<PAGE> 1
As filed with the Securities and Exchange Commission on March 22, 2000
REGISTRATION STATEMENT NO. 333-____________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------
ANDOVER BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
DELAWARE 6022 04-2952665
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification No.)
</TABLE>
61 MAIN STREET
ANDOVER, MASSACHUSETTS 01810
(978) 749-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Office)
GERALD T. MULLIGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
61 MAIN STREET
ANDOVER, MASSACHUSETTS 01810
(978) 749-2000
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of
Agent for Service)
------------
Copies to:
REGINA M. PISA, P.C. PETER W. COOGAN
PAUL W. LEE, P.C. FOLEY, HOAG & ELIOT LLP
GOODWIN, PROCTER & HOAR LLP ONE POST OFFICE SQUARE
EXCHANGE PLACE BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02109-2881 (617) 832-1000
(617) 570-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger of GBT Bancorp with and into Andover Bancorp, Inc.
pursuant to an Agreement and Plan of Merger dated as of January 26, 2000 as
described in the enclosed Proxy Statement-Prospectus.
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./ /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering./ /_____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /_____________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each Class of Securities to Amount to be Proposed Maximum Proposed Maximum Amount of
be Registered Registered(2) Offering Price Per Share Aggregate Offering Price (3) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $.10 par value(1) 382,000 shares N/A $5,885,845.00 $1,560.00
</TABLE>
(1) This Registration Statement also relates to Rights to purchase shares of
Series B Junior Participating Cumulative Preferred Stock of the
Registrant which are attached to all shares of Common Stock issued,
pursuant to the terms of the Registrant's Shareholder Rights Agreement
dated January 21, 1999. Until the occurrence of certain prescribed
events, the Rights are not exercisable, are evidenced by the
certificates for the Common Stock and will be transferred with and only
with such stock. Because no separate consideration is paid for the
Rights, the registration fee therefor is included in the fee for the
Common Stock.
(2) The estimated maximum number of shares of common stock of Andover
Bancorp, Inc. ("Andover") that may be issued to the stockholders of GBT
Bancorp ("GBT") in the merger (the "Merger") of GBT with and into
Andover.
(3) The proposed maximum aggregate offering price has been estimated solely
for purposes of calculating the registration fee required by Section
6(b) of the Securities Act and has been calculated pursuant to Rule
457(f) under the Securities Act. Pursuant to Rules 457(f)(1) and
457(f)(3) under the Securities Act, the proposed maximum aggregate
offering price is based on the market value of the securities to be
canceled pursuant to the merger agreement minus the cash to be paid by
the registrant to holders of the securities to be canceled. The offering
price is calculated in accordance with Rules 457(c), 457(f)(1) and
457(f)(3) under the Securities Act as follows: (a) the product of (x)
$17.6875, the average of the bid and asked price per share of GBT common
stock on March 17, 2000, as reported by Moors & Cabot, Inc., a market
maker in GBT's common stock, and (y) 791,374, the aggregate number of
outstanding shares of GBT common stock; minus (b) $8,111,583.50, the
cash consideration to be paid by Andover in connection with the Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[ANDOVER BANCORP, INC. LOGO] [GBT BANCORP LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
To GBT Bancorp Stockholders:
The Board of Directors of GBT Bancorp has approved an agreement and plan
of merger that would result in the merger of GBT with and into Andover Bancorp,
Inc.
The GBT Board believes that the merger is in the best interests of its
stockholders and recommends that you vote in favor of the merger agreement.
As a GBT stockholder, you will receive either $20.50 in cash or 0.7543
shares of the common stock of Andover in exchange for each of your shares of the
common stock of GBT. The amount of cash or the number of shares of Andover
common stock that each stockholder of GBT will receive is discussed in the
accompanying proxy statement/prospectus. As further discussed in this proxy
statement/prospectus, it is intended that you generally will not recognize
federal income tax gain or loss for the Andover common stock you receive.
Andover common stock is listed on the Nasdaq National Market under the symbol
"ANDB."
GBT will hold a stockholders meeting on [ ], at which you will be asked to
vote on the merger agreement, the merger and the other matters and transactions
contemplated by the merger agreement.
We cannot complete the merger unless it is approved by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of GBT
common stock entitled to vote.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the GBT
stockholders meeting, please take the time to vote on the proposal to approve
the merger agreement and related transactions at the meeting by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you wish to vote, your proxy will be counted as a
vote in favor of the proposal to approve the merger agreement and related
transactions. If you fail to return your proxy card, or if you fail to sign your
proxy card, the effect will be a vote against the merger unless you attend the
meeting and vote in person for the merger.
The date, time and place of the GBT stockholders meeting are as follows:
[Date] at [Time] local time
[Place]
[Address]
[City, State and Zip Code]
This proxy statement/prospectus provides you with detailed information about
the merger. We encourage you to read carefully this entire document. In
addition, you may obtain information about Andover from documents that it has
previously filed with the Securities and Exchange Commission.
/s/ Gerald T. Mulligan
- ----------------------------------
Gerald T. Mulligan
President and Chief Executive Officer of
Andover Bancorp, Inc.
/s/ David L. Marsh
- ----------------------------------
David L. Marsh
President and Chief Executive Officer of
GBT Bancorp.
WE URGE GBT STOCKHOLDERS TO CONSIDER THOSE MATTERS SET FORTH IN "RISK FACTORS"
BEGINNING ON PAGE __ OF THIS PROXY STATEMENT/PROSPECTUS. NEITHER THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE SHARES TO BE ISSUED UNDER THIS PROXY STATEMENT/PROSPECTUS OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF ANDOVER
COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
Proxy Statement/Prospectus dated [ ], and first mailed to GBT's
stockholders on or about[ ].
<PAGE> 3
IMPORTANT INFORMATION NOT INCLUDED IN THIS
PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus incorporates important business and
financial information about Andover Bancorp, Inc. that is not included in or
delivered with this document. We have listed the documents containing this
information on page [__]. These documents are available to you without charge
upon written or oral request. In order to obtain these documents, please contact
the following:
Andover Bancorp, Inc.
61 Main Street
Andover, Massachusetts 01810
Attention: Joseph F. Casey, Chief Financial Officer and Treasurer
Telephone Number: (978) 749-2000
WE MUST RECEIVE YOUR REQUEST FOR DOCUMENTS NO LATER THAN [______________]
TO ENSURE THAT YOU RECEIVE THE DOCUMENTS IN TIME FOR THE GBT
BANCORP STOCKHOLDERS MEETING.
<PAGE> 4
GBT BANCORP
2 HARBOR LOOP
GLOUCESTER, MASSACHUSETTS 01930
(978) 282-1200
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of GBT
Bancorp will be held at [time] on [date] at [location] for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt an
agreement and plan of merger dated as of January 26, 2000 by and
between Andover Bancorp, Inc. and GBT Bancorp pursuant to which GBT
will be merged into Andover and the stockholders of GBT will receive
either cash or shares of Andover common stock (or a combination of
cash and stock) in exchange for their shares of GBT common stock.
2. To transact such other business as may properly come before the
special meeting or any adjournment or adjournments thereof.
The Board of Directors of GBT has fixed the close of business on [date] as
the record date for the determination of stockholders entitled to notice of and
to vote at the special meeting. Only holders of GBT common stock of record at
the close of business on that date will be entitled to notice of and to vote at
the special meeting or any adjournment or adjournments thereof.
Under Massachusetts law, you have "dissenters' rights," which means that
you may dissent from the merger and demand payment for your shares of GBT common
stock and an appraisal as an alternative to receiving the merger consideration
Andover agreed to pay in the merger agreement. To properly exercise your right
to dissent from the merger you must comply with Sections 85-98 of Chapter 156B
of the Massachusetts General Laws, which is attached as Annex C to the
accompanying proxy statement/prospectus. This right is explained in greater
detail in the proxy statement/prospectus in the section headed "THE
MERGER--Appraisal and Dissenters' Rights."
The Board of Directors of GBT unanimously recommends that stockholders
vote "FOR" approval of the merger agreement.
BY ORDER OF THE BOARD OF DIRECTORS
Marianne Smith, Clerk
Gloucester, Massachusetts
[date]
EVEN IF YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE PROMPTLY COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY OR TO
VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER AGREEMENT.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY .................................................................................................. 1
RISK FACTORS ............................................................................................. 8
Failure to integrate operations following the merger could reduce our future earnings per share .... 8
Unanticipated costs relating to the merger could reduce our future earnings per share............... 8
A decline in the market price of Andover common stock prior to the effective time of the merger
could result in significant tax liability for GBT stockholders and GBT ............................. 8
Changes in the local economy and marketplace could adversely impact our business.................... 9
Our business could be adversely impacted by applicable regulatory changes or modifications.......... 9
Our performance may decline if key individuals leave the surviving corporation ..................... 9
We face increased competition ...................................................................... 9
Failure in new non-banking activities could reduce our earnings per share .......................... 9
ANDOVER SELECTED CONSOLIDATED FINANCIAL INFORMATION ...................................................... 11
GBT SELECTED CONSOLIDATED FINANCIAL INFORMATION .......................................................... 13
COMPARATIVE PER COMMON SHARE DATA ........................................................................ 14
THE GBT MEETING .......................................................................................... 15
Purpose of the Meeting ............................................................................. 15
Record Date; Voting Rights; Proxies ................................................................ 15
Independent Public Accountants ..................................................................... 16
Solicitation of Proxies; Quorum .................................................................... 16
Required Vote ...................................................................................... 16
PROPOSAL--APPROVAL OF THE AGREEMENT AND PLAN OF MERGER ................................................... 17
The Merger Proposal ................................................................................ 17
Required Vote and Recommendation ................................................................... 17
THE MERGER ............................................................................................... 17
Background of the Merger ........................................................................... 17
Andover's Reasons for the Merger ................................................................... 18
Recommendation of the GBT Board; GBT's Reasons for the Merger ...................................... 19
Opinion of GBT's Financial Advisor ................................................................. 20
Other Interests of GBT Directors and Officers in the Merger ........................................ 30
Stock Option Agreement ............................................................................. 31
Voting Agreement ................................................................................... 33
Board of Directors and Management of Andover Following the Merger .................................. 34
Nasdaq Listing of Andover's Common Stock ........................................................... 34
Dividends .......................................................................................... 34
Accounting Treatment of the Merger ................................................................. 34
Appraisal and Dissenters' Rights ................................................................... 34
THE MERGER AGREEMENT ..................................................................................... 35
General ............................................................................................ 35
Merger Consideration ............................................................................... 35
Election Procedures ................................................................................ 36
Representations and Warranties ..................................................................... 39
</TABLE>
(i)
<PAGE> 6
<TABLE>
<S> <C>
Covenants and Agreements ........................................................................... 40
Conditions to Complete the Merger .................................................................. 42
Termination; Expenses .............................................................................. 43
Amendment; Waiver .................................................................................. 45
Survival of Provisions ............................................................................. 45
Restrictions on Resales by Affiliates .............................................................. 46
THE COMPANIES ............................................................................................ 46
Andover Bancorp, Inc ............................................................................... 46
GBT Bancorp ........................................................................................ 47
GBT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GBT BANCORP
AND ITS SUBSIDIARY, GLOUCESTER BANK AND TRUST COMPANY .................................................... 48
Highlights ......................................................................................... 48
Average Balance Sheet .............................................................................. 48
Rate / Volume Analysis of Net Interest Income ...................................................... 49
Results of Operations Year Ended December 31, 1999 as Compared to Year Ended December 31, 1998 ..... 49
Results of Operations Year Ended December 31, 1998 as Compared to Year Ended December 31, 1997 ..... 51
Financial Condition ................................................................................ 53
Liquidity and Interest Rate Sensitivity Management ................................................. 54
Capital ............................................................................................ 55
Recent Accounting Developments ..................................................................... 55
CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO GBT ............................................ 55
Investment Portfolio ............................................................................... 56
Loan Portfolio ..................................................................................... 57
Non-accrual, Past Due, Restructured, and Potential Problem Loans ................................... 57
Summary Of Loan Loss Experience .................................................................... 58
Allowance For Loan Losses Allocation ............................................................... 58
Deposits ........................................................................................... 59
REGULATORY CONSIDERATIONS ................................................................................ 59
General ............................................................................................ 59
Regulation of Andover .............................................................................. 60
Regulation of Andover Bank and Gloucester Bank ..................................................... 63
Government Policies and Legislative and Regulatory Proposals ....................................... 65
Status of Regulatory Approvals and Other Information ............................................... 66
FEDERAL INCOME TAX CONSEQUENCES .......................................................................... 66
Tax Consequences of the Merger ..................................................................... 66
Backup Withholding ................................................................................. 67
Other Tax Consequences ............................................................................. 68
PRINCIPAL STOCKHOLDERS OF GBT ............................................................................ 69
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION .............................................. 70
DESCRIPTION OF CAPITAL STOCK OF ANDOVER .................................................................. 70
Authorized Capital Stock ........................................................................... 70
Common Stock ....................................................................................... 71
Andover Shareholder Rights Agreement ............................................................... 71
</TABLE>
(ii)
<PAGE> 7
<TABLE>
<S> <C>
Registrar and Transfer Agent ....................................................................... 73
COMPARISON OF RIGHTS OF HOLDERS OF GBT COMMON STOCK AND ANDOVER COMMON STOCK ............................. 74
Restrictions upon Subject Transactions and Certain Business Combinations ........................... 74
Mergers, Share Exchanges or Asset Sales ............................................................ 78
Appraisal Rights ................................................................................... 78
Special Meetings of Stockholders ................................................................... 79
Cumulative Voting For Directors .................................................................... 79
Preemptive Rights .................................................................................. 79
Classified Board of Directors ...................................................................... 79
Election of the Board of Directors ................................................................. 80
Removal of Directors ............................................................................... 80
Enlargement of Board, Filling Vacancies on Board ................................................... 80
Directors' Liability ............................................................................... 81
Indemnification of Officers and Directors .......................................................... 82
Amendments to the Charter .......................................................................... 83
Amendments to the By-laws .......................................................................... 83
OTHER MATTERS ............................................................................................ 84
LEGAL MATTERS ............................................................................................ 84
EXPERTS .................................................................................................. 84
WHERE YOU CAN FIND MORE INFORMATION ON ANDOVER ........................................................... 85
INDEX TO GBT FINANCIAL STATEMENTS ........................................................................ F-1
Annex A - The Merger Agreement ........................................................................... A-1
Annex B - Stock Option Agreement ......................................................................... B-1
Annex C - Provisions of Massachusetts Law Governing Dissenters' Rights ................................... C-1
Annex D - [Form of] Opinion of McConnell, Budd & Downs, Inc. Regarding Fairness of Transactions .......... D-1
</TABLE>
(iii)
<PAGE> 8
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To better understand the merger and for a more complete
description of the legal terms of the merger, you should carefully read this
entire document and the documents to which we refer you. See "Where You Can Find
More Information on Andover" on page __.
This proxy statement/prospectus contains forward-looking statements
concerning, among other things, the benefits expected to result from the merger
and the future financial performance of Andover after the merger. Actual results
may differ significantly from the forward-looking statements. See "Risk Factors"
beginning on page __.
THE COMPANIES
Andover Bancorp, Inc.
61 Main Street
Andover, Massachusetts 01810
(978) 749-2000
Andover, incorporated in the State of Delaware, is the holding company for
Andover Bank, a Massachusetts chartered savings bank. Andover Bank provides
commercial and retail banking products and services. In Massachusetts, Andover
principally provides services in Essex and Middlesex Counties with locations in
the communities of Andover, Lawrence, Methuen, North Andover and Tewksbury. In
New Hampshire, Andover principally provides services in the southern region of
the state with locations in the communities of Londonderry and Salem. At
December 31, 1999, Andover's total assets were approximately $1.5 billion, total
deposits were approximately $968.5 million and stockholders' equity was
approximately $130.3 million.
GBT Bancorp
2 Harbor Loop
Gloucester, Massachusetts
(978) 282-1200
GBT, incorporated in The Commonwealth of Massachusetts, is the holding
company for Gloucester Bank and Trust Company, a Massachusetts chartered trust
company. Gloucester Bank provides commercial and retail banking products and
services in Essex County, Massachusetts from its main office in Gloucester. As
of December 31, 1999, GBT's total assets were approximately $130.9 million,
total deposits were approximately $103.5 million and stockholders' equity was
approximately $8.4 million.
THE GBT BOARD
UNANIMOUSLY RECOMMENDS THAT ITS
STOCKHOLDERS APPROVE THE MERGER
The GBT Board believes that the merger is advisable and recommends that
you vote for the proposal to approve the merger agreement, the merger and the
other transactions contemplated by the merger agreement.
The GBT Board recommends the merger because:
- of the overall price paid by Andover for the acquisition of
GBT;
- of the mix of cash and Andover common stock offered as
consideration by Andover;
- of the liquidity of the trading market for Andover common
stock;
- GBT's customers and local community will benefit from the
greater resources and broader services of a larger banking
organization;
- following the merger, Andover is expected to be a strong bank
holding company operating through its community banks, Andover
Bank and Gloucester Bank, in Essex and Middlesex Counties,
Massachusetts and southern New Hampshire and positioned for
strategic opportunities throughout Massachusetts and New
England; and
<PAGE> 9
- the merger is expected to result in improved long-term
earnings growth and value enhancing opportunities, operating
efficiencies and a strengthened credit profile.
To review the GBT Board's reasons for recommending the merger in greater
detail, as well as related uncertainties, see pages __ to __.
WHAT WILL TAKE PLACE
AT THE GBT MEETING
GBT will hold a Special Meeting of Stockholders at the [Location], [Date]
at [Time].
At the GBT meeting, GBT stockholders will vote upon a proposal to approve
the merger agreement, the merger and the other transactions contemplated by the
merger agreement.
The merger cannot be completed unless, among other things, it is approved
by the holders of two-thirds of the outstanding shares of GBT common stock
entitled to vote at the GBT meeting.
Only holders of record of GBT common stock at the close of business on
[____________], 2000, which is the record date for the GBT meeting, will be
entitled to notice of and to vote at the GBT meeting.
If your shares of GBT common stock are held in "street name" by your
broker, your broker will vote your shares with respect to the merger agreement
only if you provide instructions on how to vote. Please tell your broker how you
would like him or her to vote your shares. If you do not tell your broker how to
vote, you will in effect be voting against the merger.
GBT requests that you complete your proxy card to ensure that you are
represented on all matters submitted to the GBT stockholders at the GBT meeting.
As of [ ]
- The directors and executive officers of GBT and their
affiliates beneficially owned approximately [23.24%] of the
outstanding shares of GBT common stock.
- A total of [791,374] shares of GBT common stock are eligible
to vote at the GBT meeting.
The directors and officers of GBT, in some cases along with their
respective spouses, have entered into a voting agreement with Andover to vote
all of their shares, representing approximately 23.24% of GBT's outstanding
shares of common stock, in favor of the merger agreement, the merger and the
other transactions contemplated by the merger agreement.
HOW TO CHANGE YOUR VOTE
You may change your vote at any time before your proxy is voted at the GBT
stockholders meeting. You can do so in one or more of the following ways:
- You can send a written notice subsequent to an earlier dated
proxy, stating that you are revoking your earlier dated proxy.
You should send written notice to the President and Chief
Executive Officer of GBT at the address below;
- You can complete a new proxy card and send it to the President
and Chief Executive Officer of GBT at the address below, in
which case the new proxy card will automatically replace any
earlier dated proxy card that you returned; or
- You can attend the stockholders meeting and vote in person.
2
<PAGE> 10
You should send any written notice of revocation, request for a new proxy
card or completed new proxy card to GBT at the following address:
GBT Bancorp
2 Harbor Loop
Gloucester, Massachusetts 01930-0030
Attn: David L. Marsh, President and
Chief Executive Officer
THE MERGER
The merger agreement is attached as Annex A to this proxy
statement/prospectus. We encourage you to read the entire merger agreement
because it is the document that governs the merger.
WHAT GBT STOCKHOLDERS WILL RECEIVE IN THE
MERGER (SEE PAGES AND )
At the effective time of the merger, each of your shares of GBT common
stock will convert into the right to receive, subject to the election procedures
and cash consideration limitations discussed below, either:
- $20.50 in cash; or
- 0.7543 shares of Andover common stock.
It is the intention under the merger agreement that 50% of the GBT common
stock will be exchanged for cash and 50% of the GBT common stock will be
exchanged for Andover common stock. The amount of cash to be paid by Andover in
the merger is therefore limited to $8,111,383.50.
However, the actual type of consideration to be paid to you (cash or
stock) will depend on availability after taking into account the preferences set
forth in the elections of all stockholders. Accordingly, it is important to
submit an election form in order to maximize the likelihood of receiving the
type of consideration that you prefer. See pages ___ for important information
on how to make this election.
The number of shares of Andover common stock that you will have the right
to receive in exchange for your shares of GBT common stock may be increased if
the Nasdaq closing price of Andover common stock declines to an average of
$19.02 or lower for a 10 day period prior to the effective time of the merger.
For detailed information about the consideration you will receive for your
shares, see pages ___ and ___. For detailed information about possible
adjustments to the number of shares of Andover common stock that you will have a
right to receive in exchange for your shares of GBT common stock, see pages __
and __, which includes a table to assist you in understanding how the
adjustments would work.
No fractional shares of Andover common stock will be issued in the merger.
Any fractional shares will be paid in cash.
You should not send in your stock certificates for exchange until
instructed to do so after we complete the merger.
WHAT CURRENT STOCKHOLDERS OF ANDOVER WILL
OWN AFTER THE MERGER
Stockholders of Andover will continue to own their existing shares after
the merger.
WHEN THE MERGER WILL BE COMPLETED
We expect that the merger will be completed as soon as practicable
following the approval by the stockholders of GBT at its stockholders meeting,
if we obtain all regulatory approvals and all other conditions to the merger are
satisfied.
BOARD OF DIRECTORS OF ANDOVER AND GLOUCESTER
BANK AFTER THE MERGER
The members of the Board of Directors of each of Andover and Gloucester
Bank in office
3
<PAGE> 11
immediately before the completion of the merger will continue to hold office
following the completion of the merger, except that Mr. Mulligan, the President
and Chief Executive Officer of Andover, will join the Board of Gloucester Bank.
No members of the Board of Directors of GBT will hold office in Andover.
OTHER INTERESTS OF GBT OFFICERS AND DIRECTORS
IN THE MERGER (SEE PAGE __)
David L. Marsh, President and Chief Executive Officer and a director of
GBT, the other directors of GBT, and Stephen R. Parkhurst, Executive Vice
President, are also stockholders of GBT. Mr. Marsh and Mr. Richard J. Edelstein,
Senior Vice President, Loans, will receive additional benefits as officers as a
result of the merger that are different from the benefits you will receive.
GBT agreed to cause Gloucester Bank to terminate Mr. Marsh's current
employment agreement and to enter into a new employment agreement with him prior
to the effective time of the merger. The new agreement will provide Mr. Marsh
with a guaranteed annual salary of $142,000 and other standard benefits for a
three year period after the merger. GBT also agreed to cause Gloucester Bank to
terminate Mr. Marsh's special termination agreement subject to Gloucester Bank
paying Mr. Marsh $361,827.
GBT also agreed to cause Gloucester Bank to enter into an employment
agreement with Mr. Edelstein prior to the effective time of the merger that
provides Mr. Edelstein with a guaranteed annual salary of $91,670 and other
standard benefits for a two year period after the merger.
You may want to consider these benefits in deciding whether to vote in
favor of the merger.
CONDITIONS TO COMPLETE THE MERGER
(SEE PAGE __)
A number of conditions must be satisfied before the merger is completed,
including that:
- the stockholders of GBT approve the merger agreement;
- the Board of Governors of the Federal Reserve System and the
Massachusetts Board of Bank Incorporation approve the merger;
- Nasdaq authorizes the listing of the Andover common stock to
be issued to GBT stockholders;
- none of the requisite regulatory approvals imposes any
condition upon Andover, Andover Bank, GBT or Gloucester Bank
such that Andover reasonably determines that the condition
would materially adversely affect GBT or Gloucester Bank or
materially impair the value of GBT or Gloucester Bank to
Andover; and
- no court or governmental authority prohibits the merger.
TERMINATION FEE (SEE PAGE __)
As a condition to Andover's willingness to enter into the merger
agreement, GBT agreed to pay a termination fee to Andover if the merger
agreement is terminated for specific reasons set forth in the merger agreement.
The termination fee would equal $800,000, less the amount of any other payments
made by GBT to Andover for costs and expenses due to GBT having materially
breached the merger agreement by its willful conduct or gross negligence.
4
<PAGE> 12
CIRCUMSTANCES UNDER WHICH THE PARTIES MAY
TERMINATE THE MERGER AGREEMENT (SEE PAGE __)
Andover and GBT may agree to terminate the merger agreement at any time
before the merger has been completed. Either Andover or GBT generally may
terminate the merger agreement if any of the following occurs:
- the merger has not been completed on or before September 30,
2000, unless Andover and GBT agree to a later date;
- 90 days has passed since an application for a required
governmental approval is denied or withdrawn and a petition
for rehearing or an amended application has not been filed;
- the required GBT stockholder approval is not obtained;
- a court or other governmental authority prohibits the merger;
or
- the other party materially breaches the representations,
warranties, covenants or agreements contained in the merger
agreement, and the breach is not cured within the specified
time period.
Andover has the right to terminate the merger agreement if the GBT Board
does not recommend to its stockholders that they vote in favor of the merger or
the GBT Board withdraws or adversely changes its recommendation to its
stockholders that they vote in favor of the merger.
GBT may have the right to terminate the merger agreement if the price of
Andover common stock declines below $19.02. This termination right, however, is
subject to Andover's right to increase the effective exchange rate from 0.7543
as provided in the merger agreement. If exercised, this right would result in
GBT stockholders receiving more shares of Andover common stock as consideration
for their shares of GBT common stock. Please see pages __ and __ for a detailed
example of how this termination right works and how the exchange rate could be
affected. The table on page __ further illustrates how the exchange rate could
be affected.
THE PARTIES ENTERED INTO A STOCK OPTION
AGREEMENT TO DETER OTHER COMPANIES FROM
ACQUIRING GBT (SEE PAGE __)
As a condition to Andover's willingness to enter into the merger
agreement, and to discourage other companies from attempting to acquire GBT, GBT
granted Andover an option to purchase up to 157,483 shares of GBT common stock
at an exercise price of $20.50 per share. The number of shares for which the
option is exercisable represents approximately 19.9% of GBT's presently issued
and outstanding common stock. The option is only exercisable upon the occurrence
of specified events that would ordinarily be associated with an acquisition or
potential acquisition of GBT by a third party.
REGULATORY APPROVALS ARE REQUIRED
(SEE PAGE __)
Prior to the completion of the merger, Andover and GBT are required to
obtain a number of regulatory approvals in connection with the merger, including
the approval of the Massachusetts Board of Bank Incorporation and the Federal
Reserve Board. We have filed applications seeking approval of the merger with
the necessary regulatory authorities.
MCCONNELL, BUDD & DOWNES, INC. BELIEVES THAT
THE CONSIDERATION PAYABLE TO GBT
STOCKHOLDERS BY ANDOVER IS FAIR TO GBT'S
STOCKHOLDERS (SEE PAGES __ THROUGH __)
McConnell, Budd & Downes, Inc. has acted as financial advisor to GBT in
connection with the merger. McConnell, Budd & Downes delivered to GBT a written
opinion dated January
5
<PAGE> 13
26, 2000, which was confirmed and updated by a written opinion dated as of the
date of this proxy statement/prospectus, to the effect that, as of the date of
the opinion, and based upon and subject to matters stated in the opinion, the
merger consideration was fair, from a financial point of view, to the
stockholders of GBT. The full text of the updated written opinion of McConnell,
Budd & Downes, which sets forth assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex D to this proxy
statement/prospectus and should be read carefully in its entirety. McConnell,
Budd & Downes provided its opinion for the information and assistance of the GBT
Board and it addresses only the fairness, from a financial point of view, of the
merger consideration to the common stockholders of GBT and the opinion neither
addresses the merits of the underlying decision by GBT to engage in the
transaction nor constitutes a recommendation to any stockholder as to how a
stockholder should vote on the merger agreement.
FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER (SEE PAGE __)
GBT and GBT Stockholders. Provided that the value of Andover common stock
paid to GBT stockholders as of the effective time of the merger continues to
represent at least 40% of the merger consideration paid to such stockholders,
the merger is expected to be tax-free to GBT and GBT stockholders who receive
solely shares of Andover common stock. In the event that the per share price of
Andover common stock falls to $18.20 as of the effective time of the merger,
Andover common stock will represent approximately 40% of the merger
consideration paid to GBT stockholders based upon the latest information
available to the parties.
Provided this 40% threshold is met, a GBT stockholder receiving cash in
the merger generally will recognize gain, but not loss, for federal income tax
purposes equal to the lesser of
- the amount of cash received by the stockholder in the merger;
or
- the gain realized by such stockholder in the merger.
The gain a GBT stockholder may realize in the merger is equal to the excess, if
any, of the sum of the cash and the fair market value of the Andover common
stock received by the stockholder over the stockholder's adjusted basis in his
or her GBT common stock. This gain generally will be a capital gain, taxable as
a long-term capital gain with respect to GBT common stock held by a stockholder
for more than one year at the effective time of the merger.
For more information regarding the likely tax consequences of the value of
Andover common stock paid to GBT stockholders as of the effective time of the
merger representing less than 40% of the merger consideration paid to such
stockholders, see "Risk Factors - A Decline in the Market Price of Andover
Common Stock Prior to the Effective Time of the Merger Could Result in
Significant Tax Liability for GBT Stockholders and GBT."
GBT STOCKHOLDERS HAVE THE
RIGHT TO DEMAND PAYMENT FOR THEIR STOCK
(SEE PAGES __ AND __)
Under Massachusetts law, in connection with the merger, you have
dissenters' rights, which means that you have the right to demand payment for
your shares of GBT common stock and the right to an appraisal of the value of
your shares of GBT common stock as an alternative to receiving the merger
consideration in exchange for your shares of GBT common stock.
ANDOVER SHARES TO BE LISTED ON THE NASDAQ
NATIONAL MARKET (SEE PAGE 28)
Andover will list the shares of its common stock to be issued to holders
of GBT common stock in connection with the merger on the Nasdaq National Market.
6
<PAGE> 14
ANDOVER DIVIDEND POLICY FOLLOWING
THE MERGER (SEE PAGE __)
The current annualized rate of dividends on the shares of Andover common
stock is $0.96 per share. It is expected that, upon completion of the merger,
Andover will continue to pay quarterly dividends in a manner that is consistent
with its past practices, subject to approval and declaration by the Andover
Board. The payment of dividends by Andover in the future will depend on its
financial condition and earnings, business conditions and other factors.
COMPARISON OF GBT STOCKHOLDERS' RIGHTS
BEFORE AND AFTER THE MERGER (SEE PAGE __)
The rights of the stockholders of GBT and Andover are governed by the
charter documents and bylaws of the respective companies and by Massachusetts
and Delaware law, respectively. Important differences do exist between the
rights of the two companies. Please see "Comparison of Rights of Holders of GBT
Common Stock and Andover Common Stock" beginning on page __ for a complete
description of these differences.
COMPARATIVE PER SHARE MARKET
PRICE INFORMATION
(SEE PAGE __)
Shares of Andover common stock are listed on the Nasdaq National Market
and shares of GBT common stock are quoted on the Nasdaq Bulletin Board, where
there is an established public trading market for GBT common stock. On January
26, 2000, the last full trading day of Andover common stock and the last day
during which a trade in GBT common stock was made by Moors & Cabot, Inc., a
market maker in GBT common stock, before the public announcement of the signing
of the merger agreement, the closing price of Andover common stock and GBT
common stock were as follows:
<TABLE>
<CAPTION>
Closing Price on Pro Forma
January 26,2000 Equivalent
--------------- ----------
<S> <C> <C>
Andover............$26.75 N/A
GBT................$12.50 $20.18
</TABLE>
The pro forma equivalent closing price gives effect to the merger by
multiplying the closing price of Andover common stock on January 26, 2000 by the
exchange rate of 0.7543.
On [_____________], 2000, Andover common stock closed at $[_____] per
share. Until and including [______________], 2000, the last trade of GBT common
stock was at $[______] per share.
HOW TO OBTAIN ADDITIONAL INFORMATION
If you have questions about the merger or if you would like copies of this
proxy statement/prospectus, you should contact:
GBT Bancorp
2 Harbor Loop
Gloucester, Massachusetts 01930-0030
Attn: David L. Marsh, President and
Chief Executive Officer
Phone Number: (978) 282-1200
7
<PAGE> 15
RISK FACTORS
Unless the context otherwise requires, all references in this section of
this proxy statement/prospectus to "we," "us" or "our" refer to Andover Bancorp,
Inc. and its subsidiaries on a consolidated basis following the completion of
the merger.
Stockholders of GBT should consider the following risk factors in
conjunction with the rest of this document.
FAILURE TO INTEGRATE OPERATIONS FOLLOWING THE MERGER COULD REDUCE OUR FUTURE
EARNINGS PER SHARE
The integration of the systems and other back-office operations of Andover
and GBT and their respective subsidiaries will present a challenge to
management. We may not be able to integrate and manage these operations
effectively or maintain or improve the historical financial performances of
Andover and GBT. The failure to successfully integrate these systems and
operations could have an adverse effect on the results of operations and
financial condition of Andover.
UNANTICIPATED COSTS RELATING TO THE MERGER COULD REDUCE OUR FUTURE EARNINGS PER
SHARE
We believe that we have reasonably estimated the likely costs of
integrating the operations of Andover and GBT, and the incremental costs of
operating as a combined company. However, it is possible that unexpected
transaction costs such as taxes, fees or professional expenses or unexpected
future operating expenses such as increased personnel costs or increased taxes,
as well as other types of unanticipated adverse developments, could have a
material adverse effect on our results of operations and financial condition. If
unexpected costs are incurred, the merger could have a dilutive effect on our
earnings per share. In other words, if the merger is completed, it is possible
that the earnings per share of Andover common stock could be less than they
would have been if the merger had not been completed.
A DECLINE IN THE MARKET PRICE OF ANDOVER COMMON STOCK PRIOR TO THE EFFECTIVE
TIME OF THE MERGER COULD RESULT IN SIGNIFICANT TAX LIABILITY FOR GBT
STOCKHOLDERS AND GBT
If a decline in the market price of Andover common stock causes the value
of the Andover common stock paid to the GBT stockholders as of the effective
time to represent less than 40% of the merger consideration paid to such
stockholders, it is likely that the merger would fail to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. Failure of the merger to qualify as a reorganization would result in GBT
stockholders being taxed on both the stock and cash that they receive in
connection with the merger. In other words, GBT stockholders would recognize
gain or loss determined by the difference between the sum of the amount of cash
and the fair market value of Andover common stock they receive in the merger
relative to their basis in their GBT common stock. In addition, the transaction
would be treated as a taxable sale of all of GBT's assets which would result in
GBT being taxed on the gain on the sale of its assets which would be the
difference between the purchase price as of the effective date, increased by any
liabilities of GBT (including any tax liability on account of the deemed taxable
sale of GBT's assets), and the tax basis of GBT's assets. Andover has stated
that such a liability may be the basis for Andover to terminate the merger
agreement. Ultimately, if Andover does not terminate the merger agreement and
these taxes are imposed, the overall value of the combined enterprise as well as
the value received and retained by GBT stockholders in connection with the
merger would be reduced. In the event that the per share price of Andover common
stock falls to $18.20 as of the effective time of the merger, Andover common
stock will represent approximately 40% of the merger consideration paid to GBT
stockholders based upon the latest information available to the parties.
8
<PAGE> 16
CHANGES IN THE LOCAL ECONOMY AND MARKETPLACE COULD ADVERSELY IMPACT OUR BUSINESS
Our business is impacted by changes in the local economy and marketplace.
Specifically, the volume of loan originations is dependent upon demand for loans
of the type originated and serviced by us and the competition in the marketplace
for such loans. The level of consumer confidence, fluctuations in real estate
values, fluctuations in prevailing interest rates and fluctuations in investment
returns expected by the financial community could combine to make loans of the
type originated by us less attractive. In addition, our business may be
adversely affected by other factors that could
- increase the cost to borrowers of loans originated by us;
- create alternative lending sources for such borrowers; or
- increase our cost of funds at a rate faster than an increase in
interest income, thereby narrowing our net interest rate margins.
OUR BUSINESS COULD BE ADVERSELY IMPACTED BY APPLICABLE REGULATORY CHANGES OR
MODIFICATIONS
Our operations are subject to extensive regulation by federal, state and
local governmental authorities and are subject to various laws and judicial and
administrative decisions imposing requirements and restrictions on part or all
of our operations. There can be no assurance that these laws, rules and
regulations will not be modified in the future, which could make compliance much
more difficult or expensive, restrict our ability to originate, broker or sell
loans or otherwise adversely affect our business or prospects.
OUR PERFORMANCE MAY DECLINE IF KEY INDIVIDUALS LEAVE THE SURVIVING CORPORATION
After the merger, Andover will depend on the services of key personnel,
including Gerald T. Mulligan, Joseph F. Casey, David L. Marsh and Richard J.
Edelstein. The loss of the services of any of these key persons could have a
material adverse effect on the successful integration of Andover and GBT and the
results of operations of the surviving corporation. See "The Companies."
WE FACE INCREASED COMPETITION
Andover faces increased competition from non-banking companies and may not
be able to successfully compete with such companies in the future. Over the past
several years, non-banking companies have provided significant competition for
banks such as Andover Bank in the areas of originating loans, providing
financing and providing investment and other accounts. Further, the financial
services industry is also likely to become more competitive as further
technological advances enable more companies to provide financial services.
Moreover, with the passage of the Gramm-Leach-Bliley Act in 1999, which permits
affiliations between banks, insurance companies and securities firms,
non-banking companies may now affiliate with banks and provide FDIC-insured
deposits. Some of these companies may be much larger and have greater resources
than us and therefore may pose a competitive threat. Similarly, the largest
banking companies continue to grow through acquisitions and other expansion and
may also pose additional competitive threats. For more information on
affiliations and activities that have become permissible see "Regulatory
Considerations."
FAILURE IN NEW NON-BANKING ACTIVITIES COULD REDUCE OUR EARNINGS PER SHARE
Failure in new non-banking activities conducted by Andover could have an
adverse effect on our earnings. Andover has expanded its operations into new
non-banking activities. Following the merger, we
9
<PAGE> 17
intend to continue our expansion into non-banking activities as attractive
opportunities arise. Moreover, the passage of the Gramm-Leach-Bliley Act permits
bank holding companies like Andover to engage in a greater array of activities.
We may not be successful in these new activities because of several factors,
including (1) a lack of market and product knowledge or awareness of other
industry related matters and (2) an inability to attract and retain qualified
employees with experience in these non-banking activities. For more information
on affiliations and activities that have become permissible see "Regulatory
Considerations."
This proxy statement/prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements include information
concerning possible or assumed future results of operations of Andover,
including the anticipated benefits from the merger. When we use words such as
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. Stockholders of GBT should note that many factors
could affect the future financial results of Andover and could cause these
results to differ materially from those expressed in our forward-looking
statements. There are many reasons why our actual results could differ
materially from those set forth in the forward-looking statements, including the
risk factors listed above. This list may not be exhaustive.
10
<PAGE> 18
ANDOVER SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are selected consolidated financial and operating data for
Andover as of and for the periods indicated on a historical basis. This
financial information has been derived from the Andover Annual Reports on Form
10-K for the fiscal years ended December 31, 1995 through December 31, 1999.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
consolidated financial statements, including the notes thereto, of Andover which
are incorporated by reference herein. See "Where You Can Find More Information
on Andover."
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT BANKING OFFICES DATA)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Total assets.............................. $1,491,054 $1,410,247 $1,322,745 $1,204,813 $1,110,847
Total loans............................... 1,133,101 1,050,765 978,823 870,035 768,598
Allowance for loan losses................. 11,384 10,486 12,521 12,229 11,665
Investments(1)............................ 286,722 283,048 282,813 276,727 285,308
Assets held for sale...................... 1,494 11,282 5,537 2,220 5,162
Deposits.................................. 968,533 988,656 946,982 824,311 743,205
Borrowed funds............................ 379,384 283,824 258,732 274,418 272,626
Stockholders' equity...................... 130,263 121,142 107,079 95,846 85,165
Non-performing assets..................... 2,497 3,492 8,255 12,382 15,785
Number of banking offices and locations... 13 13 13 12 11
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Interest and dividend income............... $100,010 $97,246 $90,752 $83,823 $76,886
Interest expense........................... 52,701 55,015 52,047 48,529 44,552
-------- ------ ------ ------ ------
Net interest and dividend income........... 47,309 42,231 38,705 35,294 32,334
Provision (credit) for loan losses......... 400 (1,705) 983 2,555 1,295
Net gains (losses) from sales of assets
held for sale and investment (1)......... (368) 670 422 (265) 324
Gains (losses) on real estate operations, net (5) 14 (971) (1,542) (2003)
Other income............................... 4,613 3,502 5,307 4,804 4,870
Merger expense (recovery).................. -- -- -- (225) 1,000
Non-interest expense....................... 21,977 22,577 21,986 20,045 18,258
------- ------- ------- ------- ------
Income before income tax expense and
extraordinary item....................... 29,172 25,545 20,494 15,916 14,972
Income tax expense......................... 10,287 8,159 7,288 3,264 5,634
------- -------- -------- -------- -------
Income before extraordinary item........... 18,885 17,386 13,206 12,652 9,338
Extraordinary item......................... -- -- -- (173) --
--------- --------- --------- --------- --------
Net income................................. $18,885 $17,386 $13,206 $12,479 $9,338
======= ======= ======= ======= ======
PER SHARE DATA:
Basic earnings per share:
Income per share before extraordinary item $ 2.89 $ 2.68 $ 2.05 $ 1.98 $ 1.48
Extraordinary item per share, net of tax -- -- -- (173) --
--------- --------- --------- --------- -------
Net income per share.................... $ 2.89 $ 2.68 $ 2.05 $ 1.95 $ 1.48
======== ======== ======== ======== ======
Diluted earnings per share:
Income per share before extraordinary item $ 2.82 $ 2.60 $ 1.99 $ 1.95 $ 1.46
Extraordinary item per share, net of tax -- -- -- (0.03) --
--------- --------- --------- -------- -------
Net income per share.................... $ 2.82 $ 2.60 $ 1.99 $ 1.92 $ 1.46
======== ======== ======== ======== ======
Dividends declared......................... $ 0.87 $ 0.69 $ 0.54 $ 0.40 $ 0.30
Book value at end of period................ 19.94 18.58 16.58 14.94 13.40
Book value (2)............................. 20.40 18.39 16.40 14.89 13.37
</TABLE>
11
<PAGE> 19
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
SELECTED FINANCIAL RATIOS:
<S> <C> <C> <C> <C> <C>
Return on average assets.................. 1.31% 1.27% 1.06% 1.08% 0.87%
Return on average equity (2).............. 15.05 15.64 13.24 13.89 11.51
Average equity as a percentage of
average assets (2)...................... 8.68 8.13 8.00 7.76 7.59
Weighted average interest rate spread..... 2.79 2.57 2.67 2.66 2.71
Net yield on average earning assets....... 3.37 3.18 3.22 3.16 3.14
Dividend payout ratio..................... 30.85 26.54 27.14 20.83 20.55
</TABLE>
- -------------
(1) Includes investment securities, mortgage-backed securities and short-term
investments, both available for sale and held to maturity.
(2) Excludes the effect of SFAS No. 115.
12
<PAGE> 20
GBT SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are selected financial and operating data for GBT as of
and for the periods indicated on a historical basis. This financial information
has been derived from audited consolidated financial statements for the fiscal
years ended December 31, 1995 through December 31, 1999. This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (and the audited financial statements,
including the notes thereto, of GBT) which are included herein. See "GBT
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Total assets.............................. $130,914 $121,026 $112,730 $110,993 $99,242
Total loans.............................. 90,646 74,908 72,142 63,464 56,830
Allowance for loan losses................ 1,790 1,802 1,793 1,770 1,744
Investments available-for-sale........... 25,411 24,864 23,879 31,241 27,599
Deposits................................. 103,536 92,822 94,317 92,048 85,163
Borrowed funds........................... 18,602 18,602 9,487 9,690 6,000
Stockholders' equity..................... 8,422 9,308 8,595 7,793 7,501
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands, except per share data)
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Interest and dividend income............. $8,818 $8,366 $8,404 $7,529 $6,985
Interest expense......................... 3,902 3,563 3,671 3,268 2,782
Net interest and dividend income......... 4,916 4,803 4,733 4,261 4,203
------ ------ ------ ------ ------
Provision for loan losses................ 0 0 0 0 0
Securities gains (losses), net........... 66 4 72 110 (4)
Other income............................. 822 857 736 693 670
Non-interest expense..................... 4,515 3,698 3,479 3,353 3,111
------ ------ ------ ------ ------
Income before income tax expense......... 1,289 1,966 2,062 1,711 1,758
Income tax expense....................... 565 827 860 714 733
------- ------- ------- ------ -------
Net income............................... $ 724 $1,139 $1,202 $ 997 $1,025
====== ====== ====== ====== ======
PER SHARE DATA: (1)
Basic earnings per share................. $0.91 $1.41 $1.48 $1.20 $1.24
Diluted earnings per share............... 0.91 1.41 1.48 1.20 1.24
Dividends declared per share............. 0.60 0.58 0.57 0.57 0.57
Book value (2)........................... 11.50 11.26 10.47 9.54 8.91
SELECTED FINANCIAL RATIOS:
Return on average assets................. 0.58% 1.01% 1.09% 0.98% 1.13%
Return on average equity (2)............. 8.14 12.98 14.44 12.90 14.23
Weighted average interest rate spread.... 3.54 3.70 3.67 3.60 4.08
Net yield on average interest-earning assets 4.29 4.61 4.61 4.50 5.04
Dividend payout ratio.................... 65.93 41.13 38.51 47.50 45.97
</TABLE>
- ----------------------
(1) Adjusted for exchange of one share of Gloucester Bank stock for 7 shares
of GBT Bancorp stock in 1998.
(2) Excludes the effect of SFAS No. 115.
13
<PAGE> 21
COMPARATIVE PER COMMON SHARE DATA
(UNAUDITED)
We have summarized below per common share information for Andover and
GBT on a historical and pro forma combined and pro forma equivalent basis. The
pro forma information gives effect to the merger accounted for as a "purchase."
You should read this information in conjunction with Andover's historical
financial statements and related notes contained in the reports and other
information that we have filed with the Securities and Exchange Commission and
with GBT's historical financial statements and related notes which are included
herein. See "Where You Can Find More Information on Andover" and "Index to GBT
Financial Statements."
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
Income from continuing operations per common share--basic:
<S> <C> <C> <C>
Andover
Historical................................................ $2.89 $2.68 $2.05
Pro forma combined for the merger (1)..................... 2.75 2.61 2.01
GBT
Historical................................................ 0.91 1.41 1.48
Pro forma equivalent for the merger (2)................... 2.07 1.97 1.52
Income from continuing operations per common share--diluted:
Andover
Historical................................................ 2.82 2.60 1.99
Pro forma combined for the merger (1)..................... 2.68 2.53 1.96
GBT
Historical................................................ 0.91 1.41 1.48
Pro forma equivalent for the merger (2)................... 2.02 1.91 1.48
Cash dividends per common share:
Andover
Historical................................................ 0.87 0.69 0.54
Pro forma combined for the merger (3)..................... 0.87 0.69 0.54
GBT
Historical................................................ 0.60 0.58 0.57
Pro forma equivalent for the merger (2)................... 0.66 0.52 0.41
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1999
-----------------
Book value per common share (4):
<S> <C>
Andover
Historical................................................ 20.40
Pro forma combined for the merger (1)..................... 20.80
GBT
Historical................................................ 11.50
Pro forma equivalent for the merger (2)................... 15.69
</TABLE>
- -------------
(1) Pro forma combined amounts reflect the proposed merger as if the merger
had occurred at the beginning of such period.
(2) Pro forma equivalent amounts for GBT are calculated by multiplying the pro
forma combined amounts by the exchange ratio of 0.7543.
(3) Pro forma combined cash dividends per common share represent historical
dividends paid by Andover.
(4) Excludes the effect of SFAS No. 115.
14
<PAGE> 22
THE GBT MEETING
PURPOSE OF THE MEETING
At the special meeting, you will be asked to consider and vote upon a
proposal to approve the merger agreement, the merger and the other transactions
contemplated by the merger agreement. You also may be asked to vote upon such
other matters as may properly come before the special meeting, which may include
a proposal to adjourn the special meeting. Any such adjournment or adjournments
could be used for the purpose of allowing additional time for the management of
GBT to solicit additional votes to approve the merger agreement.
RECORD DATE; VOTING RIGHTS; PROXIES
The close of business on [record date] has been fixed by GBT as the record
date for the determination of holders of GBT common stock entitled to notice of
and to vote at the GBT special meeting and any adjournment or adjournments. At
the close of business on the record date, there were __________ shares of GBT
common stock outstanding and entitled to vote. You are entitled to vote at the
special meeting if you owned shares of GBT common stock as of the close of
business on the record date. You will have one vote for each share of GBT common
stock that you owned on that date.
This proxy statement/prospectus is accompanied by a form of proxy. Each
proxy returned to GBT by a holder of GBT common stock on the record date will be
voted in accordance with the instructions indicated thereon. If no instructions
are indicated, the proxy will be voted "FOR" approval of the merger agreement.
Proxies marked "FOR" approval of the merger agreement and executed but unmarked
proxies will be voted in the discretion of the persons named in the accompanying
form of proxy as to any proposed adjournment of the special meeting. Proxies
that are voted against approval of the merger agreement will not be voted in
favor of any motion to adjourn the special meeting to solicit more votes in
favor of approval of the merger agreement.
You may change your vote at any time before your proxy is voted at the GBT
stockholders meeting. You can do so in one or more of the following ways:
- You can send a written notice to the President and Chief Executive
Officer of GBT at the address below stating that you are revoking
your earlier dated proxy.
- You can complete a new proxy card and send it to the President and
Chief Executive Officer of GBT at the address below in which case
the new proxy card will automatically replace any earlier dated
proxy card that you returned.
- You can attend the GBT special meeting and vote in person.
You should send your written notice that you are revoking your proxy,
request for a new proxy card or completed new proxy card to GBT at the following
address:
GBT Bancorp
2 Harbor Loop
Gloucester, Massachusetts 01930-0030
Attention: David L. Marsh, President and Chief Executive Officer
Your attendance at the GBT special meeting will not, in and of itself,
constitute revocation of your proxy.
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INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Shatswell, MacLeod & Company, P.C., GBT's independent
certified public accountants, are expected to be present at the GBT meeting and
will have an opportunity to make a statement if they desire to do so. They are
also expected to be available to respond to appropriate questions.
SOLICITATION OF PROXIES; QUORUM
GBT will bear the cost of mailing this document to the GBT stockholders,
as well as all other costs incurred by it in connection with the solicitation of
proxies from its stockholders. In addition, the directors, officers and
employees of GBT may solicit proxies from stockholders by telephone, telecopy or
in person without compensation other than reimbursement for their actual
expenses. GBT will also make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to forward proxy solicitation materials to
the beneficial owners of stock held of record by such persons, and will
reimburse such custodians, nominees and fiduciaries for their reasonable
expenses in doing so. GBT has engaged Georgeson Shareholder Communications, Inc.
to assist in the solicitation of proxies at a cost of $3,500.00 plus the
reimbursement of certain expenses.
A quorum, consisting of the holders of a majority in interest of all GBT
stock issued, outstanding and entitled to vote on any matter, must be present in
person or by proxy before any action may be taken at the special meeting.
REQUIRED VOTE
The affirmative vote of the holders of two-thirds of the outstanding
shares of GBT common stock, voting in person or by proxy, is necessary to
approve the merger agreement.
The proposal to adopt the merger agreement is considered a
"non-discretionary item." As a result, brokerage firms who own shares in "street
name" for customers who are the beneficial owners of those shares may not vote
in their discretion on behalf of their clients if their clients have not
furnished voting instructions. Stockholders who abstain from voting, but who are
present in person or have executed a proxy, and broker "non-votes" will be
considered in determining the presence of a quorum at the special meeting but
will not be counted as votes cast for the merger agreement. Because the proposal
to adopt the merger agreement is required to be approved by the holders of
two-thirds of the outstanding shares of GBT common stock, abstentions and broker
"non-votes" will have the same effect as a vote against this proposal at the
special meeting.
In connection with the execution of the merger agreement, GBT entered into
an agreement with each of its directors and officers pursuant to which each such
person agreed to vote his or her shares of GBT common stock in favor of the
merger agreement. Such directors and executive officers own, in the aggregate,
23.24% of the outstanding common stock of GBT.
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PROPOSAL
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
THE MERGER PROPOSAL
On January 26, 2000, at a Special Meeting of the GBT Board, the GBT Board
deemed advisable and approved the merger agreement, the merger and the other
matters and transactions contemplated by the merger agreement. All of the
members of the GBT Board were present at the special meeting and all of the
members of the GBT Board voted to approve the merger agreement, the merger and
the other matters and transactions contemplated by the merger agreement.
REQUIRED VOTE AND RECOMMENDATION
Proxies will be voted for the proposal unless contrary instructions are
set forth in the proxy. Only stockholders of record of GBT common stock on the
record date are entitled to vote on this proposal. This proposal requires the
affirmative vote of two-thirds of all the votes entitled to be cast by holders
of record of GBT common stock. Accordingly, abstentions and broker non-votes
will have the effect of votes against this proposal.
THE GBT BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER
AGREEMENT, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT.
THE MERGER
This section of the proxy statement/prospectus, as well as the section
entitled "The Merger Agreement," describes the material aspects of the merger. A
copy of the merger agreement is attached to this proxy statement/prospectus as
Annex A and is incorporated in this proxy statement/prospectus by reference. We
urge all GBT stockholders to read the merger agreement carefully in its
entirety.
BACKGROUND OF THE MERGER
ANDOVER:
As part of its effort to expand its commercial banking franchise and
enhance stockholder value, Andover has regularly considered a variety of
strategic business combinations and acquisitions in recent years.
On December 2, 1999, Andover received an e-mail from McConnell, Budd &
Downes, Inc., financial advisor to GBT, soliciting a non-binding proposal for
the acquisition of GBT.
On December 7, 1999, Andover submitted a non-binding proposal for the
acquisition of GBT having a value of $20.00 for each share of GBT common stock.
At the December 16, 1999 meeting of the Andover Board, the full status of
the possible agreement with GBT was discussed, including the potential issues
associated with a business combination. Based upon these discussions, Mr.
Mulligan was authorized to engage in further discussions with MB&D.
After several discussions, on December 30, 1999, Mr. Mulligan presented
MB&D with a revised non-binding proposal for the acquisition of GBT having a
value of $20.50 for each share of GBT common stock with half of the
consideration to be paid in cash and half to be paid in Andover common stock.
Between January 6, 2000 and January 24, 2000, the parties and their
respective financial and legal advisors discussed and negotiated the terms and
conditions of the merger agreement and other related
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agreements, including the stock option agreement. Among the specific matters
negotiated were the price fluctuation termination right and related exchange
rate adjustment election intended to protect the stockholders of GBT from
fluctuations in the price of Andover's common stock, and Andover's need for the
stock option agreement. On January 22, 2000, Andover management conducted
remaining due diligence at GBT. On January 24, 2000, the parties resolved all of
the material open issues, including the amount and triggering events of the
termination fee and the triggering events and other specifics of the stock
option agreement.
On January 26, 2000, the Board of Directors of Andover convened a meeting
with Goodwin, Procter & Hoar LLP present at the meeting. Presentations were made
with regard to the terms and conditions of the proposed merger with GBT and a
full discussion ensued. After a detailed discussion, appropriate resolutions
were adopted authorizing Mr. Mulligan and Mr. Casey to execute all documents
related to the merger, including the merger agreement and the stock option
agreement.
GBT:
As part of its strategic planning process, in the third quarter of 1999
the GBT Board decided to explore the possibility of a combination with another
financial institution. On October 7, 1999, the Board met to authorize MB&D to
present options to the Board. MB&D had been retained as GBT's investment bankers
since 1995.
On October 14, 1999 the Board reviewed financial projections comparing the
results of GBT remaining independent with the results which might be obtained
from merging with a larger bank. MB&D was authorized to contact organizations
thought to be potential merger partners.
On December 13, 1999, Frederic Schluter of MB&D reported to the Board that
three organizations had expressed interest in an affiliation with GBT. During
the week of December 20, Mr. Schluter and officers of GBT met with each of the
three organizations and requested that they refresh their initial expressions of
interest. On December 30, two of the organizations (including Andover) submitted
non-binding proposals for the acquisition of GBT. At a special meeting held on
January 4, 2000, the GBT Board decided to accept the Andover offer, subject to
final negotiations of the terms presented. GBT's legal counsel, Foley, Hoag &
Eliot LLP participated in the meeting.
On January 21, 2000 the Board, again with legal counsel present,
authorized the conduct of the necessary due diligence with Andover as a prelude
to executing the final agreements.
On January 26, 2000 the GBT Board convened a special meeting with Foley,
Hoag, & Eliot LLP in attendance. Presentations were made regarding the terms and
conditions of the proposed merger with Andover. Following a detailed discussion,
the Agreement and Plan of Merger and the Stock Option Agreement were unanimously
approved, and the President, Treasurer, and Clerk were authorized to execute all
documents, and to take and all necessary actions in relation thereto.
Following the close of trading of the Nasdaq National Market on January
26, 2000, authorized officers of Andover and GBT executed and delivered the
merger agreement and the stock option agreement.
ANDOVER'S REASONS FOR THE MERGER
Andover's acquisition strategy consists of identifying financial
institutions which have business philosophies which are similar to those of
Andover, operate in strong markets that are geographically compatible with the
markets in which Andover operates, are financially sound and can be acquired for
reasonable cost. Acquisitions also are evaluated in terms of asset quality,
interest rate risk, potential operating efficiencies and revenue enhancements
and management capabilities.
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In reaching its determination to approve the merger agreement, the merger
and the other transactions contemplated by the merger agreement, the Andover
Board consulted with management as well as with its financial advisor, Merrill
Lynch Capital Markets and its legal advisor, Goodwin, Procter & Hoar LLP, and
considered a number of factors, including:
- the Andover Board's review of the financial condition, results of
operations, business and overall prospects of GBT;
- the fact that GBT's strong commercial banking franchise is
contiguous to Andover's existing banking franchises in Massachusetts
and New Hampshire;
- the enhanced ability of the combined entity to compete against
larger competitors;
- the terms of the merger agreement and the stock option agreement
(see "THE MERGER--Stock Option Agreement");
- the anticipated cost savings and operating synergies available to
the combined company subsequent to consummation of the merger, as
well as the restructuring charge of approximately $835,000 on an
after-tax basis that the combined company is expected to take in
connection with the merger and the impact of this charge on the
combined company's earnings;
- the expectation that the merger will be a tax-free transaction to
Andover and would be accounted for as a purchase (see "Federal
Income Tax Consequences");
- the nature of, and likelihood of obtaining, the regulatory and
shareholder approvals that would be required in order to consummate
the merger (see "REGULATORY CONSIDERATIONS-- Status of Regulatory
Approvals and Other Information").
The foregoing discussion of the information and factors discussed by the
Andover Board is not meant to be exhaustive but includes all material factors
considered by the Andover Board. In reaching its determination to approve and
recommend the merger, the Andover Board did not assign relative or specific
weights to the foregoing factors and individual directors may have given
differing weights to different factors.
RECOMMENDATION OF THE GBT BOARD; GBT'S REASONS FOR THE MERGER
In the course of reaching its decision to approve the merger agreement,
the Board of Directors of GBT consulted with its legal advisors regarding the
legal terms of the merger agreement and its financial advisors regarding the
financial terms and the fairness, from a financial point of view, of the merger
consideration to be paid to the holders of GBT common stock in connection with
the merger.
The terms of the merger agreement were reached on the basis of arms'
length negotiations between Andover and GBT. In reaching the conclusion that the
terms of the merger agreement are fair, the Board of Directors considered, among
other things, the market value, book value, earnings per share, and dividends
paid to holders of GBT common stock. The Board considered that the merger
provides an opportunity for the stockholders of GBT to receive consideration for
their shares having a value in excess of the book value of the GBT common stock
and an increase in dividends paid to GBT stockholders, and that the merger
consideration represents a substantial premium over the prices at which the GBT
common stock has traded in the recent past and the price at which the Board
reasonably anticipated the stock would be traded in the future. At December 31,
1999, the book value per share of the GBT common stock was $11.50, excluding the
effect of SFAS No. 115. On January 26, 2000, the GBT common stock traded at
$12.50. January 26, 2000 was the last day preceding the public announcement of
the proposed merger that the GBT common stock was traded.
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In reaching its conclusion that the terms of the merger agreement are fair
to the GBT stockholders, the Board of Directors took into consideration and
relied in part upon the advice of McConnell, Budd & Downes, GBT's financial
advisor. At the January 26, 2000 GBT Board meeting, MB&D indicated that, based
upon information known as of that date, MB&D expected to be able to render an
opinion as to the fairness, from a financial point of view, of the consideration
to be received by the GBT stockholders. That opinion was rendered in writing as
of the date of this proxy statement/prospectus and is attached as Annex D. GBT's
Board of Directors considered the analyses presented to it by MB&D relating to
selected financial and stock market data concerning GBT and Andover, certain
financial analyses of the terms of the merger and a comparison to the terms of
other recent acquisitions.
The Board of Directors of GBT considered the strategic alternatives
available to GBT, including the possibility of remaining independent, further
seeking competing proposals and accepting Andover's bid, before concluding that
the merger represented an opportunity to enhance stockholder value at this time
and that the merger consideration was fair to the stockholders.
The Board of Directors considered the advantages of becoming part of a
larger financial institution that has considerably greater resources and whose
stock is traded on the Nasdaq National Market. GBT's Board of Directors believes
that the proposed affiliation with Andover will provide increased liquidity for
the stockholders of GBT and could lead to competitive advantages through greater
diversity in product offerings, cost savings through integration of operations,
improved access to capital and funding and geographic expansion of operations.
The Board also considered the high costs of remaining independent as a
small publicly traded company in an increasingly complex competitive and
regulatory environment.
The Board considered the fact that approval of the merger agreement
requires the affirmative vote of two-thirds of the shares of GBT common stock
outstanding and entitled to vote, consisting primarily of persons other than the
members of management, and that the Board of Directors' decision to approve the
merger agreement would allow the stockholders as a group to decide whether or
not to accept Andover's proposal to acquire GBT.
In reviewing the provisions of the merger agreement relating to the
requirement that GBT pay to Andover a termination fee of $800,000 if, for
certain specified reasons, the merger is not consummated, the Board of Directors
was aware that the existence of such provision would make it more expensive for
a third party to offer a price that was in excess of Andover's proposal. The
Board of Directors was aware that the provision might significantly deter a
potential competing acquirer from making an offer. The Board of Directors was
also aware that Andover required the provision as a condition to entering into
the merger agreement. See "THE MERGER AGREEMENT--Termination; Expenses."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE MERGER AND THE OTHER
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
OPINION OF GBT'S FINANCIAL ADVISOR
On January 26, 2000, McConnell, Budd & Downes, Inc. delivered its opinion
to the Board of Directors of GBT that, as of that date, the consideration to be
paid to the stockholders of GBT upon completion of the merger was fair, from a
financial point of view, to the GBT stockholders. MB&D has delivered a written
opinion, dated the date of this proxy statement/prospectus, to the GBT Board to
the same effect. A copy of MB&D's written opinion is set forth at Annex D. The
merger consideration ($20.50 in cash or 0.7543 shares of Andover common stock
for each share of GBT common stock) was negotiated based on consideration of
numerous factors including the following:
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- an analysis of the historical and projected future contributions of
recurring earnings by the parties;
- an analysis of the possible future earnings per share results for
the parties on both a combined and a stand-alone basis;
- anticipated dilutive or accretive effects of the prospective
transaction to the earnings per share of Andover and by extension,
through the exchange ratio on the stock portion of the transaction,
to earnings per share equivalent of GBT;
- probable impact on dividends per share to be received by GBT
stockholders as a result of the contemplated transaction;
- the composition and growth potential of loan portfolios and relative
asset quality as disclosed by the parties;
- adequacy of reserves for loan and lease losses of the parties;
- composition of the deposit bases of each of the parties;
- analysis of the historical trading range, trading pattern and
relative liquidity of the common shares of each of the parties;
- accounting equity capitalization, the tangible equity capitalization
and the market capitalization of each of the parties; and
- contemplation of other factors, including certain intangible
factors.
MB&D has acted as financial advisor to GBT since 1995. With respect to the
pending transaction involving Andover, MB&D advised GBT during the evaluation
and negotiation process leading up to the execution of the merger agreement and
provided GBT with a number of analyses as to a range of financially feasible
exchange ratios and or cash prices that might be achieved in hypothetical
transactions. Representatives of MB&D met with the executive management and
Board of Directors of GBT on seven separate occasions during the period from
August 1999 to January 25, 2000 in connection with the analysis of GBT's
strategic alternatives and the negotiation process. The determination of the
merger consideration to be paid to the GBT stockholders was arrived at in an
arms-length negotiation between Andover and GBT in a process in which MB&D
advised GBT and participated directly in the negotiations.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions generally, its knowledge
of banking markets in general and of the Massachusetts banking markets in
particular as well as its experience with merger and acquisition transactions
involving banking institutions. As a part of its investment banking business,
which is focused exclusively on financial services industry participants, MB&D
is regularly engaged in the valuation of financial institutions and their
securities in connection with its equity brokerage business generally and
mergers and acquisitions in particular. Members of the Corporate Finance
Advisory Group of MB&D have extensive experience in advising financial
institution clients on mergers and acquisitions. In the ordinary course of its
business as a NASD broker-dealer, MB&D may, from time to time, purchase
securities from or sell securities to GBT or Andover and as a market maker in
securities, MB&D may, from time to time, have a long or short position in, and
buy or sell debt or equity securities of GBT or Andover for its own account or
for the accounts of its customers. In addition, in the ordinary course of
business, the employees of MB&D may have direct or indirect investments in the
debt or equity securities of either or both GBT or Andover.
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The full text of the opinion of MB&D, which summarizes the assumptions
made, matters considered and limits on the review undertaken is included in this
proxy statement/prospectus as Annex D. MB&D urges that all GBT stockholders read
the proxy statement/prospectus in its entirety and the opinion in its entirety.
The description of the assumptions made, matters considered, limitations on the
review undertaken and analyses performed, which is summarized in this proxy
statement/prospectus, is more thorough and detailed than the summary contained
in the opinion itself. The opinion of MB&D is directed only to the cash price
and exchange ratio at which shares of GBT common stock may be exchanged for
either cash or for shares of Andover common stock. The opinion of MB&D does not
constitute a recommendation to any holder of GBT common stock as to how such
holder should vote at the GBT Special Meeting. The opinion of MB&D is
necessarily based upon conditions as of the date of the opinion and upon
information made available to MB&D through the date thereof.
Materials reviewed and analyses performed by MB&D. In connection with the
rendering of its oral and written opinions, MB&D reviewed the following
documents and considered the following subjects:
- the merger agreement detailing the pending transaction;
- this proxy statement/prospectus in substantially the form to be
mailed to GBT stockholders;
- GBT Annual Reports to stockholders for 1996, 1997 and 1998;
- related financial information for the four calendar years ended
December 31, 1996, 1997, 1998 and 1999 for GBT;
- GBT Quarterly Reports to stockholders and related unaudited
financial information for the first three quarters of 1999;
- GBT's press releases concerning unaudited results for the calendar
years 1998 and 1999;
- Andover Annual Reports to Stockholders for 1996, 1997 and 1998;
- Andover Annual Reports on Form 10-K and related financial
information for the calendar years ended 1996, 1997 and 1998;
- Andover Quarterly Reports on Form 10-Q and related unaudited
financial information for the first three quarters of 1999;
- Andover's press releases concerning unaudited results for the
calendar years 1998 and 1999;
- internal financial information and financial forecasts, relating to
the business, earnings, cash flows, assets and prospects of the
respective companies furnished to MB&D by GBT and Andover
respectively;
- MB&D held discussions with members of the senior management of GBT
concerning the past and current results of operations of GBT, its
current financial condition and management's opinion of its future
prospects;
- MB&D also held discussions with members of the senior management of
Andover concerning the past and current results of operations of
Andover, its current financial condition and management's opinion of
its future prospects;
- MB&D reviewed the historical record of reported prices, trading
volume and dividend payments for both GBT and Andover common stock;
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- based primarily on anecdotal information, MB&D gave consideration to
the current state of and future prospects for the economy of
northeast Massachusetts generally and the relevant market areas for
GBT and Andover in particular;
- MB&D employed specific merger analysis models developed by MB&D to
evaluate potential business combinations of financial institutions
using both historical reported information and projected information
for both GBT and Andover and reviewed the results;
- MB&D reviewed the reported financial terms of selected recent
business combinations of financial institutions for purposes of
comparison to the pending transaction; and
- MB&D performed such other studies and analyses as MB&D considered
appropriate under the circumstances associated with this particular
transaction.
The opinion of MB&D takes into account its assessment of general economic,
market and financial conditions and its experience in other transactions
involving participants in the financial services industry, 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 or made
available by GBT and Andover and does not assume any responsibility for the
independent verification of such information. With respect to financial
forecasts made available to MB&D, it is assumed by MB&D that they were prepared
on a reasonable basis and reflect the best currently available estimates and
good faith judgments of the management of GBT and Andover respectively, as to
the future performance of GBT and Andover. MB&D has also relied upon assurances
of the management of GBT and Andover that they were not aware of any facts or of
the omission of any facts that would make the information or financial forecasts
provided to MB&D incomplete or misleading. In the course of rendering its
opinion, MB&D has not completed any independent valuation or appraisal of any of
the assets or liabilities of either GBT or Andover and has not been provided
with such valuations or appraisals from any other source.
The following is a summary of the 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 every matter 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 a number of qualitative as well as quantitative
judgments as to the significance of each analysis and factor. Therefore, 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 GBT
or Andover. Estimates (which by definition contain the possibility of error),
that 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. In addition, analyses relating to the values of businesses
do not purport to be appraisals or to reflect the prices at which businesses
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to uncertainty and MB&D does not assume responsibility for the accuracy
of such analyses or estimates.
Analysis of the Anticipated Transaction and the Applicable Exchange Ratio
in Relation to GBT. Pursuant to the terms of the merger agreement, the
anticipated merger consideration to be paid to stockholders of GBT is based on
an exchange ratio of 0.7543 shares of Andover common stock for each share of GBT
common stock or cash in the amount of $20.50 for each share of GBT common stock.
Under the terms of the Agreement, if the price of Andover shares were to fall
below $19.02 during the pricing period, Gloucester
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would have the right to terminate the transaction. However, that termination
right is subject to Andover's right to increase the effective exchange rate on
the stock portion of the transaction from 0.7543 as provided in the merger
agreement. Pages __ and __ provide a detailed example of how the exchange rate
might be affected in this circumstance. GBT stockholders will have the right to
elect whether to receive cash or Andover common stock in exchange for their GBT
stock, subject to certain limitations. This right is described in detail
elsewhere in this document. Andover will pay no more than a total of
$8,111,583.50 in cash for GBT common stock. It is anticipated and assumed that
the stock portion of the transaction will be tax free to those stockholders of
GBT who hold their shares as a capital asset and that the transaction will be
accounted for under purchase accounting rules.
Projected Transaction Value. Based upon the exchange ratio and the last
trade value of Andover common stock reported by Nasdaq on January 25, 2000 (the
last completed trading day prior to the execution of the merger agreement),
which was $26.125, the theoretical market value of the anticipated transaction
was approximately $15.91 million as of that date, based on an estimated 298,466
shares of Andover common stock to be issued to GBT stockholders and cash in the
amount of $8,111,583.50 to be paid to GBT stockholders. On a per share basis
this is equivalent to approximately $19.71 per share in Andover common stock
value, ($26.125 multiplied by 0.7543) if Andover common stock were to be elected
and received, or, $20.50 if cash were elected and received. MB&D elected to use
the closing value of Andover common stock on this date for example purposes
because the 25th was the last full day of trading prior to the approval of the
merger agreement by the Board of GBT. The proposed merger was announced on
January 27, 2000. Given that the applicable exchange ratio in this case is
fixed, the market value of the exchange will fluctuate as the market value of
Andover common stock fluctuates. Based on the last trade value for Andover
common stock reported by Nasdaq as of __________, the most recent practicable
day prior to the filing of this proxy statement/prospectus with the SEC, which
was $__________, the theoretical market value of the proposed merger was
$_______ million as of such date, based on an updated estimate of ______________
shares of Andover common stock to be issued to GBT stockholders. The reader
should take note of and understand that this value will continue to fluctuate as
the value of a share of Andover common stock fluctuates in the market.
Multiple of Historical and Projected Earnings for GBT Common Stock. The
cited per share theoretical value of $19.71 in common stock value or $20.50 in
cash as of January 25, 2000, represents multiples of 21.7 and 22.5 times GBT's
reported earnings per share for 1999, which was $0.91. The theoretical value of
$19.71 in common stock or $20.50 in cash as of January 25, 2000, is the
equivalent of 13.41 and 13.94 times management's internal estimate for 2000 of
$1.47. While the election cash value of $20.50 will remain constant at $20.50,
based on the closing market value for Andover common stock as of __________
which was $_______ and a revised theoretical common stock value per share of
$__________, the multiples of earnings were __________ and________ times for
1999 reported EPS and management's internal estimate for 2000 stand-alone
earnings per share, respectively. The revised and reduced multiples for the
theoretical common stock value reflect the fact that between the date of the
announcement of the proposed merger, the quoted market value of Andover common
stock has declined approximately _____ %.
Multiple of Stated Book Value of GBT Common Stock. The cited per share
theoretical value of $19.71 in common stock value or $20.50 in cash as of
January 25, 2000, represents multiples of 1.85 time and 1.93 times GBT's
reported book value per share for December 31, 1999, which was $10.63, which
includes the effect of SFAS No. 115. While the election cash value will remain
constant at $20.50, based on the closing market value for Andover common stock
as of __________ which was $_______ and a revised theoretical common stock value
per share of $__________, the book value multiple was __________ for December
31, 1999. The revised and reduced multiple for the theoretical common stock
value reflect the fact that between the time of announcement of the proposed
merger, the quoted market value of Andover common stock has declined
approximately _____ %.
Percentage of Market Value of GBT Common Stock. Based upon the cited
theoretical values of $19.71 and $20.50, the theoretical values represent 157.7%
(a 57.7% premium) and 164.0% (a 64% premium) of the last reported prices for GBT
common stock prior to January 25, 2000 which was $12.50.
24
<PAGE> 32
Specific Acquisition Analysis. MB&D employs a number of proprietary
analytical models to examine hypothetical transactions involving banking
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, the
opportunity costs of funds, discount rates, dividend streams, effective tax
rates, transaction structures. 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 while employing a specified transaction structure. The models also permit
evaluation of various levels of potential non-interest expense savings that
might be achieved along with various potential implementation time tables for
such savings, as well as the possibility of revenue enhancement opportunities
which may arise in a given hypothetical transaction.
For the purposes of rendering its opinion with respect to this
transaction, MB&D evaluated an exchange ratio of 0.7543 shares of common stock
of Andover or cash in the amount of $20.50 in exchange for each share of GBT
common stock in a transaction in which the stock portion will be tax deferred.
MB&D believes that the nominal earnings per share dilution on a pro forma basis
(before consideration of cost savings or potential revenue enhancements and
excluding non-recurring expenses and assuming a $0 mark-to-market of GBT's
balance sheet under purchase accounting) for Andover would approximate 2.6% or
$0.07 per share. MB&D's calculations suggest that this transaction would be
approximately 6.5% dilutive to tangible book value per share on a pro forma
basis to Andover. The transaction would equate to a comparable deposit premium
of 7.65% and would result in an increase of dividend payments to GBT
stockholders electing and receiving Andover common stock (based on an
annualization of the most recent regular quarterly dividend payment to
shareholders by Andover) of 20.7%. The pro forma entity would continue to be
more than adequately capitalized with a ratio of tangible common equity to
tangible assets in excess of 8.00%. In order for the transaction to become
neutral to Andover's earnings per share from a dilution perspective, MB&D
estimates that it would be necessary to achieve a reduction in pre-tax
non-interest-expense and/or increase in net revenues of approximately $800,000,
which represents approximately 20.0% of GBT's ongoing non-interest expense.
Because the estimation of incremental amounts of recurring cost savings and the
exact timing of their realization is not possible for outside observers MB&D
does not attempt to forecast the future quarter in which the pending transaction
will become either earnings neutral or accretive. It is MB&D's belief, however,
that reductions in recurring non-interest expense and earnings improvements due
to the implementation of a more diverse product line and access to larger
lending limits should be feasible for the parties involved and that this
transaction can be expected to become accretive to Andover's pro forma earnings
per share with the passage of time.
Earnings Pass-through Analysis. For the stock component of the
transaction, earnings pass-through analysis is based on a comparison of
anticipated pro forma values to stand-alone values as of a given point in time.
For example, based on an internal forecast by GBT management of $1.47 in
stand-alone earnings per share for 2000, one should query what earnings would be
associated with 0.7543 shares of pro forma Andover common stock. MB&D's
calculations suggest that with zero cost savings or revenue enhancements and
factoring out non-recurring and transaction expenses, the earnings associated
with 0.7543 shares of Andover common stock would represent a 40.8% increase over
the earnings associated with one share of GBT or approximately $2.07 per share.
If one further assumes that exactly enough cost savings and revenue enhancements
can be achieved to render the transaction earnings per share neutral, from an
Andover perspective, the earnings associated with 0.7543 shares of Andover would
represent a 44.4% increase over the earnings associated with a single share of
GBT common stock or approximately $2.12 per share. To the extent that more cost
savings and/or revenue enhancements are achievable, such earnings pass-through
enhancement could exceed these estimates. MB&D is comfortable with an
expectation that cost savings and revenue enhancements in excess of the level
necessary to render the transaction earnings neutral to earnings per share for
Andover are reasonably achievable. The primary conclusion of this analysis is
that a GBT stockholder who exchanges his or her shares for Andover common stock
at the exchange ratio of 0.7543:1 will then hold a security which, if the
underlying assumptions prove correct, will generate more earnings per share per
future period than the single share of GBT common stock exchanged. The
implication is that as long as Andover trades at a price earnings ratio that is
similar to the price earnings ratio at which shares of
25
<PAGE> 33
GBT historically traded, or higher, the market value of the 0.7543 shares of
Andover will exceed the market value of the GBT share exchanged.
Upstream Acquisition Analysis. MB&D also completed an analysis of the
relative capacity of other financial services entities doing business in
Massachusetts to acquire GBT on economic terms that would be satisfactory to
GBT's stockholders. This analysis was based solely on publicly available
information concerning such other entities and no conversations were held with
either the executives or representatives of such entities. Starting with a
universe of nine logical acquirers that in MB&D's opinion could theoretically
have been interested in a possible acquisition of GBT, the list was narrowed
down to six entities (including Andover) for a more detailed analysis. In
examining the six companies, the data employed was derived from publicly
available information as of September 30, 1999 and consensus estimates for
future period earnings per share obtained from Bloomberg Financial Markets
(where available). Factors considered included:
- pro forma earnings per share dilution;
- pro forma tangible book value dilution;
- a calculation of additional after-tax earnings necessary to
render a given transaction earnings per share neutral to the
acquiring entity;
- a calculation of the equivalent pre-tax reduction in
non-interest-expense which would be necessary to render a
given transaction earnings per share neutral to the acquirer;
- a value pass through analysis with respect to earnings, book
value and proforma dividends per share if common stock were
the currency employed to effect the transaction;
- the likely impact on trading liquidity versus existing
liquidity for GBT common stock if common stock were the
currency employed to effect the transaction;
- cash acquisition capacity of the six potential acquirer's; and
- likely strategic fit and interest level.
The conclusion which MB&D reached as a result of its upstream analysis
was that there were six candidates which might be able or likely to offer
competitive consideration to GBT stockholders.
Discussions with Other Potential Merger Partners. MB&D presented the
findings of its upstream analysis to the Board of Directors of GBT for
consideration and was directed to approach six institutions. Five institutions
responded with initial interest, signed confidentiality agreements and were
provided preliminary due diligence materials on GBT. Each of these institutions
was asked to provide a non-binding indication of interest. Three parties
responded with a preliminary indication of interest while two elected not to
proceed. Subsequent to further discussion with each of the three parties, each
was asked to reconsider their pricing level and resubmit its non-binding
indication. Andover's indication emerged as superior.
Discounted Cash Flow Analysis. MB&D reviewed a discounted cash flow
model that it prepared based on projections provided by the management of GBT.
The model employed a projection of hypothetical earnings for GBT on an
independent stand-alone basis for five consecutive twelve-month periods
beginning as of 10/1/99. As part of the exercise, a hypothetical dividend payout
ratio assumption, which depicted average annual payouts as a percentage of
earnings, was used to project dividend streams, which would be available to
stockholders. MB&D employed a range of possible future market trading
price/earnings ratios ranging from a minimum of 12 times earnings to a maximum
of 18 times earnings in order to project possible future trading values for a
share of either GBT common stock on an independent basis or an equivalent amount
of Andover common stock or cash reflecting the exchange ratio. Given the model
time horizon and a range of discount
26
<PAGE> 34
rate of 11% to 14%, these assumptions resulted in a range of present discounted
values for a share of GBT common stock on an independent basis. Such values
ranged from $13.20 to $24.42 and include consideration of the present discounted
value of the projected stream of cash dividends, which might be received by a
shareholder during the cited period. These values represent the discounted
present values of the sum of the future possible trading values of the
equivalent of one share of GBT common stock plus the discounted value of the
stream of cash dividends which are projected to have been received between the
present and the future valuation date at the end of 2005. The value of 0.7543
shares of Andover as of January 25, 2000, or cash in the amount of $20.50, was
consistent with the full range of present discounted values for GBT on a
stand-alone basis.
The point of such a discounted cash flow exercise is not to make a
precise estimate of where GBT on a stand-alone basis would be trading at a
precise point in the future. It is also not an effort to predict, on a precise
basis, where the pro forma Andover shares will be trading at an exact point in
the future. MB&D readily acknowledges that with the large number of variables
involved including many which are beyond the control of management, that such
predictions with any degree of precision are well beyond the capability of MB&D,
GBT or Andover. Rather, the point of the exercise is to employ reasonable future
earnings estimates to complete an analysis designed to test a hypothesis that
the result of one given course of action is likely to be better over time than
another. In MB&D's opinion, the results of the present discounted cash flow
analysis provides comfort that the stockholders of GBT are likely to be better
off as a result of completing the pending transaction with Andover than they
would likely be by remaining an independent financial institution.
It is important to note that the discount factors employed embody both
the concept of a time value of money and risk factors that reflect the
uncertainty of the forecasted cash flows and terminal price/earnings multiples.
Use of higher discount rates would result in lower discounted present values.
Conversely, use of lower discount rates would result in higher discounted
present values. MB&D advised the GBT Board that although discounted cash flow
analysis is a frequently used valuation methodology, it relies on numerous
assumptions, including discount rates, terminal values, future earnings
performance and asset growth rates, as well as dividend payout ratios. The
accurate specification of such assumptions for time periods more than one year
in the future is a very difficult process and contains the possibility of
inaccuracy despite MB&D's attempts to be both accurate and conservative in its
analysis. Consequently, any or all of these assumptions may vary from actual
future performance and results. Any errors made in the selection of assumptions
for such an exercise can interact with one another and can lead to conclusions
that may demonstrate little resemblance to actual events.
Other Factors Given Consideration. MB&D has given consideration to a
number of additional factors associated with the pending transaction that it
believes are favorable from the point of view of a GBT stockholder. MB&D
believes that the exchange ratio negotiated reflects a reasonable share of
ownership in the pro forma Andover for GBT stockholders electing stock based on
both a historical and a projected contribution analysis. MB&D believes that the
pro forma entity will be a more visible financial institution in the regional
and national financial markets and may attract increased research coverage and
generate greater liquidity from a shares traded perspective than is the case for
GBT on a stand-alone basis. MB&D also believes that GBT stockholders electing
stock will enjoy prospects for greater future annual cash dividends based upon
projected cost savings and the earnings growth expectations of the combined
entities than would have been the case for continued independence.
Analysis of Other Comparable Transactions. MB&D is reluctant to place
emphasis on the analysis of comparable transactions as a valuation methodology
due to what it considers to be inherent limitations of the application of the
results to specific cases. MB&D believes that such analysis fails to adequately
take into consideration such factors as:
- material differences in the underlying capitalization of the
comparable institutions which are being acquired;
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<PAGE> 35
- differences in the historic earnings (or loss) patterns
recorded by the compared institutions which can depict a very
different trend than might be implied by examining only recent
financial results;
- failure to exclude non-recurring profit or loss items from the
last twelve months' earnings streams of target companies which
can distort apparent earnings multiples;
- material differences in the form or forms of consideration
used to complete the transaction;
- differences between the planned method of accounting for the
completed transaction;
- such less accessible factors as the relative population,
business and economic demographics of the acquired entities
markets as compared or contrasted to such factors for the
markets in which comparable companies are doing business;
- comparable analysis usually cites transaction multiples and
premiums as of the date of announcement only and generally
fails to adjust such multiples and premiums for subsequent
changes in the trading values of the securities of the
acquirer. In MB&D's opinion this failure can render such
comparisons relatively meaningless, particularly in cases
where there has been a material adjustment in the equity price
of financial institutions subsequent to the announcement dates
for such "comparable transactions". There has been a virtually
industry-wide downward adjustment in the equity trading prices
of financial institutions during the last six months of 1999
and the first two months of 2000. Consequently any use of
comparable analysis requires certain market price adjustments
to be made; and
- comparable analysis rarely seems to take into consideration
the degree of facilities overlap between the acquirer's market
and that of the target or the absence of such overlap and the
resulting cost savings differentials between otherwise
apparently comparable transactions. Comparable Analysis also
frequently fails to incorporate the projected impact of
deposit divestitures that may be required by regulators in a
given transaction and which are completely absent in a
so-called comparable transaction.
MB&D consequently believes that comparable analysis has serious
inherent limitations and should not be relied upon to any material extent by
members of management, the Board of Directors or stockholders in considering the
presumed merits of a pending transaction.
With these serious reservations in mind, MB&D nonetheless examined
statistics associated with 22 transactions (excluding the subject transaction)
involving commercial banks. The following criteria were utilized to create the
sample:
- Acquired institutions were all New England banking companies;
- Announced between January 1, 1997 and January 24, 2000;
- Total assets at the target institution were greater than $50
million and less than $500 million.
The following table depicts the 22 transactions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ACQUIRER / TARGET ANNOUNCED
- --------------------------------------------------------------------------------
<S> <C>
New England Community / First Bank - West Hartford 2/25/97
- --------------------------------------------------------------------------------
City Savings Bank / Lee National Bank 3/11/97
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ACQUIRER / TARGET ANNOUNCED
- --------------------------------------------------------------------------------
<S> <C>
Berlin City BK / Pemi Bancorp 3/14/97
- --------------------------------------------------------------------------------
Citizens Financial Group / BNH Bancshares 4/08/97
- --------------------------------------------------------------------------------
Northeast Bancorp / Cushnoc Bank & Trust 5/09/97
- --------------------------------------------------------------------------------
BKBoston Corp / Pacific National Corp 5/27/97
- --------------------------------------------------------------------------------
Peoples Heritage Financial Group / Atlantic Bancorp 6/24/97
- --------------------------------------------------------------------------------
SIS Bancorp / Glastonbury Bank 8/18/97
- --------------------------------------------------------------------------------
HUBCO Inc. / Bank of Southington 8/18/97
- --------------------------------------------------------------------------------
Ben Franklin Bancorp / Foxboro National 9/4/97
- --------------------------------------------------------------------------------
New England Community / Community Savings Bank 9/18/97
- --------------------------------------------------------------------------------
Century Bancorp / Haymarket Co-op 12/11/97
- --------------------------------------------------------------------------------
New England Community / Olde Port B&T 2/10/98
- --------------------------------------------------------------------------------
New England Community / Bank of South Windsor 3/19/98
- --------------------------------------------------------------------------------
Citizens Financial Group / Woburn National 4/07/98
- --------------------------------------------------------------------------------
Summit Bancorp / New Canaan B&T 8/25/98
- --------------------------------------------------------------------------------
Androscoggin Savings / Livermore Bankshares 10/14/98
- --------------------------------------------------------------------------------
Webster Fin'l Corp / Maritime B&T 11/04/98
- --------------------------------------------------------------------------------
Webster Fin'l Corp / Village Bancorp Inc. 11/11/98
- --------------------------------------------------------------------------------
Union Bankshares / Citizens Savings B&T 2/18/99
- --------------------------------------------------------------------------------
Washington Trust / PierBank Inc. 2/23/99
- --------------------------------------------------------------------------------
Camden National / KSB Bancorp 7/27/99
- --------------------------------------------------------------------------------
</TABLE>
The table which follows permits a comparison of the mean and median
values for two selected statistics arising from the list of 22 transactions
evaluated with the "comparable" statistics calculated for the transaction which
is described in this proxy statement/prospectus.
"COMPARABLE" STATISTICS AS OF THE ANNOUNCEMENT DATE:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Compared statistics Announced transaction Announced transaction price/
price/tangible book value trailing 12 months earnings
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Median for 1997 - (12 Transactions) 218.4% 15.1x
- ----------------------------------------------------------------------------------------------
Median for 1998 - (7 Transactions) 271.7% 22.8x
- ----------------------------------------------------------------------------------------------
Median for 1999 - (3 Transactions) 224.0% 20.6x
- ----------------------------------------------------------------------------------------------
ANDOVER / GBT 192.9% 21.7x/22.5x (1)
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Dependant upon the stock or cash election as described on page _____.
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<PAGE> 37
Given its listed reservations concerning the problematic nature of
comparable analysis, MB&D is willing to supply the information, but reluctant to
draw conclusions based on such comparisons alone. MB&D is inclined to place more
weight on the other methods of analysis summarized in this section than on
comparable analysis regardless of whether or not the apparent comparisons appear
to be in favor of, or not in favor of, a given pending transaction.
Compensation of MB&D. Pursuant to a letter agreement with Gloucester
dated December 13, 1999, MB&D will receive a fee for services rendered. This fee
will be divided into several payments, which correspond with the successful
completion of specific events. MB&D was paid $5,000 upon the signing of the
engagement letter and an additional $50,000 upon the signing of the merger
agreement. In addition, MB&D will be paid an additional $25,000 upon mailing of
the proxy statement/prospectus with a final payment due upon the closing of the
transaction equal to 1% of the fair market value of the consideration received
by the stockholders of GBT minus the monies paid to date ($80,000) on the
engagement.
Additionally, MB&D has an annual retainer with GBT for financial
advisory services. The annual fee for the retainer is $6,000.
The fee payable to MB&D represents compensation for services rendered
in connection with the analysis of hypothetical transactions, support of
negotiations, and participation in the drafting of documentation, and for the
rendering of a fairness opinion. In addition, GBT has agreed to reimburse MB&D
for its reasonable out-of-pocket expenses incurred in connection with the
transaction. GBT 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 its engagement, including liabilities under the federal
securities laws.
OTHER INTERESTS OF GBT DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendation of the GBT Board with respect to the
merger, holders of GBT common stock should be aware that members of the GBT
Board and management team have interests in the merger that are different from,
or in addition to, the interests of the stockholders of GBT generally. The GBT
Board was aware of these interests and considered them, among other matters, in
approving the merger agreement and the matters and transactions contemplated
thereby, including the merger.
As of February 29, 2000, the directors and executive officers of GBT
beneficially owned an aggregate of approximately 183,941 shares of GBT common
stock. Pursuant to the terms of the merger agreement, GBT's directors and
executive officers will receive the same consideration for their shares of GBT
common stock as the other GBT stockholders.
Employment Agreements. Prior to the effective time of the merger
Gloucester Bank will enter into a new employment agreement with David L. Marsh,
the President and Chief Executive Officer of Gloucester Bank. Under Mr. Marsh's
new employment agreement, he will remain the President and Chief Executive
Officer of Gloucester Bank, subject to his election by Gloucester Bank's Board
of Directors. Mr. Marsh's employment agreement will expire three years from its
effective date, which we expect to be the effective time of the merger, and
thereafter his employment with Gloucester Bank will be at-will. If Mr. Marsh is
terminated without cause prior to the expiration of his employment agreement
with Gloucester Bank or if he resigns because of a breach of the employment
agreement by Gloucester Bank, Mr. Marsh will be entitled to receive his base
salary, which will initially be $142,000 per year, and health insurance and
other employee benefits until the expiration of the employment agreement,
subject to specified conditions. Mr. Marsh has agreed to the termination of his
Special Termination Agreement with Gloucester Bank in exchange for Gloucester
Bank paying him three times his average annual compensation over a five year
period less one dollar, the amount to which he would be entitled if his
employment were terminated upon a change in control of Gloucester Bank.
Gloucester Bank will pay this amount ($361,827) within three days after the
effective time of the merger.
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<PAGE> 38
Prior to the effective time of the merger Gloucester Bank will enter
into an employment agreement with Richard J. Edelstein, Senior Vice President,
Loans, of Gloucester Bank. Mr. Edelstein does not currently have an employment
agreement with Gloucester Bank. Under Mr. Edelstein's employment agreement, he
will remain a Senior Vice President of Gloucester Bank, subject to his election
by Gloucester Bank's Board of Directors. Mr. Edelstein's employment agreement
will expire two years from its effective date, which we expect to be the
effective time of the merger, and thereafter his employment with Gloucester Bank
will be at-will. Mr. Edelstein will be entitled to receive a base salary of
$91,670, health insurance and other employee benefits until the expiration of
the employment agreement. If Mr. Edelstein's employment is terminated without
cause prior to the expiration of his employment agreement or if he resigns
because of a breach by Gloucester Bank of his employment agreement, Mr.
Edelstein will be entitled to receive his base salary and other benefits until
the expiration of the employment agreement, subject to specific conditions.
Directors and Officers Indemnification and Insurance. The merger
agreement provides that Andover will, for a period of six years from the
effective time of the merger, indemnify the directors and officers of GBT to the
same extent they were indemnified by GBT prior to the merger under GBT's charter
and/or bylaws. The merger agreement provides that after the merger is completed,
Andover will maintain, for a period of three years from the effective time of
the merger subject to certain limitations and if available in the marketplace,
the current directors' and officers' liability insurance maintained by GBT or
substitute policies on terms and conditions that are no less favorable, as to
coverage and amounts, than those of GBT's existing policy for directors and
officers.
STOCK OPTION AGREEMENT
We have summarized below the material terms of the stock option
agreement. We urge all GBT stockholders to read the stock option agreement, a
copy of which is attached to this document as Annex B, in its entirety for a
complete description of its terms.
As a condition to Andover's willingness to enter into the merger
agreement, GBT entered into the Stock Option Agreement, dated as of January 26,
2000, with Andover. Under the stock option agreement, GBT granted Andover an
option to purchase 157,483 shares of GBT common stock, which is approximately
19.9% of the number of shares of GBT common stock outstanding as of January 26,
2000 or, after giving effect to the exercise of the option, approximately 16.5%
of GBT's issued and outstanding common stock. The exercise price of the option
is $20.50 per share, provided that both the number of shares of GBT common stock
issuable to Andover under the option and the exercise price are subject to
adjustment under specified circumstances.
Arrangements, such as the stock option agreement, are often entered
into in connection with corporate mergers and acquisitions in an effort to
increase the likelihood that the transactions will be completed in accordance
with their terms, and to compensate recipients of options for their efforts and
expenses, losses and lost opportunity costs if transactions are not completed
due to circumstances involving an acquisition or potential acquisition of option
issuers by third parties. The stock option agreement may have the effect of
discouraging offers by third parties to acquire GBT prior to the merger even if
those persons are prepared to pay more than the price Andover has agreed to pay.
The option becomes exercisable by Andover if an initial triggering
event and a subsequent triggering event occur prior to the termination of the
option. An initial triggering event generally includes any of the following
events:
- GBT or any of its subsidiaries enters into an agreement to
engage in an "acquisition transaction" with any "person" (as
defined in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act), or the Board of GBT recommends that the
stockholders of GBT approve or accept, or the Board fails to
publicly oppose, any acquisition transaction;
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<PAGE> 39
- GBT or any of its subsidiaries proposes or publicly announces
its intention to engage in an acquisition transaction, or the
Board of GBT publicly withdraws or modifies, or announces its
intention to withdraw or modify, its recommendation that the
stockholders of GBT approve the merger agreement;
- the stockholders of GBT vote not to approve the merger, or a
stockholders' meeting is not held as required by the merger
agreement or is canceled if, prior to the meeting, any person
has proposed to GBT or its stockholders by public announcement
or written communication that is or becomes subject to public
disclosure to engage in an acquisition transaction;
- any person, other than Andover or any of its subsidiaries,
acting in a fiduciary capacity in the ordinary course of its
business acquires beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares
of GBT common stock;
- any person has made a bona fide proposal to GBT or its
stockholders by public announcement or written communication
that is or becomes subject to public disclosure to engage in an
acquisition transaction;
- after an overture is made by a person to GBT or its
stockholders to engage in an acquisition transaction, GBT
breaches any covenant or obligation contained in the merger
agreement and the breach would entitle Andover to terminate the
merger agreement and is not cured prior to the date Andover
gives GBT notice that it is exercising its option; or
- any person files an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory
authority, whether in draft or final form, for approval to
engage in an acquisition transaction.
The term subsequent triggering event means either of the following
events or transactions:
- the acquisition by any person of beneficial ownership of 20%
or more of the then outstanding GBT common stock; or
- the occurrence of the first initial triggering event described
above, except that the applicable percentage of voting
securities of GBT or Gloucester Bank that will constitute the
occurrence of an acquisition transaction will be 20%, rather
than 10% as described above.
For the purposes of the stock option agreement, the occurrence of any
of the following events or substantially similar events without the prior
written consent of Andover is considered an acquisition transaction:
- a merger, consolidation or similar transaction involving a
third party and GBT or Gloucester Bank unless the voting
securities of GBT or Gloucester Bank prior to the transaction
represent at least 65% of the surviving entity's voting
securities;
- the disposition by sale, lease, exchange or otherwise, of a
substantial portion of the assets of GBT or Gloucester Bank to
a third party; or
- the issuance, sale or other disposition of, including by way
of merger, consolidation, or share exchange, securities
representing 10% or more of the voting power of GBT or
Gloucester Bank to a third party.
32
<PAGE> 40
The parties have agreed that the occurrence of certain events would
eliminate the necessity of the option. Accordingly, the stock option agreement
provides that the option will terminate upon the earliest to occur of any of the
following events:
- the effective time of the merger;
- termination of the merger agreement prior to the occurrence of
any of the initial triggering events listed above, except if
Andover terminates the merger agreement as a result of a
material breach by GBT of any of its representations,
warranties, covenants or agreements; or
- 12 months after termination of the merger agreement subsequent
to the occurrence of any of the initial triggering events
listed above or if the termination is by Andover as a result
of a material breach by GBT of any of its representations,
warranties, covenants or agreements.
Upon the occurrence of a "repurchase event," the stock option agreement
also provides that Andover may require GBT to repurchase the option. A
repurchase event will be deemed to have occurred upon the consummation of a
merger, consolidation or similar transaction involving GBT or the acquisition by
any party of all or a substantial portion of GBT's assets or the acquisition by
any person of 50% or more of GBT's common stock. However, no repurchase event
can occur unless a subsequent triggering event has occurred. If a repurchase
event occurs, then Andover has the right to require GBT to repurchase the option
at an aggregate price equal to the product of the number of shares of GBT common
stock subject to the option multiplied by the amount the "market/offer" price
exceeds $20.50. The market/offer price equals the highest of:
- the price per share at which a third party has made a tender
or exchange offer for shares of GBT common stock;
- the price per share to be paid by any third party for shares
of GBT common stock pursuant to an agreement with GBT;
- the highest closing price for shares of GBT common stock
within the six-month period preceding the date of the request
for repurchase; and
- in the event of a sale of all or a substantial portion of
GBT's assets, the sum of the price paid for the assets and the
current market value of GBT's remaining assets, as determined
by a nationally recognized investment banking firm selected by
Andover, divided by the number of outstanding shares of GBT
common stock at the time of sale.
At any time after the occurrence of a subsequent triggering event and
before the termination of the option, if GBT has securities registered under the
Securities Exchange Act, Andover will have registration rights, including two
demand registration rights, relating to the shares of GBT common stock issued
under or issuable pursuant to the option.
Neither Andover nor GBT may assign its rights or obligations under the
stock option agreement without the prior written consent of the other party,
except that Andover may assign the stock option agreement to an affiliate and,
within 90 days after the occurrence of a subsequent triggering event, unless the
90 day period is extended in accordance with the terms of the stock option
agreement, Andover may generally assign its rights under the stock option
agreement to third parties.
To the best knowledge of GBT and Andover, no event giving rise to any
rights to exercise the option has occurred as of the date of this proxy
statement/prospectus.
33
<PAGE> 41
VOTING AGREEMENT
Each of the directors and officers of GBT has executed a voting
agreement pursuant to which each such director and officer has agreed to vote
all of his or her shares of GBT stock in favor of the merger at the GBT
stockholders meeting. As a result, holders of 23.24% of the outstanding shares
of GBT are contractually bound to vote in favor of the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF ANDOVER FOLLOWING THE MERGER
The members of the Board of Directors and the officers of Andover in
office immediately prior to the effective time of the merger will continue to
hold their respective offices with Andover following the merger.
NASDAQ LISTING OF ANDOVER'S COMMON STOCK
It is a condition to the merger that the shares of Andover common stock
that Andover will issue in the merger are listed on Nasdaq. Andover common stock
is listed on Nasdaq under the symbol "ANDB."
DIVIDENDS
Andover expects that after the merger, subject to approval and
declaration by the Andover Board, it will declare regularly scheduled quarterly
dividends on the shares of its common stock consistent with past practices. The
most recent quarterly dividend on the shares of Andover common stock was $0.24
per share. The payment of dividends by Andover in the future, however, will
depend on its financial condition and earnings, business conditions and other
factors.
ACCOUNTING TREATMENT OF THE MERGER
United States generally accepted accounting principles require that
Andover use the purchase method of accounting to account for the merger. The
total purchase price will be allocated to the assets acquired and liabilities
assumed, based on their fair values. To the extent that this purchase price
exceeds the fair value of the net tangible assets acquired at the effective time
of the merger, Andover will allocate the excess purchase price to intangible
assets, including goodwill.
APPRAISAL AND DISSENTERS' RIGHTS
The holders of GBT common stock have the right to dissent from the
merger. In order to properly exercise his or her right to dissent from the
merger, the stockholder must comply with Sections 85-98 of the Massachusetts
Business Corporation Law (Chapter 156B of the Massachusetts General Laws), which
are attached as Annex C to this proxy statement/prospectus.
Under the MBCL, any stockholder of a corporation has the right to
dissent from and obtain payment of the fair value of his or her shares in the
event of any of the following:
- any plan of merger or consolidation, unless the corporation is
the surviving corporation in a merger and the approval of its
stockholders was not required under the MBCL;
- any sale or exchange of all or substantially all of the
property and assets of a corporation which requires approval
of the stockholders under the MBCL; or
- any amendment to the charter that adversely affects the
stockholder.
If a proposed corporate action that would provide an objecting
stockholder the right to demand payment therefore is submitted to a vote at a
stockholders' meeting, a stockholder who wishes to assert
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dissenters' rights must, in advance of the taking of the vote, file with the
corporation a written objection to the proposed corporate action. Thereafter, if
the proposed corporate action is approved by the required vote of the
stockholders and the dissenting stockholder did not vote in favor of the
proposed corporate action, the stockholder may, within 20 days after the date of
mailing to him of notice in writing from the surviving corporation that the
merger has become effective, make written demand on the corporation for payment
for his or her shares and an appraisal. If the proposed corporate action is
effected, the corporation will pay to the stockholder the fair value of his or
her shares, as determined in accordance with and subject to the procedures set
forth in Section 90-95 of the MBCL. If the stockholder fails to make the
aforesaid written demand for payment on the corporation within 20 days after the
vote, such stockholder will have no appraisal right. Apart from the notice of
the meeting at which the vote is to be taken, stockholders are not entitled to
receive any notice of the date upon which the vote is to be taken.
Andover stockholders are not entitled to dissenters' rights in
connection with the merger.
THE MERGER AGREEMENT
The following is a description of the material terms of the merger
agreement. A copy of the merger agreement is attached to this proxy
statement/prospectus as Annex A. All stockholders of GBT are urged to read the
entire merger agreement for a complete description of the terms and conditions
of the merger.
GENERAL
The merger agreement provides for the merger of GBT with and into
Andover. Upon completion of the merger, the separate corporate existence of GBT
will cease and Andover will survive and continue its corporate existence.
Gloucester Bank, currently a wholly-owned subsidiary of GBT, will continue its
corporate existence as a wholly-owned subsidiary of Andover. Subject to the
satisfaction or waiver of conditions set forth in the merger agreement and
described in "--Conditions to Complete the Merger," the merger will become
effective upon the filing of articles of merger and a certificate of merger in
Massachusetts and Delaware, respectively, or at such later time specified
therein.
MERGER CONSIDERATION
In the merger, shares of GBT common stock issued and outstanding
immediately prior to the effective time of the merger, other than:
- shares held in GBT's treasury or directly or indirectly by GBT
or Andover or any of their respective subsidiaries, all of
which will be canceled and cease to exist (except GBT shares
held in trust accounts, managed accounts or otherwise held in
a fiduciary capacity that are beneficially owned by third
parties or held by Andover or GBT or their respective
subsidiaries for a debt previously contracted), or
- shares held by GBT stockholders who exercise their dissenters'
rights
will convert into and entitle the holder of each share to receive either $20.50
in cash or 0.7543 shares of Andover common stock. The exchange ratio, 0.7543, is
equivalent to $20.50 divided by the average closing prices per share of Andover
common stock on Nasdaq for the 10 consecutive trading days ending on January 25,
2000, disregarding the two highest and two lowest closing prices. Whether a GBT
stockholder will receive cash or Andover common stock, or a combination of both
in the merger will depend upon the stated preference of the GBT stockholder as
indicated on an election form to be provided to each GBT stockholder shortly
after the effective time of the merger and allocation procedures to be used by
Andover and the exchange agent. "See--Election Procedures." The merger agreement
provides that only $8,111,583.50 in cash consideration will be paid to the GBT
stockholders as consideration for the merger and that, as nearly as practicable,
395,687 shares of GBT common stock will receive cash consideration,
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<PAGE> 43
including dissenting shares, and 395,687 shares of GBT common stock will receive
common stock consideration. Andover will not issue fractional shares, but
instead will pay cash to any GBT stockholder who would otherwise receive a
fractional share as a result of the merger. The cash to be paid in lieu of
fractional shares will not reduce the total cash consideration to be paid in the
merger.
Possible Adjustments to Exchange Rate. The merger agreement provides
that if the price per share of Andover common stock declines to an average of
$19.02 or lower for the 10 consecutive Nasdaq trading days ending on and
including the fifth trading day before the effective time of the merger,
disregarding the two highest and lowest closing prices (which we refer to as the
"Andover average closing sale price") then GBT may terminate the merger
agreement subject to Andover's right to adopt as a new exchange rate for the
stock consideration portion of the merger consideration an amount equivalent to
$14.35 divided by the Andover average closing sale price.
The following table sets forth a hypothetical range for Andover's
average closing sale price and demonstrates how the exchange rate may be
adjusted if the termination right is exercised and Andover decides to adopt the
new exchange rate.
<TABLE>
<CAPTION>
Percentage decrease in Number of Andover
Andover average Andover's closing sale shares for each
closing sale price(1) price from $27.1771(2) Exchange rate(3) 100 GBT shares(4)
- --------------------- ---------------------- ---------------- -----------------
<S> <C> <C> <C>
$19.02 -30.01% 0.7636 76.36
$18.02 -33.70% 0.8046 80.46
$17.02 -37.37% 0.8519 85.19
$16.02 -41.05% 0.9051 90.51
$15.02 -44.73% 0.9654 96.54
</TABLE>
- ----------
(1) The hypothetical average daily closing price for the 10 consecutive
Nasdaq trading days ending the fifth trading day prior to the effective
time, disregarding the two highest and two lowest daily closing prices,
rounded to nearest hundredth.
(2) $27.1771 represents the average daily closing price for the 10
consecutive Nasdaq trading days ending on January 25, 2000 (the day
before the date of the merger agreement), disregarding the two highest
and two lowest daily closing prices, rounded to four decimal places.
(3) Determined by dividing $14.35 by the average daily closing sale price
in the first column, rounded to four decimal places.
(4) Fractional shares will receive cash.
ELECTION PROCEDURES
Prior to the effective time of the merger, Andover will deposit with
the exchange agent, cash in the amount of $8,111,583.50 and certificates
representing the aggregate number of shares of Andover common stock that are
issuable in connection with the merger for shares of GBT common stock, plus an
estimated amount of the cash payable in lieu of fractional shares. As soon as
practicable but no later than three business days after the effective time of
the merger, the exchange agent will mail to each holder of record of shares of
GBT common stock an election form and transmittal material as well as election
procedure instructions and instructions for surrendering and exchanging GBT
common stock.
The election form will permit a GBT stockholder to elect to receive
common stock consideration, to elect to receive cash consideration, or to make
no election. Any shares of GBT common stock with respect
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<PAGE> 44
to which the stockholder does not submit to the exchange agent an effective,
properly completed election form on or before 5:00 p.m., on the 20th day
following the mailing date will be deemed to have made no election.
An election will be valid only if the exchange agent receives a
properly completed election form by the 20th day after the mailing date.
Further, an election form will be complete only if it is accompanied by one or
more certificates representing all shares of GBT common stock covered by the
election form, together with duly executed transmittal materials. A stockholder
may revoke or change his or her election form by written notice to the exchange
agent, which must be received at or prior to the election deadline. In the event
an election form is revoked prior to the election deadline, the shares of GBT
common stock represented by that election form will be deemed to have made no
election.
Andover and the exchange agent will have reasonable discretion to
determine whether any election, revocation or change is properly or timely made
and to disregard immaterial defects in the election forms. Neither Andover nor
the exchange agent will be under any obligation to notify any GBT stockholder of
any defect in an election form.
If the aggregate number of shares of GBT common stock that elects to
receive common stock consideration does not equal 395,687 (50% of the total
outstanding shares of GBT common stock), within five business days after the
election deadline, Andover will cause the exchange agent to allocate among GBT
stockholders the right to receive, with respect to each share of GBT common
stock, common stock consideration or cash consideration in the merger as
follows:
(1) if the number of shares of GBT common stock electing to
receive common stock consideration is less than 395,687, then
- all shares electing to receive common stock
consideration will receive common stock
consideration,
- the exchange agent will select, on a pro rata basis,
first from among the holders of shares as to which no
election was made and then from among the holders of
shares electing cash consideration, a sufficient
number of shares so that the total number of shares
selected by the exchange agent to receive common
stock consideration will, when added to the number of
shares electing to receive common stock
consideration, equal as closely as practicable
395,687, and
- any shares that elected cash consideration or which
made no election and were not selected by the
exchange agent to receive stock consideration will be
converted into the right to receive cash
consideration; or
(2) if the aggregate number of shares of GBT common stock electing
to receive common stock consideration is greater than 395,687,
then
- all shares of GBT common stock electing to receive
cash consideration will receive cash consideration,
- the exchange agent will select, on a pro rata basis,
first from among the holders of shares as to which no
election was made and then from among the holders of
shares electing common stock consideration, a
sufficient number of such shares such that the number
of shares selected by the exchange agent to receive
cash consideration will, when added to the number of
shares electing to receive cash consideration, equal
as closely as practicable, 395,687, and
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- any shares that elected common stock consideration or
which made no election and were not selected by the
exchange agent to receive cash consideration will be
converted into the right to receive common stock
consideration.
The merger agreement provides that, as nearly as practicable, holders
of 395,687 shares of GBT common stock will receive cash consideration and
holders of 395,687 shares of GBT common stock will receive stock consideration.
As it is unlikely that holders of exactly half of the GBT shares will elect cash
consideration and half will elect stock consideration, you should be prepared to
receive some consideration in the merger other than the consideration you elect
to receive. The following examples show the exchange agent selection process and
allocation results that may occur based on various hypothetical election
results:
EXAMPLE 1 - Equal numbers of GBT shares elect cash and stock:
<TABLE>
<S> <C>
cash election shares: 394,687
stock election shares: 394,687
no election: 2,000
</TABLE>
- all shares that elected cash will receive cash
- all shares that elected stock will receive stock
- on a pro rata basis, the exchange agent will select 1,000
shares that made no election to receive cash and 1,000 shares
that made no election to receive stock, thus, all stockholders
who made no election will receive 1/2 cash and 1/2 stock
EXAMPLE 2 - More GBT shares elect cash than stock:
<TABLE>
<S> <C>
cash election shares: 600,000
stock election shares: 91,374
no election shares: 100,000
</TABLE>
- all shares that elected stock will receive stock
- on a pro rata basis, the exchange agent will select first all
shares that made no election to receive stock, and then
204,313 shares that elected cash to receive stock, thus, each
GBT stockholder who elected cash will receive approximately
34.05% consideration in stock and the remainder in cash
EXAMPLE 3 - More GBT shares elect stock than cash:
<TABLE>
<S> <C>
cash election shares: 191,374
stock election shares: 400,000
no election shares: 200,000
</TABLE>
- all shares that elected cash will receive cash
- on a pro rata basis, the exchange agent will select first all
shares that made no election to receive cash and then 4,313
shares that elected stock to receive cash, thus, each GBT
stockholder who made no election will receive all cash and
each GBT stockholder that elected stock will receive
approximately 1.08% consideration in cash and the remainder in
stock
EXAMPLE 4 - If there are dissenting shares under Massachusetts law:
<TABLE>
<S> <C>
cash election shares: 390,000
stock election shares: 370,000
dissenting shares: 31,374
</TABLE>
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- all 370,000 shares that elected stock will receive stock
- all 31,374 dissenting shares will receive cash
- as there are no-election shares, the exchange agent will
select, on a pro rata basis, 25,687 shares that elected cash
to receive stock, thus, each GBT stockholder who elected cash
will receive approximately 6.59% consideration in stock and
the remainder in cash
EXCHANGE OF GBT CERTIFICATES
Upon surrender of a certificate representing shares of GBT common stock
to the exchange agent and delivery of a properly executed election form and
letter of transmittal, the holder will be entitled to receive a certificate
representing the number of whole shares of Andover common stock and/or a check
representing the amount of cash to which the holder is entitled, plus a check
representing the cash amount payable in lieu of fractional shares, if any, and
unpaid dividends and distributions, if any, which the holder has the right to
receive. Each holder of GBT common stock entitled to a fractional share of
Andover common stock will receive an amount in cash determined by multiplying
that fraction by $20.50. All surrendered certificates will then be canceled. The
holders of GBT common stock will not be entitled to receive interest on any
funds to be received in the merger.
Until they properly surrender and exchange their certificates, holders
of unexchanged shares of GBT common stock who will receive shares of Andover
common stock will not be entitled to receive any dividends or distributions with
respect to Andover common stock. However, after they surrender their GBT common
stock certificates, such holders will be entitled to receive any dividends or
other distributions, without interest, which until that time had become payable
with respect to the shares of Andover common stock they received in exchange for
their shares of GBT common stock.
Holders of GBT common stock should not send in certificates
representing GBT common stock until they receive transmittal materials and an
election form from the exchange agent.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, GBT and Andover each made representations and
warranties concerning their business and assets which were subject to exceptions
disclosed by the appropriate party. The representations and warranties of each
of GBT and Andover must be true and correct in all material respects as of the
closing date of the merger, or else the other party may choose not to complete
the merger, subject to identified exceptions.
GBT made representations and warranties in the merger agreement with
respect to the following matters, among others:
- noncontravention of certain governing documents, agreements or
governmental orders;
- consents and approvals from governmental and regulatory
authorities and third parties;
- compliance with applicable law;
- Securities and Exchange Commission and bank regulator reports
and filings;
- financial statements;
- absence of certain changes or events since December 31, 1998;
- absence of litigation;
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- employees and employee benefit programs;
- properties and leases;
- taxes and tax returns;
- loan portfolio;
- investment securities;
- derivative transactions;
- insurance;
- environmental matters;
- interested party transactions;
- the accuracy of information contained in this proxy
statement/prospectus and other documents;
- state takeover laws; and
- disclosure.
In addition, GBT made similar representations and warranties as to
Gloucester Bank.
Andover made representations and warranties in the merger agreement
with respect to the following matters, among others:
- noncontravention of certain governing documents, agreements or
governmental orders;
- necessary consents, approvals, licenses and permits from
governmental and regulatory authorities and third parties;
- compliance with applicable law;
- financial statements;
- absence of certain changes or events since December 31, 1998;
- absence of litigation;
- accuracy of information in this proxy statement/prospectus and
other documents;
- capital; and
- Securities and Exchange Commission reports.
In addition, Andover made some similar representations and warranties
as to Andover Bank.
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COVENANTS AND AGREEMENTS
The merger agreement contains various covenants and agreements that
govern the actions of GBT and Andover prior to the effective time of the merger.
We have summarized the important covenants and agreements below.
Conduct of Business. GBT has agreed that prior to the merger Gloucester
Bank will conduct its business only in the ordinary course and consistent with
past practice and will use reasonable best efforts to preserve intact its
business organization, personnel and goodwill.
In addition, GBT has agreed that it will not and will cause its
subsidiaries to not, through directors, officers or agents, except as may be
required under the directors' fiduciary duties:
- solicit or initiate the submission of any proposal relating to
any acquisition of any material portion of its assets or any
equity interest in GBT or its subsidiaries;
- solicit or initiate the submission of any proposal relating to
any business combination with GBT or its subsidiaries; or
- participate in any negotiations regarding, or furnish to any
other person any information with respect to, or otherwise
cooperate in any way with any other person to do or seek, any
of the foregoing.
GBT has agreed to notify Andover promptly if any such proposal or offer
is made and has agreed to indicate the identity of the person making any
proposal or offer and the terms and conditions of any proposal or offer.
GBT has further agreed to consult with Andover in the development of a
program to manage GBT's and its subsidiaries' interest sensitive assets and
liabilities. Andover and GBT have agreed to meet on a regular basis to discuss
and plan the conversion of GBT's and Gloucester Bank's data processing and
electronic informational systems as well as to consult and cooperate concerning
Gloucester Bank's loan, litigation and real estate valuation policies and
practices to reflect and facilitate Andover's plans for its current and future
businesses.
Andover has agreed that prior to the effective time of the merger it
will not, nor will it permit any of its subsidiaries to, take any action that
would cause a breach of any of its representations, warranties, covenants or
obligations under the merger agreement or the stock option agreement.
Regulatory Applications and Filings. Andover and GBT have each agreed
to cooperate and use their reasonable best efforts to effect all filings and to
obtain as promptly as applicable all permits, consents, approvals and
authorizations of all third parties and regulatory authorities necessary to
consummate the merger, including any approvals required by the Federal Reserve
Board and the regulatory authorities of the Commonwealth of Massachusetts and to
have the registration statement of which this proxy statement/prospectus is a
part declared effective.
Employee Benefit Matters. The parties intend that after the merger
Andover will provide the same compensation and benefit plans to employees of
Gloucester Bank who remain employees of Gloucester Bank as Andover provides
generally to its own employees. The employees who remain immediately after the
merger will be given credit for their employment with GBT and its subsidiaries
for purposes of eligibility and vesting of employee benefits under the benefit
plans of Andover to the extent their service has been credited under employee
benefit plans of GBT and its subsidiaries. Andover will have sole discretion to
terminate or continue any employee benefit plans of GBT and its subsidiaries
after Gloucester Bank employees are covered by Andover employee plans benefit.
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Severance Obligations and Funds to Retain Employees. The merger
agreement provides that Andover will pay severance to each employee of GBT,
other than employees who have employment agreements, whose employment is
terminated, other than for cause, within one year following the merger in an
amount equal to two weeks base salary or wages for each full year of service
with a minimum payment of four weeks wages. GBT or Gloucester Bank will be
permitted to pay up to $50,000 to help retain certain GBT employees during the
transition period prior to the effective time of the merger.
Directors of Gloucester Bank. Andover has agreed that the directors of
Gloucester Bank immediately prior to the effective time of the merger will
remain as directors for a period of one year following the merger, except that
the Board of Gloucester Bank will be expanded by one and Gerald T. Mulligan,
President and Chief Executive Officer of Andover, will fill the vacancy.
Voting Agreement. Each of GBT's directors and officers has entered into
a voting agreement that provides that each will vote all shares that such person
is entitled to vote at the special meeting in favor of approving the merger and
the transactions contemplated thereby. In addition, each director and officer
has agreed not to sell or dispose of any owned or subsequently acquired shares,
with certain exceptions. The voting agreement will continue in effect until the
earlier of the effective time of the merger or the termination of the merger
agreement in accordance with its terms.
CONDITIONS TO COMPLETE THE MERGER
The obligations of each of Andover and GBT to complete the merger are
subject to the satisfaction or waiver of conditions, including:
- obtaining the requisite vote of the stockholders of GBT;
- the approval for listing on Nasdaq of the Andover common stock
issuable to GBT's stockholders pursuant to the merger
agreement;
- obtaining all governmental approvals required to complete the
merger;
- the effectiveness of the registration statement on Form S-4
and the receipt of all necessary state securities laws and
"blue sky" permits and authorizations;
- the absence of orders, injunctions, decrees, laws, statutes or
regulations enjoining, preventing or making illegal the
completion of the merger;
- that each of the representations and warranties of the other
party in the merger agreement will be true and correct in all
material respects as of the effective date of the merger with
the same effect as though all representations and warranties
had been made as of that date except for representations and
warranties made as of a specified date which will be true and
correct as of the specified date;
- that the other party will have performed, in all material
respects, all of its obligations to be performed, and
complied, in all material respects, with all of its agreements
and covenants, in each case, on or prior to the effective date
of the merger; and
- that each of Andover and GBT will have received a certificate
dated as of the effective date of the merger signed by the
Chief Executive Officer and Chief Financial Officer of the
other party to the effect that the conditions above have been
satisfied.
In addition, the obligations of Andover to complete the merger are
subject to the satisfaction or waiver of the following conditions:
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<PAGE> 50
- GBT and Gloucester Bank have obtained all necessary third
party consents and approvals;
- none of the requisite regulatory approvals impose any
condition upon Andover or GBT, any of their subsidiaries or
the surviving corporation such that Andover reasonably
determines that the condition would materially impair the
value of GBT or Gloucester Bank to Andover;
- Andover has received letters from Shatswell, MacLeod & Company
with respect to GBT's financial position;
- Andover has received an opinion of McConnell, Budd & Downes
that the stockholders of GBT are receiving fair consideration
for the merger from a financial point of view;
- Mr. Marsh's employment and special termination agreements have
been terminated; and
- Mr. Marsh and Mr. Edelstein have entered into new employment
agreements with Gloucester Bank.
TERMINATION; EXPENSES
General Termination Rights. The merger agreement may be terminated at
any time prior to the effective time of the merger, whether before or after
approval by the GBT stockholders, as follows:
- by mutual written consent of Andover and GBT if approved by a
majority of the Board of Directors of each;
- by either Andover or GBT if any of the following occurs:
(1) the merger is not completed by September 30, 2000 or
a later date as mutually agreed to, except that the
party whose failure to fulfill any material
obligation in the merger agreement is the cause of
the merger not being complete may not terminate the
agreement,
(2) the GBT stockholders do not approve the merger
agreement at the GBT stockholder meeting, provided
that GBT may not terminate the agreement if the
failure to obtain stockholder approval was due to the
material breach by GBT of its covenants regarding the
stockholder meeting,
(3) any governmental entity has issued a final,
nonappealable order which enjoins or otherwise
prohibits the completion of the transactions
contemplated by the merger agreement,
(4) 90 days pass after a requisite regulatory approval is
denied or withdrawn at the request of the
governmental authority, unless within that 90 day
period an amended application has been filed with the
applicable governmental authority; except that no
party has the right to terminate the merger agreement
pursuant to this provision if the denial or
withdrawal is due to the failure of the party seeking
termination to perform or observe the agreements and
covenants of that party in the merger agreement, or
(5) the other party is in material breach of any
representation, warranty, covenant or agreement on
the part of the other party which is not cured within
30 days after the terminating party has given written
notice of the breach to the breaching party, but only
if the terminating party itself is not then in
material breach of any
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representation, warranty, covenant or other agreement
contained in the merger agreement; or
- by Andover if the GBT Board does not publicly recommend that
the GBT stockholders approve the merger, or if after making a
recommendation to approve the merger the GBT Board withdraws,
modifies or amends its recommendation to GBT's stockholders in
a manner adverse to Andover.
Termination Upon a Decline in the Value of Andover Common Stock. GBT
may terminate the merger agreement if the market value of Andover common stock
declines significantly prior to the closing date. The merger agreement provides
that if the average daily closing price of Andover common stock is equal to or
less than $19.02 for a specified period of time prior to the effective time,
then GBT may terminate the merger agreement. See "THE MERGER AGREEMENT--Merger
Consideration--Possible Adjustments to Exchange Rate."
Payment of Expenses in Event of Breach. If the merger agreement is
terminated because of a breach of any representation, warranty, covenant or
other agreement which is caused by gross negligence or is a willful breach, the
breaching party will be liable to the other party for all out-of-pocket costs
and expenses up to $450,000, including reasonable fees and expenses for legal,
accounting and financial advisors.
Special Termination Payment. As a condition to Andover's willingness to
enter into the merger agreement, GBT agreed to pay a termination fee to Andover
equal to $800,000, less the amount of any other payments made by GBT to Andover
as a result of a breach by GBT which is caused by its willful conduct or its
gross negligence, if any of the following occurs:
- Andover or GBT terminates the merger agreement because GBT
fails to obtain the required stockholder approval at the GBT
stockholder meeting or if the GBT stockholder meeting is not
held prior to the termination of the merger agreement;
- Andover terminates the merger agreement because the GBT Board
fails to publicly recommend that the GBT stockholders approve
the merger in this proxy statement, or if after making a
recommendation, the GBT Board withdraws, modifies or amends
its recommendation in a manner adverse to Andover; or
- Andover terminates the merger agreement because GBT is in
material breach of any of the representations, warranties,
covenants or agreements made by it in the merger agreement, if
the breach was caused by willful conduct or gross negligence
of GBT;
and within twelve months of any termination:
- GBT enters into an agreement to engage in an alternative
"acquisition transaction" with a third party; or
- the GBT Board approves, or recommends to its stockholders to
approve or accept, or fails to publicly oppose, an alternative
acquisition transaction with a third party.
In addition, if Andover terminates the merger agreement because GBT's
stockholders do not approve the merger, or a meeting is not held, or if after
the GBT Board recommends the merger the GBT Board withdraws, modifies or amends
its recommendation in a manner which is adverse to Andover, GBT will be
obligated to make the special termination payment to Andover if at the time of
termination a third party has, by public announcement or written communication
that will become the subject of public disclosure, made a bona fide proposal to
GBT or its stockholders to engage in an alternative acquisition transaction.
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For purposes of the merger agreement, "acquisition transaction" means
the occurrence of any of the following:
- a merger, consolidation or other similar transaction involving
GBT or Gloucester Bank;
- the disposition by sale, lease or exchange of 24.9% or more of
the consolidated assets of GBT and its subsidiaries in a
single transaction or series of transactions;
- the issuance, sale or other disposition of securities
representing 24.9% of the voting power of GBT, Gloucester Bank
or any other GBT subsidiary;
- the commencement of a tender or exchange offer for 24.9% or
more of the voting power of GBT capital stock or 24.9% of any
of its subsidiary's capital stock; or
- any acquisition by any person of beneficial ownership or the
right to acquire beneficial ownership, or the formation of any
"group" (as defined in Section 13(d) of the Securities
Exchange Act) which beneficially owns, or has the right to
acquire beneficial ownership of, 24.9% or more of the then
outstanding shares of GBT common stock.
Other Fees and Expenses. Except as provided above, Andover and GBT will
each bear its own expenses in connection with the merger agreement and the
transactions contemplated thereby.
AMENDMENT; WAIVER
Subject to compliance with applicable law, prior to the effective time
of the merger, the parties may amend or waive any provision of the merger
agreement at any time by an agreement in writing between the parties, as long as
the Board of Directors of each party approves the action, except that after the
GBT stockholders have approved the merger, no amendment or waiver may be made
that would reduce the amount or change the type of consideration into which each
share of GBT common stock will be converted into at the effective time of the
merger.
SURVIVAL OF PROVISIONS
If the Merger Agreement is Terminated Before the Effective Time of the
Merger. If any of the parties terminates the merger agreement before the
effective time of the merger, provisions of the merger agreement regarding the
following matters will survive and remain effective:
- confidentiality of information obtained in connection with the
merger agreement;
- liability of the companies to each other as a result of the
termination of the merger agreement; and
- expenses.
If the Merger Agreement Becomes Effective. After the effective time of
the merger, provisions of the merger agreement regarding the following matters
will survive and remain effective:
- the provision of benefits to GBT employees under compensation
and benefit plans;
- procedures for the issuance of Andover common stock
certificates and the payment of cash in exchange for GBT
common stock certificates;
- indemnification of, and maintenance of insurance for,
directors and officers;
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<PAGE> 53
- additional agreements entered into after the effective time of
the merger;
- employee severance and retention obligations of Andover; and
- election of directors of Gloucester Bank following the merger.
RESTRICTIONS ON RESALES BY AFFILIATES
Andover has registered the shares of Andover common stock issuable to
GBT stockholders in the merger under the Securities Act. Holders of these
securities who are not affiliates, as that term is defined in the rules
promulgated under the Securities Act, of Andover and GBT may trade their shares
of Andover common stock freely without restriction.
GBT stockholders who receive shares of Andover common stock in the
merger and who are affiliates of GBT at the time of the GBT stockholders meeting
may resell their shares of Andover common stock without registration under the
Securities Act only as permitted by the provisions of Rule 145 under the
Securities Act, or as otherwise permitted under the Securities Act. Holders of
shares of Andover common stock who are affiliates of Andover may sell their
shares of Andover common stock only in transactions permitted under the
provisions of Rule 144 under the Securities Act, or as otherwise permitted under
the Securities Act.
THE COMPANIES
ANDOVER BANCORP, INC.
General. Andover Bancorp, Inc., a Delaware corporation organized in
1987 for the purpose of becoming the holding company of Andover Bank, is a
registered bank holding company under the Bank Holding Company Act. At December
31, 1999, Andover had total consolidated assets of $1.5 billion. Andover is the
holding company parent and owns 100% of the outstanding common stock of Andover
Bank, its banking subsidiary.
Through Andover Bank and Andover's other subsidiaries, Andover offers a
variety of financial services, including residential mortgages, commercial loans
and leases, construction loans, a variety of consumer loans and investment and
insurance services. Construction and land loans and commercial loans, including
those secured by commercial real estate and others made to a variety of
individuals and businesses, including retail concerns, sole proprietorships,
small businesses and larger corporations, totaled 28.9% of Andover's total loans
outstanding at December 31, 1999. Residential real estate loans, primarily
consisting of one to four family residential mortgages comprised 65.6% of total
loans outstanding at December 31, 1999. Consumer loans outstanding at December
31, 1999, including home equity loans and lines of credit, auto loans,
installment loans and revolving lines of credit, comprised 5.5% of total loans.
Andover's lending activities are conducted primarily in northeastern
Massachusetts and southern New Hampshire. In addition to the portfolio
diversification described above, the loans are diversified by borrowers and
industry groups.
Andover offers a wide range of banking services, including the
acceptance of demand, savings, and time deposits. As of December 31, 1999, total
interest-bearing deposits and noninterest-bearing demand deposits amounted to
approximately $881.7 million and $86.9 million, respectively.
Andover offers a variety of other services including travelers checks,
24 hour teller capacity, drive up tellers, payroll deductions, pre-authorized
transfers, direct deposit, wire transfers, safe deposit facilities, MasterCard
and VISA credit card services and debit card services.
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<PAGE> 54
Andover Bank. Andover Bank was originally chartered in 1834. It became
a subsidiary of Andover Bancorp, Inc. in 1987 following its conversion from
mutual to stock form in May, 1986. The Andover Bank market area includes the
Merrimack Valley area in northeastern Massachusetts and southern New Hampshire.
Andover Bank operates 12 banking offices in Massachusetts and New Hampshire in
the following communities:
<TABLE>
<S> <C>
- Andover, MA - Tewksbury, MA
- Lawrence, MA - Londonderry, NH
- Methuen, MA - Salem, NH
- North Andover, MA
</TABLE>
Andover and its subsidiaries, including Andover Bank, operate in a
highly regulated industry and are subject to the supervision, examination and
reporting requirements of various federal and state regulatory authorities. See
"Regulatory Considerations."
Andover's principal executive offices are located at 61 Main Street,
Andover, Massachusetts, and the telephone number is (978) 749-2000.
GBT BANCORP
GBT Bancorp, a Massachusetts corporation and registered bank holding
company under the Bank Holding Company Act, was organized in 1998 to become the
holding company of Gloucester Bank and Trust Company, a Massachusetts chartered
trust company and GBT's wholly-owned banking subsidiary. Deposits of Gloucester
Bank are insured by the FDIC up to applicable limits. GBT has its main office at
2 Harbor Loop Road, Gloucester, Massachusetts.
At December 31, 1999, GBT had total assets of approximately $130.9
million. As of this date, its deposits totaled approximately $103.5 million, and
stockholders' equity was approximately $8.4 million.
GBT continues to face significant competition and potential competition
from well established financial institutions. The financial institutions
currently in competition with GBT have significantly greater assets than GBT.
Among the major banking institutions competing with GBT are Fleet National Bank
and Citizens Bank.
Deposit growth in GBT's primary service area, the City of Gloucester,
has been moderate. From June 30, 1995 through June 30, 1999, deposits reported
by insured depository institutions in the primary service area increased from
$395 million to $455 million, or 15%.
GBT's services include the acceptance of demand, savings, and time
deposits. GBT offers traveler's checks, a 24 hour teller facility, a drive up
teller, payroll deductions, pre-authorized transfers, direct deposit, and wire
transfers. GBT also offers personal and commercial loans. Among these loan
products are mortgage loans, home improvement loans and equity lines of credit.
GBT and Gloucester Bank operate in a highly regulated industry and are
subject to the supervision, examination and reporting requirements of various
federal and state regulatory authorities. See "Regulatory Considerations."
The telephone number of GBT's principal executive offices in
Gloucester, Massachusetts is (978) 282-1200.
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<PAGE> 55
GBT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF GBT BANCORP AND ITS SUBSIDIARY,
GLOUCESTER BANK AND TRUST COMPANY
Three Years Ended December 31, 1999
HIGHLIGHTS
GBT earned net income of $724,000, or $0.91 per share of common stock,
for the year ended December 31, 1999. Earnings for the years ended December 31,
1998 and 1997 were $1,139,000, or $1.41 per share of common stock, and
$1,202,000, or $1.48 per share of common stock, respectively. At December 31,
1999, GBT had total assets of $130,914,000, an increase of $9,888,000, or 8.17%
from $121,026,000 at December 31, 1998. Loans (primarily commercial and
commercial real estate) provided the majority of the asset growth for the year
ended December 31, 1999. The principal reason for the decline in net income in
1999 compared to 1998 was higher non-interest expenses.
At December 31, 1999, GBT's equity to assets ratio was 6.43%, its Tier
1 leverage ratio was 9.54% and its total risk-based capital ratio was 10.80%,
all of which exceeded published regulatory minimums. The comparable capital
ratios for December 31, 1998 were 7.69%, 11.55% and 12.81%, respectively. The
primary reason for the decline in equity was due to an increase in the
unrealized loss on the investment portfolio, net of applicable income taxes, of
$925,000.
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to GBT's
average balance sheet, including interest-earning assets, interest-bearing
liabilities and net interest income for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1999 1998 1997
---- ---- ----
Interest Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets
Loans (1) $ 81,662 $6,789 8.31% $ 73,422 $6,476 8.82% $ 68,167 $6,266 9.19%
Securities (2) 27,327 1,758 6.43 26,123 1,655 6.34 32,607 2,029 6.22
Federal funds sold 5,667 269 4.75 4,477 233 5.20 1,963 107 5.45
Interest-bearing deposits 49 2 4.08 57 2 3.51 65 2 3.08
-------- ------ ---- -------- ------ ---- -------- ------
Total interest-earning assets 114,705 8,818 7.69 104,079 8,366 8.04 102,802 8,404 8.17
-------- ------ -------- ------ -------- ------
Non interest-earning assets:
Cash and due from banks 5,907 5,089 4,485
Premises and equipment, net 3,332 2,635 2,667
Other assets 2,436 2,456 2,298
Less allowance for loan losses 1,800 1,775 1,811
-------- -------- --------
Total assets $124,580 $112,484 $110,441
======== ======== ========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Savings deposits $10,254 242 2.36% $ 10,540 276 2.62% $ 9,947 283 2.85%
NOW accounts 17,952 542 3.02 14,976 432 2.88 14,922 460 3.08
Time deposits 33,321 1,744 5.23 31,236 1,807 5.78 31,280 1,822 5.82
Money market accounts 13,712 443 3.23 13,485 439 3.26 14,136 455 3.22
Borrowed funds 18,757 931 4.96 11,806 609 5.16 11,728 651 5.55
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities 93,996 3,902 4.15 82,043 3,563 4.34 82,013 3,671 4.48
-------- ------ -------- ------ -------- ------
</TABLE>
48
<PAGE> 56
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non interest-bearing liabilities:
Demand deposits 21,192 20,590 19,340
Other liabilities 623 935 749
-------- -------- --------
Total non-interest bearing
liabilities 21,815 21,525 20,089
-------- -------- --------
Shareholders' equity 8,769 8,916 8,339
-------- -------- ---------
Total liabilities and
shareholders' equity $124,580 $112,484 $110,441
======== ======== ========
Net interest income/net
interest rate spread (3) $4,916 3.54% $4,803 3.70% $4,733 3.70%
====== ====== ======
Net interest margin (4) 4.29% 4.61% 4.60%
Ratio of interest-earning
assets to interest-bearing
liabilities 122.03% 126.86% 125.35%
</TABLE>
- ----------
(1) Includes non-accrual loans.
(2) Securities are shown at average amortized cost.
(3) Interest rate spread is the average yield earned on total
interest-earning assets less the average cost paid for total
interest-bearing liabilities.
(4) Net interest margin equals net interest income for the period divided
by average interest-earning assets.
RATE / VOLUME ANALYSIS OF NET INTEREST INCOME
The following table presents changes in interest income, interest
expense and net interest income which are attributable to changes in the average
amounts of interest-earning assets and interest-bearing liabilities outstanding
and / or to changes in rates earned or paid thereon.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 vs. 1998 1998 vs. 1997
------------- -------------
Volume (In Thousands) Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
- --------------------- ------------------------------ ------------------------------
Volume Rate Total Volume Rate Total
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $641 $(328) $313 $ 442 $(232) $ 210
Securities 77 26 103 (412) 38 (374)
Federal funds sold 54 (18) 36 131 (5) 126
---- ------ ---- ----- ------ -----
Total interest income 772 (320) 452 161 (199) (38)
---- ------ ---- ----- ------ -----
Interest expense:
Deposits 237 (220) 17 (1) (65) (66)
Borrowed funds 344 (22) 322 4 (46) (42)
---- ------ ---- ----- ------ -----
Total interest expense 581 (242) 339 3 (111) (108)
---- ------ ---- ----- ------ -----
Net interest income $191 $ (78) $113 $ 158 $ (88) $ 70
==== ====== ==== ===== ====== =====
</TABLE>
- ----------
(1) The change in interest due to both volume and rate has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Income. GBT earned net income of $724,000, or $0.91 per share of
common stock, for the year ended December 31, 1999 as compared to $1,139,000, or
$1.41 per share of common stock, for the year ended December 31, 1998. For the
year ended December 31, 1999, GBT recorded net interest income of $4,916,000,
resulting in a net interest margin on average interest-earning assets of 4.29%,
compared to $4,803,000 and 4.61%, respectively, for the year ended December 31,
1998. Average interest-earning assets for the year ended December 31, 1999 were
$114,705,000 with an average yield of 7.69%, compared to $104,079,000 and 8.04%,
respectively, for the year ended December 31, 1998. Average interest-bearing
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<PAGE> 57
liabilities for the year ended December 31, 1999 were $93,996,000 with an
average cost of funds of 4.15%, compared to $82,043,000 and 4.34%, respectively,
for the year ended December 31, 1998.
Net Interest Income. During 1999, interest income and fees on loans
increased by $313,000, or 4.83%, over amounts earned in 1998. Loan interest and
fee income increased due to growth in the average balance of loans outstanding,
offset by a decrease in average interest rates earned on such loans. The average
balance of loans outstanding increased by $8,240,000, or 11.22%, in 1999 over
1998, resulting in an increase of interest and fee income on loans due to volume
of $641,000. The average interest rates earned on loans decreased from 8.82% in
1998 to 8.31% in 1999, resulting in a decrease of interest and fee income on
loans due to rates of $328,000.
During 1999, interest income on securities increased by $103,000, or
6.22%. from amounts earned in 1998. The increase in securities interest income
was due primarily to the growth in the average balance of securities
outstanding. The 1999 average balance of securities increased by $1,204,000, or
4.61%, from the 1998 average balance. The increase in income due to higher
volume was $77,000, and the increase in income due to higher rates was $26,000.
During 1999 interest income on federal funds sold increased by $36,000
compared to 1998. The average balance of federal funds outstanding increased by
$1,190,000 or 26.58%, and the average interest rates earned on federal funds
sold decreased from 5.20% in 1998 to 4.75% in 1999. The increase in income due
to higher volume was $54,000, and the decrease in income due to the decline in
rates was $18,000.
Interest expense on deposits increased by $17,000, or 0.57%, in 1999 as
compared to 1998. The increase was due to growth in the average balance of
interest-bearing deposits of $5,002,000, or 7.12%, in 1999 from 1998, resulting
in an increase due to volume of $237,000. This was almost entirely offset by a
decline in the cost of funds from 4.20% in 1998 to 3.95% in 1999, resulting in a
decrease due to rates of $220,000.
Interest expense on borrowed funds increased by $322,000, or 52.87%, in
1999 over 1998. The increase was due primarily to the increases in volume offset
in small part by a slight decline in interest rates paid on average borrowed
funds. The average balance on borrowed funds outstanding increased by
$6,951,000, or 58.88%, in 1999 over 1998, resulting in an increase in interest
expense on borrowed funds due to volume of $344,000. The average interest rates
paid on borrowed funds in 1999 was 4.96% compared to 5.16% in 1998, resulting in
a decrease in interest expense on borrowed funds due to rates of $22,000.
The above factors contributed to an overall increase of net interest
income of $113,000, or 2.35%, for 1999 as compared to 1998.
Future net interest income levels will be dependent on GBT's ability to
control levels of non-performing assets, earn sufficient returns on earning
assets by achieving a proper mix of loans and short- and long-term securities,
and maintain its proportion of non-interest-bearing deposits and transaction
accounts. Future net interest income levels will also be dependent on future
interest rate levels.
Provision For Loan Losses. In determining an appropriate provision for
loan losses for any period, GBT management evaluates the adequacy of its
allowance for loan losses. GBT management's periodic evaluation of the adequacy
of the allowance is based on GBT's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay (including the timing of future payments), the estimated value
of any underlying collateral, composition of the loan portfolio, current
economic conditions, and other relevant factors. This evaluation is inherently
subjective as it requires material estimates (including the amounts and timing
of future cash flows expected to be received on impaired loans) that may be
susceptible to significant change. The allowance for loan losses is maintained
at a level believed adequate by GBT management to absorb estimated loan losses.
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<PAGE> 58
There was no loan loss provision made during 1999 or 1998. Charge-offs
were $213,000 and $80,000 in 1999 and 1998, respectively. Recoveries of
previously charged-off loans amounted to $201,000 in 1999 and $89,000 in 1998.
At year-end 1999, the allowance for loan losses was $1,790,000, or 1.97%, of
total loans, compared to $1,802,000, or 2.41%, at year-end 1998. GBT had no
"other real estate owned" as of December 31, 1999 or 1998.
Other Income and Expenses. During the years ended December 31, 1999 and
1998, securities, all classified as available-for-sale with a fair value at the
date of sale of $7,033,000 and $2,264,000, respectively, were sold. The gross
realized gains on such sales totaled $73,000 and $6,000, respectively, and the
gross realized losses totaled $12,000 and $4,000 respectively. These securities
were sold in order to manage GBT's asset-liability and liquidity positions.
Customer service fees were $201,000 in 1999 as compared to $223,000 in
1998, representing a decrease of $22,000, or 9.87%. These fees were down largely
as a result of decreases in the amount of service fees collected.
Other income amounted to $621,000 in 1999 and $634,000 in 1998, a
decline of $13,000. Major components were: Bank Processing Fees, $178,000 and
$172,000 in 1999 and 1998, respectively; ATM fees, $51,000 and $49,000,
respectively; Overdraft fees, $178,000 and $148,000, respectively; and Mortgage
Program Commissions, $133,000 and $161,000, respectively.
Other expenses increased by $817,000, or 22.09%, in 1999 as compared to
1998. The increase was due to added staff in data processing and retail banking,
increased occupancy expense due to the opening of a drive in and a loan
production office, higher equipment expense due to the depreciation of new
capital expenditures, and higher other expenses such as advertising, legal, and
professional fees expense.
Income Taxes. GBT's income tax expense for 1999 was $565,000, or 43.83%
of pretax earnings. The effective tax rate included the federal statutory rate
of 34% and additional Massachusetts income taxes due as a result of the
formation of the holding company, offset only to a limited extent by timing
differences.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Income. GBT earned net income of $1,139,000, or $1.41 per share of
common stock, for the year ended December 31, 1998 as compared to $1,202,000, or
$1.48 per share of common stock, for the year ended December 31, 1997. For the
year ended December 31, 1998, GBT recorded net interest income of $4,803,000,
resulting in a net interest margin on average interest-earning assets of 4.61%,
compared to $4,733,000 and 4.60%, respectively, for the year ended December 31,
1997. Average interest-earning assets for the year ended December 31, 1998 were
$104,079,000 with an average yield of 8.04%, compared to $102,802,000 and 8.18%,
respectively, for the year ended December 31, 1997. Average interest-bearing
liabilities for the year ended December 31, 1998 were $82,043,000 with an
average cost of funds of 4.34%, compared to $82,013,000 and 4.48%, respectively,
for the year ended December 31, 1997.
Net Interest Income. During 1998, interest and fees on loans increased
by $210,000, or 3.35%, over amounts earned in 1997. The increase in loan
interest and fee income was due to the growth in the average balance of loans
outstanding and was partially offset by the effect of declines in the average
interest rates earned on such loans. The average balance of loans outstanding
increased by $5,255,000, or 7.71%, in 1998 over 1997 resulting in an increase of
interest and fee income on loans due to volume of $442,000. The average interest
rates earned on loans decreased from 9.19% in 1997 to 8.82% in 1998, resulting
in a decline in interest and fee income on loans due to rates of $232,000.
During 1998 interest income on securities decreased by $374,000, or
18.43%, from amounts earned in 1997. The decrease was due to a decline in the
average balance of securities outstanding of $6,484,000,
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<PAGE> 59
or 19.89%, from the 1997 average balance, partially offset by a slight increase
in rates: 6.34% in 1998 compared to 6.22% in 1997. The decrease in income due to
volume was $412,000 and the increase in income due to higher rates was $38,000.
During 1998 interest income on federal funds sold increased by
$126,000, or 117.76%, compared to 1997. The increase in federal funds income was
due to the increase in the volume of federal funds outstanding of $2,514,000.
The average interest rate earned on federal funds sold decreased from 5.45% in
1997 to 5.20% in 1998. The increase in income due to higher volume was $131,000
and the decrease in income due to the decline in rates was $5,000.
Interest expense on deposits decreased by $66,000, or 2.19%, in 1998 as
compared to 1997 due primarily to the general decline in interest rates. The
average balance of interest-bearing deposits decreased by $48,000, or .07%, in
1998 in comparison to 1997, which resulted in decreased interest expense due to
volume of $1,000. The total average cost of interest rates paid on
interest-bearing deposits decreased to 4.20% in 1998 as compared to 4.30% in
1997, which resulted in a decrease in interest expense due to rates of $65,000.
Interest expense on borrowed funds decreased by $42,000, or 6.45%, in
1998 over 1997. The decrease was due to the decline in interest rates paid,
offset by a slightly higher balance of average borrowed funds. The average on
borrowed funds outstanding increased by $78,000 or 0.66% in 1998 over 1997
resulting in an increase of interest expense on borrowed funds due to volume of
$4,000. The average interest rates on borrowed funds in 1998 was 5.16% compared
to 5.55% in 1997 resulting in a decrease in interest expense on borrowed funds
due to rates of $46,000.
The above factors contributed to an overall increase in net interest
income of $70,000, or 1.48%, for 1998 as compared with 1997.
Provision for Loan Losses. There was no provision for loan losses
during 1998 or 1997. Loans of $80,000 were charged to the allowance for loan
losses during 1998, and recoveries amounted to $89,000. Loans of $203,000 were
charged to the allowance for loan losses in 1997 and recoveries amounted to
$226,000. At year end 1998, the allowance for loan losses was $1,802,000, or
2.41% of total loans, compared to $1,793,000, or 2.49%, at year end 1997.
Other Income and Expenses. Net gains from securities transactions in
1998 were $3,000 on sales of $2,264,000, as compared to net gains in 1997 of
$72,000 on sales of $12,515,000. These securities were sold in order to manage
GBT's asset-liability and liquidity positions.
Customer service fees were $223,000 in 1998 as compared to $232,000 in
1997. The $9,000, or 3.88%, decrease was primarily due to a slightly lower level
of fees collected.
Other income amounted to $634,000 in 1998 and $504,000 in 1997, an
increase of $130,000. Major components were: Bank Processing Fees, $172,000 and
$169,000 in 1998 and 1997, respectively; ATM fees, $49,000 and $49,000,
respectively; Overdraft Fees, $148,000 and $180,000, respectively; and Mortgage
Program Commissions, $161,000 and $18,000, respectively. The lower Mortgage
Program Commissions in 1997 was the principal reason for the increase in Other
Income in 1998. Mortgage Program commission income was lower in 1997 because the
volume of loans originated was lower.
Other expenses increased by $219,000, or 6.29%, in 1998 as compared to
1997. The increase was primarily attributable to the combined effects of higher
occupancy, equipment, and general expenses.
The provision for income taxes was $827,000 in 1998 compared with
$860,000 in 1997, due to lower pre tax income. Timing differences were minor.
52
<PAGE> 60
FINANCIAL CONDITION
Loans. The majority of the asset growth in 1999 was in the loan
portfolio. Net loans were $88,847,000, or 67.87% of total assets at December 31,
1999, compared with $73,092,000, or 60.39% of total assets at December 31, 1998.
During 1999, GBT experienced loan growth in commercial real estate loans, which
increased by $13,017,000, or 48.62%, and totaled $39,789,000 at December 31,
1999, compared to $26,772,000 at December 31, 1998. Almost all of GBT's
commercial real estate loans outstanding at December 31, 1999 have been made to
owner-occupied businesses. Even though these loans are collateralized by real
estate, the primary repayment source is cash flow generated by the related
business. Commercial loans increased by $755,000, or 8.55%, and totaled
$9,586,000 at December 31, 1999, compared to $8,831,000 at December 31, 1998.
Additionally, GBT's consumer loan products (residential real estate, residential
construction, installment and home equity loans) increased by $1,966,000, or
5.00%, and totaled $41,271,000 at December 31, 1999, compared to $39,305,000 at
December 31, 1998. These increases can be attributed to GBT management's
referral network and providing additional services to businesses and
professionals with whom GBT has existing relationships.
Asset Quality. The aggregate amount of loans, past due 90 days and non
accruing totaled $789,000 at the end of 1999 compared to $1,069,000 at the end
of 1998. GBT had no "other real estate owned" as of December 31, 1999 and 1998.
There was a balance of $150,000 in other real estate owned as of December 31,
1997. Non-performing loans as a percent of total loans decreased to 0.87% at
December 31, 1999 from 1.43% at December 31, 1998.
It is GBT management's policy to discontinue the accrual of interest on
a loan when there is reasonable doubt as to its collectibility, and in any event
if the loan is over 90 days past due.
While GBT considers the allowance for loan losses to be adequate at
December 31, 1999, it is not able to predict the future direction of the local
economy. Given this uncertainty, any declines in the local economy could result
in additional provisions for loan losses, additional charge-offs, changes in the
level of the allowance for loan losses, and increases in the level of
non-performing assets.
Securities. Securities totaled $27,248,000 and $26,711,000 at December
31, 1999 and 1998, respectively. The portfolio is comprised primarily of
mortgage-backed securities, corporate debt securities, U.S. Treasury and U. S.
Agency securities. The total securities portfolio had an expected average life
of less than five years at December 31, 1999, assuming prepayments on
mortgage-backed securities.
Effective January 1, 1994, GBT adopted SFAS No.115 "Accounting for
Certain Investments in Debt and Equity Securities". In accordance with the
Statement, GBT management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date.
As of December 31, 1999 and 1998 all debt securities were classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses, net of taxes, on available-for-sale securities are reported as a
separate component of shareholders' equity. GBT does not have a trading account
and has no derivative financial instruments.
GBT, as a member of the Federal Home Loan Bank of Boston, owned Federal
Home Loan Bank stock of $1,787,000 at December 31, 1999 and at December 31,
1998. Unrealized losses on securities available for sale, net of applicable
taxes, amounted to $680,000 at December 31, 1999.
Deposits. Interest-bearing deposit balances at December 31, 1999
totaled $77,819,000 compared to $72,389,000 at year-end 1998, an increase of
$5,430,000, or 7.50%. Demand deposits increased by
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<PAGE> 61
$5,284,000 in 1999 from the 1998 year-end balance of $20,433,000. This increase
can be attributed to GBT management's strategy in building full banking
relationships with its business customers.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Liquidity management involves GBT's ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. Interest rate sensitivity management seeks to avoid
fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates.
GBT's most important liquidity source is liability liquidity, the
ability to raise new funds and to renew maturing liabilities in a variety of
markets. The most important factor in assuring liability liquidity is
maintaining the confidence of GBT's depositors. Funds are primarily generated
locally and regionally. GBT has no brokered deposits. Other types of assets,
such as federal funds sold, short term and maturing securities and loans, are
supplemental sources of liquidity. In addition, at December 31, 1999, GBT had
overnight lines of credit with the Federal Home Loan Bank of Boston for
$2,414,000.
GBT evaluates its sensitivity to changes in interest rates by
monitoring the timing of repricing of interest-sensitive assets compared to
interest-sensitive liabilities. This is commonly known as an interest rate
sensitivity analysis. The interest rate sensitivity gap is the difference
between rate sensitive assets and rate sensitive liabilities. A positive gap
exists when rate sensitive assets exceed rate sensitive liabilities and
indicates that a greater volume of assets than liabilities will be impacted by
changes in interest rates during the stated period. With a positive gap,
earnings will generally increase when rates rise and decrease when rates decline
within the period. Conversely, when rate sensitive liabilities exceed rate
sensitive assets, the gap is referred to as negative and indicates that a
greater volume of liabilities than assets will be impacted by changes in
interest rates during the period. With a negative gap, earnings will generally
decrease when rates rise and increase when rates decline within the period. GBT
seeks to insulate itself from interest rate risk over the near term. Toward that
end, GBT monitors the relative volume, maturity and yields of interest-earning
assets and interest-bearing liabilities over various time horizons, with
particular emphasis on the immediate one year time horizon. As evidenced by the
following interest sensitivity table, due to GBT's positive gap, increases in
rates would generally enhance earnings and decreases in rates would generally
inhibit earnings.
Interest Rate Sensitivity Analysis at December 31, 1999
<TABLE>
<CAPTION>
Sensitivity Period
--------------------
3 4-12 1 Year - 3 Years Over 5
Months Months 3 Years 5 Years Years Total
------- ------- -------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $23,564 $12,009 $15,324 $13,609 $25,342 $ 89,848
Securities (2) 4,921 0 4,784 3,881 17,897 31,483
------- ------- ------- ------- ------- --------
Total interest sensitive assets $28,485 $12,009 $20,108 $17,490 $43,239 $121,331
------- ------- ------- ------- ------- --------
Interest-bearing liabilities:
Deposits $21,912 $16,372 $ 9,775 $ 6,612 $23,148 $ 77,819
Borrowings 7,000 3,000 8,032 0 570 18,602
------- ------- ------- ------- ------- --------
Total interest sensitive liabilities 28,912 19,372 17,807 6,612 23,718 96,421
------- ------- ------- ------- ------- --------
Period sensitivity gap $ (427) $(7,363) $ 2,301 $10,878 $19,521 $ 96,421
------- ------- ------- ------- ------- --------
Cumulative net sensitivity gap $ (427) $(7,790) $(5,489) $ 5,389 $24,910 $ 24,910
======= ======= ======= ======= ======= ========
Cumulative net sensitivity gap as a
percent of total assets (0.33)% (5.95)% (4.19)% 4.12% 19.03%
</TABLE>
- ----------
(1) Net of deferred loan fees. Non-accrual loans are excluded from loans.
(2) Securities are reported gross of unrealized gains and losses.
54
<PAGE> 62
CAPITAL
GBT is subject to regulation by the Federal Reserve Board and
Gloucester Bank is subject to regulation by the FDIC, both of which have adopted
certain risk-based capital guidelines. The guidelines, which establish a
risk-adjusted ratio relating capital to different categories of balance sheet
assets and off-balance sheet obligations, require GBT and Gloucester Bank to
maintain a minimum risk-based capital ratio.
The guidelines define two categories of capital: Tier 1 or core capital
(primarily, common shareholders' equity and a limited amount of perpetual
preferred stock, less intangible assets) and Tier 2 or supplementary capital
(primarily, a limited amount of loan loss reserves, perpetual preferred stock in
excess of the amounts included in Tier 1 capital and certain "hybrid
instruments," including mandatory convertible debt). Qualifying (or total)
capital is the sum of Tier 1 and Tier 2 capital. According to the guidelines,
Tier 1 capital must represent at least 50% of qualifying total capital.
Risk-based capital ratio guidelines assign both balance sheet assets and
off-balance sheet obligations to one of four risk categories. At December 31,
1999 and 1998, the minimum total and Tier 1 risk-based capital ratios required
for "well-capitalized" banks and bank holding companies were 8% and 4%,
respectively. GBT's total risk-based capital ratios at December 31, 1999 and
1998 were 10.80% and 12.81%, respectively, and its Tier 1 risk-based capital
ratios 9.54% and 11.55%, respectively. Gloucester Bank's total risk-based
capital ratios at December 31, 1999 and 1998 were 10.69% and 12.37%,
respectively.
To complement risk-based guidelines, the Federal Reserve and the FDIC
have adopted a Tier I leverage capital ratio of 3% for the most highly rated
financial institutions and up to 5% for other financial institutions which would
represent the minimum capital to total assets standard for financial
institutions. The leverage ratios are used in tandem with the risk-based capital
requirements as the minimum capital standards for financial institutions. GBT's
and Gloucester Bank's Tier 1 leverage capital ratios were 7.03% and 8.37% at
December 31, 1999 and 1998, respectively. Gloucester Bank's Tier 1 leverage
capital ratios were 6.95% and 8.05% at December 31, 1999 and 1998, respectively.
During 1999, GBT declared and paid common stock dividends of $0.60 per
share.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 establishes accounting
and reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. In GBT management's opinion, the statement when adopted will not
have a material adverse effect on GBT's financial statements.
CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO GBT
Set forth below is certain statistical and other information relating
to GBT. This information should be used in conjunction with "GBT MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GBT"
and the GBT Financial Statements.
55
<PAGE> 63
INVESTMENT PORTFOLIO
The following table sets forth the amortized cost basis of GBT's
available for sale securities at the dates indicated:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Debt securities issued by the U.S. Treasury and other
U.S. Government corporations and agencies $11,018 $ 5,972 $ 7,964
Debt securities issued by states of the United States
and political subdivisions of the states 1,227 1,227 35
Corporate securities 5,025 4,474 4,152
Mortgage-backed securities 7,294 8,808 11,531
Marketable equity securities 1,998 3,966 0
------- ------- -------
Total investment securities $26,562 $24,447 $23,682
======= ======= =======
</TABLE>
The following table sets forth the maturities, by amortized cost, of
GBT's available for sale securities (other than marketable equity securities) at
December 31, 1999 and the weighted average yields of such securities:
<TABLE>
<CAPTION>
Maturing
--------
Within One Year After One But Within After Five But Within After Ten Years
--------------- -------------------- --------------------- ---------------
Five Years Ten Years
---------- ---------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities issued by the U.S.
Treasury and other U.S.
Government corporations and
agencies $0 $4,531 6.13% $6,487 6.82% $ 0
Debt securities issued by states of the
United States and political
subdivisions of the states 0 0 493 4.11 734 4.22%
Corporate securities 0 3,532 7.10 1,493 6.86 0
Mortgage-backed securities 0 672 7.47 428 6.00 6,194 6.46
- ------ ------ ------
Total $0 $8,735 6.55 $8,901 6.62 $6,928 6.34
= ====== ====== ======
</TABLE>
The following table sets forth the maturities, by fair value, of
GBT's available-for-sale securities (other than marketable equity securities) at
December 31, 1999:
<TABLE>
<CAPTION>
Maturing
--------
After One But Within After Five But Within
-------------------- ---------------------
Within One Year Five Years Ten Years After Ten Years
--------------- ---------- --------- ---------------
Amount Amount Amount Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S.
Treasury and other U.S. Government
corporations and agencies $0 $4,453 $6,211 $ 0
Debt securities issued by states of
the United States and political
subdivision of the states 0 0 457 661
Corporate securities 0 3,494 1,440 0
Mortgage-backed securities 0 672 407 6,049
-- ------ ------ ------
Total $0 $8,619 $8,515 $6,710
== ====== ====== ======
</TABLE>
At December 31, 1999, all of GBT's mortgage-backed securities
("MBSs") and collateralized mortgage-backed securities ("CMOs") were guaranteed
by FHLMC, FNMA or GNMA. All of GBT's MBSs and CMOs bear both a fixed and a
variable interest rate. The market values of MBSs and CMOs change with market
and economic conditions. The most significant factors affecting market value are
prepayments of the underlying loans and interest rates. As interest rates
increase, prepayments generally decline, causing an extension of the expected
maturity and a decline in market value. The converse is generally true when
interest rates decrease. The market value of fixed-rate MBSs and CMOs are
generally more sensitive to market interest rate changes than variable or
adjustable rate MBSs and CMOs. MBSs and
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<PAGE> 64
CMOs are expected to have shorter average lives than their contractual
maturities because borrowers may repay obligations without prepayment penalties.
GBT's investment portfolio is managed by GBT in accordance with the
investment policy established by the Investment Committee of GBT's Board of
Directors and with the advice of professional investment advisors. The
objectives of GBT's investment policy are to provide liquidity, diversification
of assets and earnings.
LOAN PORTFOLIO
The following table shows the composition of GBT's loan portfolio at
the dates indicated:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
Balances % of Portfolio Balances % of Portfolio Balances % of Portfolio
-------- -------------- -------- -------------- -------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 9,586 10.58% $ 8,831 11.79% $10,035 13.91%
Real estate:
Commercial 39,789 43.89 26,772 35.74 25,226 34.97
Residential 29,005 32.00 28,651 38.25 28,535 39.55
Residential construction 6,680 7.37 5,602 7.48 3,444 4.78
Consumer 5,586 6.16 5,052 6.74 4,902 6.79
------- ------ ------ ------ ------- ------
Total loans $90,646 100.00% $74,908 100.00% $72,142 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
NON-ACCRUAL, PAST DUE, RESTRUCTURED, AND POTENTIAL PROBLEM LOANS
The following table summarizes GBT's non-accrual, past due and
restructured loans for the dates indicated:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accrual loans (1) $789 $1,069 $1,212
Accruing loans past due 90 days or more 0 0 0
Restructured loans 0 0 0
---- ------ ------
Total non-performing loans $789 $1,069 $1,212
==== ====== ======
Total non-performing loans as a percentage of
Total loan portfolio 0.87% 1.43% 1.68%
</TABLE>
(1) Generally, a loan is classified as non-accrual and the accrual of
interest on such loan is discontinued when the contractual payment of
principal or interest has become 90 days past due or GBT management has
serious doubts about further collectibility of principal or interest,
even though the loan currently is performing. A loan may remain on
status if it is in the process of collection and is either guaranteed
or well secured. When a loan is placed on non-accrual status, unpaid
interest credited to income in the current year is reversed and unpaid
interest accrued in prior years is charged against the allowance for
loan losses. Interest received on non-accrual loans generally is either
applied against principal or reported as interest income, according to
GBT management's judgement as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the contractual terms
for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
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<PAGE> 65
Information with respect to GBT's non-accrual and restructured loans
for the dates indicated is as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial $ 95 $ 202 $ 210
Commercial real estate 673 441 263
Residential 21 115 383
Consumer 0 107 8
Lease financing receivables 0 204 348
----- ------ ------
Total non-accrual and restructured loans $ 789 $1,069 $1,212
===== ====== ======
Impaired loans $ 207 $ 635 $1,237
===== ====== ======
Interest income recognized during the period on
impaired loans $ 29 $ 36 $ 60
===== ====== ======
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes GBT's activity in the allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance of allowance at beginning of period $1,802 $1,793 $1,770
Charge-offs:
Real Estate:
Commercial 0 50 25
Residential 0 17 0
Consumer 203 9 174
Commercial 10 4 4
------ ------ ------
Total charge-offs 213 80 203
------ ------ ------
Recoveries:
Real estate:
Commercial 61 15 50
Residential 23 0 0
Consumer 102 1 35
Commercial 15 73 141
------ ------ ------
Total recoveries 201 89 226
------ ------ ------
Net charge-offs (recoveries) 12 (9) (23)
------ ------ ------
Provision for loan losses 0 0 0
Balance of allowance at end of period $1,790 $1,802 $1,793
====== ====== ======
Ratio of net charge-offs (recoveries) to average
loans outstanding .01% (.01)% (.03)%
</TABLE>
The allowance for loan losses is maintained at a level believed
adequate by GBT management to absorb estimated loan losses. GBT management's
periodic evaluation of the adequacy of the allowance is based on Gloucester
Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay (including
the timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, current economic conditions,
and other relevant factors. This evaluation is inherently subjective as it
requires material estimates, including the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
ALLOWANCE FOR LOAN LOSSES ALLOCATION
The following table sets forth the breakdown of the allowance for loan
losses by loan type and the percentage of loans in each type at the dates
indicated. The allocation of the allowance to each loan type is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any type.
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<PAGE> 66
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
Amount % of Loan Type Amount % of Loan Type Amount % of Loan Type
------ -------------- ------ -------------- ------ --------------
Total Loans to Total Loans to Total Loans
----------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance applicable to
Commercial $ 202 10.58% $296 11.79% $402 13.91%
Real estate:
Commercial 695 43.89 697 35.74 621 34.97
Residential 357 32.00 347 38.25 364 39.55
Residential Construction 0 7.37 0 7.48 0 4.78
Consumer 18 6.16 14 6.74 14 6.79
Unallocated 518 N/A 448 N/A 392 N/A
------ ----- ------ ----- ------ -----
Total allowance for loan losses $1,790 100.0% $1,802 100.0% $1,793 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
DEPOSITS
The average daily amount of deposits and average rates paid on such
deposits is summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
Amount Rate Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $21,192 N/A $20,590 N/A $19,340 N/A
Regular savings 10,254 2.36% 10,540 2.62% 9,947 2.85%
NOW accounts 17,952 3.02 14,976 2.88 14,922 3.08
Money market accounts 13,712 3.23 13,485 3.26 14,136 3.22
Time certificates of deposit 33,321 5.23 31,236 5.78 31,280 5.82
------- ------- -------
Total $96,431 $90,827 $89,625
======= ======= =======
</TABLE>
The average interest rates paid on total deposits, excluding
non-interest bearing deposits at December 31, 1999, 1998 and 1997, were 3.95%,
4.20%, and 4.30%, respectively.
Repricing of time certificates of deposit of $100,000 or more
outstanding at December 31, 1999, are summarized as follows:
<TABLE>
<S> <C>
3 months or less $4,926
Over 3 through 12 months 3,193
Over 1 through 3 years 508
Over 3 years 155
------
Total $8,782
======
</TABLE>
REGULATORY CONSIDERATIONS
GENERAL
Andover is a bank holding company registered with the Federal Reserve
Board under the Bank Holding Company Act of 1956, as amended. As such, Andover
and its non-bank subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHCA and the regulations of the Federal Reserve
Board. In addition, Andover's only bank subsidiary, Andover Bank, and GBT's only
bank subsidiary, Gloucester Bank, are subject to the regulation and supervision
of the FDIC and the Massachusetts Division of Banks. Andover Bank and Gloucester
Bank are also subject to certain requirements established by the Federal Reserve
Bank. After the merger, Andover will be a multi-banking company and therefore
subject to the jurisdiction of the Massachusetts Board of Bank Incorporation.
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<PAGE> 67
Set forth below is a brief description of laws and regulations that
relate to the regulation of Andover and Andover Bank. The description of laws
and regulations below and elsewhere in this proxy statement/prospectus is not
complete and is qualified in its entirety by the applicable laws and
regulations. A discussion of laws and regulations to which Andover and Andover
Bank are subject is also included in Andover's 1998 Annual Report on Form 10-K.
See "Where You Can Find More Information on Andover."
REGULATION OF ANDOVER
Restrictions on Activities of Bank Holding Companies. The BHCA
imposes significant restrictions on the activities of bank holding companies.
Bank holding companies are required to obtain the prior approval of the Federal
Reserve Board before they may:
- acquire direct or indirect ownership or control of more
than 5% of any class of the voting securities of any bank;
- acquire all or substantially all of the assets of any
bank; or
- merge or consolidate with any other bank holding company.
The Federal Reserve Board generally may not approve any such
transaction that would result in a monopoly, that would further a combination or
conspiracy to monopolize banking in the United States, that would substantially
lessen competition in any section of the country, that would tend to create a
monopoly in any section of the country, or that would be in restraint of trade.
The Federal Reserve Board is also required to consider the financial and
managerial resources and future prospects of the bank holding companies and
banks concerned, as well as the convenience and needs of the community to be
served. The consideration of convenience and needs includes the parties'
performance under the Community Reinvestment Act of 1977.
The BHCA also prohibits Andover from:
- engaging in activities other than banking, managing, or
controlling banks or other permissible activities; or
- acquiring or retaining direct or indirect control of any
company engaged in any activities other than those
activities determined by the Federal Reserve Board to be
so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
This prohibition could restrict Andover's ability to expand its
activities or establish non-bank subsidiaries in the future.
Limitations on Control of Andover. Federal law limits who may control
Andover. Specifically, the Federal Change in Bank Control Act prohibits a person
or group of persons from acquiring "control" of a bank holding company unless
the Federal Reserve Board has been given 60 days prior written notice of such
proposed acquisition and within that time period the Federal Reserve Board has
not issued a notice disapproving the proposed acquisition or extending for up to
another 30 days the period during which such a disapproval may be issued. An
acquisition may be made prior to expiration of the disapproval period if the
Federal Reserve Board issues written notice of its intent not to disapprove the
action. Under a rebuttable presumption established by the Federal Reserve Board,
the acquisition of 10% or more of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the Exchange
Act would, under the circumstances set forth in the presumption, constitute the
acquisition of control.
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<PAGE> 68
Notwithstanding the above, any "company" would be required to obtain
the approval of the Federal Reserve Board under the BHCA before acquiring 25%
(5% in the case of an acquirer that is a bank holding company) or more of the
outstanding common stock of, or such lesser number of shares as constitute
control over, Andover. Such approval would be contingent upon, among other
things, the acquirer registering as a bank holding company if not already so
registered, divesting all impermissible holdings, and ceasing any activities not
permissible for a bank holding company.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
certain interstate transactions and activities are permitted for both banks and
bank holding companies. Interstate transactions and activities permitted under
the Riegle-Neal Act include:
- bank holding company acquisitions of separately held banks
in a state other than a bank holding company's home state;
- mergers between insured banks with different home states,
including consolidations of affiliated insured banks;
- establishment of interstate branches either de novo or by
branch acquisition; and
- affiliate banks acting as agents for one another for
certain banking functions without being considered a
"branch."
The appropriate federal bank regulator is authorized to approve an
interstate transaction only if certain criteria are met. First, in order for a
banking institution (a bank or bank holding company) to receive approval for an
interstate transaction, it must be "adequately capitalized" and "adequately
managed." The phrase "adequately capitalized" is generally defined as meeting or
exceeding all applicable federal regulatory capital standards, while the phrase
"adequately managed" is undefined. Second, the appropriate federal bank
regulator must consider the applicant's and its affiliated institutions' records
under the CRA as well as the applicant's record under applicable state community
reinvestment laws. In 1996, Massachusetts enacted interstate banking laws in
response to the Riegle-Neal Act. The Massachusetts laws permit, subject to some
deposit and other limitations, interstate acquisitions, interstate mergers and
interstate branching on a reciprocal basis. The Riegle-Neal Act has made it
easier for out-of-state institutions to attempt to purchase or otherwise acquire
a Massachusetts bank or to compete with Andover and Andover Bank in
Massachusetts, and similarly has made it easier for Andover and Andover Bank to
compete outside the state.
Transactions by Bank Holding Companies and Their Affiliates. There
are various legal restrictions on the extent to which a bank holding company
(and any non-bank subsidiaries) may borrow, obtain credit from or otherwise
engage in "covered transactions" with its FDIC insured depository institution
subsidiaries. Borrowings and other covered transactions by an insured depository
institution subsidiary (and its subsidiaries) with its non-depository
institution affiliates are limited to the following amounts:
- in the case of any one such affiliate, the aggregate
amount of covered transactions of the insured depository
institution and its subsidiaries cannot exceed 10% of the
capital stock and surplus of the insured depository
institution; and
- in the case of all affiliates, the aggregate amount of
covered transactions of the insured depository institution
and its subsidiaries cannot exceed 20% of the capital
stock and surplus of the insured depository institution.
"Covered transactions" are defined by statute for these purposes to include a
loan or extension of credit to an affiliate, a purchase of or investment in
securities issued by an affiliate, a purchase of assets from an
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<PAGE> 69
affiliate unless exempted by the Federal Reserve Board, the acceptance of
securities issued by an affiliate as collateral for a loan or extension of
credit to any person or company, or the issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Covered transactions are also
subject to certain collateral security requirements. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property of any kind, or furnishing of any service.
Support of Subsidiary Institutions. Under Federal Reserve Board
policy, Andover is expected to act as a source of financial strength for, and
commit its resources to support, its bank subsidiaries. This support may be
required at times when Andover may not be inclined to provide it. In addition,
any capital loans by a bank holding company to any of its bank subsidiaries are
subordinate to the payment of deposits and to certain other indebtedness. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a bank
subsidiary will be assumed by the bankruptcy trustee and entitled to a priority
of payment.
Payment of Dividends. Andover is a legal entity separate and distinct
from its subsidiary, Andover Bank. The principal sources of cash flow of
Andover, including cash flow to pay dividends to its stockholders, are dividends
from Andover Bank. There are statutory and regulatory limitations on the payment
of dividends by Andover Bank to Andover, as well as by Andover to its
stockholders.
As to the payment of dividends, Andover Bank is subject to the laws
and regulations of The Commonwealth of Massachusetts and to the regulations of
the FDIC. If the FDIC determines that a depository institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice, the FDIC may require, after notice and hearing, that the institution
cease and desist from such practice.
The federal banking agencies, including the FDIC, have indicated that
paying dividends that deplete a depository institution's capital base to an
inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. The federal agencies have
also issued policy statements that provide that bank holding companies and
insured banks should generally only pay dividends out of current operating
earnings.
The payment of dividends by Andover and Andover Bank may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton
signed into law the Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act
repeals provisions of the Glass-Steagall Act: Section 20, which restricted the
affiliation of Federal Reserve member banks with firms "engaged principally" in
specified securities activities; and Section 32, which restricts officer,
director, or employee interlocks between a member bank and any company or person
"primarily engaged" in specified securities activities. In addition, the
Gramm-Leach-Bliley Act also contains provisions that expressly preempt any state
law restricting the establishment of financial affiliations, primarily related
to insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the Bank Holding Company Act framework to permit a holding company
system, such as Andover, to engage in a full range of financial activities
through a new entity known as a "financial holding company." "Financial
activities" is broadly defined to include not only banking, insurance, and
securities activities, but also merchant banking and additional activities that
the Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines to be financial in nature, incidental to such financial activities,
or complementary activities that do not pose a substantial risk to the safety
and soundness of depository institutions or the financial system generally.
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Generally, the Gramm-Leach-Bliley Act does the following:
- repeals historical restrictions on, and eliminates many
federal and state law barriers to, affiliations among
banks, securities firms, insurance companies, and other
financial service providers;
- provides a uniform framework for the functional regulation
of the activities of banks, savings institutions, and
their holding companies;
- broadens the activities that may be conducted by national
banks (and derivatively state banks), banking subsidiaries
of bank holding companies, and their financial
subsidiaries;
- provides an enhanced framework for protecting the privacy
of consumer information;
- adopts a number of provisions related to the
capitalization, membership, corporate governance, and
other measures designed to modernize the Federal Home Loan
Bank system;
- modifies the laws governing the implementation of the
Community Reinvestment Act of 1977 (See "-Regulation of
Andover Bank and Gloucester Bank"); and
- addresses a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term
activities of financial institutions.
In order to engage in the new activities, a bank holding company,
such as Andover, must meet certain tests and elect to become a financial holding
company. Specifically, all of a bank holding company's banks must be well
capitalized and well managed, as measured by regulatory guidelines, and all of
the bank holding company's banks must have been rated "satisfactory" or better
in the most recent CRA evaluation of each bank. At this time, Andover has not
determined whether it will become a financial holding company.
REGULATION OF ANDOVER BANK AND GLOUCESTER BANK
Federal Deposit Insurance Corporation. The FDIC insures both Andover
Bank's and Gloucester Bank's deposit accounts up to a maximum of $100,000 per
separately insured account. As state-chartered, FDIC insured nonmember banks,
Andover Bank and Gloucester Bank are subject to regulation, examination, and
supervision by the FDIC and to reporting requirements of the FDIC. The FDIC has
adopted requirements setting minimum standards for capital adequacy. Pursuant to
FDIC requirements, Andover Bank and Gloucester Bank must maintain a Tier 1
capital to risk-weighted assets ratio of at least 4.00% and a total capital to
risk-weighted assets ratio of at least 8.00%. The FDIC also imposes a leverage
capital ratio of a minimum 3.00% for the most highly rated banks and a leverage
capital ratio between 4.00% and 5.00% or more for other banks. Both Andover Bank
and Gloucester Bank exceeded all requirements applicable to them at December 31,
1999. International bank supervisory organizations, principally the Basel
Committee on Banking Supervision, currently are considering changes to the
risk-based capital adequacy framework, which ultimately could affect the FDIC's
guidelines regarding capital adequacy.
Federal Reserve Board. Regulation D promulgated by the Federal
Reserve Board requires all depository institutions to maintain reserves against
their transaction accounts or non-personal time deposits, subject to certain
exemptions. "Transaction accounts" include demand deposits, NOW accounts, and
certain other types of accounts that permit payments or transfers to third
parties. "Non-personal time deposits" include money market deposit accounts or
other savings deposits held by corporations or other depositors that are not
natural persons, and certain other types of time deposits. Because required
reserves must be maintained in the form of vault cash or non-interest bearing
deposits with a regional Federal
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Reserve Bank, the effect of this reserve requirement is to reduce the amount of
the institution's interest-bearing assets.
Massachusetts Commissioner of Banks. Both Andover Bank and Gloucester
Bank are also subject to regulation, examination and supervision by the
Massachusetts Commissioner of Banks and to the reporting requirements
promulgated by his office. Massachusetts statutes and regulations govern, among
other things, investment powers, lending powers, deposit activities, maintenance
of surplus reserve accounts, the distribution of earnings, the payment of
dividends, issuance of capital stock, branching, acquisitions and mergers and
consolidation. Any Massachusetts bank that does not operate in accordance with
the regulations, policies and directives of the Massachusetts Commissioner may
be subject to sanctions for noncompliance. The Massachusetts Commissioner may,
under some circumstances, suspend or remove officers or directors who have
violated the law, conducted the bank's business in a manner which is unsafe,
unsound or contrary to depositors' interest, or been negligent in the
performance of their duties. In response to a Massachusetts law enacted in 1996,
in 1997 and 2000 the Massachusetts Commissioner finalized rules that generally
give Massachusetts banks, and their subsidiaries, many powers equivalent to
those of national banks. The Massachusetts Commissioner also has adopted
procedures expediting the approval process for well capitalized banks to
establish branches or engage in certain activities.
Other Aspects of Federal and State Law. The FDIC Improvement Act made
extensive changes to the federal banking laws. Among other things, the FDIC
Improvement Act requires federal bank regulatory agencies to take prompt
corrective action to address the problems of, and imposes significant
restrictions on, under capitalized banks. With certain exceptions, the FDIC
Improvement Act prohibits state banks from making equity investments that are
not permissible for national banks and engaging, as principals, in activities
that are not permissible for national banks. The FDIC Improvement Act also
amended federal statutes governing extensions of credit to directors, executive
officers and principal stockholders of banks, savings associations and their
holding companies, limits the aggregate amount of a depository institution's
loans to insiders to the amount of the institution's unimpaired capital and
surplus, restricts depository institutions that are not well capitalized from
accepting brokered deposits without an express waiver from the FDIC, and imposes
certain advance notice requirements before closing a branch office. Pursuant to
the FDIC Improvement Act, the FDIC has adopted a framework of risk- based
deposit insurance assessments that take into account different categories and
concentrations of bank assets and liabilities.
The Gramm-Leach-Bliley Act includes a new section of the Federal
Deposit Insurance Act governing subsidiaries of state banks that engage in
"activities as principal that would only be permissible" for a national bank to
conduct in a financial subsidiary. The provision will permit state banks, to the
extent permitted under state law, to engage in certain new activities which are
permissible for subsidiaries of a financial holding company. Further, it
expressly preserves the ability of a state bank to retain all existing
subsidiaries. Massachusetts permits Massachusetts-chartered banks to engage in
activities which are permissible for national banks and that are approved by the
Massachusetts Commissioner. Thus, Andover Bank and Gloucester Bank would only be
permitted to engage in the activities authorized by the Gramm-Leach-Bliley Act
that are also approved by the Massachusetts Commissioner or otherwise
permissible under Massachusetts law. In order to form a financial subsidiary, a
state bank must be well-capitalized, and the state bank would be subject to
certain capital deduction, risk management and affiliate transaction rules which
are applicable to national banks.
The Community Reinvestment Act was enacted to encourage every
financial institution to help meet the credit needs of its entire community,
including low- and moderate-income neighborhoods, consistent with its safe and
sound operation. Under the Community Reinvestment Act, state and federal
regulators are required, in examining financial institutions and when
considering applications for approval of certain merger, acquisition and other
transactions, to take into account the institution's record in helping to meet
the credit needs of its entire community including low- and moderate-income
neighborhoods. In reviewing an institution's CRA record for this purpose, state
and federal regulators will consider reports of regulatory examination, comments
received from interested members of the public or community groups, and the
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<PAGE> 72
description of the institution's CRA activities in its publicly available CRA
statement, supplemented, as necessary, by the institution. State and federal
regulators have denied, delayed and officially deferred proposed merger or
acquisition transactions involving banking organizations that were deemed by the
relevant regulator to have unsatisfactory records of CRA compliance. Under CRA
regulations issued by the federal banking agencies in the spring of 1995, the
evaluation of a financial institution's compliance with CRA focuses more heavily
upon the institution's actual performance in lending to, and investing in, its
entire community. Andover Bank's current CRA rating is "outstanding" based upon
a review of its CRA compliance by the FDIC in October 1999. Gloucester Bank's
current CRA rating is also "outstanding" based upon a review of its CRA
compliance by the FDIC in July, 1998.
Both Andover Bank and Gloucester Bank are also subject to federal and
state statutory and regulatory provisions covering, among other things, security
procedures, currency and foreign transactions reporting, insider and affiliated
party transactions, management interlocks, loan interest rate limitations,
lending policies, truth-in-lending, electronic funds transfers, funds
availability, truth-in-savings, home mortgage disclosure, and equal credit
opportunity.
Restrictions on Expansion. Federal and state law place certain
limitations on both Andover Bank's and Gloucester Bank's ability to expand the
geographic scope of their banking activities, whether through the establishment
of new branches or through a merger with or acquisition of another depository
institution. Under the Federal Deposit Insurance Act, the applicable federal
bank regulatory agency must review a bank merger or acquisition involving
Andover Bank or Gloucester Bank, and generally may not approve any such
transaction that would result in a monopoly, that would further a combination or
conspiracy to monopolize banking in the United States, that could substantially
lessen competition in any section of the country, that would tend to create a
monopoly in any section of the country, or that would be in restraint of trade.
The applicable regulator is also required to consider the financial and
managerial resources and future prospects of the bank holding companies and
banks concerned, as well as the convenience and needs of the community to be
served. The consideration of convenience and needs includes the parties'
performance under the CRA. Which federal bank regulator reviews the transaction
depends on the charter of the surviving bank.
Similarly to Andover, Andover Bank and Gloucester Bank are limited in
their ability to engage in interstate transactions and expansion by the
Riegle-Neal Act. See "---Regulation of Andover--Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994."
GOVERNMENT POLICIES AND LEGISLATIVE AND REGULATORY PROPOSALS
Andover Bank's and Gloucester Bank's operations are generally
affected by the economic, fiscal, and monetary policies of the United States and
its agencies and regulatory authorities, particularly the Federal Reserve Board
(which regulates the money supply of the United States, reserve requirements
against deposits, the discount rate on Federal Reserve Board borrowings and
related matters, and which conducts open-market operations in U.S. government
securities). The fiscal and economic policies of various governmental entities
and the monetary policies of the Federal Reserve Board have a direct effect on
the availability, growth, and distribution of bank loans, investments, and
deposits.
In addition, various proposals to change the laws and regulations
governing the operations and taxation of, and deposit insurance premiums paid
by, federally and state-chartered banks and other financial institutions are
from time to time pending in Congress and in state legislatures as well as
before the Federal Reserve Board, the FDIC and other federal and state bank
regulatory authorities. The likelihood of any major changes in the future, and
the impact any such changes might have on either Andover Bank or Gloucester
Bank, are not possible to determine.
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STATUS OF REGULATORY APPROVALS AND OTHER INFORMATION
Andover and GBT will promptly file all applications and notices and
will promptly take other appropriate action with respect to any requisite
approvals or other action of any governmental authority. The merger agreement
provides that the obligation of each of Andover and GBT to complete the merger
is conditioned upon the receipt of all requisite regulatory approvals, including
the approvals of the Federal Reserve Board and the Massachusetts Board of Bank
Incorporation. There can be no assurance that any governmental agency will
approve or take any required action with respect to the merger, and, if the
approvals are received or action is taken, there can be no assurance as to the
date of the approvals or action, that the approvals or action will not be
conditioned upon matters that would cause the parties to mutually consent to
abandon the merger, or that no action will be brought challenging the approvals
or action, or if a challenge is made, its result.
Andover and GBT are not aware of any governmental approvals or
actions that may be required for completion of the merger other than as
described above. Should any other approval or action be required, Andover and
GBT currently contemplate that such approval or action would be sought.
The merger cannot proceed in the absence of the requisite regulatory
approvals. We may not obtain regulatory approvals on time or at all. See "THE
MERGER AGREEMENT--Conditions to Complete the Merger" and "--Termination;
Expenses." Similarly the Department of Justice or other governmental authorities
may challenge the merger.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of United States federal income
tax consequences of the merger to Andover and GBT and their respective
stockholders. The following discussion is based upon current provisions of the
Internal Revenue Code, existing temporary and final regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change, possibly on a retroactive basis. No attempt has been made to comment on
all United States federal income tax consequences of the merger that may be
relevant to stockholders of Andover and GBT. The tax discussion set forth below
is included for general information only. It is not intended to be, nor should
it be construed to be, legal or tax advice to a particular stockholder of
Andover or GBT.
The following discussion may not apply to particular categories of
holders of shares of Andover common stock or GBT common stock subject to special
treatment under the Code, such as insurance companies, financial institutions,
broker-dealers, tax-exempt organizations, individual retirement and other
tax-deferred accounts, banks, persons subject to the alternative minimum tax,
persons who hold Andover capital stock or GBT capital stock as part of a
straddle, hedging or conversion transaction, persons whose functional currency
is other than the United States dollar, persons eligible for tax treaty
benefits, foreign corporations, foreign partnerships, and other foreign
entities, individuals who are not citizens or residents of the United States,
and holders whose shares were acquired pursuant to the exercise of an employee
stock option or otherwise as compensation. Stockholders of Andover and GBT are
urged to consult their tax advisors to determine the specific tax consequences
of the merger, including any state, local or other tax consequences of the
merger.
TAX CONSEQUENCES OF THE MERGER
Tax opinions of Goodwin, Procter & Hoar LLP and Foley, Hoag & Eliot
LLP have been filed as Exhibits 8.1 and 8.2, respectively, to the registration
statement of which this proxy statement/prospectus is a part. These tax opinions
opine that, based on representations of Andover and GBT and on assumptions and
conditions at the effective time of the merger, the merger will be treated for
United States federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code. A critical assumption set forth in the tax
opinions is that Andover common stock will represent no less than 40% of
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the total fair market value of the consideration received by the GBT
stockholders in the merger, as measured at the effective time of the merger. In
the event that the per share price of Andover common stock falls to $18.20 as of
the effective time of the merger, Andover common stock will represent
approximately 40% of the merger consideration paid to GBT stockholders based
upon the latest information available to the parties. If a decline in the market
price of Andover common stock causes the value of the Andover common stock paid
to the GBT stockholders to represent less than 40% of the merger consideration
paid to such stockholders, the merger likely would fail to qualify as a
reorganization within the meaning of Section 368(a) of the Code and would be
fully taxable to the GBT stockholders and GBT. For more information regarding
the likely tax consequences of the value of Andover common stock paid to GBT
stockholders as of the effective time of the merger representing less than 40%
of the merger consideration paid to such stockholders, see "RISK FACTORS - A
Decline in the Market Price of Andover Common Stock Prior to the Effective Time
of the Merger Could Result in Significant Tax Liability for GBT Stockholders and
GBT."
As a consequence of reorganization treatment, neither Andover nor GBT
will recognize a gain or loss as a result of the merger. Stockholders of GBT who
exchange all of their shares of GBT common stock solely for Andover common stock
pursuant to the merger will not recognize a gain or loss, except with respect to
cash received in lieu of a fractional share interest in Andover common stock.
The aggregate tax basis of the Andover common stock received by stockholders who
exchange all of their GBT common stock solely for Andover common stock in the
merger will be the same as the aggregate tax basis of the GBT common stock
surrendered, reduced by any amount allocable to a fractional share interest for
which cash is received. Finally, provided the shares of GBT common stock were
held as a capital asset at the effective time of the merger, the holding period
for shares of Andover common stock received by a GBT stockholder in exchange for
his or her shares of GBT common stock will include the period that the shares of
GBT common stock were held. The stockholders of Andover will not recognize a
gain or loss as a result of the merger.
In general, stockholders of GBT receiving cash consideration (other
than solely cash in lieu of a fractional share interest in Andover common stock)
will recognize a gain, but not a loss, equal to the lesser of
- the total cash consideration received (including cash in
lieu of a fractional share interest in Andover common
stock), or
- the total gain realized by such stockholder in the merger,
as measured by the difference between the total fair
market value of the cash and Andover common stock received
by the stockholder in the merger and such stockholder's
adjusted basis in his or her shares of GBT common stock.
This gain or loss will constitute capital gain or loss from the sale of stock if
the stockholder holds the GBT common stock as a capital asset at the effective
time of the merger, and will be long term capital gain or short term capital
gain depending on the holding period. The aggregate tax basis of the Andover
common stock received by stockholders who also receive cash consideration in the
merger will be equal to the aggregate tax basis of the GBT common stock
surrendered, increased by the gain recognized in the merger, and reduced by the
cash received.
BACKUP WITHHOLDING
Under the backup withholding rules, a GBT stockholder may be subject
to backup withholding at the rate of 31% with respect to cash received in
exchange for GBT common stock or cash received in lieu of fractional shares of
Andover common stock unless such holder is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact, or provides
a taxpayer identification number, certifies that the holder is not subject to
backup withholding, and otherwise complies with
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applicable requirements of the backup withholding rules. A stockholder that does
not provide a correct taxpayer identification number may also be subject to
penalties imposed by the Internal Revenue Service. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability
provided that applicable filings are made with the IRS.
OTHER TAX CONSEQUENCES
The state and local tax treatment of the merger may not conform to
the federal income tax consequences discussed above. Consequently, GBT
stockholders should consult their own tax advisors regarding the treatment of
the merger under state, local, and other tax laws.
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PRINCIPAL STOCKHOLDERS OF GBT
The following table sets forth the beneficial ownership of GBT's
common stock as to each person or entity who is known by GBT to have
beneficially owned more than five percent of GBT's common stock as of December
31, 1999 or thereafter, each of GBT's directors, the Chief Executive Officer,
and all directors and executive officers as a group, based on representations of
officers and directors of GBT as of February 29, 2000. All percentages have been
calculated as of February 29, 2000, based on 791,374 shares of GBT common stock
outstanding at the close of business on such date.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent
Name of Beneficial Owner Beneficially Owned (1) of Class
------------------------ ---------------------- --------
<S> <C> <C>
Robert J. Ryan, Sr.
2 Harbor Loop, Gloucester, MA 01930 56,441 (2) 7.13%
David L. Marsh
2 Harbor Loop, Gloucester, MA 01930 40,000 (3) 5.05
Charles J. Ciaramitaro 10,500 (4) 1.33
Francis J. Elliott, Jr. 14,000 (2) 1.77
Kenneth W. Gleason 38,500 4.86
Nicholas C. Psalidas 14,000 (2) 1.77
Donald E. Sudbay, Jr. 3,500 *
All Directors and Executive Officers as a Group (9 persons) 183,941 23.24
Fleet Boston Corporation (5) 63,000 (6) 7.96
One Federal Street, Boston, MA 02110
</TABLE>
- -----------------------
* Less than 1%.
(1) Except as otherwise noted, each individual in the table above has the
sole voting and investment power over the shares listed.
(2) All shares are held jointly with his spouse.
(3) Shares are held in the name of CABAS, the nominee for the Cape Ann
Savings Bank where Mr. Marsh's securities are held in safe keeping.
(4) Includes 9100 shares held jointly with his spouse, 700 shares held
jointly with his son Frank, and 700 shares held jointly with his
daughter Felicia.
(5) This information is based upon information on Schedule 13G filed by
Fleet Boston Corporation on February 12, 1999 with the Securities and
Exchange Commission.
(6) Represents 63,000 shares for which stockholder has the sole power to
direct the vote and of which stockholder shares investment power with
respect to 37,800 shares.
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Andover common stock is quoted on the Nasdaq National Market under
the ticker symbol "ANDB". Following the merger, Andover common stock will
continue to be listed on the Nasdaq National Market under the ticker symbol
"ANDB." GBT common stock is quoted on, and from time to time trades, on the
Nasdaq Bulletin Board, an interdealer quotation system, where there is an
established public trading market for GBT common stock.
The following table sets forth, for the fiscal quarters indicated,
the range of high and low sale prices of Andover common stock and the high and
low bid prices for GBT common stock (rounded to four decimal places), and the
amount of cash dividends declared per share:
<TABLE>
<CAPTION>
Andover Common Stock GBT Common Stock**
High Low Dividends* High Low Dividends
<S> <C> <C> <C> <C> <C> <C>
1997
1st Quarter 24.2031 19.7969 0.120 11.4286 10.0000 0.107
2nd Quarter 25.4063 23.5938 0.130 12.8750 10.8571 0.107
3rd Quarter 29.4063 23.5938 0.130 13.5714 12.7143 0.107
4th Quarter 33.7969 26.2031 0.152 18.1428 14.1428 0.250
1998
1st Quarter 33.0000 27.4063 0.152 20.2857 19.2857 0.107
2nd Quarter 38.7500 31.5000 0.144 21.2857 20.3750 0.107
3rd Quarter 40.7500 25.5000 0.180 20.1250 16.0000 0.150
4th Quarter 35.0000 24.7500 0.180 17.0000 16.2500 0.220
1999
1st Quarter 34.7500 26.7500 0.210 16.5000 14.5000 0.150
2nd Quarter 32.6250 25.5000 0.210 14.5000 13.2500 0.150
3rd Quarter 34.7500 28.8750 0.210 14.5000 13.5000 0.150
4th Quarter 31.5000 27.3750 0.240 14.0000 12.5000 0.150
2000
1st Quarter
(through 3/___)
</TABLE>
* Dividends shown reflect a 5 for 4 stock split on May 18, 1998.
** Dividends and stock prices shown reflect the exchange of 7 shares of GBT for
1 share of Gloucester Bank on August 3, 1998.
As of ,_________2000, there were ________holders of record of Andover
common stock and as of ___________, 2000 there were _______ holders of record of
GBT common stock.
DESCRIPTION OF CAPITAL STOCK OF ANDOVER
AUTHORIZED CAPITAL STOCK
Andover has authorized capital stock of 18,000,000 shares of which
15,000,000 shares are common stock, par value $.10 per share, and 3,000,000
shares are preferred stock, par value $.10 per share. Andover common stock is
traded on the Nasdaq National Market under the ticker symbol "ANDB." As
of__________, 2000, ______________shares of Andover common stock were issued and
outstanding. In addition, Andover's Board has designated 100,000 shares of
preferred stock as series B junior participating preferred stock of which no
shares are issued and outstanding. See "--Andover Shareholder Rights Agreement."
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COMMON STOCK
Under Delaware law, stockholders generally are not personally liable
for a corporation's acts or debts. Subject to the preferential rights of any
other shares or series of capital stock, holders of shares of Andover common
stock are entitled to receive dividends on shares of common stock if, as and
when authorized and declared by the Andover Board out of assets legally
available therefor and to share ratably in the assets of Andover legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of Andover.
Each outstanding share of Andover common stock entitles the holder to
one vote on all matters submitted to a vote of stockholders. Under Andover's
charter, holders of common stock have the exclusive right to elect directors. A
majority of the outstanding shares entitled to vote, represented in person or by
proxy, will constitute a quorum at a meeting of stockholders. Unless a larger
vote is required by law, when a quorum is present at a meeting of stockholders,
a majority of the votes properly cast upon any question will decide the
question. Andover's bylaws provide that the election of directors will be by a
plurality vote of the holders of the shares present in person or represented by
proxy and entitled to vote, unless otherwise provided by terms and conditions
relating to election of directors of any series of preferred stock that has been
or will be designated by the Board of Directors, as permitted by Andover's
charter. There is no cumulative voting in the election of directors. The Andover
Board is classified into three classes with each class as nearly equal in number
as possible, which means that approximately one-third of the members of the
Andover Board are subject to reelection at each annual meeting of stockholders.
Holders of Andover common stock have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any of Andover's
securities.
Subject to the provisions of Andover's charter, all shares of Andover
common stock will have equal dividend, distribution, liquidation and other
rights, and have no preference, appraisal or exchange rights.
For a description of certain provisions of the Andover charter that
may have the effect of delaying, deferring or preventing a change in control of
Andover, see "--Andover Shareholder Rights Agreement" and "Comparison of Rights
of Holders of GBT Common Stock and Andover Common Stock--Restrictions upon
Subject Transactions and Certain Business Combinations."
ANDOVER SHAREHOLDER RIGHTS AGREEMENT
Andover is party to a shareholder rights agreement, dated as of
January 21, 1999, with BankBoston, N.A. as rights agent. The following
description of the terms of the shareholder rights agreement does not purport to
be complete and is qualified in its entirety by reference to the shareholder
rights agreement, a copy of which is attached as an exhibit to Andover's Form
8-A filed with the Securities and Exchange Commission on January 25, 1999.
Under the terms of the shareholder rights agreement, one common share
purchase right is attached to each outstanding share of Andover common stock.
Each right entitles the registered holder thereof to purchase from Andover a
unit consisting of 1/1000 of a share of series B junior participating preferred
stock at a cash exercise price of $130.00 per unit, subject to adjustment. It is
intended that each 1/1000 of a share series B junior participating preferred
stock have voting and economic rights equivalent to a share of common stock.
Initially, the rights are not exercisable and are attached to and
trade with all outstanding shares of Andover common stock. The rights will
separate from the Andover common stock, will become exercisable and begin
trading separately upon the earlier to occur of:
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- 10 days following a public announcement that a person or
group of affiliated or associated persons (an "acquiring
person") has acquired beneficial ownership of 15% or more
of the outstanding Andover common stock;
- 10 business days, or such later date as may be determined
by the Andover Board, following the commencement of, or
announcement of an intention to make, a tender offer or
exchange offer, the consummation of which would result in
the beneficial ownership by a person or group of 15% or
more of such outstanding common stock; or
- the determination by a majority vote of the Andover Board
that any person is an "adverse person," which means a
person, alone or together with associates, that has
acquired beneficial ownership of 10% or more of the
outstanding Andover common stock and that person's
beneficial ownership is intended or reasonably likely to
cause pressure on Andover to enter into a transaction that
would provide that adverse person with short-term
financial gain not in the best long-term interest of
Andover, or is reasonably likely to cause an adverse
impact on Andover's business.
We refer to the earlier of these dates as the "distribution date."
Until the distribution date (or earlier redemption or expiration of
the rights):
- the rights will be transferred with and only with the
Andover common stock;
- Andover common stock certificates will contain a notation
incorporating the rights agreement by reference; and
- the surrender for transfer of any certificate for Andover
common stock will also constitute the transfer of the
rights associated with the Andover common stock
represented by the certificate.
As soon as practicable following the distribution date, separate
certificates evidencing one right for each share of Andover common stock will be
mailed to holders of record of shares of Andover common stock as of the close of
business on the distribution date and such separate right certificates alone
will evidence the rights.
The rights will expire on February 16, 2009, unless the rights are
earlier redeemed by Andover, as described below.
The purchase price payable, the number and kind of shares of Andover
common stock or other securities or property issuable upon exercise of the
rights and the number of rights outstanding are subject to adjustment from time
to time to prevent dilution in the event of a stock dividend on, or a
subdivision or combination of, the Andover common stock, in connection with a
distribution of securities or assets in respect of, in lieu of or in exchange
for Andover common stock, whether by dividend, in a reclassification or
recapitalization or otherwise as set forth in the rights agreement.
In the event that any person becomes an acquiring person or is
determined to be an adverse person, proper provision will be made so that each
holder of a right, other than rights beneficially owned by the acquiring person
and its affiliates and associates, which will thereafter be void, will have the
right to receive upon payment of the exercise price that number of shares of
Andover preferred stock having a market value of two times the exercise price.
In the event that, at any time after a person becomes an acquiring
person or is determined to be an adverse person, Andover is acquired in a merger
or other business combination transaction or 50% or more
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<PAGE> 80
of its consolidated assets or earning power are sold, proper provision will be
made so that each holder of a right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
right.
At any time after any person becomes an acquiring person or is
determined to be an adverse person and prior to the acquisition by any person or
group of a majority of the then outstanding Andover common stock, the Andover
Board may exchange the rights (other than rights owned by such person or group
which have become void), in whole or in part, at an exchange ratio of one share
of Andover common stock per right, subject to adjustment.
At any time prior to the time any person becomes an acquiring person
or is determined to be an adverse person, the Andover Board may redeem the
rights in whole, but not in part, at a price of $0.001 per right. The redemption
of the rights may be made effective at the time and subject to conditions as the
Andover Board in its sole discretion may establish. Immediately upon any
redemption of the rights, the right to exercise the rights will terminate and
the only right of the holders of rights will be to receive the redemption price.
The terms of the rights may be amended by the Andover Board without
the consent of the holders of the rights, except that from and after such time
as any person becomes an acquiring person or is determined to be an adverse
person, no such amendment may adversely affect the interests of the holders of
the rights (other than the acquiring person and its affiliates and associates).
REGISTRAR AND TRANSFER AGENT
Andover's registrar and transfer agent is EquiServe LLP. Copies of
the governing corporate instruments of Andover are available, without charge, by
following the instructions listed under "Where You Can Find More Information on
Andover."
73
<PAGE> 81
COMPARISON OF RIGHTS OF HOLDERS OF GBT COMMON STOCK
AND ANDOVER COMMON STOCK
Upon completion of the merger, you will cease to be a stockholder of
GBT. If, through the election procedure described on page __ of this proxy
statement/prospectus, you receive Andover common stock following the merger, you
will become a stockholder of Andover and your rights will be governed by the
Delaware General Corporation Law, the Andover charter and the Andover bylaws.
The following chart summarizes the material differences between your rights as a
holder of GBT common stock prior to the merger, governed by Massachusetts law,
the GBT charter and the GBT bylaws, and your rights as a holder of Andover
common stock after the merger. This chart does not purport to be complete and is
qualified in its entirety by reference to the GBT charter, the GBT bylaws, the
Andover Charter, the Andover bylaws and the relevant provisions of Massachusetts
and Delaware law.
RESTRICTIONS UPON SUBJECT TRANSACTIONS AND CERTAIN BUSINESS COMBINATIONS
CHARTER PROVISIONS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The GBT charter contains a so-called "fair The Andover charter provides that Andover or
price" provision pursuant to which certain any subsidiary may not enter a "business
transactions defined in the charter as a "Subject combination" with an "interested stockholder" or an
Transaction," including a merger or consolidation, "affiliate" of an interested stockholder unless that
would require, in addition to any approval or transaction has been approved by 80% of the
consent required by law, approval by: outstanding shares of stock entitled to vote generally
in the election of directors. However, a business
- 80% of each class of stock entitled to vote combination shall only require the affirmative vote,
thereon, excluding shares owned by the other if any, or vote required by law on any other
party to the transaction, defined in the GBT provision of the charter and not such 80%
charter as the "Receiving Entity"; stockholder approval if the business combination is
approved by the affirmative vote of a majority of the
- 80% of the directors not affiliated with the "continuing directors" or all of the following
Receiving Entity; or conditions are met:
- approval of a majority of directors not affiliated - the aggregate per share amount of cash and the
with the Receiving Entity prior to the date on fair market value of other property to be received
which the Receiving Entity first acquired any by the Andover stockholders meets thresholds
share of GBT stock. established in the charter;
The fair-price provision provides that a Subject - the aggregate amount of cash and the fair market
Transaction is not subject to the foregoing value of other consideration to be received per
requirements if: share by the stockholders of any other class
of outstanding voting stock other than
- the transaction is approved by a majority of each common stock in the business combination meets
class of stock entitled to vote thereon, excluding thresholds established in the charter;
shares owned by the Receiving Entity; and
</TABLE>
74
<PAGE> 82
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
- the aggregate cash and fair market value of all - generally, the consideration to be received by
consideration to be paid per share in connection holders of a particular class of outstanding voting
with the transaction is equal to the highest of: stock is in cash or in the same form as the
interested stockholder has previously paid for
(1) the highest price per share paid by the shares of such class of voting stock;
Receiving Entity in acquiring GBT common
stock; or - after such interested stockholder has become an
interested stockholder and prior to the
(2) four times the per share book value of consummation of the business combination events
GBT's common stock. stipulated in the charter have not occurred;
The GBT charter permits the GBT Board of - after the interested stockholder has become an
Directors to consider a variety of factors in interested stockholder, such interested
evaluating a tender offer, merger or acquisition, stockholder has not received the benefit of any
including, without limitation, the social and loans, guarantees, pledges, etc. or any tax
economic effects of a transaction of GBT and its advantages provided by Andover, unless such
subsidiaries, employees, depositors, loan and other transaction has been approved by the affirmative
customers, creditors and other elements of the vote of a majority of the continuing directors; and
communities in which GBT operates; the business
and financial conditions and earnings prospects of - a proxy or information statement describing the
the acquirer; and the competence, experience and proposed business combination and complying
integrity of an acquirer. with the Securities Exchange Act is mailed to
public stockholders at least 20 days prior to the
consummation of the business combination.
For the purposes of these "business combination"
provisions; "interested stockholder" means any
individual, partnership, corporation, group or other
entity, who beneficially owns 10% or more of the
shares of Andover entitled to vote, or any person
who is an affiliate of the corporation and had
beneficially owned 10% or more voting shares at
any time within the two years before the date in
question, or is transferee or successor to an
interested stockholder in a transaction or series of
transactions not involving a public offering;
"affiliate" and "associate" have the meanings
ascribed thereto in Rule 12b-2 of the Securities
Exchange Act and a "business combination" means
the occurrence of any of the following:
- any merger or consolidation of Andover or any
subsidiary thereof into or with an interested
stockholder or any corporation which would
become an affiliate, irrespective of which is the
surviving entity in a merger or consolidation;
</TABLE>
75
<PAGE> 83
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
- the sale, exchange, lease, mortgage, pledge,
transfer or other disposition, in one or a series of
transactions, to or with an interested stockholder
or any affiliate by Andover or any subsidiary
thereof, of any assets of Andover or any
subsidiary having an aggregate fair market value
of $1,000,000 or more;
- the issuance or transfer by Andover or any
subsidiary of any securities of Andover or any
subsidiary to any interested stockholder or any
affiliate in exchange for cash or other property
having an aggregate value of $1,000,000 or
greater;
- the adoption of any plan or proposal for the
liquidation, dissolution or winding-up of Andover
proposed by or on behalf of any interested
stockholder or any affiliate or associate; or
- any reclassification of securities, recapitalization
of Andover or any merger or consolidation of
Andover with any of its subsidiaries or any other
transaction which has the effect, directly or
indirectly, of increasing the proportionate amount
of the outstanding shares of any class of equity of
convertible securities of Andover or any
subsidiary which is directly or indirectly owned
by any interested stockholder or affiliate.
</TABLE>
STATUTORY PROVISIONS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
Under Chapter 110F of the Massachusetts Andover is subject to Section 203 of the DGCL,
General Laws, a Massachusetts corporation, like which governs business combinations with interested
GBT, is prohibited from engaging in certain stockholders. Subject to certain exceptions set forth
business combinations (defined by the statute to therein, Section 203 of the DGCL provides that a
include certain mergers and consolidations, corporation shall not engage in any business
dispositions of assets and issuances of securities, as combination with any interested stockholder for a
well as certain other transactions) with an three-year period following the time that such
interested shareholder (defined by the statute to stockholder becomes an "interested stockholder"
include holders of five percent or more of the unless
outstanding stock of the corporation) for a period
of three years following the date that such - prior to such time, the Board of Directors of the
shareholder became an interested shareholder, corporation approved either the business
except under certain circumstances, which include combination or the transaction that resulted in the
prior approval of the Board of Directors of the stockholder becoming an interested stockholder;
transaction which resulted in the shareholder
</TABLE>
76
<PAGE> 84
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
becoming an interested shareholder, or subsequent - the interested stockholder owned at least 85% of
approval of the business combination by the Board the voting stock of the corporation outstanding at
of Directors and by a vote of at least two-thirds of the time the transaction commenced (excluding
the outstanding voting stock which is not owned by certain shares); or
the interested shareholder. The statute includes an
exception to the prohibitions of the statute if, upon - at or subsequent to such time, the business
consummation of the transaction which resulted in combination is approved by the Board of Directors
the shareholder becoming an interested of the corporation and by the affirmative vote of at
shareholder, the shareholder owned at least 90% of least two-thirds of the outstanding voting stock
the voting stock of the corporation. which is not owned by the interested stockholder.
Under Chapter 110D of the Massachusetts Except as specified therein, an interested stockholder
General Laws, any person who makes a bona fide is defined to mean any person that
offer to acquire, or acquires, shares of stock of a
Massachusetts corporation that, when combined - is the owner of 15% or more of the outstanding
with shares already owned, would increase the voting stock of the corporation;
acquirer's ownership to at least 20%, 33.33% or a
majority of the voting stock of such company, - is an affiliate or associate of the corporation and
must obtain the approval of a majority of shares was the owner of 15% or more of the outstanding
held by all shareholders except the acquirer and voting stock of the corporation at any time within
the officers and inside directors of the corporation three years immediately prior to the relevant date;
in order to vote the shares acquired. The statute or
permits a Massachusetts corporation to elect not to
be governed by its provisions by including in its - any affiliate or associate of such person referred to
articles of organization or by-laws a provision above.
pursuant to which the corporation "opts out" of the
statute. GBT has not included such a provision in Under certain circumstances, Section 203 of the
either its articles or by-laws. DGCL makes it more difficult for an interested
stockholder to effect various business combinations
with a corporation for a three-year period, although
the stockholders may, by adopting an amendment to
the corporation's charter or bylaws, elect not to be
governed by this section, effective twelve months
after adoption. The Andover charter and bylaws do
not exclude Andover from the restrictions imposed by
Section 203 of the DGCL.
</TABLE>
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<PAGE> 85
MERGERS, SHARE EXCHANGES OR ASSET SALES
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
Massachusetts law requires that an agreement of The DGCL generally requires the approval of
merger or consolidation be approved by the vote of the directors and the affirmative vote of the holders
two-thirds of the outstanding shares entitled to vote of a majority of the outstanding stock entitled to
of each class of stock of each constituent vote thereon for the merger of a corporation into
corporation (except as set forth in the following any other corporation, unless the charter requires a
paragraph), unless the corporation's articles or higher stockholder vote. The Andover charter only
organization provide for a lesser vote, but not less requires a higher stockholder vote in connection
than a majority of the shares outstanding and with transactions with interested stockholders, as
entitled to vote. described above.
Pursuant to Massachusetts law, unless required As provided by the DGCL, a merger agreement
by a corporation's articles of organization, an need not be submitted to the stockholders of a
agreement of merger need not be submitted to the corporation surviving the merger, but may be
stockholders of a corporation surviving the merger, approved by vote of its directors if:
but may be approved by vote of its directors if:
- the agreement of merger does not amend the
- the agreement of merger does not change the certificate of incorporation of the surviving
name, the amount of shares authorized of any corporation;
class of stock or other provisions of the articles
of organization of such corporation; - each issued or treasury share of the surviving
corporation before the merger remains identical
- the authorized unissued shares or shares held in after the merger; and
the treasury of such corporation of any class of
stock of such corporation to be issued or - the authorized unissued shares or treasury shares
delivered pursuant to the agreement of merger of any class of stock of the surviving
do not exceed 15% of the shares of such corporation to be issued or delivered pursuant to
corporation of the same class outstanding the agreement of merger do not exceed 20% of
immediately prior to the effective date of the the shares of the corporation of the same class
merger; and outstanding immediately prior to the effective
date of the merger.
- the issue by vote of the directors of any unissued
stock to be issued pursuant to the agreement of
merger has been authorized in accordance with
applicable law.
</TABLE>
APPRAISAL RIGHTS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
Under the Massachusetts Business Corporation Under the DGCL, stockholders of corporations
Law, stockholders of corporations that dissent from do not have the right to an appraisal in the event of
mergers and sales of substantially all assets of the a sale, lease or exchange of substantially all assets.
corporation, generally have the right to an appraisal Further, the DGCL generally provides that
and payment for the value of their shares. shareholders have no appraisal rights if they dissent
to a merger for which a shareholder vote is
required and the stock is publicly traded or widely
held. However, shareholders will have appraisal
</TABLE>
78
<PAGE> 86
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
rights if they are required in connection with the
merger or consolidation to accept for their stock
anything other than either of, or any combination
of, the following:
- stock of the corporation surviving or
resulting from the merger or consolidation;
- stock of any other corporation listed on a
national securities exchange or designated as
a national market system security on an
interdealer quotation system by the NASD
or held of record by more than 2,000
shareholders; or
- cash in lieu of fractional shares.
</TABLE>
SPECIAL MEETINGS OF STOCKHOLDERS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The GBT bylaws allow a special meeting of The Andover bylaws do not allow stockholders to
stockholders to be called at the written request call a special meeting of stockholders; only directors
of at least 10% of all shares entitled to vote at and some officers may call a special meeting.
the meeting.
</TABLE>
CUMULATIVE VOTING FOR DIRECTORS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The GBT charter does not permit Same.
stockholders to cumulate their votes for the
election of directors.
</TABLE>
PREEMPTIVE RIGHTS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The stockholders of GBT do not have Same.
preemptive rights.
</TABLE>
79
<PAGE> 87
CLASSIFIED BOARD OF DIRECTORS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
GBT has bylaw provisions that classify its Same.
Board into three classes, as nearly equal in
number as possible, with the directors in each
class being elected for staggered three year
terms.
</TABLE>
ELECTION OF THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The GBT bylaws provide that the stockholders Andover's charter and bylaws do not specify a
shall fix the number of directors. GBT's directors required vote for election of directors, and
are elected by the affirmative vote of a plurality of therefore directors are elected by the electoral
the stockholders. The GBT bylaws prohibit any standard of the DGCL, which is a plurality of the
person that was either a director or officer of a bank, votes of the shares present in person or represented
bank holding company or competitor of GBT within by proxy at a stockholders meeting and entitled to
the last six months prior to the election or is not a vote on the election of directors.
U.S. citizen from being elected director unless
waived by the affirmative vote of at least two-thirds
of the stockholders or two-thirds of the directors then
in office.
</TABLE>
REMOVAL OF DIRECTORS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The GBT bylaws provide that a director may be Subject to the rights of any class or series of
removed only for cause, by the affirmative vote of preferred stock to elect directors, the Andover
the holders of a majority of shares entitled to vote in charter provides that any director may be removed,
the election of directors or by the directors, but only but only for cause, by the affirmative vote of the
after the director is given reasonable notice and holders of 80% or more of the outstanding voting
opportunity to be heard before the body proposing to shares at a meeting called for that purpose.
remove the director.
</TABLE>
80
<PAGE> 88
ENLARGEMENT OF BOARD, FILLING VACANCIES ON BOARD
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
Under the MBCL, the provisions of a The Andover charter provides that the number
corporation's bylaws determine the number of of directors shall be fixed in the manner provided
members of its Board of Directors. The number in the bylaws. Andover's bylaws provide that the
of directors on a corporation's Board may be number of directors shall be fixed by resolution of
increased or decreased from time to time in the the Board. In addition, Andover's charter provides
manner provided in the bylaws. Any vacancy that the Board acting by a majority vote of all the
occurring in a corporation's Board of Directors directors then in office, although less than a
may be filled in the manner provided in the quorum, may fill any vacancies in the Board,
bylaws, or, if the bylaws do not provide, by the including any newly created directorships resulting
directors. The GBT bylaws provide that the from an increase in the number of directors;
number of directors may be increased and one provided, however, that if there is an interested
or more additional directors elected by the stockholder, the filling of the vacancy shall also
stockholders or by a majority of directors then require the affirmative vote of a majority of the
in office. The Board may not be enlarged by continuing directors. Any directors filling
the addition of more than two directors in any vacancies or newly created directorships will hold
year. office until the next election of the class for which
they were chosen and until their respective
The GBT charter and bylaws provide that successors are duly elected and qualified. No
vacancies on the Board shall be filled by a decrease in the number of directors shall shorten
majority of the directors at any meeting at which the term of an incumbent director. There are
a quorum is present. currently eleven members of Andover's Board.
</TABLE>
DIRECTORS' LIABILITY
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The GBT charter provides that no director The Andover charter provides that no director
shall be personally liable for monetary damages shall be personally liable to Andover or to its
for a breach of fiduciary duty. The foregoing stockholders for monetary damages for breach of
charter provision does not eliminate or limit the the director's duty as a director. However, this
liability of a director for any breach of his or her provision of the Andover charter does not eliminate
duty of loyalty for acts or omissions not in good or limit the liability of a director for breaches of the
faith or involving intentional misconduct or a director's duty of loyalty or for acts and omissions
knowing violation of law, or for any transaction not in good faith or which involve intentional
from which the director received an improper misconduct or a knowing violation of the law, or
personal benefit. under Section 174 of the DGCL, or for any
transaction from which the director derived an
improper personal benefit. Furthermore, the
charter provides that if the DGCL is amended to
authorize corporate action further eliminating or
limiting the personal liability of directors, then the
liability of each director of Andover shall be
eliminated or limited to the extent permitted by the
DGCL, as so amended.
</TABLE>
81
<PAGE> 89
INDEMNIFICATION OF OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The MBCL generally permits, and the GBT The DGCL generally permits a corporation to
bylaws provide indemnification to each director, indemnify its directors, officers, employees and
officer, employee or agent of the corporation, or agents for expenses incurred by them by reason of
anyone serving at its request as a director, officer, their position with the corporation, if the person has
employee or agent of another organization, or is acted in good faith and with the reasonable belief
serving at the request of the corporation with that his or her conduct was in or not opposed to the
respect to any employee benefit plan. The best interests of the corporation and, with respect to
indemnification covers against all liabilities and any criminal action or proceeding, with no
expenses reasonably incurred in connection with reasonable cause to believe his or her conduct was
any action, suit or proceeding in which any unlawful. The DGCL does not permit a
director, officer or person may be a party corporation to indemnify persons in actions brought
defendant or with which he or she may be by or in the right of the corporation if the person is
threatened or otherwise involved by reason of his adjudged to be liable to the corporation (although it
or her status as a director, officer, employee or does permit indemnification in such situations if,
agent of the corporation or such other organization and only to the extent, approved by the Delaware
or service with respect to any employee benefit Court of Chancery or other relevant courts).
plan. However, the MBCL does not permit a
corporation (nor do GBT's bylaws permit GBT) to The Andover bylaws provide that Andover shall
indemnify persons in actions in which the director indemnify and hold harmless each person who is
is adjudicated in any proceeding not to have acted made party to or is threatened to be made a party to
in good faith in the reasonable belief that his or is involved in any action or proceeding by
action was in the best interest of the corporation. reason of the fact that he or she is or was a
director, officer, employee or agent of the
Further, GBT's bylaws provide that corporation to the fullest extent permitted by the
indemnification shall not be made with respect to DGCL against all expenses, liability and loss the
any amounts paid in compromise or settlement person actually incurs in connection with the
unless the Board shall have determined in good proceeding. However, Andover will provide this
faith that the director, officer or person making a indemnification in connection with a proceeding, or
compromise or settlement acted in good faith and part of a proceeding, initiated by the person being
in a manner he reasonably believed to be in or not indemnified only if the proceeding, or part of the
opposed to the best interests of the corporation, or proceeding, was authorized by the Andover Board.
other organization and, with respect to any
criminal action or proceeding that he had no The DGCL permits and the Andover bylaws
reasonable cause to believe his conduct was provide that the right to indemnification will
unlawful. include the right to be paid by the corporation for
expenses the indemnified person incurs in
The MBCL permits, and GBT's bylaws provide defending the proceeding in advance of its final
that indemnification may include payment by the disposition; provided, that the indemnified party
corporation of expenses in defending a civil or delivers to the corporation an undertaking that
criminal action or proceeding in advance of the he/she undertakes to repay all amounts advanced if
final disposition of such action or proceeding upon it is ultimately determined that he or she is not
receipt of an undertaking by the person entitled to be indemnified under the bylaws or
indemnified to repay GBT if he shall be otherwise.
adjudicated to be not entitled to indemnification
under this section. This undertaking may be
accepted without reference to the financial ability
of such person to make repayment.
</TABLE>
82
<PAGE> 90
AMENDMENTS TO THE CHARTER
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
Amendment to those provisions of the GBT The DGCL allows, and the Andover charter
charter that are intended to make it more provides that in general the corporation may amend
difficult for a third party to undertake a takeover its charter pursuant to a resolution of the Board that
of GBT, including those dealing with is thereafter approved by the stockholders.
classification of the Board, filling of vacancies However, if within 60 days prior to the stockholder
on the Board and the approval of certain vote there is an interested stockholder, then the
business combinations requires the affirmative affirmative vote of a majority of the continuing
vote of at least 80% of the shares of each class directors and the affirmative vote of two-thirds of
of stock outstanding and entitled to vote. the stockholders is required to amend provisions of
Otherwise, under the MBCL, in order to amend the charter relating to:
the charter, the directors must approve the
amendment and in general the holders of two- - amendments to the charter and bylaws;
thirds of the outstanding stock and two-thirds of
each class of stock outstanding and entitled to - preemptive rights of stockholders to acquire
vote thereon as a class must vote in favor of the additional shares;
amendment, unless the charter requires a greater
or lesser vote. However, the MBCL also - rights of directors to issue one or more classes
provides that amendments to the charter that or series of preferred stock and determine and
increase or reduce a corporation's authorized fix their powers and rights;
capital stock, change the par value of its capital
stock and similar changes affecting capital stock - rights of the common stockholders and
as well as amendments to change a corporation's stockholder action;
corporate name require a majority vote of each
class of stock outstanding. - directors and liability of directors; and
- restrictions on business combinations and the
standards for the Board to evaluate offers or
proposals for tender offers, mergers and sales of
all or substantially all assets.
</TABLE>
AMENDMENTS TO THE BY-LAWS
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
The MBCL generally provides that the power The DGCL generally provides that the power to
to make, repeal or amend the bylaws is in the make, repeal or amend the bylaws is in the
stockholders; provided, however, that if stockholders; provided, however, that if authorized
authorized in the charter, the directors may also in the charter, the directors may also make, repeal
make, repeal or amend the bylaws. or amend the bylaws.
The GBT bylaws may be amended by the The Andover charter permits the Andover Board
affirmative vote of a majority of the to amend the bylaws, or adopt new bylaws, at any
stockholders of each class of stock outstanding regular or special meeting. However, if at the time
and entitled to vote unless otherwise provided by of the meeting to amend, adopt or repeal the bylaws
law, GBT's charter or GBT's bylaws. In there is an interested stockholder, Andover's
addition, the GBT bylaws may be amended by a charter requires the affirmative vote of a majority
majority of directors unless applicable law, of the continuing directors and 80%
GBT's charter or
</TABLE>
83
<PAGE> 91
<TABLE>
<CAPTION>
GBT Stockholders' Rights Post-Merger
GBT Stockholders' Rights Pre-Merger (Andover stockholders' rights)
----------------------------------- ------------------------------
<S> <C>
GBT's bylaws require a greater vote or of the stockholders of the then outstanding shares
stockholder approval. The following provisions of stock entitled to vote thereon to amend the
of GBT's bylaws may be amended only by the bylaws.
affirmative vote of at least 80% of the total
number of directors then in office or by the
affirmative vote of at least 80% of the shares of
each class of GBT's outstanding stock entitled to
vote:
- election and eligibility of directors;
- vacancies in the Board;
- enlargement of the Board;
- tenure of directors; and
- removal of directors.
</TABLE>
OTHER MATTERS
As of the date of this proxy statement/prospectus, the GBT Board
knows of no matters that will be presented for consideration at the GBT meeting
other than as described in this proxy statement/prospectus. If any other matters
will properly come before the GBT meeting and be voted upon, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters. The persons named as proxies intend to vote in accordance with
the recommendation of the management of GBT.
LEGAL MATTERS
The validity of the common stock to be issued in connection with the
merger and certain federal income tax consequences of the merger will be passed
upon by Goodwin, Procter & Hoar LLP, counsel for Andover. Foley, Hoag & Eliot
LLP, counsel for GBT, will pass on certain federal income tax consequences of
the merger for GBT and its stockholders.
EXPERTS
The consolidated financial statements of Andover as of December 31,
1999 and 1998 and for each of the years in the three-year period ended December
31, 1999 have been incorporated by reference in this proxy statement/prospectus
and registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, which is also incorporated by reference in this
proxy statement/prospectus and registration statement, and upon authority of
said firm as experts in accounting and auditing.
The financial statements of GBT as of December 31, 1999 and 1998 and
for each of the years in the three-year period ended December 31, 1999 included
in this proxy statement/prospectus and registration statement have been audited
by Shatswell, MacLeod & Company, P.C., independent certified public accountants,
as indicated in their report with respect thereto, and are included in this
document in reliance upon the authority of said firm as experts in accounting
and auditing in giving said report.
84
<PAGE> 92
WHERE YOU CAN FIND MORE INFORMATION ON ANDOVER
Andover files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that Andover files at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Andover's SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." In addition, Andover's SEC filings may be read and copied
at the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006-1506.
Andover has filed a registration statement on Form S-4 to register
with the SEC the Andover common stock to be issued to the holders of GBT common
stock in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of Andover in addition to
being a proxy statement of GBT for the GBT meeting. As allowed by SEC rules,
this proxy statement/prospectus does not contain all the information you can
find in the registration statement or the exhibits to the registration
statement.
The SEC allows us to "incorporate by reference" information into this
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
proxy statement/prospectus, except for any information superseded by information
in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the
documents set forth below that we have previously filed with the SEC. These
documents contain important information about Andover, its finances and Andover
common stock that is not included in or delivered with this document.
SEC Filings (File No. 000-16358):
- Annual Report on Form 10-K for the year ended December 31,
1999.
- The description of Andover common stock contained in a
Registration Statement on Form 8- A filed with the
Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, and all amendments and
reports updating the description.
- The description of the rights to purchase shares of
Andover Series B Junior Participating Cumulative Preferred
Stock contained in a Registration Statement on Form 8-A
filed with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934, and all amendments
and reports updating the description.
Additional documents that Andover files with the SEC pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act between the
date of this proxy statement/prospectus and the date of the meeting of GBT's
stockholders have also been incorporated by reference.
Andover has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Andover, and GBT has
supplied all information relating to GBT.
You can obtain any of the documents incorporated by reference through
Andover or the SEC. Documents incorporated by reference are available from
Andover without charge, excluding all exhibits unless Andover has specifically
incorporated by reference an exhibit in this proxy statement/prospectus.
Stockholders may obtain documents incorporated by reference in this proxy
statement/prospectus by requesting them in writing or by telephone from the
appropriate party at the following address:
85
<PAGE> 93
Andover Bancorp, Inc.
61 Main Street
Andover, Massachusetts 01810
Attn: Joseph F. Casey, Chief Financial Officer and Treasurer
Tel: (978) 742-2000
If you would like to request documents from Andover, please do so by
[ , 2000] to receive them prior to the GBT stockholders meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the GBT proposal. We
have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated [ , 2000]. You should not assume that the
information contained in this proxy statement/prospectus is accurate as of any
date other than such date, and neither the mailing of this proxy
statement/prospectus nor the issuance of shares of Andover common stock in the
merger will create any implication to the contrary.
86
<PAGE> 94
[SHATSWELL MACLEOD & COMPANY LETTERHEAD]
To the Board of Directors and Stockholders
GBT Bancorp
Gloucester, Massachusetts
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of GBT Bancorp and
Subsidiary as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GBT
Bancorp and Subsidiary as of December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ SHATSWELL, MACLEOD & COMPANY, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 18, 2000, except for Note 14 as
to which the date is January 26, 2000
F-1
<PAGE> 95
GBT BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ --------- ---------
<S> <C> <C>
Cash and due from banks $ 6,457 $ 5,506
Interest bearing demand deposits 84 145
Federal Home Loan Bank overnight account 3,000 9,000
Federal funds sold 2,000
--------- ---------
Cash and cash equivalents 9,541 16,651
Investments in available-for-sale securities (at fair value) 25,411 24,864
Federal Home Loan Bank stock, at cost 1,787 1,787
Other equity securities, at cost 50 60
Loans, net 88,847 73,092
Premises and equipment 3,211 3,190
Accrued interest receivable 617 589
Other assets 1,450 793
--------- ---------
Total assets $ 130,914 $ 121,026
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 25,717 $ 20,433
Interest-bearing 77,819 72,389
--------- ---------
Total deposits 103,536 92,822
Federal Home Loan Bank borrowings 18,602 18,602
Other liabilities 354 294
--------- ---------
Total liabilities 122,492 111,718
--------- ---------
Stockholders' equity:
Common stock, no par value, authorized 4,000,000 shares, 795,524 shares
issued and 791,374 shares outstanding as of December 31, 1999 and 810,740
shares issued and 804,690 shares outstanding as of December 31, 1998
Paid-in capital 5,631 5,879
Retained earnings 3,532 3,284
Treasury stock, at cost, 4,150 shares in 1999 and 6,050 shares in 1998 (61) (100)
Accumulated other comprehensive income (loss) (680) 245
--------- ---------
Total stockholders' equity 8,422 9,308
--------- ---------
Total liabilities and stockholders' equity $ 130,914 $ 121,026
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE> 96
GBT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 6,789 $ 6,476 $ 6,266
Interest and dividends on securities:
Taxable 1,705 1,652 2,021
Tax-exempt 53 3 8
Other interest 271 235 109
-------- -------- --------
Total interest and dividend income 8,818 8,366 8,404
-------- -------- --------
Interest expense:
Interest on deposits 2,971 2,954 3,020
Interest on Federal Home Loan Bank borrowings 931 609 626
Interest on securities sold under agreements to repurchase 25
-------- -------- --------
Total interest expense 3,902 3,563 3,671
-------- -------- --------
Net interest and dividend income 4,916 4,803 4,733
-------- -------- --------
Other income:
Service charges on deposit accounts 201 223 232
Gains on sales and calls of available-for-sale securities, net 66 4 72
Other income 621 634 504
-------- -------- --------
Total other income 888 861 808
-------- -------- --------
Other expense:
Salaries and employee benefits 2,231 1,813 1,817
Occupancy expense 333 292 268
Equipment expense 687 526 478
Writedown of other equity security 10 2
Other expense 1,254 1,067 914
-------- -------- --------
Total other expense 4,515 3,698 3,479
-------- -------- --------
Income before income taxes 1,289 1,966 2,062
Income taxes 565 827 860
-------- -------- --------
Net income $ 724 $ 1,139 $ 1,202
======== ======== ========
Earnings per common share $ .91 $ 1.41 $ 1.48
======== ======== ========
Average shares outstanding 791,374 804,690 809,599
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 97
GBT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Common Paid-in Retained Treasury Income
Stock Capital Earnings Stock (Loss) Total
-------- ------- -------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 591 $ 5,431 $ 1,885 $ (97) $ (17) $ 7,793
Comprehensive income:
Net income 1,202
Net change in unrealized
holding loss on available-
for-sale securities, net of tax
effect of $94 132
Comprehensive income 1,334
Repurchase of common stock (128) (128)
Resale of treasury stock 13 46 59
Dividends declared ($.57
per share) (463) (463)
------- ------- ------- ------- ------ -------
Balance, December 31, 1997 591 5,444 2,624 (179) 115 8,595
Shares purchased before formation
of Holding Company (7) (7)
Shares sold before formation of
Holding Company 15 15 30
Formation of Holding Company,
change in par value and retirement
of treasury stock (591) 420 171
Shares purchased after
formation of Holding Company (109) (109)
Shares sold after formation
of Holding Company 9 9
Comprehensive income:
Net income 1,139
Net change in unrealized
holding gain on available-
for-sale securities, net of tax
effect 130
Comprehensive income 1,269
Dividends declared ($.58 per share) (479) (479)
------- ------- ------- ------- ------- -------
Balance, December 31, 1998 5,879 3,284 (100) 245 9,308
Comprehensive income:
Net income 724
Net change in unrealized
holding gain on available-
for-sale securities, net of tax
effect (925)
Comprehensive loss (201)
Dividends declared ($.60 per share) (476) (476)
Purchases of treasury stock (209) (209)
Retirement of treasury stock (248) 248
------- ------- ------- ------- ------- -------
Balance, December 31, 1999 $ $ 5,631 $ 3,532 $ (61) $ (680) $ 8,422
======= ======= ======= ======= ======= =======
</TABLE>
F-4
<PAGE> 98
GBT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Years Ended December 31, 1999, 1998 and 1997
(continued)
Reclassification disclosure for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Net unrealized gains (losses) on available-for-sale securities $(1,507) $224
Reclassification adjustment for realized gains in net income (61) (4)
--------- -------
Other comprehensive income (loss) before income tax effect (1,568) 220
Income tax (expense) benefit 643 (90)
--------- ------
Other comprehensive income (loss), net of tax $ (925) $130
======== ====
</TABLE>
Accumulated other comprehensive income (loss) as of December 31, 1999, 1998 and
1997 consists of net unrealized holding gains (losses) on available-for-sale
securities, net of taxes.
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 99
GBT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 724 $ 1,139 $ 1,202
Adjustments to reconcile net income to net cash provided
by operating activities:
Gains on sales and calls of available-for-sale securities (66) (4) (72)
Writedown of other equity security 10 2
Amortization, net of accretion of securities 49 50 75
Change in unearned income (5) (19) (7)
Depreciation and amortization 545 376 358
(Increase) decrease in other assets 78 (14) 31
(Increase) decrease in prepaid expenses (55) 19 (141)
(Increase) decrease in interest receivable (28) 18 20
Increase (decrease) in other liabilities (66) 55 (136)
Increase (decrease) in accrued expenses 35 (72) 49
Increase (decrease) in interest payable 59 49 (20)
Deferred tax expense (benefit) 36 40 (22)
Decrease in taxes payable (41) (70) (10)
-------- -------- --------
Net cash provided by operating activities 1,275 1,567 1,329
-------- -------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (14,001) (12,150) (9,189)
Proceeds from sales of available-for-sale securities 7,033 2,264 12,515
Proceeds from maturities of available-for-sale securities 4,870 9,075 3,245
Proceeds from redemption of Federal Home Loan Bank stock 114
Purchase of Federal Home Loan Bank stock (758)
Net increase in loans (16,017) (2,846) (8,881)
Recoveries of loans previously charged off 201 89 226
Capital expenditures (566) (1,007) (264)
Proceeds from sales of other real estate owned 66 150
-------- -------- --------
Net cash used in investing activities (18,414) (4,425) (2,992)
-------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW and
savings accounts 7,681 (2,654) 2,369
Net increase (decrease) in time deposits 3,033 1,159 (100)
Proceeds from Federal Home Loan Bank advances 7,000 20,865 11,000
Principal payments on advances from Federal Home Loan Bank (7,000) (11,750) (11,000)
Net decrease in securities sold under agreements to repurchase (203)
Dividends paid (476) (479) (463)
Net increase in treasury stock (209) (77) (69)
-------- -------- --------
Net cash provided by financing activities 10,029 7,064 1,534
-------- -------- --------
</TABLE>
F-6
<PAGE> 100
GBT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31, 1999, 1998 and 1997
(continued)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents (7,110) 4,206 (129)
Cash and cash equivalents at beginning of year 16,651 12,445 12,574
-------- -------- --------
Cash and cash equivalents at end of year $ 9,541 $ 16,651 $ 12,445
======== ======== ========
Supplemental disclosures:
Interest paid $ 3,843 $ 3,514 $ 3,691
Income taxes paid 570 857 892
Loans transferred to other real estate owned 66
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 101
GBT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
NOTE 1 - NATURE OF OPERATIONS
GBT Bancorp (Company) is a Massachusetts corporation that was organized on March
24, 1998 to become the holding company for Gloucester Bank & Trust Company
(Bank). The authorized capital stock of the Company consists of 4,000,000 shares
of common stock with no par value. The authorized capital stock of the Bank was
1,000,000 shares of common stock with a par value of $5.00 per share.
On August 3, 1998, the Company acquired all of the outstanding common stock of
the Bank and stockholders of the Bank became stockholders of the Company.
Stockholders of the Bank received seven shares of the common stock of the
Company for each share of the common stock of the Bank held.
The Company's primary activity is to act as the holding company for the Bank.
The Bank is a state chartered bank which was incorporated in 1987 and is
headquartered in Gloucester, Massachusetts. The Bank is engaged principally in
the business of attracting deposits from the general public and investing those
deposits in residential and commercial real estate loans, and in consumer and
small business loans.
NOTE 2 - ACCOUNTING POLICIES
The accounting and reporting policies of the Company and its Subsidiary conform
to generally accepted accounting principles and predominant practices within the
banking industry. The consolidated financial statements were prepared using the
accrual basis of accounting. The significant accounting policies are summarized
below to assist the reader in better understanding the consolidated financial
statements and other data contained herein.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from the estimates.
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank. All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, cash items, due from banks, interest bearing demand
deposits, Federal Home Loan Bank overnight account and federal funds
sold.
SECURITIES:
Investments in debt securities are adjusted for amortization of
premiums and accretion of discounts. Gains or losses on sales of
investment securities are computed on a specific identification basis.
F-8
<PAGE> 102
The Company classifies debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This
security classification may be modified after acquisition only under
certain specified conditions. In general, securities may be classified
as held-to-maturity only if the Company has the positive intent and
ability to hold them to maturity. Trading securities are defined as
those bought and held principally for the purpose of selling them in
the near term. All other securities must be classified as
available-for-sale.
-- Held-to-maturity securities are measured at amortized cost
in the balance sheet. Unrealized holding gains and losses
are not included in earnings or in a separate component of
capital. They are merely disclosed in the notes to the
consolidated financial statements.
-- Available-for-sale securities are carried at fair value on
the balance sheet. Unrealized holding gains and losses are
not included in earnings, but are reported as a net amount
(less expected tax) in a separate component of capital until
realized.
-- Trading securities are carried at fair value on the balance
sheet. Unrealized holding gains and losses for trading
securities are included in earnings.
LOANS:
Loan receivables that management has the intent and ability to hold
until maturity or payoff are reported at their outstanding principal
balances reduced by amounts due to borrowers on unadvanced loans, any
charge-offs, the allowance for loan losses and any deferred fees or
costs on originated loans, or unamortized premiums or discounts on
purchased loans.
Interest on loans is recognized on a simple interest basis.
Loan origination and commitment fees and certain direct origination
costs are deferred, and the net amount amortized as an adjustment of
the related loan's yield. The Company is amortizing these amounts over
the contractual life of the related loans.
Cash receipts of interest income on impaired loans are credited to
principal to the extent necessary to eliminate doubt as to the
collectibility of the net carrying amount of the loan. Some or all of
the cash receipts of interest income on impaired loans is recognized as
interest income if the remaining net carrying amount of the loan is
deemed to be fully collectible. When recognition of interest income on
an impaired loan on a cash basis is appropriate, the amount of income
that is recognized is limited to that which would have been accrued on
the net carrying amount of the loan at the contractual interest rate.
Any cash interest payments received in excess of the limit and not
applied to reduce the net carrying amount of the loan are recorded as
recoveries of charge-offs until the charge-offs are fully recovered.
ALLOWANCE FOR LOAN LOSSES:
The allowance is increased by provisions charged to current operations
and is decreased by loan losses, net of recoveries. The provision for
loan losses is based on management's evaluation of current and
anticipated economic conditions, changes in the character and size of
the loan portfolio, and other indicators.
The Company considers a loan to be impaired when, based on current
information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the
loan agreement. The Company measures impaired loans by either the
present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent.
F-9
<PAGE> 103
The Company considers for impairment all loans, except large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of
cost or fair value, leases, and convertible or nonconvertible
debentures and bonds and other debt securities. The Company considers
its residential real estate loans and consumer loans that are not
individually significant to be large groups of smaller balance
homogeneous loans.
Factors considered by management in determining impairment include
payment status, net worth and collateral value. An insignificant
payment delay or an insignificant shortfall in payment does not in
itself result in the review of a loan for impairment. The Company
reviews its loans for impairment on a loan-by-loan basis. The Company
does not apply impairment to aggregations of loans that have risk
characteristics in common with other impaired loans. Interest on a loan
is not generally accrued when the loan becomes ninety or more days
overdue. The Company may place a loan on nonaccrual status but not
classify it as impaired, if (i) it is probable that the Company will
collect all amounts due in accordance with the contractual terms of the
loan or (ii) the loan is an individually insignificant residential
mortgage loan or consumer loan. Impaired loans are charged-off when
management believes that the collectibility of the loan's principal is
remote. Substantially all of the Company's loans that have been
identified as impaired have been measured by the fair value of existing
collateral.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Cost and related allowances for
depreciation and amortization of premises and equipment retired or
otherwise disposed of are removed from the respective accounts with any
gain or loss included in income or expense. Generally, depreciation and
amortization on the building is computed on a straight line basis,
equipment is depreciated or amortized using an accelerated method; and
depreciation and amortization expense is charged against operations
over the estimated useful lives of the related assets.
OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES:
Other real estate owned includes properties acquired through
foreclosure and properties classified as in-substance foreclosures in
accordance with Financial Accounting Standards Board Statement No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructuring."
These properties are carried at the lower of cost or estimated fair
value less estimated costs to sell. Any writedown from cost to
estimated fair value required at the time of foreclosure or
classification as in-substance foreclosure is charged to the allowance
for loan losses. Expenses incurred in connection with maintaining these
assets are included in other expense.
In accordance with Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan," the Company
classifies loans as in-substance repossessed or foreclosed if the
Company receives physical possession of the debtor's assets regardless
of whether formal foreclosure proceedings take place.
INCOME TAXES:
The Company recognizes income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
established for the temporary differences between the accounting basis
and the tax basis of the Company's assets and liabilities at enacted
tax rates expected to be in effect when the amounts related to such
temporary differences are realized or settled.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires that the Company disclose
estimated fair value for its financial instruments. Fair value methods
and assumptions used by the Company in estimating its fair value
disclosures are as follows:
F-10
<PAGE> 104
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair
values.
Securities (including mortgage-backed securities): Fair values for
securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for other loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality.
Accrued interest receivable: The carrying amount of accrued interest
receivable approximates its fair value.
Deposit liabilities: The fair values disclosed for demand deposits
(e.g., interest and non-interest checking, passbook savings, and money
market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Federal Home Loan Bank Borrowings: Fair values for Federal Home Loan
Bank advances are estimated using a discounted cash flow technique that
applies interest rates currently being offered on advances to a
schedule of aggregated expected monthly maturities on Federal Home Loan
Bank advances.
Off-balance sheet instruments: The fair value of commitments to
originate loans is estimated using the fees currently charged to enter
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments and the unadvanced portions of loans, fair
value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligation
with the counterparties at the reporting date.
EARNINGS PER SHARE:
Statement of Financial Accounting Standards No. 128 (SFAS No. 128),
"Earnings per Share" is effective for periods ending after December 15,
1997. SFAS No. 128 simplifies the standards of computing earnings per
share (EPS) previously found in APB Opinion No. 15. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15.
The Company has computed and presented EPS for the years ended December
31, 1999, 1998 and 1997 in accordance with SFAS No. 128. EPS as so
computed does not differ from EPS that would have resulted if APB
Opinion No. 15 had been applied. The Company has not presented diluted
EPS for 1999, 1998 and 1997 because there were no dilutive potential
common shares outstanding.
F-11
<PAGE> 105
NOTE 3 - INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
Investments in available-for-sale securities have been classified in the
consolidated balance sheets according to management's intent. The carrying
amount of securities and their approximate fair values are as follows as of
December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Holding Holding Fair
Basis Gains Losses Value
-------- --------- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1999:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $11,018 $ 4 $ 358 $10,664
Debt securities issued by states of the United States
and political subdivisions of the states 1,227 109 1,118
Corporate debt securities 5,025 1 92 4,934
Mortgage-backed securities 7,294 9 175 7,128
Marketable equity securities 1,998 431 1,567
------- ------- ------- -------
$26,562 $ 14 $ 1,165 $25,411
======= ======= ======= =======
December 31, 1998:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies $ 5,972 $ 119 $ $ 6,091
Debt securities issued by states of the United States
and political subdivisions of the states 1,227 2 5 1,224
Corporate debt securities 4,474 105 1 4,578
Mortgage-backed securities 8,808 99 13 8,894
Marketable equity securities 3,966 111 4,077
------- ------- ------- -------
$24,447 $ 436 $ 19 $24,864
======= ======= ======= =======
</TABLE>
The scheduled maturities of available-for-sale securities (other than marketable
equity securities) were as follows as of December 31, 1999:
<TABLE>
<CAPTION>
Amortized
Cost Fair
Basis Value
--------- --------
(In thousands)
<S> <C> <C>
Debt securities other than mortgage-backed securities:
Due after one year through five years $ 8,063 $ 7,947
Due after five years through ten years 8,473 8,108
Due after ten years 734 661
Mortgage-backed securities 7,294 7,128
------- -------
$24,564 $23,844
======= =======
</TABLE>
During 1999, proceeds from sales of available-for-sale securities amounted to
$7,033,420. Gross realized gains and gross realized losses on those sales
amounted to $72,684 and $12,241, respectively. During 1998, proceeds from sales
of available-for-sale securities amounted to $2,264,354. Gross realized gains
and gross realized losses on those sales amounted to $6,423 and $3,836,
respectively. During 1997, proceeds from sales of available-for-sale securities
amounted to $12,515,201. Gross realized gains and gross realized losses on those
sales amounted to $96,321 and $24,324, respectively. Writedowns of other equity
securities amounted to $10,000 and $2,378 for 1999 and 1997, respectively. There
were no writedowns of other equity securities in 1998.
There were no securities of issuers whose aggregate carrying amount exceeded 10%
of stockholders' equity as of December 31, 1999.
Securities with carrying amounts of $6,848,858 and $5,079,594 were pledged to
secure treasury tax and loan and public funds on deposit as of December 31, 1999
and 1998, respectively.
F-12
<PAGE> 106
NOTE 4 - LOANS
Loans consisted of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Commercial financial and agricultural $ 9,586 $ 8,831
Real estate - construction and land development 6,680 5,602
Real estate - residential 29,005 28,651
Real estate - commercial 39,789 26,772
Consumer 5,586 5,052
-------- --------
90,646 74,908
Allowance for loan losses (1,790) (1,802)
Unearned income (9) (14)
-------- --------
Net loans $ 88,847 $ 73,092
======== ========
</TABLE>
Certain directors and executive officers of the Company and companies in which
they have significant ownership interest were customers of the Bank during 1999.
Total loans to such persons and their companies amounted to $1,392,656 as of
December 31, 1999. During the year ended December 31, 1999, $255,497 of advances
were made and repayments totaled $368,122.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 1,802 $ 1,793 $ 1,770
Loans charged off (213) (80) (203)
Recoveries of loans previously charged off 201 89 226
------- ------- -------
Balance at end of period $ 1,790 $ 1,802 $ 1,793
======= ======= =======
</TABLE>
Information about loans that meet the definition of an impaired loan in
Statement of Financial Accounting Standards No. 114 is as follows as of December
31:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Recorded Related Recorded Related
Investment Allowance Investment Allowance
In Impaired For Credit In Impaired For Credit
Loans Losses Loans Losses
----------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Loans for which there is a related allowance for credit losses $ 72 $ 42 $568 $173
Loans for which there is no related allowance for credit losses 135 67
---- ---- ---- ----
Totals $207 $ 42 $635 $173
==== ==== ==== ====
Average recorded investment in impaired loans during the
year ended December 31 $494 $877
==== ====
Related amount of interest income recognized during the
time, in the year ended December 31, that the
loans were impaired
Total recognized $ 29 $ 36
==== ====
Total recognized using cash-basis $ 7 $ 7
==== ====
</TABLE>
F-13
<PAGE> 107
NOTE 5 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Land $ 263 $ 263
Building and leasehold improvements 2,740 2,627
Furniture and equipment 4,233 3,780
------- -------
7,236 6,670
Accumulated depreciation and amortization (4,025) (3,480)
------- -------
$ 3,211 $ 3,190
======= =======
</TABLE>
NOTE 6 - DEPOSITS
The aggregate amount of time deposit accounts in denominations of $100,000 or
more as of December 31, 1999 and 1998 was approximately $8,782,000 and
$8,362,000, respectively.
For time deposits as of December 31, 1999, the scheduled maturities for the
following years ended December 31, are:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2000 $26,310
2001 5,687
2002 3,218
2003 and 2004 297
-------
$35,512
=======
</TABLE>
NOTE 7 - FEDERAL HOME LOAN BANK BORROWINGS
As of December 31, 1999 borrowings outstanding consisted of advances from the
Federal Home Loan Bank of Boston (FHLB). The amount of maturities for years
ended December 31, are:
<TABLE>
<CAPTION>
Interest Rate Range (In thousands)
------------------- --------------
<S> <C> <C>
2000 5.15% - 6.38% $10,000
2001 3.78% 33
2003 3.03% - 4.99% 5,044
After 2005 3.23% - 4.66% 3,525
-------
$18,602
=======
</TABLE>
As of December 31, 1999, $5,000,000 of advances from the FHLB were redeemable at
par at the option of the FHLB on September 28, 2001.
As of December 31, 1999 $3,000,000 of advances from the FHLB were redeemable at
par at the option of the FHLB on October 15, 2001 and on the 15th day (or on the
subsequent business day if such date is not a business day) of each quarter
thereafter.
Advances are secured by the Company's stock in that institution, its residential
real estate mortgage portfolio and the remaining U.S. government and agencies
obligations not otherwise pledged.
F-14
<PAGE> 108
NOTE 8 - INCOME TAXES
The components of income tax expense are as follows for the years ended December
31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 321 $ 576 $ 639
State 208 211 243
----- ----- -----
529 787 882
----- ----- -----
Deferred:
Federal 27 24 (34)
State 9 16 12
----- ----- -----
36 40 (22)
----- ----- -----
Total income tax expense $ 565 $ 827 $ 860
===== ===== =====
</TABLE>
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
% of % of % of
Income Income Income
------ ------ ------
<S> <C> <C> <C>
Federal income tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) in tax resulting from:
Tax exempt income (1.4) (.4)
Other, net (.3) (.3) (.8)
Unallowable expenses .4 .7 .7
State tax, net of federal tax benefit 11.1 7.6 8.2
---- ---- ----
Effective tax rates 43.8% 42.0% 41.7%
==== ==== ====
</TABLE>
The Company had gross deferred tax assets and gross deferred tax liabilities as
follows as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Interest on non-performing loans $ 15 $ 10
Allowance for loan losses 519 519
Loan origination fees 6
Depreciation 15
Net unrealized holding loss on available-for-sale securities 471
------- -------
Gross deferred tax assets 1,005 550
------- -------
Deferred tax liabilities:
Net unrealized holding gain on available-for-sale securities (172)
Depreciation (18)
Loan origination fees (2)
------- -------
Gross deferred tax liabilities (20) (172)
------- -------
Net deferred tax assets $ 985 $ 378
======= =======
</TABLE>
Deferred tax assets as of December 31, 1999 and 1998 have not been reduced by a
valuation allowance because management believes that it is more likely than not
that the full amount of deferred tax assets will be realized.
As of December 31, 1999, the Company had no operating loss and tax credit
carryovers for tax purposes.
F-15
<PAGE> 109
NOTE 9 - EMPLOYEE BENEFITS
The Bank has a multiemployer defined benefit pension plan. The plan covers
employees who have one year of service and have attained the age of 21. The Bank
contributed to the plan and charged to expense $105,694, $87,868 and $122,873 in
the years ended December 31, 1999, 1998 and 1997, respectively.
The Company's policy is to make contributions to its pension plan within the
maximum deductible limits of section 404 of the IRS Code in accordance with
ERISA funding standards.
The Company has a defined contribution "401(k)" plan for the benefit of its
employees. The plan covers substantially all of the Company's employees who meet
certain eligibility requirements. Employees make contributions to the plan at
their option. The Company may make matching contributions to the plan. The
Company contributed $28,290 to the plan in 1999, $24,389 in 1998 and $25,157 in
1997.
NOTE 10 - OPERATING LEASES
The following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancellable lease terms
in excess of one year as of December 31, 1999:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2000 $ 79
2001 55
2002 46
2003 37
2004 25
Thereafter 113
-----
Total minimum lease payments $355
=====
</TABLE>
A lease for the Company's operations center contains provisions for escalation
of minimum lease payments contingent upon increases in real estate taxes and
percentage increases in the consumer price index. The total rental expense under
operating leases amounted $85,318 for 1999, $65,265 for 1998 and $52,244 for
1997.
NOTE 11 - FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to originate loans, standby letters of
credit and unadvanced funds on loans. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amounts of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies, but may
include secured interests in mortgages, accounts receivable, inventory,
property, plant and equipment and income producing properties.
F-16
<PAGE> 110
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The estimated fair values of the Company's financial instruments, all of which
are held or issued for purposes other than trading, are as follows as of
December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 9,541 $ 9,541 $16,651 $16,651
Available-for-sale securities 25,411 25,411 24,864 24,864
Federal Home Loan Bank stock 1,787 1,787 1,787 1,787
Other equity securities 50 50 60 60
Loans 88,847 88,180 73,092 73,860
Accrued interest receivable 617 617 589 589
Financial liabilities:
Deposits 103,536 103,788 92,822 93,033
Federal Home Loan Bank borrowings 18,602 18,197 18,602 18,353
</TABLE>
The carrying amounts of financial instruments shown in the above table are
included in the balance sheets under the indicated captions. Accounting policies
related to financial instruments are described in Note 2.
Notional amounts of financial instrument liabilities with off-balance sheet
credit risk are as follows as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Commitments to originate loans $ 3,150 $ 3,120
Standby letters of credit 67 234
Unadvanced portions of construction loans 6,158 4,545
Unadvanced portions of home equity loans 1,060 941
Unadvanced portions of lines of credit 4,460 3,515
Unadvanced portions of consumer loans 1,845 826
Unadvanced portions of check loans 183 178
------- -------
$16,923 $13,359
======= =======
</TABLE>
There is no material difference between the notional amounts and the estimated
fair values of the above off-balance sheet liabilities.
The Company has no derivative financial instruments subject to the provisions of
SFAS No. 119 "Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments."
NOTE 12 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers located within the
state. There are no concentrations of credit to borrowers that have similar
economic characteristics. The majority of the Company's loan portfolio is
comprised of loans collateralized by real estate located in the state of
Massachusetts.
F-17
<PAGE> 111
NOTE 13 - REGULATORY MATTERS
The Company and its subsidiary, the Bank, are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could have
a direct material effect on the Company's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Their capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
----------------- ---------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets)
Consolidated $10,302 10.80% $7,632 > or = 8.0% N/A
Gloucester Bank & Trust Company 10,199 10.69 7,631 > or = 8.0 $9,539 > or = 10.0%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated 9,102 9.54 3,816 > or = 4.0 N/A
Gloucester Bank & Trust Company 8,999 9.43 3,816 > or = 4.0 5,723 > or = 6.0
Tier 1 Capital (to Average Assets)
Consolidated 9,102 7.03 5,181 > or = 4.0 N/A
Gloucester Bank & Trust Company 8,999 6.95 5,180 > or = 4.0 6,476 > or = 5.0
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
Consolidated 10,054 12.81 6,280 > or = 8.0 N/A
Gloucester Bank & Trust Company 9,708 12.37 6,280 > or = 8.0 7,849 > or = 10.0
Tier 1 Capital (to Risk Weighted Assets)
Consolidated 9,063 11.55 3,172 > or = 4.0 N/A
Gloucester Bank & Trust Company 8,717 11.11 3,172 > or = 4.0 4,758 > or = 6.0
Tier 1 Capital (to Average Assets)
Consolidated 9,063 8.37 4,332 > or = 4.0 N/A
Gloucester Bank & Trust Company 8,717 8.05 4,332 > or = 4.0 5,415 > or = 5.0
</TABLE>
F-18
<PAGE> 112
NOTE 14 - AGREEMENT AND PLAN OF MERGER
On January 26, 2000 the Company signed an Agreement and Plan of Merger (the
"Agreement") with Andover Bancorp, Inc. In accordance with the terms of the
Agreement, the Company will merge with and into Andover Bancorp, Inc. Upon
consummation of the merger, the separate corporate existence of the Company will
terminate. Each share of the Company's stock will be converted into and
exchangeable for the right to receive cash or consideration in the form of
common stock of Andover Bancorp, Inc. The Agreement is subject to the approval
of the Company's stockholders and bank regulators.
NOTE 15 - RECLASSIFICATION
Certain amounts in the prior year have been reclassified to be consistent with
the current year's statement presentation.
F-19
<PAGE> 113
Annex A
AGREEMENT AND PLAN OF MERGER
By and Between
ANDOVER BANCORP, INC.
and
GBT BANCORP
Dated as of January 26, 2000
<PAGE> 114
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I THE MERGER................................................................................. 1
SECTION 1.01. THE MERGER.......................................................................... 1
SECTION 1.02. EFFECTIVE TIME...................................................................... 1
SECTION 1.03. EFFECT OF THE MERGER................................................................ 2
SECTION 1.04. CERTIFICATE OF INCORPORATION........................................................ 2
SECTION 1.05. BY-LAWS............................................................................. 2
SECTION 1.06. DIRECTORS AND OFFICERS.............................................................. 2
SECTION 1.07. TAX CONSEQUENCES.................................................................... 2
SECTION 1.08. GLOUCESTER BANK AND TRUST COMPANY................................................... 2
ARTICLE II CONVERSION OF SECURITIES................................................................... 3
SECTION 2.01. CONVERSION OF SECURITIES............................................................ 3
SECTION 2.02. ELECTION AND EXCHANGE PROCEDURES.................................................... 4
SECTION 2.03. RETURN OF EXCHANGE FUND............................................................. 7
SECTION 2.04. LOST OR STOLEN CERTIFICATES......................................................... 7
SECTION 2.05. DISSENTING SHARES................................................................... 8
SECTION 2.06. TERMINATION, NOTICE AND CURE........................................................ 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER............................................... 9
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES........................................ 9
SECTION 3.02. ARTICLES OF ORGANIZATION; BY-LAWS; CORPORATE RECORDS................................ 10
SECTION 3.03. CAPITALIZATION...................................................................... 10
SECTION 3.04. AUTHORITY........................................................................... 11
SECTION 3.05. NO CONFLICT......................................................................... 11
SECTION 3.06. CONSENTS AND APPROVALS.............................................................. 12
SECTION 3.07. COMPLIANCE.......................................................................... 12
SECTION 3.08. REPORTS............................................................................. 13
SECTION 3.09. FINANCIAL STATEMENTS................................................................ 13
SECTION 3.10. ABSENCE OF CERTAIN CHANGES OR EVENTS................................................ 14
SECTION 3.11. ABSENCE OF LITIGATION............................................................... 15
SECTION 3.12. EMPLOYEE BENEFIT PROGRAMS........................................................... 16
SECTION 3.13. LABOR MATTERS....................................................................... 19
SECTION 3.14. PROPERTY AND LEASES................................................................. 19
SECTION 3.15. TAXES AND TAX RETURNS............................................................... 20
SECTION 3.16. CERTAIN CONTRACTS................................................................... 22
SECTION 3.17. LOAN PORTFOLIO...................................................................... 23
SECTION 3.18. INVESTMENT SECURITIES............................................................... 24
SECTION 3.19. DERIVATIVE TRANSACTIONS............................................................. 24
</TABLE>
(i)
<PAGE> 115
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.20. INSURANCE........................................................................... 25
SECTION 3.21. ENVIRONMENTAL MATTERS............................................................... 25
SECTION 3.22. INTELLECTUAL PROPERTY............................................................... 27
SECTION 3.23. FIDUCIARY ACCOUNTS.................................................................. 27
SECTION 3.24. AGREEMENTS WITH BANK REGULATORS..................................................... 27
SECTION 3.25. MATERIAL INTERESTS OF CERTAIN PERSONS............................................... 27
SECTION 3.26. BROKERS' FEES; OPINIONS............................................................. 28
SECTION 3.27. PROXY STATEMENT..................................................................... 28
SECTION 3.28. SELLER INFORMATION.................................................................. 28
SECTION 3.29. STATE TAKEOVER LAWS................................................................. 28
SECTION 3.30. DISCLOSURE.......................................................................... 28
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER................................................ 29
SECTION 4.01. CORPORATE ORGANIZATION.............................................................. 29
SECTION 4.02. CAPITALIZATION...................................................................... 30
SECTION 4.03. AUTHORITY........................................................................... 30
SECTION 4.04. NO CONFLICT......................................................................... 30
SECTION 4.05. CONSENTS AND APPROVALS.............................................................. 31
SECTION 4.06. COMPLIANCE.......................................................................... 31
SECTION 4.07. FINANCIAL STATEMENTS................................................................ 32
SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS................................................ 32
SECTION 4.09. ABSENCE OF LITIGATION............................................................... 32
SECTION 4.10. AGREEMENTS WITH BANK REGULATORS..................................................... 33
SECTION 4.11. BUYER INFORMATION. ................................................................ 33
SECTION 4.12. CAPITAL, FINANCING.................................................................. 33
SECTION 4.13. SEC REPORTS......................................................................... 34
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER..................................................... 34
SECTION 5.01. COVENANTS OF THE SELLER............................................................. 34
SECTION 5.02. SYSTEM CONVERSIONS.................................................................. 38
SECTION 5.03. CERTAIN CHANGES AND ADJUSTMENTS..................................................... 38
SECTION 5.04. ALCO MANAGEMENT..................................................................... 38
SECTION 5.05. COVENANT OF THE BUYER............................................................... 39
ARTICLE VI ADDITIONAL AGREEMENTS...................................................................... 39
SECTION 6.01. REGULATORY MATTERS.................................................................. 39
SECTION 6.02. ACCESS TO INFORMATION............................................................... 40
SECTION 6.03. STOCKHOLDER MEETING................................................................. 42
SECTION 6.04. LEGAL CONDITIONS TO MERGER.......................................................... 42
SECTION 6.05. RESTRICTIONS ON RESALE.............................................................. 43
</TABLE>
(ii)
<PAGE> 116
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.06. NASDAQ LISTING...................................................................... 43
SECTION 6.07. NO SOLICITATION..................................................................... 43
SECTION 6.08. EMPLOYEE BENEFIT MATTERS............................................................ 44
SECTION 6.09. DIRECTORS' AND OFFICERS' INSURANCE.................................................. 45
SECTION 6.10. FINANCIAL AND OTHER STATEMENTS...................................................... 45
SECTION 6.11. FURTHER ACTION...................................................................... 46
SECTION 6.12. PUBLIC ANNOUNCEMENTS................................................................ 46
SECTION 6.13. ADDITIONAL AGREEMENTS............................................................... 46
SECTION 6.14. UPDATE OF DISCLOSURE SCHEDULES...................................................... 46
SECTION 6.15. CURRENT INFORMATION................................................................. 47
SECTION 6.16. DIRECTORS OF SELLER'S BANK.......................................................... 48
SECTION 6.17. TERMINATION OF EMPLOYMENT AGREEMENT................................................. 48
SECTION 6.18. TERMINATION OF SPECIAL TERMINATION AGREEMENT........................................ 48
SECTION 6.19. EMPLOYMENT AGREEMENTS............................................................... 48
SECTION 6.20. VOTING AGREEMENTS................................................................... 48
ARTICLE VII CONDITIONS TO THE MERGER................................................................... 48
SECTION 7.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER......................... 48
SECTION 7.02. CONDITIONS TO OBLIGATIONS OF THE BUYER.............................................. 49
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF THE SELLER............................................. 51
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................... 52
SECTION 8.01. TERMINATION......................................................................... 52
SECTION 8.02. EFFECT OF TERMINATION; EXPENSES..................................................... 53
SECTION 8.03. AMENDMENT........................................................................... 55
SECTION 8.04. WAIVER.............................................................................. 55
ARTICLE IX GENERAL PROVISIONS......................................................................... 56
SECTION 9.01. CLOSING............................................................................. 56
SECTION 9.02. ALTERNATIVE STRUCTURE............................................................... 56
SECTION 9.03. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.......................... 56
SECTION 9.04. NOTICES............................................................................. 56
SECTION 9.05. CERTAIN DEFINITIONS................................................................. 57
SECTION 9.06. SEVERABILITY........................................................................ 58
SECTION 9.07. ENTIRE AGREEMENT.................................................................... 59
SECTION 9.08. ASSIGNMENT.......................................................................... 59
SECTION 9.09. PARTIES IN INTEREST................................................................. 59
SECTION 9.10. SPECIFIC PERFORMANCE................................................................ 59
</TABLE>
(iii)
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<TABLE>
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<S> <C>
SECTION 9.11. GOVERNING LAW....................................................................... 59
SECTION 9.12. HEADINGS............................................................................ 59
SECTION 9.13. INTERPRETATION...................................................................... 59
SECTION 9.14. COUNTERPARTS........................................................................ 60
</TABLE>
(iv)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 26, 2000 (this
"Agreement"), by and between ANDOVER BANCORP, INC., a Delaware corporation (the
"Buyer") and GBT BANCORP, a Massachusetts corporation (the "Seller").
WHEREAS, the Boards of Directors of the Buyer and the Seller have each
determined that it is in the best interests of their respective companies and
their stockholders for the Seller to merge with and into the Buyer (the
"Merger"), subject to the terms and conditions set forth herein;
WHEREAS, as a condition and inducement to the Buyer to enter into, and
after the execution of, this Agreement, the Buyer and the Seller are entering
into the Stock Option Agreement (the "Stock Option Agreement"), attached hereto
as Exhibit I, pursuant to which the Seller has granted an option (the "Stock
Option") to purchase shares of its common stock, no par value (the "Seller
Common Stock") to the Buyer; and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and to prescribe certain conditions
to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Buyer and Seller agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Subject to the terms and conditions of this
Agreement, in accordance with the Delaware General Corporation Law (the "DGCL")
and the Massachusetts Business Corporation Law (the "MBCL"), at the Effective
Time (as defined in Section 1.02 hereof), the Seller shall merge with and into
the Buyer. Buyer shall be the surviving corporation (hereinafter sometimes
called the "Surviving Corporation") in the Merger, and shall continue its
corporate existence under the laws of the State of Delaware. The name of the
Surviving Corporation shall continue to be Andover Bancorp, Inc. Upon
consummation of the Merger, the separate corporate existence of the Seller shall
terminate.
SECTION 1.02. EFFECTIVE TIME. As promptly as practicable after all of
the conditions set forth in Article VII shall have been satisfied or, if
permissible, waived by the party entitled to the benefit of the same, the Buyer
and the Seller shall duly execute and file a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware
(the "Delaware Secretary"), in accordance with the DGCL, and articles of merger
(the "Articles of Merger") with the Secretary of State of the Commonwealth of
Massachusetts (the "Massachusetts Secretary"), in accordance with the MBCL. The
Merger shall become effective on the date (the
<PAGE> 119
"Effective Date") and at such time (the "Effective Time") as set forth in the
Certificate of Merger and the Articles of Merger.
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided herein and in the applicable provisions of
the DGCL and the MBCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of the Buyer and the Seller shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of the Buyer and the Seller shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION. Unless otherwise determined
by the Buyer prior to the Effective Time, at the Effective Time, the Certificate
of Incorporation of the Buyer as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter further amended as provided by law and such Certificate of
Incorporation.
SECTION 1.05. BY-LAWS. Unless otherwise determined by the Buyer prior
to the Effective Time, the By-Laws of the Buyer, as in effect immediately prior
to the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-Laws.
SECTION 1.06. DIRECTORS AND OFFICERS. The directors of the Buyer
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Buyer immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.07. TAX CONSEQUENCES. It is intended by the parties that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code, and that this Agreement shall constitute a "plan of reorganization"
for the purposes of Section 368 of the Code.
SECTION 1.08. GLOUCESTER BANK AND TRUST COMPANY. The Buyer confirms
that it is the Buyer's current intention to maintain Gloucester Bank and Trust
Company in existence as a separate subsidiary for a period of at least two years
following the Effective Time; provided, however, that in no event shall such
current intention prevent the Buyer from taking any action in the reasonable
best interests of the Buyer or in accordance with or based upon regulatory
considerations, safe and sound banking practices, or the fiduciary duties of the
Buyer's directors.
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ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01. CONVERSION OF SECURITIES.
(a) At the Effective Time, each share of the Seller Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares of Seller Common Stock to be cancelled pursuant to Section 2.01(c) and
any Dissenting Shares (as defined below)) shall be converted into and
exchangeable for the right to receive either:
(i) cash in the amount of $20.50 (the "Per Share Cash
Consideration"); or
(ii) the Per Share Stock Consideration (as defined below).
provided, that, the aggregate amount of cash that shall be paid out as Merger
Consideration (as defined below) shall be equal to $8,111,583.50. Accordingly,
consideration pursuant to Section 2.01(a)(ii) shall be available to holders of
Seller Common Stock only to the extent the consideration pursuant to Section
2.01(a)(i) is not sufficient to pay the entire consideration due under Section
2.01(a), it being understood that for purposes of calculating the total
consideration for the Merger, Dissenting Shares will be deemed to have received
the Per Share Cash Consideration.
The "Per Share Stock Consideration" shall be the number of shares of
Buyer Common Stock equivalent to $20.50 divided by the Signing Date Average
Closing Price, provided, however, that if the Average Closing Price is equal to
or less than 70% of the Signing Date Closing Price, the Seller shall have the
right, waivable by it, to terminate this Agreement pursuant to Sections 2.06 and
8.01(h) hereof, unless the Buyer elects, at its option, to adopt as the Per
Share Stock Consideration the "Adjusted Per Share Stock Consideration" which
shall be the number of shares of Buyer Common Stock equivalent to $14.35 divided
by the Average Closing Price. The "Signing Date Average Closing Price" shall be
determined by averaging the closing sale prices per share of Buyer Common Stock
on the Nasdaq National Market ("Nasdaq") (as reported by the Wall Street Journal
or, if not reported thereby, another authoritative source), for the 10
consecutive Nasdaq trading days ending on the date before the date of this
Agreement (the closing sale price for each such day is referred to as the "Daily
Closing Price"), discarding the two highest and two lowest Daily Closing Prices,
and averaging the remaining Daily Closing Prices. The "Average Closing Price"
shall be determined by averaging the closing sale prices per share of Buyer
Common Stock on Nasdaq (as reported by the Wall Street Journal or, if not
reported thereby, another authoritative source), for the 10 consecutive Nasdaq
trading days ending on and including the fifth trading day immediately preceding
(but not including) the Effective Time, discarding the two highest and two
lowest Daily Closing Prices, and averaging the remaining Daily Closing Prices.
The "Merger Consideration" for each share of Seller Common Stock shall consist
of the Per Share Cash Consideration and/or the Per Share Stock Consideration
received for such share pursuant to the election and exchange procedures set
forth in Section 2.02.
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(b) The Per Share Stock Consideration shall be subject to appropriate
adjustments in the event that, subsequent to the date as of which the Buyer
makes its representation as to capitalization but prior to the Effective Time,
the outstanding Buyer Common Stock shall have been increased, decreased, changed
into or exchanged for a different number or kind of shares or securities through
reorganization, recapitalization, reclassification, stock dividend, stock split,
or other like changes in Buyer's capitalization.
(c) At the Effective Time, all shares of Seller Common Stock that are
owned by the Seller as treasury stock and all shares of Seller Common Stock that
are owned directly or indirectly by the Buyer or the Seller or any of their
respective subsidiaries (other than shares of Seller Common Stock held directly
or indirectly in trust accounts, managed accounts and the like or otherwise held
in a fiduciary capacity that are beneficially owned by third parties (referred
to herein as "Trust Account Shares") and other than any shares of Seller Common
Stock held by Buyer or the Seller or any of their respective subsidiaries in
respect of a debt previously contracted (referred to herein as "DPC Shares"))
shall be canceled and shall cease to exist.
(d) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Seller Common Stock shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and each
holder of a certificate (a "Certificate" and, collectively, the "Certificates")
representing any shares of Seller Common Stock (other than those shares of
Seller Common Stock to be canceled pursuant to Section 2.01(c)) shall thereafter
cease to have any rights with respect to such shares of Seller Common Stock,
except the right to receive, without interest, the Merger Consideration upon the
surrender of such Certificate.
SECTION 2.02. ELECTION AND EXCHANGE PROCEDURES.
(a) As of the Effective Time, (i) the Buyer shall deposit, or shall
cause to be deposited, with an exchange agent selected by the Buyer on or prior
to the Effective Time (the "Exchange Agent"), for the benefit of the holders of
shares of Seller Common Stock, for exchange in accordance with this Section 2, a
certificate representing the shares of Buyer Common Stock and cash which
together constitute the consideration for the Merger (such certificates and
cash, together with any dividends or distributions with respect to such shares
of Buyer Common Stock shall hereinafter be referred to as the "Exchange Fund").
(b) As soon as practicable after the Effective Time, and in no event
later than three business days thereafter (which date shall be referred to as
the "Mailing Date"), Buyer shall cause the Exchange Agent to mail to each holder
of record of a Certificate or Certificates at the Effective Time (1) a form
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) containing instructions for use in effecting
the surrender of the Certificates and (2) an election form (the "Election
Form"). The Seller shall have the right to approve the form of both the letter
of transmittal and the Election Form.
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(c) Each Election Form shall permit the holder (or in the case of
nominee record holders, the beneficial owner through appropriate and customary
documentation and instructions) to elect to receive Buyer Common Stock with
respect to each share of such holder's Seller Common Stock ("Stock Election
Shares"), to elect to receive cash with respect to each share of such holder's
Seller Common Stock ("Cash Election Shares") or to indicate that such holder
makes no election ("No Election Shares"). Any shares of Seller Common Stock with
respect to which the holder (or the beneficial owner, as the case may be) shall
not have submitted to the Exchange Agent, an effective, properly completed
Election Form on or before 5:00 p.m., on the 20th day following the Mailing Date
(or such other time and date as the Buyer and the Seller may mutually agree)
(the "Election Deadline") shall also be deemed to be "No Election Shares".
Any such election shall have been properly made only if the Exchange
Agent shall have actually received a properly completed Election Form by the
Election Deadline. An Election Form shall be deemed properly completed only if
accompanied by one or more Certificates representing all shares of Seller Common
Stock covered by such Election Form, together with duly executed transmittal
materials included with the Election Form. Any Election Form may be revoked or
changed by the person submitting such Election Form at or prior to the Election
Deadline by written notice to the Exchange Agent, which notice must be received
by the Exchange Agent at or prior to the Election Deadline. In the event an
Election Form is revoked prior to the Election Deadline, the shares of Seller
Common Stock represented by such Election Form shall become No Election Shares.
Subject to the terms of this Agreement and of the Election Form, the Buyer or
the Exchange Agent shall have reasonable discretion to determine whether any
election, revocation or change has been properly or timely made and to disregard
immaterial defects in the Election Forms, and any good faith decisions of the
Buyer or the Exchange Agent regarding such matters shall be binding and
conclusive. Neither the Buyer nor the Exchange Agent shall be under any
obligation to notify any person of any defect in an Election Form.
If the aggregate number of Stock Election Shares does not equal the
Stock Conversion Number (as defined below), within five business days after the
Election Deadline, the Buyer shall cause the Exchange Agent to allocate among
holders of Seller Common Stock the right to receive, with respect to each such
share, Buyer Common Stock or cash in the Merger as follows:
(i) if the number of Stock Election Shares is less than the
Stock Conversion Number, then
(A) all Stock Election Shares shall be converted into
the right to receive Buyer Common Stock,
(B) the Exchange Agent will select, on a pro rata
basis, first from among the holders of No-Election Shares and
then (if necessary) from among the holders of Cash Election
Shares, a sufficient number of such shares (collectively the
"Stock Designee Shares") such that the number of Stock
Designee Shares will, when added to the number of Stock
Election Shares, equal as closely as practicable
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the Stock Conversion Number, and all Stock Designee Shares
will be converted into the right to receive Buyer Common
Stock, and
(C) any Cash Election Shares and any No-Election
Shares not so selected as Stock Designee Shares will be
converted into the right to receive cash; or
(ii) if the aggregate number of Stock Election Shares is
greater than the Stock Conversion Number, then
(A) all Cash Election Shares will be converted into
the right to receive cash,
(B) the Exchange Agent will select, on a pro rata
basis, first from among the holders of No-Election Shares and
then (if necessary) from among the holders of Stock Election
Shares, a sufficient number of such shares (collectively the
"Cash Designee Shares") such that the number of Cash Designee
Shares will, when added to the number of Cash Election Shares,
equal as closely as practicable the Cash Conversion Number (as
defined below), and all Cash Designee Shares will be converted
into the right to receive cash, and
(C) any Stock Election Shares and any No-Election
Shares not so selected as Cash Designee Shares will be
converted into the right to receive Buyer Common Stock.
"Stock Conversion Number" means 395,687 and "Cash Conversion Number"
means 395,687.
Upon surrender of a Certificate for exchange and cancellation to the
Exchange Agent, together with the Election Form, duly executed, the holder of
such Certificates shall be entitled to receive in exchange therefor (x) a
certificate representing that number of whole shares of Buyer Common Stock to
which such holder of Seller Common Stock shall have become entitled pursuant to
the provisions of Articles I and II hereof, and/or (y) a check representing the
amount of cash, if any, which such holder has the right to receive in respect of
the Certificate surrendered pursuant to the provisions of Articles I and II.
(d) Notwithstanding any other provisions of this Agreement, dividends
or other distributions on Buyer Common Stock with respect to any shares of
Seller Common Stock represented by a Certificate that has not been surrendered
for exchange shall be paid only as provided herein. Any such dividend or
distribution amounts with a record date after the Effective Time and a payment
date prior to the surrender of such Certificate shall be deposited (less the
amount of any withholding taxes which may be required thereon) with the Exchange
Agent on the applicable payment date, to be held by the Exchange Agent in a
non-interest bearing account until the surrender of such Certificate. Following
surrender of any such Certificate, the holder thereof
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shall be entitled to receive for the whole shares of Buyer Common Stock issued
in exchange therefor, without interest, at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Buyer
Common Stock and not paid, less the amount of any withholding taxes which may be
required thereon.
(e) At and after the Effective Time, there shall be no transfers on the
stock transfer books of the Seller of the shares of Seller Common Stock which
were outstanding immediately prior to the Effective Time and if, after the
Effective Time, Certificates are presented for transfer, they shall be canceled
against delivery of the Merger Consideration as hereinabove provided.
Certificates surrendered for exchange by any person constituting an "affiliate"
of the Seller for purposes of Rule 145, as such rule may be amended from time to
time ("Rule 145"), of the rules and regulations promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), shall not be exchanged until the
Buyer has received an affiliate letter (the "Affiliate Letter") from such person
as provided in Section 6.05.
(f) No fractional shares of Buyer Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional shares of Buyer Common Stock
pursuant to this Agreement, each holder of Seller Common Stock upon surrender of
a Certificate for exchange shall be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (i) the Per Share Merger
Consideration by (ii) the fractional amount of the shares of Buyer Common Stock
which such holder would otherwise be entitled to receive under this Article II.
(g) The provisions of Sections 2.01 and 2.02 assume that there will be
791,374 shares of Seller Common Stock outstanding at the Effective Time. If
there is any change in this number as of the Effective Time, the provisions of
Sections 2.01 and 2.02, including the $8, 111,583.50 amount, the Per Share Cash
Consideration, the Per Share Stock Consideration, the Stock Conversion Number
and the Cash Conversion Number, will be appropriately adjusted.
SECTION 2.03. RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
that remains unclaimed by the former stockholders of the Seller six months after
the Effective Time shall be delivered to the Buyer. Any former stockholders of
the Seller who have not theretofore complied with this Article II shall
thereafter look only to the Buyer for payment of any consideration payable as a
result of the Merger pursuant to this Agreement, without any interest thereon.
None of the Buyer, the Seller, the Exchange Agent or any other person shall be
liable to any former holder of shares of Seller Common Stock for any shares of
stock or cash properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
SECTION 2.04. LOST OR STOLEN CERTIFICATES. 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 the Buyer, the posting by such person of a bond in
such reasonable amount as the Buyer may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
or the Buyer will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Buyer
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Common Stock and cash in lieu of fractional shares of Buyer Common Stock, if
any, to which such person is entitled (and to the extent applicable, dividends
and distributions payable pursuant to Section 2.02).
SECTION 2.05. DISSENTING SHARES.
(a) Notwithstanding anything in this Agreement to the contrary and
unless otherwise provided by applicable law, shares of Seller Common Stock that
are issued and outstanding immediately prior to the Effective Time and that are
owned by stockholders who have properly perfected their rights of appraisal
within the meaning of Section 85 of the MBCL (the "Dissenting Shares"), shall
not be converted into the right to receive the Merger Consideration, unless and
until such stockholders shall have failed to perfect or shall have effectively
withdrawn or lost their right of payment under applicable law, but, instead, the
holders thereof shall be entitled to payment of the appraised value of such
Dissenting Shares in accordance with the provisions of MBCL Section 85 et seq.
If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost such right of appraisal, each share of Seller Common Stock
held by such stockholder shall thereupon be deemed to have been converted into
the right to receive and become exchangeable for, at the Effective Time, the
Merger Consideration in the manner provided in Section 2.02 hereof.
(b) The Seller shall give the Buyer (i) prompt notice of any objections
filed pursuant to MBCL Section 85 et seq. received by the Seller, withdrawals of
such objections, and any other instruments served in connection with such
objections pursuant to the Massachusetts General Laws and received by the Seller
and (ii) the opportunity to direct all negotiations and proceedings with respect
to objections under the Massachusetts General Laws consistent with the
obligations of the Seller thereunder. The Seller shall not, except with the
prior written consent of the Buyer, (x) make any payment with respect to any
such objection, (y) offer to settle or settle any such objections or (z) waive
any failure to timely deliver a written objection in accordance with the
Massachusetts General Laws.
SECTION 2.06. TERMINATION, NOTICE AND CURE. If the Average Closing
Price is equal to or less than 70% of the Signing Date Closing Price, the Seller
may elect by giving written notice to the Buyer prior to the third business day
immediately preceding the Closing Date to terminate this Agreement pursuant to
Section 8.01(h). Within two business days thereafter, the Buyer may elect to
increase the Per Share Stock Consideration to the Adjusted Per Share Stock
Consideration: In the event the Buyer makes such an election, this Agreement
shall not terminate and the Per Share Stock Consideration shall be the Adjusted
Per Share Stock Consideration. In the event the Buyer does not elect to increase
the Per Share Stock Consideration, this Agreement shall terminate on the date
established as the Closing Date with the consequences specified in Section
8.02(a) hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer that except,
with respect to any Section of this Article III, as specifically set forth in
the corresponding section of the Disclosure Schedule previously delivered by the
Seller to the Buyer (the "Seller Disclosure Schedule"):
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) The Seller is a corporation, duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts and a bank
holding company registered with the Board of Governors of the Federal Reserve
System (the "FRB") under the Bank Holding Company Act of 1956, as amended.
Gloucester Bank and Trust Company is a state chartered trust company and
wholly-owned subsidiary of the Seller (the "Seller's Bank") duly organized and
validly existing under the laws of the Commonwealth of Massachusetts. The
deposit accounts of the Seller's Bank are insured by the Federal Deposit
Insurance Corporation (the "FDIC") to the fullest extent permitted by law and
all premiums and assessments required in connection therewith have been paid by
the Seller's Bank. Each subsidiary (as defined in Section 9.05(g) below) of the
Seller (other than the Seller's Bank) (collectively, the "Subsidiaries") is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization. The Seller, the Seller's Bank and the Subsidiaries each has the
requisite power and authority and all necessary governmental approvals to own,
lease and operate all of its properties and assets and to carry on its business
as it is now being conducted, and is duly licensed or qualified to do business
and is in good standing in each jurisdiction where the nature of the business
conducted by it or the character or location of the properties and assets owned,
leased or operated by it makes such licensing or qualification necessary, except
where the failure to have obtained such approval or to be so licensed or
qualified and be in good standing would not, either individually or in the
aggregate, have a Material Adverse Effect (as defined below).
(b) A true and complete list of all the Subsidiaries, together with the
jurisdiction of incorporation or organization of each Subsidiary and the
percentage of the outstanding capital stock or other ownership interest by the
Seller or the Seller's Bank of each Subsidiary, is set forth in Section 3.01 of
the Seller Disclosure Schedule. Except as set forth in Section 3.01 of the
Seller Disclosure Schedule, neither the Seller nor the Seller's Bank directly or
indirectly owns five percent or more of the capital stock or other equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
(c) When used in connection with the Seller, the Seller's Bank, or any
of the Subsidiaries, the term "Material Adverse Effect" means any change or
effect that is or would be materially adverse to (i) the business, assets,
liabilities, financial condition or results of operations of the Seller, the
Seller's Bank and the Subsidiaries taken as a whole, other than any such effect
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attributable to or resulting from (x) changes in interest rates or general
economic conditions affecting banks generally, (y) changes in federal or state
banking or tax laws or regulations affecting banks generally or (z) changes in
generally accepted or regulatory accounting principles applicable to banks or
their holding companies generally; or (ii) the ability of the Seller, the
Seller's Bank or the Subsidiaries to consummate the transactions contemplated
hereby.
SECTION 3.02. ARTICLES OF ORGANIZATION; BY-LAWS; CORPORATE RECORDS. The
Seller has heretofore made available to the Buyer a complete and correct copy of
the Articles of Organization and the By-Laws or equivalent organizational
documents, each as amended to date, of the Seller, the Seller's Bank and each of
the Subsidiaries. Such Articles of Organization, By-Laws and equivalent
organizational documents are in full force and effect. None of the Seller, the
Seller's Bank or any of the Subsidiaries is in violation of any provision of its
Articles of Organization or equivalent organizational documents or of its
By-Laws. The minute books of the Seller, the Seller's Bank and each of the
Subsidiaries contain in all material respects true and correct records of all
meetings held or true and complete records of all other corporate actions taken
since January 1, 1997 of their respective stockholders and boards of directors
(including committees of their respective boards of directors).
SECTION 3.03. CAPITALIZATION.
(a) The authorized capital stock of the Seller consists of 4,000,000
shares of Seller Common Stock. As of the date hereof, (i) 791,374 shares of
Seller Common Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof, (ii)
4,150 shares of Seller Common Stock are held in the treasury of the Seller,
(iii) no shares of Seller Common Stock are held by Seller's Bank or any of the
Subsidiaries, and (iv) 157,483 shares of Seller Common Stock are reserved for
future issuance pursuant to the Stock Option Agreement. Each issued and
outstanding share of capital stock of each Subsidiary is duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Each share of capital
stock of each Subsidiary owned by the Seller or the Seller's Bank or any of the
other Subsidiaries is free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on the
Seller's, the Seller's Bank's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever.
(b) The authorized capital stock of the Seller's Bank consists of
1,000,000 shares of common stock, par value $5 per share (the "Seller's Bank
Common Stock") and 12,500 shares of Class B common stock, par value $0.25 per
share (the "Class B Stock"). As of the date hereof, (i) 115,820 shares of
Seller's Bank Common Stock are issued and outstanding, all of which are owned by
the Seller free and clear of any encumbrance or lien (except for directors'
qualifying shares, if any) and all of which are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof, (ii) no shares of the Seller's
Bank Common Stock are held in the treasury of the Seller's
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Bank or are held by any of the Subsidiaries, and (iii) no shares of Class B
Stock are issued or outstanding.
(c) Except for the Stock Option Agreement, there are no outstanding
subscriptions, options, warrants, calls or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Seller, the Seller's Bank or any of the Subsidiaries or
obligating the Seller, the Seller's Bank or any of the Subsidiaries to issue or
sell any shares of capital stock of, or other equity interests in, the Seller,
the Seller's Bank or any of the Subsidiaries. There are no outstanding
contractual obligations of the Seller, the Seller's Bank or any of the
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of, or other equity interests in, the Seller, the Seller's Bank or any of
the Subsidiaries or to provide funds to, or make any investment (in the form of
a loan, capital contribution or otherwise) in, any Subsidiary. Seller does not
have an employee stock option plan.
SECTION 3.04. AUTHORITY.
The Seller has full corporate power and authority to execute and
deliver this Agreement and, subject to the approval of the Seller's
stockholders, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by unanimous vote of the
Board of Directors of the Seller (the "Seller Board"). The Seller Board has
directed that this Agreement and the transactions contemplated hereby be
submitted to the Seller's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of the Seller's stockholders, no other corporate proceedings on the part of
the Seller are necessary to approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Seller and constitutes a valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms.
SECTION 3.05. NO CONFLICT. Neither the execution, delivery and
performance of this Agreement by the Seller, nor the consummation by the Seller
of the transactions contemplated hereby, nor compliance by the Seller with any
of the terms or provisions hereof, will (i) conflict with, violate or result in
a breach of any provision of the Articles of Organization or By-Laws of the
Seller or the articles of organization, by-laws or equivalent organizational
documents of the Seller's Bank or any of the Subsidiaries, (ii) conflict with,
violate or result in a breach of any statute, code, ordinance, rule, regulation,
order, writ, judgment, injunction or decree applicable to the Seller, the
Seller's Bank or any of the Subsidiaries, or by which any property or asset of
the Seller, the Seller's Bank or any of the Subsidiaries is bound or affected,
or (iii) conflict with, violate or result in a breach of any provisions of or
the loss of any benefit under, constitute a default (or an event, which, with
notice or lapse of time, or both, would constitute a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien, pledge, security interest, charge or other
encumbrance on any property or asset of the Seller, the Seller's Bank or any of
the Subsidiaries pursuant to any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, contract,
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agreement, lease, license, permit, franchise or other instrument or obligation
to which the Seller, the Seller's Bank or any of the Subsidiaries is a party, or
by which the Seller, the Seller's Bank or any of the Subsidiaries is bound or
affected, except, in the case of clause (iii) above, for any such conflicts,
violations, breaches, defaults or other occurrences which would not, either
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.06. CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the Seller does not require any consent,
approval, authorization or permit of, or filing with or notification to, any
court, administrative agency or commission or other governmental or regulatory
authority or instrumentality, domestic or foreign, including, without
limitation, any Bank Regulator (as defined below) (each a "Governmental Entity")
or with any third party, except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state takeover
laws, and filing and recordation of appropriate merger documents as required by
the laws of the Commonwealth of Massachusetts, (ii) for consents and approvals
of or filings, registrations or negotiations with the FRB, the FDIC, the
Massachusetts Board of Bank Incorporation (the "BBI"), and the Massachusetts
Housing Partnership Fund, (iii) the filings required by this Agreement and (iv)
where failure to obtain any such consent, approval, authorization or permit, or
to make any such filing or notification, would not prevent or significantly
delay consummation of the Merger or otherwise prevent the Seller from performing
its obligations under this Agreement, or would not, either individually or in
the aggregate, have a Material Adverse Effect. The Seller is not aware of any
reason why the approvals, consents and waivers of Governmental Entities referred
to herein and in Section 7.01(c) should not be obtained.
SECTION 3.07. COMPLIANCE. The Seller, the Seller's Bank and each of the
Subsidiaries hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to all, and have complied with and are not in conflict with, or in
default or violation of, (a) any statute, code, ordinance, law, rule,
regulation, order, writ, judgment, injunction or decree, published policies and
guidelines of any Governmental Entity, applicable to the Seller, the Seller's
Bank or any of the Subsidiaries or by which any property or asset of the Seller,
the Seller's Bank or any of the Subsidiaries is bound or affected or (b) any
note, bond, mortgage, indenture, deed of trust, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Seller, the Seller's Bank or any of the Subsidiaries is a party or by which the
Seller, the Seller's Bank or any of the Subsidiaries or any property or asset of
the Seller, the Seller's Bank or any of the Subsidiaries is bound or affected,
except for any such non-compliance, conflicts, defaults or violations that would
not, either individually or in the aggregate, have a Material Adverse Effect;
and none of the Seller, the Seller's Bank or any of the Subsidiaries knows of,
or has received notice of, any material violations of any of the above. Without
limiting the generality of the foregoing, none of the Seller, the Seller's Bank
or any of the Subsidiaries has been advised of the existence of any facts or
circumstances which would cause the Seller's Bank to be deemed not to be in
satisfactory compliance with the Community Reinvestment Act of 1977, as amended,
and the regulations promulgated thereunder.
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SECTION 3.08. REPORTS.
(a) The Seller is not required and at all times since the filing of its
Registration Statement on Form S-4EF on March 25, 1998 (the "Seller's S-4EF")
has not been required to file any forms, reports or documents with the
Securities and Exchange Commission (the "SEC"). The Seller has heretofore
delivered to the Buyer all communications mailed by the Seller to its
stockholders since March 25, 1998 and such communications, including the
Seller's S-4EF, did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No Subsidiary is required to file any form,
report or other document with the FDIC or with the SEC.
(b) The Seller, the Seller's Bank and each of the Subsidiaries has
timely filed and made available to the Buyer true and complete copies of all
forms, reports and documents required to be filed by each of them with all
appropriate federal or state governmental or regulatory authorities charged with
the supervision of banks or bank holding companies or engaged in the insurance
of bank deposits, including without limitation, Banking Commissioner of the
Commonwealth of Massachusetts (the "Massachusetts Commissioner"), the FRB, and
the FDIC (collectively, the "Bank Regulators") since January 1, 1997, and have
paid all fees and assessments due and payable in connection therewith. Such
reports as of their respective date of filing complied in all material respects
with the requirements of all laws, rules and regulations enforced or promulgated
by such Bank Regulators. Except for normal periodic examinations conducted by
the FDIC, the Massachusetts Commissioner or any other Bank Regulator in the
regular course of the business of the Seller, the Seller's Bank and the
Subsidiaries (the "Bank Examinations"), no Bank Regulator has initiated any
proceeding or, to the best knowledge of the Seller, investigation into the
business or operations of the Seller, the Seller's Bank or any of the
Subsidiaries since December 31, 1996. Except as set forth on Section 3.08(b) of
the Seller Disclosure Schedule, the Seller, the Seller's Bank and the
Subsidiaries have not received any objection from any regulatory agency to any
of their responses to any violation, criticism or exception by any Bank
Regulator with respect to any report or statement relating to any examinations,
which objection remains unresolved.
SECTION 3.09. FINANCIAL STATEMENTS.
(a) The Seller has previously made available to the Buyer, for copying,
originals of (i) the consolidated financial statements of the Seller, the
Seller's Bank and the Subsidiaries as of December 31 for the years 1996, 1997
and 1998 including related statements of income, changes in stockholders'
equity, cash flows and the notes thereto, in each case accompanied by the audit
report of Shatswell MacLeod & Company, independent public accountants for the
Seller, and (ii) the unaudited consolidated financial statements of the Seller,
the Seller's Bank and the Subsidiaries as of November 30, 1999 and November 30,
1998, and the related unaudited consolidated statements of income, changes in
stockholders' equity and cash flows for the eleven month periods then ended. The
December 31, 1998 consolidated balance sheet ("Seller Balance Sheet") of the
Seller (including the related notes, where applicable) and each of the other
financial statements
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referred to in this Section 3.09 (including the related notes, where applicable)
fairly presents (subject, in the case of the unaudited statements, to audit
adjustments normal in nature and amount and the addition of customary notes),
and the financial statements referred to in Section 6.10 hereof each will fairly
present, the results of the consolidated operations and changes in stockholders'
equity and consolidated financial position of the Seller, the Seller's Bank and
the Subsidiaries for the respective periods or as of the respective dates
therein set forth; each of such statements (including the related notes, where
applicable) has been prepared, and the financial statements referred to in
Section 6.10 hereof will be prepared, in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except as indicated in the notes thereto. Each of the financial statements
referred to in this Section 3.09, including, in each case, the notes thereto,
comply, and the financial statements referred to in Section 6.10 hereof will
comply, with applicable accounting requirements and to the extent applicable
thereto with the published rules and regulations of the FDIC. Without limiting
the generality of the foregoing, (x) the allowance for possible loan losses
included in the financial statements referred to in this Section 3.09 was, and
the allowance for possible loan losses to be included in the financial
statements referred to in Section 6.10 hereof will be, determined in accordance
with GAAP. The books and records of the Seller, the Seller's Bank and the
Subsidiaries are true and complete in all material respects and have been, and
are being, maintained in all material respects in accordance with applicable
legal and accounting requirements.
(b) The consolidated balance sheet of the Seller, the Seller's Bank and
the Subsidiaries as of December 31, 1998 and as of November 30, 1999, including
the notes thereto, each makes adequate provision for all material liabilities
and obligations of every nature (whether accrued, absolute, contingent or
otherwise and whether due or to become due) of the Seller, the Seller's Bank and
the Subsidiaries as of December 31, 1998 and as of November 30, 1999,
respectively, and except as and to the extent set forth on such consolidated
balance sheet, none of the Seller, the Seller's Bank or any of the Subsidiaries
has any material liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise and whether due or to become due) which would
be required to be reflected or disclosed on a balance sheet, or in the notes
thereto, prepared in accordance with GAAP.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1998, except as contemplated by this Agreement, the Seller, the Seller's Bank
and the Subsidiaries have conducted their businesses only in the ordinary course
and in manners consistent with past practice and, since December 31, 1998, there
has not been (a) either individually or in the aggregate, any Material Adverse
Effect, (b) any material damage, destruction or loss with respect to any
property or asset of the Seller, the Seller's Bank or any of the Subsidiaries,
(c) any change by the Seller, the Seller's Bank or any of the Subsidiaries in
its accounting methods, principles or practices, other than changes required by
applicable law or GAAP or regulatory accounting as concurred in by the Seller's
independent accountants, (d) any revaluation by the Seller, the Seller's Bank or
any of the Subsidiaries of any asset, including, without limitation, any writing
down of the value of inventory or writing off of notes or accounts receivable,
other than in the ordinary course of business consistent with past practice, (e)
any entry by the Seller, the Seller's Bank or any of the
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Subsidiaries into any contract or commitment (other than with respect to Loans,
as hereinafter defined) of more than $200,000, (f) any declaration, setting
aside or payment of any dividend or distribution in respect of any capital stock
of the Seller, the Seller's Bank or any of the Subsidiaries except in the
ordinary course of business in an amount consistent with past practice or any
redemption, purchase or other acquisition of any of its securities, (g) except
as would have been permitted by Section 5.01(b)(xi) hereof, any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any directors, officers or employees of the Seller, the
Seller's Bank or any of the Subsidiaries, or any grant of severance or
termination pay, or any contract or arrangement entered into to make or grant
any severance or termination pay, any payment of any bonus, or the taking of any
other material action not in the ordinary course of business with respect to the
compensation or employment of directors, officers or employees of the Seller,
the Seller's Bank or any of the Subsidiaries, (h) any strike, work stoppage,
slowdown or other labor disturbance, (i) any material election made by the
Seller, the Seller's Bank or any of the Subsidiaries for federal or state income
tax purposes, (j) any change in the credit policies or procedures of the Seller,
the Seller's Bank or any of the Subsidiaries, the effect of which was or is to
make any such policy or procedure materially less restrictive in any material
respect, (k) any material liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise and whether due or to become due),
including without limiting the generality of the foregoing, liabilities as
guarantor under any guarantees or liabilities for taxes, other than in the
ordinary course of business consistent with past practice, (l) any forgiveness
or cancellation of any indebtedness or contractual obligation other than in the
ordinary course of business consistent with past practice, (m) except with
respect to funds borrowed by the Seller, the Seller's Bank or any of the
Subsidiaries, any mortgage, pledge, lien or lease of any assets, tangible or
intangible, of the Seller, the Seller's Bank or any of the Subsidiaries with a
value in excess of $25,000 in the aggregate (n) any acquisition or disposition
of any assets or properties having a value in excess of $200,000, or any
contract for any such acquisition or disposition entered into, other than the
acquisition or disposition of Loans in the ordinary course of business
consistent with past practice, or (o) any lease of real or personal property
entered into, other than in connection with foreclosed property or in the
ordinary course of business consistent with past practice.
SECTION 3.11. ABSENCE OF LITIGATION. None of the Seller, the Seller's
Bank or any of the Subsidiaries is a party to any, and there are no pending, or
to the best knowledge of the Seller, threatened legal, administrative, arbitral
or other claims, actions, proceedings or investigations of any nature, against
the Seller, the Seller's Bank or any of the Subsidiaries or any property or
asset of the Seller, the Seller's Bank or any of the Subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, which, either individually or in the aggregate, would
have a Material Adverse Effect and no facts or circumstances have come to the
Seller's attention which have caused it to believe that a material claim,
action, proceeding or investigation against or affecting the Seller, the
Seller's Bank or any of the Subsidiaries could reasonably be expected to occur.
None of the Seller, the Seller's Bank
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or any of the Subsidiaries, or any property or asset of the Seller, the Seller's
Bank or any of the Subsidiaries, is subject to any order, writ, judgment,
injunction, decree, determination or award which restricts its ability to
conduct business in any area in which it presently does business or has or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
SECTION 3.12. EMPLOYEE BENEFIT PROGRAMS.
(a) Section 3.12(a) of the Seller Disclosure Schedule sets forth a list
of every Employee Program that has been maintained by the Seller, the Seller's
Bank or an Affiliate at any time during the three years preceding this
Agreement.
(b) Each Employee Program which has ever been maintained by the Seller,
the Seller's Bank or an Affiliate and which has been intended to qualify under
Section 401(a) or 501(c)(9) of the Internal Revenue Code of 1986, as amended
(the "Code"), has received a favorable determination or approval letter from the
Internal Revenue Service ("IRS") regarding its qualification under such section
and has, in fact, been qualified under the applicable section of the Code from
the effective date of such Employee Program through and including the Closing
Date (or, if earlier, the date that all of such Employee Program's assets were
distributed). No event or omission has occurred which would cause any Employee
Program to lose its qualification or otherwise fail to satisfy the relevant
requirements to provide tax-favored benefits under the applicable Code Section
(including without limitation Code Sections 105, 125, 401(a) and 501(c)(9)).
Each asset held under any such Employee Program may be liquidated or terminated
without the imposition of any redemption fee, surrender charge or comparable
liability. No partial termination (within the meaning of Section 411(d)(3) of
the Code) has occurred with respect to any Employee Program that is qualified
under Section 401(a) of the Code.
(c) None of the Seller, the Seller's Bank or any Affiliate knows, nor
should any of them reasonably know, of any material failure of any party to
comply with any laws applicable with respect to the Employee Programs that are
currently maintained by the Seller, the Seller's Bank or any Affiliate. With
respect to any Employee Program currently maintained by the Seller, the Seller's
Bank or any Affiliate, there has been no (i) "prohibited transaction," as
defined in Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Code Section 4975, (ii) material failure to comply with
any provision of ERISA, other applicable law, or any agreement, or (iii)
non-deductible contribution, which, in the case of any of (i), (ii), or (iii),
could subject the Seller, the Seller's Bank or any Affiliate to material
liability either directly or indirectly (including, without limitation, through
any obligation of indemnification or contribution) for any damages, penalties,
or taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program. All payments and/or contributions required
to have been made (under the provisions of any agreements or other governing
documents or applicable law) with respect to all Employee Programs ever
maintained by the Seller, the Seller's Bank or any Affiliate, for all periods
prior to the Closing Date, either have been made or have been accrued
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(and all such unpaid but accrued amounts are described on Section 3.12(c) of the
Seller Disclosure Schedule).
(d) None of the Seller, the Seller's Bank nor any Affiliate has
incurred any liability under title IV of ERISA which has not been paid in full
prior to the Closing. There has been no "accumulated funding deficiency"
(whether or not waived) with respect to any Employee Program ever maintained by
the Seller, the Seller's Bank or any Affiliate and subject to Code Section 412
or ERISA Section 302. With respect to any Employee Program maintained by the
Seller, the Seller's Bank or an Affiliate and subject to title IV of ERISA,
there has been no (nor will be any as a result of the transaction contemplated
by this Agreement) (i) "reportable event," within the meaning of ERISA Section
4043, or the regulations thereunder (for which notice the notice requirement is
not waived under 29 C.F.R. Part 2615) and (ii) no event or condition which
presents a material risk of plan termination or any other event that may cause
the Seller, the Seller's Bank or any Affiliate to incur liability or have a lien
imposed on its assets under title IV of ERISA. No Employee Program maintained by
the Seller, the Seller's Bank or an Affiliate and subject to title IV of ERISA
(other than a Multiemployer Plan) has any "unfunded benefit liabilities" within
the meaning of ERISA Section 4001(a)(18), as of the Closing Date. Neither the
Seller, the Seller's Bank nor any Affiliate has ever maintained a Multiemployer
Plan. None of the Employee Programs ever maintained by the Seller, the Seller's
Bank or any Affiliate has ever provided health care or any other non-pension
benefits to any employees after their employment is terminated (other than as
required by part 6 of subtitle B of title I of ERISA) or has ever promised to
provide such post-termination benefits.
(e) With respect to each Employee Program maintained by the Seller, the
Seller's Bank or any Subsidiary within the three years preceding the Closing
Date, complete and correct copies of the following documents (if applicable to
such Employee Program) have previously been delivered to the Buyer: (i) all
documents embodying or governing such Employee Program, and any funding medium
for the Employee Program (including, without limitation, trust agreements) as
they may have been amended to the date hereof; (ii) the most recent IRS
determination or approval letter with respect to such Employee Program under
Code Section 401(a) or 501(c)(9), and any applications for determination or
approval subsequently filed with the IRS; (iii) the three most recently filed
IRS Forms 5500, with all applicable schedules and accountants' opinions attached
thereto; (iv) the three most recent actuarial valuation reports completed with
respect to such Employee Program; (v) the summary plan description for such
Employee Program (or other descriptions of such Employee Program provided to
employees) and all modifications thereto; (vi) any insurance policy (including
any fiduciary liability insurance policy or fidelity bond) related to such
Employee Program; and (vii) any registration statement or other filing made
pursuant to any federal or state securities law.
(f) Each Employee Program required to be listed on Section 3.12(a) of
the Seller Disclosure Schedule may be amended, terminated, or otherwise modified
by the Seller, the Seller's Bank or the Affiliate to the greatest extent
permitted by applicable law, including the elimination of any and all future
benefit accruals under any Employee Program and no employee communications or
provision of any Employee Program document has failed to effectively reserve
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the right of the Seller, the Seller's Bank or the Affiliate to so amend,
terminate or otherwise modify such Employee Program.
(g) Each Employee Program currently maintained by the Seller or the
Seller's Bank (including each non-qualified deferred compensation arrangement)
is maintained in compliance with all applicable requirements of federal and
state securities laws including (without limitation, if applicable) the
requirements that the offering of interests in such Employee Program be
registered under the Securities Act of 1933 and/or state "Blue Sky" laws.
(h) Each Employee Program currently maintained by the Seller, the
Seller's Bank or an Affiliate has complied with the applicable notification and
other applicable requirements of the Consolidated Omnibus Budget Reconciliation
Act of 1985, Health Insurance Portability and Accountability Act of 1996, the
Newborns' and Mothers' Health Protection Act of 1996, the Mental Health Parity
Act of 1996, and the Women's Health and Cancer Rights Act of 1998.
(i) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but
not limited to, multiple employer welfare arrangements (within
the meaning of ERISA Section 3(40)), plans to which more than
one unaffiliated employer contributes and employee benefit
plans (such as foreign or excess benefit plans) which are not
subject to ERISA; (B) all stock option plans, stock purchase
plans, bonus or incentive award plans, severance pay policies
or agreements, deferred compensation agreements, supplemental
income arrangements, vacation plans, and all other employee
benefit plans, agreements, and arrangements (including any
informal arrangements) not described in (A) above, including
without limitation, any arrangement intended to comply with
Code Section 120, 125, 127, 129 or 137; and (C) all plans or
arrangements providing compensation to employee and
non-employee directors. In the case of an Employee Program
funded through a trust described in Code Section 401(a) or an
organization described in Code Section 501(c)(9), or any other
funding vehicle, each reference to such Employee Program shall
include a reference to such trust, organization or other
vehicle.
(ii) An entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides benefits
under or through such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or
provide benefits under or through such Employee Program, or if
such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or
beneficiaries).
(iii) An entity is an "Affiliate" of the Seller if it
would have ever been considered a single employer with the
Seller under ERISA Section 4001(b) or part
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of the same "controlled group" as the Seller for purposes of
ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means an employee pension
or welfare benefit plan to which more than one unaffiliated
employer contributes and which is maintained pursuant to one
or more collective bargaining agreements.
SECTION 3.13. LABOR MATTERS. No work stoppage involving the Seller, the
Seller's Bank or any of the Subsidiaries is pending or, to the best knowledge of
the Seller, threatened. None of the Seller, the Seller's Bank or any of the
Subsidiaries is involved in, or, to the best knowledge of the Seller, threatened
with or affected by, any dispute, arbitration, lawsuit or administrative
proceeding relating to labor or employment matters which might reasonably be
expected to interfere in any material respect with the respective business
activities of the Seller, the Seller's Bank or any of the Subsidiaries. No
employees of the Seller, the Seller's Bank or any of the Subsidiaries are
represented by any labor union, and, to the best knowledge of the Seller, no
labor union is attempting to organize employees of the Seller, the Seller's Bank
or any of the Subsidiaries.
SECTION 3.14. PROPERTY AND LEASES.
(a) The Seller, the Seller's Bank and each of the Subsidiaries each has
good and marketable title to all the real property and all other property owned
by it and included in the consolidated balance sheet of the Seller, the Seller's
Bank and the Subsidiaries included in audited financial statements for the
period ended December 31, 1998. Each parcel of real property, and each item of
personal property, owned or leased by the Seller, the Seller's Bank or any of
the Subsidiaries (i) is owned or leased free and clear of all mortgages,
pledges, liens, security interests, conditional and installment sale agreements,
encumbrances, charges or other claims of third parties of any kind
(collectively, "Liens"), other than (A) Liens for current taxes and assessments
not yet past due or which are being contested in good faith, (B) inchoate
mechanics' and materialmen's Liens for construction in progress, (C) workmen's,
repairmen's, warehousemen's and carriers' Liens arising in the ordinary course
of business of the Seller, the Seller's Bank or such Subsidiary consistent with
past practice, (D) all matters of record, Liens and other imperfections of title
and encumbrances which, either individually or in the aggregate, would not be
material, and (E) those items that secure public or statutory obligations or any
discount with, borrowing from, or obligations to any Federal Reserve Bank or
Federal Home Loan Bank, interbank credit facilities, or any transaction by a
Subsidiary acting in a fiduciary capacity (collectively, "Permitted Liens"), and
(ii) is neither subject to any governmental decree or order to be sold nor is
being condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the best knowledge of the
Seller, has any such condemnation, expropriation or taking been proposed. None
of the Seller, the Seller's Bank or any of the Subsidiaries has received any
notice of violation of any applicable zoning regulation, ordinance or other law,
order, regulation or requirement relating to its properties.
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(b) All leases of real property leased for the use or benefit of the
Seller, the Seller's Bank or any of the Subsidiaries to which the Seller, the
Seller's Bank or any of the Subsidiaries is a party requiring rental payments in
excess of $25,000 during the period of the lease, and all amendments and
modifications thereto, are in full force and effect, and there exists no default
under any such lease by the Seller, the Seller's Bank or any of the
Subsidiaries, nor, to the best knowledge of the Seller, any event which with
notice or lapse of time or both would constitute a material default thereunder
by the Seller, the Seller's Bank or any of the Subsidiaries.
SECTION 3.15. TAXES AND TAX RETURNS.
(a) Each of the Seller, the Seller's Bank and the Tax Subsidiaries has
filed all Tax Returns that it was required to file. All such Tax Returns were
correct and complete in all respects. All Taxes owed by Seller, the Seller's
Bank and the Tax Subsidiaries (whether or not shown on any Tax Return) have been
paid. None of the Seller, the Seller's Bank or the Tax Subsidiaries currently is
the beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Seller, the
Seller's Bank or the Tax Subsidiaries do not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security Interests on
any of the assets of the Seller, the Seller's Bank or the Tax Subsidiaries that
arose in connection with any failure (or alleged failure) to pay any Tax.
(b) Each of the Seller, the Seller's Bank and the Tax Subsidiaries has
withheld and paid all material Taxes required to have been withheld and paid in
connection with amounts paid or owing or credited to the account of any
customer, employee, independent contractor, creditor, stockholder, or other
third party.
(c) No director or officer (or employee responsible for Tax matters) of
the Seller, the Seller's Bank or the Tax Subsidiaries expects any authority to
assess any additional material Taxes for any period for which Tax Returns have
been filed. There is no dispute or claim concerning any Tax Liability of the
Seller, the Seller's Bank or the Tax Subsidiaries either (A) claimed or raised
by any authority in writing or (B) as to which any of the directors and officers
(and employees responsible for Tax matters) of the Seller, the Seller's Bank or
the Tax Subsidiaries has knowledge based upon personal contact with any agent of
such authority. Section 3.15(c) of the Seller Disclosure Schedule lists all
federal, state, local, and foreign income Tax Returns filed with respect to the
Seller, the Seller's Bank or the Tax Subsidiaries for taxable periods ending on
or after December 31, 1992, indicates those income Tax Returns that have been
audited, and indicates those income Tax Returns that currently are the subject
of audit. Seller has delivered to the Buyer correct and complete copies of all
federal income Tax Returns, examination reports, and statements of deficiencies
against or agreed to by the Seller, the Seller's Bank or the Tax Subsidiaries
since December 31, 1992.
(d) None of the Seller, the Seller's Bank or any Subsidiary has waived
any statute of limitations in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.
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(e) None of the Seller, the Seller's Bank or any Tax Subsidiary has
filed a consent under Section 341(f) of the Code, concerning collapsible
corporations. No property of the Seller, the Seller's Bank or any Tax Subsidiary
is property that the Seller, the Seller's Bank or any Subsidiary is or will be
required to be treated as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 (as in
effect prior to the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Code Section 168(h). None of the Seller, the Seller's Bank
or any Tax Subsidiary has been required to include in income any adjustment
pursuant to Code Section 481 by reason of a voluntary change in accounting
method initiated by the Seller, the Seller's Bank or any Tax Subsidiary. None of
the Seller, the Seller's Bank or any Tax Subsidiary has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G or Code Section 162(m). None of the Seller,
the Seller's Bank or any Tax Subsidiary has been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). None of the
Seller, the Seller's Bank or any Tax Subsidiary is a party to any Tax allocation
or sharing agreement. None of the Seller, the Seller's Bank or any Tax
Subsidiary (A) has been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of which was the
Seller) or (B) has any Liability for the Taxes of any person (other than the
Seller, the Seller's Bank or any Subsidiary) under Treasury Regulations Section
1.1506-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(f) The unpaid Taxes of the Seller, the Seller's Bank and each
Subsidiary (A) did not, as of November 30, 1999, exceed by any material amount
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the unaudited consolidated balance sheet of Seller and its
Subsidiaries as of November 30, 1999 (rather than in any notes thereto) and (B)
do not exceed by any material amount that reserve as adjusted for the passage of
time through the Closing Date.
(g) For purposes of this Section 3.15
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
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"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, net worth, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
and includes amounts for which the Seller, the Seller's Bank or any Subsidiary
is liable in its own right or as transferee of the assets of, or successor to,
any corporation, person, association, partnership, joint venture, or other
entity.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Tax Subsidiary" means a Subsidiary that is a corporation or a
partnership for United States federal income tax purposes and if, a corporation,
which is a member of an Affiliated Group that files consolidated federal income
tax returns with the Seller as common parent, or, if a partnership, in which the
Seller, the Seller's Bank or any of the Subsidiaries holds at least a 50 percent
capital or profits interest, and unless otherwise indicated thereon includes all
Subsidiaries listed on Section 3.01 of the Seller Disclosure Schedule.
SECTION 3.16. CERTAIN CONTRACTS.
(a) Except as set forth in Section 3.16(a) of the Seller Disclosure
Schedule, none of the Seller, the Seller's Bank or any Subsidiary is a party to
or bound by any contract, arrangement, commitment or understanding (whether
written or oral): (i) with respect to the employment of any director, officer,
employee or consultant, (ii) which, upon the consummation of the transactions
contemplated by this Agreement, will result in any payment (whether of severance
pay or otherwise) becoming due from the Seller, the Seller's Bank, or any of its
Subsidiaries to any officer or employee thereof, (iii) which is a material
contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement, (iv) which is a consulting or other
agreement (including agreements entered into in the ordinary course and data
processing, software programming and licensing contracts) not terminable on 60
days or less notice involving the payment of more than $50,000 per annum, (v)
which materially restricts the conduct of any line of business by the Seller,
the Seller's Bank, or any of the Subsidiaries, (vi) with or to a labor union or
guild (including any collective bargaining agreement), or (vii) (including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan) any of the benefits of which will be increased, or the
vesting
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of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement, or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement. The Seller has previously delivered to the Buyer true and
complete copies of all employment, consulting and deferred compensation
agreements which are in writing and to which the Seller, the Seller's Bank or
any of the Subsidiaries is a party. Each contract, arrangement, commitment or
understanding of the type described in this Section, whether or not set forth in
Section 3.16(a) of the Seller Disclosure Schedule, is referred to herein as a
"Seller Contract".
(b) Except as set forth in Section 3.16(b) of the Seller Disclosure
Schedule, (i) to the best knowledge of the Seller, each Seller Contract is
legal, valid and binding upon the Seller, the Seller's Bank or such Subsidiary,
as the case may be, and in full force and effect, (ii) the Seller, the Seller's
Bank and each of the Subsidiaries has in all material respects performed all
obligations required to be performed by it to date under each such Seller
Contract, and (iii) no event or condition exists which constitutes or, after
notice or lapse of time or both, would constitute, a material default on the
part of the Seller, the Seller's Bank or any of the Subsidiaries under any such
Seller Contract.
SECTION 3.17. LOAN PORTFOLIO. Except as set forth in Section 3.17 of
the Seller Disclosure Schedule, none of the Seller, the Seller's Bank or any
Subsidiary is a party to any written or oral (a) loan agreement, note or
borrowing arrangement (including, without limitation, leases and credit
enhancements) (collectively, "Loans") as to which the obligor is, as of the date
of this Agreement, over 90 days delinquent in payment of principal or interest,
or (b) Loan with any director, executive officer or, to the best knowledge of
the Seller, five percent stockholder of the Seller, the Seller's Bank or any of
the Subsidiaries, or to the best knowledge of the Seller, any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing. To the best knowledge of the Seller, all of the Loans
originated and held on the date hereof and at the Effective Time by the Seller,
the Seller's Bank and the Subsidiaries, and any other Loans purchased and held
currently and at the Effective Time by the Seller, the Seller's Bank and the
Subsidiaries, were solicited, originated and exist, and will exist at the
Effective Time, in material compliance with all applicable loan policies and
procedures of the Seller, the Seller's Bank and the Subsidiaries. Section 3.17
of the Seller Disclosure Schedule sets forth as of the date hereof, (i) all of
the Loans in original principal amount in excess of $50,000 of the Seller, the
Seller's Bank or any of the Subsidiaries that as of the date of this Agreement
are classified as "Other Loans Specially Mentioned," "Special Mention,"
"Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Watch list" or
words of similar import, together with the principal amount of and accrued and
unpaid interest on each such Loan and the identity of the obligor thereunder,
and (ii) by category of Loan (i.e., commercial, consumer, etc.), all of the
other Loans of the Seller, the Seller's Bank and the Subsidiaries that as of the
date of this Agreement are classified as such, together with the aggregate
principal amount of such Loans by category, it being understood that no
representation is being made that the FDIC or the Massachusetts Commissioner
would agree with the loan classifications contained in Section 3.17 of the
Seller Disclosure Schedule. The Seller shall promptly inform the Buyer in
writing of any Loan the original principal balance of which exceeds $50,000 that
becomes classified in the
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manner described in this Section 3.17, or any Loan the classification of which
is materially and adversely changed at any time after the date of this
Agreement. The information (including electronic information and information
contained on tapes and computer disks) with respect to the Loans furnished to
Buyer by the Seller is true and complete in all material respects.
SECTION 3.18. INVESTMENT SECURITIES. Section 3.18(a) of the Seller
Disclosure Schedule sets forth the book and market value as of December 31, 1999
of the investment securities, mortgage backed securities and securities held for
sale by the Seller, the Seller's Bank and the Subsidiaries. Section 3.18(b) of
the Seller Disclosure Schedule sets forth the names of all the joint ventures in
which the Seller, the Seller's Bank or any of the Subsidiaries has an investment
(whether or not such joint ventures remain active). Except for pledges to secure
public and trust deposits, Federal Reserve borrowings, repurchase agreements and
reverse repurchase agreements entered into in arms-length transactions pursuant
to normal commercial terms and conditions and other pledges required by law,
none of the investments reflected in the Seller Balance Sheet for the period
ended December 31, 1998, and none of the material investments made by the
Seller, the Seller's Bank or any of the Subsidiaries since December 31, 1998, is
subject to any restriction (contractual, statutory or otherwise) that would
materially impair the ability of the entity holding such investment freely to
dispose of such investment at any time. The Seller and the Seller's Bank have
(i) properly reported as such any investment securities which are required under
GAAP to be classified as "available for sale" at the lower of cost or market,
and (ii) accounted for any decline in the market value of its marketable equity
securities portfolio in accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 12 and Staff Accounting Bulletin
No. 59, including without limitation the recognition through the Seller's
consolidated statement of operations of any unrealized loss with respect to any
individual marketable equity security as a realized loss in the accounting
period in which a decline in the market value of such security is determined to
be "other than temporary."
SECTION 3.19. DERIVATIVE TRANSACTIONS. None of the Seller, the Seller's
Bank or the Subsidiaries is engaged in transactions in or involving forwards,
futures, options on futures, swaps or similar off-balance sheet derivative
instruments except as agent on the order and for the account of others other
than Federal Home Loan Bank advances or in connection with mortgage loan
secondary market activities in the ordinary course of business consistent with
the Seller's Bank's past practices.
SECTION 3.20. INSURANCE. The Seller has made available to the Buyer
true and complete copies of all material policies of insurance of the Seller,
the Seller's Bank and the Subsidiaries currently in effect. All of the policies
relating to insurance maintained by each of the Seller, the Seller's Bank and
the Subsidiaries with respect to its material properties and the conduct of its
business in any material respect (or any comparable policies entered into as a
replacement therefor) are in full force and effect and none of the Seller, the
Seller's Bank or the Subsidiaries has received any notice of cancellation with
respect thereto. All life insurance policies on the lives of any of the current
and former officers of the Seller or the Seller's Bank which are maintained by
the Seller or the Seller's Bank or which are otherwise included as assets on the
books of the Seller or the Seller's Bank (i) are, or will at the Effective Time
be, owned by
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the Seller or the Seller's Bank, free and clear of any claims thereon by the
officers or members of their families, except with respect to the death benefits
thereunder, as to which the Seller and the Seller's Bank agree that there will
not be an amendment prior to the Effective Time without the consent of the
Buyer, and (ii) are accounted for properly as assets on the books of the Seller
or the Seller's Bank, as applicable, in accordance with GAAP in all material
respects. None of the Seller, the Seller's Bank or the Subsidiaries has any
material liability for unpaid premiums or premium adjustments not properly
reflected on the Seller's consolidated financial statements described in Section
3.09 and Section 6.10.
SECTION 3.21. ENVIRONMENTAL MATTERS.
(a) Each of the Seller, the Seller's Bank and the Subsidiaries and, to
the best knowledge of the Seller, the Participation Facilities and the Loan
Properties (each defined below), are, and have been, in material compliance with
all applicable environmental laws and with all rules, regulations, standards and
requirements of the United States Environmental Protection Agency (the "EPA")
and of state and local agencies with jurisdiction over pollution or protection
of the environment.
(b) There is no suit, claim, action or proceeding pending or, to the
best knowledge of the Seller, threatened, before the EPA or any other
Governmental Entity or other forum in which the Seller, the Seller's Bank or any
of the Subsidiaries or any Participation Facility has been or, with respect to
threatened proceedings, may be, named as a defendant, responsible party or
potentially responsible party (i) for alleged noncompliance (including by any
predecessor), with any environmental law, rule, regulation, standard or
requirement or (ii) relating to the release into or presence in the Environment
(as defined below) of any Hazardous Materials (as defined below) or Oil (as
defined below) whether or not occurring at or on a site owned, leased or
operated by the Seller, the Seller's Bank or any of the Subsidiaries or any
Participation Facility except as have not been or are not reasonably likely to
be, either individually or in the aggregate, material.
(c) To the best knowledge of the Seller, the Seller's Bank and the
Subsidiaries, there is no suit, claim, action or proceeding pending or
threatened, before the EPA or any other Governmental Entity or other forum in
which any Loan Property has been or, with respect to threatened proceedings, may
be, named as a defendant, responsible party or potentially responsible party (i)
for alleged noncompliance (including by any predecessor) with any environmental
law, rule, regulation, standard or requirement or (ii) relating to the release
into or presence in the Environment of any Hazardous Material or Oil whether or
not occurring at or on a site owned, leased or operated by a Loan Property,
except where such noncompliance or release has not been or is not reasonably
likely to be, either individually or in the aggregate, material.
(d) None of the Seller, the Seller's Bank, any of the Subsidiaries, nor
to their best knowledge any Participation Facility or any Loan Property, has
received any notice regarding a matter on which a suit, claim, action or
proceeding as described in subsection (b) or (c) of this Section 3.21 could
reasonably be based. No facts or circumstances have come to the Seller's
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attention which have caused it to believe that a material suit, claim, action or
proceeding as described in subsection (b) or (c) of this Section 3.21 could
reasonably be expected to occur.
(e) During the period of (i) the Seller's, the Seller's Bank's or any
of the Subsidiaries' ownership or operation of any of their respective current
properties, (ii) the Seller's, the Seller's Bank's or any of the Subsidiaries'
participation in the management of any Participation Facility, or (iii) the
Seller's, the Seller's Bank's or any of the Subsidiaries' holding of a security
interest in a Loan Property, there has been no release or presence in the
Environment of Hazardous Material or Oil in, on, under or affecting such
property or, to the best knowledge of the Seller, such Participation Facility or
Loan Property, except where such release or presence is not or is not reasonably
like to be, either individually or in the aggregate, material. To the best
knowledge of the Seller, prior to the period of (x) the Seller's, the Seller's
Bank's or any of the Subsidiaries' ownership or operation of any of their
respective current properties or any previously owned or operated properties,
(y) the Seller's, the Seller's Bank's or any of the Subsidiaries' participation
in the management of any Participation Facility, or (z) the Seller's, the
Seller's Bank's or any of the Subsidiaries' holding of a security interest in a
Loan Property, there was no release or presence of Hazardous Material or Oil in,
on, under or affecting any such property, Participation Facility or Loan
Property, except where such release or presence is not or is not reasonably
likely to be, either individually or in the aggregate, material.
(f) The following definitions apply for purposes of this Section 3.21:
(i) "Loan Property" means any property in which the Seller, the Seller's Bank or
any of the Subsidiaries holds a security interest, and, where required by the
context, said term means the owner or operator of such property; (ii)
"Participation Facility" means any facility in which the Seller, the Seller's
Bank or any of the Subsidiaries participates or has participated in the
management and, where required by the context, said term means the owner or
operator of such property; (iii) "Hazardous Material" means any pollutant,
contaminant, or hazardous substance or hazardous material as defined in or
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq., or any other federal, state, or
local environmental law, regulation, or requirement; (iv) "Oil" means oil or
petroleum of any kind or origin or in any form, as defined in or pursuant to the
Federal Clean Water Act, 33 U.S.C. Section 1251 et seq., or any other federal,
state, or local environmental law, regulation, or requirement; and (v)
"Environment" means any soil, surface waters, groundwaters, stream sediments,
surface or subsurface strata, and ambient air, and any other environmental
medium.
SECTION 3.22. INTELLECTUAL PROPERTY. The Seller, the Seller's Bank and
each of the Subsidiaries owns or possesses valid and binding licenses and other
rights to use without payment of any material amount all material patents,
copyrights, trade secrets, trade names, service marks and trademarks used in its
businesses, and none of the Seller, the Seller's Bank or any of the Subsidiaries
has received any notice of conflict with respect thereto that asserts the right
of others. The Seller, the Seller's Bank and each of the Subsidiaries have
performed in all material respects all the obligations required to be performed
by them and are not in default under any contract, agreement, arrangement or
commitment relating to any of the foregoing.
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SECTION 3.23. FIDUCIARY ACCOUNTS. None of the Seller, the Seller's Bank
or the Subsidiaries serves as a fiduciary or maintains fiduciary accounts,
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 law.
SECTION 3.24. AGREEMENTS WITH BANK REGULATORS. None of the Seller, the
Seller's Bank or any of the Subsidiaries is a party to any written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any Bank Regulator which restricts
materially the conduct of its business, or in any manner relates to its capital
adequacy, its loan loss allowances or reserves, its credit policies or its
management, nor has the Seller, the Seller's Bank or any Subsidiary been
informed by any Bank Regulator that it is contemplating issuing or requesting
any such order, directive, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission. None of the Seller,
the Seller's Bank or any of the Subsidiaries is a party to any agreement or
arrangement entered into in connection with the consummation of a federally
assisted acquisition of a depository institution pursuant to which the Seller,
the Seller's Bank or any of the Subsidiaries is entitled to receive financial
assistance or indemnification from any governmental agency.
SECTION 3.25. MATERIAL INTERESTS OF CERTAIN PERSONS. No officer or
director of the Seller, the Seller's Bank or any of the Subsidiaries, 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 the Seller, the Seller's Bank or any of the Subsidiaries that
would be required to be disclosed in a proxy statement to stockholders under
Regulation 14A of the Exchange Act.
SECTION 3.26. BROKERS' FEES; OPINIONS. No broker, finder or investment
banker, other than McConnell, Budd & Downes, Inc. (the "Investment Banker"), is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement or the Stock Option
Agreement based upon arrangements made by or on behalf of the Seller. The fee
payable to the Investment Banker in connection with the transactions
contemplated by this Agreement is as described in an engagement letter between
the Seller and the Investment Banker, a true and complete copy of which has
heretofore been furnished to the Buyer. The Seller has previously received the
opinion of the Investment Banker to the effect that, as of the date of such
opinion, the Merger Consideration to be received by the stockholders of the
Seller pursuant to the Merger is fair, from a financial point of view, to such
stockholders, and such opinion has not been amended or rescinded as of the date
of this Agreement.
SECTION 3.27. PROXY STATEMENT. The information contained in the proxy
statement to be sent to the stockholders of the Seller in connection with the
Stockholders' Meeting (the "Proxy Statement") will not, on the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Seller or at the time of the Stockholders' Meeting,
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contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders' Meeting which shall have
become false or misleading. Notwithstanding the foregoing, the Seller makes no
representation or warranty with respect to any information to be supplied by the
Buyer which is contained in any of the foregoing documents. To the extent
reasonably practicable, the Proxy Statement will comply in all material respects
as to form and content with the requirements of the Exchange Act and the rules
and regulations thereunder.
SECTION 3.28. SELLER INFORMATION. The information supplied by the
Seller or the Seller's Bank for inclusion in the Registration Statement on Form
S-4 referred to in Section 6.01 (the "S-4") (or any amendment or supplement
thereto) will not contain 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 in which they are made, not misleading.
SECTION 3.29. STATE TAKEOVER LAWS. The Board of Directors of the Seller
has approved the transactions contemplated by this Agreement and the Seller
Option Agreement and taken all other requisite action such that the provisions
of Ch. 110F of the Massachusetts General Laws and the provisions of the Seller's
Articles of Organization relating to special voting requirements for certain
business combinations will not apply to this Agreement or the Stock Option
Agreement or any of the transactions contemplated hereby or thereby.
SECTION 3.30. DISCLOSURE. No representation or warranty contained in
this Agreement, and no statement contained in any Schedule, certificate, list or
other writing furnished to the Buyer pursuant to the provisions hereof, contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances in which they are made, not misleading.
No information believed by the Seller to be material to the Merger and which is
necessary to make the representations and warranties herein contained, taken as
a whole, not misleading, to the best knowledge of the Seller, has been withheld
from, or has not been delivered in writing to, the Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller that:
SECTION 4.01. CORPORATE ORGANIZATION.
(a) The Buyer is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Delaware and a bank holding company
registered with the FRB
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under the Bank Holding Company Act of 1956, as amended. Andover Bank is a
savings bank and wholly-owned (except for directors qualifying shares)
subsidiary of the Buyer (the "Buyer's Bank") duly organized and validly existing
under the laws of the Commonwealth of Massachusetts. The deposit accounts of the
Buyer's Bank are insured by the FDIC to the fullest extent permitted by law and
all premiums and assessments required in connection therewith have been paid by
the Buyer's Bank. The Buyer and the Buyer's Bank each has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
all of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and is in good
standing in each jurisdiction where the nature of the business conducted by it
or the character or location of the properties and assets owned, leased or
operated by it makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified and be in good standing would not, either
individually or in the aggregate, have a Buyer Material Adverse Effect (as
defined below).
(b) When used in connection with the Buyer or the Buyer's Bank, the
term "Buyer Material Adverse Effect" means any change or effect that is or would
be materially adverse to (i) the business, assets, liabilities, financial
condition or results of operations of the Buyer and the Buyer's Bank taken as a
whole, other than any such effect attributable to or resulting from (x) changes
in interest rates or general economic conditions affecting banks generally, (y)
changes in federal or state banking or tax laws or regulations affecting banks
generally or (z) changes in generally accepted or regulatory accounting
principles applicable to banks or their holding companies generally; or (ii) the
ability of the Buyer to consummate the transactions contemplated hereby.
SECTION 4.02. CAPITALIZATION.
(a) The authorized capital stock of the Buyer consists of 15,000,000
shares of Buyer Common Stock and 3,000,000 shares of Preferred Stock, $.10 par
value (the "Preferred Stock"). As of January 14, 2000, (i) 6,521,572 shares of
Buyer Common Stock are issued and outstanding, all of which are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof, (ii) 12,500 shares of
Buyer Common Stock are held in the treasury of the Buyer, (iii) no shares of
Buyer Common Stock are held by any subsidiaries of Buyer, (iv) 102,531 shares of
Buyer Common Stock are reserved for future issuance pursuant to the Buyer Option
Plan (v) 75,000 shares of Buyer Common Stock are reserved for future issuance
pursuant to Directors' Deferred Compensation Plan,, and (vi) 100,000 shares of
Preferred Stock have been designated and no shares are issued and outstanding as
Series B Junior Participating Cumulative Preferred Stock pursuant to the Buyer's
Shareholder Rights Agreement (the "Parent Rights").
(b) Except for the Buyer Option Plan, the Directors' Deferred
Compensation Plan and the Buyer's Dividend Reinvestment Plan, there are no
outstanding subscriptions, options, warrants, calls or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Buyer or the Buyer's Bank or obligating the Buyer or the
Buyer's Bank to issue or sell any shares of capital stock of, or other equity
interests
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in, the Buyer or the Buyers's Bank. There are no outstanding contractual
obligations of the Buyer to repurchase, redeem or otherwise acquire any shares
of capital stock of, or other equity interests in the Buyer or to provide funds
to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any subsidiary of the Buyer.
SECTION 4.03. AUTHORITY.
The Buyer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Buyer (the "Buyer Board"). This Agreement has been
duly and validly executed and delivered by the Buyer and constitutes a valid and
binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms.
SECTION 4.04. NO CONFLICT. Neither the execution, delivery and
performance of this Agreement by the Buyer, nor the consummation by the Buyer of
the transactions contemplated hereby, nor compliance by the Buyer with any of
the terms or provisions hereof, will (i) conflict with, violate or result in a
breach of any provision of the Certificate of Incorporation or By-Laws of the
Buyer or the articles of organization or by-laws of the Buyer's Bank, (ii)
conflict with, violate or result in a breach of any statute, code, ordinance,
rule, regulation, order, writ, judgment, injunction or decree applicable to the
Buyer or the Buyer's Bank, or by which any property or asset of the Buyer or the
Buyer's Bank is bound or affected, or (iii) conflict with, violate or result in
a breach of any provisions of or the loss of any benefit under, constitute a
default (or an event, which, with notice or lapse of time, or both, would
constitute a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien,
pledge, security interest, charge or other encumbrance on any property or asset
of the Buyer or the Buyer's Bank pursuant to any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Buyer or the Buyer's Bank is a party, or by which the Buyer or the
Buyer's Bank is bound or affected, except, in the case of clause (iii) above,
for any such conflicts, violations, breaches, defaults or other occurrences
which would not, either individually or in the aggregate, have a Buyer Material
Adverse Effect.
SECTION 4.05. CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the Buyer does not require any consent,
approval, authorization or permit of, or filing with or notification to any
Governmental Entity or with any third party, except (i) for the S-4 and
applicable requirements, if any, of the Exchange Act, state takeover laws, and
filing and recordation of appropriate merger documents as required by the laws
of the Commonwealth of Massachusetts and the State of Delaware, (ii) for
consents and approvals of or filings, registrations or negotiations with the
FRB, the FDIC, the BBI, and the Massachusetts Housing Partnership Fund, (iii)
the filings required by this Agreement and (iv) where failure to obtain any such
consent, approval, authorization or permit, or to make any such filing or
notification, would not prevent or significantly delay consummation of the
Merger or otherwise prevent the Buyer
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from performing its obligations under this Agreement, or would not, either
individually or in the aggregate, have a Buyer Material Adverse Effect. The
Buyer is not aware of any reason why the approvals, consents and waivers of
Governmental Entities referred to herein and in Section 7.01(c) should not be
obtained.
SECTION 4.06. COMPLIANCE. The Buyer and the Buyer's Bank hold, and have
at all times within the last six years, held, all material licenses, franchises,
permits and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and have complied with and are not in
conflict with, or in default or violation of, (a) any statute, code, ordinance,
law, rule, regulation, order, writ, judgment, injunction or decree, published
policies and guidelines of any Governmental Entity, applicable to the Buyer or
the Buyer's Bank or by which any property or asset of the Buyer or the Buyer's
Bank is bound or affected or (b) any note, bond, mortgage, indenture, deed of
trust, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Buyer or the Buyer's Bank is a party or by
which the Buyer or the Buyer's Bank or any property or asset of the Buyer or the
Buyer's Bank is bound or affected, except for any such non-compliance,
conflicts, defaults or violations that would not, either individually or in the
aggregate, have a Buyer Material Adverse Effect; and neither the Buyer nor the
Buyer's Bank knows of, or has received notice of, any violation of any of the
above. Without limiting the generality of the foregoing, neither the Buyer nor
the Buyer's Bank has been advised of the existence of any facts or circumstances
which would cause the Buyer's Bank to be deemed not to be in satisfactory
compliance with the Community Reinvestment Act of 1977, as amended, and the
regulations promulgated thereunder.
SECTION 4.07. FINANCIAL STATEMENTS. The Buyer has previously made
available to the Seller copies of (i) the consolidated balance sheets of the
Buyer and its subsidiaries as of December 31 for the fiscal years 1997 and 1998
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the fiscal years 1996 through 1998, inclusive, as
reported in the Buyer's 1998 Annual Report on Form 10-K, and (ii) the unaudited
consolidated financial statements of the Buyer and its subsidiaries as of
September 30, 1999 and September 30, 1998 as reported on the Buyer's Quarterly
Report on Form 10Q for the quarter ended September 30, 1999, and the related
unaudited consolidated statements of income, changes in stockholders' equity and
cash flows for the nine month period then ended. The December 31, 1998
consolidated balance sheet of the Buyer (including the related notes, where
applicable) fairly presents in all material respects the consolidated financial
position of the Buyer and its subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 4.07 (including the related
notes where applicable) fairly present in all material respects, (subject, in
the case of the unaudited statements, to audit adjustments normal in nature and
amount and the addition of customary notes) in all material respects, the
results of the consolidated operations and changes in shareholders' equity and
consolidated financial position of the Buyer for the respective fiscal periods
or as of the respective dates therein set forth and each of such statements
(including the related notes, where applicable) has been prepared in accordance
with GAAP consistently applied during the periods involved, except as indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q under the Exchange Act.
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SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Since December 31, 1998:
(i) there has not been any Buyer Material Adverse Effect;
(ii) there has not been any incurrence by the Buyer of any
liability that has had, or to the knowledge of the Buyer could
reasonably be expected to have, a Buyer Material Adverse Effect;
(iii) there has not been 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 has had a Buyer Material
Adverse Effect;
(iv) there has not been any change in any of the accounting
methods or practices of the Buyer or any of its subsidiaries other than
changes required by applicable law or generally accepted accounting
principles.
SECTION 4.09. ABSENCE OF LITIGATION. Neither the Buyer nor any of its
subsidiaries is a party to any, and there are no pending, or to the best
knowledge of the Buyer, threatened legal, administrative, arbitral or other
claims, actions, proceedings or investigations of any nature, against the Buyer
or any of its subsidiaries or any property or asset of the Buyer or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which, either individually or
in the aggregate, would have a Buyer Material Adverse Effect and no facts or
circumstances have come to the Buyer's attention which have caused it to believe
that a material claim, action, proceeding or investigation against or affecting
the Buyer or any of its subsidiaries could reasonably be expected to occur.
Neither the Buyer nor its subsidiaries, or any property or asset of the Buyer or
any of its subsidiaries, is subject to any order, writ, judgment, injunction,
decree, determination or award which restricts its ability to conduct business
in any area in which it presently does business or has or could reasonably be
expected to have, either individually or in the aggregate, a Buyer Material
Adverse Effect.
SECTION 4.10. AGREEMENTS WITH BANK REGULATORS. Neither the Buyer nor
the Buyer's Bank is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, any Bank Regulator which restricts
materially the conduct of its business, or in any manner relates to its capital
adequacy, its loan loss allowances or reserves, its credit policies or its
management, nor has the Buyer or the Buyer's Bank been informed by any Bank
Regulator that it is contemplating issuing or requesting any such order,
directive, agreement, memorandum of understanding, extraordinary supervisory
letter, commitment letter or similar submission. Neither the Buyer or the
Buyer's Bank is a party to any agreement or arrangement entered into in
connection with the consummation of a federally assisted acquisition of a
depository institution pursuant to which the
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Buyer or the Buyer's Bank is entitled to receive financial assistance or
indemnification from any governmental agency.
SECTION 4.11. BUYER INFORMATION. The information contained in the
Prospectus relating to the offering of the Buyer Common Stock pursuant to this
Agreement, will not, on the date the Prospectus (or any amendment or supplement
thereto) is first mailed to stockholders of the Seller or at the time of the
Stockholders' Meeting, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to such offering which shall have become false or misleading.
Notwithstanding the foregoing, the Buyer makes and will make no representation
or warranty with respect to any information supplied by the Seller which is
contained in the Prospectus. The Prospectus and the related S-4 will comply in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
SECTION 4.12. CAPITAL, FINANCING. On the date hereof, the Buyer is, at
a minimum, "adequately capitalized," as such term is defined in the rules and
regulations promulgated by the FRB and the FDIC, as the case may be. The Buyer
will have available to it sources of capital and financing sufficient to fulfill
its cash obligations hereunder.
SECTION 4.13. SEC REPORTS. Buyer has previously made available to the
Seller 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, 1997 by the 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, 1997, 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.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. COVENANTS OF THE SELLER.
(a) The Seller covenants and agrees that, between the date of this
Agreement and the Effective Time, unless the Buyer shall otherwise agree in
writing, the business of the Seller, the Seller's Bank and the Subsidiaries
shall be conducted only in, and the Seller, the Seller's Bank and the
Subsidiaries shall not take any action except in, the usual, regular and
ordinary course of business and in a manner consistent with past banking
practice and generally to conduct their business in substantially the same way
as heretofore conducted, and without limiting the foregoing, to continue to
operate in the same geographic markets serving the same market segments and
without significant increase in the rate of growth of the Seller's, the Seller's
Bank's
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or the Subsidiaries' loan portfolio. The Seller shall use its reasonable best
efforts to preserve substantially intact the business organization of the
Seller, the Seller's Bank and the Subsidiaries, to keep available the present
services of the officers, employees and consultants of the Seller, the Seller's
Bank and the Subsidiaries and to preserve the current relationships and goodwill
of the Seller, the Seller's Bank and the Subsidiaries with customers, suppliers
and other persons with which the Seller, the Seller's Bank or any of the
Subsidiaries have business relationships, including without limitation,
implementing a deposit retention program in furtherance thereof.
(b) By way of amplification and not limitation of clause (a) above,
except as contemplated by this Agreement and the Stock Option Agreement, the
Seller shall not, nor shall the Seller permit the Seller's Bank or any of the
Subsidiaries, between the date of this Agreement and the Effective Time,
directly or indirectly to do, or publicly announce an intention to do, any of
the following without the prior written consent of the Buyer through its
representative Gerald T. Mulligan (which consent shall not be unreasonably
withheld):
(i) amend or otherwise change its Articles of
Organization or By-laws or equivalent organizational documents;
(ii) issue, deliver, sell, pledge, dispose of, grant,
encumber, or authorize the issuance, delivery, sale, pledge,
disposition, grant or encumbrance of, any shares of capital stock of
any class of the Seller, the Seller's Bank or any of the Subsidiaries,
or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of such capital stock, or any other
ownership interest, of the Seller, the Seller's Bank or any of the
Subsidiaries, or enter into any agreement with respect to any of the
foregoing;
(iii) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock except for the declaration and
payment of a regular quarterly cash dividend in an amount not to exceed
the amount of the most recent quarterly cash dividend declared by the
Seller prior to the date of this Agreement and at times consistent with
the Seller's past practice;
(iv) split, combine or reclassify any shares of its
capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its capital stock, except upon the exercise or fulfillment of
rights or options issued or existing pursuant to employee benefit
plans, programs or arrangements, all to the extent outstanding and in
existence on the date of this Agreement;
(v) repurchase, redeem or otherwise acquire any
shares of the capital stock of the Seller, the Seller's Bank or any of
the Subsidiaries, or any securities convertible into or exercisable for
any shares of the capital stock of the Seller, the Seller's Bank or any
of the Subsidiaries;
(vi) enter into any new line of business or
materially expand the business currently conducted by the Seller, the
Seller's Bank and the Subsidiaries or file any
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application to relocate or terminate the operations of any banking
office of the Seller's Bank;
(vii) acquire or agree to acquire, by merging or
consolidating with, or by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any
corporation, partnership, other business organization or any division
thereof or any material amount of assets;
(viii) except for advances from the Federal Home Loan
Bank in an amount not to exceed $20 million outstanding at any one
time, incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any
individual, corporation or other entity, or make any loan or advance,
other than in the ordinary course of business consistent with past
practice;
(ix) enter into any contract or agreement other than
in the ordinary course of business consistent with past practice and,
in any event, regardless of whether consistent with past practice,
undertake or enter into any contract or other commitment (other than
contracts or commitments relating to Loans) involving an aggregate
payment by or to the Seller, the Seller's Bank or any of the
Subsidiaries under any such contract or commitment of more than $50,000
or having a term of one year or more from the time of execution;
(x) authorize any single capital expenditure which is
in excess of $25,000 or capital expenditures which are, in the
aggregate, in excess of $50,000 for the Seller, the Seller's Bank and
the Subsidiaries taken as a whole, except for written contractual
commitments entered into prior to the date of this Agreement as
disclosed in the Seller Disclosure Schedule;
(xi) (A) except as required by applicable law, (x)
adopt, amend, renew or terminate any plan or any agreement,
arrangement, plan or policy between the Seller, the Seller's Bank or
any of the Subsidiaries and one or more of its current or former
directors, officers or employees, or (y) increase in any manner the
compensation or fringe benefits of any director, officer or employee or
pay any benefit not required by any plan or agreement as in effect as
of the date hereof (including, without limitation, the granting of
stock options, stock appreciation rights, restricted stock, restricted
stock units or performance units or shares), provided, however, that
the Seller or the Seller's Bank may grant salary increases to its
officers and employees at the regular review date of such officers and
employees in an aggregate amount for all officers and employees not to
exceed 4% of the aggregate current annualized base salaries of such
officers and employees or constitute more than a 10% increase with
respect to any one officer or employee; or (B) enter into, modify or
renew any employment, severance or other agreement with any director,
officer or employee of the Seller, the Seller's Bank or any of the
Subsidiaries, or establish, adopt, enter into or amend any collective
bargaining,
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bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement providing for any benefit to any director, officer or
employee;
(xii) take any action with respect to accounting
methods, principles or practices, other than changes required by
applicable law or GAAP or regulatory accounting as concurred in by the
Seller's independent accountants;
(xiii) make any tax election or settle or compromise
any federal, state, local or foreign tax liability;
(xiv) pay, discharge or satisfy any claim, liability
or obligation, other than the payment, discharge or satisfaction, in
the ordinary course of business and consistent with past practice;
(xv) make any new or additional 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 past
practice;
(xvi) sell any securities in its investment
portfolio, except in the ordinary course of business, or engage in
transactions in or involving forwards, futures, options on futures,
swaps or similar derivative instruments;
(xvii) sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise
dispose of, any of its material assets, properties or other rights or
agreements or purchase or sell any loans in bulk;
(xviii) take any action that is intended or
reasonably can be expected to result in any of its representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect, or any of the conditions to the consummation of the
Merger and the other transactions contemplated by this Agreement set
forth in Article VII not being satisfied in any material respect, or in
any material violation of any provision of this Agreement or the Stock
Option Agreement, except, in every case, as may be required by
applicable law;
(xix) commit any act or omission which constitutes a
material breach or default by the Seller, the Seller's Bank or any of
the Subsidiaries under any Regulatory Agreement or under any material
contract or material license to which any of them is a party or by
which any of them or their respective properties is bound;
(xx) foreclose upon or take a deed or title to any
commercial real estate without first conducting a Phase I environmental
assessment of the property or foreclose upon any
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commercial real estate if such environmental assessment indicates the
presence of Hazardous Material in amounts which, if such foreclosure
were to occur, would be material;
(xxi) enter into or renew, amend or terminate, or
give notice of a proposed renewal, amendment or termination of or make
any commitment with respect to, (A) any contract, agreement or lease
for office space, operations space or branch space to which the Seller,
the Seller's Bank or any of the Subsidiaries is a party or by which the
Seller, the Seller's Bank or any of the Subsidiaries or its respective
properties is bound; (B) any lease, contract or agreement other than in
the ordinary course of business consistent with past practice including
renewals of leases to existing tenants of the Seller, the Seller's Bank
or any Subsidiary; (C) regardless of whether consistent with past
practices, any lease, contract, agreement or commitment, other than
Loans, involving an aggregate payment by or to the Seller, the Seller's
Bank or any of the Subsidiaries of more than $25,000 or requiring
performance by the Seller, the Seller's Bank or any of the Subsidiaries
of any obligations at any time more than one year after the time of
execution;
(xxii) change in any material respect its loan
policies or procedures, except as required by regulatory authorities;
or
(xxiii) agree to do any of the foregoing.
SECTION 5.02. SYSTEM CONVERSIONS. From and after the date hereof, the
Buyer and the Seller shall meet on a regular basis to discuss and plan for the
conversion of the Seller's and the Seller's Bank's data processing and related
electronic informational systems to those used by the Buyer and its affiliates,
which planning shall include, but not be limited to, discussion of the possible
termination by the Seller and the Seller's Bank of third-party service provider
arrangements effective at the Effective Time or at a date thereafter,
non-renewal of personal property leases and software licenses used by the Seller
or the Seller's Bank in connection with its systems operations and outsourcing,
as appropriate, of proprietary or self-provided system services, it being
understood that the Seller and the Seller's Bank shall not be obligated to take
any such action prior to the Effective Time and, unless the Seller and the
Seller's Bank otherwise agree, no conversion shall take place prior to the
Effective Time. In the event that the Seller or the Seller's Bank takes, at the
request of the Buyer, any action relative to third parties to facilitate the
conversion that results in the imposition of any termination fees or charges,
the Buyer shall indemnify the Seller or the Seller's Bank, as applicable on
terms reasonably satisfactory to such party for any such fees and expenses, and
the costs of reversing the conversion process, if for any reason the Merger is
not consummated in accordance with the terms of this Agreement; provided that
such indemnification shall not apply to the termination of the subservicing
agreements referred to in the next sentence. The Seller has confirmed to the
Buyer that it will provide by January 31, 2000 to Rockport National Bank and
Cape Ann Savings Bank the required six month notice, in proper form, of the
termination of its subservicing agreements with Rockport National Bank and Cape
Ann Savings Bank.
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SECTION 5.03. CERTAIN CHANGES AND ADJUSTMENTS. Prior to the Closing (as
defined in Section 9.01 hereof), the Buyer and the Seller shall consult and
cooperate with each other concerning the Seller's Bank's loan, litigation and
real estate valuation policies and practices (including loan classifications and
levels of reserves) to reflect Buyer's plans with respect to the conduct of the
Seller's Bank's business following the Merger; provided, however, that the
Seller and the Seller's Bank shall not be obligated to take any action pursuant
to this Section which is inconsistent with GAAP and unless and until the Buyer
acknowledges, and the Seller and the Seller's Bank are satisfied, that all
conditions to Seller's obligation to consummate the Merger have been satisfied.
No action taken by the Seller or the Seller's Bank pursuant to this Section or
the consequences resulting therefrom shall be deemed to be a breach of any
representation, warranty, agreement or covenant herein or constitute a Material
Adverse Effect.
SECTION 5.04. ALCO MANAGEMENT. The Seller agrees that during the period
from the date of this Agreement through the Effective Time, the Seller will
consult with the Buyer in the development of a reasonable program to manage the
Seller's, Seller's Bank's and any Subsidiaries interest sensitive assets and
liabilities (including its fixed-rate mortgage portfolio and its investment
portfolio), which program will include a policy not to acquire securities for
the investment portfolio of the Seller, the Seller's Bank or any Subsidiary if
such securities have a maturity date that is more than five years after the date
of acquisition thereof, unless otherwise agreed by the parties. The Buyer and
Seller agree to consult on investment programs to be administered by the Seller
and the Seller's Bank.
SECTION 5.05. COVENANT OF THE BUYER. During the period from the date of
this Agreement and continuing until the Effective Time, the Buyer shall not, and
shall not permit any of its subsidiaries to, take any action that is intended or
which reasonably can be expected to result in any of its representations and
warranties set forth in this Agreement being untrue in any material respect, or
in any of the conditions to the Merger or other transactions contemplated in
this Agreement as set forth in Article VII not being satisfied in any material
respect, or in a material violation of any provision of this Agreement or the
Stock Option Agreement, except, in every case, as may be required by applicable
law.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. REGULATORY MATTERS.
(a) The Seller shall promptly prepare the Proxy Statement and the Buyer
shall promptly prepare and file with the SEC the S-4, in which the Proxy
Statement will be included as a prospectus. The S-4 will constitute the
registration statement registering the issuance of the Buyer Common Stock
pursuant to this Agreement. Each of the Buyer and the Seller shall use their
reasonable best efforts to have the S-4 declared effective under the Securities
Act as promptly as practicable after such filing, and the Seller shall
thereafter promptly mail the Proxy Statement to
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its shareholders. Buyer shall also use its reasonable 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 the Seller shall
furnish all information concerning the Seller and the holders of the Seller
Common Stock as may be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger). The Seller and the Buyer
shall have the right to review in advance, and to the extent practicable each
will consult with the other on, in each case subject to applicable laws relating
to the exchange of information, all the information relating to the Seller or
the Buyer, as the case may be, and any of their respective subsidiaries, which
appear in any filing made with or written materials submitted to, any third
party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(c) The Buyer and the Seller shall, upon request, furnish each other
with all information concerning themselves, their respective subsidiaries,
directors, officers and shareholders and such other matters as may be reasonably
necessary or advisable in connection with the Proxy Statement, the S-4 or any
other statement, filing, notice or application made by or on behalf of the
Buyer, the Seller or any of their respective subsidiaries to any Governmental
Entity in connection with the Merger and the other transactions contemplated
hereby.
(d) The Buyer and the Seller shall promptly furnish each other with
copies of written communications received by the Buyer or the Seller, as the
case may be, or any of their respective subsidiaries from, or delivered by any
of the foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
SECTION 6.02. ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, the Seller shall, and shall cause the Seller's Bank
and each of the Subsidiaries to, afford to the officers, employees, accountants,
counsel and other representatives of the Buyer, access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records and, during such period, the Seller
shall, and shall cause the Seller's Bank and the Subsidiaries to, make available
to the Buyer (i) a copy
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of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking laws (other than reports or
documents which the Seller is not permitted to disclose under applicable law),
(ii) copies of all periodic reports to senior management, including, without
limitation, reports on non-performing loans and other asset quality matters and
all materials furnished to the board of directors of the Seller or the Seller's
Bank relating to asset quality generally, and (iii) all other information
concerning its business, properties and personnel as the Buyer may reasonably
request (other than information which the Seller is not permitted to disclose
under applicable law). Neither the Seller nor the Seller's Bank nor any of the
Subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of the
Seller's, the Seller's Bank's or the Subsidiaries' customers, jeopardize the
attorney-client privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(b) Without limiting the generality of the foregoing, the Seller shall
cooperate with the Buyer in compiling the following with respect to each of the
Seller, the Seller's Bank and each Subsidiary (or, in the case of clause (B)
below, with respect to the Seller's Bank and each Subsidiary) as of the most
recent practicable date (as well as on an estimated pro forma basis as of the
Effective Date giving effect to the consummation of the transactions
contemplated hereby): (A) the basis of the Seller, the Seller's Bank and each
Subsidiary in its assets; (B) the basis of the stockholder(s) of the Seller's
Bank and each Subsidiary in its stock, or the amount of any excess loss account
(as defined in Treasury Regulations Section 1.1502-19); (C) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Seller, the
Seller's Bank and any Subsidiary; and (D) the amount of any deferred gain or
loss allocable to the Seller, the Seller's Bank or any Subsidiary arising out of
any deferred intercompany transaction (as defined in Treasury Regulations
Section 1.1502-13).
(c) All information furnished by the Seller to the Buyer or its
representatives pursuant hereto shall be treated as the sole property of the
Seller and, if the Merger shall not occur, the Buyer and its representatives
shall return to the Seller or destroy all of such written information and all
documents, notes, summaries or other materials containing, reflecting or
referring to, or derived from, such information. The Buyer shall, and shall use
its reasonable efforts to cause its representatives to, keep confidential all
such information, and shall not directly or indirectly use such information for
any competitive or other commercial purpose. The obligation to keep such
information confidential shall continue from the date the proposed Merger is
abandoned and shall not apply to (i) any information which (x) was already in
the Buyer's possession prior to the disclosure thereof by the Seller; (y) was
then generally known to the public; or (z) was disclosed to the Buyer by a third
party not bound by an obligation of confidentiality or (ii) disclosures made as
required by law. It is further agreed that, if in the absence of a protective
order or the receipt
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of a waiver hereunder the Buyer is nonetheless, in the opinion of its counsel,
compelled to disclose information concerning the Seller to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, the Buyer may disclose such information to such tribunal or
governmental body or agency without liability hereunder.
(d) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Buyer shall, and shall cause the Buyer's Bank and
its subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of the Seller and the Seller's Bank, access, during normal
business hours during the period prior to the Effective Time, to such
information regarding the Buyer and its subsidiaries as shall be reasonably
necessary for the Seller to fulfill its obligations pursuant to this Agreement
to prepare the Proxy Statement or which may be reasonably necessary for the
Seller to confirm that the representations and warranties of the Buyer contained
herein are true and correct and that the covenants of the Buyer contained herein
have been performed in all material respects. Neither the Buyer nor any of its
subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of the
Buyer's customers, jeopardize the attorney-client privilege of the institution
in possession or control of such information or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(e) All information furnished by the Buyer to the Seller or its
representatives pursuant hereto shall be treated as the sole property of the
Buyer and, if the Merger shall not occur, the Seller and its representatives
shall return to the Buyer or destroy all of such written information and all
documents, notes, summaries or other materials containing, reflecting or
referring to, or derived from, such information. The Seller shall, and shall use
its reasonable efforts to cause its representatives to, keep confidential all
such information, and shall not directly or indirectly use such information for
any competitive or other commercial purpose. The obligation to keep such
information confidential shall continue from the date the proposed Merger is
abandoned and shall not apply to (i) any information which (x) was already in
the Seller's possession prior to the disclosure thereof by the Buyer; (y) was
then generally known to the public; or (z) was disclosed to the Seller by a
third party not bound by an obligation of confidentiality or (ii) disclosures
made as required by law. It is further agreed that, if in the absence of a
protective order or the receipt of a waiver hereunder the Seller is nonetheless,
in the opinion of its counsel, compelled to disclose information concerning the
Buyer to any tribunal or governmental body or agency or else stand liable for
contempt or suffer other censure or penalty, the Seller may disclose such
information to such tribunal or governmental body or agency without liability
hereunder.
(f) No investigation by any of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein or any condition to the obligations of the parties hereto.
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SECTION 6.03. STOCKHOLDER MEETING. The Seller shall take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
stockholders to be held as soon as is reasonably practicable after the date on
which the S-4 becomes effective for the purpose of voting upon the approval of
this Agreement. The Seller will, through its Board of Directors, recommend to
its stockholders approval of this Agreement and the transactions contemplated
hereby and such other matters as may be submitted to its stockholders in
connection with this Agreement; provided, however, that nothing contained in
this Section 6.03 or elsewhere in this Agreement shall prohibit the Seller's
Board of Directors from failing to make such 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 the Seller.
SECTION 6.04. LEGAL CONDITIONS TO MERGER. Each of the Buyer and the
Seller shall, and shall cause each of its subsidiaries to, use its reasonable
best efforts (a) to take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements which may be imposed on
such party or its subsidiaries with respect to the Merger and, subject to the
conditions set forth in Article VII hereof, to consummate the transactions
contemplated by this Agreement and (b) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity and any other third party which is
required to be obtained by the Seller or the Buyer or any of their respective
subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement.
SECTION 6.05. RESTRICTIONS ON RESALE. The Seller shall use all
reasonable efforts to cause each director, executive officer and other person of
the Seller who, at the time of the stockholder's meeting called by the Seller to
approve this Agreement, is an "affiliate" of the Seller (for purposes of Rule
145 under the Securities Act) and who has indicated to the Seller that such
person intends to elect to receive the Buyer Common Stock pursuant to the
Merger, to execute "affiliate letters" prior to the Effective Time providing
that such person will not sell, pledge, transfer or otherwise dispose of any
shares of the Buyer Common Stock received by such person in the Merger except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations thereunder. The Buyer shall use all reasonable efforts to comply
with Rule 144(c) under the Securities Act in order that all such persons may
resell such Buyer Common Stock pursuant to Rule 145(d) under the Securities Act.
SECTION 6.06. NASDAQ LISTING. The Buyer shall cause the shares of Buyer
Common Stock to be issued in the Merger to be approved for listing on Nasdaq,
subject to official notice of issuance, prior to the Effective Time.
SECTION 6.07. NO SOLICITATION. The Seller shall not and shall cause the
Seller's Bank and the Subsidiaries to not, directly or indirectly, through any
officer, director, agent or otherwise, solicit or initiate the submission of any
proposal or offer from any person relating to any acquisition or purchase of all
or (other than in the ordinary course of business) any material portion of the
assets of, or any equity interest in, the Seller, the Seller's Bank or the
Subsidiaries
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or any business combination with the Seller, the Seller's Bank or the
Subsidiaries or, except to the extent determined by the Seller Board, with the
advice of its independent counsel, to be required by fiduciary obligations under
applicable law, participate in any negotiations regarding, or furnish to any
other person any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate, any effort or attempt by any
other person to do or seek any of the foregoing. The Seller immediately shall
cease and cause to be terminated and shall cause the Seller's Bank and the
Subsidiaries to cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Seller shall notify the Buyer and cause the Seller's Bank or the
Subsidiaries to notify the Buyer promptly if any such proposal or offer, or any
inquiry or contact with any person with respect thereto, is made and shall, in
any such notice to the Buyer, indicate 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. The Seller agrees and
shall cause the Seller's Bank and the Subsidiaries not to release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which the Seller, the Seller's Bank or the Subsidiaries is a party.
SECTION 6.08. EMPLOYEE BENEFIT MATTERS.
(a) PROVISION OF BENEFITS. As soon as practicable after the Effective
Time, the Buyer agrees to provide the employees of the Seller's Bank (the
"Seller Employees") who remain employed after the Effective Time (collectively,
the "Transferred Seller Employees") with the types and levels of employee
benefits maintained by the Buyer for similarly situated employees of the Buyer's
Bank. The Buyer will treat, and cause its applicable benefit plans to treat, the
service of Seller Employees with Seller or any Subsidiary as service rendered to
the Buyer or any Affiliate of Buyer for purposes of eligibility to participate,
vesting and for other appropriate benefits, including applicability of minimum
waiting periods for participation, but in no event for purposes of benefit
accrual (including minimum pension amount) attributable to any period before the
Effective Time. Without limiting the foregoing, the Buyer shall not treat any
employee of the Seller or any of its Subsidiaries as a "new" employee for
purposes of any exclusions under any health or similar plan of the Buyer or an
Affiliate for a pre-existing medical condition, and will make appropriate
arrangements with its insurance carrier(s) to ensure such result.
(b) COMPENSATION ARRANGEMENTS. Following the Effective Time, the Buyer
shall honor and shall cause its subsidiaries to honor the mutual agreement of
the Seller's Bank and David L. Marsh, in accordance with Section 6.18 of this
Agreement, with respect to the Special Termination Agreement by and between
David L. Marsh and the Seller's Bank, dated as of December 30, 1986 (the
"Special Termination Agreement").
(c) CONTINUATION OF PLANS. Notwithstanding anything to the contrary
contained herein, the Buyer shall have sole discretion with respect to the
determination as to whether or when to terminate, merge or continue any employee
benefit plans and programs of the Seller, the Seller's Bank or any of the
Subsidiaries; provided, however, that the Buyer shall continue to
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maintain the such plans (other than stock based or incentive plans or stock
funds in retirement plans) until the Seller Employees are permitted to
participate in the Buyer's or its Affiliates plans.
(d) SEVERANCE OBLIGATIONS. Employees of the Seller or the Seller's Bank
whose employment is terminated on or within one year after the Effective Time
will be provided with severance benefits to the extent as provided in Exhibit II
hereto.
(e) PARACHUTE PAYMENTS. Notwithstanding anything to the contrary
contained in this Agreement, in no event shall the Seller or any of the
Subsidiaries take any action or make any payments that would result, either
individually or in the aggregate, in the payment of an "excess parachute
payment" within the meaning of Section 280G of the Code or that would result,
either individually or in the aggregate, in payments that would be nondeductible
pursuant to Section 162(m) of the Code.
(f) RETENTION PAYMENTS. The Seller or the Seller's Bank shall pay to
those employees of the Seller's Bank designated by the mutual agreement of the
Seller and the Buyer retention payments not to exceed in the aggregate the
amount set forth in Exhibit II hereto. Such payments shall be payable at such
time and shall be allocated among such employees as mutually agreed by the
Seller and the Buyer, as promptly as practical after the date hereof.
SECTION 6.09. DIRECTORS' AND OFFICERS' INSURANCE.
(a) The Buyer shall use its reasonable best efforts to maintain in
effect for three years from the Effective Time, if available, the current
directors' and officers' liability insurance policy maintained by the Seller
(provided that the Buyer may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
favorable) with respect to matters occurring prior to the Effective Time;
provided, however, that in no event shall the Buyer be required to expend
pursuant to this Section 6.09(a) more than the amount equal to 150% of the
current annual amount expended by the Seller to maintain or procure insurance
coverage pursuant hereto. In connection with the foregoing, the Seller agrees to
provide such insurer or substitute insurer with such representations as such
insurer may request with respect to the reporting of any prior claims.
(b) The Buyer agrees to indemnify current and former directors or
officers of the Seller to the same extent that such directors or officers are
entitled to indemnification as of the date of this Agreement under the Seller's
Articles of Organization and/or By-laws to the full extent permitted under
applicable law for a period of six years from the Effective Time, provided that
in the event that any claim is asserted or made by such current or former
director or officer within such six year period, the right to indemnification in
respect of such claim shall continue until the disposition of such claim. The
provisions of this Section 6.09 are specifically for the benefit of those
present and former directors and officers entitled to indemnification as of the
date of this Agreement under the Seller's By-Laws.
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(c) In the event that the 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 bank or entity of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision shall be made so that the
successors and assigns of the Buyer shall assume the obligations set forth in
this Section 6.09.
SECTION 6.10. FINANCIAL AND OTHER STATEMENTS. Notwithstanding anything
to the contrary in Section 6.02, during the term of this Agreement, the Seller
shall provide to the Buyer the following documents and information:
(a) As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter ending after the date of
this Agreement, the Seller will deliver to the Buyer the Seller Bank's
quarterly Call Report as filed with the appropriate Bank Regulator. As
soon as reasonably available, but in no event more than 90 days after
the end of each fiscal year ending after the date of this Agreement,
the Seller will deliver to the Buyer the Seller Bank's consolidated and
audited financial statements for the fiscal year then ended.
(b) Promptly upon receipt thereof, the Seller will furnish to
the Buyer copies of all internal control reports submitted to the
Seller or the Seller's Bank by independent auditors in connection with
each annual, interim or special audit of the books of the Seller or the
Seller's Bank made by such auditors.
(c) As soon as practicable, the Seller and the Seller's Bank
will furnish to the Buyer copies of all such financial statements and
reports as they shall send to their stockholder(s), the Massachusetts
Commissioner, the FDIC, the FRB, or any other regulatory authority, to
the extent any such reports furnished to any such regulatory authority
are not confidential and except as legally prohibited under applicable
laws and regulations.
(d) With reasonable promptness, the Seller and the Seller's
Bank will furnish to the Buyer such additional financial data as the
Buyer may reasonably request.
SECTION 6.11. FURTHER ACTION. The Buyer and the Seller each shall, and
shall cause their subsidiaries to, use reasonable best efforts (a) to take, or
cause to be taken, all actions necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party or its
subsidiaries with respect to the Merger and, subject to the conditions set forth
in Article VII hereof, to consummate the transactions contemplated by this
Agreement and (b) to obtain (and to cooperate with the other party to obtain)
any consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party which is required to be obtained
by the Seller or the Buyer or any of their respective subsidiaries in connection
with the Merger and any of the other transactions contemplated by this
Agreement.
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SECTION 6.12. PUBLIC ANNOUNCEMENTS. Except as otherwise required by law
or the rules of Nasdaq, so long as this Agreement is in effect, neither the
Buyer nor the Seller shall, or shall they permit any of their subsidiaries to,
issue or cause the publication of any press release or other public announcement
with respect to, or otherwise make any public statement concerning, the
transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
SECTION 6.13. ADDITIONAL AGREEMENTS. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of any
of the parties to the Merger, the proper officers and directors of each party to
this Agreement and their respective subsidiaries shall take all such necessary
action as may be reasonably requested by the Buyer.
SECTION 6.14. UPDATE OF DISCLOSURE SCHEDULES. From time to time prior
to the Effective Time, the Seller will promptly supplement or amend the Seller
Disclosure Schedule to reflect any matter which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in the Seller Disclosure Schedule or which is necessary to correct any
information in the Seller Disclosure Schedule which has been rendered inaccurate
thereby. No supplement or amendment to the Seller Disclosure Schedule shall have
any effect for the purpose of determining satisfaction of the conditions set
forth in Section 7.02(a) hereof, as the case may be, or the compliance by the
Seller with the covenants set forth in Articles V and VI hereof.
SECTION 6.15. CURRENT INFORMATION.
(a) During the period from the date of this Agreement to the Effective
Time, the Seller will cause one or more of its designated representatives (i) to
confer on a regular and frequent basis (at least monthly) with representatives
of Buyer to report on (x) the general status of the ongoing operations of the
Seller and the Seller's Bank, (y) the status of, and the action proposed to be
taken with respect to, those Loans held by the Seller or the Seller's Bank
which, either individually or in combination with one or more other Loans to the
same borrower thereunder, have an aggregate original principal amount of
$250,000 or more and are classified or non-performing assets, and (z) the status
of, and the action proposed to be taken with respect to, foreclosed property and
other real estate owned by the Seller or the Seller's Bank, and (ii) to
cooperate and communicate with respect to the manner in which the business of
the Seller and the Seller's Bank is conducted, including but not limited to, the
disposition of certain assets after the Effective Time, the type and mix of
products and services, personnel matters, branches, the granting of credit, and
problem loan management, reserve adequacy, securities investments and
accounting. During the period from the date of this Agreement to the Effective
Time, the Seller and the Seller's Bank shall provide the Buyer with sufficient
information to review new extensions of credit, renewals and restructurings
having an original principal amount of $200,000 and information detailing
overall asset quality. The Seller shall also ensure that the Seller's Bank
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allows the Buyer to designate one of its officers to attend the Seller's Bank
credit committee meetings and be a non-voting attendee thereof.
(b) The Seller and the Seller's Bank will promptly notify the Buyer of
any material change in the normal course of business or in the operation of the
properties of the Seller or the Seller's Bank and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of litigation
involving them and will keep the Buyer reasonably informed of such events.
(c) To the extent not covered by paragraphs (a) and (b) above, the
Seller and the Seller's Bank shall give prompt notice to the Buyer, and the
Buyer shall give prompt notice to the Seller, of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
reasonably likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect, and (ii) any
failure of the Seller, the Seller's Bank or the Buyer, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; provided, however, that the delivery of
any notice pursuant to this paragraph (c) shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
SECTION 6.16. DIRECTORS OF SELLER'S BANK. As sole stockholder of
Seller's Bank immediately following the Effective Time, the Buyer agrees to
ensure that the Directors of the Seller's Bank immediately prior to the
Effective Time shall be the Directors of the Seller's Bank for a period of one
year following the Effective Time; provided, however, that immediately following
the Effective Time, the number of members of the Board of Directors of the
Seller's Bank shall be expanded by one member and the vacancy so created shall
immediately thereafter be filled by a person designated by the Buyer. The Seller
and the Buyer agree to cause the Seller's Bank to hold regular meetings of its
Board of Directors not more than one time per month. Loan Committee meetings,
which shall not be considered meetings of the Board of Directors, may be held as
frequently as the Seller's Bank deems appropriate.
SECTION 6.17. TERMINATION OF EMPLOYMENT AGREEMENT. The Seller agrees to
cause the Seller's Bank to cause the Employment Agreement by and between David
L. Marsh and the Seller's Bank, dated as of January 1, 1993 (the "Current
Employment Agreement") to be terminated by the mutual written agreement of the
parties thereto prior to the Effective Time.
SECTION 6.18. TERMINATION OF SPECIAL TERMINATION AGREEMENT. The Seller
agrees to cause the Special Termination Agreement to be terminated by the mutual
written agreement of the parties thereto prior to the Effective Time, which such
mutual agreement shall include as its only ongoing obligation a provision
accelerating the payment contemplated by Section 4 of the Special Termination
Agreement and providing for the payment to Mr. Marsh of such amount, by check,
within three (3) business days of the Effective Time.
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SECTION 6.19. EMPLOYMENT AGREEMENTS. The Seller agrees to cause the
Seller's Bank to execute and deliver and to cause David L. Marsh and Rick
Edelstein to execute and deliver prior to the Effective Time employment
agreements in the forms attached hereto as Exhibit III and Exhibit IV,
respectively (the "Employment Agreements").
SECTION 6.20. VOTING AGREEMENTS. The Seller agrees to cause each of its
directors and officers to execute and deliver (individually, and to the extent
applicable in their respective capacities as trustee) concurrently with the
execution of this Agreement or within twenty-one (21) days thereafter, a voting
agreement in the form of Exhibit V hereto.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the
affirmative vote of the stockholders of the Seller to the extent
required by Massachusetts Law and the Articles of Organization of the
Seller;
(b) NASDAQ LISTING. The shares of Buyer Common Stock which
shall be issued to shareholders of the Seller upon consummation of the
Merger shall have been authorized for listing on the Nasdaq, subject to
official notice of issuance.
(c) REGULATORY APPROVALS. All necessary approvals,
authorizations and consents of all Governmental Entities required to
consummate the Merger shall have been obtained and remain in full force
and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated (all
such approvals and the expiration of all such waiting periods being
referred to herein as the "Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
S-4 shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(e) NO ORDERS, INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No
order, injunction or decree (whether temporary, preliminary or
permanent) issued by federal or state governmental authority or other
agency or commission or federal or state court of competent
jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger or any of the other
transactions contemplated by this
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Agreement shall be in effect and no proceeding initiated by any
governmental entity seeking an Injunction shall be pending. No statute,
rule, regulation, order, injunction or decree (whether temporary,
preliminary or permanent) shall have been enacted, entered, promulgated
or enforced by any federal or state governmental authority or other
agency or commission or federal or state court of competent
jurisdiction, which prohibits, restricts or makes illegal the
consummation of the Merger or any of the other transactions
contemplated by this Agreement.
SECTION 7.02. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation of
the Buyer to effect the Merger is also subject to the satisfaction or waiver by
the Buyer at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Seller in this Agreement which is
qualified as to materiality shall be true and correct and each such
representation or warranty that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement, as applicable, and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Effective Time, it being understood that such representations and
warranties shall be deemed to be true and correct in all material
respects unless the failure or failures of such representations and
warranties to be so true and correct represent, either individually or
in the aggregate, a Material Adverse Effect on the Seller, provided,
however, that for purposes of determining satisfaction of this
condition, no effect shall be given to an exception in such
representations and warranties relating to materiality, a Material
Adverse Effect or the knowledge of the Seller. The Buyer shall have
received a certificate to such effect signed by the Chief Executive
Officer and the Chief Financial Officer of the Seller dated as of the
Effective Date.
(b) AGREEMENTS AND COVENANTS. The Seller shall have performed
in all material respects all obligations and complied in all material
respects with all agreements or covenants of the Seller to be performed
or complied with by it at or prior to the Effective Date under the this
Agreement, and the Buyer shall have received a certificate to such
effect signed by the Chief Executive Officer and Chief Financial
Officer of the Seller dated as of the Effective Date.
(c) CONSENTS UNDER AGREEMENTS. The Seller and the Seller's
Bank shall have obtained any and all material permits, authorizations,
consents, waivers, clearances or approvals required to be obtained by
the Seller or the Seller's Bank for the lawful consummation of the
Merger by the Seller.
(d) NO BURDENSOME CONDITION. None of the Requisite Regulatory
Approvals shall impose any term, condition or restriction upon the
Buyer, the Seller, the Surviving Corporation, or any of their
respective subsidiaries that would, in the good faith reasonable
judgment of the Board of Directors of the Buyer, materially and
adversely affect the
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business, operations, financial conditions, property or assets of the
combined enterprise or of the Seller or the Seller's Bank or otherwise
materially impair the value of the Seller or the Seller's Bank to the
Buyer; provided, however, that no term condition or restriction that
relates primarily to regulatory matters existing at the date hereof
with respect to the pre-Merger business or activities of the Buyer or
any of its subsidiaries shall be deemed to affect the business,
operations, financial condition, property or assets of the combined
enterprise or of the Seller or the Seller's Bank or otherwise
materially impair the value of the Seller to the Buyer.
(e) ACCOUNTANT'S LETTER. The Seller shall have caused to be
delivered to the Buyer letters from Shatswell MacLeod & Company,
independent public accountants with respect to the Seller, dated the
date on which the S-4 or last amendment thereto shall become effective,
and dated the date of the Closing, and addressed to the Buyer and the
Seller, with respect to the Seller's consolidated financial position
and results of operations, which procedures shall be consistent with
applicable professional standards for letters delivered by independent
accountants in connection with comparable transactions.
(f) INVESTMENT BANKER OPINION. The Buyer shall have received a
copy of the opinion of the Seller's Investment Banker, dated as of the
date of this Agreement, that the Merger Consideration to be received by
the stockholders of the Seller pursuant to the Merger is fair to such
shareholders from a financial point of view.
(g) EMPLOYMENT AGREEMENT TERMINATION. The Current Employment
Agreement shall have been terminated by the mutual written agreement of
the parties thereto.
(g) SPECIAL TERMINATION AGREEMENT TERMINATION. The Special
Termination Agreement shall have been terminated by the mutual written
agreement of the parties thereto.
(h) EMPLOYMENT AGREEMENTS. The Employment Agreements shall
have been executed and delivered by the stipulated parties thereto.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligations
of the Seller to effect the Merger are also subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Buyer in this Agreement which is
qualified as to materiality shall be true and correct and each such
representation or warranty that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement, as applicable, and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Effective Time, it being understood that such representations and
warranties shall be deemed to be true and correct in all material
respects unless the failure
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or failures of such representations and warranties to be so true and
correct represent, either individually or in the aggregate, a Material
Adverse Effect on the Buyer, provided, however, that for purposes of
determining satisfaction of this condition, no effect shall be given to
any exception in such representations and warranties relating to
materiality, a Material Adverse Effect or the knowledge of the Buyer.
The Seller shall have received a certificate signed by the Chief
Executive Officer and Chief Financial Officer of the Buyer to such
effect dated as of the Effective Date.
(b) AGREEMENTS AND COVENANTS. The Buyer shall have performed
in all material respects all obligations and complied in all material
respects with all of the respective agreements or covenants to be
performed or complied by such party under this Agreement and the Seller
shall have received a certificate signed by the Chief Executive Officer
and Chief Financial Officer of the Buyer to such effect dated as of the
Effective Date.
(c) INVESTMENT BANKER OPINION. The Seller shall have received
the opinion of the Seller's Investment Banker, dated as of the date of
this Agreement, that the Merger Consideration to be received by the
stockholders of the Seller pursuant to the Merger is fair to such
shareholders from a financial point of view.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated and the
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of this Agreement and the transactions contemplated in
this Agreement by the stockholders of the Seller:
(a) by mutual written consent duly authorized by the Boards of
Directors of the Buyer and the Seller;
(b) by either the Buyer or the Seller if (i) the Effective
Time shall not have occurred on or before September 30, 2000 or such
later date as the parties may have agreed upon (the "Expiration Date");
provided, however, that the right to terminate this Agreement under
this Section 8.01(b) shall not be available to any party whose failure
to fulfill any material obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on
or before such date;
(c) by either the Buyer or the Seller (i) ninety days after
the date on which any request or application for a regulatory approval
required to consummate the Merger shall have been denied or withdrawn
at the request or recommendation of the Governmental
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Entity which must grant such requisite regulatory approval, unless
within the ninety day period following such denial or withdrawal a
petition for rehearing or an amended application has been filed with
such Governmental Entity; provided, however, that no party shall have
the right to terminate this Agreement pursuant to this Section 8.01(c)
(i) if such denial or request or recommendation for withdrawal shall be
due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and agreements of such party set forth
herein or (ii) if any court of competent jurisdiction or other
governmental authority shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(d) by either the Buyer or the Seller (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall
have been a material breach of any of the representations or warranties
set forth in this Agreement on the part of the other party, which
breach by its nature cannot be cured prior to the Effective Time or
within thirty business days following receipt by the breaching party of
written notice of such breach from the other party hereto (for purposes
of this Section a material breach shall be deemed to be a breach which
has, either individually or in the aggregate, a Material Adverse Effect
on the party making such representations or warranties, provided, that
no effect shall be given to any qualification relating to materiality,
a Material Adverse Effect or knowledge in such representations and
warranties);
(e) by either the Buyer or the Seller (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall
have been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of the other party, which breach
shall not have been cured within thirty business days following receipt
by the breaching party of written notice of such breach from the other
party hereto;
(f) by either the Buyer or the Seller (provided, that if the
terminating party is the Seller, the Seller shall not be in material
breach of any of its obligations under Section 6.03) if any approval of
the stockholders of the Seller required for the consummation of the
Merger shall not have been obtained by reason of the failure to obtain
the required vote at a duly held meeting of stockholders or at any
adjournment or postponement thereof, or by the Buyer, if such meeting
of stockholders shall not have been held or shall have been canceled
prior to the Expiration Date;
(g) by the Buyer, if the Seller Board shall not have publicly
recommended to the stockholders of the Seller that such stockholders
vote in favor of the approval of this Agreement, the Merger and the
other transactions contemplated hereby or shall have withdrawn or
modified such recommendation in a manner adverse to the Buyer; or
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(h) by the Seller pursuant to the provisions of Section 2.06
hereof.
SECTION 8.02. EFFECT OF TERMINATION; EXPENSES.2
(a) In the event of the termination of this Agreement pursuant to
Section 8.01, this Agreement shall forthwith become void (except as set forth in
Section 9.03), and there shall be no liability on the part of any party hereto,
except (i) each party shall remain liable in any action at law or otherwise for
any liabilities or damages arising out of its gross negligence or willful breach
of any provision of this Agreement, and (ii) as otherwise provided in this
Section 8.02.
(b) If this Agreement is terminated as a result of any breach of a
representation, warranty, covenant or other agreement which is caused by the
gross negligence or willful breach of a party hereto, such party shall be liable
to the other party for all out-of-pocket costs and expenses (but in no event in
an amount in excess of $450,000), including, without limitation, the reasonable
fees and expenses of lawyers, accountants and investment bankers, 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 ("Expenses"). 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.
(c) As a condition of the Buyer's willingness, and in order to induce
the Buyer, to enter into this Agreement and to reimburse the Buyer for incurring
the damages, costs and expenses related to entering into this Agreement and
consummating the transactions contemplated by this Agreement, the Seller will
make a cash payment to the Buyer of $800,000 (the "Special Payment") if and only
if:
(i) (x) the Buyer or the Seller has terminated this
Agreement pursuant to Section 8.01(f), or (y) the
Buyer has terminated this Agreement pursuant to
Section 8.01(g), or (z) the Buyer has terminated this
Agreement pursuant to Sections 8.01(d) or 8.01(e) and
the breach of the representation, warranty, covenant
or agreement under Sections 8.01(d) or 8.01(e) was
caused by the willful conduct or gross negligence of
the Seller, and
(ii) (x) within twelve months of any such termination or
other event specified in (i) above, (A) the Seller or
the Seller's Bank shall have entered into an
agreement to engage in an Acquisition Transaction (as
defined below) with any person other than the Buyer
or any affiliate of the Buyer or (B) the Seller Board
or any committee thereof shall have authorized,
approved, recommended, publicly proposed or failed to
publicly oppose an Acquisition Transaction or
recommended that stockholders of the Seller
authorize, approve or accept any Acquisition
Transaction with any person other than the Buyer or
any affiliate of the Buyer, or (y) in the case of
Sections 8.01(f) or 8.01(g), at the time of such
termination or event giving
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rise to such termination, it shall have been publicly
announced that any person (other than the Buyer or
any affiliate of the Buyer) shall have (A) made, or
disclosed an intention to make, a bona fide offer to
engage in an Acquisition Transaction, or (B) filed an
application (or given a notice), whether in draft or
final form, under the BHC Act or the Change in Bank
Control Act of 1978, for approval to engage in an
Acquisition Transaction.
Any payment required under this Section 8.02(c) will be (i) payable by
the Seller to the Buyer (by wire transfer of immediately available funds to an
account designated by the Buyer) within five business days after demand by the
Buyer and (ii) net of any other payments made by the Seller to the Buyer
pursuant to the provisions of Section 8.02(b). In the event of a termination
under circumstances that would trigger a payment under this Section 8.02(c), any
standstill provisions contained in the Confidentiality Agreement shall
terminate.
For purposes of this Agreement, "Acquisition Transaction" shall mean
(i) a merger, consolidation or similar transaction involving the Seller, the
Seller's Bank or any of their Subsidiaries, (ii) the disposition, by sale,
lease, exchange or otherwise, of assets of the Seller, the Seller's Bank or any
of their Subsidiaries representing 24.9% or more of the consolidated assets of
the Seller, the Seller's Bank and their Subsidiaries, in a single transaction or
series of transactions, other than sales of mortgages into the secondary market
in the ordinary course of business consistent with past practice, (iii) the
issuance, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 24.9% or more of the voting power of the Seller, the Seller's Bank
or any of their Subsidiaries, (iv) any person (other than the Buyer or any
affiliate of the Buyer) shall have commenced (as such term is defined in Rule
14d-2 under the Exchange Act) or shall have filed a registration statement under
the Securities Act, with respect to, a tender offer or exchange offer to
purchase any shares of Seller Common Stock such that, upon consummation of such
offer, such person would own or control 24.9% or more of the then outstanding
shares of Seller Common Stock, or (v) any person (other than the Buyer or any
affiliate of the Buyer) shall have acquired beneficial ownership (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act) of, or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
the Exchange Act) shall have been formed which shall have acquired beneficial
ownership of, or the right to acquire beneficial ownership of, 24.9% or more of
the then outstanding shares of Seller Common Stock.
(d) Except as otherwise provided in this Section 8.02, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, whether or not any of the transactions contemplated by
this Agreement is consummated.
SECTION 8.03. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval and adoption of this Agreement and the transactions contemplated
hereby, no amendment may be made which would reduce the amount or change the
type of consideration into which each share of Seller Common Stock shall
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be converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.04. WAIVER. At any time prior to the Effective Time, any
party hereto may (i) extend the time for the performance of any obligation or
other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein; provided, however, that after the approval and
adoption of this Agreement and the approval of the transactions contemplated
hereby by the stockholders of the Seller there may not be, without further
approval of such stockholders, any extension or waiver of this Agreement or any
portion thereof which would reduce the amount or change the form of the
consideration into which each Share shall be converted upon consummation of the
Merger delivered to the Seller's stockholders hereunder other than as
contemplated by this Agreement. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be bound
thereby, but such extension or waiver or failure to insist on strict compliance
with an obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place at 9:00
a.m. on a date to be specified by the parties, within ten business days after
the satisfaction or waiver (subject to applicable law) of the latest to occur of
the conditions set forth in Sections 7.01 (the "Closing Date"), at the offices
of Goodwin, Procter & Hoar LLP, One Exchange Place, Boston, Massachusetts,
unless another time, date or place is agreed to in writing by the parties
hereto.
SECTION 9.02. ALTERNATIVE STRUCTURE. Notwithstanding anything to the
contrary contained in this Agreement, prior to the Effective Time, the Buyer
shall be entitled to revise the structure of the Merger and the other
transactions contemplated hereby and thereby, provided that (i) there are no
material adverse federal or state income tax consequences to the Seller and its
stockholders as a result of the modification; (ii) the consideration to be paid
to the holders of shares of Seller Common Stock under this Agreement is not
thereby changed in kind or reduced in amount; (iii) there are no material
adverse changes to the benefits and other arrangements provided to or on behalf
of the Seller's directors, officers and other employees; and (iv) such
modification will not be likely to delay materially or jeopardize receipt of any
required regulatory approvals or other consents and approvals relating to the
consummation of the Merger. This Agreement and any related documents shall be
appropriately amended in order to reflect any such revised structure.
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SECTION 9.03. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Articles I and II and Sections 6.08, 6.09 and 6.16 shall survive the
Effective Time indefinitely and those set forth in Section 6.02(c) and in
Sections 6.02(e), Article VIII and Article IX hereof shall survive termination
indefinitely.
SECTION 9.04. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 9.04):
if to the Buyer:
Andover Bancorp, Inc.
61 Main Street
Andover, Massachusetts 01810
Facsimile: (978) 475-3200
Attention: Gerald T. Mulligan
President and Chief Executive Officer
with a copy to:
Goodwin, Procter & Hoar
One Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attention: Regina M. Pisa, P.C.
Paul W. Lee, P.C.
if to the Seller:
GBT Bancorp
2 Harbor Loop
Post Office Box 30
Gloucester, Massachusetts 01930-0030
Facsimile: (978) 283-5072
Attention: David L. Marsh
President and Chief Executive Officer
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with a copy to:
Foley Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 832-7000
Attention: Peter W. Coogan, Esq.
SECTION 9.05. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means 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 the person (either alone, or through
or together with any subsidiary) has, directly or indirectly, an interest of 5%
or more;
(b) "beneficial owner" with respect to any shares of Seller Common
Stock means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as such
term is defined in Rule 12b-2 promulgated under the Exchange Act) beneficially
owns, directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding or
(iii) which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or associates or person with whom
such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any Shares;
(c) "business day" means any day on which the principal offices of the
FDIC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of Boston;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "knowledge" as used herein in the context of the Seller shall mean
knowledge of the Seller or its subsidiaries and as used herein in the context of
the Buyer shall mean knowledge of the Buyer or its subsidiaries.
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(f) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government;
and
(g) "subsidiary" or "subsidiaries" of the Surviving Corporation, the
Buyer, the Seller or any other person means an affiliate controlled by such
person, directly or indirectly, through one or more intermediaries, except as
otherwise defined herein.
SECTION 9.06. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement be
consummated as originally contemplated to the fullest extent possible.
SECTION 9.07. ENTIRE AGREEMENT. This Agreement (including the
Disclosure Schedules and Exhibits) and the Stock Option Agreement constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof except
for the Confidentiality Agreement.
SECTION 9.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 9.09. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement (other than Section 6.08), express or implied, is intended to or shall
confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.10. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
this Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions thereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
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SECTION 9.11. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts
applicable to contracts executed in and to be performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any state or federal court sitting in the City of
Boston.
SECTION 9.12. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.13. INTERPRETATION. When a reference is made in this
Agreement to Sections, Exhibits, Annexes or Schedules, such reference shall be
to a Section of or Exhibit, Annex or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The phrases "the date of this Agreement," "the
date hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to be January 26, 2000.
SECTION 9.14. COUNTERPARTS. This Agreement may be executed (including
by facsimile) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
* * * * *
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IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement
to be executed as a sealed instrument as of the date first written above by
their respective officers thereunto duly authorized.
ANDOVER BANCORP, INC.
By: /s/ Gerald T. Mulligan
---------------------------------------
Title: President and Chief Executive
Officer
Attest: /s/ Cynthia J. Milne
By: /s/ Joseph F. Casey
---------------------------------------
Secretary Title: Chief Financial Officer and
Treasurer
GBT BANCORP
By: /s/ David L. Marsh
---------------------------------------
Title: President and Chief Executive
Officer
Attest: /s/ Marianne Smith
By: /s/ Marianne Smith
---------------------------------------
Secretary Title: Treasurer
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Annex B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of January 26, 2000, between GBT
BANCORP, a Massachusetts corporation ("ISSUER"), and ANDOVER BANCORP, INC., a
Delaware corporation ("GRANTEE").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "MERGER AGREEMENT"), which agreement has been
executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "OPTION") to purchase, subject to the terms hereof, up to 157,483
fully paid and nonassessable shares of Issuer's Common Stock, no par value per
share ("COMMON STOCK"), at a price of $20.50 per share (the "OPTION PRICE");
PROVIDED FURTHER that in no event shall the number of shares of Common Stock for
which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement), the number of shares of Common Stock subject
to the Option shall be increased so that, after such issuance, it equals 19.9%
of the number of shares of Common Stock then issued and outstanding without
giving effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined); PROVIDED THAT the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 100 days following such Subsequent Triggering Event. Each of
the following shall be an "Exercise Termination Event": (i) the Effective Time
(as defined in the Merger Agreement) of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial
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Triggering Event except a termination by Grantee pursuant to Sections 8.01(d) or
8.01(e) of the Merger Agreement (unless the breach by Issuer giving rise to such
right of termination is non-volitional); or (iii) the passage of twelve months
after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination by Grantee
pursuant to Sections 8.01(d) or 8.01(e) of the Merger Agreement (unless the
breach by Issuer giving rise to such right of termination is non-volitional).
The "Last Triggering Event" shall mean the last Initial Triggering Event to
expire. The term "Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "ISSUER
SUBSIDIARY"), without having received Grantee's prior written consent, shall
have entered into an agreement to engage in an Acquisition Transaction (as
hereinafter defined) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and the
rules and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "GRANTEE SUBSIDIARY") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any Acquisition
Transaction or shall have failed to publicly oppose an Acquisition Transaction,
in each case with any person other than Grantee or a Grantee Subsidiary. For
purposes of this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated by the
Securities and Exchange Commission (the "SEC") of Issuer, (x) a purchase, lease
or other acquisition of all or a substantial portion of the assets of Issuer or
any Significant Subsidiary of Issuer, (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer or any
Significant Subsidiary of Issuer, or (z) any substantially similar transaction;
PROVIDED, HOWEVER, that in no event shall any (i) merger, consolidation, or
similar transaction involving Issuer or any Significant Subsidiary in which the
voting securities of Issuer outstanding immediately prior thereto continue to
represent (by either remaining outstanding or being converted into the voting
securities of the surviving entity of any such transaction) at least 65% of the
combined voting power of the voting securities of the Issuer or the surviving
entity outstanding immediately after the consummation of such merger,
consolidation, or similar transaction, or (ii) any merger, consolidation,
purchase or similar transaction involving only the Issuer and one or more of its
Subsidiaries or involving only any two or more of such Subsidiaries, be deemed
to be an Acquisition Transaction, PROVIDED any such transaction is not entered
into in violation of the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended, proposed or
publicly
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announced its intention to authorize, recommend or propose, to engage in an
Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary, or the Board of Directors of Issuer shall have publicly withdrawn or
modified, or publicly announced its intention to withdraw or modify, in any
manner adverse to Grantee, its recommendation that the stockholders of Issuer
approve the transactions contemplated by the Merger Agreement;
(iii) The shareholders of Issuer shall have voted and failed to
approve and adopt the Merger Agreement and the Merger at a meeting which has
been held for that purpose or any adjournment or postponement thereof, or such
meeting shall not have been held in violation of the Merger Agreement or shall
have been canceled prior to termination of the Merger Agreement if, prior to
such meeting (or if such meeting shall not have been held or shall have been
canceled, prior to such termination), any person (other than the Grantee or a
Grantee Subsidiary) shall have made a proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(iv) Any person other than Grantee, any Grantee Subsidiary or
any Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of
its business shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares of Common Stock
(the term "beneficial ownership" for purposes of this Option Agreement having
the meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(v) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(vi) After an overture is made by a person other than Grantee or
any Grantee Subsidiary to Issuer or its stockholders to engage in an Acquisition
Transaction, Issuer shall have breached any covenant or obligation contained in
the Merger Agreement and such breach (x) would entitle Grantee to terminate the
Merger Agreement and (y) shall not have been cured prior to the Notice Date (as
defined below); or
(vii) Any person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, whether in
draft or final form, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
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(i) The acquisition by any person of beneficial ownership of 20%
or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "TRIGGERING EVENT"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to exercise
the Option.
(e) In the event the Holder is entitled to and wishes to exercise
the Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "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 (the "CLOSING DATE"); PROVIDED that if
prior notification to or approval of the Federal Reserve Board or any other
regulatory agency is required in connection with such purchase, the Holder 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 periods (including any extensions thereof) have expired or been
terminated or such approvals have been obtained and any requisite waiting period
or periods (including any extensions thereof) shall have passed. Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
PROVIDED that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend that shall read substantially as
follows:
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"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 ACT"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec. 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), or the Change in Bank Control Act of 1978, as amended, or
any state banking law, prior approval of or notice to the Federal Reserve Board
or to any other federal or state regulatory authority
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is necessary before the Option may be exercised, cooperating fully with the
Holder in preparing such applications or notices and providing such information
to the Federal Reserve Board or such other federal or state regulatory authority
as they may require) in order to permit the Holder to exercise the Option and
Issuer duly and effectively to issue shares of Common Stock pursuant hereto; and
(iv) promptly to take all action provided herein to protect the rights of the
Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock that
would be prohibited under the terms of the Merger Agreement, or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Option Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6. The obligations set forth in this Section 6 shall apply during such
time as securities of the Issuer (or its successors or assigns) are registered
under the 1934 Act. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 100 day after such Subsequent Triggering Event (whether
on its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the 1933 Act
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covering the resale of this Option and any shares issued pursuant to this Option
and the issuance of any shares issuable pursuant to this Option to the extent
then permitted under the rules, regulations or policies of the SEC and, to the
extent not so permitted, the resale of such shares issuable pursuant to this
Option. The Issuer shall use its reasonable best efforts to cause such
registration statement to become effective and remain current in order to permit
the sale or other disposition of this Option and any shares of Common Stock
issued upon total or partial exercise of this Option ("OPTION SHARES") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 180 days
from the day such registration statement first becomes effective or such longer
time as may be reasonably necessary to effect such sales or other dispositions.
Grantee shall have the right to demand two such registrations. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering of shares of Common Stock, and if in
the good faith judgment of the managing underwriter or managing underwriters,
or, if none, the sole underwriter or underwriters, of such offering, the
inclusion of the Holder's Option or Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; and PROVIDED, HOWEVER, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 25% of the total number
of shares to be sold by the Holder and Issuer in the aggregate; and PROVIDED
FURTHER, however, that if such reduction occurs, then the Issuer shall file a
registration statement for the balance as promptly as practical and no reduction
shall thereafter occur. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall 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 for the Issuer. Upon
receiving any request under this Section 6 from any Holder, Issuer agrees to
send a copy thereof to any other person known to Issuer to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Grantee as a result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto) shall repurchase
the Option from the Holder at a price (the "OPTION REPURCHASE PRICE") equal to
the amount by which (A) the market/offer price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares for which this Option may
then be exercised and (ii) at the request of the owner of Option Shares from
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time to time (the "OWNER") delivered within 100 days after such occurrence (or
such later period as provided in Section 10), Issuer shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "OPTION SHARE REPURCHASE PRICE") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender offer or exchange offer therefor has been made, (ii) the price
per share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or a substantial portion of Issuer's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, divided by the number
of shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be, and reasonably acceptable to the
Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the later to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; PROVIDED, HOWEVER, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required
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notices as promptly as practicable in order to accomplish such repurchase), the
Holder or Owner may revoke its notice of repurchase of the Option or the Option
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to the Holder and/or the Owner,
as appropriate, that portion of the Option Repurchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the portion thereof theretofore delivered to the Holder
and the denominator of which is the Option Repurchase Price, or (B) to the Owner
a certificate for the Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be
deemed to have occurred (i) upon the consummation of any merger, consolidation
or similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer, other than
any such transaction which would not constitute an Acquisition Transaction
pursuant to the proviso to Section 2 (b) (i) hereof or (ii) upon the acquisition
by any person of beneficial ownership of 50% or more of the then outstanding
shares of Common Stock, PROVIDED THAT no such event shall constitute a
Repurchase Event unless a Subsequent Triggering Event shall have occurred prior
to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "SUBSTITUTE
OPTION"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
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(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; PROVIDED THAT if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with respect to a share
of common stock issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value multiplied
by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "SUBSTITUTE OPTION
ISSUER") shall make a cash payment to Holder equal to the excess of (i) the
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value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"SUBSTITUTE OPTION HOLDER"), the issuer of the Substitute Option (the
"SUBSTITUTE OPTION ISSUER") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "SUBSTITUTE OPTION REPURCHASE PRICE")
equal to (x) the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed), and at the request of the owner (the "SUBSTITUTE
SHARE OWNER") of shares of Substitute Common Stock (the "SUBSTITUTE SHARES"),
the Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "SUBSTITUTE SHARE REPURCHASE PRICE") equal to (x) the Highest Closing Price
multiplied by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, at its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
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(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or in full, the Substitute Option Issuer
shall immediately so notify the Substitute Option Holder and/or the Substitute
Share Owner and thereafter deliver or cause to be delivered, from time to time,
to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the portion of the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five business days
after the date on which the Substitute Option Issuer is no longer so prohibited;
PROVIDED, HOWEVER, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation from delivering to the Substitute
Option Holder and/or the Substitute Share Owner, as appropriate, the Substitute
Option Repurchase Price and the Substitute Share Repurchase Price, respectively,
in full (and the Substitute Option Issuer shall use its best efforts to receive
all required regulatory and legal approvals as promptly as practicable in order
to accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing.
10. The 100-day period for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly
12
<PAGE> 190
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) Issuer has taken all action (including if required redeeming all
of the Rights or amending or terminating the Rights Agreement) so that the
entering into of this Option Agreement, the acquisition of shares of Common
Stock hereunder and the other transactions contemplated hereby do not and will
not result in the grant of any rights to any person under the Rights Agreement
or enable or require the Rights to be exercised, distributed or triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. 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 Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee 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
Issuer, (iii)
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<PAGE> 191
an assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq National Stock Market
upon official notice of issuance and applying to the Federal Reserve Board under
the BHCA for approval to acquire the shares issuable hereunder, but Grantee
shall not be obligated to apply to state banking authorities for approval to
acquire the shares of Common Stock issuable hereunder until such time, if ever,
as it deems appropriate to do so.
15. (a) Grantee may, at any time during which Issuer would be required
to repurchase the Option or any Option Shares pursuant to Section 7, surrender
the Option (together with any Option Shares issued to and then owned by Grantee)
to Issuer in exchange for a cash fee equal to the Surrender Price (as defined
below); provided, however, that Grantee may not exercise its rights pursuant to
this Section 15 if Issuer has repurchased the Option (or any portion thereof) or
any Option Shares pursuant to Section 7. The "Surrender Price" shall be equal to
(i) $1 million, plus (ii) if applicable, the aggregate purchase price previously
paid pursuant hereto by Grantee with respect to any Option Shares, minus (iii)
if applicable, the sum of (A) the excess of (1) the net cash amounts, if any,
received by Grantee pursuant to the arms' length sale of Option Shares (or any
other securities into which such Option Shares were converted or exchanged) to
any party not affiliated with Grantee, over (2) the aggregate purchase price
previously paid pursuant hereto by Grantee with respect to such Option Shares
and (B) the net cash amounts, if any, received by Grantee pursuant to an arms'
length sale of a portion of the Option to any party not affiliated with Grantee.
(b) Grantee may exercise its right to surrender the Option and any
Option Shares pursuant to this Section 15 by surrendering to Issuer, at its
principal office, this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
surrender the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second business
day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from paying the Surrender Price to Grantee in full, Issuer shall
immediately so notify Grantee and thereafter deliver or cause to be delivered,
from time to time, to Grantee, the portion of the Surrender Price that Issuer is
no longer prohibited from paying, within five business days after the date on
which Issuer is no longer so prohibited, PROVIDED, HOWEVER, that if Issuer at
any time after delivery of a notice of surrender pursuant to paragraph (b) of
this Section 15 is
14
<PAGE> 192
prohibited under applicable law or regulation from paying to Grantee the
Surrender Price in full (i) Issuer shall (A) use its reasonable best efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to make such payments, (B) within
five days of the submission or receipt of any documents relating to any such
regulatory and legal approvals, provide Grantee with copies of the same, and (C)
keep Grantee advised of both the status of any such request for regulatory and
legal approvals, as well as any discussions with any relevant regulatory or
other third party reasonably related to the same and (ii) Grantee may revoke
such notice of surrender by delivery of a notice of revocation to Issuer and,
upon delivery of such notice of revocation, the Exercise Termination Date shall
be extended to a date six months from the date on which the Exercise Termination
Date would have occurred if not for the provisions of this Section 15(c) (during
which period Grantee may exercise any of its rights hereunder, including any and
all rights pursuant to this Section 15).
(d) Grantee shall have rights substantially identical to those set
forth in paragraphs (a), (b) and (c) of this Section 15 with respect to the
Substitute Option and the Substitute Option Issuer during any period in which
the Substitute Option Issuer would be required to repurchase the Substitute
option pursuant to Section 9.
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
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 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 Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
19. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
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<PAGE> 193
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly 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.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
* * *
16
<PAGE> 194
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
GBT BANCORP
By: /s/ David L. Marsh
---------------------------------
Name: David L. Marsh
Title: President and Chief Executive
Officer
ANDOVER BANCORP, INC.
By: /s/ Gerald T. Mulligan
------------------------------------
Name: Gerald T. Mulligan
Title: President and Chief Executive
Officer
17
<PAGE> 195
ANNEX C
PROVISIONS OF MASSACHUSETTS LAW GOVERNING SHAREHOLDERS' RIGHTS
MASSACHUSETTS GENERAL LAWS, CHAPTER 156B
Section 85. Dissenting stockholder; right to demand payment for stock; exception
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
Section 86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
Section 87. Statement of rights of objecting stockholders in notice of meeting;
form
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
<PAGE> 196
Section 88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
Section 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
Section 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
Section 91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
<PAGE> 197
Section 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
Section 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
Section 94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
Section 95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
Section 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights
<PAGE> 198
of a stockholder who did not so demand payment for his stock as provided in this
chapter.
Section 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
Section 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
<PAGE> 199
Annex D
[Form of Opinion]
_____ __, 2000
The Board of Directors
GBT Bancorp
2 Harbor Loop
Gloucester, MA 01930
The Board of Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the stockholders of GBT Bancorp ("GBT") of the cash payment
amount and exchange ratio governing the exchange of shares of the common stock
of GBT for shares of common stock of Andover Bancorp, Inc. ("Andover") in
connection with the proposed acquisition of GBT by Andover pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated January 26, 2000 by
and between Andover and GBT. Pursuant to the Merger Agreement, GBT will merge
with and into Andover, with Andover being the surviving corporation.
As is more specifically set forth in the Merger Agreement, upon
consummation of the merger, each outstanding share of GBT common stock, except
for shares held by Andover and its subsidiaries (in both cases, other than
shares held in a fiduciary capacity or as a result of debts previously
contracted), will be exchanged into 0.7543 shares of Andover Common Stock
(subject to modification in certain cases dependent upon the price of Andover
Common Stock proximate to the closing date of the transaction) or will receive
$20.50 in cash as determined by a GBT shareholder election process outlined in
the Merger Agreement. The Merger Agreement may be terminated under certain
conditions prior to the effective time of the merger by the Board of Directors
of either party based on defined criteria.
McConnell, Budd & Downes, Inc., as part of its investment banking
business, is regularly engaged in the valuation of bank holding companies and
banks, thrift holding companies and thrifts and their securities in connection
with mergers and acquisitions, negotiated underwritings, 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 GBT includes having worked
as a financial advisor to GBT since 1995 on a contractual basis and specifically
includes our participation in the process and negotiations leading up to the
proposed merger with Andover. In the course of our role as financial advisor to
GBT in connection with the merger, we have received fees for our services and
will receive additional fees contingent on the occurrence of certain defined
events. While the payment of all or a significant portion of fees related to
financial advisory services provided in connection with arm's-length mergers and
other business combination transactions upon consummation of such transactions,
as is the case with this transaction, might be viewed as giving such financial
advisors a
<PAGE> 200
financial interest in the successful completion of such transactions, such
compensation arrangements are standard and customary for transactions of the
size and type of this transaction.
In arriving at our opinion, we have reviewed the Merger Agreement and
the proxy statement/prospectus in the form to be mailed to GBT stockholders. We
have also reviewed publicly available business, financial and shareholder
information relating to GBT and its subsidiaries and certain publicly available
financial and shareholder information relating to Andover.
In connection with the foregoing, we have (i) reviewed Andover's Annual
Reports to Stockholders, Annual Reports on Form 10-K and related financial
information for the five calendar years ended December 31, 1999 and Andover's
Quarterly Report on Form 10-Q for the first three fiscal quarters of 1999; (ii)
reviewed GBT's Annual Reports to Stockholders and related financial information
for the four calendar years ended December 31, 1998 and GBT's Quarterly Reports
to Stockholders for the first three fiscal quarters of 1999 and related
unaudited financial information for 1999; (iii) reviewed certain internal
financial information and financial forecasts, relating to the business,
earnings, cash flows, assets and prospects of the respective companies furnished
to McConnell, Budd & Downes, Inc. by Andover and GBT, respectively; (iv) held
discussions with members of the senior management and board of GBT concerning
the past and current results of operations of GBT, its current financial
condition and management's opinion of its future prospects; (v) held discussions
with members of senior management of Andover concerning the past and current
results of operations of Andover, its current financial condition and
management's opinion of its future prospects; (vi) reviewed the historical
record of reported prices, trading volume and dividend payments for both GBT and
Andover common stock; (vii) considered the current state of and future prospects
for the economy of eastern Massachusetts generally and the relevant market areas
for GBT and Andover in particular; (viii) reviewed specific merger analysis
models employed by McConnell, Budd & Downes, Inc. to evaluate potential business
combinations of financial institutions; (ix) reviewed the reported financial
terms of selected recent business combinations in the banking industry; and (x)
performed such other studies and analyses as McConnell, Budd & Downes, Inc.
considered appropriate under the circumstances associated with this particular
transaction.
In the course of our review and analysis we considered, among other
things, such topics as the historical and projected future contributions of
recurring earnings by the parties, the anticipated future earnings per share
results for the parties on both a combined and stand-alone basis, the potential
to realize significant recurring operating expense reductions and the impact
thereof on projected future earnings per share, the relative capitalization and
capital adequacy of each of the parties, the availability of non-interest income
to each of the parties, the relative asset quality and apparent adequacy of the
reserve for loan losses for each of the parties. We also considered the
composition of deposits and the composition of the loan portfolio of each of
Andover and GBT. In addition, we considered the historical trading range,
trading pattern and relative market liquidity of the common shares of each of
the parties. 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 Andover and GBT and or otherwise
publicly obtainable. In reaching our opinion we have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or the liabilities of
either Andover or GBT, nor have we obtained from any other source, any current
appraisals of the assets
2
<PAGE> 201
or liabilities of either Andover or GBT. We have also relied on the management
of Andover and GBT as to the reasonableness of various financial and operating
forecasts 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 the receipt of certain required regulatory approvals necessary before
consummation of the merger, we assume that no conditions will be imposed by any
regulatory agency in connection with its approval of the merger that will have a
material adverse effect on the results of operations, the financial condition or
the prospects of GBT following consummation of the merger.
Based upon and subject to the foregoing, it is our opinion, that as of
the date of this letter, the exchange ratio is fair to the stockholders of GBT
from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
3
<PAGE> 202
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, as amended,
the Registrant has the power to indemnify directors, officers, employees or
agents, under certain prescribed circumstances, and subject to certain
limitations, against certain costs and expenses, including attorneys' fees,
actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his or her being a director, officer,
employee or agent of the Registrant if it is determined that he or she acted in
accordance with the applicable standard of conduct set forth in such statutory
provisions.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article V of the Registrant's By-laws , as amended and restated,
provides that present and former directors and officers of the Registrant will
be indemnified to the fullest extent authorized by the DGCL, as the same exists
or may in the future be amended to provide for broader indemnification rights,
against any and all reasonable expenses or liability incurred in connection with
any threatened, pending or completed legal proceeding in which any such person
is involved as a result of serving or having served as a director or officer of
the Registrant, as a director or officer of any subsidiary of the Registrant, or
acting or having acted in any capacity with any other entity at the Registrant's
written request or direction, in each case if such person acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the Registrant, and with respect to criminal actions or
proceedings, that such person had no reasonable cause to believe his or her
conduct was unlawful. The By-laws provide that any indemnification extended to
an officer pursuant to Article V will include the reimbursement of expenses by
us prior to the final disposition of the proceeding upon the receipt of an
undertaking by such indemnified person to repay such payment if it is determined
that such indemnified person is not entitled to such reimbursement. The By-laws
further provide that the previously described provisions of Article V are deemed
to be a contract between the Registrant and each director and officer. In
addition, the By-laws provide that the provisions with respect to
indemnification and payment of expenses incurred in defending a covered
proceeding will not be exclusive of any right which any person may have or
hereafter acquire under any statute, provision of the Charter or the By-laws,
agreement, vote of the stockholders or disinterested directors or otherwise.
Article 6 of the Registrant's Restated Certificate of Incorporation
provides that directors of the Registrant shall not be personally liable for
monetary damages to the Registrant or its stockholders for breaches of their
fiduciary duty as directors, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
II-1
<PAGE> 203
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) The following exhibits are filed as part of this Registration
Statement or incorporated herein by reference:
Exhibit
No. Description
2.1 Agreement and Plan of Merger by and between Andover Bancorp, Inc.
and GBT Bancorp, dated as of January 26, 2000 (Incorporated by
reference to Exhibit 2.1 to Form 8-K of Andover Bancorp, Inc. filed
February 9, 2000 and attached as Annex A to the Joint Proxy
Statement/Prospectus included in this Registration Statement)
4.1 Specimen of Andover Bancorp, Inc. common stock certificate
(incorporated herein by reference to Exhibit 4 to Andover's
Registration Statement on Form S-4, Registration No. 33-11891, filed
on February 11, 1987).
4.2 Shareholder Rights Agreement, dated as of January 21, 1999, between
Andover Bancorp, Inc. and BankBoston, N.A., as Rights Agent
(incorporated herein by reference to Exhibit 4.1 to Andover Bancorp
Inc.'s Registration Statement on Form 8-A, filed on January 25,
1999)
*5.1 Opinion of Goodwin, Procter & Hoar LLP
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters
*8.2 Opinion of Foley, Hoag & Eliot LLP as to certain tax matters
10.1 Stock Option Agreement, dated as of January 26, 2000, by and between
Andover Bancorp, Inc. and GBT Bancorp (Incorporated by reference to
Exhibit 10.1 to Form 8-K of Andover Bancorp, Inc. filed February 9,
2000 and attached as Annex B to the Joint Proxy Statement/Prospectus
included in this Registration Statement)
*23.1 Consent of Shatswell, MacLeod & Company, P.C.
*23.2 Consent of KPMG LLP
*23.3 Consent of McConnell, Budd & Downes, Inc.
23.4 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1 and
8.1)
23.5 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 8.2)
24.1 Powers of Attorney (contained on signature pages to this
Registration Statement)
99.1 Opinion of McConnell, Budd & Downes, Inc. as to the fairness of the
transaction to stockholders of GBT Bancorp (Attached as Annex D to
the Joint Proxy Statement/Prospectus included in this Registration
Statement)
- -----------
* Filed herewith.
II-2
<PAGE> 204
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934, as amended) that is incorporated by
reference in the registration statement will be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof.
(b) 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.
(c) The undersigned registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (b) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment will be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
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.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Item 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.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Andover
Bancorp, Inc. certifies that it has duly caused this registration statement (the
" Registration Statement") to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Andover, Massachusetts, on this 22nd
day of March, 2000.
ANDOVER BANCORP, INC.
By: /s/ Gerald T. Mulligan
--------------------------------
Gerald T. Mulligan
President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below hereby severally constitutes and appoints Gerald T. Mulligan and
Joseph F. Casey, and each of them singly, such person's true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that any said attorney-in-fact and agent, or any substitute or substitutes of
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Gerald T. Mulligan President and Chief March 22, 2000
- --------------------------------------------
Gerald T. Mulligan Executive Officer
(Principal Executive Officer)
/s/ Thomas F. Caffrey Director March 22, 2000
- --------------------------------------------
Thomas F. Caffrey
/s/ Naomi A. Gardner Director March 22, 2000
- --------------------------------------------
Naomi A. Gardner
/s/ Cornelius J. McCarthy Director March 22, 2000
- --------------------------------------------
Cornelius J. McCarthy
/s/ Clifford E. Elias Director March 22, 2000
- --------------------------------------------
Clifford E. Elias
</TABLE>
II-4
<PAGE> 206
<TABLE>
<S> <C> <C>
/s/ Robert J. Scribner Director March 22, 2000
- --------------------------------------------
Robert J. Scribner
/s/ Fred P. Shaheen Director March 22, 2000
- --------------------------------------------
Fred P. Shaheen
/s/ Paul J. Donahue, Sr. Director March 22, 2000
- --------------------------------------------
Paul J. Donahue, Sr.
/s/ John E. Fenton, Jr. Director March 22, 2000
- --------------------------------------------
John E. Fenton, Jr.
/s/ Frank D. Goldstein Director March 22, 2000
- --------------------------------------------
Frank D. Goldstein
/s/ Irving E. Rogers, III Director March 22, 2000
- --------------------------------------------
Irving E. Rogers, III
/s/ Joseph F. Casey Chief Financial Officer and March 22, 2000
- --------------------------------------------
Joseph F. Casey Treasurer (Principal
Financial and Accounting Officer)
</TABLE>
II-5
<PAGE> 207
EXHIBIT INDEX
Exhibit
No. Description
2.1 Agreement and Plan of Merger by and between Andover Bancorp, Inc.
and GBT Bancorp, dated as of January 26, 2000 (Incorporated by
reference to Exhibit 2.1 to Form 8-K of Andover Bancorp, Inc. filed
February 9, 2000 and attached as Annex A to the Joint Proxy
Statement/Prospectus included in this Registration Statement)
4.1 Specimen of Andover Bancorp, Inc. common stock certificate
(incorporated herein by reference to Exhibit 4 to Andover's
Registration Statement on Form S-4, Registration No. 33-11891, filed
on February 11, 1987).
4.2 Shareholder Rights Agreement, dated as of January 21, 1999, between
Andover Bancorp, Inc. and BankBoston, N.A., as Rights Agent
(incorporated herein by reference to Exhibit 4.1 to Andover Bancorp
Inc.'s Registration Statement on Form 8-A, filed on January 25,
1999).
*5.1 Opinion of Goodwin, Procter & Hoar LLP
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters
*8.2 Opinion of Foley, Hoag & Eliot LLP as to certain tax matters
10.1 Stock Option Agreement, dated as of January 26, 2000, by and between
Andover Bancorp, Inc. and GBT Bancorp (Incorporated by reference to
Exhibit 10.1 to Form 8-K of Andover Bancorp, Inc. filed February 9,
2000 and attached as Annex B to the Joint Proxy Statement/Prospectus
included in this Registration Statement)
*23.1 Consent of Shatswell, MacLeod & Company, P.C.
*23.2 Consent of KPMG LLP
*23.3 Consent of McConnell, Budd & Downes, Inc
23.4 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1 and
8.1)
23.5 Consent of Foley, Hoag & Elliot LLP (included in Exhibit 8.2)
24.1 Powers of Attorney (contained on signature pages to this
Registration Statement)
99.1 Opinion of McConnell, Budd & Downes, Inc. as to the fairness of the
transaction to stockholders of GBT Bancorp (Attached as Annex D to
the Joint Proxy Statement/Prospectus included in this Registration
Statement)
- ---------------------
*Filed herewith.
<PAGE> 1
Exhibit 5.1
[Form of Opinion]
____________ ___, 2000
Andover Bancorp, Inc.
61 Main Street
Andover, Massachusetts 01810
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Andover Bancorp, Inc., a Delaware
corporation ("The Corporation"), in connection with the filing of a Registration
Statement on Form S-4 (as amended, the "Registration Statement") for the
registration of up to 382,000 shares of Common Stock, par value $.10 per share
(the "Common Stock"), of the Corporation under the Securities Act of 1933, as
amended (the "Act"). In this capacity, we have reviewed the Certificate of
Incorporation of the Corporation as certified by the Delaware Secretary of
State, the Registration Statement, including the exhibits thereto, the records
of corporate proceedings of the Board of Directors of the Corporation relating
to the authorization of the issuance of the Common Stock and the merger (the
"Merger") of GBT Bancorp, a Massachusetts corporation ("GBT"), with and into the
Corporation, and such certificates and other documents as we deemed necessary or
advisable for the purpose of giving the opinion contained herein.
In our review, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as certified, photostatic or facsimile copies, the authenticity of the
originals of such copies and the authenticity of telephonic confirmations of
public officials and others. As to facts material to our opinion, we have relied
upon certificates or telephonic confirmations of public officials and
certificates, documents, statements and other information of the Corporation or
representatives or officers thereof.
We are attorneys admitted to practice in The Commonwealth of
Massachusetts. We express no opinion concerning the laws of any jurisdictions
other than the laws of The Commonwealth of Massachusetts, the Delaware General
Corporation Law, and the federal laws of the United States of America, and also
express no opinion with respect to the blue sky or securities laws of any state,
including Massachusetts and Delaware.
Based on the foregoing, we are of the opinion that, upon approval of
the Merger and the matters and transactions contemplated by the Agreement and
Plan of Merger, dated as of January 26, 2000, by and between the Corporation and
GBT (the "Merger Agreement"), by the
<PAGE> 2
stockholders of GBT in accordance with the terms and conditions set forth in the
Registration Statement, including but not limited to, the terms and conditions
of the Merger Agreement attached to the Proxy Statement/Prospectus included in
the Registration Statement as Annex A, the filing of the Articles of Merger with
the Secretary of State of The Commonwealth of Massachusetts, the filing of the
Certificate of Merger with the Delaware Secretary of State, and the issuance and
delivery of the Common Stock to the stockholders of GBT who receive Common Stock
pursuant to the Merger, the Common Stock will be validly issued, fully paid and
non-assessable.
The opinion expressed in this letter is limited to the matters set
forth herein, and no other opinions should be inferred beyond the matters
expressly stated. This letter and the opinion expressed herein are being
furnished to you for your benefit and may not be circulated, quoted from or
otherwise referred to by any other person or for any other purpose without our
prior written consent.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Proxy Statement/Prospectus contained therein. In giving our
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
-----------------------------------
GOODWIN, PROCTER & HOAR LLP
<PAGE> 1
Exhibits 8.1
[Form of Tax Opinion]
__________, 2000
Andover Bancorp, Inc.
61 Main Street
Andover, Massachusetts 01810
Re: Merger of GBT Bancorp with and into Andover Bancorp, Inc.
---------------------------------------------------------
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to
Andover Bancorp, Inc., a Delaware corporation ("ANDOVER"), in connection with
the registration statement filed with the Securities and Exchange Commission on
Form S-4 on or about the date hereof (the "REGISTRATION STATEMENT") regarding
the proposed merger (the "MERGER") of GBT Bancorp, a Massachusetts corporation
("GBT"), with and into Andover pursuant to an Agreement and Plan of Merger (the
"MERGER AGREEMENT") dated as of January 26, 2000, by and between Andover and
GBT. This opinion relates to the qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"), and the status of Andover and GBT as parties to such
proposed reorganization within the meaning of Section 368(b) of the Code.
For purposes of the opinions set forth below, we have reviewed and
relied upon the Merger Agreement and such other documents, records and
instruments as we have deemed necessary or appropriate as a basis for our
opinion. In addition, in rendering our opinion we have relied upon certain
statements, representations and warranties made by Andover and GBT set forth in
representation letters provided to us by Andover and GBT in connection with the
preparation of this opinion. We have assumed that such statements,
representations and warranties are true, correct, complete and not breached and
will continue to be so through the date of the Merger, that no actions that are
inconsistent with such statements, representations and warranties will be taken
and that all representations, statements and warranties made to "the best
knowledge of" any person or with similar qualification are and will be true,
correct and complete as if made without such qualification. We also have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to the original documents of all documents
submitted to us as copies, the authority and capacity of the individual or
individuals who executed any such documents on behalf of any person, the
<PAGE> 2
Andover Bancorp, Inc.
_____________, 2000
Page 2
conformity to the final documents of all documents submitted to us as drafts and
the accuracy and completeness of all records made available to us. In addition,
we have assumed that the Merger will be consummated in accordance with the
Merger Agreement, that the Merger will qualify as a merger under the applicable
laws of Delaware and Massachusetts, that each of Andover and GBT will comply
with all reporting obligations with respect to the Merger required under the
Code and the Treasury Regulations thereunder, and that the Merger Agreement is
valid and binding in accordance with its terms. We have further assumed that
Andover common stock will represent at least forty percent (40%) of the
aggregate fair market value of the total consideration received by the GBT
stockholders as a group in the merger, as measured at the effective time of the
merger.
Any inaccuracy in, or breach of, any of the aforementioned
statements, representations, warranties and assumptions or any change after the
date hereof in applicable law could adversely affect our opinions. No ruling has
been or will be sought from the Internal Revenue Service by Andover or GBT as to
the federal income tax consequences of any aspect of the Merger.
Based upon and subject to the foregoing, as well as the limitations
set forth below, it is our opinion, under presently applicable federal income
tax law, that the Merger of GBT with and into Andover will qualify as a
reorganization within the meaning of Section 368(a) of the Code, and that
Andover and GBT each will be a party to such reorganization within the meaning
of Section 368(b) of the Code.
* * *
We express no opinion herein other than the opinions expressly set
forth above. In particular, no opinion is expressed as to the tax consequences
of any of the transactions under any foreign, state, or local tax law. You
should recognize that our opinions are not binding on the Internal Revenue
Service and that a court or the Internal Revenue Service may disagree with the
opinions contained herein. Although we believe that our opinions will be
sustained if challenged, there can be no assurance that this will be the case.
The discussion and conclusions set forth above are based upon current provisions
of the Code, the Income Tax Regulations and Procedure and Administration
Regulations promulgated thereunder, and existing administrative and judicial
interpretations thereof, all of which are subject to change, potentially with
retroactive effect. Changes in applicable law could adversely affect our
opinions. We do not undertake to advise you as to any changes after the date
hereof in applicable law that may affect our opinions.
<PAGE> 3
Andover Bancorp, Inc.
_____________, 2000
Page 3
This opinion is being provided to you in connection with the
transactions set forth in the Merger Agreement and may not be relied upon by any
other person or used for any other purpose without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Federal Income Tax
Consequences" in the Registration Statement. In giving our 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, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
-----------------------------------
Goodwin, Procter & Hoar LLP
<PAGE> 1
Exhibit 8.2
[Form of Tax Opinion]
[ ], 2000
GBT BANCORP
2 Harbor Loop
Gloucester, Massachusetts 01930-0030
Re: Proposed Merger of GBT Bancorp and Andover Bancorp, Inc.
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to GBT Bancorp (the "Company"), a
Massachusetts corporation, in connection with the proposed merger (the "Merger")
of the Company with and into the Andover Bancorp, Inc. ("Andover"), a Delaware
corporation, in accordance with the Agreement and Plan of Merger by and between
Andover and the Company, dated as of January 26, 2000 (the "Agreement").
Capitalized terms used but not defined herein shall have the respective meanings
ascribed to them in the Agreement.
We have examined the law and such papers, including the Agreement, as
deemed necessary to render this option. As to questions of fact material to our
opinion we have relied representations of Andover and the Company contained in
letters addressed to us and attached to this letter (the "Letters of
Representation"), without undertaking to verify the same by independent
investigation; upon representations set forth in the Agreement (including the
Exhibits); and upon such other documents pertaining to the Merger as we have
deemed appropriate and necessary.
In our examination we have assumed that (i) the Merger will be
consummated in accordance with the terms of the Agreement; (ii) each entity that
is a party to any of the documents (the "Documents") described in the preceding
paragraphs has been duly organized under the laws of its state or country of
organization, is validly existing and in good standing under such laws, and is
duly qualified and in good standing in each jurisdiction in which it is required
to be qualified to engage in the transactions contemplated by the Documents;
(iii) each such entity has full power, authority, capacity and legal right to
enter into and perform the terms of the Documents and the transactions
contemplated thereby; (iv) the copies or originals of the Documents furnished to
us are authentic (if originals) or accurate (if copies), those that are
contracts or instruments are enforceable and effective in accordance with their
terms against all parties thereto, and all signatures are genuine; (v) any
representations made in the Documents are, and will continue to be, true and
complete, and no default exists under any of the
<PAGE> 2
GBT BANCORP
[ ], 2000
Page 2
Documents; (vi) the business and affairs of each of the entities that is a party
to any of the Documents will be conducted in accordance with the Documents and
all relevant laws; (vii) no actions will be taken, no change in any of the
Documents will occur, and no other events will occur, after the date hereof,
that would have the effect of altering the facts, Documents or assumptions upon
which this opinion is based; (viii) the business reasons for the Merger will
constitute a valid business purpose, within the meaning of Treasury Regulation
section 1.368-1(b) and (c), for the Merger; and (ix) the fair market value of
the aggregate number of shares of Buyer Common Stock received in respect of
shares of Seller Common Stock in the Merger will equal at least two-thirds of
the aggregate amount of (a) cash received in respect of such shares of Seller
Common Stock as Per Share Cash Consideration plus (b) cash received as payment
of appraised value in respect of Dissenting Shares.
The opinion rendered herein is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Department
proposed, temporary and final regulations, judicial decisions, and rulings and
administrative interpretations of the Internal Revenue Service, as each of the
foregoing exists on the date hereof. The opinion rendered below is not binding
on the Internal Revenue Service or a court of law, and no assurance can be given
that legislative or administrative action or judicial decisions that differ from
the opinion rendered below will not be forthcoming. Any such differences could
be retroactive to transactions or business operations prior to such action or
decisions.
We express no opinion as to the federal income tax consequences other
than that described below, if any, or as to the effect of the Merger on prior
transactions, or as to any state, local or foreign income or other tax
consequences with respect to the Merger.
Based on the foregoing, we are of opinion, as of the date hereof and
under existing law, that the Merger will constitute a reorganization within the
meaning of section 368(a) of the Code.
We undertake no responsibility to update or supplement our opinion.
We are furnishing this letter to you solely in support of the information set
forth under the heading "Federal Income Tax Consequences" in the combined Proxy
Solicitation Statement of the Company and Prospectus of Andover, relating to the
issuance of Andover common stock and payment of cash to the stockholders of the
Company in connection with the Merger. We hereby consent to the filing of this
opinion with the SEC as an exhibit to the S-4 and to the reference to our firm
under such heading in the S-4. 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, as amended. This letter is not to be used,
circulated, or quoted or otherwise referred to for any other purpose without our
prior written consent.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By:
-------------------------------
A Partner
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in the registration statement on Form S-4 of
Andover Bancorp, Inc, of our report dated January 18, 2000, except for Note 14
as to which the date is January 26, 2000, relating to the consolidated balance
sheets of GBT Bancorp and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999,
SHATSWELL, MacLEOD & COMPANY, P-C-
West Peabody, Massachusetts
March 20, 2000
<PAGE> 1
Exhibit 23.2
Independent Auditors Consent
The Board of Directors and Stockholders
Andover Bancorp, Inc.:
We consent to incorporation by reference in Registration Statement on Form S-4
of Andover Bancorp, Inc. of our report dated January 13, 2000, relating to the
consolidated balance sheets of Andover Bancorp, Inc. and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1999, which report appears in the
Form 8-K filed on March 1, 2000. We consent to the reference to our firm under
the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
Boston, Massachusetts
March 20, 2000
<PAGE> 1
Exhibit 23.3
[FORM OF CONSENT OF FINANCIAL ADVISOR]
We hereby consent to the inclusion of the Opinion of McConnell, Budd
& Downes, Inc. as Annex D to this Registration Statement No. XXX on Form S-4 of
Andover Bancorp, Inc. ("Andover") and Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the proposed merger of
Andover and GBT Bancorp and to the references to the work completed by our firm
as financial advisor to GBT Bancorp, therein. 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 thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in the Securities Act
of 1933 as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
McConnell, Budd & Downes, Inc.
___, 2000
