or make an additional cash payment
(in either case resulting in a Per Safety Fund Share Value of $20.00) and
the Merger would be consummated on that basis. Alternatively, CFX could do
nothing in response, in which case the Agreement would terminate.
Any cash payment in lieu of fractional shares will be in an amount equal to
such fraction multiplied by the reported closing sale price of CFX Common Stock
on the AMEX as reported in THE WALL STREET JOURNAL for the trading day
immediately preceding the date of the Effective Time.
Safety Fund has adopted a 1984 Incentive Stock Option Plan and a 1994
Incentive and Nonqualified Stock Option Plan (collectively, "Safety Fund Stock
Option Plans"). At the Effective Time, outstanding obligations under the Safety
Fund Stock Option Plans will be assumed by CFX and, except as provided in the
Agreement, each stock option outstanding under the Safety Fund Stock Option
Plans will become the right to receive, upon payment of the exercise price, as
adjusted by the Exchange Ratio, a number of shares of CFX Common Stock equal to
the Exchange Ratio multiplied by the number of shares of Safety Fund Common
Stock covered by such options, rounded down to the
31
<PAGE>
nearest share. As of March 28, 1996, there were outstanding under the Safety
Fund Stock Option Plans options held by eight present and former officers of
Safety Fund to acquire an aggregate of 50,850 shares of Safety Fund Common Stock
at an exercise price ranging from $10.33 per share to $12.67 per share. For
additional information, see "PROPOSAL I -- PROPOSED MERGER -- Effect on
Employees and Benefit Plans" and PROPOSAL II -- ELECTION OF DIRECTORS --
Executive Compensation and Other Information."
In the event that, prior to the Effective Time, the outstanding shares of
CFX Common Stock shall have been increased, decreased, changed into or exchanged
for a different number of shares or securities as a result of a distribution,
stock dividend, stock split or stock combination in CFX Common Stock or
securities convertible into CFX Common Stock, all without CFX receiving
consideration therefor, then an appropriate and proportionate adjustment shall
be made to the Exchange Ratio.
OPINION OF THE FINANCIAL ADVISOR
MB&D has delivered to the Board of Directors of Safety Fund its written
opinion as of the date of this Proxy Statement, that the Exchange Ratio
(described in detail in this Proxy Statement) is fair, from a financial point of
view, to Safety Fund's shareholders. MB&D has acted as financial advisor to
Safety Fund since July 1995 in connection with Safety Fund's ongoing strategic
planning process, including the evaluation of strategic and business plans, the
evaluation of hypothetical affiliation opportunities and a variety of general
corporate finance issues.
MB&D advised Safety Fund during the negotiation process leading up to the
execution of the Agreement and provided Safety Fund with various analyses as to
the range of financially feasible exchange ratios that might be received in a
hypothetical transaction. Representatives of MB&D attended a number of meetings
of the Directors' Advisory Committee (which acted as the mergers and acquisition
committee) of the Safety Fund Board of Directors and met with the full Board of
Directors on several occasions in connection with the preparation and analysis
of Safety Fund's strategy. The Exchange Ratio was arrived at in consultation
with MB&D as to the terms of arms' length negotiations between Safety Fund and
CFX.
MB&D was retained based on its qualifications and experience in the
financial analysis of financial institutions, knowledge of the banking market of
the Northeast United States and of Massachusetts in particular, and its
experience with merger and acquisition transactions involving financial
institutions. Members of the Corporate Finance Department of MB&D have advised
financial institution clients on more than 50 successfully completed mergers or
acquisitions of financial institutions.
The full text of the opinion of MB&D, which sets forth assumptions made,
matters considered and limits on the review undertaken by MB&D, is attached
hereto as Appendix C. Safety Fund's shareholders are urged to read the opinion
in its entirety. MB&D's opinion is directed only to the Exchange Ratio and does
not constitute a recommendation to any holder of Safety Fund Common Stock as to
how such holder should vote at the Annual Meeting. The summary of the opinion of
MB&D set forth in this Proxy Statement was provided to Safety Fund by MB&D and
is qualified in its entirety by reference to the full text of the opinion
itself.
In arriving at its opinion, MB&D (i) reviewed the Agreement and this Proxy
Statement in substantially the form to be sent to Safety Fund shareholders; (ii)
reviewed publicly available business and financial information with respect to
both Safety Fund and CFX and certain internal financial information and
financial projections prepared by the managements of Safety Fund and CFX; (iii)
held discussions with members of the senior management and Board of Safety Fund
concerning the past and current results of operations of Safety Fund, its
current financial condition and management's opinion of its future prospects;
(iv) reviewed the historical reported price and record of trading volume for
both Safety Fund Common Stock and CFX Common Stock; (v) held discussions with
the senior management of CFX concerning the current and past results of
operations of CFX, its current financial condition and management's opinion of
its future prospects; (vi) considered the current state
32
<PAGE>
of and future prospects for the economies of Massachusetts and New Hampshire
generally and the relevant market areas for Safety Fund and CFX in particular;
(vii) reviewed the specific acquisition analysis models employed by MB&D to
evaluate potential business combinations of banking companies; (viii) reviewed
the reported financial terms of certain recent business combinations in the
banking industry; and (ix) performed such other studies and analyses as MB&D
considered appropriate under the circumstances associated with this particular
transaction.
MB&D's opinion takes into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuation and its knowledge of the banking industry
generally. For purposes of reaching its opinion, MB&D has assumed and relied
upon the accuracy and completeness of the information provided to it by Safety
Fund and CFX, and does not assume any responsibility for the independent
verification of such information. Further, MB&D has not received from third
parties, nor prepared, any independent valuation or appraisal of any of the
assets or liabilities of either Safety Fund or CFX. With respect to the
financial projections reviewed by MB&D in the course of rendering its opinion,
MB&D has assumed that such projections have been reasonably prepared to reflect
the best currently available estimates and judgment of the management of each of
Safety Fund and CFX as to the most likely future performance of their respective
companies.
MB&D also considered the results of its efforts (at the direction of Safety
Fund) to solicit expressions of interest from third parties with respect to an
affiliation with Safety Fund and its review and analysis of the terms of such
expressions. See "-- Background of the Merger."
The following is a summary of material analyses employed by MB&D in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of all the matters considered by MB&D in
arriving at its opinion. The preparation of a fairness opinion is a complicated
process, involving a determination as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to a summary description. In arriving at its fairness opinion, MB&D did not
attribute any particular weight to any one specific analysis or factor
considered by it and made qualitative as well as quantitative judgments as to
the significance of each analysis and factor. Consequently, MB&D believes that
its analyses must be considered as a whole and feels that attributing undue
weight to any single analysis or factor considered could create a misleading or
incomplete view of the process leading to the formation of its opinion. In its
analyses, MB&D has made certain assumptions with respect to banking industry
performance, general business and economic conditions and other factors, many of
which are beyond the control of management of either Safety Fund or CFX. Any
estimates which are referred to in MB&D's analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
vary significantly from those set forth.
ANALYSIS OF THE ANTICIPATED MERGER AND THE EXCHANGE RATIO IN RELATION TO
CFX. The consideration to be paid in the Merger, assuming an Exchange Ratio of
1.7 shares of CFX Common Stock for each share of Safety Fund Common Stock in a
pooling-of-interests accounting transaction or 1.52 shares in a purchase
accounting transaction, valued at the last sale price of Safety Fund Common
Stock ($23.25) on January 3, 1996, the last day with trades prior to the
announcement of the transaction, and the last sale price of CFX Common Stock
($15.375) on January 4, 1996, the day prior to the announcement of the
transaction, represents the following transaction multiples:
POOLING ACCOUNTING TRANSACTION VALUE: $26.14 PER SAFETY FUND SHARE VALUE:
- MULTIPLE OF EARNINGS: (i) 26.02 times Safety Fund's annualized earnings
per share for the nine months ended September 30, 1995; (ii) 27.23 times
Safety Fund's recorded earnings per share for the twelve months ended
September 30, 1995; (iii) 23.34 times Safety Fund's earnings per share for
1995; and (iv) 14.09 times Safety Fund's estimated earnings per share for
1996.
- MULTIPLE OF BOOK VALUE: (i) 2.18 times Safety Fund's tangible book value
per share as of September 30, 1995; and (ii) 2.03 times Safety Fund's
tangible book value per share as of December 31, 1995.
33
<PAGE>
- MULTIPLE OF MARKET VALUE: (i) a 12% premium over the sales price of
Safety Fund Common Stock reported on the Nasdaq Stock Market as of the
close of business on January 3, 1996; (ii) a 54% premium over the average
sales price of Safety Fund Common Stock for the period January 5, 1995 to
January 5, 1996; and (iii) a 34% premium over the average sales price of
Safety Fund Common Stock for the third quarter of 1995.
PURCHASE ACCOUNTING TRANSACTION VALUE: $23.37 PER SAFETY FUND SHARE VALUE:
- MULTIPLE OF EARNINGS: (i) 23.27 times Safety Fund's annualized earnings
per share for the nine months ended September 30, 1995; (ii) 24.34 times
Safety Fund's recorded earnings per share for the twelve months ended
September 30, 1995; (iii) 20.87 times Safety Fund's 1995 earnings per
share; and (iv) 12.60 times Safety Fund's estimated earnings per share for
1996.
- MULTIPLE OF BOOK VALUE: (i) 1.94 times Safety Fund's tangible book value
per share as of September 30, 1995; and (ii) 1.81 times Safety Fund's book
value per share as of December 31, 1995.
- MULTIPLE OF MARKET VALUE: (i) a 1% premium over the sales price of Safety
Fund Common Stock reported on the Nasdaq Stock Market as of the close of
business on January 3, 1996; (ii) a 49% premium over the average sales
price of Safety Fund Common Stock for the period January 5, 1995 to
January 5, 1996; and (iii) a 29% premium over the average sales price of
Safety Fund Common Stock for the third quarter of 1995.
SPECIFIC ACQUISITION ANALYSIS. MB&D employs a number of proprietary
analysis models to examine hypothetical transactions involving banking and/or
thrift companies. The models use forecast earnings data, selected current period
balance sheet and income statement data, current market and trading information
and a number of assumptions as to interest rates for borrowed funds, opportunity
costs of funds, discount rates, dividend streams, effective tax rates and
transaction structures (the alternative or combined uses of common equity, cash,
debt or other securities, to fund a transaction). The models distinguish between
purchase and pooling accounting treatments and inquire into the likely economic
feasibility of a given hypothetical transaction, at a given price level or
specified exchange rate and employing a specified transaction structure. The
model also permits an examination of pro forma capital adequacy.
In connection with the Merger, MB&D evaluated two floating exchange ratios,
the first being 1.7 (subject to certain adjustments) in an all common stock,
pooling accounting transaction and the second being 1.52 (subject to certain
adjustments) in an all common stock, purchase accounting transaction. After
considering the potential for the realization of expense savings expected by CFX
to result from the consolidation of selected operational functions of Safety
Fund and CFX, estimated to be 20% of historical Safety Fund non-interest
expense, little or no ongoing earnings dilution is projected to result from the
contemplated transaction.
DISCOUNTED CASH FLOW ANALYSIS. MB&D also performed two discounted cash flow
analyses to permit the conceptual examination of the present discounted values
of potential future results employing selected assumptions and discount rates.
In the first discounted cash flow analysis, MB&D discussed with the
management of Safety Fund a projection of hypothetical Safety Fund earnings per
share results for calendar years 1996 and 1997 of $1.85 and $2.06, respectively,
with subsequent earnings equal to a return on assets ("ROA") of 1.05%, and
employed a hypothetical dividend pay-out ratio assumption which depicted average
annual pay-outs of 30%. MB&D then assumed that the control sale price/earnings
ratio at the end of a five-year period would approximate 12.0 times earnings.
Given the five-year time horizon and a discount rate of 12.5%, this resulted in
a present discounted value of the resulting cash flows of $22.32 which can be
compared to the nominal present value of the 1.7 and 1.52 Exchange Ratios of
approximately $26.14 and $23.37 described above.
34
<PAGE>
In the second discounted cash flow analysis, MB&D employed an earnings
annuity concept in which it assumed that future earnings for Safety Fund would
equal a 1.00% ROA in the twelve months subsequent to September 30, 1995 and a
1.05% ROA annually for the four following years, with asset growth equal to
4.47% in the twelve months subsequent to September 30, 1995 and 6.00% annually
for the four following years, and that the dividend pay-out ratio would increase
from 14% to 30% in the first two years and thereafter remain constant at 30%.
MB&D employed a discount rate for all cash flows of 12.5% and a long term growth
rate of earnings in years six and beyond of 5.00% annually. Given a five-year
time horizon, this resulted in a present discounted value of the resulting cash
flows of $19.47, which can be compared to the nominal present value of the 1.7
and 1.52 Exchange Ratios of approximately $26.14 and $23.37 described above.
MB&D considers it is important that the discount factors employed embody
both the concept of a riskless time value of money and risk factors that reflect
the uncertainty of the forecast cash flows and terminal price/earnings
multiples. Use of higher discount rates would result in lower discounted present
values and vice versa. MB&D advised the Safety Fund 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 ratios.
MB&D also considered that Safety Fund shareholders would substantially
increase their prospect for annual dividends based upon current and projected
dividend streams of both Safety Fund and CFX. Based upon the dividend currently
paid by CFX, Safety Fund shareholders would receive an equivalent dividend per
share of Safety Fund Common Stock of $1.22 per year (assuming an Exchange Ratio
of 1.7). Assuming an Exchange Ratio of 1.52, Safety Fund shareholders would
receive an annual dividend of $1.09. By comparison, Safety Fund has not paid a
Safety Fund Common Stock dividend since August 31, 1993.
ANALYSIS OF OTHER COMPARABLE TRANSACTIONS. MB&D is reluctant to place
excessive emphasis on "comparables analysis" as a valuation methodology due to
what it considers to be inherent limitations of the application of the results
to specific cases. It has observed that such analysis as employed by some
industry observers and financial advisors frequently fails to adequately take
into consideration such factors as material differences in the underlying
capitalization of the comparable institutions which are being acquired;
differences in the historic earnings (or loss) patterns recorded by the compared
institutions which are being acquired; different trends than might be implied by
examining only recent financial results; failure to exclude nonrecurring profit
or loss items from the last twelve months' earnings streams of target companies,
which can distort apparent earnings multiples; differences in the form or forms
of consideration used to complete the transaction; differences between the
planned method of accounting for the completed transaction; and such less
accessible factors as the relative population demographics of the acquired
entities' markets as compared or contrasted to such factors for the markets in
which comparables are doing business. Comparables analysis also rarely seems to
take into consideration the degree of facilities overlap between the acquiror's
market and that of the target or the absence of such overlap and the resulting
cost savings differentials between two otherwise apparently comparable
transactions. MB&D consequently believes that comparables analysis has its
limitations.
Nevertheless, in November and December 1995, MB&D reviewed a universe of 27
publicly announced transactions in the financial institutions industry in which
either a bank or a thrift (or their respective holding companies) engaged in the
acquisition of another financial institution. These transactions were announced
between January 1994 and December 1995. All of the examined transactions
involved entities doing business in New England. From this universe, MB&D
selected six transactions announced in 1995 as being most representative of the
CFX/Safety Fund transaction.
The six transactions selected as most representative are: Peoples Heritage
Financial Group Inc.'s acquisition of Bank of New Hampshire Corporation;
Chittenden Corporation's acquisition of Flagship Bank & Trust Company; Community
Bankshares, Inc.'s acquisition of Centerpoint Bank; The
35
<PAGE>
Co-operative Bank of Concord's acquisition of Bank of Braintree; BayBanks,
Inc.'s acquisition of Cornerstone Financial Corporation; and Peoples Heritage
Financial Group Inc.'s acquisition of Bankcore, Inc.
Within this group of six transactions, the median multiple of tangible book
value paid by the acquiror was 1.91, the maximum multiple paid was 2.30 and the
minimum multiple was 1.24. These statistics can be compared to multiples of
tangible book value of 2.17 and 1.94, respectively, for the two alternative
prices of the CFX/Safety Fund transaction, assuming that the Per Safety Fund
Share Value of the Exchange Ratio is approximately $26.14 for the pooling
accounting transaction and $23.37 for the purchase accounting transaction (such
values being based on the market price of CFX Common Stock on January 4, 1996
multiplied by the Exchange Ratios of 1.7 and 1.52, respectively).
With respect to trailing 12 months earnings multiples for this same data
sample, the median price/earnings multiple paid was 12.29 and the maximum
multiple (excluding the acquisition of weaker earners) was 14.39, while the
minimum multiple was 10.00. These statistics can be compared to price/earnings
multiples of 25.98 times and 23.16 times, respectively (based on the last twelve
months recorded earnings for Safety Fund), for the two alternative prices of the
CFX/Safety Fund transaction assuming that the Per Safety Fund Share Value at the
Exchange Ratio is approximately $26.14 for the pooling accounting transaction
and $23.37 for the purchase accounting transaction (such values being based on
the market price of CFX Common Stock on January 4, 1996 multiplied by the
Exchange Ratios of 1.7 and 1.52, respectively). MB&D noted that the
price/earnings multiple for the CFX/Safety Fund transaction was influenced
upward by Safety Fund's relatively low historic earnings, measured as a
percentage of assets or equity, as compared to the historic earnings of the
acquired institutions in the six comparable transactions. However, based on
Safety Fund's estimated 1996 earnings, the price/earnings multiple for the
CFX/Safety Fund transaction would be 14.09 times and 12.60 times, respectively,
for the two alternative prices of the CFX/Safety Fund transaction.
Pursuant to a letter agreement with Safety Fund dated January 4, 1996, MB&D
will receive a fee of 1.00% of the value of the merger consideration received by
the shareholders of Safety Fund for services rendered to Safety Fund in
conjunction with the proposed transaction. The fee represents compensation for
services rendered in connection with the analysis of the transaction, support of
the negotiations and for the rendering of its opinions. Safety Fund paid MB&D
$100,000 following the execution of the Agreement and an additional $100,000
upon receipt of MB&D's final opinion included in this Proxy Statement. MB&D will
be paid any additional amounts needed to bring the total compensation received
to 1.00% of the transaction value at the time of closing of the transaction.
Based upon a hypothetical transaction value of $43 million, MB&D would receive
compensation of $430,000. In addition, Safety Fund has agreed to reimburse MB&D
for its reasonable out-of-pocket expenses incurred in connection with the
transaction. Safety Fund also has agreed to indemnify MB&D and its directors,
officers and employees against certain losses, claims, damages and liabilities
relating to or arising out of MB&D's engagement, including liabilities under the
federal securities laws.
MB&D has been engaged from time to time to provide services to CFX unrelated
to this Merger. The total consideration paid by CFX to MB&D for these services
during the past two years has been $7,500.
SURRENDER OF CERTIFICATES
Within three business days after the Effective Time, an exchange agent
appointed by CFX and reasonably satisfactory to Safety Fund ("Exchange Agent")
will mail to each record holder of Safety Fund Common Stock a letter of
transmittal, together with instructions for the exchange of its Safety Fund
Common Stock certificates for certificates representing CFX Common Stock and the
cash in lieu of fractional shares, if any, into which the Safety Fund Common
Stock will have been converted as result of the Merger. Upon surrender of their
Safety Fund Common Stock certificates, such holders will receive a certificate
for the number of whole shares of CFX Common Stock to which they are entitled
and a check representing the amount paid in lieu of issuing any fractional
share. Until so
36
<PAGE>
exchanged, the holder of a certificate representing Safety Fund Common Stock
outstanding immediately prior to the Effective Time shall have no rights with
respect to such Safety Fund Common Stock except to surrender such certificate in
exchange for a CFX Common Stock certificate and cash in lieu of fractional
shares. No dividends or other distributions on CFX Common Stock declared after
the Effective Time will be made to holders of unsurrendered Safety Fund Common
Stock certificates until the holder thereof surrenders such certificates.
Shareholders should not send in their certificates until they receive further
instructions.
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER; WAIVER
The Agreement contains representations and warranties by Safety Fund and CFX
regarding various customary legal, regulatory, financial and business matters.
Except as otherwise provided in the Agreement, these representations and
warranties will not survive the Effective Time.
The obligations of CFX and Safety Fund to consummate the Merger are
conditioned upon, among other things: (i) approval of the Agreement by the
shareholders of CFX and Safety Fund; (ii) the absence of orders prohibiting the
Merger; (iii) the receipt of all necessary regulatory approvals and the
expiration of all applicable waiting periods, without any condition or
requirement that causes the Board of Directors of CFX or Safety Fund to abandon
the Merger; (iv) the effectiveness under the Securities Act of the Registration
Statement and the absence of any proceeding by the Commission to suspend such
effectiveness; (v) approval for listing on the AMEX, subject to official notice
of issuance, of the shares of CFX Common Stock to be issued in the Merger; (vi)
the receipt of the tax opinion described under "-- Certain Federal Income Tax
Consequences"; (vii) receipt of all necessary permits and authorizations; and
(viii) receipt of other customary closing documents.
Except with respect to any required shareholder or regulatory approval,
substantially all of the conditions to consummation of the Merger may be waived
at any time by the party for whose benefit they operate, in a writing signed by
both parties, and the Agreement may be amended or supplemented at any time by
written agreement of the parties, except that any such waiver or amendment
executed after approval of the Agreement by Safety Fund's shareholders which
reduces the amount or form of consideration to be delivered to such shareholders
pursuant to the Agreement requires the further approval of such shareholders.
REGULATORY AND OTHER APPROVALS
The Merger is subject to approval by the Federal Reserve under the BHCA,
which requires that the Federal Reserve take into consideration the financial
and managerial resources and future prospects of the existing and proposed
institutions and the convenience and needs of the communities to be served. The
BHCA prohibits the Federal Reserve from approving the Merger if it would violate
certain antitrust standards, unless it finds that the anticompetitive effect of
the Merger is clearly outweighed in the public interest by the probable effect
of the transaction in meeting the convenience and needs of the communities to be
served. In addition, the Federal Reserve must take into account the parties'
record of performance in meeting the credit needs of the entire community,
including low and moderate-income neighborhoods. Federal Reserve regulations
require publication of notice of the application for approval of the Merger and
provide an opportunity for the public to comment on the application in writing
and to request a hearing. The Merger may not be consummated until the 30th day
after such approval (or such shorter period as the Federal Reserve may prescribe
with the concurrence of the Attorney General, but not less than 15 days), during
which time the United States Department of Justice ("DOJ") may challenge the
Merger on antitrust grounds.
In addition, the Merger requires the approval of the MBBI. Such approval is
based upon the determination that the proposed transaction does not unreasonably
affect competition among Massachusetts banking institutions and that it promotes
public convenience and advantage. In making such a determination, the MBBI must
consider, among other things, a showing of net new benefits, including initial
capital investment, job creation plans, consumer and business services and
commitments to maintain and open branch offices within a bank's statutorily
delineated local community.
37
<PAGE>
Prior to approving the Merger, the MBBI must receive notice from the MHP
Fund that arrangements satisfactory to the MHP Fund have been made for the
proposed acquiror to make 0.9 percent of its assets located in Massachusetts
available for call by the MHP Fund 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 ("Commissioner"), which shall be based upon the cost (not
to include lost opportunity costs) incurred in making funds available to the MHP
Fund. Pursuant to this requirement, SFNB and CFX, as lender and guarantor,
respectively, will enter into a Loan Agreement with the MHP Fund's Board
pursuant to which SFNB will agree to make funds available for call by the MHP
Fund's Board.
Although the shares issuable upon exercise of the Option represent
approximately 16.7 percent of the Safety Fund Common Stock that would be
outstanding after such exercise, CFX may not acquire more than 5 percent of
Safety Fund Common Stock, pursuant to the exercise of the Option or otherwise,
without prior approval of the Federal Reserve. CFX has applied to the Federal
Reserve for prior approval to exercise the Option following any applicable event
triggering the Option.
To the extent that the foregoing information describes statutes and
regulations, it is qualified in its entirety by reference to the particular
statutes and regulations and the regulations promulgated under such statutes.
The parties have filed applications for the foregoing regulatory approvals.
The Merger will not proceed in the absence of all such required approvals. There
can be no assurance that the Federal Reserve or the MBBI will approve the
Merger, and if approved, there can be no assurance as to the date of such
approvals, that such approvals will not be conditioned upon matters that would
cause the Board of Directors of CFX or Safety Fund to abandon the Merger, or
that no action will be brought by DOJ challenging the Merger. See "--
Representations and Warranties; Conditions to the Merger; Waiver" and "--
Effective Time of the Merger; Termination."
CFX and Safety Fund are not aware of any other governmental approvals or
actions that are required for consummation of the Merger except as described
above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained, would
not delay consummation of the Merger and would not be conditioned in a manner
that would cause CFX or Safety Fund to abandon the Merger.
BUSINESS PENDING THE MERGER
Under the terms of the Agreement, each of CFX, Safety Fund and their
respective subsidiaries generally is prohibited from taking any action that
materially affects the ability of CFX or Safety Fund to obtain any necessary
governmental approvals, materially increases the period of time necessary to
obtain such approvals, materially affects its ability to perform its covenants
and agreements under the Agreement, disqualifies the Merger as a
pooling-of-interests for accounting purposes or a tax free reorganization under
Section 368 of the Code, or results in the representations and warranties of CFX
and Safety Fund in the Agreement not being true and correct on the date of the
Agreement or at any future date on or prior to the Closing Date. CFX may not
enter into other acquisitions that require the approval of CFX shareholders,
equal or exceed $30 million in value, or are reasonably likely to materially
delay the Merger without the prior written consent of Safety Fund.
Safety Fund, including its subsidiaries, is also required to use reasonable
efforts to preserve intact its business organization and assets and maintain its
rights and franchises and operate its business in the usual, regular and
ordinary course. In addition, without CFX's prior consent or as otherwise
provided in the Agreement, Safety Fund may not declare or pay any dividends or
other distributions on capital stock other than pursuant to specified limits,
increase compensation or fringe benefits of directors, officers or employees
beyond customary limits, or take certain other actions.
Safety Fund has also agreed in the Agreement, subject to certain exceptions,
that it will not authorize or permit any of its officers, directors, employees
or agents to directly or indirectly solicit,
38
<PAGE>
initiate, or encourage any inquiries relating to, or the making of, any proposal
which constitutes a "takeover proposal" (as defined in the Agreement), or,
except to the extent legally required for the discharge of the fiduciary duties
of its Board of Directors, recommend or endorse any takeover proposal or
participate in any discussions or negotiations, or provide third parties with
any non-public information, relating to any such inquiry or proposal. Safety
Fund has agreed to notify CFX immediately of any such inquiry or proposal.
EFFECTIVE TIME OF THE MERGER; TERMINATION
In the event that all conditions to the Merger have been satisfied or
waived, the Effective Time shall be the time on the Closing Date that the Merger
becomes effective pursuant to applicable provisions of Massachusetts law,
subject to the rights of the parties to terminate the Agreement as set forth
below. Upon at least three business days notice by CFX, the Merger will be
consummated at a closing to be held as soon as practicable after the last
required approval has been obtained for the Merger and the merger of Safety Fund
with and into CFX and the last of all required waiting periods under such
approvals have expired, or such other date as may be agreed upon by CFX and
Safety Fund ("Closing Date").
CFX and Safety Fund each anticipates that the Merger will be consummated in
the second half of 1996. However, consummation could be delayed as a result of
delays in obtaining the necessary governmental and regulatory approvals or if
any other condition to consummation of the Merger is not satisfied. There can be
no assurances as to if or when such approvals will be obtained or that the
Merger will be consummated. See "-- Regulatory and Other Approvals."
The Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the Merger by the shareholders of Safety
Fund: (i) at any time by the mutual written agreement of CFX and Safety Fund;
(ii) by either Safety Fund or CFX in the event of a material breach by the other
party of any agreement, representation or warranty in the Agreement after notice
and an opportunity to cure; (iii) at the election of either CFX or Safety Fund
in the event that the Closing Date does not occur on or before January 5, 1997,
or such later date as CFX and Safety Fund have agreed to in writing, subject to
extension in certain circumstances; (iv) by either Safety Fund or CFX if the
shareholders of either party fail to approve the Agreement; (v) by either Safety
Fund or CFX if the Merger is disapproved by a relevant regulatory authority; or
(vi) by Safety Fund, if the CFX Trading Price is below a certain price and CFX
elects not to adjust the Exchange Ratio as provided in the Agreement. See "--
Terms of the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Subsequent to the Merger, those persons serving as directors of CFX
immediately prior to the Effective Time will continue as directors of CFX,
together with four current directors of Safety Fund, Christopher W. Bramley, P.
Kevin Condron, William E. Aubuchon, III and David R. Grenon. Information
regarding the directors of CFX is included in documents incorporated by
reference herein. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY
REFERENCE." Information regarding the directors of Safety Fund is included
elsewhere herein. See "PROPOSAL II -- ELECTION OF DIRECTORS -- Information
Regarding Directors and Nominees."
Under the Agreement, CFX agrees, to the extent permitted by applicable law
and appropriate regulators, to maintain SFNB in existence as a separate
subsidiary of CFX for at least three years following the Effective Time, subject
to regulatory considerations, safe and sound banking practices and the fiduciary
duties of CFX's directors. In addition, nine of those persons currently serving
as directors of SFNB will be designated by CFX, after consultation with Safety
Fund, to continue to serve as directors of SFNB for at least three years,
subject to regulatory considerations, safe and sound banking practices and the
fiduciary duties of CFX's directors, and CFX initially will elect up to three
additional CFX representatives as directors of SFNB.
39
<PAGE>
EFFECT ON EMPLOYEES AND BENEFIT PLANS
EMPLOYEES. At the Effective Time, all employees of Safety Fund and its
subsidiaries shall be employed by CFX or subsidiaries of CFX, with employee
benefits which in the aggregate are no less favorable than those generally
afforded to other employees of CFX or CFX's subsidiaries holding similar
positions, subject to the terms and conditions under which those employee
benefits are made available to such employees and to certain other provisions of
the Agreement. The parties are working to identify operational efficiencies that
may be obtained through the consolidation of the entities in the Merger. It is
anticipated that some positions may be eliminated following the Effective Time
and CFX is not under any continuing obligation with respect to the employment of
any specific employee of Safety Fund or SFNB other than the three officers whose
employment contracts are being assumed. See "-- Employment Agreements."
At the Effective Time, CFX will assume Safety Fund's severance plan, which
covers all of the employees of Safety Fund and its subsidiaries. This severance
plan provides benefits comparable to those provided by CFX to its employees and
the employees of its subsidiaries.
EMPLOYMENT AGREEMENTS. Under the terms of the Agreement, CFX has agreed to
assume employment contracts that Safety Fund and/or SFNB currently has with
Christopher Bramley, James Garvey and Stephen R. Shirley, President and Chief
Executive Officer, Senior Vice President and Senior Commercial Loan Officer, and
Senior Vice President and Senior Trust Officer, respectively, of Safety Fund.
Pursuant to those employment contracts, the officers would be entitled to
receive severance benefits if a "terminating event" (as defined in the
contracts) occurs within one year (with respect to Messrs. Shirley and Garvey)
or three years (with respect to Mr. Bramley) following a "change in control" (as
defined in the contracts). The Merger constitutes a change in control under the
contracts. The severance benefits payable to Messrs. Shirley and Garvey would be
equal to one year's annual base salary (currently $110,000 and $99,000,
respectively), payable over a twelve month period and offset by 50 percent of
any wages earned from other employment. The severance benefit payable to Mr.
Bramley would be equal to $400,000, payable in one lump sum, or, at Mr.
Bramley's option, continuation of his salary (currently $211,600) and certain
employee benefits for the remainder of his contract (which was amended with
CFX's consent on January 5, 1996 to have a rolling two-year rather than one-year
term). Further information regarding these agreements is set forth under
"PROPOSAL II -- ELECTION OF DIRECTORS -- Executive Compensation and Other
Information."
INDEMNIFICATION AND INSURANCE. The Agreement provides that CFX shall
indemnify the directors and officers of Safety Fund and its subsidiaries with
respect to any action arising out of or pertaining to the Agreement or the
transactions contemplated thereby. The Agreement also provides that from and
after the Effective Time, CFX will provide indemnification, subject to the
limitations and procedural requirements contained in the Agreement, for those
persons who served as directors and officers of Safety Fund or its subsidiaries,
at or before the Effective Time, in accordance with the provisions of Safety
Fund's Articles of Organization and Bylaws for a period of six years from the
Effective Time.
In addition, CFX has agreed for a period of not less than six years
following the Effective Time to provide to those persons who served as directors
or officers of Safety Fund on or before the Effective Time, Safety Fund's
existing insurance against liabilities and claims (and related expenses) made
against them resulting from their service as such prior to the Effective Time,
or comparable substitute coverage. It is currently anticipated that such
coverage may be obtained at a total cost of approximately $21,000 per year. In
no event shall CFX be obligated to provide insurance coverage to an insured
person on more favorable terms than is currently provided to him or her in such
capacities. Safety Fund agrees to renew any such existing insurance or to
purchase any "discovery period" insurance provided for thereunder at CFX's
request.
SAFETY FUND STOCK OPTION PLANS. Certain executive officers and directors
have been granted stock options pursuant to the Safety Fund Stock Option Plans.
40
<PAGE>
The Safety Fund Stock Option Plans provide that if Safety Fund is a party to
a transaction involving a merger, any option granted under the Safety Fund Stock
Option Plans shall pertain to and apply to the securities to which a holder of
the number of shares of Safety Fund Common Stock subject to the option would
have been entitled if he or she actually owned the stock subject to the option
immediately prior to the time such transaction becomes effective. Although
Safety Fund presently does not intend to do so, the Safety Fund Stock Option
Plans provide that all unexercised options granted thereunder may be cancelled
by Safety Fund as of the effective date of any such transaction, by giving
proper notice to the holders thereof and by permitting the exercise, during the
30-day period preceding the effective date of such transaction, of all
unexercised options in full.
At the Effective Time, outstanding obligations under the Safety Fund Stock
Option Plans will be assumed by CFX and, except as provided in the Agreement,
each stock option outstanding under the Safety Fund Stock Option Plans will
become an option to purchase, subject to vesting, upon payment of the exercise
price, as adjusted by the Exchange Ratio, a number of shares of CFX Common Stock
equal to the Exchange Ratio multiplied by the number of shares of Safety Fund
Common Stock covered by such options, rounded down to the nearest share. As of
March 28, 1996, there were outstanding under the Safety Fund Stock Option Plans
options held by five present executive officers of Safety Fund to acquire an
aggregate of 42,750 shares of Safety Fund Common Stock at an exercise price
ranging from $10.33 per share to $12.67 per share. Assuming consummation of the
Merger at an Exchange Ratio of 1.7, the outstanding options held by such
executive officers would become options to purchase 72,675 shares of CFX Common
Stock at an exercise price ranging from $6.08 to $7.45 per share. See "PROPOSAL
I -- PROPOSED MERGER --Terms of the Merger" and "PROPOSAL II -- ELECTION OF
DIRECTORS -- Safety Fund Stock Option Plans."
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Massachusetts law, shareholders of record on the Record Date
have the right to dissent to the Merger and, if the Merger is consummated, to
receive compensation equal to the "fair value" of their shares of Safety Fund
Common Stock. Any shareholder 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 (the "Dissent Statute") in order to perfect such rights. A brief
summary of the Dissent Statute is set forth below. The following summary does
not purport to be a complete statement of the procedures to be followed by
shareholders desiring to exercise their statutory appraisal rights and is
qualified in its entirety by express reference to the Dissent Statute, the full
text of which is included in Appendix D attached hereto. Shareholders are urged
to read Appendix D 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 shareholder must (i)
deliver to Safety Fund, before the shareholder vote on the action giving rise to
such appraisal rights, a written objection to such action stating that such
shareholder 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
shareholder of a written notice that the Merger has become effective, make
written demand upon Safety Fund 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 shareholder must either vote in person or by proxy
against Proposal I or abstain from voting on such proposal. The written
objection described in clause (i) above may be sent to Safety Fund at 470 Main
Street, Fitchburg, Massachusetts 01420, Attention: Mr. Christopher W. Bramley.
After a shareholder makes a written demand for payment of his or her shares
as provided above, such shareholder ceases to be entitled to notice of
shareholders' meetings, the right to vote and the right to receive dividends and
other distributions of Safety Fund, except in certain limited circumstances. The
Dissent Statute provides that, after a written demand for payment is made by a
dissenting shareholder, such shareholder shall not be entitled to such rights
unless (i) a bill to determine the
41
<PAGE>
fair value of such shareholder'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 shareholder, or (iii) such shareholder, with the approval of Safety
Fund, withdraws his or her objections and accepts Safety Fund's action.
Once a written demand for payment is made as described above, if the
dissenting shareholder and Safety Fund reach agreement on the fair value of such
shareholder's shares, Safety Fund will pay to such shareholder the fair value of
such shares within 30 days after the expiration of the period during which the
demand may be made. If, within such 30-day period, the parties fail to agree as
to the fair value of such shares, Safety Fund or the shareholder may have the
fair value of the stock of all dissenting shareholders determined by judicial
proceedings by filing a bill in equity in the Massachusetts Superior Court for
Worcester County within four months after the 30-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 shareholders
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
the Dissent Statute will preclude a shareholder's claim of statutory appraisal
rights under Massachusetts law. However, a shareholder who fails to perfect his
or her statutory appraisal rights will nevertheless remain a shareholder of
Safety Fund entitled to all the rights and benefits appurtenant thereto.
Under the Dissent Statute, the enforcement by a dissenting shareholder of
such shareholder's right to receive payment for his or her shares in the manner
provided thereby is stated to be the exclusive remedy of a shareholder objecting
to the Merger, except upon the grounds that consummation of the Merger be or is
illegal or fraudulent as to that shareholder.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
CFX is a New Hampshire corporation. The rights of holders of CFX Common
Stock are governed generally by the New Hampshire Business Corporation Act, RSA
293-A ("New Hampshire Corporate Law"), by the CFX Articles of Incorporation, as
amended (the "CFX Articles") and by the CFX By-Laws, as amended (the "CFX
By-Laws").
Safety Fund is a Massachusetts corporation. The rights of holders of Safety
Fund Common Stock are currently governed generally by the Massachusetts Business
Corporation Law, Chapter 156B ("Massachusetts Corporate Law"), by the Safety
Fund Articles of Organization, as amended (the "Safety Fund Articles") and by
the Safety Fund By-Laws, as amended (the "Safety Fund By-Laws"). Upon
consummation of the Merger, the shareholders of Safety Fund (except those who
exercise dissenters' rights) will become shareholders of CFX and as such their
rights will be governed by New Hampshire Corporate Law.
The rights of shareholders of CFX and Safety Fund with respect to cumulative
voting, preemptive rights, dividends and repurchases of stock and classification
of directors are generally comparable. Certain significant differences between
the rights of shareholders of CFX and Safety Fund with respect to other
provisions are set forth below.
This summary contains a list of material differences, but is not meant to be
relied upon as an exhaustive list or a detailed description of the provisions
discussed and is qualified in its entirety by reference to the CFX Articles, the
CFX By-Laws, the Safety Fund Articles and the Safety Fund By-Laws.
SPECIAL MEETINGS OF SHAREHOLDERS. CFX. Pursuant to the CFX By-Laws, a
special meeting of shareholders may be called by the Chairman of the Board, the
President, a Vice President, a majority of the board of directors or the holders
of at least 10% of the shares entitled to vote at the meeting.
SAFETY FUND. Pursuant to the Safety Fund By-Laws, a special meeting of
shareholders may be called by the Board, the Chairman of the Board, the
President, the directors or the holders of at least 40% of the capital stock
entitled to vote at the meeting.
42
<PAGE>
INSPECTION OF RECORDS BY SHAREHOLDERS. CFX. Pursuant to New Hampshire
Corporate Law, a shareholder of a corporation may inspect and copy, during
regular business hours at the corporation's principal office, certain records of
the corporation if the shareholder gives the corporation written notice of his
demand at least five business days before the date on which he wishes to inspect
and copy the records.
SAFETY FUND. Pursuant to Massachusetts Corporate Law and the Safety Fund
By-Laws, the original, or attested copies, of the Safety Fund Articles, Safety
Fund By-Laws and records of all meetings of the incorporators and shareholders,
and the stock and transfer records, are available for inspection at Safety
Fund's principal office by any shareholder at all reasonable times for any
proper purpose.
ACTION BY CONSENT OF SHAREHOLDERS. CFX. Pursuant to New Hampshire
Corporate Law and CFX By-laws, any action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting if the action is taken by
all the shareholders entitled to vote on the action, provided that the action is
evidenced by one or more written consents describing the action taken, signed by
the holders of all of the issued and outstanding shares of stock entitled to
vote upon such action.
SAFETY FUND. The Safety Fund By-Laws do not permit the shareholders to take
any action by consent.
REMOVAL OF DIRECTORS. CFX. Under New Hampshire Corporate Law, the
shareholders of a corporation may remove one or more directors with or without
cause unless the articles of incorporation provide that directors may be removed
only for cause. The CFX Articles provide that at any meeting of shareholders
called expressly for the purpose, any Director may be removed from office by the
affirmative vote of the holders of 75% of the shares entitled to vote or, if
removal is for cause, then by a majority of the shares then entitled to vote.
SAFETY FUND. Under Massachusetts Corporate Law and the Safety Fund By-Laws,
a Director may be removed from office (i) with or without cause by the vote of
the holders of a majority of the shares entitled to vote in the election of
directors and (ii) with cause by vote of a majority of the directors then in
office.
VACANCIES ON THE BOARD OF DIRECTORS. CFX. New Hampshire Corporate Law
permits and the CFX Articles provide that any vacancy in the board of directors
caused by death, resignation, retirement, disqualification, removal or other
cause, shall be filled by a majority vote of the remaining directors, though
less than a quorum. A director so chosen holds office for the unexpired term of
the director's predecessor in office. Any directorship to be filled by reason of
an increase in the authorized number of directors may be filled by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
SAFETY FUND. The Safety Fund By-Laws provide that any vacancy in the board
of directors may be filled by vote of a majority of the directors then in
office; provided, however, that if at the time of such vacancy there is an
"interested shareholder", such vacancy may only be filled by vote of at least a
majority of the "continuing directors" then in office. The term "interested
shareholder" generally includes any person who or which is the beneficial owner
of 10% or more of the voting stock of Safety Fund. The term "continuing
directors" generally means any directors of Safety Fund who are not affiliated
with the interested shareholder. A director elected to fill such a vacancy
serves for the remainder of the full term of the class of directors in which the
vacancy occurred or the new directorship was created and until such director's
successor is elected and qualified, or until he sooner dies, resigns, is removed
or becomes disqualified. The Safety Fund Articles and By-Laws additionally
provide that should a director resign, be removed from office or die, and should
the remaining Directors fail to fill the vacancy within 45 days of the effective
date of the resignation or removal, or within 45 days of the death of the
director, then the total number of directors is automatically decreased by the
number of unfilled vacancies. The Safety Fund By-Laws provide that the board of
directors may not be enlarged by the addition of more than two directors in any
year, exclusive of
43
<PAGE>
increases in the number of the directors in connection with the issuance of
preferred stock, unless the requirement is waived by the affirmative vote of at
least two-thirds of the shareholders or two-thirds of the directors then in
office; provided that if at the time of such action by the directors there is an
interested shareholder, such action in addition requires the vote of at least a
majority of the continuing directors then in office.
BUSINESS COMBINATIONS. CFX. The CFX Articles contain a so-called "fair
price" provision pursuant to which certain business combinations (as defined in
the CFX Articles), including a merger or consolidation, require the approval of
(i) the holders of at least 80% of the outstanding shares entitled to vote for
the election of directors unless the consideration to be received by the
shareholders of CFX is of the same value and form as the highest consideration
paid by the other party to the business combination (the "Acquiring Party") in
acquiring CFX common stock, and (ii) subject to the provisions in (i) above, the
vote of the holders of at least 75% of the outstanding shares entitled to vote
for the election of directors unless the business combination is approved by at
least two-thirds of the directors of CFX who are not affiliated with, or
shareholders of, the Acquiring Party.
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 on 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.
SAFETY FUND. The Safety Fund Articles contain a so-called "fair price"
provision pursuant to which certain transactions (defined in the Safety Fund
Articles as a "Subject Transaction"), including a merger or consolidation, would
require, in addition to any other approval or consent required by law, approval
by (i) at least 80% of the shares of each class of the stock of Safety Fund
outstanding and entitled to vote on the matter and by at least a majority of the
shares of each class of the stock of Safety Fund outstanding and entitled to
vote on the matter which are not owned, directly or indirectly, by the entity
(other than Safety Fund) (x) which is a party to the proposed merger or
consolidation, (y) to which the assets of Safety Fund are proposed to be sold,
leased, exchanged, transferred or distributed, or to which securities of Safety
Fund or any of its subsidiaries are proposed to be issued or whose ownership
share of Safety Fund or any of its subsidiaries is proposed to be increased, or
(z) to which the assets of Safety Fund are proposed to be distributed on any
dissolution or liquidation (in each case, the "Receiving Entity"); (ii) at least
80% of the directors of Safety Fund not affiliated with, or owners of shares of,
the Receiving Entity (the "Unaffiliated Directors"); or (iii) a majority of
Unaffiliated Directors prior to the date on which the Receiving Entity first
acquired any share of stock of Safety Fund. The fair price provision of the
Safety Fund Articles provides that a Subject Transaction is not subject to the
foregoing requirements if (i) the transaction is approved by the holders of at
least a majority of the shares of each class of the stock of Safety Fund
outstanding and entitled to vote on the matter and by the holders of at least a
majority of the shares of each class of the stock of Safety Fund outstanding and
entitled to vote on the matter not owned by the Receiving Entity or any
shareholder of the Receiving Entity; and (ii) the aggregate of the cash and fair
market value of all consideration to be paid per share to the holders of Safety
Fund Common Stock in connection with the transaction shall be equal to the
greatest of (x) the highest price per share paid by the Receiving Entity in
acquiring any of Safety Fund's common stock; (y) an amount which is at least
three times the market price of Safety Fund's common stock on the date the
Receiving Entity first acquired any share of Safety Fund's common stock; or (z)
an amount which is at least 15 times the aggregate earnings per share of Safety
Fund for the four immediately preceding fiscal quarters, provided that the
consideration to be paid shall be in the same form as that paid by the Receiving
Entity for shares held by it.
Under Massachusetts Corporate Law, in determining what they reasonably
believe to be in the best interests of the corporation, corporate directors may
consider the interests of the corporation's
44
<PAGE>
employees, suppliers, creditors and customers, the economy of the state, region
and nation, community and societal considerations, and the long-term and
short-term interests of the corporation and its stockholders.
AMENDMENTS TO ARTICLES. CFX. New Hampshire Corporate Law generally
requires the affirmative vote of a majority of the votes entitled to be cast on
the amendment by any voting group with respect to which the amendment would
create dissenters' rights, unless a greater vote is required by the articles of
organization of the corporation. The CFX Articles provide that the holders of at
least two-thirds of all of the shares of CFX entitled to vote for the election
of directors is required to amend or repeal, or to adopt any provision in
contravention of or inconsistent with, the CFX Articles. In addition, the vote
of the holders of at least 80% of all of the shares of CFX entitled to vote for
the election of directors is required to amend or repeal, or to adopt any
provision in contravention of or inconsistent with, those provisions described
above in "-- Business Combinations."
SAFETY FUND. Under Massachusetts Corporate Law, a corporation may amend its
articles of organization by vote of two-thirds of each class of stock
outstanding and entitled to vote thereon or, if the articles of organization so
provide, by vote of a lesser proportion but not less than a majority of each
class of stock outstanding and entitled to vote thereon. The Safety Fund
Articles provide that the affirmative vote of at least 80% of the shares of each
class of the stock of Safety Fund outstanding and entitled to vote is required
to amend or repeal the section of the Safety Fund Articles described above in
"-- Business Combinations" and in certain other respects.
AMENDMENTS TO BY-LAWS. CFX. Pursuant to the CFX Articles and CFX By-Laws,
the CFX By-Laws may be amended by the affirmative vote of a majority of the
entire board of directors, subject to repeal, change or adoption of any
contravening or inconsistent provision only by vote of the holders of at least
two-thirds of all the shares entitled to vote on the matter at a meeting
expressly called for that purpose.
SAFETY FUND. Massachusetts Corporate Law provides that the power to make,
amend or repeal by-laws is vested in the shareholders, provided that the
directors may also make, amend or repeal the by-laws, if authorized by the
articles of organization, except with respect to any provision thereof which by
law, the articles or organization or the by-laws requires action by the
shareholders. The Safety Fund By-Laws provide that the Safety Fund By-laws may
be amended by the affirmative vote of the holders of a majority of the shares of
each class of the capital stock at the time outstanding and entitled to vote at
any annual or special meeting of shareholders, and by the affirmative vote of a
majority of the directors; provided, however, that the affirmative vote of at
least 80% of the total number of directors then in office or the affirmative
vote of at least 80% of the shares of each class of Safety Fund's outstanding
stock entitled to vote is required to amend any provision governing (i) the
power to fix the size of the board of directors, (ii) restrictions, if any, on
the ability to serve as a director following service as a director or officer of
another financial institution, (iii) the power to fill vacancies on the board of
directors, (iv) the automatic reduction in the size of the Board after a vacancy
remains unfilled for 45 days, (v) the enlargement of the board of directors,
(vi) the division of the board of directors into three classes, and the
apportionment of the directors among the classes, (vii) resignation of members
of the board of directors, or (viii) amendment of the Safety Fund By-Laws; and
further provided that the directors may not amend or repeal the provisions of
the Safety Fund By-Laws governing (i) the removal of directors, (ii) the
indemnification of directors and (iii) the amendment of the Safety Fund By-Laws,
or any provisions of the Safety Fund By-Laws which by law, the Safety Fund
Articles of Organization or the Safety Fund By-Laws require action by the
shareholders.
ANTI-TAKEOVER STATUTES. CFX. New Hampshire does not have an anti-takeover
statute applicable to CFX.
SAFETY FUND. Under Chapter 110F of the Massachusetts General Laws, a
Massachusetts corporation, like Safety Fund, is prohibited from engaging in
certain business combinations (defined by the
45
<PAGE>
statute to include certain mergers and consolidations, dispositions of assets
and issuances of securities, as well as certain other transactions) with an
interested shareholder (defined by the statute to include holders of five
percent or more of the outstanding stock of the corporation) for a period of
three years following the date that such shareholder became an interested
shareholder, except under certain circumstances, which include prior approval by
the board of directors of the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder, or subsequent
approval of the business combination by the board of directors and by a vote of
at least two-thirds of the outstanding voting stock which is not owned by the
interested shareholder. The statute includes an exception to the prohibitions of
the statute if, upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the shareholder owned at least
90% of the voting stock of the corporation.
Under Chapter 110D of the Massachusetts General Laws, any person
(hereinafter, the "acquiror") who makes a bona fide offer to acquire, or
acquires, shares of stock of a Massachusetts corporation that, when combined
with shares already owned, would increase the acquiror's ownership to at least
20%, 33.33% or a majority of the voting stock of such company, must obtain the
approval of a majority of shares held by all shareholders except the acquiror
and the officers and inside directors of the corporation in order to vote the
shares acquired. The statute permits a Massachusetts corporation to elect not to
be governed by its provisions by including in its articles of organization or
by-laws a provision pursuant to which the corporation "opts out" of the statute.
Safety Fund has not included such a provision in either its articles or by-laws.
DISSENTERS' APPRAISAL RIGHTS. CFX. Under New Hampshire Corporate Law, a
shareholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of any of the following corporate actions: (i)
consummation of a plan of merger to which the corporation is a party if
shareholder approval is required for the merger by RSA 293-A:11.03 or the
articles of incorporation and the shareholder is entitled to vote on the merger,
or if the corporation is a subsidiary that is merged with its parent under RSA
293-A:11.04, (ii) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan, (iii) consummation of a sale or
exchange of all, or substantially all, of the property of the corporation other
than in the usual and regular course of business, if the shareholder is entitled
to vote on the sale or exchange, including a sale in dissolution, but not
including a sale pursuant to court order or a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale, (iv) an
amendment of the articles of incorporation that materially and adversely affects
rights in respect of a dissenter's shares in certain specified manners, and (v)
any corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, bylaws or board resolution provides a right to
dissent.
SAFETY FUND. Under Massachusetts Corporate Law, appraisal rights are
available in connection with statutory mergers or consolidations (unless no vote
of shareholders of the corporation is required to approve the merger or
consolidation), with amendments to the articles of organization which adversely
affect the rights of shareholders, and with the sale, lease or exchange of all
or substantially all of a corporation's property and assets. Such appraisal
rights are not available when the corporation is to be the surviving corporation
and no vote of its shareholders is required for the merger. No provision of the
Safety Fund Articles alters in any way the appraisal rights set forth in
Massachusetts Corporate Law.
DERIVATIVE PROCEEDINGS. CFX. Under New Hampshire Corporate Law, a
shareholder may bring suit on behalf of a corporation if the shareholder was a
shareholder of the corporation at the time of the act or omission complained of.
On termination of the proceeding and a finding that the commencement of a
derivative action by a shareholder was without reasonable cause or for an
improper purpose, a court may require the plaintiff to pay to the parties named
as defendant the reasonable expenses, including legal fees, incurred by them in
defense of such action.
46
<PAGE>
SAFETY FUND. Under Massachusetts Corporate Law, a shareholder may bring
suit on behalf of a corporation if the shareholder was a shareholder of the
corporation at the time of the act or default complained of, or the
shareholder's stock devolved upon him thereafter by operation of law from one
who was a shareholder at such time.
ANTI-TAKEOVER PROVISIONS -- RIGHTS PLANS. CFX. CFX has not adopted any
shareholders' rights plan.
SAFETY FUND. Safety Fund has adopted a Shareholder Rights Plan which is
described in documents incorporated herein by reference. See "AVAILABLE
INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material federal income tax
consequences of the Merger to shareholders of Safety Fund. Because of the
complexities of the federal income tax laws and because the tax consequences may
vary depending upon a shareholder's individual circumstances or tax status,
shareholders are strongly encouraged to consult with their personal tax advisors
with respect to the specific tax consequences of the Merger to them, including
the tax consequences of applicable federal, state, local, foreign or other laws.
The following is the opinion of Arnold & Porter, counsel to CFX, as to the
material federal income tax consequences of the Merger. That opinion is based on
laws, regulations, rulings and judicial decisions as they existed as of the date
of the opinion. These authorities are all subject to change and such change may
be made with retroactive effect. Arnold & Porter cannot give any assurance that,
after any such change, its opinion would not be different, and does not
undertake any responsibility to update or supplement its opinion. Arnold &
Porter's opinion is not a complete description of the federal income tax
consequences of the Merger; for example, the rules set out in the opinion may
not apply to a holder of Safety Fund Common Stock in light of the holder's
particular circumstances or to holders subject to special rules, such as foreign
persons, financial institutions, tax-exempt organizations, insurance companies
and persons who acquired shares of Safety Fund Common Stock pursuant to the
exercise of employee stock options or rights or otherwise as compensation.
CFX and Safety Fund have provided Arnold & Porter with the facts,
representations, and assumptions on which Arnold & Porter has relied in
rendering its opinion, which information is consistent with the state of facts
that CFX and Safety Fund believe will be existing as of the Effective Time,
including (but not limited to) an assumption that other than cash paid to
dissenters and cash paid in lieu of fractional shares, no cash will be paid to
Safety Fund's shareholders pursuant to the Merger. Based on such facts,
representations and assumptions, Arnold & Porter has opined that, for federal
income tax purposes: (i) the Merger, when consummated in accordance with the
Agreement and certain related agreements, either will constitute or will be part
of a reorganization within the meaning of Section 368(a) of the Code; (ii) no
gain or loss will be recognized by a shareholder of Safety Fund who exchanges
all of the shareholder's Safety Fund Common Stock solely for CFX Common Stock
pursuant to the Merger (except as described below with respect to cash received
in lieu of a fractional share interest in CFX Common Stock); (iii) the aggregate
adjusted tax basis of the CFX Common Stock received by a shareholder who
exchanges all of the shareholder's Safety Fund Common Stock solely for CFX
Common Stock in the Merger will be the same as the aggregate adjusted tax basis
of the Safety Fund Common Stock surrendered in exchange therefor, reduced by any
amount allocable to a fractional share interest for which cash is received; and
(iv) the holding period for CFX Common Stock received in exchange for Safety
Fund Common Stock will include the period during which the shareholder held the
Safety Fund Common Stock surrendered in the exchange, provided that the Safety
Fund Common Stock was held as a capital asset at the Effective Time.
For federal income tax purposes, a shareholder of Safety Fund who receives
cash in lieu of a fractional share interest in CFX Common Stock will be treated
as having received such fractional share interest. The cash received by such a
shareholder in lieu of a fractional share interest in CFX
47
<PAGE>
Common Stock will be treated as received in exchange for such fractional share
interest, and gain or loss generally will be recognized for federal income tax
purposes measured by the difference between the amount of cash received and the
portion of the basis of the shares of Safety Fund Common Stock allocable to such
fractional share interest. Such gain or loss should be long-term capital gain or
loss if the shareholder's shares of Safety Fund Common Stock are held as capital
assets and have been held for more than one year at the Effective Time.
A shareholder of Safety Fund Common Stock who exercises dissenters' rights
under the Dissent Statute and who receives cash payment of the fair value of the
holder's shares of Safety Fund Common Stock will be treated as having received
such payment in redemption of such shares. Such redemption will be subject to
the conditions and limitations of Section 302 of the Code, including the
attribution rules of Section 318 of the Code. In general, if the shares of
Safety Fund Common Stock are held by the holder as a capital asset at the
Effective Time, a dissenting holder will recognize capital gain or loss measured
by the difference between the amount of cash received by such holder and the
basis for such shares. If, however, such holder owns, either actually or
constructively, any other Safety Fund Common Stock or CFX Common Stock, the
payment made to such holder could be treated as dividend income. In general,
under the constructive ownership rules of the Code, a holder may be considered
to own stock that is owned, and in some cases constructively owned, by certain
related individuals or entities, as well as stock that such holder (or related
individuals or entities) has the right to acquire by exercising an option or
converting a convertible security. Each shareholder of Safety Fund Common Stock
who contemplates exercising dissenters' rights should consult his or her own tax
advisor as to the possibility that the payment will be treated as dividend
income.
As stated above, the preceding analysis is based on the assumption that
other than cash paid to dissenters and cash paid in lieu of fractional shares,
no cash will be paid to Safety Fund's shareholders pursuant to the Merger.
However, in the unlikely event that (i) a Pooling Determination is not made,
(ii) the CFX Trading Price is below $12.50 and (iii) Safety Fund elects to
terminate the Agreement, CFX may adjust the Exchange Ratio to the amount
determined by dividing $20.00 by the CFX Trading Price or make an additional
cash payment (in either case resulting in a Per Safety Fund Share Value of
$20.00). See "--Terms of the Merger." Should these circumstances arise and if
CFX were to make such an additional cash payment, the federal income tax
consequences of the Merger would be different than those described above. Under
such circumstances, it is possible that the Merger would still either constitute
or be part of a reorganization, but that Safety Fund shareholders who exchange
their Safety Fund Common Stock for CFX Common Stock plus cash would recognize
gain, but not loss, as a result of the Merger in an amount up to the amount of
cash received.
RESALE OF CFX COMMON STOCK
The shares of CFX Common Stock issuable to shareholders of Safety Fund upon
consummation of the Merger have been registered under the Securities Act. It is
anticipated, and it is a condition to each of the parties' obligations to effect
the Merger, that such shares will be approved for listing, upon official notice
of issuance, on the AMEX. Such shares may be traded freely by those shareholders
not deemed to be affiliates of Safety Fund as that term is defined under the
Securities Act. The term "affiliate" generally means each person who controls,
is controlled by or is under common control with, or is a member of a group that
controls, is controlled by or is under common control with, Safety Fund, and for
purposes hereof could be deemed to include all executive officers, directors and
10 percent shareholders of Safety Fund.
Rule 145 promulgated by the Commission under the Securities Act will
restrict the sale of CFX Common Stock received in the Merger and beneficially
owned by those shareholders who are deemed to be affiliates of Safety Fund and
certain of their family members and related interests. Such affiliates, provided
they are not affiliates of CFX at or following the Effective Time, may publicly
resell CFX Common Stock received by them in the Merger subject to certain
limitations, principally as to, among other things, the number of shares sold in
any quarter and the manner of sale, during the two years following the Effective
Time. After the two-year period, such affiliates may resell their shares
48
<PAGE>
without restriction so long as there is adequate current public information with
respect to CFX as required by Rule 145. 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. 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 does not cover any resales of CFX Common Stock received in the Merger
by persons who may be deemed to be affiliates of CFX or Safety Fund.
In addition, if the Merger is to be accounted for as a pooling-of-interests,
shares of CFX Common Stock and Safety Fund Common Stock held by affiliates of
either company will not be transferable during the period beginning 30 days
prior to the Effective Time and ending when financial results covering at least
30 days of post-Merger combined operations of CFX and Safety Fund have been
published, in order to satisfy certain requirements of the Commission in
transactions to be accounted for using pooling-of-interests accounting
treatment. Under the Agreement, CFX has agreed to use its best efforts to
publish no later than 25 days after the end of the first calendar quarter in
which there are at least 30 days of post-Merger combined operations (which may
be the calendar quarter in which the Effective Time occurs) combined sales and
net income figures as contemplated by and in accordance with the Commission's
Accounting Series Release No. 135.
The Agreement provides that CFX and Safety Fund shall use all reasonable
efforts to cause those persons who may be deemed to be affiliates of Safety Fund
or CFX to deliver to the other party, as soon as practicable after the date of
the Agreement, and prior to the Annual Meeting, a written agreement providing
that such person will not sell, pledge, transfer or otherwise dispose of any
shares of CFX Common Stock or Safety Fund Common Stock for the period beginning
30 days prior to the Merger and ending on the publication of financial results
covering at least 30 days of combined operations of CFX and Safety Fund and in
compliance with the Securities Act and the rules and regulations promulgated
thereunder. It is anticipated that each director and executive officer of Safety
Fund and CFX will execute such an agreement. Certificates of Safety Fund Common
Stock surrendered for exchange pursuant to the Merger by any person deemed to be
an affiliate shall not be exchanged for certificates representing shares of CFX
Common Stock until CFX has received from that person the written agreement
described in this paragraph.
ACCOUNTING TREATMENT
In the Agreement, CFX and Safety Fund agreed to consummate the Merger
whether it could be accounted for as a pooling-of-interests transaction or had
to be accounted for as a purchase transaction. CFX and Safety Fund also agreed
that they would not take any action that would disqualify the Merger as a
pooling-of-interests for accounting purposes. CFX and Safety Fund expect to
account for the Merger using the pooling-of-interests method of accounting.
Under the pooling-of-interests method of accounting, the historical basis of the
assets and liabilities of CFX and Safety Fund will be combined and carried
forward at their previously recorded amounts. Revenue and expenses of CFX and
Safety Fund will be combined at historically recorded amounts.
In this connection, the Board of Directors of CFX has determined to omit the
regular second quarter cash dividend normally payable to CFX shareholders in
order to comply with the accounting rules related to the payment of special
dividends preceding a business combination. Omission of the second quarter
dividend in an amount equal to the special dividend paid by CFX in January 1996
will permit CFX to account for the Merger as a pooling transaction. CFX's Board
of Directors expects to resume the payment of normal dividends to CFX
shareholders in the third quarter of 1996. As described below, however, it is
still possible that the Safety Fund Merger will not qualify for pooling-of-
interests accounting.
Another requirement of pooling treatment is that affiliates of Safety Fund
cannot reduce their holdings of Safety Fund Common Stock or CFX Common Stock
received in the Merger, as the case may be, for a period beginning 30 days prior
to the Effective Time and ending upon the publication of at
49
<PAGE>
least 30 days of post-Merger combined operations of CFX and Safety Fund. The
pooling-of-interests method will not apply if the holders of more than ten
percent of the outstanding shares of Safety Fund Common exercise their
dissenters' rights. See "-- Background of the Merger," "-- Rights of Dissenting
Shareholders" and "PROPOSAL II -- ELECTION OF DIRECTORS -- Principal
Shareholders."
The Agreement provides that CFX is to consult with its independent certified
public accountants not later than the second business day preceding the
Effective Time to determine whether a Pooling Determination can be made. The
Exchange Ratio will differ depending upon whether such a Pooling Determination
is made but a Pooling Determination is not a condition to consummation of the
Merger, which may be consummated if accounted for as a purchase transaction.
Under the purchase method of accounting, the net assets and liabilities of
Safety Fund will be adjusted to their estimated fair market value at the date of
acquisition, and the purchase price over the fair market value of the net assets
will be recorded as goodwill, which is why the Per Safety Fund Share Value under
the purchase accounting Exchange Ratios are lower than under the Pooling
Determination Exchange Ratios. Pro forma financial information provided herein
is presented assuming use of each of the pooling-of-interests and purchase
accounting methods. See "-- Terms of the Merger" and "PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION (UNAUDITED)."
During the negotiation of the Agreement, both CFX and Safety Fund recognized
that, while they anticipated being able to account for the transaction as a
pooling-of-interests, the ability of one or more Safety Fund shareholders,
holding ten percent or more of the outstanding shares of Safety Fund Common
Stock, to dissent from the transaction could preclude the use of such an
accounting treatment (the parties also noted that Mr. Massad owned 9.9 percent
of the outstanding shares of Safety Fund Common Stock and had applied for the
requisite federal approval to acquire up to 51% of such shares, which approval
subsequently was granted). In recognition of this fact, the parties agreed that
the Merger would be consummated even if the transaction could not be accounted
for as a pooling-of-interests (although with certain distinct results). Because
the Merger may be accounted for as either a pooling-of-interests transaction or
a purchase transaction, information regarding the different possible financial
results of the transaction under the two accounting methods is being provided to
shareholders herein.
STOCK OPTION AGREEMENT
The summary information below in this Proxy Statement concerning the
material terms of the Stock Option Agreement is qualified in its entirety by
reference to the full text of such agreement, attached in its entirety hereto as
Appendix B.
Under the Stock Option Agreement, Safety Fund has granted an Option to CFX
to purchase up to 332,000 authorized but unissued shares of Safety Fund Common
Stock (constituting 16.7 percent of the shares of Safety Fund Common Stock that
would be outstanding following the exercise of the Option) at a price of $20 per
share. In the event of any change in Safety Fund Common Stock by reason of stock
dividends, split-ups, recapitalizations, combinations, exchanges of shares or
the like, the type and number of shares subject to the Option and the purchase
price therefor shall be adjusted appropriately. If any additional shares of
Safety Fund Common Stock are issued or otherwise become outstanding after the
date of the Stock Option Agreement (other than as contemplated in the Stock
Option Agreement), the number of shares of Safety Fund Common Stock subject to
the Option shall be adjusted so that, after such issuance, it does not exceed
19.99 percent of the number of shares of Safety Fund Common Stock then issued
and outstanding without giving effect to any shares subject to or issued
pursuant to the Option. At the time that CFX submitted its bid proposal to
Safety Fund, the $20 exercise price represented the prevailing market price for
Safety Fund Common Stock.
The purpose of the Option is to increase the likelihood that the Merger will
be consummated by making it more difficult and more expensive for a third party
to acquire control of Safety Fund. Accordingly, the Option is exercisable only
upon the occurrence of certain "Purchase Events" that might jeopardize
consummation of the Merger pursuant to the terms of the Agreement. The term
"Purchase Event" in the Stock Option Agreement generally relates to attempts by
one or more third
50
<PAGE>
parties to acquire a significant interest in Safety Fund. Because a Safety Fund
shareholder has filed an application for approval with and received approval
from federal regulators to acquire securities representing greater then 10
percent of the voting power of Safety Fund, a Purchase Event has occurred and
the Option is now exercisable, subject to the approval of the Federal Reserve as
discussed below.
The Option would terminate: (i) at the Effective Time of the Merger; (ii)
upon termination of the Agreement in accordance with the provisions thereof
other than as provided in the following clause; or (iii) six months after
termination of the Agreement due to a willful breach by Safety Fund of any
covenant contained therein. For additional information regarding the terms of
the Option and events upon which it could be exercised, reference should be made
to the Stock Option Agreement, a copy of which is attached hereto as Appendix B.
The Stock Option Agreement also provides that at the election of CFX during
the nine months immediately following the acquisition by one or more third
parties of 51% or more of the outstanding shares of Safety Fund Common Stock or
the execution by Safety Fund of an agreement to sell 51% or more of the voting
power of Safety Fund or any subsidiary (whether or not the Stock Option
Agreement has been terminated), Safety Fund is required to repurchase the Option
from CFX together with any shares of Safety Fund Common Stock purchased by CFX
pursuant thereto, at a price specified in the Stock Option Agreement.
Although the shares issuable upon exercise of the Option represent
approximately 16.7 percent of the Safety Fund Common Stock that would be
outstanding after such exercise, CFX may not acquire more than 5 percent of the
Safety Fund Common Stock, pursuant to the exercise of the Option or otherwise,
without prior approval of the Federal Reserve. CFX has applied to the Federal
Reserve for prior approval to exercise the Option following any applicable event
triggering the Option.
51
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma combined condensed financial statements
have been prepared to reflect the Merger on both a pooling-of-interests basis
and a purchase basis and the Milford Acquisition on a pooling-of-interests
basis. Under pooling-of-interests accounting treatment for the Merger and the
Milford Acquisition, the recorded assets and liabilities of CFX, Safety Fund and
Milford are carried forward to the combined company at their recorded amounts.
See "PROPOSAL I -- PROPOSED MERGER -- Accounting Treatment." Under purchase
accounting, the assets and liabilities of Safety Fund are adjusted to their
estimated fair value at the date of acquisition. The following pro forma
financial statements reflect the exchange of Safety Fund Common Stock for CFX
Common Stock in connection with the Merger at an Exchange Ratio of 1.7 for a
pooling-of-interests transaction and an Exchange Ratio of 1.52 for a purchase
transaction and reflect the exchange of Milford common stock for CFX Common
Stock at an exchange ratio of 2.6446. The actual exchange ratios will depend on
the CFX Trading Price in the case of the Merger and a similar determination in
the case of the Milford Acquisition. This unaudited pro forma combined financial
information should be read in conjunction with the consolidated historical
financial statements of Milford, including notes thereto, incorporated by
reference herein, the consolidated historical financial statements of CFX,
including notes thereto, contained in the 1995 CFX Annual Report to Shareholders
that accompanies this Proxy Statement and is incorporated by reference herein,
and the consolidated historical financial statements of Safety Fund, including
notes thereto, appearing in the 1995 Safety Fund Annual Report to Shareholders
that accompanies this Proxy Statement and is incorporated by reference herein.
See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
The unaudited pro forma combined condensed financial statements give effect
to the Merger and the Milford Acquisition, but do not reflect anticipated
expenses and nonrecurring charges which may result from the Merger and the
Milford Acquisition or estimated expense savings and revenue enhancements
anticipated to result from the Merger and the Milford Acquisition.
The unaudited pro forma combined financial data is not necessarily
indicative of the financial position and results of future operations of the
combined entity or the actual financial position and results of operations that
would have been achieved had the Merger and Milford Acquisition been consummated
at the dates indicated. The unaudited pro forma combined condensed balance
sheets reflect preliminary pro forma adjustments made to combine CFX with Safety
Fund, utilizing both the pooling-of-interests accounting method and the purchase
accounting method, and with Milford utilizing the pooling-of-interests
accounting method, respectively. 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.
52
<PAGE>
POOLING ACCOUNTING FOR SAFETY FUND MERGER
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
DECEMBER 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
CFX CFX
PRO FORMA PRO FORMA CFX FULLY
CFX SAFETY FUND PRO FORMA COMBINED W/ MILFORD PRO FORMA COMBINED W/ PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS SAFETY FUND (HISTORICAL) ADJUSTMENTS MILFORD COMBINED
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash and due from
banks............. $ 28,766 $ 13,305 $ 42,071 $ 2,321 $ 31,087 $ 44,392
Federal funds
sold.............. 2,500 2,500 2,500
Interest bearing
deposits with
other banks....... 327 327 13,148 13,475 13,475
Federal Home Loan
Bank of Boston
stock............. 7,388 7,388 655 8,043 8,043
Securities
available for
sale.............. 98,047 63,738 161,785 31,419 129,466 193,204
Securities held to
maturity.......... 19,729 39,924 59,653 37,440 57,169 97,093
Mortgage loans held
for sale.......... 6,554 6,554 6,554 6,554
Loans and leases... 698,972 160,434 859,406 68,554 767,526 927,960
Less allowance
for loan and
lease losses.... 7,689 7,350 15,039 409 8,098 15,448
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Net Loans and
Leases........ 691,283 153,084 844,367 68,145 759,428 912,512
Premises and
equipment......... 13,548 9,639 23,187 2,066 15,614 25,253
Mortgage servicing
rights............ 4,373 4,373 4,373 4,373
Goodwill and
deposit base
intangibles....... 9,884 9,884 9,884 9,884
Foreclosed real
estate............ 1,129 50 1,179 7 1,136 1,186
Other assets....... 19,521 5,243 24,764 1,647 21,168 26,411
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
$900,549 $287,483 $1,188,032 $156,848 $1,057,397 $1,344,880
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Interest
bearing......... $617,872 $184,897 $ 802,769 $132,155 $ 750,027 $ 934,924
Noninterest
bearing......... 47,851 67,891 115,742 6,158 54,009 121,900
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Total
Deposits...... 665,723 252,788 918,511 138,313 804,036 1,056,824
Short-term
borrowed
funds........... 31,735 11,120 42,855 31,735 42,855
Advances from
FHLBB........... 100,814 100,814 2,000 102,814 102,814
Other
liabilities..... 12,323 2,188 14,511 843 13,166 15,354
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Total
Liabilities... 810,595 266,096 1,076,691 141,156 951,751 1,217,847
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
SHAREHOLDERS'
EQUITY:
Common stock
(1)(2)(3)....... 5,007 8,303 (6,421) 6,889 660 503 6,170 8,052
Paid-in
capital......... 65,763 7,585 6,421 79,769 6,636 (503) 71,896 85,902
Retained
earnings........ 19,422 4,815 24,237 8,251 27,673 32,488
Net unrealized
gains (losses)
on securities
available for
sale, after tax
effects......... (238) 684 446 145 (93) 591
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Total
Shareholders'
Equity........ 89,954 21,387 111,341 15,692 105,646 127,033
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
$900,549 $287,483 $1,188,032 $156,848 $1,057,397 $1,344,880
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
------------ ------------ ----------- ----------- ------------ ----------- ----------- ----------
Number of common
shares
outstanding....... 7,510 1,661 10,333 660 9,255 12,078
Common
shareholders'
equity per share
(4)............... $ 11.98 $ 12.88 $ 10.78 $ 23.78 $ 11.42 $ 10.52
</TABLE>
53
<PAGE>
POOLING ACCOUNTING FOR SAFETY FUND MERGER
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CFX
PRO FORMA CFX
COMB. PRO FORMA CFX FULLY
CFX SAFETY FUND W/SAFETY MILFORD COMB. W/ PRO FORMA
(HISTORICAL) (HISTORICAL) FUND (HISTORICAL) MILFORD COMBINED
----------- ----------- ----------- ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans and leases................... $ 56,908 $ 14,484 $ 71,392 $ 5,354 $ 62,262 $ 76,746
Interest and dividends on securities........... 6,853 6,709 13,562 4,195 11,048 17,757
Other interest income.......................... 814 264 1,078 806 1,620 1,884
----------- ----------- ----------- ------------- ----------- -----------
Total Interest and Dividend Income........... 64,575 21,457 86,032 10,355 74,930 96,387
----------- ----------- ----------- ------------- ----------- -----------
Interest expense:
Interest on deposits........................... 25,362 7,031 32,393 4,886 30,248 37,279
Interest on borrowings......................... 6,332 610 6,942 143 6,475 7,085
----------- ----------- ----------- ------------- ----------- -----------
Total Interest Expense....................... 31,694 7,641 39,335 5,029 36,723 44,364
----------- ----------- ----------- ------------- ----------- -----------
Net Interest and Dividend Income............. 32,881 13,816 46,697 5,326 38,207 52,023
Provision for loan and lease losses.............. 1,624 1,300 2,924 113 1,737 3,037
----------- ----------- ----------- ------------- ----------- -----------
Net Interest and Dividend Income after
Provision for Loan and Lease Losses......... 31,257 12,516 43,773 5,213 36,470 48,986
Other income..................................... 9,421 4,059 13,480 832 10,253 14,312
Other expense.................................... 28,397 14,016 42,413 3,787 32,184 46,200
----------- ----------- ----------- ------------- ----------- -----------
Income before Income Taxes................... 12,281 2,559 14,840 2,258 14,539 17,098
Income taxes..................................... 4,335 706 5,041 719 5,054 5,760
----------- ----------- ----------- ------------- ----------- -----------
Net Income................................... 7,946 1,853 9,799 1,539 9,485 11,338
Preferred stock dividends........................ 89 89 89 89
----------- ----------- ----------- ------------- ----------- -----------
Net Income Available to Common Stock......... $ 7,857 $ 1,853 $ 9,710 $ 1,539 $ 9,396 $ 11,249
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Weighted average common shares outstanding (5)... 7,534 1,657 10,351 660 9,279 12,096
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Earnings per common share........................ $ 1.04 $ 1.12 $ 0.94 $ 2.33 $ 1.01 $ 0.93
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
</TABLE>
54
<PAGE>
POOLING ACCOUNTING FOR SAFETY FUND MERGER
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
CFX
PRO FORMA CFX
COMB. PRO FORMA CFX FULLY
CFX SAFETY FUND W/SAFETY MILFORD COMB. W/ PRO FORMA
(HISTORICAL) (HISTORICAL) FUND (HISTORICAL) MILFORD COMBINED
----------- ----------- ----------- ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans and leases................... $ 46,068 $ 11,853 $ 57,921 $ 4,625 $ 50,693 $ 62,546
Interest and dividends on securities........... 8,531 5,212 13,743 3,614 12,145 17,357
Other interest income.......................... 844 199 1,043 690 1,534 1,733
----------- ----------- ----------- ------------- ----------- -----------
Total Interest and Dividend Income........... 55,443 17,264 72,707 8,929 64,372 81,636
----------- ----------- ----------- ------------- ----------- -----------
Interest expense:
Interest on deposits........................... 19,177 4,864 24,041 4,081 23,258 28,122
Interest on borrowings......................... 4,962 364 5,326 120 5,152 5,516
----------- ----------- ----------- ------------- ----------- -----------
Total Interest Expense....................... 24,139 5,228 29,367 4,271 28,410 33,638
----------- ----------- ----------- ------------- ----------- -----------
Net Interest and Dividend Income............. 31,304 12,036 43,340 4,658 35,962 47,998
Provision for loan and lease losses.............. 437 2,200 2,637 60 497 2,697
----------- ----------- ----------- ------------- ----------- -----------
Net Interest and Dividend Income after
Provision for Loan and Lease Losses......... 30,867 9,836 40,703 4,598 35,465 45,301
Other income..................................... 6,516 3,823 10,339 740 7,256 11,079
Other expense.................................... 27,929 13,424 41,353 3,512 31,441 44,865
----------- ----------- ----------- ------------- ----------- -----------
Income before Income Taxes................... 9,454 235 9,689 1,826 11,280 11,515
Income taxes..................................... 3,548 77 3,625 647 4,195 4,272
----------- ----------- ----------- ------------- ----------- -----------
Net Income................................... 5,906 158 6,064 1,179 7,085 7,243
Preferred stock dividends........................ 268 268 268 268
----------- ----------- ----------- ------------- ----------- -----------
Net Income Available to Common Stock......... $ 5,638 $ 158 $ 5,796 $ 1,179 $ 6,817 $ 6,975
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Weighted average common shares outstanding (5)... 7,001 1,613 9,743 656 8,736 11,478
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Earnings per common share........................ $ 0.81 $ 0.10 $ 0.59 $ 1.80 $ 0.78 $ 0.61
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
</TABLE>
55
<PAGE>
POOLING ACCOUNTING FOR SAFETY FUND MERGER
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
CFX
PRO FORMA CFX
COMB. PRO FORMA CFX FULLY
CFX SAFETY FUND W/SAFETY MILFORD COMB. W/ PRO FORMA
(HISTORICAL) (HISTORICAL) FUND (HISTORICAL) MILFORD COMBINED
----------- ----------- ----------- ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans and leases................... $ 45,056 $ 13,439 $ 58,495 $ 4,963 $ 50,019 $ 63,458
Interest and dividends on securities........... 6,155 4,382 10,537 3,662 9,817 14,199
Other interest income.......................... 814 239 1,053 366 1,180 1,419
----------- ----------- ----------- ------------- ----------- -----------
Total Interest and Dividend Income........... 52,025 18,060 70,085 8,991 61,016 79,076
----------- ----------- ----------- ------------- ----------- -----------
Interest expense:
Interest on deposits........................... 21,632 5,514 27,146 4,291 25,923 31,437
Interest on borrowings......................... 720 251 971 192 912 1,163
----------- ----------- ----------- ------------- ----------- -----------
Total Interest Expense....................... 22,352 5,765 28,117 4,483 26,835 32,600
----------- ----------- ----------- ------------- ----------- -----------
Net Interest and Dividend Income............. 29,673 12,295 41,968 4,508 34,181 46,476
Provision for loan and lease losses.............. 3,060 8,283 11,343 265 3,325 11,608
----------- ----------- ----------- ------------- ----------- -----------
Net Interest and Dividend Income after
Provision for Loan and Lease Losses......... 26,613 4,012 30,625 4,243 30,856 34,868
Other income..................................... 6,543 4,264 10,807 965 7,508 11,772
Other expense.................................... 25,654 12,614 38,268 3,547 29,201 41,815
----------- ----------- ----------- ------------- ----------- -----------
Income (Loss) before Income Taxes and
Cumulative Effect of Change in Accounting
Principle................................... 7,502 (4,338) 3,164 1,661 9,163 4,825
Income taxes..................................... 1,331 (1,410) (79) 699 2,030 620
----------- ----------- ----------- ------------- ----------- -----------
Net Income (Loss) before Cumulative Effect of
Change in Accounting Principle.............. 6,171 (2,928) 3,243 962 7,133 4,205
Preferred stock dividends........................ 270 270 270 270
----------- ----------- ----------- ------------- ----------- -----------
Net Income Available to Common Stock before
Cumulative Effect of Change in Accounting
Principle................................... $ 5,901 $ (2,928) $ 2,973 $ 962 $ 6,863 $ 3,935
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Weighted average common shares outstanding (5)... 6,948 1,605 9,677 656 8,683 11,412
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Earnings per common share before cumulative
effect of change in accounting principle........ $ 0.85 $ (1.82) $ 0.31 $ 1.47 $ 0.79 $ 0.34
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
</TABLE>
56
<PAGE>
POOLING ACCOUNTING FOR SAFETY FUND MERGER
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Common Stock at December 31, 1995:
CFX, $0.66 2/3 par value, 22,500,000 authorized shares, of which 7,509,921
shares have been issued and are outstanding.
SAFETY FUND, $5.00 par value, 3,200,000 authorized shares, of which
1,660,665 shares have been issued and are outstanding.
MILFORD, $1.00 par value, 1,800,000 authorized shares, of which 659,917
shares have been issued and are outstanding.
(2) The pro forma financial statements reflect the exchange of Safety Fund and
Milford Common Stock for CFX Common Stock in connection with the mergers at
the exchange ratios of 1.7 and 2.6446, respectively.
In combining the companies, a pro forma adjustment at December 31, 1995 was
made to reflect the issuance of 2,823,131 shares of CFX Common Stock to
Safety Fund shareholders and 1,745,216 shares of CFX Common Stock to Milford
shareholders in exchange for the outstanding shares of Safety Fund and
Milford Common Stock.
(3) The merger agreements provide that each holder of Safety Fund and Milford
Common Stock, who would otherwise have been entitled to a fraction 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.
(4) 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 one or both of
the mergers, assuming the exchange ratios of 1.7 and 2.6446, respectively.
(5) Pro forma weighted average common shares outstanding represent the
historical weighted average common shares outstanding of CFX during the
periods, plus the historical weighted average common shares outstanding of
Safety Fund and Milford adjusted to give effect to one or both of the
mergers, assuming the exchange ratios of 1.7 and 2.6446, respectively.
57
<PAGE>
PURCHASE ACCOUNTING FOR SAFETY FUND MERGER
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
DECEMBER 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
CFX CFX
SAFETY PRO FORMA PRO FORMA CFX FULLY
CFX FUND PRO FORMA COMBINED W/ MILFORD PRO FORMA COMBINED W/ PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS SAFETY FUND (HISTORICAL) ADJUSTMENTS MILFORD COMBINED
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash and due from
banks............ $ 28,766 $ 13,305 $ 42,071 $ 2,321 $ 31,087 $ 44,392
Federal funds
sold............. 2,500 2,500 2,500
Interest bearing
deposits with
other banks...... 327 327 13,148 13,475 13,475
Federal Home Loan
Bank of Boston
stock............ 7,388 7,388 655 8,043 8,043
Securities
available for
sale............. 98,047 63,738 (1,565)(a) 160,220 31,419 129,466 191,639
Securities held to
maturity......... 19,729 39,924 1,100(b) 60,753 37,440 57,169 98,193
Mortgage loans
held for sale.... 6,554 6,554 6,554 6,554
Loans and
leases........... 698,972 160,434 808(b) 860,214 68,554 767,526 928,768
Less allowance
for loan and
lease losses... 7,689 7,350 15,039 409 8,098 15,448
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
Net Loans and
Leases....... 691,283 153,084 808 845,175 68,145 759,428 913,320
Premises and
equipment........ 13,548 9,639 (3,000)(b) 20,187 2,066 15,614 22,253
Mortgage servicing
rights........... 4,373 4,373 4,373 4,373
Goodwill and
deposit base
intangibles...... 9,884 20,628(b) 30,512 9,884 30,512
Foreclosed real
estate........... 1,129 50 1,179 7 1,136 1,186
Other assets...... 19,521 5,243 875(b) 25,639 1,647 21,168 27,286
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
$900,549 $287,483 $18,846 $1,206,878 $156,848 $1,057,397 $ 1,363,726
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Interest
bearing........ $617,872 $184,897 $ 492(b) $ 803,261 $132,155 $ 750,027 $ 935,416
Noninterest
bearing........ 47,851 67,891 115,742 6,158 54,009 121,900
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
Total
Deposits..... 665,723 252,788 492 919,003 138,313 804,036 1,057,316
Short-term
borrowed
funds.......... 31,735 11,120 42,855 31,735 42,855
Advances from
FHLBB.......... 100,814 100,814 2,000 102,814 102,814
Other
liabilities.... 12,323 2,188 515(b) 15,026 843 13,166 15,869
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
Total
Liabilities... 810,595 266,096 1,007 1,077,698 141,156 951,751 1,218,854
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
SHAREHOLDERS'
EQUITY:
Common stock
(1)(2)(3)...... 5,007 8,303 (6,620)(a) 6,690 660 503 6,170 7,853
Paid-in
capital........ 65,763 7,585 29,958(a) 103,306 6,636 (503) 71,896 109,439
Retained
earnings....... 19,422 4,815 (4,815)(a) 19,422 8,251 27,673 27,673
Net unrealized
gains (losses)
on securities
available for
sale, after tax
effects........ (238) 684 (684)(a) (238) 145 (93) (93)
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
Total
Shareholders'
Equity....... 89,954 21,387 17,839 129,180 15,692 105,646 144,872
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
$900,549 $287,483 $18,846 $1,206,878 $156,848 $1,057,397 $ 1,363,726
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
------------ ---------- ------------- ----------- ------------ ----------- ----------- -----------
Number of common
shares
outstanding...... 7,510 1,661 10,034 660 9,255 11,779
Common
shareholders'
equity per share
(4).............. $ 11.98 $ 12.88 $ 12.87 $ 23.78 $ 11.42 $ 12.30
</TABLE>
58
<PAGE>
PURCHASE ACCOUNTING FOR SAFETY FUND MERGER
PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CFX
PRO FORMA CFX
COMB. PRO FORMA CFX FULLY
CFX SAFETY FUND PRO FORMA W/SAFETY MILFORD COMB. W/ PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS FUND (HISTORICAL) MILFORD COMBINED
----------- ----------- --------------- ----------- ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans and leases..... $ 56,908 $ 14,484 $ (51)(e) $ 71,341 $ 5,354 $ 62,262 $ 76,695
Interest and dividends on
securities...................... 6,853 6,709 (138)(d) 13,424 4,195 11,048 17,619
Other interest income............ 814 264 (86)(c) 992 806 1,620 1,798
----------- ----------- --------------- ----------- ------------- ----------- -----------
Total Interest and Dividend
Income........................ 64,575 21,457 (275) 85,757 10,355 74,930 96,112
----------- ----------- --------------- ----------- ------------- ----------- -----------
Interest expense:
Interest on deposits............. 25,362 7,031 (328)(f) 32,065 4,886 30,248 36,951
Interest on borrowings........... 6,332 610 6,942 143 6,475 7,085
----------- ----------- --------------- ----------- ------------- ----------- -----------
Total Interest Expense......... 31,694 7,641 (328) 39,007 5,029 36,723 44,036
----------- ----------- --------------- ----------- ------------- ----------- -----------
Net Interest and Dividend
Income........................ 32,881 13,816 53 46,750 5,326 38,207 52,076
Provision for loan and lease
losses............................ 1,624 1,300 2,924 113 1,737 3,037
----------- ----------- --------------- ----------- ------------- ----------- -----------
Net Interest and Dividend
Income after Provision for
Loan and Lease Losses......... 31,257 12,516 53 43,826 5,213 36,470 49,039
Other income....................... 9,421 4,059 13,480 832 10,253 14,312
Other expense...................... 28,397 14,016 1,215 (g)(h 43,628 3,787 32,184 47,415
----------- ----------- --------------- ----------- ------------- ----------- -----------
Income before Income Taxes..... 12,281 2,559 (1,162) 13,678 2,258 14,539 15,936
Income taxes....................... 4,335 706 232(i) 5,273 719 5,054 5,992
----------- ----------- --------------- ----------- ------------- ----------- -----------
Net Income..................... 7,946 1,853 (1,394) 8,405 1,539 9,485 9,944
Preferred stock dividends.......... 89 89 89 89
----------- ----------- --------------- ----------- ------------- ----------- -----------
Net Income Available to Common
Stock......................... $ 7,857 $ 1,853 $ (1,394) $ 8,316 $ 1,539 $ 9,396 $ 9,855
----------- ----------- --------------- ----------- ------------- ----------- -----------
----------- ----------- --------------- ----------- ------------- ----------- -----------
Weighted average common shares
outstanding (5)................... 7,534 1,657 10,053 660 9,316 11,835
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
Earnings per common share before
cumulative effect of change in
accounting principle.............. $ 1.04 $ 1.12 $ 0.83 $ 2.33 $ 1.01 $ 0.83
----------- ----------- ----------- ------------- ----------- -----------
----------- ----------- ----------- ------------- ----------- -----------
</TABLE>
59
<PAGE>
PURCHASE ACCOUNTING FOR SAFETY FUND MERGER
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
PRO FORMA PURCHASE ACCOUNTING ADJUSTMENTS
AT DECEMBER 31, 1995
a) Pursuant to the Safety Fund Merger agreement and in the event that the
Safety Fund Merger is accounted for utilizing the purchase method of
accounting, each of the outstanding shares of Safety Fund common stock
(1,660,665 shares), has the potential of being converted into 1.52 shares of
CFX Common Stock, subject to adjustments pursuant to the Safety Fund Merger
agreement. Using a CFX Trading Price of $15.54, the total cost (including
acquisition costs of $1,565,000) would be $40,791,000.
b) To reflect the adjustment of Safety Fund's assets and liabilities to
estimated fair value:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Net assets as reported by Safety Fund..................................................... $ 21,387
Fair value adjustments:
Investments............................................................................. 1,100
Loans................................................................................... 808
Premises and equipment.................................................................. (3,000)
Deposits................................................................................ (492)
Excess of projected pension benefits over plan assets................................... (515)
Deferred tax effects of fair value adjustments at 41.7%................................. 875
------------
Estimated fair value of net assets...................................................... 20,163
Total cost.............................................................................. 40,791
------------
Excess of cost over estimated fair value of net assets acquired (goodwill).............. $ 20,628
------------
------------
</TABLE>
60
<PAGE>
PURCHASE ACCOUNTING FOR SAFETY FUND MERGER
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
For purposes of determining the pro-forma effect of the Safety Fund Merger
on CFX's pro-forma condensed consolidated statement of income, the following
pro-forma adjustments have been made:
<TABLE>
<CAPTION>
INCREASE
(DECREASE) IN NET
INCOME
------------------
<C> <S> <C> <C>
c) Decrease in interest income resulting from the reduction in funds
available at 5.5%....................................................... $ (86)
d) Decrease in interest income on investments resulting from amortization
over the average life (8 years) of the adjustments to the fair value of
investments............................................................. (138)
e) Decrease in interest income on loans resulting from amortization over
the average life (16 years) of the adjustments to the fair value of
loans................................................................... (51)
f) Decrease in interest expense on deposits resulting from amortization
over the average life (1.5 years) of the adjustments to the fair value
of deposits............................................................. 328
g) Decrease in pension expense from adjustments to the projected benefits
in excess of plan assets................................................ 354
h) Depreciation and amortization:
-- Decrease in depreciation expense resulting from adjustments to the
fair value of premises and equipment................................. 150
-- Amortization over 12 years of the cost in excess of net assets
acquired (goodwill).................................................. (1,719) (1,569)
--------- --------
Subtotal................................................................ (1,162)
i) Increase in income tax provision (purchase accounting adjustments,
excluding amortization of goodwill, at 41.7%)........................... (232)
--------
$ (1,394)
--------
--------
</TABLE>
61
<PAGE>
PURCHASE ACCOUNTING FOR SAFETY FUND MERGER
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER PRO FORMA ADJUSTMENTS
(1) Common Stock at December 31, 1995:
CFX, $0.66 2/3 par value, 22,500,000 authorized shares, of which 7,509,921
shares have been issued and are outstanding.
SAFETY FUND, $5.00 par value, 3,200,000 authorized shares, of which
1,660,665 shares have been issued and are outstanding.
MILFORD, $1.00 par value, 1,800,000 authorized shares, of which 659,917
shares have been issued and are outstanding.
(2) The pro forma financial statements reflect the exchange of Safety Fund and
Milford Common Stock for CFX Common Stock in connection with the mergers at
the exchange ratios of 1.52 and 2.6446, respectively.
In combining the companies, a pro forma adjustment at December 31, 1995 was
made to reflect the issuance of 2,524,211 shares of CFX Common Stock to
Safety Fund shareholders and 1,745,216 shares of CFX Common Stock to Milford
shareholders in exchange for the outstanding shares of Safety Fund and
Milford Common Stock.
(3) The merger agreements provide that each holder of Safety Fund and Milford
Common Stock, who would otherwise have been entitled to a fraction 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.
(4) 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 one or both of
the mergers, assuming the exchange ratios of 1.52 and 2.6446, respectively.
(5) Pro forma weighted average common shares outstanding represent the
historical weighted average common shares outstanding of CFX during the
period, plus the historical weighted average common shares outstanding of
Safety Fund and Milford adjusted to give effect to one or both of the
mergers, assuming the exchange ratios of 1.52 and 2.6446, respectively.
62
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Bank holding companies, banks and many of their nonbank affiliates are
extensively regulated under both federal and state law. The following
information describes certain aspects of that regulation. To the extent that the
following information describes statutory provisions, it is qualified in its
entirety by reference to the particular statutory provisions and any regulations
promulgated thereunder. The following is not intended to be an exhaustive
description of the statutes and regulations applicable to CFX's or Safety Fund's
business. Additional information regarding supervision and regulation is
included in documents incorporated herein by reference. See "AVAILABLE
INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE."
CFX is a bank holding company subject to the supervision of the Federal
Reserve under the BHCA. As such, CFX is a legal entity separate and distinct
from its subsidiary banks ("Banks", which will include SFNB following the
Merger), and its nonbanking subsidiaries. Accordingly, the right of CFX, and
consequently the right of creditors and shareholders of CFX, to participate in
any distribution of the assets or earnings of any subsidiary is necessarily
subject to the prior claims of creditors of the subsidiary, except to the extent
that claims of CFX in its capacity as a creditor may be recognized. The
principal source of CFX's revenue and cash flows is dividends from its Banks and
nonbank subsidiaries. There are legal limitations on the extent to which the
Banks can finance or otherwise supply funds to CFX and its nonbanking
subsidiaries.
CFX Bank, a subsidiary of CFX, is a New Hampshire-chartered FDIC-insured
bank and, therefore, is subject to supervision and regulation by New Hampshire
bank regulators and the FDIC. Orange Savings is a Massachusetts-chartered
FDIC-insured savings bank subject to supervision and regulation by the
Commissioner and the FDIC. SFNB is a national banking association subject to
supervision and regulation by the Office of the Comptroller of the Currency
("OCC").
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Because CFX derives substantially all of its income from the payment of
dividends by the Banks, its ability to pay dividends is affected by the ability
of its subsidiaries to pay dividends. The Banks are subject to various statutory
and regulatory restrictions on their ability to pay dividends to CFX. In
addition, the FDIC, in the case of CFX Bank and Orange Savings, and the OCC in
the case of SFNB, have authority to prohibit any such Bank from engaging in an
unsafe or unsound practice in conducting its business. The payment of dividends,
depending upon the financial condition of the Bank in question, could be deemed
to constitute such an unsafe or unsound practice. The ability of the Banks to
pay dividends in the future is presently, and could be further, influenced by
federal and state bank regulatory policies or agreements and by regulatory
capital guidelines.
In addition, consistent with its policy regarding bank holding companies
serving as a source of strength for their subsidiary banks, the Federal Reserve
has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fund fully the
dividends, and the prospective rate of earnings retention appears to be
consistent with such holding company's capital needs, asset quality and overall
financial condition.
AFFILIATE TRANSACTION RESTRICTIONS
The Banks are subject to affiliate transaction restrictions under federal
law which limit the transactions by subsidiary banks with or on behalf of their
parent company and to or on behalf of any nonbank subsidiaries, whether in the
form of loans, extensions of credit, issuances of guaranties, acceptances or
letters of credit, investments or asset purchases. Such transactions by a
subsidiary bank to its parent company or to any nonbank subsidiary are limited
to 10 percent of a bank subsidiary's capital and surplus and, with respect to
such parent company and all such nonbank subsidiaries, to an aggregate of 20
percent of such bank subsidiary's capital and surplus. An exception to these
qualitative restrictions is provided for transactions between insured banks that
are within the
63
<PAGE>
same holding company structure where the holding company owns 80 percent or more
of each institution. Further, such loans and extensions of credit generally are
required to be secured by eligible collateral in specified amounts. Federal law
also prohibits subsidiary banks from purchasing "low-quality" assets from
affiliates.
COMMUNITY REINVESTMENT ACT
Bank holding companies and their subsidiary banks are subject to the
provisions of the Community Reinvestment Act of 1977, as amended ("CRA"). Under
CRA, each subsidiary bank's record in meeting the credit needs of the community
served by the bank, including low- and moderate-income neighborhoods, is
regularly assessed by the bank's primary regulatory authority (assessments
include the following CRA ratings in descending order: "Outstanding,"
"Satisfactory," "Needs to Improve" and "Substantial Noncompliance"). When a bank
holding company applies for approval to acquire a bank or other bank holding
company, the Federal Reserve will review the assessment of each subsidiary bank
of the applicant bank holding company, and such records may be the basis for
denying the application. At their most recent respective CRA examinations, CFX
Bank received an overall CRA rating of "Outstanding" and Orange Savings and SFNB
received overall CRA ratings of "Satisfactory."
CROSS-GUARANTEE AND HOLDING COMPANY LIABILITY
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
contains a "cross-guarantee" provision which could result in insured depository
institutions "commonly controlled" by CFX being liable for losses incurred by
the FDIC in connection with assistance provided to, or the failure of, any other
insured depository institution owned by CFX. Such liability could have a
material adverse effect on the financial condition of any assessed Bank and CFX.
Under Federal Reserve policy, CFX is expected to act as a source of financial
strength to each Bank and to commit resources to support each Bank. This support
may be required at times when, absent such policy, CFX might not otherwise
provide such support. In addition, any capital loans by CFX to any of the Banks
would be subordinate in right of payment to deposits and to certain other
indebtedness of the Banks.
Under the prompt corrective action provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") and the Federal
Reserve's source of strength policy, a bank holding company may be required to
infuse sufficient capital into a subsidiary insured depository institution to
ensure that such subsidiary is in compliance with its minimum capital
requirements. See "-- Enforcement Powers of the Federal Banking Agencies;
Corrective Action" and "-- Capital Guidelines." Further, in the event of a bank
holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the
trustee will be deemed to have assumed and is required to cure immediately any
deficit under any commitment by the debtor holding company to any of the federal
banking agencies to maintain the capital of an insured depository institution,
and any claim for breach of such obligation will generally have priority over
most other unsecured claims.
FDIC INSURANCE ASSESSMENTS
Since the deposits of the Banks are insured by the Bank Insurance Fund
("BIF") of the FDIC, the Banks are subject to FDIC insurance assessments. The
amount of FDIC assessments paid by individual insured depository institutions is
based on their relative risk as measured by regulatory capital ratios and
certain other factors. Based on this system, FDIC regulations provided during
the first semi-annual period in 1995 for a minimum assessment of 23 cents per
$100 of eligible deposits for the best-rated banks and savings associations,
with a maximum of 31 cents per $100 of eligible deposits for the weakest-rated
institutions. On August 8, 1995, the FDIC's Board of Directors reduced the
assessment rates for deposits insured by the BIF for the best-rated BIF-insured
banks for the second half of 1995 to 0.044% of insured deposits, but retained
the prior assessment rates applicable to Savings Association Insurance Fund
members. In November 1995, the FDIC further reduced the BIF assessment for the
1996 fiscal year to the legal minimum of $2,000 a year for the best rated
institutions,
64
<PAGE>
including CFX Bank, and 0.27% for the worst-rated institutions, because the BIF
reserve ratio exceeds the 1.25% of insured deposits required by federal law.
SFNB currently pays premiums to the BIF at a rate of $.03 per $100 of deposits,
totalling approximately $72,000 annually.
ENFORCEMENT POWERS OF THE FEDERAL BANKING AGENCIES; CORRECTIVE ACTION
Failure to comply with applicable laws, regulations and supervisory
agreements could subject CFX and its subsidiary banks, which will include SFNB
following the Merger, as well as officers, directors and institution-affiliated
parties of these institutions, to administrative sanctions and potentially
substantial civil money penalties.
Under FDICIA, the federal banking agencies possess broad powers to take
corrective action as deemed appropriate for an insured depository institution
and its holding companies. The extent of these powers depends upon whether the
institution in question is considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." As of December 31, 1995, each of the Banks, as
well as SFNB, exceeded the required ratios for classification as "well
capitalized." The categorization of depository institutions under the uniform
regulations is solely for the purpose of applying the federal bank agencies'
prompt corrective action powers and is not intended to be, and should not be
interpreted as, a representation of the depository institution's overall
financial condition or prospects.
Generally, as an institution is deemed to be less well capitalized, the
scope and severity of the agencies' powers increase. The agencies' corrective
powers can include, among other things, requiring an insured financial
institution to adopt a capital restoration plan which cannot be approved unless
guaranteed by the institution's parent holding company; placing limits on asset
growth and restrictions on activities; placing restrictions on transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
prohibiting the institution from accepting deposits from correspondent banks;
prohibiting the payment of principal or interest on subordinated debt;
prohibiting the holding company from making capital distributions without prior
regulatory approval; and, ultimately, appointing a receiver for the institution.
Business activities may also be influenced by an institution's capital
classification. For instance, only a "well capitalized" depository institution
may accept brokered deposits without prior regulatory approval and only
"adequately capitalized" institutions may accept brokered deposits with prior
regulatory approval.
CAPITAL GUIDELINES
CFX and Safety Fund each are subject to capital adequacy guidelines of the
Federal Reserve. Under the Federal Reserve's capital guidelines, a holding
company's capital is divided into two tiers, Tier 1 and Tier 2, the respective
components of which are described in materials incorporated herein by reference.
See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE." Holding
companies are required to maintain a minimum ratio of total capital (Tier 1 plus
Tier 2 capital) to total risk-adjusted assets (which include the credit risk
equivalents of certain off-balance sheet items) of 8%, of which half (4%) must
be Tier 1 capital. In addition, the Federal Reserve requires a leverage ratio
(Tier 1 capital to average total consolidated assets) of 3%. The Federal
Reserve's risk-based and leverage ratios are minimum supervisory ratios
generally applicable to bank holding companies that meet certain specified
criteria, including that they have the highest regulatory rating. Banking
organizations not meeting these criteria are expected to operate with capital
positions well above the minimum ratios. Each depository institution subsidiary
of CFX and Safety Fund is also subject to similar minimum capital guidelines
established by the subsidiary's primary federal regulator. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances warrant.
The OCC has requested that SFNB endeavor to maintain a leverage ratio of at
least 6% and the SFNB Board of Directors has adopted a resolution to that
effect.
Effective January 17, 1995, the Federal Reserve and the other federal
banking agencies amended their respective risked-based capital standards by
explicitly identifying concentrations of credit risk and the risk arising from
non-traditional activities, as well as an institution's ability to manage those
65
<PAGE>
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy. The federal banking agencies have
also recently adopted a rule that amends, effective September 1, 1995, the
capital standards to include explicitly an institution's exposure to declines in
the economic value of its capital due to changes in interest rates as a factor
to be considered in evaluating capital adequacy. This rule does not codify a
measurement framework for assessing the level of interest rate exposure. Such
agencies have issued for comment a joint policy statement that describes the
process to be used to measure and assess the exposure of an institution's net
economic value to changes in interest rates. It is anticipated that at some
future date such agencies would propose the establishment of an explicit minimum
capital requirement to account for such interest rate risks.
Under federal banking laws, 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, in the most
severe cases, the termination of deposit insurance by the FDIC and seizure of
the institution.
As of December 31, 1995, CFX and Safety Fund's capital ratios and the
capital ratios of each of their subsidiary depository institutions exceeded the
minimum regulatory capital requirements established by the appropriate federal
regulatory agency. It is anticipated that, after the consummation of the Merger,
CFX and its depository institution subsidiaries, including SFNB, will continue
to exceed the minimum requirements.
RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994
On September 29, 1994, the President signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA"), which permits
adequately capitalized and adequately managed bank holding companies to acquire
banks in any state. The IBBEA also permits banks in separate states to
consolidate into single entities with branches in multiple states. Consequently,
effective September 29, 1995, CFX has the authority to acquire any bank or bank
holding company, and can be acquired by any bank or bank holding company,
located anywhere in the United States. Further, effective June 1, 1997, the
Banks will have the authority, subject to certain restrictions, including state
opt-out provisions, to consolidate with other banking subsidiaries of CFX,
including SFNB. States may affirmatively opt in, which New Hampshire has done
and Massachusetts has legislation pending to do, effective June 1, 1997. Among
other provisions, the IBBEA provides that interstate branches of national banks
will be subject to host state laws, such as intrastate branching, consumer
protection, fair lending and community reinvestment laws, unless any such law is
preempted by federal law or is discriminatory in effect. The IBBEA provides that
interstate branches of state banks will be subject to the laws of the host
state. In addition, among other things, the IBBEA also increases the community
reinvestment requirements applicable to multi-state depository institutions.
This legislation may increase competition as banks branch across state lines and
enter new markets.
PROPOSAL II -- ELECTION OF DIRECTORS
GENERAL
Safety Fund is governed by a Board of Directors which, under the Safety Fund
Articles and the Safety Fund By-Laws, is divided into three classes, as nearly
equal in number as possible, with the directors in each class serving a term of
three years and until their successors are elected and qualified. As the term of
one class expires, a successor class is elected by the shareholders at the
annual meeting for that year.
There are currently 17 directors on the Board, five of whose terms will
expire at the Annual Meeting. Two of the five directors whose terms will expire
at the Annual Meeting will retire from the Board effective at the Annual
Meeting. The Board has set the number of directors at 15, effective at the
Annual Meeting.
66
<PAGE>
The Board of Directors has selected and recommended three nominees for
election as directors, each to serve for a three-year term ending at the 1999
annual meeting of shareholders or special meeting in lieu thereof, and until
their successors are duly elected and qualified, or until the Merger is
consummated. Each of the nominees is currently serving as a director of Safety
Fund.
Unless authority is withheld, proxies in the accompanying form will be voted
FOR the election as directors of the three nominees. If the proxy withholds
authority to vote for one or more nominees for director, the shareholder's
instructions will be followed.
Safety Fund has no reason to believe that any of the nominees will be unable
to serve. In the event that any nominee should not be available, the persons
named in the proxy will vote for the other nominees and may vote for a
substitute for that nominee.
INFORMATION REGARDING DIRECTORS AND NOMINEES
The following table sets forth certain information (as of January 22, 1996)
regarding the current directors of Safety Fund (other than Bigelow Crocker, Jr.
and George H. Heywood, Jr., both of whom will retire from the Board effective at
the Annual Meeting) and the nominees for director. Each director also serves as
a director of SFNB. No director is related to any other director or to any
executive officer of Safety Fund by blood, marriage or adoption, and there are
no arrangements or understandings between any director and any other person
pursuant to which the director was elected a director.
<TABLE>
<CAPTION>
DIRECTOR OF
SAFETY FUND POSITIONS WITH SAFETY FUND AND PRINCIPAL OCCUPATION(S)
NAME AND AGE SINCE AND BUSINESS EXPERIENCE DURING THE PAST 5 YEARS
- ------------------------------ ------------- ---------------------------------------------------------------------
<S> <C> <C>
NOMINEES TO SERVE UNTIL 1999
William E. Aubuchon, III 1974 Chairman of the Board and CEO, W.E. Aubuchon Co., Inc. (retail
Age 51 hardware); previously served in other capacities
Christopher W. Bramley 1994 President and CEO, Safety Fund; President and CEO, SFNB; previously
Age 54 served as Executive Vice President, Shawmut Bank, N.A.; President
and CEO, Shawmut Worcester County Bank
John E. Howard 1983 Clerk, Safety Fund; Managing Partner, William S. Reagan & Co.
Age 60 (Certified Public Accountants)
DIRECTORS WHOSE TERMS EXPIRE IN 1997
David R. Grenon 1979 Chairman of Advisory Board and Assistant Clerk (formerly President
Age 56 and CEO), The Protector Group Insurance Agency, Inc. (property and
casualty insurance agency); formerly a Director and shareholder, The
Protector Insurance Agency, Inc. (financial services insurance
agency); Director of Commerce Holdings, Inc. and Commerce Group,
Inc.
Donald L. Hall 1988 President, Treasurer and Director, Higley, Hall & Company, Inc.
Age 59 (consulting)
Thomas P. Kelly 1985 President, Thomas P. Kelly & Associates (consultant, chemical
Age 66 industry)
Vincent J. Mara 1985 President Emeritus, previously President and CEO, Fitchburg State
Age 65 College
Allen I. Rome 1995 President and Treasurer, Rome Insurance Agency, Inc.
Age 52
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR OF
SAFETY FUND POSITIONS WITH SAFETY FUND AND PRINCIPAL OCCUPATION(S)
NAME AND AGE SINCE AND BUSINESS EXPERIENCE DURING THE PAST 5 YEARS
- ------------------------------ ------------- ---------------------------------------------------------------------
Henri L. Sans, Jr. 1989 Attorney, LeBlanc & Sans
Age 44
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1998
John R. Clementi 1995 President, Plastican, Inc. (manufacturer of rigid plastic packaging);
Age 45 President, Holiday Housewares, Inc. (manufacturer of plastic
housewares for retail sale); Chairman, Health Alliance, Inc.
(non-profit health care organization)
P. Kevin Condron 1984 President and CEO, Central Supply Company, Inc. (wholesale plumbing
Age 50 and heating)
Edward H. Hall, Jr. 1974 President, Monadnock Screen Plate Company, Inc. (manufacturer of
Age 60 drilled and slotted screen cylinders for the pulp and paper
industry); President, Fitchburg Screen Plate Company, Inc.
(manufacturer of steel plates for the pulp and paper industry)
(merged with Monadnock Screen Plate Company, Inc.); President, Morey
Paper Mill Supply Co., Inc. (pulp and paper); President and
Chairman, National Perforating Corp. (perforated metal sheets and
coils)
Michael E. Montuori 1989 President: Montuori Oil Corp.; Montuori Gasoline Stations, Inc.;
Age 47 Montuori Oil Delivery, Inc.; and Montuori Tires, Inc. (retail and
wholesale tire business and related services)
J. Robert Seder 1975 Partner, Seder & Chandler (attorneys)
Age 55
Richard L. Yates 1986 Vice President and, Controller, Textron, Inc.; previously served as
Age 45 Executive Vice President, CFO and Treasurer, The Paul Revere
Insurance Group, affiliated with Textron, Inc.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE THREE NOMINEES FOR
DIRECTOR NAMED HEREIN.
COMPENSATION OF DIRECTORS
Directors of SFNB (all of whom are also directors of Safety Fund) receive a
retainer of $10,000 per year and $200 for each committee meeting and for each
meeting of the Board of Directors of Safety Fund or SFNB that they attend.
Directors who are also officers of either Safety Fund or SFNB are not paid
separately for their services as directors.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors of Safety Fund held 11 meetings in 1995. The Board of
Directors of SFNB held 15 meetings in 1995. Safety Fund has a Nominating
Committee; it does not have an Audit Committee or a Compensation Committee.
However, SFNB has an Audit Committee (which serves as the Audit Committee for
Safety Fund) and a Human Resources/Compensation Committee (the "Compensation
Committee").
The Audit Committee's responsibilities include reviewing any audit reports
and reporting to the full Board of Directors. The Audit Committee met 12 times
in 1995. The Audit Committee members are Messrs. Howard (Chairman), D. Hall, E.
Hall and Mara.
68
<PAGE>
The Compensation Committee's responsibilities include reviewing Safety
Fund's employee benefit policies and the compensation of senior officers and
making recommendations with respect to the such matters to the Board of
Directors. The Compensation Committee met four times during 1995. The
Compensation Committee members are Messrs. Yates (Chairman), Bramley, Condron,
D. Hall and Mara.
The Nominating Committee's responsibilities include making recommendations
for nominees as directors to the Board of Directors. The Nominating Committee
met three times in 1995. The Nominating Committee members are Messrs. Kelly
(Chairman), Bramley, E. Hall and Seder. The Nominating Committee will consider
nominations by shareholders made pursuant to notice delivered to or mailed to
and received at the principal executive offices of Safety Fund not less than 60
nor more than 90 days prior to the date of the Annual Meeting, provided the
notice complies with the requirements set forth in the Safety Fund By-Laws.
During 1995, each director of Safety Fund attended at least 75% of the
aggregate of the total number of meetings that the Board held during the period
for which he was a director and the total number of meetings held by all
committees of the Board on which he served during the period that he served.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information (as of January 22, 1996)
regarding the current executive officers of Safety Fund.
<TABLE>
<CAPTION>
SERVED AS
EXECUTIVE
PRINCIPAL OCCUPATION(S) OFFICER OF
OTHER POSITIONS AND BUSINESS EXPERIENCE COMPANY
EXECUTIVE OFFICERS AGE WITH SFNB DURING PAST FIVE YEARS SINCE
- ----------------------------- --- --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C>
Christopher W. Bramley, 54 President and CEO, and Executive Vice President, Shawmut 1994
President and Director, SFNB Bank, N.A.; President and CEO,
CEO and Director Shawmut Worcester County Bank
Martin F. Connors, Jr., 34 Senior Vice President and Vice President, SFNB 1993
Treasurer Chief Financial Officer,
SFNB
Joyce M. Danielson 45 Senior Vice President, Senior Vice President, Director of 1994
Director of Human Human Resources, Peoples Savings
Resources, SFNB Bank (and Shawmut Bank, N.A.,
successor)
James C. Garvey 39 Senior Vice President & Vice President and Team Leader, 1994
Senior Commercial Loan Shawmut Bank, N.A.
officer, SFNB
Michael A. L'Ecuyer 38 Vice President, SFNB Vice President, Shawmut Bank 1995
Stephen R. Shirley 49 Senior Vice President and Senior Senior Vice President 1994
Trust Officer, SFNB (Personal Trust Division), Shawmut
Bank, N.A.; Senior Vice President
(Personal Trust Division), Shawmut
Bank Connecticut, N.A.
Charles B. Troccia 45 Senior Vice President, SFNB Senior Vice President, Worcester 1995
County Institute for Savings (and
Bank of Boston, successor)
</TABLE>
69
<PAGE>
The following table sets forth certain information regarding compensation
paid or accrued by Safety Fund and by SFNB with respect to Safety Fund's and
SFNB's Chief Executive Officer and Safety Fund's or SFNB's most highly
compensated officers other than the CEO who were serving as officers on December
31, 1995 and whose annual compensation exceeded $100,000 for fiscal 1995. In
reviewing the compensation of Messrs. Bramley, Shirley and Garvey, the
Compensation Committee of the SFNB Board of Directors considers the officers'
performance, Safety Fund's performance (return on equity and return on assets)
and the salary ranges paid by peer financial institutions to officers with
similar responsibility and position.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES ALL
------------------------------------ UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPEN. (1)
- -------------------------------------- --------- -------------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Christopher W. Bramley................ 1995 $ 222,138 $ 52,000 7,500 $ 37,992
President and CEO 1994 203,696(2) -- 7,500 30,223
1993 -- -- -- --
Stephen R. Shirley.................... 1995 $ 117,138 $ 20,000 3,000 $ 2,312
1994 73,165(2) -- 4,500 --
1993 -- -- -- --
James C. Garvey....................... 1995 $ 107,138 $ 17,100 3,000 $ 1,775
1994 73,456(2) -- 4,500 --
1993 -- -- -- --
</TABLE>
- ------------------------
(1) For Mr. Bramley, includes premium payments on executive life insurance
coverage of $3,492 and $2,723 in 1995 and 1994, respectively, Safety Fund's
contribution of $30,000 and $27,500 in 1995 and 1994, respectively, to a
supplemental retirement fund on his behalf and a matching contribution to
the SFNB retirement savings plan of $4,500 in 1995. For Mr. Shirley,
includes taxable portion of premiums paid for life insurance coverage of
$557 and a matching contribution to the SFNB retirement savings plan of
$1,755. For Mr. Garvey, includes taxable portion of premiums paid for life
insurance coverage of $185 and a matching contribution to the SFNB
retirement savings plan of $1,590.
(2) Mr. Bramley commenced his employment on February 1, 1994. Mr. Shirley
commenced his employment on June 1, 1994 and Mr. Garvey commenced his
employment on April 25, 1994.
The following table sets forth information concerning stock options granted
during 1995.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER TOTAL
OF SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN OR
GRANTED FISCAL YEAR BASE PRICE EXPIRATION DATE
--------------- --------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Christopher W. Bramley............... 7,500 32% $ 11.50 January 23, 2005
James C. Garvey...................... 3,000 13% $ 12.67 February 24, 2005
Stephen R. Shirley................... 3,000 13% $ 12.67 February 24, 2005
</TABLE>
70
<PAGE>
The following table sets forth information concerning stock options held by
the named executive officers at December 31, 1995. None of the named executive
officers exercised stock options during 1995. In accordance with his employment
contract, Safety Fund granted an additional 7,500 options to Mr. Bramley on
January 5, 1996, which is not reflected in the table.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
-------------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Christopher W. Bramley.......................... 15,000 0 $ 192,525 $ 0
Stephen R. Shirley.............................. 2,400 5,100 30,804 62,826
James C. Garvey................................. 2,400 5,100 30,804 62,826
</TABLE>
On February 1, 1994, Safety Fund and SFNB entered into an employment
agreement with Christopher W. Bramley, President and Chief Executive Officer,
which was amended on October 6, 1995 and on January 5, 1996. The agreement
provides for a rolling two-year term of employment, an annual base salary of not
less than $200,000, stock options to purchase 37,500 shares of Safety Fund
Common Stock (of which 22,500 options have been granted to date) and a payment
in the amount of $400,000 in the event of a change in control of Safety Fund
under certain circumstances or, at Mr. Bramley's option, continuation of his
salary and certain employee benefits for the remaining term of his contract. The
Merger constitutes a change in control under the agreement. The agreement also
provides for SFNB to purchase term life insurance in an amount equal to five
times Mr. Bramley's base salary and to contribute $30,000 to a retirement fund
during each year that Mr. Bramley is employed pursuant to the agreement. Safety
Fund has entered into a deferred compensation agreement with Mr. Bramley dated
as of December 29, 1995 for the purpose of defining the terms of such retirement
fund, and established a rabbi trust through which such arrangement is funded.
Pursuant to such agreement, Mr. Bramley is entitled to receive the balance of
the fund in 60 monthly installments commencing not more than 60 days after
termination of his employment or attainment of age 65.
On June 1, 1994, SFNB entered into an employment and change of control
agreement with Stephen R. Shirley, Senior Vice President of SFNB. The agreement
provides for an annual salary of $105,000 per year during each year of Mr.
Shirley's employment with SFNB, or such other rate as may be determined by the
Board of Directors. In the event of a change in control under certain
circumstances, SFNB has agreed to pay Mr. Shirley, in 12 equal installments, an
amount equal to his then annual base salary. If Mr. Shirley becomes employed
during the time such payments are made to him, from and after the date of such
employment, the amounts payable pursuant to the previous sentence would be
reduced by 50% of his wages from such employment.
On August 4, 1994, SFNB entered into an employment and change of control
agreement with James Garvey, Senior Vice President and Senior Commercial Loan
Officer. The terms of Mr. Garvey's agreement are substantially the same as those
of Mr. Shirley's, except that the agreement provides for an annual salary of
$95,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and officers of Safety Fund and their associates were customers
of, and had transactions with, SFNB in the ordinary course of business during
1995. All outstanding loans and commitments were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and did not involve more than
normal risk of collectability or other unfavorable features.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Charles Troccia, who became an executive officer of SFNB on December 18,
1995, failed to timely file a Form 3. Mr. Troccia does not own any shares of
Safety Fund Common Stock.
71
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of February 6, 1996
regarding (i) each person known by Safety Fund to own beneficially more than 5%
of Safety Fund Common Stock, (ii) each director and each nominee for director
individually, and (iii) all directors and executive officers of Safety Fund as a
group. Except as otherwise indicated 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
OF BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP (1) OF CLASS
- --------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
David G. Massad ............................................... 165,703(2) 9.98%
310 Turnpike Road
Westborough, MA 01581
Louise I. Doyle ............................................... 106,002(3) 6.38
245 Lindell Avenue
Leominster, MA 01453
Herbert E. Dunnington, II ..................................... 99,496(4) 5.99
4967 Southern Wood Drive
Sarasota, FL 34241
William E. Aubuchon, III*...................................... 11,869(5) .71
Christopher W. Bramley*........................................ 24,877(6) 1.48
John R. Clementi............................................... 18,000 1.08
P. Kevin Condron............................................... 23,140(7) 1.39
Bigelow Crocker, Jr............................................ 12,502(8) .75
David R. Grenon................................................ 41,364(9) 2.49
Donald L. Hall................................................. 2,850(10) .17
Edward H. Hall, Jr............................................. 7,869(11) .47
George H. Heywood, Jr.......................................... 2,496 .15
John E. Howard*................................................ 8,099(12) .49
Thomas P. Kelly................................................ 14,128(13) .85
Vincent J. Mara................................................ 3,000 .18
Michael E. Montuori............................................ 13,898(14) .84
Allen I. Rome.................................................. 2,392(15) .14
Henri L. Sans, Jr.............................................. 16,658(16) 1.00
J. Robert Seder................................................ 5,175 .31
Richard L. Yates............................................... 4,364(17) .26
All executive officers and directors
as a group (23 persons)....................................... 226,834(18) 13.41
</TABLE>
- ------------------------
* Nominees
(1) For purposes of this table, a person is deemed to be the beneficial owner of
any shares of Common Stock if he has or shares voting power or investment
power with respect to such shares, or has the right to acquire beneficial
ownership of such shares at any time within 60 days of the date of this
table.
(2) Safety Fund has received a series of Schedule 13Ds filed by Mr. Massad, the
most recent of which is dated January 19, 1996 and reports ownership as set
forth in the table. In the 13D, Mr. Massad indicated that he intends to make
additional purchases of stock, either in the open market, in privately
negotiated transactions or in one or more tender offers. See "PROPOSAL I --
PROPOSED MERGER -- Background of the Merger."
72
<PAGE>
(3) As reflected in Safety Fund's stock records.
(4) Based on information provided by Mr. Dunnington. Does not include 19,635
shares owned by an irrevocable trust, of which Mr. Dunnington is one of four
trustees or 29,340 shares owned by a corporation of which Mr. Dunnington is
an officer and director.
(5) Includes 9,469 shares held jointly with his wife through a family trust,
1,200 shares held as custodian for his daughter, 675 shares held as
custodian for his son, and 525 shares held by his son.
(6) Includes 22,500 shares subject to currently exercisable options.
(7) Includes 750 shares held by his wife, 22 shares held by each of three
children (66 in total), and 6,705 shares held as trustee of a profit sharing
plan of a corporation of which Mr. Condron is the sole shareholder.
(8) Includes 5,388 shares held by trusts for his benefit.
(9) Includes 375 shares held by his son and 8,250 shares held as trustee of a
corporate profit sharing plan.
(10) Includes 750 shares owned jointly with his wife, 1,200 shares held by a
trust for his benefit, and 900 shares owned by a corporation of which Mr.
Donald Hall is the principal shareholder.
(11) Includes 3,075 shares owned by his wife and 1,197 shares owned by a
corporation of which Mr. Edward Hall is the principal shareholder.
(12) Includes 225 shares owned by his wife and 2,410 shares held in an IRA.
(13) Includes 2,349 shares held by a trust for his benefit.
(14) Includes 4,947 shares owned by corporations of which Mr. Montuori is the
principal shareholder. Also includes 3,589 shares held as trustee of a trust
for a family member as to which he has shared voting power.
(15) Shares owned by a corporation of which Mr. Rome is the sole shareholder.
(16) Includes 2,254 shares owned by his wife and 45 shares held by his wife as
custodian for his son.
(17) Includes 300 shares owned by each of two sons (600 in total) and 931 shares
held by a trust for his benefit.
(18) Includes 30,600 shares obtainable by exercise of currently exercisable
options held by all directors and executive officers as a group.
PROPOSAL III -- RATIFICATION OF INDEPENDENT AUDITORS
The Board has selected KPMG Peat Marwick LLP to continue to serve as
independent auditors of Safety Fund and its subsidiaries for the fiscal year
ending December 31, 1996. A representative of KPMG Peat Marwick LLP is expected
to be present at the Annual Meeting for the purpose of making a statement should
he so desire. The representative is expected to be available to respond to
appropriate questions. An affirmative vote of a majority of the shares of Safety
Fund Common Stock represented in person or by proxy at the Annual Meeting,
assuming a quorum is present, is necessary for ratification of the appointment
of KPMG Peat Marwick LLP as auditors.
The Board of Directors of Safety Fund recommends that you vote "FOR"
ratifying the selection of KPMG Peat Marwick LLP. No determination has been made
as to what action the Board of Directors would take if the shareholders do not
ratify the appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS AUDITORS.
73
<PAGE>
EXPERTS
The consolidated financial statements of CFX incorporated by reference in
the Annual Report on Form 10-K of CFX for the year ended December 31, 1995, have
been audited by Wolf & Company, P.C., independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated balance sheets as of December 31, 1995 and 1994 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows of Safety Fund for each of the two years in the period ended December 31,
1995, contained in the 1995 Safety Fund Annual Report to Shareholders that
accompanies this Proxy Statement, have been presented therein in reliance on the
report of KPMG Peat Marwick LLP, independent auditors, given on the authority of
such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity, and cash
flows of Safety Fund for the year ended December 31, 1993, contained in the 1995
Safety Fund Annual Report to Shareholders that accompanies this Proxy Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing therein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Milford for the year ended June 30,
1995, incorporated by reference through the Current Report on Form 8-K of CFX
dated as of April 11, 1996, have been audited by Shatswell, MacLeod & Co.,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, changes in stockholders' equity
and cash flows of Milford for the years ended June 30, 1994 and 1993
incorporated by reference through the Current Report on Form 8-K of CFX dated as
of April 11, 1996 have been audited by Coopers & Lybrand L.L.P., independent
auditors, as stated in their report appearing therein, and are included in
reliance upon the report of such firm given upon its authority as experts in
accounting and auditing.
Documents incorporated herein by reference in the future will include
financial statements, related schedules (if required) and auditors' reports,
which financial statements and schedules will have been audited to the extent
and for the periods set forth in such reports by the firm rendering such
reports, and, to the extent so audited and consent to incorporation by reference
is given, will be incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
LEGAL OPINIONS
A legal opinion to the effect that the issuance of the shares of CFX Common
Stock offered hereby, when issued in accordance with the terms of the Agreement,
will be validly issued, fully paid and nonassessable, has been rendered by
Devine, Millimet & Branch, P.A., Manchester, New Hampshire, counsel to CFX.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder of Safety Fund intends to present at the
1997 Annual Meeting of Shareholders of Safety Fund, if the Merger has not been
consummated prior to the date such meeting is to be held, must be received by
Safety Fund at its principal executive offices on or before December 18, 1996 to
be eligible for inclusion in Safety Fund's proxy statement and proxy form
relating to such meeting.
74
<PAGE>
APPENDIX A
AS AMENDED
AGREEMENT AND PLAN OF MERGER
BETWEEN
CFX CORPORATION
AND
THE SAFETY FUND CORPORATION
JANUARY 5, 1996
A-1
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER AND THE BANK MERGER
<TABLE>
<C> <S> <C>
1.1 The Merger.................................................................... A-6
1.2 Effective Time................................................................ A-6
1.3 Charter and By-laws........................................................... A-6
1.4 Directors and Committees of Surviving Corporation and Buyer................... A-6
1.5 Officers of Surviving Corporation............................................. A-7
1.6 Surviving Bank................................................................ A-7
1.7 Additional Actions............................................................ A-7
1.8 Additional Agreements......................................................... A-8
1.9 Effects of the Merger......................................................... A-8
1.10 The Option Agreement.......................................................... A-8
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion.................................................................... A-8
2.2 Certain Defined Terms......................................................... A-8
2.3 Determination of Applicable Exchange Ratio.................................... A-8
2.4 Pooling of Interests Accounting Exchange Ratios............................... A-9
2.5 Purchase Accounting Exchange Ratios........................................... A-9
2.6 Conversion of Stock........................................................... A-10
2.7 Procedures for Exchange of Safety Fund Common Stock for Merger Consideration.. A-10
2.8 Buyer Sub Common Stock........................................................ A-12
2.9 Dissenters' Rights............................................................ A-12
2.10 Stock Options................................................................. A-12
2.11 Termination, Notice and Cure.................................................. A-13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SAFETY FUND
3.1 Corporate Organization........................................................ A-14
3.2 Capitalization................................................................ A-14
3.3 Authority..................................................................... A-15
3.4 No Violation.................................................................. A-15
3.5 Consents and Approvals........................................................ A-16
3.6 Regulatory Approval........................................................... A-16
3.7 Financial Statements.......................................................... A-16
3.8 Safety Fund Reports........................................................... A-17
3.9 Absence of Certain Changes or Events.......................................... A-17
3.10 Legal Proceedings............................................................. A-17
3.11 Taxes and Tax Returns......................................................... A-18
3.12 Properties.................................................................... A-18
3.13 Certain Contracts............................................................. A-19
3.14 Certain Defaults.............................................................. A-19
3.15 Insurance..................................................................... A-19
3.16 Employee Benefit Plans........................................................ A-20
3.17 Compliance with Applicable Law; Regulatory Examinations....................... A-20
3.18 Broker's Fees................................................................. A-21
3.19 Safety Fund Information....................................................... A-21
</TABLE>
A-2
<PAGE>
<TABLE>
<C> <S> <C>
3.20 Environmental Issues.......................................................... A-21
3.21 Material Interests of Certain Persons......................................... A-21
3.22 Certain Transactions.......................................................... A-21
3.23 Regulatory Agreements......................................................... A-21
3.24 Labor Matters................................................................. A-22
3.25 Administration of Trust Accounts.............................................. A-22
3.26 Intellectual Property......................................................... A-22
3.27 Loan Portfolio................................................................ A-22
3.28 Absence of Undisclosed Liabilities............................................ A-23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Organization........................................................ A-23
4.2 Capitalization................................................................ A-23
4.3 Authority..................................................................... A-23
4.4 No Violation.................................................................. A-24
4.5 Consents and Approvals........................................................ A-24
4.6 Regulatory Approval........................................................... A-24
4.7 Financial Statements.......................................................... A-24
4.8 Buyer Reports................................................................. A-25
4.9 Absence of Certain Changes or Events.......................................... A-25
4.10 Legal Proceedings............................................................. A-25
4.11 Compliance with Applicable Law; Regulatory Examinations....................... A-26
4.12 Broker's Fee.................................................................. A-26
4.13 Buyer Information............................................................. A-26
4.14 Environmental Issues.......................................................... A-26
4.15 Capital....................................................................... A-26
4.16 Regulatory Agreements......................................................... A-27
4.17 Absence of Undisclosed Liabilities............................................ A-27
4.18 Buyer Sub..................................................................... A-27
ARTICLE V
COVENANTS OF SAFETY FUND
5.1 Conduct of Business........................................................... A-27
5.2 No Solicitation............................................................... A-29
5.3 Current Information........................................................... A-29
5.4 Access to Properties and Records.............................................. A-30
5.5 Financial and Other Statements................................................ A-30
5.6 Approval of Safety Fund's Stockholders........................................ A-30
5.7 Disclosure Supplements........................................................ A-30
5.8 Failure to Fulfill Conditions................................................. A-31
5.9 Consents and Approvals of Third Parties....................................... A-31
5.10 All Reasonable Efforts........................................................ A-31
5.11 Safety Fund Subsidiaries...................................................... A-31
</TABLE>
A-3
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VI
COVENANTS OF BUYER
6.1 Conduct of Business........................................................... A-31
6.2 Certain Business Transactions................................................. A-31
6.3 Current Information........................................................... A-32
6.4 Access to Properties and Records.............................................. A-32
6.5 Financial and Other Statements................................................ A-32
6.6 Consents and Approvals of Third Parties....................................... A-32
6.7 All Reasonable Efforts........................................................ A-33
6.8 Failure to Fulfill Conditions................................................. A-33
6.9 Disclosure Supplements........................................................ A-33
6.10 Employee Benefits............................................................. A-33
6.11 Directors and Officers Indemnification and Insurance.......................... A-34
6.12 Stock Exchange Listing........................................................ A-35
6.13 Buyer Sub..................................................................... A-35
ARTICLE VII
REGULATORY AND OTHER MATTERS
7.1 Proxy Statement-Prospectus.................................................... A-36
7.2 Regulatory Approvals.......................................................... A-36
7.3 Affiliates; Publication of Combined Financial Results......................... A-36
ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions to Each Party's Obligations under this Agreement................... A-37
8.2 Conditions to the Obligations of Buyer under this Agreement................... A-38
8.3 Conditions to the Obligations of Safety Fund under this Agreement............. A-39
ARTICLE IX
THE CLOSING
9.1 Time and Place................................................................ A-40
9.2 Deliveries at the Closing..................................................... A-40
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination................................................................... A-40
10.2 Effect of Termination......................................................... A-40
10.3 Expenses...................................................................... A-41
10.4 Amendment, Extension and Waiver............................................... A-41
ARTICLE XI
CERTAIN DEFINITIONS
11.1 Certain Definitions........................................................... A-42
</TABLE>
A-4
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE XII
MISCELLANEOUS
12.1 Confidentiality............................................................... A-42
12.2 Public Announcements.......................................................... A-42
12.3 Survival...................................................................... A-43
12.4 Notices....................................................................... A-43
12.5 Parties in Interest........................................................... A-43
12.6 Complete Agreement............................................................ A-44
12.7 Counterparts.................................................................. A-44
12.8 Severability.................................................................. A-44
12.9 Governing Law................................................................. A-44
12.10 Headings...................................................................... A-44
Index of Defined Terms................................................................. A-45
</TABLE>
A-5
<PAGE>
AGREEMENT AND PLAN OF MERGER (AS AMENDED)
THIS AGREEMENT AND PLAN OF MERGER dated as of January 5, 1996 (this
"AGREEMENT"), by and between CFX Corporation, a New Hampshire corporation
("Buyer"), and The Safety Fund Corporation, a Massachusetts corporation ("SAFETY
FUND"). (Certain capitalized terms used herein shall have the meanings defined
in Section 11.1 hereof.)
WHEREAS, Buyer intends to organize a Massachusetts corporation that will be
a wholly-owned direct or indirect subsidiary of Buyer ("BUYER SUB"); and
WHEREAS, the respective Boards of Directors of Buyer and Safety Fund have
approved the acquisition of Safety Fund by Buyer pursuant to the merger of Buyer
Sub with and into Safety Fund (the "MERGER"); and
WHEREAS, the parties hereto desire that, following the consummation of the
Merger, Safety Fund will merge with and into Buyer (the "BHC MERGER") pursuant
to a merger agreement in a form to be specified by Buyer and reasonably
satisfactory to Safety Fund and consistent with the terms of this Agreement, and
that Buyer may cause the merger of Orange Savings Bank ("ORANGE SAVINGS"), a
wholly-owned subsidiary of Buyer, with Safety Fund National Bank ("SFNB"), a
wholly-owned subsidiary of Safety Fund (the "BANK MERGER"), pursuant to a merger
agreement (the "BANK MERGER AGREEMENT") in a form to be specified by Buyer and
reasonably satisfactory to Safety Fund and consistent with the terms of this
Agreement;
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 AND THE BANK MERGER
1.1 THE MERGER. As promptly as practicable following the satisfaction or
waiver of the conditions to the parties' respective obligations hereunder, and
subject to the terms and conditions of this Agreement, at the Effective Time (as
defined in Section 1.2 hereof): (a) unless theretofore done, Buyer shall
organize the Buyer Sub in accordance with Massachusetts law; (b) Buyer Sub shall
be merged with and into Safety Fund, with Safety Fund as the surviving
corporation (the "SURVIVING CORPORATION"); and (c) the separate existence of
Buyer Sub shall cease and all of the rights, privileges, powers, franchises,
properties, assets, liabilities and obligations of Buyer Sub shall be vested in
and assumed by Safety Fund.
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 (or a subsequent date not later than the
opening of business on the next business day) 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 the Surviving
Corporation shall be the Articles of Organization, as amended (the "CHARTER"),
and By-laws of Buyer Sub as in effect immediately prior to the Effective Time,
until thereafter amended as provided therein and by applicable law.
1.4 DIRECTORS AND COMMITTEES OF SURVIVING CORPORATION AND BUYER.
(a)The Directors of Buyer Sub immediately prior to the Effective Time shall
be the initial Directors of Surviving Corporation, each to hold office in
accordance with the Charter and By-Laws of Surviving Corporation.
(b)Prior to or at the Effective Time, four directors of Safety Fund to be
designated by Buyer after consultation with Safety Fund shall be elected
to the Board of Directors of Buyer, to be divided
A-6
<PAGE>
proportionately among the classes. The Board of Directors of Buyer shall
nominate such persons for re-election, and support their re-election at the next
succeeding annual meeting of shareholders of Buyer to its Board of Directors, to
be divided proportionately among the classes of directors. Prior to the
Effective Time, Buyer, in consultation with Safety Fund, shall reconstitute the
committees of its Board of Directors (as well as its joint management-Board
committees) so as to achieve substantially proportionate representation, taking
into account to the extent practicable the specific skills, education and
experience of the various designees, for the directors of Safety Fund designated
to become directors of Buyer.
1.5 OFFICERS OF SURVIVING CORPORATION. The officers of Buyer Sub
immediately prior to the Effective Time shall be the initial officers of
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
1.6 SURVIVING BANK.
(a)In the event Buyer determines to accomplish the Bank Merger immediately
following the Merger and the BHC Merger:
(1) The Bank Merger Agreement shall specify which of SFNB and Orange
Savings shall be the surviving bank in the Bank Merger ("SURVIVING
BANK"), provided that the name of the Surviving Bank shall include the words
"Safety Fund".
(2) Buyer agrees, to the extent permitted by applicable law and
appropriate federal and state bank regulators, to maintain the
Surviving Bank in existence as a separate subsidiary for at least three
years following the Effective Time, subject to regulatory considerations,
safe and sound banking practices, and the fiduciary duties of Buyer's
directors.
(3) The officers of SFNB immediately prior to the Effective Time shall
continue to be the officers of the Surviving Bank following the
Effective Time, each to hold office in accordance with the Charter and
By-Laws of the Surviving Bank. Nine directors of SFNB to be designated by
Buyer after consultation with Safety Fund shall continue to be directors of
the Surviving Bank following the Effective Time, each to hold office in
accordance with the Charter and By-Laws of the Surviving Bank. Buyer intends
initially to elect up to three additional directors to serve on the Board of
the Surviving Bank. Buyer agrees that the continuing directors of SFNB 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.
(4) To the extent any of the Persons designated in this Agreement to
serve as a director of Buyer or Surviving Bank is unable or
unwilling, as of the Effective Time, to serve in such position, Buyer and
Safety Fund shall agree on another member of the SFNB Board to serve as a
replacement for such designee.
(b)In the event Buyer determines not to accomplish the Bank Merger
immediately following the Merger and the BHC Merger, Buyer agrees to take
all the measures specified in Sections 1.6(a)(2), (3) and (4) with respect to
SFNB to the same extent as they would have been applied to the Surviving Bank.
(c)Nothing herein shall be deemed to preclude Buyer from accomplishing the
Bank Merger at any time from and after the Effective Time as may be
determined by the Board of Directors of Buyer.
1.7 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation 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 Corporation, title to
and possession of any property or right of Buyer Sub 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, Buyer Sub and its proper officers and directors
shall be deemed to have granted to Surviving Corporation 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
A-7
<PAGE>
or rights in Surviving Corporation and otherwise to carry out the purposes of
this Agreement; and the proper officers and directors of Surviving Corporation
are fully authorized in the name of Buyer Sub or otherwise to take any and all
such action.
1.8 ADDITIONAL AGREEMENTS. Safety Fund shall cause SFNB to execute and
deliver the Bank Merger Agreement as soon as practicable following Buyer's
request therefor. Safety Fund shall, and shall cause SFNB to, execute all other
documents and take all actions as may be necessary or desirable for consummation
of the BHC Merger and the Bank Merger, as described in the recitals hereto.
1.9 EFFECTS OF THE MERGER. 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.
1.10 THE OPTION AGREEMENT. The parties acknowledge that Safety Fund and
Buyer have entered into that certain Stock Option Agreement dated as of even
date herewith (the "OPTION AGREEMENT") pursuant to which Safety Fund has granted
to Buyer the right to purchase certain shares of Safety Fund Common Stock (as
defined in Section 2.1 hereof) upon terms and conditions specified in the Option
Agreement.
ARTICLE II
CONVERSION OF SHARES
2.1 CONVERSION. At the Effective Time, each share of common stock, par
value $5.00 per share, of Safety Fund ("SAFETY FUND COMMON STOCK") issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as such term is defined in Section hereof) and other than Safety Fund
Common Stock then owned by Safety Fund, any Safety Fund Subsidiary, Buyer, or
any Buyer Subsidiary (in each case other than in a fiduciary capacity or in
connection with debts previously contracted)), including each attached right
issued pursuant to the Shareholder Rights Plan (as hereinafter defined), shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and exchangeable for an amount of common stock, par
value $0.66 2/3 per share, of Buyer ("BUYER COMMON STOCK") equal to one share
multiplied by the appropriate Exchange Ratio (rounded to the nearest four
decimal places) determined in accordance with Section 2.4 or Section 2.5 hereof,
as the case may be (the "MERGER CONSIDERATION").
2.2 CERTAIN DEFINED TERMS. As used herein, the following capitalized terms
shall have the specified values or meanings.
(a)"BUYER INDEX PRICE" shall mean $15.54 per share of Buyer Common Stock.
(b)"BUYER TRADING PRICE" shall mean the average closing price of Buyer
Common Stock on the American Stock Exchange ("STOCK EXCHANGE") (as
reported by THE WALL STREET JOURNAL or, if not reported thereby, another
authoritative source) for the ten consecutive trading days ending on the
business day before the date on which the last regulatory approval required to
consummate the transactions contemplated hereby is obtained.
(c)"POOLING DETERMINATION" shall mean either (i) a determination by Buyer
that it is permissible under applicable financial and regulatory
accounting principles for Buyer to record the Merger under the pooling of
interests method of accounting or (ii) a determination that, solely as a result
of actions of Buyer in breach of this Agreement, it is impermissible under
applicable financial and regulatory accounting principles for Buyer to record
the Merger under the pooling of interests method of accounting and that Buyer
will be required to use the purchase method of accounting for the Merger.
2.3 DETERMINATION OF APPLICABLE EXCHANGE RATIO. The parties expect the
Merger to be accounted for under the pooling of interests method of accounting.
In view of the fact that, among other possibilities, a shareholder might take
actions so as to preclude pooling treatment for the Merger, the parties have
agreed that the Merger Consideration shall be paid as follows. Not later than
the second
A-8
<PAGE>
business day preceding the Effective Time, Buyer shall consult with its
independent certified public accountants as to whether a Pooling Determination
can be made, and shall promptly advise Safety Fund of the determination. If, as
of the close of business on the day preceding the Effective Time, a Pooling
Determination shall have been made, the Exchange Ratio shall be the Pooling
Exchange Ratio and the provisions of Section 2.4 shall apply. If as of such time
it shall not have been possible to make a Pooling Determination the Exchange
Ratio shall be the Purchase Exchange Ratio and the provisions of Section 2.5
shall apply.
2.4 POOLING OF INTERESTS ACCOUNTING EXCHANGE RATIOS. The "POOLING EXCHANGE
RATIO" shall be determined as follows:
(a) If the Buyer Trading Price is equal to or greater than 85 percent of
the Buyer Index Price and is no greater than 115 percent of the Buyer
Index Price, the Pooling Exchange Ratio shall be 1.700.
(b) If the Buyer Trading Price is greater than 115 percent of the Buyer
Index Price and is no greater than 120 percent of the Buyer Index
Price, the Pooling Exchange Ratio shall be equal to:
Buyer Index Price X 1.955
Buyer Trading Price
(c) If the Buyer Trading Price is greater than 120 percent of the Buyer
Index Price, the Pooling Exchange Ratio shall be 1.629.
(d) If the Buyer Trading Price is less than 85 percent of the Buyer Index
Price and is equal to or greater than 80 percent of the Buyer Index
Price, the Pooling Exchange Ratio shall be equal to:
Buyer Index Price X 1.445
Buyer Trading Price
(e) If the Buyer Trading Price is less than 80 percent of the Buyer Index
Price, the Pooling Exchange Ratio shall be 1.806 unless the Buyer
Trading Price is less than 75 percent of the Buyer Index Price and the
Pooling Exchange Ratio is increased or this Agreement is terminated in
accordance with the terms of Section 2.11 hereof.
(f) Notwithstanding any other provisions of this Section 2.4, 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 Pooling Exchange Ratio shall not be
less than 1.700.
2.5 PURCHASE ACCOUNTING EXCHANGE RATIOS. The "PURCHASE EXCHANGE RATIO"
shall be determined as follows:
(a) If the Buyer Trading Price is equal to or greater than $13.16 and is
less than $16.45, the Purchase Exchange Ratio shall be equal to
1.520.
(b) If the Buyer Trading Price is equal to or greater than $16.45 and
less than $20.84, the Purchase Exchange Ratio shall be equal to:
$25.00
------------------
Buyer Trading Price
(c) If the Buyer Trading Price is equal to or greater than $20.84, the
Purchase Exchange Ratio shall be equal to 1.200.
A-9
<PAGE>
(d) If the Buyer Trading Price is less than $13.16 and equal to or
greater than $12.50, the Purchase Exchange Ratio shall be:
$20.00
------------------
Buyer Trading Price
(e) If the Buyer Trading Price is less than $12.50 the Purchase Exchange
Ratio shall be 1.600 unless the Purchase Exchange Ratio is increased
or this Agreement is terminated in accordance with the terms of Section 2.12
hereof.
(f) Notwithstanding any other provisions of this Section 2.5, 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 Purchase Exchange Ratio shall not be
less than 1.520.
2.6 CONVERSION OF STOCK.
(a)All Safety Fund Common Stock converted into Buyer Common Stock pursuant
to this Article II 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 Safety Fund 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
Safety Fund Common Stock represented by such Certificate have been converted.
Certificates previously representing Safety Fund Common Stock shall be exchanged
for certificates representing whole shares of Buyer Common Stock and cash in
lieu of fractional shares issued in consideration therefor upon the surrender of
such Certificates in accordance with this Section 2.6, without any interest
thereon.
(b)If prior to the Effective Time Buyer should split or combine its common
stock (or other securities which are convertible into such common stock)
or pay a dividend or other distribution in such common stock or convertible
securities, all without Buyer receiving consideration therefor, then an
appropriate and proportionate adjustment shall be made to the Exchange Ratio,
the Buyer Index Price and the Buyer Trading Price.
(c)At the Effective Time, all shares of Safety Fund Common Stock held in the
treasury of Safety Fund other than in a fiduciary capacity or in
connection with debts previously contracted and all shares of Safety Fund Common
Stock owned by Buyer or owned beneficially by any subsidiary of Buyer other than
in a fiduciary capacity or in connection with debts previously contracted shall
be cancelled and no cash, stock or other property shall be delivered in exchange
therefor.
2.7 PROCEDURES FOR EXCHANGE OF SAFETY FUND 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 2.7, certificates representing shares of Buyer
Common Stock and the cash in lieu of fractional shares to be paid pursuant to
this Section 2.7 (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 Safety Fund Common Stock in accordance with this
Agreement. The Exchange Agent shall be such banking institution, corporate trust
company, or other stock transfer agent appointed by Buyer and reasonably
satisfactory to Safety Fund to act as exchange agent hereunder. The Exchange
Agent shall act as agent on behalf of record holders (individually, a "RECORD
HOLDER") of Safety Fund Common Stock at the Effective Time, other than Safety
Fund, any Safety Fund Subsidiary, Buyer, or any Buyer Subsidiary (in each case
other than in a fiduciary capacity or in connection with 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
A-10
<PAGE>
effecting the surrender of the Certificates for certificates representing the
Buyer Common Stock and the cash in lieu of fractional shares into which the
Safety Fund 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 Safety Fund) 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 Safety Fund Common
Stock shall have become entitled pursuant to the provisions of this Section 2.7
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 Section 2.7, and the
Certificates so surrendered shall forth with 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. Certificates surrendered for
exchange by any person who is an "affiliate" of Safety Fund for purposes of Rule
145(c) under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
shall not be exchanged for certificates representing shares of Buyer Common
Stock until Buyer has received the written agreement of such person contemplated
by Section 7.3 hereof.
(c) RIGHTS OF CERTIFICATE HOLDERS AFTER THE EFFECTIVE TIME. The holder of
a Certificate that prior to the Merger represented issued and outstanding Safety
Fund Common Stock shall have no rights, after the Effective Time, with respect
to such Safety Fund 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. No dividends or
other distributions declared after the Effective Time with respect to Buyer
Common Stock shall be paid to the holder of any unsurrendered Certificate until
the holder thereof shall surrender such Certificate in accordance with this
Section 2.7. After the surrender of a Certificate in accordance with this
Section 2.7, the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Buyer Common Stock
represented by such Certificate.
(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 Safety Fund Common Stock who otherwise
would be entitled to receive a fractional share of Buyer Common Stock, an amount
in cash determined by multiplying 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 the fraction of a share of Buyer Common Stock which such holder would
otherwise be entitled to receive pursuant to Section 2.7(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
A-11
<PAGE>
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 Safety Fund of the Safety
Fund Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates representing such shares are
presented for transfer to the Exchange Agent, they shall be exchanged for the
Merger Consideration and cancelled as provided in this Section 2.7.
(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 maybe 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.
2.8 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 share of common stock of the Surviving Corporation at the Effective Time.
2.9 DISSENTERS' RIGHTS. Notwithstanding anything in this Agreement to the
contrary and unless otherwise provided by applicable law, Safety Fund Common
Stock which is issued and outstanding immediately prior to the Effective Time
and which is owned by stockholders who, pursuant to applicable law, (a) deliver
to Safety Fund in the manner provided by law, before the taking of the vote of
Safety Fund'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, 86-98 of
the Massachusetts Business Corporation Law (as amended, the "MBCL"). If any such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such right of appraisal, the Safety Fund Common Stock of such holder shall there
upon 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.
2.10 STOCK OPTIONS. (a) At the Effective Time, each holder of a then
outstanding stock option to purchase Safety Fund Common Stock ("SAFETY FUND
OPTION") pursuant to the 1984 Incentive Stock Option Plan or the 1994 Incentive
and Nonqualified Stock Option Plan (collectively, the "SAFETY FUND STOCK OPTION
PLANS") (it being understood that the aggregate number of shares of Safety Fund
Common Stock subject to purchase pursuant to the exercise of such Safety Fund
Options is not and shall not be more than 65,850), whether vested or unvested,
will be assumed by Buyer. Each Safety Fund Option so assumed by Buyer under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Safety Fund Stock Option Plans immediately prior to
the Effective Time, except that (i) such Safety Fund Option shall be exercisable
(when vested) for that number of whole shares of Buyer Common Stock equal to the
product of the number of shares of Safety Fund Common Stock covered by the
Safety Fund Option multiplied by the Exchange Ratio,
A-12
<PAGE>
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 Safety Fund Common Stock of such Safety Fund Option, divided by the
Exchange Ratio, provided that such exercise price shall be rounded up to the
nearest cent.
(b)After the Effective Time, Buyer shall issue to each holder of an
outstanding Safety Fund Option a document evidencing the foregoing
assumption of such Safety Fund Option by Buyer.
(c)It is the intention of the parties that the Safety Fund Options assumed
by Buyer qualify following the Effective Time as incentive stock options
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE") to the extent that the Safety Fund Options qualified as incentive stock
options immediately prior to the Effective Time.
(d)Buyer shall not issue or pay for any fractional share otherwise issuable
upon exercise of a Safety Fund Option. Prior to the Effective Time, Buyer
shall reserve for issuance (and, if not previously registered pursuant to 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 Safety Fund Options.
(e)The provisions of this Section 2.10 are expressly intended to be for the
irrevocable benefit of, and shall be enforceable by, each holder of a
Safety Fund Option and his or her heirs and representatives.
2.11 TERMINATION, NOTICE AND CURE. (a) If (i) the Buyer Trading Price is
less than $11.65 and a Pooling Determination can be made or (ii) the Buyer
Trading Price is less than $12.50 and a Pooling Determination cannot be made,
Safety Fund may elect by giving written notice to Buyer prior to the third
business day immediately preceding the Closing Date to terminate this Agreement
pursuant to Section 10.1(f). Within two business days thereafter:
(1) in the event the Exchange Ratio is a Pooling Exchange Ratio, Buyer
may elect to increase the Exchange Ratio to:
$21.06
----------------------
Buyer Trading Price
and
(2) in the event the Exchange Ratio cannot be a Pooling Exchange Ratio,
Buyer may elect either to (X) increase the Exchange Ratio to that
Exchange Ratio which when multiplied by the Buyer Trading Price has a value
of $20.00 or (Y) offer an Exchange Ratio of 1.600 plus an amount of cash
which when added to the product of 1.600 and the Buyer Trading Price has an
aggregate value of $20.00 per share of Safety Fund Common Stock;
(b)In the event Buyer makes an election referred to in the preceding Section
2.11(a), this Agreement shall not terminate and the Exchange Ratio shall
be determined in accordance with such Section 2.11(a). In the event Buyer does
not elect to increase the Exchange Ratio, this Agreement shall terminate on the
date established as the Closing Date with the consequences specified in Section
10.2 hereof.
A-13
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SAFETY FUND
Safety Fund hereby represents and warrants to Buyer as follows:
3.1 CORPORATE ORGANIZATION. (a) Safety Fund is a corporation, duly
organized and validly existing and in good standing under the laws of The
Commonwealth of Massachusetts, and is registered as a bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHCA"). The subsidiaries
listed in Exhibit 21 of Safety Fund's Annual Report on Form 10-KSB for the year
ended December 31, 1994 constitute all of Safety Fund's subsidiaries (the
"SAFETY FUND SUBSIDIARIES"). Except as set forth in SCHEDULE 3.1 of the Safety
Fund Disclosure Schedules (the "SCHEDULES"), each of the Safety Fund
Subsidiaries is a bank or corporation, in each case duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. SFNB is a national banking association organized under the
National Bank Act. Each of Safety Fund and the Safety Fund 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 Safety Fund and the
Safety Fund Subsidiaries, taken as a whole.
(b)Neither Safety Fund nor any of the Safety Fund 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"),
other than as disclosed on SCHEDULE 3.1 hereto and except, in the case of Safety
Fund, for stock of the Safety Fund Subsidiaries.
3.2 CAPITALIZATION. (a) The authorized capital stock of Safety Fund
consists solely of 3,200,000 shares of Safety Fund Common Stock and 100,000
shares of preferred stock, $10.00 par value ("SAFETY FUND PREFERRED SHARES").
There are 1,660,665 shares of Safety Fund Common Stock issued and outstanding,
no shares of Safety Fund Common Stock held in its treasury and no Safety Fund
Preferred Shares issued and outstanding or held in its treasury. In connection
with the shareholder rights plan ("SHAREHOLDER RIGHTS PLAN") adopted by Safety
Fund as of the date of this Agreement, an aggregate of 3,200 shares of its
Series A Participating Cumulative Preferred Stock (the "SERIES A PREFERRED")
have been created and have been reserved for issuance. All issued and
outstanding Safety Fund Common Stock has been, and the Series A Preferred upon
issuance will be, duly authorized, validly issued, fully paid, nonassessable,
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. The authorized, issued and outstanding capital stock of each
Safety Fund Subsidiary is set forth in SCHEDULE 3.2 hereto. All issued and
outstanding shares of each of the Safety Fund 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 Safety
Fund Subsidiaries are owned by Safety Fund and are held by Safety Fund free and
clear of any security interest, pledge, lien, claim or other encumbrance or
restriction on voting or transfer.
(b)Except pursuant to the Option Agreement and the Shareholder Rights Plan
and except for options to acquire not more than 50,850 shares of Safety
Fund Common Stock pursuant to stock options outstanding as of the date hereof
under the Safety Fund Stock Option Plans, neither Safety Fund nor any of the
Safety Fund 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 Safety Fund, or shares of any of the Safety
Fund
A-14
<PAGE>
Subsidiaries. The names of the optionees, the date of grant of each option to
purchase Safety Fund 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 Safety Fund Stock Option Plans are set
forth on SCHEDULE 3.2. Except as set forth on SCHEDULE 3.2 and except for
restrictions on transferability of rights granted pursuant to the Shareholder
Rights Plan (as set forth in such Shareholder Rights Plan), 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 Safety Fund is a party, nor
does Safety Fund have knowledge of any such agreements or understandings to
which Safety Fund is not a party with respect to the voting of any such shares
or which restrict the transfer of such shares. The Safety Fund Common Stock is
listed on the Nasdaq small-cap market.
3.3 AUTHORITY. Safety Fund has full corporate power and authority to
execute and deliver this Agreement and the Option Agreement and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly approved by at least
a majority of Safety Fund's directors. The Board of Directors of Safety Fund has
directed that this Agreement and the transactions contemplated hereby be
submitted to Safety Fund's stockholders for approval at a meeting of such
stockholders and has recommended approval of this Agreement by Safety Fund's
stockholders. Except for the adoption of this Agreement by a vote of the holders
of a majority of the outstanding shares of Safety Fund Common Stock and except
for any actions required or appropriate to be taken by Safety Fund with respect
to the rights of any dissenting shareholders under Chapter 156B,
SectionSection86-98 of the MBCL, no other corporate proceedings on the part of
Safety Fund are necessary to consummate the transactions contemplated by this
Agreement. Each of this Agreement and the Option Agreement has been duly and
validly executed and delivered by Safety Fund, constitutes avalid and binding
obligation of Safety Fund, and is enforceable against Safety Fund in accordance
with its terms, subject to (i) bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights and remedies of creditors
generally and (ii) general principles of equity, regardless of whether
enforcement is sought in proceedings in equity or at law.
3.4 NO VIOLATION. Neither the execution and delivery of this Agreement or
the Option Agreement by Safety Fund, nor the consummation by Safety Fund of the
transactions contemplated hereby or thereby, nor the compliance by Safety Fund
with any of the terms or provisions hereof, does or will:
(a) violate any provision of the Charter or By-laws of Safety Fund or any
of the Safety Fund 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 Safety Fund or any of the Safety
Fund 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 Safety Fund and the Safety Fund
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 Safety Fund or any of the Safety Fund 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 Safety Fund or any of the Safety
Fund Subsidiaries is a party, or by which they or any of their respective
properties or assets may
A-15
<PAGE>
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 Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
3.5 CONSENTS AND APPROVALS. Neither the execution, delivery and
performance of this Agreement or the Option Agreement by Safety Fund nor
consummation of the transaction contemplated hereby or thereby requires 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 Securities Act, the Exchange Act, state
takeover laws, and filing and recordation of appropriate merger documents as
required by Massachusetts, New Hampshire and Federal 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 Office of the Comptroller of
the Currency (the "OCC"), the Massachusetts Board of Bank Incorporation (the
"BBI"), the Massachusetts Commissioner of Banks ("MASSACHUSETTS COMMISSIONER"),
and the Massachusetts Housing Partnership Fund ("MHP") (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, the BHC Merger or the
Bank Merger or otherwise prevent Safety Fund from performing its obligations
under this Agreement, or would not have a Material Adverse Effect on Safety Fund
and the Safety Fund Subsidiaries, taken as a whole, or on Buyer.
3.6 REGULATORY APPROVAL. Safety Fund is not aware of any reason why the
conditions set forth in Section 8.1(c) hereof would not be satisfied without
significant delay. Safety Fund is not aware of any reason why the Merger cannot
qualify as a "pooling of interests" for accounting purposes.
3.7 FINANCIAL STATEMENTS. (a) The consolidated balance sheets of Safety
Fund as of December 31, 1994 and 1993, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the years
ended December 31, 1994, 1993 and 1992, certified by KPMG Peat Marwick LLP for
1994 and by Ernst & Young LLP for 1993 and 1992 in the form delivered to Buyer
prior to execution and delivery of this Agreement (all of the above being
collectively referred to as the "SAFETY FUND AUDITED FINANCIAL STATEMENTS"),
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis (except as may be indicated in the
footnotes thereto and except as required or permitted by SFAS 109 and 115) and
present fairly in all material respects the consolidated financial position of
and results of operations of Safety Fund at the dates, and for the periods,
stated therein.
(b)The consolidated balance sheets of Safety Fund as of September 30, 1995
and 1994, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the nine months ended September 30,
1995 and 1994 in the form delivered to Buyer prior to execution and delivery of
this Agreement (herein after referred to collectively as the "SAFETY FUND
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 Safety Fund 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 GAAP
applied on a consistent basis (except for the omission of notes to the Safety
Fund Interim Financial Statements and year-end adjustments to interim results,
which adjustments will not be material, and except as required or permitted by
SFAS 109 and 115) with all prior periods and throughout the periods indicated.
(c)The Safety Fund Audited Financial Statements and the Safety Fund Interim
Financial Statements are herein referred to together as the "SAFETY FUND
FINANCIAL STATEMENTS."
(d)The books and records of Safety Fund and each Safety Fund Subsidiary
fairly reflect in all material respects the transactions to which it is a
party or by which its properties are subject or bound. Such books and records
have been properly kept and maintained and are incompliance in all material
respects with all applicable legal and accounting requirements. The minute books
of Safety Fund and
A-16
<PAGE>
the Safety Fund Subsidiaries contain records which are accurate in all material
respects of all corporate actions of the respective shareholders and Board of
Directors (including committees of its Board of Directors).
3.8 SAFETY FUND REPORTS. Since January 1, 1991, Safety Fund and the Safety
Fund Subsidiaries have filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that were required
to be filed (except where the failure to do so would not, individually or in the
aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund
Subsidiaries, taken as a whole), with (i) the Securities and Exchange Commission
("SEC") pursuant to the Securities Act or the Exchange Act, (ii) the OCC, (iii)
the Federal Reserve, and (iv) any applicable state securities or banking
authorities (all such reports and statements are collectively referred to herein
as the "SAFETY FUND REPORTS"). As of their respective dates, no such Safety Fund
Reports filed with the SEC contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information filed as of a later date
shall be deemed to modify information as of an earlier date and except that
Safety Fund has corrected a scrivener's error with a filing of an amended Form
10-QSB, for the quarter ended September 30, 1995.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on SCHEDULE
3.9 hereto, since December 31, 1994, Safety Fund and the Safety Fund
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 Safety
Fund and the Safety Fund 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 compensation payable or to become payable to any of the officers,
directors or employees of Safety Fund or any of the Safety Fund 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 Safety Fund and the Safety Fund
Subsidiaries, taken as a whole);
(d) any change in any of the accounting methods or practices of Safety
Fund or anyof the Safety Fund Subsidiaries other than changes
required by applicable law or by GAAP;
(e) any change in the credit policies or procedures of Safety Fund or any
Safety Fund 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 Safety Fund or any Safety Fund
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 Safety Fund and the Safety Fund Subsidiaries, taken
as a whole, neither Safety Fund nor any of the Safety Fund Subsidiaries is a
party to any, and there are no pending or, to the best of Safety Fund's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental investigations of any nature by or against
Safety Fund or any of the Safety Fund Subsidiaries; and neither Safety Fund nor
any of the Safety Fund Subsidiaries is a party to or subject to any order,
judgment or decree.
A-17
<PAGE>
(b)SCHEDULE 3.10 lists, as of the date of this Agreement, all pending
litigation involving any claim against Safety Fund or any Safety Fund
Subsidiary, whether directly or by counterclaim, involving a "lender liability"
cause of action.
(c)There are no actions, suits or proceedings instituted, pending or, to the
knowledge of Safety Fund, threatened (and which if asserted would be
reasonably likely to have an unfavorable outcome) against any present or former
director or officer of Safety Fund or any Safety Fund Subsidiary that might give
rise to a claim for indemnification against Safety Fund or any Safety Fund
Subsidiary that is reasonably likely to have a Material Adverse Effect on Safety
Fund and the Safety Fund Subsidiaries, taken as a whole.
3.11 TAXES AND TAX RETURNS. (a) Safety Fund, all Safety Fund
Subsidiaries, and all predecessors of Safety Fund 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 Safety Fund and the Safety Fund 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 Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
(b)Safety Fund, all Safety Fund Subsidiaries, and all predecessors of Safety
Fund have paid or, where payment is not required to have been made, have
set up adequate reserves or accruals in the Safety Fund Financial Statements for
the payment of all taxes required to be paid in respect of the periods covered
by such returns and as of the date hereof, 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 Safety Fund and the
Safety Fund Subsidiaries, taken as a whole. As of the respective dates of the
Safety Fund Financial Statements in which such reserves or accruals are
established and the date hereof, neither Safety Fund nor any Safety Fund
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 Safety Fund and the
Safety Fund 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 Safety Fund Financial Statements, neither Safety Fund nor any
of the Safety Fund 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 Safety Fund and the Safety Fund 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)No material deficiencies for any tax, assessment or governmental charge
have been proposed, asserted or assessed (tentatively or definitively)
against Safety Fund or any of the Safety Fund Subsidiaries which have not been
settled and paid or adequately reserved against in the Safety Fund Financial
Statements and no requests for waivers of the time to assess any tax are
pending. Safety Fund and the Safety Fund Subsidiaries file consolidated federal
income tax returns. Safety Fund's consolidated federal income tax returns have
not been audited by the IRS since prior to 1988.
(d)None of the transactions contemplated hereby or the termination of the
employment of any employee of Safety Fund or any Safety Fund Subsidiary
prior to or following consummation of the transactions contemplated hereby could
result in Buyer or any Buyer Subsidiary making or being required to make any
"excess parachute payment" as that term is defined in Section 280G of the Code.
3.12 PROPERTIES. Except (i) as may be reflected in the Safety Fund
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 that do not have a Material Adverse Effect on the value of personal or
real property reflected in the Safety Fund 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, Safety Fund and the
Safety
A-18
<PAGE>
Fund 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 Safety Fund included in the
Safety Fund 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. Except as set forth in SCHEDULE 3.13 hereto and
except for agreements, indentures, arrangements and contracts which are exhibits
to Safety Fund's Annual Report on Form 10-KSB for the year ended December 31,
1994, accurate copies of which have been made available to Buyer, neither Safety
Fund nor any of the Safety Fund Subsidiaries 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 10-K or 10-KSB 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 Safety Fund and the Safety Fund Subsidiaries,
taken as a whole,
(b) any agreement, indenture or other instrument relating to the
borrowing of money by Safety Fund or any Safety Fund Subsidiary or
the guarantee by Safety Fund or any Safety Fund Subsidiary of any such
obligation (other than instruments relating to transactions entered into in
the ordinary course of the business of Safety Fund or in the ordinary course
of business of any Safety Fund 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,
(e) any agreement (other than any agreement (x) with a banking customer
entered into by any Safety Fund Subsidiary in the ordinary course of
business under which any Safety Fund Subsidiary 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 Safety Fund or any Safety Fund Subsidiary,
or
(f) any agreement containing covenants that limit the ability of Safety
Fund or any Safety Fund Subsidiary to compete in any line of business
or with any person, or that involve any restriction on the geographic area
in which, or method by which, Safety Fund or any Safety Fund Subsidiary may
carry on its business.
3.14 CERTAIN DEFAULTS. Except as set forth in SCHEDULE 3.14 hereto,
neither Safety Fund nor any Safety Fund Subsidiary, nor, to the knowledge of
Safety Fund, 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 Safety Fund or any
Safety Fund Subsidiary has borrowed funds or is otherwise the obligor, which
default would have a Material Adverse Effect on Safety Fund and the Safety Fund
Subsidiaries, taken as a whole.
3.15 INSURANCE. (a) The deposit accounts of any Safety Fund Subsidiary
which are of an insurable type are insured by the FDIC to the extent permitted
by the Bank Insurance Fund of the FDIC.
(b)Safety Fund has made available to Buyer correct and complete copies of
all material policies of insurance of Safety Fund and the Safety Fund
Subsidiaries currently in effect. Neither Safety Fund nor any of the Safety Fund
Subsidiaries has any liability for unpaid premiums or premium adjustments not
properly reflected on Safety Fund's financial statements included in Safety
Fund's Quarterly Report on Form 10-QSB for the period ended September 30, 1995,
except for any such liability that would not have a Material Adverse Effect on
Safety Fund and the Safety Fund Subsidiaries,
A-19
<PAGE>
taken as a whole. Except as set forth on SCHEDULE 3.15 hereto, neither Safety
Fund nor any Safety Fund 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 Safety Fund nor any of the Safety Fund Subsidiaries has any
obligation, contingent or otherwise, under any employment, consulting,
retirement or severance agreement which would require Safety Fund or any Safety
Fund 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 Safety Fund
nor any Safety Fund Subsidiary maintains or contributes to any "multi-employer
plan" as that term is defined at Section 4001(a)(3) of ERISA, and neither Safety
Fund nor any Safety Fund Subsidiary has incurred any material liability under
Section 4062, 4063 or 4201 of ERISA. To the knowledge of Safety Fund, each
pension plan, as defined at Section 3(2) of ERISA, maintained by Safety Fund or
any Safety Fund 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 Safety Fund, since January 1, 1991,
(i) each welfare plan, as defined at Section 3(1) of ERISA, maintained by Safety
Fund or a Safety Fund 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 Safety Fund or any Safety Fund 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 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 Safety Fund and the Safety Fund Subsidiaries, covering employees
or former employees of Safety Fund and the Safety Fund Subsidiaries.
(d)Safety Fund 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) Safety
Fund and each of the Safety Fund 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 Safety Fund or any of the Safety Fund 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 Safety Fund and the Safety Fund Subsidiaries taken as a whole, and
neither Safety Fund or any of the Safety Fund 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 Safety Fund and the Safety Fund
Subsidiaries and except as set forth on SCHEDULE 3.17 hereto, no regulatory
agency has initiated any proceeding or, to the best knowledge of Safety Fund,
investigation into the business or operations of Safety Fund or any of the
Safety Fund Subsidiaries
A-20
<PAGE>
since prior to December 31, 1991. Safety Fund has not received any objection
from any regulatory agency to Safety Fund's response to any violation, criticism
or exception with respect to any report or statement relating to any
examinations of Safety Fund or any of the Safety Fund Subsidiaries.
3.18 BROKER'S FEES. Neither Safety Fund, any Safety Fund 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 Safety Fund has engaged, and will
pay a fee to, McConnell, Budd & Downes, Inc. (the "SAFETY FUND INVESTMENT
ADVISOR"). The Safety Fund Investment Advisor has delivered an opinion to the
Board of Directors of Safety Fund stating its opinion that the consideration to
be received by Safety Fund's stockholders pursuant to the Merger is fair to such
stockholders, from a financial point of view.
3.19 SAFETY FUND INFORMATION. The information relating to Safety Fund and
the Safety Fund 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, the BHC Merger, the Bank 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, Safety Fund 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 Safety Fund and the Safety Fund Subsidiaries, taken
as a whole: (i) neither Safety Fund nor any of the Safety Fund 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
Safety Fund or any Safety Fund Subsidiary (including, without limitation, soils
and surface and ground waters) are contaminated with any Hazardous Substance (as
defined in Section 11.1); (iii) neither Safety Fund nor any of the Safety Fund
Subsidiaries is liable for any off-site contamination; (iv) neither Safety Fund
nor any of the Safety Fund Subsidiaries is liable under any Environmental Law;
and (v) Safety Fund and each of the Safety Fund 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 on
SCHEDULE 3.21 or in the proxy statement for Safety Fund's 1995 Annual Meeting of
Stockholders, to the knowledge of Safety Fund, no officer or director of Safety
Fund, 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 Safety Fund or any of the Safety Fund
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, 1994, neither Safety Fund
nor any Safety Fund Subsidiary has entered into any material transactions
involving interest rate and currency swaps, options and futures contracts, or
any other similar transactions, except as disclosed in Schedule 3.22 hereto.
3.23 REGULATORY AGREEMENTS. Neither Safety Fund nor any Safety Fund
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 OCC, the Federal
A-21
<PAGE>
Reserve or any other financial services regulatory agency that relates to the
conduct of the business of Safety Fund or any Safety Fund Subsidiary, nor has
Safety Fund or any of the Safety Fund 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 LABOR MATTERS. With respect to their employees, neither Safety Fund
nor any Safety Fund Subsidiary has engaged in any unfair labor practice as
defined under applicable federal law. Since January 1, 1994, Safety Fund and the
Safety Fund Subsidiaries have not experienced any attempt by organized labor or
its representatives to make Safety Fund or any Safety Fund Subsidiary conform to
demands of organized labor relating to their employees or to enter into a
binding agreement with organized labor that would cover the employees of Safety
Fund or any Safety Fund Subsidiary. There is no unfair labor practice charge or
other complaint by any employee or former employee of Safety Fund or any Safety
Fund Subsidiary against any of them pending before any governmental agency
arising out of Safety Fund's or such Safety Fund Subsidiary's activities, which
charge or complaint (i) has a reasonable probability of an unfavorable outcome
and (ii) in the event of an unfavorable outcome would, individually or in the
aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund
Subsidiaries, taken as a whole; there is no labor strike or labor disturbance
pending or threatened against any of them; and neither Safety Fund nor any
Safety Fund Subsidiary has experienced a work stoppage or other labor difficulty
since January 1, 1994.
3.25 ADMINISTRATION OF TRUST ACCOUNTS. Each Safety Fund Subsidiary has
properly administered all accounts for which it acts as a fiduciary or agent,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing documents and applicable state and
federal law and regulation and common law, except where the failure to do so
would not, individually or in the aggregate, have a Material Adverse Effect on
Safety Fund and the Safety Fund Subsidiaries, taken as a whole. None of Safety
Fund, any Safety Fund Subsidiary, or any director, officer or employee of Safety
Fund or any Safety Fund Subsidiary acting on behalf of Safety Fund or a Safety
Fund Subsidiary, has committed any breach of trust with respect to any such
fiduciary or agency account, and the accountings for each such fiduciary or
agency account are true and correct in all material respects and accurately
reflect the assets of such fiduciary or agency account, except for such breaches
and failures to be true, correct and accurate as would not, individually or in
the aggregate, have a Material Adverse Effect on Safety Fund and the Safety Fund
Subsidiaries, taken as a whole.
3.26 INTELLECTUAL PROPERTY. Safety Fund and each Safety Fund Subsidiary
owns the entire right, title and interest in and to, or has valid licenses with
respect to, all of the Intellectual Property, as hereinafter defined, necessary
in all material respects to conduct the business and operations of Safety Fund
and the Safety Fund Subsidiaries as presently conducted, except where the
failure to do so would not, individually or in the aggregate, have a Material
Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a
whole. None of such Intellectual Property is subject to any outstanding order,
decree, judgment, stipulation, settlement, lien, charge, encumbrance or
attachment, which order, decree, judgment, stipulation, settlement, lien,
charge, encumbrance or attachment would have a Material Adverse Effect on Safety
Fund and the Safety Fund Subsidiaries, taken as a whole. For purposes of this
Section 3.26, the term "Intellectual Property" means all domestic and foreign
letters patent, patents, patent applications, patent licenses, software licensed
or owned, know-how licenses, trade names, common law and other trademarks,
service marks, licenses of trademarks, trade names and/or service marks,
trademark registrations and applications, service mark registrations and
applications and copyright registrations and applications.
3.27 LOAN PORTFOLIO. SCHEDULE 3.27 sets forth all of the loans in original
principal amount in excess of $200,000 of Safety Fund or any Safety Fund
Subsidiary that as of the date of this Agreement are classified by Safety Fund
or any Bank Regulator as "Special Mention", "Substandard", "Doubtful", "Loss" or
"Classified," together with the aggregate principal amount of and accrued and
unpaid
A-22
<PAGE>
interest on such loans by category, it being understood that no representation
is being made that the OCC or any other Bank Regulator would agree with the loan
classifications contained in SCHEDULE 3.27.
3.28 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Safety Fund nor any
Safety Fund Subsidiary has any liability (contingent or otherwise), excluding
contractually assumed contingencies, except (i) as set forth on the consolidated
balance sheet of Safety Fund and its subsidiaries as at December 31, 1994
contained in the Safety Fund Reports, including the notes thereto, (ii) for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 1994, and (iii) liabilities
which would not, individually or in the aggregate, have a Material Adverse
Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Safety Fund as follows:
4.1 CORPORATE ORGANIZATION. Buyer is a corporation, duly organized,
validly existing and in good standing under the laws of the State 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 under the BHCA. Buyer has previously made available to Safety Fund for
inspection true and complete copies as amended to date of the Charter and
By-laws of Buyer.
4.2 CAPITALIZATION. (a) As of the date hereof, the authorized capital
stock of Buyer consists solely of 22,500,000 shares of common stock ("BUYER
COMMON SHARES") and 3,000,000 shares of preferred stock ("BUYER PREFERRED
SHARES"). As of the date hereof, there are 7,087,550 Buyer Common Shares issued
and outstanding, no Buyer Common Shares held in its treasury, and no Buyer
Preferred Shares issued and outstanding. All issued and outstanding Buyer Common
Shares have been duly authorized and validly issued and are fully paid,
nonassessable, and free of preemptive rights, with no personal liability
attaching to the ownership thereof. The shares of Buyer Common Stock to be
issued pursuant to the Merger will be duly authorized and validly issued and (at
the Effective Time) will be fully paid, nonassessable, and free of preemptive
rights, with no personal liability attaching to the ownership thereof.
(b)As of the date hereof, except for the options to acquire not more than
732,000 Buyer Common Shares pursuant to stock options under the CFX 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
representing the right to purchase, subscribe for or otherwise receive, any
shares of its capital stock or any securities convertible into or representing
the right to receive, purchase or subscribe for any such shares of Buyer. There
are no agreements or understandings with respect to the voting of 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 the Option Agreement, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Option Agreement, and the consummation of the transactions
contemplated hereby and thereby have been duly and validly approved by the
A-23
<PAGE>
Board of Directors of Buyer. No corporate proceedings on the part of Buyer are
necessary to consummate the transactions contemplated by this Agreement, except
that the affirmative vote of the holders of a majority of the votes cast by the
holders of Buyer Common Stock eligible to vote thereon is required to authorize
the issuance of Buyer Common Stock pursuant to this Agreement in accordance with
Stock Exchange policy. Each of this Agreement and the Option 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 or
the Option Agreement by Buyer, nor the consummation by Buyer of the transactions
contemplated hereby or thereby, nor the compliance by Buyer with any of the
terms or provisions hereof or thereof, 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 and the Option Agreement by Buyer does not require any consent,
approval, authorization or permit of, or filing with or notification to, any
court, administrative agency or other governmental or regulatory authority or
instrumentality, domestic or foreign, including, without limitation, any Bank
Regulator, except (i) for applicable requirements, if any, of the Securities
Act, the Exchange Act or the laws of certain states under which a "blue sky"
filing or consent may be required, state takeover laws, 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 Bank Regulators, 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, the BHC
Merger, or the Bank 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. Buyer is not aware of any reason why the Merger cannot
qualify as a "pooling of interests" for accounting purposes.
4.7 FINANCIAL STATEMENTS. (a) The consolidated balance sheets of Buyer as
of December 31, 1994 and 1993, and the related consolidated statements of
operations, changes in stockholders' equity,
A-24
<PAGE>
cash flows and changes in financial position for the years ended December 31,
1994 and 1993, certified by Wolf & Company, P.C., and for the year ended
December 31, 1992, certified by Ernst & Young LLP, in the form delivered to
Safety Fund 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 GAAP applied on a consistent basis (except
as may be indicated in the footnotes thereto and except as required or permitted
by SFAS 109 and 115) and present fairly in all material respects the
consolidated financial position of and results of operations of Buyer at the
dates, and for the periods, stated therein.
(b)The consolidated balance sheets of Buyer as of September 30, 1995 and
1994, and the related consolidated statements of income for the nine
months ended September 30, 1995 and 1994 in the form delivered to Safety Fund
prior to execution and delivery of this Agreement (hereinafter referred to
collectively as the "BUYER INTERIM FINANCIAL STATEMENTS") present fairly, and
the financial statements referred to in Section 6.5 hereof will 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 GAAP 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, and
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."
(d)The books and records of Buyer and each Buyer Subsidiary fairly reflect
in all material respects the transactions to which it is a party or by
which its properties are subject or bound. Such books and records have been
properly kept and maintained and are in compliance in all material respects with
all applicable legal and accounting requirements. The minute books of Buyer and
the Buyer Subsidiaries contain records which are accurate in all material
respects of all corporate actions of the respective shareholders and Board of
Directors (including committees of its Board of Directors).
4.8 BUYER REPORTS. Buyer has previously made available to Safety Fund 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 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, 1994, 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 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 GAAP; or
(c) 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. 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, administrative,
arbitral or other
A-25
<PAGE>
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.
4.11 COMPLIANCE WITH APPLICABLE LAW; REGULATORY EXAMINATIONS. (a) Buyer
and each of its 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
Buyer or any of its subsidiaries, except for violations which, either
individually or in the aggregate, do not or would not have a Material Adverse
Effect on Buyer and its subsidiaries taken as a whole, and neither Buyer or any
of its 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 Buyer and its subsidiaries, no
regulatory agency has initiated any proceeding or, to the best knowledge of
Buyer, investigation into the business or operations of Buyer or any of its
subsidiaries since prior to December 31, 1991. Buyer has not received any
objection from any regulatory agency to Buyer's response to any violation,
criticism or exception with respect to any report or statement relating to any
examinations of Buyer or any of its subsidiaries.
4.12 BROKER'S FEE. Neither Buyer, any 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 Buyer has engaged, and will pay a fee to, Alex. Brown &
Sons Incorporated (the "BUYER INVESTMENT ADVISOR").
4.13 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, the BHC Merger, the
Bank 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 Safety Fund which is contained in any of the foregoing documents. The Proxy
Statement-Prospectus (except for such portions thereof that relate only to
Safety Fund or the Safety Fund Subsidiaries) will comply in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
4.14 ENVIRONMENTAL ISSUES. Except where such violation, liability or
noncompliance would not have a Material Adverse Effect on Buyer and its
subsidiaries, taken as a whole: (i) neither Buyer nor any of its subsidiaries
has violated during the last five years or is in violation of any Environmental
Law; (ii) none of the properties owned or leased by Buyer or any subsidiary
(including, without limitation, soils and surface and ground waters) are
contaminated with any Hazardous Substance; (iii) neither Buyer nor any of its
subsidiaries is liable for any off-site contamination; (iv) neither Buyer nor
any of its subsidiaries is liable under any Environmental Law; and (v) Buyer and
each of its subsidiaries is, and has during the last five years been, in
compliance with, all of their respective Environmental Permits. For purposes of
the foregoing, all references to "properties" include, without limitation, any
owned real property or leased real property.
4.15 CAPITAL. As of September 30, 1995, Buyer's Tier 1 risk-based capital
ratio, total risk-based capital ratio, and leverage ratio, each calculated in
accordance with the capital guidelines of the Federal Reserve applicable to bank
holding companies on a fully phased-in basis, were each in excess of the
specified minimum levels for qualification as "well capitalized."
A-26
<PAGE>
4.16 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.
4.17 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Buyer nor any Buyer
Subsidiary has any liability (contingent or otherwise), excluding contractually
assumed contingencies, except (i) as set forth on the consolidated balance sheet
of Buyer and its subsidiaries as at December 31, 1994 contained in the Buyer
Reports, including the notes thereto, (ii) for liabilities and obligations
incurred in the ordinary course of business consistent with past practice since
December 31, 1994, and (iii) liabilities which would not, individually or in the
aggregate, have a Material Adverse Effect on Buyer and the Buyer Subsidiaries,
taken as a whole.
4.18 BUYER SUB. (a) Upon its formation, Buyer Sub will be a corporation,
duly organized, 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. From and after its
incorporation, Buyer Sub has not and will not engage 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, all corporate
power and authority to consummate the transactions contemplated hereunder
and carry out all of its obligations with respect to such transactions. The
consummation of the transactions contemplated hereby has been, or will have been
prior to the Closing, duly and validly authorized by all necessary corporate
action in respect thereof on the part of Buyer Sub.
ARTICLE V
COVENANTS OF SAFETY FUND
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,
Safety Fund will operate its business, and it will cause each of the Safety Fund
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 take no
action which would (i) materially adversely affect the ability of Buyer or
Safety Fund 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. Safety Fund agrees that from the date of this
Agreement to the Effective Time, except as otherwise specifically permitted or
required by this Agreement, or consented to by Buyer in writing, Safety Fund
will not, and will cause each of the Safety Fund 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 (i) as may be required by the Option Agreement, (ii) for the
issuance of Safety Fund Common Stock pursuant to the exercise of outstanding
stock options under the Safety Fund Stock Option Plans, as contemplated by
Section 3.2(b) hereof, and (iii) in connection with its adoption of the
Shareholder Rights Plan);
A-27
<PAGE>
(3) except in connection with its adoption of the Shareholder Rights Plan
or as described in SCHEDULE 6.10, 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 Safety Fund
or any of the Safety Fund Subsidiaries, or any securities convertible into
shares of such stock; except that (i) Safety Fund may issue shares of Safety
Fund Common Stock or permit treasury shares to become outstanding in
accordance with the terms of the Safety Fund Stock Option Plans, and (ii)
Safety Fund may issue shares of Safety Fund Common Stock to Buyer in
accordance with the terms of the Option Agreement;
(4) except pursuant to the Shareholder Rights Plan, effect any
recapitalization, reclassification, stock dividend, stock split or
like change in capitalization, or redeem, repurchase or otherwise acquire
any shares of its capital stock;
(5) declare or pay any dividends or other distributions with respect to
its capital stock except pursuant to the Shareholder Rights Plan and
except for a quarterly cash dividend not in excess of $.05, $.06, $.07, $.08
and $.09 per share in the first, second, third and fourth quarters of 1996
and the first quarter of 1997, respectively, declared and paid in accordance
with applicable law, regulation and contractual and regulatory commitments
and for dividends paid by any Safety Fund Subsidiary to Safety Fund,
PROVIDED, HOWEVER, that Safety Fund's then-current quarterly cash dividend
may be increased to the Increased Dividend (as defined below) per share of
Safety Fund Common Stock beginning in the first quarter of 1997, and (ii)
that the parties agree (x) to consult with respect to the amount of the last
Safety Fund quarterly dividend payable prior to the Effective Time with the
objective of assuring that the shareholders of Safety Fund do not receive a
shortfall, or dividend or distribution from both Safety Fund and Buyer, for
such quarter 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 Safety Fund may pay a special
dividend to holders of record of Safety Fund Common Stock immediately prior
to the Effective Time consistent with the objective described in clause (x)
above. The parties agree that Buyer dividends paid in any calendar quarter
are paid with respect to the then-preceding calendar quarter and that Safety
Fund dividends to be paid in any calendar quarter will be paid with respect
to the then-preceding calendar quarter. 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 1.700;
(6) 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 Safety Fund and the Safety Fund Subsidiaries,
taken as a whole, except in the ordinary course of business consistent with
past practice;
(7) 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;
(8) make any capital expenditures other than in the ordinary course of
business or as necessary to maintain existing assets in good repair;
(9) 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;
A-28
<PAGE>
(10)make application for the opening or closing of any, or open or close
any, branch or automated banking facility except as previously
disclosed to Buyer;
(11)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;
(12)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;
(13)make any material change in its accounting methods or practices,
except changes as may be required by GAAP or by regulatory
requirements;
(14)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;
(15)enter into any transactions involving interest rate and currency
swaps, options and futures contracts, or any other similar
off-balance sheet transactions;
(16)take any action that would result in the representations and
warranties of Safety Fund 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. Safety Fund shall not authorize or permit any of its
officers, directors, employees or agents to directly or indirectly solicit,
initiate or encourage any inquiries relating to, or the making of any proposal
which constitutes, a "takeover proposal" (as defined below), or, except to the
extent legally required for the discharge of the fiduciary duties of its Board
of Directors, recommend or endorse any takeover proposal, or participate in any
discussions or negotiations, or provide third parties with any non-public
information, relating to any such inquiry or proposal. Nothing contained in this
Section 5.2 shall prohibit Safety Fund or Safety Fund's Board from taking and
disclosing to Safety Fund's stockholders a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act or making such other disclosure to Safety Fund's stockholders
which, in the judgment of the Safety Fund Board, based upon the advice of
outside counsel, may be required under applicable law, or making disclosure to
the Safety Fund's stockholders of the absence of an opinion from the Safety Fund
Investment Advisor as to the fairness of the Merger Consideration dated the date
of the Proxy Statement. Safety Fund will take all reasonable actions necessary
or advisable to inform the appropriate individuals or entities referred to in
the first sentence hereof of the obligations undertaken herein. Safety Fund will
notify Buyer immediately if any such inquiries or takeover proposals are
received by, any such information requested from, or any such negotiations or
discussions are sought to be initiated or continued with, Safety Fund,
indicating in reasonable detail the identity of the person making such proposal,
offer, inquiry or contact and the terms and conditions of such proposal, offer,
inquiry or contact. As used in this Agreement, "takeover proposal" shall mean
any tender or exchange offer, proposal for a merger, consolidation or other
business combination involving Safety Fund or any of its Subsidiaries or any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the assets of, Safety Fund or any of its Subsidiaries
other than the transactions contemplated or permitted by this Agreement or the
Option Agreement.
5.3 CURRENT INFORMATION. During the period from the date of this Agreement
to the Effective Time, Safety Fund 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. Safety Fund
will promptly notify Buyer of any material change in the normal course of its
A-29
<PAGE>
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 Safety Fund. Safety Fund 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. Safety Fund shall permit Buyer
reasonable access to its properties and those of the Safety Fund 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 Safety Fund 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. Safety
Fund shall provide and shall request its auditors to provide Buyer with such
historical financial information regarding it (and related audit reports and
consents) as Buyer may reasonably request for securities disclosure purposes.
5.5 FINANCIAL AND OTHER STATEMENTS. (a) Promptly upon receipt thereof,
Safety Fund will furnish to Buyer copies of each annual, interim or special
audit of the books of Safety Fund and the Safety Fund Subsidiaries made by its
independent accountants and copies of all internal control reports submitted to
Safety Fund by such accountants in connection with each annual, interim or
special audit of the books of Safety Fund and the Safety Fund Subsidiaries made
by such accountants.
(b)As soon as practicable, Safety Fund will furnish to Buyer copies of all
such financial statements and reports as it shall send to its
stockholders, the SEC, the OCC or any other regulatory authority, except as
legally prohibited thereby.
(c)Safety Fund will advise Buyer promptly of Safety Fund's receipt of any
examination report of any federal or state regulatory or examination
authority with respect to the condition or activities of Safety Fund or any of
the Safety Fund Subsidiaries.
(d)With reasonable promptness, Safety Fund 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 SAFETY FUND'S STOCKHOLDERS. Safety Fund will take all
reasonable steps necessary to duly call, give notice of, solicit proxies for,
convene and hold a special meeting (the "SPECIAL MEETING") of its stockholders
as soon as practicable for the purpose of approving this Agreement and the
transactions contemplated hereby. The date of the Special Meeting shall occur as
soon as practicable following the effectiveness of the Registration Statement on
Form S-4 (as more fully described in Section 7.1) filed with the SEC. The Board
of Directors of Safety Fund will recommend to Safety Fund'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 Safety Fund's stockholders of this Agreement and the transactions
contemplated hereby, PROVIDED, HOWEVER, that nothing contained herein shall
prohibit the Board of Directors of Safety Fund 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 Safety Fund, and no such action shall constitute a breach of
this Agreement.
5.7 DISCLOSURE SUPPLEMENTS. From time to time prior to the Effective Time,
Safety Fund will promptly supplement or amend the Schedules delivered in
connection herewith pursuant to Article III
A-30
<PAGE>
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
Safety Fund with the covenants set forth in Section 5.1 hereof.
5.8 FAILURE TO FULFILL CONDITIONS. In the event that Safety Fund
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. Safety Fund 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. Without limiting the generality of
the foregoing, Safety Fund may utilize the services of a professional proxy
soliciting firm to help obtain the shareholder vote required to be obtained by
it hereunder.
5.10 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, Safety Fund 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.
5.11 SAFETY FUND SUBSIDIARIES. Safety Fund undertakes and agrees that, if
so requested by Buyer, it shall take all necessary action to facilitate the
merger of Safety Fund Subsidiaries (other than SFNB) with subsidiaries of Buyer
effective on or after the Effective Time; PROVIDED,HOWEVER, that in no event
shall the Closing be delayed in order to facilitate any such merger and PROVIDED
FURTHER, HOWEVER, that Safety Fund shall not be required to take any action that
could adversely affect the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code or the treatment of the Merger
as a pooling of interests for accounting purposes.
ARTICLE VI
COVENANTS OF BUYER
6.1 CONDUCT OF BUSINESS. During the period from the date of this Agreement
to the Effective Time, except with the written consent of Safety Fund and except
as provided below, Buyer will take no action which would (i) materially
adversely affect the ability of Buyer or Safety Fund 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; provided that nothing herein contained shall preclude Buyer from
exercising its rights under the Option Agreement or from taking any action
described on SCHEDULE 6.1 hereto.
6.2 CERTAIN BUSINESS TRANSACTIONS. Buyer will not enter into any agreement
with respect to an Acquisition of another Person without the prior written
consent of Safety Fund if such Acquisition would (i) require the approval of
Buyer's shareholders; or (ii) involve Buyer's payment of consideration having a
value that equals or exceeds $30 million; or (iii) be reasonably likely to
result in a delay in the consummation of the Merger in any material respect; or
(iv) be reasonably likely to reduce in any material respect the chances that the
Merger will be consummated in accordance with the terms of this Agreement.
Safety Fund agrees not to withhold unreasonably or delay any response to a
request by Buyer for consent under this Section 6.2. The term "Acquisition"
shall mean Buyer's purchase or
A-31
<PAGE>
other acquisition (including by way of merger, consolidation, share exchange or
any similar transaction) of securities representing 50% or more of the voting
power of a Person other than Safety Fund; or Buyer's purchase or other
acquisition of assets of another Person as a going concern, but shall not
include: (i) internal reorganizations or consolidations involving subsidiaries,
(ii) foreclosures in the ordinary course of business, (iii) acquisitions of
control by a banking subsidiary in its fiduciary capacity, or (iv) the creation
of new subsidiaries other than in the context of a purchase or acquisition of
assets from another Person.
6.3 CURRENT INFORMATION. During the period from the date of this Agreement
to the Effective Time, Buyer will cause one or more of its representatives to
confer with representatives of Safety Fund and report the general status of its
ongoing operations at such times as Safety Fund may reasonably request. Buyer
will promptly notify Safety Fund of any material change in the normal course of
its business or in the operation of its properties and, to the extent permitted
by applicable law, of any governmental complaints, investigations or hearings
(or communications indicating that the same may be contemplated), or the
institution or the threat of material litigation involving Buyer. Buyer will
also provide Safety Fund such information with respect to such events as Safety
Fund may reasonably request from time to time.
6.4 ACCESS TO PROPERTIES AND RECORDS. Buyer shall permit Safety Fund
reasonable access to its properties and those of its subsidiaries, and shall
disclose and make available to Safety Fund 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 Safety Fund may have a reasonable interest;
PROVIDED, HOWEVER, that Buyer shall not be required to take any action that
would provide access to or to disclose information where such access or
disclosure would 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.
6.5 FINANCIAL AND OTHER STATEMENTS. (a) Promptly upon receipt thereof,
Buyer will furnish to Safety Fund copies of each annual, interim or special
audit of the books of Buyer and its subsidiaries made by its independent
accountants and copies of all internal control reports submitted to Buyer by
such accountants in connection with each annual, interim or special audit of the
books of Buyer and its subsidiaries made by such accountants.
(b)As soon as practicable, Buyer will furnish to Safety Fund copies of all
such financial statements and reports as it shall send to its
stockholders, the SEC, the OCC or any other regulatory authority, except as
legally prohibited thereby.
(c)Buyer will advise Safety Fund promptly of Buyer's receipt of any
examination report of any federal or state regulatory or examination
authority with respect to the condition or activities of Buyer or any of its
subsidiaries.
(d)With reasonable promptness, Buyer will furnish to Safety Fund such
additional financial data as Safety Fund may reasonably request,
including without limitation, detailed monthly financial statements and loan
reports.
6.6 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. Without limiting the generality of
the foregoing, Buyer may utilize the services of a professional proxy soliciting
firm to help obtain the shareholder vote required to be obtained by it
hereunder.
A-32
<PAGE>
6.7 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.
6.8 FAILURE TO FULFILL CONDITIONS. In the event that Buyer determines that
a condition to its obligation to complete the Merger, the BHC Merger, or the
Bank Merger cannot be fulfilled and that it will not waive that condition, it
will promptly notify Safety Fund.
6.9 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.
6.10 EMPLOYEE BENEFITS. (a) All employees of Safety Fund and its
Subsidiaries as of the Effective Time shall become employees of Buyer or a
Subsidiary as of the Effective Time. Nothing in this Agreement shall give any
employee of Safety Fund or its Subsidiaries a right to continuing employment
with Buyer after the Effective Time. Any employee of Safety Fund whose
employment with Buyer is terminated after the Effective Time shall be entitled
to the same severance benefits generally available to employees of Buyer,
PROVIDED, HOWEVER, that for purposes of determining eligibility for and vesting
of such severance benefits, service with Safety Fund or any Safety Fund
Subsidiary prior to the Effective Time shall be treated as service with an
"employer" to the same extent as if such persons had been employees of Buyer. A
copy of Buyer's severance policy has previously been made available to Safety
Fund.
(b)As soon as practicable after the Effective Time, Buyer shall provide or
cause to be provided to all employees of Safety Fund and any Safety Fund
Subsidiary who remain employed by Buyer or any of Buyer's Subsidiaries after the
Effective Time with employee benefits which, in the aggregate, are no less
favorable than those generally afforded to other employees of Buyer or Buyer's
Subsidiaries holding similar positions, subject to the terms and conditions
under which those employee benefits are made available to such employees,
PROVIDED, HOWEVER, that (i) for purposes of determining eligibility for and
vesting of such employee benefits only (and not for pension benefit accrual
purposes), service with Safety Fund or any Safety Fund Subsidiary prior to the
Effective Time shall be treated as service with an "employer" to the same extent
as if such persons had been employees of Buyer, (ii) this Section 6.10 shall not
be construed to limit the ability of Buyer and its Subsidiaries to terminate the
employment of any employee or to review employee benefits programs from time to
time and to make such changes as they deem appropriate, and (iii) neither Buyer
nor any of its Subsidiaries shall be required to provide any employees or former
employees of Safety Fund with post-retirement medical benefits more favorable
than those provided to new hires of Buyer.
(c)Safety Fund has listed certain employment and change of control
agreements and a tin parachute plan in SCHEDULE 6.10 hereto. Following
the Effective Time, Buyer shall honor or cause its Subsidiaries to honor in
accordance with their terms all such employment and change of control agreements
and the tin parachute plan and assume or cause its Subsidiaries to assume all
duties, liabilities and obligations under such agreements and arrangements.
Buyer agrees that the consummation of the transactions contemplated hereby
constitutes a "Change in Control" as defined in the change of control agreements
entered into between Safety Fund or any Safety Fund Subsidiary and certain
officers as disclosed in SCHEDULE 6.10 hereto. The provisions of this Section
6.10(c) are expressly intended to be for the irrevocable benefit of, and shall
be enforceable by, each director, officer, employee and former employee covered
hereby and his or her heirs and representatives.
A-33
<PAGE>
6.11 DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE.
(a) CONTRACTUAL INDEMNIFICATION. 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 or officer of Safety Fund or any Safety Fund 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 non appealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law.
(b) PROCEDURAL LIMITATIONS. Any Indemnified Party wishing to claim
indemnification under Section 6.11(a) 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 Section
6.11(a) except to the extent such failure materially prejudices it. As a
condition to receiving indemnification under Section 6.11(a), the party claiming
indemnification shall assign, by separate writing, to Buyer all right, title and
interest to and in proceeds of any insurance maintained or provided by Safety
Fund or Buyer or any of the irrespective affiliates for the benefit of claimant,
to the extent of indemnification actually received from Buyer hereunder. Any
Person entitled to indemnification pursuant to Section 6.11(a) shall be required
to cooperate in the defense and investigation of any claim as to which
indemnification may be made and shall send such notices as Buyer may reasonably
request under any applicable directors and officers liability or bankers'
blanket bond insurance coverage to preserve claims of which the claiming party
is aware. No person shall be entitled to indemnification under Section 6.11(a)
if such Person is seeking indemnification based on a claim (other than a claim
arising as a supplier to, customer of or borrower from Buyer or the Buyer
Subsidiaries or Safety Fund or the Safety Fund Subsidiaries) brought by such
person or by an entity of which such person is a general partner, executive
officer, director, trustee, beneficiary or controlling person unless such Person
or entity has waived any right to participate in any damage or other award to
such claiming party or other entity in any such action, suit or proceeding.
A-34
<PAGE>
(c) CHARTER AND BY-LAWS. All rights to indemnification and all limitations
of liability existing in favor of the Indemnified Parties as provided in Safety
Fund's Charter and By-laws, or similar governing documents of any Safety Fund
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.
(d) PURCHASE OF INSURANCE. Buyer, from and after the Effective Time, will
cause the persons who served as directors or officers of Safety Fund on or
before the Effective Time to be covered by Safety Fund's existing directors' and
officers' liability insurance policy (PROVIDED that Buyer may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous than such policy) but in no event
shall any insured person be entitled under this Section 6.11(d) to insurance
coverage more favorable than that provided to him or her in such capacities at
the date hereof with respect to acts or omissions resulting from their service
as such on or prior to the Effective Time. Such insurance coverage shall
commence on the Effective Date and will be provided for a period of no less than
six years after the Effective Time; PROVIDED, HOWEVER, that in no event shall
Buyer be required to expend in any year more than 150% of the current per annum
amount expended by Safety Fund to maintain or procure insurance coverage
pursuant hereto. Safety Fund agrees to renew any such existing insurance or to
purchase any "discovery period" insurance provided for there under at Buyer's
request.
(e) SUCCESSORS OR ASSIGNS. To the extent not otherwise provided by
applicable law, contract or otherwise, and to the extent necessary under the
circumstances for Buyer's successors or assigns to be bound, 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, proper provision
shall be made so that the successors and assigns of Buyer assume the obligations
set forth in this Section 6.11.
(f) THIRD PARTY BENEFICIARY. The provisions of this Section 6.11 are
expressly intended to be for the irrevocable benefit of, and shall be
enforceable by, each director or officer covered hereby and his or her heirs and
representatives.
6.12 STOCK EXCHANGE LISTING. Buyer shall apply for approval to list the
shares of Buyer Common Stock to be issued in the Merger on the Stock Exchange,
subject to official notice of issuance, prior to the Effective Time.
6.13 BUYER SUB. Prior to the Effective Time, Buyer will take any and all
necessary action to cause (i) Buyer Sub to be organized, (ii) Buyer Sub to
become a direct or indirect wholly-owned subsidiary of Buyer, (iii) the
directors and stockholder or stockholders of Buyer Sub to approve the
transactions contemplated by this Agreement, and (iv) Buyer Sub to execute one
or more counterparts of this Agreement and to deliver at least one such
counterpart so executed to Safety Fund, whereupon Buyer Sub shall become a party
to and be bound by this Agreement.
A-35
<PAGE>
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 Safety Fund'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 Safety Fund shareholders' meeting,
Buyer and Safety Fund shall cooperate in the preparation of a registration
statement (such registration statement, together with all and any amendments and
supplements thereto, being herein referred to as the "REGISTRATION STATEMENT"),
including a proxy statement/ prospectus or statements satisfying all applicable
requirements of applicable state securities and banking laws, and of the
Securities Act and the Exchange Act, and the rules and regulations thereunder
(such proxy statement/prospectus in the form mailed by Safety Fund to the Safety
Fund shareholders, together with any and all amendments or supplements thereto,
being herein referred to as the "PROXY STATEMENT-PROSPECTUS"). Buyer shall file
the Registration Statement with the SEC. Each of Buyer and Safety Fund shall use
their best efforts to have the Registration Statement declared effective under
the Securities Act as promptly as practicable after such filing, and Safety Fund
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 Safety Fund shall furnish
all information concerning Safety Fund and the holders of Safety Fund Common
Stock as may be reasonably requested in connection with any such action. Safety
Fund 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, Safety
Fund and Buyer shall cooperate in the preparation of a supplement or amendment
to the Proxy Statement-Prospectus, which corrects such misstatement or omission,
and shall cause the same to be filed with the SEC and distributed to
stockholders of Safety Fund.
7.2 REGULATORY APPROVALS. Each of Safety Fund 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, including without limitation the Merger, the BHC Merger, and the
Bank Merger. Safety Fund 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 Safety Fund or Buyer to any governmental body in connection with the Merger,
the BHC Merger, the Bank Merger, and the other transactions contemplated by this
Agreement. Safety Fund and Buyer shall have the right to review and approve in
advance all characterizations of the information relating to Buyer or Safety
Fund, 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, Safety Fund and Buyer shall
each furnish to the other a final copy of each such filing made in connection
with the transactions contemplated by this Agreement with any governmental body.
7.3 AFFILIATES; PUBLICATION OF COMBINED FINANCIAL RESULTS. (a) Each of
Buyer and Safety Fund 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 Safety Fund 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
A-36
<PAGE>
shares of Buyer Common Stock or Safety Fund Common Stock held by such
"affiliate", and, in the case of the "affiliates" of Safety Fund, the shares of
Buyer Common Stock to be received by such "affiliate" in the Merger: (1)
otherwise than in compliance with the applicable provisions of the Securities
Act and the rules and regulations thereunder or (2) unless the parties shall
have agreed that it will be impossible to obtain pooling treatment for the
Merger, during the period commencing 30 days prior to the Merger and ending at
the time of the publication of financial results covering at least 30 days of
combined operations of Buyer and Safety Fund.
(b)Buyer shall use its best efforts to publish no later than twenty-five
(25) days after the end of the first calendar quarter in which there are
at least thirty (30) days of post-Merger combined operations (which calendar
quarter may be the calendar quarter 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 and Stock Exchange policy by the requisite vote of the
stockholders of Safety Fund and Buyer.
(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 transactions
contemplated by this Agreement.
(c) REGULATORY APPROVALS. All necessary approvals, authorizations and
consents of all governmental bodies required to consummate the
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; and no such
approval, authorization or consent shall include any condition or
requirement, not reasonably foreseen as of the date of this Agreement, that
would, in the good faith reasonable judgment of the Board of Directors of
either Buyer or Safety Fund, materially and adversely affect the business,
operations, financial condition, property or assets of the combined
enterprise or of Safety Fund or SFNB or otherwise materially impair the
value of Safety Fund or SFNB to Buyer; PROVIDED, HOWEVER, that no condition
or requirement that relates primarily to regulatory matters existing at the
date hereof with respect to Buyer's pre-Merger business or activities shall
be deemed to affect the business, operations, financial condition, property
or assets of the combined enterprise or of Safety Fund or otherwise
materially impair the value of Safety Fund to Buyer.
(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 OPINION. On the basis of facts, representations and assumptions
which shall be consistent with the state of facts existing at the
Effective Time, each of Buyer and Safety Fund
A-37
<PAGE>
shall have received an opinion of Arnold & Porter reasonably acceptable in
form and substance to Buyer and Safety Fund dated as of the Closing Date,
substantially to the effect that, for federal income tax purposes:
(1) The Merger, when consummated in accordance with the terms hereof,
either will constitute a reorganization within the meaning of
Section 368(a) of the Code or will be treated as part of a reorganization
within the meaning of Section 368(a) of the Code,
(2) The exchange of Safety Fund Common Stock to the extent exchanged
for Buyer Common Stock will not give rise to recognition of gain
or loss for federal income tax purposes to the shareholders of Safety
Fund,
(3) The basis of the Buyer Common Stock to be received (including any
fractional shares deemed received for tax purposes) by a Safety
Fund shareholder will be the same as the basis of the Safety Fund Common
Stock surrendered pursuant to the Merger in exchange therefor, and
(4) The holding period of the shares of Buyer Common Stock to be
received by a shareholder of Safety Fund will include the period
during which the shareholder held the shares of Safety Fund Common Stock
surrendered in exchange therefor, PROVIDED the Safety Fund Common Stock
surrendered is held as a capital asset at the Effective Time.
Each of Buyer and Safety Fund shall provide Arnold & Porter with a
letter setting forth the facts, assumptions and representations on which
Arnold & Porter may rely in rendering its opinion.
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. The representations and warranties
of Safety Fund set forth in Article III hereof shall be true and correct
in all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (or on the date
when made in the case of any representation and warranty which specifically
relates to an earlier date), except as otherwise contemplated by this
Agreement or consented to in writing by Buyer; PROVIDED, HOWEVER, that (i)
in determining whether or not the condition contained in this Section 8.2(a)
shall be satisfied, no effect shall be given to any exceptions in such
representations and warranties relating to materiality or Material Adverse
Effect and (ii) the condition contained in this Section 8.2(a) shall be
deemed to be satisfied unless the failure of such representations and
warranties to be so true and correct constitute, individually or in the
aggregate, a Material Adverse Effect on Safety Fund and the Safety Fund
Subsidiaries, taken as a whole; and Safety Fund shall have delivered to
Buyer a certificate of Safety Fund to such effect signed by the Chief
Executive Officer and the Chief Financial Officer of Safety Fund as of the
Effective Time.
(b) AGREEMENTS AND COVENANTS. Safety Fund shall have performed in all
material respects all obligations and complied in all material respects
with all agreements or covenants of Safety Fund 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 Safety Fund by the
Chief Executive Officer and Chief Financial Officer of Safety Fund to such
effect dated as of the Effective Time.
(c) PERMITS, AUTHORIZATIONS, ETC. Safety Fund and the Safety Fund
Subsidiaries shall have obtained any and all material permits,
authorizations, consents, waivers, clearances or approvals required for the
lawful consummation of the Merger by Safety Fund, the lawful consummation of
the BHC Merger by the Surviving Corporation, and the lawful consummation of
the Bank Merger by SFNB, the failure to obtain which would have a Material
Adverse Effect on Safety Fund and the Safety Fund Subsidiaries, taken as a
whole.
A-38
<PAGE>
(d) LEGAL OPINION. Buyer shall have received an opinion, dated the
Closing Date, from Foley, Hoag & Eliot, counsel to Safety Fund as to such
matters as Buyer may reasonably request with respect to the transactions
contemplated hereby. 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 Safety Fund, Buyer, Affiliates of the foregoing, and others.
(e) ACCOUNTANTS' LETTER. Buyer shall have received a "comfort" letter
from the independent certified public accountants for Safety Fund, dated
(i) the effective date of the Registration Statement and (ii) the Closing
Date, with respect to certain financial information regarding Safety Fund,
each in form and substance which is customary in transactions of the nature
contemplated by this Agreement.
Safety Fund 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 SAFETY FUND UNDER THIS AGREEMENT. The
obligations of Safety Fund 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. The representations and warranties
of Buyer set forth in Article IV hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (or on the date when made
in the case of any representation and warranty which specifically relates to
an earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by Safety Fund; PROVIDED, HOWEVER, that (i) in
determining whether or not the condition contained in this Section 8.3(a)
shall be satisfied, no effect shall be given to any exceptions in such
representations and warranties relating to materiality or Material Adverse
Effect and (ii) the condition contained in this Section 8.3(a) shall be
deemed to be satisfied unless the failure of such representations and
warranties to be so true and correct constitute, individually or in the
aggregate, a Material Adverse Effect on Buyer; and Buyer shall have
delivered to Safety Fund 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 Safety Fund
shall have received a certificate signed on behalf of Buyer by the Chief
Executive Officer and Chief Financial Officer of Buyer to such effect dated
as of the Effective Time.
(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
and the Bank 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. Safety Fund shall have received an opinion from
Devine, Millimet & Branch, counsel to Buyer, dated the Closing Date, as
to such matters as Safety Fund may reasonably request with respect to the
transactions contemplated hereby. 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, Safety Fund, Affiliates of the foregoing,
and others.
Buyer will furnish Safety Fund 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 Safety Fund may reasonably request.
A-39
<PAGE>
ARTICLE IX
THE CLOSING
9.1 TIME AND PLACE. Subject to the provisions of Articles VIII and X
hereof, the Closing of the transactions contemplated hereby shall take place at
the offices of Foley, Hoag & Eliot, One Post Office Square, Boston,
Massachusetts at 10:00 a.m. on a date specified by Buyer at least three business
days prior to such date. The Closing Date shall be as soon as practicable after
the last required approval for the Merger, the BHC Merger and the Bank 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 Safety
Fund may mutually agree upon.
9.2 DELIVERIES AT THE CLOSING. At the Closing there shall be delivered to
Buyer and Safety Fund 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 Safety Fund:
(a) At any time by the mutual written agreement of Buyer and Safety Fund;
(b) By either Safety Fund 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 Safety Fund (or by Safety Fund to
Buyer) of such breach;
(c) At the election of either Buyer or Safety Fund, if the Closing shall
not have occurred on or before January 5, 1997 (the "TERMINATION
DATE"), or such later date as shall have been agreed to in writing by Buyer
and Safety Fund; 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 April 5, 1997 by either party by written notice
to the other party (given not later than December 5, 1996) 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 Safety Fund or Buyer if the stockholders of Safety Fund or
Buyer shall have voted at the Annual or Special Meeting on the
transactions contemplated by this Agreement and such vote shall not have
been sufficient to approve such transactions;
(e) By either Safety Fund 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 Safety Fund, in accordance with the provisions of Section 2.11
hereof.
10.2 EFFECT OF TERMINATION. (a) In the event of termination of this
Agreement pursuant to any provision of Section 10.1, this Agreement shall
forthwith become void and have no further force, except that (i) the provisions
of Sections 10.3, 11.1, 12.1, 12.6, 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
A-40
<PAGE>
(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").
(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 Safety Fund, any
Safety Fund 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 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 and all filings with the SEC
in connection therewith shall be shared by Buyer and by Safety Fund in
accordance with the procedures set forth in SCHEDULE 10.3 hereto, 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.
10.4 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at any
time prior to the Effective Time (whether before or after approval thereof by
the stockholders of Safety Fund), the parties hereto may (a) amend this
Agreement, (b) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (c) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (d) waive compliance with any of the agreements or
conditions contained herein; PROVIDED, HOWEVER, that after any approval of this
Agreement and the transactions contemplated hereby by the stockholders of Safety
Fund, 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 Safety Fund's stockholders pursuant to this
Agreement. 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.
A-41
<PAGE>
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 (x) changes in interest rates
(PROVIDED that Safety Fund is in compliance with its asset/ liability management
policy as disclosed to Buyer prior to the date of this Agreement, as the same
may be revised thereafter with Buyer's concurrence) or (y) changes in
regulations or legislation affecting Massachusetts banks; 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 "SUBSIDIARY" 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
Safety Fund mutually agree to be bound by the terms of the Confidentiality
Agreement previously executed by the parties hereto, which Agreement is hereby
incorporated herein by reference. The parties hereto agree that such
Confidentiality Agreement shall continue in accordance with its respective
terms, notwithstanding the termination of this Agreement.
12.2 PUBLIC ANNOUNCEMENTS. Safety Fund and Buyer shall cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with
A-42
<PAGE>
respect to this Agreement or any of the transactions contemplated hereby, except
as may be otherwise required by law, and neither Safety Fund 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. All representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant hereto or thereto shall expire
on, and be terminated and extinguished at, the Effective Date other than
covenants that by their terms are to survive or be performed after the Effective
Date.
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
Attn: Mark A. Gavin
Chief Financial Officer
Fax: (603) 358-5028
Copy to:
Steven Kaplan, Esq.
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Fax: (202) 942-5999
If to Safety Fund, to:
The Safety Fund Corporation
470 Main Street
Fitchburg, Massachusetts 01420
Attention: President
Fax: (508) 342-9795
Copy to
Peter W. Coogan, Esq.
Carol Hempfling Pratt, Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 832-7000
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.
A-43
<PAGE>
12.6 COMPLETE AGREEMENT. This Agreement and the Option Agreement,
including the Exhibits and Schedules hereto and the documents and other writings
referred to herein or therein or delivered pursuant hereto or thereto, 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
Massachusetts, without giving effect to its principles of conflicts of laws.
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 Safety Fund have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first set
forth above.
CFX CORPORATION
[SEAL] By: /s/ PETER J.
BAXTER
-------------------------------------
Peter J. Baxter
PRESIDENT AND CEO
THE SAFETY FUND CORPORATION
[SEAL] By: /s/ CHRISTOPHER W.
BRAMLEY
-------------------------------------
Christopher W. Bramley
PRESIDENT AND CEO
[SEAL] By: /s/ MARTIN F. CONNORS,
JR.
-------------------------------------
Martin F. Connors, Jr.
TREASURER
A-44
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Affiliate.............................................................................. 44
Agreement.............................................................................. 1
Articles of Merger..................................................................... 1
Bank Merger............................................................................ 1
Bank Merger Agreement.................................................................. 1
Bank Regulator......................................................................... 13
BBI.................................................................................... 13
BHC Merger............................................................................. 1
BHCA................................................................................... 11
Buyer.................................................................................. 1
Buyer Audited Financial Statements..................................................... 24
Buyer Common Shares.................................................................... 22
Buyer Common Stock..................................................................... 4
Buyer Financial Statements............................................................. 24
Buyer Index Price...................................................................... 4
Buyer Interim Financial Statements..................................................... 24
Buyer Investment Advisor............................................................... 25
Buyer Preferred Shares................................................................. 22
Buyer Reports.......................................................................... 24
Buyer Stock Option Plan................................................................ 22
Buyer Sub.............................................................................. 1
Buyer Trading Price.................................................................... 4
Certificate............................................................................ 6
Charter................................................................................ 2
Closing................................................................................ 1
Closing Date........................................................................... 1
Code................................................................................... 9
Dissenting Shares...................................................................... 9
Effective Time......................................................................... 1
Environmental Laws..................................................................... 44
Environmental Permits.................................................................. 44
ERISA Plans............................................................................ 18
Excess parachute payment............................................................... 16
Exchange Act........................................................................... 11
Expenses............................................................................... 43
Federal Reserve........................................................................ 13
GAAP................................................................................... 13
Hazardous Substances................................................................... 44
Increased Dividend..................................................................... 28
Indemnified Parties.................................................................... 35
Investment Advisor..................................................................... 19
Last Closing Price..................................................................... 8
Massachusetts Commissioner............................................................. 13
MBCL................................................................................... 9
Merger................................................................................. 1
Merger Consideration................................................................... 4
MHP.................................................................................... 13
Option Agreement....................................................................... 3
Orange Savings......................................................................... 1
Pension Plan........................................................................... 18
</TABLE>
A-45
<PAGE>
<TABLE>
<S> <C>
Person................................................................................. 45
Pooling Determination.................................................................. 4
Pooling Exchange Ratio................................................................. 5
Proxy Statement -- Prospectus.......................................................... 37
Purchase Exchange Ratio................................................................ 5
Registration Statement................................................................. 37
Safety Fund............................................................................ 1
Safety Fund Audited Financial Statements............................................... 13
Safety Fund Common Stock............................................................... 4
Safety Fund Financial Statements....................................................... 14
Safety Fund Interim Financial Statements............................................... 14
Safety Fund Option..................................................................... 9
Safety Fund Preferred Shares........................................................... 11
Safety Fund Reports.................................................................... 14
Safety Fund Stock Option Plans......................................................... 9
Safety Fund Subsidiaries............................................................... 11
Schedules.............................................................................. 11
SEC.................................................................................... 14
Secretary of State..................................................................... 1
Securities Act......................................................................... 7
Series A Preferred..................................................................... 11
SFNB................................................................................... 1
Shareholder Rights Plan................................................................ 11
Special Meeting........................................................................ 31
Stock Exchange......................................................................... 4
Subsidiaries........................................................................... 45
Subsidiary............................................................................. 45
Surviving Bank......................................................................... 2
Surviving Corporation.................................................................. 1
Termination Date....................................................................... 42
Welfare Plan........................................................................... 18
</TABLE>
A-46
<PAGE>
APPENDIX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Option Agreement"), dated as of January 5,
1996, is by and between The Safety Fund Corporation ("Safety Fund"), a
Massachusetts corporation registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended ("BHC Act"), and CFX Corporation
("CFX"), a New Hampshire corporation registered as a bank holding company under
the BHC Act.
WITNESSETH
WHEREAS, the Boards of Directors of Safety Fund and CFX have approved an
Agreement and Plan of Merger ("Merger Agreement"), providing for certain
transactions pursuant to which Safety Fund would be merged with and into CFX;
WHEREAS, as a condition to CFX's entry into the Merger Agreement and to
induce such entry, Safety Fund has agreed to grant to CFX the option set forth
herein to purchase authorized but unissued shares of Safety Fund Common Stock;
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. DEFINITIONS. Capitalized terms defined in the Merger Agreement and used
herein shall have the same meanings as in the Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Safety Fund hereby grants to CFX an option ("Option") to purchase up to 332,000
shares of Safety Fund Common Stock, at a price of $20.00 per share payable in
cash as provided in Section 4 hereof; PROVIDED, HOWEVER, that in the event
Safety Fund issues or agrees to issue any shares of Safety Fund Common Stock in
breach of its obligations under the Merger Agreement at a price less than $20.00
per share (as adjusted pursuant to Section 6 hereof), the exercise price shall
be equal to such lesser price. Notwithstanding anything else in this Agreement
to the contrary, the number of shares of Safety Fund Common Stock subject to the
Option shall be reduced to such lesser number, if any, as may from time to time
be necessary, but only for so long as may be necessary, to cause CFX not to
become an "interested stockholder" for purposes of Chapter 11OF of the General
Laws of the Commonwealth of Massachusetts.
3. EXERCISE OF OPTION.
(a) CFX may exercise the Option, in whole or part, at any time or from time
to time if a Purchase Event (as defined below) shall have occurred and be
continuing; PROVIDED that to the extent the Option shall not have been
exercised, it shall terminate and be of no further force and effect upon the
earliest to occur of (i) the Effective Time of the Merger or (ii) termination
(other than a termination resulting from a willful breach by Safety Fund of any
covenant contained therein) of the Merger Agreement in accordance with the
provisions thereof prior to the occurrence of a Subsequent Purchase Event (as
defined below) or (iii) six months after termination of the Merger Agreement if
such termination follows the occurrence of a Subsequent Purchase Event or is due
to a willful breach by Safety Fund of any covenant contained therein; and
PROVIDED FURTHER that any such exercise shall be subject to compliance with
applicable provisions of law. As used herein "Subsequent Purchase Event" shall
mean a Purchase Event that occurs after the date hereof.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions:
(1) any person (other than Safety Fund, any Safety Fund subsidiary, CFX,
or any CFX affiliate) shall have commenced a bona fide tender or exchange
offer to purchase shares of Safety Fund Common Stock such that upon
consummation of such offer such person would own or control 10% or more of
the outstanding shares of Safety Fund Common Stock;
B-1
<PAGE>
(2) any person (other than Safety Fund or any Safety Fund subsidiary),
other than in connection with a transaction to which CFX has given its prior
written consent, shall have filed an application or notice with any federal
or state regulatory agency for clearance or approval, to (i) merge or
consolidate, or enter into any similar transaction, with Safety Fund or any
Safety Fund subsidiary, (ii) purchase, lease or otherwise acquire all or
substantially all the assets of Safety Fund or any Safety Fund subsidiary,
or (iii) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 10% or more of the voting power of Safety Fund or any Safety
Fund subsidiary;
(3) any person (other than Safety Fund, any Safety Fund subsidiary,
subsidiaries of Safety Fund in a fiduciary capacity, CFX, affiliates of CFX,
or subsidiaries of CFX in a fiduciary capacity) shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 10% or
more of the outstanding shares of Safety Fund Common Stock (the term
"beneficial ownership" for purposes of this Option Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder);
(4) any person (other than Safety Fund or any Safety Fund subsidiary)
shall have made a bona fide proposal to Safety Fund by public announcement
or written communication that is or becomes the subject of public disclosure
to (i) acquire Safety Fund or any Safety Fund subsidiary by merger,
consolidation, purchase of all or substantially all its assets or any other
similar transaction, or (ii) make an offer described in clause (i) above; or
(5) Safety Fund shall have willfully breached any covenant contained in
the Merger Agreement, which breach would entitle CFX to terminate the Merger
Agreement (without regard to the cure periods provided for therein) and such
breach shall not have been cured prior to the Notice Date (as defined
below).
(c) If more than one of the transactions giving rise to a Purchase Event
under Section 3(b) is undertaken or effected, then all such transactions shall
give rise only to one Purchase Event, which Purchase Event shall be deemed
continuing for all purposes hereunder until all such transactions are abandoned.
As used in this Option Agreement, "person" shall have the meanings specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act, and shall also include
persons (other than Safety Fund, any Safety Fund subsidiary, CFX, or any CFX
affiliate), who have entered into an agreement, arrangement or understanding
(whether or not in writing), or who are acting in concert or with conscious
parallel behavior, for the purpose of acquiring, holding, voting or disposing of
any voting securities of Safety Fund (except pursuant solely to a revocable
proxy given in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable provisions of the Exchange Act and
the regulations promulgated thereunder).
(d) In the event CFX wishes to exercise the Option, it shall send to Safety
Fund a written notice (the date of which being herein referred to as "Notice
Date") specifying (i) the total number of shares it will purchase pursuant to
such exercise, and (ii) a place and date not earlier than three business days
nor later than 60 business days from the Notice Date for the closing of such
purchase ("Closing Date"); PROVIDED that, if prior notification to or approval
of any federal or state regulatory agency is required in connection with such
purchase, CFX shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification period has expired or been terminated or such
approval has been obtained and any requisite waiting period shall have passed.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) At the closing referred to in Section 3 hereof, CFX shall pay to Safety
Fund the aggregate purchase price for the shares of Safety Fund Common Stock
purchased pursuant to the exercise of the Option in immediately available funds
by a wire transfer to a bank account designated by Safety Fund.
B-2
<PAGE>
(b) At such closing, simultaneously with the delivery of cash as provided in
subsection (a), Safety Fund shall deliver to CFX a certificate or certificates
representing the number of shares of Safety Fund Common Stock purchased by CFX,
and CFX shall deliver to Safety Fund a letter agreeing that CFX will not offer
to sell or otherwise dispose of such shares in violation of applicable law or
the provisions of this Option Agreement.
(c) Certificates for Safety Fund Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend which shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and The Safety Fund Corporation and to resale restrictions
arising under the Securities Act of 1933, as amended, a copy of which
agreement is on file at the principal office of The Safety Fund
Corporation. A copy of such agreement will be provided to the holder
hereof without charge upon receipt by The Safety Fund Corporation of a
written request."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if CFX shall have delivered to
Safety Fund a copy of a letter from the staff of the Commission, or an opinion
of counsel, in form and substance satisfactory to Safety Fund, to the effect
that such legend is not required for purposes of the Securities Act.
5. REPRESENTATIONS. Safety Fund hereby represents, warrants and covenants
to CFX as follows:
(a) Safety Fund shall at all times maintain sufficient authorized but
unissued shares of Safety Fund Common Stock so that the option may be exercised
without authorization of additional shares of Safety Fund Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part, of the
Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change
in Safety Fund Common Stock by reason of stock dividends, split-ups,
recapitalizations, combinations, exchanges of shares or the like, the type and
number of shares subject to the Option, and the purchase price per share, as the
case may be, shall be adjusted appropriately. In the event that any additional
shares of Safety Fund Common Stock are issued or otherwise become outstanding
after the date of this Option Agreement (other than pursuant to this Option
Agreement), the number of shares of Safety Fund Common Stock subject to the
Option shall be adjusted so that, after such issuance, it equals 19.99%. of the
number of shares of Safety Fund Common Stock then issued and outstanding without
giving effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 6 shall be deemed to authorize Safety Fund to breach
any provision of the Merger Agreement.
7. REGISTRATION RIGHTS. Safety Fund shall, if requested by CFX, as
expeditiously as possible following the occurrence of a Purchase Event and prior
to the second anniversary thereof, file a registration statement on a form of
general use under the Securities Act if necessary in order to permit the sale or
other disposition of the shares of Safety Fund Common Stock that have been
acquired upon exercise of the Option in accordance with the intended method of
sale or other disposition requested by CFX. CFX shall provide all information
reasonably requested by Safety Fund for inclusion in any registration statement
to be filed hereunder. Safety Fund will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 270 days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sales or other dispositions. The obligations of Safety Fund hereunder to file a
registration statement and to maintain its effectiveness may be suspended for
one or more periods of time not exceeding 60 days in the aggregate if the Board
of Directors of Safety Fund shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
disclosure of non-public information that would materially and adversely affect
Safety Fund. The first registration effected under this Section 7 shall be at
Safety Fund's expense except for underwriting commissions and the fees and
disbursements of CFX's counsel attributable to the
B-3
<PAGE>
registration of such Safety Fund Common Stock. A second registration may be
requested hereunder at CFX's expense. In no event shall Safety Fund be required
to effect more than two registrations hereunder. The filing of any registration
statement hereunder may be delayed for such period of time as may reasonably be
required to facilitate any public distribution by Safety Fund of Safety Fund
Common Stock. If requested by CFX, in connection with any such registration,
Safety Fund will become a party to any underwriting agreement relating to the
sale of such shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements. Upon receiving any request from CFX or
assignee thereof under this Section 7, Safety Fund agrees to send a copy thereof
to CFX and to any assignee thereof known to Safety Fund, in each case by
promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies.
8. REPURCHASE.
(a) At the request of CFX at any time commencing upon the occurrence of a
Repurchase Event (as defined in subsection (c) below) and ending nine months
thereafter ("Repurchase Period"), Safety Fund shall repurchase the Option
(whether or not previously terminated) from CFX together with any shares of
Safety Fund Common Stock purchased by CFX pursuant thereto, at a price equal to
the sum of:
(1) the exercise price paid by CFX for any shares of Safety Fund Common
Stock acquired pursuant to the Option;
(2) the difference between the "market/tender offer" price for shares of
Safety Fund Common Stock (defined as the higher of the highest price per
share at which a tender or exchange offer has been made or the highest
reported sale price for shares of Safety Fund Common Stock within that
portion of the Repurchase Period preceding the date CFX gives notice of the
required repurchase under this Section 8) and the exercise price as
determined pursuant to Section 2 hereof multiplied by the number of shares
of Safety Fund Common Stock with respect to which the Option has not been
exercised, but only if the market/tender offer price is greater than such
exercise price;
(3) the difference between the market/tender offer price (as defined in
Section 8(b) hereof) and the exercise price paid by CFX for any shares of
Safety Fund Common Stock purchased pursuant to the exercise of the option,
multiplied by the number of shares so purchased, but only if the
market/tender offer price is greater than such exercise price; and
(4) CFX's reasonable out-of-pocket expenses incurred in connection with
the transactions contemplated by the Merger Agreement, including, without
limitation, legal, accounting and investment banking fees.
(b) In the event CFX exercises its rights under this Section 8, Safety Fund
shall, within three business days thereafter, pay the required amount to CFX in
immediately available funds and CFX shall surrender to Safety Fund the Option
and the certificates evidencing the shares of Safety Fund Common Stock purchased
thereunder and CFX shall warrant that it owns such shares and that the same are
then free and clear of all liens and encumbrances; PROVIDED THAT, if prior
notification to the Federal Reserve Board is required in connection with such
purchase, Safety Fund shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification period has expired or been terminated or such
approval has been obtained and any requisite waiting period shall have passed.
(c) A "Repurchase Event" shall mean any of the following:
(1) any person (other than Safety Fund, any Safety Fund subsidiary, CFX,
or any CFX affiliate) shall have acquired beneficial ownership of 51% or
more of the outstanding shares of Safety Fund Common Stock; or
B-4
<PAGE>
(2) any person (other than CFX or any CFX affiliate) shall have entered
into an agreement, arrangement or understanding (whether or not in writing)
with Safety Fund or any Safety Fund subsidiary to (i) merge or consolidate,
or enter into any similar transaction, with Safety Fund or any Safety Fund
subsidiary, (ii) purchase, lease or otherwise acquire all or substantially
all the assets of Safety Fund or any Safety Fund subsidiary, or (iii)
purchase or otherwise acquire (including by way of merger, consolidation,
share exchange or any similar transaction) securities representing 51% or
more of the voting power of Safety Fund or any Safety Fund subsidiary.
9. SEVERABILITY. If any term, provision, covenant or restriction contained
in this Option Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Option Agreement shall remain in full force and effect, and shall in no way
be affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option will not permit the holder to acquire or
Safety Fund to repurchase the full number of shares of Safety Fund Common Stock
provided in Section 2 hereof (as adjusted pursuant to Section 6 hereof), it is
the express intention of Safety Fund to allow the holder to acquire or to
require Safety Fund to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
10. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
(b) ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this
Option Agreement contains the entire agreement between the parties with respect
to the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Notwithstanding
anything to the contrary contained in this Agreement or the Merger Agreement,
this Agreement shall be deemed to amend the Confidentiality Agreement so as to
permit CFX to enter into this Agreement and exercise all its rights hereunder,
including its right to acquire Safety Fund Common Stock upon exercise of the
Option. The terms and conditions of this Option Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Option Agreement, expressed or implied,
is intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Option Agreement, except as expressly
provided herein.
(c) ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Purchase Event shall have occurred and be continuing CFX may
assign in whole or in part its rights and obligations hereunder; PROVIDED,
HOWEVER, that until the date 30 days following the date on which the Federal
Reserve Board approves an application by CFX under the BHC Act to acquire the
shares of Safety Fund Common Stock subject to the Option, CFX may not assign its
rights under the Option except in (i) a widely dispersed public distribution,
(ii) a private placement in which no one party acquires the right to purchase in
excess of 2% of the voting shares of Safety Fund, (iii) an assignment to a
single party (E.G., a broker or investment banker) for the purpose of conducting
a widely dispersed public distribution on CFX's behalf, or (iv) any other manner
approved by the Federal Reserve Board. If at any time prior to the expiration of
the Option, CFX shall desire to assign all or any part of the Option, other than
in a manner described in clause (i), (ii), or (iii) above, it shall give Safety
Fund written notice of the proposed transaction ("Offeror's Notice"),
identifying the proposed transferee and setting forth the terms of the proposed
transaction. An Offeror's Notice shall be deemed an offer by CFX to Safety Fund,
which may be accepted within two business days of the receipt of such Offeror's
Notice, on the same terms and conditions and at the same price at which CFX is
proposing to transfer the Option or
B-5
<PAGE>
portion thereof to a third party. Settlement shall be within five business days
of the date of the acceptance of the offer and the purchase price shall be paid
in immediately available funds. In the event of the failure or refusal of Safety
Fund to purchase all of the portion of the Option covered by the Offeror's
Notice, CFX may, within 60 days from the date of the Offeror's Notice, sell all,
but not less than all, of such portion of the Option to such third party at no
less than the price specified and on terms no more favorable than those set
forth in the Offeror's Notice.
(d) NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by overnight express or by registered or certified mail, postage
prepaid, addressed as provided in the Merger Agreement. A party may change its
address for notice purposes by written notice to the other party hereto.
(e) COUNTERPARTS. This Option Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) SPECIFIC PERFORMANCE. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) GOVERNING LAW. This option Agreement shall be governed by and
construed in accordance with the laws of Massachusetts applicable to agreements
made and entirely to be performed within such state and such federal laws as may
be applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
CFX CORPORATION
[SEAL] By: /s/PETER J. BAXTER
------------------------------------
Peter J. Baxter,
PRESIDENT AND CEO
THE SAFETY FUND CORPORATION
[SEAL] By: /s/CHRISTOPHER W. BRAMLEY
------------------------------------
Christopher W. Bramley,
PRESIDENT AND CEO
[SEAL] By: /s/MARTIN F. CONNORS, JR.
------------------------------------
Martin F. Connors, Jr.,
TREASURER
B-6
<PAGE>
APPENDIX C
[MCCONNELL BUDD & DOWNES LETTERHEAD]
The Board of Directors
The Safety Fund Corporation
470 Main Street
Fitchburg, MA 01420
The Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of The Safety Fund Corporation ("Safety Fund") of the
consideration to be paid to the shareholders of Safety Fund in connection with
the proposed acquisition of Safety Fund by CFX Corporation ("CFX"), pursuant to
the Agreement and Plan of Merger (the "Merger Agreement") dated January 5, 1996
by and between Safety Fund and CFX. Pursuant to the Merger Agreement, CFX will
form a wholly owned subsidiary, which will be merged with and into Safety Fund
(the "Merger").
As is more precisely set forth in the Merger Agreement, upon consummation of
the Merger, each outstanding share of the common stock of Safety Fund, par value
$5.00 per share ("Safety Fund Common Stock"), except for any dissenting shares
and except for shares held by CFX and its subsidiaries or by Safety Fund (in
both cases, other than shares held in a fiduciary capacity or as a result of
debts previously contracted), will be converted into and exchangeable for either
1.70 shares, in a pooling accounting transaction (the "Pooling Exchange Ratio"),
subject to certain adjustments, or 1.52 shares in a purchase accounting
transaction (the "Purchase Exchange Ratio"), subject to certain adjustments, of
the common stock, par value $0.666 per share of CFX ("CFX Common Stock").
In addition, upon consummation of the Merger, each then outstanding stock
option to purchase Safety Fund Common Stock ("Safety Fund Option") pursuant to
the Safety Fund 1984 and 1994 Stock Option Plans, whether or not then
exercisable, will be assumed by CFX. Each Safety Fund Option so assumed by CFX
will continue to have, and be subject to, the same terms and conditions set
forth in the Safety Fund Stock Option Plan immediately prior to the effective
time of the Merger, except that (i) each Safety Fund Option will be exercisable
(when vested) for that number of whole shares of CFX Common Stock equal to the
product of that number of shares of Safety Fund Common Stock that may be
purchased pursuant to the Safety Fund Option, multiplied by the applicable
Exchange Ratio, provided that any fractional shares resulting from such
multiplication will be rounded down to the nearest whole share; and (ii) the
exercise price per share of CFX Common Stock that may be purchased pursuant to
the Safety Fund Option will be equal to the Safety Fund Option exercise price
per share, divided by the applicable Exchange Ratio, rounded up to the nearest
cent.
The reader is urged to carefully read all the terms of the Merger Agreement,
which is reproduced in its entirety elsewhere in the Proxy Statement.
McConnell, Budd & Downes, Inc., as part of its investment banking business,
is engaged exclusively in the valuation of bank holding companies and banks,
thrift holding companies and thrifts and their securities in connection with
mergers and acquisitions, negotiated underwriting, private placements,
competitive bidding processes, market making as a NASD market maker, secondary
distributions of listed securities and valuations for corporate, estate and
other purposes. Our experience and familiarity with Safety Fund includes having
worked as a financial advisor to Safety Fund since July of 1995 on a contractual
basis and specifically includes our participation in the process and
negotiations leading to the proposed Transaction with CFX. In the course of our
role as financial advisor to
C-1
<PAGE>
Safety Fund in connection with the Transaction we have received fees for our
services and will receive additional fees contingent on the occurrence of
certain defined events. We will receive a fee in connection with the rendering
of this opinion. In the ordinary course of our business, we may, from time to
time, trade the equity securities of Safety Fund in our capacity as a NASD
market maker or of CFX in our capacity as a broker dealer, for our own account,
for the accounts of our customers and for the accounts of individual employees
of McConnell, Budd & Downes, Inc. Accordingly we may, from time to time, hold a
long or short position in the equity securities of either Safety Fund or CFX.
In arriving at our opinion, we have reviewed the Merger Agreement and Proxy
Statement-Prospectus in substantially the form to be mailed to Safety Fund
shareholders. We have also reviewed publicly available business, financial and
shareholder information relating to Safety Fund and its subsidiaries, certain
publicly available financial information relating to CFX and certain financial
information relating to Safety Fund provided by Safety Fund management as well
as certain financial information relating to CFX provided by CFX management. In
addition, we have reviewed certain other information, including internal reports
and documents of Safety Fund and certain management prepared financial
information provided to us by CFX. We have also met with and had discussions
with members of the senior management of each of Safety Fund and CFX to discuss
their past and current business operations, current financial condition and
future prospects, including, in the case of CFX, other pending merger
transactions. In connection with the foregoing, we have reviewed the annual
reports to shareholders and annual report on Form 10-K of Safety Fund for the
fiscal years ended December 31, 1993 and 1994 and in draft form for 1995. We
have similarly reviewed the annual reports of CFX for the calendar years ended
December 31, 1992, 1993, 1994 and, in draft form annual report for 1995. We have
reviewed and studied the historical stock prices and trading volumes of the
common stock of CFX as well as the terms and conditions of 27 recent acquisition
transactions involving publicly traded financial institutions conducting
business in the northeast and compared six of those transactions to the proposed
acquisition of Safety Fund by CFX. We also considered the current state of and
future prospects for the economy of New Hampshire and the economy of
Massachusetts generally and the relevant market areas for CFX and Safety Fund in
particular. We have also conducted such other studies, analyses and
investigations as we deemed appropriate under the circumstances surrounding this
proposed transaction.
In the course of our review and analysis we considered, among other things,
such topics as relative capitalization, capital adequacy, profitability,
availability of non-interest income, relative asset quality, adequacy of the
reserve for loan losses and the composition of the loan portfolio of each of CFX
and Safety Fund. We also considered management's estimates of cost savings and
revenue enhancements which might result from a consolidation of CFX and Safety
Fund. In the conduct of our review and analysis we have relied upon and assumed,
without independent verification, the accuracy and completeness of the financial
information provided to us by CFX and Safety Fund or otherwise publicly
obtainable. In reaching our opinion, we have not assumed any responsibility for
the independent verification of such information nor have we completed any
independent valuation or appraisal of any of the assets or the liabilities of
either CFX or Safety Fund nor have we obtained from any other source, any
appraisals of the assets or liabilities of either CFX or Safety Fund. We have
also relied on the management of Safety Fund as to the reasonableness of various
financial and operating forecasts, cost savings estimates and of the assumptions
on which they are based, which were provided to us for use in our analyses.
In the course of rendering this opinion, which is being rendered prior to
receipt of certain required regulatory approvals necessary before consummation
of the Transaction, we have assumed that no conditions will be imposed by any
regulatory agency in connection with its approval of the Transaction that will
have a material adverse effect on the results of operations, the financial
condition or the prospects of CFX following consummation of the Transaction.
C-2
<PAGE>
Based upon and subject to the foregoing, it is our opinion, that as of the
date of this letter, the Pooling Exchange Ratio and the Purchase Exchange Ratio
are fair to the shareholders of Safety Fund from a financial point of view.
Very truly yours,
McConnell, Budd & Downs, Inc.
By: /s/ David A. Budd
-----------------------------------
David A. Budd
MANAGING DIRECTOR
C-3
<PAGE>
APPENDIX D
CHAPTER 156B, SECTIONS 85-98 OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
SECTION85. 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.
SECTION86. 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.
SECTION87. 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."
SECTION88. 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
D-1
<PAGE>
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.
SECTION89. 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.
SECTION90. 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.
SECTION91. 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.
SECTION92. 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.
D-2
<PAGE>
SECTION93. 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.
SECTION94. 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.
SECTION95. 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.
SECTION96. 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.
SECTION97. 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.
SECTION98. 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.
D-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 293-A:8.50-58 of the New Hampshire Business Corporation Act provide
that a business corporation may indemnify directors and officers against
liabilities they may incur in such capacities provided certain standards are
met, including good faith and the belief that the particular action is in the
best interests of the corporation. In general, this power to indemnify does not
exist in the case of actions against a director or officer by or in the right of
the corporation if the person entitled to indemnification shall have been
adjudged to be liable to the corporation or in connection with a proceeding
charging improper personal benefit. A corporation is required to indemnify
directors and officers against expenses they may incur in defending actions
against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions.
The Bylaws of CFX provide for the mandatory indemnification of directors and
officers in accordance with and to the full extent permitted by the laws of New
Hampshire as in effect at the time of such indemnification. CFX has purchased
directors' and officers' liability insurance covering certain liabilities which
may be incurred by the officers and directors of CFX in connection with the
performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
An index of exhibits appears at page II-5, which is incorporated herein by
reference.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registrant Fee" table in the
effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
Provided, however, that paragraphs 1(a) and 1(b) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act, 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.
II-1
<PAGE>
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
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 that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in this 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.
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.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Act, 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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
informed that in the opinion of the 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 Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Keene, State of New
Hampshire, on March 28, 1996.
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, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ RICHARD F.
ASTRELLA
- ----------------------------------- Director March 28, 1996
Richard F. Astrella
/s/ PETER J.
BAXTER President and Director
- ----------------------------------- (Principal Executive March 28, 1996
Peter J. Baxter Officer)
/s/ RICHARD B.
BAYBUTT
- ----------------------------------- Director March 28, 1996
Richard B. Baybutt
/s/ CHRISTOPHER V.
BEAN
- ----------------------------------- Director March 28, 1996
Christopher V. Bean
/s/ CALVIN L.
FRINK
- ----------------------------------- Director March 28, 1996
Calvin L. Frink
/s/ EUGENE E.
GAFFEY
- ----------------------------------- Director March 28, 1996
Eugene E. Gaffey
/s/ MARK A.
GAVIN Chief Financial Officer
- ----------------------------------- (Principal Financial March 28, 1996
Mark A. Gavin Officer)
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
<C> <S> <C>
/s/ ELIZABETH SEARS
HAGER
- ----------------------------------- Director March 28, 1996
Elizabeth Sears Hager
/s/ DOUGLAS S. HATFIELD,
JR.
- ----------------------------------- Director March 28, 1996
Douglas S. Hatfield, Jr.
/s/ PHILIP A.
MASON
- ----------------------------------- Director March 28, 1996
Philip A. Mason
/s/ EMERSON H.
O'BRIEN
- ----------------------------------- Director March 28, 1996
Emerson H. O'Brien
/s/ WALTER R.
PETERSON
- ----------------------------------- Director March 28, 1996
Walter R. Peterson
/s/ L. WILLIAM
SLANETZ
- ----------------------------------- Director March 28, 1996
L. William Slanetz
/s/ GREGG R.
TEWKSBURY Corporate Controller
- ----------------------------------- (Principal Accounting March 28, 1996
Gregg R. Tewksbury Officer)
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<C> <S> <C>
2 Agreement and Plan of Merger, as amended, included as
Appendix A to the Proxy Statement and incorporated herein
by reference...............................................
5 Opinion of Devine, Millimet & Branch, P.A., regarding
validity of CFX Common Stock being registered, filed
herewith...................................................
8 Tax opinion of Arnold & Porter, filed herewith..............
23.1 Consent of Wolf & Company, P.C., independent auditors for
CFX Corporation, filed herewith............................
23.2 Consent of KPMG Peat Marwick LLP, independent auditors for
The Safety Fund Corporation, filed herewith................
23.3 Consent of Ernst & Young LLP, prior independent auditors for
The Safety Fund Corporation, filed herewith................
23.4 Consent of Shatswell, MacLeod & Co., independent auditors
for Milford Co-operative Bank, filed herewith..............
23.5 Consent of Coopers & Lybrand, L.L.P., prior independent
auditors for Milford Co-operative Bank, filed herewith.....
23.6 Consent of Devine, Millimet & Branch, P.A., contained in the
opinion filed as Exhibit 5 hereto..........................
23.7 Consent of Arnold & Porter, contained in the opinion filed
as Exhibit 8 hereto........................................
23.8 Consent of McConnell, Budd & Downes, Inc., filed
herewith...................................................
23.9 Consent of William E. Aubuchon, III, as required by Rule 438
under the Securities Act of 1933, as amended...............
23.10 Consent of Christopher W. Bramley, as required by Rule 438
under the Securities Act of 1933, as amended...............
23.11 Consent of David R. Grenon, as required by Rule 438 under
the Securities Act of 1933, as amended.....................
23.12 Consent of P. Kevin Condron, as required by Rule 438 under
the Securities Act of 1933, as amended.....................
24 Powers of Attorney of certain directors and officers of CFX,
filed herewith.............................................
99.1 Form of Proxy relating to The Safety Fund Corporation, filed
herewith...................................................
99.2 Stock Option Agreement, included as Appendix B to the Proxy
Statement and incorporated herein by reference.............
</TABLE>
II-5
<PAGE>
EXHIBIT 5
[Letterhead of Devine, Millimet & Branch, Professional Association]
April 12, 1996
CFX Corporation
102 Main Street
Keene, NH 03431
RE: AGREEMENT AND PLAN OF MERGER WITH THE SAFETY FUND CORPORATION
Ladies and Gentlemen:
We have acted as counsel to CFX Corporation (the "Company") in
connection with the Agreement and Plan of Merger dated as of January 5, 1996
(the "Agreement") pursuant to which the Company will acquire all of the
outstanding shares of common stock of The Safety Fund Corporation ("Safety
Fund") in exchange for the issuance by the Company of up to
3,200,000 shares of the Company's common stock, $0.66 2/3 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 on Form S-4 relating to the CFX Common
Stock to be issued pursuant to the Agreement being filed with
the Securities and Exchange Commission contemporaneously herewith,
including the exhibits thereto (the "Registration Statement"); and
c. Resolutions adopted by the Board of Directors of the Company
authorizing the execution and delivery of the Agreement and the
performance of the transactions contemplated therein, including the
issuance of the CFX Common Stock.
Based upon the foregoing and such other investigation as we have deemed
necessary, it is our opinion that when (i) the Agreement shall have been
approved by the shareholders of the Company, (ii) the Registration Statement
shall have become effective and (ii) the CFX Common Stock shall have been
issued and delivered to the shareholders of Safety Fund and the consideration
therefor shall have been received by the Company, all in accordance with the
provisions of the Agreement, the CFX Common Stock will be validly issued,
fully paid and non-assessable.
<PAGE>
CFX Corporation
[Date]
Page 2
We understand that this opinion is to be used in connection with the
Registration Statement and hereby consent to the filing of this opinion with and
as a part of the Registration Statement and to the use of our name therein and
in the related Proxy Statement under the caption "Legal Opinions".
Very truly yours,
DEVINE, MILLIMET & BRANCH
Professional Association
By: /s/ Frederick J. Coolbroth
------------------------------
Frederick J. Coolbroth
<PAGE>
EXHIBIT 8
April 26, 1996
CFX Corporation
102 Main Street
Keene, New Hampshire 03431
Ladies and Gentlemen,
Reference is made to the information set forth under the heading "PROPOSAL
I -- PROPOSED MERGER -- Certain Federal Income Tax Consequences" contained in
the Proxy Statement, included in the Registration Statement on Form S-4 (the
"Registration Statement"), filed by CFX Corporation ("CFX") with the Securities
and Exchange Commission (the "SEC") in connection with the proposed merger (the
"Merger") of Buyer Sub, a wholly owned subsidiary of CFX with and into the
Safety Fund Corporation ("Safety Fund"). The discussion under that heading, to
the extent it describes the legal opinion of Arnold & Porter, and subject to
the assumptions and conditions described therein, constitutes our opinion.
Our opinion is based on the case law, Internal Revenue Code, Treasury
Regulations and Internal Revenue Service rulings as they exist at the date
hereof. These authorities are all subject to change, and such change may be
made with retroactive effect. We can give no assurance that, after such
change, our opinion would not be different. We undertake no responsibility
to update or supplement our opinion.
<PAGE>
CFX Corporation
April 26, 1996
Page 2
We hereby consent to the filing with the SEC of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the
heading "PROPOSAL I -- PROPOSED MERGER -- Certain Federal Income Tax
Consequences" contained therein. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
ARNOLD & PORTER
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement (No.
33- ) of CFX Corporation on Form S-4 of our report dated January 18, 1996,
except for Note X as to which the date is February 9, 1996, included and
incorporated by reference in the Annual Report on Form 10-K of CFX Corporation
for the year ended December 31, 1995. We also consent to the reference to us
under the heading "Experts" in such Proxy Statement, which is part of such
Registration Statement.
/s/ Wolf & Company, P.C.
- --------------------------
Boston, Massachusetts
April 26, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Safety Fund Corporation:
We consent to incorporation by reference in the registration statement on
Form S-4 of CFX Corporation of our report dated January 22, 1996, relating to
the consolidated balance sheets of The Safety Fund Corporation and subsidiaries
as of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years then ended, which
report appears in the December 31, 1995 annual report on Form 10-KSB of The
Safety Fund Corporation and to the reference to our Firm under the heading
"Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
-----------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
April 25, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of CFX Corporation
for the registration of 3,200,000 shares of its common stock and to the
incorporation by reference therein of our report dated January 28, 1994 with
respect to the consolidated financial statements of the Safety Fund
Corporation incorporated by reference in its Annual Report (Form 10K-SB) for
the year ended December 31, 1995, filed with the Securities and Exchange
Commission.
Boston, Massachusetts
April 26, 1996
/s/ Ernst & Young LLP
------------------------
Ernst & Young LLP
<PAGE>
EXHIBIT 23.4
[SHATSWELL, MacLEOD & COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of CFX
of our report dated July 20, 1995 on our audit of the financial statements of
Milford Co/operative Bank as of June 30, 1995 and for the year then ended. We
also consent to the reference to our firm under the caption "Experts".
/s/ SHATSWELL, MACLEOD & COMPANY, P.C.
--------------------------------------
SHATSWELL, MacLEOD & COMPANY, P.C.
W. Peabody, Massachusetts
April 26, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of CFX Corporation of our report (which contains an explanatory
paragraph regarding a change in 1994 in the method of accounting for income
taxes) dated August 4, 1994 on our audits of the statement of financial
condition of Milford Cooperative Bank as of June 30, 1994 and the related
statements of operations, changes in stockholders' equity and cash flows for
the two years then ended, which report is included in the Current Report on
Form 8-K of CFX dated April 12, 1996.
We also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand, L.L.P.
Boston, Massachusetts
April 11, 1996
<PAGE>
EXHIBIT 23.8
[LETTERHEAD OF McCONNELL, BUDD & DOWNES, INC.]
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of the Opinion of McConnell, Budd &
Downes, Inc. as an Annex to the Proxy Statement-Prospectus filed as part of
the Form S-4 Registration Statement of CFX Corporation and to the references
to our firm as Financial Advisor to The Safety Fund Corporation in the text
of said Proxy Statement-Prospectus. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission.
McCONNELL, BUDD & DOWNES, INC.
By: /s/ David A. Budd
-------------------------
David A. Budd
Managing Director
Date: April 26, 1996
<PAGE>
EXHIBIT 23.9
CONSENT
I hereby consent to being named as a person chosen to become a director
of CFX Corporation in the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on April 26, 1996.
/s/ William E. Aubuchon, III
------------------------------------
William E. Aubuchon, III
<PAGE>
EXHIBIT 23.10
CONSENT
I hereby consent to being named as a person chosen to become a director
of CFX Corporation in the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on April 26, 1996.
/s/ Christopher W. Bramley
------------------------------------
Christopher W. Bramley
<PAGE>
EXHIBIT 23.11
CONSENT
I hereby consent to being named as a person chosen to become a director
of CFX Corporation in the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on April 26, 1996.
/s/ David R. Grenon
------------------------------------
David R. Grenon
<PAGE>
EXHIBIT 23.12
CONSENT
I hereby consent to being named as a person chosen to become a director
of CFX Corporation in the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on April 26, 1996.
/s/ P. Kevin Condron
------------------------------------
P. Kevin Condron
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of CFX Corporation, a corporation organized under the laws of the state
of New Hampshire (the "Corporation"), hereby constitutes and appoints Mark A.
Gavin, Steven L. Kaplan and Catherine C. McCoy, and each of them (with full
power to each of them to act alone), his or her true and lawful attorneys-in-
fact and agents for him or her and on his or her behalf and in his or her name,
place and stead, in all cases with full power of substitution and
resubstitution, in any hand and all capacities, to sign, execute and affix his
or her seal to and file with the Securities and Exchange Commission (or any
other governmental or regulatory authority) a Registration Statement on Form S-4
or any other appropriate form and all amendments or supplements (including post-
effective amendments) thereto with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of common stock, par value $0.66 2/3 per share, of the Corporation, and
grants to each of them full power and authority to do and to perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully and to all intents and purposes as he
himself or she herself might or could do if personally present, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and or officer has hereunto
set his or her hand and seal, as of the date specified.
Dated: March 28, 1996 /s/ Peter J. Baxter
---------------- ---------------------------------
Peter J. Baxter, President and
Chief Executive Officer
Dated: March 28, 1996 /s/ Peter J. Baxter
---------------- ---------------------------------
Peter J. Baxter (Principal Executive Officer
<PAGE>
NAME TITLE DATE
---- ----- ----
/s/ Richard B. Baybutt Director March 28, 1996
- -----------------------------
Richard B. Baybutt
/s/ Peter J. Baxter President and Director March 28, 1996
- ----------------------------- (Principal Executive
Peter J. Baxter Officer)
/s/ Christopher V. Bean Director March 28, 1996
- -----------------------------
Christopher V. Bean
/s/ Calvin L. Frink Director March 28, 1996
- -----------------------------
Calvin L. Frink
/s/ Eugene E. Gaffey Director March 28, 1996
- -----------------------------
Eugenee E. Gaffey
/s/ Mark A. Gavin Chief Financial Officer March 28, 1996
- ----------------------------- (Principal Financial Officer)
Mark A. Gavin
/s/ Elizabeth Sears Hager Director March 28, 1996
- -----------------------------
Elizabeth Sears Hager
/s/ Douglas S. Hatfield, Jr. Director March 28, 1996
- -----------------------------
Douglas S. Hatfield, Jr.
/s/ Richard F. Astrella Director March 28, 1996
- -----------------------------
Richard F. Astrella
/s/ Philip A. Mason Director March 28, 1996
- -----------------------------
Philip A. Mason
/s/ Emerson H. O'Brien Director March 28, 1996
- -----------------------------
Emerson H. O'Brien
/s/ Walter R. Peterson Director March 28, 1996
- -----------------------------
Walter R. Peterson
/s/ L. William Slanetz Director March 28, 1996
- -----------------------------
L. William Slanetz
/s/ Gregg R. Tewksbury Corporate Controller March 28, 1996
- ----------------------------- (Principal Accounting
Gregg R. Tewksbury Officer)
<PAGE>
THE SAFETY FUND CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 1996
The undersigned hereby appoints Christopher W. Bramley, Martin F.
Connors and John E. Howard and each or any of them, as proxies, with full
power of substitution to each and to each substitute appointed pursuant to
such power, of the undersigned to vote all shares of stock of The Safety
Fund Corporation (the "Company") which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders (the "Annual Meeting") of the
Company to be held on Friday, June 7, 1996, and at any and all adjournments
thereof, with all powers the undersigned would possess if personally
present. The proxies are authorized to vote as indicated on the reverse side
upon the matters set forth herein and in their discretion upon all other
matters which may properly come before said Meeting. The undersigned hereby
acknowledges receipt of a copy of the accompanying Notice and Proxy
Statement for the Annual Meeting of Stockholders and hereby revokes any
proxy or proxies, if any, heretofore given by him to others for said
Meeting.
If this proxy is properly executed and returned, the shares represented
hereby will be voted. If a choice is specified on the reverse side by the
stockholder with respect to any matter to be acted upon, the shares will be
voted upon that matter in accordance with the specification so made. IN THE
ABSENCE OF ANY SPECIFICATION, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, AND 3.
<PAGE>
1. Approval of Agreement and Plan of Merger between the Company and CFX
Corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. Election of directors to serve a three-year term and until their
successors are elected and qualified.
Nominees: William E. Aubuchon, III Christopher W. Bramley
John E. Howard
/ / FOR all nominees, except as / / WITHHOLD AUTHORITY for all
marked below nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE(S), PRINT THE NAME(S) OF SUCH NOMINEE(S) IN THE SPACE PROVIDED
BELOW.)
--------------------------------------------------------------------------
3. Ratification of the appointment of KPMG Peat Marwick LLP as the
independent auditors of the Company for 1996.
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as name appears below.
Joint owners should sign. When signing as an
attorney, administrator, trustee, guardian or
custodian for a minor, please give full title as
such. If a corporation, please sign full corporate
name and indicate the signer's office. If a partner,
sign in partnership name.
----------------------------------------------------
Signature
----------------------------------------------------
Signature (If held jointly)
Dated:
----------------------------------------------, 1996
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
TO BE COMPLETED BY COMPANY
Number of Shares:
------------------------------------------------
