<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SHAWMUT NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6712 06-1212629
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
777 MAIN STREET ONE FEDERAL STREET
HARTFORD, CONNECTICUT 06115 BOSTON, MASSACHUSETTS 02211
TEL. (203) 986-2000 TEL. (617) 292-2000
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RAYMOND A. GUENTER, ESQ.
777 MAIN STREET
HARTFORD, CONNECTICUT 06115
TEL. (203) 986-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copy to:
WILLIAM S. RUBENSTEIN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES BEING REGISTERED(1) REGISTERED PER SHARE(2) PRICE(2) FEE(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share........ 8,400,000 $19.27 $161,907,709 $55,830
- --------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Also includes associated Rights to purchase shares of the Registrant's
Series A Junior Participating Preferred Stock, which Rights (a) are not
currently separable from the shares of Common Stock and (b) are not
currently exercisable. See "DESCRIPTION OF SHAWMUT CAPITAL STOCK" and
"COMPARISON OF SHAREHOLDER RIGHTS."
(2) The registration fee has been computed pursuant to Rule 457(f)(1) under the
Securities Act of 1933, as amended, based on the average of the high and low
prices for shares of Common Stock of Gateway Financial Corporation
("Gateway") reported on the National Association of Securities Dealers
Automated Quotation/National Market System on April 21, 1994 ($11.88) and
the maximum number of such shares (13,628,595) that may be exchanged for the
securities being registered. The proposed maximum offering price per share
has been determined by dividing the proposed maximum aggregate offering
price by the number of shares being registered. Pursuant to Rule 457(b), the
registration fee has been reduced by the $31,138 paid on January 25, 1994
upon the filing under the Securities Exchange Act of 1934, as amended, of
Gateway's proxy materials included herein relating to the Merger.
Accordingly, the registration fee payable upon the filing of this
Registration Statement is $24,692.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
SHAWMUT NATIONAL CORPORATION
CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4 AND PROSPECTUS
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. FORM S-4 CAPTION HEADING IN PROSPECTUS
- -------- ----------------------------------------- -------------------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Cover Page of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page of
Prospectus
Item 2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page of Prospectus; Table of
Contents; Available Information; Incorporation of
Certain Documents by Reference
Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary; The Annual Meeting; The Merger
Item 4. Terms of the Transaction................. Summary; The Merger; Certain Related
Transactions; Description of Shawmut Capital
Stock; Comparison of Shareholder Rights
Item 5. Pro Forma Financial Information.......... Summary; Unaudited Pro Forma Condensed Financial
Information
Item 6. Material Contacts with the Company Being
Acquired................................. Summary; The Merger; Certain Related Transactions
Item 7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... *
Item 8. Interests of Named Experts and Counsel... *
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Respect to S-3
Registrants.............................. Available Information; Incorporation of Certain
Documents by Reference; Summary; The Merger;
Unaudited Pro Forma Condensed Financial
Information
Item 11. Incorporation of Certain Information by
Reference................................ Incorporation of Certain Documents by Reference
Item 12. Information with Respect to S-2 or S-3
Registrants.............................. *
Item 13. Incorporation of Certain Information by
Reference................................ *
Item 14. Information with Respect to Registrants
Other than S-2 or S-3 Registrants........ *
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
Item 15. Information with Respect to S-3
Companies................................ Available Information; Incorporation of Certain
Documents by Reference; Summary; Information
About Gateway Financial Corporation
Item 16. Information with Respect to S-2 or S-3
Companies................................ *
Item 17. Information with Respect to Companies
Other than S-2 or S-3 Companies.......... *
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Consents or
Authorizations Are to be Solicited....... Summary; The Annual Meeting; The Merger
Item 19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited in
an Exchange Offer........................ *
</TABLE>
- ---------------
* Omitted because inapplicable or answer is in the negative.
<PAGE> 3
[LETTERHEAD OF GATEWAY FINANCIAL CORPORATION]
April 22, 1994
Dear Stockholder:
On behalf of the Board of Directors of Gateway Financial Corporation (the
"Company"), you are cordially invited to attend the Annual Meeting Stockholders
of the Company (the "Meeting") to be held at the Trumbull Marriott, 180 Hawley
Lane, Trumbull, Connecticut on June 8, 1994 at 2:00 p.m. local time.
At this important meeting, in addition to the election of directors and
other matters customarily done at our annual meeting, you will be asked to
approve a merger agreement (the "Merger Agreement") pursuant to which the
Company and Gateway Bank would be acquired by means of a merger (the "Merger")
of the Company with a subsidiary of Shawmut National Corporation ("Shawmut") for
consideration of 0.559 shares of Shawmut Common Stock for each share of the
Company's common stock (the "Common Stock"). Shawmut is a $27 billion asset
multi-bank holding company which operates banks in Massachusetts and
Connecticut.
To assist you in evaluating the proposed Merger, the Company has prepared
the accompanying Proxy Statement, which contains detailed information concerning
the proposed Merger. I urge you to read this information carefully.
Your vote is very important. Under the terms of the Company's Certificate
of Incorporation, approval of the Merger Agreement requires the affirmative vote
of the holders of at least a majority of the outstanding shares of the Common
Stock.
THE COMPANY'S BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. THE
COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT.
Keefe, Bruyette & Woods, Inc., the Company's financial advisor in
connection with the Merger, has delivered its written opinion to the Company's
Board of Directors that, as of the date of the accompanying Proxy Statement, the
cash consideration to be received by the stockholders of the Company in the
Merger was fair to such holders from a financial point of view. The written
opinion of Keefe, Bruyette & Woods, Inc. is reproduced in full as Annex C to the
Proxy Statement, and the Company's stockholders are urged to read such opinion
carefully in its entirety.
It is very important that your shares of Common Stock be represented at the
Annual Meeting. Whether or not you plan to attend the Annual Meeting, you should
complete, sign and date the accompanying form of proxy and return such form of
proxy in the enclosed postage prepaid envelope. If you attend the Annual
Meeting, you may revoke the proxy given on such form and vote in person if you
wish, even if you have previously returned your form of proxy.
<PAGE> 4
I urge you to execute, date and return the enclosed proxy card in the
enclosed postage-paid envelope as soon as possible to ensure that your shares
will be voted at the Meeting. The required vote of Company stockholders on the
Merger Agreement is based upon the number of outstanding shares of Common Stock,
and not the number of shares which are actually voted. Accordingly, the failure
to submit a proxy card or to vote in person at the Meeting or the abstention
from voting by a stockholder will have the same effect as a vote "AGAINST" the
Merger.
Sincerely,
REGINALD DEKOVEN III
President and Chief Executive Officer
<PAGE> 5
GATEWAY FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 8, 1994
To the Stockholders of
Gateway Financial Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Gateway
Financial Corporation ("Gateway") will be held at the Trumbull Marriott, 180
Hawley Lane, Trumbull, Connecticut on Wednesday, June 8, 1994, at 2:00 p.m.,
local time (the "Annual Meeting"), for the following purposes, all of which are
more fully described in the accompanying Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 5, 1993 (the "Merger
Agreement"), by and among Shawmut National Corporation ("Shawmut"), Shawmut
Service Corporation ("SSC") and Gateway and the transactions contemplated
thereby, including the merger (the "Merger") of Gateway with and into SSC.
2. To elect four persons to serve as directors of Gateway for a
three-year term and until the election and qualification of their
successors.
3. To ratify the appointment of Coopers & Lybrand as independent
auditors of Gateway for the fiscal year ending December 31, 1994.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournments or postponements thereof, including,
without limitation, a motion to adjourn or postpone the Annual Meeting to
another time and/or place for the purpose of soliciting additional proxies
in order to approve the Merger or otherwise.
The Gateway Board of Directors has fixed the close of business on April 15,
1994 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and any adjournments or postponements
thereof. Only stockholders of record at the close of business on such date are
entitled to notice of and to vote at the Annual Meeting. A list of Gateway
stockholders entitled to vote at the Annual Meeting will be available for
examination for any purpose germane to the Annual Meeting, during ordinary
business hours, at the principal executive offices of Gateway, located at 383
Main Avenue, Norwalk, Connecticut 06851, for 10 days prior to the Annual
Meeting.
The common stock, par value $0.01 per share, of Gateway is the only
security of Gateway whose holders are entitled to vote upon the proposals to be
presented at the Annual Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Annual Meeting, is
requested to sign, date and return the enclosed Proxy without delay in the
enclosed postage-paid envelope. You may revoke your Proxy at any time prior to
its exercise. Any stockholder present at the Annual Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the Annual Meeting.
By Order of the Board of Directors,
FRANK W. ESTES,
Assistant Secretary
April 22, 1994
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSALS 1-4
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE
<PAGE> 6
GATEWAY FINANCIAL CORPORATION
PROXY STATEMENT
---------------------
SHAWMUT NATIONAL CORPORATION
PROSPECTUS
---------------------
8,400,000 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to stockholders of Gateway Financial Corporation ("Gateway") in
connection with the solicitation of proxies by the Board of Directors of Gateway
for use at the annual meeting of stockholders of Gateway (including any
adjournments or postponements thereof) to be held on June 8, 1994 (the "Annual
Meeting"). This Proxy Statement/Prospectus relates to (i) the proposed merger of
Shawmut Service Corporation ("SSC"), a wholly owned subsidiary of Shawmut
National Corporation ("Shawmut"), with Gateway (the "Merger") pursuant to the
Agreement and Plan of Merger, dated as of November 5, 1993 (the "Merger
Agreement"), by and among Shawmut, SSC and Gateway and certain transactions
contemplated thereby; (ii) the election of four persons to serve as directors of
Gateway for a three-year term and until the election and the qualification of
their successors; and (iii) the ratification of the appointment of Coopers &
Lybrand as independent auditors of Gateway for the fiscal year ending December
31, 1994.
The Merger Agreement is attached as Annex A hereto and is incorporated
herein by reference.
This Proxy Statement/Prospectus also constitutes a prospectus of Shawmut
with respect to up to 8,400,000 shares of common stock, par value $.01 per
share, of Shawmut ("Shawmut Common Stock") issuable to holders of common stock,
par value $.01 per share, of Gateway ("Gateway Common Stock") in the Merger.
Upon consummation of the Merger, each outstanding share of Gateway Common Stock
will, with certain exceptions, be converted into and exchangeable for .559
shares of Shawmut Common Stock, subject to adjustment under certain
circumstances as described herein. Based on the last reported sales price per
share of Shawmut Common Stock on April 21, 1994 of $22.13 (assuming that the
Exchange Ratio of .559 is not adjusted as described herein), the calculated
value of each share of Gateway Common Stock to be exchanged in the Merger is
$12.36. No assurance can be given as to the market price of Shawmut Common Stock
at or after consummation of the Merger. Because the market price of Shawmut
Common Stock is subject to fluctuation, the value of the shares of Shawmut
Common Stock that holders of Gateway Common Stock would receive in the Merger
may increase or decrease prior to the Merger. See "MARKET PRICES."
This Proxy Statement/Prospectus and the accompanying form of proxy is first
being mailed to stockholders of Gateway on or about April 27, 1994.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY.
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
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE SHARES OF SHAWMUT COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is April 22, 1994
<PAGE> 7
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR
INCORPORATED BY REFERENCE HEREIN IN CONNECTION WITH THE SOLICITATION OF PROXIES
OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY SHAWMUT OR GATEWAY. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SHAWMUT OR GATEWAY SINCE THE
DATE OF THIS PROXY STATEMENT/PROSPECTUS OR THAT THE INFORMATION HEREIN OR THE
DOCUMENTS OR REPORTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO SUCH DATE. ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS RELATING TO SHAWMUT AND ITS SUBSIDIARIES HAS BEEN SUPPLIED
BY SHAWMUT AND ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
RELATING TO GATEWAY AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY GATEWAY.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION........................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE..................................... 3
SUMMARY......................................... 5
RECENT DEVELOPMENTS............................. 16
THE ANNUAL MEETING.............................. 16
General....................................... 16
Record Date; Voting; Solicitation and
Revocation of Proxies....................... 16
ITEM ONE: THE MERGER............................ 18
General....................................... 18
Exchange Ratio................................ 18
Background of the Merger...................... 20
Recommendation of the Board of Directors of
Gateway; Gateway's Reasons for the Merger... 22
Shawmut's Reasons for the Merger.............. 24
Opinion of Gateway's Financial Advisor........ 24
Interests of Certain Persons in the Merger.... 28
Employee Matters.............................. 29
Effective Time................................ 29
Conversion of Shares: Procedures for Exchange
of Certificates; Fractional Shares.......... 30
Conditions to the Merger...................... 31
Regulatory Approvals Required for the
Merger...................................... 33
Conduct of Business Pending the Merger........ 35
Waiver and Amendment; Termination............. 36
No Solicitation of Transactions............... 37
Resales of Shawmut Common Stock Received in
the Merger.................................. 37
Stock Exchange Listing........................ 38
Anticipated Accounting Treatment.............. 38
Federal Income Tax Consequences............... 38
No Appraisal Rights........................... 39
CERTAIN RELATED TRANSACTIONS.................... 40
Stock Option Agreement........................ 40
Subsidiary Bank Merger Agreement.............. 43
Amendment to Rights Agreement................. 43
INFORMATION ABOUT GATEWAY FINANCIAL
CORPORATION................................... 43
DESCRIPTION OF SHAWMUT CAPITAL STOCK............ 46
General....................................... 46
Common Stock.................................. 46
Rights Plan................................... 47
Shawmut Preferred Stock....................... 49
COMPARISON OF SHAREHOLDER RIGHTS................ 50
Action by Written Consent..................... 50
<CAPTION>
PAGE
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<S> <C>
Special Meetings of Shareholders.............. 50
Shareholder Nominations and Proposals for
Business.................................... 50
Certain Business Combinations................. 51
Rights Plans.................................. 53
Payment of Dividends.......................... 55
Classification of Board of Directors.......... 56
Removal of Directors.......................... 57
Amendment of By-laws.......................... 57
Amendment of Certificate...................... 57
Meeting of Creditors and/or Shareholders...... 58
UNAUDITED PRO FORMA CONDENSED FINANCIAL
INFORMATION................................... 59
LEGAL OPINIONS.................................. 67
EXPERTS......................................... 67
ITEM TWO: ELECTION OF A CLASS OF DIRECTORS...... 67
THE BOARD OF DIRECTORS AND ITS COMMITTEES....... 70
Stockholder Nominations of Directors.......... 71
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
EXECUTIVE OFFICERS OF GATEWAY................. 72
COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS..................................... 73
Remuneration and Related Matters.............. 73
Employee Benefit Plans........................ 74
Credited Years of Service..................... 75
REPORT OF THE SALARY BENEFITS COMMITTEE OF
GATEWAY BANK ON EXECUTIVE COMPENSATION
POLICIES...................................... 77
The Salary and Benefits Committee............. 77
Executive Compensation Philosophy and
Policies.................................... 77
1993 Executive Compensation................... 78
1993 CEO Compensation......................... 78
PERFORMANCE GRAPH............................... 79
ITEM THREE: RATIFICATION OF THE APPOINTMENT OF
COOPERS & LYBRAND AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 1994...... 80
GENERAL......................................... 81
ANNEX A AGREEMENT AND PLAN OF MERGER............ A-1
ANNEX B STOCK OPTION AGREEMENT.................. B-1
ANNEX C OPINION OF KEEFE, BRUYETTE & WOODS,
INC........................................... C-1
</TABLE>
2
<PAGE> 8
AVAILABLE INFORMATION
Shawmut and Gateway are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Shawmut and Gateway with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, material filed by
Shawmut can be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005 and material filed by Gateway can be
inspected at the offices of the National Association of Securities Dealers,
Inc., 33 White Hall, New York, New York 10004.
Shawmut has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereof, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Shawmut Common Stock to be issued pursuant to the Merger Agreement.
This Proxy Statement/Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits thereto. Such additional
information may be inspected and copied as set forth above. Statements contained
in this Proxy Statement/Prospectus or in any document incorporated by reference
in this Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Shawmut (File No.
1-10102) and Gateway (File No. 0-17923) are incorporated by reference in this
Proxy Statement/Prospectus:
1. Shawmut's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (the "1993 Shawmut Form 10-K").
2. Shawmut's Annual Report on Form 11-K for the fiscal year ended
December 31, 1992.
3. Shawmut's Current Reports on Form 8-K, dated February 28, 1994;
March 3, 1994; March 9, 1994; March 28, 1994 and April 20, 1994.
4. The description of Shawmut Common Stock and Shawmut Series A Junior
Participating Preferred Stock and Preferred Stock Purchase Rights set forth
in Shawmut's Registration Statements on Form S-3 dated February 13, 1992
and on Form 8-A dated March 7, 1989.
5. The portions of Shawmut's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 26, 1994 that have been incorporated by
reference in the 1993 Shawmut Form 10-K.
6. Gateway's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (the "1993 Gateway Form 10-K").
7. The description of Gateway Common Stock and Gateway Series A Junior
Participating Preferred Stock and Preferred Stock Purchase Rights set forth
in Gateway's Registration Statements filed on Form 8-A dated February 12,
1990.
All documents and reports filed by Shawmut or Gateway pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the dates of filing of such documents or reports. Any
statement contained in a document or report incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
3
<PAGE> 9
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other 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 this Proxy
Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO SHAWMUT, TO
SHAWMUT NATIONAL CORPORATION, 777 MAIN STREET, MSN309, HARTFORD, CONNECTICUT
06115, ATTENTION: SHAREHOLDER RELATIONS, TELEPHONE NUMBER (203) 986-2028, AND IN
THE CASE OF DOCUMENTS RELATING TO GATEWAY, TO GATEWAY FINANCIAL CORPORATION, 383
MAIN AVENUE, NORWALK, CONNECTICUT 06851, ATTENTION: FRANK W. ESTES, TELEPHONE
NUMBER (203) 845-7700. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
REQUESTS SHOULD BE RECEIVED BY JUNE 1, 1994.
4
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. As this summary is necessarily incomplete,
reference is made to, and this summary is qualified in its entirety by, the more
detailed information contained or incorporated by reference in this Proxy
Statement/Prospectus and the Annexes hereto. Stockholders are urged to read this
Proxy Statement/Prospectus and the Annexes hereto in their entirety. Certain
capitalized terms which are used but not defined in this summary are defined
elsewhere in this Proxy Statement/Prospectus.
THE ANNUAL MEETING
The Annual Meeting will be held at the Trumbull Marriott, 180 Hawley Lane,
Trumbull, Connecticut on Wednesday, June 8, 1994 beginning at 2:00 p.m. local
time. The purpose of the Annual Meeting is to consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, (ii) the election of four persons to serve as directors of
Gateway for a three-year term and until the election and qualification of their
successors, (iii) the ratification of the appointment of Coopers & Lybrand as
independent auditors of Gateway for the fiscal year ending December 31, 1994 and
(iv) such other matters as may properly be brought before the Annual Meeting.
See "THE ANNUAL MEETING -- General."
Only holders of record of Gateway Common Stock at the close of business on
April 15, 1994 (the "Record Date") will be entitled to notice of and to vote at
the Annual Meeting. As of the Record Date, there were 13,263,820 shares of
Gateway Common Stock outstanding and entitled to vote. See "THE ANNUAL
MEETING -- Record Date; Voting; Solicitation and Revocation of Proxies."
PARTIES TO THE MERGER
Shawmut. Shawmut is a multibank holding company, registered under the Bank
Holding Company Act of 1956, as amended. It was organized under the laws of the
State of Delaware in October 1987 and became a bank holding company on February
29, 1988 through the consummation of a plan of reorganization between Hartford
National Corporation ("HNC") and Shawmut Corporation ("SC") pursuant to which
both HNC and SC became wholly owned subsidiaries of Shawmut. Shawmut maintains
dual headquarters in the States of Connecticut and Massachusetts. The principal
executive offices of Shawmut are located at 777 Main Street, Hartford,
Connecticut 06115 and One Federal Street, Boston, Massachusetts 02211. Its
telephone numbers in Connecticut and Massachusetts are (203) 986-2000 and (617)
292-2000, respectively.
The principal business of Shawmut is to provide, through its bank
subsidiaries, comprehensive corporate, commercial, correspondent and individual
banking services, and personal and corporate trust services, through its network
of approximately 270 branches located throughout Connecticut, Massachusetts and
Rhode Island. Shawmut's principal banking subsidiaries are Shawmut Bank
Connecticut, National Association, Hartford, Connecticut ("SBC") and Shawmut
Bank, National Association, Boston, Massachusetts ("SBM").
At December 31, 1993, Shawmut had assets of $27.2 billion, deposits of
$15.3 billion, loans of $15.4 billion and shareholders' equity of $1.8 billion.
For more information about Shawmut, reference is made to the 1993 Shawmut
Form 10-K which is incorporated herein by reference. See "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Gateway. Gateway is a bank holding company which provides banking and
financial services through its principal subsidiary, Gateway Bank. As of
December 31, 1993, Gateway had assets of $1.3 billion, deposits of $1.2 billion
and stockholders' equity of $94.2 million. The principal executive offices of
Gateway are located at 383 Main Avenue, Norwalk, Connecticut 06851 and its
telephone number is (203) 845-7700. Unless the context otherwise requires,
references herein to Gateway include Gateway Bank and its subsidiaries.
Gateway Bank currently maintains 28 offices (including its main office in
Norwalk, Connecticut) located in Fairfield County, Connecticut and serves
depositors and borrowers in a market area that is primarily comprised of such
county. Its principal business has consisted of attracting deposits from the
general public
5
<PAGE> 11
and primarily using such deposits to make residential mortgage loans, although
it also makes commercial mortgage, commercial, construction and consumer loans.
The primary sources of funds for Gateway's lending and investment activities are
deposits, loan interest and principal payments, borrowings and to a lesser
extent, maturing investments and earnings on investments.
Gateway Bank operates under Connecticut law and is subject to supervision,
examination, and regulation by the Connecticut Banking Commissioner, as well as
by the Federal Deposit Insurance Corporation (the "FDIC").
In recent years, the financial condition, profitability and business of
Gateway have been adversely affected by the depressed markets for real estate
and economic conditions in its market areas in particular and in New England
generally. Gateway also has been subject to heightened regulatory scrutiny and
Gateway and Gateway Bank have consented to certain regulatory enforcement
actions which have established certain requirements, including an increased
regulatory capital requirement for Gateway, which generally are intended to
enhance the financial condition and operations of Gateway. As a result of a
concurrent examination (the "Examination") of Gateway Bank by the FDIC and the
Connecticut Banking Department (collectively, the "Gateway Bank Regulators")
that was completed in February, 1993, Gateway Bank consented to the issuance by
the Gateway Bank Regulators of a Cease and Desist Order, which requires Gateway
Bank to, among other things, achieve and maintain a Leverage Ratio of 5.25% as
of September 30, 1993 and of 5.75% as of March 31, 1994, to obtain the approval
of the Gateway Bank Regulators prior to declaring or paying any cash dividends,
to maintain adequate loan loss reserves, to retain qualified management and to
develop and/or revise Gateway Bank's written plans regarding management,
lessening of risk position with respect to certain borrowers, loan policy,
profits and funds management.
As of December 31, 1993, primarily as the result of the implementation of a
restructuring plan, pursuant to which approximately $28.3 million of capital was
raised in a rights offering and certain nonperforming assets were sold, Gateway
Bank's Leverage Ratio was 7.10%. Although Gateway is now in compliance with the
requirements of the Cease and Desist Order regarding its minimum Leverage Ratio,
it remains subject to the other requirements of such order.
For more information about Gateway, reference is made to the 1993 Gateway
Form 10-K which is incorporated herein by reference. See "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." See also "INFORMATION
ABOUT GATEWAY FINANCIAL CORPORATION."
REQUIRED STOCKHOLDER APPROVAL
The approval and adoption of the Merger Agreement by Gateway stockholders
will require the affirmative vote of the holders of a majority of the
outstanding shares of Gateway Common Stock entitled to vote thereon. As of March
1, 1994, directors and executive officers of Gateway and their affiliates may be
deemed to be beneficial owners of 957,630 shares of Gateway Common Stock or
approximately 7.22% of the shares of Gateway Common Stock outstanding as of the
Record Date. Such persons have informed Gateway that they intend to vote or
direct the vote of all such shares of Gateway Common Stock FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby. In
addition, the affirmative vote of the holders of a majority of the outstanding
shares of Gateway Common Stock present in person or by proxy at the Annual
Meeting is required to elect each nominee as a director of Gateway and to ratify
the appointment of Coopers & Lybrand as independent auditors of Gateway for the
fiscal year ending December 31, 1994. See "THE ANNUAL MEETING -- Record Date;
Voting; Solicitation and Revocation of Proxies."
EFFECT OF THE MERGER AND THE SUBSIDIARY BANK MERGER
Pursuant to the Merger Agreement, at the Effective Time (as defined below),
Gateway will be merged with and into Shawmut Service Corporation ("SSC") and SSC
will continue as a wholly owned subsidiary of Shawmut. Gateway stockholders will
become shareholders of Shawmut. See "THE MERGER -- General."
6
<PAGE> 12
Immediately prior to consummation of the Merger, Gateway Bank will merge
with and into SBC (the "Subsidiary Bank Merger"). SBC will continue as a
national banking association and an indirect wholly owned subsidiary of Shawmut.
See "CERTAIN RELATED TRANSACTIONS -- Subsidiary Bank Merger Agreement."
EFFECTIVE TIME
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with
applicable law or on such later date as the certificate may specify (the
"Effective Time"). The certificate will be filed on the first day which is (i)
the last business day of a month and (ii) at least two business days after
satisfaction or waiver of the latest to occur of certain conditions to the
Merger specified in the Merger Agreement, unless another date is agreed to by
Shawmut and Gateway. See "THE MERGER -- Effective Time."
EXCHANGE RATIO
At the Effective Time, each issued and outstanding share of Gateway Common
Stock, except for shares held, directly or indirectly, by Gateway or Shawmut
(other than shares held in a fiduciary capacity ("Trust Account Shares") or in
respect of a debt previously contracted ("DPC Shares")) will be converted into
and exchangeable for .559 shares of Shawmut Common Stock (the "Exchange Ratio"),
provided that if the Average Closing Price (as defined below) is less than
$18.70, Gateway may elect, by action of its Board of Directors, to terminate the
Merger Agreement, whether before or after approval of the Merger Agreement by
Gateway's stockholders, by giving written notice of such election to Shawmut
within two New York Stock Exchange ("NYSE") trading days after the Valuation
Period (as defined below), unless Shawmut elects within five business days of
receiving such written notice to increase the Exchange Ratio such that the value
of the Shawmut Common Stock (valued at the Average Closing Price) to be received
by Gateway's stockholders in the Merger is at least $10.45 per share of Gateway
Common Stock. As used in the Merger Agreement, "Average Closing Price" means the
average of the closing prices of shares of Shawmut Common Stock on the NYSE
Composite Transactions Tape (or if Shawmut Common Stock is not quoted thereon,
on the National Association of Securities Dealers Automated Quotations System
or, if not quoted thereon, on the principal trading market on which such shares
are traded as reported by a recognized source) for the ten consecutive trading
days (the "Valuation Period") ending on the business day prior to the date on
which all regulatory approvals required to consummate the Merger are obtained
without regard to any requisite waiting periods in respect thereof.
If the Average Closing Price is less than $18.70 and, in response to an
election by Gateway to terminate the Merger Agreement, Shawmut elects to adjust
the Exchange Ratio, the Exchange Ratio will be equal to the quotient obtained by
dividing (i) $10.45 by (ii) the Average Closing Price. Assuming the Merger is
approved by Gateway stockholders, the Gateway Board of Directors (the "Gateway
Board") may elect not to terminate the Merger Agreement and to consummate the
Merger without resoliciting Gateway stockholders if the Average Closing Price is
less than $18.70, even though, as a result of the application of the Exchange
Ratio, the value of the shares of Shawmut Common Stock (valued at the Average
Closing Price) to be exchanged for each share of Gateway Common Stock would be
less than $10.45. In such a situation, in considering whether to consummate the
Merger without the resolicitation of Gateway stockholders, the Gateway Board
will take into account, consistent with its fiduciary duties, all relevant facts
and circumstances that exist at such time including, without limitation, the
advice of its financial advisor and legal counsel. See "THE MERGER -- Exchange
Ratio" and "-- Waiver and Amendment; Termination."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GATEWAY;
GATEWAY'S REASONS FOR THE MERGER
The Gateway Board has unanimously approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, Gateway and
its stockholders. The Gateway Board therefore unanimously recommends that
holders of Gateway Common Stock vote FOR the ratification, confirmation and
approval of the Merger Agreement. The Gateway Board believes that the Merger
will enable holders of
7
<PAGE> 13
Gateway Common Stock to realize significant value and also will enable Gateway
stockholders to participate in opportunities for growth and capital appreciation
that the Gateway Board believes the Merger makes possible. See "THE
MERGER -- Recommendation of the Board of Directors of Gateway; Gateway's Reasons
for the Merger" and "-- Opinion of Gateway's Financial Advisor." In reaching its
decision to approve the Merger Agreement, the Gateway Board consulted with its
legal advisors regarding the legal terms of the transaction and the Gateway
Board's obligations in its consideration of the proposed transaction, as well as
with management of Gateway and Keefe, Bruyette & Woods, Inc. ("KBW"), Gateway's
Financial Advisor. See "THE MERGER -- Recommendation of the Board of Directors
of Gateway; Gateway's Reasons for the Merger."
OPINION OF GATEWAY'S FINANCIAL ADVISOR
KBW has rendered a written opinion to the Gateway Board, dated as of the
date of this Proxy Statement/Prospectus, to the effect that, as of such date,
the Exchange Ratio is fair, from a financial point of view, to the holders of
Gateway Common Stock. As discussed in "THE MERGER -- Recommendation of the Board
of Directors of Gateway; Gateway's Reasons for the Merger," KBW's opinion and
presentation to the Gateway Board, together with a review by the Gateway Board
of the assumptions used by KBW, were among the factors considered by the Gateway
Board in reaching its determination to approve the Merger. The opinion of KBW is
attached as Annex C to this Proxy Statement/Prospectus. Stockholders are urged
to read such opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered and qualifications on the review
undertaken by KBW in connection therewith. See "THE MERGER -- Opinion of
Gateway's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to employment agreements with Gateway dated November 5, 1993,
Reginald DeKoven's employment as President and Chief Executive Officer of
Gateway, and Susan Monti's employment as a senior executive of Gateway Bank,
will continue for terms of 3 years after the occurrence of any "Change of
Control" of Gateway. Such agreements provide that if Gateway terminates such
employment without cause, or if the employee terminates such employment for
"good reason" (as defined below), the employee shall receive a lump sum payment
in cash equal to approximately 3 times the employee's salary and bonus for the
previous year, together with benefits equivalent to those that would have been
received by the employee if the employment had continued for the 3 year term.
The consummation of the transactions contemplated by the Merger Agreement will
constitute a Change of Control for purposes of the employment agreements.
Pursuant to the Merger Agreement, Shawmut has agreed to honor the employment
agreements in accordance with their terms. In the event of a termination of
employment following the Merger which allows the Executive to receive payments
under his or her respective employment agreement, because amounts payable under
the employment agreements are limited to those amounts that would be deductible
by reason of Section 280G of the Internal Revenue Code of 1986, as amended, Mr.
DeKoven would receive approximately $698,600 and Ms. Monti would receive
approximately $386,000 under the employment agreements. See "THE
MERGER -- Interests of Certain Persons in the Merger."
Pursuant to the Merger Agreement, Shawmut will (i) indemnify present and
former directors, officers and employees of Gateway as to certain matters, and
(ii) subject to the conditions set forth in the Merger Agreement, use its best
efforts to cause the persons serving as officers and directors of Gateway
immediately prior to the Merger to be covered for a period of four years by
Gateway's directors and officers liability insurance policy (or any equivalent
substitute therefor). See "THE MERGER -- Interests of Certain Persons in the
Merger."
Pursuant to the Merger Agreement, Shawmut has also agreed to cause those
persons who are members of the Gateway Board immediately prior to the Merger who
are willing to serve to be elected or appointed as members of a newly formed
Executive Advisory Board, the function of which shall be to advise Shawmut on
deposit and lending activities in Gateway's former market area. Each such
advisory director will receive an annual fee of $5,000 and a per meeting fee of
$500, and Shawmut's obligations with respect to the maintenance of such
Executive Advisory Board will continue until not earlier than December 31, 1996.
8
<PAGE> 14
EMPLOYEE MATTERS
The Merger Agreement provides that Shawmut shall continue all employee
benefit plans of Gateway that are in effect at the time of the Merger, provided
that Shawmut may amend or replace such plans if, in the good faith judgment of
the management of Shawmut, any such amendment or replacement will provide
Gateway's employees or retired employees covered thereby with benefits that are
in the aggregate at least as valuable to them as a group as the benefits to be
received by them under the plans in effect prior to any such amendment or
replacement. To the extent Gateway employees participate in any employee benefit
plans of Shawmut, such employees will be credited with prior years of service
with Gateway for all purposes, other than benefit accrual to the extent such
service was recognized by Gateway under any of its plans.
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including,
among others, receipt of the stockholder approval solicited hereby, receipt of
necessary regulatory approvals, receipt of a letter from Shawmut's independent
accountants that the Merger qualifies for pooling of interests accounting
treatment, receipt of opinions of counsel regarding certain federal income tax
consequences of the Merger and the satisfaction of other customary closing
conditions. See "THE MERGER -- Conditions to the Merger."
The regulatory approvals and consents necessary to consummate the
Subsidiary Bank Merger include the approval of the Office of the Comptroller of
the Currency. The Merger may be subject to the prior approval of the Federal
Reserve Board. However, Shawmut may choose to provide the Federal Reserve Board
with prior written notice of the Merger in lieu of filing an application. Under
those circumstances, the Merger does not require the approval of the Federal
Reserve Board unless the Federal Reserve Board informs Shawmut that an
application for approval is required. See "THE MERGER -- Regulatory Approvals
Required for the Merger." There can be no assurance as to whether or when such
regulatory approvals will be obtained. There can also be no assurance that the
U.S. Department of Justice will not challenge the Merger on antitrust grounds,
or if such a challenge is made, as to the result thereof.
On November 15, 1993, the Federal Reserve Board, in a tie vote, declined to
approve Shawmut's application to acquire New Dartmouth Bank ("New Dartmouth").
Those Governors who voted not to approve the application cited a then-pending
investigation of possible discriminatory lending at SMC by the United States
Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC").
The investigation was undertaken pursuant to a referral from the Federal Reserve
Board. Those Governors indicated that while Shawmut had taken steps to address
the regulatory concerns, the measures had not been in place for a sufficient
period of time for the Federal Reserve Board to evaluate their effectiveness. On
December 13, 1993, without admitting any wrongdoing, SMC entered into a consent
decree with the DOJ and FTC regarding such investigation. On March 1, 1994,
Shawmut filed with the Federal Reserve Board a petition seeking reconsideration
of the Board's November 15, 1993 decision not to approve Shawmut's application
to acquire all of the outstanding voting shares of New Dartmouth. On March 7,
1994, the Federal Reserve Board announced that it will defer action on such
petition. The Federal Reserve Board said that it expects to consider such
petition no later than May 2, 1994. See "THE MERGER -- Regulatory Approvals
Required for the Merger."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual consent of Shawmut and Gateway and by either of them
individually under certain specified circumstances, including if the Merger has
not been consummated by December 31, 1994. In addition, the Merger Agreement
provides that Gateway may elect to terminate the Merger Agreement if the Average
Closing Price is less than $18.70 per share unless Shawmut agrees to increase
the Exchange Ratio to an amount equal to $10.45 divided by the Average Closing
Price. See "THE MERGER -- Waiver and Amendment; Termination."
9
<PAGE> 15
NO SOLICITATION
Gateway has agreed in the Merger Agreement that neither it nor any of its
subsidiaries will solicit, initiate or encourage inquiries or proposals with
respect to, or, subject to the fiduciary duties of its Board of Directors (as
advised in writing by its counsel), participate in any negotiations or
discussions concerning any acquisition or purchase of all or a substantial
portion of its assets, or of a substantial equity interest in it or any of its
subsidiaries, or any merger or other business combination with it or any of its
subsidiaries, other than as contemplated by the Merger Agreement, except that
Gateway may communicate information about any such proposal to its stockholders
if and to the extent that the fiduciary duties of its Board of Directors require
it to do so (as advised by its counsel); Gateway also agreed in the Merger
Agreement that it would immediately cease and cause to be terminated any
existing activities, discussions or negotiations previously conducted with any
parties other than Shawmut with respect to the foregoing; it will notify Shawmut
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated with, it or any of its subsidiaries and will promptly
inform Shawmut in writing of the relevant details with respect to the foregoing;
and it will instruct its officers, directors, agents, advisors and affiliates to
comply with the same restrictions. See "THE MERGER -- No Solicitation of
Transactions."
STOCK EXCHANGE LISTING
The Shawmut Common Stock is listed on the NYSE. Shawmut has agreed to cause
the shares of Shawmut Common Stock to be issued in the Merger to be approved for
listing on the NYSE. The obligation of each of Shawmut and Gateway to consummate
the Merger is subject to approval for listing by the NYSE of such shares. See
"THE MERGER -- Conditions to the Merger."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. The issuance of shares of Gateway Common Stock
pursuant to the Stock Option Agreement, however, may prevent the Merger from
qualifying as a pooling of interests for accounting and financial reporting
purposes. It is a condition to each party's obligation to consummate the Merger
that such party receives a letter from Shawmut's independent accountants to the
effect that the Merger qualifies for pooling of interests accounting treatment
unless such firm advises the parties that it is unable to issue a letter to such
effect solely by reason of Shawmut having exercised its right to purchase
Gateway Common Stock pursuant to the Stock Option Agreement. See "THE
MERGER -- Conditions to the Merger" and "-- Anticipated Accounting Treatment."
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). Consummation of the Merger is conditioned upon receipt by Shawmut
of an opinion of Skadden, Arps, Slate, Meagher & Flom (the "Skadden Opinion")
and receipt by Gateway of an opinion of Wachtell, Lipton, Rosen & Katz (the
"Wachtell Opinion"), each dated as of the Effective Time. The Skadden Opinion
and the Wachtell Opinion will state that, on the basis of facts, representations
and assumptions set forth in such opinions, which are consistent with the facts
existing at the Effective Time, the Merger will be treated for Federal income
tax purposes as part of one or more reorganizations within the meaning of
Section 368(a) of the Code, and that accordingly, (i) no gain or loss will be
recognized by the stockholders of Gateway who exchange their Gateway Common
Stock solely for Shawmut Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in Shawmut
Common Stock), and (ii) the tax basis of the Shawmut Common Stock received by
Gateway stockholders who exchange all of their Gateway Common Stock solely for
Shawmut Common Stock in the Merger will be the same as the tax basis of the
Gateway Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
10
<PAGE> 16
In addition, the Skadden Opinion will state that, on the basis of facts,
representations and assumptions set forth therein, which are consistent with the
facts existing at the Effective Time, the Subsidiary Bank Merger will be treated
for Federal income tax purposes as part of one or more reorganizations within
the meaning of Section 368(a) of the Code, and that accordingly no gain or loss
will be recognized by (i) Shawmut, SSC or Gateway as a result of the Merger or
(ii) SBC or Gateway Bank (except with respect to any gain or income that may at
any time or times be realized or recognized with respect to Gateway Bank's tax
reserves for possible loan losses) as a result of the Merger or the Subsidiary
Bank Merger. See "THE MERGER -- Federal Income Tax Consequences."
NO APPRAISAL RIGHTS
No stockholders of Gateway are entitled to appraisal rights in connection
with, or as a result of, the Merger. See "THE MERGER -- No Appraisal Rights."
STOCK OPTION AGREEMENT
Execution of the Stock Option Agreement was a condition to Shawmut's merger
proposal. Pursuant to the Stock Option Agreement, Gateway granted Shawmut an
option to purchase 2,636,764 shares of Gateway Common Stock, representing
approximately 19.9% of the issued and outstanding shares of such common stock
before taking into account the shares issuable upon exercise of such option, at
an exercise price of $10.75, subject to the terms and conditions set forth
therein. The option may only be exercised upon the occurrence of certain events
(none of which has occurred). The Stock Option Agreement is attached as Annex B
to this Proxy Statement/Prospectus. See "CERTAIN RELATED TRANSACTIONS -- Stock
Option Agreement."
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreement may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all or a significant interest in Gateway from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for Gateway Common Stock than the price per
share implicit in the Exchange Ratio.
AMENDMENT TO RIGHTS AGREEMENT
In connection with the execution of the Merger Agreement, Gateway amended
the Gateway Rights Agreement (as defined below). The amendment amended the
definition of "Acquiring Person" in the Gateway Rights Agreement to provide that
neither Shawmut nor any of its subsidiaries will be deemed to be an Acquiring
Person by virtue of the Merger Agreement or Stock Option Agreement, or any of
the transactions contemplated thereby, or by virtue of the fact that Shawmut is
the beneficial owner of Gateway Common Stock (i) of which Shawmut or any of its
subsidiaries was the beneficial owner on November 5, 1993, together with up to
1% more of the Gateway Common Stock acquired after such date by Shawmut's
Affiliates and Associates (as such terms are defined in the Gateway Rights
Agreement); (ii) acquired or acquirable pursuant to the Stock Option Agreement;
(iii) held directly or indirectly as Trust Account Shares; and (iv) held as DPC
Shares. The amendment also amended the definition of "Adverse Person" to provide
that neither Shawmut nor any of its Affiliates or Associates shall be deemed to
be an Adverse Person and that no Distribution Date (as such term is defined in
the Gateway Rights Agreement) shall be deemed to have occurred while the Merger
Agreement is pending. As a result of the amendment, no Distribution Date shall
be deemed to have occurred while the Merger Agreement is pending and the Gateway
Rights (as defined below) will not become exercisable as a result of the
execution of the Merger Agreement and the Stock Option Agreement or consummation
of any of the transactions contemplated thereby. See "CERTAIN RELATED
TRANSACTIONS -- Amendment to Rights Agreement."
COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Time, Gateway stockholders automatically will become
shareholders of Shawmut and their rights as shareholders of Shawmut will be
governed by the Delaware General Corporation Law and by
11
<PAGE> 17
Shawmut's Certificate of Incorporation and By-laws. The rights of shareholders
of Shawmut differ from the rights of the stockholders of Gateway with respect to
certain important matters, including, among others, with respect to the ability
of shareholders to act by written consent, the calling of a special meeting,
shareholder nominations and proposals for business, the vote required for
certain business combinations, rights plans, amendments to the Certificate of
Incorporation and By-Laws, classification of Board of Directors, removal of
directors, meetings of creditors and/or shareholders and payment of dividends.
For a summary of these differences, see "COMPARISON OF SHAREHOLDER RIGHTS."
MARKET PRICES
Shawmut Common Stock is listed and traded principally on the NYSE under the
symbol "SNC". Gateway Common Stock is traded in the over-the-counter market and
is reported through the National Association of Securities Dealers Automated
Quotation System/National Market System ("NASDAQ/NMS") under the symbol "GTWY".
The following table sets forth, for the periods indicated, the high and low
sale prices per share for the Shawmut Common Stock as reported on the NYSE and
the high and low sale prices per share of the Gateway Common Stock as reported
by the NASDAQ/NMS. The information with respect to NASDAQ/NMS quotations was
obtained from the National Association of Securities Dealers, Inc. and reflects
interdealer prices, without retail markup, markdown or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
SHAWMUT GATEWAY
----------------- -----------------
YEAR HIGH LOW HIGH LOW
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1992:.......................................... $19.50 $ 8.88 $ 9.00 $ 3.13
1993:.......................................... 26.38 17.88 12.63 4.50
1994:
First Quarter............................. 24.00 19.75 12.63 10.38
------ ------ ------ ------
Second Quarter (through April 21, 1994)... 23.25 19.25 12.13 9.88
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
MARKET VALUE PER SHARE(1): SHAWMUT GATEWAY EQUIVALENT(2)
-------------------------- ------- ------- -------------
<S> <C> <C> <C>
November 4, 1993.................................... $20.25 $ 10.75 $ 11.32
April 21, 1994...................................... 22.13 11.63 12.36
------- ------- -------------
</TABLE>
- ---------------
(1) The market values for Shawmut Common Stock and Gateway Common Stock
represent the last reported sale prices per share on November 4, 1993, the
last business day preceding public announcement of the Merger and April 21,
1994, the last practicable date prior to the mailing of this Proxy
Statement/Prospectus.
(2) The pro forma equivalent per share market value of Gateway Common Stock at
each specified date was determined by multiplying the last reported sale
price of a share of Shawmut Common Stock on such date by the Exchange Ratio.
Stockholders are advised to obtain current market quotations for Shawmut
Common Stock. No assurance can be given as to the market price of Shawmut Common
Stock at or after the Effective Time of the Merger. It is expected that the
market price of Shawmut Common Stock will fluctuate between the date of this
Proxy Statement/Prospectus and the date on which the Merger is consummated and
thereafter. Because the number of shares of Shawmut Common Stock to be received
by Gateway stockholders in the Merger is fixed so long as (a) the Average
Closing Price of the Shawmut Common Stock during the Valuation Period is at
least $18.70 per share or (b) Gateway does not elect to terminate the Merger
Agreement in the event that the Average Closing Price is less than $18.70, and
because the market price of the Shawmut Common Stock is subject to fluctuation,
the value of the shares of Shawmut Common Stock that holders of Gateway Common
Stock would receive in the Merger may increase or decrease prior to the Merger.
12
<PAGE> 18
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of Shawmut. The table is based on and should be read in
conjunction with Shawmut's historical financial statements and notes thereto
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
SELECTED FINANCIAL DATA
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income......................... $1,562.2 $1,545.7 $1,813.9 $2,275.2 $2,625.4
Interest expense..................................... 637.6 720.4 1,076.6 1,515.7 1,736.9
-------- -------- -------- -------- --------
Net interest income.................................. 924.6 825.3 737.3 759.5 888.5
Provision for loan losses............................ 29.2 189.5 466.4 434.3 625.8
-------- -------- -------- -------- --------
Net interest income after provision for loan
losses............................................. 895.4 635.8 270.9 325.2 262.7
Noninterest income................................... 363.5 392.2 451.5 439.6 355.1
Securities gains, net................................ 5.7 85.9 78.2 26.2 39.9
Noninterest expenses................................. 1,027.7 1,036.4 969.7 918.3 877.4
-------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary
credit and cumulative effect of accounting
changes............................................ 236.9 77.5 (169.1) (127.3) (219.7)
Income taxes (benefit)............................... (7.6) 20.7 1.5 5.7 (90.8)
-------- -------- -------- -------- --------
Income (loss) before extraordinary credit and
cumulative effect of accounting changes............ 244.5 56.8 (170.6) (133.0) (128.9)
Extraordinary credit................................. 18.4
Cumulative effect of changes in methods of
accounting......................................... 46.2
-------- -------- -------- -------- --------
Net income (loss).................................... $ 290.7 $ 75.2 $ (170.6) $ (133.0) $ (128.9)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income (loss) applicable to common stock......... $ 275.2 $ 70.4 $ (172.9) $ (135.3) $ (131.3)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
COMMON SHARE DATA:
Income (loss) before extraordinary credit and
cumulative effect of accounting changes............ $ 2.44 $ .60 $ (2.35) $ (1.84) $ (1.77)
Net income (loss).................................... 2.93 .81 (2.35) (1.84) (1.77)
Dividends declared................................... .50 .75 1.40
PERIOD END BALANCES:
Total assets......................................... $ 27,245 $ 25,288 $ 22,816 $ 23,703 $ 27,855
Notes and debentures................................. 759 810 665 679 699
Total shareholders' equity........................... 1,803 1,482 1,040 1,192 1,398
AVERAGE BALANCES:
Total assets......................................... $ 25,411 $ 22,450 $ 22,391 $ 25,461 $ 27,275
Notes and debentures................................. 839 668 669 687 714
Total shareholders' equity........................... 1,596 1,256 1,092 1,394 1,739
</TABLE>
13
<PAGE> 19
GATEWAY FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data of Gateway. The table is based on and should be read in
conjunction with Gateway's historical financial statements and notes thereto
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
SELECTED FINANCIAL DATA
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend income................................ $ 86.9 $107.2 $ 97.5 $117.8 $119.6
Interest expense............................................ 40.0 55.7 67.6 90.2 86.8
------ ------ ------ ------ ------
Net interest income......................................... 46.9 51.5 29.9 27.6 32.8
Provision for loan losses................................... 6.4 42.3 17.7 37.2 12.2
------ ------ ------ ------ ------
Net interest income (expense) after provision for loan
losses.................................................... 40.5 9.2 12.2 (9.6) 20.6
Noninterest income.......................................... 8.9 12.9 5.6 6.9 4.3
Securities gains and losses................................. 1.1 3.4 .2 (2.9) 3.1
Noninterest expenses........................................ 47.0 45.5 36.8 29.4 20.9
------ ------ ------ ------ ------
Income (loss) before income taxes and extraordinary
charge.................................................... 3.5 (20.0) (18.8) (35.0) 7.1
Income taxes (benefit)...................................... (4.9) (5.9) (8.6) 6.1
------ ------ ------ ------ ------
Income (loss) before extraordinary charge................... 8.4 (20.0) (12.9) (26.4) 1.0
Extraordinary charge........................................ (.4) (2.2)
Net income (loss)........................................... $ 8.4 $(20.4) $(15.1) $(26.4) $ 1.0
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net income (loss) applicable to common stock................ $ 8.4 (20.4) $(15.1) $(26.4) $ 1.0
------ ------ ------ ------ ------
------ ------ ------ ------ ------
COMMON SHARE DATA:
Income (loss) before extraordinary charge................... $ .86 (2.70) $(1.73) $(3.43) $ .13
Net income (loss)........................................... .86 (2.75) (2.03) (3.43) .13
Dividends declared.......................................... .16 .64
PERIOD END BALANCES:
Total assets................................................ $1,276 $1,318 $1,497 $1,237 $1,291
Total shareholders' equity.................................. 94 56 76 92 119
AVERAGE BALANCES:
Total assets................................................ $1,276 $1,402 $1,179 $1,293 $1,229
Total shareholders' equity.................................. 69 78 88 105 128
</TABLE>
14
<PAGE> 20
COMPARISON OF CERTAIN PER SHARE DATA
The following table shows unaudited comparative historical per share data
for Shawmut and Gateway, unaudited pro forma per share and per share equivalent
data for Shawmut and Gateway combined (including the results of operations of
Cohasset Savings Bank ("Cohasset") and West Newton Savings Bank ("West Newton")
for the year ended December 31, 1993) and Shawmut, Gateway, New Dartmouth Bank
("New Dartmouth") and Peoples Bancorp of Worcester, Inc. ("Peoples")
combined.(1) Pro forma per share and per share equivalent data for the year
ended December 31, 1993 includes the results of operations of Cohasset and West
Newton. The range of values presented reflects the minimum and maximum number of
shares of Shawmut Common Stock that may be issued pursuant to the Merger and the
acquisitions of New Dartmouth and Peoples, calculated as of December 31, 1993.
The information presented should be read in conjunction with the consolidated
historical financial statements and notes thereto of Shawmut, Gateway, New
Dartmouth, Peoples, Cohasset and West Newton, which are incorporated by
reference in this Proxy Statement/Prospectus, and the unaudited pro forma
condensed financial information, including the notes thereto, which appear
elsewhere in this Proxy Statement/Prospectus. The pro forma data is presented
for comparative purposes only and is not necessarily indicative of the combined
financial position or results of operations in the future or of the combined
financial position or results of operations which would have been realized had
the Merger or the acquisitions been consummated during the periods or as of the
dates for which the pro forma data is presented. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," and "UNAUDITED PRO FORMA CONDENSED FINANCIAL
INFORMATION."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OF SHAWMUT COMMON STOCK:
Income (loss) before extraordinary credit and cumulative effect of
accounting changes:
Historical....................................................... $ 2.44 $ .60 $(2.35) $(1.84) $(1.77)
Pro forma:
Shawmut and Gateway............................................ 2.42 .35 (2.39) (2.08) (1.66)
Shawmut, Gateway, New Dartmouth and Peoples.................... 2.42 to .60 to (2.07) to (1.92) to (1.48) to
2.34 .58 (2.02) (1.88) (1.45)
Cash dividends declared:
Historical....................................................... .50 0.75 1.40
Book Value (as of end of period):
Historical....................................................... 17.02
Pro forma:
Shawmut and Gateway............................................ 16.71
Shawmut, Gateway, New Dartmouth and Peoples.................... 16.56 to
15.97
PER SHARE OF GATEWAY COMMON STOCK:
Income (loss) before extraordinary credit and cumulative effect of
accounting change:
Historical....................................................... .86 (2.70) (1.73) (3.43) .13
Pro forma equivalent:
Shawmut and Gateway............................................ 1.35 .20 (1.34) (1.16) (.93)
Shawmut, Gateway, New Dartmouth and Peoples.................... 1.35 to .34 to (1.16) to (1.07) to (.83) to
1.31 .32 (1.13) (1.05) (.81)
Cash dividends declared:
Historical....................................................... .16 .64
Pro forma equivalent............................................. .28 .42 .78
Book value (as of end of period):
Historical....................................................... 7.10
Pro forma equivalent:
Shawmut and Gateway............................................ 9.34
Shawmut, Gateway, New Dartmouth and Peoples.................... 9.26 to
8.93
</TABLE>
- ---------------
(1) On March 24, 1993, Shawmut announced the signing of a definitive agreement
to acquire New Dartmouth in a transaction to be accounted for as a pooling
of interests. New Dartmouth commenced operations on October 10, 1991 and has
not declared or paid dividends since its inception. On August 26, 1993,
Shawmut entered into an agreement to acquire Peoples in a transaction to be
accounted for as a pooling of interests. On March 2, 1994, Shawmut announced
the signing of a definitive agreement to acquire Cohasset. On March 8, 1994,
Shawmut announced the signing of a definitive agreement to acquire West
Newton.
15
<PAGE> 21
RECENT DEVELOPMENTS
On April 21, 1994, Shawmut reported net income of $66.8 million for the
first quarter of 1994, or $.66 per common share, versus net income of $29.7
million, or $.28 per common share in the previous year's first quarter. Asset
quality improved as nonaccruing loans and foreclosed properties declined by
$50.0 million, or 14 percent, to $307.5 million at March 31, 1994 from $357.5
million at December 31, 1993.
THE ANNUAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to stockholders of
Gateway Financial Corporation ("Gateway") in connection with the solicitation of
proxies by the Board of Directors of Gateway (the "Gateway Board") for use at
the annual meeting of stockholders of Gateway and at any adjournments or
postponements thereof (the "Annual Meeting") to be held at the Trumbull
Marriott, 180 Hawley Lane, Trumbull, Connecticut, on Wednesday, June 8, 1994. At
the Annual Meeting, the stockholders of Gateway will be asked to: (i) approve
and adopt the Agreement and Plan of Merger, dated as of November 5, 1993 (the
"Merger Agreement"), by and among Shawmut National Corporation ("Shawmut"),
Shawmut Service Corporation, a wholly owned subsidiary of Shawmut ("SSC"), and
Gateway and the transactions contemplated thereby which are more fully described
herein; (ii) elect four persons to serve as directors of Gateway for a
three-year term and until the election and qualification of their successors;
(iii) ratify the appointment of Coopers & Lybrand as independent auditors of
Gateway for the fiscal year ending December 31, 1994; and (iv) act upon such
other matters as may properly be brought before the Annual Meeting and at any
adjournments or postponements thereof. A copy of the Merger Agreement is
attached as Annex A hereto. The Merger Agreement provides, among other things,
that Gateway will merge (the "Merger") with and into SSC and, except as
described below, each share of common stock, par value $0.01 per share, of
Gateway ("Gateway Common Stock") will be converted into and exchangeable for
.559 shares of common stock, par value $.01 per share, of Shawmut ("Shawmut
Common Stock").
This Proxy Statement/Prospectus constitutes a prospectus of Shawmut with
respect to the shares of Shawmut Common Stock to be issued in connection with
the Merger. The information in this Proxy Statement/Prospectus concerning
Shawmut and Gateway has been furnished by each of such entities, respectively.
The principal executive offices of Shawmut are located at 777 Main Street,
Hartford, Connecticut 06115 and One Federal Street, Boston, Massachusetts 02211,
and its telephone numbers in Connecticut and Massachusetts are (203) 986-2000
and (617) 292-2000, respectively. The principal executive offices of Gateway are
located at 383 Main Avenue, Norwalk, Connecticut 06851, and its telephone number
is (203) 845-7700.
This Proxy Statement/Prospectus is first being mailed to stockholders of
Gateway on or about April 27, 1994.
RECORD DATE; VOTING; SOLICITATION AND REVOCATION OF PROXIES
The Gateway Board has fixed April 15, 1994 as the record date (the "Record
Date") for the determination of those Gateway stockholders entitled to notice of
and to vote at the Annual Meeting. Only holders of record of Gateway Common
Stock at the close of business on the Record Date will be entitled to notice of
and to vote at the Annual Meeting. As of the Record Date, there were 13,263,820
shares of Gateway Common Stock outstanding, entitled to vote and held by
approximately 1,565 holders of record. Each holder of record of shares of
Gateway Common Stock on the Record Date is entitled to cast one vote per share
on the proposals to approve and adopt the Merger Agreement, to elect the
nominees as directors, to ratify the appointment of Coopers & Lybrand, and on
any other matter properly submitted for the vote of the Gateway stockholders at
the Annual Meeting. The presence, either in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Gateway Common
Stock entitled to vote at the Annual
16
<PAGE> 22
Meeting is necessary to constitute a quorum at the Annual Meeting. Abstentions
will be counted for purposes of determining the presence or absence of a quorum
at the Annual Meeting.
The approval and adoption of the Merger Agreement by Gateway stockholders
will require the affirmative vote of the holders of a majority of the
outstanding shares of Gateway Common Stock entitled to vote thereon. As
described in "THE MERGER -- Conditions to the Merger," such stockholder approval
is a condition to consummation of the Merger. In addition, the election of each
nominee as a director of Gateway, and the ratification of the appointment of
Coopers & Lybrand as independent auditors of Gateway for the fiscal year ending
December 31, 1994 require the affirmative vote of the holders of a majority of
the shares of Gateway Common Stock present in person or by proxy at the Annual
Meeting. Under applicable Delaware law, in determining whether the Merger
proposal has received the requisite number of affirmative votes, abstentions and
broker non-votes will be counted and will have the same effect as a vote against
the Merger proposal. Abstentions and broker non-votes will have the same effect
as a negative vote in determining whether the requisite holders of a majority of
Gateway Common Stock is obtained to elect the nominees as directors and to
ratify the appointment of Coopers & Lybrand.
As of March 1, 1994, directors and executive officers of Gateway and their
affiliates may be deemed to be beneficial owners of 957,630 shares of Gateway
Common Stock, or approximately 7.22% of the shares of Gateway Common Stock
outstanding as of the Record Date. Such persons have informed Gateway that they
intend to vote or direct the vote of all such shares of Gateway Common Stock FOR
approval and adoption of the Merger Agreement and the transactions contemplated
thereby.
All shares of Gateway Common Stock which are entitled to be voted and are
represented at the Annual Meeting by properly executed proxies received prior to
or at the meeting, and not revoked, will be voted at such meeting, and any
adjournments or postponements thereof, in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted FOR: (i) approval and adoption of the Merger Agreement, (ii) the
election of the nominees as directors, (iii) the ratification of the appointment
of Coopers & Lybrand, and (iv) otherwise in the discretion of the proxy holders
as to any other matter which may come before the Annual Meeting or any
adjournment or postponement thereof, including, among other things, a motion to
adjourn or postpone the Annual Meeting to another time and/or place, for the
purpose of soliciting additional proxies or otherwise; provided, however, that
no proxy which is voted against the proposal to approve and adopt the Merger
Agreement will be voted in favor of any such adjournment or postponement.
If any other matters are properly presented at the Annual Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; provided, however, that such discretionary
authority will only be exercised to the extent possible under applicable federal
and state securities and corporation laws. Gateway does not have any knowledge
of any matters to be presented at the Annual Meeting other than the matters set
forth above under "-- General."
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Gateway, at or before the taking of the vote at the Annual
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Gateway before the taking of the vote at the
Annual Meeting, or (iii) attending the Annual Meeting and voting in person
(although attendance at the meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequently
executed proxy should be sent so as to be delivered to Gateway Financial
Corporation, 383 Main Avenue, Norwalk, Connecticut 06851, Attention: Frank W.
Estes or hand delivered to the Assistant Secretary of Gateway at or before the
taking of the vote at the Annual Meeting.
Gateway will bear all expenses of this solicitation, except that the cost
of preparing and mailing this Proxy Statement/Prospectus will be borne equally
by Gateway and Shawmut. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of Gateway in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. Gateway
has retained Chemical Bank, a proxy soliciting firm, to assist in such
solicitation. The fee
17
<PAGE> 23
to be paid to such firm is not expected to exceed $6,500 plus reasonable
out-of-pocket costs and expenses. In addition, Gateway will make arrangements
with brokerage firms and other custodians, nominees and fiduciaries to send
proxy materials to their principals and will reimburse such parties for their
expenses in doing so.
GATEWAY STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
ITEM 1
THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Merger Agreement, describes the material aspects of the
Merger but does not purport to be a complete description and is qualified in its
entirety by reference to the Merger Agreement which is incorporated herein by
reference and attached hereto as Annex A. Gateway stockholders are urged to read
carefully the Merger Agreement.
GENERAL
Pursuant to the terms of the Merger Agreement, subject to the satisfaction
or waiver (where permissible) of certain conditions, including, among other
things, the receipt of all necessary regulatory approvals, the expiration of all
waiting periods in respect thereof, and the approval of the Merger Agreement by
the stockholders of Gateway, Gateway will be merged with and into SSC. As a
result of the Merger, the separate corporate existence of Gateway will cease,
the stockholders of Gateway will become shareholders of Shawmut, and SSC will
continue as a wholly owned subsidiary of Shawmut.
Immediately prior to the consummation of the Merger, Gateway Bank, a wholly
owned subsidiary of Gateway ("Gateway Bank"), will merge (the "Subsidiary Bank
Merger") with and into Shawmut Bank Connecticut, National Association, Hartford,
Connecticut ("SBC"), an indirect wholly owned subsidiary of Shawmut. See
"CERTAIN RELATED TRANSACTIONS -- Subsidiary Bank Merger Agreement."
EXCHANGE RATIO
At the Effective Time (as defined below), each issued and outstanding share
of Gateway Common Stock, except for shares held, directly or indirectly, by
Gateway or Shawmut (other than shares held by Shawmut or Gateway in a fiduciary
capacity ("Trust Account Shares") or in respect of a debt previously contracted
("DPC Shares")) will be converted into and exchangeable for .559 shares of
Shawmut Common Stock (the "Exchange Ratio"). The Merger Agreement provides that
if the Average Closing Price (as defined below) is less than $18.70, Gateway may
elect, by action of its Board of Directors, to terminate the Merger Agreement,
whether before or after approval of the Merger Agreement by Gateway's
stockholders, by giving written notice of such election to Shawmut within two
New York Stock Exchange ("NYSE") trading days after the Valuation Period (as
defined below), unless Shawmut elects within five business days of receiving
such written notice to increase the Exchange Ratio such that the value of the
Shawmut Common Stock (valued at the Average Closing Price) to be received by
Gateway's stockholders in the Merger is at least $10.45 ($18.70 multiplied by
the Exchange Ratio (.559)) per share of Gateway Common Stock. As used in the
Merger Agreement, "Average Closing Price" means the average of the closing
prices of a share of Shawmut Common Stock as reported on the NYSE Composite
Transactions Tape (or if Shawmut Common Stock is not quoted thereon, on the
National Association of Securities Dealers Automated Quotations System or, if
not quoted thereon, on the principal trading market on which such shares are
traded as reported by a recognized source) for the ten consecutive trading days
(the "Valuation Period") ending on the business day prior to the date on which
all regulatory approvals required to consummate the Merger are obtained without
regard to any requisite waiting periods in respect thereof. No fractional shares
of Shawmut Common Stock will be issued in the Merger. See "-- Conversion of
Shares; Procedures for Exchange of Certificates; Fractional Shares" below.
18
<PAGE> 24
If the Average Closing Price is less than $18.70 and, in response to an
election by Gateway to terminate the Merger Agreement, Shawmut elects to adjust
the Exchange Ratio, the Exchange Ratio will be equal to the quotient obtained by
dividing (i) $10.45 by (ii) the Average Closing Price. See "-- Waiver and
Amendment; Termination" below. Assuming the Merger is approved by holders of
Gateway Common Stock, the Gateway Board may elect not to terminate the Merger
Agreement and to consummate the Merger without resoliciting Gateway stockholders
if the Average Closing Price is less than $18.70, even though, as a result of
the application of the Exchange Ratio, the value of the shares of Shawmut Common
Stock (valued at the Average Closing Price) to be exchanged for each share of
Gateway Common Stock would be less than $10.45. In such a situation, in
considering whether to consummate the Merger without the resolicitation of
Gateway stockholders, the Gateway Board will take into account, consistent with
its fiduciary duties, all relevant facts and circumstances that exist at such
time, including, without limitation, the advice of its financial advisors and
legal counsel. Gateway stockholders will have no vote in the decision of the
Gateway Board to either terminate the Merger Agreement or elect to consummate
the Merger in the event that the Average Closing Price is less than $18.70. See
"-- Waiver and Amendment; Termination" below.
The following table sets forth examples of possible Exchange Ratios at
varying Average Closing Prices below $18.70, assuming that the Gateway Board has
elected to give notice of termination of the Merger Agreement and that Shawmut
has elected to increase the Exchange Ratio to prevent such termination:
<TABLE>
<CAPTION>
AVERAGE CLOSING
PRICE OF SHAWMUT VALUE (BASED ON AVERAGE CLOSING PRICE)
COMMON STOCK EXCHANGE RATIO PER SHARE OF GATEWAY COMMON STOCK
- ---------------- -------------- --------------------------------------
<S> <C> <C>
$18.50 .565 $10.45
18.00 .581 $10.45
17.50 .597 $10.45
</TABLE>
The Merger Agreement provides that, in the event Shawmut changes the number
of shares of Shawmut Common Stock issued and outstanding between the date of the
Merger Agreement and the Effective Time as a result of a stock split or
combination, stock dividend or other similar distribution, the Exchange Ratio
will be adjusted proportionately.
In addition, at the Effective Time, each outstanding and unexercised option
to purchase shares of Gateway Common Stock (a "Gateway Option") will be assumed
by Shawmut. After the Effective Time, each Gateway Option will be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Gateway Option immediately prior to the Effective Time,
the number of shares of Shawmut Common Stock equal to the product, rounded down
to the nearest share, of the number of shares of Gateway Common Stock subject to
the Gateway Option and the Exchange Ratio, at a price per share equal to the
exercise price per share of Gateway Common Stock otherwise purchasable pursuant
to such Gateway Option divided by the Exchange Ratio, rounded up to the nearest
cent.
The Merger Agreement also provides that each holder of a Gateway Option,
whether or not then vested, shall have the right at the Effective Time to elect
to convert all or a portion of his or her Gateway Options which have not expired
prior to the Effective Time into the right to receive such number of shares
(rounded to the nearest whole share) of Shawmut Common Stock as are equal in
value (determined by valuing each share of Shawmut Common Stock at the Average
Closing Price) to the excess of (i) the number of shares of Gateway Common Stock
subject to such option times the Exchange Ratio times the Average Closing Price
of the Shawmut Common Stock over (ii) the aggregate exercise price of such
option except that no such election shall be made if such right is inconsistent
with any of the conditions to consummation of the Merger contained in the Merger
Agreement.
As of April 15, 1994, the management of Gateway held, in the aggregate,
stock options with respect to 364,775 shares of Gateway Common Stock. The
average exercise price of the stock options is $6.57. Based on the closing price
of Shawmut Common Stock on April 15, 1994, the calculated value of a share of
Gateway Common Stock in the Merger is $12.51 (assuming the Exchange Ratio is not
adjusted as provided for in the Merger Agreement). At April 15, 1994, the net
aggregate dollar amount of all management stock options was $2,166,764.
19
<PAGE> 25
BACKGROUND OF THE MERGER
In recent years, the financial condition, profitability and business of
Gateway have been adversely affected by the depressed markets for real estate
and economic conditions in its market areas in particular and in New England
generally. Gateway and Gateway Bank have also been subject to heightened
regulatory scrutiny and have consented to certain regulatory enforcement actions
(the "Regulatory Agreements") which have established certain requirements,
including an increased capital requirement for Gateway Bank, which generally are
intended to enhance the financial condition of Gateway and Gateway Bank. Gateway
Bank was required to achieve and maintain a leverage ratio of 5.25% as of
September 30, 1993 and 5.75% as of March 31, 1994 pursuant to the terms of an
Order to Cease and Desist (the "Cease and Desist Order"). The Cease and Desist
Order was issued in May 1993 pursuant to a Stipulation and Consent between
Gateway Bank and the Banking Commissioner of the State of Connecticut with the
concurrence of the Federal Deposit Insurance Corporation (the "FDIC").
In January 1993, Gateway retained Keefe, Bruyette & Woods, Inc. ("KBW") to
render financial advisory services to Gateway in connection with a transaction
that would result in an infusion of capital and resulting in the improvement of
Gateway's leverage capital ratio. KBW assisted Gateway with the development and
implementation of a restructuring plan, pursuant to which (i) Gateway conducted
a rights offering that closed in August 1993 and raised approximately $28.3
million of additional capital, (ii) Gateway sold certain of its non-performing
loans and real estate owned, and (iii) Gateway took steps to seek to strengthen
and solidify its senior management. The restructuring plan was designed to
address many of the financial and operational requirements under the Cease and
Desist Order and the Regulatory Agreements.
From time to time, both before and after the consummation of the rights
offering, Gateway had received preliminary indications of interest from other
bank holding companies concerning their possible interest in pursuing a merger
with or acquisition of Gateway. Other than with respect to those matters
discussed below, these indications of interest were informal and no formal
offers resulted from such indications. In approving the restructuring plan, the
Gateway Board considered KBW's recommendation as well as whether the rights
offering was preferable to other forms of transactions that might have been
available to Gateway at such time, including a possible merger transaction, and
determined that the rights offering and related restructuring provided the best
means of maximizing long-term stockholder value. The Gateway Board determined
that Gateway would be best positioned to maximize stockholder value either
through a strategy of independent growth or through a merger with a larger, more
diversified financial institution once it had restored its financial strength
and profitability through a successful restructuring plan.
Primarily as a result of the completion of the rights offering, Gateway was
able to exceed the minimum capital requirements set forth under the Cease and
Desist Order. At December 31, 1993, Gateway and Gateway Bank's leverage capital
ratios were 7.12% and 7.10%, respectively, as compared to 4.07% and 4.07% on
December 31, 1992. Total non-performing assets also declined significantly. At
December 31, 1993, non-performing assets were $50.2 million, a decrease of 54.3%
or $59.7 million from December 31, 1992.
Although the rights offering and sale of certain assets improved the
capital level and asset quality of Gateway Bank, the Gateway Board recognized
that additional actions were necessary to satisfy the regulatory and other
operating requirements which Gateway Bank still faced, including required steps
to strengthen the management and operations of Gateway Bank.
In early September 1993, Gateway's Chief Executive Officer, Reginald
DeKoven III, was approached by Shawmut's Chief Executive Officer, Joel B.
Alvord, concerning Shawmut's interest in pursuing a possible business
combination with Gateway. At a September 22, 1993 meeting of the Gateway Board,
KBW evaluated with the Gateway Board the relative benefits of remaining
independent and of exploring a possible business combination with Shawmut. In
assessing the alternatives for remaining independent, the Gateway Board
considered the long-range prospects and risks of Gateway's business and its
financial condition, results of operations, and capital levels. In considering
the long-range prospects and risks of Gateway's business, the Gateway Board took
into account, among other factors, the risks posed by the local economy and the
local real estate market in particular, and the possibility that a recovery
could be slow. The Gateway Board also considered the risk that the current,
favorable interest rate environment might not continue, the fact that the
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Connecticut banking market is becoming increasingly concentrated and
competitive, and the fact that Gateway Bank had been operating under a
Regulatory Agreement since 1990. The Gateway Board also considered the risks and
benefits of exploring potential indications of interest in engaging in a merger
transaction with Shawmut. The Gateway Board determined with the advice of KBW
that the best means of pursuing a possible merger transaction, in light of the
unique characteristics of Gateway Bank's franchise, specifically, Gateway's
strong market presence in Fairfield County, Connecticut, and the substantial
disruption that could be caused to Gateway Bank's business by a multi-party
process, was to pursue preliminary negotiations with Shawmut concerning a
possible merger transaction on an exclusive basis.
Gateway's belief that substantial disruption could result from a
multi-party process was based on various factors, including its belief that the
fulfillment of document and information requests generated by a multi-party due
diligence process in a relatively short period of time would involve a
significantly higher allocation of management's time and resources than a
single-party or two-party process and would take management's time away from
complying with the Cease and Desist Order that required the strengthening of the
management and operations of Gateway. Gateway's Board also concluded that a
multi-party due diligence process could reveal proprietary deposit account and
pricing information, asset valuations, lending relationship data, product
initiatives and market strategies to a majority of Gateway's strongest
competitors. In the event that no merger were consummated, the value of this
proprietary information could be reduced. KBW advised the Gateway Board that
Shawmut would be willing to invest greater time and resources in exploring a
potential merger with Gateway if Shawmut were provided the opportunity to enter
into discussions with Gateway on an exclusive basis. KBW also advised the
Gateway Board that Shawmut was among the strongest potential bidders for Gateway
given its significant in-market presence and thus its ability to realize
substantial cost savings as a result of a merger with Gateway. KBW provided the
Gateway Board with a detailed analysis of the strategic options available to
Gateway and the implications of alternative strategies for long-term stockholder
values. KBW noted that a merger with Shawmut provided a strong potential for
maximizing long-term stockholder values and that depending upon the terms of the
proposal that Shawmut would be willing to make, such a merger could likely be
preferable to the other strategic options available to Gateway, including
potential combinations with other banking institutions and an independent
business strategy.
Based upon the presentations of management and KBW at the September 22nd
meeting of the Gateway Board, the Gateway Board authorized management and KBW to
begin exploratory discussions with Shawmut concerning a possible business
combination transaction. The Gateway Board clearly stated, however, that it was
not committing to enter into a transaction with Shawmut or any other party and
would reserve judgment on whether entering into a transaction with Shawmut or
another party or remaining independent was the appropriate business strategy for
maximizing stockholder value.
Following the September 22nd meeting of the Gateway Board, Mr. DeKoven,
with the assistance of KBW, contacted Shawmut to explore its interest in a
possible merger transaction with Gateway. Shawmut executed a confidentiality
agreement and conducted a due diligence examination of Gateway. Gateway also
conducted a due diligence examination of Shawmut. Gateway's management and
financial advisors met with Shawmut's management and its advisors to discuss
Gateway's financial condition and future prospects and the possible terms of a
business combination involving the two institutions. A draft merger agreement
was prepared based upon the form of agreement that Shawmut had utilized in its
recent acquisitions of other financial institutions.
While Gateway was engaged in discussions with Shawmut concerning a possible
merger transaction, Gateway received a number of other indications of interest
from other bank holding companies. On October 27, 1993, the Gateway Board, after
meeting with KBW and its legal advisors, determined to contact a second bank
holding company which the Gateway Board and KBW believed could best be expected
to propose terms at least as favorable as those expected from Shawmut (the
"Other Interested Party") to explore its interest in pursuing a business
combination with Gateway. As of such date, Shawmut had not finalized its
evaluation of a potential transaction with Gateway and had not provided Gateway
with a firm indication of the exchange ratio that Shawmut was willing to propose
for such a transaction.
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The Other Interested Party executed a confidentiality agreement on October
29, 1993 and conducted a detailed due diligence examination of Gateway during
the next several days. KBW instructed Shawmut and the Other Interested Party to
submit proposals to the Gateway Board on November 3, 1993. This timetable was
finalized in consultation with Shawmut and the Other Interested Party and was
mutually acceptable to both parties. KBW advised the Gateway Board that, based
upon its discussions with Shawmut, having a longer bidding period or expanding
the bidding process to other parties would result in a significant risk that
Shawmut would terminate its discussions with Gateway or lower its expected bid.
Management also expressed its view that an extended bidding process would be
extremely disruptive to the operations of Gateway Bank and could have a
substantial negative long-term impact on Gateway Bank and its employees.
On November 3, 1993, Shawmut submitted a proposal to acquire Gateway in a
merger transaction on terms substantially similar to those contained in the
Merger Agreement. On November 4, 1993, the Other Interested Party communicated
to KBW that it would not be submitting a proposal to acquire Gateway.
At a meeting of the Gateway Board held on November 4, 1993, which was
attended by KBW and Gateway's legal advisors, the Gateway Board reviewed the
terms of the offer made by Shawmut (the "Shawmut Offer") and the terms of the
proposed Merger Agreement and Stock Option Agreement (as defined below). KBW
rendered its oral opinion that, as of such date, the consideration to be
received in the Shawmut Offer was fair to the holders of Gateway Common Stock
from a financial point of view. Based upon that review and consideration of
various other factors as described below under "-- Reasons for the Merger," the
Gateway Board determined that it could best enhance long-term stockholder value
and provide service to its customers and communities by accepting the Shawmut
Offer. The Gateway Board unanimously approved the Merger Agreement and the Stock
Option Agreement.
The Gateway Board's decision, with the assistance of KBW, to accept the
Shawmut Offer was based upon the Gateway Board's conclusion that it was not in
the best interests of Gateway and its stockholders to attempt to explore or
solicit other indications of interest from other financial institutions based
upon the attractiveness of the Shawmut Offer, KBW's opinion that Shawmut was in
the best position to offer a merger proposal offering Gateway stockholders the
greatest value, the fact that the Other Interested Party failed to submit a
proposal after conducting a due diligence investigation, KBW's analysis of the
Shawmut Offer and the alternative business strategies available to Gateway,
Shawmut's statement that the proposed terms of the Merger Agreement represented
Shawmut's best and final proposal, the risk that Shawmut might withdraw its
offer if Gateway were to solicit other offers, and the potential harm and
disruption to Gateway that could result from an auction process.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GATEWAY; GATEWAY'S REASONS FOR THE
MERGER
The Gateway Board has unanimously approved the Merger Agreement and has
determined that the Merger is fair to, and in the best interests of, Gateway and
its stockholders. The Gateway Board therefore unanimously recommends that
holders of Gateway Common Stock vote FOR the ratification, confirmation and
approval of the Merger Agreement. The Gateway Board believes that the Merger
will enable holders of Gateway Common Stock to realize significant value and
also may enable such stockholders to participate in opportunities for growth and
capital appreciation that the Gateway Board believes the Merger makes possible.
See "-- Background of the Merger" above and "-- Opinion of Gateway's Financial
Advisor" below.
In reaching its decision to approve the Merger Agreement, the Gateway Board
consulted with its legal advisors regarding the legal terms of the transaction
and the Gateway Board's obligations in its consideration of the proposed
transaction, its financial advisors regarding the financial aspects and fairness
of the proposed transaction, as well as with management of Gateway, and, without
assigning any relative or specific weights, considered the following material
factors, both from a short-term and a longer-term perspective:
(i) The Gateway Board's familiarity with and review of Gateway's
business, financial condition, results of operations and prospects,
including, but not limited to, its potential growth, development,
productivity and profitability and the business risks associated therewith;
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(ii) The current and prospective environment in which Gateway
operates, including national and local economic conditions, the competitive
environment for financial institutions generally, the increased regulatory
burden on financial institutions generally and the trend toward
consolidation in the financial services industry;
(iii) The risk factors and potential for capital appreciation
associated with an investment in Gateway Common Stock were Gateway to
remain as an independent entity. Specifically, although Gateway's financial
situation had improved significantly over the past year, Gateway was still
under regulatory pressure to improve its condition;
(iv) Information concerning the business, financial condition, results
of operations, asset quality and prospects of Shawmut, including the
long-term growth potential of Shawmut Common Stock, the future growth
prospects of Shawmut and Gateway following the proposed Merger and the
potential synergies expected from the Merger and the business risks
associated therewith;
(v) The potential for capital appreciation associated with an
investment in Shawmut Common Stock following the proposed Merger. The
Gateway Board believed that Shawmut had the potential for capital
appreciation and economic growth, and as shareholders of Shawmut, Gateway
stockholders had the opportunity to share in Shawmut's potential capital
appreciation and economic growth;
(vi) The prospects that Gateway stockholders would have for higher
dividends and a higher book value and earnings per share after a merger
with Shawmut and giving effect to the proposed exchange ratio of .559.
Specifically, the Gateway Board was advised by its financial advisors, KBW,
that, based on Shawmut's then current dividend of $0.40 per share, Gateway
stockholders could receive an estimated dividend increase of $0.22 per
Gateway share after a merger with Shawmut, compared with no declared
dividend as of the date of the Merger Agreement. KBW also advised the
Gateway Board that based on Shawmut's stated book value of $16.41 per share
as of September 30, 1993, (adjusted for KBW's assumption regarding the
impact of certain pending acquisitions on Shawmut), Gateway stockholders
could receive $7.84 per share in book value, a $1.24 or 19% increase
compared with Gateway's estimated book value per share of $6.60 as of
September 30, 1993. KBW further advised the Gateway Board that, based upon
KBW's 1994 earnings per share estimate for Shawmut of $2.70 per share
(which includes KBW's assumption regarding the after-tax effect of certain
additional loan loss provisions, costs and consolidation savings related to
pending acquisitions and the Merger on Shawmut's 1994 earnings per share
estimate), Gateway stockholders could receive $1.49 per share in earnings,
a $.64 per share or 76% increase compared to KBW's estimate in November,
1993 that Gateway might have 1994 earnings of $.85 per share;
(vii) The oral presentation and opinion of Gateway's financial
advisor, KBW, that the Exchange Ratio is fair to the holders of Gateway
Common Stock from a financial point of view. The presentation of KBW is
summarized below. (See " -- Opinion of Gateway's Financial Advisor" below).
In addition, a copy of the written opinion rendered by KBW to the Gateway
Board, dated the date of this Proxy Statement/Prospectus, setting forth the
procedures followed, the matters considered, the scope of the review
undertaken and the assumptions made by KBW in connection with its opinion,
is attached as Annex C to this Proxy Statement/Prospectus;
(viii) The financial and other significant terms of the proposed
Merger with Shawmut including the terms and conditions of the Merger
Agreement and the Stock Option Agreement;
(ix) The benefits of a business combination with a larger bank holding
company, such as Shawmut, that has a significant presence in its local
communities and throughout Connecticut;
(x) The expectation that Shawmut will continue to provide quality
service to the communities and customers served by Gateway and Shawmut's
capacity, as a larger institution with a larger capital base, to provide a
wider range of services, enhanced access to credit and greater convenience
to such customers and communities;
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(xi) The compatibility of the respective businesses and management
philosophies of Shawmut and Gateway and Shawmut's strong commitment to the
Connecticut communities it serves;
(xii) The anticipated tax-free nature of the Merger to Gateway
stockholders (except for the portion of the consideration paid in cash for
fractional shares). See " -- Certain Federal Income Tax Consequences"
below;
(xiii) The alternative strategic courses available to Gateway
including remaining independent or exploring other indications of interest
from other potential acquirors;
(xiv) The fact that another bank holding company had conducted a due
diligence investigation of Gateway and had failed to submit a proposal;
(xv) Gateway's belief that further delay in approving the Merger might
result in Shawmut withdrawing the Offer; and
(xvi) The advice of KBW that other potentially interested parties
would not likely be in a position to provide greater value to Gateway
stockholders in a merger with such other institutions, due to the ability
of Shawmut as an in-market acquiror to achieve cost savings and other
synergies associated with the proposed Merger of a scale that would not
likely be available to most of the other potential acquirors, the earnings
dilution that would be faced by the other potential acquirors at value
levels above the levels provided under the Shawmut Offer, KBW's experience
in negotiating with Shawmut and the Other Interested Party that had
conducted a due diligence investigation of Gateway, and KBW's experience
with the way other bank holding companies evaluate potential acquisitions
of institutions such as Gateway and the discipline which such institutions
apply in making acquisition proposals.
SHAWMUT'S REASONS FOR THE MERGER
In reaching its determination to enter into the Merger Agreement, the Board
of Directors of Shawmut (the "Shawmut Board") considered a number of factors,
including the following: (i) the Shawmut Board's familiarity with and review of
Shawmut's business, operations, financial condition, earnings and prospects;
(ii) the Shawmut Board's review, based in part on a presentation by Shawmut
management regarding its due diligence on Gateway, of the business, operations,
earnings and financial condition of Gateway on an historical, prospective and
pro forma basis, and the enhanced opportunities for growth that the Merger makes
possible; (iii) a variety of factors affecting and relating to the overall
strategic focus of Shawmut including, without limitation, opportunities for
growth in deposits, assets and earnings, and opportunities available to Shawmut
in the market areas where Gateway conducts business; (iv) the current and
prospective economic environment facing financial institutions, including
Shawmut; (v) the terms of the Merger Agreement, the Stock Option Agreement and
the other documents executed in connection with the Merger; and (vi) the
anticipated revenue enhancement, cost savings and efficiencies available from
the Merger. The Shawmut Board did not assign any specific or relative weight to
the factors in its consideration.
OPINION OF GATEWAY'S FINANCIAL ADVISOR
General. Pursuant to an engagement letter dated as of September 10, 1993
(the "KBW Engagement Letter"), the Gateway Board retained KBW to render
financial advisory and investment banking services to Gateway in connection with
a review of the strategic alternatives available to Gateway.
KBW is a recognized investment banking firm and, as part of its investment
banking business, is continually engaged in the valuation of bank and bank
holding company securities in connection with acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for various other purposes. As a specialist in
the securities of banking companies, KBW has experience in, and knowledge of,
the valuation of banking enterprises. Gateway selected KBW on the basis of its
ability to evaluate the fairness of the consideration (the Exchange Ratio) to be
received by Gateway stockholders in the Merger, from a financial point of view,
as set forth in the Merger Agreement, its assistance with the restructuring
plan, in particular, its assistance with the rights offering, its
qualifications, its previous experience and its reputation in the banking and
investment communities. KBW has acted
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exclusively for the Gateway Board in rendering its fairness opinion and will
receive a fee from Gateway for its services.
In the ordinary course of its business as a broker-dealer, KBW may, from
time to time purchase securities from, and sell securities to, Gateway and
Shawmut and as a market maker in securities KBW may from time to time have a
long or short position in, and buy or sell, debt or equity securities of Gateway
and Shawmut for its own accounts and for the accounts of its customers. To the
extent that KBW has any such position as of the date of its fairness opinion, it
has been disclosed to Gateway.
KBW has rendered a written opinion to the Gateway Board, dated as of the
date of this Proxy Statement/Prospectus, to the effect that, as of such date,
the Exchange Ratio is fair, from a financial point of view, to the holders of
Gateway Common Stock. The full text of KBW's opinion is attached as Annex C to
this Proxy Statement/Prospectus and is incorporated herein by reference. The
description of the opinion set forth herein is qualified in its entirety by
reference to Annex C. Gateway stockholders are urged to read the opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered, and qualifications and limitations on the review undertaken by KBW
in connection therewith.
KBW's opinion is directed only to the fairness of the Exchange Ratio and
does not constitute a recommendation to any Gateway stockholder as to how such
stockholder should vote at the Special Meeting.
In connection with its opinion, KBW reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of Gateway and
Shawmut, including, among other things, the following: (i) the Merger Agreement;
(ii) the Registration Statement (including this Proxy Statement/Prospectus for
the meeting of stockholders of Gateway to be held in connection with the Merger)
dated April 22, 1994; (iii) Annual Reports to Stockholders and Annual Reports on
Form 10-K for the three years ended 1992 of Gateway and Shawmut; (iv) certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of Gateway
and Shawmut and certain other communications from Gateway and Shawmut to their
respective stockholders, such as press releases and letters to stockholders; (v)
other financial information concerning the businesses and operations of Gateway
and Shawmut furnished to KBW by Gateway and Shawmut for purposes of its
analysis, including certain internal financial analyses and forecasts for
Gateway and Shawmut prepared by the senior management of Gateway and Shawmut;
(vi) certain publicly available information concerning trading of, and the
trading market for, the common stock of Gateway and Shawmut; and (vii) certain
publicly available information with respect to banking companies and the nature
and terms of certain other transactions that KBW considers relevant to its
inquiry. In addition, KBW held discussions with senior management of Gateway and
Shawmut concerning their past and current operations, financial condition and
prospects, and results of regulatory examinations.
In conducting its review and arriving at its opinion, KBW relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and KBW did not attempt
independently to verify such information. KBW relied upon the management of
Gateway and of Shawmut as to the reasonableness and achieveability of the
financial and operating forecasts and projections (and the assumptions and bases
therefor) provided to it, and assumed that such forecasts and projections
reflect the best currently available estimates and judgments of such managements
and that such forecasts and projections will be realized in the amounts and in
the time periods currently estimated by such managements. KBW also assumed,
without independent verification, that the aggregate allowances for loan losses
for Gateway and Shawmut as set forth in such financial statements and
projections are adequate to cover such losses. KBW did not make or obtain any
evaluations or appraisals of the property of Gateway or Shawmut, nor did KBW
examine any individual loan credit files.
KBW considered such financial and other factors as it deemed appropriate
under the circumstances, including the following: (i) the historical and current
financial position and results of operations of Gateway and Shawmut; (ii) the
assets and liabilities of Gateway and Shawmut; and (iii) the nature and terms of
certain other merger transactions involving banks and bank holding companies.
KBW also took into account KBW's assessment of general economic, market and
financial conditions and KBW's experience in other transactions, as well as
KBW's experience in securities valuation and KBW's knowledge of the banking
industry generally. KBW's opinion is necessarily based upon conditions as they
existed and can be evaluated
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on the date of the aforementioned fairness opinion and the information made
available to KBW through the date of the fairness opinion.
Prior to rendering its written opinion, KBW rendered an oral opinion to the
Gateway Board on November 4, 1993, to the effect that, as of such date, the
Exchange Ratio was fair, from a financial point of view, to the holders of
Gateway Common Stock. Set forth below is a summary of the material factors
considered by and valuation methodologies utilized by KBW in connection with its
oral opinion:
Analysis of the Shawmut Offer. KBW reviewed certain historical financial
information for Gateway and Shawmut and calculated the imputed value of the
Shawmut Offer to holders of Gateway Common Stock. KBW's analysis reflects
certain pro forma adjustments with respect to Shawmut's acquisitions of New
Dartmouth Bank ("New Dartmouth") and Peoples Bancorp of Worcester, Inc.
("Peoples"). This analysis showed a value of $12.02 per share of Gateway Common
Stock, based upon an exchange ratio of 0.559 and the closing market price for
the Shawmut Common Stock on November 3, 1993 of $21.50 per share. KBW also
calculated the multiples which the Exchange Ratio reflected, based on the
November 3, 1993 closing share price of the Shawmut Common Stock, Gateway's
September 30, 1993 book value and Gateway's 1994 estimated earnings. The price
to book value multiple was 179%, and price to 1994 KBW's published estimated
earnings multiple was 14.1.
Peer Group Analysis. KBW compared the financial performance of Shawmut to
that of a peer group including Bank of Boston Corporation, Bank of New York,
First Fidelity Bancorporation, Chase Manhattan Bank, Chemical Banking, Key
Corp., and Fleet Financial Group, based on various financial measures of
earnings performance, capital adequacy, and asset quality based upon data from
the six-month period ending June 30, 1993. This analysis showed that the group
had an average return on assets of 0.97% and a range from 0.68% to 1.23%, with
Shawmut having a return on assets of 0.83%. The group had an average return on
equity of 15.38%, and a range from 11.93% to 18.99%, with Shawmut having a
return on equity of 15.36%. The group had an average net interest margin ratio
of 4.42% and a range from 3.76% to 5.35%, with Shawmut having a net interest
margin ratio of 4.10%. The group had an average expense ratio of 1.79% and a
range from 0.61% to 2.41%, with Shawmut having an expense ratio of 2.24%. The
group had an average efficiency ratio of 61.19% and a range from 55.28% to
69.65%, with Shawmut having an efficiency ratio of 67.21%. The group had an
average equity to assets ratio of 7.46% and a range from 6.09% to 8.76%, with
Shawmut having an equity to assets ratio of 6.09%. The group had an average
non-performing assets to loans and OREO ratio of 3.63% and a range from 1.68% to
6.06%, with Shawmut having a non-performing assets to loans and OREO ratio of
3.84%. The group had an average loan loss reserve to non-performing loans ratio
of 133.04% and a range from 81.72% to 170.97%, with Shawmut having a loan loss
reserve to non-performing loans ratio of 145.57%. The group had an average price
to estimated 1994 earnings ratio of 7.96 and a range from 6.91 to 9.12, with
Shawmut having a price to estimated 1994 earnings ratio of 7.96. The group had
an average market to fully converted, fully diluted book ratio of 1.11 and a
range from .76 to 1.47, with Shawmut having a market to book ratio of 1.47.
Analysis of Selected Merger Transactions. KBW reviewed certain financial
data relating to eleven bank merger transactions which had occurred since July
1, 1992. The selection of bank mergers included the following transactions
(acquiror/acquiree): Citizens Financial Group/New World Bank; Fleet Financial
Group/Sterling Bancshares; Bank of Boston/BankWorcester; Shawmut National
Corporation/Peoples Bancorp of Worcester, Inc.; PNC Bank Corp./United Federal
Bancorp; First Fidelity Bancorporation/Peoples Westchester Bancorp; Citizens
Financial/Boston Five Bancorp; Shawmut National Corporation/New Dartmouth Bank;
ONBANCorp/Franklin First Financial Corp.; Bank of Boston Corporation/Society for
Savings; and KeyCorp/National Savings Bank of Albany. In each case, KBW
calculated the price as a multiple to earnings (as noted for trailing 12 months
earnings or the published KBW estimated earnings), stated book value, and market
price. In the selected transactions, the calculations yielded a range of (i)
price to earnings multiples from 7.0 to 32.8 with an average of 19.1 compared
with a multiple of 14.1 associated with the Shawmut proposal; (ii) price to book
value multiples from 1.18 to 1.91 with an average of 1.45 compared with a
multiple of 1.79 associated with the Shawmut proposal; and (iii) price to market
multiples from 1.19 to 1.89 with an average of 1.47 compared with a multiple of
1.34 associated with the Shawmut proposal, based
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upon the price of Gateway Common Stock before the increase in price caused by
rumors in the market regarding Gateway as a potential takeover target.
No company or transaction used in the above analysis as a comparison is
identical to Gateway, Shawmut or the contemplated transaction. 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 and other factors that
could affect the public trading value or the acquisition value of the companies
to which they are being compared.
Contribution Analysis. KBW analyzed the relative contribution of each of
Gateway and Shawmut to certain balance sheet and income statement items,
including assets, common equity, and 1994 estimated earnings. KBW compared the
ownership percentages of the combined company implied by the relative
contributions of such balance sheet and income statement items, with
approximately 6% ownership percentage for Gateway stockholders resulting from an
exchange ratio of 0.559. The contribution analysis showed that as a result of
such a transaction, Gateway would contribute approximately 4% of the combined
assets, 5% of the combined common equity, 6% of the combined deposits, 5% of the
combined market capitalization and 4% of the estimated 1994 earnings of the two
companies. KBW also compared estimated 1994 earnings per share and estimated
1994 book value per share of Gateway as a stand alone entity after adjusting for
the proposed exchange ratio and providing for certain non-interest expense
savings achieved by Shawmut during 1994. This analysis showed that a merger with
Shawmut could result in a 76% accretion in 1994 earnings per share and a 39%
accretion in 1994 book value per share. In addition, KBW noted that based on
Shawmut's then current dividend of $0.40 per share, Gateway stockholders could
receive an estimated dividend increase of $0.22 per Gateway share after a merger
with Shawmut, compared with no declared dividend as of the date of the Merger
Agreement.
Discounted Cash Flow Analysis. KBM estimated the present value of the
future streams of after-tax cash flows that Gateway could produce through 1996.
This analysis was based on several assumptions, including the inability of
Gateway to pay a dividend through 1993, a $0.17 dividend per share in 1994 (a
20% payout ratio), a $0.31 dividend per share in 1995 (a 30% payout ratio), a
$0.47 dividend per share in 1996 (a 40% payout ratio), earnings per share of
$1.16 in 1996 and a book value per share of $9.42 in 1996. Two terminal values
were calculated for 1996 based upon two different scenarios. Each terminal value
was discounted to present value using a 15% discount rate chosen to reflect an
assumed required rate of return of prospective buyers of Gateway Common Stock.
The first terminal value was based upon the assumption that Gateway remains
independent until year end 1996, at which time all Gateway shareholders
simultaneously sell their Gateway shares into the open market ("Scenario I").
Using this assumption, a terminal value was calculated for 1996 by multiplying
Gateway's projected 1996 earnings by a price to earnings multiple of 11.0 times.
These values were then discounted by 15% as discussed above. The discounted
terminal valuation analysis for Scenario I indicated a reference range of
between $9.10 and $9.70 per share of Gateway Common Stock. The second terminal
value was based upon the assumption that Gateway remains independent until year
end 1996, at which time all Gateway stock is sold in a merger or acquisition
("Scenario II"). Using this assumption, a terminal value was calculated for 1996
by multiplying Gateway's projected 1996 earnings by a price to earnings multiple
of 14.0 times and a price to book value multiple of 1.85 times, chosen to
reflect possible acquisition premiums. These values were then discounted by 18%.
The discounted terminal valuation analysis for Scenario II indicated a reference
range of between $11.30 and $11.50 per share of Gateway Common Stock. KBW also
illustrated a sensitivity analysis showing the range of discounted values that
would result if discount rates of 15.00% and 18.00% were utilized and terminal
price to earning multiples of 8.00 times to 11.00 times and terminal book value
multiples of 1.05 times to 1.35 times were applied in analyzing Scenario I and
terminal price to earnings multiples of 12.00 times to 16.00 times and terminal
book value multiples of 1.60 times to 2.10 times were applied in analyzing
Scenario II. This analysis showed a range of values based upon the terminal
price to earnings multiples of $6.80 to $9.90 and a range of values based upon
the terminal book value multiples of $6.70 to $9.10 for Scenario I and a range
of values of $9.90 to $14.10 based upon the terminal price to earnings multiple
and $9.80 to $13.70 based upon the terminal book value multiples for Scenario
II. This analysis was based upon varying assumptions concerning required reserve
levels, earnings growth rates and exit multiples, which assumptions are
themselves based upon many factors
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and assumptions, many of which are beyond the control of Gateway and Shawmut. As
indicated below, this analysis is not necessarily indicative of actual values or
actual future results and does not purport to reflect the prices at which any
security may trade at the present time or at any time in the future.
Merger Impact Analysis. KBW illustrated the earnings dilution that would
be incurred by Shawmut based upon a $12.00 per share transaction price. This
analysis showed that Shawmut would incur approximately 3.8% dilution in earnings
per share based upon 1994 estimated earnings. This analysis also showed that
Shawmut would have to eliminate at least 32.2% of Gateway's non-interest expense
in 1994 in order to eliminate the earnings per share dilution. The analysis also
showed that Shawmut would incur approximately 3.7% dilution in book value. KBW's
analysis also showed that a merger with Gateway would change Shawmut's tangible
common equity to assets ratio from 5.51% to 5.43%, Shawmut's non-performing
assets to loans and OREO ratio from 3.81% to 3.92% and Shawmut's loan loss
reserve to non-performing loans ratio from 136% to 138%. KBW's book value
dilution and ratio analyses reflect certain post-closing charges, net severance
cost adjustments and consolidation savings.
The summary contained herein provides a summary description of the analyses
prepared by KBW in connection with its oral opinion. The summary does not
purport to be a complete description of the analyses performed by KBW in
connection with the rendering of its oral fairness opinion. The preparation of a
fairness opinion is not necessarily susceptible to partial analysis or summary
description. KBW believes that its analyses and the summary set forth above must
be considered as a whole and that selecting portions of its analyses, without
considering all analyses, or selecting part or all of the above summary, without
considering all factors and analyses, would create an incomplete view of the
process underlying the analyses set forth in the KBW presentations and opinions.
The ranges of valuations resulting from any particular analysis described above
should not be taken to be KBW's view of the actual value of Gateway or Shawmut.
The fact that any specific analysis has been referred to in the summary above is
not meant to indicate that such analysis was given more weight than any other
analyses.
In performing its analyses, KBW made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Gateway or Shawmut. The
analyses performed by KBW are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of KBW's
analysis of the fairness of the Exchange Ratio, from a financial point of view,
to Gateway stockholders and were provided to the Gateway Board in connection
with the delivery of KBW's opinion. The analyses do not purport to be appraisals
or to reflect the prices at which a company might actually be sold or the prices
at which any securities may trade at the present time or at any time in the
future. In addition, as described above, KBW's opinion and presentation to the
Gateway Board is just one of many factors taken into consideration by the
Gateway Board.
Pursuant to the KBW Engagement Letter, Gateway has agreed to pay KBW a cash
fee in the event of a sale of Gateway to, or the merger of Gateway with, another
party equal to .75% (subject to a performance based increase) of the market
value of all consideration paid to the shareholders of Gateway. The merger
advisory fee would be payable in two parts: $200,000 at the mailing of a
merger-related proxy statement and the remainder at the closing of the
transaction. KBW also provided advisory and investment banking services to
Gateway in connection with the restructuring for which it received
$1,166,271.38.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to employment agreements with Gateway dated November 5, 1993,
Reginald DeKoven's employment as President and Chief Executive Officer of
Gateway, and Susan Monti's employment as a senior executive of Gateway Bank,
will continue for terms of 3 years after the occurrence of any "Change of
Control" of Gateway. Such agreements provide that if Gateway terminates such
employment without cause, or if the employee terminates such employment for
"good reason" (as defined below), the employee shall receive a lump sum payment
in cash equal to approximately 3 times the employee's salary and bonus for the
previous year, together with benefits equivalent to those that would have been
received by the employee if the employment had continued for the 3 year term.
Under such agreements, a "Change of Control" includes,
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among other things, certain acquisitions by any person, entity, or group of 20%
or more of Gateway's outstanding common stock or of the voting power of
Gateway's outstanding securities; the members of the current Gateway Board (and
other members approved by such current members) ceasing to constitute a majority
of the board of directors; or consummation of certain mergers or sales of
substantially all of Gateway's assets. The consummation of the transactions
contemplated by the Merger Agreement will constitute a Change of Control for
purposes of the employment agreements. Under such agreements, "good reason" for
the employee to terminate the employment agreements and to receive the aforesaid
compensation includes, among other things, with certain exceptions, any
diminution in the employee's position, authority, duties or responsibilities
after the Change of Control, and any termination by the employee within the
30-day period immediately following the first anniversary of the Change of
Control. Pursuant to the Merger Agreement, Shawmut has agreed to honor the
employment agreements in accordance with their terms. In the event of a
termination of employment following the Merger which allows the Executive to
receive payments under his or her respective employment agreement, because
amounts payable under the employment agreements are limited to those amounts
that would be deductible by reason of Section 280G of the Internal Revenue Code
of 1986, as amended, Mr. DeKoven would receive approximately $698,600 and Ms.
Monti would receive approximately $386,000 under the employment agreements.
The Merger Agreement also provides that, in the event of any threatened or
actual claim or proceeding in which any person who is or has been a director,
officer or employee of Gateway is, or is threatened to be, made a party based in
whole or in part on, or pertaining to (i) the fact that such person was a
director, officer or employee of Gateway, or (ii) the Merger Agreement or the
transactions contemplated thereby, Shawmut will, subject to the conditions set
forth in the Merger Agreement, indemnify such person to the fullest extent
permitted by Delaware law against any liability or expense incurred in
connection with any such claim or proceeding. The Merger Agreement further
provides that Shawmut will, subject to the conditions set forth in the Merger
Agreement, use its best efforts to cause the persons serving as officers and
directors of Gateway immediately prior to the Merger to be covered for a period
of four years by Gateway's directors and officers liability insurance policy (or
any equivalent substitute therefor).
Pursuant to the Merger Agreement, Shawmut has also agreed to cause those
persons who are members of the Gateway's Board immediately prior to the Merger,
who are willing to serve, to be elected or appointed as members of a newly
formed Executive Advisory Board, the function of which shall be to advise
Shawmut on deposit and lending activities in Gateway's former market area. Each
such advisory director will receive an annual fee of $5,000 and a per meeting
fee of $500, and Shawmut's obligations with respect to the maintenance of such
Executive Advisory Board will continue until not earlier than December 31, 1996.
EMPLOYEE MATTERS
The Merger Agreement provides that Shawmut shall continue all employee
benefit plans of Gateway that are in effect at the time of the Merger, provided
that Shawmut may amend or replace such plans if, in the good faith judgment of
the management of Shawmut, any such amendment or replacement will provide
Gateway's employees or retired employees covered thereby with benefits that are
in the aggregate at least as valuable to them as a group as the benefits to be
received by them under the plans in effect prior to any such amendment or
replacement. To the extent Gateway employees participate in any employee benefit
plans of Shawmut, such employees will be credited with prior years of service
with Gateway for all purposes other than benefit accrual to the extent such
service was recognized by Gateway under any of its plans.
EFFECTIVE TIME
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware in accordance with
applicable law or such later time as is specified in such certificate (the
"Effective Time"). The filing with respect to the Merger will occur on the first
day which is (i) the last business day of a month and (ii) at least two business
days after satisfaction or waiver of the latest to occur of certain conditions
to the Merger specified in the Merger Agreement, unless another date is agreed
to in writing by Shawmut and Gateway. See "-- Conditions to the Merger" below.
It is expected that a period of time will elapse between the Annual Meeting and
the Effective Time while the parties seek to obtain the regulatory
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approvals required to consummate the Merger. There can be no assurance that such
approvals will be obtained or that the Merger will be completed. See "--
Regulatory Approvals Required for the Merger" below. The Merger Agreement may be
terminated by either party if, among other reasons, the Merger has not been
consummated on or before December 31, 1994. See "-- Waiver and Amendment;
Termination" below.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
As promptly as practicable after the Effective Time, and in no event later
than three business days thereafter, Chemical Bank, acting in the capacity of
exchange agent (the "Exchange Agent"), will mail to each former holder of record
of Gateway Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's certificates representing shares
of Gateway Common Stock for certificates representing shares of Shawmut Common
Stock and cash in lieu of fractional shares.
HOLDERS OF GATEWAY COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE EXCHANGE
AGENT.
Upon surrender to the Exchange Agent of one or more certificates
representing shares of Gateway Common Stock, together with a properly completed
letter of transmittal, there will be issued and mailed to the holder of Gateway
Common Stock surrendering such items a certificate or certificates representing
the number of shares of Shawmut Common Stock to which such holder is entitled,
if any, and, where applicable, a check for the amount representing any
fractional share determined in the manner described below, without interest. The
Gateway certificate or certificates so surrendered will be cancelled.
No dividend or other distribution declared after the Effective Time with
respect to Shawmut Common Stock will be paid to the holder of any unsurrendered
Gateway certificate until the holder surrenders such certificate, at which time
the holder will be entitled to receive all previously withheld dividends and
distributions, without interest. No holder of an unsurrendered Gateway
certificate will be entitled, until the surrender of such certificate, to vote
the shares of Shawmut Common Stock into which his or her shares of Gateway
Common Stock have been converted.
After the Effective Time, there will be no transfers on the stock transfer
books of Gateway of shares of Gateway Common Stock issued and outstanding
immediately prior to the Effective Time. If certificates representing shares of
Gateway Common Stock are presented for transfer after the Effective Time, they
will be cancelled and exchanged for certificates representing shares of Shawmut
Common Stock.
Neither Shawmut nor Gateway nor any other person will be liable to any
former holder of Gateway Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
If a certificate for Gateway Common Stock has been lost, stolen or
destroyed, the Exchange Agent will issue the consideration properly payable in
accordance with the Merger Agreement upon receipt of appropriate evidence as to
such loss, theft or destruction, appropriate evidence as to the ownership of
such certificate by the claimant, and appropriate and customary indemnification.
No fractional shares of Shawmut Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of shares of Gateway
Common Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Shawmut Common Stock will receive,
in lieu thereof, cash in an amount equal to such fractional part of a share of
Shawmut Common Stock multiplied by the average of the closing sale prices of
Shawmut Common Stock on the NYSE (as reported by The Wall Street Journal) for
the five trading days immediately preceding the Effective Time. No such holder
will be entitled to dividends, voting rights or any other rights as a
shareholder in respect of any fractional share to which such holder would
otherwise have been entitled to receive.
Shares of Shawmut capital stock (including Shawmut Common Stock) issued and
outstanding immediately prior to the Effective Time will remain issued and
outstanding after the Merger.
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CONDITIONS TO THE MERGER
The respective obligations of Shawmut and Gateway to effect the Merger are
subject to the satisfaction of the following conditions at or prior to the
Effective Time: (i) approval of the Merger Agreement by the affirmative vote of
the holders of at least a majority of the outstanding shares of Gateway Common
Stock entitled to vote thereon; (ii) the shares of Shawmut Common Stock issuable
to holders of Gateway Common Stock pursuant to the Merger shall have been
authorized for listing on the NYSE, subject to official notice of issuance;
(iii) approval of the Merger Agreement and the transactions contemplated
thereby, including the Subsidiary Bank Merger, by the appropriate governmental
authorities, including the Office of the Comptroller of the Currency (the "OCC")
(all such governmental authorities being referred to as the "Governmental
Entities") and the expiration of any statutory waiting periods in respect
thereof (see "-- Regulatory Approvals Required for the Merger" below); (iv)
receipt of all necessary state securities laws and "blue sky" permits and other
authorizations required in connection with the issuance of Shawmut Common Stock
in the Merger; (v) the Registration Statement of which this Proxy
Statement/Prospectus forms a part shall have become effective under the
Securities Act of 1933, as amended (the "Securities Act") and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the Commission; (vi) no order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition (an "Injunction") which prohibits the consummation of the Merger,
the Subsidiary Bank Merger or any of the other transactions contemplated by the
Merger Agreement or the Subsidiary Bank Merger Agreement (as defined below)
shall be in effect and (vii) no statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
governmental authority which prohibits, restricts or makes illegal consummation
of the Merger or the Subsidiary Bank Merger.
The obligations of Shawmut and SSC to effect the Merger are further subject
to the satisfaction, or waiver by Shawmut, of the following conditions: (i)(x)
the representations and warranties of Gateway contained in the Merger Agreement
(including without limitation the representation (the "Gateway Material Adverse
Change Representation") that since June 30, 1993, no event has occurred which
has had, individually or in the aggregate, a Material Adverse Effect (as defined
below) on Gateway) shall be true and correct in all material respects as of the
date of the Merger Agreement and (except to the extent that such representations
and warranties relate to an earlier date) as of the Effective Time as though
made at and as of the Effective Time and (y) the representations and warranties
of Gateway contained in the Merger Agreement (including without limitation the
Gateway Material Adverse Change Representation) shall be true and correct in all
material respects as of the date of the Merger Agreement and (except to the
extent that such representations and warranties relate to an earlier date) as of
the Effective Time as though made at and as of the Effective Time, provided,
that for purposes of determining the satisfaction of the condition described in
this clause (i)(y), no effect shall be given to any exception in such
representations and warranties relating to materiality or a Material Adverse
Effect, and provided further, that the representations and warranties of Gateway
will be deemed true and correct in all material respects unless the failure or
failures of such representations and warranties to be so true and correct, in
the aggregate, represent a material adverse change from the business, assets,
financial condition or results of operations of Gateway and its subsidiaries
taken as a whole as represented in the Merger Agreement, other than an adverse
change resulting from or attributable to general economic conditions; (ii)
Gateway shall have duly performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Effective Time; (iii) the consent, approval or waiver of each person (other than
the Governmental Entities) whose consent or approval shall be required in order
to permit the succession by the surviving corporation in the Merger or the
surviving bank in the Subsidiary Bank Merger to any obligation, right or
interest of Gateway or any subsidiary of Gateway under any agreement shall have
been obtained, except where the failure to obtain such consent, approval or
waiver would not materially adversely affect the economic or business benefits
of the transactions contemplated by the Merger Agreement to Shawmut so as to
render inadvisable the consummation of the Merger; (iv) no proceeding initiated
by a Governmental Entity seeking an Injunction shall be pending; (v) Shawmut
shall have received an opinion of its counsel, dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion, which are consistent with the state of
facts existing at the Effective Time, the Merger and the Subsidiary Bank Merger
will be treated for Federal
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income tax purposes as part of one or more reorganizations within the meaning of
Section 368 of the Code and such opinion shall address several related Federal
income tax aspects commonly dealt with in such an opinion (see "-- Federal
Income Tax Consequences" below); (vi) Shawmut shall have received a customary
legal opinion from counsel to Gateway; (vii) Shawmut shall have received a
letter addressed to both Shawmut and Gateway, dated as of the Effective Time,
from Shawmut's independent public accountants to the effect that the Merger will
qualify for pooling of interests accounting treatment unless such firm advises
Shawmut and Gateway that it is unable to issue a letter to such effect solely by
reason of Shawmut having exercised its right to purchase Gateway Common Stock
pursuant to the Stock Option Agreement; (viii) Shawmut shall have received from
Gateway's independent public accountants certain customary letters with respect
to certain financial information of Gateway; and (ix) a Distribution Date, as
such term is defined in the Gateway Rights Agreement (as defined below), shall
not have occurred, and the Gateway Rights (as defined below) shall not have
become nonredeemable and the Gateway Rights shall not have become exercisable
for capital stock of Shawmut upon consummation of the Merger.
The Merger Agreement defines a "Material Adverse Effect," when applied to a
party to the Merger Agreement, as a material adverse effect on the business,
properties, assets, liabilities, results of operations or financial condition of
such party and its subsidiaries taken as a whole, other than any such effect
attributable to or resulting from general economic conditions.
The obligations of Gateway to effect the Merger are further subject to the
satisfaction, or waiver by Gateway, of the following conditions: (i)(x) the
representations and warranties of Shawmut contained in the Merger Agreement
(including without limitation the representation (the "Shawmut Material Adverse
Change Representation") that since June 30, 1993, no event has occurred which
has had, individually or in the aggregate, a Material Adverse Effect on Shawmut)
shall be true and correct in all material respects as of the date of the Merger
Agreement and (except to the extent that such representations and warranties
relate to an earlier date) as of the Effective Time as though made at and as of
the Effective Time and (y) the representations and warranties of Shawmut set
forth in the Merger Agreement (including without limitation the Shawmut Material
Adverse Change Representation) shall be true and correct in all material
respects as of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Effective
Time as though made at and as of the Effective Time, provided, that for purposes
of determining the satisfaction of the condition described in this clause
(i)(y), no effect shall be given to any exception in such representations and
warranties relating to materiality or a Material Adverse Effect, and provided
further, that such representations and warranties will be deemed true and
correct in all material respects unless the failure or failures of such
representations and warranties to be so true and correct, in the aggregate,
represent a material adverse change from the business, assets, financial
condition or results of operations of Shawmut and its subsidiaries taken as a
whole as represented in the Merger Agreement, other than an adverse change
resulting from or attributable to general economic conditions; (ii) Shawmut and
SSC shall have each duly performed in all material respects all obligations to
be performed by it under the Merger Agreement at or prior to the Effective Time;
(iii) the consent or approval of each person (other than the Governmental
Entities) whose consent or approval shall be required in connection with the
transactions contemplated thereby under any agreement to which Shawmut or any of
its subsidiaries is a party or is otherwise bound, except those for which the
failure to obtain such consents and approvals would not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of Shawmut and its subsidiaries taken as a whole (after
giving effect to the transactions contemplated by the Merger Agreement), shall
have been obtained; (iv) no proceeding initiated by any Governmental Entity
seeking an Injunction shall be pending; (v) Gateway shall have received from its
counsel an opinion dated as of the Effective Time, substantially to the effect
that for Federal income tax purposes the Merger constitutes a reorganization
within the meaning of Section 368(a) of the Code and such opinion shall address
several related Federal income tax aspects commonly dealt with in such an
opinion (see "-- Federal Income Tax Consequences" below); (vi) Gateway shall
have received a customary legal opinion from counsel to Shawmut; and (vii)
Gateway shall have received a letter addressed to both Gateway and Shawmut,
dated as of the Effective Time, from Shawmut's independent public accountants to
the effect that the Merger will qualify for pooling of interests accounting
treatment, unless such firm advises Shawmut and Gateway that it is
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unable to issue a letter to such effect solely by reason of Shawmut having
exercised its right to purchase Gateway Common Stock pursuant to the Stock
Option Agreement.
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Merger will be obtained or
whether all of the other conditions precedent to the Merger will be satisfied or
waived by the party permitted to do so. See "-- Regulatory Approvals Required
for the Merger" below. If the Merger is not effected on or before December 31,
1994, the Merger Agreement may be terminated by a vote of a majority of the
Board of Directors of either Shawmut or Gateway, unless the failure to effect
the Merger by such date is due to the breach of the Merger Agreement by the
party seeking to terminate the Merger Agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
The Subsidiary Bank Merger is subject to the prior approval of the OCC
under the Bank Merger Act, as amended (the "BMA"), and other provisions of
federal law, and applications for such approvals have been filed with the OCC.
In reviewing the BMA application, the OCC must take into consideration, among
other factors, the financial and managerial resources and future prospects of
the institutions and the convenience and needs of the communities to be served.
In addition, the BMA prohibits the OCC from approving the Subsidiary Bank Merger
if it would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States, or if its effect in any section of the country
may be substantially to lessen competition or to tend to create a monopoly, or
if it would in any other manner be a restraint of trade, unless the OCC finds
that the anticompetitive effects of the Subsidiary Bank Merger are clearly
outweighed by the public interest and the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. In addition,
under the BMA, the Subsidiary Bank Merger may not be consummated until the
thirtieth day following the date of OCC approval of the Merger, during which
time the United States Department of Justice (the "DOJ") may challenge the
Subsidiary Bank Merger on antitrust grounds. The commencement of an antitrust
action during the waiting period would stay the effectiveness of such approval
unless a court specifically orders otherwise.
The Merger may be subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). In reviewing
applications under the BHC Act, the Federal Reserve Board, or the appropriate
regional Federal Reserve Bank, acting pursuant to delegated authority, which, in
the case of the Merger, would be the Federal Reserve Bank of Boston (the
"Reserve Bank"), must consider the same factors that the OCC considers in
connection with the BMA application, namely, the financial and managerial
resources and future prospects of the institutions and the convenience and needs
of the communities to be served. In addition, the Federal Reserve Board may not
approve a transaction that will result in the anticompetitive effects described
in the second preceding paragraph, and any transaction approved by the Federal
Reserve Board may not be consummated prior to 30 days from the date of the
Federal Reserve Board's approval of the application, during which time the DOJ
may challenge the transaction on antitrust grounds.
Pursuant to regulations of the Federal Reserve Board, Shawmut may choose to
provide the Federal Reserve Board with prior written notice of the Merger, in
lieu of filing an application under the BHC Act, since among other things, the
Subsidiary Bank Merger requires the prior approval of a federal supervisory
agency under the BMA. Under these circumstances, the Merger does not require the
prior approval of the Federal Reserve Board (or the Reserve Bank, acting on
delegated authority), unless the Reserve Bank informs Shawmut (within 30 days of
the notice filing) that an application for approval under the BHC Act is
required. The filing of such notice does not provide any assurance that the
Reserve Bank would not require Shawmut to file an application seeking the
Federal Reserve Board's prior approval of the Merger.
On November 15, 1993, the Federal Reserve Board issued an order not
approving Shawmut's application to acquire New Dartmouth. Three Governors of the
Federal Reserve Board voted to approve the acquisition, three Governors voted
not to approve, and one Governor abstained. Those Governors who voted not to
approve the application cited a then-pending investigation of possible
discriminatory lending at Shawmut Mortgage Company by the DOJ and the Federal
Trade Commission (the "FTC"). The investigation was undertaken
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pursuant to a referral from the Federal Reserve Board. Those Governors stated
that in order for Shawmut to obtain their votes for approval of the Merger,
Shawmut would have to submit "strong evidence that [it] has programs in place to
ensure compliance with the Equal Credit Opportunity Act and has a demonstrated
record that the programs are adequate and working well." Those Governors also
expressed concern over inaccuracies in data reported by the Shawmut Mortgage
Company under the Home Mortgage Disclosure Act (the "HMDA") and the structure of
its mortgage lending operation. The three Governors who voted to approve
Shawmut's acquisition of New Dartmouth said that the record showed that Shawmut
had "identified and implemented a number of steps that already have resulted in
tangible improvements" to the Shawmut Mortgage Company's lending practices.
On December 13, 1993, without admitting any wrongdoing, Shawmut Mortgage
Company entered into a consent decree with the DOJ and the FTC regarding past
lending practices. In connection with the consent decree, Shawmut Mortgage
Company agreed, among other things, to establish a $960,000 pool to compensate
minority loan applicants who were denied mortgages between 1990 and October 1992
but whose applications would be approved under Shawmut's more recent flexible
underwriting criteria. According to a press release issued by the DOJ, the DOJ
agreed to settle the case because Shawmut had initiated efforts to ensure that
minority and white applicants are treated equally. The DOJ noted that those
efforts, which included changes to Shawmut's underwriting process, were
initiated prior to the joint investigation into Shawmut Mortgage Company's
lending practices by the DOJ and the FTC. In recognition of the self-corrective
steps undertaken by Shawmut Mortgage Company, and stating that "[t]he United
States believes that this fair lending compliance program . . . is now working
well and is adequate to ensure the lender's compliance with the fair lending
[laws]," the consent decree did not impose any punitive sanctions on Shawmut
Mortgage Company, Shawmut, or any of Shawmut's other subsidiaries.
On March 1, 1994, Shawmut filed with the Federal Reserve Board a petition
seeking reconsideration of the Board's November 15, 1993 decision not to approve
Shawmut's application to acquire all of the outstanding voting shares of New
Dartmouth. On March 7, 1994, the Federal Reserve Board announced that it will
defer action on such petition. The Federal Reserve Board said that it expects to
consider such petition no later than May 2, 1994.
In light of the initiatives undertaken by Shawmut, Shawmut believes that it
will be able to demonstrate to the Federal Reserve Board Shawmut's compliance
with the Equal Credit Opportunity Act, and that it will be able to satisfy the
other concerns expressed, including those with respect to data reported under
the HMDA. Accordingly, although there can be no assurances in this regard,
Shawmut believes that Federal Reserve Board approval of its acquisition of New
Dartmouth, as well as the approval of the other bank regulatory authorities that
may be required for consummation of such transaction, will be obtained in due
course and in any event prior to the termination date set forth in the New
Dartmouth merger agreement.
The staff of the Connecticut Banking Commissioner (the "Banking
Commissioner") has advised Shawmut that approval of the Banking Commissioner
will be required in connection with the consummation of the transactions
contemplated by the Subsidiary Bank Merger Agreement under the Connecticut Bank
Holding Company and Bank Acquisition Act. An application for such approval has
been filed with the Banking Commissioner.
Although there can be no assurances that all required regulatory approvals
will be received for the Merger, Shawmut believes that all required regulatory
approvals will be obtained, including the approval of the Federal Reserve Board
in the event that it determines to exert jurisdiction over the Merger.
Shawmut is not aware of any other regulatory approvals that would be
required for consummation of the Merger or the Subsidiary Bank Merger, except as
described above. Should any other approvals be required, it is presently
contemplated that such approvals would be sought. There can be no assurance that
any other approvals, if required, will be obtained.
The Merger will not be consummated unless all of the requisite regulatory
approvals for the transactions contemplated by the Merger Agreement, including
the Subsidiary Bank Merger, are obtained. See
"-- Conditions to the Merger" above.
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CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Gateway has agreed that until the
Effective Time, except as provided in the Merger Agreement, the Subsidiary Bank
Merger Agreement, the Stock Option Agreement or with the prior consent of
Shawmut, Gateway and its subsidiaries will carry on their respective businesses
in the ordinary course consistent with past practice and consistent with prudent
banking practices. Gateway has agreed to use its best efforts to (x) preserve
its business organization and that of Gateway Bank intact, (y) keep available to
itself and Shawmut the present services of its and Gateway Bank's employees and
(z) preserve for itself and Shawmut the goodwill of its and Gateway Bank's
customers and others with whom business relationships exist.
The Merger Agreement also contains certain restrictions on the conduct of
Gateway's business pending consummation of the Merger. In particular, the Merger
Agreement provides that, except as provided in the Merger Agreement or with the
prior written consent of Shawmut, Gateway and its subsidiaries may not, among
other things, (i) solely in the case of Gateway, declare or pay any dividend on
or make any other distributions in respect of any of its capital stock; (ii)(a)
split, combine or reclassify any shares of its capital stock or (b) repurchase,
redeem or otherwise acquire (except for the acquisition of Trust Account Shares
and DPC Shares) any shares of the capital stock of Gateway or any of its
subsidiaries or securities convertible into or exchangeable therefor, (iii)
subject to certain exceptions, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock or securities
convertible into or exchangeable therefor, (iv) amend its Certificate of
Incorporation or By-laws, (v) make any capital expenditures other than in the
ordinary course of business or as necessary to maintain existing assets in good
repair, (vi) enter into any new line of business, (vii) subject to certain
exceptions, acquire or agree to acquire any business or entity or otherwise
acquire any assets, (viii) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in the
Merger Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger not being satisfied, or in a violation of any
provision of the Merger Agreement or the Subsidiary Bank Merger Agreement,
except as may be required by applicable law, (ix) change its methods of
accounting in effect at June 30, 1993, subject to certain exceptions, (x) (a)
adopt, amend, renew or terminate (except as may be required by law) any employee
benefit plan or agreement, arrangement, plan or policy between Gateway or any of
its subsidiaries and any of its current or former directors, officers and
employees, (b) except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law, increase
the compensation or fringe benefits of any director, officer or employee or (c)
enter into, modify or renew any contract, agreement, commitment or arrangement
providing for the payment to any director, officer or employee of Gateway of
compensation or benefits contingent, or the terms of which are materially
altered, upon the occurrence of any of the transactions contemplated by the
Merger Agreement, the Subsidiary Bank Merger Agreement or the Stock Option
Agreement; (xi) take or cause to be taken any action that would cause the Merger
to fail to qualify (a) for pooling of interests accounting treatment or (b) as a
tax-free reorganization under Section 368 of the Code, except that nothing
contained in the Merger Agreement will limit the ability of Shawmut to exercise
its rights under the Stock Option Agreement, (xii) dispose or agree to dispose
of its material assets, properties or other rights or agreements, (xiii) incur
any indebtedness for borrowed money, or assume, guarantee, endorse or otherwise
become responsible for the obligations of any other entity, (xiv) file any
application to relocate or terminate the operations of any of Gateway's or its
subsidiaries' banking offices, (xv) breach any regulatory agreement or material
contract or license to which Gateway or any of its subsidiaries is a party or by
which any of them or their respective properties is bound, (xvi) subject to
certain exceptions, invest or commit to invest in real estate or any real estate
development project, (xvii) create, renew, amend or terminate or give notice to
do the same to any material contract, agreement or lease for goods, services or
office space to which Gateway or any of its subsidiaries is a party or by which
Gateway or any of its subsidiaries or their respective property is bound, except
that Gateway may renew contracts, agreements or leases in the ordinary course of
business after consultation with Shawmut, or (xviii) agree to do any of the
foregoing.
The Merger Agreement provides that, on or prior to the Effective Time, at
the request of Shawmut, Gateway will, consistent with generally accepted
accounting principles ("GAAP"), modify and change its
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loan, litigation and real estate valuation policies and practices (including
loan classifications and levels of reserves) so as to be applied consistently on
a mutually satisfactory basis with those of Shawmut and establish such accruals
and reserves as will be necessary to reflect Merger-related expenses and costs
incurred by Gateway. Gateway will not be obligated to implement the foregoing
modifications and changes until Shawmut has (a) acknowledged that all of the
conditions to each of the parties obligation to consummate the Merger have been
satisfied and (b) waived its right to terminate the Merger Agreement.
Pursuant to the Merger Agreement, Gateway also has agreed to, and to cause
Gateway Bank to, use its reasonable best efforts in cooperation with Shawmut to
confirm that all regulatory agreements to which Gateway or Gateway Bank is or
becomes subject will be terminated and of no further force and effect at or
prior to the Effective Time.
Pursuant to the Merger Agreement, Shawmut has also agreed that until the
Effective Time, except as provided in the Merger Agreement or with the prior
consent of Gateway, Shawmut and its subsidiaries will carry on their respective
businesses in the ordinary course consistent with prudent banking practices and
shall use all reasonable efforts to preserve intact their present business
organizations and relationships. The Merger Agreement also provides, among other
things, that Shawmut will not (i) declare, pay or make any extraordinary or
special dividends or distributions; except that nothing contained in the Merger
Agreement will prohibit Shawmut from increasing the quarterly cash dividend on
the Shawmut Common Stock, (ii) take any action that is intended or may
reasonably be expected to result in any of its representations and warranties
set forth in the Merger Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Merger not being satisfied, or in a
violation of any provision of the Merger Agreement or the Subsidiary Bank Merger
Agreement, except as may be required by applicable law, (iii) change its methods
of accounting in effect at June 30, 1993, subject to certain exceptions, (iv)
take or cause to be taken any action that would cause the Merger to fail to
qualify (a) for pooling of interests accounting treatment or (b) as a tax-free
reorganization under Section 368 of the Code, except that nothing contained in
the Merger Agreement will limit the ability of Shawmut to exercise its rights
under the Stock Option Agreement, (v) take any action that would materially
adversely affect or materially delay the ability of Shawmut or Gateway to obtain
the regulatory approvals required to consummate the Merger and the Subsidiary
Bank Merger, or (vi) agree to do any of the foregoing.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Time, any provision of the Merger Agreement may be
waived by the party benefitted by the provision or amended or modified
(including the structure of the transaction) by an agreement in writing approved
by the Boards of Directors of Shawmut and Gateway, provided that after the vote
of the stockholders of Gateway the Merger Agreement may not be amended to reduce
the amount or change the form of the consideration to be received by Gateway
stockholders.
The Merger Agreement may be terminated at any time prior to the Effective
Time, either before or after its approval by the Gateway stockholders, as
follows: (i) by the mutual consent of Shawmut and Gateway if the Boards of
Directors of each so determines; (ii) by either Shawmut or Gateway upon written
notice to the other (a) 90 days after the date on which any request or
application for a necessary regulatory approval is denied or withdrawn at the
request of the Governmental Entity which must grant such approval, unless within
such 90-day period a petition for rehearing or an amended application has been
filed with the applicable Governmental Entity (or unless the failure to obtain
the necessary regulatory approval is due to the failure of the party seeking to
terminate the Merger Agreement to perform or observe its covenants and
agreements set forth in the Merger Agreement) or (b) if any Governmental Entity
of competent jurisdiction issues a final nonappealable order enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by the Merger Agreement; (iii) by either Shawmut or Gateway if its Board of
Directors so determines, in the event that the Merger has not been consummated
by December 31, 1994, unless the failure to consummate the Merger is due to a
breach of the Merger Agreement by the party seeking to terminate the Merger
Agreement, (iv) by either Shawmut or Gateway, if the Gateway stockholders fail
to approve the Merger Agreement (provided that if Gateway is the terminating
party, it is not in breach of its obligations in the Merger Agreement with
respect to the meeting of its stockholders to approve the Merger Agreement);
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(v) by either Shawmut or Gateway in the event of (a) a material breach by the
other of any of its representations or warranties contained in the Merger
Agreement which is not cured within 45 days after written notice of such breach
is given to the breaching party or which breach, by its nature, cannot be cured
prior to the Effective Time or (b) a material breach of any of the covenants or
agreements contained in the Merger Agreement by the other which is not cured
within 45 days after written notice of such breach is given to the breaching
party or (vi) by Gateway, by action of its Board of Directors, by giving written
notice of such election to Shawmut within two NYSE trading days after the
Valuation Period, in the event the Average Closing Price is less than $18.70 per
share, provided that no right of termination will arise under this provision if
Shawmut elects within five business days of receipt of such written notice to
increase the Exchange Ratio such that the per share value of the Shawmut Common
Stock (valued at the Average Closing Price) to be paid in respect of shares of
Gateway Common Stock is at least equal to $10.45 per share. See "-- Exchange
Ratio" above.
In the event of the termination of the Merger Agreement by either Shawmut
or Gateway, neither Shawmut nor Gateway will have any further obligations under
the Merger Agreement except (i) for certain specified provisions of the Merger
Agreement relating to confidentiality and expenses and (ii) that no party will
be relieved or released from any liabilities or damages arising out of its
willful breach of any provisions of the Merger Agreement.
NO SOLICITATION OF TRANSACTIONS
Gateway has agreed in the Merger Agreement that neither it nor any of its
subsidiaries will authorize or permit any of its officers, directors, employees
or agents to directly or indirectly solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes, a "takeover
proposal" (as defined below), or, except to the extent legally required for the
discharge of the fiduciary duties of the Gateway Board, as advised in writing by
such board's counsel, recommend or endorse any takeover proposal, or participate
in any discussions or negotiations, or provide third parties with any non-public
information, relating to any such inquiry or proposal or otherwise facilitate
any effort or attempt to make or implement a takeover proposal, provided that
Gateway may communicate information about any such takeover proposal to its
stockholders if, in the judgment of the Gateway Board with the advice of outside
counsel, such communication is required under applicable law; Gateway has agreed
to cease any activities, discussions or negotiations previously conducted with
any parties other than Shawmut with respect to any of the foregoing; it will
notify Shawmut immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, it, and will promptly inform
Shawmut in writing of the relevant details with respect to the foregoing. As
used in the Merger Agreement, "takeover proposal" means any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving Gateway or any subsidiary of Gateway or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of, Gateway or any subsidiary of Gateway other than the
transactions contemplated or permitted by the Merger Agreement, the Subsidiary
Bank Merger Agreement and the Stock Option Agreement.
RESALES OF SHAWMUT COMMON STOCK RECEIVED IN THE MERGER
The shares of Shawmut Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any Gateway stockholder who may be
deemed to be an "affiliate" of Gateway for purposes of Rule 145 under the
Securities Act. Affiliates may not sell their shares of Shawmut Common Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. This Proxy Statement/Prospectus does not
cover any resales of Shawmut Common Stock received by persons who may be deemed
to be affiliates of Gateway. Persons who may be deemed to be affiliates of
Gateway generally include individuals or entities that control, are controlled
by or are under common control with Gateway, and may include certain officers
and directors as well as principal stockholders of Gateway.
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Commission guidelines regarding qualifying for the pooling of interests
method of accounting also limit sales by affiliates of the acquiring and
acquired company in a business combination. Commission guidelines indicate
further that the pooling of interests method of accounting will generally 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 a corporation they receive in connection with a 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 Shawmut and Gateway has agreed in the Merger Agreement to use its
best efforts to cause each person who is an affiliate (for purposes of Rule 145
of the Securities Act and for purposes of qualifying the Merger for pooling of
interests accounting treatment) of such party to deliver to the other party a
written agreement intended to ensure compliance with the Securities Act and
preserve the ability to treat the Merger as a pooling of interests.
Shawmut has agreed in the Merger Agreement to use its best efforts to
publish no 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 the terms of SEC Accounting Series Release No. 135.
STOCK EXCHANGE LISTING
The Shawmut Common Stock is listed on the NYSE. Shawmut has agreed to cause
the shares of Shawmut Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Effective Time. The obligations of the parties to consummate the Merger are
subject to approval for listing by the NYSE of such shares. See "-- Conditions
to the Merger" above.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
amount of assets and liabilities of Shawmut and Gateway will be combined at the
Effective Time and carried forward at their previously recorded amounts and the
shareholders' equity accounts of Shawmut and Gateway will be combined on
Shawmut's consolidated balance sheet. Income and other financial statements of
Shawmut issued after the Effective Time will be restated retroactively to
reflect the consolidated operations of Shawmut and Gateway as if the Merger had
taken place prior to the periods covered by such financial statements.
The Merger Agreement provides that a condition to each party's obligation
to consummate the Merger is the receipt of a letter from Shawmut's independent
accountants to the effect that the Merger qualifies for pooling of interests
accounting treatment. See "-- Conditions to the Merger" above.
The issuance of shares of Gateway Common Stock pursuant to the Stock Option
Agreement may prevent the Merger from qualifying as a pooling of interests for
accounting and financial reporting purposes. See "CERTAIN RELATED
TRANSACTIONS -- Stock Option Agreement."
For information concerning certain restrictions to be imposed on the
transferability of Shawmut Common Stock to be received by affiliates in order,
among other things, to ensure the availability of pooling of interests
accounting treatment, see "-- Resales of Shawmut Common Stock Received in the
Merger" above.
The unaudited pro forma condensed financial information contained in this
Proxy Statement/Prospectus has been prepared using the pooling of interests
accounting method to account for the Merger. See "UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Federal income tax consequences
of the Merger and the Subsidiary Bank Merger to the stockholders of Gateway. The
discussion set forth below is based on currently
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existing provisions of the Code, Treasury Regulations thereunder, current
administrative rulings and court decisions. All of the foregoing are subject to
change and any such change could affect the continuing validity of this
discussion. The Federal income tax discussion set forth below may not be
applicable to certain classes of taxpayers, including insurance companies,
securities dealers, financial institutions, foreign persons and persons who
acquired shares of Gateway Common Stock pursuant to the exercise of employee
stock options or rights or otherwise as compensation. Gateway stockholders are
urged to consult their tax advisors as to their respective personal tax
situations including the applicability and effect of state, local and other tax
laws.
Consummation of the Merger is conditioned upon receipt by Shawmut of an
opinion of Skadden, Arps, Slate, Meagher & Flom (the "Skadden Opinion") and
receipt by Gateway of an opinion of Wachtell, Lipton, Rosen & Katz (the
"Wachtell Opinion"), each dated as of the Effective Time. The Skadden Opinion
and the Wachtell Opinion will state that, on the basis of facts, representations
and assumptions set forth in such opinions, which are consistent with the facts
existing at the Effective Time, the Merger will be treated for Federal income
tax purposes as part of one or more reorganizations within the meaning of
Section 368(a) of the Code, and accordingly, (i) no gain or loss will be
recognized by the stockholders of Gateway who exchange their Gateway Common
Stock solely for Shawmut Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in Shawmut
Common Stock), and (ii) the tax basis of the Shawmut Common Stock received by
Gateway stockholders who exchange all of their Gateway Common Stock solely for
Shawmut Common Stock in the Merger will be the same as the tax basis of the
Gateway Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
In addition, the Skadden Opinion will state that, on the basis of facts,
representations and assumptions set forth therein, which are consistent with the
facts existing at the Effective Time, the Subsidiary Bank Merger will be treated
for Federal income tax purposes as part of one or more reorganizations within
the meaning of Section 368(a) of the Code, and that accordingly no gain or loss
will be recognized by (i) Shawmut, SSC or Gateway as a result of the Merger or
(ii) SBC or Gateway Bank (except with respect to any gain or income that may at
any time or times be realized or recognized with respect to Gateway Bank's tax
reserves for possible loan losses) as a result of the Merger or the Subsidiary
Bank Merger.
Any cash received by the holders of Gateway Common Stock in lieu of a
fractional share of Shawmut Common Stock will be treated as having been received
in redemption of the fractional share interest, and will result in taxable gain
or loss. The receipt of such cash generally should result in gain or loss in an
amount equal to the difference between the amount of cash received and the basis
of the fractional share interest surrendered in exchange therefor. Such gain or
loss will be capital gain or loss if the fractional share interest was held as a
capital asset at the Effective Time, and such capital gain or loss will be
long-term capital gain or loss if the holding period for such fractional share
interest was greater than one year.
Shawmut may revise the structure of the Merger and/or the Subsidiary Bank
Merger and related transactions provided that such revised structure shall (i)
fully qualify as, or fully be treated as part of, one or more tax-free
reorganizations within the meaning of Section 368(a) of the Code, and not
subject any of the stockholders of Gateway to adverse tax consequences or change
the amount of consideration to be received by such stockholders, (ii) be
properly treated for financial reporting purposes as a pooling of interests,
(iii) be capable of consummation in as timely a manner as the structure
contemplated herein and (iv) not otherwise be prejudicial to the interests of
stockholders or employees of Gateway.
NO APPRAISAL RIGHTS
Pursuant to Section 262(b) of the Delaware General Corporation law, the
stockholders of a constituent corporation in a merger generally are not entitled
to appraisal rights if the shares of stock they own are, as of the record date
fixed to determine stockholders entitled to notice of and to vote at the meeting
to act upon the agreement providing for such merger, either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. (a "NASDAQ/NMS Security"), or held of record by more than 2,000
stockholders. However, stockholders that would otherwise not have appraisal
rights pursuant to the provisions described in the
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previous sentence are entitled to appraisal rights if such stockholders are
required by the terms of the merger to accept for their stock anything except
(i) shares of the corporation surviving the merger, (ii) shares of stock which
are either listed on a national securities exchange or designated as a
NASDAQ/NMS Security or held of record by more than 2,000 stockholders, or (iii)
cash in lieu of fractional shares of stock described in (i) and (ii) above or
any combination thereof. Gateway stockholders are not entitled to appraisal
rights generally because the shares of Gateway Common Stock are designated as a
NASDAQ/NMS Security, and such stockholders are not entitled to appraisal rights
in connection with the Merger because the shares of Shawmut Common Stock to be
issued in the Merger will be listed on the New York Stock Exchange at the
Effective Time, subject to official notice of issuance. In addition, there are
more than 2,000 holders of record of Shawmut Common Stock.
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the Stock Option
Agreement, dated as of November 5, 1993 (the "Stock Option Agreement"), by and
between Gateway and Shawmut, which is attached hereto as Annex B. The following
summary is qualified in its entirety by reference to the Stock Option Agreement.
Execution of the Stock Option Agreement was a condition to Shawmut's merger
proposal. Pursuant to the Stock Option Agreement, Gateway granted to Shawmut an
option to purchase up to 2,636,764 shares of Gateway Common Stock (representing
approximately 19.9% of the issued and outstanding shares of such Gateway Common
Stock before taking into account the shares that may be issued upon exercise of
such option) at an exercise price of $10.75 per share, subject to the terms and
conditions set forth therein. The option may only be exercised upon the
occurrence of certain "Purchase Events" which are described below (none of which
has occurred).
The Stock Option Agreement. The option is exercisable only upon the
occurrence of one of the following events (each a "Purchase Event"):
(a) Gateway fails to publicly oppose a Tender Offer or an Exchange
Offer (as defined below), or authorizes, recommends, publicly proposes or
enters into an agreement with any person (other than Shawmut or any of its
subsidiaries) to (i) effect a merger, consolidation or similar transaction
involving Gateway or any of its subsidiaries (other than internal mergers,
reorganizations, consolidations or dissolutions involving only existing
subsidiaries), (ii) sell, lease, exchange or otherwise dispose of assets of
Gateway or any of its subsidiaries representing 10% or more of the
consolidated assets of Gateway and its Subsidiaries, or (iii) issue, sell
or otherwise dispose of (including by merger, consolidation, share exchange
or similar transaction) securities representing 15% or more of the voting
power of Gateway or any of its subsidiaries (any of the foregoing, an
"Acquisition Transaction");
(b) any person (other than Shawmut or its subsidiaries) shall have
acquired beneficial ownership (as defined in Rule 13d-3 promulgated under
the Exchange Act, "Beneficial Ownership") of, or the right to acquire
Beneficial Ownership of, or any group (as defined in the Exchange Act,
"Group") shall have been formed which has acquired Beneficial Ownership of,
or has the right to acquire Beneficial Ownership of, 15% or more of the
then outstanding shares of Gateway Common Stock;
(c) any person (other than Shawmut or any subsidiary of Shawmut) shall
have (i) commenced (as such term is defined in Rule 14d-2 under the
Exchange Act) or shall have filed a registration statement under the
Securities Act with respect to a Tender Offer or Exchange Offer to purchase
any shares of Gateway Common Stock such that, upon consummation of such
offer, such person would own or control 15% or more of the then outstanding
shares of Gateway Common Stock (such an offer being referred to herein as a
"Tender Offer" or an "Exchange Offer," respectively) and (ii) received all
required federal regulatory approvals in respect of such offer;
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(d) the stockholders of Gateway shall not have approved the Merger
Agreement at the meeting of such stockholders held for the purpose of
voting on the Merger Agreement, or such meeting shall not have been held or
shall have been cancelled prior to termination of the Merger Agreement, in
each case after it shall have been publicly announced that any person
(other than Shawmut or any subsidiary of Shawmut) shall have (i) made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction, or (ii) filed an application (or given a notice), whether in
draft or final form, under the BHC Act or the Change in Bank Control Act of
1978, for approval to engage in an Acquisition Transaction; or
(e) Gateway's Board of Directors shall not have recommended to
Gateway's stockholders that such stockholders vote in favor of the approval
of the Merger Agreement or shall have withdrawn or modified such
recommendation in a manner adverse to Shawmut.
The option expires upon the earliest to occur of (i) the Effective Time,
(ii) 12 months after the first occurrence of a Purchase Event, (iii) termination
of the Merger Agreement in accordance with the terms thereof prior to the
occurrence of a Purchase Event (other than a termination resulting from a
material breach of any of Gateway's covenants under the Merger Agreement) or
(iv) 12 months after the termination of the Merger Agreement by Shawmut if such
termination results from a breach by Gateway of any of its covenants contained
in the Merger Agreement (except that if within 12 months after such termination
of the Merger Agreement a Purchase Event occurs, then the option will terminate
12 months after the first occurrence of such event). The closing of a purchase
of shares pursuant to the Stock Option Agreement is subject to the obtaining of
all necessary governmental approvals including, without limitation, any
approvals required under the BHC Act.
The number and type of securities subject to the option and the purchase
price of shares will be adjusted for (i) any change in the Gateway Common Stock
by reason of a stock dividend, stock split, split-up, recapitalization,
combination, exchange of shares or similar transaction or (ii) the effect of any
of the Gateway Rights (as defined below) becoming exercisable, such that Shawmut
will receive (upon exercise of the option) the same number and type of
securities as if the option had been exercised immediately prior to the
occurrence of such event (or the record date therefore). The number of shares of
Gateway Common Stock subject to the option will also be adjusted in the event
Gateway issues additional shares of Gateway Common Stock such that the number of
shares of Gateway Common Stock subject to the option, together with shares
previously purchased pursuant thereto, represents 19.9% of the Gateway Common
Stock then issued and outstanding, without giving effect to shares subject to or
issued pursuant to the option.
In the event Gateway enters into any agreement (i) to merge into or
consolidate with any person other than Shawmut or one of its subsidiaries such
that Gateway is not the surviving corporation, (ii) to permit any person, other
than Shawmut or one of its subsidiaries, to merge into Gateway and Gateway is
the surviving corporation, but, in connection with such merger, the then
outstanding shares of Gateway Common Stock are changed into or exchanged for
stock or other securities of Gateway or any other person or cash or any other
property or the outstanding shares of Gateway Common Stock prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person other than Shawmut or one
of its subsidiaries, then, and in each such case, the agreement governing the
transaction must provide that, upon consummation of the transaction, the option
will be converted into or exchanged for an option to purchase securities of
either the acquiring person, any person that controls the acquiring person or
Gateway (if Gateway is the surviving entity), in all cases at the election of
Shawmut.
Shawmut has the right to require Gateway to repurchase (i) the option and
(ii) any shares acquired pursuant to exercise of the option of which Shawmut has
Beneficial Ownership, upon the occurrence of any of the following circumstances
(each a "Repurchase Event").
(a) the acquisition by any person or Group (other than Shawmut or any
of its subsidiaries) of Beneficial Ownership of 50% or more of the then
outstanding shares of Gateway Common Stock; or
(b) the consummation of any of the transactions described in clauses
(i) -- (iii) of the preceding paragraph.
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Such repurchase will be at an aggregate price equal to the sum of: (i) the
aggregate exercise price paid by Shawmut for any shares of Gateway Common Stock
acquired pursuant to the option with respect to which Shawmut then has
Beneficial Ownership; (ii) the excess, if any, of (x) the Applicable Price (as
defined below) for each share of Gateway Common Stock over (y) the exercise
price of the option, multiplied by the number of shares of Gateway Common Stock
with respect to which the option has not been exercised; and (iii) the excess,
if any, of the Applicable Price over the exercise price of the option paid by
Shawmut for each share of Gateway Common Stock with respect to which the option
has been exercised and with respect to which Shawmut then has Beneficial
Ownership, multiplied by the number of such shares. Shawmut's right to require
such repurchase expires 12 months after the first occurrence of a Repurchase
Event.
For purposes of the Stock Option Agreement, "Applicable Price" means the
highest of (i) the highest price per share of Gateway Common Stock paid for any
such share by any person or Group described in subsection (a) of the second
preceding paragraph, (ii) the price per share of Gateway Common Stock received
by the holders of such common stock in connection with any merger or other
business combination referred to in subsection (b) of the second preceding
paragraph and (iii) the highest closing sales price per share of Gateway Common
Stock quoted on the National Association of Securities Dealers Automated
Quotation/National Market System (the "NASDAQ/NMS") (or, if the Gateway Common
Stock is not quoted on the NASDAQ/NMS, the highest bid price per share as quoted
on the principal trading market or securities exchange on which such shares are
traded as reported by a recognized source) during the 60 business days prior to
Shawmut's exercise of its right to require Gateway to repurchase the option or
the shares acquired upon exercise thereof, except that in the event of a sale of
less than all of Gateway's assets, the Applicable Price shall be the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Gateway as determined by a nationally recognized investment
banking firm selected by Shawmut, divided by the number of shares of Gateway
Common Stock outstanding at the time of such sale.
Gateway has granted Shawmut certain registration rights with respect to
shares of Gateway Common Stock acquired by Shawmut upon exercise of the option.
These rights include requiring Gateway to file up to two registration statements
under the Securities Act if requested by Shawmut within three years of the date
the option first becomes exercisable (the "Registration Period") provided such
registration is necessary in order to permit the sale or other disposition of
the shares acquired by Shawmut. Any such registration statement, and any sale
covered thereby, will be at Gateway's expense other than underwriting discounts
or commissions, brokers' fees and the fees and disbursements of Shawmut's
counsel related thereto. In addition, in the event that during the Registration
Period Gateway effects a registration under the Securities Act of Gateway Common
Stock (other than on Form S-4 or Form S-8 or any form with respect to a dividend
reinvestment or similar plan), Gateway will allow Shawmut to participate in such
registration, subject to certain limitations. In connection with any
registration described above, Gateway and Shawmut will provide to each other and
any underwriter of the offering customary representations, warranties,
covenants, indemnifications and contributions.
Certain rights and obligations of Shawmut and Gateway under the Stock
Option Agreement are subject to receipt of required regulatory approvals. The
approval of the Federal Reserve Board is required for the acquisition by Shawmut
of more than 5% of the outstanding shares of Gateway Common Stock.
Effect of Stock Option Agreement. The Stock Option Agreement is intended
to increase the likelihood that the Merger will be consummated in accordance
with the terms of the Merger Agreement. Consequently, certain aspects of the
Stock Option Agreement may have the effect of discouraging persons who might now
or prior to the Effective Time be interested in acquiring all of or a
significant interest in Gateway from considering or proposing such an
acquisition, even if such persons were prepared to pay a higher price per share
for Gateway Common Stock than the price per share implicit in the Exchange
Ratio. The acquisition of Gateway or an interest in Gateway, or an agreement to
do either, could cause the option to become exercisable. The existence of such
option could significantly increase the cost to a potential acquiror of
acquiring Gateway compared to its cost had the Stock Option Agreement not been
entered into. Such increased cost might discourage a potential acquiror from
considering or proposing an acquisition or might result in a potential acquiror
proposing to pay a lower per share price to acquire Gateway than it might
otherwise have proposed to pay. Based on the advice of Gateway's independent
accountants, the management
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of Gateway believes that the exercise of the Stock Option Agreement is likely to
prohibit any acquiror of Gateway from accounting for any acquisition of Gateway
using the pooling of interests accounting method for a period of two years.
Accordingly, the existence of this Stock Option Agreement is likely to deter
significantly, if not completely preclude, an acquisition of Gateway by other
banking organizations. The Gateway Board took this factor into account before
approving the Stock Option Agreement. See "-- Recommendation of Gateway's Board
of Directors; Gateway's Reasons for the Merger."
SUBSIDIARY BANK MERGER AGREEMENT
In connection with the Merger, SBC, and Gateway Bank intend to enter into
the Subsidiary Bank Merger Agreement (the "Subsidiary Bank Merger Agreement")
pursuant to which Gateway Bank will be merged with and into SBC, which will
continue as an indirect wholly owned subsidiary of Shawmut. The Subsidiary Bank
Merger Agreement will provide that it may be terminated by mutual consent of the
parties at any time and will be terminated automatically in the event the Merger
Agreement is terminated.
AMENDMENT TO RIGHTS AGREEMENT
In connection with the execution of the Merger Agreement, Gateway amended
the Gateway Rights Agreement. The amendment amended the definition of "Acquiring
Person" in the Gateway Rights Agreement to provide that neither Shawmut nor any
of its subsidiaries will be deemed to be an Acquiring Person by virtue of the
Merger Agreement or Stock Option Agreement, or any of the transactions
contemplated thereby, or by virtue of the fact that Shawmut is the beneficial
owner of Gateway Common Stock (i) of which Shawmut or any of its subsidiaries
was the beneficial owner as of November 5, 1993, together with up to 1% more of
the Gateway Common Stock acquired after such date by Shawmut's Affiliates and
Associates (as such terms are defined in the Gateway Rights Agreement); (ii)
acquired or acquirable pursuant to the Stock Option Agreement; (iii) held
directly or indirectly as Trust Account Shares; and (iv) held directly or
indirectly as DPC Shares. The amendment also amended the definition of "Adverse
Person" to provide that neither Shawmut nor any of its Affiliates or Associates
shall be deemed to be an Adverse Person and that no Distribution Date (as such
term is defined in the Gateway Rights Agreement) shall be deemed to have
occurred while the Merger Agreement is pending. As a result of the amendment, no
Distribution Date shall be deemed to have occurred while the Merger Agreement is
pending and the Gateway Rights (as defined below) will not become exercisable as
a result of the execution of the Merger Agreement and the Stock Option Agreement
or consummation of any of the transactions contemplated thereby.
THE FOREGOING SUMMARIES OF THE STOCK OPTION AGREEMENT, SUBSIDIARY BANK
MERGER AGREEMENT AND AMENDMENT TO THE GATEWAY RIGHTS AGREEMENT ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO SUCH AGREEMENTS AND AMENDMENT. THE STOCK OPTION
AGREEMENT IS ATTACHED HERETO AS ANNEX B. THE AMENDMENT TO THE GATEWAY RIGHTS
AGREEMENT IS AN EXHIBIT TO THE MERGER AGREEMENT WHICH IS ATTACHED HERETO AS
ANNEX A. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
INFORMATION ABOUT GATEWAY FINANCIAL CORPORATION
General. Gateway Financial Corporation is a bank holding company,
registered under the BHC Act of 1956, as amended, and regulated by the Federal
Reserve Board, which provides banking and financial services through its
principal subsidiary, Gateway Bank. At December 31, 1993, Gateway had assets of
$1.3 billion, deposits of $1.2 billion and stockholders equity of $94.2 million.
Gateway Bank currently maintains 28 offices (including its main office in
Norwalk, Connecticut) located in Fairfield County, Connecticut and it serves
depositors and borrowers in a market area that is primarily comprised of such
county. Gateway Bank's principal business has consisted of attracting deposits
from the general public and primarily using such deposits to make residential
mortgage loans, although Gateway Bank also makes commercial mortgage,
commercial, construction and consumer loans. The primary sources of funds for
Gateway Bank's lending and investment activities are deposits, loan interest and
principal payments, borrowings and to a lesser extent, maturing investments and
earnings on investments.
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Gateway Bank operates under Connecticut law and is subject to supervision,
examination, and regulation by the Connecticut Banking Commissioner, as well as
by the FDIC.
In recent years, the financial condition, profitability and business of
Gateway have been adversely affected by the depressed markets for real estate
and economic conditions in its market areas in particular and in New England
generally. Gateway also has been subject to heightened regulatory scrutiny and
Gateway and Gateway Bank have consented to certain regulatory enforcement
actions which have established certain requirements, including an increased
regulatory capital requirement for Gateway, which generally are intended to
enhance the financial condition and operations of Gateway and Gateway Bank. As a
result of a concurrent examination (the "Examination") of Gateway Bank by the
FDIC and the Connecticut Banking Department (collectively, the "Gateway Bank
Regulators") that was completed in February 1993, Gateway Bank consented to the
issuance by the Gateway Bank Regulators of a Cease and Desist Order, which
requires Gateway Bank, among other things, to achieve and maintain a Leverage
Ratio of 5.25% as of September 30, 1993 and of 5.75% as of March 31, 1994, to
obtain the approval of the Gateway Bank Regulators prior to declaring or paying
any cash dividends, to maintain adequate loan loss reserves, to retain qualified
management and to develop and/or revise Gateway Bank's written plans regarding
management, lessening of risk position with respect to certain borrowers, loan
policy, profits and funds management.
At December 31, 1993, primarily as the result of the implementation in 1993
of a restructuring plan pursuant to which approximately $28.3 million of capital
was raised in a rights offering, Gateway Bank's Leverage Ratio was 7.10%.
Although Gateway is now in compliance with the requirements of the Cease and
Desist Order regarding its minimum Leverage Ratio, it remains subject to the
other requirements of the Cease and Desist Order.
Lending. Gateway Bank's primary business is the collection of retail
deposits to fund single family residential mortgage lending, commercial real
estate lending, commercial lending and consumer lending. At December 31, 1993,
of Gateway Bank's loan portfolio of $875.7 million ($900.5 million before
deducting unearned income and the $18.3 million allowance for loan losses),
$640.0 million, or 71.1% were in residential first mortgage loans; $111.6
million, or 12.4%, were in commercial real estate loans; $72.2 million, or 8.0%,
were in other commercial loans; and $76.7 million, or 8.5% were in consumer
loans. Due to depressed economic conditions existing in recent years in
Gateway's market area, substantially all of Gateway's new loans have been
residential mortgage loans and consumer loans.
Allowance for loan losses. Gateway Bank has been severely affected by the
substantial decline in real estate values in its market area. Approximately 87%
of Gateway Bank's loans are collateralized by real estate in what were depressed
markets in Fairfield County, Connecticut. In addition, approximately 82% of the
real estate owned is located in those same markets. As a result, non-accruing
loans had increased considerably in recent years, along with a corresponding
increase in provisions for loan losses. However, during 1993, non-performing
assets decreased from $109.8 million at December 31, 1992 to $50.2 million at
December 31, 1993. The provision for loan losses also decreased from $42.3
million in 1992 to $6.4 million in 1993.
At December 31, 1993, loan loss reserves represented 2.03% of the total
loans and 70.00% of non-accruing loans.
Deposits. Deposits have traditionally been Gateway Bank's major source of
funds for investments and lending and will continue to be in the foreseeable
future. Gateway Bank also derives funds from loan repayments, sales of loans in
the secondary market, prepayments, interest and dividend income, and borrowings
from the Federal Home Loan Bank of Boston ("FHLBB"). Gateway Bank offers a wide
variety of rates and retail and commercial deposit accounts designed to attract
both short and long-term funds. Certificates of deposit, regular savings, money
market deposit, and NOW checking accounts have been the primary source of new
funds for Gateway Bank since their authorization. Certificates of deposit
currently offered by Gateway Bank have maturities which range from one month to
five years.
Interest-bearing deposits were approximately $1.1 billion at December 31,
1993. Management of Gateway Bank anticipates that competition for deposits in
Gateway Bank's market area will increase in the foreseeable future due to
competition from mutual funds in bank programs as well as discount brokerage
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operations, the increased presence of large regional banks with extensive
marketing budgets and the need for smaller banks to increase deposit rates and
to maintain and attract market share.
Deposit flows are attributable to Gateway Bank's 28 branches located
throughout Fairfield County. Twenty-five of these locations include automatic
teller machines. Substantially all of Gateway Bank's depositors are residents of
Fairfield County. In Fairfield County, Connecticut, Gateway Bank believes that
it has somewhere between the second and fourth highest amount of retail banking
deposits in most towns, and the highest amount of retail banking deposits in
Norwalk. Gateway does not solicit deposits outside Connecticut, nor does it
accept deposits through deposit brokers.
Competition. In general, competition in the financial services industry in
Connecticut is strong. Commercial banks, savings banks, savings and loan
associations, mortgage brokers, finance companies, credit unions, insurance
companies, investment firms, and private lenders compete with Gateway Bank for
deposits, loans, and employees. Some of these competitors have substantially
greater resources than Gateway Bank, and are able to conduct more intensive and
broader based promotional efforts to reach both commercial and individual
customers and, for larger customers, are able to offer cash management and other
services that Gateway Bank does not offer.
Changes in the financial services industry resulting from fluctuating
interest rates, technological changes, and deregulation have resulted in an
increase in competition, cost of funds, merger activity, and customer awareness
of product and service differences among competitors.
During the three years ended December 31, 1993, approximately 40
Connecticut-based banking institutions failed. Several of these institutions
operated in Gateway Bank's market area and such failures have resulted in
(through resolution transactions with the FDIC) the entrance of at least two
substantial out-of-state financial institutions into Gateway Bank's market area.
The number of bank failures has reflected both the difficult economic conditions
that Gateway Bank currently faces in its market area and the competition
experienced by such institutions in an industry which state and federal bank
regulators feel has substantial overcapacity. The consolidation of financial
institutions will likely continue and particularly affect banks.
Employees. As of December 31, 1993, Gateway had 475 employees, 431 of whom
were full-time and 44 of whom were part-time. Full-time employees receive a
comprehensive range of employee benefit programs and salaries which management
considers to be generally competitive with those provided by other major
employers in Fairfield County. None of Gateway's employees is represented by any
union or other labor organization, and management believes that its employee
relations are good.
Cease and Desist Order. As a result of the Examination, Gateway Bank
consented to certain regulatory enforcement actions which generally are intended
to enhance the financial condition and operations of Gateway Bank. Under the
terms of the Cease and Desist Order, Gateway Bank has agreed to take certain
actions and to seek to achieve certain goals, including (i) to achieve and
maintain a Leverage Ratio of at least 5.25% as of September 30, 1993 and 5.75%
as of March 31, 1994, and to continue maintenance of its risk-based capital
ratio in compliance with standards set by the FDIC; (ii) to maintain adequate
loan loss reserves and to evaluate such reserves on at least a quarterly basis;
(iii) to refrain from paying or declaring cash dividends without the prior
written approval of the FDIC Regional Director and the Banking Commissioner of
the State of Connecticut; (iv) to have and retain qualified management
(including additional senior executive officers, at least one of whom will be a
senior executive officer whose position will be junior in title, rank and
responsibility only to that of the Chief Executive Officer) including at a
minimum a Chief Executive Officer and a Chief Operating Officer; (v) to conduct
a written evaluation of Gateway's management and staffing needs, including an
evaluation of each officer, in particular, the Chief Executive Officer; (vi) to
not extend credit to any borrower whose credit has been classified unless
certain findings are made by the Board of Directors; (vii) to not accrue
interest on any loan that is 90 days or more past due, unless such loan is well
secured and in the process of collection; (viii) to not make payments to any
affiliated organization without prior written approval of the Gateway Bank
Regulators; and (ix) to develop and/or revise its written plans regarding
lessening risk with respect to certain borrowers, loan policy, profits and funds
management. If the terms of the Cease and Desist Order are not met, additional
regulatory sanctions may be imposed. At September 30 and December 31, 1993,
Gateway Bank was in compliance with the requirements of the Cease
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and Desist Order regarding its minimum leverage ratio. Gateway Bank remains
subject to the other requirements of the Cease and Desist Order and has worked
diligently to satisfactorily address all of the other requirements. As a result
of the Merger Agreement, Gateway Bank has decided, however, to suspend its
recruitment of a Chief Operating Officer. Gateway Bank feels it is in compliance
with all of the other requirements of the Cease and Desist Order, and any
additional Gateway Bank actions necessary to satisfy the Cease and Desist
Order's requirements will not have an adverse impact on Gateway Bank's financial
condition.
For more information about Gateway, reference is made to the 1993 Gateway
Form 10-K which is incorporated herein by reference. See "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
DESCRIPTION OF SHAWMUT CAPITAL STOCK
GENERAL
The authorized capital stock of Shawmut consists of 150,000,000 shares of
Shawmut Common Stock and 10,000,000 shares of preferred stock, without par value
("Shawmut Preferred Stock"), issuable in one or more series with such terms and
at such times and for such consideration as the Shawmut Board of Directors
determines. At the Annual Meeting of Shareholders of Shawmut to be held on April
26, 1994, Shawmut's shareholders will vote on a proposal to increase the number
of authorized shares of Shawmut Common Stock from 150,000,000 to 300,000,000. As
of December 31, 1993, there were issued 95,546,359 shares of Shawmut Common
Stock (including 106,487 shares of treasury stock), 575,000 shares of Shawmut
Preferred Stock designated as 9.30% Cumulative Preferred Stock (the "9.30%
Cumulative Preferred") and 700,000 shares of Shawmut Preferred Stock designated
as Preferred Stock with Cumulative and Adjustable Dividends (the "Adjustable
Preferred").
As of December 31, 1993, approximately 6,215,651 shares of Shawmut Common
Stock had been reserved for issuance upon the exercise of outstanding stock
options under various employee incentive and purchase plans, 13,500,966 shares
of Shawmut Common Stock were reserved for issuance pursuant to Shawmut's
dividend reinvestment and stock purchase plans, and 17,810,897 shares of Shawmut
Common Stock were reserved for issuance upon consummation of the acquisition of
New Dartmouth Bank ("New Dartmouth") and Peoples Bancorp of Worcester, Inc.
("Peoples"). In addition, 1,500,000 shares of a series of Shawmut Preferred
Stock designated as Series A Junior Participating Preferred Stock (the "Series A
Preferred") were reserved for issuance as provided in the Rights Plan described
below. In connection with the settlement of certain litigation, Shawmut entered
into a Warrant Agreement between Shawmut and Chemical Bank, as Warrant Agent,
dated as of January 7, 1994, which provides for the issuance of up to 1,329,115
shares of Shawmut Common Stock pursuant to the terms and conditions contained
therein.
The following description contains a summary of all the material features
of the capital stock of Shawmut but does not purport to be complete and is
subject in all respects to the applicable provisions of the Delaware General
Corporate Law (the "DGCL") and is qualified in its entirety by reference to the
Restated Certificate of Incorporation of Shawmut (the "Shawmut Certificate"),
including the Certificates of Designation pursuant to which the Adjustable
Preferred and the 9.30% Cumulative Preferred were issued and the terms of the
Rights Agreement (the "Shawmut Rights Agreement"), dated as of February 28,
1989, described below. A copy of the Shawmut Certificate, each Certificate of
Designation and the Shawmut Rights Agreement is incorporated in this Proxy
Statement/Prospectus by reference.
COMMON STOCK
The holders of Shawmut Common Stock are entitled to dividends when and as
declared by the Shawmut Board of Directors out of funds legally available
therefor. Each series of Shawmut Preferred Stock has preference over the Shawmut
Common Stock with respect to the payment of dividends. Shawmut is also subject
to certain regulatory restrictions on the payment of dividends. See "COMPARISON
OF SHAREHOLDER RIGHTS."
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The holders of Shawmut Common Stock are entitled to one vote for each share
held on all matters as to which shareholders are entitled to vote. The Shawmut
Common Stock is the only security of Shawmut entitled to vote for directors,
unless and until Shawmut is in default on the equivalent of six quarterly
dividends payable on any series of Shawmut Preferred Stock. See "-- Shawmut
Preferred Stock" below.
Except as otherwise provided in the resolution providing for the issue of
any series of Shawmut Preferred Stock, in the event of any liquidation,
dissolution or winding up of Shawmut, whether voluntary or involuntary, after
payment shall have been made to the holders of all series of Shawmut Preferred
Stock of the full preferential amounts to which such holders are entitled, the
holders of shares of Shawmut Common Stock shall be entitled, to the exclusion of
the holders of Shawmut Preferred Stock, to share, ratably according to the
number of shares of Shawmut Common Stock held by them, in all remaining assets
of Shawmut available for distribution to its shareholders.
Certain business combinations involving Shawmut and any beneficial owner of
10 percent or more of the outstanding voting stock of Shawmut, any affiliate of
Shawmut or any affiliate of such owner must be approved by the holders of 80
percent of the outstanding voting stock, unless approved by a majority of
continuing directors or certain minimum price and procedural requirements are
met. These provisions may have the effect of delaying, deferring or preventing a
change in control of Shawmut. See "COMPARISON OF SHAREHOLDER RIGHTS -- Certain
Business Combinations."
Holders of Shawmut Common Stock are not entitled to cumulative voting
rights, or any preemptive, preferential or subscriptive rights with respect to
any securities of Shawmut, except as described below under "Rights Plan."
Outstanding shares of Shawmut Common Stock are fully paid and nonassessable.
Chemical Bank, successor by merger to Manufacturers Hanover Trust Company, is
the transfer agent, registrar and dividend disbursement agent for Shawmut Common
Stock.
RIGHTS PLAN
On February 28, 1989, the Shawmut Board of Directors declared a dividend
distribution of one right (a "Shawmut Right") for each outstanding share of
Shawmut Common Stock to shareholders of record at the close of business on March
13, 1989. Subsequent to that date and prior to the occurrence of a Distribution
Date (described below), Shawmut Rights shall be deemed to be delivered with each
share of Shawmut Common Stock issued by Shawmut, including in connection with
the issuance of the shares of Shawmut Common Stock to be issued in the Merger.
Each Shawmut Right entitles the registered holder to purchase from Shawmut a
unit consisting of one one-hundredth of a share (a "Unit") of Series A
Preferred, at a purchase price of $100 per Unit, subject to adjustment. The
description and terms of the Shawmut Rights are summarized below and are set
forth in the Shawmut Rights Agreement between Shawmut and Manufacturers Hanover
Trust Company, as Rights Agent.
At the present time, the Shawmut Rights are attached to all Shawmut Common
Stock certificates representing outstanding shares, and no separate Shawmut
Rights Certificates will be distributed. The Shawmut Rights will separate from
the Shawmut Common Stock and a Distribution Date will occur upon the earliest of
(i) 10 business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20 percent or more of the
outstanding shares of Shawmut Common Stock (the "Stock Acquisition Date"), (ii)
10 business days (or such later date as may be determined by the Shawmut Board)
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 20 percent or more of such outstanding
shares of Shawmut Common Stock and (iii) 10 business days following the
determination by the Shawmut Board, upon a determination of at least a majority
of the unaffiliated "Continuing Directors" who are not officers of Shawmut,
that, with respect to any person who has, alone or together with his affiliates
or associates, become the beneficial owner of 10 percent or more of the shares
of Shawmut Common Stock outstanding (a) such beneficial ownership by such person
is intended to cause Shawmut to repurchase the Shawmut Common Stock beneficially
owned by such person or to cause pressure on Shawmut to take action or enter
into a transaction or series of transactions intended to provide such person
with short-term financial gain under circumstances where such directors
determine that
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the best long-term interests of Shawmut and its shareholders would not be served
by taking such action or entering into such transactions or series of
transactions at that time or (b) such beneficial ownership is causing or
reasonably likely to cause a material adverse impact (including, but not limited
to, impairment of relationships with customers, impairment of Shawmut's ability
to maintain its competitive position or impairment of Shawmut's business
reputation or ability to deal with governmental agencies) on the business or
prospects of Shawmut (any such person being referred to herein and in the
Shawmut Rights Agreement as an "Adverse Person").
The Shawmut Rights are not exercisable until the Distribution Date and will
expire at the close of business on March 13, 1999 unless earlier redeemed by
Shawmut as described below.
In the event that (i) a person becomes the beneficial owner of 20 percent
or more of the then outstanding shares of Shawmut Common Stock (except pursuant
to an offer for all outstanding shares of Shawmut Common Stock which a majority
of the unaffiliated Continuing Directors who are not officers of Shawmut
determines to be fair to and otherwise in the best interests of Shawmut and its
shareholders), or (ii) the Shawmut Board determines, upon the determination by
at least a majority of the unaffiliated Continuing Directors who are not
officers of Shawmut, that a person is an Adverse Person, each holder of a
Shawmut Right will thereafter have the right to receive upon exercise Shawmut
Common Stock (or, in certain circumstances, cash, property or other securities
of Shawmut) having a value (based on the lowest closing price of the Shawmut
Common Stock during the twelve-month period preceding such event) equal to two
times the exercise price of the Shawmut Right. Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in this
paragraph, all Shawmut Rights that are, or (under certain circumstances
specified in the Shawmut Rights Agreement) were, beneficially owned by any
Acquiring Person or Adverse Person will be null and void. However, Shawmut
Rights are not exercisable following the occurrence of either of the events set
forth above until such time as the Shawmut Rights are no longer redeemable by
Shawmut as set forth below.
In the event that, at any time following the Stock Acquisition Date or the
determination that someone is an Adverse Person (i) Shawmut is acquired in a
merger or other business combination transaction in which Shawmut is not the
surviving company or in which it is the surviving company but the Shawmut Common
Stock is changed or exchanged (other than a merger which follows an offer
described in the preceding paragraph) or (ii) more than 50 percent of Shawmut's
assets, cash flow or earning power is sold or transferred, each holder of a
Shawmut Right (except Shawmut Rights which previously have been voided as set
forth above) shall thereafter have the right to receive, upon exercise, common
stock of the acquiring company having a value equal to two times the exercise
price of the Shawmut Right. The events set forth in this paragraph and in the
preceding paragraph are referred to as the "Triggering Events".
In general, at any time until 10 business days following the Stock
Acquisition Date, Shawmut may redeem the Shawmut Rights in whole, but not in
part, at a price of $.01 per Shawmut Right (payable in cash, Shawmut Common
Stock or other consideration deemed appropriate by the Shawmut Board). Under
certain circumstances set forth in the Shawmut Rights Agreement, the decision to
redeem the Shawmut Rights will require the concurrence of a majority of the
Continuing Directors. Shawmut may not redeem the Shawmut Rights if the Shawmut
Board has previously declared a person to be an Adverse Person. Immediately upon
the action of the Shawmut Board ordering redemption of the Shawmut Rights, the
Shawmut Rights will terminate and the only right of the holders of Shawmut
Rights will be to receive the $.01 redemption price.
The term "Continuing Directors" means any member of the Board of Directors
of Shawmut who was a member of the Board prior to the date of the Shawmut Rights
Agreement, and any person who is subsequently elected to the Board if such
person is recommended or approved by a majority of the Continuing Directors, but
will not include an Acquiring Person, an Adverse Person, or an affiliate or
associate of any such Person or any representative of any of the foregoing.
Until a Shawmut Right is exercised, the holder thereof, as such, will have
no rights as a shareholder of Shawmut including, without limitation, the right
to vote or to receive dividends.
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Other than those provisions relating to the principal economic terms of the
Shawmut Rights, any of the provisions of the Shawmut Rights Agreement may be
amended by the Shawmut Board prior to the Distribution Date. After the
Distribution Date, the provisions of the Shawmut Rights Agreement may be amended
by the Board (in certain circumstances, with the concurrence of the Continuing
Directors) in order to cure any ambiguity, to make changes which do not
adversely affect the interest of holders of Shawmut Rights, or to shorten or
lengthen any time period under the Shawmut Rights Agreement; provided, however,
that no amendment to adjust the time period governing redemption shall be made
at such time as the Shawmut Rights are not redeemable.
The Shawmut Rights have certain anti-takeover effects. The Shawmut Rights
will cause substantial dilution to a person or group that attempts to acquire
Shawmut in a manner defined as a Triggering Event unless the offer is
conditioned on a substantial number of Shawmut Rights being acquired. The
Shawmut Rights, however, should not affect any prospective offeror willing to
make an offer for all outstanding shares of Shawmut Common Stock and other
voting securities at a fair price and otherwise in the best interests of Shawmut
and its shareholders as determined by the Shawmut Board or affect any
prospective offeror willing to negotiate with the Shawmut Board. The Shawmut
Rights should not interfere with any merger or other business combination
approved by the Shawmut Board since the Shawmut Board may, at its option, at any
time until ten business days following the Stock Acquisition Date, redeem all,
but not less than all, of the then outstanding Shawmut Rights at the $.01
redemption price.
SHAWMUT PREFERRED STOCK
The Shawmut Board is authorized in the Shawmut Certificate to issue up to
10,000,000 shares of Preferred Stock, without par value, in series and to
determine the designation of each series, dividend rate, redemption provisions,
liquidation preferences, sinking fund provisions and all other rights pertaining
to the Shawmut Preferred Stock. The following is a brief description of the
Adjustable Preferred and the 9.30% Cumulative Preferred, the only series of
Shawmut Preferred Stock outstanding. The Adjustable Preferred and the 9.30%
Cumulative Preferred have preference over the Shawmut Common Stock with respect
to the payment of dividends and the distribution of assets in the event of
liquidation, winding up or dissolution of Shawmut.
Dividends on the outstanding Adjustable Preferred and 9.30% Cumulative
Preferred are cumulative. The dividend rate on the Adjustable Preferred is
established quarterly at the rate of 2.25 percent below the highest of (a) the
three-month U.S. Treasury Bill rate, (b) the U.S. Treasury ten-year constant
maturity rate and (c) the U.S. Treasury twenty-year constant maturity rate, in
each case as defined in the terms of the Adjustable Preferred, but may not be
less than 6% per annum or greater than 12% per annum.
If the equivalent of six quarterly dividends payable on one or more series
of Shawmut Preferred Stock, including the Adjustable Preferred and the 9.30%
Cumulative Preferred, are in default, the number of directors of Shawmut will be
increased by two and the holders of all outstanding series of Shawmut Preferred
Stock, voting as a single class without regard to series, will be entitled to
elect two additional directors until all accrued dividends have been paid. In
addition, the vote of the holders of two-thirds of each of the Adjustable
Preferred and the 9.30% Cumulative Preferred, each voting as a separate class,
is required in order to amend or alter the Shawmut Certificate in a manner which
would adversely affect the preferences, rights, powers or privileges of the
Adjustable Preferred or the 9.30% Cumulative Preferred, respectively, and the
vote of two-thirds of the Adjustable Preferred, the 9.30% Cumulative Preferred
and all of the series of Shawmut Preferred Stock ranking on a parity with the
Adjustable Preferred and the 9.30% Cumulative Preferred, voting together as a
single class, is required in order to reclassify stock of Shawmut into stock
ranking prior to the Adjustable Preferred and the 9.30% Cumulative Preferred, or
authorize the creation or issuance of stock, or of a security convertible into
or evidencing a right to purchase stock, ranking prior to the Adjustable
Preferred and the 9.30% Cumulative Preferred.
In the event of any liquidation, dissolution or winding up of Shawmut, the
holders of the Adjustable Preferred are entitled to receive $50.00 per share
plus accrued and unpaid dividends and the holders of the 9.30% Cumulative
Preferred are entitled to receive $250.00 per share plus accrued and unpaid
dividends.
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Shares of Adjustable Preferred may be redeemed at the option of Shawmut at a
redemption price per share of $50.00 per share, plus accrued and unpaid
dividends.
The shares of the 9.30% Cumulative Preferred are represented by Depositary
Shares ("Depositary Shares"). Each Depositary Share represents a one-tenth
interest in a share of 9.30% Cumulative Preferred and is not subject to any
mandatory redemption or sinking fund provisions. The 9.30% Cumulative Preferred
will be redeemable on at least 30 but not more than 60 days notice, at the
option of Shawmut, as a whole or in part, at any time on and after October 15,
1997 at a redemption price equal to $250 per share plus accrued and unpaid
dividends.
COMPARISON OF SHAREHOLDER RIGHTS
Upon the consummation of the transactions contemplated in the Merger
Agreement, the stockholders of Gateway will become shareholders of Shawmut.
Since both Shawmut and Gateway are Delaware corporations, Gateway stockholders
who receive Shawmut Common Stock will continue to be subject to the privileges
and restrictions provided in the DGCL. In addition, the rights presently enjoyed
by Gateway's stockholders under the relevant provisions of the Certificate of
Incorporation of Gateway (the "Gateway Certificate") and the Bylaws of Gateway
(the "Gateway By-laws") differ in some respects from the rights they would have
as shareholders of Shawmut under the relevant provisions of the Shawmut
Certificate and the By-laws of Shawmut (the "Shawmut By-laws"). This summary
contains a list of the material differences but is not meant to be relied upon
as an exhaustive list or a detailed description of the provisions discussed and
is qualified in its entirety by reference to the Shawmut Certificate, the
Shawmut By-laws, the Gateway Certificate, the Gateway By-laws, the DGCL, the
Shawmut Rights Agreement and the Gateway Rights Agreement.
ACTION BY WRITTEN CONSENT
Shamut. The DGCL provides that, unless otherwise provided in the
certificate of incorporation, shareholders may act by written consent if
consents are signed representing not less than the minimum number of votes that
would be necessary to take such action at a meeting where all shares entitled to
vote were present and voted. The Shawmut Certificate does not provide otherwise.
Gateway. The Gateway Certificate provides that stockholders may not act by
written consent. Accordingly, all action by stockholders must be taken at a duly
called annual or special meeting.
SPECIAL MEETINGS OF SHAREHOLDERS
Shawmut. Pursuant to Shawmut's By-laws, special meetings of shareholders
may be called by the Board of Directors, the Chairman of the Board or upon the
written request of seven or more shareholders holding not less than 30% of the
outstanding shares of Shawmut Common Stock.
Gateway. Pursuant to the Gateway Certificate, special meetings of
stockholders may be called only by the Chairman of the Board, the President, or
by order of the Board of Directors. Stockholders, in such capacity as
stockholders, may not call special meetings.
SHAREHOLDER NOMINATIONS AND PROPOSALS FOR BUSINESS
Shawmut. The Shawmut By-laws establish procedures that must be followed
for shareholders to nominate individuals to the Shawmut Board or to propose
business at the annual meeting of shareholders. In order to nominate individuals
to the Shawmut Board, a shareholder must provide timely notice of such
nomination in writing to the Secretary of Shawmut and a written statement by the
candidate of his or her willingness to serve. Such notice must include the
information required to be disclosed in solicitations for proxies for election
of directors pursuant to Regulation 14A under the Exchange Act, along with the
name, record address, class and number of shares of Shawmut Common Stock
beneficially owned by the shareholder giving such notice.
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In order to properly propose that certain business come before the annual
meeting of shareholders, a shareholder must provide timely notice in writing to
the Secretary of Shawmut which notice must include a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting. In addition, the notice must
contain the name, record address, class and number of shares of Shawmut capital
stock beneficially owned by the shareholder giving such notice and any material
interest of the shareholder in such business.
To be timely, notice must be delivered to Shawmut not less than 50 nor more
than 75 days prior to the meeting at which directors are to be elected or the
proposed business is to be conducted, or, if Shawmut gives less than 65 days'
notice of the meeting, then notice by the shareholder must be received by the
close of business on the 15th day following the earlier of the date notice of
the meeting was mailed or public disclosure of the meeting was made.
Gateway. The Gateway By-laws establish similar procedures that must be
followed for stockholders to nominate individuals to the Gateway Board or to
propose business at the annual meeting of stockholders. The informational
requirements of the Gateway By-laws for nominations to the Gateway Board and
business proposals are essentially the same as those of Shawmut; however, with
respect to nominations for the Gateway Board, a Gateway stockholder need not
provide a written statement from the nominee. In addition, under the Gateway
By-laws, in order to be timely, notice must be delivered to Gateway not less
than 60 nor more than 90 days prior to the meeting at which directors are to be
elected or the proposed business is to be conducted, or, if Gateway gives less
than 70 days' notice of the meeting and such meeting is held more than 30 days
before or after the corresponding date of the annual meeting held in the
preceding year, then notice by the stockholder must be received by the close of
business on the 10th day following the date on which notice of the meeting was
mailed to stockholders.
Furthermore, notice to stockholders shall be deemed given on the date of
the first disclosure of the date of the next annual meeting, whether provided in
Gateway's quarterly report, letter to stockholders or other communication,
provided that the annual meeting is in fact held on such date or within 30 days
thereafter.
CERTAIN BUSINESS COMBINATIONS
Shawmut. The Shawmut Certificate provides that any "Business Combination"
involving Shawmut and a person who beneficially owns 10% or more of Shawmut's
capital stock (a "Shawmut Related Person") must be approved by the holders of at
least 80% of the votes entitled to be cast by the holders of the outstanding
shares of Shawmut voting stock (the "Shawmut Voting Requirement") voting
together as a single class. The Shawmut Voting Requirement does not apply if (i)
the Business Combination is approved by a majority of the "Shawmut Continuing
Directors" (defined generally to include any person who is unaffiliated with,
and not a representative of, the Shawmut Related Person in the Business
Combination and who either was a director immediately prior to the time the
Shawmut Related Person became such a person or was recommended or elected to
succeed such a Shawmut Continuing Director by a majority of the Shawmut
Continuing Directors) or (ii) certain "fair price" (defined generally to mean
that the consideration to be received by shareholders in such Business
Combination shall be at least equal to the higher of, and in the same form as,
the consideration paid by the Shawmut Related Person for such person's
acquisition of Shawmut Capital Stock within the two year period immediately
prior to the first public announcement of the proposal of the Business
Combination or in the transaction in which such person became a Shawmut Related
Person) and other criteria are met. As defined in the Shawmut Certificate, a
Business Combination includes, among other things, (i) any merger or
consolidation of Shawmut with any Shawmut Related Person or affiliate or
associate thereof, (ii) the sale by Shawmut of assets or securities having a
fair market value equal to 10% or more of the total shareholders' equity of
Shawmut ("Substantial Assets") to a Shawmut Related Person or an affiliate or
associate thereof, (iii) the acquisition by Shawmut of Substantial Assets from a
Shawmut Related Person or an affiliate or associate thereof, (iv) the adoption
of a plan or proposal for the liquidation or dissolution of Shawmut proposed by
or on behalf of a Shawmut Related Person or an affiliate or associate thereof,
(v) any transaction that has the effect of increasing the proportionate share of
any class of equity or convertible security of Shawmut that is beneficially
owned by a Shawmut Related Person or any affiliate or associate thereof and (vi)
any agreement or arrangement providing for any of the foregoing. This provision
of the Shawmut
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Certificate can only be amended or repealed upon the affirmative vote by the
holders of at least 80% of the voting stock entitled to vote unless such
amendment or repeal is unanimously recommended by the Shawmut Board and all of
such directors are Shawmut Continuing Directors.
Gateway. The Gateway Certificate provides that any "Gateway Business
Combination" involving Gateway and any person who beneficially owns 10% or more
of Gateway's Voting Stock (a "Gateway Related Person") must be approved by (i)
the holders of at least 80% of the voting power of the outstanding Gateway
Voting Stock (the "80% Voting Requirement"), and (ii) the holders of a majority
(the "Independent Majority") of the voting power of the outstanding Gateway
Voting Stock not beneficially owned by a Gateway Related Person (the
"Independent Majority Requirement" and, together with the 80% Voting
Requirement, the "Gateway Maximum Voting Requirement") unless certain "fair
price" (defined generally to mean, among other things, that the consideration to
be received by stockholders in such Gateway Business Combination shall be in the
same form and kind of the consideration paid by the Gateway Related Person for
Gateway capital stock owned by such person and shall be at least equal to both
the highest per share price paid by such Gateway Related Person in acquiring any
of its holdings of Gateway Common Stock and 150% of the book value of a share of
Gateway Common Stock, as reflected in the balance sheet of Gateway as of the
last day of the last fiscal quarter of Gateway preceeding the date on which the
agreement for such Gateway Business Combination is entered into) and other
criteria are met. In the event that the Gateway Maximum Voting Requirement is
not required because the "fair price" and other criteria are met, the Gateway
Business Combination must be approved by (i) the holders of at least 66 2/3% of
the voting power of the outstanding Gateway voting stock (the "66 2/3 Voting
Requirement", and together with the Independent Majority Requirement, the
"Gateway Minimum Voting Requirement") and (ii) the Independent Majority (unless
such Gateway Business Combination is recommended to Gateway stockholders by the
affirmative vote of at least two-thirds of the "Whole Board of Directors"
(defined as the total number of directors which Gateway would have if there were
no vacancies) and a majority, but in any event not less than six, of the
"Gateway Continuing Directors" (defined generally to include any person who
either (i) was a member of the Board of Directors on the date of the acquisition
by Gateway of all of the outstanding capital stock of Gateway Bank, (ii) was
elected to the Gateway Board by the Gateway stockholders prior to the time the
Gateway Related Person became such a person, or (iii) if there were not less
than six Gateway Continuing Directors prior to such director's designation, was
designated as a Gateway Continuing Director by a majority of the then Gateway
Continuing Directors)). Notwithstanding anything to the contrary provided
therein, the Gateway Certificate provides that neither the Gateway Maximum
Voting Requirement nor the Gateway Minimum Voting Requirement will apply, and
the Gateway Business Combination will require only the vote, if any, required
under the applicable provisions of the DGCL, in the event that the Gateway
Business Combination is approved by two-thirds of the Whole Board of Directors
prior to the consummation of the acquisition by the Gateway Related Person in
which such person becomes a Gateway Related Person.
As defined in the Gateway Certificate, a Gateway Business Combination
includes, among other things, (i) the sale or other disposition by Gateway of
assets having a value of more than 5% of the total consolidated assets of
Gateway and its subsidiaries ("Substantial Assets") to a Gateway Related Person
or any associate or affiliate thereof, (ii) the acquisition by Gateway of
Substantial Assets from a Gateway Related Person or any affiliate or associate
thereof, (iii) any merger or consolidation of Gateway with any Gateway Related
Person or any affiliate or associate thereof, (iv) any transaction that has the
effect of increasing the proportionate amount of voting stock of Gateway that is
beneficially owned by a Gateway Related Person, or any partial or complete
liquidation, spinoff, splitoff or splitup of Gateway, unless any of such
transaction has been approved by a majority of the Whole Board of Directors and
a majority, but not less than six, of the Gateway Continuing Directors, or (v)
the acquisition by the Related Person of beneficial ownership of voting shares
of Gateway or any of its subsidiaries or any securities convertible or
exchangeable therefor. Notwithstanding anything to the contrary provided
therein, the Gateway Certificate provides that, if there are not less than six
Gateway Continuing Directors, the Gateway Business Combination definition will
not be deemed to include (x) any transaction that has been approved on or prior
to the date on which the agreement providing for the Gateway Business
Combination is entered into by two-thirds, but in any event not less than six,
of the Gateway Continuing Directors and by two-thirds of the Whole Board of
Directors, or (y) any transaction of the type set forth in subsections (i)
through (iii) above, between or among any two or more subsidiaries of Gateway or
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Gateway and one or more subsidiaries of Gateway, if such transaction has been
approved by the affirmative vote of at least two-thirds of the Whole Board of
Directors and a majority, but in any event not less than six, of the Gateway
Continuing Directors on or prior to the date on which the agreement providing
for the Gateway Business Combination is entered into.
The Gateway Business Combination provision may be amended or repealed only
upon satisfaction of the Gateway Maximum Voting Requirement, provided that, in
the event such amendment or repeal is recommended to the Gateway stockholders by
the affirmative vote of at least two-thirds of the Whole Board of Directors and
a majority, but in any event not less than six, of the Gateway Continuing
Directors, such amendment or repeal will require only satisfaction of the
Independent Majority Requirement, along with any other vote required by the
DGCL.
The business combination provisions contained in the respective
Certificates of Incorporation differ with respect to, among other things, the
definition of certain events that would constitute a business combination, the
stockholder vote required to approve the business combination and the exceptions
to such voting requirements, and the vote required by the Board of Directors of
each respective corporation in order to avoid any supermajority stockholder
voting requirements.
RIGHTS PLANS
Shawmut. On February 28, 1989, the Shawmut Board declared a dividend
distribution of one Shawmut Right for each outstanding share of Shawmut Common
Stock to shareholders of record at the close of business on March 13, 1989. For
a description of the Shawmut Rights and the related Shawmut Rights Agreement,
see "DESCRIPTION OF SHAWMUT CAPITAL STOCK -- Rights Plan."
Gateway. On July 13, 1989, the Gateway Board declared a dividend
distribution of one preferred share purchase right (a "Gateway Right") for each
outstanding share of Gateway Common Stock which was payable on July 23, 1989 to
stockholders of record on that date. Subsequent to that date and prior to the
occurrence of a Gateway Distribution Date (as defined below), Gateway Rights
will be deemed to be delivered with each share of Gateway Common Stock issued by
Gateway. Each Gateway Right entitles the registered holder to purchase from
Gateway a unit consisting of one one-hundredth of a share (a "Gateway Unit") of
Series A Junior Participating Preferred Stock, par value $0.01 per share (the
"Gateway Preferred Stock"), at a purchase price of $50 per Gateway Unit (the
"Gateway Purchase Price"), subject to adjustment. The description and terms of
the Gateway Rights are summarized below and are set forth in the Rights
Agreement between Gateway and Fleet Financial Group, Inc., as successor to The
Connecticut Bank and Trust Company, N.A., as Rights Agent (the "Gateway Rights
Agreement").
At the present time, the Gateway Rights are attached to all Gateway Common
Stock certificates representing outstanding shares, and no separate Gateway
Rights Certificates will be distributed. The Rights will separate from the
Gateway Common Stock and a Gateway Distribution Date will occur upon the
earliest of (i) 10 business days following a public announcement that a person
or group of affiliated or associated persons (a "Gateway Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding shares of Gateway Common Stock (the "Gateway Stock
Acquisition Date"), (ii) 10 business days following the commencement of a tender
offer or exchange offer that would result in a person or group beneficially
owning 20% or more of such outstanding shares of Gateway Common Stock and (iii)
10 business days after the Gateway Board declares any person to be a "Gateway
Adverse Person", upon (x) a determination that such person, alone or together
with its affiliates and associates, has become the beneficial owner of 10% or
more of the outstanding shares of Gateway Common Stock and (y) a determination
by at least a majority of the Gateway Board who are neither Gateway officers nor
affiliates or associates of a Gateway Acquiring Person that such beneficial
ownership by such person is intended to cause, is reasonably likely to cause or
will cause Gateway to repurchase the Gateway Common Stock beneficially owned by
such person or to cause pressure on Gateway to enter into a transaction, or
series of transactions, which would not be in the best long-term interests of
Gateway and its stockholders or that such beneficial ownership is reasonably
likely to cause a material adverse impact on the business or prospects of
Gateway.
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The Gateway Rights are not exercisable until the Gateway Distribution Date
and will expire at the close of business on July 13, 1999 (the "Final Expiration
Date") unless the Final Expiration Date is extended or unless the Gateway Rights
are earlier redeemed by Gateway as described below.
In the event that the Gateway Board declares any person to be a Gateway
Adverse Person, or any person, alone or together with its affiliates and
associates, becomes the beneficial owner of 25% or more of the then outstanding
shares of Gateway Common Stock (except pursuant to a tender or exchange offer
for all outstanding shares of Gateway Common Stock which a majority of the
Gateway Board who are neither Gateway officers nor affiliates or associates of a
Gateway Acquiring Person determines to be fair to and otherwise in the best
interests of Gateway and its stockholders, employees, customers and communities
in which Gateway does business), each holder of a Gateway Right, other than
Gateway Rights beneficially owned by any Gateway Acquiring Person or Gateway
Adverse Person, will thereafter have the right to receive, upon exercise of such
Gateway Right, that number of shares of Gateway Common Stock having a market
value of two times the exercise price of the Gateway Right (such right being
called a "Gateway Flip-In Right"). Upon occurrence of any of the events giving
rise to the exercisability of the Gateway Flip-In Right, any Gateway Rights that
are or (under certain circumstances specified in the Gateway Rights Agreement)
were, beneficially owned by any Gateway Acquiring Person or Gateway Adverse
Person shall immediately become null and void.
In the event that, at any time following the Gateway Stock Acquisition
Date, (i) Gateway is acquired in a merger or other business combination
transaction in which Gateway is not the surviving corporation (except for any
transaction approved by the Gateway Board as provided in the preceding
paragraph), (ii) any person shall merge with or into Gateway in a business
combination transaction in which Gateway is the surviving corporation and all or
part of the outstanding shares of Gateway Common Stock shall be exchanged for
either cash, other property or stock or securities of any other person (except
for any transaction approved by the Gateway Board as provided in the preceding
paragraph) or (iii) 50% or more of Gateway's assets or earning power is sold or
transferred, each holder of a Gateway Right (except Gateway Rights which are
beneficially held by a Gateway Acquiring Person or a Gateway Adverse Person)
will thereafter have the right to receive, upon exercise, common stock of the
acquiring company (or, in the event there is more than one acquiring company in
a transaction described in clause (iii), the acquiring company receiving the
greatest portion of the assets or earning power transferred) having a value
equal to two times the exercise price of the Gateway Right (such right being
called a "Gateway Flip-Over Right"). Upon occurrence of any of the events giving
rise to the exercisability of the Gateway Flip-Over Right, any Gateway Rights
that are or (under certain circumstances specified in the Gateway Rights
Agreement) were, beneficially owned by any Gateway Acquiring Person or a Gateway
Adverse Person shall immediately become null and void. The events set forth in
this paragraph and in the preceding paragraph are referred to as the "Gateway
Triggering Events".
At any time prior to the earlier of (i) a Gateway Distribution Date and
(ii) the Final Expiration Date, the Gateway Board may redeem the Gateway Rights
in whole, but not in part, at a price of $0.001 per Right (the "Gateway
Redemption Price"). Thereafter Gateway's right of redemption shall be reinstated
if, prior to any Gateway Triggering Event, (i) a Gateway Acquiring Person or
Gateway Adverse Person reduces its beneficial ownership to less than 10% of the
outstanding shares of Gateway Common Stock in a transaction not involving
Gateway or (ii) a tender or exchange offer for Gateway Common Stock is completed
or terminated without any person becoming a Gateway Acquiring Person or a
Gateway Adverse Person, and immediately following the occurrence of the events
described in clauses (i) or (ii) there are no other Gateway Acquiring Persons or
Gateway Adverse Persons. Immediately upon the action of the Gateway Board
ordering the redemption of the Gateway Rights, the right to exercise the Gateway
Rights will terminate and the only right of the holders of Gateway Rights
thereafter will be to receive the Gateway Redemption Price.
Other than those provisions relating to the principal economic terms of the
Gateway Rights, any of the terms and provisions of the Gateway Rights Agreement
may be amended by the Gateway Board prior to the Gateway Distribution Date
without the approval of the holders of Gateway Common Stock. After the Gateway
Distribution Date, the terms and provisions of the Gateway Rights Agreement may
be amended, without the approval of the holders of the Gateway Rights, in order
to cure any ambiguity, to make changes which do not adversely affect the
interest of the holders of Gateway Rights (other than a Gateway Acquiring
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Person, a Gateway Adverse Person or an associate or affiliate thereof) or to
shorten or lengthen any time period under the Gateway Rights Agreement, except
that no amendment to lengthen the time period governing redemption shall be made
at such times as the Gateway Rights are not redeemable.
Until a Gateway Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Gateway, including, without limitation, the right
to vote or to receive dividends.
The Gateway Rights have certain anti-takeover effects. The Gateway Rights
will cause substantial dilution to a person or group that attempts to acquire
Gateway on terms not approved by the Gateway Board, except pursuant to an offer
conditioned on a substantial number of Gateway Rights being acquired. The
Gateway Rights should not interfere with any merger or other business
combination approved by the Gateway Board since the Gateway Rights may be
redeemed by Gateway at $.001 per Gateway Right prior to the time that a person
or group has acquired beneficial ownership of 20% or more of the outstanding
Gateway Common Stock.
In connection with the execution of the Merger Agreement, Gateway amended
the Gateway Rights Agreement. As a result of the amendment, no Distribution Date
shall be deemed to have occurred while the Merger Agreement is pending and the
Gateway Rights will not become exercisable as a result of the execution of the
Merger Agreement and the Stock Option Agreement or consummation of any of the
transaction contemplated thereby. See "CERTAIN RELATED TRANSACTIONS -- Amendment
to Rights Agreement." The Gateway Rights Agreement and the amendment thereto
specifying the terms of the Gateway Rights are incorporated herein by reference.
See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The foregoing description
of the Gateway Rights does not purport to be complete and is qualified in its
entirety by reference to the Gateway Rights Agreement and the amendment thereto.
Material Differences. The material differences between the Shawmut Rights
Agreement and the Gateway Rights Agreement relate to Triggering Events and the
redemption provisions of each respective agreement. Under the Gateway Rights
Agreement, the acquisition by any person, alone or together with its affiliates
and associates, of beneficial ownership of 25% or more of the then outstanding
shares of Gateway Common Stock would constitute a Gateway Triggering Event
(subject to certain exceptions previously described); whereas under the Shawmut
Rights Agreement, a Triggering Event would be deemed to occur (subject to
certain exceptions previously described) if any person, alone or together with
its affiliates or associates, acquired beneficial ownership of 20% or more of
then outstanding Shawmut Common Stock. In addition, under the Shawmut Rights
Agreement, the Shawmut Board may not redeem the Shawmut Rights after its
determination that any person constitutes an Adverse Person; whereas under the
Gateway Rights Agreement, the Gateway Board may redeem the Gateway Rights for up
to 10 business days following a similar determination (unless a Gateway
Distribution Date has previously occurred). The Gateway Rights Agreement also
provides for reinstatement of Gateway's right of redemption as described above.
The Shawmut Rights Agreement contains no similar provision.
PAYMENT OF DIVIDENDS
Shawmut. It is the policy of the Federal Reserve Board that bank holding
companies should pay cash dividends on common stock only out of the past year's
net income, and only if prospective earnings retention is consistent with the
organization's expected future needs. The policy further provides that bank
holding companies should not maintain a level of cash dividends that undermines
the bank holding company's ability to serve as a source of strength to its
subsidiary banks. Principal sources of revenues for Shawmut are dividends
received from its banks and other subsidiaries and interest earned on short-term
investments and advances to subsidiaries. Federal law imposes limitations on the
payment of dividends by the subsidiaries of Shawmut that are national banks. Two
different calculations are performed to measure the amount of dividends that may
be paid: a recent earnings test and an undivided profits test. Under the recent
earnings test, a dividend may not be paid if the total of all dividends declared
by a national bank in any calendar year is in excess of the current year's net
profits combined with the retained net profits of the two preceding years unless
the bank obtains the approval of the OCC. Under the undivided profits test, a
dividend may not be paid in excess of a bank's undivided profits then on hand,
after deducting bad debts in excess of the reserve for loan
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losses. Under the recent earnings test, which is the more restrictive of the two
tests, at January 1, 1994, SBM could pay dividends of $210.7 million without
prior approval. At January 1, 1994, SBC could pay dividends of $113.8 million
without prior approval. SBM and SBC had undivided profits of $469.6 million and
$262.9 million, respectively, at December 31, 1993.
Gateway. Holders of Gateway Common Stock are entitled to receive dividends
when, as, and if declared by the Gateway Board. Dividends may be declared and
paid by Gateway only out of funds legally available therefore. Under Delaware
law, dividends may generally be declared by the board of directors of a
corporation and paid in cash, property, or in shares of such corporation, either
out of such corporation's surplus or, in case there is no surplus, out of its
net profits for the fiscal year in which the dividend is declared for the
preceding fiscal year, or both. The only substantial source of amounts available
to Gateway for the declaration of dividends is dividends declared and paid by
Gateway Bank to Gateway, and Gateway Bank is restricted in its ability to pay
dividends to Gateway, both under the Cease and Desist Order and under
Connecticut law.
Under the Cease and Desist Order, Gateway Bank may not pay any dividends
without the prior approval of the FDIC and the Connecticut Banking Commissioner.
If such condition is satisfied, cash dividends may be paid by Gateway Bank when,
as, and if declared by the Board of Directors of Gateway Bank out of retained
earnings, and no distributions may be made out of the capital account; except
that under certain conditions, distributions may be made out of the paid-in
capital account. Additionally, earnings appropriated to reserve for loan losses
and deducted for federal income tax purposes are not available for cash
dividends without the payment of taxes at then current income tax rates on the
amount used. Under Connecticut banking law, Gateway Bank may not declare a
dividend on its capital stock except from its "net profits" (defined as the
remainder of all earnings from current operations plus actual recoveries on
loans and investments and other assets, after deducting from the total thereof
all current operating expenses, actual losses, accrued dividends on preferred
stock and all federal and state taxes) and the total of all such dividends in
any calendar year shall not, unless specifically approved by the Connecticut
Banking Commissioner, exceed the total of Gateway Bank's net profits of that
year combined with its retained net profits of the preceding two years. In
addition, Gateway Bank may not pay cash dividends if its net worth would thereby
be reduced below the amount required for the liquidation account established
when Gateway Bank was converted from mutual to stock form of ownership in 1985,
or as may in the future be required by the Connecticut Banking Commissioner or
the FDIC.
Although Gateway and Shawmut, as bank holding companies and Delaware
corporations, are subject to restrictions concerning the payment of dividends
under both Delaware law and the Federal Reserve Board policy, the subsidiary
banks which serve as the primary sources of revenue for each of the respective
bank holding companies are subject to regulation by different entities and
therefore are subject to different restrictions on their ability to pay
dividends, which restrictions are described above. In addition, Gateway Bank is
restricted in its ability to pay dividends under the Cease and Desist Order.
CLASSIFICATION OF BOARD OF DIRECTORS
Shawmut. The DGCL contains a provision allowing for the division of a
corporation's board of directors into a maximum of three classes, in which case
each class of directors shall serve for a term of three years, with the terms
staggered such that one class shall come up for election each year. Shawmut has
not provided for such a classification of directors.
Gateway. Gateway's Certificate provides for division of the Gateway Board
into three classes, with each class as nearly equal in the number of directors
as the other classes to the extent permitted by the number of directors
constituting the Whole Board of Directors. As a result of the classification of
the Gateway Board, any person attempting to have a slate of nominees elected
which would constitute a majority of the Gateway Board would need at least two
Annual Meeting to do so (assuming that the size of the Gateway Board is fixed at
ten directors and has three classes).
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REMOVAL OF DIRECTORS
Shawmut. Neither the Shawmut Certificate nor the Shawmut By-laws contains
any provisions regarding removal of directors. Under the DGCL, any director may
be removed, with or without cause, except as described below, by the holders of
a majority of shares then entitled to vote at an election of directors.
Gateway. The DGCL provides that unless the certificate of incorporation
provides otherwise, in the case of a corporation whose board is classified, as
is Gateway's, stockholders may remove a director only with cause. The Gateway
Certificate provides that any director may be removed from office, with cause,
by the affirmative vote of the holders of at least 80% of the shares of Gateway
Common Stock entitled to vote thereon, unless at the time of such removal there
is a Gateway Related Person, in which case the 80% vote must include the
affirmative vote of the holders of at least two-thirds of the voting power of
the outstanding shares of Gateway Common stock entitled to vote thereon held by
the holders of stockholders other then the Gateway Related Person. Thus, the
Gateway Certificates restricts the ability of Gateway stockholders to remove
directors from office whereas the Shawmut Certificate does not contain any such
restrictions.
AMENDMENT OF BY-LAWS
Shawmut. The DGCL provides that after a corporation has received any
payment for any of its stock, the power to adopt, amend or repeal its by-laws
shall be in the shareholders entitled to vote; provided, however, any
corporation may, in its certificate, confer the power to adopt, amend or repeal
by-laws upon the directors. The Shawmut Certificate confers such power upon the
Shawmut Board. The DGCL provides further that the conferring of such power on
the directors shall not divest or limit the powers of the shareholders described
above.
Gateway. The Gateway Certificate confers upon the Gateway Board the power
to adopt, alter, amend and repeal the Gateway By-laws upon the affirmative vote
of both two-thirds of the Whole Board of Directors and a majority, but not less
than six, of the Gateway Continuing Directors. In addition, the Gateway
Certificate provides that any action by its stockholders to adopt, amend or
repeal its By-laws shall require satisfaction of the Gateway Minimum Voting
Requirement. Thus, the basic difference between the rights of Gateway's
stockholders and Shawmut's shareholders to amend the By-laws of their respective
corporations is the higher stockholder vote required to amend Gateway's By-laws.
AMENDMENT OF CERTIFICATE
Shawmut. The DGCL provides that certain enumerated amendments to a
corporation's certificate of incorporation shall require a resolution by the
Board of Directors setting forth the amendment proposed and declaring its
advisability and the affirmative vote of the holders of a majority of stock
entitled to vote thereon. The Shawmut Certificate reserves for the Shawmut Board
the right to amend, alter, change or repeal any provision in its certificate and
provides that all rights conferred upon shareholders therein are granted subject
to such reservation.
Gateway. The Gateway Certificate provides that any amendment to the
Gateway Certificate shall, in addition to the requirements imposed by the DGCL,
be approved either by the affirmative vote of at least two-thirds of the Whole
Board of Directors and of a majority, but not less than six, of the Gateway
Continuing Directors, or by the Gateway stockholders if the Gateway Minimum
Voting Requirement is satisfied. In the case of both Shawmut and Gateway, under
the DGCL, an amendment to the certificate of incorporation requires action by
the board of directors in the first instance. The Gateway Certificate contains
"supermajority" voting requirements in order for the Gateway Board to approve an
amendment to the Gateway Certificate, while the Shawmut Certificate and the DGCL
require action by only a majority of the Shawmut Board. In addition, a higher
vote of stockholders is required to approve an amendment to the Gateway
Certificate than an amendment to the Shawmut Certificate.
57
<PAGE> 63
MEETING OF CREDITORS AND/OR SHAREHOLDERS
Shawmut. The Shawmut Certificate provides that, in the event of a proposed
compromise or arrangement between Shawmut and its creditors or shareholders or
any class thereof, upon application to any court of equitable jurisdiction
within the State of Delaware by either Shawmut, any creditor or shareholder
thereof or any trustee or receiver of the corporation appointed pursuant to the
DGCL, such court may order a meeting of the creditors or shareholders or any
class thereof, as the case may be. If the proposed compromise or arrangement
receives the affirmative vote of three-fourths in value of the creditors or the
shareholders or any class thereof, as the case may be, then, if sanctioned by
the court to which the application has been made, such compromise or arrangement
shall be binding on all the creditors or shareholders, or any class thereof, as
the case may be, and on the corporation.
Gateway. Neither the Gateway Certificate nor the Gateway By-laws contains
any similar provision.
58
<PAGE> 64
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
GATEWAY FINANCIAL CORPORATION AND SUBSIDIARIES
NEW DARTMOUTH BANK
PEOPLES BANCORP OF WORCESTER, INC. AND SUBSIDIARIES
COHASSET SAVINGS BANK
WEST NEWTON SAVINGS BANK AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
DECEMBER 31, 1993
The following Unaudited Pro Forma Condensed Combining Balance Sheet
presents the combined financial position of Shawmut National Corporation
("Shawmut") and Gateway Financial Corporation ("Gateway") as of December 31,
1993, assuming the Merger had occurred as of December 31, 1993. The Unaudited
Pro Forma Condensed Combining Balance Sheet also gives effect to the pending
acquisitions of New Dartmouth Bank ("New Dartmouth"), Peoples Bancorp of
Worcester, Inc. ("Peoples"), and the pending acquisitions of Cohasset Savings
Bank ("Cohasset") and West Newton Savings Bank ("West Newton") (Pro Forma
Pending Acquisitions). Such pro forma information is based on historical balance
sheet data of Shawmut, Gateway, New Dartmouth, Peoples, Cohasset and West Newton
as of that date, giving effect to the proposed mergers of Shawmut and Gateway,
New Dartmouth and Peoples under the pooling of interests method of accounting
and the proposed acquisitions of Cohasset and West Newton accounted for under
the purchase method of accounting. This Unaudited Pro Forma Condensed Combining
Balance Sheet should be read in conjunction with the Unaudited Pro Forma
Condensed Combined Statement of Income appearing elsewhere in this Proxy
Statement/Prospectus and the historical financial statements and notes thereto
of Shawmut, Gateway, New Dartmouth, Peoples, Cohasset and West Newton which are
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." The Unaudited Pro Forma Condensed Combining
Balance Sheet is presented for informational purposes only and is not
necessarily indicative of the combined financial position that would have
occurred if the proposed mergers of Shawmut and Gateway, New Dartmouth and
Peoples and the proposed acquisitions of Cohasset and West Newton had been
consummated on December 31, 1993 or at the beginning of the periods indicated or
which may be obtained in the future.
59
<PAGE> 65
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
GATEWAY FINANCIAL CORPORATION AND SUBSIDIARIES
NEW DARTMOUTH BANK
PEOPLES BANCORP OF WORCESTER, INC. AND SUBSIDIARIES
COHASSET SAVINGS BANK
WEST NEWTON SAVINGS BANK AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PENDING PRO FORMA
(IN THOUSANDS) SHAWMUT GATEWAY ADJUSTMENTS COMBINED ACQUISITIONS COMBINED
----------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks......... $ 1,435,286 $ 44,570 $ $ 1,479,856 $ (12,801) $ 1,467,055
Interest-bearing deposits in
other banks, federal funds
sold and securities purchased
under agreements to resell.... 8,573 40,000 48,573 45,375 93,948
Trading account securities...... 19,625 19,625 657 20,282
Residential mortgages held for
sale/putback.................. 415,812 30,801 446,613 25,837 472,450
Securities
Available for sale, at fair
value....................... 2,596,382 111,386 2,707,768 486,235 3,194,003
Held to maturity.............. 6,394,201 125,839 6,520,040 744,989 7,265,029
Loans, less reserve for loan
losses........................ 14,751,450 875,722 15,627,172 1,491,698 17,118,870
Premises and equipment.......... 307,033 10,212 317,245 17,514 334,759
Foreclosed properties........... 47,986 12,745 60,731 7,227 67,958
Customers' acceptance
liability..................... 13,747 13,747 13,747
Other assets.................... 1,254,647 24,564 1,279,211 77,193 1,356,404
----------- ---------- ----------- ----------- ------------ -----------
Total assets.................. $27,244,742 $1,275,839 $ $28,520,581 $2,883,924 $31,404,505
----------- ---------- ----------- ----------- ------------ -----------
----------- ---------- ----------- ----------- ------------ -----------
LIABILITIES
Deposits
Demand........................ $ 4,587,156 $ 64,927 $ 4,652,083 $ 140,395 $ 4,792,478
Savings, money market and NOW
accounts.................... 7,304,708 554,583 7,859,291 1,225,471 9,084,762
Domestic and foreign time..... 3,405,371 552,679 3,958,050 1,193,204 5,151,254
---------- --------- ---------- ---------- ----------
Total deposits................ 15,297,235 1,172,189 16,469,424 2,559,070 19,028,494
---------- --------- ---------- ---------- ----------
Other borrowings................ 9,187,606 5,445 9,193,051 97,279 9,290,330
Acceptances outstanding......... 13,747 13,747 13,747
Accrued taxes and other
liabilities................... 183,923 3,994 187,917 45,491 233,408
Notes and debentures............ 758,941 758,941 758,941
---------- --------- ---------- ---------- ----------
Total liabilities............. 25,441,452 1,181,628 26,623,080 2,701,840 29,324,920
---------- --------- ---------- ---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock
Shawmut....................... 178,750 178,750 178,750
Common stock
Shawmut....................... 955 $ 74 1,029 120 to 1,149 to
162 1,191
Gateway....................... 138 (138) 0 0
Surplus......................... 1,074,793 84,831 (2,912) 1,156,712 80,492 to 1,237,204 to
80,450 1,237,162
Retained earnings............... 541,455 10,926 552,381 98,655 651,036
Net unrealized gain on
securities.................... 9,680 1,292 10,972 2,817 13,789
Treasury stock, common stock at
cost.......................... (2,343) (2,976) 2,976 (2,343) (2,343)
----------- ---------- ----------- ----------- ------------ -----------
Total shareholders' equity.... 1,803,290 94,211 0 1,897,501 182,084 2,079,585
----------- ---------- ----------- ----------- ------------ -----------
Total liabilities and
shareholders'
equity...................... $27,244,742 $1,275,839 $ 0 $28,520,581 $2,883,924 $31,404,505
----------- ---------- ----------- ----------- ------------ -----------
----------- ---------- ----------- ----------- ------------ -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
60
<PAGE> 66
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
GATEWAY FINANCIAL CORPORATION AND SUBSIDIARIES
NEW DARTMOUTH BANK
PEOPLES BANCORP OF WORCESTER, INC. AND SUBSIDIARIES
COHASSET SAVINGS BANK
WEST NEWTON SAVINGS BANK AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
PRO FORMA PENDING ACQUISITIONS
DECEMBER 31, 1993
<TABLE>
<CAPTION>
NEW PRO FORMA PRO FORMA PRO FORMA
(IN THOUSANDS) DARTMOUTH ADJUSTMENTS PEOPLES ADJUSTMENTS COHASSET ADJUSTMENTS
---------- ----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks..................... $ 51,142 $ (17,786) $ 19,406 $ (10,714) $ 1,251 $ (16,900)
Interest-bearing deposits in other banks,
federal funds sold and securities purchased
under agreements to resell................. 20,011 16,168 3,121
Trading account securities.................. 657
Residential mortgages held for
sale/putback............................... 25,837 30,801
Securities
Available for sale, at fair value.......... 163,209 298,289 24,737
Held to maturity........................... 573,635 79,001
Loans, less reserve for loan losses......... 846,202 455,158 44,039
Premises and equipment...................... 5,682 10,033 897
Foreclosed properties....................... 2,349 2,118 2,142
Other assets................................ 35,105 10,966 1,614 3,381
---------- ----------- -------- ----------- ----------- -----------
Total assets......................... $1,723,172 $ (17,786) $891,139 $ (10,714) $78,458 $ (13,519)
---------- ----------- -------- ----------- ----------- -----------
---------- ----------- -------- ----------- ----------- -----------
LIABILITIES
Deposits
Demand..................................... $ 79,688 $ 33,979 $ (10,714) $ 1,627
Savings, money market and NOW accounts..... 628,778 482,276 29,850
Domestic and foreign time.................. 791,025 261,128 32,295
---------- -------- ----------- -----------
Total deposits............................. 1,499,491 777,383 (10,714) 63,772
---------- -------- ----------- -----------
Other borrowings............................ 95,345 850 78
Accrued taxes and other liabilities......... 29,762 6,610 5,000 1,089
---------- -------- -----------
Total liabilities.................... 1,624,598 784,843 (5,714) 64,939
---------- -------- -----------
SHAREHOLDERS' EQUITY
Preferred stock
New Dartmouth.............................. 15,215 $ (15,215)
Common stock
Shawmut.................................... 57 to 63 to
77 85
New Dartmouth.............................. 4 (4)
Peoples.................................... 334 (334)
Cohasset................................... 100 $ (100)
West Newton................................
Surplus..................................... 40,350 (53) to 39,924 271 to 7,895 (7,895)
(73) 249
Retained earnings........................... 42,970 (2,571) 63,256 (5,000) 5,286 (5,286)
Net unrealized gain on securities........... 35 2,782 238 (238)
---------- ----------- -------- ----------- ----------- -----------
Total shareholders' equity........... 98,574 (17,786) 106,296 (5,000) 13,519 (13,519)
---------- ----------- -------- ----------- ----------- -----------
Total liabilities and
shareholders' equity................ $1,723,172 $ (17,786) $891,139 $ (10,714) $78,458 $ (13,519)
---------- ----------- -------- ----------- ----------- -----------
---------- ----------- -------- ----------- ----------- -----------
<CAPTION>
PRO FORMA
WEST PRO FORMA PENDING
(IN THOUSANDS) NEWTON ADJUSTMENTS ACQUISITIONS
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks..................... $ 6,200 $ (45,400) $ (12,801)
Interest-bearing deposits in other banks,
federal funds sold and securities purchased
under agreements to resell................. 6,075 45,375
Trading account securities.................. 657
Residential mortgages held for
sale/putback............................... 25,837
Securities
Available for sale, at fair value.......... 486,235
Held to maturity........................... 92,353 744,989
Loans, less reserve for loan losses......... 146,299 1,491,698
Premises and equipment...................... 902 17,514
Foreclosed properties....................... 618 7,227
Other assets................................ 4,891 21,236 77,193
----------- ----------- ------------
Total assets......................... $ 257,338 $ (24,164) $2,883,924
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES
Deposits
Demand..................................... $ 35,815 $ 140,395
Savings, money market and NOW accounts..... 84,567 1,225,471
Domestic and foreign time.................. 108,756 1,193,204
----------- ------------
Total deposits............................. 229,138 2,559,070
----------- ------------
Other borrowings............................ 1,006 97,279
Accrued taxes and other liabilities......... 3,030 45,491
----------- ------------
Total liabilities.................... 233,174 2,701,840
----------- ------------
SHAREHOLDERS' EQUITY
Preferred stock
New Dartmouth.............................. 0
Common stock
Shawmut.................................... 120 to
162
New Dartmouth.............................. 0
Peoples.................................... 0
Cohasset................................... 0
West Newton................................ 172 $ (172) 0
Surplus..................................... 11,734 (11,734) 80,492 to
80,450
Retained earnings........................... 12,258 (12,258) 98,655
Net unrealized gain on securities........... 2,817
----------- ----------- ------------
Total shareholders' equity........... 24,164 (24,164) 182,084
----------- ----------- ------------
Total liabilities and
shareholders' equity................ $ 257,338 $ (24,164) $2,883,924
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
61
<PAGE> 67
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
GATEWAY FINANCIAL CORPORATION AND SUBSIDIARIES
NEW DARTMOUTH BANK
PEOPLES BANCORP OF WORCESTER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF INCOME
DECEMBER 31, 1993
The following Unaudited Pro Forma Condensed Combined Statement of Income
gives effect to Shawmut's proposed acquisition of Gateway by combining the
results of operations of Shawmut for the three years ended December 31, 1993
(pro forma including Cohasset and West Newton for 1993, as if the proposed
acquisitions of Cohasset and West Newton had occurred on January 1, 1993) with
the results of operations of Gateway for the three years ended December 31, 1993
on a pooling of interests basis, assuming the Merger had occurred as of December
31, 1993. Also presented is the Unaudited Pro Forma Condensed Combined Statement
of Income of Shawmut (pro forma including Cohasset and West Newton for 1993, as
if the proposed acquisitions of Cohasset and West Newton had occurred on January
1, 1993), Gateway, New Dartmouth and Peoples for the same periods (with the
exception of New Dartmouth which is presented for the years ended December 31,
1993 and 1992 and the period from October 10, 1991 (the date operations
commenced) through December 31, 1991). Income before extraordinary credit and
cumulative effect of accounting change per common share and weighted average
common shares outstanding are based on the exchange ratios as specified in the
respective merger agreements. The Unaudited Pro Forma Condensed Combined
Statements of Income should be read in conjunction with the Unaudited Pro Forma
Condensed Combining Balance Sheet appearing elsewhere in this Proxy
Statement/Prospectus and the historical financial statements and notes thereto
of Shawmut, Gateway, New Dartmouth, Peoples, Cohasset and West Newton which are
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." The Unaudited Pro Forma Condensed Combined
Statements of Income are presented for informational purposes only and are not
necessarily indicative of the combined results of operations that would have
occurred if the proposed mergers of Shawmut and Gateway, New Dartmouth and
Peoples and the proposed acquisitions of Cohasset and West Newton had been
consummated on December 31, 1993 or at the beginning of the periods indicated or
which may be obtained in the future.
62
<PAGE> 68
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
GATEWAY FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans........................................................................ $ 1,136,036 $ 1,150,972 $ 1,388,674
Securities
At lower of aggregate cost or market value................................. 217,113 212,093 20,499
Held to maturity........................................................... 274,621 241,858 443,020
Residential mortgages held for sale.......................................... 29,636 27,312 19,243
Interest-bearing deposits in other banks, federal funds sold and securities
purchased
under agreements to resell................................................. 11,576 19,121 37,785
Trading account securities................................................... 1,562 1,564 2,176
----------- ----------- -----------
Total................................................................ 1,670,544 1,652,920 1,911,397
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits
Savings, money market and NOW accounts..................................... 163,845 235,490 372,796
Domestic and foreign time deposits......................................... 192,940 290,176 492,704
----------- ----------- -----------
Total................................................................ 356,785 525,666 865,500
----------- ----------- -----------
Other borrowings............................................................. 258,278 191,130 218,231
Notes and debentures......................................................... 72,040 59,321 60,436
----------- ----------- -----------
Total................................................................ 687,103 776,117 1,144,167
----------- ----------- -----------
NET INTEREST INCOME.......................................................... 983,441 876,803 767,230
Provision for loan losses.................................................... 35,904 231,843 484,170
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.......................... 947,537 644,960 283,060
----------- ----------- -----------
NONINTEREST INCOME
Customer service fees........................................................ 174,153 174,278 176,893
Trust and agency fees........................................................ 116,845 115,103 112,030
Securities gains, net........................................................ 7,042 89,308 78,306
Other........................................................................ 82,328 115,680 168,249
----------- ----------- -----------
Total................................................................ 380,368 494,369 535,478
----------- ----------- -----------
NONINTEREST EXPENSES
Compensation and benefits.................................................... 475,243 445,324 439,030
Occupancy and equipment...................................................... 154,661 162,888 162,931
Foreclosed properties provision and expense.................................. 104,792 177,498 119,634
Other........................................................................ 348,112 296,064 284,820
----------- ----------- -----------
Total................................................................ 1,082,808 1,081,774 1,006,415
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY CREDIT AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGES...................................................... 245,097 57,555 (187,877)
Income taxes (benefit)....................................................... (10,672) 20,755 (4,380)
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES.................................................................... $ 255,769 $ 36,800 $ (183,497)
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES APPLICABLE TO
COMMON SHARES.............................................................. $ 240,300 $ 32,017 $ (185,759)
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES PER COMMON SHARE................................................... $ 2.42 $ 0.35 $ (2.39)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................................... 99,392,995 90,715,714 77,867,011
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
63
<PAGE> 69
SHAWMUT NATIONAL CORPORATION AND SUBSIDIARIES
GATEWAY FINANCIAL CORPORATION AND SUBSIDIARIES
NEW DARTMOUTH BANK
PEOPLES BANCORP OF WORCESTER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans....................................................... $ 1,258,000 $ 1,301,564 $ 1,468,113
Securities
At lower of aggregate cost or market value................ 243,123 233,766 42,178
Held to maturity.......................................... 302,243 270,654 454,705
Residential mortgages held for sale......................... 29,636 27,312 19,243
Interest-bearing deposits in other banks, federal funds sold
and securities purchased under agreements to resell....... 13,823 21,666 41,655
Trading account securities.................................. 1,562 1,564 2,176
------------ ------------ -----------
Total.............................................. 1,848,387 1,856,526 2,028,070
------------ ------------ -----------
INTEREST EXPENSE
Interest on deposits
Savings, money market and NOW accounts.................... 192,658 272,351 399,903
Domestic and foreign time deposits........................ 237,679 349,771 533,146
------------ ------------ -----------
Total.............................................. 430,337 622,122 933,049
Other borrowings............................................ 262,594 192,554 218,355
Notes and debentures........................................ 72,040 59,321 60,436
------------ ------------ -----------
Total.............................................. 764,971 873,997 1,211,840
------------ ------------ -----------
NET INTEREST INCOME......................................... 1,083,416 982,529 816,230
Provision for loan losses................................... 56,268 242,128 486,441
------------ ------------ -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 1,027,148 740,401 329,789
------------ ------------ -----------
NONINTEREST INCOME
Customer service fees....................................... 182,557 183,261 180,500
Trust and agency fees....................................... 116,845 115,103 112,030
Securities gains, net....................................... 12,647 94,103 80,063
Other....................................................... 102,894 128,794 171,260
------------ ------------ -----------
Total.............................................. 414,943 521,261 543,853
------------ ------------ -----------
NONINTEREST EXPENSES
Compensation and benefits................................... 504,512 474,725 455,250
Occupancy and equipment..................................... 169,045 179,507 169,251
Foreclosed properties provision and expense................. 105,556 178,248 120,327
Other....................................................... 368,893 321,730 297,074
------------ ------------ -----------
Total.............................................. 1,148,006 1,154,210 1,041,902
------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY CREDIT AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES................... 294,085 107,452 (168,260)
Income taxes 8,441 40,898 4,076
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES.............................. $ 285,644 $ 66,554 $ (172,336)
------------ ------------ -----------
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES APPLICABLE TO COMMON
SHARES.................................................... $ 270,175 $ 61,771 $ (174,598)
------------ ------------ -----------
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES PER COMMON SHARE............. $ 2.42 to $ 0.60 to $ (2.07) to
$ 2.34 $ 0.58 $ (2.02)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................. 11,441,799 to 102,126,150 to 4,301,315 to
115,693,415 106,152,261 86,573,198
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information.
64
<PAGE> 70
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION
NOTE 1:
Certain reclassifications have been made to the accounts of Gateway, New
Dartmouth, Peoples, Cohasset and West Newton in the accompanying Unaudited Pro
Forma Condensed Combining Balance Sheet and Unaudited Pro Forma Condensed
Combined Statements of Income to conform to Shawmut presentation. Pro forma
results of operations do not reflect nonrecurring items of income and expense
resulting directly from the proposed mergers. In addition, the accompanying
Unaudited Pro Forma Condensed Combined Statements of Income do not reflect the
following: the cumulative effect of an accounting change due to the adoption of
Statement of Financial Accounting Standards (FAS) No. 109 of $52,800,000 for
Shawmut for the year ended December 31, 1993 and $1,544,000 for Peoples for the
year ended December 31, 1992; the cumulative effect of an accounting change due
to the adoption of FAS No. 112 of $6,600,000 for Shawmut for the year ended
December 31, 1993; extraordinary credits from the utilization of federal tax
loss carry forwards of $18,378,000 for Shawmut for the year ended December 31,
1992; extraordinary charges relating to debt prepayment penalties of $371,000
and $2,250,000 for Gateway for the year ended December 31, 1992 and 1991,
respectively; and the extraordinary credit for a stock distribution of
$1,287,000 for Peoples for the year ended December 31, 1991. Intercompany cash
and due from bank balances of $10,714,000 have been eliminated between Shawmut
and Peoples.
NOTE 2:
GATEWAY
The pro forma shareholders' equity accounts of Shawmut and Gateway have
been adjusted in the accompanying Unaudited Pro Forma Condensed Combining
Balance Sheet to reflect the issuance of shares of Shawmut Common Stock in
exchange for all of the outstanding shares of Gateway Common Stock. The number
of shares of Shawmut Common Stock to be issued pursuant to the acquisition of
Gateway (7,414,475 shares) is based upon the number of shares of Gateway Common
Stock outstanding as of December 31, 1993 and the Exchange Ratio specified in
the Merger Agreement. The difference between the par value of the Shawmut Common
Stock to be issued over the par value of the Gateway Common Stock outstanding
($64,000 at December 31, 1993) has been credited to surplus. The equity accounts
of Gateway reflect the retirement of Gateway Treasury Stock ($2,976,000) upon
consummation of the Merger with a charge to surplus.
PRO FORMA PENDING ACQUISITIONS
The pro forma shareholders' equity accounts of Shawmut, as adjusted for
Gateway, have been further adjusted to reflect the issuance of shares of Shawmut
Common Stock in exchange for all of the outstanding shares of New Dartmouth
Common Stock and Peoples Common Stock (Pro Forma Pending Acquisitions). The
number of shares of Shawmut Common Stock to be issued pursuant to the
acquisition of New Dartmouth (in the range between 5,700,400 and 7,709,411
shares) is based upon the number of shares of New Dartmouth Common Stock
outstanding as of December 31, 1993 and assumes an exchange ratio of 13.438 to
18.174 shares of Shawmut Common Stock for each share of New Dartmouth Common
Stock, assuming consideration of $310.95 per share. The New Dartmouth merger
agreement provides for additional per share consideration based on 177 percent
of New Dartmouth's earnings from October 1, 1993 to the closing date of the
merger, subject to certain potential adjustments. Any additional shares of
Shawmut Common Stock to be issued pursuant to the New Dartmouth transaction will
have a de minimis effect on the unaudited pro forma financial information for
all periods presented. The excess of the par value of the Shawmut Common Stock
to be issued over the par value of the New Dartmouth Common Stock outstanding
($53,000 to $73,000 at December 31, 1993) has been charged to surplus. The
equity accounts of New Dartmouth reflect the expected retirement of outstanding
New Dartmouth Preferred Stock prior to consummation of the New Dartmouth merger
at the December 31, 1993 redemption price of $104.58 per share ($17,786,000).
The excess ($2,571,000) of redemption price over the stated value of New
Dartmouth Preferred Stock ($15,215,000) has been charged to retained earnings.
65
<PAGE> 71
The number of shares of Shawmut Common Stock to be issued pursuant to the
acquisition of Peoples (in the range between 6,256,720 and 8,466,938 shares) is
based upon the number of shares of Peoples Common Stock outstanding as of
December 31, 1993 and the exchange ratios specified in the Peoples merger
agreement. The difference between the par value of the Shawmut Common Stock to
be issued over the par value of the Peoples Common Stock outstanding ($271,000
to $249,000 at December 31, 1993) has been credited to surplus.
The shareholders' equity accounts of Cohasset and West Newton have been
eliminated and reflect the acquisition of Cohasset and West Newton by Shawmut
for an aggregate purchase price of $16,900,000 and $45,400,000, respectively.
The excess of the purchase price over the recorded shareholders' equity accounts
at December 31, 1993 has been reflected as goodwill (other assets) in the
accompanying Unaudited Pro Forma Condensed Combining Balance Sheet. No goodwill
amortization has been reflected in the accompanying Unaudited Pro Forma
Condensed Combined Statement of Income as the annual amount of amortization is
de minimis.
NOTE 3:
Pro forma earnings per share amounts in the accompanying Unaudited Pro
Forma Condensed Combined Statements of Income are based on the weighted average
number of common shares of the constituent companies outstanding during each
period, as adjusted for the minimum and maximum exchange ratios as specified in
the respective merger agreements.
GATEWAY
Shares of Gateway Common Stock have been adjusted to the equivalent shares
of Shawmut Common Stock for each period assuming an exchange ratio of 0.559
shares of Shawmut Common Stock for each share of Gateway Common Stock.
PRO FORMA PENDING ACQUISITIONS
Shares of New Dartmouth Common Stock have been adjusted to the equivalent
shares of Shawmut Common Stock for each period assuming an exchange ratio of
13.438 to 18.174 shares of Shawmut Common Stock for each share of New Dartmouth
Common Stock, assuming consideration of $310.95 per share (see Note 2 for
further discussion). Shares of Peoples Common Stock have been adjusted to the
equivalent shares of Shawmut Common Stock for each period assuming an exchange
ratio of 1.874 to 2.536 shares of Shawmut Common Stock for each share of Peoples
Common Stock.
NOTE 4:
The expenses associated with the proposed acquisitions are not reflected in
the accompanying Unaudited Pro Forma Condensed Combined Statements of Income.
These expenses are not reflected in the accompanying Unaudited Pro Forma
Condensed Combining Balance Sheet as such expenses are not considered material.
NOTE 5:
Retained earnings of Peoples includes approximately $11,500,000 which is
classified for federal income tax purposes as a reserve for loan losses.
Deferred income taxes were not provided on such amounts because Peoples Savings
Bank ("Peoples Bank"), a wholly owned subsidiary of Peoples, is a savings bank.
Upon the merger of Peoples Bank with and into Shawmut Bank, National
Association, an indirect wholly owned subsidiary of Shawmut, Peoples Bank will
lose its status as a savings bank and income taxes previously not provided will
become payable. An adjustment of $5,000,000 has been reflected in the
accompanying Unaudited Pro Forma Condensed Combined Balance Sheet to reflect
this, which represents taxes payable at a combined federal and state tax rate of
43 percent. This adjustment is not reflected in the accompanying Unaudited Pro
Forma Condensed Combined Statement of Income.
66
<PAGE> 72
LEGAL OPINIONS
The legality of the shares of Shawmut Common Stock and associated Rights to
be issued in connection with the Merger will be passed upon by Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022.
EXPERTS
The consolidated financial statements of Shawmut incorporated in this Proxy
Statement/Prospectus by reference to Shawmut's Annual Report on Form 10-K for
the year ended December 31, 1993, have been so incorporated in reliance on the
report of Price Waterhouse, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Gateway incorporated herein by
reference to the 1993 Gateway Form 10-K at December 31, 1993 and for the year
then ended have been audited by Coopers & Lybrand, independent accountants, and
at December 31, 1992 and for each of the two years in the period ended December
31, 1992, by Ernst & Young, independent auditors as set forth in their
respective reports thereon incorporated herein by reference, have been so
included in reliance upon such reports given upon the authority of said firms as
experts in auditing and accounting.
The consolidated financial statements of New Dartmouth incorporated herein
by reference to the Shawmut Current Report on Form 8-K, dated March 28, 1994,
have been audited by Price Waterhouse, independent accountants, and have been so
incorporated in reliance on the report of Price Waterhouse, independent
accountants, set forth herein, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Peoples incorporated herein by
reference to the Shawmut Current Report on Form 8-K, dated March 28, 1994, have
been audited by Ernst & Young, independent auditors, and have been so included
in reliance upon the report of Ernst & Young set forth herein, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Cohasset incorporated herein by
reference to the Shawmut Current Report on Form 8-K, dated March 28, 1994, have
been audited by Wolf & Company, P.C., independent accounts, and have been so
included in reliance upon the report of Wolf & Company, P.C. set forth herein,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of West Newton incorporated herein by
reference to the Shawmut Current Report on Form 8-K, dated March 28, 1994, have
been audited by Wolf & Company, P.C., independent accountants, and have been so
included in reliance upon the report of Wolf & Company, P.C. set forth herein,
given on the authority of said firm as experts in auditing and accounting.
ITEM 2
ELECTION OF A CLASS OF DIRECTORS
The Certificate of Incorporation of Gateway and Gateway's Bylaws provide
for the election of directors by the stockholders. For this purpose, the Board
of Directors is divided into three classes as nearly equal in number as
possible. The terms of office of the members of one class expire and successor
members of that class are elected at each annual meeting of the stockholders.
Vacancies in directorships may be filled, until the expiration of the term of
the vacated directorship, by the vote of 66 2/3% of the directors then in
office.
There are currently ten directors of Gateway. The terms of four directors
expire at this Annual Meeting and the successors of such directors are to be
elected at the Annual Meeting. The terms of the four directors elected at this
Annual Meeting will expire at the annual meeting to be held in 1997, or when
their successors are elected and qualified. The terms of the remaining two
classes of directors expire at the annual meetings to be held in 1995 and 1996
or when their successors are elected and qualified. However, if the Merger
Agreement is approved and adopted and the Merger is consummated, Gateway's
existence will cease. Accordingly, the directors of Gateway will serve only up
to the consummation of the Merger.
The tables below set forth, to the extent practicable, certain information
regarding the directors of Gateway as of March 1, 1994, and directors nominated
for re-election at the Annual Meeting, including their
67
<PAGE> 73
service on the standing committees of Gateway Bank's Board of Directors and the
expiration dates of their current terms as directors of Gateway. Except as
indicated in the notes following the tables below, the nominees and the
directors continuing in office had sole voting and investment power with respect
to the shares of Gateway Common Stock listed as being beneficially owned by
them.
NOMINEES FOR RE-ELECTION AT THIS MEETING FOR A THREE YEAR TERM
<TABLE>
<CAPTION>
SHARES OF
POSITIONS HELD WITH GATEWAY GATEWAY
AND GATEWAY BANK, IF ELECTED, COMMON PERCENT OF
PRINCIPAL OCCUPATION DURING HAS SERVED AS A TERM WILL EXPIRE STOCK BENEFICIALLY GATEWAY COMMON
THE PAST FIVE YEARS DIRECTOR OF AT THE ANNUAL OWNED AS OF STOCK BENEFICIALLY
NAME AND DIRECTORSHIPS AGE GATEWAY SINCE MEETING IN MARCH 1, 1994 OWNED
- ------------ -------------------------------- --- --------------- ---------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
E. Roger 47 1989 1997 14,030(a)(b) .11%
Clark Bank Director since 1984; Bank
Executive, Loan, and Salary and
Benefits Committees; President,
Chief Executive Officer, and
Director of The Kanthal
Corporation, a manufacturing
company.
Theodore B. 63 1989 1997 31,503(a) .24%
Covert Bank Director since 1978; Bank
Salary and Benefits (Chairman),
Investment, and Loan Committees;
Retired Senior Vice President of
Zotos International, Inc., a
manufacturing corporation.
James W. 62 1989 1997 9,988(a)(c) .08%
Kambas Bank Director since 1981; Bank
Executive, Loan, and Salary and
Benefits Committees; Attorney
and Partner in the law firm of
Roberts, Gaillard, Kambas &
Sweigart.
John W. 55 1989 1997 2,779(a)(d) .02%
Kubovic Bank Director since 1983; Bank
Investment (Chairman), Audit and
Nominating Committees;
President, Chief Executive
Officer, and Director of The
Nash Engineering Company, a
manufacturing company.
</TABLE>
- ---------------
(a) Includes stock options, which are currently exercisable, to purchase 1,250
shares.
(b) Includes 2,868 shares held by a trust for Mr. Clark's children, as to which
Mr. Clark disclaims beneficial ownership.
(c) Includes 1,626 shares held by Mr. Kambas' minor children with Mr. Kambas'
wife as custodian, as to which Mr. Kambas disclaims beneficial ownership.
(d) Includes 1,079 shares held by Mr. Kubovic's wife in trust for his daughter,
as to which Mr. Kubovic disclaims beneficial ownership.
68
<PAGE> 74
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
SHARES OF
POSITIONS HELD WITH GATEWAY GATEWAY PERCENT OF
AND GATEWAY BANK, COMMON GATEWAY COMMON
PRINCIPAL OCCUPATION DURING HAS SERVED AS A TERM WILL EXPIRE STOCK BENEFICIALLY STOCK
THE PAST FIVE YEARS DIRECTOR OF AT THE ANNUAL OWNED AS OF BENEFICIALLY
NAME AND DIRECTORSHIPS AGE GATEWAY SINCE MEETING IN MARCH 1, 1994 OWNED
- ----------- -------------------------------- --- --------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
George P. 62 1991 1996 689,859(a) 5.20%
Bauer Bank Director since 1991; Bank
Audit, Executive, and Salary and
Benefits Committees; Retired
Director of Business Systems of
IBM Corporation; former
Executive Professor of Georgia
State University; President of
the GPB Group Ltd, consultants
and investment banking.
A. Reid 66 1989 1996 4,727(a)(b) .04%
Cross Bank Director since 1974; Bank
Nominating (Chairman), Audit and
Investment Committees; Retired
Director of Financial
Administration, Business Systems
International Group, Pitney
Bowes, Inc., a manufacturer of
business machines.
Reginald 45 1989 1995 138,647(c) 1.05%
DeKoven,
III Bank Director since 1987; Bank
Loan (Chairman), Investment, and
Executive Committees; President,
Chief Executive Officer, and
Director of Gateway; Director of
the Mutual Investment Fund of
Connecticut, Inc. and the
Savings Bank Life Insurance
Company.
Janet M. 51 1992 1996 4,450(a) .03%
Hansen Bank Director since 1992; Bank
Audit (Chairperson), Investment
and Nominating Committees;
Senior Vice President, Chief
Financial Officer and Treasurer
of Acquarion Company, and Vice
President, and Chief Financial
Officer of Bridgeport Hydraulic
Company and Stamford Water
Company, public utility
companies.
Charles C. 62 1989 1995 11,916(a)(d) .09%
Judd Bank Director since 1977; Bank
Executive (Chairman), Loan and
Nominating Committees;
President-Publishing, Southern
New England Telephone Company.
</TABLE>
69
<PAGE> 75
<TABLE>
<CAPTION>
SHARES OF
POSITIONS HELD WITH GATEWAY GATEWAY PERCENT OF
AND GATEWAY BANK, COMMON GATEWAY COMMON
PRINCIPAL OCCUPATION DURING HAS SERVED AS A TERM WILL EXPIRE STOCK BENEFICIALLY STOCK
THE PAST FIVE YEARS DIRECTOR OF AT THE ANNUAL OWNED AS OF BENEFICIALLY
NAME AND DIRECTORSHIPS AGE GATEWAY SINCE MEETING IN MARCH 1, 1994 OWNED
- ----------- -------------------------------- --- --------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Stanley 49 1992 1995 9,550(a) .07%
Rand, III Bank Director since 1992; Bank
Audit, Nominating and Salary and
Benefits Committees; President
of Rand Insurance, Inc.; former
Chairman of the Board of the
former Connecticut Community
Bank, Greenwich, Connecticut.
All 957,630(e) 7.22%
Directors
and
Executive
Officers
as a
Group (15
persons)
</TABLE>
- ---------------
(a) Includes stock options, which are currently exercisable, to purchase 1,250
shares.
(b) Includes 150 shares held by Mr. Cross' wife, as to which Mr. Cross disclaims
beneficial ownership.
(c) Includes stock options, which are currently exercisable, to purchase 92,675
shares, and 985 shares held by Mr. DeKoven's wife as to which Mr. DeKoven
disclaims beneficial ownership.
(d) Includes 2,241 shares held by Mr. Judd's wife, as to which Mr. Judd
disclaims beneficial ownership.
(e) Includes stock options of all directors and executive officers, which are
currently exercisable, to purchase 134,625 shares.
THE BOARD OF DIRECTORS OF GATEWAY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE NOMINEES AS DIRECTORS.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Gateway's and Gateway Bank's Boards of Directors and designated Committees
are comprised of the same persons. The committees of Gateway's Board of
Directors are the Executive, Audit, and Nominating Committees.
The Board of Directors of Gateway and the Board of Directors of Gateway
Bank each held twenty meetings in 1993.
The Executive Committee met twenty-nine times in 1993. The members of
Gateway's and Gateway Bank's Executive Committee are Messrs. Bauer, Clark,
DeKoven, Judd (Chairman), and Kambas. The Executive Committee has general
supervision of the affairs of Gateway.
The Audit Committee met eight times in 1993. The members of Gateway's and
Gateway Bank's Audit Committee are Mrs. Hansen (Chairperson), and Messrs. Bauer,
Cross, Kubovic, and Rand. The Audit Committee is responsible for reviewing
periodic financial reports of Gateway Bank's internal auditor and of Gateway's
independent auditors and recommending independent auditors for appointment by
Gateway's Board of Directors.
The Nominating Committee did not meet during 1993. The members of Gateway's
Nominating Committee are Mrs. Hansen and Messrs. Cross (Chairman), Judd,
Kubovic, and Rand. The Nominating Committee recommends to the Board of Directors
candidates for Directors to be elected at meetings of stockholders or to be
appointed by the Board of Directors from time to time for the purpose of filling
any vacancy among the Directors.
The Salary and Benefits Committee of Gateway Bank's Board of Directors met
seven times in 1993. The members of Gateway Bank's Salary and Benefits Committee
are Messrs. Bauer, Clark, Covert (Chairman), Kambas, and Rand. The Salary and
Benefits Committee determines management compensation and administers the
Gateway Bank 1985 Incentive Stock Option Plan.
No director of Gateway failed to attend 75 percent of the combined total of
the meetings of the Board of Directors of Gateway held in 1993 and any
committee(s) of which he or she was a member.
70
<PAGE> 76
During the 1993 fiscal year, Gateway's directors and officers timely filed
with the Securities and Exchange Commission their applicable forms to report
beneficial ownership, and changes in beneficial ownership, of Gateway Common
Stock, except that Frank W. Estes, Assistant Secretary of Gateway, failed to
file on a timely basis a Form 3 to report his appointment as Assistant
Secretary.
STOCKHOLDER NOMINATIONS OF DIRECTORS
Nominations of persons for election to the Board of Directors of Gateway
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of Gateway entitled to vote for the election of
directors at a meeting called for the election of directors who complies with
certain notice procedures set forth in Gateway's Certificate of Incorporation.
Such nominations, other than those made by or at the direction of the Board of
Directors, must be made pursuant to timely notice in writing to the Secretary of
Gateway.
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of Gateway not less than sixty days
nor more than ninety days prior to the meeting; provided, however, that if fewer
than twenty-one days notice of the meeting is given to stockholders, notice by
the stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed to stockholders. A stockholder's notice must set forth:
as to each person whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address, and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of Gateway that are beneficially
owned by such person, and (iv) any other information relating to such person
that is required to be disclosed in solicitation of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act (including without limitation such person's written
consent to being named in the proxy statement as a nominee and to serving as
director if elected) and (v) such other information reasonably requested by
Gateway.
71
<PAGE> 77
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND EXECUTIVE OFFICERS OF GATEWAY
The following table shows, as of March 1, 1994, (i) those persons known to
Gateway (including any "group" as that term is used in Section 13(d)(3) of the
Exchange Act) who own beneficially 5% or more of the Gateway Common Stock, and
(ii) the Gateway Common Stock beneficially owned by those executive officers who
are named in the Summary Compensation Table below and who are not also
directors. In preparing the following table, Gateway has relied on information
furnished by such persons.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------------------------------- ----------------- --------
<S> <C> <C>
Jenswold, King & Associates, Inc............................. 1,085,240 8.18%
Two Post Oak Central
1980 Post Oak Boulevard, Suite 2400
Houston, Texas 77056
Westport Asset Management, Inc............................... 837,520 6.31%
253 Riverside Avenue
Westport, Connecticut 06880
George P. and Carol Bauer.................................... 688,609 5.19%
128 Dunning Road
New Canaan, Connecticut 06840
Alpine Associates, A Limited Partnership..................... 682,100 5.14%
100 Union Avenue
Cresskill, New Jersey 07626
Susan J. Monti,.............................................. 1,875(1) .01%
Gateway Bank
383 Main Avenue
Norwalk, Connecticut 06851
Richard F. Callahan.......................................... 29,493(2) .22%
Gateway Bank
383 Main Avenue
Norwalk, Connecticut 06851
</TABLE>
- ---------------
(1) Includes stock options, which are currently exercisable, to purchase 1,250
shares.
(2) Includes stock options, which are currently exercisable, to purchase 21,450
shares, and 950 shares held by a trust for Mr. Callahan's children as to
which Mr. Callahan disclaims beneficial ownership.
72
<PAGE> 78
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
REMUNERATION AND RELATED MATTERS
Summary Compensation Table. The following table provides certain
information for Gateway's past three fiscal years regarding the cash and other
compensation paid to, earned by, or awarded to Gateway's Chief Executive Officer
and all of Gateway's and Gateway Bank's most highly compensated Executive
Officers whose total annual salary and bonus exceeded $100,000 for the last
fiscal year:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------- OPTIONS ALL OTHER
SALARY BONUS /SAR COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) S(#) ($)(A)
- ---------------------------------------- ----- -------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Reginald DeKoven, III 1993 $247,250 $50,000 25,000 $5,715(b)
President & CEO 1992 225,000 -- 25,000 9,363
1991 217,500 -- 25,000
Susan J. Monti 1993 118,622 52,000 20,000 4,744
Executive Vice 1992 79,809 -- 5,000 118
President, CFO, and 1991 -- -- --
Treasurer (c)
Richard F. Callahan 1993 110,019 15,000 15,000 4,844(d)
Executive Vice 1992 100,000 -- 5,000 3,018
President, Retail 1991 88,750 -- 5,000
Operations
</TABLE>
- ---------------
NOTE: There was no compensation to report in the following categories:
1. Other Annual Compensation
2. Restricted Stock Awards
3. LTIP Payouts
(a) Pursuant to the transitional provisions of the Securities and Exchange
Commission set forth in the release adopting the revised rules on disclosure
of executive compensation (which became effective on October 21, 1992),
amounts of "Other Annual Compensation" and "All Other Compensation," if any,
have not been included in the table above for the fiscal year ended December
31, 1991.
(b) All other compensation in 1993 consists of $1,218 for additional ordinary
life insurance premiums in excess of the group term life and $4,497
contributed to the 401(k) Plan by Gateway Bank.
(c) Mrs. Monti joined Gateway Bank in January 1992. All other compensation in
1993 consists of $247 for additional ordinary life insurance premiums in
excess of the group term life and $4,497 contributed to the 401(k) Plan by
Gateway Bank.
(d) All other compensation in 1993 consists of $4,497 contributed to the 401(k)
Plan by Gateway Bank and $347 for additional ordinary life insurance
premiums in excess of the group term life.
Directors who are not officers of Gateway or Gateway Bank are compensated
$5,000 per annum, plus $500 for each Board and Committee meeting of Gateway Bank
and Gateway.
Mr. DeKoven has an employment agreement with Gateway and Gateway Bank,
pursuant to which Mr. DeKoven is employed as President and Chief Executive
Officer of Gateway and Gateway Bank. The employment agreement provides for a
base salary at the level being paid at the time the contract was entered into,
with provisions for review and adjustment by the Gateway Board in accordance
with the Bank's regular practices not less often than annually. Mr. DeKoven's
annual base salary under the terms of the employment agreement for 1991 to 1993
are specified in the above table. The original term of the agreement was from
January 1, 1989 until December 31, 1991, but extended at the end of such term
for three additional consecutive twelve-month periods. The agreement will
continue to automatically extend at the end of each twelve-month period unless
either Gateway Bank or Mr. DeKoven notifies the other to the contrary in writing
73
<PAGE> 79
at least twelve months prior to the end of the initial or any extended term. In
November 1993, Mr. DeKoven entered into a separate agreement (the "Agreement")
with Gateway which would supersede the original agreement in the event of a
"change of control" (as defined in the Agreement to include instances in which
there is an acquisition of more than 20% of the voting shares of Gateway by any
person or group, the current directors cease to be a majority of the Gateway
Board, there is a reorganization, merger, or consolidation which results in a
majority of voting shares being owned by persons other than those owning a
majority of shares prior so such action, or there is a liquidation or
dissolution of Gateway) of Gateway. The Agreement provides for three years of
continued employment after such change of control. If his employment is
terminated within such period by Gateway without cause or by Mr. DeKoven for
"good reason" (as defined in the Agreement to include, among other things, any
reduction in his position, authority, responsibilities, base salary, benefits,
working facilities, or reporting relationship following a change of control from
that which existed prior to the change of control), Mr. DeKoven is entitled to
receive within thirty days of the effective date of such termination a lump-sum
cash payment (in addition to any accrued salary not already paid) equal to (a)
the portion of "Annual Bonus" (as defined in the Agreement) proportionate to the
portion of Gateway's fiscal year prior to the date of termination, (b)
approximately three times the sum of his "Annual Base Salary" (as defined in the
agreement), plus his "Annual Bonus," and (c) an amount equal to the actuarial
equivalent of any additional pension benefit which would have accrued to his
benefit if his employment had continued for three years after the termination
date. The amount of this lump-sum cash payment may be reduced, if necessary,
under certain circumstances.
Mrs. Monti has an employment agreement with Gateway and Gateway Bank,
pursuant to which Mrs. Monti is employed as a senior executive of Gateway Bank.
The employment agreement provides for a base salary in an amount as may be
determined from time to time by the Salary and Benefits Committee of the Gateway
Board, but in no event less than $130,000 on an annualized basis. Mrs. Monti's
annual base salary for 1993, under the terms of the employment agreement, is
included in the above table. The term of the agreement is from September 1, 1993
until August 30, 1995. In November 1993, Mrs. Monti entered into a separate
agreement (the "Agreement") with Gateway which would supersede the original
agreement in the event of a "change of control" (as defined in the Agreement to
include instances in which there is an acquisition of more than 20% of the
voting shares of Gateway by any person or group, the current directors cease to
be majority of the Gateway Board, there is a reorganization, merger, or
consolidation which results in a majority of voting shares being owned by
persons other than those owning a majority of shares prior to such action, or
there is a liquidation or dissolution of Gateway) of Gateway. The Agreement
provides for three years of continued employment after such change of control.
If her employment is terminated within such period by Gateway without cause or
by Mrs. Monti for "good reason" (as defined in the Agreement to include among
other things, any reduction in her position, authority, responsibilities, base
salary, benefits, working facilities, or reporting relationship following a
change of control from that which existed prior to the change of control), Mrs.
Monti is entitled to receive within thirty days of the effective date of such
termination a lump-sum cash payment (in addition to any accrued salary not
already paid) equal to (a) the portion of "Annual Bonus" (as defined in the
Agreement) proportionate to the portion of Gateway's fiscal year prior to the
date of termination, (b) approximately three times the sum of her "Annual Base
Salary" (as defined in the Agreement) plus her "Annual Bonus," and (c) an amount
equal to the actuarial equivalent of any additional pension benefit which would
have accrued to her benefit if her employment had continued for three years
after the termination date. The amount of this lump-sum cash payment may be
reduced, if necessary, under certain circumstances.
EMPLOYEE BENEFIT PLANS
Insurance and Medical Reimbursement. Gateway Bank's full-time officers and
employees, without contribution by or expense to them, are covered by a group
health insurance plan (which includes health, major medical, and dental
coverage), a long-term disability income plan, and a group life insurance plan.
Severance Policy. All of Gateway Bank's officers and employees are
entitled to two weeks' salary payment for each year of continuous employment, up
to a maximum of twenty-six weeks if their position with Gateway Bank is
eliminated. In connection with the Agreement with Shawmut, Gateway Bank amended
such
74
<PAGE> 80
severance policy to provide certain Bank officers with additional severance
payments if their position is eliminated as a result of the acquisition of
Gateway by Shawmut.
Pension Plan. Gateway Bank maintains a non-contributory defined benefit
plan that is qualified under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The pension plan covers full-time employees who have
attained the age of 21 years and have completed at least one year of service
with Gateway Bank. Employees have vested interests in the plan only after
completing five years of service, at which time they become 100% vested. The
pension plan provides, in general, for monthly payments to or on behalf of each
covered employee upon such employee's retirement at age 65. Payments are based
upon such employee's basic annual compensation (not to exceed $235,840) for the
highest five consecutive years of the last ten years of employment, and such
employee's covered months of service, limited to 240 months.
The pension plan provides for optional early retirement benefits, provided
a participant has attained age 55 and completed at least ten years of service
with Gateway Bank. It also provides death benefits comparable to the benefits
offered in the case of early retirement. Under the pension plan, Gateway Bank
makes contributions for the benefit of eligible employees, computed on an
actuarial basis.
The following table illustrates annual pension benefits for retirement in
1994 at age 65 for various levels of compensation and credited years of service.
Unless certain optional methods are elected by beneficiaries, annual pension
benefits are calculated on a straight life annuity basis for unmarried
beneficiaries and on a qualified joint and survivor annuity basis for married
beneficiaries. The pension plan does not provide for benefits to be subject to
any deduction for Social Security or other benefits, and, therefore, the table
below does not reflect any such deductions.
CREDITED YEARS OF SERVICE
<TABLE>
<CAPTION>
20 YEARS OR
REMUNERATION(A) 5 YEARS 10 YEARS 15 YEARS MORE(B)
- ---------------- ------- -------- -------- -----------
<S> <C> <C> <C> <C>
$ 25,000 $ 3,750 $ 7,500 $ 11,250 $ 15,000
50,000 7,500 15,000 22,500 30,000
75,000 11,250 22,500 33,750 45,000
100,000 15,000 30,000 45,000 60,000
125,000 18,750 37,500 56,250 75,000
150,000 22,500 45,000 67,500 90,000
175,000 26,250 52,500 78,750 105,000
200,000 30,000 60,000 90,000 118,800
225,000 33,750 67,500 101,250 118,800
</TABLE>
- ---------------
(a) Five-year average
(b) Credited years of service may not exceed 20
The estimated credited years of service as of December 31, 1993 for each of
the executive officers named in the summary compensation table above is as
follows: eight, fifteen, and two years, respectively, for Messrs. DeKoven,
Callahan, and Mrs. Monti.
Stock Options. The Board of Directors and stockholders of Gateway Bank
adopted the Gateway Bank 1985 Incentive Stock Option Plan (the "Option Plan") in
1985. The Option Plan was amended by the Board of Directors in December 1992 and
approved by the Gateway stockholders at the 1993 annual meeting. The Option Plan
is intended to promote the growth and profitability of Gateway Bank and Gateway.
The Option Plan provides for the granting of incentive stock options and
non-qualified stock options, and stock appreciation rights and performance
awards. Options, stock appreciation rights and performance awards may be
granted, in the discretion of an appropriate committee of the Board of
Directors, to employees (including officers) of Gateway Bank and Gateway, and to
directors (whether or not they are employees) of Gateway Bank and Gateway.
The following tables show as to the executive officers named in the summary
compensation table certain information regarding options held by them.
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<PAGE> 81
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The table below provides certain information regarding stock options
granted during Gateway's last fiscal year to the executive officers listed in
the summary compensation table above:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
% OF TOTAL POTENTIAL REALIZED
OPTIONS/ VALUE AT ASSUMED
SAR'S EXERCISE ANNUAL RATES OF STOCK
OPTIONS/ GRANTED TO OR PRICE APPRECIATION
SAR'S EMPLOYEES BASE FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- --------- ------------ --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Reginald DeKoven, III................ 25,000 26.32 7.125 3/18/03 112,022 283,885
Susan J. Monti....................... 20,000 21.05 7.125 3/18/03 89,617 227,108
Richard F. Callahan.................. 15,000 15.79 7.125 3/18/03 67,213 170,331
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTIONS/SAR VALUES
The table below sets forth information regarding unexercised stock options
held by the executive officers listed in the summary compensation table above:
<TABLE>
<CAPTION>
VALUE* OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S OPTIONS/SAR'S
AT FY-END(#) AT FY-END($)
-------------- --------------
EXERCISABLE EXERCISABLE
(E) (E)
SHARES ACQUIRED VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME ON EXERCISE(#) ($) (U) (U)
- ---- ---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Reginald DeKoven,III............... -- -- 92,675(E) 441,626(E)
53,750(U) 345,313(U)
Susan J. Monti..................... -- -- 1,250(E) 9,063(E)
23,750(U) 119,688(U)
Richard F. Callahan................ -- -- 21,450(E) 90,216(E)
21,250(U) 120,000(U)
</TABLE>
- ---------------
* Values are calculated for options in the money by subtracting the exercise per
share price from the $11.75 per share closing price of Gateway Common Stock on
December 31, 1993.
401(k) Savings Plan. Gateway Bank established a 401(k) Savings Plan (the
"Plan") in 1987 to assist in providing retirement security for the Bank's
employees. Gateway Bank reserves the right, by Gateway Bank's Board of Directors
resolution, to terminate or amend the Plan at any time, provided such
termination or amendment does not adversely affect benefits accrued to the date
of such termination or amendment. The Plan is intended to be qualified under the
Code, and is subject to the provisions of ERISA.
Employees of Gateway Bank who have completed at least one year of service
with the Bank may participate in the Plan. Participants may contribute, through
payroll deductions and on a pre-tax basis, any whole percentage up to 10% of the
participant's compensation, subject to a maximum of $9,240 per year. Gateway
Bank will contribute to the Plan on behalf of each participant an amount equal
to 50% of that portion of such participant's contributions that does not exceed
6% of compensation. Participants become gradually vested as to the Bank's
contributions, from 20% vested after one year of service to 100% after five
years of service.
Participants may invest the contributions in one or more investment funds,
including the Gateway Common Stock Fund (invested in Gateway Common Stock), a
Guaranteed Investment Fund (invested in group annuity contracts), and a variety
of funds maintained by the trustee which invest in various types and
combinations of stock, bonds, money market instruments, real estate, and
mortgage-backed securities. Distributions from the Plan of the Bank's
contributions, to the extent vested, may be made only upon an employee's
termination of employment, permanent disability, or death. Distributions of an
employee's contribution may, however, be made upon termination of employment,
permanent disability, death, hardship, or attainment of age 59 1/2. A loan
provision is also available to Plan participants as another method of utilizing
contributions.
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<PAGE> 82
Officers' Deferred Compensation. Certain officers of Gateway Bank may
elect to defer up to 100% of their annual salaries by entering into individual
contracts with the Bank. Under such contracts, the terms of which are
substantially similar to each other, Gateway Bank establishes a separate
deferred compensation account for each such officer. Gateway Bank pays interest
on the balance in each deferred compensation account at a rate equal to the
Gateway Bank's average yield on interest-earning assets for the year. The
balance of the deferred compensation account may be paid to the officer, or his
or her beneficiary, upon termination of the officer's employment, or at a date
in a future year specified by the officer in his or her contract. This
disbursement of deferred compensation may be made in a lump sum or in equal
installments paid over a future period of time selected by the officer. In the
event of a "change in control" of Gateway (as defined in the contracts), Gateway
Bank shall make a lump-sum payment of the deferred compensation account to each
officer.
Directors' Deferred Compensation. Directors of Gateway Bank may elect to
defer up to 100% of their annual Directors' fees by entering into individual
contracts with the Bank. Under such contracts, the terms of which are
substantially similar to each other, Gateway Bank establishes a separate
Deferred Compensation Account for each such Director. Gateway Bank pays interest
on the balance in each Deferred Compensation Account at a rate equal to the
Bank's average yield on interest-earning assets for the year. The balance of the
Deferred Compensation Account may be paid to the Director, or his or her
beneficiary, upon termination of the Director's service as a Director, or at a
date in a future year specified by the Director in his or her contract. This
disbursement of deferred Directors' fees may be made in a lump sum or in equal
installments paid over a future period of time selected by the Director. In the
event of a "change in control" of Gateway (as defined in the contracts), the
Bank shall make a lump-sum payment of the Deferred Compensation Account to each
Director.
REPORT OF THE SALARY AND BENEFITS COMMITTEE OF
GATEWAY BANK ON EXECUTIVE COMPENSATION POLICIES
Set forth below is a report submitted by the Salary and Benefits Committee
of the Board of Directors of Gateway Bank (the "Committee") regarding the
compensation policies of Gateway for the fiscal year ended December 31, 1993, as
they related to Gateway's and Gateway Bank's executive officers, including the
Chief Executive Officer ("CEO").
THE SALARY AND BENEFITS COMMITTEE
As the compensation of Gateway's executive officers relates primarily to
their functions as executive officers of the Bank, Gateway's wholly-owned
subsidiary, the Committee, a committee of the Board of Directors of Gateway
Bank, oversees the compensation policies of both Gateway and the Bank. The
Committee is comprised entirely of Directors who are not employees of Gateway or
Gateway Bank, and have no material interest in Gateway or Gateway Bank, other
than as stockholders and Directors of Gateway.
EXECUTIVE COMPENSATION PHILOSOPHY AND POLICIES
The objective of Gateway's executive compensation policy is to link
executive compensation with shareholder value, to produce strong financial
performance for the benefit of shareholders, and to attract, retain, and reward
qualified executives while providing a high level of service and value to
Gateway Bank's customers. To meet these objectives, Gateway's executive
compensation program is designed to be competitive with compensation programs
provided by financial institutions of comparable size in Gateway's geographic
area.
Each year, the Committee recommends to Gateway Bank's Board of Directors
compensation arrangements for executive officers of Gateway and Gateway Bank for
the next succeeding fiscal year beginning on January 1. The Committee also
considers and recommends to the full Board of Directors annual salary grades,
and the payment of bonuses, and the Committee has the discretion to award stock
options, stock appreciation rights, and stock awards to employees of Gateway
Bank, including executive officers, in accordance with the Bank's stock option
plan.
In determining the compensation to be paid to executive officers, the
Committee considers a number of objective, quantitative factors, such as the
compensation of executive officers of comparable financial institutions in
Gateway's geographic area; Gateway's financial performance for the prior fiscal
year and results
77
<PAGE> 83
for the current period; and the achievement of certain goals that have been
previously set. The Committee also considers subjective, qualitative factors,
such as the individual leadership and other talents of the executive officers.
1993 EXECUTIVE COMPENSATION
Employing its general compensation policies described above, in December
1992, the Committee recommended to Gateway Bank's full Board of Directors, and
the full Board approved, the salaries for the fiscal year beginning January 1,
1993 of all Bank Vice Presidents, Senior Vice Presidents, and Executive Vice
Presidents. In addition to considering Gateway's performance as a whole and the
performance of each individual, the Committee specifically considered what the
salaries and other benefits were of comparable financial institutions in
Gateway's geographic area. The Committee reviewed salary surveys conducted by
Towers Perrin, a consulting firm, and a number of other industry associations
and compensation consultants (the "Consultants' Reports") to assist it in
determining salaries that were competitive with such other financial
institutions. The Consultants' Reports included a number of the companies (New
England stock savings banks) contained in the KBW New England Savings Bank Index
shown in the performance graph below.
The Committee also took into account the extent to which certain goals that
were established for the 1992 fiscal year by Gateway Bank's Board of Directors,
in consultation with management, had been achieved. Such goals included
achieving a positive net income, reducing non-performing assets, formulating a
strategic plan for Gateway Bank, improving marketing and customer relations,
examining staffing and compensation costs, and improving branch operations. As
certain of these goals were not achieved, particularly with respect to the
failure of Gateway to earn a net profit or to reduce non-performing assets, no
incentive bonuses were awarded at the end of 1992, and none had been awarded in
1991 or 1990. Due to the successful recapitalization and return to profitability
in 1993, bonuses totalling $250,000 were granted to a number of Gateway Bank
officers in December 1993. The amount of individual bonuses was based upon the
Committee's assessment of individual contribution to this effort. No particular
factor was formally identified as having been given more or less weight than the
others in arriving at such assessment.
The salaries of each of the executive officers for the 1993 fiscal year
were determined on the basis of satisfactory performance in various other
respects. Salaries of Gateway executive officers are generally within the middle
third of the range of salaries for comparable positions at the most relevant
companies included in the Consultants' Reports (Connecticut savings banks with
assets in excess of $800 million).
In 1993, the Committee granted stock options to certain officers as an
incentive for the officers to remain with the Bank as it continues its efforts
to improve its financial condition. The size of individual grants of stock
options was based upon the Committee's assessment of the incentive value of such
grant and the relative importance of the individual to the accomplishment of
Gateway's future performance.
1993 CEO COMPENSATION
Based upon the foregoing review of the Committee relating to executive
compensation generally, and based on the Consultants' Reports, the Committee
recommended to the Executive Committee, and the Executive Committee recommended
to the full Board of Directors, the salary of the CEO. The Committee
recommended, and the full Board approved, an increase in Mr. DeKoven's salary
from $225,000 to $247,520 for the fiscal year 1993. No bonus was recommended,
and none was granted, in 1991 or 1992, in view of the lack of profitable
operations of Gateway in both such years. Due to the successful recapitalization
and return to profitability of Gateway Bank in 1993, a bonus of $50,000 was
granted to Mr. DeKoven in December 1993.
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<PAGE> 84
In March 1993, the Committee granted to Mr. DeKoven an option to purchase
25,000 shares of Gateway Common Stock, primarily as an incentive to continue his
efforts to implement Gateway Bank's restructuring plan to improve its financial
condition.
Salary and Benefits Committee
Theodore B. Covert, Chairman
George P. Bauer
E. Roger Clark
James W. Kambas
Stanley Rand, III
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in cumulative
stockholder return on Gateway's Common Stock over the past five years with (i)
the cumulative total return on the S&P 500 Index, and (ii) Keefe, Bruyette &
Woods New England Savings Bank Index selected by Gateway (see below). The
figures presented below assume a reinvestment of all dividends paid on the
applicable dividend payment date and that $100 was invested in Gateway Common
Stock, and in the stock of the companies comprising each of the indices, and
such stock was held through December 31, 1993.
<TABLE>
<CAPTION>
Measurement Period KBW NE Gateway Fi-
(Fiscal Year Covered) S&P 500 Savings Bank nancial Corp
<S> <C> <C> <C>
12/31/88 100 100 100
6/30/89 116.49 110.33 106.43
12/31/89 131.52 84.45 77.57
6/30/90 135.46 68.78 36.67
12/31/90 127.23 42.37 20.98
6/30/91 145.16 53.37 23.92
12/31/91 165.43 74.38 32.75
6/30/92 164.11 100.84 59.22
12/31/92 177.49 130.65 53.33
6/30/93 186.08 136.62 51.37
12/31/93 194.22 174.41 98.43
</TABLE>
Keefe, Bruyette & Woods ("KBW") is a brokerage firm specializing in bank
stocks. The KBW index is based on 18 New England savings banks.
With respect to Gateway Common Stock, the graph includes NASDAQ stock price
and dividend payment information relating to the common stock of Gateway Bank
prior to June 30, 1989, on which date the stockholders of Gateway Bank exchanged
their shares of Gateway Bank common stock for an equal number of shares of
Gateway Common Stock, and Gateway thereby became Gateway Bank's holding company,
and Gateway Bank's stockholders became stockholders of Gateway.
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<PAGE> 85
ITEM 3
RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 1994
The Board of Directors of Gateway has selected Coopers & Lybrand, certified
public accountants, to be Gateway's independent auditors for the fiscal year
ending December 31, 1994. If the stockholders do not ratify this selection at
the Annual Meeting, the Board of Directors may reevaluate the selection of
Coopers & Lybrand, but it would have the right to and would consider retaining
Coopers & Lybrand in any event. Representatives of Coopers & Lybrand are
expected to be present at the Annual Meeting to respond to appropriate
stockholders' questions and to make a statement if such representatives desire
to do so.
Ernst & Young served as Gateway's independent auditors for the fiscal year
ended December 31, 1992. However, Ernst & Young advised Gateway by letter dated
May 11, 1993 that, based on strategic business considerations relating to their
Hartford office banking practice, Ernst & Young would not serve as independent
auditors for the fiscal year ending December 31, 1993. Subsequently, the Board
of Directors of Gateway selected Coopers & Lybrand as Gateway's new independent
auditors for the fiscal year ending December 31, 1993.
The reports of Ernst & Young on the financial statements of Gateway for the
last two fiscal years in which Ernst & Young served as Gateway's independent
auditors were unqualified and did not contain any adverse opinions, disclaimers,
qualifications or modifications as to uncertainty, audit scope or accounting
principles, except that their report for the year ended December 31, 1992, when
initially issued on February 11, 1993, except for Note B, as to which the date
is May 25, 1993, contained an explanatory paragraph in connection with certain
regulatory matters and related uncertainties. Ernst & Young has subsequently, on
March 22, 1994, reissued and updated their report for the year ended December
31, 1992, which report does not contain such explanatory paragraph. In
connection with the audits of Gateway's financial statements for each of the two
consecutive fiscal years ended December 31, 1992, and in the subsequent interim
period, there were no disagreements with Ernst & Young on any matters on
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst & Young
would have caused Ernst & Young to make reference to the matter in their report.
Based on the December 31, 1992 audit, Ernst & Young informed Gateway on May 25,
1993 that internal control improvements were necessary for Gateway to prepare
reliable financial statements with respect to its allowance for loan loss
methodology and valuation of other real estate owned. Coopers & Lybrand did not
advise Gateway that it continued to need such internal control improvements
after its audit of Gateway's December 31, 1993 financial statements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF COOPERS & LYBRAND AS INDEPENDENT AUDITORS
If the Merger Agreement is approved and adopted and the Merger is
consummated, there will not be an annual meeting of Gateway's stockholders in
1995. However if the Merger is not consummated, Gateway anticipates that the
1995 Annual Meeting will be held in April 1995. Therefore, proposals of
stockholders of Gateway intended to be presented at the 1995 annual meeting of
Gateway must be received by Gateway not later than November, 1994 to be
considered for inclusion in Gateway's proxy statement and form of proxy relating
to that meeting.
OTHER MATTERS
At the time of preparation of this Proxy Statement/Prospectus, the Board of
Directors of Gateway knows of no other matters to be presented for action at the
Annual Meeting. As stated in the accompanying proxy card, if any other business
should come before the Annual Meeting, proxies have discretionary authority to
vote their shares according to their best judgment, including, without
limitation, a motion to adjourn or postpone the Annual Meeting to another time
and/or place for the purpose of soliciting additional proxies in order to
approve the Merger or otherwise.
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<PAGE> 86
In addition to solicitations by mail, officers and regular employees of
Gateway, Gateway Bank and of Chemical Bank (as transfer agent and as proxy
solicitor) may solicit proxies personally, by telephone or by telegraph. The
estimated cost of such solicitation services to be provided by Chemical Bank is
$6,500 plus out-of-pocket expenses. Gateway intends to request banks, brokers,
and other institutions, nominees, and fiduciaries to forward proxy material to
their principals and to obtain authorizations for the execution of proxies, and
will reimburse such institutions and persons for their reasonable expenses. The
cost of soliciting proxies will be borne by Gateway.
GENERAL
This Proxy Statement is accompanied by Gateway's Annual Report to
Stockholders which contains financial statements for the fiscal year ended
December 31, 1993, as well as other information concerning the operations of
Gateway. The 1993 Annual Report has been combined with Gateway's annual report
on Form 10-K which Gateway filed with the Securities and Exchange Commission.
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<PAGE> 87
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 5, 1993, by and among
Shawmut National Corporation, a Delaware corporation ("Parent"), Shawmut Service
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent
("Merger Sub"), and Gateway Financial Corporation, a Delaware corporation
("Target"). (Target and Merger Sub are herein sometimes collectively referred to
herein as the "Constituent Corporations".)
WHEREAS, the Boards of Directors of Parent and Target have determined that
it is in the best interests of their respective companies and their shareholders
to consummate the business combination transaction provided for herein in which
Target will, subject to the terms and conditions set forth herein, merge (the
"Merger") with and into Merger Sub; and
WHEREAS, as soon as practicable after the execution and delivery of this
Agreement, it is contemplated that Shawmut Bank Connecticut, N.A., a national
banking association and an indirect wholly owned subsidiary of Parent
("Connecticut Bank", and sometimes referred to herein as the "Surviving Bank"),
and Gateway Bank, a Connecticut chartered state bank and a wholly owned
subsidiary of Target ("Target Bank"), will enter into a Subsidiary Agreement and
Plan of Merger (the "Bank Merger Agreement") providing for the merger (the
"Subsidiary Merger"), of Target Bank with and into Connecticut Bank, and it is
intended that the Subsidiary Merger be consummated immediately prior to
consummation of the Merger; and
WHEREAS, as a condition to, and immediately after the execution of this
Agreement, Parent and Target are entering into a Stock Option Agreement (the
"Option Agreement") attached hereto as Exhibit A; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the Delaware General Corporation Law (the "DGCL"), at the
Effective Time (as defined in Section 1.2 hereof), Target shall merge with and
into Merger Sub. Merger Sub shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger, and shall continue
its corporate existence under the laws of the State of Delaware as a wholly
owned subsidiary of Parent. The name of the Surviving Corporation shall continue
to be Shawmut Service Corporation. Upon consummation of the Merger, the separate
corporate existence of Target shall terminate.
1.2 Effective Time. The Merger shall become effective as set forth in the
certificate of merger (the "Certificate of Merger") which shall be filed with
the Secretary of State of the State of Delaware (the "Secretary") on the Closing
Date (as defined in Section 9.1 hereof). The term "Effective Time" shall be the
date and time when the Merger becomes effective, as set forth in the Certificate
of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Sections 259 and 261 of the DGCL.
1.4 Conversion of Target Common Stock.
(a) At the Effective Time, subject to Section 2.2(e) hereof, each share of
the common stock, par value $0.01 per share, of Target (the "Target Common
Stock") issued and outstanding immediately prior to the
A-1
<PAGE> 88
Effective Time (other than shares of Target Common Stock held (x) in Target's
treasury or (y) directly or indirectly by Parent or Target or any of their
respective Subsidiaries (as defined below) (except for Trust Account Shares and
DPC shares, as such terms are defined in Section 1.4(b) hereof)) shall, by
virtue of this Agreement and without any action on the part of the holder
thereof, be converted into and exchangeable for .559 shares (the "Exchange
Ratio") of the common stock, par value $.01 per share, of Parent ("Parent Common
Stock") (together with the number of Parent Rights (as defined in Section 4.2
hereof) associated therewith). All of the shares of Target Common Stock
converted into Parent Common Stock pursuant to this Article I shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist, and
each certificate (each a "Certificate") previously representing any such shares
of Target Common Stock shall thereafter represent the right to receive (i) the
number of whole shares of Parent Common Stock and (ii) cash in lieu of
fractional shares into which the shares of Target Common Stock represented by
such Certificate have been converted pursuant to this Section 1.4(a) and Section
2.2(e) hereof. Certificates previously representing shares of Target Common
Stock shall be exchanged for certificates representing whole shares of Parent
Common Stock and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance with Section 2.2
hereof, without any interest thereon. If prior to the Effective Time Parent
should split or combine its common stock, or pay a dividend or other
distribution in such common stock, then the Exchange Ratio shall be
appropriately adjusted to reflect such split, combination, dividend or
distribution.
(b) At the Effective Time, all shares of Target Common Stock that are owned
by Target as treasury stock and all shares of Target Common Stock that are owned
directly or indirectly by Parent or Target or any of their respective
Subsidiaries (other than shares of Target Common Stock held directly or
indirectly in trust accounts, managed accounts and the like or otherwise held in
a fiduciary capacity that are beneficially owned by third parties (any such
shares, and shares of Parent Common Stock which are similarly held, whether held
directly or indirectly by Parent or Target, as the case may be, being referred
to herein as "Trust Account Shares") and other than any shares of Target Common
Stock held by Parent or Target or any of their respective Subsidiaries in
respect of a debt previously contracted (any such shares of Target Common Stock,
and shares of Parent Common Stock which are similarly held, whether held
directly or indirectly by Parent or Target, being referred to herein as "DPC
Shares")) shall be cancelled and shall cease to exist and no stock of Parent or
other consideration shall be delivered in exchange therefor. All shares of
Parent Common Stock that are owned by Target or any of its Subsidiaries (other
than Trust Account Shares and DPC Shares) shall become treasury stock of Parent.
1.5 Conversion of Merger Sub Common Stock. Each of the 1,000 shares of the
common stock, par value $1.00 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
after the Merger as shares of the Surviving Corporation, which shall thereafter
constitute all of the issued and outstanding shares of the Surviving
Corporation.
1.6 Options. (a) At the Effective Time, each option granted by Target to
purchase shares of Target Common Stock which is outstanding and unexercised
immediately prior thereto shall be converted automatically into an option to
purchase shares of Parent Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the Target
Stock Option Plan (the "Target Stock Plan")):
(1) The number of shares of Parent Common Stock to be subject to the
new option shall be equal to the product of the number of shares of Target
Common Stock subject to the original option and the Exchange Ratio,
provided that any fractional shares of Parent Common Stock resulting from
such multiplication shall be rounded down to the nearest share; and
>(2) The exercise price per share of Parent Common Stock under the new
option shall be equal to the exercise price per share of Target Common
Stock under the original option divided by the Exchange Ratio, provided
that such exercise price shall be rounded up to the nearest cent.
>The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the
A-2
<PAGE> 89
new option shall be the same as the original option, except that all references
to Target shall be deemed to be references to Parent.
(b) Without limiting the foregoing, and provided that the right contained
in this paragraph (b) is not inconsistent with any of the conditions contained
in Article VII hereof, each holder of a Target Option, whether or not then
vested, shall have the right to elect to convert, at the Effective Time, all or
a portion of his or her Target Options which have not expired prior to the
Effective Time into the right to receive such number of shares (rounded to the
nearest whole share) of Parent Common Stock as are equal in value (determined by
valuing each share of Parent Common Stock at the Average Closing Price (as
defined in Section 8.1)) to the excess of (i) the product of the number of
shares of Target Common Stock subject to such option times the Exchange Ratio
times the Average Closing Price of the Parent Common Stock over (ii) the
aggregate exercise price of such option.
1.7 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of Merger Sub, as in effect at the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation.
1.8 By-Laws. At the Effective Time, the By-Laws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
1.9 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-Laws of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified.
1.10 Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code.
ARTICLE II
EXCHANGE OF SHARES
2.1 Parent to Make Shares Available. At or prior to the Effective Time,
Parent shall deposit, or shall cause to be deposited, with a bank or trust
company selected by Parent (which may be a Subsidiary of Parent) (the "Exchange
Agent"), for the benefit of the holders of Certificates, for exchange in
accordance with this Article II, certificates representing the shares of Parent
Common Stock and the cash in lieu of fractional shares (such cash and
certificates for shares of Parent Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to
Section 2.2(a) in exchange for outstanding shares of Target Common Stock.
2.2 Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event later than three business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing the
shares of Parent Common Stock and the cash in lieu of fractional shares into
which the shares of Target Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this Agreement. Target shall
have the right to review both the letter of transmittal and the instructions.
Upon surrender of a Certificate for exchange and cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor (x) a
certificate representing that number of whole shares of Parent Common Stock to
which such holder of Target Common Stock shall have become entitled pursuant to
the provisions of Article I hereof and (y) a check representing the amount of
cash in lieu of fractional shares, if any, which such holder has the right to
receive in respect of the Certificate surrendered pursuant to the provisions of
this Article II, and the Certificate so
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surrendered shall forthwith be cancelled. No interest will be paid or accrued on
the cash in lieu of fractional shares and unpaid dividends and distributions, if
any, payable to holders of Certificates.
(b) No dividends or other distributions declared after the Effective Time
with respect to Parent Common Stock and payable to the holders of record thereof
shall be paid to the holder of any unsurrendered Certificate until the holder
thereof shall surrender such Certificate in accordance with this Article II.
After the surrender of a Certificate in accordance with this Article II, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Parent Common Stock represented by such
Certificate. No holder of an unsurrendered Certificate shall be entitled, until
the surrender of such Certificate, to vote the shares of Parent Common Stock
into which his Target Common Stock shall have been converted.
(c) If any certificate representing shares of Parent Common Stock is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed (or accompanied
by an appropriate instrument of transfer) and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of Parent Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or required
for any other reason, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Target of the shares of Target Common Stock which were issued
and outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of Parent Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Parent Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of
Target. In lieu of the issuance of any such fractional share, Parent shall pay
to each former stockholder of Target who otherwise would be entitled to receive
a fractional share of Parent Common Stock an amount in cash determined by
multiplying (i) the average of the closing-sale prices of Parent Common Stock on
the New York Stock Exchange as reported by The Wall Street Journal for the five
trading days immediately preceding the date of the Effective Time by (ii) the
fraction of a share of Parent Common Stock to which such holder would otherwise
be entitled to receive pursuant to Section 1.4 hereof.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Target for twelve months after the Effective Time shall be paid
to Parent. Any stockholders of Target who have not theretofore complied with
this Article II shall thereafter look only to Parent for payment of their shares
of Parent Common Stock, cash in lieu of fractional shares and unpaid dividends
and distributions on the Parent Common Stock deliverable in respect of each
share of Target Common Stock such stockholder holds as determined pursuant to
this Agreement, in each case, without any interest thereon. Notwithstanding the
foregoing, none of Parent, Target, the Exchange Agent or any other person shall
be liable to any former holder of shares of Target Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such
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lost, stolen or destroyed Certificate the shares of Parent Common Stock and cash
in lieu of fractional shares deliverable in respect thereof pursuant to this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to Parent and Merger Sub as follows:
3.1 Corporate Organization. (a) Target is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Target has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect (as defined below) on Target. As used
in this Agreement, the term "Material Adverse Effect" means, with respect to
Parent, Target or the Surviving Corporation, as the case may be, a material
adverse effect on the business, properties, assets, liabilities, results of
operations or financial condition of such party and its Subsidiaries taken as a
whole, other than any such effect attributable to or resulting from general
economic conditions. As used in this Agreement, the word "Subsidiary" when used
with respect to any party means any corporation, partnership or other
organization, whether incorporated or unincorporated, which is consolidated with
such party for financial reporting purposes. Target is duly registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). The Certificate of Incorporation and By-laws of Target, copies of which
have previously been delivered to Parent, are true, complete and correct copies
of such documents as in effect as of the date of this Agreement.
(b) Target Bank is a state chartered bank duly organized, validly existing
and in good standing under the laws of the State of Connecticut. The deposit
accounts of Target Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC") through the Bank Insurance Fund (the "BIF") to the fullest extent
permitted by law, and all premiums and assessments required in connection
therewith have been paid by Target Bank. Target Bank is the only Subsidiary of
Target that is a "Significant Subsidiary" as such term is defined in Regulation
S-X promulgated by the Securities and Exchange Commission (the "SEC"). Target
Bank has the corporate power and authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or the location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on Target. The Articles of Incorporation and
By-laws of Target Bank, copies of which have previously been delivered to
Parent, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement.
(c) The minute books of Target and Target Bank accurately reflect in all
material respects all corporate actions held or taken since December 31, 1990 of
their respective stockholders and Boards of Directors (including committees of
their respective Boards of Directors).
3.2 Capitalization. (a) The authorized capital stock of Target consists of
20,000,000 shares of Target Common Stock and 1,000,000 shares of preferred
stock, par value $.01 per share (the "Target Preferred Stock"). As of September
30, 1993, there are (x) 13,250,070 shares of Target Common Stock issued and
outstanding and 584,000 shares of Target Common Stock held in Target's treasury,
(y) no shares of Target Common Stock reserved for issuance upon exercise of
outstanding stock options or otherwise except for (i) 394,475 shares of Target
Common Stock reserved for issuance pursuant to the Target Stock Option and
Incentive Plan and (ii) except for 2,636,764 shares of Target Common Stock
reserved for issuance upon exercise of the option issued to Parent pursuant to
the Option Agreement and (z) no shares of Target Preferred Stock issued or
outstanding, held in Target's treasury or reserved for issuance upon exercise of
outstanding stock options or otherwise, except for 100,000 shares of Target
Series A Junior Participating Preferred Stock reserved for issuance upon
exercise of the rights (the "Target Rights") distributed to holders
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of Target Common Stock pursuant to the Rights Agreement, dated as of July 13,
1989, between Target and The Connecticut Bank and Trust Company, as Rights Agent
(the "Target Rights Agreement"). All of the issued and outstanding shares of
Target Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. Except as referred to above or reflected in
Section 3.2(a) of the Disclosure Schedule which is being delivered to Parent
concurrently herewith (the "Target Disclosure Schedule"), and except for the
Option Agreement and the Target Rights Agreement, Target does not have and is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Target Common Stock or Target Preferred Stock or any other
equity security of Target or any securities representing the right to purchase
or otherwise receive any shares of Target Common Stock or any other equity
security of Target. The names of the optionees, the date of each option to
purchase Target Common Stock granted, the number of shares subject to each such
option, the expiration date of each such option, and the price at which each
such option may be exercised under the Target Stock Plan are set forth in
Section 3.2(a) of the Target Disclosure Schedule. Since September 30, 1993,
Target has not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock, other than
pursuant to the exercise of employee stock options granted prior to such date
and other than pursuant to the Option Agreement.
(b) Section 3.2(b) of the Target Disclosure Schedule sets forth a true and
correct list of all of the Target Subsidiaries as of the date of this Agreement.
Except as set forth on Section 3.2(b) of the Target Disclosure Schedule, Target
owns, directly or indirectly, all of the issued and outstanding shares of
capital stock of each of the Target Subsidiaries, free and clear of all liens,
charges, encumbrances and security interests whatsoever, and all of such shares
are duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof. No Target Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary. Assuming compliance by Parent with Section 1.6 hereof, at the
Effective Time, there will not be any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character by which Target or
any of its Subsidiaries will be bound calling for the purchase or issuance of
any shares of the capital stock of Target or any of its Subsidiaries.
3.3 Authority; No Violation. (a) Target has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Target. The Board of Directors of
Target has directed that this Agreement and the transactions contemplated hereby
be submitted to Target's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of Target's stockholders, no other corporate proceedings on the part of
Target are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Target and (assuming due authorization, execution and
delivery by Parent and Merger Sub) constitutes a valid and binding obligation of
Target, enforceable against Target in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Target Bank has full corporate power and authority to execute and
deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of the Target Bank. Upon the due and
valid approval of the Bank Merger Agreement by Target as the sole stockholder of
Target Bank and by the Board of Directors of Target Bank, no other corporate
proceedings on the part of Target Bank will be necessary to consummate the
transactions contemplated thereby. The Bank Merger Agreement, upon execution and
delivery by Target Bank, will be duly and validly executed and delivered by
Target Bank and will (assuming due authorization,
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execution and delivery by Connecticut Bank) constitute a valid and binding
obligation of Target Bank, enforceable against Target Bank in accordance with
its terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(c) Except as set forth in Section 3.3(c) of the Target Disclosure
Schedule, neither the execution and delivery of this Agreement by Target or the
Bank Merger Agreement by Target Bank, nor the consummation by Target or Target
Bank, as the case may be, of the transactions contemplated hereby or thereby,
nor compliance by Target or Target Bank with any of the terms or provisions
hereof or thereof, will (i) violate any provision of the Certificate of
Incorporation or By-Laws of Target or the certificate of incorporation, by-laws
or similar governing documents of Target Bank or (ii) assuming that the consents
and approvals referred to in Section 3.4 hereof are duly obtained, (x) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Target or Target Bank, or any of their respective
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any of the
respective properties or assets of Target or Target Bank under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Target or Target Bank is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, would not have or be reasonably likely to have
a Material Adverse Effect on Target.
3.4 Consents and Approvals. Except for (a) the filing of applications and
notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act, the Bank Merger Act and
the Federal Reserve Act (the "FRA") and approval of such applications and
notices, (b) the filing of applications with the Office of the Comptroller of
the Currency (the "OCC") under the Bank Merger Act and approval of such
applications, (c) the filing of any required applications or notices with the
Federal Deposit Insurance Corporation or the Banking Commissioner of the State
of Connecticut (the "Connecticut Commissioner") and approval of such
applications and notices (the "State Banking Approvals") and any necessary state
insurance filings, (d) the filing with the SEC of a proxy statement in
definitive form relating to the meeting of Target's stockholders to be held in
connection with this Agreement and the transactions contemplated hereby (the
"Proxy Statement"), (e) the approval of this Agreement by the requisite vote of
the stockholders of Target, (f) the filing of the Certificate of Merger with the
Secretary pursuant to the DGCL, (g) the filings required by the Bank Merger
Agreement, and (h) such filings, authorizations or approvals as may be set forth
in Section 3.4 of the Target Disclosure Schedule, no consents or approvals of or
filings or registrations with any court, administrative agency or commission or
other governmental authority or instrumentality (each a "Governmental Entity")
or with any third party are necessary in connection with (1) the execution and
delivery by Target of this Agreement, (2) the consummation by Target of the
Merger and the other transactions contemplated hereby, (3) the execution and
delivery by Target Bank of the Bank Merger Agreement, and (4) the consummation
by Target Bank of the Subsidiary Merger and the transactions contemplated
thereby.
3.5 Loan Portfolio; Reports. (a) Except as set forth in Section 3.5(a) of
the Target Disclosure Schedule, as of September 30, 1993, neither Target nor any
of its Subsidiaries is a party to any written or oral (i) loan agreement, note
or borrowing arrangement (including, without limitation, leases, credit
enhancements, commitments, guarantees and interest-bearing assets)
(collectively, "Loans"), other than Loans the unpaid principal balance of which
does not exceed $100,000, under the terms of which the obligor is, as of the
date of this Agreement, over 90 days delinquent in payment of principal or
interest or in default of any other provision, or (ii) Loan with any director,
executive officer or ten percent stockholder of Target or any of its
Subsidiaries, or to the knowledge of Target, any person, corporation or
enterprise controlling, controlled by or under common control with any of the
foregoing. Section 3.5(a) of the Target Schedule sets forth (i) all of the Loans
in original principal amount in excess of $100,000 of Target or any of its
Subsidiaries that as of the
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date of this Agreement are classified by any bank examiner (whether regulatory
or internal) as "Other Loans Specially Mentioned", "Special Mention",
"Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk
Assets", "Concerned Loans", "Watch List" or words of similar import, together
with the principal amount of and accrued and unpaid interest on each such Loan
and the identity of the borrower thereunder, and (ii) by category of Loan (i.e.,
commercial, consumer, etc.), all of the other Loans of Target and its
Subsidiaries that as of the date of this Agreement are classified as such,
together with the aggregate principal amount of and accrued and unpaid interest
on such Loans by category. Target shall promptly inform Parent of any Loan that
becomes classified in the manner described in the previous sentence, or any Loan
the classification of which is changed, at any time after the date of this
Agreement.
(b) Target and Target Bank have timely filed all material reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they were required to file since December 31, 1990
with (i) the Federal Reserve Board, (ii) the FDIC, (iii) the Connecticut
Commissioner and any other state banking commissions or any other state
regulatory authority (each a "State Regulator") and (iv) any other
self-regulatory organization ("SRO") (collectively "Regulatory Agencies"), and
all other material reports and statements required to be filed by them since
December 31, 1990, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States, the Federal Reserve Board, the FDIC, any State Regulator or any SRO, and
have paid all fees and assessments due and payable in connection therewith.
Except for normal examinations conducted by a Regulatory Agency in the regular
course of the business of Target and its Subsidiaries, and except as otherwise
disclosed in Section 3.5(b) of the Target Disclosure Schedule, no Regulatory
Agency has initiated any proceeding or, to the best knowledge of Target,
investigation into the business or operations of Target or any of its
Subsidiaries since December 31, 1992. Except as otherwise disclosed in Section
3.5(b) of the Target Disclosure Schedule, there is no material unresolved
violation, criticism, or exception by any Regulatory Agency with respect to any
report or statement relating to any examinations of Target or any of its
Subsidiaries.
3.6 Financial Statements. Target has previously delivered to Parent
copies of (a) the consolidated balance sheets of Target and its Subsidiaries as
of December 31, for the fiscal years 1991 and 1992, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal years 1990 through 1992, inclusive, as reported in Target's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
each case accompanied by the audit report of Ernst & Young, independent public
accountants with respect to Target, and (b) the unaudited consolidated balance
sheets of Target and its Subsidiaries as of June 30, 1992 and June 30, 1993 and
the related unaudited consolidated statements of income, cash flows and changes
in stockholders' equity for the six month periods then ended as reported in
Target's Quarterly Report on Form 10-Q for the period ended June 30, 1993 filed
with the SEC under the Exchange Act. The June 30, 1993 consolidated balance
sheet of Target (including the related notes, where applicable) fairly presents
the consolidated financial position of Target and its Subsidiaries as of the
date thereof, and the other financial statements referred to in this Section 3.6
(including the related notes, where applicable) fairly present, and the
financial statements referred to in Section 6.9 hereof will fairly present
(subject, in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount), the results of the consolidated
operations and consolidated financial position of Target and its Subsidiaries
for the respective fiscal periods or as of the respective dates therein set
forth; each of such statements (including the related notes, where applicable)
comply, and the financial statements referred to in Section 6.9 hereof will
comply, in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto and
each of such statements (including the related notes, where applicable) has
been, and the financial statements referred to in Section 6.9 hereof will be,
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved, except in each case as
indicated in such statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of Target
and Target Bank have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
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3.7 Broker's Fees. Neither Target nor any Target Subsidiary nor any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, the Bank
Merger Agreement or the Option Agreement, except that Target has engaged, and
will pay a fee or commission to Keefe, Bruyette & Woods, Inc. in accordance with
the terms of a letter agreement between Keefe, Bruyette & Woods Inc. and Target,
a true, complete and correct copy of which has been previously delivered by
Target to Parent.
3.8 Absence of Certain Changes or Events. (a) Except as may be set forth
in Section 3.8(a) of the Target Disclosure Schedule or as disclosed in Target's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 or in any
Current Reports of Target on Form 8-K filed prior to September 30, 1993, true,
complete and correct copies of which have previously been delivered to Parent,
since June 30, 1993, (i) neither Target nor any of its Subsidiaries has incurred
any material liability, except in the ordinary course of their business
consistent with their past practices, and (ii) no event has occurred which has
had, individually or in the aggregate, a Material Adverse Effect on Target.
(b) Except as set forth in Section 3.8(b) of the Target Disclosure
Schedule, since June 30, 1993, Target and its Subsidiaries have carried on their
respective businesses in the ordinary and usual course consistent with their
past practices.
(c) Except as set forth in Section 3.8(c) of the Target Disclosure
Schedule, since January 1, 1993, neither Target nor any of its Subsidiaries has
(i) except for normal increases in the ordinary course of business consistent
with past practice or except as required by applicable law, increased the wages,
salaries, compensation, pension, or other fringe benefits or perquisites payable
to any executive officer, employee, or director from the amount thereof in
effect as of December 31, 1992, granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonus other than year-end bonuses for fiscal 1992 and 1993 as listed in
Section 3.8 of the Target Disclosure Schedule or (ii) suffered any strike, work
stoppage, slow-down, or other labor disturbance.
3.9 Legal Proceedings. (a) Except as set forth in Section 3.9 of the
Target Disclosure Schedule, neither Target nor any of its Subsidiaries is a
party to any, and there are no pending or, to the best of Target's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against
Target or any of its Subsidiaries or challenging the validity or propriety of
the transactions contemplated by this Agreement, the Bank Merger Agreement or
the Option Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, have a Material Adverse Effect on Target.
(b) Section 3.9 of the Disclosure Schedule which Target shall deliver to
Parent no later than 15 days after the date of this Agreement (the "Second
Target Schedule") lists all pending and, to the best knowledge of Target,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against
Target or any of its Subsidiaries which are not set forth on Section 3.9 of the
Target Disclosure Schedule.
(c) Except as otherwise disclosed in Section 3.9(c) of the Target
Disclosure Schedule, there is no injunction, order, judgment, decree, or
regulatory restriction imposed upon Target, any of its Subsidiaries or the
assets of Target or any of its Subsidiaries which has had, or might reasonably
be expected to have, a Material Adverse Effect on Target.
(d) Section 3.9(d) of the Target Disclosure Schedule sets forth all pending
litigation involving any claim against the Target Bank, whether directly or by
counterclaim, involving a "lender liability" cause of action.
3.10 Taxes and Tax Returns. (a) Except as may be reflected in Section 3.10
of the Target Disclosure Schedule, each of Target and its Subsidiaries has duly
filed all material Federal, state and, to the best of Target's knowledge,
material local information returns and tax returns required to be filed by it on
or prior to the date hereof (all such returns being accurate and complete in all
material respects) and has duly paid or made provisions for the payment of all
material Taxes (as defined below) and other governmental charges which have been
incurred or are due or claimed to be due from it by Federal, state, county or
local taxing
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authorities on or prior to the date of this Agreement (including, without
limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than Taxes or other charges (1) which are not yet
delinquent or are being contested in good faith (and which are set forth in
Section 3.10 of the Target Disclosure Schedule) and (2) have not been finally
determined. The income tax returns of Target and its Subsidiaries have been
examined by the Internal Revenue Service (the "IRS") and any liability with
respect thereto has been satisfied for all years to and including 1991, and no
material deficiencies were asserted as a result of such examination or all such
deficiencies were satisfied. Except as may be reflected in Section 3.10 of the
Target Disclosure Schedule, to the best of Target's knowledge, there are no
material disputes pending, or claims asserted for, Taxes or assessments upon
Target or any of its Subsidiaries, nor has Target or any of its Subsidiaries
been requested to give any currently effective waivers extending the statutory
period of limitation applicable to any Federal, state, county or local income
tax return for any period. In addition, (i) proper and accurate amounts have
been withheld by Target and its Subsidiaries from their employees for all prior
periods in compliance in all material respects with the tax withholding
provisions of applicable Federal, state and local laws, except where failure to
do so would not have a Material Adverse Effect on Target, (ii) Federal, state,
county and local returns which are accurate and complete in all material
respects have been filed by Target and its Subsidiaries for all periods for
which returns were due with respect to income tax withholding, Social Security
and unemployment taxes, except where failure to do so would not have a Material
Adverse Effect on Target, (iii) the amounts shown on such Federal, state, local
or county returns to be due and payable have been paid in full or adequate
provision therefor has been included by Target in its consolidated financial
statements as of June 30, 1993, except where failure to do so would not have a
Material Adverse Effect on Target and (iv) there are no Tax liens upon any
property or assets of the Target or its Subsidiaries except liens for current
taxes not yet due. To the knowledge of Target, no property of Target or any of
its Subsidiaries is property that Target or any of its Subsidiaries is or will
be required to treat as being owned by another person pursuant to the provisions
of Section 168(f)(8) of the Code (as in effect prior to its amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. Neither Target nor any of its Subsidiaries has been
required to include in income any adjustment pursuant to Section 481 of the Code
by reason of a voluntary change in accounting method initiated by Target or any
of its Subsidiaries, and the Internal Revenue Service has not initiated or
proposed any such adjustment or change in accounting method. Except as set forth
in the financial statements described in Section 3.6 hereof, neither Target nor
any of its Subsidiaries has entered into a transaction which is being accounted
for as an installment obligation under Section 453 of the Code, which would be
reasonably likely to have a Material Adverse Effect on Target.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all federal,
state, county, local, and foreign income, excise, gross receipts, ad valorem,
profits, gains, property, sales, transfer, use, payroll, employment, severance,
withholding, duties, intangibles, franchise, and other taxes, charges, levies or
like assessments together with all penalties and additions to tax and interest
thereon.
3.11 Employees. (a) Section 3.11 of the Target Disclosure Schedule sets
forth a true and complete list of each employee benefit plan, arrangement or
agreement that is maintained as of the date of this Agreement (the "Plans") by
Target or any of its Subsidiaries or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), all of which together with Target would be
deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(b) Target has heretofore delivered to Parent true and complete copies of
each of the Plans and all related documents, including but not limited to (i)
the actuarial report for such Plan (if applicable) for each of the last two
years, and (ii) the most recent determination letter from the Internal Revenue
Service (if applicable) for such Plan.
(c) Except as set forth in Section 3.11 of the Disclosure Schedule, (i)
each of the Plans has been operated and administered in all material respects
with applicable laws, including but not limited to ERISA and the Code, (ii) each
of the Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code is so qualified, (iii) with respect to each Plan which is subject to
Title IV of ERISA, the present value of accrued benefits under such Plan, based
upon the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such Plan's actuary with respect to such Plan, did
not, as of its latest
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valuation date, exceed the then current value of the assets of such Plan
allocable to such accrued benefits, (iv) no Plan provides benefits, including
without limitation death or medical benefits (whether or not insured), with
respect to current or former employees of Target, Target Bank or any ERISA
Affiliate beyond their retirement or other termination of service, other than
(w) coverage mandated by applicable law, (x) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (y) deferred compensation benefits accrued as liabilities on the
books of Target, Target Bank or the ERISA Affiliates or (z) benefits the full
cost of which is borne by the current or former employee (or his beneficiary),
(v) no liability under Title IV of ERISA has been incurred by Target, Target
Bank or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to Target, Target Bank or an
ERISA Affiliate of incurring a material liability thereunder, (vi) no Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
(vii) all contributions or other amounts payable by Target, Target Bank or any
ERISA Affiliates as of the Effective Time with respect to each Plan in respect
of current or prior plan years have been paid or accrued in accordance with
generally accepted accounting practices and Section 412 of the Code, (viii)
neither Target, Target Bank nor any ERISA Affiliate has engaged in a transaction
in connection with which Target, Target Bank or any ERISA Affiliate could be
subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of
ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to
the best knowledge of Target there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against any
of the Plans or any trusts related thereto.
3.12 SEC Reports. Target has previously made available to Parent an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1989 by
Target with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act (the "Target Reports") and (b)
communication mailed by Target to its stockholders since January 1, 1989, and no
such registration statement, prospectus, report, schedule, proxy statement or
communication contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading, except that information as of a later date shall be deemed
to modify information as of an earlier date. Target has timely filed all Target
Reports and other documents required to be filed by it under the Securities Act
and the Exchange Act, and, as of their respective dates, all Target Reports
complied in all material respects with the published rules and regulations of
the SEC with respect thereto.
3.13 Target Information. The information relating to Target and its
Subsidiaries to be contained in the Proxy Statement and the registration
statement on Form S-4 (the "S-4") of which the Proxy Statement will be included
as a prospectus, or in any other document filed with any other regulatory agency
in connection herewith, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances in which they are made, not misleading. The Proxy
Statement (except for such portions thereof that relate only to Parent or any of
its Subsidiaries) will comply in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
3.14 Compliance with Applicable Law. Except as disclosed in Section 3.14
of the Target Disclosure Schedule, Target and each of its Subsidiaries hold, and
have at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to Target or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default would not, individually or in
the aggregate, have a Material Adverse Effect on Target, and neither Target nor
any of its Subsidiaries knows of, or has received notice of, any material
violations of the above.
3.15 Certain Contracts. (a) Except as set forth in Section 3.15(a) of the
Target Disclosure Schedule, neither Target nor any of its Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers, employees or consultants, (ii) which, upon the consummation of the
transactions contemplated by this
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Agreement or the Bank Merger Agreement will (either alone or upon the occurrence
of any additional acts or events) result in any payment (whether of severance
pay or otherwise) becoming due from Parent, Target, Target Bank, the Surviving
Corporation, the Surviving Bank or any of their respective Subsidiaries to any
officer or employee thereof, (iii) which is a material contract (as defined in
Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the date of
this Agreement that has not been filed or incorporated by reference in the
Target Reports, (iv) which is a consulting agreement (including data processing,
software programming and licensing contracts) not terminable on 60 days or less
notice involving the payment of more than $100,000 per annum, in the case of any
such agreement with an individual, or $500,000 per annum, in the case of any
other such agreement, (v) which materially restricts the conduct of any line of
business by Target or Target Bank, (vi) with or to a labor union or guild
(including any collective bargaining agreement) or (vii) (including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan) any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the Bank Merger Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement or the Bank Merger Agreement.
Target has previously delivered to Parent true and correct copies of all
employment, consulting and deferred compensation agreements which are in writing
and to which Target or any of its Subsidiaries is a party. Each contract,
arrangement, commitment or understanding of the type described in this Section
3.15(a), whether or not set forth in Section 3.15(a) of the Target Disclosure
Schedule, is referred to herein as a "Target Contract", and neither Target nor
any of its Subsidiaries knows of, or has received notice of, any material
violation of the above.
(b) Except as set forth in Section 3.15(b) of the Target Disclosure
Schedule, (i) each Target Contract is valid and binding and in full force and
effect, (ii) Target and each of its Subsidiaries has in all material respects
performed all obligations required to be performed by it to date under each
Target Contract, except where such noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect on Target, and (iii) no
event or condition exists which constitutes or, after notice or lapse of time or
both, would constitute, a material default on the part of Target or any of its
Subsidiaries under any such Target Contract, except where such default,
individually or in the aggregate, would not have a Material Adverse Effect on
Target.
3.16 Agreements with Regulatory Agencies. Except as disclosed in the
Target Reports or as set forth in Section 3.16 of the Target Disclosure
Schedule, neither Target nor any of its Subsidiaries is subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
or has adopted any board resolutions at the request of (each, whether or not set
forth on Section 3.16 of the Target Disclosure Schedule, a "Regulatory
Agreement"), any Regulatory Agency or other Governmental Entity that restricts
the conduct of its business or that in any manner relates to its capital
adequacy, its credit policies, its management or its business, nor has Target or
any of its Subsidiaries been advised by any Regulatory Agency or other
Governmental Entity that it is considering issuing or requesting any Regulatory
Agreement.
3.17 Investment Securities. Section 3.17 of the Target Disclosure Schedule
sets forth the book and market value as of September 30, 1993 of the investment
securities, mortgage backed securities and securities held for sale of Target
and its Subsidiaries. Section 3.17 of the Target Disclosure Schedule sets forth
an investment securities report which includes security descriptions, CUSIP
numbers, pool face values, book values, coupon rates, market values, paydown
factors, paydown speeds, book yields, durations, weighted average life and
weighted average coupons, in each case as of September 30, 1993.
3.18 Intellectual Property. Except where there would be no Material
Adverse Effect on Target, Target and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all material
patents, copyrights, trade secrets, trade names, servicemarks and trademarks
used in its businesses and neither Target nor any of its Subsidiaries has
received any notice of conflict with respect thereto that asserts the right of
others. Target and each of its Subsidiaries have in all material respects
performed all the obligations required to be performed by them and are not in
default in any material respect under any contract, agreement, arrangement or
commitment relating to any of the foregoing, except where
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such nonperformance or default would not, individually or in the aggregate, have
a Material Adverse Effect on Target.
3.19 Undisclosed Liabilities. Except (a) as set forth in Section 3.19 of
the Target Disclosure Schedule, (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Target
included in its Form 10-Q for the period ended June 30, 1993 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice since June 30, 1993, neither Target nor any of its Subsidiaries has
incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that, either alone or
when combined with all similar liabilities, is, or could reasonably be expected
to have, a material adverse effect on the business, properties, assets,
liabilities, results of operations or financial condition of Target and its
Subsidiaries taken as whole.
3.20 State Takeover Laws. The Board of Directors of Target has approved
the transactions contemplated by this Agreement, the Bank Merger Agreement and
the Option Agreement such that the provisions of Section 203 of the DGCL and
Sections 9.2 and 9.3 of Target's Certificate of Incorporation will not, assuming
the accuracy of the representations contained in Section 4.13 hereof, apply to
this Agreement, the Bank Merger Agreement or the Option Agreement or any of the
transactions contemplated hereby or thereby.
3.21 Administration of Fiduciary Accounts. Each of Target and Target Bank
has properly administered in all material respects all accounts for which it
acts as a fiduciary, including but not limited to accounts for which it serves
as a trustee, agent, custodian, personal representative, guardian, conservator
or investment advisor, in accordance with the terms of the governing documents
and applicable state and federal law and regulation and common law. Neither
Target nor Target Bank nor any of their respective directors, officers or
employees has committed any breach of trust with respect to any such fiduciary
account which has had or could reasonably be expected to have a Material Adverse
Effect on Target, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account.
3.22 Environmental Matters. Except as set forth in Section 3.22 of the
Target Disclosure Schedule:
(a) Each of Target, its Subsidiaries, the Participation Facilities and
the Loan Properties (each as hereinafter defined) are, and have been, in
compliance with all applicable laws, rules, regulations, standards and
requirements of all federal, state, local and foreign laws and regulations
relating to pollution or protection of human health or the environment
(including without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Material or
petroleum or petroleum products, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Material or petroleum or petroleum products), except
for violations which, either individually or in the aggregate, have not had
and cannot reasonably be expected to have a Material Adverse Effect on
Target;
(b) There is no suit, claim, action, proceeding, investigation or
notice pending or threatened (or past or present actions, activities,
circumstances, conditions, events or incidents that could form the basis of
any such suit, claim, action, proceeding, investigation or notice), before
any Governmental Entity or other forum in which Target, any of its
Subsidiaries, any Participation Facility or any Loan Property (or person or
entity whose liability for any such suit, claim, action, proceeding,
investigation or notice Target, any of its Subsidiaries, Participation
Facility or Loan Property has or may have retained or assumed either
contractually or by operation of law), has been or, with respect to
threatened suits, claims, actions, proceedings, investigations or notices
may be, named as a defendant (x) for alleged noncompliance (including by
any predecessor), with any environmental law, rule or regulation or (y)
relating to the release or threatened release into the environment of any
Hazardous Material (as hereinafter defined) or petroleum or petroleum
products whether or not occurring at or on a site owned, leased or operated
by Target or any of its Subsidiaries, any Participation Facility or any
Loan Property, except where such noncompliance or release has not had, and
cannot be reasonably expected to have, either individually or in the
aggregate, a Material Adverse Effect on Target;
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(c) During the period of (x) Target's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (y)
Target's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Target's or any of its Subsidiaries' holding
of a security interest in a Loan Property, there has been no release of
Hazardous Material or petroleum or petroleum products in, on, under or
affecting any such property, except where such release or threatened
release has not had and cannot reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect on Target.
Prior to the period of (x) Target's or any of its Subsidiaries' ownership
or operation of any of their respective current properties, (y) Target's or
any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Target's or any of its Subsidiaries' holding
of a security interest in a Loan Property, there was no release or
threatened release of Hazardous Material or petroleum or petroleum products
in, on, under or affecting any such property, Participation Facility or
Loan Property, except where such release has not had and cannot be
reasonably expected to have, either individually or in the aggregate, a
Material Adverse Effect on Target; and
(d) The following definitions apply for purposes of this Section 3.22:
(x) "Loan Property" means any property in which Target or any of its
Subsidiaries holds a security interest, and, where required by the context,
said term means the owner or operator of such property; (y) "Participation
Facility" means any facility in which Target or any of its Subsidiaries
participates in the management and, where required by the context, said
term means the owner or operator of such property; and (z) "Hazardous
Material" means any pollutant, contaminant, waste or hazardous or toxic
substance.
3.23 Derivative Transactions. Except as set forth in Section 3.23 of the
Target Disclosure Schedule, since December 31, 1992, neither Target nor any of
its Subsidiaries has engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments except (i) as agent on
the order and for the account of others, or (ii) as principal for purposes of
hedging interest rate risk on U.S. dollar-denominated securities and other
financial instruments. None of the counterparties to any contract or agreement
with respect to any such instrument is in default with respect to such contract
or agreement and no such contract or agreement, were it to be a Loan held by
Target or any of its Subsidiaries, would be classified as "Other Loans Specially
Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Credit Risk Assets", "Concerned Loans" or words of similar
import. The financial position of Target and its Subsidiaries on a consolidated
basis under or with respect to each such instrument has been reflected in the
books and records of Target and such Subsidiaries in accordance with GAAP
consistently applied, and no open exposure of Target or any of its Subsidiaries
with respect to any such instrument (or with respect to multiple instruments
with respect to any single counterparty) exceeds $500,000.
3.24 Accuracy of Information. The statements contained in this Agreement,
the Target Disclosure Schedules, the Second Target Schedules or in any other
written document delivered by or on behalf of Seller pursuant to the terms of
this Agreement are true and correct in all material respects, and such
statements and documents do not omit any material fact necessary to make the
statements contained therein not misleading.
3.25 Opinion. Target has received an opinion, dated the date of this
Agreement, from Keefe, Bruyette & Woods, Inc. to the effect that, subject to the
terms, conditions and qualifications set forth therein, as of the date thereof
the consideration to be received by the stockholders of Target pursuant to the
Merger is fair to such stockholders from a financial point of view.
3.26 Assistance Agreements. Except as set forth in Section 3.26 of the
Target Disclosure Schedule, neither Target nor any of its Subsidiaries is a
party to any agreement or arrangement entered into in connection with the
consummation of a federally assisted acquisition of a depository institution
pursuant to which Target or any of its Subsidiaries is entitled to receive
financial assistance or indemnification from any governmental agency.
3.27 Rights Agreement. The amendment to the Target Rights Agreement
attached hereto as Exhibit 3.27 has been duly authorized and adopted by Target
and will be duly executed and effective promptly, and in no event more than five
business days, after the date of this Agreement. Parent will not become an
"Acquiring Person" and no "Stock Acquisition Date", "Distribution Date" or
"Triggering Event" (as such terms are
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defined in the Target Rights Agreement) will occur as a result of the approval,
execution or delivery of this Agreement, the Bank Merger Agreement or the Stock
Option Agreement by Target or Target Bank, as the case may be, or the
consummation of the transactions contemplated hereby or thereby, including,
without limitation, the acquisition of shares of Target Common Stock by Parent
pursuant to the Option Agreement.
3.28 Pooling of Interests. Target has no reason to believe that the Merger
will not qualify as a pooling of interests for accounting purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent hereby represents and warrants to Target as follows:
4.1 Corporate Organization. (a) Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Parent has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Parent. Parent is duly registered as
a bank holding company under the BHC Act. The Certificate of Incorporation and
By-laws of Parent, copies of which have previously been made available to
Target, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement.
(b) Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(c) Each Significant Subsidiary of Parent is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each Significant Subsidiary of Parent has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have a Material Adverse Effect on Parent.
The articles of organization and by-laws of Connecticut Bank, copies of which
have previously been made available to Target, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
4.2 Capitalization. (a) The authorized capital stock of Parent consists of
150,000,000 shares of Parent Common Stock and 10,000,000 shares of preferred
stock, without par value ("Parent Preferred Stock"). At the close of business on
September 30, 1993 there were 94,320,487 shares of Parent Common Stock, 700,000
shares of Parent Preferred Stock (of stated value of $50.00 per share), and
5,750,000 shares of Parent Depositary Shares (each representing a one-tenth
interest in a share of 9.30% cumulative preferred stock ($250 stated value))
issued and outstanding, and 31,426 shares of Parent Common Stock held in
Parent's treasury. On September 30, 1993, no shares of Parent Common Stock or
Parent Preferred Stock were reserved for issuance, except that 5,195,338 shares
of Parent Common Stock were reserved for issuance pursuant to Parent's dividend
reinvestment and stock purchase plans, 7,725,000 shares of Parent Common Stock
were reserved for issuance upon the exercise of stock options pursuant to the
Parent Stock Option and Restricted Stock Award Plan and the Parent 1989
Nonemployee Directors' Restricted Stock Plan (collectively, the "Parent Stock
Plans"), 7,314,617 shares of Parent Common Stock were reserved for issuance upon
consummation of the merger of New Dartmouth Bank ("New Dartmouth") with a
Subsidiary of Parent, pursuant to the Agreement and Plan of Merger, dated as of
March 23, 1993, as amended, between Parent and New Dartmouth, 8,718,337 shares
of Parent Common Stock were reserved for issuance upon consummation of the
merger of Peoples Bancorp of Worcester, Inc. ("Peoples") with a Subsidiary of
Parent, pursuant to the Agreement and Plan of Merger dated as of August 26,
1993, as amended, between Parent and Peoples, and 1,500,000 shares of Parent
Series A Junior Participating Preferred Stock were reserved for issuance upon
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exercise of the rights (the "Parent Rights") distributed to holders of Parent
Common Stock pursuant to the Shareholder Rights Agreement, dated as of February
28, 1989, between Parent and Manufacturers Hanover Trust Company, as Rights
Agent (the "Parent Shareholder Rights Agreement"). In addition, Parent expects
to issue warrants to purchase Parent Common Stock in settlement of certain
litigation as described in Parent's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993. All of the issued and outstanding shares of
Parent Common Stock and Parent Preferred Stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof. As of the date of
this Agreement, except as referred to above or reflected in Section 4.2 of the
Disclosure Schedule which is being delivered by Parent to Target herewith (the
"Parent Disclosure Schedule") and except for the Parent Shareholder Rights
Agreement, Parent does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Parent Common
Stock or Parent Preferred Stock or any other equity securities of Parent or any
securities representing the right to purchase or otherwise receive any shares of
Parent Common Stock or Parent Preferred Stock. The authorized capital stock of
Merger Sub consists of 2,000 shares of common stock, par value $1.00 per share
("Merger Sub Common Stock"), 1,000 of which are issued and outstanding and owned
by Parent free and clear of all liens, charges, encumbrances and security
interests whatsoever, and all of such shares are duly authorized and validly
issued and fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to ownership thereof. The shares of Parent Common
Stock to be issued pursuant to the Merger will be duly authorized and validly
issued and, at the Effective Time, all such shares will be fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof.
(b) Section 4.2(b) of the Parent Disclosure Schedule sets forth a true and
correct list of all of the Parent Subsidiaries as of the date of this Agreement.
Except as set forth in Section 4.2(b) of the Parent Disclosure Schedule, Parent
owns, directly or indirectly, all of the issued and outstanding shares of
capital stock of each of the Parent Subsidiaries, free and clear of all liens,
charges, encumbrances and security interests whatsoever, and all of such shares
are duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof. No Parent Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character with any
party that is not a direct or indirect Subsidiary of Parent calling for the
purchase or issuance of any shares of capital stock or any other equity security
of such Subsidiary or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
4.3 Authority; No Violation. (a) Parent has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Parent, and no other corporate
proceedings on the part of Parent are necessary to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and (assuming due authorization, execution and delivery by
Target) constitutes a valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms, except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar law affecting
creditors' rights and remedies generally.
(b) Merger Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will be duly and validly approved by the Board
of Directors of Merger Sub. Upon the due and valid approval of this Agreement by
Parent as the sole stockholder of Merger Sub, and by the Board of Directors of
Merger Sub, no other corporate proceedings on the part of Merger Sub will be
necessary to consummate the transactions contemplated hereby. This Agreement,
upon execution and delivery by Merger Sub, will be duly and validly executed and
delivered by Merger Sub and will (assuming due authorization, execution and
delivery by Target) constitute a valid and binding obligation of Merger Sub,
enforceable against Merger Sub in accordance with its terms, except as
enforcement may be
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limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(c) Connecticut Bank has full corporate power and authority to execute and
deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of Connecticut Bank. Upon the due and
valid approval of the Bank Merger Agreement by Hartford National Corporation
("HNC") as the sole stockholder of Connecticut Bank, and by the Board of
Directors of Connecticut Bank, no other corporate proceedings on the part of
Connecticut Bank will be necessary to consummate the transactions contemplated
thereby. The Bank Merger Agreement, upon execution and delivery by Connecticut
Bank, will be duly and validly executed and delivered by Connecticut Bank and
will (assuming due authorization, execution and delivery by Target Bank)
constitute a valid and binding obligation of Connecticut Bank, enforceable
against Connecticut Bank in accordance with its terms, except as enforcement may
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(d) Except as set forth in Section 4.3(d) of the Parent Disclosure
Schedule, neither the execution and delivery of this Agreement by Parent or
Merger Sub or the Bank Merger Agreement by Connecticut Bank, nor the
consummation by Parent, Merger Sub or Connecticut Bank, as the case may be, of
the transactions contemplated hereby or thereby, nor compliance by Parent,
Merger Sub or Connecticut Bank with any of the terms or provisions hereof or
thereof, will (i) violate any provision of the Certificate of Incorporation or
By-Laws of Parent, the Certificate of Incorporation or By-Laws of Merger Sub or
the articles of incorporation or by-laws or similar governing documents of
Connecticut Bank, as the case may be, or (ii) assuming that the consents and
approvals referred to in Section 4.4 are duly obtained, (x) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Parent or any of its Significant Subsidiaries or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Parent or any of
its Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Parent or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound or
affected, except (in the case of clause (y) above) for such violations,
conflicts, breaches or defaults which either individually or in the aggregate
will not have a Material Adverse Effect on Parent.
4.4 Consents and Approvals. (a) Except for (i) the filing of applications
and notices, as applicable, with the Federal Reserve Board under the BHC Act,
the Bank Merger Act and the FRA and approval of such applications and notices,
(ii) the filing of applications with the OCC under the Bank Merger Act and
approval of such applications, (iii) the State Banking Approvals, (iv) the
filing with the SEC of the Proxy Statement and the S-4, (v) the approval of this
Agreement by Parent as the sole stockholder of Merger Sub, (vi) the filing of
the Certificate of Merger with the Secretary, (vii) such filings and approvals
as are required to be made or obtained under the securities or "Blue Sky" laws
of various states in connection with the issuance of the shares of Parent Common
Stock pursuant to this Agreement, (viii) filings required by the Bank Merger
Agreement, (ix) the approval of the Bank Merger Agreement by the stockholders of
Connecticut Bank, and (x) such filings, authorizations or approvals as may be
set forth in Section 4.4 of the Parent Disclosure Schedule, no consents or
approvals of or filings or registrations with any Governmental Entity or with
any third party are necessary in connection with (1) the execution and delivery
by Parent and Merger Sub of this Agreement, (2) the consummation by Parent and
Merger Sub of the Merger and the other transactions contemplated hereby (3) the
execution and delivery by Connecticut Bank of the Bank Merger Agreement, and (4)
the consummation of Connecticut Bank of the transactions contemplated by the
Bank Merger Agreement. The affirmative vote of the holders of the outstanding
shares of Parent Common Stock is not required to approve this Agreement or the
transactions contemplated hereby.
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(b) Parent hereby represents to Target that it has no reason to believe
that it will be unable to obtain each and every required consent and approval
referred to in this Section 4.4 so that the transactions contemplated by this
Agreement and the Bank Merger Agreement may be consummated on or prior to
December 31, 1994.
4.5 Financial Statements. Parent has previously delivered to Target copies
of (a) the consolidated balance sheets of Parent and its Subsidiaries as of
December 31 for the fiscal years 1991 and 1992 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
fiscal years 1990 through 1992, inclusive, as reported in Parent's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 filed with the SEC
under the Exchange Act, in each case accompanied by the audit report of Price
Waterhouse, independent public accountants with respect to Parent, and (b) the
unaudited consolidated balance sheet of Parent and its Subsidiaries as of June
30, 1993 and June 30, 1992 and the related unaudited consolidated statements of
income, changes in shareholders' equity and cash flows for the six month periods
then ended as reported in Parent's Quarterly Report on Form 10-Q for the period
ended June 30, 1993 filed with the SEC under the Exchange Act. The December 31,
1992 consolidated balance sheet of Parent (including the related notes, where
applicable) fairly presents the consolidated financial position of Parent and
its Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 4.5 (including the related notes, where applicable)
fairly present and the financial statements referred to in Section 6.9 hereof
will fairly present (subject, in the case of the unaudited statements, to
recurring audit adjustments normal in nature and amount), the results of the
consolidated operations and changes in shareholders' equity and consolidated
financial position of Parent and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the financial
statements referred to in Section 6.9 hereof will comply, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements referred to in Section 6.9 hereof will be, prepared in accordance
with GAAP consistently applied during the periods involved, except as indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q. The books and records of Parent and its Significant Subsidiaries have
been, and are being, maintained in all material respects in accordance with GAAP
and any other applicable legal and accounting requirements and reflect only
actual transactions.
4.6 Broker's Fees. Neither Parent, Merger Sub nor any Parent Subsidiary,
nor any of their respective officers or directors, has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated by this Agreement,
the Bank Merger Agreement or the Option Agreement, except that Parent has
engaged, and will pay a financial advisory service fee to, Goldman, Sachs & Co.
4.7 Absence of Certain Changes or Events. Except as may be set forth in
Section 4.7 of the Parent Disclosure Schedule, or as disclosed in Parent's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 or in any
Current Reports of Parent on Form 8-K filed prior to September 30, 1993, true,
complete and correct copies of which have previously been delivered to Target,
since June 30, 1993, (i) neither Parent nor any of its Subsidiaries has incurred
any material liability, except in the ordinary course of their business
consistent with their past practices, and (ii) no event has occurred which has
had, individually or in the aggregate, a Material Adverse Effect on Parent.
4.8 Legal Proceedings. Except as set forth in Section 4.8 of the Parent
Disclosure Schedule or in Parent's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, neither Parent nor any of its Subsidiaries is a party to
any and there are no pending or, to the best of Parent's knowledge, threatened,
material legal, administrative, arbitral or other proceedings, claims, actions
or governmental or regulatory investigations of any nature against Parent or any
of its Subsidiaries or challenging the validity or propriety of the transactions
contemplated by this Agreement, the Bank Merger Agreement or the Option
Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would have a Material Adverse
Effect on Parent. There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Parent, any of its Subsidiaries or the assets of Parent
or any of its Subsidiaries which has had a Material Adverse Effect on Parent.
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4.9 Compliance with Applicable Law. Parent and each of its Subsidiaries
hold, and have at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to Parent or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such non-compliance or default would not, individually or in
the aggregate, have a Material Adverse Effect on Parent, and neither Parent nor
any of its Subsidiaries knows of, or has received notice of violation of, any
material violations of any of the above.
4.10 SEC Reports. Parent has previously made available to Target an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1989 by
Parent with the SEC pursuant to the Securities Act or the Exchange Act (the
"Parent Reports") and (b) communication mailed by Parent to its shareholders
since January 1, 1989, and no such registration statement, prospectus, report,
schedule, proxy statement or communication contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier date.
Parent has timely filed all Parent Reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Parent Reports complied in all material respects with the
published rules and regulations of the SEC with respect thereto.
4.11 Parent Information. The information relating to Parent and its
Subsidiaries to be contained in the Proxy Statement and the S-4, or in any other
document filed with any other regulatory agency in connection herewith, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading. The S-4 (except for such portions thereof that
relate only to Target or any of its Subsidiaries) will comply in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
4.12 Accuracy of Information. The statements contained in this Agreement,
the Parent Disclosure Schedule or in any other written document delivered by or
on behalf of Seller pursuant to the terms of this Agreement are true and correct
in all material respects, and such statements and documents do not omit any
material fact necessary to make the statements contained therein not misleading.
4.13 Ownership of Target Common Stock; Affiliates and Associates. (a)
Neither Parent nor any of its affiliates or associates (as such terms are
defined under the Exchange Act), (i) beneficially own, directly or indirectly,
or (ii) is a party to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of, in each case, any shares
of capital stock of Target (other than Trust Account Shares and DPC Shares and
other than shares of Target Common Stock issuable pursuant to the Option
Agreement); and
(b) Neither Parent nor any of its Subsidiaries is an "affiliate" (as such
term is defined in DGCL sec. 203(c)(1)) or an "associate" (as such term is
defined in DGCL sec. 203(c)(2)) of Target.
4.14 Taxes and Tax Returns. Except as may be reflected in Section 4.14 of
the Parent Disclosure Schedule, each of Parent and its Subsidiaries has duly
filed all material Federal, state and, to the best of Parent's knowledge,
material local information returns and tax returns required to be filed by it on
or prior to the date hereof (all such returns being accurate and complete in all
material respects) and has duly paid or made provisions for the payment of all
material Taxes and other governmental charges which have been incurred or are
due or claimed to be due from it by Federal, state, county or local taxing
authorities on or prior to the date hereof (including, without limitation, if
and to the extent applicable, those due in respect of its properties, income,
business, capital stock, deposits, franchises, licenses, sales and payrolls, and
the Connecticut net worth tax) other than Taxes or other charges (a) which (x)
are not yet delinquent or (y) are being contested in good faith and set forth in
Section 4.14 of the Parent Disclosure Schedule and (b) have not been finally
determined. The income tax returns of Parent and its Subsidiaries have been
examined by the IRS and any liability with respect thereto has been satisfied
for all years to and including 1985, and no material deficiencies were asserted
as a result of such examination or all such deficiencies were satisfied. Except
as may
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be set forth in Section 4.14 of the Parent Disclosure Schedule, to the best of
Parent's knowledge, there are no material disputes pending, or claims asserted
for, Taxes or assessments upon Parent or any of its Subsidiaries, nor has Parent
or any of its Subsidiaries been requested to give any currently effective
waivers extending the statutory period of limitation applicable to any Federal,
state, county or local income tax return for any period. In addition, Federal,
state, county and local returns which are accurate and complete in all material
respects have been filed by Parent and its Subsidiaries for all periods for
which returns were due with respect to income tax withholding, Social Security
and unemployment taxes and the amounts shown on such Federal, state, local or
county returns to be due and payable have been paid in full or adequate
provision therefor has been included by Parent in its consolidated financial
statements as of June 30, 1993.
4.15 Employees. (a) Section 4.15 of the Parent Disclosure Schedule sets
forth a true and complete list of each employee benefit plan, arrangement or
agreement that is maintained as of the date of this Agreement (the "Parent
Plans"), except as noted in Section 4.15 of the Parent Disclosure Schedule, by
Parent, any of its Subsidiaries or by any trade or business; whether or not
incorporated (a "Parent ERISA Affiliate"), all of which together with Parent
would be deemed a "single employer" within the meaning of Section 4001 of ERISA.
(b) Parent has heretofore delivered to Target true and complete copies of
each of the Parent Plans and all related documents, including but not limited to
(i) the actuarial report for such Parent Plan (if applicable) for each of the
last two years, and (ii) the most recent determination letter from the Internal
Revenue Service (if applicable) for such Parent Plan.
(c) Except as set forth in Section 4.15 of the Parent Disclosure Schedule,
(i) each of the Parent Plans has been operated and administered in all material
respects with applicable laws, including but not limited to ERISA and the Code,
(ii) each of the Parent Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code has either (1) received a favorable determination
letter from the IRS, or (2) is or will be the subject of an application for a
favorable determination letter, and Parent is not aware of any circumstances
likely to result in the revocation or denial of any such favorable determination
letter, (iii) with respect to each Parent Plan which is subject to Title IV of
ERISA, the present value of accrued benefits under such Parent Plan, based upon
the actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Parent Plan's actuary with respect to such Parent Plan,
did not, as of its latest valuation date, exceed the then current value of the
assets of such Parent Plan allocable to such accrued benefits, (iv) no Parent
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of Parent,
its Subsidiaries or any Parent ERISA Affiliate beyond their retirement or other
termination of service, other than (w) coverage mandated by applicable law, (x)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits
accrued as liabilities on the books of Parent, its Subsidiaries or the Parent
ERISA Affiliates or (z) benefits the full cost of which is borne by the current
or former employee (or his beneficiary), (v) no liability under Title IV of
ERISA has been incurred by Parent, its Subsidiaries or any Parent ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to Parent, its Subsidiaries or any Parent ERISA
Affiliate of incurring a material liability thereunder, (vi) no Parent Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
(vii) all contributions or other amounts payable by Parent or its Subsidiaries
as of the Effective Time with respect to each Parent Plan in respect of current
or prior plan years have been paid or accrued in accordance with generally
accepted accounting practices and Section 412 of the Code, (viii) neither
Parent, its Subsidiaries nor any Parent ERISA Affiliate has engaged in a
transaction in connection with which Parent, its Subsidiaries or any Parent
ERISA Affiliate could be subject to either a material civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to
Section 4975 or 4976 of the Code, (ix) consummation of the transactions
contemplated hereby will not cause any amounts payable under any of the Parent
Plans to fail to be deductible for federal income tax purposes under Section
280G of the Code, and (x) to the best knowledge of Parent there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Parent Plans or any trusts related thereto.
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4.16 Agreements with Regulatory Agencies. Except as set forth in Section
4.16 of the Parent Disclosure Schedule or as disclosed in Parent's Annual Report
on Form 10-K for the year ended December 31, 1992, neither Parent nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth on Section 4.16 of the Parent
Disclosure Schedule, a "Parent Regulatory Agreement"), any Regulatory Agency or
other Governmental Entity that restricts the conduct of its business or that in
any manner relates to its capital adequacy, its credit policies, its management
or its business, nor has Parent or any of its Subsidiaries been advised by any
Regulatory Agency or other Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.
4.17 Undisclosed Liabilities. Except (a) as set forth in Section 4.17 of
the Parent Disclosure Schedule, (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Parent
included in its Form 10-Q for the period ended June 30, 1993 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice, since June 30, 1993, neither Parent nor any of its Subsidiaries has
incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that, either alone or
when combined with all similar liabilities, is, or could reasonably be expected
to be, material to the business, properties, assets, liabilities, results of
operations or financial condition of Parent and its Subsidiaries taken as a
whole.
4.18 Administration of Fiduciary Accounts. Parent and each of its
Significant Subsidiaries have properly administered in all material respects all
accounts for which they act as fiduciary, including but not limited to accounts
for which they serve as a trustee, agent, custodian, personal representative,
guardian, conservator or investment advisor, in accordance with the terms of the
governing documents and applicable state and federal law and regulation and
common law. Neither Parent nor any of its Significant Subsidiaries nor any of
their respective directors, officers or employees has committed any breach of
trust with respect to any such fiduciary account which has had or could
reasonably be expected to have a Material Adverse Effect on Parent; and the
accountings for each such fiduciary account are true and correct in all material
respects and accurately reflect the assets of such fiduciary account.
4.19 Pooling of Interests. Parent has no reason to believe that the Merger
will not qualify as a person of interests for accounting purposes.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of Target. During the period from the date of this Agreement
and continuing until the Effective Time, except as expressly contemplated or
permitted by this Agreement, the Bank Merger Agreement or the Option Agreement
or with the prior written consent of Parent, Target and its Subsidiaries shall
carry on their respective businesses in the ordinary course consistent with past
practice and consistent with prudent banking practice. Target will use its best
efforts to (x) preserve its business organization and that of Target Bank
intact, (y) keep available to itself and Parent the present services of the
employees of Target and Target Bank and (z) preserve for itself and Parent the
goodwill of the customers of Target and Target Bank and others with whom
business relationships exist. Without limiting the generality of the foregoing,
and except as set forth in the Target Disclosure Schedule or as otherwise
contemplated by this Agreement or consented to in writing by Parent, Target
shall not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of Target, declare or pay any dividends on, or
make other distributions in respect of, any of its capital stock;
(b) (i) split, combine or reclassify any shares of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock
except upon the exercise or fulfillment of rights or options issued or
existing pursuant to employee benefit plans, programs or arrangements, all
to the extent outstanding and in existence on the date of this
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Agreement, and except pursuant to the Option Agreement, or (ii) repurchase,
redeem or otherwise acquire (except for the acquisition of Trust Account
Shares and DPC Shares, as such terms are defined in Section 1.4(b) hereof)
any shares of the capital stock of Target or any Target Subsidiary, or any
securities convertible into or exercisable for any shares of the capital
stock of Target or any Target Subsidiary;
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any
of the foregoing, other than (i) the issuance of Target Common Stock
pursuant to stock options or similar rights to acquire Target Common Stock
granted pursuant to the Target Stock Option and Incentive Plans and
outstanding prior to the date of this Agreement, in each case in accordance
with their present terms and (ii) pursuant to the Option Agreement;
(d) amend its Certificate of Incorporation, By-laws or other similar
governing documents;
(e) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
"takeover proposal" (as defined below), or, except to the extent legally
required for the discharge of the fiduciary duties of the Board of
Directors of Target as advised in writing by such board's counsel,
recommend or endorse any takeover proposal, or participate in any
discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or otherwise
facilitate any effort or attempt to make or implement a takeover proposal;
provided, however, that Target may communicate information about any such
takeover proposal to its stockholders if, in the judgment of Target's Board
of Directors with the advice of outside counsel, such communication is
required under applicable law. Target will immediately cease and cause to
be terminated any existing activities, discussions or negotiations
previously conducted with any parties other than Parent with respect to any
of the foregoing. Target will take all actions necessary or advisable to
inform the appropriate individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 5.1(e).
Target will notify Parent immediately if any such inquiries or takeover
proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with, Target, and Target will promptly inform Parent in writing of all of
the relevant details with respect to the foregoing. As used in this
Agreement, "takeover proposal" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination
involving Target or any Subsidiary of Target or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, Target or any Subsidiary of Target other than the
transactions contemplated or permitted by this Agreement, the Bank Merger
Agreement and the Option Agreement;
(f) make any capital expenditures other than in the ordinary course of
business or as necessary to maintain existing assets in good repair;
(g) enter into any new line of business;
(h) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire any assets, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan or debt
restructurings in the ordinary course of business consistent with prudent
banking practices, which would be material, individually or in the
aggregate, to Target;
(i) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article VII not being satisfied,
or in a violation of any provision of this Agreement or the Bank Merger
Agreement, except, in every case, as may be required by applicable law;
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(j) change its methods of accounting in effect at June 30, 1993,
except as required by changes in GAAP or regulatory accounting principles
as concurred to by Target's independent auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate any
Plan or any agreement, arrangement, plan or policy between Target or any
Target Subsidiary and one or more of its current or former directors,
officers or employees or (ii) except for normal increases in the ordinary
course of business consistent with past practice or except as required by
applicable law, increase in any manner the compensation or fringe benefits
of any director, officer or employee or pay any benefit not required by any
plan or agreement as in effect as of the date hereof (including, without
limitation, the granting of stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units or shares) or
(iii) enter into, modify or renew any contract, agreement, commitment or
arrangement providing for the payment to any director, officer or employee
of such party of compensation or benefits contingent, or the terms of which
are materially altered, upon the occurrence of any of the transactions
contemplated by this Agreement, the Bank Merger Agreement or the Option
Agreement;
(l) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, provided, however, that
nothing contained herein shall limit the ability of Parent to exercise its
rights under the Option Agreement;
(m) other than activities in the ordinary course of business
consistent with prior practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose
of, any of its material assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(o) file any application to relocate or terminate the operations of
any banking office of it or any of its Subsidiaries;
(p) commit any act or omission which constitutes a material breach or
default by Target or any of its Subsidiaries under any Regulatory Agreement
or under any material contract or material license to which Target or any
of its Subsidiaries is a party or by which any of them or their respective
properties is bound;
(q) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other
than in connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of business
consistent with prudent banking practices;
(r) create, renew, amend or terminate or give notice of a proposed
renewal, amendment or termination of, any material contract, agreement or
lease for goods, services or office space to which Target or any of its
Subsidiaries is a party or by which Target or any of its Subsidiaries or
their respective properties is bound except that Target may renew
contracts, agreements or leases in the ordinary course of business after
consultation with Parent; or
(s) agree to do any of the foregoing.
5.2 Covenants of Parent. 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 Target, Parent
and its Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with prudent banking practice and use all reasonable efforts
to preserve intact their present business organizations and relationships.
Without limiting the generality of the foregoing and except as set forth on
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Section 5.2 of the Parent Disclosure Schedule or as otherwise contemplated by
this Agreement or consented to in writing by Target, Parent shall not, and shall
not permit any of its Subsidiaries to:
(a) solely in the case of Parent, declare or pay any extraordinary or
special dividends on or make any other extraordinary or special
distributions in respect of any of its capital stock; provided, however,
that nothing contained herein shall prohibit Parent from increasing the
quarterly cash dividend on the Parent Common Stock;
(b) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article VII not being satisfied
or in a violation of any provision of this Agreement or the Bank Merger
Agreement, except, in every case, as may be required by applicable law;
(c) change its methods of accounting in effect at June 30, 1993,
except in accordance with changes in GAAP or regulatory accounting
principles as concurred to by Parent's independent auditors;
(d) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, provided, however, that
nothing contained herein shall limit the ability of Parent to exercise its
rights under the Option Agreement; or
(e) take any other action that would materially adversely affect or
materially delay the ability of Parent or Target to obtain the Requisite
Regulatory Approvals or otherwise materially adversely affect Parent's
ability to consummate the transactions contemplated by this Agreement; or
(f) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters. (a) Target shall promptly prepare and file with
the SEC the Proxy Statement and Parent shall promptly prepare and file with the
SEC the S-4, in which the Proxy Statement will be included as a prospectus. Each
of Parent and Target shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such filing,
and Target shall thereafter mail the Proxy Statement to its stockholders. Parent
shall also use all reasonable efforts to obtain all necessary state securities
law or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement and the Bank Merger Agreement, and Target shall
furnish all information concerning Target and the holders of Target 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 best
efforts to promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the transactions contemplated by this Agreement (including without limitation
the Merger and the Subsidiary Merger) (it being understood that any amendments
to the S-4 or a resolicitation of proxies as consequence of an acquisition
agreement by Parent or any of its Subsidiaries shall not violate this covenant).
Target and Parent shall have the right to review in advance, and to the extent
practicable each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
Target or Parent, as the case may be, and any of their respective Subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement; provided, however, that nothing contained herein
shall be deemed to provide either party with a right to review any information
provided to any Governmental Entity on a confidential basis in connection with
the transactions contemplated hereby. 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
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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) Parent and Target shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Proxy Statement, the S-4 or any other statement, filing,
notice or application made by or on behalf of Parent, Target or any of their
respective Subsidiaries to any Governmental Entity in connection with the Merger
and the other transactions contemplated by this Agreement.
(d) Parent and Target shall promptly advise each other upon receiving any
communication from any Governmental Entity whose consent or approval is required
for consummation of the transactions contemplated by this Agreement which causes
such party to believe that there is a reasonable likelihood that any Requisite
Regulatory Approval will not be obtained or that the receipt of any such
approval will be materially delayed.
6.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, Target shall, and shall
cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of Parent, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
Target shall, and shall cause its Subsidiaries to, make available to Parent (i)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking laws (other than reports or
documents which Target is not permitted to disclose under applicable law) and
(ii) all other information concerning its business, properties and personnel as
Parent may reasonably request. Neither Target nor any of its Subsidiaries shall
be required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of Target's customers,
jeopardize the attorney-client privilege of the institution in possession or
control of such information or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Parent will hold all such information in confidence to
the extent required by, and in accordance with, the provisions of the
confidentiality agreement between Parent and Target (the "Confidentiality
Agreement").
(b) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, Parent shall, and shall cause its Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of Target, access, during normal business hours during the
period prior to the Effective Time, to such information regarding Parent and its
Subsidiaries as shall be reasonably necessary for Target to fulfill its
obligations pursuant to this Agreement to prepare the Proxy Statement or which
may be reasonably necessary for Target to confirm that the representations and
warranties of Parent contained herein are true and correct and that the
covenants of Parent contained herein have been performed in all material
respects. Neither Parent nor any of its Subsidiaries shall be required to
provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of Parent's customers, jeopardize the
attorney-client privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply. During the period from the date of this Agreement to the
Effective Time, Parent will cause one or more of its designated representatives
to confer on a regular and frequent basis (not less than monthly) with
representatives of Target and to report the general status of the ongoing
operations of Parent and its Subsidiaries.
(c) All information furnished by Parent to Target or its representatives
pursuant hereto shall be treated as the sole property of Parent and, if the
Merger shall not occur, Target and its representatives shall return to Parent
all of such written information and all documents, notes, summaries or other
materials containing, reflecting or referring to, or derived from, such
information. Target shall, and shall use its best efforts to cause
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its representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential shall
continue for five years from the date the proposed Merger is abandoned and shall
not apply to (i) any information which (x) was already in Target's possession
prior to the disclosure thereof by Parent; (y) was then generally known to the
public; or (z) was disclosed to Target by a third party not bound by an
obligation of confidentiality or (ii) disclosures made as required by law. It is
further agreed that, if in the absence of a protective order or the receipt of a
waiver hereunder Target is nonetheless, in the opinion of its counsel, compelled
to disclose information concerning Parent to any tribunal or governmental body
or agency or else stand liable for contempt or suffer other censure or penalty,
Target may disclose such information to such tribunal or governmental body or
agency without liability hereunder.
(d) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein.
6.3 Stockholder Meeting. Target shall take all steps necessary to duly
call, give notice of, convene and hold a meeting of its stockholders to be held
as soon as is reasonably practicable after the date on which the S-4 becomes
effective for the purpose of voting upon the approval of this Agreement. Target
will, through its Board of Directors, except to the extent legally required for
the discharge of the fiduciary duties of such board as advised in writing by its
counsel, recommend to its stockholders approval of this Agreement and the
transactions contemplated hereby and such other matters as may be submitted to
its stockholders in connection with this Agreement. Target and Parent shall
coordinate and cooperate with respect to the foregoing matters.
6.4 Legal Conditions to Merger. Each of Parent and Target shall, and shall
cause its Subsidiaries to, use their reasonable best efforts (a) to take, or
cause to be taken, all actions necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party or its
Subsidiaries with respect to the Merger or the Subsidiary Merger and, subject to
the conditions set forth in Article VII hereof, to consummate the transactions
contemplated by this Agreement and (b) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity and any other third party which is
required to be obtained by Target or Parent or any of their respective
Subsidiaries in connection with the Merger and the Subsidiary Merger and the
other transactions contemplated by this Agreement.
6.5 Affiliates; Publication of Combined Financial Results. (a) Each of
Parent and Target shall use its best efforts to cause each director, executive
officer and other person who is an "affiliate" (for purposes of Rule 145 under
the Securities Act and for purposes of qualifying the Merger for
"pooling-of-interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, and
prior to the date of the stockholders meeting called by Target to approve this
Agreement, a written agreement, in the form of Exhibit 6.05(a) hereto, providing
that such person will not sell, pledge, transfer or otherwise dispose of any
shares of Parent Common Stock or Target Common Stock held by such "affiliate"
and, in the case of the "affiliates" of Target, the shares of Parent Common
Stock to be received by such "affiliate" in the Merger: (1) in the case of
shares of Parent Common Stock to be received by "affiliates" of Target in the
Merger, except in compliance with the applicable provisions of the Securities
Act and the rules and regulations thereunder; and (2) during the period
commencing 30 days prior to the Merger and ending at the time of the publication
of financial results covering at least 30 days of combined operations of Parent
and Target.
(b) Parent shall use its best efforts to publish no later than ninety (90)
days after the end of the first month after the Effective Time in which there
are at least thirty (30) days of post-Merger combined operations (which month
may be the month in which the Effective Time occurs), combined sales and net
income figures as contemplated by and in accordance with the terms of SEC
Accounting Series Release No. 135.
6.6 Stock Exchange Listing. Parent shall cause the shares of Parent Common
Stock to be issued in the Merger to be approved for listing on the New York
Stock Exchange, Inc. (the "NYSE"), subject to official notice of issuance, prior
to the Effective Time.
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6.7 Employee Benefit Plans. (a) From and after the Effective Time, and
subject to applicable law, the Surviving Corporation shall continue all employee
benefit plans of Target and its Subsidiaries as in effect at the Effective Time,
including pension plans, thrift plans, management incentive plans, group life
plans, accidental death and dismemberment plans, travel accident plans, medical
and hospitalization plans and long-term disability plans, provided, however,
that the Surviving Corporation may amend, supplement or replace any such plan or
program if, in the good faith judgment of the management of the Surviving
Corporation, any such amendment, supplement or replacement will provide the
employees ("Target Employees") or retired employees covered thereby with
benefits that are in the aggregate at least as valuable to them as a group as
the benefits to be received by them under the plans and programs in effect
immediately prior to any such amendment, supplement or replacement. With respect
to benefits payable to employees who shall have retired from the Target and its
Subsidiaries, whether before or after the Effective Time, the Surviving
Corporation shall in no event take any action to reduce such benefits.
(b) With respect to the continuation of Target's benefit plans pursuant to
Section 6.7(a) hereof, Target Employees shall be credited under such plans
maintained by the Surviving Corporation or Parent with all years of service with
Target or any Subsidiary of Target for all purposes to the extent such service
was recognized by Target or any Subsidiary of Target under any of such plans; to
the extent that Target Employees become participants in any employee benefit
plans maintained by Parent or any of its Subsidiaries (other than the plans of
Target referred to in the first sentence of Section 6.7(a) ("Parent Plans")),
Target Employees shall be credited under the Parent Plans for prior years of
service with Target or any Subsidiary of Target for all purposes, other than
benefit accrual, to the extent such service was recognized by Target or any
Subsidiary of Target under any of the plans referred to in the first sentence of
Section 6.7(a).
6.7A Assumption of Existing Agreements Relating to
Employment. (a) Following the Effective Time, Parent shall honor and shall
cause Target or any successor thereto to honor in accordance with their terms
all employment, severance and other compensation agreements and arrangements
existing prior to the execution of this Agreement, which are between Target or
Target Bank and any director, officer or employee thereof and which have been
disclosed in the Target Disclosure Schedule, and to assume all duties,
liabilities and obligations under such agreements and arrangements.
6.8 Indemnification; Directors' and Officers' Insurance. (a) In the event
of any threatened or actual claim, action, suit, proceeding or investigation,
whether civil, criminal or administrative, including, without limitation, any
such claim, action, suit, proceeding or investigation in which any person who is
now, or has been at any time prior to the date of this Agreement, or who becomes
prior to the Effective Time, a director or officer or employee of Target or any
of its Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made
a party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director, officer or employee of
Target, any of the Target Subsidiaries or any of their respective predecessors
or (ii) this Agreement or any of the transactions contemplated hereby, whether
in any case asserted or arising before or after the Effective Time, the parties
hereto agree to cooperate and use their best efforts to defend against and
respond thereto. It is understood and agreed that after the Effective Time,
Parent shall indemnify and hold harmless, as and to the fullest extent permitted
by Delaware law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted of arising before or after the Effective Time), the Indemnified Parties
may retain counsel reasonably satisfactory to them after consultation with
Parent; provided, however, that (1) Parent shall have the right to assume the
defense thereof and upon such assumption Parent shall not be liable to any
Indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Parent elects not to assume such defense or counsel for
the Indemnified Parties reasonably advises the Indemnified Parties that there
are issues which raise conflicts of interest between Parent and the Indemnified
Parties, the Indemnified Parties may retain counsel reasonably satisfactory to
them after consultation with
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Parent, and Parent shall pay the reasonable fees and expenses of such counsel
for the Indemnified Parties, (2) Parent shall be obligated pursuant to this
paragraph to pay for only one firm of counsel for all Indemnified Parties, (3)
Parent shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and (4) Parent shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim Indemnification under this Section 6.8, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify Parent thereof, provided that the failure to so notify shall not affect
the obligations of Parent under this Section 6.8 except to the extent such
failure to notify materially prejudices Parent. Parent's obligations under this
Section 6.8 continue in full force and effect for a period of six (6) years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within such period shall
continue until the final disposition of such Claim.
(b) Parent shall use best efforts to cause the persons serving as officers
and directors of Target immediately prior to the Effective Time to be covered
for a period of four (4) years from the Effective Time by the directors' and
officers' liability insurance policy maintained by Target (provided that Parent
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous than such
policy) with respect to acts or omissions occurring prior to the Effective Time
which were committed by such officers and directors in their capacity as such;
provided, however, that in no event shall Parent be required to expend more than
200% of the current amount expended by Target (the "Insurance Amount") to
maintain or procure insurance coverage pursuant hereto and further provided that
if Parent is unable to maintain or obtain the insurance called for by this
Section 6.8(b), Parent shall use its best efforts to obtain as much comparable
insurance as available for the Insurance Amount.
(c) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent
assume the obligations set forth in this section.
(d) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
6.9 Subsequent Interim and Annual Financial Statements. As soon as
reasonably available, but in no event later than March 31, 1994, Parent will
deliver to Target and Target will deliver to Parent their respective Annual
Reports on Form 10-K for the fiscal year ended December 31, 1993, as filed with
the SEC under the Exchange Act. As soon as reasonably available, but in no event
more than 45 days after the end of each fiscal quarter ending after the date of
this Agreement, Parent will deliver to Target and Target will deliver to Parent
their respective Quarterly Reports on Form 10-Q, as filed with the SEC under the
Exchange Act.
6.10 Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, or the Bank Merger Agreement, or to vest the Surviving Corporation or
the Surviving Bank with full title to all properties, assets, rights, approvals,
immunities and franchises of any of the parties to the Merger or the Subsidiary
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by, and at the sole expense of, Parent.
6.11 Advice of Changes. Parent and Target shall promptly advise the other
party of any change or event having a Material Adverse Effect on it or which it
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained herein.
From time to time prior to the Effective Time, each party will promptly
supplement or amend the Disclosure Schedules delivered in connection with the
execution of this Agreement to reflect any matter which, if existing, occurring
or known at the date of this Agreement, would have been required to be set forth
or described in such Disclosure Schedules or which is necessary to correct any
information in such Disclosure Schedules which has been rendered inaccurate
thereby. No supplement or amendment to such Disclosure Schedules shall have any
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effect for the purpose of determining satisfaction of the conditions set forth
in Sections 7.2(a) or 7.3(a) hereof, as the case may be, or the compliance by
Target or Parent, as the case may be, with the respective covenants set forth in
Sections 5.1 and 5.2 hereof.
6.12 Current Information. During the period from the date of this
Agreement to the Effective Time, Target will cause one or more of its designated
representatives to confer on a regular and frequent basis (not less than
monthly) with representatives of Parent and to report (i) the general status of
the ongoing operations of Target and its Subsidiaries and (ii) the status of,
and the action proposed to be taken with respect to, those Loans held by Target
or any Target Subsidiary which, individually or in combination with one or more
other Loans to the same borrower thereunder, have an original principal amount
of $100,000 or more and are non-performing assets. Target will promptly notify
Parent of any material change in the normal course of business or in the
operation of the properties of Target or any of its Subsidiaries and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of significant litigation involving Target or any of its Subsidiaries, and will
keep Parent fully informed of such events.
6.13 Execution and Authorization of Bank Merger Agreement. As soon as
reasonably practicable after the date of this Agreement, (a) Parent shall (i)
cause the Board of Directors of Connecticut Bank to approve the Bank Merger
Agreement, (ii) cause Connecticut Bank to execute and deliver the Bank Merger
Agreement, and (iii) cause the holding companies of Connecticut Bank to approve
the Bank Merger Agreement as the stockholders of Connecticut Bank, and (b)
Target shall (i) cause the Board of Directors of Target Bank to approve the Bank
Merger Agreement, (ii) cause Target Bank to execute and deliver the Bank Merger
Agreement, and (iii) approve the Bank Merger Agreement as the sole stockholder
of Target Bank. The Bank Merger Agreement shall contain terms that are normal
and customary in light of the transactions contemplated hereby and such
additional terms as are necessary to carry out the purposes of this Agreement.
6.14 Merger Sub. As soon as practicable after the date of this Agreement,
Parent shall (a) cause Merger Sub to execute a copy of this Agreement and
deliver such executed copy to each of Parent and Target and (b) cause Merger Sub
to take all necessary action to complete the transactions contemplated hereby
subject to the terms and conditions hereof.
6.15 Second Target Schedules. No later than 15 days after the date of this
Agreement, Target shall deliver to Parent the Second Target Schedules.
6.16 Executive Advisory Board. Parent agrees, promptly following the
Effective Time, to cause those persons who are members of Target's Board of
Directors on the date of this Agreement and immediately prior to the Effective
Time who are nominated by Target and are willing so to serve to be elected or
appointed as members of a newly formed executive advisory board, the function of
which shall be to advise the Surviving Corporation on deposit and lending
activities in Target's former market area. Each such advisory director shall
receive an annual fee of $5,000 and per meeting fees of $500. Parent's
obligations under this Section 6.16 shall continue until not earlier than
December 31, 1996.
6.17 Certain Revaluations, Changes, and Adjustments. On or before the
Effective Time, upon the request of Parent, Target shall, consistent with GAAP
modify and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) so as to be
applied consistently on a mutually satisfactory basis with those of Parent and
establish such accruals and reserves as shall be necessary to reflect
Merger-related expenses and costs incurred by Target, provided, however, that
Target shall not be required to take such action (A) more than five days prior
to the Effective Time; (B) unless Parent agrees in writing that all conditions
to closing set forth in Article VII have been satisfied or waived; and (C)
unless Target shall have received a written waiver by Parent of its right to
terminate this Agreement, and no accrual or reserve made by Target or any Target
Subsidiary pursuant to this Section 6.17, or any litigation or regulatory
proceeding arising out of any such accrual or reserve, shall constitute or be
deemed to be a breach, violation of or failure to satisfy any representation,
warranty, covenant, condition or other provision of this Agreement or otherwise
be considered in determining whether any such breach, violation or failure to
satisfy shall have occurred.
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6.18 Termination of Regulatory Agreements. Target shall, and shall cause
Target Bank to, use its reasonable best efforts in cooperation with Parent to
confirm that all Regulatory Agreements to which Target or Target Bank is or
becomes subject to will be terminated and of no further force and effect at or
prior to the Effective Time.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of at least a majority of
the outstanding shares of Target Common Stock entitled to vote thereon.
(b) NYSE Listing. The shares of Parent Common Stock which shall be
issued to the stockholders of Target upon consummation of the Merger shall
have been authorized for listing on the NYSE, subject to official notice of
issuance.
(c) Other Approvals. All regulatory approvals required to consummate
the transactions contemplated hereby (including the Merger and the
Subsidiary Merger) shall have been obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof shall have
expired (all such approvals and the expiration of all such waiting periods
being referred to herein as the "Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger, the Subsidiary Merger or any of the other
transactions contemplated by this Agreement or the Bank Merger Agreement
shall be in effect. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger or the Subsidiary Merger.
7.2 Conditions to Obligations of Parent and Merger Sub. The obligation of
Parent and Merger Sub to effect the Merger is also subject to the satisfaction
or waiver by Parent at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. (I) The representations and
warranties of Target set forth in this Agreement (other than the
representation set forth in Section 3.9(d) hereof) shall be true and
correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the
Closing Date; and (II) the representations and warranties of Target set
forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date; provided,
however, that for purposes of determining the satisfaction of the condition
contained in this clause (II), no effect shall be given to any exceptions
in such representations and warranties relating to materiality or a
Material Adverse Effect, and provided further, however, that, for purposes
of this clause (II), such representations and warranties shall be deemed to
be true and correct in all material respects unless the failure or failures
of such representations and warranties to be so true and correct, in the
aggregate, represent a material adverse change from the business, assets,
financial condition or results of operations of Target and its Subsidiaries
taken as a whole as represented herein, other than an adverse change
resulting from or attributable to general economic
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conditions. Parent shall have received a certificate signed on behalf of
Target by the Chief Executive Officer and the Chief Financial Officer of
Target to the foregoing effect.
(b) Performance of Obligations of Target. Target shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of Target by the Chief Executive
Officer and the Chief Financial Officer of Target to such effect.
(c) Consents Under Agreements. The consent, approval or waiver of
each person (other than the Governmental Entities referred to in Section
7.1(c)) whose consent or approval shall be required in order to permit the
succession by the Surviving Corporation or the Surviving Bank pursuant to
the Merger or the Subsidiary Merger, as the case may be, to any obligation,
right or interest of Target or any Subsidiary of Target under any loan or
credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument shall have been obtained, except where the failure
to obtain such consent, approval or waiver would not materially adversely
affect the economic or business benefits of the transactions contemplated
by this Agreement to Parent as to render inadvisable the consummation of
the Merger.
(d) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(e) Federal Tax Opinion. Parent shall have received an opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel to Parent, in form and
substance reasonably satisfactory to Parent, dated as of the Effective
Time, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger and the Subsidiary Merger will be treated for Federal income tax
purposes as part of one or more reorganizations within the meaning of
Section 368 of the Code and that accordingly:
(i) No gain or loss will be recognized by (x) Parent, Merger Sub or
Target as a result of the Merger or (y) Connecticut Bank or Target Bank
(except with respect to any gain or income that may at any time or times
be realized or recognized with respect to Target Bank's tax reserves for
possible loan losses) as a result of the Subsidiary Merger;
(ii) No gain or loss will be recognized by the stockholders of
Target who exchange their Target Common Stock solely for Parent Common
Stock pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in Parent Common Stock); and
(iii) The tax basis of the Parent Common Stock received by
stockholders who exchange all of their Target Common Stock solely for
Parent Common Stock in the Merger will be the same as the tax basis of
the Target Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash is
received).
In rendering such opinion, Skadden, Arps, Slate, Meagher & Flom may
require and rely upon representations contained in certificates of officers
of Parent, Merger Sub, Target and others.
(f) Legal Opinion. Parent shall have received the opinion of
Wachtell, Lipton, Rosen & Katz, counsel to Target, dated the Closing Date,
substantially in the form attached hereto as Exhibit 7.2(f). As to any
matter in such opinion which involves matters of fact or matters relating
to laws other than Federal securities or Delaware corporate law, such
counsel may rely upon the certificates of officers and directors of Target
and of public officials and opinions of local counsel, reasonably
acceptable to Parent, provided a copy of such reliance opinion shall be
attached as an exhibit to the opinion of such counsel.
(g) Pooling of Interests. Parent shall have received a letter from
Price Waterhouse addressed to Target and Parent, to the effect that the
Merger will qualify for "pooling of interests" accounting treatment, unless
such firm advises Parent and Target that it is unable to issue a letter to
such effect solely by reason of Parent having exercised its right to
purchase Target Common Stock pursuant to the Option Agreement.
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(h) Accountant's Letter. Target shall have caused to be delivered to
Parent letters from Target's independent public accountants dated the date
on which the S-4 or last amendment thereto shall become effective, and
dated the date of the Closing, and addressed to Parent and Target, with
respect to Target's consolidated financial position and results of
operation, which letters shall be based upon agreed upon procedures to be
specified by Parent, which procedures shall be consistent with applicable
professional standards for letters delivered by independent accountants in
connection with comparable transactions.
(i) Target Rights Agreement. A Distribution Date, as such term is
defined in the Target Rights Agreement, shall not have occurred, and the
Target Rights shall not have become nonredeemable and the Target Rights
shall not become exercisable for capital stock of Parent upon consummation
of the Merger.
7.3 Conditions to Obligations of Target. The obligation of Target to
effect the Merger is also subject to the satisfaction or waiver by Target at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (I) The representations and
warranties of Parent set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date; and
(II) the representations and warranties of Parent set forth in this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date; provided, however, that for purposes of
determining the satisfaction of the condition contained in this clause
(II), no effect shall be given to any exceptions in such representations
and warranties relating to materiality or a Material Adverse Effect, and
provided further, however, that, for purposes of this clause (II), such
representations and warranties shall be deemed to be true and correct in
all material respects unless the failure or failures of such
representations and warranties to be so true and correct, in the aggregate,
represent a material adverse change from the business, assets, financial
condition or results of operations of Parent and its Subsidiaries taken as
a whole as represented herein, other than an adverse change resulting from
or attributable to general economic conditions. Target shall have received
a certificate signed on behalf of Parent by the Chief Executive Officer and
the Chief Financial Officer of Parent to the foregoing effect.
(b) Performance of Obligations of Parent. Parent and Merger Sub shall
have each performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Target shall have received a certificate signed on behalf of Parent by the
Chief Executive Officer and the Chief Financial Officer of Parent to such
effect.
(c) Consents Under Agreements. The consent or approval of each person
(other than the Governmental Entities referred to in Section 7.1(c)) whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument to which Parent
or any of its Subsidiaries is a party or is otherwise bound, except those
for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Parent and its Subsidiaries
taken as a whole (after giving effect to the transactions contemplated
hereby), shall have been obtained.
(d) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(e) Federal Tax Opinion. Target shall have received from its counsel,
Wachtell, Lipton, Rosen & Katz, opinions, in form and substance reasonably
satisfactory to Target, dated as of the Effective Time, substantially to
the effect that on the basis of facts, representations, and assumptions set
forth in such opinions which are consistent with the state of facts
existing at the Effective Time, the Merger and the Subsidiary Merger will
be treated for Federal income tax purposes as part of one or more
reorganizations within the meaning of Section 368 of the Code and that
accordingly: no gain or loss will be recognized by stockholders of Target
with respect to Parent Common Stock received solely in exchange for Target
Common Stock pursuant to this Agreement and Plan of Merger (except with
respect to cash received in
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lieu of a fractional share interest in Parent Common Stock). In rendering
any such opinion, such counsel may require and, to the extent they deem
necessary or appropriate may rely upon representations made in certificates
of officers of Target, Parent, Merger Sub, affiliates of the foregoing, and
others.
(f) Legal Opinion. Target shall have received the opinion of Skadden,
Arps, Slate, Meagher & Flom, counsel to Parent, dated the Closing Date,
substantially in the form attached hereto as Exhibit 7.3(f). As to any
matter in such opinion which involves matters of fact or matters relating
to laws other than Federal securities law or Delaware corporate law, such
counsel may rely upon the certificates of officers and directors of Parent
and of public officials and opinions of local counsel, reasonably
acceptable to Target, provided a copy of such reliance opinions shall be
attached as an exhibit to the opinion of such counsel.
(g) Pooling of Interests. Target shall have received a letter from
Price Waterhouse addressed to Target and Parent, to the effect that the
Merger will qualify for "pooling of interests" accounting treatment, unless
such firm advises Parent and Target that it is unable to issue a letter to
such effect solely by reason of Parent having exercised its right to
purchase Target Common Stock pursuant to the Option Agreement.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Target:
(a) by mutual consent of Parent and Target in a written instrument, if
the Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either Parent or Target upon written notice to the other party
(i) ninety (90) days after the date on which any request or application for
a Requisite Regulatory Approval shall have been denied or withdrawn at the
request or recommendation of the Governmental Entity which must grant such
Requisite Regulatory Approval, unless within the 90-day period following
such denial or withdrawal a petition for rehearing or an amended
application has been filed with the applicable Governmental Entity,
provided, however, that no party shall have the right to terminate this
Agreement pursuant to this Section 8.1(b)(i) if such denial or request or
recommendation for withdrawal shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein or (ii) if any Governmental
Entity of competent jurisdiction shall have issued a final nonappealable
order enjoining or otherwise prohibiting the consummation of any of the
transactions contemplated by this Agreement;
(c) by either Parent or Target if the Merger shall not have been
consummated on or before December 31, 1994, unless the failure of the
Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein;
(d) by either Parent or Target (provided that if the terminating party
is Target, Target shall not be in material breach of any of its obligations
under Section 6.3) if any approval of the stockholders of Target required
for the consummation of the Merger shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment or postponement thereof;
(e) by either Parent or Target (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
forty-five (45) days following written notice to the party committing such
breach, or which breach, by its nature, cannot be cured prior to the
Closing; or
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(f) by either Parent or Target (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the covenants or agreements set forth in this Agreement on
the part of the other party, which breach shall not have been cured within
forty-five (45) days following receipt by the breaching party of written
notice of such breach from the other party hereto; or
(g) Target, by action of its Board of Directors, may elect to
terminate this Agreement, whether before or after approval of the Merger by
Target's stockholders, by giving written notice of such election to Parent
within two NYSE trading days after the Valuation Period (as defined below),
in the event the Average Closing Price (as defined below) is less than
$18.70 per share; provided, however, that no right of termination shall
arise under this Section 8.1(g) if (x) Parent elects within 5 business days
of receipt of such written notice to increase the Exchange Ratio such that
the per share value of the consideration (valued at the Average Closing
Price) to be paid in respect of shares of Target Common Stock outstanding
as of the Effective Date is at least $10.45 per share. For purposes of this
Agreement, "Average Closing Price" shall mean the average of the closing
prices of shares of Parent Common Stock as reported on the New York Stock
Exchange Composite Transactions Tape (or if Parent Common Stock is not
quoted on the New York Stock Exchange Composite Transactions Tape, on the
National Association of Securities Dealers Automated Quotations System or,
if the shares of Parent Common Stock are not quoted thereon, on the
principal trading market on which such shares are traded as reported by a
recognized source) for the ten consecutive trading days (the "Valuation
Period") ending on the business day prior to the date on which all
regulatory approvals required to consummate the transactions hereby
(including the Merger and the Subsidiary Merger) are obtained (and Parent
shall notify Target promptly, and in any event within 24 hours, of the date
when all such approvals are obtained), without regard to any requisite
waiting periods in respect thereof.
8.2 Effect of Termination. (a) In the event of termination of this
Agreement by either Parent or Target as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect except (i) the last sentence of
Section 6.2(a), and Sections 6.2(c), 8.2, 9.3 and 9.4, shall survive any
termination of this Agreement, and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
8.3 Amendment. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Target;
provided, however, that after any approval of the transactions contemplated by
this Agreement by Target's stockholders, there may not be, without further
approval of such stockholders, any amendment of this Agreement which reduces the
amount or changes the form of the consideration to be delivered to the Target
stockholders hereunder other than as contemplated by this Agreement. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein; provided, however,
that after any approval of the transactions contemplated by this Agreement by
Target's stockholders, there may not be, without further approval of such
stockholders, any extension or waiver of this Agreement or any portion thereof
which reduces the amount or changes the form of the consideration to be
delivered to the Target stockholders hereunder other than as contemplated by
this Agreement. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
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ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement and the
Merger Agreement, the closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date to be specified by the parties, which shall be the first
day which is (a) the last business day of a month and (b) at least two business
days after the satisfaction or waiver (subject to applicable law) of the latest
to occur of the conditions set forth in Article VII hereof (the "Closing Date"),
at the offices of Wachtell, Lipton, Rosen & Katz, unless another time, date or
place is agreed to in writing by the parties hereto.
9.2 Alternative Structure. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, Parent shall be
entitled to revise the structure of the Merger and/or the Subsidiary Merger and
related transactions provided that each of the transactions comprising such
revised structure shall (i) fully qualify as, or fully be treated as part of,
one or more tax-free reorganizations within the meaning of Section 368(a) of the
Code, and not subject any of the stockholders of Target to adverse tax
consequences or change the amount of consideration to be received by such
stockholders, (ii) be properly treated for financial reporting purposes as a
pooling of interests, (iii) be capable of consummation in as timely a manner as
the structure contemplated herein and (iv) not otherwise be prejudicial to the
interests of stockholders or employees of Target. This Agreement and any related
documents shall be appropriately amended in order to reflect any such revised
structure.
9.3 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement (other than pursuant to the
Option Agreement, which shall terminate in accordance with its terms) shall
survive the Effective Time, except for those covenants and agreements contained
herein and therein which by their terms apply in whole or in part after the
Effective Time.
9.4 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
printing and mailing the Proxy Statement, and all filing and other fees paid to
the SEC in connection with the Merger, shall be borne equally by Parent and
Target.
9.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent, to:
Shawmut National Corporation
777 Main Street
Hartford, CT 06115
Fax: (203) 728-4205
Attn: Chief Executive Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attn: William S. Rubenstein, Esq.
and
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(b) if to Target, to:
Gateway Financial Corporation
383 Main Avenue
Norwalk, Connecticut 06851
Fax: (203) 847-6956
Attn: Chief Executive Officer
with a copy to:
Wachtell, Lipton, Rosen & Katz
299 Park Avenue
New York, New York 10171
Fax: (212) 371-1658
Attn: Craig M. Wasserman, Esq.
9.6 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
9.7 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.8 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, the Bank Merger Agreement and the Option Agreement.
9.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Connecticut, without regard to any
applicable conflicts of law.
9.10 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in the last
sentence of Section 6.2(a) and in Section 6.2(c) of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section 6.2(a) and
Section 6.2(c) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.12 Publicity. Except as otherwise required by law or the rules of the
NYSE or the National Association of Securities Dealers, so long as this
Agreement is in effect, neither Parent nor Target shall, or shall permit any of
its Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the consent of the other party, which consent shall not be unreasonably
withheld.
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9.13 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns. Except as otherwise specifically provided in Section 6.8
hereof, this Agreement (including the documents and instruments referred to
herein) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
IN WITNESS WHEREOF, Parent, Merger Sub and Target have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
SHAWMUT NATIONAL CORPORATION
By: /s/ JOEL B. ALVORD
------------------------------------
Name: Joel B. Alvord
Title: Chairman of the Board
and Chief Executive
Officer
SHAWMUT SERVICE CORPORATION
By: /s/ JOEL B. ALVORD
------------------------------------
Name: Joel B. Alvord
Title: Chairman of the Board
and Chief Executive
Officer
GATEWAY FINANCIAL CORPORATION
By: /s/ REGINALD DEKOVEN III
------------------------------------
Name: Reginald Dekoven III
Title: President and Chief
Executive Officer
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ANNEX B
THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 5, 1993 (the "Agreement"), by
and between Gateway Financial Corporation, a Delaware corporation ("Issuer"),
and Shawmut National Corporation, a Delaware corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger (the "Merger Agreement"), of even date herewith, providing for, among
other things, the merger of Issuer with and into a wholly owned subsidiary of
Grantee ("Merger Sub"), with Merger Sub surviving such Merger; and
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement, Grantee has requested that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
up to 2,636,764 shares (subject to adjustment as set forth herein) shares (the
"Option Shares") of common stock, par value $0.01 per share ("Issuer Common
Stock"), of Issuer at a purchase price (subject to adjustment as set forth
herein) of $10.75 per Option Share (the "Purchase Price").
3. Exercise of Option. (a) Grantee may exercise the Option, in whole or in
part, at any time and from time to time following the occurrence of a Purchase
Event (as defined below); provided that the Option, to the extent not previously
exercised, shall terminate and be of no further force and effect upon the
earliest to occur of (i) the Effective Time, (ii) 12 months after the first
occurrence of a Purchase Event, (iii) termination of the Merger Agreement in
accordance with the terms thereof prior to the occurrence of a Purchase Event
(other than a termination of the Merger Agreement by Grantee pursuant to Section
8.01(f) thereof) or (iv) 12 months after the termination of the Merger Agreement
by Grantee pursuant to Section 8.01(f) thereof (provided, however, that if
within 12 months after a termination of the Merger Agreement by Grantee pursuant
to Section 8.01(f) thereof a Purchase Event shall occur, then notwithstanding
anything to the contrary contained herein, this Option shall terminate 12 months
after the first occurrence of such Purchase Event); and provided further, that
any purchase of shares upon exercise of the Option shall be subject to
compliance with applicable law, including, without limitation, the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). The rights set forth in Section
8 shall terminate at the time set forth in such Section 8.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Issuer shall have authorized, recommended, publicly proposed or
entered into an agreement with any person (other than Grantee or any
affiliate of Grantee or any person acting in concert in any respect with
Grantee) to effect an Acquisition Transaction or shall have failed to
publicly oppose a Tender Offer or an Exchange Offer (as defined below). As
used herein, the term Acquisition Transaction shall mean (A) a merger,
consolidation or similar transaction involving Issuer or any of its
Subsidiaries (other than internal mergers, reorganizations, consolidations
or dissolutions involving only existing Subsidiaries), (B) the disposition,
by sale, lease, exchange or otherwise, of assets of Issuer or any of its
Subsidiaries representing 10% or more of the consolidated assets of Issuer
and its Subsidiaries or (C) the
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issuance, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 15% or more of the voting power of Issuer or any of its
Subsidiaries;
(ii) any person (other than Grantee or any affiliate of Grantee or any
person acting in concert in any respect with Grantee) shall have acquired
Beneficial Ownership (as such term is defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of, or the right to acquire Beneficial Ownership of, or any Group (as such
term is defined under the Exchange Act) shall have been formed which shall
have acquired Beneficial Ownership of, or the right to acquire Beneficial
Ownership of, 15% or more of the then outstanding shares of Issuer Common
Stock;
(iii) any person (other than Grantee or any affiliate of Grantee or
any person acting in concert in any respect with Grantee) shall have (a)
commenced (as such term is defined in Rule 14d-2 under the Exchange Act) or
shall have filed a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to, a tender offer or
exchange offer to purchase any shares of Issuer Common Stock such that,
upon consummation of such offer, such person would own or control 15% or
more of the then outstanding shares of Issuer Common Stock (such an offer
being referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively) and (b) received all required federal regulatory approvals in
respect of such offer;
(iv) the holders of Issuer Common Stock shall not have approved the
Merger Agreement at the meeting of such stockholders held for the purpose
of voting on such agreements, or such meeting shall not have been held or
shall have been cancelled prior to termination of the Merger Agreement, in
each case after it shall have been publicly announced that any person
(other than Grantee or any affiliate of Grantee or any person acting in
concert in any respect with Grantee) shall have (A) made, or disclosed an
intention to make, a proposal to engage in an Acquisition Transaction or
(B) filed an application (or given a notice), whether in draft or final
form, under the BHC Act or the Change in Bank Control Act of 1978, for
approval to engage in an Acquisition Transaction; or
(v) Issuer's Board of Directors shall not have recommended to the
stockholders of Issuer that such stockholders vote in favor of the approval
of the Merger Agreement or shall have withdrawn or modified such
recommendation in a manner adverse to Grantee.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event Grantee wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") or any other regulatory authority is
required in connection with such purchase, Issuer shall cooperate with Grantee
in the filing of the required notice or application for approval and the
obtaining of any such approval.
4. Payment and Delivery of Certificates. (a) On each Closing Date, Grantee
shall (i) pay to Issuer, in immediately available funds by wire transfer to a
bank account designated by Issuer, an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such Closing Date
and (ii) present and surrender this Agreement to the Issuer at the address of
the Issuer specified in Section 13(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a)
hereof, Issuer shall deliver to Grantee (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever, other than any such lien or encumbrance created by Grantee
and (B) if the Option is exercised in part only, an executed new agreement with
the same terms as this Agreement evidencing the right to purchase the balance of
the shares of Issuer
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Common Stock purchasable hereunder. If Issuer shall have issued rights or any
similar securities ("Rights") pursuant to any shareholder rights, poison pill or
similar plan (a "Shareholder Rights Plan") prior or subsequent to the date of
this Agreement and such Rights remain outstanding at the time of the issuance of
any Option Shares pursuant to an exercise of all or part of the Option
hereunder, then each Option Share issued pursuant to such exercise shall also
represent the number of Rights issued per share of Issuer Common Stock with
terms substantially the same as and at least as favorable to Grantee as are
provided under the Shareholder Rights Plan as then in effect.
(c) Certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION
AGREEMENT DATED AS OF NOVEMBER 5, 1993. A COPY OF SUCH
AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE
UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Grantee shall have delivered
to Issuer a copy of a letter from the staff of Securities and Exchange
Commission (the "SEC"), or an opinion of counsel in form and substance
reasonably satisfactory to Issuer and its counsel, to the effect that such
legend is not required for purposes of the Securities Act.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Due Authorization. Issuer has full corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Issuer. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) No Violation. Except as disclosed pursuant to the Merger
Agreement, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor compliance by
Issuer with any of the terms or provisions hereof, will (i) violate any
provision of the Certificate of Incorporation or By-Laws of Issuer or the
certificates of incorporation, by-laws or similar governing documents of
any of its Subsidiaries or (ii) (x) assuming that all of the consents and
approvals required under applicable law for the purchase of shares upon the
exercise of the Option are duly obtained, violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Issuer or any of its Subsidiaries, or any of their respective
properties or assets, or (y) violate, conflict with, result in a breach of
any provisions of or the loss of any benefit under, constitute a default
(or an event which, with notice or lapse of time, or both, would constitute
a default) under, result in the termination of or a right of termination or
cancellation under, accelerate the performance required by, or result in
the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Issuer or
any of its Subsidiaries under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Issuer or any of its
Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except, in the case of
clause (y) above, for such violations, conflicts, breaches or defaults
which either individually or in the aggregate will not have a material
adverse effect on the business, properties, assets, liabilities, results of
operations or financial condition of Issuer and its Subsidiaries taken as a
whole.
(c) Authorized Stock. Issuer has taken all necessary corporate and
other action to authorize and reserve and to permit it to issue, and, at
all times from the date of this Agreement until the obligation to deliver
Issuer Common Stock upon the exercise of the Option terminates, will have
reserved for issuance,
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upon exercise of the Option, shares of Issuer Common Stock necessary for
Grantee to exercise the Option, and Issuer will take all necessary
corporate action to authorize and reserve for issuance all additional
shares of Issuer Common Stock (together with any Rights which may have been
issued with respect thereto) or other securities which may be issued
pursuant to Section 7 upon exercise of the Option. The shares of Issuer
Common Stock to be issued upon due exercise of the Option, including all
additional shares of Issuer Common Stock (together with any Rights which
may have been issued with respect thereto) or other securities which may be
issuable pursuant to Section 7, upon issuance pursuant hereto, shall be
duly and validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all liens, claims, charges and encumbrances of
any kind or nature whatsoever, except any such lien or encumbrance created
by Grantee, including any preemptive rights of any stockholder of Issuer.
(d) Board Action. By action of the Board of Directors of Issuer prior
to the execution of this Agreement, resolutions were duly adopted approving
the execution, delivery and performance of this Agreement, any purchase or
other transaction respecting Issuer Common Stock provided for herein, and
the other transactions contemplated hereby. Accordingly, the provisions of
Section 203 of the DGCL as they relate to Issuer and Sections 9.2 and 9.3
of Issuer's Certificate of Incorporation do not and will not apply to this
Agreement or any of the other transactions contemplated hereby.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Due Authorization. Grantee has corporate power and authority to
enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly
executed and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being acquired
with a view to the public distribution thereof and neither this Option nor
any Option Shares will be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities
Act.
7. Adjustment upon Changes in Capitalization, etc. (a) In the event (i) of
any change in Issuer Common Stock by reason of a stock dividend, stock split,
split-up, recapitalization, combination, exchange of shares or similar
transaction or (ii) that any Rights issued by Issuer shall become exercisable,
the type and number of shares or securities subject to the Option, and the
Purchase Price therefor, shall be adjusted appropriately, and, in the case of
any of the transactions described in clause (i) above, proper provision shall be
made in the agreements governing such transaction so that Grantee shall receive,
upon exercise of the Option, the number and class of shares or other securities
or property that Grantee would have received in respect of Issuer Common Stock
if the Option had been exercised immediately prior to such event, or the record
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 7(a)), the number of shares of
Issuer Common Stock subject to the Option shall be adjusted so that, after such
issuance, it, together with any shares of Issuer Common Stock previously issued
pursuant hereto, equals 19.9% of the number of shares of Issuer Common Stock
then issued and outstanding, without giving effect to any shares subject or
previously issued pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into,
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or exchanged for, an option (the "Substitute Option"), at the election of
Grantee, of either (I) the Acquiring Corporation (as defined below), (II) any
person that controls the Acquiring Corporation, or (III) in the case of a merger
described in clause (ii), the Issuer (such person being referred to as the
"Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Grantee. The Substitute Option Issuer shall also
enter into an agreement with the then holder or holders of the Substitute Option
in substantially the same form as this Agreement, which shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of the Substitute Common Stock (the "Substitute Purchase
Price") shall then be equal to the Purchase Price multiplied by a fraction in
which the numerator is the number of shares of the Issuer Common Stock for which
the Option was theretofore exercisable and the denominator is the number of
shares of the Substitute Common Stock for which the Substitute Option is
exercisable.
(e) The following terms have the meanings indicated:
(I) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
the Issuer's assets (or the assets of its Subsidiaries).
(II) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(III) "Assigned Value" shall mean the highest of (i) the price per
share of Issuer Common Stock at which a tender offer or exchange offer
therefor has been made by any person (other than Grantee), (ii) the price
per share of Issuer Common Stock to be paid by any person (other than the
Grantee) pursuant to an agreement with Issuer, and (iii) the highest
closing sales price per share of Issuer Common Stock quoted on the National
Association of Securities Dealers Automated Quotations Systems National
Market System ("NASDAQ/NMS") (or if Issuer Common Stock is not quoted on
the NASDAQ/NMS, the highest bid price per share as quoted on the principal
trading market or securities exchange on which such shares are traded as
reported by a recognized source) within the six-month period immediately
preceding the agreement; provided, however, that in the event of a sale of
less than all of Issuer's assets, the Assigned Value shall be the sum of
the price paid in such sale for such assets and the current market value of
the remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by Grantee or by a Grantee Majority,
divided by the number of shares of Issuer Common Stock outstanding at the
time of such sale. In the event that an exchange offer is made for the
Issuer Common Stock or an agreement is entered into for a merger or
consolidation involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the
Issuer Common Stock shall be determined by a nationally recognized
investment banking firm mutually selected by Grantee and Issuer (or if
applicable, Acquiring Corporation), provided that if a mutual selection
cannot be made as to such investment banking firm, it shall be selected by
Grantee (or a majority of interest of the Grantees if there shall be more
than one Grantee (a "Grantee Majority")).
(IV) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by Issuer, the person
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merging into Issuer or by any company which controls or is controlled by
such merging person, as Grantee may elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for this clause (f), the Substitute Option Issuer shall make a cash payment
to Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee (or a Grantee Majority).
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer).
(h) The provisions of Sections 8, 9 and 10 shall apply, with appropriate
adjustments, to any securities for which the Option becomes exercisable pursuant
to this Section 7 and as applicable, references in such sections to "Issuer",
"Option", "Purchase Price" and "Issuer Common Stock" shall be deemed to be
references to "Substitute Option Issuer", "Substitute Option", "Substitute
Purchase Price" and "Substitute Common Stock", respectively.
8. Repurchase at the Option of Grantee. (a) Subject to the last sentence
of Section 3(a) hereof, at the request of Grantee at any time commencing upon
the first occurrence of a Repurchase Event (as defined in Section 8(d) below)
and ending 12 months immediately thereafter, Issuer shall repurchase from
Grantee (I) the Option and (II) all shares of Issuer Common Stock purchased by
Grantee pursuant hereto with respect to which Grantee then has beneficial
ownership. The date on which Grantee exercises its rights under this Section 8
is referred to as the "Request Date". Such repurchase shall be at an aggregate
price (the "Section 8 Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Option with respect to which
Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number of
shares of Issuer Common Stock with respect to which the Option has not been
exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common Stock with respect to which the Option has been exercised and
with respect to which Grantee then has beneficial ownership, multiplied by
the number of such shares.
(b) If Grantee exercises its rights under this Section 8, Issuer shall,
within 10 business days after the Request Date, pay the Section 8 Repurchase
Consideration to Grantee in immediately available funds by wire transfer to a
bank account designated by Grantee, and Grantee shall surrender to Issuer the
Option and the certificates evidencing the shares of Issuer Common Stock
purchased thereunder with respect to which Grantee then has beneficial
ownership, and Grantee shall warrant that it has sole record and beneficial
ownership of such shares and that the same are then free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. Notwithstanding the
foregoing, to the extent that prior notification to or approval of the Federal
Reserve Board or other regulatory authority is required in connection with the
payment of all or any portion of the Section 8 Repurchase Consideration, Grantee
shall have the ongoing option to revoke its request for repurchase pursuant to
Section 8 or to require that Issuer (a) deliver from time
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to time that portion of the Section 8 Repurchase Consideration that it is not
then so prohibited from paying and (b) promptly file the required notice or
application for approval and expeditiously process the same. If the Federal
Reserve Board or any other regulatory authority disapproves of any part of
Issuer's proposed repurchase pursuant to this Section 8, Issuer shall promptly
give notice of such fact to Grantee and redeliver to Grantee the Option Shares
it is then prohibited from repurchasing, and Grantee shall have the right (x) to
exercise the Option as to the number of Option Shares for which the Option was
exercisable at the Request Date less the number of shares covered by the Option
in respect of which payment has been made pursuant to Section 8(a)(ii) hereof or
(y) to revoke its request for repurchase with respect to any Option Shares in
respect of which such payment has been made and exercise the Option as to the
number of Option Shares for which the Option was exercisable at the Request
Date. Notwithstanding anything herein to the contrary, (i) Issuer shall not be
obligated to repurchase the Option or any shares of Issuer Common Stock pursuant
to this Section 8 on more than one occasion, except that Issuer's obligation to
repurchase on one occasion any Option or shares of Issuer Common Stock shall be
reinstated in the event that Grantee has revoked its request for repurchase in
accordance with the provisions of this Section 8, (ii) all of Grantee's rights
under this Section 8 shall terminate on the date of termination of this Option
pursuant to Section 3(a) hereof, unless this Option shall have been exercised in
whole or part prior to the date of termination and (iii) if this Option shall
have been exercised in whole or in part prior to the date of termination
described in clause (ii) above, then Grantee's rights under this Section 8 shall
terminate 12 months after such date of termination.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Issuer Common Stock paid for any
such share by the person or groups described in Section 8(d)(i) hereof, (ii) the
price per share of Issuer Common Stock received by holders of Issuer Common
Stock in connection with any merger or other business combination transaction
described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) hereof or (iii) the highest
closing sales price per share of Issuer Common Stock quoted on the NASDAQ/NMS
(or if Issuer Common Stock is not quoted on the NASDAQ/NMS, the highest bid
price per share as quoted on the principal trading market or securities exchange
on which such shares are traded as reported by a recognized source) during the
60 business days preceding the Request Date; provided, however, that in the
event of a sale of less than all of Issuer's assets, the Applicable Price shall
be the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of Issuer, as determined by a nationally
recognized investment banking firm selected by Grantee, divided by the number of
shares of the Issuer Common Stock outstanding at the time of such sale. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Grantee (or a Grantee Majority)
and reasonably acceptable to Issuer, which determination shall be conclusive for
all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any of its Subsidiaries) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 under the Exchange Act) or
the right to acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act) (Grantee or any Subsidiary of Grantee) shall
have been formed which beneficially owns or has the right to acquire beneficial
ownership of, 50% or more of the then outstanding shares of Issuer Common Stock
or (ii) any of the transactions described in Section 7(b)(i), 7(b)(ii) or
7(b)(iii) hereof shall be consummated.
9. Registration Rights. Issuer shall, if requested by Grantee (or if
applicable, a Grantee Majority) at any time and from time to time within three
years of the date on which the Option first becomes exercisable, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of Issuer Common Stock or
other securities that have been acquired by or are issuable to Grantee upon
exercise of the Option in accordance with the intended method of sale or other
disposition stated by Grantee, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and Issuer shall
use its best efforts to qualify such shares or other securities under any
applicable state securities laws. Issuer shall use all reasonable efforts to
cause each such registration statement to become effective, to obtain all
consents or waivers of other parties which are required therefor and to keep
such registration statement effective for
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such period not in excess of 90 days from the day such registration statement
first becomes effective as may be reasonably necessary to effect such sale or
other disposition. Any registration statement prepared and filed under this
Section 9, and any sale covered thereby, shall be at Issuer's expense except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto. Grantee shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If during the time periods referred to in the
first sentence of this Section 9 Issuer effects a registration under the
Securities Act of Issuer Common Stock for its own account or for any other
stockholders of Issuer (other than on Form S-4 or Form S-8, or any successor
forms or any form with respect to a dividend reinvestment or similar plan), it
shall allow Grantee the right to participate in such registration, and such
participation shall not affect the obligation of Issuer to effect two
registration statements for Grantee under this Section 9; provided that, if the
managing underwriters of such offering advise Issuer in writing that in their
opinion the number of shares of Issuer Common Stock requested by Grantee to be
included in such registration, together with the shares of Issuer Common Stock
proposed to be included in such registration, exceeds the number which can be
sold in such offering, Issuer shall include the shares requested to be included
therein by Grantee pro rata with the shares intended to be included therein by
Issuer. In connection with any registration pursuant to this Section 9, Issuer
and Grantee shall provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification and
contribution in connection with such registration. Notwithstanding anything to
the contrary contained herein, in no event shall Issuer be obligated to effect
more than two registrations pursuant to the first sentence of this Section 9 by
reason of the fact that there shall be more than one Grantee as a result of any
assignment of this Agreement or division of this Agreement pursuant to Section
11 hereof.
10. Listing. If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then authorized for quotation on the NASDAQ/NMS
or any securities exchange, Issuer, upon the request of Grantee, will promptly
file an application to authorize for quotation the shares of Issuer Common Stock
or other securities to be acquired upon exercise of the Option on the NASDAQ/NMS
or such other securities exchange and will use its best efforts to obtain
approval of such listing as soon as practicable.
11. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. Rights Agreement. Issuer shall not approve or adopt, or propose the
approval and adoption of, any Shareholder Rights Plan unless such Shareholder
Rights Plan contains terms which provide, to the reasonable satisfaction of
Grantee, that (a) the Rights issued pursuant thereto will not become exercisable
by virtue of the fact that (i) Grantee is the Beneficial Owner of shares of
Issuer Common Stock (x) acquired or acquirable pursuant to the grant or exercise
of this Option and (y) held by Grantee or any of its Subsidiaries as Trust
Account Shares or DPC Shares or (ii) while Grantee is the Beneficial Owner of
the shares of Issuer Common Stock described in clause (a)(i), an Acquisition
Transaction involving Issuer or any of its Subsidiaries, on the one hand, and
Grantee or any of its Subsidiaries, on the other hand, is proposed, agreed to or
consummated and (b) no restrictions or limitations with respect to the exercise
of any Rights acquired or acquirable by Grantee will result or be imposed by
virtue of the fact that Grantee is the Beneficial Owner of the shares of Issuer
Common Stock described in clause (a)(i) of this Section 12. In addition, Issuer
shall not amend in any manner adverse to Grantee the Rights Agreement, dated as
of July 13, 1989, between the Issuer
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and The Connecticut Bank and Trust Company, as Rights Agent, as amended by the
amendment contemplated by Section 3.27 of the Merger Agreement.
13. Miscellaneous. (a) Expenses. Except as otherwise provided in Section
9 hereof, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other agreements and
instruments referred to herein and therein, and the confidentiality agreement
between Grantee and Issuer, (a) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and (b) is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder. Notwithstanding anything to the contrary contained in this Agreement
or the Merger Agreement, this Agreement shall be deemed to amend the
confidentiality agreement between Issuer and Grantee so as to permit Grantee to
enter into this Agreement and exercise all of its rights hereunder, including
its right to acquire Issuer Common Stock upon exercise of the Option. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Grantee to acquire,
or does not require Issuer to repurchase, the full number of shares of Issuer
Common Stock as provided in Sections 3 and 8 hereof (as adjusted pursuant to
Section 7 hereof), it is the express intention of Issuer to allow Grantee to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer to:
Gateway Financial Corporation
38 Main Avenue
Norwalk, Connecticut 06851
Attention: Chief Executive Officer
Telecopier no.: (203) 847-6956
with a copy to:
Wachtell, Lipton, Rosen & Katz
299 Park Avenue
New York, New York 10171
Attention: Craig M. Wasserman, Esq.
Telecopier no.: (212) 371-1658
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If to Grantee to:
Shawmut National Corporation
777 Main Street
Hartford, Connecticut 06115
Attention: Chief Executive Officer
Telecopier no.: (203) 728-4205
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: William S. Rubenstein, Esq.
Telecopier no.: (212) 735-2000
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and after the occurrence of a
Purchase Event Grantee may assign its rights under this Agreement to third
parties; provided, however, that until the date 30 days following the date on
which the Federal Reserve Board approves an application by Grantee under the BHC
Act to acquire the shares of Issuer Common Stock subject to the Option, Grantee
may not assign its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one party acquires the
right to purchase in excess of 2% of the voting shares of Issuer, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Reserve Board. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns. As used in this Agreement, Grantee shall include any person to whom
this Agreement or the Option shall be assigned by a previous Grantee in
accordance with the terms hereof.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
GATEWAY FINANCIAL CORPORATION
by /s/ REGINALD DEKOVEN III
------------------------------------
Name: Reginald Dekoven III
Title: President and Chief
Executive Officer
SHAWMUT NATIONAL CORPORATION
by /s/ JOEL B. ALVORD
------------------------------------
Name: Joel B. Alvord
Title: Chairman of the Board
and Chief Executive Officer
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April 22, 1994
The Board of Directors
GATEWAY FINANCIAL CORPORATION
383 Main Avenue
Norwalk, CT 06851
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of Gateway Financial
Corporation ("Gateway") of the exchange ratio in the proposed merger (the
"Merger") of Gateway with and into Shawmut Service Corporation, a wholly owned
subsidiary of Shawmut National Corporation ("Shawmut"), pursuant to the
Agreement and Plan of Merger dated as of November 5, 1993 between Shawmut and
Gateway (the "Agreement"). Under the terms of the Agreement, each outstanding
share of common stock, $.01 par value, of Gateway (the "Common Shares") will be
converted into .559 shares of common stock, $.01 par value, of Shawmut (the
"Exchange Ratio").
Keefe, Bruyette & Woods, Inc., as part of its investment banking business,
is continually engaged in the valuation of bank and bank holding company
securities in connection with acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. As specialists in the securities of
banking companies, we have experience in, and knowledge of, the valuation of
banking enterprises. In the ordinary course of our business as a broker-dealer,
we may, from time to time, purchase securities from, and sell securities to,
Gateway and Shawmut and as a market maker in securities we may from time to time
have a long or short position in, and buy or sell, debt or equity securities of
Gateway and Shawmut for our own account and for the accounts of our customers.
To the extent we have any such position as of the date of this opinion it has
been disclosed to Gateway. We have acted exclusively for the Board of Directors
of Gateway in rendering this fairness opinion and will receive a fee from
Gateway for our services.
In arriving at our opinion, we have reviewed, analysed and relied upon
material bearing upon the financial and operating condition of Gateway and
Shawmut, including, among other things, the following: (i) the Agreement; (ii)
the Registration Statement on Form S-4 filed by Shawmut to register the shares
of its common stock to be issued in the Merger; (iii) Annual Reports to
Shareholders for the three years ended December 31, 1993 of Gateway and Shawmut
and Annual Reports on Form 10-K; (iv) certain interim reports to shareholders of
Gateway and Shawmut and Quarterly Reports on Form 10-Q of Gateway and Shawmut
and certain other communications from Gateway and Shawmut to their respective
shareholders; (v) other financial information concerning the businesses and
operations of Gateway and Shawmut furnished to us by Gateway and Shawmut for
purposes of our analysis; (vi) plans for the combined company and the strategic
objectives of the Merger with the senior executives of Shawmut and Gateway;
(vii) certain publicly available information concerning trading of, and the
trading market for, the common stock of Gateway and Shawmut; and (viii) certain
publicly available information with respect to banking companies and the names
and terms of certain other transactions that we consider relevant to our
inquiry.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us or publicly available and we have not attempted
independently to verify such information. We have relied upon the management of
Gateway and Shawmut as to the reasonableness and achievability of the financial
and operating forecasts and projections (and the assumptions and bases therefor)
provided to us, and we have assumed that such forecasts and projections reflect
the best currently available estimates and judgments of such managements and
that such forecasts and projections will be realized in the amounts and in the
time periods currently estimated by such managements. We have also assumed,
without independent verification, that the aggregate allowances for loan losses
for Gateway and Shawmut are adequate to cover such losses. (We have not made or
obtained any evaluations or appraisals of the property of Gateway or Shawmut,
nor have we examined any individual loan
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<PAGE> 136
credit files.) Finally, you have informed us and we have assumed that the Merger
will be recorded as a pooling of interests under generally accepted accounting
principles.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Gateway and Shawmut, including interest income, interest expense, net interest
income, net interest margin, non-interest income, non-interest expense,
earnings, dividends, internal capital generation, book value, intangible assets,
return on assets, return on shareholders' equity, capitalization, the amount and
type of non-performing assets, loan losses and the reserve for loan losses, all
as set forth in the financial statements for Gateway and for Shawmut; (ii) the
assets and liabilities of Gateway and Shawmut, including the loan, investment
and mortgage portfolios, deposits, other liabilities, historical and current
liability sources and costs and liquidity; and (iii) the nature and terms of
certain other merger transactions involving banks and bank holding companies. We
have also taken into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
experience in securities valuation and our knowledge of the banking industry
generally. Our opinion is necessarily based upon conditions as they exist and
can be evaluated on the date hereof and the information made available to us
through the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio in the Merger is fair, from a financial
point of view, to the holders of the Common Shares.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
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<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action"), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise. Sections
14-24 of Shawmut's By-laws provide for the indemnification of its directors and
officers as authorized by Section 145 of the Delaware General Corporation Law.
Article Fifth of Shawmut's Restated Certificate of Incorporation provides
that no director of Shawmut shall be personally liable to Shawmut or its
stockholders for monetary damages for any breach of his fiduciary duty as a
director except for liability (1) for any breach of the director's duty of
loyalty to Shawmut or its stockholders, (2) for acts or omissions that are not
in good faith or involve intentional misconduct or a knowing violation of the
law, (3) under Section 174 of the Delaware General Corporation Law or (4) for
any transaction from which the director derived an improper personal benefit.
The directors and officers of Shawmut and its subsidiaries are insured
(subject to certain exceptions and deductions) against liabilities which they
may incur in their capacity as such, including liabilities under the Securities
Act of 1933, under liability insurance policies carried by Shawmut. In addition,
Shawmut has entered into indemnification agreements with the directors of
Shawmut which provide that Shawmut will honor its obligations pursuant to its
By-laws within 30 days of written demand and will, under certain circumstances,
provide security for its obligations to indemnify. Section 8(k) of the Federal
Deposit Insurance Act prohibits or limits certain types of indemnification
payments to directors and officers as well as other employees and individuals
who are "institution-affiliated parties".
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<PAGE> 138
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <C> <S>
2(a) -- Agreement and Plan of Merger, dated as of November 5, 1993, by and among
Shawmut National Corporation, Shawmut Service Corporation and Gateway
Financial Corporation, is included as Annex A to the Proxy
Statement/Prospectus which is part of this Registration Statement.
3(a) -- Restated Certificate of Incorporation, previously filed and incorporated by
reference to Shawmut National Corporation's Registration Statement on Form S-4
(file no. 33-17765) filed October 7, 1987.
3(b) -- By-laws, as amended, previously filed and incorporated by reference to Shawmut
National Corporation's Quarterly Report on Form 10-Q filed November 12, 1993.
4(a) -- Shareholder Rights Plan, previously filed and incorporated by reference to
Shawmut National Corporation's Registration Statement on Form 8-A (file no.
1-10102) filed March 7, 1989.
4(b) -- Designation of Adjustable Rate Preferred Stock, previously filed and
incorporated by reference to Shawmut National Corporation's Registration
Statement on Form S-4 (file no. 33-17765) filed October 7, 1987.
4(c) -- Designation of 9.30% Cumulative Preferred Stock, previously filed and
incorporated by reference to Shawmut National Corporation's Current Report on
Form 8-K dated October 27, 1992.
4(d) -- Certificate of Correction of Certificate of Designation of 9.30% Cumulative
Preferred Stock, previously filed and incorporated by reference to Exhibit No.
4 to Shawmut National Corporation's Quarterly Report on Form 10-Q for the
period ended September 30, 1992.
4(e) -- Amended Certificate of Designation of the 9.30% Cumulative Preferred Stock,
previously filed and incorporated by reference to Shawmut National
Corporation's Annual Report on Form 10-K for the year ended December 31, 1992.
5 -- Opinion of Skadden, Arps, Slate, Meagher & Flom.
8 -- Opinion of Skadden, Arps, Slate, Meagher & Flom.
10(a) -- Stock Option Agreement, dated as of November 5, 1993, by and between Gateway
Financial Corporation and Shawmut National Corporation, is included as Annex B
to the Proxy Statement/Prospectus which is part of this Registration
Statement.
23(a) -- Consent of Price Waterhouse, Hartford, Connecticut.
23(b) -- Consent of Price Waterhouse, Boston, Massachusetts.
23(c) -- Consent of Ernst & Young, Worcester, Massachusetts.
23(d) -- Consent of Ernst & Young, Hartford, Connecticut.
23(e) -- Consent of Wolf & Company, P.C., Boston, Massachusetts
23(f) -- Consent of Wolf & Company, P.C., Boston, Massachusetts
23(g) -- Consent of Keefe, Bruyette & Woods, Inc.
23(h) -- Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5).
23(i) -- Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 8).
23(j) -- Consent of Coopers & Lybrand, Hartford, Connecticut.
24 -- Powers of Attorney (see the signature page to this Form S-4 Registration
Statement).
99 -- Opinion of Keefe, Bruyette & Woods, Inc. is included as Annex C to the Proxy
Statement/Prospectus which is part of this Registration Statement.
</TABLE>
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<PAGE> 139
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) which is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such offering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (c) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to any existing provision or arrangement or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
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<PAGE> 140
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statements through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on April 22, 1994.
SHAWMUT NATIONAL CORPORATION
By: /s/ JOEL B. ALVORD
------------------------------------
Joel B. Alvord
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 22, 1994.
We, the undersigned officers and directors of Shawmut National Corporation,
hereby severally and individually constitute and appoint Joel B. Alvord, Gunnar
S. Overstrom, Jr., Raymond A. Guenter and each of them, the true and lawful
attorneys and agents (with full power of substitution and resubstitution in each
case) of each of us to execute in the name, place and stead of each of us
(individually and in any capacity stated below) any and all amendments to this
Registration Statement on Form S-4 and all instruments necessary or advisable in
connection therewith and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have power to act with or
without the other and to have full power and authority to do and perform in the
name and on behalf of each of the undersigned every act whatsoever necessary or
advisable to be done in the premises as fully and to all intents and purposes as
any of the undersigned might or could do in person, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys and agents
and each of them to any and all such amendments and instruments.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ JOEL B. ALVORD Chairman, Chief Executive Officer, and Director
- ------------------------------------------ (Principal Executive Officer)
Joel B. Alvord
/s/ GUNNAR S. OVERSTROM, JR. President, Chief Operating Officer and Director
- ------------------------------------------
Gunnar S. Overstrom, Jr.
/s/ BHARAT BHATT Chief Financial Officer (Principal Financial
- ------------------------------------------ Officer and Principal Accounting Officer)
Bharat Bhatt
/s/ STILLMAN B. BROWN Director
- ------------------------------------------
Stillman B. Brown
/s/ JOHN T. COLLINS Director
- ------------------------------------------
John T. Collins
</TABLE>
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<PAGE> 142
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ---------- -----
<S> <C>
/s/ FERDINAND COLLOREDO-MANSFELD Director
- ------------------------------------------
Ferdinand Colloredo-Mansfeld
Director
- ------------------------------------------
Bernard M. Fox
Director
- ------------------------------------------
Herbert W. Jarvis
/s/ ROBERT J. MATURA Director
- ------------------------------------------
Robert J. Matura
Director
- ------------------------------------------
Maurice Segall
Director
- ------------------------------------------
Lois D. Rice
/s/ PAUL R. TREGURTHA Director
- ------------------------------------------
Paul R. Tregurtha
/s/ WILSON WILDE Director
- ------------------------------------------
Wilson Wilde
</TABLE>
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<PAGE> 143
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
2(a) --Agreement and Plan of Merger, dated as of November 5, 1993, by
and among Shawmut National Corporation, Shawmut Service
Corporation and Gateway Financial Corporation is included as
Annex A to the Proxy Statement/Prospectus which is part of
this Registration Statement...................................
3(a) --Restated Certificate of Incorporation, previously filed and
incorporated by reference to Shawmut National Corporation's
Registration Statement on Form S-4 (file no. 33-17765) filed
October 7, 1987...............................................
3(b) --By-laws, as amended, previously filed and incorporated by
reference to Shawmut National Corporation's Quarterly Report
on Form 10-Q filed November 12, 1993..........................
4(a) --Shareholder Rights Plan, previously filed and incorporated by
reference to Shawmut National Corporation's Registration
Statement on Form 8-A (file no. 1-10102) filed March 7,
1989..........................................................
4(b) --Designation of Adjustable Rate Preferred Stock, previously
filed and incorporated by reference to Shawmut National
Corporation's Registration Statement on Form S-4 (file no.
33-17765) filed October 7, 1987...............................
4(c) --Designation of 9.30% Cumulative Preferred Stock, previously
filed and incorporated by reference to Shawmut National
Corporation's Current Report on Form 8-K dated October 27,
1992..........................................................
4(d) --Certificate of Correction of Certificate of Designation of
9.30% Cumulative Preferred Stock, previously filed and
incorporated by reference to Exhibit No. 4 to Shawmut National
Corporation's Quarterly Report on Form 10-Q for the period
ended September 30, 1992......................................
4(e) --Amended Certificate of Designation of the 9.30% Cumulative
Preferred Stock, previously filed and incorporated by
reference to Shawmut National Corporation's Annual Report on
Form 10-K for the year ended December 31, 1992................
5 --Opinion of Skadden, Arps, Slate, Meagher & Flom...............
8 --Opinion of Skadden, Arps, Slate, Meagher & Flom...............
10(a) --Stock Option Agreement, dated as of November 5, 1993, by and
between Gateway Financial Corporation and Shawmut National
Corporation, is included as Annex B to the Proxy
Statement/Prospectus which is part of this Registration
Statement.....................................................
23(a) --Consent of Price Waterhouse, Hartford, Connecticut............
23(b) --Consent of Price Waterhouse, Boston, Massachusetts............
23(c) --Consent of Ernst & Young, Worcester, Massachusetts............
23(d) --Consent of Ernst & Young, Hartford, Connecticut...............
23(e) --Consent of Wolf & Company, P.C., Boston, Massachusetts........
23(f) --Consent of Wolf & Company, P.C., Boston, Massachusetts........
23(g) --Consent of Keefe, Bruyette & Woods, Inc.......................
23(h) --Consent of Skadden, Arps, Slate, Meagher & Flom (included in
Exhibit 5)....................................................
23(i) --Consent of Skadden, Arps, Slate, Meagher & Flom (included in
Exhibit 8)....................................................
23(j) --Consent of Coopers & Lybrand, Hartford, Connecticut...........
24 --Powers of Attorney (see the signature page to this Form S-4
Registration Statement).......................................
99 --Opinion of Keefe, Bruyette & Woods, Inc. is included as Annex
C to the Proxy Statement/Prospectus which is part of this
Registration Statement........................................
</TABLE>
<PAGE> 1
EXHIBIT 5
April 22, 1994
Board of Directors
Shawmut National Corporation
777 Main Street
Hartford, Connecticut 06115
Re: Shawmut National Corporation
Registration Statement on Form S-4
Gentlemen:
We have acted as special counsel to Shawmut National Corporation, a
Delaware corporation (the "Company"), in connection with the issuance and sale
by the Company of an aggregate of up to 8,400,000 shares (the "Shares") of
common stock, par value $0.01 per share (the "Common Stock"), together with an
equal number of rights to purchase units of Series A Junior Participating
Preferred Stock associated therewith (the "Rights"), of the Company pursuant to
an Agreement and Plan of Merger, dated as of November 5, 1993 (the "Merger
Agreement"), by and among the Company, Shawmut Service Corporation, a Delaware
corporation and a wholly owned subsidiary of the Company, and Gateway Financial
Corporation, a Delaware corporation.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Registration Statement of the Company on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on the date hereof (the
"Registration Statement"); (ii) the form of certificates to be used to represent
the Shares (and the Rights); (iii) the Certificate of Incorporation and By-Laws
of the Company, as amended to date; (iv) resolutions adopted by the Board of
Directors of the Company relating to the Merger Agreement and the issuance of
the Shares and the Rights pursuant thereto; (v) the Rights Agreement, dated as
of February 28, 1989 (the "Rights Agreement"), between the Company and
Manufacturers Hanover Trust Company, as Rights Agent; and (vi) such other
documents as we have deemed necessary or appropriate as a basis for the opinion
set forth below.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies, and the
authenticity of the originals of such copies. As to any other facts material to
this opinion which we did not independently establish or verify, we have relied
upon statements or representations of officers and other representatives of the
Company and others.
In rendering this opinion, we have assumed that, if the Company issues in
excess of 7,627,301 shares of Common Stock (and associated Rights) pursuant to
the Merger Agreement, the Board of Directors of the Company, including any
appropriate committee appointed thereby, and appropriate officers of the Company
have taken all necessary corporate action to approve the issuance of such
additional shares of Common Stock and Rights and related matters.
Members of this firm are admitted to the bar in the State of Delaware, and
we express no opinion as to the laws of any other jurisdiction.
<PAGE> 2
Board of Directors
April 22, 1994
Page 2
Based upon the foregoing and assuming the due execution and delivery of
certificates representing the Shares in the form examined by us, we are of the
opinion that (i) the Shares to be issued by the Company pursuant to the Merger
Agreement, when issued in accordance with the terms of the Merger Agreement,
will be duly authorized, validly issued, fully paid and nonassessable and (ii)
the Rights, when issued as described in the Registration Statement and in
accordance with the Rights Agreement, will be duly authorized and validly
issued.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Opinions" in the Registration Statement. In giving
such consent we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
<PAGE> 1
EXHIBIT 8
April 22, 1994
SHAWMUT NATIONAL CORPORATION
777 Main Street
Hartford, CT 06115
Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration Statement
on Form S-4 filed on the date hereof with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). The Registration Statement relates to the proposed merger of Gateway
Financial Corporation with and into Shawmut Service Corporation and the proposed
merger of Gateway Bank with and into Shawmut Bank Connecticut, N.A. This opinion
is delivered in accordance with the requirements of Item 601(b)(8) of Regulation
S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Registration Statement, the Proxy Statement/Prospectus included therein and
such other documents as we have deemed necessary or appropriate.
We hereby confirm that the discussion in the Proxy Statement/Prospectus
under the caption "Federal Income Tax Consequences" is a fair and accurate
summary of the matters addressed therein under current law and the assumptions
stated or referred to therein. There can be no assurance that a contrary
position may not be taken by the Internal Revenue Service.
We hereby consent to the filing of this opinion as Exhibit 8 to the
Registration Statement and to the use of our name under the caption "Federal
Income Tax Consequences" in the Proxy Statement/Prospectus. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Shawmut National
Corporation of our report dated January 19, 1994 appearing on page F-3 of
Shawmut National Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Price Waterhouse
PRICE WATERHOUSE
Hartford, Connecticut
April 22, 1994
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 of Shawmut National
Corporation of our report dated August 10, 1993 relating to the consolidated
financial statements of New Dartmouth Bank, which appears in the Current Report
on Form 8-K of Shawmut National Corporation dated March 28, 1994. We also
consent to the reference to us as under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse
PRICE WATERHOUSE
Boston, Massachusetts
April 22, 1994
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference of our report dated January 20, 1994, with
respect to the consolidated financial statements of Peoples Bancorp of
Worcester, Inc., included in the Current Report on Form 8-K of Shawmut National
Corporation dated March 28, 1994, in the Gateway Financial Corporation Proxy
Statement being furnished to shareholders of Gateway Financial Corporation and
in the Prospectus constituting part of the Registration Statement on Form S-4 of
Shawmut National Corporation with respect to the issuance of Shawmut National
Corporation common stock, par value $.01 per share.
/s/ Ernst & Young
ERNST & YOUNG
Worcester, Massachusetts
April 22, 1994
<PAGE> 1
EXHIBIT 23(D)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related joint Proxy Statement/Prospectus
of Gateway Financial Corporation and Shawmut National Corporation pertaining to
the merger of Gateway Financial Corporation and Shawmut Service Corporation and
to the incorporation by reference therein of our reports dated February 11,
1993, except for Note B, as to which the date is March 22, 1994, with respect to
the consolidated financial statements of Gateway Financial Corporation at
December 31, 1992, and for each of the two years in the period ended December
31, 1992, included in the Current Report on Form 8-K of Shawmut National
Corporation dated March 28, 1994 and Gateway Financial Corporation's Annual
Report (Form 10-K) for the year ended December 31, 1993, both filed with the
Securities and Exchange Commission.
ERNST & YOUNG
Hartford, Connecticut
April 22, 1994
<PAGE> 1
EXHIBIT 23(E)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement (Form S-4) and related Prospectus of Shawmut National Corporation
pertaining to the merger with Gateway Financial Corporation of our independent
auditors' report dated January 21, 1994, except for Note 17, as to which the
date is March 2, 1994, with respect to the consolidated financial statements of
Cohasset Savings Bank, included in the Current Report on Form 8-K of Shawmut
National Corporation dated March 28, 1994 and to the use of our name and the
statements with respect to us, as appearing under the heading "Experts" in the
Prospectus.
/s/ Wolf & Company, P.C.
WOLF & COMPANY, P.C.
Boston, Massachusetts
April 22, 1994
<PAGE> 1
EXHIBIT 23(F)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement (Form S-4) and related Prospectus of Shawmut National Corporation
pertaining to the merger with Gateway Financial Corporation of our independent
auditors' report dated January 24, 1994, except for Note 16, as to which the
date is March 7, 1994, with respect to the consolidated financial statements of
West Newton Savings Bank, included in the Current Report on Form 8-K of Shawmut
National Corporation dated March 28, 1994 and to the use of our name and the
statements with respect to us, as appearing under the heading "Experts" in the
Prospectus.
/s/ Wolf & Company, P.C.
WOLF & COMPANY, P.C.
Boston, Massachusetts
April 22, 1994
<PAGE> 1
EXHIBIT 23(G)
CONSENT OF KEEFE, BRUYETTE & WOODS, INC.
The opinion letter of our Firm regarding the proposed merger of Gateway
Financial Corporation ("Gateway") and Shawmut National Corporation ("Shawmut")
is solely for the information and assistance of the Board of Directors of
Gateway in connection with its consideration of the transaction contemplated
therein, does not constitute a recommendation to any holder of shares as to how
such a holder should vote at the Annual Meeting of Stockholders of Gateway and
is not to be used, circulated, quoted or otherwise referred to for any other
purpose, nor is to be filed with, included in or referred to in whole or in part
in any registration statement, proxy statement or any other document, except in
accordance with our prior written consent.
In that regard, we hereby consent to the inclusion of the opinion of our
Firm to be dated as of the date of the Proxy Statement/Prospectus in the
Registration Statement on Form S-4 of Shawmut and to all references to our Firm
in or made a part of such Registration Statement. In giving such consent, we do
not thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Keefe, Bruyette & Woods, Inc.
KEEFE, BRUYETTE & WOODS, INC.
April 21, 1994
New York, NY
<PAGE> 1
EXHIBIT 23(J)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this registration statement
on Form S-4 of Shawmut National Corporation of our report dated January 27, 1994
on our audit of the consolidated financial statements of Gateway Financial
Corporation as of and for the year ended December 31, 1993 which report is
included in Gateway Financial Corporation's Annual Report on Form 10-K. We also
consent to the reference to our Firm under the caption "Experts".
/s/ Coopers & Lybrand
COOPERS & LYBRAND
Hartford, Connecticut
April 21, 1994
