As filed with the Securities and Exchange Commission on September 2, 1997
Registration No. 333-31797
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<PAGE> 9
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
NORTHEAST BANCORP
- -------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
Maine 6035 01-0425066
- ---------------------------- -------------------- -------------------
(State or other jurisdiction (Primary Standard (IRS Employer
of Incorporation or Industrial Identification No.)
organization) Classification Code)
232 Center Street
Auburn, Maine 04210
(207) 777-6411
- -------------------------------------------------------------------------------
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
James Delamater, President, Northeast Bancorp
232 Center Street, Auburn, Maine 04210 (207) 777-6411
- -------------------------------------------------------------------------------
(Name, address, including ZIP Code, and telephone
number, including area code, of agent for service)
COPY TO:
Joseph L. Delafield III, Esq.
Drummond Woodsum & MacMahon
245 Commercial Street, P.O. Box 9781
Portland, Maine 04104-5081
(207) 772-1941
<PAGE>
CUSHNOC BANK AND TRUST COMPANY
235 Western Avenue
Augusta, ME 04330
September ____, 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,
<PAGE> 10
Augusta, Maine on , 1997 at .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.
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 ,
, 1997 at .m, for the following purposes:
<PAGE> 11
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 , 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.
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 , 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
<PAGE> 12
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 , 1997, and at any
adjournments or postponements thereof (the "Special Meeting"). This
Prospectus/Proxy Statement is first being mailed to shareholders on or about ,
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."
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.
-------------------
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.
<PAGE> 13
-------------------
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."
The date of this Prospectus/Proxy Statement is September , 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
<PAGE> 14
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 __________, 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;
(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>
TABLE OF CONTENTS
<PAGE> 15
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information............................................................
Incorporation of Documents by Reference..........................................
Summary..........................................................................
Market for Common Stock and Dividends............................................
Comparative Per Share Data.......................................................
Selected Consolidated Financial and Other Data of NBN............................
Selected Financial Data of Cushnoc...............................................
Recent Developments..............................................................
NBN............................................................................
Cushnoc........................................................................
General Information..............................................................
The Special Meeting..............................................................
Time and Place.................................................................
Matters to be Considered.......................................................
Shares Outstanding and Entitled to Vote; Record Date...........................
Vote Required..................................................................
Solicitation of Proxies........................................................
The Merger.......................................................................
General........................................................................
Background of the Merger.......................................................
Reasons for the Merger.........................................................
Opinion of Financial Advisor...................................................
Effects of the Merger..........................................................
Exchange of Cushnoc Common Stock Certificates..................................
Conditions to the Merger.......................................................
Regulatory Approval............................................................
Business Pending the Merger....................................................
No Solicitation................................................................
Effective Time of the Merger; Termination and Amendment........................
Termination Fee................................................................
Interests of Certain Persons in the Merger.....................................
Certain Employee Matters.......................................................
Resale of NBN Common Stock.....................................................
Certain Federal Income Tax Consequences........................................
Accounting Treatment of the Merger.............................................
Expenses of the Merger.........................................................
Dissenters' Rights.............................................................
Cushnoc
General........................................................................
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..........................................
Management of NBN after the Merger...............................................
<PAGE>
Description of NBN Capital Stock.................................................
NBN Common Stock...............................................................
<PAGE> 16
NBN Preferred Stock............................................................
Other Provisions...............................................................
Transfer Agent.................................................................
Comparison of the Rights of Shareholders.........................................
Authorized Capital Stock.......................................................
Issuance of Capital Stock......................................................
Number of Directors............................................................
Director Vacancies and Removal of Directors....................................
Shareholder Nominations........................................................
Inside Directors...............................................................
Preemptive Rights
Classes of Stock...............................................................
Business Combinations..........................................................
Special Meetings of Shareholders...............................................
Amendment of Governing Instruments.............................................
NBN Common Stock Ownership of Certain Beneficial Owners and Management...........
Security Ownership of Certain Beneficial Owners................................
Security Ownership of Management...............................................
Certain Beneficial Owners of Cushnoc Common Stock
Security Ownership of Management...............................................
Security Ownership of Certain Beneficial Owners................................
Legal Opinion....................................................................
Experts..........................................................................
Other Matters....................................................................
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>
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
, 1997 at :00 .m., local time, at Cushnoc's executive
<PAGE> 17
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 , 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.
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
<PAGE>
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.
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
<PAGE> 18
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.
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.
<PAGE>
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.
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
<PAGE> 19
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 August ____, 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>
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.
There can be no assurance that the necessary approval will be obtained
or as to the timing or conditions of such approval. 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
<PAGE> 20
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 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.
<PAGE>
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 "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 -- 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
<PAGE> 21
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>
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
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."
<PAGE> 22
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."
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 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.
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 187 shareholders of record. Such number of
<PAGE>
shareholders does not reflect the number of individuals or institutional
<PAGE> 23
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
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*
<F*> Adjusted to reflect 100% stock dividend paid on 12/15/95.
</TABLE>
<PAGE>
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
--- -------
<PAGE> 24
<S> <C> <C> <C>
May 8, 1997 14 1/8 N/A $29.51
<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.
</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.
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
<PAGE>
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 operating cost savings which may be
realized. The pro forma financial information does not reflect any of these
anticipated operating cost savings.
<PAGE> 25
<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
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 at 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.
<PAGE> 26
<F3> Proforma equivalent cash dividends represent historical cash dividends
of NBN multiplied by the 2.089 Exchange Ratio.
</TABLE>
<PAGE>
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."
<TABLE>
<CAPTION>
Nine Months Ended Years 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 8,053 6,479 7,155 8,208
----------------------------------------------------------------------
Net Interest income 7,064 6,711 8,866 8,870 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 1,697 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> 27
<PAGE>
<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%
- --------------------------------------------------------------------------------------------------------------
<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.
</TABLE>
<PAGE>
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)
<TABLE>
<CAPTION>
Quarter Ended
March 31, Year Ended December 31,
----------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<PAGE> 28
<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) $ (0.70) $ 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% 0.56%
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%
Cash dividends none none none none none none none
</TABLE>
<PAGE>
RECENT DEVELOPMENTS
<PAGE> 29
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
Other assets 4,314,292 3,820,818
-------------------------------
$ 261,799,706 $ 222,289,615
===============================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
1997 1996
------------- -------------
<PAGE> 30
<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
<PAGE>
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>
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
------------ ------------ ------------
<PAGE> 31
<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>
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
Years Ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1995
------------ ------------ ------------
<PAGE> 32
<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>
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Years Ended June 30, 1997 (unaudited), 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Additional Losses on
Preferred Stock Common Paid-in Treasury Retained Available for
Series A and B Stock Capital Stock Earnings Sale 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
<PAGE> 33
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 - - - 11,558
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
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>
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<PAGE> 34
(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
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>
NORTHEAST BANCORP AND SUBSIDIARY
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<PAGE> 35
(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
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>
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
<PAGE> 36
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
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>
<PAGE> 37
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>
NORTHEAST BANCORP AND SUBSIDIARY
NOTES TO SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
(Continued)
3. Loans Receivable
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<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
----------- ----------- -----------
<PAGE> 38
<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>
<PAGE>
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.
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.
<PAGE> 39
<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:
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
<PAGE>
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. 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
<PAGE> 40
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.
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
<PAGE>
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 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
<PAGE> 41
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
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>
Results Of Operations
<PAGE> 42
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.
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> 43
<PAGE>
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
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
<PAGE> 44
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>
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
------------------------------------------
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,
<PAGE> 45
$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.
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
in fiscal 1996 increased due to increased volume in underwriting Freddie
<PAGE>
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
<PAGE> 46
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>
GENERAL INFORMATION
This Prospectus/Proxy Statement is being furnished to the holders of
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
____________, 1997.
THE SPECIAL MEETING
Time and Place
The Special Meeting will be held at 9:00 a.m. Eastern Time, on
___________________________ 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.
<PAGE> 47
Shares Outstanding and Entitled to Vote; Record Date
The close of business of ________ 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 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.
<PAGE>
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.
<PAGE> 48
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
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.
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
<PAGE>
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
<PAGE> 49
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 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 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
<PAGE> 50
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,
<PAGE>
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 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 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.
<PAGE> 51
(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.
<PAGE>
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;
(2) the fact that Cushnoc does business in one of Maine's largest
market areas, which is also the capitol city;
(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;
<PAGE> 52
(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.
<PAGE>
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 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.
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 August , 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 August ,
<PAGE> 53
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.
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
<PAGE>
evaluation of allowances for loan losses. Therefore, Ryan, Beck has not
assumed any responsibility for making an independent evaluation of the
adequacy 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
<PAGE> 54
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.
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 $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
<PAGE> 55
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
<PAGE>
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.
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.
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
<PAGE> 56
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
<PAGE>
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 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
<PAGE> 57
approximately 12.0% and fully diluted tangible book value would decrease by
approximately 0.35%. Additionally, Cushnoc shareholders, based on NBN's
current dividend 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.
<PAGE>
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 August , 1997,
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 August , 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
<PAGE> 58
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.
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"), shall be entitled to receive in exchange therefor a
certificate or certificates representing full shares of NBN
<PAGE>
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
<PAGE> 59
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
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.
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
<PAGE> 60
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
<PAGE>
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, 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 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
<PAGE> 61
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 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
<PAGE>
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 has indicated that it deemed the application
complete as of August 7, 1997. Although neither NBN nor Cushnoc is aware of
any basis for disapproving the Merger, there can be no assurance that the
requisite approval will be obtained, that such approval will be received on
a timely basis or that such approval will not impose conditions or
requirements which, 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 conditional requirement been known
NBN, in its reasonable judgment, would not have entered into the Merger
Agreement. If any such conditional requirement is imposed, NBN may
terminate the Merger Agreement.
The approval of any 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.
The Merger Agreement provides that if the Merger has not been
consummated by December 31, 1997, the Merger Agreement may be terminated by
NBN or Cushnoc. Since there is the possibility that regulatory approval may
not be obtained for a substantial period of time after approval of the
<PAGE> 62
Merger Agreement by Cushnoc's shareholders, there can be no assurance that
the Merger will be consummated by December 31, 1997. In addition, should
regulatory approval require any material change, a resolicitation of
shareholders may be required if regulatory approval is obtained after
shareholder approval of the Merger Agreement.
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 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
<PAGE>
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 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
<PAGE> 63
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 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 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.
<PAGE> 64
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 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 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
<PAGE> 65
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
<PAGE>
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
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> 66
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
<PAGE>
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 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.
<PAGE> 67
Certain Employee Matters
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 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.
<PAGE>
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
<PAGE> 68
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.
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 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
<PAGE> 69
Merger; the basis of the Cushnoc Common Stock to be received by a Cushnoc
shareholder receiving solely 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
<PAGE>
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.
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
<PAGE> 70
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 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
<PAGE>
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 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
<PAGE> 71
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 [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
<PAGE>
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
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
<PAGE> 72
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
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>
The gap between interest-sensitive assets and interest-sensitive
liabilities at December 31, 1996 is shown in the following table (in
thousands).
<TABLE>
<CAPTION>
Maturity or Repricing Period
--------------------------------------------------
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
<PAGE> 73
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
=======
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 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
<PAGE>
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.
<PAGE> 74
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.
The following table sets forth the composition of Cushnoc's loan
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> <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>
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:
<PAGE> 75
<TABLE>
<CAPTION>
Due after
one year
Due in one through Due after
year or less five years five years
------------ ---------- ----------
<S> <C> <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
----- --------
<S> <C> <C> <C>
1. Commercial, financial $234 $59
and agricultural
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%
<PAGE> 76
Accruing loans, past due 90 days -- --
Troubled debt restructurings -- --
</TABLE>
<PAGE>
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.
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>
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
<PAGE> 77
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>
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
<PAGE> 78
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 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.
<PAGE>
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.
<PAGE> 79
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.
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.
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.
<PAGE>
Liquidity and Capital Resources. Cushnoc maintains liquid assets to
meet both short term funding requirements and long term growth objectives.
<PAGE> 80
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, 1996 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>
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.
<PAGE> 81
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.
<PAGE>
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.
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 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
<PAGE> 82
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
<PAGE>
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.
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 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.
<PAGE> 83
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
<PAGE>
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 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.
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.
<PAGE> 84
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>
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.
Classes of Stock
<PAGE> 85
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.
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.
<PAGE>
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
<PAGE> 86
amended by a 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>
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
<PAGE> 87
Claude E. Savoie 101,700 ( 6.4%)
550 Sheldiac Road
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>
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)
- ---------------------------------------------------------------------
<PAGE> 88
DIRECTORS
Name Age
---- ---
<S> <C> <C>
James D. Delamater 46 40,970 ( 2.6%)
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%)
<CAPTION>
OTHER NAMED EXECUTIVE OFFICERS
Name Age
---- ---
<S> <C> <C>
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)
<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 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
<PAGE> 89
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>
<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.
</TABLE>
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
<PAGE> 90
(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%)
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%)
<PAGE>
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.
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
<PAGE> 91
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.
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>
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;
<PAGE> 92
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.
"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 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,
<PAGE> 93
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
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, 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.
<PAGE> 94
"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.
"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.
"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.
<PAGE> 95
"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.
"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.
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
<PAGE> 97
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
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 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,
<PAGE> 97
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.
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 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
<PAGE> 98
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
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 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
shares of Acquiror Common Stock, or (D) reclassified the shares of Acquiror
<PAGE> 99
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 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
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
<PAGE> 100
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 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
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.
<PAGE> 101
(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.
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
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
<PAGE> 102
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.
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
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
<PAGE> 103
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 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
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
<PAGE> 104
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 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
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
<PAGE> 105
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 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.
(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
<PAGE> 106
the Company is obligated to indemnify any director, officer, employee or
agent of the Company; (v) any agreement, 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;
(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
<PAGE> 107
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 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
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.
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.
<PAGE> 108
(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:
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 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
<PAGE> 109
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
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 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
<PAGE> 110
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
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 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.
<PAGE> 111
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
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
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
<PAGE> 112
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
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 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
<PAGE> 113
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,
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.
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
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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.
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.
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.
<PAGE> 115
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
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.
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
<PAGE> 116
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
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.
(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
<PAGE> 117
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.
(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 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
<PAGE> 118
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;
(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 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;
(x) acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) any business or entity;
<PAGE> 119
(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
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;
(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
<PAGE> 120
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, 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
(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
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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 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
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
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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 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
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)
<PAGE> 123
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 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
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.
<PAGE> 124
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.
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.
(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
<PAGE> 125
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.
(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
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,
<PAGE> 126
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.
(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.
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
<PAGE> 127
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.
(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
(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
<PAGE> 128
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 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.
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.
<PAGE> 129
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 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.
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.
<PAGE> 130
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 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,
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
If to the Company:
Cushnoc Bank and Trust Company
One Bangor Street
Augusta, Maine 04332-4701
Attn: Sumner Lipman
Fax - 207-623-8528
<PAGE> 131
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
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.
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> 132
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
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>
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
<PAGE> 133
- ------------
<F*> Penalty of minimum monthly fee times months remaining in initial
agreement.
</TABLE>
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
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).
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,
<PAGE> 134
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
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.
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:
EXHIBIT E
AFFILIATES OF ACQUIROR
<PAGE> 135
_____________, 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 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:
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)
<PAGE> 136
(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
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 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.
<PAGE> 137
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
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.
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.
<PAGE> 138
(v) The execution, delivery and performance of the Agreement by the
Company, and the consummation of the transactions contemplated thereby by
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.
(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.
ANNEX II
<PAGE> 139
RYAN, BECK & CO., INC.
August ___, 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 financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to Cushnoc; and
(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.
<PAGE> 140
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 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.
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,
RYAN, BECK & CO., INC.
<PAGE> 141
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 2/3 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.
ANNEX IV
Cushnoc Bank and Trust Company
FINANCIAL STATEMENTS
December 31, 1996 and 1995
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
<PAGE> 142
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.
/S/ Schatz, Fletcher & Associates
January 29, 1997
Augusta, Maine
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
<PAGE> 143
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
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
=========================
<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
-------------------------
<PAGE> 144
TOTAL LIABILITIES $18,615,416 $22,800,485
-------------------------
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
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> 145
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
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
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
<PAGE> 146
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
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> 147
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
==========================
SUPPLEMENTAL INFORMATION
Loans transferred to foreclosed real estate $ 108,926 $ 100,000
==========================
<PAGE> 148
RECONCILIATIONS OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
1996 1995
____ ____
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:
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
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
<PAGE> 149
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.
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
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:
<PAGE> 150
<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. 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.
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
<PAGE> 151
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.
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)
==============================================
</TABLE>
<TABLE>
<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> 152
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.
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
<PAGE> 153
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
---- ----
<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>
NOTE 5 - PROPERTY AND EQUIPMENT
Major classifications of these assets are summarized as follows:
<PAGE> 154
<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>
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
---- ----
<PAGE> 155
<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>
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:
<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
<PAGE> 156
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.
NOTE 9 - BORROWED FUNDS AND TIME DEPOSITS
BORROWED FUNDS
The Bank borrowed $700,000 in long-term advances from the Federal Home Loan
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>
<PAGE> 157
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.
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> 158
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= 10.00%
Tier I Capital
(to Risk-Weighted Assets) $2,204 10.75% >or=$1,230 >or= 6.00%
Tier I Capital
(to Average Assets) $2,204 10.14% >or=$1,088 >or= 5.00%
</TABLE>
The Bank is required to maintain a $25,000 reserve balance in the form of
deposits with the Federal Reserve Bank.
INTERIM FINANCIALS
Cushnoc Bank and Trust Company
Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<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
----------------------------
<PAGE> 159
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 asset 62,312 63,205
----------------------------
TOTAL OTHER ASSETS $ 366,509 $ 380,880
----------------------------
TOTAL ASSETS $ 20,938,689 $ 20,819,795
============================
</TABLE>
Cushnoc Bank and Trust Company
Balance Sheets
March 31, 1997 (Unaudited) and December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
LIABILITIES 1997 1996
------------ ------------
<S> <C> <C>
DEPOSITS:
Demand $ 1,948,009 $ 1,859,148
NOW accounts 2,289,605 2,307,601
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
----------------------------
<PAGE> 160
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
----------------------------
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>
Cushnoc Bank and Trust Company
Statements 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
------------------------
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
------------------------
<PAGE> 161
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>
Cushnoc Bank and Trust Company
Schedules 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
-----------------------
TOTAL OTHER EXPENSES $ 310,756 $ 270,614
=======================
</TABLE>
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
<PAGE> 162
<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 LOSS, 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 31, 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>
Cushnoc Bank and Trust Company
Statements of Cash Flows
For the three month periods ended March 31, 1997 (Unaudited)
and 1996 (Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<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)
----------------------------
<PAGE> 163
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 (DECREASE) 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>
RECONCILIATIONS OF NET (LOSS) TO NET CASH USED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
For the three month
period ended
March 31
-----------------------
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
<PAGE> 164
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 recievables 0 (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>
Cushnoc Bank and Trust Company
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 1997 and 1996
1. Financial Statement Presentation - In 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 and 1996.
2. Per Share Computations- Earnings per common share are determined by
using the average number of common shares outstanding during the
year.
PART II
Item 21. Exhibits and Financial Statement Schedules
(a) The following exhibits are submitted in response to this item:
3.2 Bylaws of Northeast Bancorp, as amended August 28, 1997, are submitted
herewith as Exhibit 3.2
8.1 Opinion of Drummond Woodsum & MacMahon, counsel to Northeast Bancorp
with respect to certain tax matters is filed herewith as Exhibit 8.1.
8.2 Opinion of Breyer & Aguggia, counsel to Cushnoc Bank and Trust
Company, with respect to certain tax matters is filed herewith as
Exhibit 8.2.
23.1 The consent of Baker Newman & Noyes, Limited Liability Company,
Northeast Bancorp's independent accountants, is filed herewith as
Exhibit 23.1.
<PAGE> 165
23.2 The consent of Schatz, Fletcher & Associates, Cushnoc Bank and Trust
Company's independent accountants, is filed herewith as Exhibit 23.2
23.3 The consent of Drummond Woodsum & MacMahon, counsel to Northeast
Bancorp, is filed herewith as Exhibit 23.3.
23.4 The consent of Breyer & Aguggia, counsel to Cushnoc Bank and Trust
Company, is filed herewith as Exhibit 23.4.
23.5 The consent of Ryan, Beck & Co., Inc. is filed herewith as Exhibit
23.5.
23.6 The consent of KPMG Peat Marwick LLP, Northeast Bancorp's former
independent accountants, is filed herewith as Exhibit 23.6.
23.7 The consent of John Rosmarin, nominee to serve as a director of NBN,
is filed herewith as Exhibit 23.7.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Auburn
and State of Maine on the 2 day of September, 1997.
Northeast Bancorp
By: /s/ James D. Delamater
James D. Delamater
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------- ----------------------- -------------------
<S> <C> <C>
/s/ James D. Delamater Director, President and September 2, 1997
James D. Delamater Chief Executive Officer
/s/ Richard E. Wyman Chief Financial Officer September 2, 1997
Richard E. Wyman and Principal Accounting
Officer
/s/ John W. Trinward* Director, Chairman of September 2, 1997
John W. Trinward the Board
<PAGE> 166
/s/ John B. Bouchard* Director September 2, 1997
John B. Bouchard
/s/ A. William Cannan* Director September 2, 1997
A. William Cannan
/s/ Ronald J. Goguen* Director September 2, 1997
Ronald J. Goguen
/s/ Judith W. Hayes* Director September 2, 1997
Judith W. Hayes
/s/ Normand R. Houde* Director September 2, 1997
Normand R. Houde
/s/ Philip C. Jackson* Director September 2, 1997
Philip C. Jackson
<PAGE>
/s/ Ronald Kendall* Director September 2, 1997
Ronald Kendall
/s/ Edmond J. Vachon* Director September 2, 1997
Edmond J. Vachon
/s/ Stephen W. Wight* Director September 2, 1997
Stephen W. Wight
/s/ Dennis A. Wilson* Director September 2, 1997
Dennis A. Wilson
<FN>
<F*> James D. Delamater, by signing his name hereto, does hereby sign this
Amendment No. 1 to Registration Statement on behalf of each of the
above-named Directors and Officers of Northeast Bancorp pursuant to a
power of attorney executed by each such person and filed with the
Securities and Exchange Commission.
</FN>
</TABLE>
By: /s/ James D. Delamater
James D. Delamater
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- -------
<PAGE> 167
3.2 Bylaws of Northeast Bancorp, as amended August 28, 1997, are submitted
herewith as Exhibit 3.2
8.1 Opinion of Drummond Woodsum & MacMahon, counsel to Northeast Bancorp
with respect to certain tax matters is filed herewith as Exhibit 8.1.
8.2 Opinion of Breyer & Aguggia, counsel to Cushnoc Bank and Trust
Company, with respect to certain tax matters is filed herewith as
Exhibit 8.2.
23.1 The consent of Baker Newman & Noyes, Limited Liability Company,
Northeast Bancorp's independent accountants, is filed herewith as
Exhibit 23.1.
23.2 The consent of Schatz, Fletcher & Associates, Cushnoc Bank and Trust
Company's independent accountants, is filed herewith as Exhibit 23.2
23.3 The consent of Drummond Woodsum & MacMahon, counsel to Northeast
Bancorp, is filed herewith as Exhibit 23.3.
23.4 The consent of Breyer & Aguggia, counsel to Cushnoc Bank and Trust
Company, is filed herewith as Exhibit 23.4.
23.5 The consent of Ryan, Beck & Co., Inc. is filed herewith as Exhibit
23.5.
23.6 The consent of KPMG Peat Marwick LLP, Northeast Bancorp's former
independent accountants, is filed herewith as Exhibit 23.6.
23.7 The consent of John Rosmarin, nominee to serve as a director of NBN,
is filed herewith as Exhibit 23.7.
<PAGE>
EXHIBIT 3.2
NORTHEAST BANCORP
BY-LAWS
-------------------------------------------
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the shareholders of the
Corporation shall be held at the principal office of the Corporation in the
State of Maine, or at such other place, within or without the State of
Maine, as may, from time to time, be fixed by the Board of Directors or as
shall be specified or fixed in the respective notices or waivers of notice
thereof.
<PAGE> 168
Section 2. Annual Meetings. The annual meeting of the shareholders shall
be held not more than one hundred, thirty-five (135) days after the close of
the fiscal year of the Corporation, on such date and at such hour as may be
fixed by the Board of Directors and stated in the notice of such meeting or
on such other date and at such time as shall be stated in the notice of the
meeting or otherwise specified by the President. The Clerk shall serve
personally or by mail a written notice not less than ten (10) days nor more
than sixty (60) days before such meeting, addressed to each shareholder at
his address as it appears on the stock book; but at any meeting at which all
shareholders not present shall have waived notice in writing, the giving of
notice as above required, may be foregone.
Section 3. Special Meetings. A special meeting of the shareholders for any
purpose or purposes, unless otherwise prescribed by statue, may be called at
any time by the Chairman of the Board, if any, the President, or a Vice-
President, or by a majority of the Board of Directors, or upon written
application therefore to the Clerk by the holders of not less than ten
percent (10%) of the shares entitled to vote at the meeting. Written notice
of such meeting, stating the purpose for which it is called, shall be served
personally, or by mail, not less than ten (10) nor more than sixty (60) days
before the date set for such meeting. If mailed, it shall be directed to
every shareholder at his address as it appears on the stock book, but, at
any meeting at which all shareholders shall be present, or of which all
shareholders not present have waived notice in writing, the giving of notice
as above required may be foregone. No business other than that specified in
the call for the meeting shall be transacted at any special meeting of the
shareholders.
Section 4. Quorum. At each meeting of the shareholders, the presence, in
person or by proxy, of the holders of a majority of the issued and
outstanding stock of the corporation entitled to vote at such meeting, shall
constitute a quorum for the transaction of business except where otherwise
provided by law or by the Articles of Incorporation of the Corporation or
any amendment thereto. In the absence of a quorum at any meeting or any
adjournment thereof, the shareholders of the Corporation present in person
or by proxy and entitled to vote shall have the power to adjourn the
meeting, from time to time, until shareholders holding the requisite amount
of stock shall be present or represented. At any such adjourned meeting at
which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally called. Notice of any
adjourned meeting of the shareholders shall not be required to be given,
except when expressly required by law.
Section 5. Organization. The Chairman of the Board, if any, or in the
absence of the Chairman of the Board, the President or a Vice-President, or
a Chairman designated by the Board of Directors or by the shareholders shall
preside at every meeting of the shareholders. In the absence of the
Secretary, the presiding officer shall appoint a secretary pro tempore.
<PAGE>
Section 6. Voting. (a) Each shareholder of the corporation having voting
rights shall, except as otherwise provided by law or by the Articles of
Incorporation of the Corporation, at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share of the stock of
the Corporation registered in his name on the books of the Corporation
(1) on the date fixed pursuant to Section 2 of Article VI of
<PAGE> 169
the By-laws as the record date for the determination of shareholders
entitled to vote at such meeting, notwithstanding the sale, or other
disposal or transfer on the books of the Corporation of such share on
or after the date so fixed, or
(2) if no such record date shall have been fixed, then at the
date on which notice of such meeting is mailed.
(b) At any meeting of shareholders at which a quorum is present, the
holders of a majority in interest of the stock having voting rights
represented thereat in person or by proxy shall decide any question brought
before such meeting unless a larger or different vote or proportion is
required by law or by the Articles of Incorporation of the Corporation or by
these By-laws.
(c) When so requested by a majority of the holders of outstanding shares
present at the meeting, a written ballot shall be used for any vote of the
shareholders. If a written ballot shall be used, each ballot shall state
the name of the shareholder voting, the number of shares owned by him, and
if such ballot be cast by proxy, the name of the proxy.
Section 7. Shareholders' Action Without Meeting. Any action which, under
any provision of the Maine Business Corporation Act, may be taken at a
meeting of shareholders, may be taken without such a meeting, if consent in
writing, setting forth the action so taken or to be taken, is signed
severally or collectively by the holders of all the issued and outstanding
shares of stock entitled to vote upon such action. The Secretary shall file
such consent or consents with the minutes of the meetings of the
Shareholders.
-------------------------------------------
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The property, affairs and business of the
Corporation shall be controlled and managed by the Board of Directors.
Without limiting the generality of the foregoing, such control shall include
the power to: hire employees, professional, clerical and secretarial; enter
into employment agreements with employees where deemed advisable; determine
levels of employee compensation, including wages, salaries, bonuses and
other fringe benefits; terminate the employment of an employee; determine
conditions of employment, including hours of work, work responsibility,
vacation time, and sick leave; authorize the purchase or rental of property
and determine all policies of the Corporation with regard to the conduct of
the business of the Corporation. The Board of Directors may, from time to
time, delegate particular responsibilities to specified officers of the
Corporation as it shall deem advisable. They may adopt such rules and
regulations for the conduct of their meeting and the management of the
Corporation not inconsistent with these By-laws, the Corporation's Articles
of Incorporation, or the laws of the State of Maine as they may deem proper.
Section 2. Number, qualifications and Term of Office. The number of
directors of the Corporation shall be no less than nine (9) and no more than
<PAGE> 170
twelve (12). The number of directors who are also senior executive officers
of the Company shall not exceed three (3). The board will use its best
efforts to fill any vacancy promptly. The exact number of Directors, within
the minimum and maximum limitations specified in the preceding sentence,
shall be fixed, from time to time, by the Board pursuant to a resolution
adopted by a majority of the entire Board. No decrease in the number of
directors constituting the Board shall shorten the term of any incumbent
director. Beginning with the 1997 annual meeting of shareholders, Directors
shall be elected for terms of one year. No term of an existing director
shall be shortened to less than their elected term. Directors need not be
shareholders or residents of the State of Maine.
Section 3. Manner of Election. At the annual meeting of shareholders, the
persons receiving the largest number of votes cast, shall be Directors.
Section 4. Quorum and Manner of Acting. A majority of the total number of
Directors then holding office, shall constitute a quorum for the transaction
of business at any meeting except where otherwise provided by statute, the
Corporation's Articles of Incorporation or these By-laws; but, less than a
quorum may adjourn the meeting. At all meetings of the Board of Directors,
each Director present is to have one vote. At all meetings of the Board of
Directors, all questions, the manner of deciding which, is not specifically
regulated by statute or the Corporation's Articles of Incorporation, shall
be determined by a majority of the Directors present at the meeting.
Section 5. Place of Meeting, etc. The Board of Directors may hold its
meetings and have one or more offices at such places within or without the
State of Maine as the Board, from time to time, may determine or, in the
case of meetings, as shall be specified or fixed in the respective notices
or waivers of notice thereof.
Section 6. Books and Records. The correct and complete books and records
of account and minutes of the proceedings of Shareholders and the Board of
Directors shall be kept at the registered office of the Corporation.
Section 7. First Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the Clerk, and the
transaction of other business as soon as practicable after each annual
election of Directors, on the same day and at the same place at which
regular meetings of the Board are held, or as may be otherwise provided by
resolution of the Board. Notice of such meeting need not be
<PAGE>
given. Such meeting may be held at any other time or place which shall be
specified in a notice given as hereinafter provided for special meetings of
the Board of Directors or in a consent and waiver of notice, thereof, signed
by all the Directors.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place and at such time as the Board shall, from time
to time, by resolution, determine. A regular meeting of the board of
directors shall be held immediately after and at the same place as the
annual meeting of shareholders. Notice of regular meetings need not be
given.
Section 9. Special Meetings; Notice. Special meetings of the Board of
<PAGE> 171
Directors shall be held whenever called by the Chairman of the Board, if
any, or by the President, or by the Clerk at the request of any two
Directors at the time being in office. Notice of each such meeting shall be
mailed to each Director, addressed to him at his residence or usual place of
business, at least two (2) days before the day on which the meeting is to be
held, or shall be sent to him at such place by telegraph, cable, radio or
wireless, or be given personally or by telephone, not later than the day
before the day on which the meeting is to be held. Every such notice shall
state the time and place of the meeting, but, need not state the purpose
thereof. Notice of any meeting of the Board need not be given to any
Directors, however, if waived by him in writing or by telegraph, cable,
radio or wireless, whether before or after such meeting be held, or if he
shall be present at such meeting unless his attendance at the meeting is
expressly for the purpose of objecting to the transaction of any business
because the meeting is not lawfully convened; and any meeting of the Board
shall be a legal meeting without any notice thereof having been given, if
all of the Directors shall be present thereat.
Section 10. Resignations. Any Director of the Corporation may resign at
any time by giving written notice to the President or to the Clerk of the
Corporation. Such resignation shall take effect at the time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 11. Removal of Directors. At any meeting of Shareholders called
expressly for the purpose, any Director may be removed form office by the
affirmative vote of the holders of seventy-five percent (75%) of the shares
entitled to vote or if removal is for cause, then by a majority of the
shares then entitled to vote. For "cause" shall mean a final adjudication
by a court of competent jurisdiction that the Director (i) is liable for
negligence or misconduct in the performance of his duty, (ii) guilty of a
felony conviction, (iii) has failed to act or has acted in a manner which is
in derogation of the Director's duties.
Section 12. Vacancies. Any vacancy in the Board caused by death,
resignation, retirement, disqualification, removal, or other cause, shall be
filled by a majority vote of the remaining Directors, though less than a
quorum. A Director so chosen shall hold office for the unexpired term of
their predecessor in office. Any Directorship to be filled by reason of an
increase in the authorized number of Directors may be filled by the Board
for a term of office continuing only until the next election of Directors by
the Shareholders.
Section 13. Compensation. Directors shall receive such compensation for
attendance at regular or special meetings as the Board of Directors shall,
from time to time, determine.
Section 14. Directors' Participation in Meeting by Telephone. A Director
may participate in a meeting of the Board of Directors by means of
conference telephone or similar communication equipment enabling all
Directors participating in the meeting to hear one another. Participation
in a meeting pursuant to this section shall constitute presence in person at
such meeting.
<PAGE>
Section 15. Director's Action Without Meeting. If all the Directors then
holding office severally or collectively consent in writing to any action
<PAGE> 172
taken or to be taken by the Corporation, such action shall be valid as
though it had been authorized at a meeting of the Board of Directors. The
Clerk shall file such consent or consents with the minutes of the meetings
of the Board of Directors.
Section 16. Presumption of Assent. A director of the Company who is
present at a meeting of the board of directors at which action on any
institutional manner is taken shall be presumed to have assented to the
action taken unless his or her dissent or abstention shall be entered in the
minutes of the meeting or unless a written dissent to such action shall be
filed with the person acting as the secretary of the meeting before the
adjournment thereof or shall be forwarded by registered mail to the
secretary of the Company within five (5) days after the date on which a copy
of the minutes of the meeting is received. Such right to dissent shall not
apply to a director who voted in favor of such action.
Section 17. Age Limitation on Directors. No person of an age of 80 years
or older will be eligible for election, re-election, appointment, or
reappointment to the board of directors of the savings bank. No director
shall serve as such beyond the annual meeting of the savings bank
immediately following the attainment of the specified age. This provision
shall not apply to any director who was a member of the board of Bethel
Savings Bank on August 15, 1987, or the board of Brunswick Federal Savings
on July 10, 1990.
-------------------------------------------
<PAGE>
ARTICLE III
COMMITTEES
Section 1. Designation; Vacancies. The Board of Directors, by a resolution
passed by a majority of the whole Board, may designate such number of their
members not less than two (2), including the President of the Corporation,
as it may, from time to time, determine to constitute an Executive
Committee, each member of which, unless otherwise determined by the Board,
shall continue to ba member thereof until the expiration of his term of
office as a Director.
Section 2. Powers. During the intervals between the meetings of the Board
of Directors, the Executive Committee shall have all of the powers of the
Board of Directors in the management of the business and affairs of the
Corporation, except those prescribed by applicable Maine law, and may
exercise such powers in such manner as the Executive Committee shall deem
best for the interests of the Corporation in all cases in which specific
directions shall not have been given by the Board of Directors.
Section 3. Procedure; Meetings; Quorum. The Executive Committee shall make
its own rules of procedure and shall meet at such times and at such place or
places as may be provided by such rules or by resolution of the Executive
Committee. A majority of the whole number of the members of the Executive
Committee shall constitute a quorum at any meeting thereof, and the act of a
majority of those present at a meeting at which a quorum is present shall be
the act of the Executive Committee. The Board of Directors shall have power
at any time to change the members of the Executive Committee, to fill
vacancies, and to discharge the Executive Committee.
<PAGE> 173
Section 4. Other Committees. The Board of Directors, by resolution passed
by a majority of the whole Board, may designate members of the board to
constitute other committees, which shall in each case consist of such number
of Directors and shall have and may exercise such powers as the Board may
determine and specify in the respective resolutions appointing them. Such
committees shall have such name or names as may be determined, from time to
time, by resolution adopted by the Board of Directors. The Board of
Directors shall have power at any time to change the members of any such
committee, to fill vacancies, and to discharge any such committee.
Section 5. Compensation. Members of the Executive Committee or of other
committees of the Board of Directors shall receive such compensation for
their services as members of such committees as the Board of Directors
shall, from time to time, determine.
-------------------------------------------
<PAGE>
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the Corporation may include a Chairman
of the Board and shall include a President, Treasurer, Secretary and such
other officers as the Board of Directors may, from time to time, deem
appropriate. One person may hold the office and perform the duties of more
than one of said officers. The Corporation shall also have a Clerk, who
shall not be an officer.
Section 2. Election, Term of Office and Qualifications. The officers, and
the Clerk, shall be elected annually by the Board of Directors. Each
officer shall hold office, and the Clerk shall remain Clerk of the
Corporation, until his successor shall have been elected and shall have
qualified, or until his death or until he shall have resigned or shall have
been removed in the manner hereinafter provided.
Section 3. Removal. Any officer, or the Clerk, may be removed by the Board
of Directors whenever, in its judgement, the best interests of the
Corporation will be served by such action.
Section 4. Resignations. Any officer, or the Clerk, may resign at any time
by giving written notice to the Board of Directors or to the President or to
the Clerk. Such resignation shall take effect at the time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make if effective.
Section 5. Vacancies. A vacancy in any office, or in the position of
Clerk, because of death, resignation, removal or any other cause shall be
filled for the unexpired portion of the term in the manner prescribed in
these By-laws for election or appointment to such office or position of
Clerk.
Section 6. The Chairman of the Board. The Chairman of the Board, if there
shall be one, shall be elected by the board from among its members who are
directors who are not employed by the Company or any affiliate of the
<PAGE> 174
Company, and shall, if present, preside at all meetings of the shareholders
and of the Board of Directors. Except where, by law, the signature of the
President is required, he shall possess the same power as the President to
sign all certificates, contracts and other instruments of the Corporation
which may be authorized by the Board of Directors or by the Executive
Committee. He shall, in general, perform all duties incident to the office
of the Chairman of the Board, subject, however, to the direction and control
of the Board of Directors and of the Executive Committee, and such other
duties as, from time to time, may be assigned to him by the Board of
Directors or by the Executive Committee.
Section 7. The President. The President shall be the chief executive and
administrative officer of the Corporation and shall have general and active
supervision and direction over the day-to-day business and affairs of the
Corporation and over its several officers, subject, however, to the
direction and control of the Board of Directors and of the Executive
Committee. At the request of the Chairman of the Board, or in case of his
absence or inability to act, the President may act in his place. He shall
sign or countersign all certificates, contracts and other instruments of the
Corporation as authorized by the Board of Directors, and shall perform all
such other duties as, from time to time, may be assigned to him by the Board
of Directors or the Executive Committee.
Section 8. The Vice-Presidents. Each Vice-President shall have such powers
and perform such duties as the Board of Directors may, from time to time,
prescribe. At the request of the President, or in case of his absence or
inability to act, any Vice President may act in his place, and when so
acting shall have all the powers and be subject to all the restrictions of
the President.
<PAGE>
Section 9. The Clerk. The Clerk, who shall be an inhabitant of the State
of Maine and shall keep his office therein, shall perform the functions
provided in the Maine Business Corporation Act, as it may be amended. The
Clerk shall keep, or cause to be kept in books provided for the purpose the
minutes of the meetings of the shareholders and of the Board of Directors;
shall see that all notices are duly given in accordance with the provisions
of these By-laws and as required by law; shall be the custodian of the
records, stock certificates records and of the seal of the corporation and
see that the seal is affixed to all documents the execution of which on
behalf of the Corporation under its seal is duly authorized in accordance
with the provisions of these By-laws.
Section 10. The Secretary. The Secretary shall perform such duties and
have such powers as are required or permitted by law and as the Board of
Directors shall, from time to time, designate. In his absence, an Assistant
Secretary or a secretary pro tempore shall perform his duties, and the
Assistant Secretary shall have such other powers and duties as the Board of
Directors shall, from time to time, designate. In the absence of the Clerk,
the Secretary shall keep or cause to be kept, in books provided for the
purpose, the minutes of the meetings of the shareholders and of the Board of
Directors and shall perform such other functions as are provided to be
performed by the Clerk.
Section 11. The Treasurer. The Treasurer shall be the financial officer of
the Corporation; shall have charge and custody of, and be responsible for,
all funds of the Corporation, and deposit all such funds in the name of the
<PAGE> 175
Corporation in such banks, trust companies or other depositories as shall be
selected by the Board of Directors; shall receive, and give receipts for,
moneys due and payable to the Corporation from any source whatsoever; and in
general, shall perform all the duties incident to the office of Treasurer
and such other duties as, from time to time, may be assigned to him by the
Board of Directors or by the President.
Section 12. Salaries. The salaries of the Chairman of the Board,
President, Treasurer, Secretary, other officers and the Clerk, shall be
fixed, from time to time, by the Board of Directors. No officer or the
Clerk shall be prevented from receiving such salary by reason of the fact
that he is also a Director of the Corporation.
-------------------------------------------
ARTICLE V
CONTRACTS, CHECKS, NOTES, ETC.
Section 1. Execution of Contracts. All contracts and agreements authorized
by the Board of Directors, and all checks, drafts, notes, bonds, bills of
exchange and orders for the payment of money shall, unless otherwise
directed by the Board of Directors, or unless otherwise required by law, be
signed by any two of the following officers: The Chairman of the Board,
President, Vice-President, Treasurer, or Secretary. The Board of Directors
may, however, authorize any one of said officers to sign checks, drafts and
orders for the payment of money singly and without necessity of counter
signature, and may designate officers and employees of the Corporation other
than those named above, or different combinations of such officers and
employees, who may, in the name of the Corporation, execute checks, drafts,
and orders for the payment of money on its behalf.
Section 2. Loans. No loans, to the Corporation, shall be contracted on
behalf of the Corporation and no negotiable paper shall be signed in its
name unless authorized by resolution of the Board of Directors. When
authorized by the Board of Directors to do so, any officer or agent of the
Corporation thereunto authorized may effect loans and advances at any time
for the Corporation from any bank, trust company or
<PAGE>
other institution, or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the Corporation and, when
authorized so to do, may pledge, hypothecate or transfer any securities or
advances. Such authority may be general or confined to specific instances.
-------------------------------------------
ARTICLE VI
STOCK AND DIVIDENDS
Section 1. Certificate of Stock. Every stockholder shall be entitled to
have a certificate certifying the number of shares owned by him in the
Corporation. The certificates shall be in such form as the Board of
<PAGE> 176
Directors shall approve. They shall be signed by the President and
countersigned by the Secretary and may be sealed with the seal of the
Corporation or a facsimile thereof. Such certificates shall be transferable
on the stock books of the Corporation in person or by attorney, but, except
as hereinafter provided in the case of loss, destruction or mutilation of
certificates, no transfer of stock shall be entered until the previous
certificate, if any, given for the same shall have been surrendered and
cancelled.
A record of shareholders giving the names and addresses of all shareholders
and the number and class of the shares held by each, shall be kept at the
Corporation's registered office or principal place of business.
The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation.
The Board of Directors may make such rules and regulations as it may deem
expedient, not inconsistent with these By-laws, concerning the issue,
transfer and registration of certificates for shares of the capital stock of
the Corporation.
Section 2. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, sixty (60) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten(10) days immediately preceding such
meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than
sixty (60) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
Section 3. Lost, Destroyed or Mutilated Certificates. In case of loss,
destruction or mutilation of any certificate of stock, another may be issued
in its place upon proof of such loss, destruction or mutilation and upon
satisfying such other requirements as the Board of Directors shall specify,
including such provision for indemnity as may seem advisable to the Board of
Directors.
Section 4. Dividends. Subject to the provisions of the Articles of
Incorporation of the Corporation, and to the extent permitted by law, the
Board of Directors may declare dividends on the shares of stock of the
<PAGE>
Corporation at such times and in such amounts as, in its opinion, are
advisable in view of the condition of the affairs of the Corporation.
-------------------------------------------
ARTICLE VII
<PAGE> 177
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors.
-------------------------------------------
<PAGE>
ARTICLE VIII
SEAL
The Board of Directors shall provide a corporate seal which shall be in the
form of a circle and shall bear the name of the Corporation and words and
figures indicating the year and state in which the Corporation was
incorporated.
-------------------------------------------
ARTICLE IX
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or Director
by these By-laws or the Articles of Incorporation or the laws of the State
of Maine, a waiver of the notice in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent to giving the notice.
-------------------------------------------
ARTICLE X
INDEMNIFICATION
Section 1. Power to Indemnify. To the extent permitted by law or
regulation, the Company shall indemnify any person who was or is a director,
executive officer or secretary of the corporation, and may indemnify any
other person who is or was a party, or is threatened to be made a party, to
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he is or was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company as a member, director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, as follows:
(a) if the action, suit or proceeding is not by or in the right
of the Company, against expenses (including attorneys' fees), and
against judgements, fines and amounts paid in settlement actually and
reasonably incurred by him in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Company,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe this conduct was unlawful (the termination
of any action, suit or proceeding by judgement, order, settlement or
conviction or upon a plea of nolo contendere or its equivalent shall
<PAGE> 178
not, of itself, create a presumption that the person acted or failed
to act other than in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interest of the Company,
and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful);
(b) if the action, suit or proceeding is by or in the right of
the Company, to procure a judgement in its favor, against expenses
(including attorneys' fees) but excluding judgements and fines, and,
except as hereinafter set forth, amounts paid in settlement, actually
and reasonably incurred by him in connection with the defense of
settlement of such action, suit or proceeding if he acted in good
faith and in a
<PAGE>
manner he reasonably believed to be in or not opposed
to the best interests of the Company, except that no indemnification
shall be made in respect of any claim, issue or manner as to which
such person shall have been adjudged to be liable to the Company for
negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action,
suit or proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem
proper.
Section 2. Right to Indemnification. To the extent that a director,
officer, employee or agent of the Company has been successful on the merits
or otherwise in defense of any civil or criminal action, suit or proceeding
referred to above, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Section 3. Procedure to be Followed. Any indemnification under (a) or (b)
above, shall be made by the Company only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee
or agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in such paragraph (a) or (b). Such
determination shall be as follows:
(a) by a majority vote of a quorum of the board of directors
consisting only of directors who were not parties to such action, suit
or proceeding, or
(b) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by a written opinion
of independent legal counsel appointed by a majority of the
disinterested directors for that purpose, or,
(c) by the court or other body before which the action, suit or
proceeding is or was pending upon application made by the Company or
the director, officer, employee or agent, or the attorney or to the
person rendering services in connection with the defense, whether or
not such application by the director, officer, employee or agent, or
attorney or other person is opposed by the Company and in any such
case indemnification may include the expenses (including attorneys'
<PAGE> 179
fees) actually and reasonably paid in connection with such
application.
Section 4. Payment of Expenses in Advance. Expenses (including attorneys'
fees) incurred in defending a civil or criminal action, suit or in a
proceeding referred to above may be paid by the Company in advance of the
final disposition if such action, suit or proceeding as authorized by the
board of directors in the manner provided above upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Company, as authorized in these bylaws.
Section 5. Other Rights. The indemnification provided by these bylaws
shall not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any statute, agreement, vote of
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 6. Insurance. The Company shall have power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Company or is or was serving at the
request of the Company as a member, director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by
<PAGE>
him in any such capacity, or arising out of his status as such, whether or
not the Company would have the power to indemnify his against such liability
under the provisions of these bylaws.
-------------------------------------------
ARTICLE XI
EMERGENCY PREPAREDNESS
In the event of an emergency in the conduct of the business of the Company
resulting from an attack on the continental United States or any other such
disaster resulting in a major disruption of the conduct of the business of
the Company:
1. The officers and employees of the Company shall continue to conduct the
business of the Company under such guidance from the Board of Directors
as may be available, except as to matters which by statue require
specific approval of the Board of Directors, and subject to any
directive of duly constituted authority during emergency.
2. In the absence or disability of any officer, or upon the refusal of any
officer to act, the Board of Directors may delegate for the time being
that officer's powers and duties to any other officer or director.
3. In the event of an emergency so severe as to prevent the conduct and
management of the business of the Company by the Board of Directors and
<PAGE> 180
the officers as contemplated by these by-laws, any two or more available
directors shall constitute an interim Executive Committee for the full
conduct and management of the business of the Company, subject to such
regulations as the Board of Directors may from time to time adopt for
emergency preparedness, until such time as the interim Executive
Committee determines that the Company can resume the conduct and
management of the business of the Company in the manner contemplated by
the by-laws.
4. If, as a consequence of an emergency, the Chief Executive Officer of the
Company cannot be located or is unable to assume and continue his normal
executive duties, then his powers and duties shall, without further
action of the Board of Directors, be assumed by one of the following
officers in the seniority set forth:
(a) President(unless he is serving as Chief Executive Officer)
(b) Executive Vice President
(c) Senior Vice Presidents (in order of seniority)
(d) Treasurer
The officer so assuming the powers and duties of the Chief Executive
Officer shall continue to serve until the majority of the available
directors certify in writing that either he is unable to serve longer in
that capacity or an officer senior to him is available to assume the
powers and duties of the Chief Executive Officer.
5. If, as a consequence of an emergency, the Treasurer of the Company
cannot be located or is unable to assume and continue his normal duties,
then the powers and duties of the Treasurer shall, without further
action of the Board of Directors, be assumed by one of the following
officers in the seniority set forth:
(a) President(unless he is serving as Chief Executive Officer)
<PAGE>
(b) Executive Vice President
(c) Senior Vice Presidents (in order of seniority)
(d) Assistant Treasurer or Comptroller.
The officer so assuming the powers and duties of the Treasurer shall
continue to serve until the majority of the available directors certify
in writing that either he is unable to serve longer in that capacity or
an officer senior to him is available to assume the powers and duties of
the Treasurer
Anyone dealing with the Company may accept a certificate of two or more
officers that a specified individual is the acting Treasurer hereunder
and rely upon that certificate to remain in full force and effect until
modified or cancelled by a certificate of change signed by three
officers of the Company.
6. If during such emergency, or as a consequence thereof, the business of
the Company cannot be conducted and managed at its main office, business
may be conducted and managed at such temporary location or locations as
may be designated by the Board of Directors or by its interim Executive
Committee for which provision is made above; and the business of the
Company shall be returned from the temporary location or locations to
the main office of the Company as soon as practicable.
<PAGE> 181
-------------------------------------------
ARTICLE XII
AMENDMENTS, ETC.
Section 1. Amendments. The By-laws of the Corporation may be amended at
any time by the affirmative vote of a majority of the entire Board, subject
to repeal, change or adoption of any contravening or inconsistent provision
only by vote of the holders of at least two-thirds (2/3) of all the shares
entitled to vote on the matter at a meeting expressly called for that
purpose.
Section 2. Supplemental Resolutions. The Board of Directors by resolution,
adopted by (i) two-thirds of the Directors who are not affiliated with any
acquiring or offering person in the case of Sections 2 and 4 of Exhibit B to
the Articles of Incorporation 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 By-laws. Such resolution shall be binding
and may be relied upon for all purposes provided that the resolution is not
inconsistent with law, the Articles of Incorporation or these By-laws.
EXHIBIT 8.1
DRUMMOND WOODSUM & MACMAHON
ATTORNEYS AT LAW
245 COMMERCIAL STREET
PORTLAND, MAINE 04101-1117
(207)772-1941
FAX (207)772-3627
__________, 1997
Northeast Bancorp
232 Center Street
Auburn, ME 04212
Attn: James D. Delamater
Ladies and Gentlemen:
We are furnishing this opinion to you in connection with the proposed
acquisition of Cushnoc Bank and Trust Company (the "Company"), a Maine-
chartered financial institution by Northeast Bancorp (the "Acquiror"), a
<PAGE> 182
Maine corporation. The acquisition is proposed to take place by the merger
of the Company into Northeast Bank, F.S.B. (the "Acquiror Sub"), a Federally
chartered savings bank and a wholly-owned subsidiary of the Acquiror.
The Acquiror, the Acquiror Sub and the Company have entered into an
Agreement and Plan of Merger dated as of May 9, 1997 (the "Agreement").
Terms defined in the Agreement and used but not defined in this opinion have
the respective meanings set forth in the Agreement.
We have served as counsel for the Acquiror and the Acquiror Sub in the
transactions described in the Agreement. In such role, we have examined the
Agreement and such other documents and records as we deem necessary in order
to render the opinions stated herein.
In rendering our opinion, as set forth below, we have made the
following assumptions:
A. That all documents submitted to us as originals are genuine and
that all documents submitted to us as copies conform with the originals.
B. That all representations made in the Agreement by the Acquiror,
the Acquiror Sub and the Company are correct and will be true and correct as
of the Closing and as of the Effective Time.
C. That the Merger takes place in accordance with all of the terms of
the Agreement, Maine and Federal law, and that all closing documents to
consummate the Merger shall have been prepared, executed and delivered in
accordance with the Agreement, and that documents required to be recorded or
filed with governmental offices, including without limitation the Maine
Secretary of State, are duly filed or recorded.
<PAGE>
D. That there is no plan or intention on the part of the Company's
shareholders to sell, exchange or otherwise dispose of the shares of
Acquiror Common Stock to be received in the Merger that will reduce the
Company's shareholders' holdings to a number of shares of Acquiror Common
Stock having a value as of the date of the Closing, of less than fifty
percent (50%) of the value of all of the formerly outstanding stock of the
Company as of the same date. For purposes of this assumption, shares of the
Company's stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of Acquiror
Common Stock will be treated as outstanding Company stock on the date of the
Closing.
E. The fair market value of the Acquiror Common Stock received by
each of the Company's shareholders will be approximately equal to the fair
market value of the Company stock surrendered in the Merger.
F. The Acquiror Sub will acquire at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of
the fair market value of the gross assets held by the Company immediately
prior to the Merger. For purposes of this assumption, amounts paid by the
Company to dissenters, amounts paid by the Company to shareholders who
receive cash or other property, Company assets used to pay reorganization
expenses in connection with the Merger, and all redemptions and
distributions (except for normal dividends) made by the Company immediately
preceding the Merger will be included as assets of the Company immediately
prior to the Merger.
<PAGE> 183
G. Following the Merger, the Acquiror Sub will not issue additional
shares that would result in Acquiror losing control of Acquiror Sub within
the meaning of Section 368(c)(1) of the Internal Revenue Code of 1986, as
amended (the "Code").
H. Acquiror has no plan or intention to (i) reacquire any of its
stock issued in the Merger, (ii) liquidate Acquiror Sub, (iii) to merge
Acquiror Sub into another corporation, (iv) to sell or otherwise dispose of
the stock of Acquiror Sub, (v) to cause Acquiror Sub to sell or otherwise
dispose of any of the assets of the Company acquired in the Merger, except
for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
I. The liabilities of the Company to be assumed by Acquiror Sub and
the liabilities to which the assets acquired in the Merger are subject were
incurred by the Company in the ordinary course of the Company's business.
J. Following the Merger, the Acquiror Sub will continue the historic
business of the Company or use a significant portion of the Company's
business assets in a business.
K. The Acquiror, the Acquiror Sub and the Company will pay their
respective expenses, if any, incurred in connection with the acquisition and
the Merger.
L. There is no intercorporate indebtedness existing between Acquiror
and the Company or between Acquiror Sub and the Company that was issued,
acquired or will be settled at a discount.
M. The fair market value of the assets of the Company transferred to
Acquiror Sub will equal or exceed the sum of the liabilities assumed by the
Acquiror Sub, plus the amount of liabilities, if any, to which the assets
acquired in the Merger are subject.
Based on the foregoing we are of the opinion that the Merger will
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
This opinion relates only to the laws of the State of Maine and the
United States, enacted as of the date hereof and the interpretation thereof
as of this date, and the facts actually known to us as of this date. An
opinion represents only the best legal judgment of counsel, and is not
binding on the courts, and there is no assurance that a court would not
reach a result contrary to such an opinion. We express no opinion with
<PAGE>
respect to the laws of any other jurisdiction. We undertake no obligation
to revise or update this opinion to reflect any facts or circumstances which
may hereafter come to our attention or any changes in laws or regulations or
in the interpretations thereof which may hereafter occur.
Very truly yours,
<PAGE> 184
EXHIBIT 8.2
FORM OF FEDERAL TAX OPINION
___________, 1997
Board of Directors
Cushnoc Bank and Trust
235 Western Avenue
Augusta, Maine 04330
RE: MERGER OF CUSHNOC BANK AND TRUST WITH AND INTO NORTHEAST BANK, FSB
Ladies and Gentlemen:
We have acted as special counsel to Cushnoc Bank and Trust, a
commercial bank organized under the laws of the State of Maine ("Cushnoc"),
in connection with the proposed merger (the "Merger") of Cushnoc with and
into Northeast Bank, FSB, a federally chartered savings association
("Northeast"), a wholly-owned subsidiary of Northeast Bancorp, Inc.
("Bancorp"). The Merger will be effected pursuant to an Agreement and Plan
of Merger dated May 9, 1997, by and among Bancorp, Northeast and Cushnoc
(the "Merger Agreement"). Capitalized terms used herein without definition
have the respective meaning assigned to such terms in the Merger Agreement.
In our capacity as special counsel to Cushnoc, our opinion has been
requested with respect to certain of the federal income tax consequences of
the Merger. In rendering this opinion, we have examined (i) the Merger
Agreement, (ii) the Registration Statement on Form S-4 (the "Registration
Statement") and the Prospectus/Proxy Statement included therein that was
filed with the U.S. Securities and Exchange Commission, (iii) the Officer's
Certificate of Cushnoc and the Officer's Certificate of Bancorp
(collectively the "Officer's Certificates"), and (iv) such other documents,
instruments and information as we have deemed appropriate ((i-iv)
collectively constituting the "Documents").
In rendering this opinion, we have assumed, without independent
verification
(a) the genuineness of all signatures,
(b) the authenticity of any Document submitted to us as an original,
(c) the conformity to the original of all documents submitted to us
as certified, photostatic or conformed copies, and the
authenticity of the originals of all such Documents,
(d) each natural person executing any such instrument, document, or
agreement is legally competent to do so,
<PAGE> 185
(e) the accuracy of the facts set forth in the Registration Statement
and the representations contained in the Merger Agreement and the
Officer's Certificates,
(f) that the Merger will be effective under applicable state law,
and,
(g) that the Merger will be consummated in the manner described in
the Merger Agreement and Registration Statement.
In rendering our opinions set forth below, we have referred solely to
the existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing, proposed and temporary regulations promulgated
thereunder, current administrative rulings, procedures and published
positions of the Internal Revenue Service (the "IRS") (collectively, the
"Tax Laws"), all of which are subject to change, either prospectively or
retroactively, at any time. No assurance can be provided as to the effect
of any such change upon our conclusions reached herein. We assume no
obligation to supplement this opinion if any applicable laws change after
the date hereof or if we become aware of any facts that might change the
opinions herein after the date hereof.
On the basis of an subject to the foregoing, we are of the opinion
that:
1. The Merger qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. Pursuant to
Section 368(a)(2)(D) of the Code, the Merger is not disqualified
from treatment as a reorganization within the meaning of
Section 368(a)(1)(A) because Bancorp Common Stock will be conveyed
to Cushnoc's stockholders in exchange for their Cushnoc Common
Stock.
2. No gain or loss will be recognized by the Cushnoc stockholders who
receive solely Bancorp Common Stock in exchange for their Cushnoc
stock.
3. Provided that the Cushnoc stock is held as a capital asset at the
Effective Time, the basis of the Bancorp Common Stock received by
the Cushnoc stockholders will be the basis of the Cushnoc stock
surrendered in exchange for such Common Stock decreased by the
amount of any cash received by the Cushnoc stockholders and
increased by the amount of gain recognized by the Cushnoc
stockholder.
4. Provided the Cushnoc stock is held as a capital asset at the
Effective Time, the holding period of the Bancorp Common Stock
received by the Cushnoc stockholders will include the holding
period of the Cushnoc stock surrendered in exchange for such
stock.
5. The payment of cash to an Cushnoc stockholder in lieu of a
fractional share interest in Bancorp Common Stock will be treated
as received by such holder as a distribution in redemption of such
fractional share interest. Gain or loss will be realized and
calculated based on the difference between the amount of cash
received by the Cushnoc stockholder and the basis of such
<PAGE> 186
fractional share. If fractional shares of Cushnoc stock
surrendered for Bancorp Common Stock are held by such stockholder
as a capital asset at the Effective Time, any gain or loss
resulting to such former holder from such redemption will be
capital gain or loss.
6. In the case of any Cushnoc stockholder who exercises his
dissenter's rights under the applicable provisions of Maine law
and receives solely cash in exchange for his Cushnoc stock, such
cash will be treated as being received by such stockholder as a
distribution in redemption of his Cushnoc stock. Gain or loss
will be realized and calculated based on the difference between
the amount of cash received by any such Cushnoc stockholder and
his basis in his Cushnoc stock therefor. If the shares of stock
held by such stockholders are held as capital assets on the date
of such exchange, any gain or loss resulting to such stockholder
from such redemption will be capital gain or loss.
<PAGE>
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Merger
Agreement are not consummated in accordance with the terms of such Agreement
and without waiver or breach of any material provision thereof, or if all of
the representations, warranties, statements and assumptions upon which we
relied are not true and accurate at all relevant times. In the event any
one of the statements, representations, warranties or assumptions upon which
we have relied to issued this opinion is incorrect, our opinion might be
adversely affected and may not be relied upon.
The conclusions, predictions, statements and analysis presented herein
and the Prospectus/Proxy Statement are not binding upon the IRS, and this
opinion should not be construed as a guarantee that the IRS might not differ
with the conclusions, predictions, statements and analysis presented herein
and in the Registration Statement, or raise other questions or issues upon
audit, or that such action taken by the IRS will not be judicially
sustained.
This opinion is being furnished in connection with the Merger and may
not be used or relied upon for any other purpose and may not be circulated,
quoted or otherwise referred to for any other purpose without our express
written consent.
The shareholders of Cushnoc should consult with a qualified tax
advisor with respect to any reporting requirements which may be applicable
or with respect to any tax considerations other than those expressly
mentioned herein.
Very truly yours,
BREYER & AGUGGIA
<PAGE> 187
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the reference to our firm under the caption "Experts" in the
registration statement on Form S-4 (No. 333-31797) and related Prospectus of
Northeast Bancorp for the registration of 216,180 shares of its common stock
and to the incorporation by reference therein of our report dated August 16,
1996, with respect to the consolidated financial statements of Northeast
Bancorp included in its Annual Report Form 10-K for the year ended June 30,
1996, filed with the Securities and Exchange Commission.
/s/Baker Newman & Noyes
Limited Liability Company
Portland, Maine
September 2, 1997
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the reference to our firm under the caption "Experts"
and to the use of our report dated January 29, 1997, which accompanies the
December 31, 1996 and 1995 audited financial statements of Cushnoc Bank and
Trust Company, in the Registration Statement (Form S-4) (No. 333-31797) for
the registration of 216,180 shares of common stock of Northeast Bancorp.
/s/SCHATZ FLETCHER & ASSOCIATES
Augusta, Maine
September 2, 1997
<PAGE> 188
EXHIBIT 23.3
DRUMMOND WOODSUM & MACMAHON
ATTORNEYS AT LAW
245 COMMERCIAL STREET
P.O. BOX 9781
PORTLAND, MAINE 04104-5081
(207)772-1941
FAX (207)772-3627
We hereby consent to the inclusion of our forms of opinion as Exhibits
5 and 8.1 to the Registration Statement of Northeast Bancorp on Form S-4
(No. 333-31797) and to all references to our firm in said Registration
Statement.
Portland, Maine
August 27, 1997 /s/ Drummond Woodsum & MacMahon
EXHIBIT 23.4
CONSENT OF BREYER & AGUGGIA
September 2, 1997
Board of Directors
Northeast Bancorp
RE: Northeast Bancorp Registration Statement on Form S-4
Gentlemen:
We hereby consent to the inclusion of our form of our federal tax
opinion as an exhibit to the Registration Statement and to the reference to
us in the Prospectus/Proxy Statement included therein under the heading
"THE MERGER-Certain Federal Income Tax Consequences."
Sincerely,
Washington, D.C. /s/ Breyer & Aguggia
Breyer & Aguggia
<PAGE> 189
EXHIBIT 23.5
CONSENT OF RYAN, BECK & CO.
We hereby consent to the references in the Proxy Statement/Prospectus
(Registration No. 333-31797) to our opinion, dated _________________ with
respect to the merger of Northeast Bancorp and Cushnoc Bank & Trust Company,
and to our firm, respectively, and to the inclusion of such opinion as an
annex to such Proxy Statement. By giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations
of the Securities and Exchange Commission thereunder.
RYAN, BECK & CO., INC.
By: /s/ David P. Downs
Senior Vice President
West Orange, NJ
August 27, 1997
EXHIBIT 23.6
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the reference to our firm under the caption "Experts" in
the registration statement Form S-4 and related Prospectus of Northeast
Bancorp for the registration of 216,180 shares of its common stock and to
the incorporation by reference therein of our report dated August 5, 1994,
with respect to the consolidated statements of income, changes in
stockholders' equity and cash flows of Northeast Bancorp and Subsidiary
(formerly Bethel Bancorp and Subsidiaries) included in its Annual Report
Form 10-K for the year ended June 30, 1996, filed with the Securities and
Exchange Commission.
Boston, Massachusetts /s/ KMPG Peat Marwick LLP
September 2, 1997
<PAGE> 190
EXHIBIT 23.7
CONSENT
Pursuant to Rule 438 promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in Amendment No. 1 to Northeast
Bancorp's Registration Statement on Form S-4 (333-31797) and to serving as a
Director of Northeast Bancorp.
County of Kennebec, Maine
September 2, 1997 /s/ John Rosmarin
John Rosmarin
<PAGE> 191
