CUSHNOC BANK AND TRUST COMPANY
235 Western Avenue
Augusta, ME 04330
September 9, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Cushnoc Bank and Trust Company ("Cushnoc") to be held at 235 Western Avenue,
Augusta, Maine on October 14, 1997 at 4:00 p.m., local time.
The attached Notice of Special Meeting of Shareholders and
Prospectus/Proxy Statement describe the formal business to be transacted at the
meeting. At the meeting, you will be asked to consider and vote upon a proposal
to approve the Agreement and Plan of Merger (the "Merger Agreement") dated as
of May 9, 1997 by and among Northeast Bancorp, Northeast Bank, FSB and Cushnoc.
The Merger Agreement provides that Cushnoc will be merged into Northeast Bank,
FSB.
Upon consummation of the merger, you will receive 2.089 shares of
Northeast Bancorp common stock for each share of Cushnoc common stock you own,
subject to adjustment under certain circumstances as more fully described in
the Prospectus/Proxy Statement.
You are urged to review carefully the enclosed Prospectus/Proxy
Statement, which contains a more complete description of the terms of the
merger.
The Board of Directors of Cushnoc has unanimously approved the Merger
Agreement and recommends that you vote FOR its approval. Approval of the Merger
Agreement requires the affirmative vote of two-thirds of the outstanding shares
of Cushnoc common stock.
<PAGE> 1
It is very important that your shares be represented at the meeting,
regardless of whether you plan to attend in person. A failure to vote, either
by not returning the enclosed proxy or by checking the "Abstain" box thereon,
will have the same effect as a vote against approval of the Merger Agreement.
To assure that your shares are represented in voting on this very important
matter, please sign, date and return the enclosed proxy card in the enclosed
postage-prepaid envelope whether or not you plan to attend the meeting. If you
do attend, you may, if you wish, revoke your proxy and vote your shares in
person at the meeting.
On behalf of the Board of Directors, we recommend that you vote FOR
approval of the Merger Agreement. We appreciate your continued support of the
Bank.
Sincerely,
Sumner Lipman
Chairman
<PAGE>
CUSHNOC BANK AND TRUST COMPANY
235 Western Avenue
Augusta, ME 04330
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Cushnoc
Bank and Trust Company will be held at 235 Western Avenue, Augusta, Maine, on
Tuesday, October 14 1997 at 4:00 p.m., for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger dated as of May 9, 1997 (the "Merger Agreement") by
and among Northeast Bancorp, Northeast Bank, FSB and Cushnoc Bank
and Trust Company, pursuant to which Cushnoc would merge into
Northeast Bank, FSB and each outstanding share of Cushnoc common
stock would be converted into the right to receive 2.089 shares of
Northeast Bancorp common stock, all on and subject to the terms and
conditions contained therein.
2. To consider and act upon such other matters as may properly come
before the meeting or any adjournments thereof.
Only those shareholders of record at the close of business on September
1, 1997 shall be entitled to notice of, and to vote at, the meeting or any
adjournments thereof. The affirmative vote of the holders of two-thirds of the
outstanding shares of Cushnoc common stock is required for approval of the
Merger Agreement.
<PAGE> 2
Cushnoc shareholders have the right to dissent from the merger and obtain
payment of the fair value of their shares of Cushnoc common stock if they
comply with the applicable provisions of Maine law. In order to perfect
dissenters' rights, Cushnoc shareholders must vote against the Merger by proxy
or at the Special Meeting and must send a notice to Northeast Bank, FSB within
30 days after the Effective Time of the Merger accompanied by their Cushnoc
Stock Certificate. A copy of the applicable Maine statutory provisions is set
forth in Annex III to the accompanying Prospectus/Proxy Statement and a summary
of such provisions is set forth under "SUMMARY -- Dissenter's Rights" and under
"THE MERGER -- Dissenter's Rights." Further information regarding voting rights
and the business to be transacted at the meeting is given in the accompanying
Prospectus/Proxy Statement.
By Order of the Board of Directors
SECRETARY
Augusta, Maine
September 9, 1997
Your vote is important regardless of the number of shares you own. Whether or
not you expect to attend the meeting, please sign, date and promptly return the
accompanying proxy card using the enclosed postage-prepaid envelope. If for any
reason you should desire to revoke your proxy, you may do so at any time before
it is voted at the meeting.
<PAGE>
CUSHNOC BANK AND TRUST COMPANY
PROXY STATEMENT
--------------------
NORTHEAST BANCORP PROSPECTUS
188,010 shares of Common Stock
This Prospectus/Proxy Statement is being furnished by Cushnoc Bank and
Trust Company ("Cushnoc") to the holders of Cushnoc common stock, par value
$15.00 per share ("Cushnoc Common Stock"), in connection with the solicitation
of proxies by the Board of Directors of Cushnoc (the "Cushnoc Board") for use
at a special meeting of Cushnoc shareholders to be held on October 14, 1997,
and at any adjournments or postponements thereof (the "Special Meeting"). This
Prospectus/Proxy Statement is first being mailed to shareholders on or about
September 9, 1997.
At the Special Meeting, shareholders of Cushnoc will consider and vote
upon a proposal to approve the Agreement and Plan of Merger dated as of May 9,
1997 (the "Merger Agreement"), by and among Northeast Bancorp ("NBN"),
Northeast Bank, FSB (the "Bank") and Cushnoc pursuant to which, among other
things, Cushnoc would be merged with and into the Bank (the "Merger"). For a
more detailed description of the terms of the Merger, see "THE MERGER."
<PAGE> 3
Upon consummation of the Merger, each outstanding share of Cushnoc Common
Stock (excluding any dissenting shares), will be converted into the right to
receive 2.089 common shares of NBN subject to possible adjustment if the
average market price of NBN common shares, as calculated in accordance with the
Merger Agreement for a 20 trading day period ending on the date on which
approval of the Office of Thrift Supervision is obtained, falls below $11.50.
The value of the NBN shares to be received in exchange for each share of
Cushnoc Common Stock shall not be less than $24.02 (based on the average
closing price of NBN common shares as calculated in accordance with the Merger
Agreement and for the period therein specified). The number of NBN common
shares to be received by Cushnoc shareholders may also be increased in the
event that a dividend record date has been established for the NBN common
shares which is after September 30, 1997 and before the date of the Closing of
the Merger. See "THE MERGER -- Effective Time of the Merger; Termination of
Amendment." As a result of these provisions, Cushnoc shareholders may not know,
as of the time of the Special Meeting, the exact number of NBN common shares
they will receive in the Merger.
NBN has filed a registration statement on Form S-4 (the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with respect to 188,010 shares of NBN Common Stock issuable pursuant to
the Merger Agreement. This Prospectus/Proxy Statement also constitutes the
prospectus of NBN filed as part of the Registration Statement.
This Prospectus/Proxy Statement is accompanied by the latest NBN Annual
Report on Form 10- K for the year ended June 30, 1996 and NBN's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997.
--------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS
ACCOUNTS, OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
This Prospectus/Proxy Statement does not cover any resale of the
securities to be received by shareholders of Cushnoc upon consummation of the
proposed transaction, and no person is authorized to make any use of this
Prospectus/Proxy Statement in connection with any such resale. Shareholders of
Cushnoc who receive shares of NBN Common Stock as a result of the Merger who
are not affiliates of NBN or Cushnoc will be able to sell such shares without
the use of a resale prospectus. See "THE MERGER -- Resale of NBN Common Stock."
<PAGE> 4
The date of this Prospectus/Proxy Statement is September 9, 1997.
<PAGE>
AVAILABLE INFORMATION
NBN is subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
Reports, proxy statements and other information filed by NBN can be inspected
and copied at Room 1024 of the SEC's office at 450 Fifth Street, N.W.,
Washington, DC 20549 and at the SEC's Regional Offices in New York (7 World
Trade Center, Suite 1300, New York, NY 10048) and Chicago (500 West Madison
Street, Suite 1400, Chicago, IL 60661) and copies of such material can be
obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington DC 20549 at prescribed rates. The SEC maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically including NBN. The
address of the web site is http://www.sec.gov. The NBN Common Stock is quoted
on the American Stock Exchange under the symbol "NBN." Consequently, reports,
proxy statements and other information may be inspected at the offices of the
American Stock Exchange, 86 Trinity Place, New York, NY.
This Prospectus/Proxy Statement does not contain all of the information
set forth in the Registration Statement on Form S-4, of which this
Prospectus/Proxy Statement is a part, and exhibits thereto (together with the
amendments thereto, the "Registration Statement") which has been filed by NBN
with the SEC under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), certain portions of which have
been omitted pursuant to the rules and regulations of the SEC and to which
reference is hereby made for further information.
This Prospectus/Proxy Statement incorporates documents of NBN by
reference which are not presented herein or delivered herewith. All such
documents are available, without charge (other than certain exhibits to such
documents) upon written or oral request from Northeast Bancorp, Inc., 232
Center Street, Auburn, Maine 04210, Attention: Ariel Gill, telephone number
(207)777-6411. In order to ensure timely delivery of such documents, any
request should be made by October 1, 1997.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by NBN (File # 0-16123) with the SEC
pursuant to the Exchange Act are hereby incorporated by referenced in this
Prospectus/Proxy Statement:
(1) NBN's Annual Report on Form 10-K for the year ended June 30, 1996,
filed under NBN's former name, Bethel Bancorp;
<PAGE> 5
(2) NBN's Quarterly Reports on Form 10-Q for the three months ended
September 30, 1996, December 31, 1996 and March 31, 1997; and
(3) NBN's Current Report on Form 8-K dated May 9, 1997.
All documents and reports filed by NBN pursuant to section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date thereof and prior to the
Special Meeting also are hereby incorporated herein by reference into the
Prospectus/Proxy Statement and shall be deemed a part hereof from the date of
the filing of such documents or reports. Any statement contained herein, in any
supplement hereto or in a document or report incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Prospectus/Proxy Statement
to the extent that a statement contained herein, in any supplement hereto or in
any subsequently filed document or report which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement,
this Prospectus/Proxy Statement or any supplement hereto.
No person is authorized to give any information or to make any
representation not contained in this Prospectus/Proxy Statement, and, if given
or made, such information or representation should not be relied upon as having
been authorized. This Prospectus/Proxy Statement does not constitute an offer
to sell or a solicitation of an offer to purchase a security, or a solicitation
of a proxy, in any jurisdiction in which, or to any person to whom, it would be
unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus/Proxy Statement nor any
distribution of the securities made under this Prospectus/Proxy Statement
shall, under any circumstances, create any implication that there has been no
change in the affairs of Northeast Bancorp or Cushnoc or in the information set
forth herein since the date of this Prospectus/Proxy Statement.
<PAGE> ii
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Available Information........................................................ i
Incorporation of Certain Documents by Reference.............................. ii
Summary...................................................................... v
Market for Common Stock and Dividends........................................ xi
Comparative Per Share Data................................................... xii
Selected Consolidated Financial and Other Data of NBN........................ xiv
Selected Financial Data of Cushnoc........................................... xvi
Recent Developments.......................................................... xvii
NBN........................................................................ xvii
Cushnoc.................................................................... xxxiv
General Information.......................................................... 1
<PAGE> 6
The Special Meeting.......................................................... 1
Time and Place............................................................. 1
Matters to be Considered................................................... 1
Shares Outstanding and Entitled to Vote; Record Date....................... 1
Vote Required.............................................................. 1
Solicitation of Proxies.................................................... 2
The Merger................................................................... 2
General.................................................................... 3
Background of the Merger................................................... 3
Reasons for the Merger..................................................... 4
Opinion of Financial Advisor............................................... 6
Effects of the Merger...................................................... 12
Exchange of Cushnoc Common Stock Certificates.............................. 12
Conditions to the Merger................................................... 13
Regulatory Approval........................................................ 15
Business Pending the Merger................................................ 15
No Solicitation............................................................ 17
Effective Time of the Merger; Termination and Amendment.................... 17
Termination Fee............................................................ 19
Interests of Certain Persons in the Merger................................. 19
Certain Employee Matters................................................... 20
Resale of NBN Common Stock................................................. 20
Certain Federal Income Tax Consequences.................................... 21
Accounting Treatment of the Merger......................................... 23
Expenses of the Merger..................................................... 23
Dissenters' Rights......................................................... 23
<PAGE> iii
Cushnoc
General.................................................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Years Ended December 31, 1996 and 1995 and the Three
Months Ended March 31, 1997 and 1996...................................... 24
Management of NBN after the Merger........................................... 35
Description of NBN Capital Stock............................................. 35
NBN Common Stock........................................................... 35
NBN Preferred Stock........................................................ 36
Other Provisions........................................................... 36
Transfer Agent............................................................. 37
Comparison of the Rights of Shareholders..................................... 37
Authorized Capital Stock................................................... 37
Issuance of Capital Stock.................................................. 37
Number of Directors........................................................ 38
Director Vacancies and Removal of Directors................................ 38
Shareholder Nominations.................................................... 38
Inside Directors........................................................... 38
Preemptive Rights.......................................................... 39
Classes of Stock........................................................... 39
Business Combinations...................................................... 39
Special Meetings of Shareholders........................................... 40
Amendment of Governing Instruments......................................... 40
NBN Common Stock Ownership of Certain Beneficial Owners and Management....... 41
Security Ownership of Certain Beneficial Owners............................ 42
Security Ownership of Management........................................... 44
<PAGE> 7
Certain Beneficial Owners of Cushnoc Common Stock............................ 44
Security Ownership of Management........................................... 44
Security Ownership of Certain Beneficial Owners............................ 44
Legal Opinion................................................................ 45
Experts...................................................................... 45
Other Matters................................................................ 45
Annexes:
Annex I Agreement and Plan of Merger, dated as of May 9, 1997 by and among
NBN, Bank and Cushnoc.
Annex II Opinion of Ryan, Beck & Co.
Annex III 9-B M.R.S.A. [SECTION] 352(5)
Annex IV Financial Information for Cushnoc
</TABLE>
<PAGE> iv
SUMMARY
The following Summary of certain information contained elsewhere in this
Prospectus/Proxy Statement and in the documents incorporated herein by
reference is not intended to be a complete statement of the matters described
herein or therein. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this
Prospectus/Proxy Statement and in the Annexes attached hereto, including the
Merger Agreement, a copy of which is attached hereto as Annex I, and the
information incorporated herein by reference. Shareholders are urged to read
all such information.
The Special Meeting
Place, Time and Date; Purpose. The Special Meeting will be held on
October 14, 1997 at 4:00 p.m., local time, at Cushnoc's executive offices at
235 Western Avenue, Augusta, Maine, for the purpose of considering and voting
upon a proposal to approve the Merger Agreement attached hereto as Annex I. See
"THE SPECIAL MEETING -- Time and Place" and "--Matters to Be Considered."
Record Date; Shares Entitled to Vote. The Cushnoc Board has fixed the
close of business on September 1, 1997 as the record date (the "Record Date")
for determining shareholders entitled to notice of and to vote at the Special
Meeting. Only those holders of shares of Cushnoc Common Stock of record on the
Record Date will be entitled to notice of and to vote at the Special Meeting.
Each share of Cushnoc Common Stock will be entitled to one vote. Shareholders
who execute proxies retain the right to revoke them at any time prior to being
voted at the Special Meeting. At the Record Date, there were 90,000 shares of
Cushnoc Common Stock outstanding and entitled to be voted at the Special
Meeting.
<PAGE> 8
Vote Required. Approval of the Merger Agreement requires the affirmative
vote of the holders of two-thirds of the outstanding shares of Cushnoc Common
Stock. At the Record Date, the directors and executive officers of Cushnoc and
their affiliates beneficially owned 42,560 shares of Cushnoc Common Stock,
which represents 47% of the shares entitled to be voted at the Special Meeting.
See "THE SPECIAL MEETING -- Vote Required."
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, will have the same effect as a vote against
approval of the Merger Agreement.
Under applicable stock exchange rules, brokers who hold shares in street
name for customers are prohibited from giving a proxy to vote such customers'
shares with respect to approval of the Merger Agreement in the absence of
specific instructions from such customers. Accordingly, such broker nonvotes
also will have the same effect as votes against approval of the Merger
Agreement.
Parties to the Merger
NBN, the Bank, and Cushnoc. NBN is a savings and loan holding company
registered under Section 10 of the Home Owners Loan Act, 12 U.S.C. [SECTION]
1467a(10) , as amended and the owner of all of the outstanding capital stock of
the Bank. The Bank's primary regulator is the Office of Thrift Supervision
("OTS"). As used in the Prospectus/Proxy Statement, the term "NBN" refers to
such corporation and, where the context requires, its subsidiaries.
<PAGE> v
NBN offers a broad range of commercial and consumer financial products
and services through the nine retail banking offices of the Bank located
throughout the western, central and mid-coastal region of the State of Maine
and through its subsidiary, Northeast Financial Services Corporation, located
at NBN headquarters in Auburn. At June 30, 1997, NBN had assets of $261.8
million, deposits of $154.4 million and shareholders' equity of $19.9 million
Northeast Financial Services Corporation is a service corporation which,
among other things, offers NBN clients access to investment and annuity
products. Northeast Financial Services Corporation is affiliated with
Commonwealth Equity Services Inc., which licenses the brokers who offer such
products and services.
First New England Benefits Inc., a division of the Bank located in
Portsmouth, New Hampshire designs and administers qualified retirement plans,
such as profit sharing, pension and 401(k) plans.
Northeast Trust, a division of the Bank, provides trust services and
products to the Bank's customers.
The principal offices of NBN are located at 232 Center Street, Auburn,
Maine 04210, and its telephone number is (207) 777-6411.
<PAGE> 9
Cushnoc is a state chartered commercial bank with two branch offices
located on Western Avenue and Bangor Street in Augusta, Maine. At June 30,
1997, Cushnoc had total assets of $22.3 million, total deposits of $18.5
million and stockholders' equity of $2.2 million. The deposits of the Bank are
insured by the FDIC under the Bank Insurance Fund.
Financial and other information relating to Cushnoc is set forth in Annex
IV.
The principal offices of Cushnoc are located at 235 Western Avenue,
Augusta, Maine 04330 and its telephone number is (207) 623-0603.
The Merger
In accordance with the terms of and subject to the conditions set forth
in the Merger Agreement, Cushnoc will be merged into the Bank with the Bank as
the surviving corporation of the merger. The Merger Agreement provides that at
the effective time of the merger, each outstanding share of Cushnoc Common
Stock (other than any dissenting shares under Maine law or any shares held by
NBN or a subsidiary thereof other than in a fiduciary capacity or in
satisfaction of a debt previously contracted) will be converted into the right
to receive 2.089 shares of NBN Common Stock ("The Exchange Ratio"), subject to
possible adjustment under certain circumstances. See "THE MERGER."
The Board of Directors of NBN, and NBN as the sole shareholder of the
Bank, have approved the Merger Agreement and the transactions contemplated
thereby, including the Merger. No other corporate approval by NBN or the Bank
is necessary for the consummation of the Merger.
<PAGE> vi
Recommendation of the Board of Directors of Cushnoc
The Board of Directors of Cushnoc (the "Cushnoc Board") has determined
the Merger to be fair to and in the best interests of Cushnoc and its
shareholders and has unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the Merger. Accordingly, the
Cushnoc Board unanimously recommends that shareholders vote "FOR" approval of
the Merger Agreement.
See "THE MERGER -- Reasons for the Merger, Recommendation of the Board of
Directors."
Opinion of Ryan, Beck & Co.
Ryan, Beck & Co., Cushnoc's financial advisor, has delivered to the
Cushnoc Board its oral opinion of May 9, 1997, and its written opinion dated as
of September 5, 1997, each to the effect that, as of the date of such opinions,
the Exchange Ratio was fair, from a financial point of view, to the holders of
Cushnoc Common Stock.
For information on the assumptions made, matters considered and limits of
reviews by Ryan, Beck & Co., see, "THE MERGER -- Opinion of Financial Advisor."
Shareholders are urged to read in their entirety the opinion of Ryan, Beck &
Co. which is attached as Annex II to this Prospectus/Proxy Statement.
<PAGE> 10
Regulatory Approvals
Consummation of the Merger is subject to the prior receipt of approval by
the OTS. An Application for approval was submitted to the OTS on June 27, 1997
and approved, subject to certain standard closing conditions, on August 29,
1997. See "THE MERGER-- Regulatory Approval."
Conditions to the Merger
The obligations of NBN and Cushnoc to consummate the Merger are subject
to, among other things, the following conditions: (i) the Merger Agreement
shall have been approved by the requisite vote of the shareholders of Cushnoc;
(ii) all necessary regulatory approvals pertaining to the Merger without
restrictions or conditions which would materially impair the value of Cushnoc
to NBN shall have been received; (iii) no court or governmental or regulatory
authority shall have taken any action which prohibits, restricts, or makes
illegal the Merger; (iv) the Registration Statement shall be effective; (v) the
shares of NBN Common Stock to be issued in connection the Merger shall have
been approved for quotation on the American Stock Exchange; (vi) the
independent certified public accountants of each of NBN and Cushnoc shall have
issued letters in connection with the consummation of the Merger to the effect
that the Merger shall be accounted for as a pooling of interests under
generally accepted accounting principles; and (vii) opinions of their
respective counsel with respect to certain income tax considerations under the
Internal Revenue Code of 1986, as amended (the "Code"), shall have been
received by each of NBN and Cushnoc. In addition, the obligation of each of NBN
and Cushnoc to consummate the Merger is subject to the accuracy of the other
party's representations and warranties as of certain dates, the performance by
the other party of its obligations under the Merger Agreement in all material
respects and the other party's delivery of an officer's certificate and legal
opinions covering certain matters. NBN and the Bank's obligation to consummate
the Merger is further subject to no more
<PAGE> vii
than 10% of Cushnoc's shares exercising Dissenters' Rights. See "THE MERGER --
Conditions to the Merger."
Substantially all of the conditions to consummation of the Merger (except
for required shareholder and regulatory approvals) may be waived at any time by
written agreement of the parties, except that no waiver or amendment occurring
after approval of the Merger Agreement by the shareholders of NBN or Cushnoc
shall change the amount or form of the consideration which Cushnoc's
shareholders are entitled to receive in the Merger. If the Merger is not
consummated on or before December 31, 1997, NBN and Cushnoc may terminate the
Merger Agreement.
Effective Time of the Merger
The Merger shall become effective upon the filing of (i) Articles of
Merger with the Secretary of State of the State of Maine and (ii) Articles of
Combination with the OTS, unless a different date and time is specified as the
effective time in such filings. The effective time of the Merger (the
<PAGE> 11
"Effective Time") shall be set forth in such Articles of Merger, which will be
filed only after the receipt of all requisite regulatory approvals of the
Merger, approval of the Merger Agreement by the requisite votes of the
shareholders of NBN and Cushnoc and the satisfaction or waiver of all other
conditions to the Merger and the Bank Merger set forth in the Merger Agreement.
In addition, the Merger Agreement may be terminated, either before or after
approval by the shareholders of NBN or Cushnoc under certain circumstances. See
"THE MERGER -- Effective Time of the Merger; Termination and Amendment."
Price-based Termination; Possible Adjustment of Exchange Ratio
The Merger Agreement provides that Cushnoc may terminate the Merger
Agreement before the Merger takes place if the market price of NBN Common Stock
has fallen below $11.50 per share, unless NBN agrees to adjust the exchange
ratio. See "THE MERGER -- Effective Time of the Merger; Termination and
Amendment."
Certain Federal Income Tax Consequences
Cushnoc has received an opinion from Breyer & Aguggia to the effect that,
assuming the Merger is consummated, a Cushnoc shareholder who receives NBN
Common Stock in exchange for shares of Cushnoc Common Stock upon consummation
of the Merger will recognize no gain or loss as a result of the Merger, the
income tax basis of the NBN Common Stock received will equal the income tax
basis of the Cushnoc Common Stock surrendered and, provided that the
surrendered Cushnoc Common Stock was held as a capital asset on the date of the
Merger, the holding period of the NBN Common Stock received will include the
holding period of the Cushnoc Common Stock surrendered. Consummation of the
Merger is also conditioned upon the delivery of opinions of counsel to Cushnoc
and to NBN dated as of the closing date of the Merger confirming the foregoing
effects and that the Merger qualifies as a tax free reorganization under
section 368(A) of the Code. See "THE MERGER -- Certain Federal Income Tax
Consequences."
Each shareholder is urged to consult his or her own tax advisor
concerning the federal and any applicable foreign, state and local income tax
and other tax consequences of the Merger.
<PAGE> viii
Accounting Treatment of the Merger
It is intended that the Merger qualify as a pooling of interests for
accounting and financial reporting purposes. It is a condition to the
obligations of NBN and Cushnoc to consummate the Merger that their respective
independent public accountants issue a letter dated as of the closing date of
the Merger to the effect that the Merger qualifies as a pooling of interests
under generally accepted accounting principles. See "THE MERGER -- Accounting
Treatment of the Merger."
Interest of Certain Persons in the Merger
<PAGE> 12
Pursuant to the Merger Agreement, NBN has agreed to select one member of
the Cushnoc Board of Directors to be elected as a director of NBN, and to
nominate that person for reelection as a director of NBN at the first annual
meeting of shareholders of NBN following the Effective Time. NBN has also
agreed to continue rights to indemnification and liability insurance for
directors and officers of Cushnoc for specified periods of time. Other than as
set forth above, no director or executive officer of Cushnoc has any direct or
indirect material interest in the Merger, except insofar as ownership of
Cushnoc Common Stock might be deemed such an interest. See "THE MERGER --
Interests of Certain Persons in the Merger."
Description of NBN Common Stock
Subject to the rights of any class of preferred stock of NBN if and when
outstanding, the holders of NBN Common Stock possess exclusive voting rights in
NBN, are entitled to such dividends as may be declared from time to time by the
Board of Directors of NBN and would be entitled to receive all assets of NBN
available for distribution in the event of any liquidation, dissolution or
winding up of NBN. Holders of NBN Common Stock do not have any preemptive
rights with respect to any shares which may be issued by NBN in the future.
Upon receipt by NBN of certificates evidencing the shares of Cushnoc Common
Stock surrendered in exchange for NBN Common Stock pursuant to the Merger, each
share of NBN Common Stock offered hereby will be fully paid and non-assessable.
See "DESCRIPTION OF NBN CAPITAL STOCK."
Differences in Shareholders Rights
NBN and Cushnoc are both Maine corporations subject to the provisions of
the Maine Business Corporation Act ("MBCA"). Upon consummation of the Merger,
shareholders of Cushnoc will become shareholders of NBN and their rights will
be governed by NBN's Articles of Incorporation and Bylaws and the MBCA. The
rights of shareholders of NBN differ in certain respects from the rights of
shareholders of Cushnoc. See "COMPARISON OF RIGHTS OF SHAREHOLDERS."
Resale of NBN Common Stock
The shares of NBN Common Stock to be issued in connection with the Merger
will be freely tradable by holders of such shares, except for those shares held
by persons who may be deemed to be "affiliates" of NBN and Cushnoc under
applicable federal securities laws. In addition, "affiliates" of NBN and
Cushnoc will be subject to certain restrictions on resale of NBN Common Stock
in order to ensure that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. See "THE MERGER --
Resale of Common Stock."
<PAGE> ix
Dissenters' Rights
Section 352 of Title 9-B provides that holders of Cushnoc Common Stock
who vote against the Merger Agreement will be entitled to receive the value of
their shares in cash if and when the Merger becomes effective, upon written
demand made to the Bank at any time within 30 days after the effective date of
the Merger, accompanied by surrender of their Cushnoc share certificates. The
value of such shares shall be determined as of the date of the Special Meeting
<PAGE> 13
by three appraisers, one to be selected by the owners of two-thirds of the
dissenting shares, one by the Board of Directors of the Bank and the third by
the two appraisers so chosen. The valuation agreed upon by any two appraisers
shall govern. The value so determined may be more, less or the same as the
consideration to be provided pursuant to the Merger Agreement. The written
notice required to be delivered to the Bank by a dissenting shareholder is in
addition to and separate from any proxy or vote against the Merger. Further
procedures which must be followed in connection with the exercise of
dissenters' rights by dissenting shareholders as described herein under "THE
MERGER -- Dissenters' Rights" and in 9-B M.R.S.A. [SECTION] 352(5), a copy of
which is attached as Annex III to this Prospectus/Proxy Statement. Failure to
take any step in connection with the exercise of such rights may result in
termination or waiver thereof.
<PAGE> x
MARKET FOR COMMON STOCK AND DIVIDENDS
The NBN Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "NBN". As of August 27, 1997, there were 1,292,080 shares
outstanding of NBN Common Stock which were held by approximately 400
shareholders of record.
Cushnoc Common Stock is not traded on any exchange and there is no market
for its shares. Trades are generally undertaken in private transactions and
Cushnoc is not aware of the price of its shares in such transactions. Cushnoc
has not paid dividends on shares of the Cushnoc Common Stock. As of the Record
Date, there were 90,000 shares outstanding, held by approximately 117
shareholders of record. Such number of shareholders does not reflect the number
of individuals or institutional investors holding stock in nominee name through
banks, brokerage firms and others.
The following table sets forth during the periods indicated the high and
low prices of the NBN Common Stock. NBN Common Stock was traded and reported on
the Nasdaq Stock Market until April 3, 1997 and thereafter on the American
Stock Exchange.
<TABLE>
<CAPTION>
NBN
--------------------------------------------
Market Price Dividends
-------------------- ---------
High Low
---- ---
<S> <C> <C> <C>
1996-1997
July 1-Sep. 30 13.50 12.50 .08
Oct. 1-Dec. 31 14.00 13.00 .08
Jan. 1-Mar. 31 14.25 13.25 .08
Apr. 1-Jun. 30 14.75 13.75 .08
<PAGE> 14
1995-1996
Jul. 1-Sep. 30 11.38* 10.75* .04*
Oct. 1-Dec. 31 12.00* 10.75* .04*
Jan. 1-Mar. 31 13.25 11.00 .08
Apr. 1-Jun. 30 13.25 12.50 .08
1994-1995
Jul. 1-Sep. 30 11.75* 10.75* .04*
Oct. 1-Dec. 31 11.00* 10.50* .04*
Jan. 1-Mar. 31 11.50* 10.50* .04*
Apr. 1-Jun. 30 11.25* 10.75* .04*
<FN>
<F*> Adjusted to reflect 100% stock dividend paid on 12/15/95.
</FN>
</TABLE>
<PAGE> xi
Set forth below is information regarding the price of NBN Common Stock
and Cushnoc Common Stock on May 8, 1997, the last trading day preceding public
announcement of the Merger Agreement following the close of business on that
date.
<TABLE>
<CAPTION>
Historical Market Equivalent Market
Date Value per Share Value per Share of Cushnoc (1)
- ---- ----------------- ------------------------------
NBN Cushnoc
--- -------
<S> <C> <C> <C>
May 8, 1997 14-1/8 N/A $29.51
<FN>
<F1> Equivalent market value per share of Cushnoc Common Stock represents the
historical market value per share of NBN Common Stock multiplied by the
Exchange Ratio.
</FN>
</TABLE>
Shareholders are advised to obtain current market quotations for the NBN
Common Stock. Because the consideration to be provided to shareholders of
Cushnoc in connection with the Merger is based on a fixed number of shares of
NBN Common Stock, shareholders of Cushnoc are not assured of receiving a
specific market value of NBN Common Stock (and thus a specific market value of
their shares of Cushnoc Common Stock) at the Effective Time. The market price
of the NBN Common Stock at the Effective Time may be higher or lower than the
market price at the time the Merger Agreement was executed, at the date of
mailing of this Prospectus/Proxy Statement or at the time of the Special
Meeting.
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited historical per share,
pro forma combined per share and pro forma equivalent per share information
with respect to the NBN Common Stock and the Cushnoc Common Stock at the dates
and for the periods indicated, giving effect to the Merger and a 2.089 Exchange
Ratio using the pooling of interest method of accounting.
Pro forma financial information with respect to the Merger assumes that
the Merger was consummated as of the beginning of each of the periods
indicated. See "THE MERGER -- Accounting Treatment of the Merger."
The selected per share data set forth below should be read in conjunction
with, and is qualified in its entirety by, the historical consolidated
financial statements of NBN and Cushnoc, including the related notes, included
elsewhere herein and incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". The data
set forth below is not necessarily indicative of the results of the future
operations of NBN upon consummation of the Merger or the actual results that
would have been achieved had the Merger been consummated prior to the periods
indicated.
NBN expects to achieve certain operating cost savings through the
consolidation of certain back office and support functions and through the
elimination of redundant costs. NBN expects that operating cost savings will be
achieved in various amounts at various times and not ratably over or at the
beginning of any specific period. Accordingly, there can be no certainty of the
amount or timing of any
<PAGE> xii
operating cost savings which may be realized. The pro forma financial
information does not reflect any of these anticipated operating cost savings.
<TABLE>
<CAPTION>
NBN Common Stock Cushnoc Common Stock
----------------------- ------------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Book value per share (1):
March 31, 1997 $13.49 $13.24 $24.16 $27.66
June 30, 1996 13.13 12.95 24.59 27.05
Cash dividends paid per share (3):
Nine months ended March 31, 1997 .24 .24 - .50
Year ended June 30, 1996 .32 .32 - .67
Year ended June 30, 1995 .32 .32 - .67
Year ended June 30, 1994 .32 .32 - .67
Net income (loss) per common share (2):
Nine months ended:
March 31, 1997:
Primary .80 .68 (.43) 1.42
<PAGE> 16
Fully diluted .74 .64 (.43) 1.34
Year ended:
June 30, 1996:
Primary .83 .79 1.09 1.65
Fully diluted .79 .76 1.09 1.59
June 30, 1995:
Primary 1.10 1.05 1.55 2.19
Fully diluted 1.02 .99 1.55 2.07
June 30, 1994:
Primary 1.13 .99 .65 2.07
Fully diluted 1.08 .96 .65 2.01
<F1> The pro forma combined book values per share of NBN Common Stock are
based upon the historical total shareholders' equity for NBN and Cushnoc,
divided by pro forma common shares of the combined entity assuming
conversion of the Cushnoc Common Stock at the 2.089 Exchange Ratio. The
pro forma equivalent book values per share of Cushnoc Common Stock
represent the pro forma combined amounts multiplied by the 2.089 Exchange
Ratio. At June 30, 1996, common stockholders' equity of Cushnoc was
$2,212,762 and the weighted average common shares outstanding was 90,000
shares.
<F2> The pro forma combined net income (loss) per share is based upon the
combined historical net income (loss) of NBN and Cushnoc, reduced by
preferred stock dividends, divided by the average pro forma common shares
of the combined entity assuming conversion of the Cushnoc Common Stock at
the 2.089 Exchange Ratio. The pro forma equivalent net income (loss) per
share of Cushnoc Common Stock represents the pro forma combined net
income (loss) multiplied by the 2.089 Exchange Ratio. For purposes of
this presentation Cushnoc's historical income (loss) has been restated
from a calendar year end basis to a fiscal year end June 30, basis to
conform to NBN's fiscal year. Cushnoc's net income (loss) as restated on
a June 30 fiscal year end basis was ($38,738), $98,179, $139,733, and
$58,870 for the periods ended March 31, 1997, June 30, 1996, June 30,
1995 and June 30, 1994, respectively. Weighted average common shares
outstanding for all periods presented was 90,000 shares.
<F3> Proforma equivalent cash dividends represent historical cash dividends of
NBN multiplied by the 2.089 Exchange Ratio.
</TABLE>
<PAGE> xiii
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF NBN
The following table sets forth selected consolidated financial and other data
of NBN at the dates and for the periods indicated. The selected consolidated
financial and other data set forth below has been derived from consolidated
financial statements of NBN and should be read in conjunction with, and is
qualified in its entirety by, the historical consolidated financial statements
of NBN, including the related notes incorporated herein by reference. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<PAGE> 17
<TABLE>
<CAPTION>
Years Ended
Nine Months Ended June 30,
- ---------------------------------------------------------------------------------------------------------------
March 31, March 31,
1997 1996 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $14,732 $13,584 $17,994 $16,923 $14,036 $14,359 $13,987
Interest expense 7,668 6,873 9,128 8053 6,479 7,155 8,208
- ------------------------------------------------------------------------------------------------------------------
Net Interest income 7,064 6,711 8,866 8870 7,557 7,204 5,779
Provision for loan losses 434 456 603 641 1,021 852 733
Other operating income (1) 1,340 1,372 1,818 1697 2,111 1,342 694
Net Securities gains 200 249 279 419 347 108 183
Other operating expenses (2) 6,317 6,032 8,355 7,988 7,011 5,734 4,192
Writedowns on equity and debt
securities - - 93 0 84 61 11
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,853 1,844 1,912 2,358 1,899 2,008 1,720
Income tax expense 691 677 719 869 698 786 655
Cumulative effect of change in
accounting principle - - - - 260 - -
- ------------------------------------------------------------------------------------------------------------------
Net income $ 1,162 $ 1,167 $ 1,193 $ 1,489 $ 1,461 $ 1,222 $ 1,065
==================================================================================================================
Primary earnings per share (3) $ 0.80 $ 0.83 $ 0.83 $ 1.10 $ 1.13 $ 1.07 $ 0.91
Fully diluted earnings per share (3) $ 0.74 $ 0.76 $ 0.79 $ 1.02 $ 1.08 $ 1.07 $ 0.91
==================================================================================================================
Cash dividends per common share $ 0.24 $ 0.24 $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.32
==================================================================================================================
Common dividend payout ratio 32.43% 31.58% 40.51% 15.69% 14.81% 15.02% 17.58%
==================================================================================================================
</TABLE>
<PAGE> xiv
<PAGE> 18
<TABLE>
<CAPTION>
At March 31, At June 30,
- ----------------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $247,525 $218,188 $222,290 $207,509 $190,600 $178,914 $164,165
Total loans 197,879 167,723 169,851 170,140 158,461 150,756 141,431
Total deposits 154,672 146,618 145,195 147,120 124,306 122,497 121,517
Total borrowings 67,076 44,727 53,625 37,710 48,420 40,500 29,079
Total stockholders'
equity 19,197 18,509 18,151 17,275 15,756 14,067 12,840
Return on assets
(net income/
average assets) 0.66% 0.74% 0.56% 0.73% 0.80% 0.72% 0.69%
Return on equity
(net income/
average net worth 8.28% 8.51% 6.52% 9.08% 9.72% 9.01% 8.49%
Average equity/
average assets 7.97% 8.69% 8.62% 8.02% 8.23% 7.85% 8.30%
- --------------------------------------------------------------------------------------------------
<FN>
<F1> Includes fees for services to customers and gains on sale of loans.
<F2> Includes salaries, employee benefits and occupancy.
<F3> Per share data for the years prior to 1996 have been retroactively
restated as a result of the stock split in December 1995.
</FN>
</TABLE>
<PAGE> xv
SELECTED FINANCIAL DATA OF CUSHNOC
As of and for the Years Ended
December 31, 1996, 1995, 1994, 1993 and 1992
and the Quarters Ended March 31, 1997 and 1996
(Dollars in thousands, except per share data)
<PAGE> 19
<TABLE>
<CAPTION>
Quarter Ended
March 31, Year Ended December 31,
- --------------------------------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 453 $ 494 $ 1,978 $ 2,178 $ 1,815 $ 1,517 $ 1,514
Interest expense 187 237 866 941 673 622 688
- -----------------------------------------------------------------------------------------------------------------
Net Interest income 266 257 1,112 1,237 1,142 895 826
Provision for loan losses 9 9 36 50 30 48 88
- -----------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 257 248 1,076 1,187 1,112 847 738
Non interest income 22 19 86 89 68 94 86
Non interest expense 311 271 1,152 1,098 1,086 991 730
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes and change
in accounting principle (32) (4) 10 178 94 (50) 94
Provision (Benefit) for
income taxes (2) 2 5 24 2 4 21
Change in accounting
principle - - - - - 43 -
Extraordinary item - - - - - - 19
- -----------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (30) $ (6) $ 5 $ 154 $ 92 $ (11) $ 92
=================================================================================================================
Earnings (Loss) per common
share $ (0.33) $ (0.07) $ 0.05 $ 1.71 $ 1.03 $ (0.12) $ 1.03
=================================================================================================================
Total assets $20,939 $23,353 $20,820 $25,000 $21,498 $20,603 $16,784
Investment securities 1,921 2,089 1,926 2,240 1,737 1,471 1,457
Loans, net 16,779 17,220 16,653 16,937 17,944 15,749 13,828
Deposits 17,600 20,529 17,999 22,092 18,445 17,720 14,068
Borrowed funds 1,064 530 483 545 603 647 -
Stockholders' equity 2,174 2,193 2,204 2,199 2,045 1,953 1,964
Allowance for loan losses 216 221 211 212 259 252 244
Return on assets
(net income/average assets) -0.58% -0.10% 0.02% 0.66% 0.43% -0.06% .56%
Return on equity
(net income/average equity) -5.51% -1.11% 0.23% 7.29% 4.64% -0.63% 4.80%
Average equity/average assets 10.53% 9.29% 9.79% 9.04% 9.23% 9.23% 11.66%
<PAGE> 20
Cash dividends none none none none none none none
</TABLE>
<PAGE> xvi
RECENT DEVELOPMENTS
NBN.
Presented below is the unaudited summary consolidated statements of
financial condition of NBN as of June 30, 1997 with June 30, 1996 comparative
data, and the unaudited summary consolidated statements of income, changes in
stockholders' equity and cash flows of NBN for the year ended June 30, 1997
with comparative data for the years ended June 30, 1996 and 1995, accompanied
by an analysis of changes in financial condition and results of operations as
of and for the periods then ended.
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 5,152,222 $ 3,386,263
Interest bearing deposits 443,021 650,430
Federal Home Loan Bank
overnight deposits 10,066,000 7,529,435
- ----------------------------------------------------------------------------------------------------------
15,661,243 11,566,128
Trading account securities,
at market value 25,000 197,621
Available for sale securities,
at market value 27,096,931 29,650,319
Loans held for sale 240,000 448,475
Loans receivable 206,356,137 169,850,924
Less allowance for loan losses 2,517,000 2,549,000
- ----------------------------------------------------------------------------------------------------------
Net loans 203,839,137 167,301,924
Premises and equipment - net 3,960,703 3,576,386
Other real estate owned - net 492,411 513,831
Federal Home Loan Bank stock, at cost 3,949,700 2,656,200
Goodwill, net of accumulated amortization
of $1,236,433 in 1997 and $940,059 in 1996 2,220,289 2,557,913
<PAGE> 21
Other assets 4,314,292 3,820,818
- ----------------------------------------------------------------------------------------------------------
$261,799,706 $222,289,615
==========================================================================================================
<PAGE> xvii
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
1997 1996
-----------------------------------
<S> <C> <C>
Liabilities:
Deposits $154,410,687 $145,195,369
FHLB borrowings 78,993,361 52,123,000
Notes payable 1,298,611 1,502,192
Securities sold under repurchase agreements 5,098,622 3,762,966
Other liabilities 2,097,812 1,554,846
-----------------------------------
Total liabilities 241,899,093 204,138,373
Stockholders' equity:
Series A cumulative convertible preferred stock; $1 par value,
1,000,000 shares authorized; 45,454 shares issued and
outstanding 999,988 999,988
Series B cumulative convertible preferred stock; $1 par value,
1,000,000 shares authorized; 71,428 shares issued and
outstanding 999,992 999,992
Common stock, $1 par value, 3,000,000 shares authorized;
1,274,969 and 1,234,010 shares issued at June 30, 1997 and 1996,
respectively; 1,274,969 and 1,229,910 shares outstanding in 1997
and 1996, respectively 1,274,969 1,234,010
Additional paid-in capital 5,639,507 5,455,852
Retained earnings 11,320,332 10,351,031
Net unrealized losses on available for sale securities 334,175) (837,354)
Treasury stock at cost, 4,100 shares at June 30, 1996 - (52,277)
Total stockholders' equity 19,900,613 18,151,242
-----------------------------------
$261,799,706 $222,289,615
===================================
</TABLE>
See accompanying notes.
<PAGE> xviii
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
<PAGE> 22
Years Ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans $17,225,937 $16,010,685 $15,085,138
Interest on Federal Home Loan Bank overnight
deposits 391,059 567,915 393,497
Interest and dividends on securities 135,307 89,684 135,850
Interest on mortgage backed securities 2,029,224 1,149,407 1,088,420
Dividends on Federal Home Loan Bank stock 219,916 148,762 189,980
Other interest income 27,697 28,409 30,040
-----------------------------------------
Total interest income 20,029,140 17,994,862 16,922,925
Interest expense:
Deposits 6,354,803 6,426,172 5,443,103
Repurchase agreements 199,453 166,210 84,921
Borrowed funds 3,945,840 2,536,022 2,524,896
-----------------------------------------
Total interest expense 10,500,096 9,128,404 8,052,920
-----------------------------------------
Net interest income before provision for
loan losses 9,529,044 8,866,458 8,870,005
Provision for loan losses 578,427 602,860 640,634
-----------------------------------------
Net interest income after provision for
loan losses 8,950,617 8,263,598 8,229,371
Noninterest income:
Service charges 775,874 737,229 679,495
Net securities gains 171,080 231,344 49,045
Gain on trading securities 88,350 47,551 370,268
Gain on sales of loans 201,418 251,597 160,982
Loan servicing fees 275,496 302,261 306,220
Other income 499,638 527,209 550,432
-----------------------------------------
Total noninterest income 2,011,856 2,097,191 2,116,442
</TABLE>
<PAGE> xix
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
<PAGE> 23
Years Ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Noninterest expense:
Salaries and employee benefits $4,033,378 $4,153,160 $3,977,800
Occupancy expense 636,818 611,007 510,360
Equipment expense 793,550 761,545 691,588
FDIC insurance expense 387,275 138,442 307,173
Other 2,696,752 2,784,603 2,500,956
--------------------------------------
Total noninterest expense 8,547,773 8,448,757 7,987,877
--------------------------------------
Income before income taxes 2,414,700 1,912,032 2,357,936
Income tax expense 907,597 718,612 868,555
--------------------------------------
Net income $1,507,103 $1,193,420 $1,489,381
======================================
Net income per common share:
Primary earnings per share 1.03 .83 1.10
Fully diluted earnings per share .96 .79 1.02
</TABLE>
See accompanying notes.
<PAGE> xx
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> xxi
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<PAGE> 24
Years Ended June 30, 1997 (unaudited), 1996 and 1995
<TABLE>
<CAPTION>
Net
Preferred Unrealized
Stock Additional Losses on Available
Series Common Paid-in Treasury Retained for Sale
A and B Stock Capital Stock Earnings Securities Total
---------- ---------- ---------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 $1,999,980 $ 547,400 $4,640,968 $ - $ 9,006,038 $(438,023) $15,756,363
Net income - - - - 1,489,381 - 1,489,381
Decrease in net unrealized
losses on available for
sale securities - - - - - 342,516 342,516
Issuance of common stock - 102 2,091 - - - 2,193
Dividends on preferred stock - - - - (140,000) - (140,000)
Dividends on common stock at
$.32 per share - - - - (175,175) - (175,175)
----------------------------------------------------------------------------------------
Balance at June 30, 1995 1,999,980 547,502 4,643,059 - 10,180,244 (95,507) 17,275,278
Net income - - - - 1,193,420 - 1,193,420
Common stock - warrants
exercised - 50,000 650,000 - - - 700,000
Stock split in the form of
a dividend - 597,743 - - (597,743) - -
Increase in net unrealized
losses on available
for sale securities - - - - - (741,847) (741,847)
Treasury stock purchased - - - (52,277) - - (52,277)
Issuance of common stock - 765 10,793 - - - 1,558
Stock options exercised - 38,000 152,000 - - - 190,000
Dividends on preferred stock - - - - (139,999) - (139,999)
Dividends on common stock at
$.32 per share - - - - (284,891) - (284,891)
----------------------------------------------------------------------------------------
Balance at June 30, 1996 1,999,980 1,234,010 5,455,852 (52,277) 10,351,031 (837,354) 18,151,242
Net income - - - - 1,507,103 - 1,507,103
Issuance of common stock
through exercise of stock
options and purchase of
treasury stock - 20,000 83,450 (28,420) - - 75,030
Exercise of stock warrants - 19,940 88,005 67,055 - - 175,000
Decrease in net unrealized
losses on available for
sale securities - - - - - 503,179 503,179
Treasury stock issued -
employee stock bonus - - (268) 13,642 - - 13,374
Issuance of common stock - 1,019 12,468 - - - 13,487
<PAGE> 25
Dividends on preferred stock - - - - (139,997) - (139,997)
Dividends on common stock at
$.32 per share - - - - (397,805) - (397,805)
----------------------------------------------------------------------------------------
Balance at June 30, 1997
(unaudited) $1,999,980 $1,274,969 $5,639,507 $ - $11,320,332 $(334,175) $19,900,613
========================================================================================
</TABLE>
See accompanying notes.
<PAGE> xxii and xxiii
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,507,103 $ 1,193,420 $ 1,489,381
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 578,427 602,860 640,634
Provision for losses on real estate owned 139,000 94,711 107,173
Deferred income tax expense (benefit) (72,290) 19,236 122,143
Depreciation and amortization 893,947 984,145 841,702
Net gain on sale of available for sale
securities (171,080) (231,344) (49,045)
Net gain on sale of loans (201,418) (251,597) (160,982)
Originations of loans held for sale (2,178,115) (11,585,640) (4,273,878)
Proceeds from sale of loans held for sale 2,430,823 11,781,652 4,325,745
Net change in trading account securities 172,621 (196,246) 171,696
Other (85,168) (52,921) (26,174)
Change in other assets and liabilities:
Increase in interest receivable (127,866) (213,557) (291,215)
Increase in other assets and
liabilities (54,046) (39,262) (326,872)
----------------------------------------------
Net cash provided by operating activities 2,831,938 2,105,457 2,570,308
Cash flows from investing activities:
Proceeds from the sale and maturities of securities 14,764,421 17,709,861 14,160,783
<PAGE> 26
Purchase of available for sale securities (11,277,560) (38,104,596) (1,265,840)
Purchase of held to maturity securities - - (12,399,309)
Purchases of loans (25,425,642) - -
Net increase in loans (11,933,101) (142,079) (11,905,988)
Additions to premises and equipment (1,028,625) (398,937) (936,647)
Proceeds from sale of investment in real estate - 24,251 238,189
Purchase of investment in real estate and improvements (6,156) (40,068) (13,397)
Proceeds from sale of other real estate owned 519,871 585,798 581,880
(Purchase) sale of Federal Home Loan Bank stock (1,293,500) (506,200) 195,000
Cash received from acquisition of bank branches - - 25,547,199
----------------------------------------------
Net cash (used) provided by investing activities (35,680,292) (20,871,970) 14,201,870
</TABLE>
<PAGE> xxiv
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 9,215,318 $(1,924,501) $ (4,930,902)
Net increase in repurchase agreements 1,335,656 1,177,579 2,585,387
Dividends paid (537,802) (424,890) (315,175)
Issuance of common stock 263,517 849,281 2,193
Net borrowings (payments) from (to) Federal Home Loan Bank 26,870,361 16,423,000 (10,200,000)
Principal payments on notes payable (203,581) (507,899) (510,115)
------------------------------------------
Net cash provided (used) by financing activities 36,943,469 15,592,570 (13,368,612)
------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,095,115 (3,173,943) 3,403,566
Cash and cash equivalents, beginning of year 11,566,128 14,740,071 11,336,505
------------------------------------------
Cash and cash equivalents, end of year $15,661,243 $11,566,128 $ 14,740,071
==========================================
Supplemental schedule of cash flow information:
Interest paid $10,356,006 $ 9,103,639 $ 7,997,123
Income taxes paid 620,000 913,000 794,000
<PAGE> 27
Supplemental schedule of noncash investing and financing
activities:
Net transfer from loans to other real estate owned $ 538,019 $ 129,986 $ 45,036
Transfer of securities into available for sale securities, at
fair value - - 18,821,933
Transfer of securities out of held to maturity securities, at
amortized cost - - (18,774,672)
Net change in valuation for unrealized losses on available for
sale securities 503,179 741,847 (295,255)
Net change in deferred taxes for unrealized losses on available
for sale securities 259,214 382,164 (176,446)
</TABLE>
In connection with the acquisition of bank branches in 1995, NBN assumed
deposit liabilities.
See accompanying notes.
<PAGE> xxv
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed and consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles. For further information, please refer to the audited consolidated
financial statements and notes thereto for the fiscal year ended June 30, 1996.
2. Available for Sale Securities
A summary of the cost and approximate fair values of available for sale
securities at June 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Fair Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S.
Treasury and other U.S. Government corporations and agencies $ 1,498,913 $ 1,455,788 $ 1,497,111 $ 1,424,690
Corporate bonds 149,694 142,750 149,646 139,005
Equity securities 896,739 850,582 462,167 440,330
<PAGE> 28
Mortgage-backed securities 25,057,910 24,647,811 28,810,113 27,646,294
------------------------------------------------------
$27,603,256 $27,096,931 $30,919,037 $29,650,319
======================================================
</TABLE>
The gross unrealized gains and unrealized losses on available for sale
securities are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt securities issued by the U. S. Treasury and other
U. S. Government corporations and agencies $ - $ 43,125 $ - $ 72,421
Corporate bonds - 6,944 - 10,641
Equity securities 28,965 75,122 5,321 27,158
Mortgage-backed securities 37,503 447,602 17,664 1,181,483
------------------------------------------------
$66,468 $572,793 $22,985 $1,291,703
================================================
</TABLE>
At June 30, 1997, investment securities with a market value of
approximately $9,161,000 were pledged as collateral to secure outstanding
repurchase agreements.
At June 30, 1997 and 1996, included in net unrealized losses on available
for sale securities as a reduction to stockholders' equity are net unrealized
losses of $506,325 and $1,268,718, respectively, net of the deferred tax effect
of $172,150 and $431,364, respectively.
<PAGE> xxvi
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
(Continued)
3. Loans Receivable
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<PAGE> 29
<S> <C> <C>
Loans receivable:
Mortgage loans:
Residential real estate $135,607,761 $111,901,516
Construction loans 3,220,448 5,012,583
Commercial real estate 37,567,609 27,123,743
----------------------------
176,395,818 144,037,842
Less:
Undisbursed portion of construction loans 1,076,936 2,243,814
Net deferred loan origination fees 151,609 289,340
----------------------------
Total mortgage loans 175,167,273 141,504,688
Commercial loans 16,432,937 13,990,220
Consumer and other loans 14,755,927 14,356,016
----------------------------
$206,356,137 $169,850,924
============================
</TABLE>
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $2,549,000 $2,396,000 $2,463,000
Provision charged to operating expenses 578,427 602,860 640,634
Loans charged off (739,969) (525,653) (760,733)
Recoveries on loans charged off 129,542 75,793 53,099
--------------------------------------
Net loans charged off (610,427) (449,860) (707,634)
--------------------------------------
Balance at end of year $2,517,000 $2,549,000 $2,396,000
======================================
</TABLE>
Analysis of Financial Condition and Results of Operations
NBN's assets totaled $261,799,706 as of June 30, 1997, an increase of
$39,510,091 compared to June 30, 1996. Loan volume was enhanced during the 1997
fiscal year due to whole loan purchases on the secondary market. NBN has
focused its business development efforts towards full service credit packages
and financial services, as well as competitively priced mortgage packages.
<PAGE> xxvii
<PAGE> 30
Cash and cash equivalents increased by $4,095,151 at June 30, 1997
compared to June 30, 1996. The increase in cash equivalents was primarily the
result of the timing of cash items clearing through the Federal Reserve and
increased liquidity requirements due to the growth of NBN during fiscal 1997.
NBN's loan portfolio had a balance of $206,356,137 as of June 30, 1997,
which represents an increase of $36,505,213 compared to June 30, 1996. From
June 30, 1996 to June 30, 1997, the loan portfolio increased by $33,663,000 in
real estate mortgage loans, $400,000 in consumer loans, and by $2,443,000 in
commercial loans. During fiscal 1997, NBN purchased approximately $25,000,000
of residential whole loans on the secondary market. The loans purchased are
loans originated and serviced by a local Maine bank. The loan portfolio
contains elements of credit and interest rate risk. NBN primarily lends within
its local market areas, which management believes helps it to better evaluate
credit risk. NBN also maintains a well collateralized position in real estate
mortgages.
NBN's allowance for loan losses was $2,517,000 as of June 30, 1997 versus
$2,549,000 as of June 30, 1996, representing 1.22% and 1.50% of total loans,
respectively. NBN had non-performing loans totaling $2,424,000 and $2,603,000
at June 30, 1997 and 1996, which was 1.17% and 1.53% of total loans,
respectively. Non-performing loans represented .93% and 1.17% of total assets
at June 30, 1997 and 1996, respectively. NBN's allowance for loan losses was
equal to 104% and 98% of the total non- performing loans at June 30, 1997 and
1996, respectively. At June 30, 1997, NBN had approximately $586,000 of loans
classified substandard, exclusive of the non-performing loans stated above,
that could potentially become non-performing due to delinquencies or marginal
cash flows. As of June 30, 1997, the amount of such loans has decreased from
the June 30, 1996 amount by $1,955,000. This decrease was primarily due to
substandard loans being classified as non-performing or being liquidated
through the sale of foreclosed assets. Management takes an aggressive posture
in reviewing its loan portfolio to classify certain loans substandard. The
following table represents NBN's current non-performing loans at June 30, 1997
and June 30, 1996.
<TABLE>
<CAPTION>
Description 1997 1996
- ----------- ----------- ----------
<S> <C> <C>
1-4 Family Mortgages $ 983,000 $1,092,000
Commercial Mortgages 913,000 1,154,000
Commercial Installment 492,000 283,000
Consumer Installment 36,000 74,000
-------------------------
Total non-performing $2,424,000 $2,603,000
=========================
</TABLE>
The following table reflects the annual trend of total delinquencies 30
days or more past due, including non-performing loans, for NBN as a percentage
of total loans:
<PAGE> 31
6/30/94 6/30/95 6/30/96 6/30/97
2.64% 2.60% 2.77% 1.60%
The level of the allowance for loan losses as a percentage of total loans
decreased and the level as a percentage of total non-performing loans increased
at June 30, 1997 compared to June 30, 1996. Loans classified substandard
decreased in the 1997 fiscal year, when compared to the 1996 fiscal year.
Classified loans are also considered in management's analysis of the adequacy
of the allowance for loan losses. Based on reviewing the credit risk and
collateral of these classified loans, management has considered the risks of
the classified portfolio and believes the allowance for loan losses is
adequate.
<PAGE> xxviii
Net charge-offs for NBN were $610,427, $449,860, and $707,634, for the three
years ended June 30, 1997, June 30, 1996, and June 30, 1995, respectively.
At June 30, 1997, total impaired loans were $1,662,000, of which $844,457
had related allowances of $369,500. This compares to total impaired loans of
$1,530,650, of which $1,063,720 had related allowances of $499,200, at June
30,1996. During the year ended June 30, 1997, the income recognized related to
impaired loans was $50,690 and the average balance of outstanding impaired
loans was $1,300,000. This compares to income recognized related to impaired
loans of $82,128 and the average balance of impaired loans was $1,799,087 at
June 30, 1996. NBN recognizes interest on impaired loans on a cash basis when
the ability to collect the principal balance is not in doubt; otherwise, cash
received is applied to the principal balance of the loan.
At June 30, 1997, NBN's total investment portfolio was classified as
available for sale. The amortized cost and market value of available for sale
securities at June 30, 1997 was $27,603,257 and $27,096,931, respectively. The
reduction in carrying value from the cost was primarily attributable to the
difference between cost and market value of mortgage-backed securities, which
was due to the change in current market prices from the price at the time of
purchase. The net unrealized loss on mortgage-backed securities has decreased
from $1,164,000 at June 30, 1996 to $410,000 at June 30, 1997 due to
improvements in interest rates. Substantially all of the mortgage-backed
securities are high grade government backed securities. As in any long term
earning asset in which the earning rate is fixed, the market value of
mortgage-backed securities will fluctuate based on changes in market interest
rates from the time of purchase. Since these mortgage-backed securities are
backed by the U.S. Government, there is no risk of loss of principal.
Management believes that the yields currently received on this portfolio are
satisfactory and intends to hold these securities for the foreseeable future.
Management reviews the portfolio of investments on an ongoing basis to
determine if there has been an other-than-temporary decline in value. Some of
the considerations management makes in the determination are market valuations
of particular securities and economic analysis of the securities' sustainable
market values based on the underlying companies' profitability. Based on
management's assessment of the securities portfolio in fiscal 1997, 1996 and
1995, there have been other than temporary declines in values of individual
equity securities in the amounts of $110,000, $93,819, and $- 0-, respectively.
Such securities have been written down to market value through an adjustment
against current earnings.
<PAGE> 32
NBN increased its investment in FHLB stock by $1,293,500, compared to
June 30, 1996, due to the increase in FHLB borrowings. The FHLB requires
institutions to hold a certain level of FHLB stock based on advances
outstanding.
NBN continues to attract new local deposit relationships. NBN utilizes,
as alternative sources of funds, brokered C.D.'s when national deposit interest
rates are less than the interest rates on local market deposits as well as to
supplement the growth in earning assets. Brokered C.D.'s carry the same risk as
local deposit C.D.'s, in that both are interest rate sensitive with respect to
NBN's ability to retain the funds. NBN also utilizes FHLB advances, as
alternative sources of funds, when the interest rates of the advances are less
than market deposit interest rates as well as to fund short-term liquidity
demands.
Total deposits were $154,410,687 and securities sold under repurchase
agreements were $5,098,622 as of June 30, 1997. These amounts represent an
increase of $9,215,318 and $1,335,656, respectively, compared to June 30, 1996.
Brokered deposits represented $7,185,566 of total deposits at June 30, 1997,
which increased by $1,538,428 compared to June 30, 1996's $5,647,138 balance.
Total borrowings from the FHLB were $78,993,361 as of June 30, 1997, for an
increase of $28,870,361
<PAGE> xxix
compared to June 30, 1996. The increase in deposits, repurchase agreements and
FHLB advances were utilized to fund the loan growth during fiscal 1997.
Capital Resources and Liquidity
Liquidity is defined as the ability to meet unexpected deposit
withdrawals and increased loan demand of a short-term nature with a minimum
loss of principal. The Bank's primary sources of funds are its interest bearing
deposits, cash and due from banks, deposits with the FHLB, certificates of
deposit, loan payments and prepayments and other investments maturing in less
than two years as well as securities available for sale. In addition, NBN has
unused borrowing capacity from the FHLB through its advances program. NBN's
current advance availability, subject to the satisfaction of certain
conditions, is approximately $35,000,000 over and above the 1997 end-of-year
advances reported. NBN's ability to access the principal sources of liquid
funds listed above is immediate and adequate to support NBN's budgeted growth.
NBN believes that it has adequate capital, as total equity represents
7.60% of total assets and that its capital position will support future growth
and development without significant impairment of the financial stability of
NBN.
Total equity of NBN was $19,900,613 as of June 30, 1997 versus
$18,151,242 at June 30, 1996. In March of 1997 Square Lake Holding Corporation
exercised 25,000 warrants at an aggregate price of $175,000. These proceeds
were utilized as general working capital. The exercise of these warrants
contributed to the growth of NBN's total equity. Warrants outstanding were
108,764 as of June 30, 1997. NBN repurchased 4,100 treasury shares at a cost of
$52,277 during fiscal 1996. These treasury shares were utilized for the
employee stock bonus and options plans. The total equity to total assets ratio
<PAGE> 33
of NBN was 7.60% as of June 30, 1997 and 8.17% at June 30, 1996. The reduction
in the equity to assets ratio from fiscal 1997 compared to fiscal 1996 was
primarily due to NBN leveraging the Bank in the purchase of mortgage loans
through the increased use of FHLB advances. Book value per common share was
$14.02 as of June 30, 1997 versus $13.13 at June 30, 1996.
At June 30, 1997 and 1996, NBN's subsidiary, the Bank, was in compliance
with regulatory capital requirements as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tangible capital $17,733,000 $15,386,000
Percent of adjusted total assets 6.8% 7.0%
Excess over requirement $13,841,000 $12,950,000
Core capital $17,733,000 $15,386,000
Percent of adjusted total assets 6.8% 7.0%
Excess over requirement $ 9,948,000 $ 8,804,000
Leverage capital $17,733,000 $15,386,000
Percent of adjusted total assets 6.8% 7.0%
Excess over requirement $ 7,353,000 $ 6,610,000
Risk-based capital $18,840,000 $16,349,000
Percent of total risk-weighted assets 11.9% 12.6%
Excess over requirement $ 6,163,000 $ 5,987,000
</TABLE>
<PAGE> xxx
Results Of Operations
Net income for the year ended June 30, 1997 was $1,507,103 versus
$1,193,420 for the year ended June 30, 1996 and $1,489,381 for the year ended
June 30, 1995. Primary earnings per share was $1.03 and fully diluted earnings
per share was $.96 for the period ended June 30, 1997. Primary and fully
diluted earnings per share were $.83 and $.79, respectively, for the year ended
June 30, 1996 and $1.10 and $1.02 for the year ended June 30, 1995.
In September of 1996, Congress enacted comprehensive legislation amending
the FDIC BIF-SAIF deposit insurance assessment on savings and loan institution
deposits. The legislation imposed a one- time assessment on institutions
holding SAIF insured deposits on March 31, 1995, in an amount necessary for the
SAIF to reach its 1.25% Designated Reserve Ratio. Institutions with SAIF
deposits were required to pay an assessment rate of 65.7 cents per $100 of
domestic deposits held as of March 31, 1995. NBN held approximately $57,900,000
of SAIF deposits as of March 31, 1995. The net effect of the one time
assessment was $296,860 and decreased NBN's primary earnings per share by $.15
and the fully diluted earnings per share by $.12 for the fiscal year ended June
30, 1997.
NBN's overall return on assets ("ROA") was .58% for the year ended June
30, 1997, .55% for the year ended June 30, 1996, and .72% for the year ended
June 30, 1995. Because of the increase in assets due primarily to the purchase
of mortgage loans in the last two quarters of fiscal 1997 and the SAIF
assessment, NBN's ROA increased marginally compared to fiscal 1996.
<PAGE> 34
NBN experienced a reduction in net income in fiscal year 1996, when
compared to fiscal 1995, primarily due to the expenses attributed to the merger
and name change of the subsidiary banks, the costs associated with the
acquisition of the Key Bank branches, and the general growth in infrastructure
expenses of NBN. These expenses are discussed below.
NBN's net interest income for the years ended June 30, 1997, June 30,
1996 and June 30, 1995 was $9,529,044, $8,866,458 and $8,870,005, respectively.
Net interest income for fiscal 1997 increased $662,586, or 7.47%, compared to
the amount at June 30, 1996. Total interest and dividend income increased
$2,034,278 for the year ended June 30, 1997 compared to the year ended June 30,
1996, resulting from the following items: (I) interest income on loans
increased by $1,215,252 resulting from an increase of $1,576,666 due to an
increase in the volume of loans, which was offset by the decrease of $361,414
due to decreased interest rates on loans, (II) interest and dividend income on
investment securities increased by $996,594 resulting from a $986,222 increase
due to increased volume and an increase of $10,372 due to increased interest
rates on investments, and (III) interest income on short term liquid funds
decreased by $177,568 resulting from a $149,079 decrease due to decreased
volume and a decrease of $28,489 due to decreased interest rates on deposits at
the FHLB and other institutions.
The increase in total interest expense of $1,371,692 for fiscal 1997
compared to 1996 resulted from the following items: (I) interest expense on
deposits decreased by $71,369 resulting from a $120,230 increase due to
increased deposits, which was more than offset by the decrease of $191,599 due
to decreased deposit interest rates, (II) interest expense on repurchase
agreements increased by $33,243 resulting from a $46,631 increase due to
increased volume offset, in part, by a decrease of $13,388 due to decreasing
interest rates, and (III) interest expense on borrowings increased $1,409,818
resulting from an increase of $1,468,418 due to an increase in volume which was
offset by the decrease of $58,600 due to the change in the mix of interest
rates on borrowings. The changes in net interest income, as explained above,
are also presented in the schedule below.
<PAGE> xxxi
Rate/Volume Analysis for the Year ended
June 30, 1997 Versus June 30, 1996
<TABLE>
<CAPTION>
Difference Due to
-------------------------------------
Volume Rate Total
---------- --------- ----------
<S> <C> <C> <C>
Investments $ 986,222 $ 10,372 $ 996,594
Loans 1,576,666 (361,414) 1,215,252
FHLB and Other Deposits (149,079) (28,489) (177,568)
-------------------------------------
Total Interest Earning Assets 2,413,809 (379,531) 2,034,278
<PAGE> 35
Deposits 120,230 (191,599) (71,369)
Repurchase Agreements 46,631 (13,388) 33,243
Borrowings 1,468,418 (58,600) 1,409,818
-------------------------------------
Total Interest-Bearing Liabilities 1,635,279 (263,587) 1,371,692
-------------------------------------
Net Interest Income $ 778,530 $(115,944) $ 662,586
=====================================
</TABLE>
Rate/Volume amounts spread proportionately between Volume and Rate.
Net interest income for fiscal 1996 decreased $3,547, or .04%, compared
to the amount at June 30, 1995. Total interest and dividend income increased
$1,071,937 for the year ended June 30, 1996 compared to the year ended June 30,
1995, resulting from the following items: (I) interest income on loans
increased by $925,547 resulting from an increase of $518,349 due to an increase
in the volume of loans and an increase of $407,198 due to increased interest
rates on loans, (II) interest and dividend income on investment securities
decreased by $22,088 resulting from a $11,381 increase due to increased volume,
which was more than offset by the decrease of $33,469 due to decreased interest
rates on investments, and (III) interest income on short term liquid funds
increased by $168,478 resulting from a $154,590 increase due to increased
volume and an increase of $13,888 due to increased interest rates on deposits
at the FHLB and other institutions.
The increase in total interest expense of $1,075,484 for fiscal 1996
compared to 1995 resulted from the following items: (I) interest expense on
deposits increased by $983,069 resulting from a $328,965 increase due to
increased deposits and an increase of $654,104 due to higher deposit interest
rates, (II) interest expense on repurchase agreements increased by $81,289
resulting from an $82,258 increase due to increased volume offset, in part, by
a decrease of $969 due to decreasing interest rates, and (III) interest expense
on borrowings increased $11,126 resulting from a decrease of $161,857 due to a
decrease in volume which was more than offset by the increase of $172,983 due
to the change in the mix of interest rates on borrowings. The changes in net
interest income, as explained above, are also presented in the schedule below.
<PAGE> xxxii
Rate/Volume Analysis for the Year ended
June 30, 1996 Versus June 30, 1995
<TABLE>
<CAPTION>
Difference Due to
--------------------------------------
Volume Rate Total
--------- --------- ----------
<S> <C> <C> <C>
Investments $ 11,381 $ (33,469) $ (22,088)
Loans 518,349 407,198 925,547
FHLB & Other Deposits 154,590 13,888 168,478
------------------------------------
<PAGE> 36
Total Interest Earning Assets 684,320 387,617 1,071,937
Deposits 328,965 654,104 983,069
Repurchase Agreements 82,258 (969) 81,289
Borrowings (161,857) 172,983 11,126
------------------------------------
Total Interest-Bearing Liabilities 249,366 826,118 1,075,484
------------------------------------
Net Interest Income $ 434,954 $(438,501) $ (3,547)
====================================
</TABLE>
Rate/Volume amounts spread proportionately between Volume and Rate.
Approximately 22% of NBN's loan portfolio is comprised of floating rate
loans based on a prime rate index. Interest income on these existing loans will
increase as the prime rate increases, as well as approximately 36% of other
loans in NBN's portfolio that are based on short-term rate indices such as the
one-year treasury bill. An increase in short-term interest rates will also
increase deposit and FHLB advance rates, increasing NBN's interest expense.
Although NBN has experienced some net interest margin compression, the impact
on net interest income will depend on, among other things, actual rates charged
on NBN's loan portfolio, deposit and advance rates paid by NBN, and loan
volume.
The provision for loan losses was $578,427 for fiscal 1997 compared to
$602,860 and $640,634 for 1996 and 1995, respectively. Net charge-offs amounted
to $610,427 during fiscal 1997 versus $449,860 and $707,634 for 1996 and 1995,
respectively.
Non-interest income was $2,011,856 for the year ended June 30, 1997,
$2,097,191 for June 30, 1996 and $2,116,442 for June 30, 1995. Generally, NBN
continues to generate an increasing level of non-interest income through
service charges and fees for other services. This component totaled $775,874
for the year ended June 30, 1997, $737,229 for the year ended June 30, 1996 and
$679,495 for June 30, 1995. The increase in 1997 was primarily due to growth in
the deposit accounts and other branch services.
Net securities gains were $259,430, $278,895, and $419,313 for fiscal
1997, 1996 and 1995, respectively. The major reason for the increase in 1995
was that NBN sold some of its available for sale and trading securities, taking
advantage of the fluctuation in market prices.
Gains on the sale of loans amounted to $201,418 for fiscal 1997 and was a
decrease of $50,179 compared the balance in fiscal 1996. Gains on the sale of
loans amounted to $251,597 for fiscal 1996 and was an increase of $90,615
compared to $160,982 for fiscal 1995.
<PAGE> xxxiii
The decrease in gain on sales of loans in 1997, compared to 1996, was
primarily due to the Bank's reduced volume in underwriting and selling Freddie
Mac, Fannie Mae and SBA guaranteed commercial loans. Gains on the sale of loans
<PAGE> 37
in fiscal 1996 increased due to increased volume in underwriting Freddie Mac
and Fannie Mae loans. NBN's loan sales activity is dependent on market interest
rates as well as local competition. NBN receives income from servicing mortgage
loans for others that the Bank originated and sold. The outstanding balance of
such loans decreased from approximately $39,940,000 at June 30, 1996 to
$34,693,000 during 1997. In addition to loans originated and sold by NBN,
during 1993 NBN purchased loan servicing rights from another institution. The
balance of the loans serviced under this agreement was approximately $7,795,000
and $9,676,000 at June 30, 1997 and 1996, respectively. Fees for servicing
loans was $275,496 for the year ended June 30, 1997 versus $302,261 and
$306,220 for the years ended June 30, 1996 and 1995, respectively.
Total non-interest expense for NBN was $8,547,773 for fiscal 1997,
$8,448,757 for fiscal 1996, and $7,987,877 for fiscal 1995. The increase in
non-interest expense of $99,016 for fiscal 1997 compared to 1996 was due, in
part, to the following items: (I) occupancy expense increased by $25,811 due to
the expenses associated with the opening of the new Auburn retail branch, (II)
equipment expense increased by $32,005 due to the depreciation expense
associated with the new Auburn branch equipment as well as general maintenance
costs, and (III) FDIC deposit insurance increased by $248,833 due to
legislative actions. The non-interest expense increases above were offset by
the reduction of $119,782 in compensation expense due to NBN restructuring its
internal departments. Other operating expenses decreased by $87,851 in fiscal
1997 compared to 1996 due to cost containment efforts.
The increase in non-interest expense of $460,880 for fiscal 1996 compared
to 1995 was due, in part, to the following items: (I) compensation expenses
increased by $175,360 as the result of the additional employees from the Key
Bank branch acquisition, general growth in NBN, as well as annual salary
increases and other benefits expenses, (II) occupancy expense increased by
$100,647 due to the expense associated with the branches acquired from Key Bank
and general maintenance on existing locations, and (III) equipment expense
increased by $69,957 due to depreciation on new assets, as well as increased
maintenance costs from new assets acquired and the equipment acquired from Key
Bank and an increase in other expenses of $114,916.
Cushnoc.
Cushnoc reported net income of $22,629 for the quarter ended June 30,
1997. This represents a 17% increase over the $19,264 income reported for the
same period last year. Cushnoc had previously reported a loss for the quarter
ended March 31, 1997 of $30,355. The increase in net income for the 1997 second
quarter as compared to the 1996 second quarter was a result of an increase in
net interest income of $44,823, a decrease in non-interest income of $7,132 and
an increase in non-interest expenses of $32,736. Total assets decreased
$209,522 or 1% to $22,283,588 as of June 30, 1997, compared to June 30, 1996.
The decrease in total assets was a result of a decrease in net loans from
$17,146,684 to $16,101,190 over the same time period. Total deposits decreased
to $18,514,140 from $19,659,961 while shareholders' equity decreased to
$2,196,653 from $2,212,762.
<PAGE> xxxiv
GENERAL INFORMATION
This Prospectus/Proxy Statement is being furnished to the holders of
<PAGE> 38
Cushnoc Common Stock in connection with the solicitation of proxies by the
Board of Directors of Cushnoc for use at the Special Meeting and at any
adjournment or adjournments thereof. This Prospectus/Proxy Statement also
serves as a prospectus of NBN in connection with the issuance of NBN Common
Stock to holders of Cushnoc Common Stock upon consummation of the Merger.
All information contained or incorporated by reference in this
Prospectus/Proxy Statement with respect to NBN has been supplied by NBN, and
all information contained in this Prospectus/Proxy Statement with respect to
Cushnoc has been supplied by Cushnoc.
This Prospectus/Proxy Statement and the other documents enclosed herewith
are first being mailed to shareholders of Cushnoc on or about September 9,
1997.
THE SPECIAL MEETING
Time and Place
The Special Meeting will be held at 4:00 p.m. Eastern Time, on Tuesday,
October 14, 1997 at Cushnoc's executive offices, 235 Western Avenue, Augusta,
Maine 04330.
Matters to be Considered
At the Special Meeting, shareholders of Cushnoc will consider and vote
upon a proposal to approve the Merger Agreement. Pursuant to applicable law and
the Articles of Incorporation and Bylaws of Cushnoc, no other business may
properly come before the Special Meeting and any adjournment or adjournments
thereof.
Shares Outstanding and Entitled to Vote; Record Date
The close of business of September 1, 1997 has been fixed by the Cushnoc
Board as the Record Date for the determination of holders of Cushnoc Common
Stock entitled to notice of and to vote at the Special Meeting and any
adjournment or adjournments thereof. At the close of business on the Record
Date, there were 90,000 shares of Cushnoc Common Stock outstanding and entitled
to vote. Each share of Cushnoc Common Stock entitles the holder thereof to one
vote on all matters properly presented at the Special Meeting.
Vote Required
A quorum, consisting of the holders of a majority of the issued and
outstanding shares of Cushnoc Common Stock must be present in person or by
proxy before any action may be taken at the Special Meeting. The affirmative
vote of the holders of two-thirds of the outstanding shares of Cushnoc Common
Stock, voting in person or by proxy, is necessary to approve the Merger
Agreement on behalf of Cushnoc.
The proposal to adopt the Merger Agreement is considered a
"non-discretionary item" whereby brokerage firms may not vote in their
discretion on behalf of their clients if, such clients
<PAGE> 39
<PAGE>
have not furnished voting instructions. Abstentions and such broker "nonvotes"
at the Special Meeting will be considered in determining the presence of a
quorum but will not be counted as a vote 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 Cushnoc Common Stock,
abstentions and broker nonvotes will have the same effect as a vote against
this proposal at the Special Meeting.
Each proxy returned to Cushnoc (and not revoked) by a holder of Cushnoc
Common Stock 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 which are voted against the 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.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it at any time before it is voted by delivering to the
clerk of Cushnoc, on or before the taking of the vote at the Special Meeting, a
written notice of revocation bearing a later date than the proxy or a later
dated proxy relating to the same shares of Cushnoc Common Stock, or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in itself constitute revocation of a proxy.
It is not expected that any matter other than those referred to herein
will be brought before the Special Meeting. If other matters are properly
presented, however, the persons named as proxies will vote in accordance with
their judgment with respect to such matters.
The Merger Agreement also requires the approval of the sole shareholder
of the Bank. NBN, as sole shareholder, approved the Merger Agreement on June
30, 1997.
Solicitation of Proxies
Cushnoc will bear its costs of mailing this Prospectus/Proxy Statement to
its shareholders, as well as all other costs incurred by it in connection with
the solicitation of proxies from its shareholders on behalf of its Board of
Directors. In addition to solicitation by mail, the directors, officers and
employees of Cushnoc may solicit proxies from shareholders of Cushnoc by
telephone, telegram, facsimile transmission or in person without compensation
other than reimbursement for their actual expenses. Arrangements also will be
made with brokerage firms and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of stock held
of record by such persons, and Cushnoc will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith.
THE MERGER
The following information relating to the Merger does not purport to be
complete, and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Prospectus/Proxy Statement as
<PAGE> 40
Annex I and incorporated herein by reference. All Cushnoc Shareholders are
urged to read the Merger Agreement carefully. All material terms of the Merger
Agreement are summarized below.
<PAGE> 2
General
In accordance with the terms of and subject to the conditions set forth
in the Merger Agreement, Cushnoc will be merged with and into the Bank, with
the Bank as the surviving corporation of the Merger. The Merger Agreement
provides that at the Effective Time each outstanding share of Cushnoc Common
Stock (other than (i) any dissenting shares and (ii) any shares held by NBN or
a subsidiary thereof other than in a fiduciary capacity or in satisfaction of a
debt previously contracted) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
received 2.089 shares of NBN Common Stock, subject to possible adjustment under
certain circumstances, as discussed below. As of August 27, 1997, the market
price for NBN Common Stock was $14.625.
Each of the NBN Board and the Cushnoc Board has unanimously approved the
Merger Agreement and the transactions contemplated thereby and believes that
the Merger is fair to and in the best interests of NBN and Cushnoc,
respectively, and its respective shareholders. Accordingly, the Board of
Directors of Cushnoc, unanimously recommends that shareholders of Cushnoc vote
"FOR" approval of the Merger Agreement
Background of the Merger
During the summer and early fall of 1996, several independent commercial
banks in central Maine, including Cushnoc, were working together in an attempt
to solve problems, share certain resources, participate on loans and generally
reduce the cost of operations and achieve economies of scale. These efforts led
to the parties discussing a merger of all participants; however, these
discussions were terminated because of an inability to resolve social issues,
including, but not limited to, management and control issues. Several of the
parties then expressed an interest in acquiring Cushnoc. Three of these banks
submitted the proposals discussed below.
In November 1996, Cushnoc retained Ryan, Beck to act as Cushnoc's
financial advisor with respect to the possible sale of Cushnoc. Ryan, Beck
analyzed two preliminary proposals received by Cushnoc prior to the retention
of Ryan, Beck, one of which was from NBN, and also analyzed a third preliminary
oral proposal which was received after Ryan, Beck was retained. Cushnoc
decided, after consultation with Ryan, Beck, that all three parties who
submitted preliminary proposals (including the party who submitted the oral
proposal) would be invited to perform due diligence. Due diligence was
performed during December 1996 and formal written indications of interest were
received from NBN and one of the other parties. The third party declined to
submit a proposal at the conclusion of the due diligence phase.
On January 9, 1997, Ryan, Beck reviewed with the Cushnoc Board the two
proposals which had been received. One of the proposals was from NBN for an
exchange of common stock which was expected to be accounted for as a "pooling
of interests" and the other proposal was for an all cash transaction at a
<PAGE> 41
slightly higher purchase price than the common stock proposal. The Cushnoc
Board decided to pursue the cash transaction. Over the next several months,
Cushnoc attempted to negotiate a definitive agreement with this potential
acquiror. This process was unsuccessful. The parties were unable to agree on
numerous social, financial and legal issues. Resolution of these issues would
have resulted in a number of adjustments to the proposed
<PAGE> 3
acquisition price depending on the financial performance of Cushnoc between the
date of signing the definitive agreement and the closing date. These
adjustments were unacceptable to Cushnoc since the final acquisition price
would have been impossible to determine until the closing date of the
acquisition. The potential acquiror terminated discussions with Cushnoc on
March 14, 1997. During this period, Cushnoc received an informal inquiry from
an additional party who in the opinion of Cushnoc and Ryan, Beck did not have
the capacity to complete the transaction.
The two other potential acquirors who had submitted preliminary proposals
were recontacted. These parties were informed that Cushnoc had been unable to
reach a definitive agreement with another party and were asked if they still
had an interest in pursuing an acquisition of Cushnoc. The party that
previously declined to make an offer following due diligence was not interested
in pursuing an acquisition of Cushnoc but NBN reinstated its previous offer.
During April and early May, Chairman Lipman of Cushnoc, President
Delamater of NBN and their financial advisors discussed pricing, severance
issues, and other qualitative and quantitative terms and issues. Chairman
Lipman and President Delamater reached an oral agreement on most major business
issues. During this period NBN prepared a definitive agreement whose terms were
negotiated by the parties and their advisors. Cushnoc and its advisors also
considered the recent performance and future prospects of NBN as NBN was
offering common stock as consideration. In this regard, Ryan, Beck performed
due diligence on NBN. Ryan, Beck and the Cushnoc Board, satisfied with the
results of due diligence, concluded that the NBN stock would be acceptable
consideration provided that all terms of the definitive agreement could be
resolved. During the following weeks, agreement was reached on all outstanding
terms and issues.
On May 8, 1997, the Cushnoc Board met to review the proposed transaction
outlined in the definitive Merger Agreement. The Board reviewed the analysis
presented by their financial advisors and its potential effects on shareholder
value and reviewed the terms of the Merger Agreement with its special legal
counsel, Breyer & Aguggia. The Board recessed, and reconvened the following
morning at which time they approved the Merger Agreement and recommended that
the Merger Agreement be submitted to Cushnoc's shareholders for approval.
Reasons for the Merger
The Cushnoc Board, at its meeting held May 9, 1997, considered the Merger
Agreement and determined it to be fair, and in the best interest of, Cushnoc
and its shareholders, customers, and employees. The Cushnoc Board considered
the proposed transaction in relation to the book value and earnings per share
of Cushnoc and the results of operations and prospects of Cushnoc should it
remain independent. In reaching its determination, the Cushnoc Board consulted
with special legal counsel regarding the terms of the Merger Agreement and the
<PAGE> 42
legal duties of the Cushnoc Board and with its financial advisor regarding
financial aspects of the transaction. The Cushnoc Board considered the opinion
of its financial advisor in deciding to proceed with this transaction.
In reaching its determination to approve the Merger Agreement the Cushnoc
Board considered a number of factors. Below is a listing of the material
factors of the Cushnoc Board
<PAGE> 4
considered in their decision. The Cushnoc Board did not assign any specific or
relative weight to the below listed factors.
(1) The Cushnoc Board considered the continuing consolidation and
increasing competition in the financial services industries and
concluded that Cushnoc shareholders, customers, and employees would
benefit from being part of a larger financial institution.
(2) The Cushnoc Board analyzed operating personnel and the necessity to
make major changes in terms of being independent and achieving
long-term profitability.
(3) The Cushnoc Board analyzed Cushnoc's year to date operating results
and future prospects should it remain independent.
(4) The Cushnoc Board considered the terms of the Merger Agreement,
including the receipt of NBN Common Stock which would be generally
tax free to Cushnoc shareholders.
(5) The Cushnoc Board considered the financial condition and operating
results of NBN. The Cushnoc Board also considered the relative
liquidity of Cushnoc Common Stock and NBN Common Stock.
(6) The Cushnoc Board of Directors considered the opinion of its
financial advisor that the exchange ratio being received by
Cushnoc's shareholders in connection with the Merger was fair to
Cushnoc's shareholders from a financial point of view.
(7) The Cushnoc Board also considered the relative lack of liquidity in
NBN common stock.
For the reasons set forth above, the Cushnoc Board has unanimously
approved the Merger Agreement as advisable and in the best interests of Cushnoc
and Cushnoc shareholders and recommends that the Shareholders of Cushnoc vote
FOR the approval of the Merger Agreement.
NBN. In reaching its determination to approve and adopt the Merger
Agreement and the transactions contemplated thereby, the NBN Board considered a
number of factors, including, without limitation, the following:
(1) the NBN Board's review, with the assistance of management and its
financial advisor, Mercer Capital Management, Inc., of the
financial condition, results of operations, business and overall
prospects of Cushnoc;
<PAGE> 43
(2) the fact that Cushnoc does business in one of Maine's largest
market areas, which is also the capitol city;
<PAGE> 5
(3) the enhanced ability of the combined entity to expand in the
Augusta market area, as NBN will deliver a much wider array of
financial products and services to this market;
(4) the financial presentations of senior management and Mercer
Capital, which indicated minimal, if any, dilution to existing NBN
shareholders, provided that certain expense savings following the
Merger are realized and Cushnoc's performance meets or exceeds its
1997 budget;
(5) the anticipated cost savings and operating efficiencies available
to the combined institution from the Merger;
(6) the expectation that the Merger will be a tax free exchange and
will qualify for pooling of interests accounting treatment. (See
THE MERGER -- Accounting Treatment of the Merger".)
(7) the nature and likelihood of obtaining regulatory approvals that
would be required with respect to the Merger and the overall
enhancement to the NBN franchise by establishing a presence in the
Augusta marketplace;
(8) the fact that NBN's existing "mission statement" calls for
additional development within its established market area and
therefore NBN has already built much of the infrastructure needed
to effectively manage the new combined company; and
(9) The fact that some of the Cushnoc personnel would not be necessary
for the continued operation of the surviving entity, and that
difficult issues would be entailed by a reduction in staffing; and
(10) Cushnoc had not achieved great financial success, although the
Board felt that it was primarily attributable to the small size of
Cushnoc and would not necessarily be relevant to the surviving
entity.
The foregoing discussion of the information and factors discussed by the
Board of Directors is not meant to be exhaustive but is believed to include all
material factors considered by NBN's Board. The Board did not quantify or
attach any particular weight to the various factors that it considered in
reaching its determination that the Merger is in the best interest of NBN
shareholders.
Opinion of Financial Advisor
On November 26, 1996 Cushnoc retained Ryan, Beck to act as Cushnoc's
financial advisor with respect to the acquisition of Cushnoc. Ryan, Beck is
regularly engaged in the valuation of banks, bank holding companies, savings
and loan associations, savings banks and savings and loan holding companies in
connection with mergers, acquisitions and other securities-related
transactions. Ryan, Beck has knowledge of, and experience with, the New England
<PAGE> 44
banking market and banking organizations operating in that market, and was
selected by Cushnoc because of its knowledge of, experience with, and
reputation in the financial services industry.
<PAGE> 6
In its capacity as Cushnoc's financial advisor, Ryan, Beck participated
in the negotiations with respect to the pricing and other terms and conditions
of the Merger, but the decision as to whether to accept the NBN proposal and
the final pricing of the Merger was ultimately made by the Board of Directors
of Cushnoc. Ryan, Beck rendered its oral opinion to the Cushnoc Board on May 8,
1997, and rendered its formal written opinion (the "Opinion") on September 5,
1997, that the Exchange Ratio is "fair" to Cushnoc's shareholders from a
financial point of view. No limitations were imposed by the Cushnoc Board upon
Ryan, Beck with respect to the investigations made or procedures followed by it
in arriving at its opinion.
The full text of the Opinion of Ryan, Beck dated as of September 5, 1997,
which sets forth assumptions made and matters considered, is attached as Annex
II to this Proxy Statement/Prospectus. Shareholders of Cushnoc are urged to
read this Opinion in its entirety. Ryan, Beck's Opinion is directed only to the
Exchange Ratio and does not constitute a recommendation to any Cushnoc
shareholder as to how such shareholder should vote at the Special Meeting. The
summary of the Ryan, Beck Opinion set forth in this Proxy Statement/Prospectus
is qualified in its entirety by reference to the full text of such Opinion.
Ryan, Beck's oral opinion as of May 8, 1997 was to the same effect as such
Opinion.
In connection with its analysis, Ryan, Beck: (i) reviewed the Merger
Agreement and related documents; (ii) reviewed drafts of this Proxy
Statement/Prospectus; (iii) reviewed NBN's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the fiscal years ended June 30, 1996, 1995, and
1994, and NBN's Quarterly Reports on Form 10-Q for the periods ended March 31,
1997, December 31, 1996 and September 30, 1996; (iv) reviewed Cushnoc's Annual
Reports to Shareholders for the years ended December 31, 1996, 1995, and 1994;
(v) reviewed the historical stock prices and trading volume of NBN's Common
Stock; (vi) as more particularly described below, reviewed the publicly
available financial data of thrift organizations which Ryan, Beck deemed
generally comparable to NBN; (vii) as more particularly described below,
reviewed the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to Cushnoc; (viii)
as more particularly described below, reviewed the terms of recent acquisitions
of commercial banking organizations which Ryan, Beck deemed generally
comparable to Cushnoc; and (ix) conducted such other studies, analyses,
inquiries and examinations as Ryan, Beck deemed appropriate. Ryan, Beck also
reviewed certain projections provided by Cushnoc for the year ending December
31, 1997 and met with certain members of Cushnoc's senior management to discuss
Cushnoc's past and current business operations, financial condition, strategic
plan and future prospects. Ryan, Beck also reviewed NBN's budget for the year
ending June 30, 1997, and met with certain members of NBN's senior management
to discuss NBN's past and current business operations, financial condition,
strategic plan and future prospects. Ryan, Beck as part of its review of the
Merger, also analyzed NBN's ability to consummate the Merger and considered the
future prospects of Cushnoc in the event it remained independent.
<PAGE> 45
In connection with its review, Ryan, Beck relied upon and assumed,
without independent verification, the accuracy and completeness of the
financial and other information regarding Cushnoc and NBN provided to Ryan,
Beck by Cushnoc and NBN and their representatives. Ryan, Beck is not an expert
in the evaluation of allowances for loan losses. Therefore, Ryan, Beck has not
assumed any responsibility for making an independent evaluation of the adequacy
<PAGE> 7
of the allowances for loan losses as set forth on Cushnoc's and NBN's balance
sheets at March 31, 1997, and Ryan, Beck assumed such allowances were adequate
and complied fully with applicable law, regulatory policy and sound banking
practice as of the date of such financial statements. Ryan, Beck has reviewed
certain historical financial data and financial projections (and the
assumptions and bases therefor) provided by Cushnoc and NBN. Ryan, Beck assumed
that such forecasts and projections reflected the best currently available
estimates and judgments of the respective managements. In certain instances,
for the purposes of its analyses, Ryan, Beck made adjustments to such financial
and operating forecasts which in Ryan, Beck's judgment were appropriate under
the circumstances. Ryan, Beck was not retained to nor did it make any
independent evaluation or appraisal of the assets or liabilities of Cushnoc or
NBN nor did Ryan, Beck review any loan files of Cushnoc or NBN. Ryan, Beck also
assumed that the Merger in all respects is, and will be, undertaken and
consummated in compliance with all laws and regulations that are applicable to
Cushnoc and NBN.
The preparation of a fairness opinion on a transaction such as the Merger
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, the Opinion is not readily susceptible to summary
description. In arriving at its opinion, Ryan, Beck performed a variety of
financial analyses. Ryan, Beck believes that its analyses must be considered as
a whole and the consideration of portions of such analyses and the factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and the process underlying Ryan, Beck's
Opinion. No one of the analyses was assigned a greater significance than any
other.
The projections furnished to Ryan, Beck were prepared by the respective
managements of Cushnoc and NBN. Cushnoc and NBN do not publicly disclose
internal management projections of the type provided to Ryan, Beck in
connection with the review of the Merger. Such projections were not prepared
with a view towards public disclosure. The public disclosure of such
projections could be misleading since the projections were based on numerous
variables and assumptions which are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions.
Accordingly, actual results could vary significantly from those set forth in
such projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond the control of Cushnoc or NBN. Any estimates contained in
Ryan, Beck's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals nor do they
necessarily reflect the prices at which companies or their securities may
actually be sold.
<PAGE> 46
The following is a brief summary of the analyses and procedures performed
by Ryan, Beck in the course of arriving at its Opinion.
Comparable Companies and Comparable Transactions Analyses: Ryan, Beck
compared Cushnoc's financial data as of December 31, 1996 to a peer group of
twenty two selected commercial banks located in the New England region of the
United States with assets less than
<PAGE> 8
$50 million. Ryan, Beck deemed this group to be generally comparable to
Cushnoc. At or for the twelve months ended December 31, 1996, Cushnoc had an
equity to assets ratio of 10.60%, a return on average assets of 0.02%, a return
on average equity of 0.23%, a net interest margin of 5.40%, a ratio of
non-interest expenses to average assets of 5.12%, a ratio of loan loss reserves
to total loans of 1.25%, a ratio of loan loss reserves to non-performing loans
of 46.17%, and an efficiency ratio of 96.24%. These ratios were compared to the
median ratios of the twenty two selected commercial banking organizations,
which were, as calculated, an equity to assets ratio of 10.00%, a return on
average assets of 1.11%, a return on average equity of 12.63%, a net interest
margin of 5.19%, a ratio of non-interest expense to average assets of 3.97%, a
ratio of loan loss reserves to total loans of 1.76%, a ratio of loan loss
reserves to non-performing loans of 75.44% and an efficiency ratio of 66.67%.
Ryan, Beck noted that Cushnoc's performance as measured by return on average
assets and equity, non-interest expenses as a percent of average assets and
efficiency ratio were all significantly below that of the peer group.
Ryan, Beck compared Cushnoc's financial data as of April 30, 1997 with
that of a group of nine selected commercial banking organizations being
acquired in transactions announced since June 30, 1995 and for which pricing
data pertaining to the transactions was publicly available. The criteria for
this group was commercial banks with assets less than $35 million, with a
return on average assets between 0.00% and 0.45% and a tangible equity to
tangible assets ratio of less than 20%. Ryan, Beck deemed this group to be
generally comparable to Cushnoc. The median ratios of the nine selected
companies, as calculated, represented a 9.47% tangible equity to tangible
assets ratio, a non-performing assets to assets ratio of 0.32%, an annualized
year-to-date return on average assets of 0.24% and an annualized year-to-date
return on average equity of 2.44%.
Ryan, Beck also calculated certain ratios based on the Exchange Ratio of
2.089 shares of NBN common stock for each share of Cushnoc common stock, the
stock price of NBN's last trade prior to May 8, 1997 and the median ratios for
the nine selected commercial bank acquisitions ("Comparable Transactions"). The
Comparable Transactions produced a median return on average assets of 0.24% and
a median return on average equity of 2.44%. The median ratios for the
Comparable Transactions, as calculated, represented a price to fully diluted
book value of 137.19%, a price to fully diluted tangible book value of 137.32%,
a price to latest twelve months earnings of 40.00 times and a core deposit
premium of 6.01%. The imputed value of Cushnoc based on the median of the above
mentioned acquisition peer group was $33.26 based on price to stated book
value, $33.29 based on price to tangible book value, $2.17 based on price to
1996 earnings and $34.23 based on the core deposit premium to tangible book
value. Ryan, Beck noted that banks with an established level of meaningful
earnings typically are not acquired at a multiple of 40 times earnings.
<PAGE> 47
The comparable ratios for Cushnoc were an acquisition price of 120.64% of
book value, a price to tangible book value of 120.64%, a price to 1996 earnings
of 538.01 times and a core deposit premium to tangible book value of 3.01%.
Ryan, Beck noted that the value of the NBN common stock to be received by
Cushnoc shareholders based upon the Exchange Ratio of 2.089 shares of NBN
common stock for each Cushnoc share and the last trade of NBN common stock
prior to May 8, 1997 was $29.25. The NBN offer also represented approximately
36 times Cushnoc's budgeted 1997 income. Ryan, Beck noted that Cushnoc, except
in 1995, had not demonstrated the ability to consistently earn at or above the
1997 budgeted income.
<PAGE> 9
Ryan, Beck also compared NBN's financial data as of December 31, 1996
with that of a group of fourteen selected thrift organizations with assets
between $150 million and $300 million, an equity to assets ratio less than
12.0% and which are located in the New England and Mid Atlantic regions of the
United States for which public trading and pricing information was available.
Ryan, Beck deemed this group to be generally comparable to NBN. At or for the
twelve months ending December 31, 1996, NBN had tangible equity to tangible
assets of 6.92%, a return on average assets ratio of 0.58% adjusted to exclude
the one-time SAIF assessment, a return on average equity ratio of 6.94%
adjusted to exclude the one-time SAIF assessment, a dividend yield of 2.19%, a
net interest margin of 4.22%, an efficiency ratio of 75.43%, a ratio of
non-performing assets to total assets of 1.34% and a ratio of reserves to
non-performing loans of 96.92%. These ratios were compared to the median ratios
of the fourteen selected thrift organizations, which were, as calculated, a
tangible equity to tangible assets ratio of 7.79%, a return on average assets
ratio of 0.80% adjusted to exclude the one-time SAIF assessment, a return on
average equity ratio of 10.58% adjusted to exclude the one-time SAIF
assessment, a dividend yield of 2.14%, a net interest margin of 3.75%, an
efficiency ratio of 65.55%, a ratio of non-performing assets to total assets of
0.79% and a ratio of reserves to non-performing loans of 124.76%. Using NBN's
common stock price as represented by the last trade prior to May 8, 1997, its
price to latest twelve month earnings adjusted to exclude the one-time SAIF
assessment was 17.91 times, price to book value was 107.54% and price to
tangible book value was 125.64%. The peer group's median price to latest twelve
month earnings was 11.82 times, price to book value was 116.55% and price to
tangible book value was 117.77%.
No company or transaction used in the Comparable Companies and
Transaction Acquisition Analyses section is identical to Cushnoc, NBN or the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the trading values of
the securities of the company or companies to which they are being compared.
Impact Analysis: Ryan, Beck analyzed the Merger in terms of its effect on
NBN's projected earnings per share, current book value and tangible book value
based on Cushnoc's projected 1997 earnings which were derived from information
provided by the management of Cushnoc and NBN. Based upon certain assumptions,
including those with respect to cost savings and other synergies from the
Merger and the stand-alone earnings projections provided by NBN and Cushnoc,
the analysis showed that the Merger would be dilutive to NBN's projected 1997
fiscal year earnings per share by approximately 2.02%, accretive to projected
<PAGE> 48
1998 fiscal year earnings per share by approximately 0.44%, dilutive to fully
diluted book value per share by approximately 1.24% and accretive to NBN's
fully diluted tangible book value by approximately 0.04%. Ryan, Beck analyzed
the impact of the merger on NBN values per Cushnoc share based on the exchange
ratio of 2.089 shares of NBN Common Stock for each share of Cushnoc Common
Stock using pro forma projected 1997 fiscal year earnings per share, projected
1998 fiscal year earnings per share, book value per share, tangible book value
per share and dividends per share at March 31. That analysis found that, based
on such exchange ratio, Cushnoc's equivalent projected 1997 earnings per share
would increase by approximately 213%, projected 1998 earnings per share would
increase by approximately 194%, fully diluted book value would increase by
approximately 12.0% and fully diluted tangible book value would decrease by
approximately 0.35%. Additionally, Cushnoc shareholders, based on NBN's current
dividend
<PAGE> 10
level, would receive annual dividends of $0.67 per share as compared to no
dividends at the present time. The actual results achieved may vary from the
projected results and the variations may be material.
Discounted Dividend Analysis: Using a discounted dividend analysis, Ryan,
Beck estimated the present value of the future dividend streams that Cushnoc
could produce in perpetuity. Projection ranges for Cushnoc's five-year balance
sheet and income statement were provided by Cushnoc's management. Management's
projections were based upon various factors and assumptions, many of which are
beyond the control of Cushnoc. These projections are, by their nature,
forward-looking and may differ materially from the actual values or actual
future results which may be significantly more or less favorable than suggested
by such projections. In producing a range of per share Cushnoc values, Ryan,
Beck utilized the following assumptions: discount rates range from 13.0% to
15.0%, terminal price/earnings multiples range from 8.0x to 10.0x (which when
applied to terminal year estimated earnings produces a value which approximates
the net present value of the dividends in perpetuity, given certain assumptions
regarding growth rates and discount rates) and earnings that include estimated
savings in Cushnoc's non-interest expense equal to 15.0% in 1997 and
approximately 26% in 1998, with an assumed 5% growth synergies in years
thereafter. The discounted dividend analysis produced a range of net present
values per share of Cushnoc Common Stock from $26.19 to $30.98. These analyses
do not purport to be indicative of actual values or expected values or an
appraisal range of the shares of Cushnoc Common Stock. Ryan, Beck noted that
the discounted dividend analysis is a widely used valuation methodology, but
noted that it relies on numerous assumptions, including expense savings levels,
dividend payout rates, terminal values and discount rates, the future values of
which may be significantly more or less than such alternatives.
Break-Even Returns Analysis: Ryan, Beck prepared a break-even returns
analysis based on the terms of the Merger Agreement. Using a normalized range
of public market price to latest twelve months earnings multiples of 9.0x to
11.0x, a range of discount rates from 12.0% to 14.0%, Ryan, Beck calculated the
compound annual growth rate of earnings required through the year 2002 to
provide Cushnoc's shareholders with the same value on a present value basis as
the May 8 value as being approximately 54.9% to 66.5%.
In connection with its written Opinion dated as of September 5, 1997,
<PAGE> 49
Ryan, Beck confirmed the appropriateness of its reliance on the analyses used
to render its May 8, 1997 oral opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions and conclusions
contained in the Opinion.
Ryan, Beck's written Opinion dated September 5, 1997 was based solely
upon the information available to it and the economic, market and other
circumstances as they existed as of the date of such Opinion. Ryan, Beck did
not express any opinion as to the price or range of prices at which NBN Common
Stock might trade subsequent to the Merger. Events occurring after such date
could materially affect the assumptions and conclusions contained in such
Opinion. Ryan, Beck has not undertaken to reaffirm or revise its Opinion or
otherwise comment upon any events occurring after the date hereof.
<PAGE> 11
The summary set forth above does not purport to be a complete
description, but is a brief summary of the material analyses and procedures
performed by Ryan, Beck in the course of arriving at its Opinion.
With regard to Ryan, Beck's services in connection with the financial
advisory agreement and the Merger Agreement, Cushnoc has paid to Ryan, Beck a
$10,000 retainer and has agreed to pay Ryan, Beck an additional $25,000 upon
consummation of this transaction. In addition, Cushnoc has agreed to reimburse
Ryan, Beck for its reasonable out-of-pocket expenses, which shall not exceed
$7,500 without the prior consent of Cushnoc. Cushnoc has also agreed to
indemnify Ryan, Beck and certain related persons against certain liabilities,
including liabilities under federal securities law, incurred in connection with
its services. The amounts of Ryan, Beck's fees were determined by negotiation
between Cushnoc and Ryan, Beck.
Ryan, Beck has had no prior relationship with NBN. Ryan, Beck's research
department does not follow NBN and Ryan, Beck is not a market maker in NBN
common stock. Prior to this engagement, Ryan, Beck has not had a relationship
with Cushnoc.
Effects of the Merger
Effect on Cushnoc's shareholders. Upon consummation of the Merger, each
shareholder of Cushnoc shall be entitled to receive 2.089 shares of NBN Common
Stock, subject to possible adjustment under certain circumstances, in
consideration for each share of Cushnoc Common Stock then held and thereupon
shall cease to be a shareholder of Cushnoc.
Effect on Cushnoc. Upon consummation of the Merger, Cushnoc will no
longer exist as it will become a part of NBN. Under the terms of the Merger
Agreement, NBN will elect one person from the current Cushnoc Board of
Directors to the NBN Board of Directors.
Exchange of Cushnoc Common Stock Certificates
At the Effective Time, each holder of a certificate or certificates
theretofore evidencing issued and outstanding shares of Cushnoc Common Stock,
upon surrender of the same to NBN's Transfer Agent, Registrar and Transfer
Company, 10 Commerce Drive, Crawford, N.J. 07016- 3572 (the "Exchange Agent"),
<PAGE> 50
shall be entitled to receive in exchange therefor a certificate or certificates
representing full shares of NBN Common Stock into which the shares of Cushnoc
Common Stock theretofore represented by the certificate or certificates so
surrendered shall have been converted by virtue of the Merger. As promptly as
practicable after the Effective Time (and in no event later than the fifth
business day following the Effective Time), the Exchange Agent shall mail to
each holder of record of an outstanding certificate which immediately prior to
the Effective Time evidenced shares of Cushnoc Common Stock, and which is to be
exchanged for NBN Common Stock by virtue of the Merger, a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to such certificate shall pass, only upon delivery of such
certificate to the Exchange Agent) advising such holder of the terms of the
exchange effected by the Merger and of the procedure for surrendering to the
Exchange Agent such certificate in exchange for a certificate or certificates
evidencing NBN Common Stock. Upon surrender to the Exchange Agent of one or
more certificates evidencing shares of Cushnoc Common Stock, together with a
properly completed and executed letter of transmittal, the
<PAGE> 12
Exchange Agent will mail to the holder thereof after the Effective Time, a
certificate or certificates representing the number of full shares of NBN
Common Stock into which the aggregate number of shares of Cushnoc Common Stock
previously represented by such certificate or certificates surrendered shall
have been converted pursuant to the Merger Agreement. NBN shall be entitled,
after the Effective Time, to treat certificates representing shares of Cushnoc
Common Stock as evidencing ownership of the number of full shares of NBN Common
Stock into which the shares of Cushnoc Common Stock represented by such
certificates shall be converted pursuant to the Merger Agreement,
notwithstanding the failure on the part of the holder thereof to surrender such
certificates.
After the Effective Time, there shall be no further transfer on the
records of Cushnoc of certificates representing shares of Cushnoc Common Stock.
If any such certificates are presented to Cushnoc for transfer after the
Effective Time, they shall be cancelled against delivery of certificates of NBN
Common Stock in accordance with the Merger Agreement.
No dividends which have been declared on the NBN Common Stock will be
remitted to any persons entitled to receive shares of NBN Common Stock under
the Merger Agreement until such person surrenders the certificate or
certificates representing Cushnoc Common Stock, at which time all unpaid
dividends shall be remitted to such person, without interest.
No fractional shares of NBN Common Stock shall be issued in the Merger to
holders of shares of Cushnoc Common Stock. Each holder of shares of Cushnoc
Common Stock who otherwise would have been entitled to a fraction of a share of
NBN Common Stock shall receive in lieu thereof, at the time of surrender of the
certificate or certificates representing such holder's shares of Cushnoc Common
Stock, an amount of cash (without interest) determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the average closing per share price of the NBN Common Stock on the American
Stock Exchange on the ten business days preceding the Effective Time. No holder
of shares of Cushnoc Common Stock will be entitled to dividends, voting rights
or other rights with respect to any fractional share interest.
<PAGE> 51
Conditions to the Merger
The Merger Agreement provides that consummation of the Merger is subject
to the satisfaction of certain conditions, or the waiver of such conditions by
the party or parties entitled to do so, at or before the Effective Time. Each
of the parties' obligations under the Merger Agreement is subject to the
following conditions: (i) all corporate action (including without limitation
approval by the requisite votes of the shareholders of Cushnoc), necessary to
authorize the execution and delivery of the Merger Agreement and consummation
of the transactions contemplated thereby shall have been duly and validly
taken; (ii) all necessary regulatory approvals and consents required to
consummate the Merger by any governmental authority shall have been received,
and all notice periods and waiting periods with respect thereto shall have
expired, provided, however, that no required approval or consent shall be
deemed to have been received if it shall include any condition or requirement
that is not customary and usual in transactions of this type and that,
individually or in the aggregate, would so materially reduce the economic or
business benefits of the transactions contemplated by the Merger Agreement to
NBN that had such condition or requirement been known, NBN, in its reasonable
judgement,
<PAGE> 13
would not have entered into the Merger Agreement; (iii) none of NBN or Cushnoc
or their respective subsidiaries shall be subject to any statute, rule,
regulation, order or decree which prohibits, restricts or makes illegal the
consummation of the Merger; (iv) the Registration Statement shall have become
effective under the Securities Act, and NBN shall have received all permits,
authorizations or exemptions necessary under all state securities laws to issue
NBN Common Stock in connection with the Merger, and neither the Registration
Statement nor any such permit, authorization or exemption shall be subject to a
stop order or threatened stop order by any governmental authority; (v) the
shares of NBN Common Stock to be issued in connection with the Merger shall
have been approved for listing on the American Stock Exchange; (vi) the
independent public accountants of each of NBN and Cushnoc shall have issued
letters dated as of the Effective Time to the effect that the Merger shall be
accounted for as a pooling of interests under generally accepted accounting
principles; and (vii) each of NBN and Cushnoc shall have received an opinion of
its respective counsel to the effect that the Merger qualifies as a
reorganization within the meaning of Section 368(a) of the Code and with
respect to certain other related federal income tax considerations. In the
event that the parties waive the closing conditions described in clauses (vi)
or (vii) of this paragraph, an amendment to this Proxy Statement/Prospectus
will be circulated to Cushnoc shareholders, whose proxy will be resolicited for
approval of the Merger prior to its consummation. Such amendment will describe
the tax consequences of the merger to the extent that they are materially
different from those described herein and will provide updated information
regarding the material federal income tax consequences.
In addition to the foregoing conditions, the obligation of NBN under the
Merger Agreement are conditioned upon (i) the accuracy in all material respects
as of the date of the Merger Agreement and as of the Effective Time of the
representations and warranties of Cushnoc set forth in the Merger Agreement,
except as to any representation or warranty that specifically relates to an
earlier date; (ii) the performance in all material respects of all covenants
and obligations required to be performed by Cushnoc, (iii) the receipt of a
<PAGE> 52
certificate from specified officers of Cushnoc with respect to compliance with
the conditions relating to (i) and (ii) immediately above as set forth in the
Merger Agreement; (iv) the receipt of certain legal opinions from Cushnoc's
legal counsel; (v) the receipt by NBN of such certificates of officers or
others and such other documents to evidence fulfillment of the conditions
relating to Cushnoc as NBN may reasonably request; (vi) no more than 10% of the
Cushnoc Common Stock having exercised dissenters' rights; and (vii) the consent
of Fleet National Bank pursuant to its Loan Agreement with NBN (which consent
was given by letter of Fleet Bank dated June 12, 1997). Any of the foregoing
conditions may be waived by NBN.
In addition to the other conditions set forth above, Cushnoc's
obligations under the Merger Agreement are conditioned upon (i) the accuracy in
all material respects as of the date of the Merger Agreement and as of the
Effective Time of the representations and warranties of NBN set forth in the
Merger Agreement, except as to any representation or warranty which specially
relates to an earlier date; (ii) the performance in all material respects of
all covenants and obligations required to be performed by NBN; (iii) the
receipt of a certificate from specified officers of NBN with respect to
compliance with the conditions relating to (i) and (ii) immediately above as
set forth in the Merger Agreement; (iv) the receipt of certain legal opinions
from legal counsel to NBN; (v) the receipt by Cushnoc of such certificates of
NBN's officers or others and such other documents to evidence fulfillment of
the conditions relating to them as
<PAGE> 14
Cushnoc may reasonably request; and (vi) the receipt of a fairness opinion from
Ryan Beck & Co. Any of the foregoing conditions may be waived by Cushnoc.
Regulatory Approval
Consummation of the Merger is subject to prior receipt of all required
approvals and consents of the Merger by all applicable federal and state
regulatory authorities. In order to consummate the Merger, NBN and Cushnoc must
obtain the prior consent and approval of the OTS.
An application was filed with the OTS for approval of the Merger on June
27, 1997. The OTS and issued its approval on August 29, 1997, subject to the
following conditions: (i) that the transaction be consummated in accordance
with the Merger Agreement not less than 15 nor more than 120 days after August
29, 1997, (ii) that the chief executive officers of NBN and Cushnoc each
certify to the OTS, as of the business day prior to the date of consummation of
the transaction, that no material adverse events or material adverse changes
have occurred, (iii) that legal counsel for NBN certify, within five days after
consummation of the transaction, the date of consummation and that the
transaction was consummated in accordance with the Merger Agreement, all
applicable laws and regulations, and the OTS application and approval, (iv)
that NBN notify account holders whose withdrawable accounts in the resulting
institution would increase above $100,000 as a result of the transaction of the
effect of the transaction on insurance coverage, (v) that NBN submit, within
120 days after the Effective Time, a final accounting of the transaction, and
(vi) that all required regulatory and shareholder approvals be received.
<PAGE> 53
The approval of the application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the Merger from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed Merger.
NBN believes that all of the conditions to the OTS approval will be
satisfied in a timely fashion.
Business Pending the Merger
Pursuant to the Merger Agreement, Cushnoc agreed that, except as
contemplated by the Merger Agreement or with the prior written consent of NBN,
during the period from the date of the Merger Agreement and continuing until
the Effective Time, it shall carry on its business in the ordinary course
consistent with past practice. Pursuant to the Merger Agreement, Cushnoc also
agreed to use reasonable efforts to (i) preserve its business organization
intact, (ii) keep available to itself and NBN the present services of the
employees of Cushnoc, and (iii) preserve for itself and NBN the goodwill of the
customers of Cushnoc and others with whom business relationships exist. In
addition, under the terms of the Merger Agreement, Cushnoc agreed not to take
certain actions without the prior written consent of NBN, including among other
things, the following: (i) declare, set aside, make or pay any dividend or
other distribution in respect of Cushnoc Common Stock, (ii) issue any shares of
its capital stock, or grant or modify any rights
<PAGE> 15
to acquire such stock, purchase any shares of Cushnoc Common Stock; or effect
any recapitalization, reclassification, stock dividend, stock split or like
change in capitalization; (iii) amend its articles of incorporation or bylaws;
impose or suffer the imposition of, any material lien, charge or encumbrance on
any share of stock held by Cushnoc, or permit any such lien to exist; or waive
or release any material right or cancel or compromise any material debt or
claim; (iv) increase the rate of compensation of, pay or agree to pay any bonus
or severance to, or provide any other new employee benefit or incentive to, any
of its directors, officers or employees, except (a) as may be required pursuant
to binding commitments as of the date of the Merger Agreement and (b) such as
may be granted in the ordinary course of business consistent with past
practice, (v) enter into or modify any employee benefit plan, or make any
contributions to Cushnoc's defined contribution pension plan (the "Retirement
Plan") other than in the ordinary course of business consistent with past
practice; (vi) enter into (w) any agreement, arrangement or commitment not made
in the ordinary course of business, (x) any agreement, indenture or other
instrument relating to the borrowing of money by Cushnoc or guarantee by
Cushnoc of any such obligation, or (y) any employment agreement, except
agreements terminable by the Company at will without liability, necessary to
operate the business of Cushnoc consistent with past practice; (vii) change its
accounting methods and practices, except as required by changes in laws or
regulations or generally accepted accounting principles; (viii) make any
capital expenditures in excess of $10,000 individually or $25,000 in the
aggregate other than pursuant to binding commitments existing on the date of
the Merger Agreement and other than expenditures necessary to maintain existing
assets in good repair; (ix) apply or contract for any branch or site location
<PAGE> 54
or relocation; (x) acquire any business or entity, other than to realize upon
collateral for a defaulted loan; (xi) enter into futures contracts, option
contracts, interest rate contracts or certain other agreements for purposes of
hedging the exposure of interest earning assets and interest bearing
liabilities to changes in market rates of interest; (xii) grant any
preferential right to purchase any of its assets or rights or requiring the
consent of any party to the transfer and assignment of any such assets or
rights; (xiii) knowingly take any action that would impede the Merger from
qualifying for pooling of interests accounting or as a reorganization within
the meaning of Section 368 of the Code; (xiv) take any action that would result
in any of the representations and warranties of Cushnoc in the Merger Agreement
being untrue or incorrect in any material respect; and (xv) permit its
stockholders equity as of the end of the month preceding the Effective Time to
be less than $2,125,000.
Pursuant to the Merger Agreement, NBN agreed that, except as contemplated
by the Merger Agreement or with the prior written consent of Cushnoc, during
the period from the date of the Merger Agreement and continuing until the
Effective Time, it and the Bank will carry on their respective businesses in
the ordinary course consistent with past practice and use all reasonable
efforts to preserve intact their present business organizations and
relationships. Pursuant to the Merger Agreement, NBN also agreed that NBN and
the Bank will not (i) declare, set aside, make or pay any dividend or other
distribution on its Common Stock except for regular quarterly cash dividends
not to exceed $0.10 per share, provided, however, that this does not affect the
ability of NBN's subsidiaries to pay dividends on their respective Common
Stocks to NBN; (ii) issue any shares of capital stock or grant or modify any
rights to acquire capital stock other than pursuant to rights granted pursuant
to the NBN employee stock benefit plans or stock option plans or certain
acquisitions, including the acquisition of minority shares of any of its
subsidiaries; (iii) effect any recapitalization, reclassification, stock split
or like change in capitalization; (iv) amend its articles of incorporation,
charter or other governing instrument or bylaws in a manner which
<PAGE> 16
would adversely affect the terms of the NBN Common Stock or the ability of NBN
to consummate the transactions contemplated by the Merger Agreement; (v) make
any acquisition that individually or in the aggregate would materially
adversely affect the ability of NBN to consummate the transactions contemplated
by the Merger Agreement in a reasonably timely manner; (vi) take any action
that would impede the Merger from qualifying for pooling of interests
accounting or a reorganization within the meaning of Section 368 of the Code;
or (vii) take any action that would result in the representations and
warranties of NBN contained in the Merger Agreement not being true or correct
in any material respect at the Effective Time.
No Solicitation
Pursuant to the Merger Agreement, Cushnoc shall not solicit or encourage
inquiries or proposals with respect to, furnish any information relating to, or
participate in any negotiations or discussions concerning, any acquisition,
lease or purchase of all or a substantial portion of the assets of, or any
equity interest in, Cushnoc; provided, however, that the Board of Directors of
Cushnoc may furnish such information or participate in such negotiations or
discussions if it, after having consulted with and considered the advice of
<PAGE> 55
outside counsel, has determined that its fiduciary duty under applicable law
requires it to do so. Cushnoc will promptly inform NBN of any such requests for
information or of any such negotiations or discussions, and will instruct its
directors, officers, representatives and agents to refrain from taking any
action prohibited by the above-described restrictions.
Effective Time of the Merger; Termination and Amendment
The Effective Time of the Merger shall be the date and time of the filing
of Articles of Merger with the Secretary of State of Maine, unless a different
date and time is specified as the Effective Time in such Articles of Merger.
The Articles of Merger will be filed only after the receipt of all requisite
regulatory approvals of the Merger, approval of the Merger Agreement by the
requisite votes of the shareholders of Cushnoc and the Bank, the satisfaction
or waiver of all other conditions to the Merger set forth in the Merger
Agreement, and the filing of Articles of Combination with the Office of Thrift
Supervision.
A closing (the "Closing") shall take place immediately prior the
Effective Time on the fifth business day following the satisfaction or waiver,
to the extent permitted hereunder, of the conditions to the consummation of the
Merger specified in the Merger Agreement (other than the delivery of
certificates, opinions, or other instruments and documents to be delivered at
the Closing), or on such other date as the parties may mutually agree upon.
The Merger Agreement may be terminated as follows: (i) at any time prior
to the Effective Time by the mutual consent in writing of the parties; (ii) at
any time on or prior to the Effective Time in the event of a material breach by
the other party of any representation, warranty, material covenant or agreement
which breach has not been cured within the time period specified in the Merger
Agreement; (iii) at any time by any party in writing if any application for any
required governmental approval has been denied or is approved with any
condition or requirement which would prevent satisfaction of this condition to
NBN's obligation to consummate the Merger and the time period for appeals and
requests for reconsideration has run; (iv) at any time by any party in writing
if the shareholders of Cushnoc fail to approve the Merger
<PAGE> 17
Agreement at a meeting duly called for the purpose, unless the failure of such
occurrence is due to the failure of the parties seeking to terminate to perform
or observe in any material respect its agreements set forth in the Merger
Agreement; (v) by any party in writing in the event that Merger is not
consummated by December 31, 1997, provided that this right to terminate shall
not be available to any party whose failure to perform an obligation under the
Merger Agreement resulted in the failure of the Merger to be consummated by
such date; (vi) by Cushnoc at any time during the 10 day period commencing with
the date on which the approval of the OTS for consummation of the Merger is
received (the "Determination Date") if the average of the daily closing prices
of a share of NBN Common Stock, as reported by the American Stock Exchange,
during the period of 20 consecutive trading days ending on the Determination
Date (the "Average Closing Price") is less than $11.50, subject, however, to
the following three sentences. If Cushnoc elects to exercise its termination
right pursuant to clause (vi) above, it must give written notice to NBN, which
may be withdrawn by it at any time during the aforementioned 10-day period.
During the 5-day period commencing with its receipt of such notice, NBN has the
<PAGE> 56
option to increase the consideration to be received by the holders of Cushnoc
Common Stock under the Merger Agreement by adjusting the exchange ratio to
equal a number (calculated to the nearest 1,000th) obtained by dividing (x)
$24.02 by (y) the Average Closing Price. If NBN so elects within such 5 day
period, it must give prompt written notice to Cushnoc of the election and the
revised Exchange Ratio, whereupon no termination shall have occurred pursuant
to clause (vi) above and the Merger Agreement shall remain in effect in
accordance with its terms (except as the Exchange Ratio shall have been so
modified.
Any determination by Cushnoc to exercise its right to terminate the
Merger Agreement if the Average Closing Price of NBN Common Stock is less than
$11.50 will be made after full consideration by the Cushnoc Board of its
fiduciary duties, which include making a determination as to whether the
Exchange Ratio continues to be fair to Cushnoc shareholders from a financial
point of view and whether the Merger continues to be in the best interest of
Cushnoc and Cushnoc shareholders. While Cushnoc's decision to exercise its
rights to terminate the Merger Agreement will depend on the facts and
circumstances existing at the time Cushnoc may exercise such rights, Cushnoc
anticipates that it will consider the following factors in making such
decision: (i) changes in the financial condition and results of operations of
NBN since the approval of the Merger Agreement; (ii) changes in the financial
condition and results of operations of Cushnoc since the approval of the Merger
Agreement; and (iii) changes in market conditions and general financial and
economic conditions since the approval of the Merger Agreement.
The Exchange Ratio is also subject to change in the event that the
Closing shall not have occurred on or before any record date established for
the payment of cash dividends by NBN on the NBN Common Stock subsequent to
September 30, 1997. In that event, the Exchange Ratio will be increased to the
amount of such dividend per share times the then existing Exchange Ratio,
divided by $14.00 per share, plus the existing Exchange Ratio, subject to
further adjustment as provided in the Merger Agreement.
In the event of termination, the Merger Agreement shall become null and
void, except that certain provisions relating to the allocation of expenses and
confidentiality shall survive any such termination and any such termination
shall not relieve any breaching party from liability for any
<PAGE> 18
willful breach of any covenant, undertaking, representation or warranty giving
rise to such termination.
To the extent permitted under applicable law, the Merger Agreement may be
amended or supplemented at any time by written agreement of the parties whether
before or after the approval of the shareholders of Cushnoc or the Bank,
provided that after any such approval the Merger Agreement not be amended or
supplemented in a manner which modifies either the amount or form of the
consideration to be received by Cushnoc shareholders or otherwise materially
adversely affects Cushnoc shareholders without further approval by those
shareholders who are so affected.
It is anticipated that the Effective Time of the Merger will be as soon
as practicable following approval of the Merger at the Special Meeting, receipt
of the necessary OTS approval and satisfaction of other closing conditions. See
"THE MERGER -- Conditions to the Merger."
<PAGE> 57
Termination Fee
If either Cushnoc or NBN terminates the Merger Agreement because the
Cushnoc shareholders fail to approve the Merger Agreement, or NBN terminates
the Agreement because Cushnoc has breached the Merger Agreement and failed to
cure such breach, and, in either case, if at the time of termination any person
other than NBN has made, or disclosed an intention to make, a proposal to
acquire Cushnoc, Cushnoc is obligated to make a cash payment to NBN of
$100,000.
Interests of Certain Persons in the Merger
The directors and certain executive officers of Cushnoc may be deemed to
have an interest in the Merger in addition to their interests as shareholders
generally. The Board of Directors of Cushnoc was aware of these factors and
considered them, among other matters, in approving the Merger Agreement and the
transaction contemplated thereby.
Election of a Director. Pursuant to the Merger Agreement, NBN has agreed
to take all action necessary to appoint or elect, effective as of the Effective
Time, one member of the Cushnoc Board of Directors, to be selected by NBN, as a
Director of NBN. The person so appointed or elected will serve until the first
annual meeting of shareholders of NBN following the Effective Time. NBN will
include that person on the list of nominees for directors presented by the
Board of Directors of NBN and for which that Board will solicit proxies at the
first annual meeting of shareholders of NBN following the Effective Time.
Indemnification. Pursuant to the Merger Agreement, NBN has agreed, from
and after the Effective Time through the sixth anniversary of the Effective
Time, to indemnify and hold harmless each present and former director, officer
and employee of Cushnoc determined as of the Effective Time against any costs
or expenses (including reasonable attorney's fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior
<PAGE> 19
to, at or after the Effective Time, to the fullest extent to which such persons
were entitled under the Articles of Organization or Bylaws of Cushnoc.
Insurance. Pursuant to the Merger Agreement, NBN also agreed to cause the
Bank to maintain Cushnoc's existing directors and officers liability insurance
policy (or a policy providing coverage on substantially the same terms and
conditions) for acts or omissions occurring prior to the Effective Time by
persons who are currently covered by such insurance policy maintained by
Cushnoc for a period of three years following the Effective Time.
Other than as set forth above, no director or executive officer of
Cushnoc has any direct or indirect material interest in the Merger except
insofar as ownership of Cushnoc Common Stock might be deemed such an interest.
Certain Employee Matters
<PAGE> 58
The Merger Agreement provides that as soon as administratively
practicable after the Effective Time, NBN shall take all reasonable action so
that employees of Cushnoc shall be entitled to participate in NBN's employee
benefit plans of general applicability, and until such time, Cushnoc's employee
benefit plans shall remain in effect, provided that no employee of Cushnoc who
becomes an employee of NBN and subject to NBN's medical insurance plans shall
be excluded coverage thereunder on the basis of preexisting condition that was
not also excluded under Cushnoc's medical insurance plans, in which case the
Merger Agreement does not require coverage for such preexisting condition. For
purposes of determining eligibility to participate in and the vesting of
benefits under NBN's employee benefit plans, NBN shall recognize years of
service with Cushnoc as such service is recognized by Cushnoc.
Any employee of Cushnoc whose employment is terminated by the Bank within
one year following the Effective Time without just cause will be entitled to
six months severance pay.
Resale of NBN Common Stock
The NBN Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any Cushnoc
shareholder who may be deemed to be an affiliate of NBN for purposes of Rule
144 promulgated under the Securities Act ("Rule 144") or an affiliate of
Cushnoc for purposes of Rule 145 promulgated under the Securities Act ("Rule
145") (each an "Affiliate"). Affiliates will include persons (generally
executive officers, directors and 10% shareholders) who control, are controlled
by or are under common control with (i) NBN or Cushnoc at the time of the
Cushnoc Special Meeting or (ii) NBN at or after the Effective Time.
Rules 144 and 145 will restrict the sale of NBN Common Stock received in
the Merger by Affiliates and certain of their family members and related
interest. Generally speaking, during the two years following the Effective
time, those persons who are Affiliates of NBN at the time of the Cushnoc
Special Meeting provided they are not Affiliates of NBN at or following the
Effective Time, may publicly resell any NBN Common Stock received by them in
the Merger, subject to certain limitations as to, among other things, the
amount of NBN Common Stock sold by them in any three-month period and as to the
manner of sale. After the two-year period, such
<PAGE> 20
Affiliates may resell their shares without such restrictions so long as there
is adequate current public information with respect to NBN as required by Rule
144. Persons who are Affiliates of NBN after the Effective Time may publicly
resell the NBN Common Stock received by them in the Merger subject to similar
limitations and subject to certain filing requirements specified in Rule 144.
The ability of the Affiliates to resell shares of NBN Common Stock
received in the Merger under Rule 144 or 145 as summarized herein generally
will be subject to NBN's having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of the sale. Affiliates
also would be permitted to resell NBN Common Stock received in the Merger
pursuant to an effective registration statement under the Securities Act or
another available exemption from the Securities Act registration requirements.
This Prospectus/Proxy Statement does not cover any resales of NBN Common Stock
received by persons who may be deemed to be Affiliates of NBN or Cushnoc in the
Merger.
<PAGE> 59
SEC guidelines regarding qualifying for the pooling of interests method
of accounting also limit sales of shares of the acquiring and acquired company
by affiliates of either company in a business combination. SEC guidelines
indicate further that the pooling of interests method of accounting generally
will not be challenged on the basis of sales by affiliates of the acquiring or
acquired company if they do not dispose of any of the shares of the corporation
they own or shares of the corporation they receive in connection with the
Merger during the period beginning 30 days before the Merger and ending when
financial results covering at least 30 days of post- Merger operations of the
combined entity have been published.
Each of NBN and Cushnoc has agreed in the Merger Agreement to use its
reasonable best efforts to cause each person who may be deemed to be an
Affiliate (for purposes of Rule 145 and for purposes of qualifying the Merger
for pooling of interests accounting treatment) of such party to deliver to NBN
a letter agreement intended to preserve the ability to treat the Merger as a
pooling of interests and, in the case of Affiliates of Cushnoc, to ensure
compliance with the Securities Act.
NBN has agreed in the Merger Agreement, if requested by an Affiliate who
has entered into an Affiliate agreement, to use its reasonable best efforts to
publish as promptly as practicable, but in no event later than 90 days after
the end of the first month after the Effective Time in which there are at least
30 days of post-Merger combined operations, net income figures as contemplated
by and in accordance with the terms of the SEC's Accounting Series Release No.
135.
Certain Federal Income Tax Consequences
General. The following is a summary description of the material federal
income tax consequences of the Merger to shareholders of Cushnoc. This summary
is not a complete description of all of the consequences of the Merger and, in
particular, may not address federal income tax considerations that may affect
the treatment of a shareholder who, at the Effective Time, already owns some
NBN Common Stock, is not a US citizen, is a tax-exempt entity or an individual
who acquired Cushnoc Common Stock pursuant to an employee stock option, or
exercises some form of control over Cushnoc. In addition, no information is
provided herein
<PAGE> 21
with respect to the tax consequences of the Merger under any foreign, state or
local laws. Consequently, each shareholder of Cushnoc is advised to consult a
tax advisor as to the specific tax consequences of the transaction to that
shareholder. The following discussion is based on the Code, as in effect on the
date of this Prospectus/Proxy Statement, without consideration of the
particular facts or circumstances of any holder of Cushnoc Common Stock.
The Merger. Cushnoc will receive at the closing an opinion from Breyer &
Aguggia, special counsel to Cushnoc, to the effect that, assuming the Merger is
consummated, the material federal income tax consequences of the Merger to
shareholders of Cushnoc will be as follows: no gain or loss will be recognized
by shareholders of Cushnoc upon the exchange of their Cushnoc Common Stock
solely for shares of NBN Common Stock pursuant to the Merger; the basis of the
Cushnoc Common Stock to be received by a Cushnoc shareholder receiving solely
<PAGE> 60
NBN Common Stock will the same as his or her basis in the Cushnoc Common Stock
surrendered in exchange therefor; and the holding period of the shares of NBN
Common Stock to be received by a Cushnoc shareholder receiving solely NBN
Common Stock will include the period during which such Cushnoc shareholder held
the Cushnoc Common Stock surrendered in exchange therefor, provided the
surrendered Cushnoc Common Stock was held by such shareholder as a capital
asset on the date of the Merger.
NBN has received an opinion of Drummond Woodsum & MacMahon, its counsel,
to the effect that (i) assuming all representations made in the Merger
Agreement will be true and correct as of the Effective Time of the Merger, (ii)
the Merger takes place in accordance with all of the terms of the Merger
Agreement, (iii) there is no plan or intention on the part of Cushnoc
shareholders to sell, exchange or otherwise dispose of the NBN shares to be
received by them in the Merger that will reduce the Cushnoc shareholders'
holdings to a number of shares of NBN stock having a value as of the date of
the Effective Time of the Merger of less than 50 percent of the value of all of
the formerly outstanding stock of Cushnoc as of the same date, (iv) the Bank
will acquire at least 90 percent of the fair market value of the net assets and
at least 70 percent of the fair market value of the gross assets held by
Cushnoc immediately prior to the merger (v) and certain other assumptions
stated in its opinion are true, the Merger will constitute a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Internal Revenue Code of 1986, as amended.
Cushnoc shareholders will receive cash in lieu of any fractional shares
resulting from the exchange. Such cash payments will result in taxable gain or
loss to the extent they exceed or are less than the allocated basis of the
shareholder in such fractional interest. The gain or loss will be treated as a
capital gain or loss if the Cushnoc Common Stock was held by such shareholders
as a capital asset on the date of the Merger.
Each party's obligation to effect the Merger is conditioned on the
delivery of an opinion to Cushnoc from Breyer & Aguggia, dated as of the
Effective Time, with respect to the foregoing federal income tax consequences
of the Merger, and the delivery to NBN of an opinion of Drummond Woodsum &
MacMahon, special counsel to NBN, dated as of the Effective Time, to the effect
that the Merger will constitute a reorganization with in the meaning of Section
368 of the Code. Each of such opinions will be based upon certain customary
representations by management of Cushnoc and the Bank and assumptions referred
to therein.
<PAGE> 22
Accounting Treatment of Merger
It is expected that the Merger will be accounted for as a pooling of
interests transaction under generally accepted accounting principles, and it is
a condition to the parties' consummation of the Merger that NBN and Cushnoc
receive letters, dated the Effective Time, from their respective independent
certified public accountants to the effect that the Merger qualifies for such
accounting treatment. See "THE MERGER -- Conditions to the Merger." As required
by generally accepted accounting principles, under pooling of interests
accounting, as of the Effective Time, the assets and liabilities of Cushnoc
would be added to those of NBN at their recorded book values and the
shareholders' equity accounts of NBN and Cushnoc would be combined on NBN's
<PAGE> 61
consolidated balance sheet. On a pooling of interests accounting basis, income
and other financial statements of NBN issued after consummation of the Merger
would be restated retroactively to reflect the consolidated combined financial
position and results of operations of NBN and Cushnoc as if the Merger had
taken place prior to the periods covered by such financial statements.
Expenses of the Merger
The Merger Agreement provides that each party thereto shall each bear and
pay all costs and expenses incurred by it in connection with the transactions
contemplated by the Merger Agreement, including fees and expenses of its own
financial consultants, accountants and counsel.
Dissenters' Rights
Pursuant to 9-B M.R.S.A. [SECTION] 352, a holder of Cushnoc Common Stock,
may, by complying with that Section, dissent from the Merger and, if the Merger
is effected, be paid the value of his or her shares as of the date of the
shareholders meeting at which the Merger is approved by Cushnoc shareholders
(the Special Meeting). This right to dissent may be exercised as to all or less
than all of a shareholder's shares. In order to exercise this right, a
shareholder must comply with two principal requirements. First, the shareholder
must vote against the Merger. Unless the shareholder delivers a properly
executed proxy card at or before the Special Meeting indicating that the
shareholder wishes to vote "Against" the Merger or the shareholder votes
"Against" the Merger in person at the Special Meeting, his or her shares will
not be deemed to have been voted against the Merger. Second, the shareholder
must file a written demand with the Bank within 30 days after the effective
date of the Merger. Such demand must be accompanied by surrender of the
shareholder's certificates for his or her Cushnoc shares and should be filed
either by personally delivering it to the Bank or by mailing it by certified or
registered mail to the Bank, in each case at 232 Center Street, P.O. Box 868,
Auburn, ME 04210, Attention: James Delamater. In either case, shareholders
should be sure that such demand is received by the Bank within 30 days after
the effective date of the Merger. The demand should also specify the name and
current address of the shareholder. Section 352 of Title 9-B does not contain a
provision with respect to the withdrawal of a demand for payment once made.
The value of any shares as to which dissenters' rights have been
perfected shall be determined, as of the date of the shareholders meeting
approving the Merger by three appraisers, one to be selected by the owners of
two-thirds of the shares as to which dissenters' rights have
<PAGE> 23
been perfected, one by the Board of Directors of the Bank and the third by the
two appraisers so chosen. The valuation agreed upon by any two appraisers shall
govern. If the appraisal is not completed within 90 days after the Merger
becomes effective, the Maine Superintendent of Banking shall cause an appraisal
to be made. The expenses of appraisal shall be paid by the Bank.
The Bank may fix an amount which it considers to be not more than the
fair value of the Cushnoc shares at the time of the shareholders meeting at
which the Merger was approved, which amount it will pay to dissenting
shareholders of Cushnoc entitled to payment in cash. Acceptance of such offer
by a dissenting shareholder shall terminate the dissenters' rights under
<PAGE> 62
[SECTION] 352 of Title 9-B. The amount due dissenting shareholders from the
Bank under the appraisal or the accepted offer shall constitute a debt of the
Bank. The right of a shareholder to be paid the fair value of his or her shares
may terminate in the event that (i) the Merger is not approved or is abandoned
or (ii) the shareholder fails to comply with the statutory procedure for
dissenters' rights.
The foregoing summary does not purport to be a complete statement of the
provisions of [SECTION] 352 of Title 9-B, and is qualified in its entirety by
reference to the complete text of such section, a copy of which is attached
hereto as Annex III.
CUSHNOC
General
Cushnoc is a state chartered commercial bank with two branch offices
located on Western Avenue and Bangor Street in Augusta, Maine. It was organized
in 1989 and is a locally oriented commercial bank servicing the deposit and
lending needs of businesses and individuals in Kennebec County. Cushnoc's
principal business is to originate loans for general business purposes, on a
secured and unsecured basis to small and medium sized businesses. A portion of
Cushnoc's loan portfolio is invested in commercial real estate loans to local
businesses. Cushnoc also makes consumer real estate loans and a variety of
other secured and unsecured personal loans. Cushnoc funds its activities
principally through deposits from its business and individual customers.
Cushnoc also has access to Federal Home Loan Bank advances and purchases of
federal funds. At June 30, 1997, Cushnoc had total assets of $22.3 million,
total deposits of $18.5 million and stockholders' equity of $2.2 million. The
deposits of the Bank are insured by the FDIC under the Bank Insurance Fund.
Financial and other information relating to Cushnoc is set forth in Annex
IV.
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Years Ended December 31, 1996 and 1995 and the Three Months
Ended March 31, 1997 and 1996
Cushnoc is primarily engaged in commercial banking activities including
lending to local businesses to meet their credit needs and commercial real
estate lending. Cushnoc also offers consumer lending secured by residential
real estate, home equity lending, and secured and
<PAGE> 24
unsecured personal loans. Cushnoc funds it activities through commercial
business, retail customer and person customer deposits. The nature of the
deposit accounts offered through Cushnoc include demand deposits, NOW accounts,
regular savings, money market accounts and certificates of deposit accounts.
Cushnoc has access to an IDEAL Way Line of Credit with the Federal Home Loan
Bank of Boston and purchased Federal Funds.
Asset/Liability Management. Cushnoc's principal financial objective is to
achieve long term profitability while minimizing interest rate risk. To
accomplish this objective, management has formulated an asset/liability
<PAGE> 63
management policy with the following principal elements: originate commercial
loans with variable rates tied to the prime rate, originate commercial real
estate loans with fixed interest rates to generally no more than five years,
originate mortgage loans with variable rates tied to the prime rate, maintain a
loan-to-deposit ratio at a level of at least 65% to 90% and maintain a
liquidity ratio of 15%. Cushnoc has begun to require commercial loan customers
to maintain either a minimum deposit or their operating cash accounts with
Cushnoc. Cushnoc seeks to attract long term, stable deposits.
As of December 31, 1996, the asset and liability management strategy has
resulted in a positive one year "gap" (i.e., the difference between its
interest sensitive assets and interest sensitive liabilities that mature and
reprice within one year, based upon certain estimates and assumptions).
<PAGE> 25
The gap between interest-sensitive assets and interest-sensitive
liabilities at December 31, 1996 is shown in the following table (in
thousands).
Maturity or Repricing Period
<TABLE>
<CAPTION>
Within 1-3 3-5 Over 5
One Year Years Years Years Total
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Securities $ 249 $ 500 $ 655 $ 420 $ 1,824
Loans, net 14,356 175 351 1,771 16,653
----------------------------------------------------
Interest-earning assets $ 14,605 $ 675 $ 1,006 $ 2,191 $18,477
=========================================
Cash and due from banks 1,016
Other assets 1,327
-------
Total assets $20,820
=======
Transaction accounts $ 5,077 $ 0 $ 0 $ 1,500 $ 6,577
Certificates of deposit 6,982 2,443 5 0 9,430
Borrowed funds 67 147 168 101 483
----------------------------------------------------
Interest-bearing liabilities $ 12,126 $ 2,590 $ 173 $ 1,601 $16,490
=========================================
Other liabilities 2,126
Stockholders' equity 2,204
-------
Total liabilities and stockholders' equity $20,820
=======
<PAGE> 64
Excess (deficiency) of interest-earning assets
over interest bearing liabilities $ 2,479 $(1,915) $ 833 $ 590 $ 1,987
Cumulative excess of interest sensitive assets $ 2,479 $ 564 $ 1,397 $ 1,987
</TABLE>
Review of Financial Position.
Earning Assets and Interest-Bearing Liabilities. Although market rates
remained relatively stable during 1996, Cushnoc felt the effects of competitive
pressure for both loans and deposits. As many commercial banks began to offer
rates below the prime rate to their best
<PAGE> 26
customers, Cushnoc was forced to renegotiate many existing loan agreements to
lower rates to maintain its customer base. Commercial bank customers also
sought higher yields on their investments, through either innovative banking
products or products available through other financial services companies. This
market trend made it difficult for the bank to maintain its deposit balances
during 1996 and into the first quarter of 1997.
Total assets declined by $4.2 million to $20.8 million as of December 31,
1996 down from $25.0 million as of December 31, 1995. Total loans decreased by
$.3 million to $16.9 million, which was due to a decrease in consumer loans of
$.2 million, a decrease of commercial and home equity loans of $.1 million each
and an increase in mortgage loans of $.1 million. Cash and cash equivalents
decreased by $3.5 million at December 31, 1996. Investment securities decreased
by $.3 million at December 31, 1996. The decline in asset balances, primarily
cash and cash equivalents, was the result of declining deposit balances over
the course of the year.
Deposits decreased by $4.1 million to $18 million at December 31, 1996.
Certificates of deposit and money market deposit accounts declined by $2.9
million and $1.2 million, respectively. Cushnoc also faced stiff competition
from other banks for money market deposits, as many financial institutions
offered Treasury-indexed and other higher-yielding accounts. Cushnoc chose not
to offer high promotional rates to retain these deposits, which would have
significantly reduced the net interest margin. Instead, Cushnoc's plan was to
focus on advertising and on training its employees to cross-sell core deposits
more aggressively.
Loans increased $126,000 during the first quarter of 1997, despite the
continuing decline in funding from deposits. Other asset balances remained
comparable to year-end balances. Deposits continued to decline, dropping
$400,000 in the first quarter. Borrowings from the Federal Home Loan Bank
increased $577,000 during the first quarter of 1997. These increased borrowings
funded this modest loan growth, as well as compensated for the lost deposit
balances.
<PAGE> 27
The following table sets forth the composition of Cushnoc's loan
<PAGE> 65
portfolio, excluding allowances for loan loss, by type of loan at the dates
indicated. Cushnoc had no foreign loans concentrations or loans exceeding 10%
of total gross loans other than as disclosed below.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1996 1995
------------------ ------------------
Amount Percent Amount Percent
------- ------- ------- -------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
1. Commercial, financial and agriculture $ 9,764 57.7% $ 9,728 56.5%
2. Real estate construction 234 1.4 388 2.3
3. Real estate mortgage 4,247 25.1 4,407 25.6
4. Installment loans 2,668 15.8 2,678 15.6
5. Lease financing - - - -
-----------------------------------------
Total loans $16,913 100.0% $17,201 100.0%
=========================================
</TABLE>
<PAGE> 28
Loans, excluding allowance for loan loss, deferred loan fees and premiums
and discounts, by maturity or repricing data were as follows as of December 31,
1996:
<TABLE>
<CAPTION>
Due after
one year
Due in one through Due after
year or less five years five years
------------ ---------- ----------
<S> <C> <C> <C>
1. Commercial, financial and agricultural $9,471 $98 $195
2. Real estate construction 234 -- --
</TABLE>
<TABLE>
<CAPTION>
Due after one year
------------------
Fixed Variable
----- --------
<PAGE> 66
<S> <C> <C>
1. Commercial, financial and agricultural $234 $59
2. Real estate construction -- --
</TABLE>
The following table sets forth information with respect to Cushnoc's
non-accrual and past due loans within the meaning of SFAS No. 15 at the dates
indicated. It is the policy of Cushnoc to cease accruing interest on loans more
than 90 days past due or when management believes collectibility is in
question.
<TABLE>
<CAPTION>
At December 31,
-----------------
1996 1995
------ ------
(In Thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Commercial $381 $ 0
Mortgage 73 0
Installment 0 0
Home Equity, consumer and other 3 11
--------------
Total non-performing assets $457 $11
==============
Total non-performing as a percentage of total assets 2.20% 0.04%
Accruing loans, past due 90 days -- --
Troubled debt restructurings -- --
</TABLE>
<PAGE> 29
The gross interest income on non-accrual loans that would have been
recorded in fiscal 1996 if the loans had been current in accordance with their
terms was $50,000. Interest income that was recorded on non-accrual loans
during 1996 totaled $25,000. All loans are placed on non-accrual and all
interest income is reversed when the loans become 90 days past due.
At December 31, 1996, Cushnoc had no outstanding borrowings against its
IDEAL Way Line of Credit of $1,083,000 with the Federal Home Loan Bank.
Year-end borrowings of $483,000 comprised the balance on a fixed rate loan from
the Federal Home Loan Bank which matures in January, 2003.
By March 31, 1997, due to declining deposit levels, Cushnoc had
outstanding advances of $597,000 against its line of credit, in addition to the
balance on its long-term debt.
<PAGE> 67
Allowance for Loan Loss. The allowance for loan loss is monitored
continuously and adjusted as economic conditions change. Specific reserves are
established for impaired loans under the provisions of SFAS 114. General
reserves are determined based on loan classifications and historical charge off
rates.
The allowance for loan loss at December 31, 1996 was $211,000, or 1.2% of
outstanding loan balances. The allowance at the prior year end was $212,000,
also 1.2% of loans outstanding. Non-accrual loans totaled $457,000 at December
31, 1996, a $447,000 increase from December 31, 1995. The dramatic increase in
the non-accrual loans was due to one large group of related customer loans
which had adequate collateral but which passed the 90-day past due threshold.
No loss was expected on these loans, and, under the provisions of SFAS 114, no
specific allowance reserve was designated.
<PAGE> 30
The following sets forth an analysis of Cushnoc's allowance for loan loss
at and for the periods indicated.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31 March 31,
------------- ------------------
1996 1995 1997 1996
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $212 $259 $211 $212
Provision for loan losses 36 50 9 9
Recoveries 2 5 - -
Charge offs (39) (102) (5) -
---------------------------------
Net charge offs (37) (97) (5) -
---------------------------------
Balance at end of period $211 $212 $215 $222
=================================
Ratio of net chargeoffs to average loans
outstanding during the period 0.21% 0.55% 0.12% 0%
</TABLE>
Any impairment of known problem loans has been included in either a
specific or general reserve of the allowance for loan loss. No other known
problem loans have been identified by Cushnoc.
<PAGE> 31
<PAGE> 68
The following table sets forth the breakdown of the allowance for loan
loss by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses
in any other category.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1996 1995
------------------ ------------------
% of % of
Loans in Loans in
Category Category
to Total to Total
Amount Loans Amount Loans
------ -------- ------ --------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $161 57.73% $136 56.55%
Mortgage 21 25.12 10 25.62
Installment 6 15.77 8 15.57
Home equity, consumer and other 23 1.38 52 2.26
-----------------------------------------
Total $211 100.0% $212 100.0%
</TABLE>
Non-accrual loans increased $20,000 during the first quarter of 1997.
More than 90% of this non-accrual balance continued to be one group of related
customer loans with collateral valued higher than the outstanding loan
balances. At March 31, 1997, the allowance for loan loss remained consistent
with year-end, with a balance of $214,000. The allowance as a percentage of
outstanding loans was 1.3%.
Deferred Tax Assets. Cushnoc had deferred tax asset balances of $63,000
as of December 31, 1996 and December 31, 1995. Although the results of
operations for the first three months of 1997 were a net loss, Cushnoc has
recorded net income in four of the last five years. Management expects Cushnoc
to return to profitability in the near future and expects to realize all
deferred tax assets. The balance of the deferred tax assets at March 31, 1997
was $62,000.
Results of Operations
General. Net income was $5,000 for the year ended December 31, 1996, a
significant decrease from earnings of $154,000 in 1995. Most of the earnings
decline was in net interest
<PAGE> 32
<PAGE> 69
income, as deposit run off resulted in lower average earning assets levels and
lower net interest income earning capability.
Results for the first quarter of 1997 reflected a loss of $30,000 as
compared with a loss of $6,000 for the same period in 1996. Although net
interest income and other income were slightly higher for the three-month
period in 1997 than in 1996, other expenses increased nearly 15% on a
comparative basis.
Interest Income. For the year ended December 31, 1996, total interest
income decreased by $200,000 to $1.98 million because of lower earning asset
levels. The yield on interest-earning assets decreased 24 basis points in 1996
to 9.92% due to the carryforward effect of declining rates in 1995 and
competitive market pressure to reduce loan rates.
For the first quarter of 1997, interest income was $41,000 lower than the
comparable period in 1996. Average earning assets for the three month period
ended March 31, 1997 were $4.7 million lower than the first quarter of 1996.
Interest Expense. Interest expense decreased to $866,000 for the year
ended December 31, 1996 compared with $941,000 in 1995 due to the decline of
certificate and money market accounts during the year. Lower interest rates in
1996 were also a contributing factor.
Interest expense for the first quarter of 1997 was $49,000 lower than the
first quarter of 1996. Average deposit balances were substantially lower in
1997 because of the continuous certificate and money market balance run off
during 1996.
Net Interest Income. Net interest income for the year ended December 31,
1996 declined $100,000 to $1.1 million compared with 1995 net interest income
results. The decrease resulted from lower earning asset balances and the lower
net interest margin of 5.45% in 1996 compared with 5.77% in 1995.
Net interest income for the first quarter of 1997 increased $9,000 to
$266,000 compared with the same period in 1995. Lower interest income was
offset by lower interest expense, resulting in the modest increase.
Provisions for Loan Losses. The provision for loan losses for 1996 was
$36,000, a decrease of $14,000 from the prior year. Although nonaccrual loans
increased dramatically from the prior year, the provision for loan losses was
not increased. The $447,000 increase in nonaccrual loans was caused by
delinquency in a group of related customer loans which were adequately
collateralized. Because of the adequate collateral, these loans were not
considered impaired under the provisions of SFAS 114 and SFAS 118.
Although non-accrual loans at March 31, 1997 had increased slightly
compared with year-end, the majority of the balance continued to be a group of
related customer loans which were adequately collateralized. Therefore, the
provision was not increased.
<PAGE> 33
Other Income. Other income was comparable in 1996 and 1995. Increases in
income from fees and service charges offset the decrease in 1996 other income
which was due to a one time FDIC assessment refund in 1995.
<PAGE> 70
Other income for the first quarter of 1997 rose approximately $4,000 from
the comparable period in 1996.
Other Expenses. Other expenses increased 5% in 1996 compared with 1995.
Salaries and benefits expense and outside service fees increased, but these
increases were mitigated by a decrease in FDIC insurance premiums of 65%.
Other expenses for the first quarter increased 15% compared to the same
period in the prior year. Outside service fees, advertising and a loss on sale
of other real estate were the significant components of the increased expense.
Liquidity and Capital Resources. Cushnoc maintains liquid assets to meet
both short term funding requirements and long term growth objectives. The long
term growth objectives are to attract and retain stable deposit relationships
from its business and consumer customers.
To meet its immediate needs for funds as well as long term lending
demands, Cushnoc maintains various sources of liquid assets and borrowing
capabilities. At December 31, 1996 and March 31, 1997, Cushnoc had a line of
credit of $1,083,000 from FHLB of Boston. Cushnoc also has the ability to
purchase Federal funds from other banks.
At December 31, 1996, Cushnoc had outstanding loan commitments of
$374,000. Cushnoc also had $773,000 committed for approved lines of credit and
construction loans at December 31, 1996. Cushnoc anticipates that it will have
sufficient funds available to meet its current commitments through its deposit
balances and borrowing lines.
At December 31, 1996, Cushnoc was a "well capitalized" institution under
the prompt corrective action regulation. The following table summarized the
capital requirements and Cushnoc's capital position at December 31, 1996:
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
----------------- -------------
Minimum
Amount Ratio Amount Ratio Requirement
------ ----- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Total risk based capital
(Tier I & Tier II)
(to Risk-Weighted Assets) $2,415 11.78% $2,422 10.73% 10.00%
Tier I Capital
(to Risk-Weighted Assets) 2,204 10.75% 2,197 9.74% 6.00%
Tier I Capital
(to Average Assets) 2,204 10.14% 2,197 10.32% 5.00%
</TABLE>
<PAGE> 34
<PAGE> 71
MANAGEMENT OF NBN AFTER THE MERGER
Upon consummation of the Merger, the directors and executive officers of
NBN will be the directors and officers immediately prior to the Merger, except
that John Rosmarin, one of the existing directors of Cushnoc, will become a
director of NBN. Mr. Rosmarin, who is 49 years of age, is the President and
Chief Executive Officer of Saunders Manufacturing & Marketing of Winthrop,
Maine. See, "CERTAIN BENEFICIAL OWNERS OF CUSHNOC COMMON STOCK" for certain
information concerning Mr. Rosmarin and "NBN COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT -- Security Ownership of Management" for a
list of the other directors and officers of NBN following the Merger.
DESCRIPTION OF NBN CAPITAL STOCK
NBN is authorized to issue up to 3,000,000 shares of NBN Common Stock and
up to 1,000,000 of preferred stock (the "NBN Preferred Stock"). The capital
stock of NBN does not represent or constitute a deposit account and is not
insured by the FDIC. The NBN Common Stock is listed on the American Stock
Exchange under the symbol "NBN."
The following description of the NBN capital stock does not purport to be
complete and is qualified in all respects by reference to the Articles of
Incorporation ("Articles") and Bylaws of NBN and MBCA.
NBN Common Stock
General. Each share of NBN Common Stock has the same relative rights and
is identical in all respects with each other share of NBN Common Stock. The NBN
Common Stock is not subject to call for redemption and, upon receipt by NBN of
the shares of Cushnoc Common Stock surrendered in exchange for NBN Common Stock
each share of NBN Common Stock offered hereby will be fully paid and
non-assessable.
Voting Rights. Except as provided in any resolution or resolutions
adopted by the Board of Directors establishing any series of NBN Preferred
Stock, the holders of NBN Common Stock possess exclusive voting rights in NBN.
Each holder of NBN Common Stock is entitled to one vote for each share held on
all matters voted upon by shareholders, and shareholders are not permitted to
cumulate votes in elections of directors.
Dividends. Subject to the rights of the holders of any NBN Preferred
Stock, the holders of the NBN Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors of NBN out of funds
legally available therefor.
Preemptive Rights. Holders of NBN Common Stock do not have any preemptive
rights with respect to any shares which may be issued by NBN in the future;
thus, NBN may sell shares of NBN Common Stock without first offering them to
the then holders of NBN Common Stock.
<PAGE> 35
Liquidation. In the event of any liquidation, dissolution or winding up
of NBN, the holders of the NBN Common Stock would be entitled to receive, after
payment of all debts and liabilities of NBN, all assets of NBN available for
<PAGE> 72
distribution, subject to the rights of the holders of NBN Preferred Stock which
may be issued with a priority in liquidation or dissolution over the holders of
the NBN Common Stock.
NBN Preferred Stock
The Board of Directors of NBN is authorized to issue NBN Preferred Stock
and to fix the voting powers, designations, preferences or other special rights
of such shares and the qualifications, limitations and restrictions thereon.
The NBN Preferred Stock may be issued in distinctly designated series, may be
convertible into NBN Common Stock and may rank prior to the NBN Common Stock as
to dividend rights, liquidation preferences, or both. Two series of Preferred
stock have been issued and are described under "Comparison of the Rights of
Shareholders - Classes of Stock" below.
The authorized but unissued shares of NBN Preferred Stock (as well as the
authorized but unissued and unreserved shares of NBN Common Stock) are
available for issuance in future mergers or acquisitions, in a future public
offering or private placement or for other general corporate purposes. Except
as otherwise required to approve the transaction in which the additional
authorized shares of NBN Preferred Stock (as well as NBN Common Stock) would be
issued, shareholder approval generally would not be required for the issuance
of these shares. Depending on the circumstances, however, shareholder approval
may be required pursuant to the requirements of the American Stock Exchange or
any other exchange on which the NBN Common Stock may then be listed.
Other Provisions
The Articles of Incorporation and Bylaws of NBN contain a number of
provisions which may be deemed to have the effect of discouraging or delaying
attempts to gain control of NBN, including provisions in the Articles: (i)
authorizing directors of fill vacancies in the Board; (ii) increasing the vote
for removal of directors by shareholders; (iii) requiring advance notice by any
shareholder to make a nomination for election of a director; and (iv) requiring
an increased vote of shareholders to approve certain business combinations
unless certain price and procedural requirements are met or the Board of
Directors approves the business combination in the manner provided therein. The
provisions in the Bylaws of NBN include specific conditions under which (i)
persons may be nominated for election as directors of NBN at an annual meeting
of shareholders; and (ii) business may be transacted at an annual meeting of
shareholders. NBN has recently amended its Bylaws to provide that each director
is elected for a one-year term. Previously the Bylaws provided for staggered
three-year terms. Existing directors will serve for the full terms for they
were originally elected. See "COMPARISON OF THE RIGHTS OF SHAREHOLDERS."
In addition to the foregoing, in certain instances the issuance of
authorized but unissued shares of NBN Common Stock of NBN Preferred Stock may
have an anti-takeover effect by making it more difficult and/or expensive to
acquire NBN. Section 611-A of the MBCA also may have the same anti-takeover
effects.
<PAGE> 36
For information relating to certain of the foregoing provisions which may
be avoided by the approval of the Board of Directors of NBN, see "COMPARISON OF
THE RIGHTS OF SHAREHOLDERS -- Business Combinations with Certain Persons and
<PAGE> 73
Acquisitions of Shares," and for information relating to the manner in which
NBN may amend its Articles and Bylaws, see "COMPARISON OF THE RIGHTS OF
SHAREHOLDERS -- Amendment of Governing Instruments."
Transfer Agent
The Transfer Agent and registrar for NBN Common Stock is Registrar and
Transfer Company, Cranford, New Jersey.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
Both Cushnoc and NBN are Maine corporations subject to the provisions of
the MBCA. Upon consumption of the Merger, shareholders of Cushnoc will become
shareholders of NBN and their rights as shareholders of NBN will be governed by
the Articles and Bylaws of NBN and the MBCA.
The following summary is not intended to be a complete statement of the
differences affecting the rights of Cushnoc shareholders, but rather summarizes
the more significant differences affecting the rights of such shareholders and
certain important similarities; the summary is qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of Cushnoc, the Articles
of Incorporation and Bylaws of NBN and applicable laws and regulations.
Authorized Capital Stock
Cushnoc. Cushnoc's Articles of Incorporation authorize the issuance of up
to 90,000 shares of Cushnoc Common Stock, all of which were outstanding as of
the Record Date.
NBN. NBN's Articles authorize the issuance of up to 3,000,000 shares of
NBN Common Stock, of which 1,292,080 shares were outstanding as of August 27,
1997, and up to 1,000,000 shares of NBN Preferred Stock, of which 116,882
shares are issued and outstanding.
Issuance of Capital Stock
Cushnoc. A shareholder vote to increase the number of shares would be
necessary for Cushnoc to issue additional shares of Cushnoc capital stock or
rights or options for the purchase of shares of capital stock of Cushnoc,
except for shares which may be reacquired by Cushnoc. Such required shares may
be reissued by Cushnoc on such terms and for such consideration as may be
determined by the Board of Directors of Cushnoc.
NBN. NBN may issue shares of NBN capital stock and rights or options for
the purchase of shares of capital stock of NBN on such terms and for such
consideration as may be determined by the Board of Directors of NBN. Neither
the MBCA nor NBN's Articles and Bylaws require
<PAGE> 37
shareholder approval of any such actions, except that pursuant to the MBCA such
rights or option to purchase NBN Common Stock may be issued to directors,
officers or employees of NBN or its subsidiaries only if the issuance or plan
pursuant to which they are issued is approved by the holders of a majority of
the outstanding NBN Common Stock.
<PAGE> 74
Number of Directors
Cushnoc. Cushnoc's Articles of Incorporation and Bylaws provide for not
less than 5 nor more than 15 directors. The Board of Directors is authorized to
increase or decrease the number of directors within that range. There are
presently 13 directors in office.
NBN. NBN's Articles of Incorporation provide for not less than 9 nor more
than 15 directors. The Board of Directors is authorized to increase or decrease
the number of directors within that range. There are presently 12 directors in
office. The Bylaws have been amended to reduce the number of directors to 12 as
of the next Annual Meeting of shareholders.
Director Vacancies and Removal of Directors
Cushnoc. Vacancies in the Board of Directors may be filled by the
remaining directors. Directors may be removed with or without cause by vote of
a majority of the outstanding shares.
NBN. Vacancies in the Board of Directors may be filled by the remaining
directors. Directors may be removed without cause by a vote of 75% of the
outstanding shares, or for cause by a vote of 50% of the outstanding shares.
Shareholder Nominations
Cushnoc. Neither the Articles of Incorporation nor the Bylaws contain any
provision relating to the nomination of directors.
NBN. The Articles of Incorporation of NBN provide that any shareholder
wishing to nominate a person for election as a director must give notice to the
secretary of the corporation not less than 30 days nor more than 60 days before
the shareholders meeting, stating the name, age, business address and, if
known, residence address of each nominee, the principal occupation or
employment of each nominee, and the number of shares of stock of the
corporation beneficially owned by each nominee.
Inside Directors
Cushnoc. Neither the Articles of Incorporation nor the Bylaws contain any
provision restricting the number of directors who are employees.
NBN. The Bylaws of NBN provide that no more than 3 directors may be
senior executive officers of NBN.
<PAGE> 38
Preemptive Rights
Cushnoc. The Articles of Incorporation of Cushnoc provide that the
shareholders are to have the preemptive rights to acquire stock provided for by
the MBCA in the case of new issuances of stock by the corporation.
NBN. The Articles of Incorporation of NBN provide that there are no
preemptive rights. Accordingly, the corporation may issue shares without first
offering them to existing shareholders.
<PAGE> 75
Classes of Stock
Cushnoc. The Articles of Incorporation of Cushnoc authorize only one
class of stock, i.e., common stock. Accordingly, the common stock possesses all
of the voting rights and other rights pertaining to capital stock of the
corporation.
NBN. The Articles of Incorporation of NBN authorize the issuance of
preferred stock as well as common stock. Certain features of the preferred
stock may be determined by the directors of NBN at the time of issuance of the
preferred period. Those rights include the rate of dividend, redemption price,
terms, and conditions, liquidation preferences, conversion rights, and voting
rights. The Board of Directors has previously designated 45,454 shares of
preferred stock as Series A preferred and 71,428 shares as Series B preferred.
Each of the series of preferred shares is entitled to preference over the
common shares with respect to dividends and payments on liquidation of the
corporation, is convertible into NBN common stock in the ratio of two shares of
common for each share of preferred, and is entitled to one vote per share,
voting as a single class with the holders of the NBN common stock.
NBN has issued and outstanding warrants to purchase 108,764 shares of its
common stock at a purchase price of $7 per share. Such warrants are exercisable
at any time until May 14, 1999, at which time unexercised warrants will expire.
Business Combinations
Cushnoc. Neither the Articles of Incorporation nor the Bylaws contain any
provision relating to corporate approval of business combinations.
NBN. The Articles of Incorporation provide that certain mergers or other
business combinations be approved by the affirmative vote of 75% or, in some
cases, 80% of the outstanding shares of stock entitled to vote for the election
of directors, provided that a merger or other business combination which has
been approved by at least 2/3 of the directors of NBN who are not affiliated
with, or shareholders of, the acquiring party, are not subject to such
increased voting requirement.
<PAGE> 39
Special Meetings of Shareholders
Cushnoc. The Bylaws provide that special meetings of the shareholders
shall be held at the call of President, a majority of the Board of Directors,
or the holders of one-tenth part of the interest of the capital stock issued
and outstanding.
NBN. The Bylaws of NBN provide that special meetings of the shareholders
shall be held at the call of the Chairman of the Board, the President, a Vice
President, a majority of the Board of Directors, or 10% of the shares entitled
to vote at the meeting.
Amendment of Governing Instruments.
Cushnoc. The Articles of Incorporation contain no provisions related to
amendments. Accordingly, amendments to the articles are governed by the MBCA,
which requires a majority vote of shareholders. The Bylaws may be amended by a
<PAGE> 76
vote of 2/3 of the board of directors present and constituting a quorum at a
meeting. In addition, the shareholders may amend the Bylaws by majority vote at
a special or annual meeting. Notice of any proposed amendment, addition,
alteration or repeal must be given in the notice of the meeting at which it is
to be considered. Any such amendment, addition, alteration or change shall
become effective 10 days after the amendment has been submitted to the
Superintendent of the Bureau of Banking or other applicable governmental agency
or upon the date which is specified or is otherwise indicated to the bank by
the governmental authority or as otherwise provided by statute.
NBN. The Articles of Incorporation of NBN require a vote of the holders
of at least 2/3 of all of the shares of the corporation entitled to vote for
the election of directors in order to amend or repeal, or to adopt any
provision in contravention or inconsistent with, the Articles of Incorporation.
In addition, the affirmative vote of the holders of at least 80% of all the
shares of the corporation entitled to vote for the election of directors is
required to amend or repeal, or to adopt any provision in contravention of
inconsistent with, those provisions in the articles relating to business
combinations. The Bylaws of NBN may be amended at any time by the affirmative
vote of a majority of the entire board of directors, subject to repeal, change
or adoption of any contravening or inconsistent provision only by vote of the
holders of at least 2/3 of all the shares entitled to vote on the matter at a
meeting expressly called for that purpose. In addition, the board of directors
by resolution adopted by (i) 2/3 of the directors who are not affiliated with
any acquiring or offering person in the case of a business combination or (ii)
a majority of the directors in all other cases, may supplement, interpret,
clarify or enforce the provisions of the Articles of Incorporation and Bylaws.
The Bylaws provide that such a resolution is binding and may be relied upon for
all purposes provided that the resolution is not inconsistent with law, the
Articles of Incorporation or the Bylaws.
<PAGE> 40
NBN COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
As of August 27, 1997, the following persons owned of record, or were
known to own beneficially, more than five percent (5%) of any class of the
outstanding shares of NBN:
<TABLE>
<CAPTION>
Shares of the Company
Owned (Percentage of
Name and Address Outstanding Voting Stock)(1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Albert H. Desnoyers 132,694 ( 8.4%)
210 Washington Drive
Watchung, New Jersey 07060
Claude E. Savoie 101,700 ( 6.4%)
550 Sheldiac Road
<PAGE> 77
Moncton, New Brunswick
Canada E1A 2T1
Ronald J. Goguen (2) 360,327 (22.8%)
111 St. George Street
Suite 200
Moncton, New Brunswick
Canada E1C 1T7
<FN>
<F1> Shares of NBN voting stock beneficially owned. A beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise has or
shares the power to vote such security or the power to dispose of such
security. Included are shares owned by spouses and relatives living in
the same home as to which beneficial ownership may be disclaimed and
shares which may be obtained under warrants or upon the exercise of
conversion rights. Based on Schedules 13D and/or Forms 4 and 5 filed with
the Securities and Exchange Commission.
<F2> Includes 45,454 shares of Series A Preferred Stock, 71,428 shares of
Series B Preferred Stock, 145,478 shares of Common Stock, and a warrant
to purchase 108,764 shares of common stock at a price of $7.00 per share,
owned by Square Lake Holding Corporation ("Square Lake"), a Maine
corporation which is owned by a Canadian corporation of which Ronald
Goguen is a 95% shareholder and director and 1,550 shares of Common Stock
held in an individual retirement savings plan. Shares of the Series A
Preferred Stock and Series B Preferred Stock are convertible into shares
of common stock without further consideration at a ratio of two for one.
</FN>
</TABLE>
<PAGE> 41
Security Ownership of Management
The following table sets forth the beneficial ownership of NBN's common
shares by its directors and certain of its executive officers. There is no
family relationship between any of the directors and named executive officers
of NBN and any other director or named executive officer of NBN.
<TABLE>
<CAPTION>
Shares of NBN Common
Beneficially Owned
(Percentage of Outstanding
Voting Stock in Parenthesis
Name Where Greater than 1%)(1)
- -----------------------------------------------------------------------------------------------
DIRECTORS
Name Age
- ---- ---
<S> <C> <C>
James D. Delamater 46 40,970 ( 2.6%)
<PAGE> 78
Normand R. Houde 62 None
Philip C. Jackson 52 33,650( 2.1%)(2)
Ronald C. Kendall 65 22,680( 1.4%)(3)
Ronald J. Goguen 52 360,327(22.8%)(4)
John W. Trinward 72 9,634(5)
Edmond J. Vachon 87 32,850( 2.1%)(6)
John B. Bouchard 61 4,400
Judith W. Hayes 41 1,000
Stephen W. Wight 53 11,500(7)
Dennis A. Wilson 62 28,200( 1.8%)
A. William Cannan 54 21,241( 1.3%)
OTHER NAMED EXECUTIVE OFFICERS
Name Age
- ---- ---
Richard E. Wyman, Jr. 41 5,000
Henry Korsiak 54 5,059
Marilyn Wyman 46 18,000( 1.1%)
Sterling Williams 45 2,500
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (17 persons) 597,011(37.8%)(8)
<FN>
<F1> Shares of NBN's voting stock beneficially owned. A beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise has or
shares the power to vote such security or the power to dispose of such
security. Included are shares owned by spouses and relatives living in
the same home as to which beneficial ownership may be disclaimed, shares
which may be obtained under NBN'S Stock Option Plans and shares which may
be obtained under warrants or upon the exercise of conversion rights. The
foregoing table includes 65,500 shares of NBN's Common Stock subject to
stock options, 116,882 preferred shares convertible into 233,764 common
shares and 108,764 shares of the
<PAGE> 42
Company's Common Stock subject to a warrant. Of such shares, Mr.
Delamater has the right to acquire 20,000 shares subject to options, Mr.
Cannan has the right to acquire 21,000 shares subject to options, Mr.
Jackson has the right to acquire 5,000 shares subject to options, Mr.
Wyman has the right to acquire 5,000 shares subject to options, Mr.
Korsiak has the right to acquire 5,000 shares subject to options, Ms.
Wyman has the right to acquire 3,000 shares subject to options, Mr.
Williams has the right to acquire 2,500 shares subject to options and
Square Lake Holding Corporation, of which Mr. Goguen is the beneficial
owner, has the right to acquire 108,764 common shares pursuant to a
warrant and 233,764 common shares pursuant to conversion rights
applicable to the Company's preferred shares.
<F2> Includes 3,900 shares owned by spouse and 900 shares owned by children,
as to which beneficial ownership is disclaimed by Mr. Jackson.
<PAGE> 79
<F3> Includes 1,850 shares owned by spouse, as to which beneficial ownership
is disclaimed by Mr. Kendall, and 17,800 shares held in trusts of which
Mr. Kendall is a trustee or beneficiary, as to which beneficial ownership
of 9,200 shares is disclaimed by Mr. Kendall.
<F4> Includes 45,454 shares of Series A Preferred Stock, 71,428 shares of
Series B Preferred Stock, 133,131 shares of Common Stock, a warrant for
108,764 shares of common stock with an exercise price of $7.00 per share
owned by Square Lake and 1,550 shares of Common Stock held in an
individual retirement savings plan.
<F5> Includes 534 shares owned by spouse, as to which beneficial ownership is
disclaimed by Mr. Trinward.
<F6> Includes 13,126 shares owned by spouse, as to which beneficial ownership
is disclaimed by Mr. Vachon. Mr. Vachon has resigned effective at the
next Annual Meeting of Shareholders, scheduled for November 12, 1997.
<F7> Includes 4,900 shares owned by spouse and 1,500 shares owned by children,
as to which beneficial ownership is disclaimed by Mr. Wight.
<F8> Includes 22,784 shares owned by spouses and members of immediate
families, as to which beneficial ownership has been disclaimed.
</FN>
</TABLE>
<PAGE> 43
CERTAIN BENEFICIAL OWNERS OF CUSHNOC COMMON STOCK
Security Ownership of Management
The following table sets forth information as to the Cushnoc Common Stock
beneficially owned as of August 27, 1997 by (i) each director and executive
officer of Cushnoc and (ii) all directors and executive officers of Cushnoc as
a group. There is no family relationship between any of the directors and
executive officers of Cushnoc and any other director or executive officer of
Cushnoc, except that David M. Lipman and Sumner H. Lipman are brothers.
<TABLE>
<CAPTION>
Shares of Cushnoc
Beneficially Owned
(Percentage of Outstanding
Name of Beneficial Owner Where Greater than 1%)
- ------------------------ --------------------------
<S> <C>
Directors:
Michael J. Angelakis 100
Nona O. Boyink 100
John C. Bridge 1,000 ( 1.1%)
Charles F. Canning, Jr. 4,300 ( 4.8%)
Dana E. Caswell 4,000 ( 4.4%)
A. J. Gingras, Jr. 1,400 ( 1.6%)
<PAGE> 80
Thomas R. Johnson 400
David M. Lipman 3,000 ( 3.3%)
Sumner H. Lipman 19,460 (21.6%)
Nancy G. Rines 100
John Rosmarin 200
Robert E. Wheelock 500
William S. Williams 8,000 ( 8.9%)
Executive Officers who are not Directors:
Jeffrey C. Williams None
All directors and executive officers of
Cushnoc as a group (14 persons) 42,560 (47%)
</TABLE>
Security Ownership of Certain Beneficial Owners
Other than as set forth above, no person or entity, including any "group"
as that term is used in Section 13(d) of the Exchange Act, was known by NBN to
be the beneficial owner of more than five percent (5%) of the outstanding
Cushnoc Common Stock as of August 27, 1997.
<PAGE> 44
LEGAL OPINION
The validity of the NBN Common Stock offered hereby will be passed upon
for NBN by Drummond Woodsum & MacMahon, Portland, Maine.
EXPERTS
The consolidated financial statements of Northeast Bancorp as of June 30,
1996 and 1995 and for the years then ended appearing in Northeast Bancorp's
Annual Report on Form 10-K for the year ended June 30, 1996, have been audited
by Baker Newman & Noyes, Limited Liability Company, independent auditors, as
set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Northeast Bancorp for the year
ended June 30, 1994 appearing in Northeast Bancorp's Annual Report on Form 10-K
for the year ended June 30, 1996 have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as exerts in accounting and auditing.
The financial statements of Cushnoc for the years ended December 31, 1996
and 1995 have been audited by Schatz, Fletcher & Associates, independent
certified public accountants, as set forth in their report. Such financial
statements are provided herewith as Annex IV in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
<PAGE> 81
OTHER MATTERS
The Cushnoc Board is not aware of any business to come before the Cushnoc
Special Meeting other than those matters described above in this
Prospectus/Proxy Statement. However, if any other matters should properly come
before the Special Meeting, it is intended that proxies in the accompanying
form will be voted in respect thereof in accordance with the judgment of the
person or persons voting the proxies.
<PAGE> 45
ANNEX I
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Agreement"), dated as of May 9,
1997, by and among Northeast Bancorp (the "Acquiror"), a Maine corporation,
Northeast Bank, F.S.B. (the "Acquiror Sub"), a Federally chartered savings
bank and a wholly-owned subsidiary of the Acquiror, and Cushnoc Bank and
Trust Company (the "Company"), a Maine-chartered financial institution.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of the Acquiror and the Company have
determined that it is in the best interests of their respective companies
and their shareholders to consummate the business combination transactions
provided for herein, including the merger of the Company with and into the
Acquiror Sub, subject to the terms and conditions set forth herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto do hereby
agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the meanings ascribed to them for all
purposes of this Agreement.
"Acquiror Common Stock" shall mean the common stock, par value $1.00
per share, of the Acquiror.
"Acquiror Employee Plans" shall have the meaning set forth in Section
4.14(a) hereof.
<PAGE> 82
"Acquiror Employee Stock Benefit Plans" shall mean the following
employee benefit plans of the Acquiror: Employee Stock Purchase Plan; 1987
Stock Option Plan; 1989 Stock Option Plan; 1992 Stock Option Plan.
"Acquiror Financial Statements" shall mean (i) the consolidated
statements of the financial condition (including related notes and
schedules, if any) of the Acquiror as of June 30, 1994, 1995 and 1996 and
the consolidated statements of operations, shareholders' equity and cash
flows (including related notes and schedules, if any) of the Acquiror for
each of the years ended June 30, 1994, 1995 and 1996 as filed by the
Acquiror in its Securities Documents, and (ii) the consolidated statements
of financial condition of the Acquiror (including related notes
<PAGE> I-1
and schedules, if any) and the consolidated statements of operations,
shareholders' equity and cash flows (including related notes and schedules,
if any) of the Acquiror included in the Securities Documents filed by the
Acquiror with respect to the quarterly and annual periods ended subsequent
to June 30, 1996.
"Articles of Merger" shall have the meaning set forth in section 2.2
below.
"BIF" means the Bank Insurance Fund administered by the FDIC or any
successor thereto.
"CFR" means the Code of Federal Regulations.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Company Common Stock" shall mean the common stock, par value $15.00
per share, of the Company.
"Company Employee Plans" shall have the meaning set forth in Section
3.14(a) hereof.
"Company Financial Statements" shall mean (i) the statements of
financial condition (including related notes and schedules, if any) of the
Company as of December 31, 1994, 1995 and 1996 and the statements of
operations, shareholders' equity and cash flows (including related notes and
schedules, if any) of the Company for each of the years ended December 31,
1994, 1995 and 1996, and (ii) the statements of financial condition of the
Company (including related notes and schedules, if any) and the statements
of operations, shareholders' equity and cash flows (including related notes
and schedules, if any) of the Company with respect to the quarterly and
annual periods ended subsequent to December 31, 1996.
"Dissenting Shares" shall have the meaning set forth in Section 2.5
hereof.
"Effective Time" shall mean the date and time specified pursuant to
Section 2.2 hereof as the effective time of the Merger.
"Environmental Claim" means any written notice from any Governmental
Entity or third party alleging potential liability (including, without
<PAGE> 83
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on, or resulting from
the presence, or release into the environment, of any Materials of
Environmental Concern.
"Environmental Laws" means any federal, state or local law, statute,
ordinance, rule, regulation or code, and any published license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any governmental entity relating to (1) the protection,
preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking water
supply, surface soil, subsurface soil, plant and animal life or any other
natural resource), and/or (2) the use, storage, recycling,
<PAGE> I-2
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Materials of Environment Concern. The
term Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. section 9601, et seq; the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. section 6901, et seq; the Clean Air Act, as amended, 42
U.S.C. section 7401, et seq; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. section 1251, et seq; the Toxic Substances Control Act,
as amended, 15 U.S.C. section 9601, et seq; the Emergency Planning and
Community Right to Know Act, 42 U.S.C. section 1101, et seq; the Safe
Drinking Water Act, 42 U.S.C. section 300f, et seq; and all comparable state
and local laws, and (2) any common law (including without limitation common
law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of,
the presence of or exposure to any Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Ratio" shall have the meaning set forth in Section 2.3
hereof.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation, or any
successor thereto.
"Form S-4" shall mean the registration statement on Form S-4 (or on
any successor or other appropriate form) to be filed by the Acquiror in
connection with the issuance of shares of Acquiror Common Stock pursuant to
the Merger, as amended and supplemented.
"Governmental Entity" shall mean any federal or state court,
administrative agency or commission or other governmental authority or
instrumentality.
"HOLA" shall mean the Home Owners Loan Act.
<PAGE> 84
"Material Adverse Effect" shall mean, with respect to the Acquiror or
the Company, respectively, any effect that (i) is material and adverse to
the financial condition, results of operations or business of the Acquiror
and its Subsidiaries taken as whole and the Company taken as a whole,
respectively, or (ii) materially impairs the ability of the Company or the
Acquiror to consummate the transactions contemplated by this Agreement,
provided, however, that Material Adverse Effect shall not be deemed to
include the impact of (a) changes in laws and regulations or interpretations
thereof that are generally applicable to the banking or savings industries
(including without limitation prospective changes which result in
assessments of all institutions with SAIF-insured deposits which are
intended to recapitalize the SAIF), (b) changes in generally accepted
accounting principles that are generally applicable to the banking or
savings industries, (c) expenses incurred in connection with the
transactions contemplated hereby and (d) actions or omissions of a party (or
any of its subsidiaries) taken with the prior informed written consent of
the other party or parties in contemplation of the transactions contemplated
hereby, including without limitation any actions taken by the Company
contemplated by Section 5.12 hereof.
<PAGE> I-3
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
"Merger" shall mean the merger of the Company with and into the
Acquiror Sub pursuant to the terms hereof.
"MRSA" shall mean the Maine Revised Statutes Annotated.
"OTS" shall mean the Office of Thrift Supervision.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Previously Disclosed" shall mean disclosed (i) in a letter dated the
date hereof delivered from the disclosing party to the other party
specifically referring to the appropriate section of this Agreement and
describing in reasonable detail the matters contained therein, or (ii) a
letter dated after the date hereof from the disclosing party specifically
referring to this Agreement and describing in reasonable detail the matters
contained therein and delivered by the other party pursuant to Section 5.14
hereof.
"Proxy Statement" shall mean the prospectus/proxy statement contained
in the Form S-4, as amended or supplemented, and to be delivered to
shareholders of the Company.
"Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock or other ownership interests.
"SAIF" means the Savings Association Insurance Fund administered by
the FDIC or any successor thereto.
"Securities Act" shall mean the Securities Act of 1993, as amended.
<PAGE> 85
"Securities Documents" shall mean all reports, offering circulars,
proxy statements, registration statements and all other documents filed, or
required to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Subsidiary" and "Significant Subsidiary" shall have the meanings set
forth in Rule 1-02 of Regulations S-X of the Commission.
"Superintendent" shall mean the Superintendent of the Bureau of
Banking of the State of Maine.
<PAGE> I-4
Other terms used herein are defined in the preamble and elsewhere in
this Agreement.
ARTICLE II
THE MERGER
Section 2.1 The Merger
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 2.2 below), the Company shall be
merged with and into the Acquiror Sub (the "Merger") in accordance with the
applicable provisions of the MRSA and Federal Law. The Acquiror Sub shall
be the surviving corporation (hereinafter sometimes called the "Surviving
Corporation") of the Merger, and shall continue its corporate existence
under the laws of the United States of America. The name of the Surviving
Corporation shall continue to be "Northeast Bank F.S.B." Upon consummation
of the Merger, the separate corporate existence of the Company shall
terminate.
(b) From and after the Effective Time, the Merger shall have the
effects set forth in Section 552.13 of Title 12 of the C.F.R. and Section
905 of Title 13-A of the M.R.S.A.
(c) The Charter and Bylaws of the Acquiror Sub, as in effect
immediately prior to the Effective Time, shall be the Charter and Bylaws of
the Surviving Corporation, respectively, until altered, amended or repealed
in accordance with their terms and applicable law.
(d) The authorized capital stock of the Surviving Corporation shall
be as stated in the Articles of Incorporation of the Acquiror Sub
immediately prior to the Effective Time.
(e) Upon consummation of the Merger, (i) the directors of the
Surviving Corporation shall be the persons whose name and residence address,
and whose term as a director, are listed on Exhibit 2.1(d) attached hereto
and incorporated herein by reference, and (ii) the executive officers of the
Surviving Corporation shall be the executive officers of the Acquiror Sub
immediately prior to the Effective Time.
Section 2.2 Effective Time; Closing
<PAGE> 86
The Merger shall become effective upon the occurrence of the filing of
articles of merger (the "Articles of Merger") with the Secretary of State of
the State of Maine pursuant to the MRSA, unless a later date and time is
specified as the effective time in such Articles of Merger (the "Effective
Time"). A closing (the "Closing") shall take place immediately prior to the
Effective Time at 10:00 a.m., Eastern Time, on the fifth business day
following the satisfaction or waiver, to the extent permitted hereunder, of
the conditions to the consummation of the Merger specified in Article VI of
this Agreement (other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing), at the principal
executive offices of the Acquiror in Auburn, Maine, or at such other place,
at such other time, or on such other date as the parties may mutually agree
upon, provided that, notwithstanding the foregoing, the parties hereby agree
to hold the Closing on the first day which is at least two business days
following the satisfaction or waiver, to the extent permitted hereunder, of
the conditions to
<PAGE> I-5
consummation of the Merger specified in Article VI of this Agreement (other
than the delivery of certificates, opinions and other instruments and
documents to be delivered at the Closing) if necessary for the Effective
Time to occur on or before December 31, 1997.
At the Closing, there shall be delivered to the Acquiror and the
Company the opinions, certificates and other documents required to be
delivered under Article VI hereof.
Section 2.3 Treatment of Capital Stock
Subject to the provisions of this Agreement, at the Effective Time,
automatically by virtue of the Merger and without any action on the part of
any shareholder:
(a) each share of Acquiror Common Stock issued and outstanding
immediately prior to the Effective Time shall be unchanged and shall remain
issued and outstanding;
(b) each share of Acquiror Sub common stock issued and outstanding
immediately prior to the Effective Time shall be unchanged and shall remain
issued and outstanding; and
(c) subject to Sections 2.5 and 2.6 hereof, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares held by the Acquiror or any of its Subsidiaries other
than in a fiduciary capacity that are beneficially owned by third parties or
as a result of debts previously contracted, which shall be cancelled and
retired) shall become and be converted into the right to receive 2.089
shares of Acquiror Common Stock (subject to possible adjustment as set forth
in Section 2.8 hereof, the "Exchange Ratio").
Section 2.4 Shareholder Rights; Stock Transfers
Except as provided for in Section 2.5 hereof, at the Effective Time,
holders of Company Common Stock shall cease to be and shall have no rights
as shareholders of the Company, other than to receive the consideration
provided under this Article II. After the Effective Time, there shall be no
transfers on the stock transfers books of the Company or the Surviving
Corporation of shares of Company Common Stock.
<PAGE> 87
Section 2.5 Dissenting Shares
Each outstanding share of Company Common Stock the holder of which has
perfected his right to dissent under the MRSA and has not effectively
withdrawn or lost such right as of the Effective Time (the "Dissenting
Shares") shall not be converted into or represent a right to receive shares
of Acquiror Common Stock hereunder, and the holder thereof shall be entitled
only to such rights as are granted by the MRSA. The Company shall give the
Acquiror prompt notice upon receipt by the Company of any such written
demands for payment of the fair value of such shares of Company Common Stock
and of withdrawals of such demands and any other instruments provided
pursuant to the MRSA (any shareholder duly making such demand being
hereinafter called a "Dissenting Shareholder"). If any Dissenting
Shareholder shall effectively withdraw or lose (through failure to perfect
or otherwise) his right to such payment at any time, such holder's shares of
Company Common Stock shall be converted into the right to receive
<PAGE> I-6
Acquiror Common Stock in accordance with the applicable provisions of this
Agreement. Any payments made in respect of Dissenting Shares shall be made
by the Surviving Corporation.
Section 2.6 Fractional Shares
Notwithstanding any other provision hereof, no fractional shares of
Acquiror Common Stock shall be issued to holders of Company Common Stock.
In lieu thereof, each holder of shares of Company Common Stock entitled to a
fraction of a share of Acquiror Common Stock shall, at the time of surrender
of the certificate or certificates representing such holder's shares,
receive an amount of cash (without interest) equal to the product arrived at
by multiplying such fraction of a share of Acquiror Common Stock by the
average closing price of the Acquiror Common Stock on the American Stock
Exchange on the ten business days preceding the Effective Time, as reported
in the Wall Street Journal, or if not reported therein, in another
authoritative source, rounded to the nearest whole cent. No such holder
shall be entitled to dividends, voting rights or other rights in respect of
any fractional share interest.
Section 2.7 Exchange Procedures
(a) At or after the Effective Time, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Company
Common Stock, upon surrender of the same to an agent duly appointed by the
Acquiror ("Exchange Agent"), shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of full
shares of Acquiror Common Stock into which the shares of Company Common
Stock theretofore represented by the certificate or certificates so
surrendered shall have been converted as provided in Section 2.3(c) hereof.
As promptly as practicable after the Effective Time (and in no event later
than the fifth business day following the Effective Time), the Exchange
Agent shall mail to each holder of record of an outstanding certificate
which immediately prior to the Effective Time evidenced shares of Company
Common Stock, and which is to be exchanged for Acquiror Common Stock as
provided in Section 2.3 hereof, a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to such
certificate shall pass, only upon delivery of such certificate to the
<PAGE> 88
Exchange Agent) advising such holder of the terms of the exchange effected
by the Merger and of the procedure for surrendering to the Exchange Agent
such certificate in exchange for a certificate or certificates evidencing
Acquiror Common Stock or cash in lieu of any fractional share.
Notwithstanding anything in this Agreement to the contrary, certificates
representing Company Common Stock surrendered for exchange by any Affiliate
of the Company (as defined in Section 5.13(a) hereof) shall not be exchanged
for certificates representing shares of Acquiror Common Stock in accordance
with the terms of this Agreement until the Acquiror has received a written
agreement from such person as specified in Section 5.13(b).
(b) No holder of a certificate theretofore representing shares of
Company Common Stock shall be entitled to receive any dividends in respect
of the Acquiror Common Stock into which such shares shall have been
converted by virtue of the Merger until the certificate representing such
shares is surrendered in exchange for a certificate or certificates
representing shares of Acquiror Common Stock. In the event that dividends
are declared and paid by the Acquiror in respect of Acquiror Common Stock
after the Effective Time but prior to any holder's surrender of certificates
representing shares of Company Common Stock, dividends payable to
<PAGE> I-7
such holder in respect of Acquiror Common Stock not then issued shall accrue
(without interest). Any such dividends shall be paid (without interest)
upon surrender of the certificates representing such shares of Company
Common Stock. The Acquiror shall be entitled, after the Effective Time, to
treat certificates representing shares of Company Common Stock as evidencing
ownership of the number of full shares of Acquiror Common Stock into which
the shares of Company Common Stock represented by such certificates shall
have been converted pursuant to this Agreement, notwithstanding the failure
on the part of the holder thereof to surrender such certificates.
(c) The Acquiror shall not be obligated to deliver a certificate or
certificates representing shares of Acquiror Common Stock to which a holder
of Company Common Stock would otherwise be entitled as a result of the
Merger until such holder surrenders the certificate or certificates
representing the shares of Company Common Stock for exchange as provided in
this Section 2.7, or, in default thereof, an appropriate affidavit of loss
and indemnity agreement and/or bond in an amount as may be reasonably
required in each case by the Acquiror. If any certificate evidencing shares
of Acquiror Common Stock is to be issued in a name other than that in which
the certificate evidencing Company Common Stock surrendered in exchange
therefor is registered, it shall be a condition of the issuance thereof that
the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange pay to
the Exchange Agent any transfer or other tax required by reason of the
issuance of a certificate for shares of Acquiror Common Stock in any name
other than that of the registered holder of the certificate surrendered or
otherwise establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
Section 2.8 Anti-Dilution Provisions
If, on the Effective Time, (i) Acquiror has, at any time after the
date hereof and before the Effective Time, (A) issued a dividend in shares
of Acquiror Common Stock, (B) combined the outstanding shares of Acquiror
Common Stock into a smaller number of shares, (C) subdivided the outstanding
<PAGE> 89
shares of Acquiror Common Stock, or (D) reclassified the shares of Acquiror
Common Stock, then the number of shares of Acquiror Common Stock to be
delivered pursuant to Section 2.7 to Company shareholders who are entitled
to receive shares of Acquiror Common Stock in exchange for shares of Company
Common Stock shall be adjusted so that each Company shareholder shall be
entitled to receive such number of shares of Acquiror Common Stock as such
shareholder would have been entitled to receive if the Effective Time had
occurred prior to the happening of such event. (By way of illustration, if
Acquiror shall declare a stock dividend of 7% payable with respect to a
record date on or prior to the Effective Time, the Exchange Ratio determined
pursuant to Section 2.3 shall be adjusted upward by 7%.)
Section 2.9 Additional Actions
If, at any time after the Effective Time, the Surviving Corporation
shall consider that any further assignments or assurances in law or any
other acts are necessary or desirable to (i) vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger, or (ii) otherwise carry out the
purposes of this Agreement, the Company and its proper officers and
directors shall
<PAGE> I-8
be deemed to have granted to the Surviving Corporation an irrevocable power
of attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such rights, properties or assets in the
Surviving Corporation and otherwise to carry out the purposes of this
Agreement; and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Company or otherwise to
take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Acquiror that:
Section 3.1 Capital Structure; Subsidiaries
The authorized capital stock of the Company consists of 90,000 shares
of Company Common Stock. As of the date hereof, there are 90,000 shares of
Company Common Stock issued and outstanding, -0- shares of Company Common
Stock are directly or indirectly held by the Company as treasury stock. All
outstanding shares of Company Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable, and none of the
outstanding shares of Company Common Stock has been issued in violation of
the preemptive rights of any person, firm or entity. There are no Rights
authorized, issued or outstanding with respect to the capital stock of the
Company. The Company has no subsidiaries.
Section 3.2 Organization, Standing and Authority of the Company
The Company is a commercial bank duly organized, validly existing and
in good standing under the laws of the State of Maine with full corporate
<PAGE> 90
power and authority to own or lease all of its properties and assets and to
carry on its business as now conducted and is licensed or qualified to do
business and is in good standing in each jurisdiction in which its ownership
or leasing of property or the conduct of its business requires such
licensing or qualification, except where the failure to be so licensed,
qualified or in good standing would not have a Material Adverse Effect on
the Company. The deposit accounts of the Company are insured by the BIF to
the maximum extent permitted by the FDIA, and the Company has paid all
deposit insurance premiums and assessments required by the FDIA and the
regulations thereunder. The Company has heretofore delivered or made
available to the Acquiror true and complete copies of its Articles of
Incorporation and Bylaws as in effect as of the date hereof.
Section 3.3 Authorized and Effective Agreement
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and (subject to receipt of all necessary
governmental approvals and the approval of the Company's shareholders of
this Agreement) to perform all of its obligations under this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of the
Company, except for the approval of this Agreement by the Company's
shareholders. This Agreement has been duly and validly executed
<PAGE> I-9
and delivered by the Company and, assuming due authorization, execution and
delivery by the Acquiror and the Acquiror Sub, constitutes a legal, valid
and binding obligation of the Company which is enforceable against the
Company in accordance with its terms, subject, as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(b) Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby (including the Merger),
nor compliance by the Company with any of the provisions hereof (i) does or
will conflict with or result in a breach of any provisions of the Articles
of Incorporation or Bylaws of the Company, (ii) violate, conflict with or
result in a breach of any term, condition or provision of, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of
any lien, charge or encumbrance upon any property or asset of the Company
pursuant to, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the
Company is a party, or by which any of its properties or assets may be bound
or affected, or (iii) subject to receipt of all required governmental and
shareholder approvals, violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company.
(c) Except for (i) the filing of applications and notices with, and
the consents and approvals of, as applicable, the OTS, the FDIC, and the
Superintendent, (ii) the filing and effectiveness of the Form S-4 with the
Commission, (iii) compliance with applicable state securities or "blue sky"
laws and the American Stock Exchange Rules in connection with the issuance
of Acquiror Common Stock pursuant to this Agreement, (iv) the approval of
this Agreement by the requisite vote of the shareholders of the Company and
<PAGE> 91
the Acquiror Sub and (v) the filing of Articles of Merger with the Secretary
of State of Maine pursuant to the MRSA and Articles of Combination with the
OTS pursuant to the CFR in connection with the Merger, no consents or
approvals of or filings or registrations with any Governmental Entity or
with any third party are necessary on the part of the Company in connection
with the execution and delivery by the Company of this Agreement and
consummation by the Company of the transactions contemplated hereby.
(d) As of the date hereof, the Company is not aware of any reasons
relating to the Company (including without limitation Community Reinvestment
Act compliance) why all consents and approvals shall not be procured from
all regulatory agencies having jurisdiction over the transactions
contemplated by this Agreement as shall be necessary for (i) consummation of
the transactions contemplated by this Agreement and (ii) the continuation by
the Acquiror after the Effective Time of the business of each of the
Acquiror, the Acquiror Sub and the Company as such business is carried on
immediately prior to the Effective Time, free of any conditions or
requirements which, in the reasonable opinion of the Company, could have a
Material Adverse Effect on the Acquiror, the Acquiror Sub or the Company or
materially impair the value of the Company to the Acquiror.
<PAGE> I-10
Section 3.4 Regulatory Reports
Since January 1, 1994, the Company has duly filed with the FDIC and
the Superintendent, as the case may be, the reports required to be filed
under applicable laws and regulations and such reports were in all material
respects complete and accurate and in compliance with the requirements of
applicable laws and regulations. In connection with the most recent
examinations of the Company by the FDIC or the Superintendent, the Company
was not required to correct or change any action, procedure or proceeding
which the Company believes has not been corrected or changed as required.
Section 3.5 Financial Statements
(a) The Company has previously delivered or made available to the
Acquiror accurate and complete copies of the Company Financial Statements
which, in the case of the statements of financial condition of the Company
as of December 31, 1996, and the statements of operations, shareholders'
equity and cash flows for the year ended December 31, 1996, are accompanied
by the audit reports of Schatz, Fletcher & Associates, independent public
accountants with respect to the Company. The Company Financial Statements
referred to herein, as well as the Company Financial Statements to be
delivered pursuant to Section 5.7 hereof, fairly present or will fairly
present, as the case may be, the financial condition of the Company as of
the respective dates set forth therein, and the results of operations,
shareholders' equity and cash flows of the Company for the respective
periods or as of the respective dates set forth therein.
(b) Each of the Company Financial Statements referred to in Section
3.5(a) has been or will be, as the case may be, prepared in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except as stated therein. The audits of the Company have
been conducted in all material respects in accordance with generally
accepted auditing standards. The books and records of the Company are being
maintained in material compliance with applicable legal and accounting
requirements, and such books and records accurately reflect in all material
<PAGE> 92
respects all dealings and transactions in respect of the business, assets,
liabilities and affairs of the Company.
(c) Except and to the extent (i) reflected, disclosed or provided for
in the Company Financial Statements and (ii) of liabilities incurred since
December 31, 1996 in the ordinary course of business, the Company has no
liabilities, whether absolute, accrued, contingent or otherwise, material to
the financial condition, results of operations or business of the Company.
Section 3.6 Material Adverse Change
Since December 31, 1996, (i) the Company has conducted its business in
the ordinary and usual course (excluding the incurrence of expenses in
connection with this Agreement and the transactions contemplated hereby) and
(ii) no event has occurred or circumstance arisen that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on the
Company.
<PAGE> I-11
Section 3.7 Environmental Matters
(a) To the best of the Company's knowledge, the Company is in
compliance with all Environmental Laws. The Company has not received any
communication alleging that the Company is not in such compliance and, to
the best knowledge of the Company, there are no present circumstances that
would prevent or interfere with the continuation of such compliance.
(b) To the best of the Company's knowledge, none of the properties
owned, leased or operated by the Company (other than properties held by the
Company solely as security for a debt) has been or is in violation of or
liable under any Environmental Law.
(c) To the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents
that could reasonably form the basis of Environmental Claim or other claim
or action or governmental investigation that could result in the imposition
of any liability arising under any Environmental Law against the Company or
against any person or entity whose liability for any Environmental Claim the
Company has or may have retained or assumed either contractually or by
operation of law.
(d) Except as Previously Disclosed, the Company has not conducted any
environmental studies during the past five years with respect to any
properties owned by it as of the date hereof or which secure loans of the
Company as of the date hereof.
Section 3.8 Tax Matters
(a) The Company has timely filed all federal, state and local (and,
if applicable, foreign) income, franchise, bank, excise, real property,
personal property and other tax returns required by applicable law to be
filed by it (including, without limitation, estimated tax returns, income
tax returns, information returns and withholding and employment tax returns)
and has paid, or where payment is not required to have been made, has set up
an adequate reserve or accrual for the payment of, all taxes required to be
paid in respect of the periods covered by such returns and, as of the
Effective Time, will have paid, or where payment is not required to have
<PAGE> 93
been made, will have set up an adequate reserve or accrual for the payment
of, all taxes for any subsequent periods ending on or prior to the Effective
Time. The Company will not have any material liability for any such taxes
in excess of the amounts so paid or reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign)
income, franchise, bank, excise, real property, personal property and other
tax returns filed by the Company are complete and accurate in all material
respects. The Company is not delinquent in the payment of any tax,
assessment or governmental charge, and except as Previously Disclosed, has
not requested any extension of time within which to file any tax returns in
respect of any fiscal year or portion thereof which have not since been
filed. Except as Previously Disclosed, the federal, state and local income
tax returns of the Company have been examined by the applicable tax
authorities (or are closed to examination due to the expiration of the
applicable statute of limitations) and no deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against the Company as a result of such
examinations or otherwise which have not been settled and paid. There are
currently no agreements in effect with
<PAGE> I-12
respect to the Company to extend the period of limitations for the
assessment or collection of any tax. Except as Previously Disclosed, as of
the date hereof, no audit, examination or deficiency or refund litigation
with respect to such return is pending or, to the best of the Company's
knowledge, threatened.
(c) Except as Previously Disclosed, the Company (i) is not a party to
any agreement providing for the allocation or sharing of taxes, (ii) is not
required to include in income any adjustment pursuant to Section 481(a) of
the Code by reason of a voluntary change in accounting method initiated by
the Company (nor does the Company have any knowledge that the Internal
Revenue Service has proposed any such adjustment or change of accounting
method) or (iii) has not filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply.
Section 3.9 Legal Proceedings
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of the Company,
threatened against the Company or against any asset, interest or right of
the Company, or against any officer, director or employee of the Company
that in any such case, if decided adversely, would have a Material Adverse
Effect on the Company. The Company is not a party to any order, judgment or
decree which has or could reasonably be expected to have a Material Adverse
Effect on the Company.
Section 3.10 Compliance with Laws
(a) The Company has all permits, licenses, certificates of authority,
orders and approvals of, and has made all filings, applications and
registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently being conducted and the absence of which could
reasonably be expected to have a Material Adverse Effect on the Company; all
such permits, licenses, certificates of authority, orders and approvals are
<PAGE> 94
in full force and effect; and to the best knowledge of the Company, no
suspension or cancellation of any of the same is threatened.
(b) The Company is not in violation of its Articles of Incorporation
or Bylaws, or, to the best of the Company's knowledge, of any applicable
federal, state or local law or ordinance or any order, rule or regulation of
any federal, state, local or other governmental agency or body (including,
without limitation, all banking (including without limitation all regulatory
capital requirements), securities, municipal securities, safety, health,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order,
writ, injunction or decree of any court specifically addressed to the
Company, or in default under any order, license, regulation or demand of any
governmental agency specifically addressed to the Company, any of which
violations or defaults could reasonably be expected to have a Material
Adverse Effect on the Company; and the Company has not received any notice
or communication from any federal, state or local governmental authority
asserting that the Company is in violation of any of the foregoing which
could reasonably be expected to have a Material Adverse Effect on the
Company. The Company is not subject to any regulatory or supervisory cease
or desist order, agreement, written directive, memorandum of understanding
or written commitment (other than those of general applicability
<PAGE> I-13
to all banks issued by governmental authorities), and has not received any
written communication requesting that it enter into any of the foregoing.
Section 3.11 Certain Information
None of the information relating to the Company supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i)
the Form S-4, at the time the Form S- 4 and any amendment thereto becomes
effective under the Securities Act, and (ii) the Proxy Statement, as of the
date(s) such Proxy Statement is mailed to shareholders of the Company and up
to and including the date of the meeting of shareholders to which such Proxy
Statement relates, will 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 under which they were made, not misleading,
provided that information as of a later date shall be deemed to modify
information as of an earlier date. The Proxy Statement mailed by the
Company to its shareholders in connection with the meeting of shareholders
at which this Agreement will be considered by such shareholders will include
or be accompanied by such information as the Acquiror shall request for
purposes of compliance with the Exchange Act and the rules and regulations
promulgated thereunder.
Section 3.12 Employee Benefit Plans
(a) The Company has Previously Disclosed all stock option, employee
stock purchase and stock bonus plans, qualified pension or profit-sharing
plans, any deferred compensation, consultant, bonus or group insurance
contract or any other incentive, welfare, severance or employee benefit plan
or agreement maintained for the benefit of employees or former employees of
the Company (the "Company Employee Plans"), and the Company has previously
furnished or made available to the Acquiror accurate and complete copies of
the same together with (i) the most recent actuarial and financial reports
prepared with respect to any qualified plan, (ii) the most recent annual
<PAGE> 95
reports filed with any governmental agency, and (iii) all rulings and
determination letters and any open requests for rulings or letters that
pertain to any qualified plan.
(b) None of the Company, any pension plan maintained by it and
qualified under Section 401 of the Code or, to the best of the Company's
knowledge, any fiduciary of such plan has incurred any material liability to
the PBGC or the Internal Revenue Service with respect to any employees of
the Company. To the best of the Company's knowledge, no reportable event
under Section 4043(b) of ERISA has occurred with respect to any such pension
plan.
(c) The Company does not participate in and has not incurred any
liability under Section 4201 of ERISA for a complete or partial withdrawal
from a multi-employer plan (as such term is defined in ERISA).
(d) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each Company Employee Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) (a
"Company Pension Plan") which is intended to qualify under Section 401 of
the Code to the effect that such plan is qualified under Section 401 of the
Code and the trust associated with such employee pension plan is tax exempt
under Section 501
<PAGE> I-14
of the Code. No such letter has been revoked or, to the best of the
Company's knowledge, is threatened to be revoked and the Company does not
know of any ground on which such revocation may be based. The Company has
no liability under any such plan that is not reflected on the consolidated
statement of financial condition of the Company at December 31, 1996
included in the Company Financial Statements, other than liabilities
incurred in the ordinary course of business in connection therewith
subsequent to the date thereof.
(e) To the best of the Company's knowledge, no prohibited transaction
(which shall mean any transaction prohibited by Section 406 of ERISA and not
exempt under Section 408 of ERISA or Section 4975 of the Code) has occurred
with respect to any Company Employee Plan which would result in the
imposition, directly or indirectly, of a material excise tax under Section
4975 of the Code or otherwise have a Material Adverse Effect on the Company.
(f) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to
the date hereof, and full payment will also be made (or proper accruals will
be so established) of all contributions which are required for periods after
the date hereof and prior to the Effective Time, under the terms of each
Company Employee Plan or ERISA; no accumulated funding deficiency (as
defined in Section 302 of ERISA or Section 412 of the Code), whether or not
waived, exists with respect to any Company Pension Plan, and there is no
"unfunded current liability" (as defined in Section 412 of the Code) with
respect to any Company Pension Plan.
(g) To the best of the Company's knowledge, the Company Employee
Plans have been operated in compliance in all material respects with the
applicable provisions of ERISA, the Code, all regulations, rulings and
announcements promulgated or issued thereunder and all other applicable
governmental laws and regulations.
<PAGE> 96
(h) There are no pending or, to the best knowledge of the Company,
threatened claims (other than routine claims for benefits) by, on behalf of
or against any of the Company Employee Plans or any trust related thereto or
any fiduciary thereof.
Section 3.13 Certain Contracts
(a) Except as Previously Disclosed, the Company is not a party to, is
not bound or affected by, and does not receive and is not obligated to pay
benefits under, (i) any agreement, arrangement or commitment, including
without limitation any agreement, indenture or other instrument, relating to
the borrowing of money by the Company (other than deposits, federal funds
purchased and securities sold under agreements to repurchase) or the
guarantee by the Company of any obligation, (ii) any agreement, arrangement
or commitment relating to the employment of a consultant or the employment,
election or retention in office of any present or former director, officer
or employee of the Company, (iii) any agreement, arrangement or
understanding pursuant to which any payment (whether of severance pay or
otherwise) became or may become due to any director, officer or employee of
the Company upon execution of this Agreement or upon or following
consummation of the transactions contemplated by this Agreement (either
alone or in connection with the occurrence of any additional acts or
events); (iv) any agreement, arrangement or understanding pursuant to which
the Company is obligated to indemnify any director, officer, employee or
agent of the Company; (v) any agreement,
<PAGE> I-15
arrangement or understanding to which the Company is a party or by which any
of the same is bound which limits the freedom of the Company to compete in
any line of business or with any person, or (vi) any assistance agreement,
supervisory agreement, memorandum of understanding, consent order, cease and
desist order or condition of any regulatory order or decree with or by the
FDIC, the Superintendent or any other regulatory agency.
(b) Schedule 3.13(b) sets forth all of the following contracts and
agreements to which the Company is a party or to which or by which it or its
assets or properties are subject or bound:
(i) contracts and other agreements with any current or former
officer, director, employee, consultant, agent, partner or other
representative, or with any entity in which any of the foregoing has an
interest;
(ii) contracts and other agreements (a) for the sale of any of the
assets or properties or for the grant to any person of any preferential
rights to purchase any of the assets or properties of the Company, or (b)
which create any liens or encumbrances on any assets or properties of the
Company;
(iii) contracts and other agreements calling for an aggregate
purchase price or payments in any one year of more than $10,000 in any one
case (or in the aggregate in the case of any related series of contracts or
agreement);
(iv) contracts and any other agreements relating to the acquisition
by the Company of any operating business or the capital stock of any other
corporation or any partnership or joint venture interest;
<PAGE> 97
(v) any and all licenses necessary for, or required in connection
with, the operation of the Company;
(vi) any contracts or agreement with respect to the payment of
dividends or any other distribution in respect of capital stock of the
Company; and
(vii) contracts or agreements with affiliates.
There have been delivered or made available to the Acquiror true and
complete copies of all of such contracts. All of such contracts and other
agreement are valid and binding upon the respective parties thereto in
accordance with their respective terms, and there are no defaults under any
such contracts. Except as separately identified on Schedule 3.13(b), no
approval or consent of any person is needed in order that the contracts and
other agreements set forth in such Schedule 3.13(b) continue in full force
and effect following the consummation of the transactions contemplated
hereby.
(c) The Company is not in default or in noncompliance, which default
or noncompliance could reasonably be expected to have a Material Adverse
Effect on the Company, under any contract agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a
party or by which its assets, business or operations may be bound or
affected, whether entered into in the ordinary course of business or
otherwise and whether
<PAGE> I-16
written or oral, and there has not occurred any event that with the lapse of
time or the giving of notice, or both, would constitute such a default or
non-compliance.
Section 3.14 Brokers and Finders
Except as Previously Disclosed, neither the Company nor any of its
directors, officers, or employees, has employed any broker or finder or
incurred any liability for any broker or finder fees or commissions in
connection with the transactions contemplated hereby.
Section 3.15 Insurance
The Company has Previously Disclosed a list of insurance policies in
effect under which the Company is an insured. All such policies are with
financially sound and reputable insurance companies, and all premiums
thereon have been paid to the date hereof.
Section 3.16 Properties
All real and personal property owned by the Company or presently used
by it in its business is in an adequate condition (ordinary wear and tear
excepted) and is sufficient to carry on the business of the Company in the
ordinary course of business consistent with its past practices. The Company
has good and marketable title free and clear of all liens, encumbrances,
charges, defaults or equities (other than equities of redemption under
applicable foreclosure laws) to all of the material properties and assets,
real and personal, reflected on the statement of financial condition of the
Company as of December 31, 1996 included in the Company Financial Statements
<PAGE> 98
or acquired after such date, except (i) liens for current taxes not yet due
or payable (ii) pledges to secure deposits and other liens incurred in the
ordinary course of its banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount
or extent and (iv) as reflected on the statement of financial condition of
the Company as of December 31, 1996 included in the Company Financial
Statements. All real and personal property which is material to the
Company's business and leased or licensed by the Company is held pursuant to
leases or licenses which are valid and enforceable in accordance with their
respective terms and such leases will not terminate or lapse prior to the
Effective Time.
Section 3.17 Labor
No work stoppage involving the Company is pending or, to the best
knowledge of the Company, threatened. The Company is not involved in, or
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding involving the employees of the Company which could
have a Material Adverse Effect on the Company. Employees of the Company are
not represented by any labor union nor are any collective bargaining
agreements otherwise in effect with respect to such employees, and to the
best of the Company's knowledge, there have been no efforts to unionize or
organize any employees of the Company during the past five years.
<PAGE> I-17
Section 3.18 Required Vote
(a) The affirmative vote of the holders of two-thirds of the issued
and outstanding shares of Company Common Stock is necessary to approve this
Agreement and the transactions contemplated hereby on behalf of the Company.
(b) A majority of the Directors of the Company has approved the
Merger and this Agreement.
Section 3.19 Accounting for the Merger; Reorganization
As of the date hereof, the Company has no reason to believe that any
action it has taken will cause the Merger to fail to qualify (i) for
pooling-of-interests accounting treatment under generally accepted
accounting principles or (ii) as a reorganization under Section 368(a) of
the Code.
Section 3.20 Disclosures
None of the representations and warranties of the Company or any of
the written information or documents furnished or to be furnished by the
Company to the Acquiror in connection with or pursuant to this Agreement or
the consummation of the transactions contemplated hereby, when considered as
a whole, contains or will contain any untrue statement of a material fact,
or omits or will omit to state any material fact required to be stated or
necessary to make any such information or document, in light of the
circumstances, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
The Acquiror represents and warrants to the Company that:
<PAGE> 99
Section 4.1 Capital Structure
The authorized capital stock of the Acquiror consists of 3,000,000
shares of Acquiror Common Stock and 1,000,000 shares of Acquiror Preferred
Stock. As of May 9, 1997, there were 1,274,969 shares of issued and
outstanding. No shares of Acquiror Common Stock were held as treasury stock
and not outstanding and there were 116,882 shares of Acquiror Preferred
Stock issued and outstanding, of which 45,454 were classified as Series A
and 71,428 were classified as Series B. As of May 9, 1997, there were
233,764 shares of Acquiror Common Stock issuable upon conversion of
outstanding Acquiror Preferred Stock, 92,000 shares issuable upon exercise
of outstanding options and 108,764 shares issuable upon exercise of
outstanding warrants. All outstanding shares of Acquiror Common Stock have
been duly authorized and validly issued and are fully paid and
nonassessable, and none of the outstanding shares of Acquiror Common Stock
has been issued in violation of the preemptive rights of any person, firm or
entity. As of the date hereof, there are no other Rights authorized, issued
or outstanding with respect to the capital stock of the Acquiror, except for
(i) shares of Acquiror Common Stock
<PAGE> I-18
issuable pursuant to the Acquiror Employee Stock Benefit Plans, now or
hereafter, and (ii) by virtue of this Agreement.
Section 4.2 Organization, Standing and Authority of the Acquiror
The Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maine with full corporate power
and authority to own or lease all of its properties and assets and to carry
on its business as now conducted and is licensed or qualified to do business
and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such licensing
or qualification, except where the failure to be so licensed, qualified or
in good standing would not have a Material Adverse Effect on the Acquiror.
The Acquiror is duly registered as a savings and loan holding company under
the HOLA and the regulations of the OTS. The Acquiror has heretofore
delivered to the Company true and complete copies of the Articles of
Incorporation and Bylaws of the Acquiror as in effect as of the date hereof.
Section 4.3 Ownership of the Acquiror Subsidiaries
The Acquiror has Previously Disclosed each direct or indirect Acquiror
Subsidiary. Except for capital stock of the Acquiror Subsidiaries,
securities and other interest held in a fiduciary capacity or taken in
consideration of debts previously contracted and by virtue of this
Agreement, the Acquiror does not own or have the right to acquire, directly
or indirectly, any outstanding capital stock or other voting securities or
ownership interests of any corporation, bank, savings association,
partnership, joint venture or other organization. The outstanding shares of
capital stock of each of the Acquiror Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable and are directly or
indirectly owned by the Acquiror free and clear of all liens, claims,
encumbrances, charges, pledges, restrictions or rights of third parties of
any kind whatsoever, except certain covenants contained in a Loan Agreement
between the Acquiror and Fleet National Bank, dated as of August 7, 1996.
No Rights are authorized, issued or outstanding with respect to the capital
<PAGE> 100
stock or other ownership interests of any Acquiror Subsidiary and there are
no agreements, understandings or commitments relating to the right of the
Acquiror to vote or to dispose of said shares or other ownership interests.
Section 4.4 Organization, Standing and Authority of the Acquiror
Subsidiaries
Each Acquiror Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the United States or the
laws of the jurisdiction in which it is organized, as applicable. Each of
the Acquiror Subsidiaries (i) has full power and authority to own or lease
all of its properties and assets and to carry on its business as now
conducted, and (ii) is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which its ownership or leasing of
property or the conduct of its business requires such qualification and
where the failure to be so licensed, qualified or in good standing would
have a Material Adverse Effect on the Acquiror. The deposit accounts of
each Acquiror Subsidiary which is an insured depository institution under
the FDIA are insured by either the BIF or, in the case of certain deposits
of each such institution, the SAIF to the maximum extent permitted by the
FDIA, and each such entity has paid all premiums and assessments required by
the FDIA and the regulations
<PAGE> I-19
thereunder. The Acquiror has heretofore delivered or made available to the
Company true and complete copies of the Articles of Incorporation and Bylaws
of it and the Acquiror Sub.
Section 4.5 Authorized and Effective Agreement
(a) Each of the Acquiror and the Acquiror Sub has all requisite
corporate power and authority to enter into this Agreement and (subject to
receipt of all necessary governmental approvals) to perform all of its
obligations under this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action in
respect thereof on the part of the Acquiror and the Acquiror Sub. This
Agreement has been duly and validly executed and delivered by the Acquiror
and the Acquiror Sub and, assuming due authorization, execution and delivery
by the Company, constitutes a legal, valid and binding obligation of the
Acquiror and the Acquiror Sub which is enforceable against the Acquiror and
the Acquiror Sub in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(b) Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby (including the Merger),
nor compliance by the Acquiror and the Acquiror Sub with any of the
provisions hereof (i) does or will conflict with or result in a breach of
any provisions of the Articles of Incorporation or Bylaws of the Acquiror,
or the Charter or Bylaws of any Acquiror Subsidiary, (ii) violate, conflict
with or result in a breach of any term, condition or provision of, or
constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of
<PAGE> 101
the Acquiror or the Acquiror Sub pursuant to, any material note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Acquiror or any Acquiror Subsidiary is
a party, or by which any of their respective properties or assets may be
bound or affected, or (iii) subject to receipt of all required governmental
and shareholder approvals, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Acquiror or any Acquiror
Subsidiary.
(c) Except for (i) the filing of applications and notices with, and
the consents and approvals of, as applicable, the OTS, the FDIC, and the
Superintendent, (ii) the filing and effectiveness of the Form S-4 with the
Commission, (iii) compliance with applicable state securities or "blue sky"
laws and the American Stock Exchange Rules in connection with the issuance
of acquiror Common Stock pursuant to this Agreement, (iv) the approval of
this Agreement by the requisite vote of the shareholders of the Company and
the Acquiror Sub, and (v) the filing of Articles of Merger with the
Secretary of State of Maine pursuant to the MRSA and Articles of Combination
with the OTS pursuant to the CFR in connection with the Merger, no consents
or approvals of or filing or registrations with any Governmental Entity or
with any third party are necessary on the part of the Acquiror, or the
Acquiror Sub in connection with the execution and delivery by the Acquiror
and the Acquiror Sub of this Agreement and the consummation by the Acquiror
of the transactions contemplated hereby.
(d) As of the date hereof, neither the Acquiror nor Acquiror Sub is
aware of any reasons relating to the Acquiror or any of its Subsidiaries
(including, without limitation
<PAGE> I-20
Community Reinvestment Act compliance) why all consents and approvals shall
not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for (i)
consummation of the transactions contemplated by this Agreement and (ii) the
continuation by the Acquiror after the Effective Time of the business of
each of the Acquiror, the Acquiror Sub and the Company as such business is
carried on immediately prior to the Effective Time, free of any conditions
or requirements which, in the reasonable opinion of the Acquiror, could have
a Material Adverse Effect on the Acquiror, the Acquiror Sub or the Company
or materially impair the value of the Company to the Acquiror.
Section 4.6 Securities Documents; Regulatory Reports
(a) Since January 1, 1994, the Acquiror has timely filed with the
Commission, the American Stock Exchange and the NASD all Securities
Documents required by the Securities Laws for which a failure to file could
reasonably be expected to have a Material Adverse effect on the Acquiror and
such Securities Documents complied in all material respect with the
Securities Laws and did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Since January 1, 1994, the Acquiror, the Acquiror Sub and each
Acquiror Subsidiary which is an insured depository institution under the
FDIA has duly filed with the OTS, the FDIC and the Superintendent, as the
case may be, in correct form the reports required to be filed under
<PAGE> 102
applicable laws and regulations and such reports were in all material
respects complete and accurate and in compliance with the requirements of
applicable laws and regulation. In connection with the most recent
examinations of the Acquiror or an Acquiror Subsidiary by the OTS, the FDIC
or the Superintendent, neither the Acquiror nor any Acquiror Subsidiary was
required to correct or change any action, procedure or proceeding which the
Acquiror or the Acquiror Subsidiary believes has not been corrected or
changed as required.
Section 4.7 Financial Statements
(a) The Acquiror has previously delivered or made available to the
Company accurate and complete copies of the Acquiror Financial Statements
which, in the case of the consolidated statements of financial condition of
the Acquiror as of June 30, 1994, 1995 and 1996 and the consolidated
statements of operations, shareholders' equity and cash flows for each of
the three years ended June 30, 1994, 1995 and 1996 are accompanied by the
audit report of Baker, Newman & Noyes, LLP, independent public accountants
with respect to the Acquiror. The Acquiror Financial Statements referred to
herein, as well as the Acquiror Financial Statements to be delivered
pursuant to Section 5.7 hereof, fairly present or will fairly present, as
the case may be, the consolidated financial condition of the Acquiror as of
the respective dates set forth therein, and the consolidated results of
operations, shareholders' equity and cash flows of the Acquiror for the
respective periods or as of the respective dates set forth therein.
(b) Each of the Acquiror Financial Statements referred to in Section
4.7(a) has been or will be, as the case may be, prepared in accordance with
generally accepted principles consistently applied during the periods
involved, except as stated therein. The audits of the Acquiror and the
Acquiror Subsidiaries have been conducted in all material respects in
<PAGE> I-21
accordance with generally accepted auditing standards. The books and
records of the Acquiror and the Acquiror Subsidiaries are being maintained
in material compliance with applicable legal and accounting requirements,
and all such books and records accurately reflect in all material respects
all dealings and transactions in respect of the business, assets,
liabilities and affairs of the Acquiror and the Acquiror Subsidiaries.
(c) Except and to the extent (i) reflected, disclosed or provided for
in the consolidated statement of financial condition of the Acquiror as of
June 30, 1996, (including related notes) and (ii) of liabilities incurred
since June 30, 1996 in the ordinary course of business, neither the Acquiror
nor any Acquiror Subsidiary has any liabilities, whether absolute, accrued,
contingent or otherwise, material to the financial condition, results of
operations or business of the Acquiror on a consolidated basis.
Section 4.8 Material Adverse Change
Since June 30, 1996, (i) the Acquiror has conducted its business in
the ordinary and usual course (excluding the incurrence of expenses in
connection with this Agreement and the transactions contemplated hereby) and
(ii) no event has occurred or circumstances arisen that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on the
Acquiror.
Section 4.9 Tax Matters
<PAGE> 103
The Acquiror and the Acquiror Subsidiaries and each of their
predecessors has timely filed all federal, state and local (and, if
applicable, foreign) income, franchise, bank, excise, real property,
personal property and other tax returns required by applicable law to be
filed by it (including, without limitation, estimated tax returns, income
tax returns, information returns and withholding and employment tax returns)
and has paid, or where payment is not required to have been made, has set up
an adequate reserve or accrual for the payment of, all taxes required to be
paid in respect of the periods covered by such returns and, as of the
Effective Time, will have paid, or where payment is not required to have
been made, will have set up an adequate reserve or accrual for the payment
of, all taxes for any subsequent periods ending on or prior to the Effective
Time. Neither the Acquiror nor any Acquiror Subsidiary will have any
material liability for any such taxes in excess of the amounts so paid or
reserves or accruals so established. No audit, examination or deficiency or
refund litigation with respect to any federal, state and local (and, if
applicable, foreign) income, franchise, bank, excise, real property,
personal property and other tax returns filed by the Acquiror or any
Acquiror Subsidiary is pending or, to the best of the Acquiror's knowledge,
threatened.
Section 4.10 Legal Proceedings
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of the Acquiror
threatened against the Acquiror or any Acquiror Subsidiary or against any
asset, interest or right of the Acquiror or any Acquiror Subsidiary, or
against any officer, director or employee of the Acquiror or any Acquiror
Subsidiary that in any such case, if decided adversely, would have a
Material Adverse Effect on the Acquiror. Neither the Acquiror or any
Acquiror Subsidiary is a party to any order, judgment
<PAGE> I-22
or decree which has or could reasonable be expect to have a Material Adverse
Effect on the Acquiror.
Section 4.11 Compliance with Laws
(a) Each of the Acquiror and each Acquiror Subsidiary has all
permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, federal, state,
local and foreign governmental or regulatory bodies that are required in
order to permit it to carry on its business as it is presently being
conducted and the absence of which could reasonably be expected to have a
Material Adverse Effect on the Acquiror; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect; and to the best knowledge of the Acquiror, no suspension or
cancellation of any of the same is threatened.
(b) Neither the Acquiror nor any Acquiror Subsidiary is in violation
of its respective Articles of Incorporation or Bylaws, or of any applicable
federal, state or local law or ordinance or any order, rule or regulation of
any federal, state, local or other governmental agency or body (including,
without limitation, all banking (including without limitation all regulatory
capital requirements), securities, municipal securities, safety, health,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
<PAGE> 104
orders, rules and regulations), or in default with respect to any order,
writ, injunction or decree of any court, or in default under any order,
license, regulation or demand of any governmental agency, any of which
violations or defaults could reasonable be expected to have a Material
Adverse Effect on the Acquiror; and neither the Acquiror nor any Acquiror
Subsidiary has received any notice or communication from any federal, state
or local governmental authority asserting that the Acquiror or any Acquiror
Subsidiary is in violation of any of the foregoing which could reasonably be
expected to have a Material Adverse Effect on the Acquiror. Neither the
Acquiror nor any Acquiror Subsidiary is subject to any regulatory or
supervisory cease and desist order, agreement, written directive, memorandum
of understanding or written commitment (other than those of general
applicability to all banks, savings associations or holding companies
thereof, as applicable, issued by governmental authorities), and none of
them has received any written communication requesting that it enter into
any of the foregoing.
Section 4.12 Certain Information
None of the information relating to the Acquiror and the Acquiror
Subsidiaries to be included or incorporated by reference in (i) the Form
S-4, at the time the Form S-4 and any amendment thereto becomes effective
under the Securities Act, and (ii) the Proxy Statement, as of the date(s)
such Proxy Statement is mailed to shareholders of the Company and up to and
including the date(s) of the meetings of shareholders to which such Proxy
Statement relates, will 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 under which they were made, not misleading,
provided that information as of a later date shall be deemed to modify
information as of an earlier date.
<PAGE> I-23
Section 4.13 Brokers and Finders
Except as previously disclosed, neither the Acquiror nor any Acquiror
Subsidiary nor any of its directors, officers or employees, has employed any
broker or finder or incurred any liability for any broker or finder fees or
commissions in connection with the transactions contemplated hereby.
Section 4.14 Certain Contracts
Neither the Acquiror nor any Acquiror Subsidiary is in default or in
non-compliance, which default or non-compliance could reasonably be expected
to have a Material Adverse Effect on the Acquiror, under any contract,
agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party or by which its assets, business or
operations may be bound or affected, whether entered into in the ordinary
course of business or otherwise and whether written or oral, and there has
not occurred any event that with the lapse of time or the giving of notice,
or both, would constitute such a default or non-compliance.
Section 4.15 Insurance
The Acquiror and each Acquiror Subsidiary is insured for reasonable
amounts with financially sound and reputable insurance companies against
such risks as companies engaged in a similar business would, in accordance
with good business practice, customarily be insured and has maintained all
insurance required by applicable laws and regulations.
<PAGE> 105
Section 4.16 Properties
All real and personal property owned by the Acquiror or each Acquiror
Subsidiary or presently used by any of them in its respective business is in
an adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on its business in the ordinary course of business consistent with
their past practices. The Acquiror has good and marketable title free and
clear of all liens, encumbrances, charges, defaults or equities (other than
equities or redemption under applicable foreclosure laws) to all of the
material properties and assets, real and personal, reflected on the
consolidated statement of financial condition of the Acquiror as of June 30,
1996 included in the Acquiror Financial Statements or acquired after such
date, except (i) liens for current taxes not yet due or payable (ii) pledges
to secure deposits and other liens incurred in the ordinary course of its
banking business, (iii) such imperfections of title, easements and
encumbrances, if any, as are not material in character, amount or extent and
(iv) as reflected on the consolidated statement of financial condition of
the Acquiror as of June 30, 1996 included in the Acquiror Financial
Statements. All real and personal property which is material to the
Acquiror's business on a consolidated basis and leased or licensed by the
Acquiror or an Acquiror Subsidiary is held pursuant to leases or licenses
which are valid and enforceable in accordance with their respective terms
and such leases will not terminate or lapse prior to the Effective Time.
<PAGE> I-24
Section 4.17 Labor
No work stoppage involving the Acquiror or an Acquiror Subsidiary is
pending or, to the best knowledge of the Acquiror, threatened. Neither the
Acquiror nor any Acquiror Subsidiary is involved in, or threatened with or
affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding involving its employees which could have a Material Adverse
Effect on the Acquiror. Employees of the Acquiror and any Acquiror
Subsidiary are not represented by any labor union nor are any collective
bargaining agreements otherwise in effect with respect to such employees,
and to the best of the Acquiror's knowledge, there have been no efforts to
unionize or organize any employees of the Acquiror or any Acquiror
Subsidiary during the past five years.
Section 4.18 Required Vote
The affirmative vote of the holders of two-thirds of the issued and
outstanding shares of Common Stock of the Acquiror Sub (all of which shares
are owned by the Acquiror) is necessary to approve this Agreement and the
transactions contemplated hereby on behalf of the Acquiror Sub. No
shareholder vote is necessary to approve this Agreement and the transactions
contemplated hereby on behalf of the Acquiror.
Section 4.19 Accounting for the Merger; Reorganization
As of the date hereof, neither the Acquiror nor any Acquiror
Subsidiary has any reason to believe that the Merger will fail to qualify
(i) for pooling-of-interests treatment under generally accepted accounting
principles or (ii) as a reorganization under Section 368(a) of the Code.
Section 4.20 Disclosures
<PAGE> 106
None of the representations and warranties of the Acquiror or any of
the written information or documents furnished or to be furnished by the
Acquiror to the Company in connection with or pursuant to this Agreement or
the consummation of the transactions contemplated hereby, when considered as
a whole, contains or will contain any untrue statement of a material fact,
or omits or will omit to state any material fact required to be stated or
necessary to make any such information or document, in light of the
circumstances, not misleading.
ARTICLE V
COVENANTS
Section 5.1 Reasonable Best Efforts
Subject to the terms and conditions of this Agreement, each of the
Company, the Acquiror and the Acquiror Sub shall use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary or advisable under applicable laws
and regulations so as to permit consummation of the Merger as promptly as
practicable and to otherwise enable consummation of the transactions
contemplated hereby, and shall cooperate fully with the other party or
parties hereto to that end.
<PAGE> I-25
Section 5.2 Shareholder Meeting
The Company shall take all action necessary to properly call and
convene a meeting of its shareholders as soon as practicable after the date
hereof to consider and vote upon this Agreement and the transactions
contemplated hereby. The Board of Directors of the Acquiror and the Board
of Directors of the Company will recommend that the shareholders of the
Acquiror Sub and the Company, respectively, approve this Agreement and the
transactions contemplated hereby provided that the Board of Directors of the
Acquiror and the Board of Directors of the Company may fail to make such
recommendation, or withdraw, modify or change any such recommendation, if
such Board of Directors, after having consulted with and considered the
advice of outside counsel, has determined that the making of such
recommendation, or the failure to withdraw, modify or change such
recommendation, would constitute a breach of the fiduciary duties of such
directors under applicable law.
Section 5.3 Regulatory Matters
(a) The parties hereto shall promptly cooperate with each other in
the preparation and filing of the Form S-4. The Acquiror shall use its
reasonable best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. The Acquiror
also shall use its reasonable best efforts to obtain all necessary state
securities law or "blue sky" permits and approvals required to carry out the
issuance of Acquiror Common Stock pursuant to the Merger and all other
transactions contemplated by this Agreement, and the Company shall furnish
all information concerning the Company and the holders of the Company 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
<PAGE> 107
documentation, to effect all applications, notices, petitions and filings,
and to obtain as promptly as practicable all permits, consents, approvals
and authorizations of all Governmental Entities and third parties which are
necessary or advisable to consummate the transactions contemplated by this
Agreement. The Acquiror and the Company 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 which appears 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 Acquiror and the Company 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 Form S-4 or
any other statement, filing, notice or application made by or on behalf of
the Acquiror, the Company or any of their respective Subsidiaries to any
Governmental Entity in connection with the Merger and the other transactions
contemplated hereby.
<PAGE> I-26
(d) The Acquiror and the Company shall promptly furnish each other
with copies of written communications received by the Acquiror or the
Company, 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 5.4 Investigation and Confidentiality
(a) Each party shall permit the other party and its representatives
reasonable access to its properties and personnel, and shall disclose and
make available to such other party all books, papers and records relating to
the assets, stock ownership, properties, operations, obligations and
liabilities of it and its Subsidiaries, including, but not limited to, all
books of account (including the general ledger), tax records, minute books
of meetings of boards of directors (and any committees thereof) and
shareholders, organizational documents, bylaws, material contracts and
agreements, filing with any regulatory authority, accountants' work papers,
litigation files, loan files, plans affecting employees, and any other
business activities or prospects in which the other party may have a
reasonable interest, provided that such access shall be reasonably related
to the transactions contemplated hereby and, in the reasonable opinion of
the respective parties providing such access, not unduly interfere with
normal operations. Each party and its Subsidiaries shall make their
respective directors, officers, employees and agents and authorized
representatives (including counsel and independent public accountants)
available to confer with the other party and its representatives, provided
that such access shall be reasonably related to the transactions
contemplated hereby and shall not unduly interfere with normal operations.
<PAGE> 108
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be
treated as the sole property of the party furnishing the information until
consummation of the transactions contemplated hereby and, if such
transactions shall not occur, the party receiving the information shall
return to the party which furnished such information all documents or other
materials containing, reflecting or referring to such information, shall use
its best efforts to keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential
shall continue for two years from the date the proposed transactions are
abandoned but shall not apply to (i) any information which (x) the party
receiving the information can establish by convincing evidence was already
in its possession prior to the disclosure thereof by the party furnishing
the information; (y) was then generally known to the public; or (z) became
known to the public through no fault of the party receiving the information;
or (ii) disclosures pursuant to a legal requirement or in accordance with an
order of a court of competent jurisdiction, provided that the party which is
the subject of any such legal requirement or order shall use its best
efforts to give the other party at least ten business days prior notice
thereof.
Section 5.5 Press Releases
The Acquiror and the Company shall agree with each other as to the
form and substance of any press release related to this Agreement or the
transactions contemplated hereby, and consult with each other as to the form
and substance of other public disclosures which may relate to the
transactions contemplated by this Agreement, provided, however, that nothing
contained
<PAGE> I-27
herein shall prohibit either party, following notification to the other
party, from making any disclosure which, based on advice of counsel, is
required by law or regulation.
Section 5.6 Business of the Parties
(a) During the period from the date of this Agreement and continuing
until the Effective Time, except as expressly contemplated or permitted by
this Agreement or with the prior written consent of the Acquiror, the
Company shall carry on its business in the ordinary course consistent with
past practice. The Company will use reasonable efforts to (x) preserve its
business organization intact, (y) keep available to itself and the Acquiror
the present services of its employees and (z) preserve for itself and the
Acquiror the goodwill of its customers and others with whom business
relationships exist. Without limiting the generality of the foregoing,
except with the prior written consent of the Acquiror, between the date
hereof and the Effective Time, the Company shall not:
(i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of the Company Common Stock;
(ii) issue any shares of its capital stock, or issue, grant, modify
or authorize any Rights; purchase any shares of Company Common Stock; or
effect any recapitalization, reclassification, stock dividend, stock split
or like change in capitalization;
<PAGE> 109
(iii) amend its Articles of Incorporation or Bylaws; impose, or
suffer the imposition, of any material lien, charge or encumbrance on its
assets or permit any such lien, charge or encumbrance to exist; or waive or
release any material right or cancel or compromise any material debt or
claim;
(iv) increase the rate of compensation of any of its directors,
officers or employees, or pay or agree to pay any bonus or severance to, or
provide any other new employee benefit or incentive to, any of its
directors, officers or employees, except (i) as may be required pursuant to
binding commitments existing on the date hereof and (ii) such as may be
granted in the ordinary course of business consistent with past practice;
(v) except as previously disclosed enter into or, except as may be
required by law, modify any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, supplemental retirement, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or arrangement,
or any trust agreement related thereto, in respect of any of its directors,
officers or employees; or make any contributions to the Company's defined
contribution Pension Plan not in the ordinary course of business consistent
with past practice;
(vi) enter into (w) any agreement, arrangement or commitment not made
in the ordinary course of business, (x) any agreement, indenture or other
instrument relating to the borrowing of money by the Company or guarantee by
the Company of any such obligation, except for deposits, federal funds
purchased and securities sold under agreements to repurchase in the ordinary
course of business consistent with past practice (y) any agreement,
arrangement or commitment relating to the employment of any employee, or,
amend any such existing
<PAGE> I-28
agreement, arrangement or commitment, provided that the Company may employ
an employee if necessary to operate the business of the Company in the
ordinary course of business consistent with past practice and if the
employment of such employee is terminable by the Company at will without
liability, other than as required by law; or (z) any contract, agreement or
understanding with a labor union;
(vii) change its method of accounting in effect for the year ended
December 31, 1996, except as required by changes in laws or regulations or
generally accepted accounting principles, or change any of its methods of
reporting income and deductions for federal income tax purposes from those
employed in the preparation of its federal income tax return for the year
ended December 31, 1996, except as required by changes in laws or
regulations;
(viii) make any capital expenditures in excess of $10,000
individually or $25,000 in the aggregate other than pursuant to binding
commitments existing on the date hereof and other than expenditures
necessary to maintain existing assets in good repair;
(ix) file any applications or make any contract with respect to
branching or site location or relocation;
<PAGE> 110
(x) acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) any business or entity;
(xi) enter into any futures contract, option contract, interest rate
caps, interest rate floors, interest rate exchange agreement or other
agreement for purposes of hedging the exposure of its interest-earning
assets and interest-bearing liabilities to changes in market rates of
interest;
(xii) enter or agree to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets or rights or
requiring the consent of any party to the transfer and assignment of any
such assets or rights;
(xiii) knowingly take any action that would prevent or impede the
Merger from qualifying (A) for pooling-of-interests accounting treatment
under generally accepted accounting principles or (B) as a reorganization
within the meaning of Section 368;
(xiv) take any action that would result in any of the representations
and warranties of the Company contained in this Agreement not to be true and
correct in any material respect at the Effective Time;
(xv) permit its stockholders equity as of the end of the month
preceding the Effective Time to be less than $2,125,000: or
(xvi) agree to do any of the foregoing.
(b) During the period from the date of this Agreement and continuing
until the Effective Time, except as expressly contemplated or permitted by
this Agreement or with the prior written consent of the Company, the
Acquiror and the Acquiror Sub shall carry on their respective businesses in
the ordinary course consistent with past practice and use all reasonable
<PAGE> I-29
efforts to preserve intact their present business organizations and
relationships. Without limiting the generality of the foregoing, except
with the prior written consent of the Company or as expressly contemplated
hereby, between the date hereof and the Effective Time, the Acquiror and the
Acquiror Sub shall not:
(i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of the Acquiror Common Stock, except for regular quarterly cash
dividends which are not in excess of $0.10 per share of Acquiror Common
Stock, provided, however, that nothing contained herein shall be deemed to
affect the ability of the Acquiror's Subsidiaries to pay dividends on their
respective common stocks to the Acquiror;
(ii) issue any shares of its capital stock or issue, grant, modify or
authorize any Rights, other than in each case pursuant to (i) Rights granted
pursuant to the Acquiror Employee Stock Benefit Plans, (ii) any presently
existing Acquiror stock option plan, or (iii) any acquisition to the extent
permitted under subsection (v) below; provided, however, that Acquiror may
issue its common stock in exchange for the shares of any Acquiror Subsidiary
not presently wholly owned by Acquiror;
<PAGE> 111
(iii) effect any recapitalization, reclassification, stock split or
like change in capitalization;
(iv) amend its Articles of Incorporation, Charter or other governing
instrument or Bylaws in a manner which would adversely affect in any manner
the terms of the Acquiror Common Stock or the ability of the Acquiror to
consummate the transactions contemplated hereby;
(v) make any acquisition (including acquisitions of branch offices
and related deposit liabilities) or take any other action that individually
or in the aggregate could materially adversely affect the ability of the
Acquiror to consummate the transactions contemplated hereby in a reasonably
timely manner;
(vi) take any action that would prevent or impede the Merger from
qualifying (A) for pooling-of-interests accounting treatment under generally
accepted accounting principles or (B) as a reorganization within the meaning
of Section 368 of the Code;
(vii) take any action that would result in any of the representations
and warranties of the Acquiror contained in this Agreement not to be true
and correct in any material respect at the Effective Time; or
(viii) agree to do any of the foregoing.
(c) The Company shall not solicit or encourage inquiries or proposals
with respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, lease or purchase
of all or a substantial portion of the assets of, or any equity interest in,
the Company (an "Acquisition Transaction") (other than with the Acquiror or
an affiliate thereof), provided, however, that the Board of Directors of the
Company may furnish such information or participate in such negotiations or
discussions if such Board of Directors,
<PAGE> I-30
after having consulted with and considered the advice of outside counsel,
has determined that their fiduciary duty under applicable law requires them
to do so. The Company will promptly inform the other party of any such
request for information or of any such negotiations or discussions, as well
as instruct its directors, officers, representatives and agents to refrain
from taking any action prohibited by this Section 5.6(c).
Section 5.7 Current Information
During the period from the date of this Agreement to the Effective
Time, each party shall, upon the request of the other party, cause one or
more of its designated representatives to confer on a monthly or more
frequent basis with representatives of the other party regarding its
financial condition, operations and business and matters relating to the
completion of the transactions contemplated hereby. Within 25 days after
the end of each month, the Company and the Acquiror will deliver to the
other party a consolidated balance sheet and a consolidated statement of
operations, without related notes, for such month prepared in accordance
with generally accepted accounting principles.
Section 5.8 Indemnification; Insurance
<PAGE> 112
(a) From and after the Effective Time through the sixth anniversary
of the Effective Time, the Acquiror (the "Indemnifying Party") shall
indemnify and hold harmless each present and former director, officer and
employee of the Company determined as of the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent to which such Indemnified Parties were
entitled under the Articles of Organization or Bylaws of the Company in
effect on the date hereof, provided, however, that all rights to
indemnification in respect of any claim asserted or made within such period
shall continue until the final disposition of such claim. Without limiting
the foregoing obligation, the Acquiror also agrees that all limitations of
liability existing in favor of the Indemnified Parties in the Articles of
Organization and Bylaws of the Company, in each case as in effect on the
date hereof, arising out of matters existing or occurring at or prior to the
Effective Time shall survive the Merger and shall continue in full force and
effect for a period of six years from the Effective Time, provided, however,
that all such rights in respect of any claim asserted or made within such
period shall continue until the final disposition of such claim.
(b) Any Indemnified Party wishing to claim indemnification under
Section 5.8(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Indemnifying Party, but the failure
to so notify shall not relieve the Indemnifying Party of any liability it
may have to such Indemnified Party if such failure does not materially
prejudice the Indemnifying Party. In the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) the Indemnifying Party shall have the right to assume
the defense thereof and the Indemnifying Party shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection
with the defense thereof, except that if the
<PAGE> I-31
Indemnifying Party elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between the Indemnifying Party and the Indemnified Parties, the
Indemnified Parties may retain counsel which is reasonably satisfactory to
the Indemnifying Party, and the Indemnifying Party shall pay, promptly as
statements therefor are received, the reasonable fees and expenses of such
counsel for the Indemnified parties (which may not exceed one firm in any
jurisdiction unless the use of one counsel for such Indemnified parties
would present such counsel with a conflict of interest), (ii) the
Indemnified Parties will cooperate in the defense of any such matter, (iii)
the Indemnifying Party shall not be liable for any settlement effected
without its prior written consent and (iv) the Indemnifying Party shall have
no obligation hereunder in the event a federal banking agency or a court of
competent jurisdiction shall ultimately determine, and such determination
shall have become final and nonappealable, that indemnification of an
Indemnified Party in the manner contemplated hereby is prohibited by
applicable law.
(c) The Acquiror shall cause the Surviving Corporation to maintain
<PAGE> 113
the Company's existing directors' and officers' liability insurance policy
as of the date hereof (or a policy providing coverage on substantially the
same terms and conditions) for acts or omissions occurring prior to the
Effective Time by persons who are currently covered by such insurance policy
maintained by the Company for a period of three years following the
Effective Time.
(d) In the event that the Acquiror or any of its respective
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case the
successors and assigns of such entity shall assume the obligations set forth
in this Section 5.8, which obligations are expressly intended to be for the
irrevocable benefit of, and shall be enforceable by, each director and
officer covered hereby.
Section 5.9 Certain Directors
The Acquiror agrees to take all action necessary to appoint or elect,
effective as of the Effective Time, one member of the Company's Board of
Directors, to be selected by Acquiror, as a director of the Acquiror. Such
person shall serve until the first annual meeting of shareholders of the
Acquiror following the Effective Time and until a successor is elected and
qualified. The Acquiror shall include such person on the list of nominees
for directors presented by the Board of Directors of the Acquiror and for
which said Board shall solicit proxies at the first annual meeting of
shareholders of the Acquiror following the Effective Time.
Section 5.10 Benefit Plans and Arrangements
As soon as administratively practicable after the Effective Time, the
Acquiror shall take all reasonable action so that employees of the Company
shall be entitled to participate in the Acquiror Employee Plans of general
applicability, and until such time the Company Employee Plans shall remain
in effect, provided that no employee of the Company who becomes an employee
of the Acquiror Sub and subject to the Acquiror's medical insurance plans
shall be excluded coverage thereunder on the basis of a preexisting
condition that was not also excluded under the Company's medical insurance
plans, except to the extent such preexisting condition
<PAGE> I-32
was excluded under the Company's medical insurance plans, in which case this
Section 5.10 shall not require coverage for such pre-existing condition
unless and until the employee satisfies the pre-existing exclusion period
that was applicable under the Company's medical insurance plans. For
purposes of determining eligibility to participate in and the vesting of
benefits under the Acquiror Employee Plans, the Acquiror shall recognize
years of service with the Company as such service is recognized by the
Company. With respect to any severance for employees of the Company,
Acquiror will, for Company employees who become Acquiror employees, for one
year following the Effective Time pay severance pay in accordance with
Exhibit 5.10 attached hereto.
Section 5.11 Accountants' Letters
Each of the Company and the Acquiror shall use its reasonable best
<PAGE> 114
efforts to cause to be delivered to the other party, and such other party's
directors and officers who sign the Form S-4, a letter of its respective
independent public accountants, dated (i) the date on which the Form S-4
shall become effective and (ii) a date shortly prior to the Effective Time,
and addressed to such other party, and such directors and officers, in form
and substance customary for "comfort" letters delivered by independent
accountants in accordance with Statement of Accounting Standards No. 72.
Section 5.12 Certain Policies; Integration
(a) If requested by the Acquiror, immediately prior to the Effective
Time, the Company shall, consistent with generally accepted accounting
principles, establish such additional accruals and reserves as may be
necessary to conform the Company's accounting and credit loss reserve
practices and methods to those of the Acquiror (as such practices and
methods are to be applied to the Company from and after the Effective Time)
and reflect the Acquiror's plans with respect to the conduct of the
Company's business following the Merger and to provide for the costs and
expenses relating to the consummation by the Company of the transactions
contemplated by this Agreement; provided, however, that the Company shall
not be required to take such action (i) if such action is prohibited by
applicable law or (ii) unless the Acquiror informs the Company that it has
no reason to believe that all conditions to the Acquiror's obligations to
consummate the transactions contemplated by this Agreement set forth in
Article VI hereof will not be satisfied or waived. The establishment or
adjustment of such accruals and reserves shall not constitute a breach of
any representation or warranty of the Company contained in this Agreement.
(b) During the period from the date of this Agreement to the
Effective Time, the Company shall, and shall cause its directors, officers
and employees to, cooperate with and assist the Acquiror in the formulation
of a plan of integration for the Acquiror and the Company and their
respective banking subsidiaries.
Section 5.13 Restrictions on Resale
(a) The Company has Previously Disclosed to the Acquiror, and the
Acquiror has Previously Disclosed to the Company, a schedule of each person
that, to the best of its knowledge, is deemed to be an "affiliate" of the
Company and the Acquiror, respectively (each
<PAGE> I-33
an "Affiliate"), as that term is used in Rule 145 under the Securities Act
or Accounting Series Releases 130 and 135 of the Commission.
(b) Each of the Company and the Acquiror shall use its reasonable
best efforts to cause each person who may be deemed to be an Affiliate of
the Company and the Acquiror, respectively, to execute and deliver to the
Acquiror on or before the date of the mailing of the Proxy Statement an
agreement in the form of Exhibit D and Exhibit E, respectively.
(c) If requested by an Affiliate of the Company in connection with a
proposed sale of Acquiror Common Stock which in the reasonable judgment of
the Acquiror cannot be effected without jeopardizing the manner in which the
Merger was accounted for under generally accepted accounting principles, the
Acquiror shall use its reasonable best efforts to publish as promptly as
reasonably practicable but in no event later than 90 days after the end of
<PAGE> 115
the first month after the Effective Time in which there are at least 30 days
of post-Merger combined operations, combined sales and net income figures as
contemplated by and in accordance with Accounting Series Release No. 135 of
the Commission and to file a Form 8-K with the Commission containing such
figures.
Section 5.14 Disclosure Supplements
From time to time prior to the Effective Time, each party shall
promptly supplement or amend any materials Previously Disclosed and
delivered to the other party pursuant hereto with respect to any matter
hereafter arising which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in
materials Previously Disclosed to the other party or which is necessary to
correct any information in such materials which has been rendered materially
inaccurate thereby; no such supplement or amendment to such materials shall
be deemed to have modified the representations, warranties and covenants of
the parties for the purpose of determining whether the conditions set forth
in Article VI hereof have been satisfied.
Section 5.15 Failure to Fulfill Conditions
In the event that either of the parties hereto determines that a
condition to its respective obligations to consummate the transactions
contemplated hereby cannot be fulfilled on or prior to the termination of
this Agreement, it will promptly notify the other party or parties. Each
party will promptly inform the other party or parties of any facts
applicable to it that would be likely to prevent or materially delay
approval of the Merger by any Governmental Entity or third party or which
would otherwise prevent or materially delay completion of the Merger.
In the event the Closing shall not have occurred on or before any
record date established for the payment of cash dividends by the Acquiror
subsequent to September 30, 1997, the Exchange Ratio will be increased to
the amount of such dividend times the Exchange Ratio divided by $14.00, plus
the existing Exchange Ratio, subject to adjustment as provided in Section
2.8.
<PAGE> I-34
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions Precedent - The Acquiror, the Acquiror Sub and the
Company
The respective obligations of the Acquiror, the Acquiror Sub and the
Company to effect the transactions contemplated by this Agreement shall be
subject to satisfaction of the following conditions at or prior to the
Effective Time.
(a) All corporate action necessary to authorize the execution and
delivery of this Agreement and consummation of the transactions contemplated
hereby shall have been duly and validly taken by the Acquiror, the Acquiror
Sub, and the Company, including approval by the requisite vote of the
respective shareholders of the Acquiror Sub and the Company of this
Agreement.
<PAGE> 116
(b) All approvals and consents for the transactions contemplated
hereby from the OTS, the FDIC, the Superintendent and any other Governmental
Entity the approval or consent of which is required for the consummation of
the Merger and the other transactions contemplated hereby shall have been
received and all statutory waiting periods in respect thereof shall have
expired; and the Acquiror and the Company shall have procured all other
approvals, consents and waivers of each person (other than the Governmental
Entities referred to above) whose approval, consent or waiver is necessary
to the consummation of the Merger and the other transactions contemplated
hereby and the failure of which to obtain would have the effects set forth
in the following proviso clause; provided, however, that no approval or
consent referred to in this Section 6.1(b) shall be deemed to have been
received if it shall include any condition or requirement that is not
customary and useful in transactions of the type contemplated by this
Agreement and that, individually or in the aggregate, would so materially
reduce the economic or business benefits of the transactions contemplated by
this Agreement to the Acquiror that had such condition or requirement been
known the Acquiror, in its reasonable judgment, would not have entered into
this Agreement.
(c) None of the Acquiror, the Company or their respective
Subsidiaries shall be subject to any statute, rule, regulation, injunction
or other order or decree which shall have been enacted, entered, promulgated
or enforced by any governmental or judicial authority which prohibits,
restricts or makes illegal consummation of the Merger or any of the other
transactions contemplated hereby.
(d) The Form S-4 shall have become effective under the Securities
Act, and the Acquiror shall have received all state securities laws or "blue
sky" permits and other authorizations or there shall be exemptions from
registration requirements necessary to issue the Acquiror Common Stock in
connection with the Merger, and neither the Form S-4 nor any such permit,
authorization or exemption shall be subject to a stop order or threatened
stop order by the Commission or any state securities authority.
(e) The shares of Acquiror Common Stock to be issued in connection
with the Merger shall have been approved for listing on the American Stock
Exchange.
<PAGE> I-35
(f) Each of Baker, Newman & Noyes LLP, the Acquiror's independent
public accountants, and Schatz, Fletcher & Associates LLP, the Company's
independent public accountants, shall have issued a letter dated as of the
Effective Time, to the Acquiror and to the Company, respectively, to the
effect that, based on a review of this Agreement and related agreements
(including without limitation the agreements referred to in Section 5.13(b)
hereof) and the facts and circumstances then known to it (including without
limitation the number of Dissenting Shares, if any, in relation to the
number of outstanding shares of Company Common Stock immediately prior to
the Effective Time), the Merger shall be accounted for as a pooling-
of-interests under generally accepted accounting principles.
(g) The Acquiror shall have received the written opinion of Drummond
Woodsum & MacMahon to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code, and the
Company shall have received the written opinion of Breyer & Aguggia to such
<PAGE> 117
effect and to the effect that (i) except for cash received in lieu of
fractional share interests, holders of Company Common Stock who receive
Acquiror Common Stock in the Merger will not recognize income, gain or loss
for federal income tax purposes, (ii) the basis of such Acquiror Common
Stock will equal the basis of the Company Common Stock for which it is
exchanged, and (iii) the holding period of such Acquiror Common Stock will
include the holding period of the Company Common Stock for which it is
exchanged, assuming that such stock is a capital asset in the hands of the
holder thereof at the Effective Time. Each such opinion shall be based on
such written representations from the Acquiror, the Company and others as
such counsel shall reasonably request as to factual matters.
Section 6.2 Conditions Precedent - The Company
The obligations of the Company to effect the transactions contemplated
by this Agreement shall be subject to satisfaction of the following
conditions at or prior to the Effective Time unless waived by the Company
pursuant to Section 7.4 hereof.
(a) The representations and warranties of the Acquiror as set forth
in Article IV hereof shall be true and correct as of the date of this
Agreement and as of the Effective Time as though made on and as of the
Effective Time (or on the date when made in the case of any representation
and warranty which specifically relates to an earlier date), provided,
however, that notwithstanding anything herein to the contrary, this Section
6.2(a) shall be deemed to have been satisfied even if such representations
or warranties are not true and correct unless the failure of any of the
representations or warranties to be so true and correct would have,
individually or in the aggregate, a Material Adverse Effect on the Acquiror.
(b) The Acquiror shall have performed in all material respects all
obligations and complied with all covenants required to be performed and
complied with by it pursuant to this Agreement on or prior to the Effective
Time.
(c) The Acquiror shall have delivered to the Company a certificate,
dated the date of the Closing and signed by its President and by its Chief
Financial Officer, to the effect that the conditions set forth in Sections
6.2(a) and 6.2(b) have been satisfied.
<PAGE> I-36
(d) The Company shall have received the written opinion of Drummond
Woodsum & MacMahon, dated the date of the Closing, that addresses the
matters set forth in Exhibit 6.2(d) hereto.
(e) The Acquiror and the Acquiror Sub shall have furnished the
Company with such certificates of its respective officers or others and such
other documents to evidence fulfillment of the conditions set forth in
Sections 6.1 and 6.2 as such conditions relate to the Acquiror and the
Acquiror Sub as the Company may reasonably request.
(f) The oral fairness opinion from Ryan Beck received by the Company
on or prior to the date hereof shall not have been withdrawn by Ryan Beck,
and the Company shall have received a fairness opinion letter from Ryan Beck
dated as of a date which is within five (5) days prior to the date of the
Proxy Statement to the effect that in the opinion of such firm the Exchange
Ratio is fair to the Company stockholders from a financial point of view.
<PAGE> 118
Section 6.3 Conditions Precedent - The Acquiror and the Acquiror Sub
The obligations of the Acquiror and the Acquiror Sub to effect the
transactions contemplated by this Agreement shall be subject to satisfaction
of the following conditions at or prior to the Effective Time unless waived
by the Acquiror or the Acquiror Sub pursuant to Section 7.4 hereof.
(a) The representations and warranties of the Company set forth in
Article III hereof shall be true and correct as of the date of this
Agreement and as of the Effective Time as though made on and as of the
Effective Time (or on the date when made in the case of any representation
and warranty which specifically relates to an earlier date), provided,
however, that notwithstanding anything herein to the contrary, this Section
6.3(a) shall be deemed to have been satisfied even if such representations
or warranties are not true and correct unless the failure of any of the
representations and warranties to be so true and correct would have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(b) The Company shall have performed in all material respects all
obligations and covenants required to be performed by it pursuant to this
Agreement on or prior to the Effective Time.
(c) The Company shall have delivered to the Acquiror a certificate,
dated the date of the Closing and signed by its President and by its Chief
Financial Officer, to the effect that the conditions set forth in Sections
6.3(a) and 6.3(b) have been satisfied.
(d) The Acquiror shall have received the written opinion of Breyer &
Aguggia, dated the date of the Closing, that addresses the matters set forth
in Exhibit 6.3(d) hereto.
(e) The Company shall have furnished the Acquiror with such
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions set forth in Sections 6.1 and 6.3 as such
conditions relate to the Company as the Acquiror may reasonably request.
<PAGE> I-37
(f) No more than 10% of the Company Common Stock shall be Dissenting
Shares as defined in Section 2.5 above.
(g) The Company shall have received the written consent of Fleet
National Bank to the Merger.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
Section 7.1 Termination
This Agreement may be terminated:
(a) at any time on or prior to the Effective Time, by the mutual
consent in writing of the parties hereto;
(b) at any time on or prior to the Effective Time, by the Acquiror or
the Acquiror Sub in writing if the Company has, or by the Company in writing
if the Acquiror or the Acquiror Sub has, in any material respect, breached
<PAGE> 119
(i) any material covenant or undertaking contained herein or (ii) any
representation or warranty contained herein, in any case if such breach has
not been cured by the earlier of 30 days after the date on which written
notice of such breach is given to the party committing such breach or the
Effective Time;
(c) at any time, by any party hereto in writing, if any of the
applications for prior approval referred to in Section 5.3 hereof are denied
or are approved in a manner which does not satisfy the requirements of
Section 6.1(b) hereof, and the time period for appeals and requests for
reconsideration has run;
(d) at any time, by any party hereto in writing, if the shareholders
of the Company do not approve this Agreement after a vote taken thereon at a
meeting duly called for such purpose (or at any adjournment thereof), unless
the failure of such occurrence shall be due to the failure of the party
seeking to terminate to perform or observe in any material respect its
agreements set forth herein to be performed or observed by such party at or
before the Effective Time;
(e) by either the Company or the Acquiror in writing if the Effective
Time has not occurred by the close of business on December 31, 1997,
provided that this right to terminate shall not be available to any party
whose failure to perform an obligation in breach of such party's obligations
under this Agreement has been the cause of, or resulted in, the failure of
the Merger and the other transactions contemplated hereby to be consummated
by such date (the Acquiror and the Acquiror Sub being treated as a single
entity for purposes of this Section 7.1(e));
(f) by the Company at any time during the ten day period commencing
with the Determination Date (as defined below) if the Average Closing Price
(as defined below) shall be less than $11.50, subject, however, to the
following three sentences. If the Company elects to exercise its
termination right pursuant to this Section 7.1(f), it shall give written
notice to the Acquiror (provided that such notice of election to terminate
may be withdrawn at any time within
<PAGE> I-38
the aforementioned ten day period). During the five day period commencing
with its receipt of such notice, the Acquiror shall have the option to
increase the consideration to be received by the holders of the Company
Common Stock hereunder by adjusting the Exchange Ratio to equal a number
(calculated to the nearest one thousandth) obtained by dividing (A) $24.02
by (B) the Average Closing Price. If the Acquiror so elects within such
five day period, it shall give prompt written notice to the Company of such
election and the revised Exchange Ratio, whereupon no termination shall have
occurred pursuant to this Section 7.1(f) and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio shall have
been so modified). For purposes of this Section 7.1(f), (i) the term
"Average Closing Price" means the average of the daily closing prices of a
share of Acquiror Common Stock, as reported by the American Stock Exchange
(as reported in The Wall Street Journal or, if not reported thereby, another
authoritative source) during the period of twenty consecutive trading days
ending on the Determination Date and (ii) the term "Determination Date"
means the date on which the approval of the OTS for consummation of the
Merger is received. All of the share amounts and per share figures in this
Section 7.1(f) are subject to adjustment as provided in Sections 2.8 and
5.16.
<PAGE> 120
Section 7.2 Effect of Termination
In the event that this Agreement is terminated pursuant to Section 7.1
hereof, this Agreement shall become void and have no effect, except that (i)
the provisions relating to confidentiality and expenses set forth in Section
5.4 and Section 8.1, respectively, and this Section 7.2 shall survive any
such termination, (ii) a termination pursuant to Section 7.1(b), (d), or (e)
shall not relieve the breaching party from liability for willful breach of
any covenant, undertaking, representation or warranty giving rise to such
termination and (iii) Section 7.6 shall survive to the extent of any amounts
payable thereunder.
Section 7.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Agreement or in
any instrument delivered pursuant hereto or thereto shall expire on, and be
terminated and extinguished at, the Effective Time other than covenants that
by their terms are to be performed after the Effective Time (including
without limitation the covenants set forth in Sections 5.8, 5.9 and 5.10
hereof), provided that no such representations, warranties or covenants
shall be deemed to be terminated or extinguished so as to deprive the
Acquiror, the Acquiror Sub or the Company (or any director, officer or
controlling person thereof) of any defense at law or in equity which
otherwise would be available against the claims of any person, including,
without limitation, any shareholder or former shareholder of either the
Acquiror or the Company.
Section 7.4 Waiver
Each party hereto by written instrument signed by an executive officer
of such party, may at any time (whether before or after approval of this
Agreement by the shareholders of the Acquiror Sub and the Company) extend
the time for the performance of any of the obligations or other acts of the
other party hereto and may waive (i) any inaccuracies of the other party in
the representations or warranties contained in the Agreement or any document
delivered pursuant hereto, (ii) compliance with any of the covenants,
undertakings or agreements of the other party, (iii) to the extent permitted
by law, satisfaction of any of the conditions precedent to its
<PAGE> I-39
obligations contained herein or (iv) the performance by the other party of
any of its obligations set forth herein, provided that any such waiver
granted, or any amendment or supplement pursuant to Section 7.5 hereof
executed after shareholders of the Acquiror Sub or the Company have approved
this Agreement shall not modify either the amount or form of the
consideration to be provided hereby to the holders of Company Common Stock
upon consummation of the Merger or otherwise materially adversely affect
such shareholders without the approval of the shareholders who would be so
affected.
Section 7.5 Amendment or Supplement
This Agreement may be amended or supplemented at any time by mutual
agreement of the Acquiror, the Acquiror Sub and the Company, subject to the
proviso to Section 7.4 hereof. Any such amendment or supplement must be in
writing and authorized by their respective Boards of Directors.
<PAGE> 121
Section 7.6 Termination Fee
In order to induce the Acquiror to enter into this Agreement and to
reimburse the Acquiror for its costs and expenses related to entering into
this Agreement and seeking to consummate the transactions contemplated by
this Agreement, the Company will make a cash payment to the Buyer of
$100,000 (the "Termination Fee") if and only if at the time of such
termination any person (other than the Acquiror) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction and:
(i) The Acquiror or Company has terminated this Agreement pursuant to
Section 7.1(d) because of a failure by the Company's shareholders to approve
this Agreement; or
(ii) The Acquiror has terminated this Agreement pursuant to 7.1(b);
Any payment required by this section will be payable by the Company to
the Acquiror (by wire transfer of immediately available funds to an account
designed by the Acquiror) within five business days after demand by the
Acquiror.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Expenses
Each party hereto shall bear and pay all costs and expenses incurred
by it in connection with the transactions contemplated by this Agreement,
including fees and expenses of its own financial consultants, accountants
and counsel.
Section 8.2 Entire Agreement
This Agreement contains the entire agreement among the parties with
respect to the transactions contemplated hereby and supersedes all prior
arrangements or understandings with respect thereto, written or oral, other
than documents referred to herein and therein. The terms
<PAGE> I-40
and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and thereto and their respective successors.
Nothing in this Agreement, expressed or implied, is intended to confer upon
any party, other than the parties hereto, and their respective successors,
any rights, remedies, obligations or liabilities other than as set forth in
Sections 5.8, 5.9 and 5.10.
Section 8.3 No Assignment
None of the parties hereto may assign any of its rights or obligations
under this Agreement to any other person.
Section 8.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally,
<PAGE> 122
telecopied (with confirmation) or sent by overnight mail service or by
registered or certified mail (return receipt requested), postage prepaid,
addressed as follows:
If to the Acquiror or the Acquiror Sub:
Northeast Bancorp
232 Center Street
P.O. Box 868
Auburn, Maine 04210
Attn: James Delamater, President
and Chief Executive Officer
Fax - 207-777-6410
With a required copy to:
Drummond Woodsum & MacMahon
245 Commercial Street
P.O. Box 9781
Portland, Maine 04104-5081
Attn: Joseph L. Delafield III
Fax - 207-772-3627
<PAGE> I-41
If to the Company:
Cushnoc Bank and Trust Company
One Bangor Street
Augusta, Maine 04332-4701
Attn: Sumner Lipman
Fax - 207-623-8528
With a required copy to:
Breyer & Aguggia
Suite 470 East
1300 I Street N.W.
Washington, D.C. 20005
Attn: John F. Breyer, Jr.
Fax - 202-737-7979
Section 8.5 Interpretation
The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
Section 8.6 Counterparts
This Agreement may be executed in any number of counterparts, and each
<PAGE> 123
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
Section 8.7 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Maine applicable to agreements made and entirely to
be performed within such jurisdiction.
<PAGE> I-42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers and their
corporate seal to be hereunto affixed and attested by their officers
thereunto duly authorized, all as of the day and year first above written.
NORTHEAST BANCORP
Attest:
/s/ Ariel Rose Gill By: /s/ James D. Delamater
Name: Ariel Rose Gill Name: James D. Delamater
Title: Corporate Clerk and Title: President and
Secretary Chief Executive Officer
NORTHEAST BANK F.S.B.
Attest:
/s/ Ariel Rose Gill By: /s/ James D. Delamater
Name: Ariel Rose Gill Name: James D. Delamater
Title: Corporate Clerk and Title: President and
Secretary Chief Executive Officer
CUSHNOC BANK AND TRUST COMPANY
Attest:
/s/ Dale M. Goodwin By: /s/ Sumner H. Lipman
Name: Dale M. Goodwin Name: Sumner H. Lipman
Title: Treasurer Title:
<PAGE> I-43
EXHIBIT 2.1 (d)
List of Directors
<TABLE>
<CAPTION>
Name Residence Term to Expire(1)
- ---- --------- -----------------
<S> <C> <C>
Joseph A. Aldred Brunswick, ME 1997
Norris T. Brown Bethel, ME 1997
Ronald J. Goguen Moncton, NB 1997
<PAGE> 124
John W. Trinward N. Waterford, ME 1997
Edmond J. Vachon Bethel, ME 1997
John Bouchard Brunswick, ME 1998
A. William Cannan Saco, ME 1998
Judith W. Hayes Lexington, ME 1998
Stephen W. Wight Bethel, ME 1998
Dennis A. Wilson Bethel, ME 1998
James D. Delamater Oxford, ME 1999
Norman R. Houde Brunswick, ME 1999
Philip Jackson Harrison, ME 1999
Ronald C. Kendall Bethel, ME 1999
Robert Morrell Brunswick, ME 1999
<F1> As a result of an Amendment to the Bylaws of Acquiror, beginning in
1997 directors will be elected for a term of one year.
</TABLE>
<PAGE> I-44
SCHEDULE 3.13(b)
CONTRACTS
<TABLE>
<CAPTION>
NAME TYPE EXPIRATION CANCELLATION
- ---- ---- ---------- ------------
<S> <C> <C> <C>
M&M Consulting Compliance 9/15/97 30 Days Notice
PLUS System, Inc. Membership N/A Non-Transferrable
Cirrus System, Inc. Membership N/A Non-Transferrable
AMEXCO ATM 5/16/97 90 Days
NoticeMastermoney Debit Card 6/20/00 90 Days Notice
Mellon Bank EFT Services 5/16/99 Penalty*
Infinet Payment
Services EFT SErvices 8/31/98 180 Days Notice
NYCE ATM N/A 180 Days Notice
Macrosoft Software Perpetual 30 Days Notice
FISC Item Processing N/A 60 Days Notice
General Electric Vehicle 6/11/99 Payoff Future
Payments
<F*> Penalty of minimum monthly fee times months remaining in initial
agreement.
</TABLE>
<PAGE> I-45
EXHIBIT 5.10
Any employee of the Company who, during the period beginning at the
Effective Time and ending on the first anniversary thereof, is terminated by
the Acquiror without Just Cause, shall, within ten business days of the date
of such termination, receive a lump sum payment from the Acquiror equal to
six (6) times the employee's monthly compensation (determined at the
<PAGE> 125
employee's monthly rate of base compensation in effect on the date of
termination). No benefit shall be payable under this paragraph if an
employee is terminated for Just Cause or in the event of the employee's
voluntary termination of employment. For purposes of this paragraph, "Just
Cause" shall mean termination of employment by reason of an employee's
personal dishonesty, willful misconduct, intentional failure to perform
stated duties, breach of fiduciary duty involving personal profit, or
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses).
<PAGE> I-46
EXHIBIT D
AFFILIATES OF COMPANY
__________, 1997
Northeast Bancorp
232 Center Street
Auburn, ME 04210
Ladies and Gentlemen:
Pursuant to Section 5.13 of the Agreement and Plan of Merger, dated as
of __________, 1997 (the "Agreement"), among Northeast Bancorp (the
"Acquiror"), Northeast Bank F.S.B. (the "Acquiror Sub") and Cushnoc Bank and
Trust Company (the "Company"), I hereby agree as follows:
1. I will not sell, pledge, transfer or otherwise dispose of the
shares of Acquiror Common Stock or Company Common Stock (both as defined in
the Agreement) owned by me during the period commencing 30 business days
prior to the Effective Time (as defined in the Agreement) (the anticipated
date of which shall be set forth in a notice by the Company to me as soon as
such information is available) and continuing to the date on which financial
results covering at least 30 days combined operations of the Acquiror and
the Company have been published within the meaning of Topic 2-E of the Staff
Accounting Bulletin Series of the Securities and Exchange Commission;
provided, however, that this paragraph shall not prevent me from selling,
transferring or disposing of such numbers of shares of Acquiror Common Stock
or Company Common Stock as will not, in the reasonable judgment of
accountants to the Acquiror, interfere with or prevent the Merger (as
defined in the Agreement) from being accounted for as a "pooling of
interests," taking into account the nature, extent and timing of such sale,
transfer or disposition and of similar sales, transfers or dispositions by
all other affiliates of the Acquiror and all other affiliates of the
Company.
2. I will comply with paragraph (d) of Rule 145 under the Securities
Act of 1933, as amended, and will not sell, pledge, transfer or otherwise
dispose of any shares of Acquiror Common Stock received by me in exchange
for shares of Common Stock pursuant to the Merger (as defined in the
Agreement), except upon the Acquiror's receipt of an opinion of counsel, at
the Acquiror's expense, that the proposed disposition will not violate
paragraph (d) of Rule 145.
The transfer agent of each of the Company and the Acquiror shall be
<PAGE> 126
given an appropriate stop transfer order and shall not be required to
register any attempted transfer of shares of Company Common Stock and
Acquiror Common Stock, respectively, unless the transfer has been effected
in compliance with the terms of this letter agreement. In addition, the
certificates evidencing shares of Acquiror Common Stock acquired by me in
exchange for Company Common Stock pursuant to the Merger shall bear a legend
noting the restrictions on transfer set forth in this letter agreement.
<PAGE> I-47
3. For a period three (3) years from the Effective Time (as defined
in the Agreement) of the Merger, I will not participate, directly or
indirectly, as an investor in or lender to, or a guarantor of any loan to,
or otherwise assist in the capitalization of, any new or inactive financial
institution having a place of business within fifty (50) miles of Augusta,
Maine.
This provision does not preclude the undersigned from serving as a
director of an existing financial institution or an existing thrift
institution converting from mutual to stock form of ownership, or from
investing in an existing thrift institution's conversion from mutual to
stock ownership so long as the aggregate amount of stock in the institution
owned directly or indirectly by the undersigned does not exceed 5% of the
issued and outstanding stock of such institution.
Very truly yours,
______________________________
Name
Agreed and accepted this
________ day of ___________, 1997
Northeast Bancorp
By:___________________________
Name:
Title:
<PAGE> I-48
EXHIBIT E
AFFILIATES OF ACQUIROR
_____________, 1997
Northeast Bancorp
232 Center Street
Auburn, ME 04210
Ladies and Gentlemen:
<PAGE> 127
Pursuant to Section 5.13 of the Agreement and Plan of Merger dated as
of ____________, 1997 (the "Agreement"), among Northeast Bancorp (the
"Acquiror"), Northeast Bank F.S.B. (the "Acquiror Sub") and Cushnoc Bank and
Trust Company (the "Company"), I hereby agree not to sell, pledge, transfer
or otherwise dispose of the shares of Acquiror Common Stock or Company
Common Stock (both as defined in the Agreement) owned by me during the
period commencing 30 business days prior to the Effective Time (as defined
in the Agreement) (the anticipated date of which shall be set forth in a
notice by the Company to me as soon as such information is available) and
continuing to the date on which financial results covering at least 30 days
combined operations of the Acquiror and the Company have been published
within the meaning of Topic 2-E of the Staff Accounting Bulletin Series of
the Securities and Exchange Commission; provided, however, that this
paragraph shall not prevent me from selling, transferring or disposing of
such number of shares of Acquiror Common Stock or Company Common Stock as
will not, in the reasonable judgment of accountants to the Acquiror,
interfere with or prevent the Merger (as defined in the Agreement) from
being accounted for as a "pooling of interests," taking into account the
nature, extent and timing of such sale, transfer or disposition and of
similar sales, transfers or dispositions by all other affiliates of the
Acquiror and all other affiliates of the Company.
The transfer agent of each of the Company and the Acquiror shall be
given an appropriate stop transfer order and shall not be required to
register any attempted transfer of shares of the Company Common Stock and
Acquiror Common Stock, respectively, unless the transfer has been effected
in compliance with the terms of this letter agreement.
Very truly yours,
______________________________
Name
Agreed and accepted this
_______ day of _________, 1997
Northeast Bancorp
By:_________________________
Name:
Title:
<PAGE> I-49
EXHIBIT 6.2(d)
(Matters to be covered in Opinion(s) of Counsel to be delivered
to the Company pursuant to Section 6.2(d) of the Agreement)
(a) Each of the Acquiror and the Acquiror Sub is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, and the Acquiror is duly registered as a savings and loan
holding company under the HOLA.
(b) The authorized capital stock of the Acquiror consists of
3,000,000 shares of Acquiror Common Stock, of which ___________ were issued
and outstanding of record as of (the end of the month preceding the closing
<PAGE> 128
date), and 1,000,000 shares of Acquiror Preferred Stock, of which _________
were issued and outstanding as Series A Preferred and ________ were issued
and outstanding as Series B Preferred as of (the end of the month preceding
the Effective Time). All of the outstanding shares of Acquiror Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, and the shareholders of the Acquiror have no preemptive
rights with respect to any shares of capital stock of the Acquiror. All of
the outstanding shares of capital stock of the Acquiror have been duly
authorized and validly issued, are fully paid and nonassessable and, to the
knowledge of such counsel, are directly or indirectly owned by the Acquiror
free and clear of all liens, claims, encumbrances, charges, restrictions or
rights of third parties of any kind whatsoever. To such counsel's
knowledge, except as set forth in the Agreement, there were no Rights
authorized, issued or outstanding with respect to the capital stock of the
Acquiror as of the date of the Agreement.
(c) The Agreement has been duly authorized, executed and delivered by
the Acquiror and the Acquiror Sub and, assuming due authorization, execution
and delivery by the Company, constitutes a valid and binding obligation of
the Acquiror and the Acquiror Sub may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization, receivership, conservatorship or
similar laws relating to or affecting the enforcement of creditors rights
generally or the rights of creditors of depository institutions whose
accounts are insured by the FDIC, (ii) equitable principles limiting the
right to obtain specific performance of other similar equitable relief and
(iii) considerations of public policy, and except that certain remedies may
not be available in the case of a nonmaterial breach of the Agreement.
(d) All corporate and shareholder actions required to be taken by the
Acquiror and the Acquiror Sub by law and their respective Articles of
Incorporation and Bylaws to authorize the execution and delivery of the
Agreement and consummation of the Merger have been taken.
(e) All consents or approvals of or filings or registrations with any
Governmental Entity or, to such counsel's knowledge, any third party which
are necessary to be obtained by the Acquiror and the Acquiror Sub to permit
the execution, delivery and performance of the Agreement and consummation of
the Merger have been obtained.
(f) The shares of Acquiror Common Stock to be issued pursuant to the
terms of the Agreement have been duly authorized by all necessary corporate
action on the part of the
<PAGE> I-50
Acquiror and, when issued in accordance with the terms of the Agreement,
will be validly issued and fully paid and nonassessable.
(g) To such counsel's knowledge, and except as Previously Disclosed
or as disclosed in the Acquiror's Securities Documents, there are no
material legal or governmental proceedings pending to which the Acquiror or
any Acquiror Subsidiary is a party or to which any property of the Acquiror
or any Acquiror Subsidiary is subject and no such proceedings are threatened
by governmental authorities or by others.
Such counsel also shall state that it has no reason to believe that
the information relating to the Acquiror or an Acquiror Subsidiary contained
or incorporated by reference in (i) the Form S-4, at the time the Form S-4
<PAGE> 129
and any amendment thereto became effective under the Securities Act,
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) the Proxy
Statement, as of the date(s) such Proxy Statement was mailed to shareholders
of the Company and up to and including the date(s) of the meetings of
shareholders to which such Proxy Statement relates, contained any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
In rendering their opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon certificates of
governmental officials and, as to matters of fact, certificates of officers
of the Acquiror Subsidiary. The opinion of such counsel need refer only to
matters of Maine, and federal law, and may add other qualifications and
explanations of the basis of their opinion as may be reasonably acceptable
to the Company.
<PAGE> I-51
EXHIBIT 6.3(d)
The opinion of counsel for the Company contemplated in Section 6.3(d)
of the Agreement to which this Exhibit 6.3(d) is attached shall be to the
following effect (all terms used herein which are defined in the Agreement
have the meanings set forth therein):
(i) The Company is a state-chartered commercial bank validly existing
under the laws of the State of Maine. The Company is an "insured depository
institution" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder.
(ii) The authorized capital stock of the Company consists of 90,000
shares of Company Common Stock, of which _______ shares are issued and
outstanding of record as of the date hereof. All of the outstanding shares
of Company Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable, and the shareholders of the Company have no
preemptive rights with respect to any shares of capital stock of the
Company. To such counsel's knowledge, there are no Rights authorized,
issued or outstanding with respect to the capital stock of the Company.
(iii) The execution and delivery of the agreement by the Company, and
the consummation by the Company of the transactions provided for therein,
have been duly authorized by all requisite corporate action on the part of
the Company.
(iv) The Agreement has been duly executed and delivered by the
Company, and is a valid and binding obligation of the Company, enforceable
in accordance with its terms, except as the enforceability thereof may be
limited by (1) bankruptcy, insolvency, moratorium, reorganization,
receivership, conservatorship or similar laws relating to or affecting the
enforcement of creditors' rights generally or the rights of creditors of
depository institutions whose accounts are insured by the FDIC and (2)
general principles of equity, whether applied by a court of law or equity.
(v) The execution, delivery and performance of the Agreement by the
Company, and the consummation of the transactions contemplated thereby by
<PAGE> 130
the Company, do not (1) violate any federal statutory law or regulation
applicable to the Company, or any judgment, decree or order of which we have
knowledge and which specifically names the Company, which violation is
reasonably likely, individually or in the aggregate, to have a material
adverse effect on the financial condition and results of operations of the
Company; (2) constitute a breach of or default under any agreement or other
arrangement that has been Previously Disclosed to the Acquiror, which breach
or default is reasonably likely, individually or in the aggregate, to have a
material adverse effect on the financial condition or results of operations
of the Company; or (3) violate the Articles of Incorporation or Bylaws of
the Company.
(vi) All consents or approvals of or filings or registrations with
any Governmental Entity or, to such counsel's knowledge, any third party
which are necessary to be obtained by the Company to permit the execution,
delivery and performance of the Agreement and consummation of the Merger
have been obtained.
<PAGE> I-52
(vii) To such counsel's knowledge, and except as Previously
Disclosed, there are no material legal or governmental proceedings pending
to which the company is a party or to which any property of the Company is
subject and no such proceedings are threatened by governmental authorities
or by others.
Such counsel also shall state that it has no reason to believe that
the information relating to the Company contained or incorporated by
reference in (i) the form S-4, at the time of the Form S-4 and any amendment
thereto became effective under the Securities Act, contained any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading, and (ii) the Proxy Statement, as of the
date(s) such Proxy Statement was mailed to shareholders of the Company and
the Acquiror and up to and including the date(s) of the meetings of
shareholders to which such Proxy Statement relates, contained any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
In rendering their opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon certificates of
governmental officials, certificates or opinions of other counsel to the
Company reasonably satisfactory to the Acquiror and, as to matters of act,
certificates of officers of the Company. The opinion of such counsel need
refer only to matters of Maine and federal law and may add other
qualifications and explanations of the basis of their opinion as may be
reasonably acceptable to the Acquiror.
(viii) To the best of our knowledge, the Merger has been approved by
the shareholders of the Bank.
In giving such opinion, counsel may rely on certificates of public
officials as to matters of fact on certificates of officers of the Bank.
<PAGE> I-53
ANNEX II
<PAGE> 131
<PAGE>
Ryan, Beck & Co.
Excellence in Investment Banking
220 South Orange Avenue
Livingston, New Jersey 07039-5817
TELEPHONE: (973) 597-6000
FACSIMILE: (973) 597-1258
Corporate Finance Department
September 5, 1997
The Board of Directors
Cushnoc Bank & Trust Company
235 Western Avenue
Augusta, Maine 04332-0068
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Cushnoc Bank & Trust Company, ("Cushnoc") and its shareholders of
the proposed merger (the "Merger") between Cushnoc and Northeast Bancorp,
Auburn, Maine ("Northeast") the holding company for Northeast Bank, FSB,
Auburn, Maine ("Northeast Bank").
Pursuant to the Agreement and Plan of Merger (the "Agreement") dated May 9,
1997, Cushnoc shall merge with and into Northeast Bank, and each share of
Cushnoc's issued and outstanding common stock will be converted into and
become the right to receive 2.089 shares, subject to certain adjustments as
set forth in the Agreement (the "Exchange Ratio"), of common stock of
Northeast. We have assumed that the Merger will qualify as a tax free
transaction for the stockholders of Cushnoc and be accounted for by
Northeast as a pooling-of-interests transaction.
Ryan, Beck & Co., as a customary part of its investment banking business, is
engaged in the valuation of banking and savings institutions and their
securities in connection with mergers and acquisitions. In conducting our
investigation and analysis of this transaction, we have met separately with
members of senior management of Northeast and Cushnoc to discuss their
respective operations, historical financial statements, strategic plans and
future prospects. We have reviewed and analyzed material prepared in
connection with the Merger, including but not limited to the following: (i)
the Merger Agreement and related documents; (ii) drafts of the Proxy
Statement / Prospectus prepared in connection with the merger; (iii)
Northeast's Annual Reports to Shareholders and Annual Reports on Form 10-K
for the fiscal years ended June 30, 1996, 1995, and 1994, and Northeast's
Quarterly Reports on Form 10-Q for the periods ended March 31, 1997,
December 31, 1996 and September 30, 1996; (iv) Cushnoc's Annual Reports to
Shareholders for the years ended December 31, 1996, 1995, and 1994; (v) the
historical stock prices and trading volume of Northeast's Common Stock; (vi)
the publicly available financial data of thrift organizations which Ryan,
Beck deemed generally comparable to Northeast; (vii) the publicly available
<PAGE> 132
financial data of commercial banking organizations which Ryan, Beck deemed
generally comparable to Cushnoc; and
<PAGE>
(viii) the terms of recent acquisitions of commercial banking organizations
which Ryan, Beck deemed generally comparable to Cushnoc. We also conducted
or reviewed such other studies, analyses, inquiries and examinations as we
deemed appropriate. Ryan, Beck as part of its review of the Merger, also
analyzed Northeast's ability to consummate the Merger and considered the
future prospects of Cushnoc in the event it remained independent.
While we have taken care in our investigation and analyses, we have relied
upon and assumed the accuracy, completeness and fairness of the financial
and other information provided to us by the respective institutions or which
was publicly available and have not assumed any responsibility for
independently verifying such information. We have also relied upon the
managements of Cushnoc and Northeast as to the reasonableness and
achievability of the financial and operating forecasts and projections (and
the assumptions and bases therefor) provided to us and in certain instances
we have made certain adjustments to such financial and operating forecasts
which in our judgment were appropriate under the circumstances. In
addition, we have assumed with your consent that such forecasts and
projections reflect the best currently available estimates and judgments of
the respective managements. We are not experts in the evaluation of
allowances for loan losses. Therefore, we have not assumed any
responsibility for making an independent valuation of the adequacy of the
allowances for loan losses set forth in the balance sheets of Cushnoc and
Northeast at March 31, 1997, and we assumed such allowances were adequate
and comply fully with applicable law, regulatory policy and sound banking
practice as of the date of such financial statements. We also assumed that
the Merger in all respects is, and will be consummated in compliance with
all laws and regulations applicable to Cushnoc and Northeast. We have not
made or obtained any independent evaluations or appraisals of the assets and
liabilities of either Cushnoc or Northeast or the respective subsidiaries,
nor have we reviewed any individual loan files of Cushnoc or Northeast.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate in the circumstances. In rendering our opinion, we have assumed
that in the course of obtaining the necessary regulatory approvals for the
Merger, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger to Cushnoc. Our opinion
is necessarily based on economic, market and other conditions and
projections as they exist and can be evaluated on the date hereof. Ryan,
Beck did not express any opinion as to the price or range of prices at which
Northeast Common Stock might trade subsequent to the Merger.
We have been retained by the Board of Directors of Cushnoc as an independent
contractor to act as financial advisor to Cushnoc with respect to the Merger
and will
<PAGE>
receive a fee for our services. Ryan, Beck has had no prior relationship
with Northeast. Ryan, Beck's research department does not follow Northeast
and Ryan, Beck is not a market maker in Northeast stock. Prior to this
engagement, Ryan, Beck has not performed any financial advisory or other
services for Cushnoc.
<PAGE> 133
Our opinion is directed to the Board of Directors of Cushnoc and does not
constitute a recommendation to any shareholder of Cushnoc as to how such
shareholder should vote at any shareholder meeting held in connection with
the Merger.
Based upon and subject to the foregoing it is our opinion as investment
bankers that the Exchange Ratio in the Merger as provided and described in
the Merger Agreement is fair to the holders of Cushnoc common stock from a
financial point of view.
Very truly yours,
/s/ Ryan, Beck & Co., Inc.
RYAN, BECK & CO., INC.
<PAGE>
ANNEX III
<PAGE>
ANNEX III
9-B M.R.S.A. [SECTION] 352(5)
Rights of dissenting shareholders.
A. The owners of shares of a financial institution which were voted against
a merger or consolidation shall be entitled to receive their value in cash
if an when the merger or consolidation becomes effective, upon written
demand made to the resulting institution at any time within 30 days after
the effective date of the merger or consolidation, accompanied by surrender
of the stock certificates.
B. The value of such shares shall be determined, as of the date of the
stockholders' meeting approving the merger or consolidation, by 3
appraisers, one to be selected by the owners of _ of the shares involved,
one by the board of directors of the resulting institution and the 3rd by
the 2 so chosen. The valuation agreed upon by any 2 appraisers shall
govern. If the appraisal is not completed within 90 days after the merger
or consolidation becomes effective, the superintendent shall cause an
appraisal to be made. The expenses of appraisal shall be paid by the
resulting institution.
C. The resulting institution may fix an amount which it considers to be not
more than the fair market value of the shares of the participating
institution at the time of the stockholders' meeting approving the merger or
consolidation, which amount it will pay to dissenting stockholders of that
institution entitled to payment in cash. Acceptance of such offer by a
dissenting stockholder shall terminate the rights granted to the accepting
stockholder in paragraphs A and B.
D. The amount due under the appraisal or the accepted offer shall
constitute a debt of the resulting institution.
<PAGE> 134
<PAGE>
ANNEX IV
<PAGE>
Schatz
Fletcher
&
Associates
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cushnoc Bank and Trust Company
We have audited the accompanying balance sheets of Cushnoc Bank and Trust
Company as of December 31, 1996 and 1995, and the related statements of
income, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cushnoc Bank and Trust
Company as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is not
necessary for a fair presentation of the financial statements in conformity
with generally accepted accounting principles, but is presented as
additional analytical data. The supplementary schedule has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.
<PAGE> 135
/s/ Schatz, Fletcher & Associates
January 29, 1997
Augusta, Maine
- ----------------------------------------------------------------------------
OFFICES IN: AUGUSTA * CAMDEN * DAMARISCOTTA * PORTLAND * WATERVILLE
- ----------------------------------------------------------------------------
Member of: American Institute of Certified Public Accountants -
Private Companies Practice Section
<PAGE>
EXHIBIT A
Cushnoc Bank and Trust Company
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
-------------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS (Exhibit D)
Cash and due from banks $ 743,988 $ 1,161,612
Interest bearing deposits with other banks 272,041 3,375,000
-------------------------
TOTAL CASH AND CASH EQUIVALENTS $ 1,016,029 $ 4,536,612
-------------------------
INVESTMENT SECURITIES
Securities held to maturity (Notes 1 and 2) $ 1,824,381 $ 2,138,132
Other investment securities (Notes 1 and 2) 102,100 102,100
-------------------------
TOTAL INVESTMENT SECURITIES $ 1,926,481 $ 2,240,232
-------------------------
LOANS, net of allowance for loan loss of
$211,066 and $211,961 in 1996 and 1995,
respectively (Notes 1, 3 and 4) $16,652,692 $16,936,500
-------------------------
NET PROPERTY AND EQUIPMENT (Notes 1 and 5) $ 843,713 $ 887,925
-------------------------
OTHER ASSETS
Foreclosed real estate (Note 1) $ 108,926 $ 100,000
Accrued interest receivable - investments 31,393 35,374
Accrued interest receivable - loans 115,159 145,775
<PAGE> 136
Prepaid expenses 55,953 49,225
Income tax receivable 2,857 2,713
Other receivables 3,387 2,272
Deferred tax asset (Notes 1 and 6) 63,205 63,343
-------------------------
TOTAL OTHER ASSETS $ 380,880 $ 398,702
-------------------------
TOTAL ASSETS $20,819,795 $24,999,971
=========================
</TABLE>
See accompanying notes to financial statements
<PAGE> IV-1
EXHIBIT A (Continued)
Cushnoc Bank and Trust Company
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1996 1995
-------------------------
<S> <C> <C>
LIABILITIES
Deposits:
Demand $ 1,859,148 $ 1,647,011
NOW accounts 2,307,601 2,516,823
Regular savings 1,543,093 1,549,031
Money market deposit accounts 2,728,350 3,886,242
Certificates of deposit (in denominations
of $100,000 or more) (Note 9) 1,662,069 2,672,873
Other time accounts (Note 9) 7,767,985 9,689,271
Treasury tax and loan 130,865 130,799
-------------------------
TOTAL DEPOSITS $17,999,111 $22,092,050
-------------------------
OTHER LIABILITIES
Borrowed funds (Note 9) $ 482,828 $ 544,793
Accrued interest payable - deposits 84,448 110,793
Accrued expenses 32,258 33,521
Other 2,197 4,063
Deferred income tax (Notes 1 and 6) 14,574 15,265
-------------------------
TOTAL OTHER LIABILITIES $ 616,305 $ 708,435
-------------------------
TOTAL LIABILITIES $18,615,416 $22,800,485
-------------------------
<PAGE> 137
COMMITMENTS (Notes 7 and 8)
STOCKHOLDERS' EQUITY (Exhibit C)
Common stock, $15 par value, 90,000 shares
authorized, issued and outstanding $ 1,350,000 $ 1,350,000
Additional paid in capital 900,000 900,000
Retained earnings (deficit) (45,621) (50,514)
-------------------------
TOTAL STOCKHOLDERS' EQUITY $ 2,204,379 $ 2,199,486
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,819,795 $24,999,971
=========================
</TABLE>
See accompanying notes to financial statements
<PAGE> IV-2
EXHIBIT B
Cushnoc Bank and Trust Company
STATEMENTS OF INCOME
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,785,576 $1,930,799
Securities held to maturity 112,492 111,037
Federal Home Loan Bank dividends 6,659 7,399
Federal funds sold and securities purchased
under agreements to resell 72,856 128,564
-----------------------
TOTAL INTEREST INCOME $1,977,583 $2,177,799
-----------------------
INTEREST EXPENSE
Borrowed funds $ 34,624 $ 40,304
Interest on deposits:
Regular Savings and NOW accounts 103,172 94,132
Money market deposit accounts 106,190 110,086
Certificates of deposit (in denominations
of $100,000 or more) 120,257 137,726
Other time accounts 501,350 558,597
-----------------------
TOTAL INTEREST EXPENSE $ 865,593 $ 940,845
-----------------------
NET INTEREST INCOME $1,111,990 $1,236,954
<PAGE> 138
PROVISION FOR LOAN LOSSES (Notes 1 and 4) 36,000 50,000
-----------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $1,075,990 $1,186,954
-----------------------
NON-INTEREST INCOME
Fees and service charges $ 75,708 $ 60,657
Other 11,120 28,509
-----------------------
TOTAL OTHER INCOME $ 86,828 $ 89,166
-----------------------
INCOME BEFORE NON-INTEREST EXPENSES $1,162,818 $1,276,120
NON-INTEREST EXPENSES (Schedule B) 1,152,440 1,097,581
-----------------------
INCOME BEFORE PROVISION FOR INCOME TAXES $ 10,378 $ 178,539
-----------------------
PROVISION FOR INCOME TAXES (Notes 1 and 6)
Current year tax expense $ 6,038 $ 30,746
Deferred tax (benefit) (553) (6,267)
-----------------------
TOTAL PROVISION FOR INCOME TAXES $ 5,485 $ 24,479
-----------------------
NET INCOME $ 4,893 $ 154,060
=======================
EARNINGS PER COMMON SHARE (Note 1) $ .05 $ 1.71
=======================
</TABLE>
See accompanying notes to financial statements
<PAGE> IV-3
SCHEDULE B
Cushnoc Bank and Trust Company
SCHEDULES OF NON-INTEREST EXPENSES
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
Salaries $ 477,254 $ 455,110
Occupancy expense (Note 7) 120,834 115,589
Outside service fees 72,756 48,998
<PAGE> 139
Postage, stationery and supplies 62,343 64,728
Employee benefits 57,506 50,303
Professional services 55,450 49,409
Depreciation (Notes 1 and 5) 54,949 54,632
Payroll taxes 41,579 40,252
Miscellaneous (Note 7) 41,311 24,227
Repairs and maintenance 37,699 38,000
Advertising (Note 1) 34,803 27,925
Insurance and bonds 19,917 57,020
Telephone 17,093 14,362
Amortization (Notes 1 and 5) 16,667 17,006
Property tax 15,475 15,697
Memberships and subscriptions 12,536 13,216
Travel and entertainment 7,594 10,391
Loss on foreclosed real estate 6,674 - 0 -
Amortization of organizational costs (Note 1) - 0 - 521
Amortization of start up costs (Note 1) - 0 - 195
-----------------------
TOTAL OTHER EXPENSES $1,152,440 $1,097,581
========================
</TABLE>
See accompanying notes to financial statements
<PAGE> IV-4
EXHIBIT C
Cushnoc Bank and Trust Company
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-In Earnings Stockholders'
Stock Capital (Deficit) Equity
--------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 $1,350,000 $900,000 $(204,574) $2,045,426
NET INCOME - 1995 - 0 - - 0 - 154,060 154,060
-------------------------------------------------
BALANCE, December 31, 1995 $1,350,000 $900,000 $ (50,514) $2,199,486
NET INCOME - 1996 - 0 - - 0 - 4,893 4,893
-------------------------------------------------
BALANCE, December 31, 1996 $1,350,000 $900,000 $ (45,621) $2,204,379
=================================================
</TABLE>
See accompanying notes to financial statements
<PAGE> 140
<PAGE> IV-5
EXHIBIT D
Cushnoc Bank and Trust Company
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 2,008,828 $ 2,125,689
Fees and commissions received 75,708 60,657
Interest (paid) (891,938) (941,759)
Cash (paid) to suppliers and employees (1,084,007) (1,014,458)
Income taxes (paid) (6,182) (33,545)
Other receipts 10,005 28,936
--------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 112,414 $ 225,520
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from paydowns and maturities of
held-to-maturity securities $ 1,412,552 $ 1,094,784
(Purchases) of held-to-maturity securities (1,098,801) (1,597,955)
Net decrease in loans, net of write offs 242,160 804,492
(Purchase) of property and equipment (26,330) (30,203)
Cash (paid) pursuant to sale of foreclosed property (7,674) - 0 -
--------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES $ 521,907 $ 271,118
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) on long-term borrowings $ (61,965) $ (58,119)
Federal funds purchased (repaid), net - 0 - (196,000)
Net increase (decrease) in demand deposits, NOW,
money market, and other savings accounts (1,160,915) 180,036
Net increase (decrease) in certificates of deposit (2,932,090) 3,347,325
Net increase in treasury tax and loan 66 119,680
--------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $(4,154,904) $ 3,392,922
--------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(3,520,583) $ 3,889,560
CASH AND CASH EQUIVALENTS, beginning of year 4,536,612 647,052
--------------------------
CASH AND CASH EQUIVALENTS, end of year $ 1,016,029 $ 4,536,612
==========================
<PAGE> 141
SUPPLEMENTAL INFORMATION
Loans transferred to foreclosed real estate $ 108,926 $ 100,000
==========================
</TABLE>
See accompanying notes to financial statements
<PAGE> IV-6
EXHIBIT D (Continued)
Cushnoc Bank and Trust Company
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 and 1995
RECONCILIATIONS OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
NET INCOME $ 4,893 $154,060
-------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization $ 71,616 $ 71,638
Provision for loan losses 36,000 50,000
Amortization of organizational and start up costs - 0 - 716
Loss on sale of foreclosed real estate 6,674 - 0 -
(Increase) decrease in accrued interest receivable 34,597 (42,537)
(Increase) decrease in prepaid expenses (6,728) 2,489
(Increase) decrease in deferred tax asset 138 (16,046)
(Increase) in income tax receivable (144) (2,713)
(Increase) decrease in other receivables (1,115) 427
Increase (decrease) in accrued expenses and
other liabilities (3,129) 8,280
Increase (decrease) in deferred income tax (691) 9,779
(Decrease) in deferred loan fees (3,352) (9,573)
(Decrease) in income tax payable - 0 - (86)
(Decrease) in accrued interest payable - deposits (26,345) (914)
-------------------
TOTAL ADJUSTMENTS $107,521 $ 71,460
-------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $112,414 $225,520
===================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<PAGE> 142
During the year ended December 31, 1996, the bank sold foreclosed real
estate with a book value of $100,000 for $101,000 less costs related to the
sale of property totalling $7,674 resulting in a loss on sale of foreclosed
real estate of $6,674. The bank financed the contract selling price of
$101,000 on the above sale.
See accompanying notes to financial statements
<PAGE> IV-7
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Cushnoc Bank and Trust Company, a Maine corporation,
was organized in Central Maine as a Maine trust company in 1989. Following
necessary regulatory approvals, the Bank commenced business on June 19,
1989. The Bank's customer base is primarily is located in the Central Maine
area.
The accounting and financial reporting policies of Cushnoc Bank and Trust
Company conform to general practices within the banking industry and are in
accordance with generally accepted accounting principles. A description of
the more significant policies follows:
CASH EQUIVALENTS - For purpose of presentation in the statements of cash
flows, cash and cash equivalents are defined as those amounts included in
the balance sheet caption "cash and due from banks" and "interest bearing
deposits from other banks."
DEBT AND EQUITY SECURITIES - The Bank classifies its investments into the
following category: held to maturity securities.
HELD TO MATURITY SECURITIES - Held to maturity securities consist of debt
securities for which the Bank has the positive intent and ability to hold
such securities until maturity. Debt securities classified as held to
maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts. When a decline in market value is considered other
than temporary, the loss is recognized in the statements of income,
resulting in the establishment of a new cost basis for the security.
OTHER INVESTMENT SECURITIES - Other investment securities consists of
Federal Home Loan Bank stock. This security is carried at cost.
LOANS AND ALLOWANCE FOR LOAN LOSSES - Loans receivable that management has
the intent and ability to hold for the foreseeable future or until maturity
or pay-off are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or costs
on originated loans and unamortized premiums or discounts on purchased
loans.
<PAGE> 143
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
Loan income is recognized on the accrual basis of accounting. The accrual
of interest on impaired loans is discontinued when, in management's opinion,
the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments
are received
<PAGE> IV-8
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation computed on the straight-line method over the
useful lives of the assets. The estimated useful lives of property and
equipment for purposes of computing depreciation are:
<TABLE>
<S> <C>
Building 31.5 - 40 years
Equipment and software 5 years
Furniture and fixtures 7 - 10 years
Leasehold improvements 10 - 31 years
</TABLE>
INCOME TAXES - Deferred income taxes result from temporary differences which
arise between the amount of taxable income and pre-tax financial income for
a year and between the tax bases of assets and liabilities and their
reported amounts in financial statements. The primary source of this
difference is deferral of loan origination fees, provision for loan losses
and depreciation methods.
FORECLOSED REAL ESTATE - Foreclosed real estate includes formally foreclosed
property.
At the time of foreclosure, foreclosed real estate is recorded at the lower
of the Bank's cost or the asset's fair value less costs to sell, which
becomes the property's new basis. Any write-downs based on the asset's fair
value at date of acquisition are charged to the allowance for loan losses.
<PAGE> 144
After foreclosure, these assets are carried at the lower of their new cost
basis or fair value less cost to sell. Costs incurred in maintaining
foreclosed real estate and subsequent write-downs to reflect declines in the
fair value of the property are included in income (loss) on foreclosed real
estate.
ORGANIZATIONAL COSTS - Organizational costs were recorded at cost and were
amortized over a period of 60 months.
START UP COSTS - Start up costs were recorded at cost and were amortized
over a period of 60 months.
ADVERTISING - Advertising costs are expensed as incurred.
<PAGE> IV-9
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES - The presentation 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
those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowances for losses on loans and foreclosed real estate, management
obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowances for losses on loans and foreclosed real estate.
Such agencies may require the Bank to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination. Because of these factors, it is reasonably possible that
the allowances for losses on loans and foreclosed real estate may change
materially in the near term.
EARNINGS PER COMMON SHARE - Earnings per common share amounts are based on
the weighted average number of shares outstanding (90,000 in 1996 and 1995).
There are no common stock equivalents.
<PAGE> IV-10
<PAGE> 145
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 2 - INVESTMENT SECURITIES
Debt and equity securities have been classified in the balance sheet
according to managements intent. The carrying amount of securities and
their approximate market value are as follows:
<TABLE>
<CAPTION>
Approximate Gross Gross
Carrying Market Unrealized Unrealized
December 31, 1996 Amount Value Gains (Losses)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held-to-Maturity Securities
U.S. Treasury and Agency Securities $1,549,153 $1,546,474 $ 5,249 $ (7,928)
Mortgage-Backed Securities 164,569 173,662 9,093 - 0 -
Municipal securities 110,659 108,111 - 0 - (2,548)
----------------------------------------------
Total Held-to-Maturity Securities 1,824,381 1,828,247 14,342 (10,476)
Other securities - Federal Home
Loan Bank Stock 102,100 102,100 - 0 - - 0 -
----------------------------------------------
$1,926,481 $1,930,347 $14,342 $(10,476)
==============================================
<CAPTION>
Approximate Gross Gross
Carrying Market Unrealized Unrealized
December 31, 1995 Amount Value Gains (Losses)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held-to-maturity securities
U.S. Treasury and Agency Securities $1,830,957 $1,822,540 $ 4,241 $(12,658)
Mortgage-Backed Securities 195,335 199,378 10,510 (6,467)
Municipal securities 111,840 112,500 660 - 0 -
----------------------------------------------
Total Held-to-Maturity Securities 2,138,132 2,134,418 15,411 (19,125)
Other securities - Federal Home
Loan Bank Stock 102,100 102,100 - 0 - - 0 -
----------------------------------------------
$2,240,232 $2,236,518 $15,411 $(19,125)
==============================================
</TABLE>
<PAGE> IV-11
<PAGE> 146
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 2 - INVESTMENT SECURITIES (Continued)
The carrying amounts and approximate market value of held-to-maturity
securities by maturity at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Approximate Gross Gross
Carrying Market Unrealized Unrealized
Amount Value Gains (Losses)
------------------------------------------------
<S> <C> <C> <C> <C>
Maturity one year or less:
U.S. Treasury and Agency $ 249,834 $ 250,155 $ 593 $ (272)
----------------------------------------------
Maturity after one year through
five years:
U.S. Treasury and Agency $1,099,431 $1,096,100 $ 3,708 $ (7,039)
Municipal securities 54,833 53,603 - 0 - (1,230)
----------------------------------------------
$1,154,264 $1,149,703 $ 3,708 $ (8,269)
----------------------------------------------
Maturity after five years through
ten years:
U.S. Treasury and Agency $ 199,888 $ 200,219 $ 948 $ (617)
Mortgage Backed 35,312 37,116 1,804 - 0 -
Municipal Securities 55,826 54,508 - 0 - (1,318)
----------------------------------------------
$ 291,026 $ 291,843 $ 2,752 $ (1,935)
----------------------------------------------
Maturity after ten years:
Mortgage Backed $ 129,257 $ 136,546 $ 7,289 $ - 0 -
----------------------------------------------
TOTAL HELD-TO-MATURITY SECURITIES $1,824,381 $1,828,247 $14,342 $(10,476)
==============================================
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of underlying
collateral. The mortgage-backed securities may mature earlier than their
weighted-average contractual maturities because of principal prepayments.
<PAGE> IV-12
<PAGE> 147
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 3 - LOANS
Outstanding loans at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Commercial $ 9,997,938 $10,115,873
Mortgage 3,707,944 3,542,882
Home equity 448,312 546,181
Installment 2,668,072 2,678,180
Consumer 82,028 311,341
Other 8,984 6,876
--------------------------
Subtotal $16,913,278 $17,201,333
Allowance for loan loss (211,066) (211,961)
Net deferred loan fees (49,520) (52,872)
--------------------------
NET LOANS $16,652,692 $16,936,500
==========================
</TABLE>
Outstanding commitments on loans at December 31, 1996 and 1995 totalled
$374,000 and $1,049,200, respectively. As of December 31, 1996 and 1995, the
Bank had $772,549 and $1,448,634, respectively, available on approved lines
of credit and construction loans.
Mortgage loans serviced for others are not included in the accompanying
balance sheet. The unpaid principal balances of mortgage loans serviced for
others was $966,132 at December 31, 1996.
The Bank is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of its customers.
The financial instruments are standby letters of credit. These instruments
involve an element of credit risk in excess of the amount recognized in the
balance sheets. The notional amount of these instruments of $32,880 as of
December 31, 1996 reflects the extent of involvement the bank has in this
class of financial instruments.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------
<PAGE> 148
<S> <C> <C>
Balance, beginning of year $211,961 $ 258,812
Provision charged to operating
expenses 36,000 50,000
Less write offs (39,651) (102,205)
Add recoveries 2,756 5,354
---------------------
Balance, end of year $211,066 $ 211,961
=====================
</TABLE>
<PAGE> IV-13
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 5 - PROPERTY AND EQUIPMENT
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
---------------------------
<S> <C> <C>
Land $ 260,000 $ 260,000
Building 458,326 450,147
Equipment and software 439,440 425,999
Furniture and fixtures 108,610 107,602
Leasehold improvements 53,517 51,721
-------------------------
Subtotal $1,319,893 $1,295,469
Accumulated depreciation
and amortization (476,180) (407,544)
-------------------------
NET PROPERTY AND EQUIPMENT $ 843,713 $ 887,925
=========================
</TABLE>
Depreciation and amortization expense amounted to $71,616 and $71,638,
respectively in 1996 and 1995.
NOTE 6 - INCOME TAXES
A summary of income tax expense included in the statement of income for the
years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
<PAGE> 149
1996 1995
-----------------
<S> <C> <C>
Current tax expense
Federal $1,468 $27,332
State 4,570 3,414
-----------------
Total current tax expense $6,038 $30,746
Deferred tax (benefit) - Federal (553) (6,267)
-----------------
TOTAL PROVISION FOR INCOME TAXES $5,485 $24,479
=================
</TABLE>
Deferred taxes result from timing differences in the recognition of revenues
and expenses for tax and financial statement purposes and differences in tax
bases of assets and liabilities and their reported amounts in the financial
statements. The sources of these differences and the tax effect for each
year follow:
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Depreciation $ 692 $ (726)
Deferred loan origination fees (1,462) (11,397)
Provision for loan losses (269) (14,055)
Start up costs, net - 0 - 215
Other 1,592 (2,106)
Effect of change in estimated tax rate - 0 - 34,336
-------------------
Tax effect of timing differences $ 553 $ 6,267
===================
</TABLE>
<PAGE> IV-14
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 7 - LEASE COMMITMENTS
The Bank leases the banking premises under an operating lease expiring in
May 1999. The premises are leased from a partnership which consists of the
organizers of the Bank. Minimum rental payments under a non-cancelable
operating lease having a remaining term in excess of one year as of December
31, 1996 for each of the next three years are:
<PAGE> 150
<TABLE>
<S> <C>
1997 $ 65,882
1998 65,882
1999 27,450
--------
$159,214
========
</TABLE>
Total rent expense was $65,610 and $64,415 in 1996 and 1995, respectively.
During the year ended December 31, 1996, the bank leased a vehicle under a
lease agreement that expires in 1999. The future minimum lease payments for
the next three years are:
<TABLE>
<S> <C>
1997 $ 5,219
1998 5,219
1999 2,609
--------
TOTAL $ 13,047
========
</TABLE>
Vehicle rent expense for 1996 was $3,480.
NOTE 8 - COMMITMENTS
The Bank has various commitments to extend credit or lines of credit, which
are not reflected in the financial statements. Commercial and mortgage loan
commitments generally are made to meet specific needs of certain customers.
Lines of credit are commitments to lend up to a specified amount and
generally are renewed annually. Amounts outstanding under lines of credit
fluctuate from time to time because they generally are used to finance
short-term, seasonal working capital needs of the borrower. No losses are
anticipated on these commitments.
<PAGE> IV-15
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 9 - BORROWED FUNDS AND TIME DEPOSITS
BORROWED FUNDS
The Bank borrowed $700,000 in long-term advances from the Federal Home Loan
<PAGE> 151
Bank of Boston during 1993. The loan matures January 6, 2003 and bears
interest at 6.64%. The balance owed at December 31, 1996 and 1995 was
$482,828 and $544,793, respectively.
Principal maturities on this advance are due as follows:
<TABLE>
<S> <C>
1997 $ 66,549
1998 71,080
1999 76,016
2000 81,243
2001 86,897
Thereafter 101,043
--------
$482,828
========
</TABLE>
The Bank also has an $1,083,000 IDEAL Way Line of Credit with the Federal
Home Loan Bank of Boston (FHLBB). The outstanding balance as of December
31, 1996 and 1995 was $- 0 -.
Specific mortgage loans, investment securities, and funds on deposit
accounts at the Federal Home Loan Bank of Boston with balances totaling
$8,440,748 as of December 31, 1996 were pledged to the FHLBB as collateral
in the event the Bank requests future advances.
TIME DEPOSITS
At December 31, 1996, the scheduled maturities of certificates of deposits
are as follows:
<TABLE>
<S> <C>
1997 $6,981,545
1998 1,790,457
1999 658,052
----------
$9,430,054
==========
</TABLE>
NOTE 10 - PENSION PLAN
The Bank has a qualified contributory defined contribution plan which covers
substantially all employees. There were no employer contributions during
1996 and 1995.
<PAGE> IV-16
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
<PAGE> 152
For the years ended December 31, 1996 and 1995
NOTE 11 - RELATED PARTIES
In the ordinary course of business, the Bank has loan, deposit and other
transactions with executive officers and directors and organizations with
whom such persons are associated. The aggregate amount of loans to
executive officers, directors and their immediate families, and to
corporations where executive officers and directors beneficially own a 5% or
greater equity interest was $453,161 and $538,663 at December 31, 1996 and
1995, respectively. During 1996 and 1995, loan advances involving these
individuals amounted to $184,327 and $96,966 while repayments totaled
$249,829 and $110,199, respectively. During 1996, $20,000 in loans owned by
related parties was transferred to a participating financial institution.
The Bank leases the banking premises from Cony Street Partnership. The
partnership is made up of nine of the directors of the Bank.
The Bank paid insurance premiums totaling $20,109 and $13,387 in 1996 and
1995, respectively to an insurance agency owned by one of the directors of
the Bank.
The Bank paid attorney fees totaling $771 and $3,322 in 1996 and 1995,
respectively to a law firm for legal costs. Two of the partners of the law
firm are directors of the bank.
The Bank purchased computers and equipment totalling $5,051 and $9,378 in
1996 and 1995 from a computer company owned by one of the directors of the
bank.
NOTE 12 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital(as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is
subject.
<PAGE> IV-17
<PAGE> 153
Cushnoc Bank and Trust Company
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 1996 and 1995
NOTE 12 - REGULATORY MATTERS (Continued)
As of December 31, 1996, the most recent notification from the FDIC
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 I risk-based, and Tier I
leverage ratios as set forth in the table below. There were no conditions
or events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes:
--------------------- ---------------------------
Amount Amount
(In thousands) Ratio (In thousands) Ratio
---------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets) $2,415 11.78% > or = $2,050 > or = 10.0%
Tier I Capital
(to Risk-Weighted Assets) $2,204 10.75% > or = $1,230 > or = 6.0%
Tier I Capital
(to Average Assets) $2,204 10.14% > or = $1,088 > or = 5.0%
</TABLE>
The Bank is required to maintain a $25,000 reserve balance in the form of
deposits with the Federal Reserve Bank.
<PAGE> IV-18
INTERIM FINANCIALS
Cushnoc Bank and Trust Company
BALANCE SHEETS
March 31, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
1997 1996
-------------------------
<PAGE> 154
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 912,322 $ 743,988
Interest bearing deposits with other banks 130,742 272,041
-------------------------
TOTAL CASH AND CASH EQUIVALENTS $ 1,043,064 $ 1,016,029
-------------------------
INVESTMENT SECURITIES
Securities held to maturity 1,818,818 1,824,381
Other investment securities 102,100 102,100
-------------------------
$ 1,920,918 $ 1,926,481
-------------------------
LOANS, net of allowance for loan loss of $215,782
and $211,066 in 1997 and 1996, respectively $16,778,855 $16,652,692
-------------------------
NET PROPERTY AND EQUIPMENT $ 829,343 $ 843,713
-------------------------
OTHER ASSETS
Foreclosed real estate $ 70,796 $ 108,926
Accrued interest receivable - investments 26,113 31,393
Accrued interest receivable - loans 126,759 115,159
Prepaid expenses 52,656 55,953
Income tax receivable 6,082 2,857
Other receivables 21,791 3,387
Deferred tax assets 62,312 63,205
-------------------------
TOTAL OTHER ASSETS $ 366,509 $ 380,880
-------------------------
TOTAL ASSETS $20,938,689 $20,819,795
=========================
</TABLE>
<PAGE> IV-19
Cushnoc Bank and Trust Company
BALANCE SHEETS
March 31, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES 1997 1996
-------------------------
<S> <C> <C>
DEPOSITS:
Demand $ 1,948,009 $ 1,859,148
NOW accounts 2,289,605 2,307,601
<PAGE> 155
Regular savings 1,556,584 1,543,093
Money market deposit accounts 2,780,282 2,728,350
Certificates of deposit (in denominations
of $100,000 or more) 1,548,701 1,662,069
Other time accounts 7,476,502 7,767,985
Treasury tax and loan - 130,865
-------------------------
TOTAL DEPOSITS $17,599,683 $17,999,111
OTHER LIABILITIES
Borrowed funds $ 1,063,610 $ 482,828
Accrued interest payable 62,265 84,448
Accrued expenses 23,776 32,258
Other 757 2,197
Deferred income tax 14,574 14,574
-------------------------
TOTAL OTHER LIABILITIES $ 1,164,982 $ 616,305
-------------------------
TOTAL LIABILITIES $18,764,665 $18,615,416
-------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $15 par value, 90,000 shares
authorized, issued and outstanding $ 1,350,000 $ 1,350,000
Additional paid in capital 900,000 900,000
Retained earnings (deficit) (75,976) (45,621)
-------------------------
TOTAL STOCKHOLDERS' EQUITY $ 2,174,024 $ 2,204,379
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,938,689 $20,819,795
=========================
</TABLE>
<PAGE> IV-20
Cushnoc Bank and Trust Company
STATEMENT OF INCOME
For the three month periods ended
March 31, 1997(Unaudited) and 1996(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $418,675 $429,104
Securities held to maturity 29,174 30,976
Federal Home Loan Bank dividends 1,500 1,824
Federal funds sold and securities purchased
under agreements to resell 3,983 31,636
-------------------
<PAGE> 156
TOTAL INTEREST INCOME $453,332 $493,540
-------------------
INTEREST EXPENSE
Borrowed funds $ 8,274 $ 8,942
Interest on deposits:
Regular savings and NOW accounts 26,040 24,200
Money market deposit accounts 22,624 27,112
Certificates of deposit (in denominations
of $100,000 or more) 23,159 35,741
Other time accounts 107,701 140,646
-------------------
TOTAL INTEREST EXPENSE $187,798 $236,641
-------------------
NET INTEREST INCOME $265,534 $256,899
PROVISION FOR LOAN LOSSES 9,000 9,000
-------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $256,534 $247,899
NON-INTEREST INCOME 22,435 18,612
NON-INTEREST EXPENSES 310,756 270,614
-------------------
(LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES $(31,787) $ (4,104)
PROVISION (BENEFIT) FOR INCOME TAXES (1,432) 1,885
-------------------
NET (LOSS) $(30,355) $ (5,989)
===================
</TABLE>
<PAGE> IV-21
Cushnoc Bank and Trust Company
SCHEDULE OF NON-INTEREST EXPENSES
For the three month periods ended
March 31, 1997(Unaudited) and 1996 (Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------------
<S> <C> <C>
Salaries and employee benefits $141,388 $135,099
Occupancy expense 41,070 42,461
Equipment expense 25,634 24,915
FDIC insurance assessment 484 933
Other 102,180 67,206
-------------------
<PAGE> 157
TOTAL OTHER EXPENSES $310,756 $270,614
===================
</TABLE>
<PAGE> IV-22
Cushnoc Bank and Trust Company
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the three month period ended March 31, 1997 (Unaudited)
and the twelve month period ended December 31, 1996
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-in Earnings Stockholders'
Stock Capital (Deficit) Equity
--------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $1,350,000 $900,000 $(45,621) $2,204,379
NET INCOME, three month
period ended March 31, 1997 - - (30,355) (30,355)
------------------------------------------------
BALANCE, March 31, 1997 $1,350,000 $900,000 $(75,976) $2,174,024
================================================
BALANCE, December 1, 1995 $1,350,000 $900,000 $(50,514) $2,199,486
NET LOSS, three month
period ended March 31, 1996 - - (5,989) (5,989)
------------------------------------------------
BALANCE, March 31, 1996 $1,350,000 $900,000 $(56,503) $2,193,497
NET INCOME, nine month
period ended December 31, 1996 - - 10,882 10,882
------------------------------------------------
BALANCE, December 31, 1996 $1,350,000 $900,000 $(45,621) $2,204,379
================================================
</TABLE>
<PAGE> IV-23
Cushnoc Bank and Trust Company
STATEMENT OF CASH FLOWS
For the three month periods ended
March 31, 1997 (Unaudited) and 1996 (Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------------------
<PAGE> 158
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 447,012 $ 513,203
Fees and commissions received 22,072 18,612
Interest (paid) (209,981) (268,606)
Cash (paid) to suppliers and employees (294,058) (264,616)
Other 1,236 (7,916)
-------------------------
NET CASH USED BY OPERATING ACTIVITIES $ (33,719) $ (9,323)
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from paydowns and maturities of
held to maturity securities $ 5,563 $ 300,982
(Purchase) of held to maturity securities - (150,000)
Net (increase) in loans, net of write offs (126,163) (285,683)
(Purchase) of property and equipment - (3,879)
-------------------------
NET CASH USED BY INVESTING ACTIVITIES $ (120,600) $ (138,580)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease)in borrowings $ 580,782 $ (15,172)
Net increase (decrease) in demand deposits, NOW,
money market, and other savings accounts 136,288 (871,506)
Net (decrease) in certificates of deposit (404,851) (570,531)
Net (decrease) in treasury tax and loan (130,865) (120,677)
-------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $ 181,354 $(1,577,886)
-------------------------
INCREASE IN CASH AND CASH EQUIVALENTS $ 27,035 $(1,725,789)
CASH AND CASH EQUIVALENTS, beginning of period 1,016,029 4,536,612
-------------------------
CASH AND CASH EQUIVALENTS, end of period $1,043,064 $ 2,810,823
=========================
SUPPLEMENTAL INFORMATION
Income taxes paid $ -
</TABLE>
<PAGE> IV-24
Cushnoc Bank and Trust Company
STATEMENT OF CASH FLOWS
For the three month periods ended
March 31, 1997 (Unaudited) and 1996 (Unaudited)
RECONCILIATION OF NET (LOSS) TO NET CASH
USED BY OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
<PAGE> 159
1997 1996
--------------------
<S> <C> <C>
Net loss $(30,355) $ (5,989)
--------------------
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization $ 16,656 $ 18,862
Provision for loan losses 9,000 9,000
Amortization of organizational and start up costs - 2,513
Loss on sale of foreclosed real estate 8,440 -
(Increase) decrease in accrued interest receivable (6,320) 6,467
Decrease in prepaid expenses 3,297 6,802
Decrease in deferred tax asset 893 -
(Increase) decrease in income tax receivable (3,225) 1,593
(Increase) in other receivables - (807)
Decrease in accrued expenses and other liabilities (9,922) (15,799)
Decrease in accrued interest payable - deposits (22,183) (31,965)
--------------------
TOTAL ADJUSTMENTS $ (3,364) $ (3,334)
--------------------
NET CASH (USED) BY OPERATING ACTIVITIES $(33,719) $ (9,323)
====================
</TABLE>
<PAGE> IV-25
Cushnoc Bank and Trust Company
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 1997 and 1996
1. Financial Statement Presentation - IOn the opinion of the management of
Cushnoc Bank and Trust Company, the accompanying interim financial
statements contain all of the adjustments necessary to present fairly
the financial position as of March 31, 1997; the results of
operations, cash flows and changes in stockholders' equity for the
three months ended March 31, 1997 NS 1996.
2. Per Share Computations - Earnings per common share are determined by
using the average number of common shares outstanding during the year.
<PAGE> IV-26
<PAGE> 160
